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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Form 10-K

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2004



Commission file number 1-12372
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CYTEC INDUSTRIES INC.
---------------------
(Exact name of registrant as specified in its charter)

Delaware 22-3268660
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No).

Five Garret Mountain Plaza
West Paterson, New Jersey 07424
(Address of principal executive offices) (Zip Code)

Registrant's telephone number, including area code (973) 357-3100

Securities registered pursuant to Section 12(b) of the Act:

Title of each class Name of exchange on
Common Stock, par value which registered
$.01 per share New York Stock Exchange

Securities registered pursuant to Section 12(g) of the Act:
-----------------------------------------------------------
None
(Title of Class)

Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No .
--- ---

Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12-b-2 of the Act). Yes X No .
--- ---

At June 30, 2004 the aggregate market value of common stock held by
non-affiliates was $1,774,582,979 based on the closing price ($45.45) of such
stock on such date.

There were 39,900,511 shares of common stock outstanding on January 31, 2005.


DOCUMENTS INCORPORATED BY REFERENCE

Documents
- ---------
Part of Form 10-K
Portions of Proxy Statement for 2005 Annual
Meeting Of Common Stockholders, dated March 11, 2005. Parts III, IV

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1



CYTEC INDUSTRIES INC. AND SUBSIDIARIES
10-K Table Of Contents




Page
Part 1.

Item 1. Business 4
Item 2. Properties 12
Item 3. Legal Proceedings 13
Item 4. Submission Of Matters To A Vote of Security Holders 14

Part II.
Item 5. Market For Registrant's Common Equity And Related Stockholder Matters 14
Item 6. Selected Financial Data 15
Item 7. Management's Discussion And Analysis Of Financial condition And Results Of Operation 16
Item 7A. Quantitative And Qualitative Disclosures About Market Risk 27
Item 8 Financial Statements And Supplementary Data 31
Item 9. Changes In And Disagreements With Accountants On Accounting And Financial Disclosures 64
Item 9A. Controls And Procedures 64
Item 9B. Other Information 65

Part III.
Item 10. Directors And Executive Officers Of The Registrant 66
Item 11. Executive Compensation 67
Item 12. Security Ownership Of Certain Beneficial Owners And Management 67
Item 13. Certain Relationships And Related Transactions 67
Item 14. Principal Accounting Fees And Services 67

Part IV.
Item 15. Exhibits And Financial Statement Schedules 68
Signatures



2


COMMENTS ON FORWARD-LOOKING STATEMENTS

A number of the statements made by the Company in the Annual Report on Form
10-K, or in other documents, including but not limited to the Chairman,
President and Chief Executive Officer's letter to Stockholders, its press
releases and other periodic reports to the Securities and Exchange Commission,
may be regarded as "forward-looking statements" within the meaning of the
Private Securities Litigation Reform Act of 1995.

Forward-looking statements include, among others, statements concerning the
Company's (including its segments) outlook for the future, the accretive effects
of acquisitions, the financial effects of divestitures, pricing trends, the
effects of changes in currency rates and forces within the industry, the
completion dates of and expenditures for capital projects, expected sales
growth, operational excellence strategies and their results, annual effective
tax rates, long-term goals of the Company and other statements of expectations,
beliefs, future plans and strategies, anticipated events or trends and similar
expressions concerning matters that are not historical facts.

Forward-looking statements also include, but are not limited to, statements
about the pending acquisition of UCB Group's Surface Specialties business, which
may include financial and operating results, the parties' plans, beliefs,
expectations and intentions and other statements that are not historical facts.
Such statements are based upon the current beliefs and expectations of
management and are subject to significant risks and uncertainties. Actual
results may vary materially from those set forth in the forward-looking
statements. The expiration or termination of any applicable waiting period under
the Hart-Scott-Rodino Act, among other factors, could affect the consummation of
the pending transaction. The following factors, among others, could affect the
anticipated results: the ability to integrate successfully the acquired
business, including realization of anticipated synergies within the expected
timeframes or at all, and ongoing operations of the business.

All predictions as to future results contain a measure of uncertainty and,
accordingly, actual results could differ materially. Factors that could cause a
difference include, but are not limited to: changes in global and regional
economies; the financial well-being of end consumers of the Company's products,
particularly the airline industry; changes in demand for the Company's products
or in the quality, costs and availability of its raw materials and energy;
customer inventory reductions; the actions of competitors; currency and interest
rate fluctuations; technological change; the Company's ability to renegotiate
expiring long-term contracts; changes in employee relations, including possible
strikes; government regulations, including those related to taxation and those
particular to the purchase, sale and manufacture of chemicals or operation of
chemical plants; governmental funding for those military programs that utilize
the Company's products; litigation, including its inherent uncertainty and
changes in the number or severity of various types of claims brought against the
Company; difficulties in plant operations and materials transportation;
environmental matters; the results of and recoverability of its investments in
associated company; returns on employee benefit plan assets and changes in the
discount rates used to estimate employee benefit liabilities; changes in the
medical cost trend rate; changes in accounting principles or new accounting
standards; war, terrorism or sabotage; epidemics; and other unforeseen
circumstances.

Unless indicated otherwise, the terms "Company" and "Cytec" each refer
collectively to Cytec Industries Inc. and its subsidiaries.

AVAILABLE INFORMATION

The Company maintains a website that contains various information on the
Company and its products. It is accessible at www.Cytec.com. Through the
Company's website, stockholders and the general public may access free of charge
(other than any connection charges from internet service providers) filings the
Company makes with the Securities and Exchange Commission as soon as practicable
after filing. Filing accessibility in this manner includes the Annual Report on
Form 10-K, Quarterly Reports on Form 10-Q and current reports on Form 8-K.



3


PART I
------

Item 1. BUSINESS

Cytec is a global specialty chemicals and specialty materials company that
focuses on value-added products. The Company serves major markets for aerospace,
automotive and industrial coatings, chemical intermediates, mining, plastics and
water treatment. The Company manufactures the vast majority of its products and
sells its products worldwide. The Company had net sales of $1,721.3 million and
earnings from operations of $159.6 million in 2004.

The Company reports with respect to four segments: Water and Industrial
Process Chemicals, Performance Products, Specialty Materials and Building Block
Chemicals. Water and Industrial Process Chemicals principally include water
treatment chemicals, mining chemicals and phosphine and phosphorous specialties.
Performance Products principally include coatings, amino resins and specialty
additives, performance chemicals and polymer additives. Specialty Materials
principally include advanced composites and film adhesives. Building Block
Chemicals principally include acrylonitrile, hydrocyanic acid, acrylamide,
sulfuric acid and melamine. The Company characterizes its product lines as
platform product lines and value product lines. Platform product lines are those
product lines the Company believes have a competitive advantage to grow
organically and by extension through strategic acquisitions. The Company expects
these product lines to have sales growth over a business cycle considerably in
excess of growth in gross domestic product. The Company also expects its
platform product lines will need investment in research and development and
possibly in capital to increase global capacity to support sales growth. Value
product lines are those product lines which are expected to build sales and
profit growth through greater focus on manufacturing productivity. Value product
lines are expected to provide significant free cash flow and to increase their
economic value with a greater focus on asset management. The Company's platform
product lines are water treatment chemicals, mining chemicals, phosphine and
phosphorous specialties, coatings, performance chemicals and specialty
additives, and specialty materials. The Company's value product lines are
polymer additives and building block chemicals.

The Company's management regularly reviews the product line portfolio of
the Company in terms of strategic fit and financial performance and may from
time-to-time dispose of or withdraw certain product lines and/or acquire
additional product lines or technologies. Additionally, regular reviews are
performed of the cost effectiveness and profitability of plant sites or
individual facilities within such sites. In management's opinion, the financial
impact of a disposal or withdrawal of certain product lines together with the
impact on plant sites will not have a material adverse effect on the financial
position of the Company but could be material to the results of operations of
the Company in any one accounting period.

On October 1, 2004, the Company announced that it had signed a definitive
agreement to purchase the Surface Specialties business ("Surface Specialties")
of UCB Group ("UCB"), a Belgium biopharmaceutical and specialty chemical
company, for cash and stock, valued at that time, of 1.5 billion euros. In early
February 2005, the Company reached agreement with UCB to modify the terms of the
purchase agreement. Assuming the dollar to euro exchange rate is 1.3 to 1 and
that Cytec common stock is $51 per share, the transaction would be valued at
$1.841 billion of which 1.140 billion euros ($1.482 billion) will be paid in
cash and the balance will be paid in 5,772,857 shares of Cytec common stock
($294 million). In addition, there is contingent consideration up to a maximum
of 50 million euros ($65 million), of which 20 million euros ($26 million) will
be paid up front with the balance payable in 2006. The contingent consideration
will be earned on a pro-rata basis pending the achievement of certain operating
results by Surface Specialties in 2005. UCB also agreed to reimburse Cytec 15
million euros ($19.5 million) for transaction related costs. The acquisition is
subject to customary closing conditions including the approval of the U.S.
Federal Trade Commission.

Upon closing, UCB would own approximately 12% of the outstanding shares of
Cytec and will enter into a stockholders agreement that will provide for UCB to
reduce its stake within five years and that will contain other customary terms
and conditions. The cash portion of the transaction will be financed utilizing
the credit facilities described in Item 7 under "Liquidity and Financial
Condition."

Surface Specialties also has a significant amino resins business. The
Company has agreed with the European Union Commission, and expects to reach a
similar agreement with the U.S. Federal Trade Commission, that it will divest
UCB's amino resins business after it purchases Surface Specialties and that
prior to the divestment, Surface Specialties amino resins business will be held
separately and will report to an independent trustee. After the transaction with
UCB is consummated, for the duration that the amino resins business is owned by
Cytec, its results of operations will be classified as results from discontinued
operations on Cytec's consolidated statements of income.

The acquisition complements Cytec's existing product lines in the
Performance Products segment by significantly increasing Cytec's product
offering to the coatings industries including the general industrial,
automotive, architectural, plastic, graphic arts and wood sectors. (For a
further discussion of this event refer to Item 7 herein as well as Note 2 of the
Notes to Consolidated Financial Statements.)

4


Cytec was incorporated as an independent public company in December 1993.

Segment Information

Revenues from external customers, earnings from operations and total assets
for each of the Company's reportable segments can be found in Note 16 of the
Notes to Consolidated Financial Statements.

Water and Industrial Process Chemicals Segment

Set forth below are the Company's primary product lines and major products
in this segment and their principal applications.



- ----------------------------------- ----- ------------------------------------------ ------- ----------------------------------
PRODUCT LINE MAJOR PRODUCTS PRINCIPAL APPLICATIONS
- ----------------------------------- ----- ------------------------------------------ ------- ----------------------------------


Water treatment chemicals Flocculants, coagulants, filter aids, Water and wastewater treatment,
drilling fluids and production raw water clarification, process
chemicals, scale inhibitors, friction water treatment, oil field
reducers and mobility control polymers drilling, production, recovery,
refining, sugar processing and
municipal waste

Mining chemicals Promoters, collectors, solvent Mineral separation and
extractants, flocculants, frothers, processing for copper, alumina
filter and dewatering aids, and certain other minerals
antiscalants, dispersants, depressants,
defoamers and reagents

Phosphine and phosphorous Solvent extractants, flame retardants, Mineral processing;
specialties catalyst ligands, high purity phosphine pharmaceutical, chemical and
gas and biocides electronic manufacturing; and
fumigants
- ----------------------------------- ----- ------------------------------------------ ------- ----------------------------------


Many of the Company's products in this segment are manufactured using
acrylamide that is manufactured by the Company's Building Block Chemicals
segment. For further discussion of raw materials, refer to "Customers and
Suppliers," contained herein.

Water Treatment Chemicals

The Company's water treatment chemicals product line consists primarily of
the manufacture and sale of products for use in applications such as treatment
of industrial waste streams and industrial influent water supplies to remove
suspended solids, sewage conditioners for municipal wastewater treatment and as
drilling mud conditioners for oil service companies. Increased demand for clean
water, environmental regulations and regional and global economic development
have increased demand for the Company's water treatment chemicals. Cytec also
produces paper chemicals under a long-term manufacturing supply agreement that
expires in October, 2005. The Company has negotiated another supply agreement
with the same customer scheduled to commence in November 2005 and expire in
October 2008.

Competition is generally intense in wastewater treatment applications,
particularly for those applications where technical service is not an important
factor. Cytec markets its water treatment chemicals through a specialized sales
staff with an emphasis on sales to global full-service water treatment
companies.

Mining Chemicals

The Company's mining chemicals product line is primarily used in
applications to separate minerals from ores. The Company has leading positions
in the copper processing industry, particularly in the flotation and in
extraction of copper. The Company also has a leading position in the alumina
processing industry, where its patented HxPams are particularly effective at the
flocculation of "red mud". The Company also sells phosphine chemicals specialty
reagents which have leading positions in cobalt nickel separation and copper
sulfide recovery applications. In 2003 the Company broadened its mining
chemicals product line by acquiring from Avecia, its metal extractant product
("MEP") line. The MEP product line has a leading position for extractants in the
processing of copper oxide ores. The Company has recently approved a capital
project to increase its MEP capacity by 50%. Demand for mining chemicals is
cyclical and varies with industry conditions such as global demand, inventory
levels and mineral prices for the particular minerals with respect to which the
Company's products have processing applications. The Company strives to develop
new technologies as well as new formulations tailored for specific applications.
The Company's mining chemicals product lines are marketed primarily through a
specialized sales and technical services staff. Cytec has expanded its sales and
technical service presence in South America, South Africa, Asia and Australia,
the growth markets for the Company's mineral processing chemicals.

5


Phosphine and Phosphorous Specialties

The Company's phosphine and phosphorous specialties are utilized for a
variety of applications. The Company is the largest supplier of ultra-high
purity phosphine gas, used in semiconductor manufacturing and light emitting
diode applications, and has significant positions in various phosphine
derivative products including phosphonium salts used in pharmaceutical catalysts
and biocides. In 2003 the Company acquired from Avecia its organo phosphorus
product line as part of its Intermediates and Stabilizers ("I&S") product line.
The compounds are used primarily as intermediates and catalyst ligands for
organic and chemical synthesis in the pharmaceutical and chemical industries.
Sales of certain phosphine products are dependent upon obtaining and maintaining
necessary registrations and approvals from applicable regulatory agencies and
the Company is seeking additional product registrations. The Company also seeks
to broaden its product line through development of additional proprietary
technologies for pharmaceuticals, specialty chemicals catalysts and reactive
intermediate applications.

Performance Products Segment

Set forth below are the Company's primary product lines and major products
in this segment and their principal applications.



- ----------------------------------- --------------------------------- ------------------------------------------------
Product Line Major Products Principal Applications
- ----------------------------------- --------------------------------- ------------------------------------------------

Coatings Chemicals Amino resins, additives, Industrial coatings and paints for appliances,
urethanes and carbamates automobiles, containers, metal fixtures, metal
and wood furniture and heavy duty industrial
machinery

Performance chemicals and Adhesion promoters, Adhesives and sealants, inks, electrical and
specialty additives surfactants, specialty electronic products, wood bonding and
monomers, urethanes, laminating, textiles, tires, rubber products,
carbamates, acrylic non-wovens and super absorbent products,
stabilizers, thermoplastics, flexible packaging, and plastics
formulated polyurethanes and
epoxies

Polymer additives Ultraviolet light stabilizers A broad range of plastics, coatings, and
and absorbers, high performance fibers for agricultural films, automotive
antioxidants and antistatic parts, architectural lighting, fiberglass,
agents housewares, packaging, outdoor furniture,
sporting goods, toys and apparel
- ----------------------------------- --------------------------------- ------------------------------------------------


Many of the Company's products in this segment are manufactured using
melamine and acrylamide that are both manufactured by the Company's building
block chemicals segment. For further discussion of raw materials, refer to
"Customers and Suppliers," contained herein.

Coatings Chemicals

The Company believes that it is the largest global supplier of amino
crosslinking resins ("Resins"), which the Company markets primarily for
industrial coatings applications. The Company sells Resins worldwide to
manufacturers producing coatings for automotive, marine, wood and metal
finishings, and appliances, containers, coils and general industrial maintenance
coatings. In 2003 the Company acquired 100% of the coating resins product line
formerly operated by its Mitsui Cytec joint venture.

The Company markets coating chemicals through a specialized sales and
technical service staff. Sales are typically made directly to large customers
and through distributors to smaller customers.

6


Performance Chemicals and Specialty Additives

The Company's performance chemicals and specialty additives have different
functionalities and are sold into varied end use applications. The largest
product group is a line of adhesion promoters which are used globally in the
rubber industry, the major application being the manufacture of tires.

The Company is a leading global supplier of acrylamide based specialty
monomers and sulfosuccinate surfactants. These products are used in emulsion
polymers, paints, paper coatings, printing inks, and other diverse customer
applications.

The Company manufactures and markets urethane chemicals and formulated
polyurethane and epoxy systems. The Company's urethane chemicals are sold
primarily for use in high performance coating applications, inks and adhesives
and formulated polyurethane systems are sold primarily for use as potting
compounds in electrical applications. The Company also manufactures and markets
acrylic stabilizers and certain thermoplastic polymers.

The Company markets its performance chemicals through several specialized
sales and technical service staffs. Sales are typically made directly to large
customers and through distributors to smaller customers. The Company has
typically achieved growth in its performance chemicals sales by finding new
applications for its existing products.

Polymer Additives

The Company is a significant global supplier to the plastics industry of
specialty additives which protect plastics from the ultraviolet radiation of
sunlight and from oxidation. Typical end use applications of the Company's
products include a wide variety of polyolefins that are used in agricultural
films, toys, lawn furniture and automotive applications, fibers for carpets,
spandex applications, engineered plastics and automotive coatings. The Company
seeks to enhance its position with new products based on proprietary chemistries
and solutions-based technical support.

The Company markets polymer additives through a dedicated sales and
technical service staff. Sales are typically made directly to large customers
and through distributors to smaller customers.

Specialty Materials Segment

The Specialty Materials segment principally manufactures and sells
aerospace materials that are used mainly in commercial and military aviation,
satellite and launch vehicles, aircraft brakes and certain high performance
applications such as Formula 1 racing cars and luxury sports cars.

Cytec Engineered Materials

The Company is the major global supplier of aerospace structural film
adhesives and a major supplier of aerospace advanced composite materials.
Advanced composites are exceptionally strong and lightweight materials
manufactured by impregnating fabrics and tapes made from high performance fibers
(such as carbon) with epoxy, bismaleimide, phenolic, polyimide and other resins
formulated or purchased by the Company.

The primary applications for both aerospace adhesives and advanced
composites are commercial airliners, regional and business jets, military
aircraft, satellites and launch vehicles, high performance automotive and
specialty applications. Sales are dependent to a large degree on the commercial
and military aircraft build rate and the number of applications and aircraft
programs for which the Company is a qualified supplier. Every major commercial
aircraft program in the Western world has qualified and uses certain of the
Company's products. The Company is a major supplier to such military programs as
the F-35 Joint Strike Fighter, the F/A-22 and F/A-18 combat aircraft and the
C-17 transport aircraft. The Company has a number of long term agreements,
expiring over various periods, to supply aerospace customers with their
requirements, subject to various exceptions, of various specialty materials at
prices that are generally fixed by year.

Advanced composites generally account for a higher percentage of the
structural weight on military aircraft than on commercial aircraft. They also
account for a higher percentage of the structural weight on newer design
commercial aircraft than older design commercial aircraft as technology
progresses and manufacturers design planes to achieve greater fuel efficiency.
Advanced composites made from carbon fibers and epoxy or bismaleimide resins are
primarily used for structural aircraft applications such as wing, tail and
rudder components, engine housings, and fuselage components while advanced
composites made from fiberglass or aramid materials and phenolic resins are
primarily used for secondary structure applications such as fairings and
interior aircraft applications such as sidewall, ceiling and floor panels and
storage and cargo bins. In addition, the Company's ablatives are used in
manufacturing rocket nozzles and the Company's carbon/carbon products are used
in manufacturing aircraft and other high performance brakes. The Company expects
the demand for advanced composites to continue to increase and completed the
expansion of its production facility in Oestringen, Germany in 2004 to meet this
increased demand.

7


The Company's aerospace adhesives and advanced composites also have various
applications in industrial, high performance automotive and selected
recreational products. The Company is seeking to leverage its engineered
materials portfolio with customers in these and other new markets.

The Company purchases from third parties all of the aramid and glass fibers
and much of the carbon fibers and base resins used in the manufacture of
composites. Other carbon fibers are sourced directly from Cytec Carbon Fibers as
discussed below. Refer to "Customers and Suppliers."

The Company markets aerospace materials through a dedicated sales and
technical service staff typically direct to customers.

Cytec Carbon Fibers

The Company manufactures and sells various high performance grades of both
PAN (polyacrylonitrile) type and pitch type carbon fibers. Carbon fibers are
mainly used as a reinforcement material for advanced composites used in the
aerospace and certain other industries and have many advantageous
characteristics such as light weight, tensile strength and heat resistance.

Over 50% of the Company's carbon fiber production is utilized internally in
the production of certain of the Company's advanced composites. The remainder is
sold to third parties through a direct sales force.

Building Block Chemicals Segment

Building Block Chemicals are manufactured primarily at the Company's
world-scale, highly integrated Fortier facility. The Fortier facility is located
on the bank of the Mississippi River near New Orleans, Louisiana and has access
to all major forms of transportation and supplies of raw materials. The Company
attempts to operate most of its plants at capacity subject to market conditions
and raw material availability.

Acrylonitrile and Hydrocyanic Acid

The Company anticipates that over the near term it will use internally
approximately 30% of its current acrylonitrile annual production capacity of 475
million pounds to produce acrylamide and that up to approximately 40% will be
sold to a single international trading company under a long-term agreement.
Currently, about half of the volume sold to the trading company is sold under a
cost based supply contract and the rest is sold under a market price based
distribution agreement. Effective May 1, 2005, the entire amount will be sold
under the market price based distribution agreement. The profitability of
producing acrylonitrile is influenced by supply and demand, by the cost of
propylene and ammonia, which are the largest components of the cost of producing
acrylonitrile, and by manufacturing efficiency (i.e., yield and co-product
recovery). Hydrocyanic acid is produced as a co-product of the acrylonitrile
process. Substantially all of the hydrocyanic acid produced by the Company is
sold to CYRO (Refer to "Associated Company," below), as a raw material for
methyl methacrylate ("MMA") under a long-term contract with an initial
expiration date in 2011.

Other Building Block Chemicals

The Company also manufactures and sells acrylamide, sulfuric acid and
melamine. The Company anticipates that over the near term it will use internally
approximately 40% of its acrylamide annual production capacity of approximately
200 million pounds for the production of certain products for the Company's
water treating chemicals, mining chemicals and performance chemicals product
lines. The remainder of the Company's production is sold to third parties. The
Company manufactures acrylamide at its Fortier facility and at its Botlek
facility in the Netherlands.

The Company sells sulfuric acid to third parties and also toll converts
substantially all of CYRO's spent sulfuric acid arising from the manufacture of
MMA under a long-term service contract with an initial expiration date in 2011.

American Melamine Industries ("AMEL"), a 50% owned manufacturing joint
venture with a subsidiary of DSM N.V., operates a melamine manufacturing plant
with annual production capacity of approximately 160 million pounds at the
Fortier facility. The joint venture may be terminated effective August 1, 2007
by either party upon two year's prior written notice. DSM, which is a leading
manufacturer of melamine, makes its melamine expertise available to AMEL under a
license agreement. The Company anticipates that over the near term it will use
internally up to approximately 80% of its 50% share of AMEL's annual melamine
production, primarily for the production of Resins. The remainder of the
Company's share of production is sold to third parties.

8


Prices of building block chemicals are sensitive to the stages of economic
cycles, raw material cost and availability, energy prices and currency rates, as
well as to periods of insufficient and excess capacity. The production of
building block chemicals is generally capital intensive, which may cause strong
downward pressure on prices in poor market environments as producers tend to
operate their plants at capacity even in poor market environments. The Company
sells building block chemicals to third parties through a direct sales force and
distributors.

Associated Company

CYRO Industries, a 50% owned joint venture, manufactures and sells acrylic
sheet and molding compound products, primarily under the ACRYLITE(R) trademark,
and MMA. CYRO operates primarily in North America and manufactures its acrylic
products at four locations in the U. S. The Company's partner in CYRO, an
indirect subsidiary of Degussa A.G., has an affiliate, Rohm GmbH and Co. KG.,
that manufactures and sells acrylic sheet and molding compounds products and MMA
primarily in Europe and makes its technological expertise available to CYRO.

CYRO uses much of the MMA it manufactures as a raw material in the
manufacture of acrylic sheet and molding compounds and it sells the remainder to
third parties. CYRO's world-scale MMA manufacturing facility is an integrated
part of the Company's Fortier facility, consuming substantially all the
hydrocyanic acid produced by the Company in connection with the manufacture of
acrylonitrile. CYRO's annual MMA production capacity is 290 million pounds.

For additional information refer to Note 5 of the Notes to Consolidated
Financial Statements.

Competition

The Company operates in a highly competitive marketplace. It competes
against a number of other companies in each of its product lines, although none
of such companies competes with the Company in all of its product lines. The
Company's competitors are both larger and smaller than the Company in terms of
resources and market shares. Competition is primarily based on product
performance, reputation for quality, price and customer service and support. The
degree and nature of competition depends on the type of product involved.

In general, the Company competes by maintaining a broad range of products,
focusing its resources on products in which it has a competitive advantage and
fostering its reputation for quality products, competitive prices and excellent
technical service and customer support. Through research and development, the
Company seeks to increase sales and margins by introducing value-added products
and products based on proprietary technologies.

Customers and Suppliers

A discussion of various long-term customer supply agreements is disclosed
in Note 10 of the Notes to Consolidated Financial Statements.

A number of the Company's customers operate in cyclical industries such as
the aerospace, automotive, mining and paper industries. As a result, demand for
the Company's products from customers in such industries is also cyclical. In
addition, the profitability of sales of certain of the Company's building block
chemicals varies due to the cyclicality typically experienced with respect to
the amount of industry-wide capacity dedicated to producing such chemicals and
the amount of end user demand.

With respect to suppliers, the Company's vertical integration (i.e., its
manufacture of intermediates used to manufacture certain water treatment
chemicals, mining chemicals, coatings and specialty additives and performance
chemicals and its manufacture of carbon fibers for advanced composites) helps
protect it from being reliant on other companies for many significant
intermediates. The significant raw materials required to manufacture the
Company's building block chemicals are natural gas, propylene, ammonia and
sulfur which are typically available although the Company has experienced tight
markets for certain raw materials from time to time. Natural gas is an important
indirect raw material for many of the Company's products, including Resins.
Because natural gas is not easily transported, the price may vary widely between
geographic regions. The price of natural gas in the United States has been
volatile during the past few years and is significantly above the price in many
other parts of the world. The Company has not had any problems obtaining the
natural gas that it needs. However, many of the Company's products compete with
similar products made with less expensive natural gas available elsewhere and
the Company may not be able to recover any or all of the increased cost of gas
in manufacturing its products. The Fortier facility is served principally by a
single propylene pipeline owned by a supplier although other suppliers can
utilize the pipeline for a transportation fee. In addition, the Company has made
arrangements to obtain propylene by rail.

9


Raw material cost changes year on year are an important factor in
profitability and prices of raw materials can increase or decrease based on
supply and demand and other market forces. The Company experienced some
difficulty procuring several key raw materials during 2004 in what was perceived
to be a tight market. Due to reduced propylene availability in the first quarter
of 2004, the Company's acrylonitrile plant did not operate at full capacity
impacting production and inventory levels. The Company expects that tight
markets for key raw materials will occur during 2005. The Company was recently
notified by its major supplier of propylene that as of February 1, 2005, it will
be placed on an 85% supply allocation of its requirements for up to six months
due to mechanical difficulties. Management does not expect this allocation,
should it occur for the term anticipated, to have a material impact on Company
operations in the first quarter of 2005. In the event that raw material supply
limiting conditions arise, the Company expects that prices of raw materials
could increase, potentially adversely affecting profit margins of the Company.
Additionally, such conditions, if protracted, could result in lower than
anticipated revenues.

The Company generally attempts to retain multiple sources for high volume
raw materials, other than its own building block chemicals, in order to minimize
its reliance on any one supplier. The Company sources its requirements of
cationic monomers from a single supplier under a long-term agreement. Cationic
monomers are important raw materials in the water treatment chemicals and mining
chemicals product lines. The Company is dependent on a limited number of
suppliers for carbon fibers that are used in many of the Company's advanced
composite products. While the risk of future carbon fiber supply limitations is
reduced since the Company manufactures some of its own carbon fibers, currently
carbon fiber is in short supply and until market capacity increases, shortages
are possible. There can be no assurance that the risk of encountering supply
limitations could be entirely eliminated.

International

The Company operates on a global basis with manufacturing plants located in
ten countries. Export sales to unaffiliated customers from the United States
were $234.4 million in 2004, $186.6 million in 2003 and $164.7 million in 2002
or approximately 14%, 13% and 12% of net sales in such years, respectively.

The Company markets its products internationally through Company sales
forces, distributors and agents. International sales were approximately 53% in
2004, 51% in 2003 and 49% in 2002, of net sales to external customers.

The Company's identifiable assets located outside of the United States, by
geographical region, at year end 2004 and 2003 are set forth in Note 16 of the
Notes to Consolidated Financial Statements and are incorporated by reference
herein.

International operations are subject to various risks which may not be
present in U.S. operations including political instability, the possibility of
expropriation, restrictions on royalties, dividends and remittances,
instabilities of currencies, requirements for governmental approvals for new
ventures and local participation in operations such as local equity ownership
and workers' councils. The Company does not currently believe that it is likely
to suffer a material adverse effect on its results of operations in connection
with its existing international operations.

Research and Process Development

During 2004, 2003 and 2002, the Company incurred $40.0 million, $35.2
million and $33.7 million, respectively, of research and process development
expense. During 2004, the Company substantially completed the multi-year
renovation and upgrade of its main Specialty Chemicals research facility located
in Stamford, Connecticut at a total cost incurred through December 31, 2004 of
approximately $54.2 million.

Trademarks and Patents

The Company has approximately 1,750 United States and international patents
and also has trademark applications and registrations for approximately 150
product names. The Company believes the loss of patent or trademark protection
on any one product or process would not have a material adverse effect on the
Company. While the existence of a patent is prima facie evidence of its
validity, the Company cannot assure that any of the Company's patents will not
be challenged, and it cannot predict the outcome of any challenge.

Employees

The Company employs approximately 4,500 employees of which approximately
2,200 are covered by union contracts. The Company believes that its relations
with both employees and the related union leaderships are generally good.

10


Operating Risks

The Company's revenues are largely dependent on the continued operation of
its various manufacturing facilities. The operation of chemical manufacturing
plants involves many risks, including the breakdown, failure or substandard
performance of equipment, operating errors, natural disasters, and the need to
comply with directives of, and maintain all necessary permits from, government
agencies. In addition, the Company's operations can be adversely affected by raw
material or energy supply disruptions, labor force shortages or work stoppages
and events impeding or increasing the cost of transporting the Company's raw
materials and finished products. The occurrence of material operational
problems, including but not limited to the above events, may have a material
adverse effect on the productivity and profitability of a particular
manufacturing facility, or with respect to certain facilities, the Company as a
whole, during the period of such operational difficulties.

The Company's operations are also subject to various hazards incident to
the production of industrial chemicals, including the use, handling, processing,
storage and transportation of certain hazardous materials. Under certain
circumstances, these hazards could cause personal injury and loss of life,
severe damage to and destruction of property and equipment, environmental damage
and suspension of operations. Claims arising from any future catastrophic
occurrence at one of the Company's locations may result in the Company being
named as a defendant in lawsuits asserting potentially large claims. The Company
utilizes third party insurance to cover portions of certain of these risks to
the extent that coverage is available and can be obtained on terms the Company
believes are economically justifiable.

Environmental Matters

The Company is subject to various foreign and domestic laws and regulations
which impose stringent requirements for the control and abatement of pollutants
and contaminants and the manufacture, transportation, storage, handling and
disposal of hazardous substances, hazardous wastes, pollutants and contaminants.

In particular, under various governmental laws in the U.S., a current or
previous owner or operator of a facility may be liable for the removal or
remediation of hazardous materials at the facility and nearby areas. Such laws
typically impose liability without regard to whether the owner or operator knew
of, or was responsible for, the presence of such hazardous materials. In
addition, under various laws governing the generation, transportation,
treatment, storage or disposal of solid and hazardous wastes, owners and
operators of facilities may be liable for removal or remediation, or other
corrective action at areas where hazardous materials have been released. The
costs of removal, remediation or corrective action may be substantial, and the
presence of hazardous materials in the environment at any of the Company's
facilities, or the failure to abate such materials promptly or properly, may
adversely affect the Company's ability to operate such facilities. Certain of
these laws also impose liability for investigative, removal and remedial costs
on persons who dispose of or arrange for the disposal of hazardous substances at
facilities owned or operated by third parties. Liability for investigative,
removal and remedial costs under such laws is retroactive, strict, and joint and
several.

The Company is required to comply with laws that govern the emission of
pollutants into the ground, waters and the atmosphere and with laws that govern
the generation, transportation, treatment, storage, and disposal of solid and
hazardous wastes and laws that regulate the manufacture, processing, and
distribution of chemical substances and mixtures, as well as the disposition of
certain hazardous substances. In addition, certain laws govern the abatement,
removal, and disposal of asbestos-containing materials and the maintenance of
underground storage tanks and equipment which contains or is contaminated by
polychlorinated biphenyls. The costs of compliance with such laws and related
regulations may be substantial, and regulatory standards tend to evolve towards
more stringent requirements, which might, from time-to-time, make it uneconomic
or impossible to continue operating a facility. Non-compliance with such
requirements at any of the Company's facilities could result in substantial
civil penalties or the inability of the Company to operate all or part of the
facility.

Notes 1 and 10 of the Notes to Consolidated Financial Statements are
incorporated by reference herein.

11


Item 2. PROPERTIES

The Company operates manufacturing and research facilities in ten
countries. Capital spending for the years ended 2004, 2003 and 2002 was $89.3
million, $93.8 million, and $62.2 million, respectively. Capital expenditures in
2005 are expected to be in the range of $85.0 to $95.0 million not including any
capital expenditures relating to Surface Specialties after the anticipated
acquisition. Major projects in 2004 were the completion of the expansion at the
Company's Oestringen, Germany facility and the substantial completion of a
multi-year project to significantly upgrade and modernize its Specialty
Chemicals research facility in Stamford, Connecticut and infrastructure upgrades
at its Willow Island, West Virginia facility. In the fourth quarter of 2004, the
Company also started several incremental capacity expansion projects in its
Mining Chemicals, Phosphines and Polymer Additives product lines. The increase
in spending during 2003 from 2002 levels was due primarily to a modernization of
the Specialty Chemicals research facility, expanding capacity at its Oestringen,
Germany manufacturing facility, infrastructure upgrades at its Willow Island,
West Virginia manufacturing facility and capital expenditures at plants acquired
by the Company during 2003 in Shimonoseki, Japan and Mount Pleasant, Tennessee.
The Company's capital expenditures are intended to provide increased capacity,
to improve the efficiency of production units, to improve the quality of the
Company's products, to modernize or replace older facilities, or to install
equipment for protection of employees, neighboring communities and the
environment.

The Company's major facilities and the segments served by each such
facility are as follows:



- ---------------------------------------------------- ------- ------------------------------------------------------------------
FACILITY PRINCIPAL SEGMENT
- ---------------------------------------------------- ------- ------------------------------------------------------------------


Anaheim, California Specialty Materials
Atequiza, Mexico Water and Industrial Process Chemicals; Performance Products
Antofogasta, Chile Water and Industrial Process Chemicals
Avondale (Fortier), Louisiana Building Block Chemicals
Belmont (Willow Island), West Virginia Performance Products
Bogota, Colombia Performance Products
Botlek, the Netherlands Water and Industrial Process Chemicals; Performance Products;
Building Block Chemicals
Bradford, U.K. Water and Industrial Process Chemicals
Greenville, South Carolina Specialty Materials
Greenville, Texas Specialty Materials
Havre de Grace, Maryland Specialty Materials
Kalamazoo, Michigan Water and Industrial Process Chemicals; Performance Products
Lillestrom, Norway Performance Products
Longview, Washington Water and Industrial Process Chemicals
Mobile, Alabama Water and Industrial Process Chemicals
Mount Pleasant, Tennessee Water and Industrial Process Chemicals; Performance Products
Oestringen, Germany Specialty Materials
Olean, New York Performance Products
Orange, California Specialty Materials
Rock Hill, South Carolina Specialty Materials
Shimonoseki, Japan Performance Products
Stamford, Connecticut Water and Industrial Process Chemicals; Performance Products
Wallingford, Connecticut Performance Products
Welland, Canada Water and Industrial Process Chemicals
Winona, Minnesota Specialty Materials
Wrexham, U. K. Specialty Materials
- ---------------------------------------------------- ------- ------------------------------------------------------------------


The Company owns all of the foregoing facilities and their sites except for
the land at the Botlek, Lillestrom, Shimonoseki and land and buildings at Rock
Hill facilities which are leased under long-term leases. The Company leases its
corporate and Specialty Chemicals headquarters in West Paterson, New Jersey and
its Specialty Materials headquarters located in Tempe, Arizona.

12


Item 3. LEGAL PROCEEDINGS

The Company is the subject of numerous lawsuits and claims incidental to
the conduct of its or its predecessors' businesses, including lawsuits and
claims relating to product liability, personal injury, environmental,
contractual, employment and intellectual property matters. Many of the matters
relate to the use, handling, processing, storage, transport or disposal of
hazardous materials. The Company believes that the resolution of such lawsuits
and claims, including those described below, will not have a material adverse
effect on the consolidated financial position of the Company, but could be
material to the consolidated results of operations and cash flows of the Company
in any one accounting period. The Company, in this section, includes certain
predecessor entities being indemnified by Cytec.

The Company is among several defendants in approximately 30 cases, in which
plaintiffs assert claims for personal injury, property damage, and other claims
for relief relating to lead pigment that was used as an ingredient decades ago
in paint for use in buildings. The different suits were brought by government
entities and/or individual plaintiffs, on behalf of themselves and others. The
suits variously seek compensatory and punitive damages and/or injunctive relief,
including funds for the cost of monitoring, detecting and removing lead based
paint from buildings and for medical monitoring; for personal injuries allegedly
caused by ingestion of lead based paint; and plaintiffs' attorneys' fee. The
Company believes that the suits are without merit and is vigorously defending
against all such claims. Accordingly, no loss contingency has been recorded. The
Company has access to a substantial amount of primary and excess general
liability insurance for property damage and believes these policies are
available to cover a significant portion of both its defense costs and indemnity
costs, if any, for lead pigment-related property damage claims. The Company
continues to pursue an agreement with various of its insurers concerning
recovery of defense costs relating to these matters. During 2004, the Company
received $1.0 million related to previously expensed defense costs which were
recorded in other income, net and also recorded an additional $2.0 million in
other income as it believes it is probable that it will realize additional
recoveries of previously expensed lead defense costs from its insurers. The
Company is hopeful of recognizing additional recoveries in future periods as
negotiations with its insurers proceed.

The Company, like many other industrial companies, has been named as one of
hundreds of defendants in a number of lawsuits filed throughout the United
States by persons alleging bodily injury as a result of exposure to asbestos as
plaintiffs' attorneys have shifted their focus to peripheral defendants, such as
the Company. The claimants allege exposure to asbestos at facilities formerly or
currently owned by the Company or from products formerly manufactured by the
Company for specialized applications. Most of these cases involve numerous
defendants, sometimes as many as several hundred. Historically, most of the
closed asbestos claims against the Company have been dismissed without any
indemnity payment by the Company, and the Company has no information that this
pattern will change.

The following table presents information about the number of claimants
involved in asbestos cases with the Company:



Year Ended Year Ended
December 31, December 31,
2004 2003
------------------ --------------------

Number of claimants associated with claims closed during period 3,540 7,601
Number of claimants associated with claims opened during period 4,532 7,648
Number of claimants at end of period 27,947 26,955
- ------------------------------------------------------------------- --- ------------------ -- --------------------


The Company commenced binding arbitration proceedings against SNF SA,
("SNF"), in 2000 to resolve a commercial dispute relating to SNF's failure to
purchase agreed amounts of acrylamide under a long-term agreement. Recently, the
arbitrators awarded the Company damages and interest aggregating approximately
11 million euros. Cytec has obtained a court order in France to enforce the
award, which order is being appealed by SNF. No gain contingency has been
recorded. Subsequent to the arbitration award, SNF filed a complaint alleging
criminal violation of French and European Community antitrust laws relating to
the contract which was the subject of the arbitration proceedings. The Company
believes that the complaint is without merit.

In addition to liabilities with respect to the specific cases described
above, because the production of certain chemicals involves the use, handling,
processing, storage, transportation and disposal of hazardous materials, and
because certain of the Company's products constitute or contain hazardous
materials, the Company has been subject to claims of injury from direct exposure
to such materials and from indirect exposure when such materials are
incorporated into other companies' products. There can be no assurance that, as
a result of past or future operations, there will not be additional claims of
injury by employees or members of the public due to exposure, or alleged
exposure, to such materials.

13


Refer to "Environmental Matters" under "Business" in Item 1 and Notes 1 and
10 of the Notes to Consolidated Financial Statements.


Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

Not applicable

PART II
-------

Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS

The Common Stock of the Company is listed on the New York Stock Exchange.
On January 31, 2005, there were approximately 9,600 registered holders of the
Common Stock of the Company.

The high and low closing stock prices and declared dividends per share for
each quarter were:



1Q 2Q 3Q 4Q
- --------------------------- ------------------------ ------------------------ ------------------------ ------------------------
2004

High $38.76 $45.45 $49.99 $51.73
Low 32.97 35.50 44.31 44.92
Dividends 0.10 0.10 0.10 0.10
2003
High $30.51 $35.54 $38.76 $38.59
Low 25.98 28.05 34.60 33.45
- --------------------------- ------------------------ ------------------------ ------------------------ ------------------------


In January, 2004, the Board of Directors approved the initiation of a
common stock quarterly cash dividend program. No cash dividends on common shares
were declared or paid during 2003.

On January 20, 2005, the Board of Directors declared a quarterly cash
dividend of $0.10 per common share, paid on February 25, 2005 to stockholders of
record as of February 10, 2005.

Upon closing, the Company has agreed to issue 5,772,857 shares of its
common stock to UCB S.A. as part of the consideration for the purchase of
Surface Specialties. See Note 2 of the Notes to Consolidated Financial
Statements. The sale will be exempt from registration pursuant to Section 4(2)
of the Securities Act of 1933 since no public offering will be involved. Also,
upon closing, UCB and Cytec have also agreed to enter into a stockholders
agreement which will provide for UCB to reduce its stake within five years and
contains other customary terms and provisions.

See Part III, Item 11. "Executive Compensation" for information relating to
the Company's equity compensation plans.

14


Item 6. SELECTED FINANCIAL DATA

FIVE-YEAR SUMMARY
(Dollars in millions, except per share amounts)



2004 2003 2002 2001 2000
- ------------------------------------------------------------------------------------------------------------------------

Statements of income data:

Net sales $1,721.3 $1,471.8 $1,346.2 $1,387.1 $1,492.5
Earnings from operations $159.6 (1) $141.1 $119.4 (5) $113.8 (7) $177.7 (9)
Earnings before accounting change, extraordinary
item and premium paid to redeem preferred stock
$126.1 (2) $91.0 $79.3 (6) $66.2 (8) $177.6 (10)
Cumulative effect of accounting change, net of taxes - (13.6)(4) - - -
Extraordinary gain, net of taxes - - - 4.9 -
Premium paid to redeem preferred stock (9.9)(3) - - - -
- ------------------------------------------------------------------------------------------------------------------------
Net earnings available to common stockholders $116.2 $77.4 $79.3 $71.1 $177.6
- ------------------------------------------------------------------------------------------------------------------------

Basic net earnings per common share :
Net earnings available to common stockholders
before accounting change and extraordinary gain $2.94 $2.34 $2.01 $1.65 $4.34
Cumulative effect of accounting change, net of taxes - (0.35) - - -
Extraordinary gain, net of taxes - - - 0.12 -
- ------------------------------------------------------------------------------------------------------------------------
Net earnings available to common stockholders $2.94 $1.99 $2.01 $1.77 $4.34
- ------------------------------------------------------------------------------------------------------------------------

Diluted net earnings per common share:
Net earnings available to common stockholders
before accounting change and extraordinary gain $2.84 $2.27 $1.96 $1.59 $4.15
Cumulative effect of accounting change, net of taxes - (0.34) - - -
Extraordinary gain, net of taxes - - - $0.12 -
- ------------------------------------------------------------------------------------------------------------------------
Net earnings available to common stockholders $2.84 $1.93 $1.96 $1.71 $4.15
- ------------------------------------------------------------------------------------------------------------------------

Cash dividends declared and paid per common share: $0.40 - - - -

Balance sheet data:
Total assets $2,226.1 $2,025.9 $1,766.4 $1,650.4 $1,721.6
Long-term debt $300.1 $416.2 $216.0 $314.7 $313.4
- -------------------------------------------------------------------------------------------------------------------


(1) Includes a pre-tax charge of $8.0 for various litigation matters, including
$7.0 to settle a federal class action lawsuit alleging antitrust violations
relating to carbon fiber.

(2) In addition to the item in Note (1) above, includes an after-tax charge of
$4.8 relating to the settlement of several environmental and toxic tort
lawsuits, an after-tax charge of $1.6 relating to the settlement of
disputed matters with the former holder of the Company's Series C Preferred
Stock, a tax credit of $2.4 resulting from the favorable outcome of a
recently completed international tax audit and an after-tax gain of $17.1
resulting from derivative transactions related to the pending acquisition
of Surface Specialties.

(3) Represents a charge to net earnings available to common stockholders
resulting from the redemption of the Company's Series C Preferred Stock.

(4) Represents the cumulative effect of adopting Statement of Financial
Accounting Standards ("SFAS") No. 143. Expenses resulting from SFAS No. 143
included in Earnings from Operations were $1.8 in 2003. Had this accounting
policy been in effect in prior years, additional expenses of $1.7 in 2002,
$1.6 in 2001 and $1.5 in 2000 would have been recognized in the
determination of earnings from operations.

(5) Includes net restructuring charges of $13.7 and a charge of $1.7 for costs
associated with a tax refund related to the prior years' research and
development tax credit.

(6) In addition to the items in Note (5) above, includes restructuring charges
of $0.4 included in equity in earnings of associated companies, $2.0 of
interest income related to the research and development tax credit, and a
$6.0 reduction in income tax expense related to a refund associated with
prior years' research and development tax credits.

(7) Includes a restructuring charge of $5.4 and $9.7 of goodwill amortization
that is no longer amortized under SFAS No. 142, "Goodwill and Other
Intangible Assets."

(8) In addition to the items in note (7) above, includes a restructuring charge
of $2.3 included in earnings of associated companies.

(9) Includes a restructuring charge of $10.1, a charge of $1.4 for receivables
which were deemed uncollectible and due the Company from its former ammonia
joint venture and $9.4 of goodwill amortization that is no longer amortized
under SFAS No. 142.

(10) In addition to the items in note (9) above, includes on a pre-tax basis: a
gain of $88.3 from the divestiture of the paper chemicals product line; a
gain of $13.3, discounted and net of expenses, from an environmental
remediation insurance settlement; a gain of $7.1 from the sale of real
estate at a former plant site; and a charge of $4.8 for the write-down of
receivables from the AC Molding Compounds joint venture.

15


Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS

The following discussion and analysis should be read in conjunction with
the Consolidated Financial Statements and Notes to Consolidated Financial
Statements. Dollars are in millions, except per share amounts. Percentages are
approximate.

GENERAL

Cytec Industries Inc. is a global specialty chemicals and materials company
and sells its products to diverse major markets for aerospace, automotive and
industrial coatings, chemical intermediates, mining, plastics and water
treatment. With slightly over half of the Company's sales outside of the U.S.,
sales volume by region and the impact of exchange rates are important measures
that are analyzed by management. The Company reports its net sales in four
segments: Water and Industrial Process Chemicals, Performance Products,
Specialty Materials and Building Block Chemicals. The Water and Industrial
Process Chemicals and Performance Products segments are collectively referred to
as Specialty Chemicals. The Company also reports its net sales in four
geographic regions: North America, Latin America, Asia/Pacific and Europe/Middle
East/Africa. The destination of the sale determines the region under which it is
reported consistent with management's view of the business. North America
consists of the United States and Canada. Latin America includes Mexico, Central
America, South America and the Caribbean Islands. Asia/Pacific is comprised of
Asia, Australia and the islands of the South Pacific Rim.

Raw material cost changes year on year are an important factor in
profitability especially in years of high volatility. Oil and natural gas costs
are significantly higher than the year ago period and many of the Company's raw
materials are derived from these two commodities. Key raw materials for the
Specialty Chemicals and Building Block Chemicals segments are propylene,
ammonia, methanol derivatives and natural gas for utilities. Key raw materials
for the Specialty Materials segment are carbon fiber and various resins.
Discussion of the year to year impact of raw materials and energy is provided in
our segment discussion. In addition, higher global demand levels and,
occasionally, operating difficulties at suppliers, have limited the availability
of certain of the Company's raw materials. With the exception of propylene
availability in the first quarter, this did not have a material impact on
results of operations in 2004. The Company was recently notified by its major
supplier of propylene that as of February 1, 2005, it will be placed on an 85%
supply allocation of its requirements for up to six months due to mechanical
difficulties. Management does not expect this allocation to have a material
impact on Company operations in the first quarter of 2005 should it occur for
the term anticipated.

In the course of the Company's ongoing operations, a number of strategic
product line acquisitions and dispositions have been made. All acquisitions have
been recorded using the purchase method of accounting. Accordingly, the results
of operations of the acquired companies have been included in the Company's
consolidated results from the dates of the respective acquisitions. A further
discussion of acquisitions and dispositions can be found in Note 2 to the Notes
to the Consolidated Financial Statements contained herein.

RESULTS OF OPERATIONS

The following table sets forth the percentage relationship that certain
items in the Company's Consolidated Statements of Income bear to net sales:



Years Ended December 31, 2004 2003 2002
- ---------------------------------------------------- ----------------- ------------------ ------------------


Net sales 100.0% 100.0% 100.0%
Manufacturing cost of sales 76.2 75.8 75.8
- ---------------------------------------------------- ----------------- ------------------ ------------------
Gross profit 23.8 24.2 24.2
Selling and technical services 8.1 8.6 9.1
Research and process development 2.3 2.4 2.5
Administrative and general 3.8 3.3 3.5
Amortization of acquisition intangibles 0.3 0.3 0.2
- ---------------------------------------------------- ----------------- ------------------ ------------------
Earnings from operations 9.3 9.6 8.9
- ---------------------------------------------------- ----------------- ------------------ ------------------
Net earnings available to common stockholders 6.8 5.3 5.9
- ---------------------------------------------------- ----------------- ------------------ ------------------


16



NET SALES BY SEGMENT AND GEOGRAPHIC AREA




Europe/
North Latin Asia/ Middle East/
Net Sales America America Pacific Africa Total
- --------------------------------------------------- ------------- -------------- ------------ --------------- ------------
2004

Water and Industrial Process Chemicals $147.6 $ 86.5 $49.7 $125.3 $409.1
Performance Products 268.6 33.7 113.7 148.6 564.6
Specialty Materials 322.4 1.7 21.5 141.4 487.0
Building Block Chemicals 126.6 3.3 77.0 53.7 260.6
------------- -------------- ------------ --------------- ------------
Total $865.2 $125.2 $261.9 $469.0 $1,721.3
------------- -------------- ------------ --------------- ------------

2003
Water and Industrial Process Chemicals $146.6 $60.2 $51.2 $104.2 $ 362.2
Performance Products 248.6 28.9 86.6 125.7 489.8
Specialty Materials 292.3 1.6 15.5 99.3 408.7
Building Block Chemicals 88.9 4.0 58.0 60.2 211.1
------------- -------------- ------------ --------------- ------------
Total $776.4 $94.7 $211.3 $389.4 $1,471.8
------------- -------------- ------------ --------------- ------------

2002
Water and Industrial Process Chemicals $139.9 $51.5 $50.1 $89.7 $ 331.2
Performance Products 242.9 26.2 72.3 110.9 452.3
Specialty Materials 290.7 1.3 14.7 88.8 395.5
Building Block Chemicals 68.9 3.9 60.2 34.2 167.2
------------- -------------- ------------ --------------- ------------
Total $742.4 $82.9 $197.3 $323.6 $1,346.2
- --------------------------------------------------- ------------- -------------- ------------ --------------- ------------


Net sales in the United States were $802.4, $719.7 and $685.8 for 2004,
2003 and 2002, respectively. International net sales were $918.9, $752.1, and
$660.4, or 53%, 51% and 49% of total net sales, for 2004, 2003 and 2002,
respectively.

For more information on the Company's segments, refer to Note 16 of the
Notes to Consolidated Financial Statements and further discussions in "Segment
Results," below.

YEAR ENDED DECEMBER 31, 2004, COMPARED WITH YEAR ENDED DECEMBER 31, 2003

Consolidated Results

Net sales for 2004 were $1,721.3 compared with $1,471.8 during 2003. All
segments reported increased sales. In the two Specialty Chemicals segments sales
increased primarily due to increased selling volumes, the acquisitions completed
in the second half of 2003 and favorable exchange rates. The Specialty Materials
segment sales increase was primarily volume related and all product lines
participated. The Building Block Chemicals segment sales increased principally
due to higher selling prices which were driven by higher raw material and energy
costs offset somewhat by a decrease in sales volumes of acrylonitrile and
acrylamide.

For a detailed discussion on sales refer to the Segment Results section
below.

Manufacturing cost of sales was $1,311.2 compared with $1,114.9 during
2003. Cost of sales was primarily impacted by higher raw material and energy
costs of $69.0. Gross margin percent however, decreased by only 0.4% as the
higher raw material and energy costs were offset by increased selling prices of
$42.1, the net impact of exchange rates on operations outside of the United
States of $35.1, the fixed cost leverage from the increased production levels
and a favorable product mix.

Pension expense increased $5.1 principally as a result of the Company
lowering its discount rate in the U. S. by 0.5% to reflect current market rates
on fixed income securities and by the 2003 acquisitions which increased pension
expense by $0.3. Pension expense is primarily reported in manufacturing cost of
sales. Refer to Critical Accounting Policies, Retirement Plans for further
discussion on how changes in discount rates and return on asset assumptions can
impact annual expense.

Selling and technical services was $139.8 in 2004 versus $126.9 in the
prior year due to ongoing costs of the businesses in the Specialty Chemical
segments acquired in the second half of 2003, the impact of exchange rate
changes on operations outside of the United States of $4.2 and higher costs in
the Specialty Materials segment of $2.0 where the Company is investing in
personnel, product qualifications and commercialization of new products for its
growth initiatives.

17


Research and process development was $40.0 versus $35.2 in the prior year.
This increase was primarily the result of ongoing costs of the acquired
businesses of the Specialty Chemical segments completed in the second half of
2003, costs associated with the start up of the newly renovated Specialty
Chemicals Technology Center and higher costs in the Specialty Materials segment
where the Company continues to invest for a number of future opportunities.

Administrative and general expenses were $65.1 versus $49.7 in the prior
year. Included in 2004 is a charge of $8.0 related to the settlement of the
federal carbon fiber class action lawsuit and several other minor litigation
matters. Also contributing to the increase were ongoing costs of the businesses
of the Specialty Chemical segments acquired in the second half of 2003 of
approximately $1.3, an increase in deferred compensation expense of $2.6 due to
the increase in the Company's stock price versus the year ago period and the
impact of exchange rate changes on operations outside of the U.S. of $1.1.
Additionally, the Company incurred $2.0 in third party expenses related to
implementing accounting and disclosure control procedures as required by the
Sarbanes-Oxley Act of 2002.

Other income, net was $16.9 compared with a loss of $5.7 in the prior year.
Included in 2004 results was a net gain of $26.8 related to derivative contracts
entered into during the fourth quarter to economically hedge currency and
interest rate exposure associated with the pending acquisition of Surface
Specialties. The Company entered into foreign currency contracts to offset the
potential dollar to euro exchange rate fluctuation that would have an impact on
the acquisition cost in dollars and this resulted in a gain of $33.3. In
anticipation of future long-term debt that would be issued to partially finance
the acquisition, the Company also entered into interest rate hedges which
resulted in the recognition of a loss of $6.5. Also included in other income,
net are charges of $6.2 for settlement of several environmental remediation and
toxic tort lawsuits and a charge of $2.0 related to the settlement of a series
of disputed matters with Wyeth, partially offset by a gain of $2.0 related to
the sale in 1999 of the Company's share of its methanol joint venture whereby
the Company received additional proceeds because the market price of methanol
stayed above an agreed upon index over a predetermined period of time. The
Company also recorded $3.0 in other income, net, of which $1.0 has been
received, that relates to insurance recoveries and expected recoveries from its
insurers of lead-related defense costs which had been previously expensed.
Lead-related defense costs recognized during 2004 amounted to $2.5. The prior
year loss of $5.7 primarily resulted from the recognition of currency losses
whereby certain international subsidiaries held dollar denominated assets while
the US dollar weakened.

Equity in earnings of associated companies was $5.2 versus $7.2 in the
prior year. Earnings from CYRO, the Company's 50% owned acrylic plastics joint
venture, remained flat as compared with the prior year as increased sales
volumes and selling prices offset higher raw material costs. In addition,
results for 2003 included earnings of $1.8 from the Company's former 50% owned
Mitsui-Cytec joint venture. Refer to Notes 2 and 5 of the Notes to Consolidated
Financial Statements.

Interest expense, net was $17.4 compared with $16.2 in the prior year. The
increase resulted primarily from a higher outstanding weighted-average debt
balance during 2004.

The Company's effective tax rate in 2004 was 23% compared with 28% in 2003.
This reduction reflects the Company's continued earnings growth in lower tax
jurisdictions and, to a lesser extent, a favorable international tax ruling
received in the first quarter of 2004. During the second quarter of 2004, the
Company recorded a reduction of its tax liabilities due to the completion of
several years of tax audits in an international tax jurisdiction that resulted
in a reduction of $2.4 to its income tax provision. These reductions were
partially offset by the derivative net gain noted above which was taxed at the
higher incremental U.S. rate.

Net earnings available to common stockholders for 2004 were $116.2 ($2.84
per diluted share). Net earnings available to common stockholders for 2004
included a charge of $9.9 ($0.24 per diluted share) as a result of the
redemption of the Company's Series C Preferred Stock (the "Series C Stock"). The
Series C Stock was originally issued in 1993 in conjunction with Cytec's
spin-off from American Cyanamid Company ("Cyanamid"). Wyeth became beneficial
owner of Series C Stock following its acquisition of Cyanamid in 1994. Net
earnings available to common stockholders for 2003 were $77.4 ($1.93 per diluted
share). Included in 2003 results is an after-tax, non-cash charge of $13.6
($0.34 per diluted share) reported as a cumulative effect of accounting change
related to the adoption of SFAS No.143 "Accounting for Asset Retirement
Obligations" which became effective January 1, 2003.

18


Segment Results

Year-to-year comparisons and analyses of changes in net sales by product
line segment and region are set forth below.

Water and Industrial Process Chemicals




% Change Due to
Total ---------------------------------------
2004 2003 % Change Price Volume/Mix Currency
- -------------------------------------------- ------------- ------------ ---------------- --------- ---------------- -------------

North America $147.6 $145.5 1% 0% 1% 0%
Latin America 86.5 61.3 41% -2% 39% 4%
Asia/Pacific 49.7 51.2 -3% -2% -6% 5%
Europe/Middle East/Africa 125.3 104.2 20% 0% 12% 8%
------------- ------------
Total $409.1 $362.2 13% -1% 10% 4%
- -------------------------------------------- ------------- ------------ ---------------- --------- ---------------- -------------


Overall selling volumes improved 10% with acquisitions accounting for 6%.
The 4% increase in base selling volumes is attributable to increased sales
across all product lines, particularly mining chemicals. On a regional basis,
sales volumes in Latin America increased with acquisitions accounting for 12%
with the remainder of the increase primarily due to improved demand for mining
chemicals from copper mining applications. Sales volumes were up 12% in
Europe/Middle East/Africa with acquisitions accounting for 3% and the remainder
of the increase primarily due to increased demand for water treatment chemicals
from full service providers and phosphine applications. Overall average price
decreased in areas where pricing is linked to the U.S. dollar, with an
offsetting effect due to currency rate changes.

Earnings from operations were $21.2, or 5% of sales, compared with $20.3 or
6% of sales in 2003. The increase in earnings is primarily attributable to
increased selling volumes, in part due to acquisitions during the second half of
2003, and the impact of exchange rate changes partly offset by increased raw
material and energy costs of $11.6.

Performance Products



% Change Due to
Total ----------------------------------------
2004 2003 % Change Price Volume/Mix Currency
- -------------------------------------------- ------------- ------------ ---------------- --------- ---------------- -------------

North America $268.6 $248.6 8% 0% 8% 0%
Latin America 33.7 28.9 17% 1% 16% 0%
Asia/Pacific 113.7 86.6 31% 0% 29% 2%
Europe/Middle East/Africa 148.6 125.7 18% 1% 8% 9%
------------- ------------
Total $564.6 $489.8 15% 0% 12% 3%
- -------------------------------------------- ------------- ------------ ---------------- --------- ---------------- -------------


Overall selling volumes increased 12% with acquisitions accounting for 7%.
Base selling volumes increased for all product lines as a result of improved
demand and new business. On a regional basis, North America sales volumes
increased 8% with acquisitions accounting for 4% and the remainder primarily due
to improved demand for coatings and specialty additives. Asia/Pacific sales
volumes increased 29% with acquisitions accounting for most of the increase.
Europe/Middle East/Africa sales were up 18% due to the favorable impact of
exchange rate changes and increased demand primarily for coatings and specialty
additives. Overall average selling price was flat although higher selling prices
in the Polymer Additives product line were offset by declines in certain
products within the Performance Chemical product line due to competitive
pressures.

Earnings from operations were $57.2, or 10% of sales, compared with $37.3,
or 8% of sales, in 2003. The favorable impact from acquisitions, higher base
sales volumes, improved manufacturing operations and net favorable exchange rate
changes more than offset the effect of higher raw material and energy costs of
$5.8.

Specialty Materials



% Change Due to
Total ----------------------------------------
2004 2003 % Change Price Volume/Mix Currency
- -------------------------------------------- ------------- ------------ ---------------- --------- ---------------- -------------

North America $322.4 $292.3 10% 0% 10% 0%
Latin America(1) 1.7 1.6 --- --- --- ---
Asia/Pacific 21.5 15.5 39% -1% 40% 0%
Europe/Middle East/Africa 141.4 99.3 42% -3% 40% 5%
------------- ------------
Total $487.0 $408.7 19% -1% 19% 1%
- -------------------------------------------- ------------- ------------ ---------------- --------- ---------------- -------------

(1) Due to the level of sales in this geographic region, percentage comparisons
are not meaningful.

19


Overall selling volumes increased 19% with the increases coming from
large commercial aircraft, regional and business jets and rotorcraft, military,
and high performance automotive sectors. On a regional basis the 10% increase in
North America sales volumes represents increased sales primarily to large
commercial aircraft, military, business and regional jet and rotorcraft
applications. Europe/Middle East/Africa sales volumes increased 40% principally
due to increased sales to large commercial aircraft and high performance
automotive applications as well as to business and regional jet and rotorcraft
applications. Asia/Pacific sales volumes increased 40% principally due to
increased sales for large commercial aircraft and regional and business jets.
The overall decrease in average selling price was primarily due to increased
volume rebates.

Earnings from operations were $84.2, or 17% of sales, compared with $66.3,
or 16% of sales, in 2003. Higher earnings are principally due to the increase in
selling volumes partly offset by increased manufacturing and commercial costs to
service the higher demand levels and growth opportunities of this segment.

Building Block Chemicals (Sales to external customers)



% Change Due to
Total ---------------------------------------
2004 2003 % Change Price Volume/Mix Currency
- ------------------------------------------- -------------- ------------ ---------------- --------- ---------------- -------------

North America $ 126.6 $ 88.9 43% 25% 18% 0%
Latin America(1) 3.3 4.0 --- --- --- ---
Asia/Pacific 77.0 58.0 33% 35% -2% 0%
Europe/Middle East/Africa 53.7 60.2 -11% 6% -23% 6%
-------------- ------------
Total $260.6 $211.1 23% 22% -1% 2%
- ------------------------------------------- -------------- ------------ ---------------- --------- ---------------- -------------


(1) Due to the level of sales in this geographic region, percentage comparisons
are not meaningful.

Global sales volumes declined slightly due in part to decreased
acrylonitrile production as a result of reduced propylene (the key raw material
for acrylonitrile) availability during the first quarter as well as a scheduled
plant maintenance shutdown during May 2004. North America selling volumes were
up 18% with the majority due to increased acrylonitrile and sulfuric acid
business. Europe/Middle East/Africa volumes decreased as 2003 reflected
opportunistic sales in this region resulting from more favorable spot selling
prices versus the Asia/Pacific region. North America and Asia/Pacific selling
prices were up primarily reflecting partial recovery of higher raw material and
energy costs.

Earnings from operations were $14.8, or 4% of sales, compared with $20.3,
or 7% of sales, in 2003. The decrease in earnings was primarily due to the
decrease in volume and increased raw material and energy costs of $47.2, which
were not fully offset by price increases of $46.0.

YEAR ENDED DECEMBER 31, 2003 COMPARED WITH YEAR ENDED DECEMBER 31, 2002

Consolidated Results

Net sales for 2003 were $1,471.8, up 9%, compared to $1,346.2 for 2002.
Overall, sales volume increased 5% with acquisitions accounting for 2% of this
increase, favorable changes in currency rates adding 3%, and higher selling
prices adding 1%.

For a detailed discussion on sales refer to the Segment Results section
below.

Manufacturing cost of sales was $1,114.9, or 75.8% of net sales, for 2003
compared with $1,020.4, or 75.9% of net sales, for 2002. Included in 2002 is a
$10.8 net restructuring charge or 1.0% of net sales for plant closure costs and
expenses associated with discontinuing a product line. Additional savings
related to 2002 restructuring initiative were $1.4 in 2003 which was the result
of planned personnel reductions under the 2002 initiative. Manufacturing costs
in 2003 were also impacted by higher raw material and energy costs of $37.4,
particularly from petroleum based products globally and natural gas based
products in the U. S. and currency rate changes increased cost $18.2 Freight and
warehousing increased $6.6 of which $3.0 was due to currency rates changes. The
remainder of the increase in freight and warehousing is due primarily to sales
volume increases as well as higher freight rates and fuel surcharges. Insurance
costs increased $1.7 over 2002. Partially offsetting this were lower costs as a
result of the Company's operational excellence initiatives.

Pension expense increased $5.2 principally as a result of the Company
lowering its discount rate in the U. S. by 0.5% to reflect current market rates
on fixed income securities and by the 2003 acquisitions which increased pension
expense by $0.3. This was partly offset by plan changes to the retirement
medical plans in the U. S. which were instituted by the Company in 2002 and
reduced expense by $0.7. Pension expense is primarily reported in manufacturing
cost of sales. Refer to Critical Accounting Policies, Retirement Plans for
further discussion on how changes in discount rates and return on asset
assumptions can impact annual expense.

20


Selling and technical services increased $4.3. Included in prior year
amounts are net restructuring charges of $2.5. Additional savings related to
2002 restructuring were $1.1 in 2003 primarily as a result of planned personnel
reductions. Costs associated with the acquisitions in 2003 added $2.6 and costs
associated with the Company's performance stock plan increased by $1.1 due to a
higher market value for the Company's common stock. The remainder of the
increase is primarily due to currency rate changes.

Research and process development increased $1.5. Included in the prior year
are net restructuring charges of $1.0. Costs associated with the acquisitions in
2003 added $0.5. Headcount additions and costs for outside testing in the
Specialty Chemical segments accounted for the increase in costs.

Administrative expenses increased $2.7 but included in prior year amounts
are net restructuring charges of $0.8 and fees of $1.7 related to a research and
development tax credit filing. The Company's performance stock plan increased
costs by $1.5 due to the higher stock price. The acquisitions of 2003 added $0.7
to administrative costs in 2003 and insurance premiums increased $1.1 over 2002.
Currency rate changes also increased costs.

The increase in amortization expense is due to the impact amortizing
acquisition intangibles associated with 2003 acquisitions.

Other expense, net increased $6.9 from the year ago period. This resulted
primarily from currency losses where certain of our international subsidiaries
held dollar denominated assets when the U. S. dollar weakened. Currency rate
changes increased expenses compared to 2002 by $5.3. Cleanup costs of $0.6 at an
operating site related to a divested product line and royalty income of $0.8
that expired in 2002 also contributed to the increase.

Equity in earnings of associated companies increased $1.1 from the year ago
period. Included in 2002 results was a restructuring charge of $0.4 representing
the Company's 50% share of restructuring charges recorded by CYRO, and a charge
of $1.7 to reduce to zero the carrying value of the Company's net investment in
the one-third owned PA.com. In addition, the Company's share of operating losses
from PA.com in 2002 totaled $0.9. CYRO had increased sales of 5% in 2003,
however its product mix was less favorable and raw material and energy costs
were higher than the year ago period. As a result, the Company's share of
earnings in 2003 from CYRO decreased by $1.7.

Interest expense, net was $16.2, a decrease of $0.3, from the prior year
period. Interest income in 2002 was favorably impacted by $2.0 received in
conjunction with research and development tax credit refund. In March 2003 the
Company repaid $100.0 of its existing debt with an interest rate of 6.5% per
annum resulting in lower interest expense. This was largely offset by interest
expense related to the $200.0 principal amount of 4.6% Notes that were issued in
June 2003. The interest expense associated with this new debt was partially
reduced by $0.7 as a result of interest rate swap agreements entered into in
August 2003.

Income tax provision reflects a reduction in the effective tax rate from
33.5%, before the impact of prior years' tax credits, to 28.0%. This reduction
was a result of the Company's continued emphasis on global tax planning and
execution of those plans together with an increased level of investment and
earnings in tax jurisdictions with lower rates as well as a favorable
international tax ruling with respect to a legal entity restructuring that
occurred in the prior year. The 2002 full year effective tax rate of 28%
reflects a reduction for a tax refund of $6.0 associated with prior years,
research & development tax credits.

Net earnings before the cumulative effect of the accounting change were
$91.0, or $2.27 per diluted share, for 2003, compared to $79.3, or $1.96 per
diluted share, in 2002. Included in 2002 was an after-tax net restructuring
charge of $9.4, or $0.23 per diluted share. Also included in 2002 is a net
credit of $0.15 per diluted share related to research and development tax
credits discussed above (a reduction of $6.0 in income tax provision, interest
income of $2.0 or $1.3 after-tax, and a charge of $1.7 or $1.1 after-tax in
administrative expenses for fees related to tax planning).

On January 1, 2003, the Company adopted SFAS No. 143 and recorded an
after-tax, non-cash charge of $13.6 ($0.34 per diluted share) reported as a
cumulative effect of an accounting change.

Net earnings after the cumulative effect of the accounting change were
$77.4 or $1.93 per diluted share.

21


Segment Results

Year-to-year comparisons and analyses of changes in net sales by product
line segment and region are set forth below.

Water and Industrial Process Chemicals



% Change Due to
Total ----------------------------------------
2003 2002 % Change Price Volume/Mix Currency
- -------------------------------------------- ------------- ------------ ---------------- --------- ---------------- -------------

North America $145.5 $139.9 4% -3% 6% 1%
Latin America 61.3 51.5 19% 1% 21% -3%
Asia/Pacific 51.2 50.1 2% -8% -2% 12%
Europe/Middle East/Africa 104.2 89.7 16% -2% 4% 14%
------------- ------------
Total $362.2 $331.2 9% -3% 7% 5%
- -------------------------------------------- ------------- ------------ ---------------- --------- ---------------- -------------


Overall, sales increased 9%. Currency rate changes increased sales 5% with
acquisitions adding 4%. Base volume increased 3%, and selling prices declined
3%. North American volumes increased 6% with the 2003 acquisitions of the metal
extractant and aromatic phosphines product lines of Avecia accounting for 6%.
Also, the Water Treatment product line selling volume was down as the Company
exited certain low profit municipal business but this was offset by increased
Phosphine gas sales. In Latin America, the volume growth of 21% was primarily in
the mining chemicals product line as a result of higher demand in the alumina
market and acquisitions accounting for 3%. Asia/Pacific volumes decreased 2%;
2002 volume included sales for an initial fill of the Company's solvent
extraction product at one of the world's largest cobalt nickel mines. Europe
volumes increased 4% primarily in the Water Treatment product line. Currency
rate changes were primarily the result of the weaker U. S. dollar, except in
Latin America where the U. S. dollar remained strong for the first three
quarters of 2003. Selling prices decreased in North America in all product lines
due to customer mix and competitive pricing. Latin America pricing increased
offsetting the impact of negative currency rate changes. Asia/Pacific selling
prices decreased principally in mining chemicals where pricing was linked to the
U. S. dollar with an offsetting effect due to currency rate changes.

Earnings from operations were $20.3, or 6% of net sales in 2003, compared
to $26.2, or 8% of net sales, in 2002. Included in 2003 were increased savings
from the 2002 restructuring initiative of $1.4 million as a result of planned
personnel reductions. The impact from the increase in sales and restructuring
savings was more than offset by higher raw material and energy costs of $3.2,
higher freight, warehousing, employee benefit and insurance costs.

Performance Products



% Change Due to
Total ----------------------------------------
2003 2002 % Change Price Volume/Mix Currency
- -------------------------------------------- ------------- ------------ ---------------- --------- ---------------- -------------

North America $248.6 $242.9 2% 1% 0% 1%
Latin America 28.9 26.2 10% 5% 11% -6%
Asia/Pacific 86.6 72.3 20% -2% 19% 3%
Europe/Middle East/Africa 125.7 110.9 13% 0% -4% 17%
------------- ------------
Total $489.8 $452.3 8% 1% 3% 4%
- -------------------------------------------- ------------- ------------ ---------------- --------- ---------------- -------------


Overall, sales increased 8% with the 2003 acquisitions accounting for 3%.
Currency rate changes increased sales 4%, principally from the stronger euro
offset somewhat by overall weakness in Latin American currencies. Base volumes
for the year were flat and selling prices were up slightly. The Company
experienced strong demand in the Asia/Pacific and Latin America regions although
off a smaller base but this was almost all offset by lower demand in Europe and
North America due to reduced economic activity in those regions. Selling prices
were up in Latin America offsetting the negative impact of currency rate
changes. Prices in Asia/Pacific were down 2% primarily in Polymer Additives due
to continued competitive pricing initiatives.

Earnings from operations were $37.3, or 8% of net sales, in 2003 compared
to $39.6, or 9% of net sales, in 2002. Included in 2003 are increased savings
from the 2002 restructuring initiative of $1.1 million as a result of planned
personnel reductions. The impact from the increase in sales and restructuring
savings was more than offset by higher raw material and energy costs of $9.2,
increased freight, warehousing, employee benefit and insurance costs.

22


Specialty Materials



% Change Due to
Total ----------------------------------------
2003 2002 % Change Price Volume/Mix Currency
- -------------------------------------------- ------------- ------------ ---------------- --------- ---------------- -------------

North America $292.3 $290.7 1% 0% 1% 0%
Latin America(1) 1.6 1.3 --- --- --- ---
Asia/Pacific 15.5 14.7 4% -2% 6% 0%
Europe/Middle East/Africa 99.3 88.8 12% -3% 11% 4%
------------- ------------
Total $408.7 $395.5 3% -1% 3% 1%
- -------------------------------------------- ------------- ------------ ---------------- --------- ---------------- -------------

(1) Due to the level of sales in this geographic region, percentage comparisons
are not meaningful.

Selling volumes were up 3% overall. Sales to military and rotorcraft
applications added 5% due to increased production levels for military aircraft
and a high level of replacement parts for rotorcraft and restocking by certain
customers from low 2002 year-end inventory levels. Sales to the commercial
aerospace sector for large commercial aircraft, regional jets and business jets
were down 2% from 2002. Sales to Boeing were down in line with the decrease in
large commercial aircraft build rates but offset somewhat by increased sales to
Airbus.

Earnings from operations were $66.3, or 16% of sales, in 2003 compared to
$65.7, or 17% of sales, in 2002. Included in 2003 were increased savings from
the 2002 restructuring initiative of $0.5 million as a result of planned
personnel reductions. The impact from the increase in sales, restructuring
savings and higher plant utilization was essentially offset by higher operating
costs as the Company invested in its manufacturing plants and increased its
selling and technical efforts.

Building Block Chemicals (Sales to external customers)



% Change Due to
Total ----------------------------------------
2003 2002 % Change Price Volume/Mix Currency
- ------------------------------------------- -------------- ------------ ---------------- --------- ---------------- -------------

North America $ 88.9 $68.9 29% 15% 14% 0%
Latin America(1) 4.0 3.9 --- --- --- ---
Asia/Pacific 58.0 60.2 -4% 15% -19% 0%
Europe/Middle East/Africa 60.2 34.2 76% 3% 54% 19%
-------------- ------------
Total $211.1 $167.2 26% 12% 10% 4%
- ------------------------------------------- -------------- ------------ ---------------- --------- ---------------- -------------


(1) Due to the level of sales in this geographic region, percentage comparisons
are not meaningful.

Selling volumes increased 10% overall. North American and European
acrylonitrile volumes were up due to new business. Demand in Asia/Pacific for
acrylonitrile was low principally in the second quarter of the year. Selling
prices were up primarily related to acyrlonitrile due to tighter supply and
increased input costs.

Earnings from operations were $20.3, or 7% of net sales, in 2003 compared
to $5.6, or 3% of net sales, in 2002. The increased earnings were primarily the
result of higher selling volumes and prices and the favorable impact of currency
rate changes. Additionally, earnings increased due to lower plant spending of
$3.2 and higher plant capacity utilization. The increase was partially offset by
significantly higher raw material and energy costs of $24.0 which were primarily
due to the higher cost of ammonia, propylene and natural gas.

LIQUIDITY AND FINANCIAL CONDITION

At December 31, 2004 the Company's cash balance was $323.8 compared with
$251.1 at year end 2003.

Cash flows provided by operating activities, which continued to be the
primary source of funds to finance operating needs and capital expenditures,
were $167.4 for 2004 compared with $132.4 for 2003. The increase in cash flows
provided by operating activities resulted from an increase in current period
income from operations and $18.9 million related to closing various currency
contracts that were entered into relative to the anticipated acquisition of
Surface Specialties. Trade accounts receivables increased by $24.1 as a result
of increased sales. Inventory levels increased by $38.7 due to increased
production to support higher customer demand as well as higher raw material
costs. Accounts payable increased by $36.5, primarily due to increased raw
material costs and purchases to support increased demand levels. Cash flows
provided by operating activities were reduced by $48.0 and $46.2 from cash
contributions to pension plans and postretirement plans during 2004 and 2003,
respectively.

Cash flows used in investing activities were $84.1 for 2004 compared with
$195.3 for 2003. Capital spending, which totaled $89.3, included spending on
projects to: upgrade and modernize the Stamford, Connecticut Specialty Chemicals
research facility; expand capacity at the Oestringen, Germany manufacturing
facility; upgrade the Willow Island, West Virginia manufacturing facility; and
upgrade two plants acquired during 2003. During the first quarter of 2004, the
Company received from a third party $9.1, net of expenses, as a prepayment for a
long-term lease on a certain property for future development. The development of
the property is not connected with Company operations. The third party has the
option to purchase the property from the Company at a later date. The net
proceeds are being amortized to income over the life of the lease. Prior year
investing activities included cash flows of $101.6 used to acquire the MEP and
I&S product lines of Avecia Investments Limited.

23


Net cash flows used in financing activities were $20.6 in 2004 compared
with net cash flows provided by financing activities of $85.4 during 2003.

Proceeds from stock option exercises totaled $24.6 compared with $14.5
during 2003. The total number of treasury shares reissued as a result of option
exercises was approximately 1,217,500 in 2004 compared with approximately
1,079,800 in 2003. The Company repurchased 388,300 shares of stock at a cost of
$13.1 compared with the repurchase of 838,200 shares of stock at a cost of $27.7
during 2003.

During 2004 the Company paid off all of the $9.3 in short term borrowings
and also redeemed its Series C Stock for $10.0 in cash.

During 2004 the Company paid four quarterly cash dividends of $0.10 per
common share which aggregated $15.7.

On January 20, 2005, the Board of Directors declared a quarterly cash
dividend of $0.10 per common share, paid on February 25, 2005 to stockholders of
record as of February 10, 2005.

In June 2003, the Company sold $200.0 principal amount of 4.6% Notes due
July 1, 2013. Proceeds to the Company from the sale of the Notes after deducting
costs were approximately $198.9. The Company has the ability to issue $200.0
more debt securities under a $400.0 shelf registration statement it has filed
with the Securities and Exchange Commission that has been effective since
December 2000.

On February 15, 2005, the Company entered into credit agreements totaling
$1.775 billion in preparation for the upcoming acquisition of Surface
Specialties. The agreements provide: a $725.0 5-year term loan facility, a
$700.0 364-day credit facility, and a $350.0 5-year revolving credit facility.
The term loan and 364-day facilities will be used to finance the acquisition and
the revolving credit facility will provide additional liquidity for general
corporate purposes, including acquisitions. The facilities contain covenants
that are customary for such facilities.

On October 1, 2004, the Company announced that it had signed a definitive
agreement to purchase the Surface Specialties business of UCB, a Belgium
biopharmaceutical and specialty chemical company, for cash and stock, valued at
that time, of 1.5 billion euros. In early February 2005, the Company reached
agreement with UCB to modify the terms of the purchase agreement. Assuming the
dollar to euro exchange rate is 1.3 to 1 and Cytec common stock is $51 per
share, the transaction would be valued at $1.841 billion of which 1.140 billion
euros ($1.482 billion) will be paid in cash and the balance will be paid in
5,772,857 shares of Cytec common stock ($294.0). In addition, there is
contingent consideration up to a maximum of 50 million euros ($65.0), of which
20 million euros ($26.0) will be paid up front with the balance payable in 2006.
The contingent consideration will be earned on a pro-rata basis pending the
achievement of certain operating results by Surface Specialties in 2005. UCB
also agreed to reimburse Cytec 15 million euros ($19.5) for transaction related
costs. The acquisition is subject to customary closing conditions including the
approval of the U.S. Federal Trade Commission. The Company anticipates closing
on this transaction in the first quarter of 2005.

Upon closing, UCB would own approximately 12% of the outstanding shares of
Cytec and will enter into a stockholders agreement that will provide that UCB
must reduce its stake to less than 9% within three years, less than 7% within
four years and less than 5% within five years and that will contain other
customary terms and provisions.

At closing, the Company expects to finance the cash portion of the
acquisition with combined bank borrowings of approximately $1,320.0 under the
two acquisition related credit facilities that were executed on February 15,
2005 and approximately $200.0 of available cash balances. Approximately $600.0
of the bank debt will be refinanced on a long-term basis in the public debt
markets after the acquisition.

The acquisition complements Cytec's existing product lines in the
Performance Products segment by significantly increasing Cytec's product
offering to the coatings industries including the general industrial,
automotive, architectural, plastic, graphic arts and wood sectors.

The global Surface Specialties business had sales and earnings before
interest, taxes and depreciation prepared in accordance with accounting
principles generally accepted in Belgium and which are unaudited, of 1.112
billion euros and 147 million euros, respectively, ($1.446 billion and $191
million, respectively, at 1.3 U.S. dollar per euro) in 2004. Many of the Surface
Specialties product lines such as UV cure, powder and waterborne systems have
above average growth rates.

24


Cytec intends to operate the Surface Specialties business as a separate
segment and will integrate the existing Cytec coatings chemicals and performance
chemicals product lines into the new segment.

Surface Specialties also has a significant amino resins business. The
Company has agreed with the European Union Commission, and expects to reach a
similar agreement with the U.S. Federal Trade Commission, that it will divest
UCB's amino resins business after it purchases Surface Specialties and that
prior to the divestment, Surface Specialties amino resins business will be held
separately and will report to an independent trustee. After the transaction is
consummated, for the duration that the resins business is owned by Cytec, its
results of operations will be classified as results from discontinued operations
on Cytec's consolidated statements of income. The Company will use the proceeds
to reduce debt. Sales of Surface Specialties' amino resin product line, prepared
in accordance with accounting principles generally accepted in Belgium and which
are unaudited in 2004, were approximately $150.0.

Through February 16, 2005, the Company has entered into $623.2 of
forward-starting interest rate swaps to hedge the benchmark interest rate and
credit spread on a portion of the debt that will be issued to finance the
acquisition of Surface Specialties. The weighted-average interest rate of 4.69%
for the U.S dollar swaps includes the current swap credit spread of
approximately 38 basis points and premium of approximately 3 basis points for
the forward starting element of the swap. The corresponding euro swaps have a
weighted-average interest rate of 3.97% and include the current swap credit
spread of approximately 16 basis points and premium of approximately 1 basis
point for the forward starting element of the swap. The credit spread portion of
the swaps are representative of AA rated 10-year notes and serve as a proxy
credit spread for the Company. The Company's actual credit spread at the time of
debt issuance will be determined primarily based on its actual credit rating and
market conditions. The swaps, which mature in March 2005, are marked to market
and recorded currently in earnings until maturity or settlement. As of February
16, 2005, the Company has hedged approximately 90% of the anticipated portion of
the purchase price that will be refinanced with long-term debt. As of February
16, 2005, the net impact of the marked to market value on these swaps was a loss
of approximately $13.7 of which $6.5 was recorded in 2004.

Through February 16, 2005, the Company has entered into foreign currency
forward contracts totaling 1.002 billion euros that relate to approximately 84%
of the euro exposure of 1.190 billion for the cash component of the Surface
Specialties acquisition. The Company has hedged approximately 93% of the cash
euro exposure with these forward contracts together with natural hedges of
approximately 100.8 euros. The forward contracts, which mature on February 28,
2005, are marked to market and recorded currently in earnings until settlement
or maturity. As of February 16, 2005, the cumulative impact of the marked to
market adjustment on these forward contracts and certain forward contracts which
were closed during 2004, was a net loss of approximately $8.7. A gain of $33.3
was recorded in 2004 of which $18.9 was realized.

In connection with the acquisition, the Company suspended its stock
buy-back program and does not anticipate making future stock buy-backs for at
least two years following closing in order to maximize funds available for debt
service and other corporate purposes.

The Company believes that, based on its expected operating results for
2005, it will be able to fund operating cash requirements, including the debt
service requirements related to the anticipated acquisition of Surface
Specialties, planned capital expenditures and dividends from internal cash
generation, which would include cash generated from the operations of Surface
Specialties after acquisition.

At December 31, 2004 and 2003, long-term debt, including the current
portion in 2004, consisted of the following:



2004 2003
- ------------------------------------------------- ---------------------------- -----------------------------
Carrying Carrying
Face Value Face Value
--------------- ------------ -------------- --------------

6.75% Notes Due March 15, 2008 $100.0 $98.2 $100.0 $ 97.7
6.846% Mandatory Par Put Remarketed Securities 120.0 119.0 120.0 118.9
4.60% Notes Due July 1, 2013 200.0 201.9 200.0 199.6
- ------------------------------------------------- --------------- ------------ -------------- --------------
420.0 419.1 420.0 416.2
Less: Current maturities 120.0 119.0 - -
- ------------------------------------------------- --------------- ------------ -------------- --------------
Long-term debt $300.0 $300.1 $420.0 $416.2
- ------------------------------------------------- --------------- ------------ -------------- --------------


Refer to Note 9 of the Notes to Consolidated Financial Statements for
additional detail.

The Company has not guaranteed any indebtedness of its unconsolidated
associated company.

25


Excluding the impact of increasing raw materials, inflation is considered
insignificant since the rate of inflation has remained relatively low in recent
years and investments in areas of the world where inflation poses a risk are
limited. The impact of increasing raw material costs are discussed under
"Customers and Suppliers" in "Business" in Item 1.

Contractual Obligations and Commercial Commitments

The following table sets forth our contractual obligations as of December
31, 2004:



Payments Due by Period
------------ -------------- -------------- --------------- --------------
Less Than More than
Contractual Obligations Total 1 Year 1-3 Years 3-5 Years 5 Years
- ---------------------------------- ------------ -------------- -------------- --------------- --------------

Long-term debt $ 420.0 $ 120.0 $ 100.0 $ 200.0
Operating leases 45.3 9.1 $ 11.4 5.2 19.6
Purchase obligations 46.6 13.7 16.1 8.8 8.0
Unfunded employee benefits 16.1 1.4 4.1 4.4 6.2
------------ -------------- -------------- --------------- --------------
Total $ 528.0 $ 144.2 $ 31.6 $ 118.4 $ 233.8
- ---------------------------------- ------------ -------------- -------------- --------------- --------------


The Company had net contractual commitments under currency forward
contracts in U. S. dollar equivalent amounts of $35.7, excluding those entered
into in connection with the pending acquisition which are discussed above, that
all settle in less than one year. At December 31, 2004, the Company also had
$14.9 of natural gas forward contracts that settle in less than one year. (Refer
to Item 7A included herein as well as Note 4 of the Notes to Consolidated
Financial Statements).

The Company had $25.2 of outstanding letters of credit, surety bonds and
bank guarantees at December 31, 2004 that are issued on the Company's behalf in
the ordinary course of business to support certain performance obligations and
commitments of the Company. The instruments are typically renewed on an annual
basis.

The Company does not have any unconsolidated limited purpose entities or
any undisclosed material transactions or commitments involving related persons
or entities.


26


Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The following discussion provides forward-looking quantitative and
qualitative information about the Company's potential exposures to market risk
arising from changes in currency rates, commodity prices, interest rates and
equity price changes. Actual results could differ materially from those
projected in this forward-looking analysis. Dollars are in millions.

Market risk represents the potential loss arising from adverse changes in
the value of financial instruments. The risk of loss is assessed based on the
likelihood of adverse changes in fair values, cash flows or future earnings.

In the ordinary course of business, the Company is exposed to various
market risks, including fluctuations in currency rates, commodity prices and
interest rates. To manage the exposure related to these risks, the Company may
engage in various derivative transactions in accordance with Company-established
policies. The Company does not hold or issue financial instruments for trading
or speculative purposes. Moreover, the Company enters into financial instrument
transactions with either major financial institutions or highly-rated
counterparties and makes reasonable attempts to diversify transactions among
counterparties, thereby limiting exposure to credit related and performance
related risks.

Currency Risk: The risk of adverse currency rate fluctuations is mitigated
by the fact that, except for the currency exposure related to the pending
acquisition of Surface Specialties (Refer to "Liquidity and Financial Condition"
in Item 7, "Management's Discussion and Analysis of Financial Condition and
Results of Operations"), there is no concentration of currency exposure outside
the U. S. In addition, the Company periodically enters into currency forward
contracts primarily to hedge currency fluctuations of transactions denominated
in currencies other than the functional currency of the business. At December
31, 2004, the principal transactions hedged involved accounts receivable,
accounts payable and intercompany loans. When hedging currency exposures, the
Company's practice is to hedge such exposures with forward contracts denominated
in the same currency and with similar critical terms as the underlying exposure,
and therefore, the instruments are effective at generating offsetting changes in
the fair value, cash flows or future earnings of the hedged item or transaction.

At December 31, 2004, except for the currency hedges entered into as part
of the pending acquisition of Surface Specialties (Refer to "Liquidity and
Financial Condition" in Item 7, "Management's Discussion and Analysis of
Financial Condition and Results of Operations"), the currency and net
contractual amounts of forward contracts outstanding translated into U. S.
dollar equivalent amounts were as follows:

Buy
-----------------------------------------
Pound Canadian
Sell Euro Sterling Dollar
---------------------- ---------- ---------------- -------------

U. S. Dollar $24.2 $1.0 $2.5
Euro - 0.9 -
Norwegian Krone 6.3 - -
Other 0.8 - -
---------------------- ---------- ---------------- -------------

The fair value of currency contracts, based on forward exchange rates at
December 31, 2004, exceeded contract values by approximately $0.9. Assuming that
year-end exchange rates between the underlying currencies of all outstanding
contracts and the various hedged currencies were to adversely change by a
hypothetical 10%, the change in the fair value of all outstanding contracts at
year-end would be a decrease of approximately $3.7. However, since these
contracts hedge specific transactions, any change in the fair value of the
contracts would be offset by changes in the underlying value of the transaction
being hedged. Assuming that year-end dollar-to-euro exchange rate were to
adversely change by a hypothetical 10%, the change in the fair value of the
foreign currency forward contracts associated with the pending acquisition of
Surface Specialties would be a decrease of approximately $95.9.

Commodity Price Risk: The Company uses natural gas forward contracts, which
are physically settled, to hedge certain utility requirements. The maturities of
these contracts correlate highly to the actual purchases of the commodity and
have the effect of securing predetermined prices that the Company pays for the
underlying commodity. While these contracts are structured to limit the
Company's exposure to increases in commodity prices, they can also limit the
potential benefit the Company might have otherwise received from decreases in
commodity prices. Because the Company takes physical delivery of the commodity,
these contracts are not required to be recognized on the balance sheet at fair
value. Instead, realized gains and losses are included in the cost of the
commodity upon settlement of the contract.

At December 31, 2004, the Building Block Chemicals segment Fortier plant's
2005 forecasted natural gas utility requirements were 51% hedged utilizing
natural gas forward contracts. These contracts had a notional value of $14.9 and
have delivery dates from January 2005 through December 2005. Based on year-end
NYMEX prices, the Company had net unrealized losses on its natural gas forward
contracts at December 31, 2004 of $1.6. Assuming that year-end natural gas
prices were to decrease by a hypothetical 10%, the above loss would be increased
by approximately $1.4.

27


At December 31, 2004 and 2003, the Company had outstanding natural gas
swaps with a fair value loss of $0.7 and a fair value gain of $0.3, net of
taxes, respectively.

Interest Rate Risk: At December 31, 2004, the outstanding borrowings of the
Company consisted of fixed rate long-term debt, including the current portion,
which had a carrying value of $419.1 a face value of $420.0 and a fair value,
based on dealer quoted values, of approximately $418.8.

During 2004, the Company terminated certain interest rate swaps which had
been designated as cash flow hedges. The net gain thereon of $2.9 is being
amortized over the life of the 4.60% Notes as a decrease to interest expense of
such notes. The amount of the unamortized swap settlement included in long-term
debt was $2.7 at December 31, 2004.

Assuming other factors are held constant, interest rate changes generally
affect the fair value of fixed rate debt. Accordingly, assuming a hypothetical
increase of 1% in interest rates and all other variables remaining constant,
interest expense would not change, however, the fair value of the fixed rate
long-term debt would decrease by approximately $16.1.

To hedge the benchmark interest rate and credit spread on a portion of the
debt that will be issued to finance the acquisition of Surface Specialties, the
Company entered into forward-starting interest rate swaps (Refer to "Liquidity
and Financial Condition" in Item 7, "Management's Discussion and Analysis of
Financial Condition and Results of Operations"). Assuming a hypothetical
decrease of 1% in interest rates and all other variables remaining constant, the
fair value of the forward-starting interest rate swaps would decrease by
approximately $56.8.

OTHER

2005 OUTLOOK

The Company intends to provide its earnings outlook for 2005 after it
closes on the pending acquisition of Surface Specialties. The closing is
anticipated to take place about February 28, 2005 and therefore the Company
anticipates that it will be able to provide its 2005 outlook when it reports
first quarter earnings in May 2005.

CRITICAL ACCOUNTING POLICIES

Accounting principles generally accepted in the United States require
management to make certain estimates and assumptions. These estimates and
assumptions affect the reported amounts in the consolidated financial statements
and the notes thereto. The areas discussed below involve the use of significant
judgment in the preparation of the Company's consolidated financial statements
and changes in the estimates and assumptions used may impact future results of
operations and financial condition.

Environmental and Other Contingent Liabilities

Accruals for environmental remediation and operating and maintenance costs
directly related to remediation, and other contingent liabilities are recorded
when it is probable that a liability has been incurred and the amount of the
liability can be reasonably estimated. Accruals are recorded at management's
best estimate of the ultimate expected liabilities, without any discount to
reflect the time value of money. These accruals are reviewed periodically and
adjusted, if necessary, as additional information becomes available.

The amount accrued for environment remediation reflects the Company's
assumptions about remediation requirements at the contaminated site, the nature
and cost of the remedy, the outcome of discussions with regulatory agencies and
other potentially responsible parties at multi-party sites, and the number and
financial viability of other potentially responsible parties.

Included in other contingent liabilities are workers' compensation, product
liability and toxic tort claims. The amount accrued for other contingent
liabilities reflects the Company's assumptions about the incidence, severity,
indemnity costs and dismissal rates for existing and future claims.

Accruals for environmental remediation and other contingent liabilities can
change substantially if the Company's assumptions are not realized or due to
actions by governmental agencies or private parties. The Company cannot estimate
any additional amount of loss or range of loss in excess of the recorded
amounts. Moreover, environmental and other contingent liabilities are paid over
an extended period, and the timing of such payments cannot be predicted with any
certainty. Accruals for environmental and other contingent liabilities are
recorded as other noncurrent liabilities with any amounts expected to be paid
out in the next twelve months classified as accrued expenses.

28


Probable insurance recoveries for past and probable future costs are
recorded at management's best estimate of the ultimate expected receipts without
discounting to reflect the time value of money and are recorded as other assets.
A number of factors impact the estimates of insurance reimbursements. These
factors include the financial viability of the insurance companies, the method
in which losses will be allocated to the various insurance policies, how legal
and defense costs will be covered by the insurance polices, the interpretation
of the effect on coverage of various policy terms and limits and their
interrelationships, and the Company's historical recovery rates over the past
ten years.

Defense and processing costs are expensed as incurred. Probable insurance
recoveries for defense and processing costs are accrued when the related costs
are incurred and are recorded as other assets.

For additional information refer to Note 10 of the Notes to Consolidated
Financial Statements and Schedule II, "Valuation and Qualifying Accounts."

Retirement Plans

The Company sponsors defined benefit pension and postretirement benefit
plans. The postretirement plans provide medical and life insurance benefits to
retirees who meet minimum age and service requirements. The Company's most
significant pension plans are in the U. S., and constituted over 76% of the
Company's consolidated pension assets and 78% of projected benefit obligations
as of December 31, 2004. The calculation of the Company's pension expense and
pension liability associated with its defined benefit pension plans requires the
use of a number of assumptions that the Company deems to be "critical accounting
estimates." Changes in these assumptions can result in different pension expense
and liability amounts, and actual experience can differ from the assumptions.
The Company believes that the most critical assumptions are the discount rate
and the expected rate of return on plan assets.

At the end of each year, the Company determines the discount rate to be
used for pension liabilities. In estimating this rate, the Company looks to
rates of return on high quality, long term corporate bonds that receive one of
the two highest ratings given by a recognized ratings agency. The Company
discounted its U.S. future pension liabilities using rates of 5.75% and 6.25% at
December 31, 2004 and 2003, respectively. The discount rate used to determine
the value of liabilities has a significant effect on expense. For example, a
change of a quarter percentage point in either direction in the discount rate
would change pension expense by approximately $1.7 and postretirement benefit
expense by a negligible amount.

The decrease in the discount rate assumption is expected to increase the
Company's net periodic pension expense for the U. S. pension plans by
approximately $3.4 million in 2005 compared with 2004. The Company's net
periodic benefit expense for the U. S. postretirement welfare plans is expected
to decrease by approximately $0.4 million in 2005 compared with 2004.

The expected rate of return on plan assets reflects the long-term average
rate of return expected on funds invested or to be invested in the pension plans
to provide for the benefits included in the pension liability. The Company
establishes the expected rate of return at the beginning of each fiscal year
based upon information available to the Company at that time, including the
historical returns of major asset classes, the expected investment mix of the
plans' assets, and estimates of future long-term investment returns. The U. S.
pension plan's investment mix at December 31, 2004 approximated 63% equities and
37% fixed income securities compared with 59% equities and 41% fixed income
securities at December 31, 2003. Any differences between actual experience and
assumed experience are deferred as an unrecognized actuarial gain or loss. The
unrecognized net actuarial gain or loss is amortized in accordance with
SFAS No. 87, "Employers' Accounting for Pensions".

The expected rate of return on assets in the U. S. pension plans is 8.5%
for 2005, the same expected return as 2004. A change of a quarter percentage
point in either direction in the expected rate of return on plan assets would
change pension expense by approximately $1.0 and net postretirement expense by
approximately $0.2 for 2005.

Pension plan and postretirement plan contributions in fiscal 2005 are
expected to be $15.8 and $20.5, respectively. The estimate of contributions is
based on significant assumptions, such as pension plan benefit levels, interest
rate levels and the amount and timing of asset returns. Actual contributions
could differ from this estimate.

For additional information refer to Note 12 of the Notes to Consolidated
Financial Statements.

29


Impairment of Goodwill

The Company has defined its segments as its SFAS No. 142 reporting units.
The Company tests goodwill for impairment on an annual basis. Goodwill of a
reporting unit will be tested for impairment between annual tests if events
occur or circumstances change that would likely reduce the fair value of the
reporting unit below its carrying value. The Company uses a two-step process to
test goodwill for impairment. First, the reporting unit's fair value is compared
to its carrying value. The Company utilizes a market multiple approach to
determine fair value estimates. Due to the cyclical nature of the Company's
reporting unit's, values are determined utilizing a three year average. The
three year period is comprised of the prior year, current year and one year
projected amounts. If the market multiple approach yields a result, which may
indicate a possible impairment, a discounted cash flow approach is utilized to
more precisely determine the reporting unit's fair value. If a reporting unit's
carrying amount exceeds its fair value, an indication exists that the reporting
unit's goodwill may be impaired, and the second step of the impairment test
would be performed. The second step of the goodwill impairment test is used to
measure the amount of the impairment loss. In the second step, the implied fair
value of the reporting unit's goodwill is determined by allocating the reporting
unit's fair value to all of its assets and liabilities other than goodwill in a
manner similar to a purchase price allocation. The resulting implied fair value
of the goodwill that results from the application of this second step is then
compared to the carrying amount of the goodwill and an impairment charge is
recorded for the difference.

Intangible assets with determinable useful lives are amortized over their
respective estimated useful lives and reviewed for impairment when events or
changes in circumstances indicate that the carrying value may not be
recoverable.

These evaluations involve amounts that are based on management's best
estimates and judgments. Because of the uncertainty inherent in such estimates,
actual results may differ from these estimates. The Company is not aware of
reasonably likely events or circumstances that would result in different amounts
being estimated that would have a material impact on these assessments for
impairment.

Income Taxes

Income taxes are accounted for under the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
basis and operating loss and tax credit carryforwards. A valuation allowance is
provided when it is more likely than not that some portion or all of the
deferred tax assets will not be realized. Deferred tax assets and liabilities
are measured using enacted tax rates expected to apply to taxable income in the
years in which those temporary differences are expected to be recovered or
settled. The effect on deferred tax assets and liabilities of a change in tax
rates is recognized in earnings in the period that includes the enactment date.

The Company intends to reinvest the unremitted earnings of international
subsidiaries. Accordingly, no provision has been made for U.S. or additional
non-U.S. taxes with respect to these earnings. In the event of repatriation to
the U.S., such earnings would be subject to U.S. income taxes in most cases.
Foreign tax credits would be available to substantially reduce the amount of
U.S. tax otherwise payable in future years.

The Company's annual effective tax rate is based on expected income,
statutory tax rates and tax planning opportunities available in various
jurisdictions in which the Company operates. Significant judgment is required in
determining the Company's annual effective tax rate and in evaluating its tax
positions.

The Company establishes accruals for tax contingencies when,
notwithstanding the reasonable belief that its tax return positions are fully
supported, the Company believes that certain filing positions are likely to be
challenged and moreover, that such filing positions may not be fully sustained.

The Company continually evaluates its tax contingency accruals and will
adjust such amounts in light of changing facts and circumstances, including but
not limited to emerging case law, tax legislation, rulings by relevant tax
authorities, and the progress of ongoing tax audits. Settlement of a given tax
contingency could impact the income tax provision in the year of resolution. The
Company's tax contingency accruals are presented in the balance sheet within
income taxes payable.

30


Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Consolidated Balance Sheets
(Dollars in millions, except per share amounts)


December 31,
------------------------------------
2004 2003
- ------------------------------------------------------------------------------------ ------------------ -----------------
Assets
Current assets

Cash and cash equivalents $ 323.8 $ 251.1
Trade accounts receivable, less allowance for doubtful accounts of
$6.7 and $7.6 in 2004 and 2003, respectively 248.2 217.1
Other accounts receivable 54.1 50.2
Inventories 222.1 176.0
Deferred income taxes 27.3 26.8
Other current assets 29.3 8.8
- ------------------------------------------------------------------------------------ ------------------ -----------------
Total current assets 904.8 730.0
- ------------------------------------------------------------------------------------ ------------------ -----------------

Investment in associated companies 85.5 82.1
Plants, equipment and facilities, at cost 1,627.2 1,538.3
Less: accumulated depreciation (948.6) (875.4)
- ------------------------------------------------------------------------------------ ------------------ -----------------
Net plant investment 678.6 662.9
- ------------------------------------------------------------------------------------ ------------------ -----------------
Acquisition intangibles, net of accumulated amortization of
$23.1 and $16.6 in 2004 and 2003, respectively 66.8 69.9
Goodwill 342.4 339.7
Deferred income taxes 66.8 67.1
Other assets 81.2 74.2
- ------------------------------------------------------------------------------------ ------------------ -----------------
Total assets $2,226.1 $2,025.9
- ------------------------------------------------------------------------------------ ------------------ -----------------

Liabilities
Current liabilities
Accounts payable $ 138.1 $ 93.5
Short-term borrowings - 9.3
Current maturity of long-term debt 119.0 -
Accrued expenses 178.1 170.5
Income taxes payable 61.5 63.2
- ------------------------------------------------------------------------------------ ------------------ -----------------
Total current liabilities 496.7 496.7
- ------------------------------------------------------------------------------------ ------------------ -----------------
Long-term debt 300.1 416.2
Pension and other postretirement benefit liabilities 348.3 345.0
Other noncurrent liabilities 174.5 172.8

Stockholders' equity
Preferred stock, 20,000,000 shares authorized; issued and outstanding 0 and 4,000
shares at 2004 and 2003, respectively, Series C Cumulative, $.01 par value; - 0.1
liquidation value of $25 per share
Common stock, $.01 par value per share, 150,000,000 shares authorized;
issued 48,132,640 shares 0.5 0.5
Additional paid-in capital 122.8 122.2
Retained earnings 1,083.1 982.9
Accumulated other comprehensive income (loss):
Unearned compensation (3.1) (5.3)
Minimum pension liability (108.6) (96.8)
Unrealized net (losses) gains on cash flow hedges (0.5) 0.3
Accumulated translation adjustments 73.3 38.0
- ------------------------------------------------------------------------------------ ------------------ -----------------
(38.9) (63.8)
Treasury stock, at cost, 8,297,863 shares in 2004 and 9,139,897 shares in 2003 (261.0) (286.5)
- ------------------------------------------------------------------------------------ ------------------ -----------------
Total stockholders' equity 906.5 755.4
- ------------------------------------------------------------------------------------ ------------------ -----------------
Total liabilities and stockholders' equity $2,226.1 $2,025.9
- ------------------------------------------------------------------------------------ ------------------ -----------------

See accompanying Notes to Consolidated Financial Statements


31


Consolidated Statements of Income
(Dollars in millions, except per share amounts)


Years ended December 31,
-------------------------------------------------
2004 2003 2002
- ----------------------------------------------------------------------------- ----------------- --------------- ---------------

Net sales $1,721.3 $1,471.8 $1,346.2
Manufacturing cost of sales 1,311.2 1,114.9 1,020.4
Selling and technical services 139.8 126.9 122.6
Research and process development 40.0 35.2 33.7
Administrative and general 65.1 49.7 47.0
Amortization of acquisition intangibles 5.6 4.0 3.1
- ----------------------------------------------------------------------------- ----------------- --------------- ---------------
Earnings from operations 159.6 141.1 119.4
Other income (expense), net 16.9 (5.7) 1.2
Equity in earnings of associated companies 5.2 7.2 6.1
Interest expense, net 17.4 16.2 16.5
- ----------------------------------------------------------------------------- ----------------- --------------- ---------------
Earnings before income taxes and cumulative effect of accounting change 164.3 126.4 110.2
Income tax provision 38.2 35.4 30.9
- ----------------------------------------------------------------------------- ----------------- --------------- ---------------
Earnings before cumulative effect of accounting change 126.1 91.0 79.3
Cumulative effect of accounting change, net of taxes of $7.3 - (13.6) -
- ----------------------------------------------------------------------------- ----------------- --------------- ---------------
Net earnings 126.1 77.4 79.3
Premium paid to redeem preferred stock 9.9 - -
- ----------------------------------------------------------------------------- ----------------- --------------- ---------------
Net earnings available to common stockholders $ 116.2 $ 77.4 $ 79.3
- ----------------------------------------------------------------------------- ----------------- --------------- ---------------

Basic earnings per common share:
Net earnings available to common stockholders before cumulative effect
of accounting change $ 2.94 $ 2.34 $ 2.01
Cumulative effect of accounting change - (0.35) -
- ----------------------------------------------------------------------------- ----------------- --------------- ---------------
Net earnings available to common stockholders $ 2.94 $ 1.99 $ 2.01
- ----------------------------------------------------------------------------- ----------------- --------------- ---------------

Diluted earnings per common share:
Net earnings available to common stockholders before cumulative effect
of accounting change $ 2.84 $ 2.27 $ 1.96
Cumulative effect of accounting change - (0.34) -
- ----------------------------------------------------------------------------- ----------------- --------------- ---------------
Net earnings available to common stockholders $ 2.84 $ 1.93 $ 1.96
- ----------------------------------------------------------------------------- ----------------- --------------- ---------------
Dividends per common share $ 0.40 - -
- ----------------------------------------------------------------------------- ----------------- --------------- ---------------

See accompanying Notes to Consolidated Financial Statements


32


Consolidated Statements of Cash Flows
(Dollars in millions)


Years ended December 31,
-------------------------------------------------
2004 2003 2002
- ----------------------------------------------------------------------------- ----------------- --------------- ---------------

Cash flows provided by (used in) operating activities

Net earnings $ 126.1 $ 77.4 $ 79.3
Noncash items included in net earnings:
Dividends from associated companies less than earnings (2.6) (1.8) (5.5)
Depreciation 86.6 85.9 81.5
Amortization 12.2 7.7 2.2
Deferred income taxes 16.4 14.5 27.9
Loss on asset write-off - - 7.2
Unrealized net gains on derivative instruments (7.9) - -
Gain on sale of assets - - (1.2)
Cumulative effect of accounting change, net of taxes - 13.6 -
Other 0.7 (0.5) 0.5
Changes in operating assets and liabilities (excluding effect of
acquisitions):
Trade accounts receivable (24.1) 13.6 (12.5)
Other receivables (2.0) (7.9) (4.1)
Inventories (38.7) (12.2) 21.9
Accounts payable 36.5 (13.4) 20.7
Accrued expenses (7.3) (8.6) 19.3
Income taxes payable 7.9 9.2 9.4
Other assets 0.4 (1.1) (4.6)
Other liabilities (36.8) (44.0) (30.4)
- ----------------------------------------------------------------------------- ----------------- --------------- ---------------
Net cash flows provided by operating activities 167.4 132.4 211.6
- ----------------------------------------------------------------------------- ----------------- --------------- ---------------
Cash flows provided by (used in) investing activities
Additions to plants, equipment and facilities (89.3) (93.8) (62.2)
Proceeds received on sale of assets 0.7 0.1 6.3
Business acquisition costs (4.6) - -
Acquisition of product lines, net of cash received - (101.6) -
Advance payment received on land lease 9.1 - -
Investment in unconsolidated affiliates - - (0.5)
- ----------------------------------------------------------------------------- ----------------- --------------- ---------------
Net cash used in investing activities (84.1) (195.3) (56.4)
- ----------------------------------------------------------------------------- ----------------- --------------- ---------------
Cash flows provided by (used in) financing activities
Proceeds from the exercise of stock options and warrants 24.6 14.5 3.1
Purchase of treasury stock (13.1) (27.7) (32.7)
Cash dividends (15.7)
Redemption of Series C preferred stock (10.0)
Change in short term borrowings (9.3) (0.3) -
Payments of long-term debt - (100.0) -
Proceeds from long-term debt - 198.9 -
Proceeds from termination of interest rate swap 2.9
Proceeds received on sale of put options - - 0.3
Repayment of seller-financed debt - - (7.4)
- ----------------------------------------------------------------------------- ----------------- --------------- ---------------
Net cash provided by (used in) financing activities (20.6) 85.4 (36.7)
- ----------------------------------------------------------------------------- ----------------- --------------- ---------------
Effect of currency rate changes on cash and cash equivalents 10.0 18.6 7.9
- ----------------------------------------------------------------------------- ----------------- --------------- ---------------
Increase in cash and cash equivalents 72.7 41.1 126.4
Cash and cash equivalents, beginning of year 251.1 210.0 83.6
- ----------------------------------------------------------------------------- ----------------- --------------- ---------------
Cash and cash equivalents, end of year $323.8 $ 251.1 $ 210.0
- ----------------------------------------------------------------------------- ----------------- --------------- ---------------

See accompanying Notes to Consolidated Financial Statements


33


Consolidated Statements of Stockholders' Equity
Years ended December 31, 2004, 2003 and 2002
(Dollars in millions)


Accumulated other comprehensive income(loss)
-------------------------------------------
Additional Unrealized net
Minimum (losses) gains
Additional Unearned Pension on Accumulated
Preferred Common Paid-in Retained Compen- Liability Derivative Translation Treasury
Stock Stock Capital Earnings sation Instruments Adjustment Stock Total
- ------------------------------------------------------------------------------------------------------------------------

Balance at
December 31, 2001 $0.1 $0.5 $136.7 $ 826.2 $(4.0) $(5.4) $0.0 $(46.5) $(270.7) $636.9
- ------------------------------------------------------------------------------------------------------------------------
Net earnings -- -- -- 79.3 -- -- -- -- -- $79.3
Other comprehensive
income:
Minimum pension
liability
adjustment, net of
taxes of $46.7 -- -- -- -- -- (92.6) -- -- -- (92.6)
Translation
adjustments -- -- -- -- -- -- -- 27.7 -- 27.7
---------
Comprehensive income $14.4
Award of, and changes
in, performance &
restricted stock -- -- (1.5) -- (1.5) -- -- -- 3.4 0.4
Amortization of
performance
& restricted stock -- -- -- -- (1.3) -- -- -- -- (1.3)
Purchase of treasury
stock -- -- -- -- -- -- -- -- (32.7) (32.7)
Exercise of stock
options -- -- (6.2) -- -- -- -- -- 9.3 3.1
Premiums received on
sales of put options -- -- 0.3 -- -- -- -- -- -- 0.3
Tax benefit on stock
options -- -- 1.8 -- -- -- -- -- -- 1.8
- ------------------------------------------------------------------------------------------------------------------------
Balance at
December 31, 2002 $0.1 $0.5 $131.1 $905.5 $(6.8) $(98.0) $0.0 $(18.8) $(290.7) $622.9
- ------------------------------------------------------------------------------------------------------------------------
Net earnings -- -- -- 77.4 -- -- -- -- -- $77.4
Other comprehensive
income:
Minimum pension
liability
adjustment, net of
taxes of $2.4 -- -- -- -- -- 1.2 -- -- -- 1.2
Unrealized net gains
on derivative
instruments -- -- -- -- -- -- 0.3 -- -- 0.3
Translation
adjustments -- -- -- -- -- -- -- 56.8 -- 56.8
---------
Comprehensive income $135.7
Award of, and changes
in, performance &
restricted stock -- -- 2.3 -- (0.4) -- -- -- (1.7) 0.2
Amortization of
performance
& restricted stock -- -- -- -- 1.9 -- -- -- -- 1.9
Purchase of treasury
stock -- -- -- -- -- -- -- -- (27.7) (27.7)
Exercise of stock
options -- -- (19.1) -- -- -- -- -- 33.6 14.5
Tax benefit on stock
options -- -- 7.9 -- -- -- -- -- -- 7.9
- ------------------------------------------------------------------------------------------------------------------------
Balance at
December 31, 2003 $0.1 $0.5 $122.2 $982.9 $(5.3) $(96.8) $0.3 $ 38.0 $(286.5) $ 755.4
- ------------------------------------------------------------------------------------------------------------------------
Net earnings -- -- -- 126.1 -- -- -- -- -- $126.1
Other comprehensive
income:
Minimum pension
liability
adjustment, net of
taxes of $17.6 -- -- -- -- -- (11.8) -- -- -- (11.8)
Unrealized net losses
on
derivative
instruments -- -- -- -- -- (0.8) -- -- (0.8)
Translation
adjustments -- -- -- -- -- -- -- 35.3 -- 35.3
---------
Comprehensive income $148.8
Award of, and changes
in,
performance &
restricted stock -- -- 2.6 -- (2.4) -- -- -- 0.3 0.5
Amortization of
performance
& restricted stock -- -- -- -- 4.6 -- -- -- -- 4.6
Purchase of treasury
stock -- -- -- -- -- -- -- -- (13.1) (13.1)
Redemption of preferred
stock (0.1) -- -- (9.9) -- -- -- -- -- (10.0)
Dividends:
Common stock
outstanding -- -- -- (15.7) -- -- -- -- -- (15.7)
Deferred and unvested
common stock -- -- -- (0.3) -- -- -- -- -- (0.3)
Exercise of stock
options -- -- (13.7) -- -- -- -- -- 38.3 24.6
Tax benefit on stock
options -- -- 11.7 -- -- -- -- -- -- 11.7
- ------------------------------------------------------------------------------------------------------------------------
Balance at
December 31, 2004 -- $0.5 $122.8 $1,083.1 $(3.1) $(108.6) $(0.5) $ 73.3 $(261.0) $ 906.5
- ------------------------------------------------------------------------------------------------------------------------
See accompanying Notes to Consolidated Financial Statements


34


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions, except per share amounts, unless otherwise indicated).

1. SUMMARY OF ACCOUNTING POLICIES

Nature of Business and Consolidation Policy: The Company is a global
specialty chemicals and specialty materials company that focuses on value-added
products. The Company serves major markets for aerospace, automotive and
industrial coatings, chemical intermediates, mining, plastics and water
treatment. The Company has manufacturing facilities in ten countries and sells
its products worldwide. The consolidated financial statements include the
accounts of the Company and its subsidiaries on a consolidated basis.
Intercompany transactions and balances have been eliminated. The equity method
of accounting is used for investments in associated companies that the Company
does not control, but for which the Company has the ability to exercise
significant influence on operating and financial policy. Certain
reclassifications have been made to prior years' consolidated financial
statements in order to conform to the current year's presentation.

Currency Translation: Operations in non-U. S. subsidiaries are recorded in
local currencies which are also the functional currencies for financial
reporting purposes. The results of operations for non-U. S. subsidiaries are
translated from local currencies into U. S. dollars using the average currency
rate during each period which approximates the results that would be obtained
using actual currency rates on the dates of individual transactions. Assets and
liabilities are translated using currency rates at the end of the period with
translation adjustments recorded in accumulated translation adjustments and
recognized as a component of other comprehensive income. Transaction gains and
losses are recorded as incurred in other income (expense), net in the
Consolidated Statements of Income.

Depreciation: Depreciation in the United States and Canada is provided
primarily on a straight-line composite method over the estimated useful lives of
various classes of assets, with rates periodically reviewed and adjusted if
necessary. When such depreciable assets are sold or otherwise retired from
service, their costs plus demolition costs less amounts realized on sale or
salvage are charged or credited to the accumulated depreciation account. The
average composite depreciation rates, expressed as a percentage of the average
depreciable property in service, were 5.8% in 2004, 6.1% in 2003 and 6.4% in
2002. Depreciation for assets outside the United States and Canada is provided
on a straight-line basis over the estimated useful lives of the assets.
Expenditures for maintenance and repairs are charged to current operating
expenses. Acquisitions, additions and betterments, either to provide necessary
capacity, improve the efficiency of production units, modernize or replace older
facilities or to install equipment for protection of the environment, are
capitalized. The Company capitalizes interest costs incurred during the period
of construction of plants and equipment.

Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed:
Long-lived assets and intangible assets with determinable useful lives are
reviewed for impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable. Recoverability of
assets to be held and used is measured by a comparison of the carrying amount of
the assets to the future undiscounted net cash flows expected to be generated by
the asset. If such assets are considered to be impaired, the impairment to be
recognized is measured by the amount by which the carrying amount of the assets
exceeds the fair value of the assets and would be charged to earnings. Assets to
be disposed of are reported at the lower of the carrying amount or fair value
less the costs to sell. Intangible assets are amortized over their respective
estimated useful lives.

Goodwill: The Company has defined its product line segments as its SFAS 142
reporting units. The Company tests goodwill for impairment on an annual basis in
its fourth fiscal quarter. Goodwill of a reporting unit will be tested for
impairment between annual tests if events occur or circumstances change that
would likely reduce the fair value of the reporting unit below its carrying
value. The Company uses a two-step process to test goodwill for impairment.
First, the reporting units' fair value is compared to its carrying value. The
Company utilizes a market multiple approach to determine fair value estimates.
Due to the cyclical nature of the Company's reporting units, market multiple
values are determined utilizing a three-year average. The three-year period is
comprised of the prior year, current year and one year of projected amounts. If
the market multiple approach yields a result, which may indicate a possible
impairment, a discounted cash flow approach is utilized to more precisely
determine the reporting units' fair value. If a reporting unit's carrying amount
exceeds its fair value, an indication exists that the reporting unit's goodwill
may be impaired, and the second step of the impairment test would be performed.
The second step of the goodwill impairment test is used to measure the amount of
the impairment loss. In the second step, the implied fair value of the reporting
unit's goodwill is determined by allocating the reporting unit's fair value to
all of its assets and liabilities other than goodwill in a manner similar to a
purchase price allocation. The resulting implied fair value of the goodwill that
results from the application of this second step is then compared to the
carrying amount of the goodwill and an impairment charge would be recorded for
the difference.

Cash and Cash Equivalents: Securities with maturities of three months or
less when purchased are considered to be cash equivalents.

35


Financial Instruments: Financial instruments reflected in the Consolidated
Balance Sheets are recorded at cost which approximates fair value for cash and
cash equivalents, accounts receivable, certain other assets, accounts payable,
and certain other liabilities. Fair values are determined through a combination
of management estimates and information obtained from third parties using the
latest available market data. Long-term debt is carried at amortized cost.

The Company uses derivative instruments in accordance with
Company-established policies to manage exposure to fluctuations in currency
rates, certain commodity (e.g., natural gas) prices, interest rates and equity
prices. Derivative instruments currently utilized by the Company include
currency forward contracts, natural gas forward contracts and swaps, and
interest rate swaps. The Company does not hold or issue derivative financial
instruments for trading or speculative purposes. In conjunction with the pending
acquisition of the Surface Specialties business ("Surface Specialties") of UCB
Group ("UCB"), the Company entered into certain interest rate swap and foreign
currency derivatives during the fourth quarter of 2004. Changes in the fair
value of these contracts were recorded in other income (expense), net (Refer to
Note 2). The Company enters into financial instrument transactions with either
major financial institutions or highly-rated counterparties and makes reasonable
attempts to diversify transactions among counterparties, thereby limiting
exposure to credit related and performance related risks.

The Company periodically enters into currency forward contracts primarily
to hedge currency fluctuations of transactions denominated in currencies other
than the functional currency of the business. The principal transactions hedged
involve accounts receivable, accounts payable and intercompany loans. When
hedging currency exposures, the Company's practice is to hedge such exposures
with forward contracts denominated in the same currency and with similar
critical terms as the underlying exposure, and therefore, the instruments are
effective at generating offsetting changes in the fair value, cash flows or
future earnings of the hedged item or transaction.

Currency forward contracts are reported as either assets or liabilities on
the consolidated balance sheets with changes in their fair value recorded in
other income (expense), net, together with the offsetting gain or loss on the
hedged asset or liability. To the extent that the Company's strategy for
managing currency risk changes, including the use of derivative instruments
other than forward contracts or hedging other than recognized assets or
liabilities, the accounting methods used to record those transactions may differ
from the policies described above.

The Company uses natural gas forward contracts, which are physically
settled, to hedge certain utility requirements. The maturity of these contracts
correlate highly to the actual purchases of the commodity and have the effect of
securing predetermined prices that the Company pays for the underlying
commodity. While these contracts are structured to limit the Company's exposure
to increases in commodity prices, they can also limit the potential benefit the
Company might have otherwise received from decreases in commodity prices.
Because the Company takes physical delivery of the commodity, these contracts
are not required to be recognized on the balance sheet at fair value. Instead,
realized gains and losses are included in the cost of the commodity upon
settlement of the contract.

The Company also uses natural gas swaps, which are financially settled, to
hedge utility requirements at certain of its other facilities. These swaps,
which are highly effective at achieving offsetting cash flows of the underlying
natural gas purchases, have been designated as cash flow hedges and are reported
on the consolidated balance sheets at fair value, with offsetting amounts
included in unrealized net (losses) gains on cash flow hedges on an after-tax
basis. Gains and losses are reclassified into earnings, as a component of
manufacturing cost of sales in the period the hedged natural gas purchases
affect earnings.

Inventories: Inventories are carried at the lower of cost or market. Cost
is determined on the last-in, first-out ("LIFO") method for substantially all
inventories in the United States with all other inventories determined on the
first-in, first-out or average cost method.

Environmental and Other Contingent Liabilities: Accruals for environmental
remediation, maintenance and operating costs directly related to remediation,
and other contingent liabilities are recorded when it is probable that a
liability has been incurred and the amount of the liability can be reasonably
estimated. The amount accrued for environmental remediation reflects the
Company's assumptions about remediation requirements at the contaminated site,
the nature of the remedy, the outcome of discussions with regulatory agencies
and other potentially responsible parties at multi-party sites, and the number
and financial viability of other potentially responsible parties. As assessments
and cleanups proceed, these accruals are reviewed periodically and adjusted, if
necessary, as additional information becomes available. These accruals can
change substantially due to such factors as additional information on the nature
or extent of contamination, methods of remediation required, changes in the
apportionment of costs among responsible parties and other actions by
governmental agencies or private parties.

Accruals for environmental liabilities are recorded as other non-current
liabilities with any amounts expected to be paid out in the next twelve months
classified as current liabilities at undiscounted amounts and exclude claims for
recoveries from insurance companies or other third parties. In those cases where
insurance carriers or third-party indemnitors have agreed to pay any amounts and
management believes that collectability of such amounts is probable, the
undiscounted amounts are recorded as receivables in the consolidated financial
statements. Other contingent liabilities are recorded at undiscounted amounts as
other non-current liabilities with any amounts expected to be paid out in the
next twelve months classified as current liabilities.

36


Environmental compliance costs are capitalized and depreciated if they
extend the life of the related equipment, increase its capacity, and/or mitigate
or prevent future contamination.

It is the Company's practice to conduct an analysis of its self-insured and
insured contingent liabilities annually and whenever circumstances change
significantly. Included in these liabilities are workers' compensation, product
liability and toxic tort claims. Future indemnity costs are recorded at
management's best estimate of the ultimate expected liabilities, without any
discount to reflect the time value of money. The gross indemnity costs are
recorded as other non-current liabilities with any amounts expected to be paid
out in the next twelve months classified as current liabilities. Probable
insurance recoveries for past and future indemnity costs are recorded at
management's best estimate of the ultimate expected receipts without discounting
to reflect the time value of money. Defense and processing costs are expensed as
incurred. Probable insurance recoveries for defense and processing costs relate
only to actual costs incurred.

Income Taxes: Income taxes are accounted for under the asset and liability
method. Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
basis and operating loss and tax credit carryforwards. A valuation allowance is
provided when it is more likely than not that some portion or all of the
deferred tax assets will not be realized. Deferred tax assets and liabilities
are measured using enacted tax rates expected to apply to taxable income in the
years in which those temporary differences are expected to be recovered or
settled. The effect on deferred tax assets and liabilities of a change in tax
rates is recognized in earnings in the period that includes the enactment date.
If repatriation of the undistributed earnings of the Company's international
subsidiaries and associated companies is anticipated then income taxes are
provided for such earnings.

Postretirement Benefits: Costs are recognized as employees render the
services necessary to earn the related benefits.

Revenue Recognition: The Company recognizes revenue when persuasive
evidence of an arrangement exists, the selling price is fixed or determinable,
collection is reasonably assured and title and risk of loss has passed to its
customers.

Earnings Per Share: Basic earnings per common share excludes dilution and
is computed by dividing net earnings available to common stockholders by the
weighted-average number of common shares outstanding (which includes shares
outstanding less performance and restricted shares for which vesting criteria
have not been met) plus deferred stock awards, weighted for the period
outstanding. Diluted earnings per common share is computed by dividing net
earnings available to common stockholders by the sum of the weighted-average
number of common shares outstanding for the period adjusted (i.e., increased)
for all additional common shares that would have been outstanding if potentially
dilutive common shares had been issued and any proceeds of the issuance had been
used to repurchase common stock at the average market price during the period.
The proceeds used to repurchase common stock are assumed to be the sum of the
amount to be paid to the Company upon exercise of options, the amount of
compensation cost attributed to future services and not yet recognized and the
amount of income taxes that would be credited to or deducted from capital upon
exercise. Preferred stock dividends were paid on preferred shares through the
date at which it was redeemed.

37


In calculating basic and diluted earnings available to common stockholders
per share, there are no adjustments to income (the numerator) other than the
premium paid to redeem preferred stock of $9.9 in 2004. The following shows the
reconciliation of the weighted average shares (the denominator) used in the
calculation of diluted earnings per share:




December 31 2004 2003 2002
- -------------------------------------------------------------- ------------------- --------------------- -------------------

Weighted average shares outstanding: 39,548,312 38,957,611 39,469,995
Effect of dilutive shares:
Options 1,148,311 1,082,652 884,337
Performance/Restricted Stock 133,328 118,413 150,287
Warrants - - 625
Put Options - - 7,055
- -------------------------------------------------------------- ------------------- --------------------- -------------------
Adjusted average shares outstanding 40,829,951 40,158,676 40,512,299
- -------------------------------------------------------------- ------------------- --------------------- -------------------


Stock options to purchase 407,450, 1,328,100 and 3,058,837 shares of common
stock at a weighted-average price per share of $48.10, $43.25 and $35.82 were
outstanding during 2004, 2003 and 2002, respectively, but excluded from the
above calculation because their inclusion would have had an anti-dilutive effect
on earnings per share.

Stock-Based Compensation: At December 31, 2004, the Company has stock-based
employee compensation plans, which are described more fully in Note 14. The
Company accounts for its stock based compensation under the recognition and
measurement principles of Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees," ("APB No. 25") and related
Interpretations. No stock-based compensation cost is reflected in net earnings
for stock options, as all options granted under those plans had an exercise
price equal to the market value of the underlying common stock on the date of
the grant. Compensation cost for restricted stock is recorded based on the
market value on the date of grant, and compensation cost for performance stock
is recorded based on the quoted market price of the Company's common stock at
the end of each period through the date of vesting. The fair value of restricted
and performance stock is charged to unearned compensation in Stockholders'
Equity and amortized to expense over the requisite vesting periods.

The following table illustrates the pro forma effect on net earnings
available to common stockholders and net earnings available to common
stockholders per share if the Company had applied the fair value recognition
provisions of SFAS No. 123, "Accounting for Stock-Based Compensation" ("SFAS
123") to stock-based employee compensation:




2004 2003 2002
- --------------------------------------- ----------------- ---------------- -----------------

Net earnings available to common
stockholders, as reported $116.2 $ 77.4 $ 79.3
Add (Deduct): Stock-based
employee compensation
expense (income) included in
reported net income, net of
related tax effects 3.0 1.3 (0.8)
Deduct: Total stock-based
employee compensation
expense determined under fair
value based method for all
awards, net of related tax effects 7.1 7.8 6.4
- --------------------------------------- ----------------- ---------------- -----------------
Pro forma net earnings available to
common stockholders $112.1 $ 70.9 $ 72.1
- --------------------------------------- ----------------- ---------------- -----------------
Net earnings available to common
stockholders per share:
Basic, as reported $ 2.94 $ 1.99 $ 2.01
Basic, pro forma $ 2.83 $ 1.82 $ 1.83

Diluted, as reported $ 2.84 $ 1.93 $ 1.96
Diluted, pro forma $ 2.75 $ 1.77 $ 1.79
- --------------------------------------- ----------------- ---------------- -----------------


38


The fair value of each grant is estimated on the date of grant using the
Black-Scholes option pricing model with the following weighted average
assumptions:

2004 2003 2002
- ----------------------------------------------------
Expected life (years) 5.7 5.6 5.6
Expected volatility 46.6% 47.3% 47.4%
Expected dividend yield 1.0% - -
Risk-free interest rate 3.4% 2.9% 3.3%
Weighted average fair
value of options granted
during the year $16.21 $12.69 $11.65
- ----------------------------------------------------

Newly Issued and Adopted Accounting Pronouncements: In December, 2004, the
Financial Accounting Standards Board ("FASB") issued SFAS No. 123 (revised
2004), "Share-Based Payment" ("SFAS 123R"). SFAS 123R addresses the accounting
for transactions in which an enterprise receives employee services in exchange
for (a) equity instruments of the enterprise or (b) liabilities that are based
on the fair value of the enterprise's equity instruments or that may be settled
by the issuance of such equity instruments. SFAS 123R supersedes APB No. 25 and
requires that such transactions be accounted for using a fair-value based
method. SFAS 123R requires companies to recognize an expense for compensation
cost related to share-based payment arrangements including stock options and
employee stock purchase plans. The Company is required to implement the proposed
standard no later than July 1, 2005. The cumulative effect of adoption, applied
on a modified prospective basis, would be measured and recognized on January 1,
2005. The Company is currently evaluating option valuation methodologies and
assumptions related to its stock compensation plans. Current estimates of option
values using the Black-Scholes method may not be indicative of results from
valuation methodologies ultimately adopted.

In December, 2004, the FASB issued FASB Staff Position 109-2, "Accounting
and Disclosure Guidance for the Foreign Earnings Repatriation Provision within
the American Jobs Creation Act of 2004" ("FSP 109-2"), in response to the
American Jobs Creation Act of 2004 which was signed into law in October, 2004
and which provides for a special one-time tax deduction of 85% of certain
foreign earnings that are repatriated (as defined). Based on the Company's
decision to reinvest rather than to repatriate current and prior year's
unremitted foreign earnings, the application of FSP 109-2 did not affect income
tax expense in the period of enactment or any related disclosures.

In November, 2004, the FASB issued SFAS No. 151, "Inventory Costs - an
amendment of ARB No. 43, Chapter 4" ("SFAS 151"). SFAS 151 is the result of a
broader effort by the FASB to improve the comparability of cross-border
financial reporting by working with the International Accounting Standards Board
("IASB") toward development of a single set of high-quality accounting
standards. The FASB and the IASB noted that ARB 43, Chapter 4 and IAS 2,
"Inventories," require that abnormal amounts of idle freight, handling costs,
and wasted materials be recognized as period costs, however, the Boards noted
that differences in the wording of the two standards could lead to inconsistent
application of those similar requirements. The FASB concluded that clarifying
the existing requirements in ARB 43 by adopting language similar to that used in
IAS 2 is consistent with its goals of improving financial reporting in the
United States and promoting convergence of accounting standards internationally.
Adoption of SFAS 151 is required for fiscal years beginning after June 15, 2005.
The provisions of SFAS 151 will be applied prospectively. The Company is
currently in the process of evaluating the impact that SFAS 151 will have on the
results of operations and financial position of the Company.

In December 2003, the Medicare Prescription Drug, Improvement and
Modernization Act of 2003 (the "Act") was signed into law. The Act introduces a
federal subsidy to sponsors of retiree healthcare benefit plans that provide a
benefit that is at least actuarially equivalent to Medicare. The Company adopted
the provisions of FASB Staff Position 106-2 ("FSP 106-2"), "Accounting and
Disclosure Requirements Related to the Medicare Prescription Drug, Improvement
and Modernization Act of 2003" in the third quarter of 2004, retroactive to
January 1, 2004, as allowed. FSP 106-2 requires companies to account for the
reduction in accumulated postretirement benefit obligation (APBO) as an
actuarial gain to be amortized into earnings over the average remaining service
period of plan participants. In accordance with FSP 106-2, the Company recorded
a reduction in the net periodic benefit cost of $2.4 for the year ended December
31, 2004.

The adoption of FSP 106-2 resulted in a reduction of the Company's APBO of
approximately $31.7, which the Company recognized as a reduction in unrecognized
net actuarial loss. This reduction in the APBO results from an ongoing tax-free
government subsidy beginning in 2006, for prescription benefits provided to plan
participants if such benefits are determined to be actuarially equivalent to
those offered by Medicare. Based on the current guidance of determining
actuarial equivalence, the Company has been able to determine that some of the
plan participants qualify for the subsidy. The Company amortizes the
unrecognized net actuarial loss over the average remaining service life of
employees eligible for postretirement benefits. The service cost, interest cost
and net amortization components of net postretirement benefit cost were reduced
by $0.0, $2.0 and $0.4, respectively, for the year ended December 31, 2004.

39


Accounting Pronouncement Adopted in Prior Year: On January 1, 2003, the
Company adopted SFAS No. 143, "Accounting for Asset Retirement Obligations"
("SFAS 143") that addresses the financial accounting and reporting for
obligations associated with the retirement of tangible long-lived assets and the
associated asset retirement costs. The standard applies to legal obligations
associated with the retirement of long-lived assets that result from the
acquisition, construction, development and/or normal use of an asset. SFAS 143
requires that the fair value of the liability for an asset retirement obligation
be recognized in the period in which it is incurred if a reasonable estimate of
fair value can be made. The present value of the liability is added to the
carrying amount of the associated asset and this additional carrying amount is
depreciated over the life of the asset. The liability is accreted at the end of
each period through charges to operating expense. If the obligation is settled
for other than the carrying amount of the liability the Company will recognize a
gain or loss on settlement.

On January 1, 2003, as a result of the adoption of SFAS 143, the Company
recorded an increase in Other non-current liabilities of $22.8, an increase in
the gross carrying value of plants, equipment and facilities of $5.3 and related
accumulated depreciation of approximately $3.4, a long-term deferred tax asset
of $7.3 and an after tax charge of $13.6 for the cumulative effect of prior
years for depreciation of the additional costs and accretion expense on the
asset retirement liability. The other non-current liability relates primarily to
estimated costs for disposal of building materials and other closure obligations
for existing structures upon renovation, closure or dismantlement of certain of
the Company's facilities. At December 31, 2004 and 2003, the asset retirement
liability was $ 22.3 and $23.1, respectively. Accretion and depreciation expense
for both the years ended December 31, 2004 and 2003 was $1.8. The pro forma
amount of the asset retirement liability as of December 31, 2002 was $22.8. The
pro forma amounts of the asset retirement liability were measured using
information, assumptions and interest rates as of the adoption date of January
1, 2003. Pro forma net earnings available to common stockholders, basic earnings
available to common stockholders per share and diluted earnings available to
common stockholders per share for the year ended December 31, 2002, assuming
SFAS 143 had been applied as of January 1, 2002, are $78.2, $1.98 and $1.92,
respectively.

Risks and Uncertainties: The Company is engaged primarily in the
manufacture and sale of a highly diversified line of specialty chemical products
and specialty materials throughout the world. The Company's revenues are
dependent on the continued operation of its various manufacturing facilities.
The operation of manufacturing plants involves many risks, including the
breakdown, failure or substandard performance of equipment, natural disasters,
terrorist acts, and the need to comply with directives of governmental agencies.
The occurrence of operational problems, including but not limited to the above
events, may have a materially adverse effect on the productivity and
profitability of a particular manufacturing facility, or with respect to certain
facilities, the Company as a whole during the period of such operational
difficulties.

The Company's operations are also subject to various hazards incidental to
the production, use and sale of industrial chemicals, including the use,
handling, processing, storage and transportation of certain hazardous materials.
These hazards can cause personal injury and loss of life, severe damage to and
destruction of property and equipment, environmental damage and suspension of
operations. Claims arising from any future catastrophic occurrence involving the
Company may result in the Company being named as a defendant in lawsuits
potentially asserting large claims.

The Company performs ongoing credit evaluations of its customers' financial
condition and generally requires no collateral from its customers. The Company
is exposed to credit losses in the event of nonperformance by counterparties on
derivative instruments. The counterparties to these transactions are major
financial institutions, thus the Company considers the risk of default to be
minimal. The Company does not require collateral or other security to support
the financial instruments with credit risk.

International operations are subject to various risks which may not be
present in United States operations, including political instability, the
possibility of expropriation, restrictions on royalties, dividends and
remittances, instabilities of currencies, requirements for governmental
approvals for new ventures and local participation in operations such as local
equity ownership and workers' councils. The Company does not believe that it is
likely to suffer a material adverse effect on its results of operations in
connection with its existing international operations.

In anticipation of the pending acquisition of Surface Specialties (refer to
Note 2), the Company entered into foreign currency derivative contracts and
forward-starting interest rate swaps to offset potential dollar to euro exchange
rate fluctuations and market interest rate volatility that would have an impact
on the acquisition cost in dollars and financing costs. Volatility in exchange
and interest rates, through the period these financial instruments are
outstanding, could result in significant mark-to-market adjustments that would
impact earnings.

Use of Estimates: Financial statements prepared in conformity with
accounting principles generally accepted in the United States require management
to make certain estimates and assumptions that affect the reported amounts of
assets and liabilities, disclosure of contingent assets and liabilities at the
date of the financial statements and revenue and expenses and pro forma
compensation expense during the period reported. Actual results could differ
from those estimates. Estimates are used for, but not limited to: allowance for
doubtful accounts, inventory valuations, useful lives of tangible and intangible
assets, recoverability of goodwill, accrued expenses, environmental and other
contingent liabilities, pension and other postretirement benefits, income tax
valuation allowances and assumptions utilized within the Black-Scholes options
pricing model and the model itself. Accounting estimates require the use of
judgment regarding uncertain future events and their related effects and,
accordingly, may change as additional information is obtained.

40


2. ACQUISITIONS AND DISPOSITIONS

2004 Activity: On October 1, 2004, the Company announced that it had signed
a definitive agreement to purchase the Surface Specialties business of UCB, a
Belgium biopharmaceutical and specialty chemical company, for cash and stock,
valued at that time, of 1.5 billion euros. In early February 2005, the Company
reached agreement with UCB to modify the terms of the purchase agreement.
Assuming the dollar to euro exchange rate is 1.3 to 1 and Cytec common stock is
$51 per share, the transaction would be valued at $1.841 billion of which 1.140
billion euros ($1.482 billion) will be paid in cash and the balance will be paid
in 5,772,857 shares of Cytec common stock ($294 million). In addition, there is
contingent consideration up to a maximum of 50 million euros ($65.0), of which
20 million euros ($26.0) will be paid up front with the balance payable in 2006.
The contingent consideration will be earned on a pro-rata basis pending the
achievement of certain operating results by Surface Specialties in 2005. UCB
also agreed to reimburse Cytec 15 million euros ($19.5) for transaction related
costs. The acquisition is subject to customary closing conditions including the
approval of the U.S. Federal Trade Commission. The Company anticipates closing
on this transaction in the first quarter of 2005.

Upon closing, UCB would own approximately 12% of the outstanding shares of
Cytec and will enter into a stockholders agreement that will provide that UCB
must reduce its stake to less than 9% within three years, less than 7% within
four years and less than 5% within five years and that will contain other
customary terms and provisions.

At closing, the Company expects to finance the cash portion of the
acquisition with combined bank borrowings of approximately $1,320.0 under the
two acquisition related credit facilities that were executed on February 15,
2005 and approximately $200.0 of available cash balances. Approximately $600.0
of the bank debt will be refinanced on a long-term basis in the public debt
markets after the acquisition.

The acquisition complements Cytec's existing product lines by significantly
increasing Cytec's product offering to the coatings industries including the
general industrial, automotive, architectural, plastic, graphic arts and wood
sectors.

The global Surface Specialties business had sales and earnings before
interest, taxes and depreciation, prepared in accordance with accounting
principles generally accepted in Belgium and which are unaudited, of 1.112
billion euros and 147 million euros, respectively, ($1.446 billion and $191.0,
respectively, at 1.3 US dollar per euro) in 2004.

Cytec intends to operate the Surface Specialties business as a separate
segment and will integrate its coatings chemicals and performance chemicals
product lines into the new segment.

Surface Specialties also has a significant amino resins business. The
Company has agreed with the European Union Commission, and expects to reach a
similar agreement with the U.S. Federal Trade Commission, that it will divest
UCB's amino resins business after it purchases Surface Specialties and that
prior to the divestment, Surface Specialties amino resins business will be held
separately and will report to an independent trustee. After the transaction is
consummated, for the duration that the amino resins business is owned by Cytec,
its results of operations will be classified as results from discontinued
operations on Cytec's consolidated statements of income. The Company will use
the proceeds to reduce debt. Sales of Surface Specialties' amino resin product
line, prepared in accordance with accounting principles generally accepted in
Belgium and which are unaudited in 2004, were approximately $150.0.

Through February 16, 2005, the Company has entered into $623.2 of
forward-starting interest rate swaps to hedge the benchmark interest rate and
credit spread on a portion of the debt that will be issued to finance the
acquisition of Surface Specialties. The weighted-average interest rate of 4.69%
for the U.S dollar swaps includes the current swap credit spread of
approximately 38 basis points and premium of approximately 3 basis points for
the forward starting element of the swap. The corresponding euro swaps have a
weighted-average interest rate of 3.97% and include the current swap credit
spread of approximately 16 basis points and premium of approximately 1 basis
point for the forward starting element of the swap. The credit spread portion of
the swaps are representative of AA rated 10-year notes and serve as a proxy
credit spread for the Company. The Company's actual credit spread at the time of
debt issuance will be determined primarily based on its actual credit rating and
market conditions. The swaps, which mature in March 2005, are marked to market
and recorded currently in earnings until maturity or settlement. As of February
16, 2005, the Company has hedged approximately 90% of the anticipated portion of
the purchase price that will be refinanced with long-term debt. As of February
16, 2005, the net impact of the marked to market value on these swaps was a loss
of approximately $13.7 of which $6.5 was recorded in 2004.

41


Through February 16, 2005, the Company has entered into foreign currency
forward contracts totaling 1.002 billion euros that relate to approximately 84%
of the euro exposure of 1.190 billion for the cash component of the Surface
Specialties acquisition. The Company has hedged approximately 93% of the
exposure with these forward contracts together with natural hedges of
approximately 100.8 euros. The forward contracts, which mature on February 28,
2005, are marked to market and recorded currently in earnings until settlement
or maturity. As of February 16, 2005, the cumulative impact of the marked to
market adjustment on these forward contracts and certain forward contracts which
were closed during 2004, was a net loss of approximately $8.7. A gain of $33.3
was recorded in 2004 of which $18.9 was realized.

In connection with the acquisition, the Company suspended its stock
buy-back program and does not anticipate making future stock buy-backs for at
least two years following closing in order to maximize funds available for debt
service and other corporate purposes.

The Company has incurred approximately $10.4 of transaction related
expenses which have been capitalized at December 31, 2004 and which are included
in other assets in the accompanying 2004 consolidated balance sheet, of which
$4.6 has been paid as of December 31, 2004.

2003 Transactions: In July 2003, the Company acquired substantially all of
the assets and liabilities of the metal extractant products ("MEP") and
intermediates and stabilizers ("I&S") product lines of Avecia Investments
Limited ("Avecia") for approximately $96.1 in cash, net of cash acquired. The
MEP product line, which had sales in 2002 of approximately $29.0 (unaudited)
broadens the Company's product line for the mining industry with differentiated
technology. This is reported as part of the Water and Industrial Process
Chemicals segment. The I&S product line broadens the Company's customer base and
adds new products and manufacturing technologies. Total sales in 2002 were $36.0
(unaudited). The reporting of the I&S product line is split between the Water
and Industrial Process Chemicals and Performance Products segments. The custom
organo phosphorus product line of the I&S product line, which accounted for
approximately 20% of the sales in this product line in 2002, is included in the
Water and Industrial Process Chemical segment. The remainder of the I&S product
line is included in the Performance Products segment.

In conjunction with this acquisition, the Company acquired various working
capital and plant, equipment and facilities and recorded amortizable acquisition
intangibles of $24.4 (technology-based intangibles of $9.1, marketing-related
intangibles of $0.7, and customer-related intangibles of $14.6 with estimated
lives ranging from 12 to 15 years) and goodwill of $8.4. This goodwill is
recorded as part of the Water and Industrial Products segment.

In September 2003, the Company dissolved its Mitsui Cytec Ltd ("MCY") joint
venture with Mitsui Chemicals Inc. ("Mitsui"). The joint ventures sales in 2002
were approximately $59.0. The transaction resulted in the recognition of
customer-related amortizable acquisition intangibles of $7.0 and goodwill of
$4.6. This goodwill is recorded as part of the Performance Products segment.

The result of the transaction was such that the Company now owns 100% of
MCY's coatings resins product line (2002 sales of $22.0) and the associated
assets and liabilities of the product line that includes a manufacturing
facility in Shimonoseki, Japan. This is now reported as part of the Performance
Products segment. Mitsui now owns 100% of the water treatment product line and
the associated assets and liabilities of the product line that includes a
production facility in Mobarra, Japan.

The dissolution of the joint venture occurred as follows. MCY sold the
water treatment business to a separate subsidiary of Mitsui for its fair value
which approximated its net book value of approximately $8.8. No gain or loss
resulted from this transaction. Mitsui's equity interest in MCY was then
purchased by the Company for approximately $11.5 in a two-step process whereby
MCY paid approximately $7.8 and the Company paid approximately $3.7 for the
remainder. The Company assumed the debt of the joint venture of $9.7.

Both 2003 acquisitions have been accounted for under the purchase method of
accounting and the results of operations have been included in the consolidated
financial statements from the date of acquisition.

In early October 2003, the Company sold, for a nominal amount, its
one-third share in PolymerAdditives.com, LLC ("PA.com"). PA.com was a
business-to-business internet joint venture originally formed by the Company, GE
Specialty Chemicals, Inc. and Albemarle Corporation. The Company is now selling
directly to those customers previously handled through the venture. During 2002,
the Company reduced the carrying value of its net investment in this venture to
zero and, accordingly, no gain or loss was realized on the October 2003 sale.

42


Consolidated results of operations would not have been materially different
if any of the above mentioned acquisitions had occurred on January 1 of the
respective year of acquisition or preceding years. Accordingly, pro forma sales,
net earnings and earnings per share disclosures have not been provided.

3. RESTRUCTURING OF OPERATIONS

In 2002 the Company recorded an aggregate restructuring charge of $16.0,
which included the elimination of 135 positions worldwide. The charge was
comprised of the following initiatives: reorganization of the Specialty
Chemicals segments resulting in a reduction of 65 personnel (related to
redundancies in manufacturing of 24, selling effort of 25, administrative of 4,
and research of 12) and a charge of $5.1 for employee related costs; alignment
of the Specialty Materials segment in connection with reduced demand in the
commercial aerospace industry, resulting in a reduction of 47 manufacturing
related personnel and a charge of $1.6 for employee related costs; closure of
the Woodbridge, NJ, facility, resulting in the elimination of 23 manufacturing
related positions and a charge of $1.6 for employee related and decommissioning
costs; and the discontinuance of a minor unprofitable product line, resulting in
a charge of $7.7 for the write-down of the net book value of the fixed assets
and costs of decommissioning the facility. The restructuring costs were charged
to the Consolidated Statement of Income as follows: manufacturing cost of sales,
$11.6; selling and technical services, $2.6; research and process development,
$1.0 and administrative and general, $0.8. This restructuring was completed in
2004.

Payments related to this restructuring were $0.4 in 2004, $1.5 in 2003 and
$6.3 in 2002.

In addition, during 2002 the Company recorded charges of $0.4 in equity in
earnings of associated companies for its 50% share of restructuring charges
related to CYRO's shutdown of its Niagara Falls, Ontario, Canada facility in
2001.

4. FINANCIAL INSTRUMENTS

At December 31, 2004 and 2003, excluding the currency derivatives entered
into as part of the pending acquisition of Surface Specialties (Refer to Note
2), the currency and net contractual amounts of forward contracts outstanding
translated into U. S. dollar equivalent amounts were as follows:




2004 2003
---------------------------------------- -- -----------------------------------------
Buy Buy
Pound Canadian Norwegian Canadian
Sell Euro Sterling Dollar Euro Krone Dollar
-------------------------- --------- --------------- -------------- -- ----------- ------------- ---------------

U. S. Dollar $24.2 $1.0 $2.5 $10.1 $ 2.2 $4.5
Euro - 0.9 - - 10.7 -
Norwegian Krone 6.3 - - - - -
Pound Sterling - - - 4.0 1.0 -
Other 0.8 - - 0.8 0.1 -
-------------------------- --------- --------------- -------------- -- ----------- ------------ ----------------


The fair value of currency contracts, based on forward exchange rates at
December 31, 2004 and 2003, exceeded contract values by approximately $0.9 and
$0.6, respectively.

At December 31, 2004, the Building Block Chemicals Fortier plants' 2005
forecasted natural gas utility requirements were 51% hedged utilizing natural
gas forward contracts. These contracts totaled $14.9 and have delivery dates
from January 2005 through December 2005. Based on year-end NYMEX prices, the
Company had net unrealized losses and gains on its natural gas forward contracts
at December 31, 2004 and 2003 of $(1.6) and $0.8, respectively.

At December 31, 2004 and 2003, the Company had outstanding natural gas
swaps with a fair value loss of $(0.7) and a fair value gain of $0.3, net of
taxes, respectively.

5. ASSOCIATED COMPANIES

As of December 31, 2004 and 2003, the Company had one associated company,
CYRO a 50% owned joint venture. The associated companies' information below also
includes the results of the former MCY joint venture through September 30, 2003,
the date the joint venture was dissolved (Refer to Note 2) and PA.com through
September 2003, the last effective date of the Company's ownership of the former
joint venture. Equity in earnings of associated companies also excludes the
Company's share of losses of the former PA.com after September 30, 2002 when the
Company recorded a charge of $1.7 in equity in earnings of associated companies
to reduce the carrying value of its net investment to zero following a review of
anticipated future losses.

43


Summarized financial information for the associated companies is as
follows:




December 31, 2004 2003 2002
- ---------------------------------------------------------------------------------------- ------------ ------------ ------------

Net sales $316.7 $327.5 $322.0
Gross profit 44.8 56.5 60.5
Earnings before cumulative effect of accounting change - 13.8 14.4
Cumulative effect of adoption of SFAS 143, net of tax - 0.3 -
Net earnings 10.4 13.5 14.4
The Company's equity in earnings of associated companies $5.2 $7.2 $6.1
The Company's equity in cumulative effect of adoption of SFAS 143, net of tax, of
associated companies - $ 0.1 -

Current assets $ 104.4 $ 80.8 $124.2
Noncurrent assets 132.0 138.2 164.5
- ---------------------------------------------------------------------------------------- ------------ ------------ ------------
Total assets 236.4 219.0 288.7
- ---------------------------------------------------------------------------------------- ------------ ------------ ------------
Current liabilities 35.7 22.9 70.4
Noncurrent liabilities 29.7 31.7 32.2
Equity 171.0 164.4 186.1
- ---------------------------------------------------------------------------------------- ------------ ------------ ------------
Total liabilities and equity 236.4 219.0 288.7
- ---------------------------------------------------------------------------------------- ------------ ------------ ------------
Company's share of equity $ 85.5 $ 82.1 $ 90.4
- ---------------------------------------------------------------------------------------- ------------ ------------ ------------
Company's aggregate cost $ 4.0 $ 4.0 $ 17.2
- ---------------------------------------------------------------------------------------- ------------ ------------ ------------


The Company does not guarantee indebtedness of its associated company and
there were no guarantees outstanding at December 31, 2004 and 2003. At December
31, 2004 and 2003, CYRO had outstanding borrowings of $1.5 and $0.0,
respectively.

Included in the Company's share of equity at December 31, 2004 and 2003, is
an accumulated charge of $9.4 and $9.2, respectively, representing the Company's
share of pretax charges by CYRO to other comprehensive income related to
recognition of a minimum pension liability. During 2004 and 2003 the Company
received dividends from CYRO of $2.5 and $4.4, respectively. No dividends were
received during 2002.

Sales to associated companies, primarily CYRO, amounted to $38.3, $37.4 and
$29.2 in 2004, 2003 and 2002, respectively. Amounts due from CYRO at December
31, 2004, 2003 and 2002 were $8.3, $9.2 and $11.5, respectively. The Company has
determined that the profit or loss on sales to its joint ventures is immaterial;
therefore, no adjustments have been made to eliminate such profit or loss on
sales to our joint venture partners for inventory that our associated companies
held at the balance sheet dates.

Fees received from associated companies, primarily CYRO, were $2.3, $7.8
and $7.7 in 2004, 2003 and 2002, respectively. Fees from CYRO are recorded in
manufacturing cost of sales and are related primarily to manufacturing services
provided to CYRO at the Company's Fortier, Louisiana, manufacturing complex.

6. INVENTORIES

December 31, 2004 2003
- -------------------------------------------------------------------------
Finished goods $165.0 $114.9
Work in progress 20.6 21.5
Raw materials and supplies 78.2 73.2
- -------------------------------------------------------------------------
263.8 209.6
Less reduction to LIFO cost (41.7) (33.6)
- -------------------------------------------------------------------------
Total inventories $222.1 $176.0
- -------------------------------------------------------------------------
LIFO inventories as a % of total inventories 59% 55%
- -------------------------------------------------------------------------

44



7. PLANTS, EQUIPMENT AND FACILITIES

December 31, 2004 2003
- -------------------------------------------------------------------------
Land and land improvements $ 34.7 $ 36.6
Buildings 249.8 202.9
Machinery and equipment 1,298.3 1,241.2
Construction in progress 44.4 57.6
- -------------------------------------------------------------------------
Plants, equipment and facilities, at cost $ 1,627.2 $1,538.3
- -------------------------------------------------------------------------

8. GOODWILL AND OTHER ACQUISITION INTANGIBLES

The following is the activity in the goodwill balances for each segment:



Water and
Industrial Performance Specialty
Process
Chemicals Products Materials Corporate Total
- ---------------------------------- ----------------- ----------------- ------------------ ----------------- ------------------

Balance, January 1, 2002 $ 31.1 $ 50.1 $ 252.6 - $ 333.8
Purchase adjustment 0.1 - - $ 0.6 0.7
Currency exchange (0.3) - (0.2) - (0.5)
----------------- ----------------- ------------------ ----------------- ------------------
Balance, December 31, 2002 30.9 50.1 252.4 0.6 334.0
2003 acquisitions 8.4 4.6 - - 13.0
Purchase adjustment (1) - - (4.7) - (4.7)
Currency exchange (3.0) 0.5 (0.2) 0.1 (2.6)
----------------- ----------------- ------------------ ----------------- ------------------
Balance, December 31, 2003 36.3 55.2 247.5 0.7 339.7
Purchase adjustment (2) (0.1) - - - (0.1)
Currency exchange 1.0 1.9 (0.1) - 2.8
----------------- ----------------- ------------------ ----------------- ------------------
Balance, December 31, 2004 $ 37.2 $ 57.1 $ 247.4 $ 0.7 $ 342.4
- ---------------------------------- ----------------- ----------------- ------------------ ----------------- ------------------


(1) Purchase accounting adjustment relates to the recognition of deferred tax
assets from the Company's 1998 acquisition of The American Materials &
Technologies Corporation.

(2) Purchase accounting adjustments relate to various items, primarily revision
of pension liabilities associated with the Company's September 2003
acquisition of certain product lines of Avecia.

Other acquisition intangibles consisted of the following major classes:



Weighted
average
useful life Accumulated
December 31, (years) Gross carrying value amortization Net carrying value
- ------------------------------------- ------------ ------------------------- ------------------------ -------------------------
2004 2003 2004 2003 2004 2003
------------ ------------ ----------- ------------ ------------ ------------

Technology-based 16.8 $42.5 $41.0 $(12.2) $(9.3) $30.3 $31.7
Marketing-related 17.5 11.6 11.0 (4.0) (3.0) 7.6 8.0
Customer-related 15.4 35.8 34.5 (6.9) (4.3) 28.9 30.2
------------ ------------ ----------- ------------ ------------ ------------
Total $89.9 $86.5 $(23.1) $(16.6) $66.8 $69.9
- ------------------------------------- ------------ ------------ ------------ ----------- ------------ ------------ ------------


Amortization of acquisition intangibles for the years ended December 31,
2004, 2003 and 2002 was $5.6, $4.0, and $3.1 respectively. Estimated future
amortization expense for the years 2005 and 2006 is $5.4 and for the years 2007
through 2009 is $5.3. The Company does not have intangibles with indefinite
useful lives.

45


9. DEBT

Long-term debt, including the current portion in 2004, consisted of the
following:





2004 2003
- ------------------------------------------------- ---------------------------- -----------------------------
Carrying Carrying
Face Value Face Value
--------------- ------------ -------------- --------------

6.75% Notes Due March 15, 2008 $100.0 $98.2 $100.0 $ 97.7
6.846% Mandatory Par Put Remarketed Securities 120.0 119.0 120.0 118.9
4.60% Notes Due July 1, 2013 200.0 201.9 200.0 199.6
- ------------------------------------------------- --------------- ------------ -------------- --------------
420.0 419.1 420.0 416.2
Less: Current maturities 120.0 119.0 - -
- ------------------------------------------------- --------------- ------------ -------------- --------------
Long-term debt $300.0 $300.1 $420.0 $416.2
- ------------------------------------------------- --------------- ------------ -------------- --------------




The fair value of the Company's long-term debt, including the current
portion, based on dealer quoted values, was $418.8 at December 31, 2004, and
$426.6 at December 31, 2003.

In March 2003, the Company repaid the $100.0 current maturity of its
long-term debt. In June 2003, the Company sold $200.0 principal amount of 4.60%
Notes due July 1, 2013. The securities were offered under the Company's $400.0
shelf registration statement described below. The Company received approximately
$198.5 in proceeds from the sale after deducting costs associated with the sale.
The proceeds were intended to be used for general corporate purposes, including
the acquisition of the MEP and I&S product lines (Refer to Note 2).

Under the terms and conditions of the Mandatory Par Put Remarketed
Securities ("MOPPRS"), the final maturity date of this debt obligation will be
determined on May 6, 2005 based on the yield of 30-year U. S. Treasury bonds. If
the yield on these securities is less than 5.95% on that date, the MOPPRS are
expected to be tendered by investors on May 11, 2005 to the Remarketing Agent
for payment by the Company of face value plus accrued interest and immediately
remarketed to investors for an additional 20 years at an interest cost to the
Company equal to 5.951% plus an Applicable Spread, as defined in the Prospectus
Supplement for this security. If the 30-year Treasury yield is above 5.951% on
May 6, 2005, investors are expected to put the MOPPRS back to the Company and
have them redeemed at face value plus accrued interest. The put premium of $4.5
that was received by the Company upon issuance of the MOPPRS was recorded as an
increase in the carrying value of the securities and is being amortized over the
life of the issue as a decrease in interest expense. If the securities are
redeemed by the Company on May 11, 2005, the Company would recognize a net
expense of $1.0 from amounts related to the unamortized put premium and rate
lock agreements discussed below. Based on interest rates at December 31, 2004,
the Company believes that it is likely that the MOPPRS will be tendered to the
remarketing agent at face value plus accrued interest and remarketed to
investors for an additional 20 years.

Commencing in September 1997, the Company entered into a series of rate
lock agreements to hedge against the risk of an increase in treasury rates
related to the Company's offering of $300.0 in long-term debt securities. During
1997 and 1998, the Company made payments aggregating approximately $11.2 to
settle the rate lock agreements, which related to the then outstanding long-term
debt securities. The payments related to the settlement of the rate lock
agreements are being amortized over the remaining life of 6.75% Notes and 6.846%
MOPPRS as an increase in interest expense of such Notes. In June 2003, the
Company received $0.4 under rate lock agreements it entered into as a hedge
against the risk of an increase in Treasury rates related to the Company's
offering of $200.0 in long-term debt securities. It is being amortized over the
life of the 4.60% Notes. The amount of unamortized rate lock agreements included
in long-term debt was $4.7 at December 31, 2004, and $5.2 at December 31, 2003.

During 2004, the Company terminated certain interest rate swaps which had
been designated as cash flow hedges. The net gain thereon of $2.9 is being
amortized over the life of the 4.60% Notes as a decrease to interest expense of
such Notes. The amount of the unamortized swap settlement included in long-term
debt was $2.7 at December 31, 2004.

The weighted average interest rate on long-term debt was approximately 5.7%
for 2004 and 6.1% for 2003.

In 2003 the Company entered into short-term loan agreements relating to the
acquisition of MCY's coatings resins product line (Refer to Note 2), aggregating
approximately 2 billion yen. The U. S. dollar equivalent debt balance
outstanding under these agreements at December 31, 2003 was $9.3 and is included
in short-term borrowings. In January, 2004, the Company canceled one of these
agreements and the short-term loan was repaid during 2004 resulting in no amount
outstanding at December 31, 2004.

At December 31, 2004 and 2003, the Company has available for short-term use
approximately $16.5 and $6.6, respectively, of non-U. S. dollar denominated
credit facilities. There were no outstanding borrowings under these facilities
at December 31, 2004 or 2003.

46


Cash payments during the years ended December 31, 2004, 2003 and 2002,
included interest of $20.2, $18.2 and $21.5, respectively. Included in interest
expense, net, for the years ended December 31, 2004, 2003 and 2002, is interest
income of $5.5, $3.8 and $5.5, respectively. Included in 2002 interest income is
$2.0 received in connection with a favorable settlement of a prior years'
research and development tax credits claims with the Internal Revenue Service.

In April, 2002, the Company executed a $100.0, three-year unsecured
revolving credit agreement and a $100.0, 364-day unsecured revolving credit
agreement with a one-year term out option which was allowed to expire in April,
2004. There were no outstanding balances under these agreements at December 31,
2004 and 2003. On February 15, 2005, the Company entered into credit agreements
totaling $1.775 billion in preparation for the upcoming acquisition of Surface
Specialties. The agreements provide: a $725.0 5-year term loan facility, a
$700.0 364-day credit facility, and a $350.0 5-year revolving credit facility.
The term loan and 364-day facilities will be used to finance the acquisition and
the revolving credit facility will provide additional liquidity for general
corporate purposes, including acquisitions. The facilities contain covenants
that are customary for such facilities

The Company has the ability to issue $200.0 more debt securities under a
$400.0 shelf registration statement it has filed with the Securities and
Exchange Commission that has been effective since December 2000. The securities
may be offered by the Company from time to time. Proceeds of any sale will be
used for general corporate purposes, which may include payment of indebtedness
and other liabilities, share repurchases, additions to working capital, capital
expenditures and acquisitions.

10. CONTINGENCIES AND COMMITMENTS

Environmental Matters

The Company is subject to substantial costs arising out of environmental
laws and regulations, which include obligations to remove or limit the effects
on the environment of the disposal or release of certain wastes or substances at
various sites or to pay compensation to others for doing so.

The Company's most significant environmental liabilities relate to
remediation and regulatory closure obligations at manufacturing sites now or
formerly owned by the Company. The Company is also involved in legal proceedings
directed at the cleanup of various other sites, including a number of federal or
state Superfund sites. Since the laws pertaining to Superfund sites generally
impose retroactive, strict, joint and several liability, a governmental
plaintiff could seek to recover all remediation costs at any such site from any
of the potentially responsible parties ("PRPs") for such site, including the
Company, despite the involvement of other PRPs. In some cases, the Company is
one of several hundred identified PRPs, while in others it is the only one or
one of only a few. Generally, where there are a number of financially solvent
PRPs, liability has been apportioned, or the Company believes, based on its
experience with such matters, that liability will be apportioned based on the
type and amount of waste disposed by each PRP at such disposal site and the
number of financially solvent PRPs. In many cases, the nature of future
environmental expenditures cannot be quantified with accuracy. In addition, from
time to time in the ordinary course of its business, the Company is informed of,
and receives inquiries with respect to, additional sites that may be
environmentally impaired and for which the Company may be responsible.

As of December 31, 2004 and 2003, the aggregate environmental related
accruals were $70.7 and $79.6, respectively, of which $10.0 and $11.0,
respectively, are included in accrued expenses with the remainder included in
other noncurrent liabilities. Environmental remediation spending, for the years
ended December 31, 2004, 2003 and 2002, was $9.4, $9.3 and $10.2, respectively.
Included in 2004 is a payment of $2.5 related to an environmental remediation
lawsuit settled by the Company in June 2004 which was charged against previously
established reserves for this matter. This payment was part of a larger
settlement related to several environmental and toxic tort lawsuits in the
second quarter of 2004 discussed below under "Other Contingencies."

These accruals can change substantially due to such factors as additional
information on the nature or extent of contamination, methods of remediation
required, changes in the apportionment of costs among responsible parties and
other actions by governmental agencies or private parties or if the Company is
named in a new matter and determines an accrual needs to be provided for or if
the Company determines it is not liable and no longer requires an accrual.

Other Contingencies

The Company is the subject of numerous lawsuits and claims incidental to
the conduct of its or certain of its predecessors' businesses, including
lawsuits and claims relating to product liability, personal injury including
asbestos, environmental, contractual, employment and intellectual property
matters.

47


As of December 31, 2004 and 2003, the aggregate self-insured and insured
contingent liability was $68.4 and $72.5, respectively, and the related
insurance recovery receivable was $37.9 and $29.3, respectively. The asbestos
liability included in the above amounts at December 31, 2004 and 2003 was $50.4
and $54.0, respectively, and the related insurance receivable was $34.2 and
$29.1, respectively. The Company anticipates receiving a net tax benefit for
payment of those claims to which full insurance recovery is not realized.

During 2003 the Company commissioned a study by the Actuarial and Analytics
Practice of AON Risk Consultants ("AON") of its self-insured and insured
contingent liabilities related to asbestos and estimated insurance recoveries
for asbestos related liabilities. At that time, the Company, like many other
industrial companies, was named as one of hundreds of defendants in a number of
lawsuits filed throughout the United States by persons alleging bodily injury as
a result of exposure to asbestos as plaintiffs' attorneys shifted their focus on
peripheral defendants, such as the Company. The claimants allege exposure to
asbestos at facilities formerly or currently owned by the Company or from
products formerly manufactured by the Company for specialized applications. Most
of these cases involve numerous defendants, sometimes as many as several
hundred. Historically, most of the closed asbestos claims against the Company
have been dismissed without any indemnity payment by the Company, and the
Company has no information that this pattern will change. An updated study was
not commissioned in 2004, because in management's judgment, actual claims
experience was in line with the results of the original study.

The Company worked with the consulting specialists of AON who have
extensive experience in estimating certain liabilities, including asbestos
liabilities, to evaluate the Company's estimated indemnity costs. The Company
provided AON with, among other things, detailed data for the past ten years on
the incidence of claims, the incidence of malignancy claims, indemnity payments
for malignancy and non-malignancy claims, and dismissal rates by claim. The
actuarial methodology employed by AON was primarily based on epidemiological
data assumptions regarding asbestos disease manifestation, the information
provided by the Company, and the estimates of claim filing and indemnity costs
that may occur in the future.

The Company has access to a substantial amount of primary and excess
general liability insurance. Therefore, the Company, in conjunction with AON,
conducted a detailed review of its insurance policies and estimated insurance
recoveries. The Company expects to recover close to 50% of its future indemnity
costs and certain defense and processing costs already incurred. Most of the
Company's insurance is with carriers with investment grade ratings and only
those with such ratings were included in the estimation of the recovery of
indemnity and defense costs.

As a result of these findings, in 2003 the Company recorded an increase of
$32.4 to its self insured and insured contingent liabilities for pending and
anticipated probable future asbestos claims and recorded a receivable for
probable insurance recoveries for past, pending and future claims of $34.6.

The following table presents information about the number of claimants
involved in asbestos cases with the Company:



Year Ended Year Ended
December 31, December 31,
2004 2003
----------------- -------------------

Number of claimants associated with claims closed during period 3,540 7,601
Number of claimants associated with claims opened during period 4,532 7,648
Number of claimants at end of period 27,947 26,955
- ------------------------------------------------------------------ ---- ----------------- --- -------------------


It should be noted that the ultimate liability and related insurance
recovery for all pending and anticipated future claims cannot be determined with
certainty due to the difficulty of forecasting the numerous variables that can
affect the amount of the liability and insurance recovery. These variables
include but are not limited to: (i) significant changes in the number of future
claims; (ii) significant changes in the average cost of resolving claims; (iii)
changes in the nature of claims received; (iv) changes in the laws applicable to
these claims; and (v) financial viability of co-defendants and insurers.

The Company is among several defendants in approximately 30 cases, in which
plaintiffs assert claims for personal injury, property damage, and other claims
for relief relating to lead pigment that was used as an ingredient decades ago
in paint for use in buildings. The different suits were brought by government
entities and/or individual plaintiffs, on behalf of themselves and others. The
suits variously seek compensatory and punitive damages and/or injunctive relief,
including funds for the cost of monitoring, detecting and removing lead based
paint from buildings and for medical monitoring; for personal injuries allegedly
caused by ingestion of lead based paint; and plaintiffs' attorneys' fee. The
Company believes that the suits are without merit and is vigorously defending
against all such claims. Accordingly, no loss contingency has been recorded. The
Company has access to a substantial amount of primary and excess general
liability insurance for property damage and believes these policies are
available to cover a significant portion of both its defense costs and indemnity
costs, if any, for lead pigment-related property damage claims. The Company
continues to pursue an agreement with various of its insurers concerning
recovery of defense costs relating to these matters. During 2004, the Company
received $1.0 related to previously expensed defense costs which were recorded
in other income, net, and recorded an additional $2.0 in other income, net as it
believes it is probable that it will realize additional recoveries of previously
expensed lead defense costs from its insurers. The Company is hopeful of
recognizing additional recoveries in future periods as negotiations with its
insurers proceed.

48


During 2004, the Company recorded a pre-tax charge of $6.1 in connection
with the settlement of several environmental and toxic tort lawsuits which were
all related to a single manufacturing site operated by the former American
Cyanamid Company ("Cyanamid") prior to 1963. Cytec was spun-off from Cyanamid in
1993. The full settlement which was paid in the second quarter was $8.6, of
which $2.5 was charged against a previously established environmental
remediation reserve for these matters.

During 2004, the Company signed a stipulation of settlement with plaintiffs
in a federal class action lawsuit on behalf of purchasers of carbon fiber. As a
result of this and several other related litigation matters, the Company
recorded a pre-tax charge of $8.0 which is reflected in administrative and
general expense in the third quarter of 2004. Also during the third quarter, the
Company recorded a charge of $2.0 relating to the settlement of disputed matters
with the holder of the Company's Series C Stock.

The Company commenced binding arbitration proceedings against SNF SA,
("SNF"), in 2000 to resolve a commercial dispute relating to SNF's failure to
purchase agreed amounts of acrylamide under a long-term agreement. Recently, the
arbitrators awarded the Company damages and interest aggregating approximately
11 million euros. Cytec has obtained a court order in France to enforce the
award, which order is being appealed by SNF. No gain contingency has been
recorded. Subsequent to the arbitration award, SNF filed a complaint alleging
criminal violation of French and European Community antitrust laws relating to
the contract which was the subject of the arbitration proceedings. The Company
believes that the complaint is without merit.

Periodically, the Company enters into settlement discussions for lawsuits
or claims for which it has meritorious defenses and for which an unfavorable
outcome against the Company is not probable. In such instances, no loss
contingency is recorded since a loss is not probable and it is the Company's
policy to accrue defense costs as incurred. Typically, the Company considers
these types of settlements in fairly limited circumstances usually related to
the avoidance of future defense costs and/or the elimination of any risk of an
unfavorable outcome. Such settlements, if any, are recorded when it is probable
a liability has been incurred, typically upon entering into a settlement
agreement.

While it is not feasible to predict the outcome of all pending
environmental matters, lawsuits and claims, it is reasonably possible that there
will be a necessity for future provisions for costs for environmental matters
and for other contingent liabilities that in management's opinion, will not have
a material adverse effect on the consolidated financial position of the Company,
but could be material to the consolidated results of operations or cash flows of
the Company in any one accounting period. The Company cannot estimate any
additional amount of loss or range of loss in excess of the recorded amounts.
Moreover, many of these liabilities are paid over an extended period, and the
timing of such payments cannot be predicted with any certainty.

From time to time the Company is also included in legal proceedings as a
plaintiff involving tax, contract, patent protection, environmental and other
legal matters. Gain contingencies related to these matters, if any, are recorded
when they are realized.

Commitments

Rental expense under property and equipment leases was $10.8 in 2004, $10.2
in 2003 and $10.9 in 2002. Estimated future minimum rental expenses under
property and equipment leases that have initial or remaining noncancelable lease
terms in excess of one year as of December 31, 2004, are:

Operating
Leases
- ------------------------------------------------
2005 $ 9.1
2006 6.6
2007 4.8
2008 2.8
2009 2.4
Thereafter 19.6
- ------------------------------------------------
Total minimum lease payments $ 45.3
- ------------------------------------------------

49


The Company frequently enters into long-term contracts with customers with
terms that vary depending on specific industry practices. The Company's business
is not substantially dependent on any single contract or any series of related
contracts. Set forth below are more specific terms about the Company's
significant sales contracts.

The Company has the option to sell, and an affiliate of an international
trading company is obligated to buy, up to approximately 50% of the
Company's production capacity of acrylonitrile per year (40% effective
May 1, 2005) under a long-term distributorship agreement that is
scheduled to expire on May 1, 2008. The price under this
distributorship agreement is market-based less certain costs and
commissions.

The Company is obligated to sell, and CYRO is obligated to buy,
substantially all of the Company's nominal production capacity of
hydrocyanic acid under an agreement with an initial term expiring
December 31, 2011. Price is determined by a formula based on the raw
materials used to manufacture hydrocyanic acid and to a lesser extent
on the selling price of CYRO's product based on hydrocyanic acid and
is adjusted periodically.

The Company is obligated to sell sulfuric acid, and also to regenerate
used sulfuric acid, and CYRO is obligated to buy such product and
services, under an agreement with an initial term expiring December
31, 2011. The price for regenerated sulfuric acid is cost based and
the price for sulfuric acid is set between the price for regenerated
sulfuric acid and a market price for sulfuric acid and both prices are
adjusted periodically. The cost to regenerate sulfuric acid is
substantially in excess of the cost of producing sulfuric acid.
Regenerated sulfuric acid and sulfuric acid are produced in the same
plant at the same time.

The Company is obligated to manufacture, at the customer's option, up to
100% of the customer's requirements for certain paper chemical
products under a long-term manufacturing supply agreement that expires
in October, 2005, subject to various volume limitations. The Company
also agreed to sell and the customer agreed to buy, 100% of the
customer's requirements for two materials produced by the Company for
use in the manufacture of certain paper chemicals by the customer in
the U. S. and certain other countries. The prices for the Company's
services are cost-based, including a fixed component, and are adjusted
periodically. The prices for the materials produced by the Company are
market based and are adjusted periodically. The Company has negotiated
another supply agreement with the same customer scheduled to commence
in November 2005 and expire in October 2008. The new agreement
contains provisions for prices which will be are market based and
which will be adjusted periodically.

The Company is obligated to sell and, subject to numerous exceptions, an
aerospace customer is obligated to buy its requirements of various
specialty materials for certain of its products as determined by the
customer, under an agreement that is scheduled to expire June 30,
2005, or for some products, June 30, 2007. Price is in U.S. dollars, and
is fixed by year.

The Company's Specialty Materials segment is party to a number of
long-term supply and pricing agreements that cover various time
periods. Such agreements are common practice in the aerospace and
aircraft manufacturing industries.

The Company frequently enters into long-term agreements in order to lock-in
price and availability of raw materials and services required to operate its
businesses. At December 31, 2004, obligations under such agreements totaled
$46.6.

The Company had $25.2 of outstanding letters of credit, surety bonds and
bank guarantees at December 31, 2004 that are issued on the Company's behalf in
the ordinary course of business to support certain performance obligations and
commitments of the Company. The instruments are typically renewed on an annual
basis.

11. INCOME TAXES

The income tax provision is based on earnings before income taxes and, in
2003, cumulative effect of accounting change as follows:



- ---------------------------------------------------------------------------------------
2004 2003 2002
- ---------------------------------------------------------------------------------------

U. S. $ 97.0 $ 65.7 $ 52.4
Non-U.S. 67.3 60.7 57.8
- ---------------------------------------------------------------------------------------
Total $164.3 $126.4 $110.2
- ---------------------------------------------------------------------------------------


50


The components of the income tax provision (benefit) are as follows:



- ---------------------------------------------------------------------------------------
2004 2003 2002
- ---------------------------------------------------------------------------------------
Current:

U. S. Federal $ 6.3 $ 1.9 $ 1.3
Non-U. S. 12.8 16.2 16.1
Other, principally state 2.2 1.4 1.6
- ---------------------------------------------------------------------------------------
Total 21.3 19.5 19.0
- ---------------------------------------------------------------------------------------
Deferred:
U. S. Federal 17.5 9.4 7.8
Non-U. S. (0.1) 0.9 2.9
Other, principally state (0.5) 5.6 1.2
- ---------------------------------------------------------------------------------------
Total 16.9 15.9 11.9
- ---------------------------------------------------------------------------------------
Total income tax provision $ 38.2 $ 35.4 $ 30.9
- ---------------------------------------------------------------------------------------



Income taxes paid in 2004, 2003 and 2002 were $16.6, $14.7 and $13.4,
respectively and include non-U. S. taxes of $15.7, $12.0 and $9.6 in 2004, 2003
and 2002, respectively.

U. S. and non-U. S. earnings of consolidated companies, before income
taxes, include all earnings derived from operations in the respective U.S and
non-U. S. geographic areas; whereas provisions (benefits) for income taxes
include all income taxes payable to (receivable from) U. S. Federal, non-U. S.
and other governments as applicable, regardless of the situs in which the
taxable income (loss) is generated. The temporary differences that give rise to
a significant portion of deferred tax assets and liabilities were as follows:

- -----------------------------------------------------------------------------
December 31, 2004 2003
- -----------------------------------------------------------------------------
Deferred tax assets:
Allowance for bad debts $ 2.5 $ 1.9
Insurance accruals 26.4 28.3
Operating accruals 14.9 12.5
Inventory 5.1 6.2
Environmental accruals 26.7 30.4
Pension and postretirement benefit liabilities 149.1 134.8
Employee benefit accruals 18.9 14.6
Tax credit carry forwards 13.9 17.6
Net operating losses 13.1 8.8
Other 3.8 2.7
- -----------------------------------------------------------------------------
Gross deferred tax assets 274.4 257.8
- -----------------------------------------------------------------------------
Valuation allowance (12.2) (4.6)
- -----------------------------------------------------------------------------
Total net deferred tax assets 262.2 253.2
- -----------------------------------------------------------------------------
Deferred tax liabilities:
Plants, equipment and facilities (124.4) (122.0)
Insurance receivables (13.4) (13.7)
Other (30.3) (23.6)
- ------------------------------------------------------------------------------
Gross deferred tax liabilities (168.1) (159.3)
- ------------------------------------------------------------------------------
Net deferred tax assets $ 94.1 $ 93.9
- ------------------------------------------------------------------------------

The American Jobs Creation Act of 2004 (the "Act") introduced a special
one-time dividend received deduction on the repatriation of certain foreign
earnings to a U.S. taxpayer provided certain criteria are met. The Company has
completed its evaluation of this repatriation provision and concluded that no
earnings will be repatriated under the Act at the present time given the pending
acquisition of Surface Specialties. In addition, no provision has been made for
U.S. or additional non-U.S. taxes on the undistributed earnings of international
subsidiaries totaling $370.8, the repatriation of which would not be subject to
the special one-time dividend received deduction under the Act, since the
Company intends to reinvest these earnings. It is not practicable to calculate
the unrecognized deferred tax liability on such earnings. U.S foreign tax
credits would be available to substantially reduce any amount of additional U.S.
tax that might be payable on these earnings in the event of a distribution or
sale.

At December 31, 2004, the Company has U.S. federal income tax net operating
loss carryforwards of $10.6 relating to the Company's 1998 acquisition of The
American Materials & Technologies Corporation available to offset future taxable
income. Utilization of those loss carryforwards is limited under certain
provisions of the Internal Revenue Code. The carryforwards begin to expire at
various dates starting in 2008 through 2018.

51


The Company has U.S. research and development tax credit carryforwards of
$8.5 available as of December 31, 2004 to offset future tax liabilities. These
carryforwards begin to expire at various dates starting in 2023 through 2025.
Foreign tax credit carryforwards of $2.2 are available to offset future tax
liabilities. The Act extended the period of time over which foreign tax credits
may be carried forward from five years to ten years. Accordingly, such foreign
tax credits will now expire at various dates starting in 2012 through 2014.

The long-term earnings trend of the Company makes it more likely than not
that the Company will generate sufficient taxable income on a consolidated basis
to realize its net deferred tax assets with the exception of certain state net
operating loss carryforwards and state tax credits. In 2004, the Company
recorded a tax benefit primarily related to state income tax net operating
losses and state tax credit carryforwards of $7.6, and reflected a corresponding
increase to the valuation allowance in the same amount, due to the uncertainty
of future earnings with respect to various U.S. entities of the Company.
Accordingly, for the years ended December 31, 2004 and 2003, the Company has
recorded a valuation allowance of $12.2 and $4.6, respectively, for the deferred
tax assets primarily attributable to such U.S. state tax attributes.

The Internal Revenue Service (the "IRS") has completed and closed its
audits of the Company's tax returns through 1998. In January, 2005, the Company
was notified that the Congressional Joint Committee on Taxation (the "Joint
Committee") approved the final IRS examination findings for the years 1999
through 2001. Joint Committee also approved a separate tax refund claim filed by
the Company for 1998 at this time. The approval by Joint Committee resulted in a
tax refund of approximately $0.2 and $0.1 for the years 1998 and 2000
respectively, which will be recorded in the first quarter of 2005. As a result
of the resolution of these audits, the Company will also record a reduction in
tax expense of approximately $16.0 in 2005. The IRS is also currently conducting
audits of the Company's tax returns for the years 2002 and 2003. The Company
believes that adequate provisions for all outstanding issues have been made for
all open years.

During 2004, the Company received the final audit report issued by the
Norwegian tax authorities disclosing an income tax adjustment with respect to a
1999 restructuring of the Company's European operations. The tax liability
attributable to this adjustment, excluding interest and possible penalties, is
105 million Norwegian Krone ($17.3) as of December 31, 2004.

The Company has retained tax counsel to assist in the defense of this
assessment since the issue will likely be litigated given the Company's vigorous
defense in protesting the additional tax. Notwithstanding the Company's
meritorious defenses in this matter, in prior years as this matter developed,
the Company accrued for the potential unfavorable outcome of this dispute.
Assuming the dispute resolution process follows a normal course, final
resolution of this matter, and the impact, if any, on the cash flows of the
Company will probably occur in 2005 or 2006.

In 2004 there was a reduction of $2.4 to the income tax provision, related
to a favorable outcome of the completion of several years of tax audits in an
international tax jurisdiction. The Company also recorded a tax benefit in 2004
of $1.2 U.S. and $0.7 non-U.S., to account for the effects on the Company's
deferred tax assets and liabilities attributable to changes in tax rates in
various jurisdictions.

A reconciliation of the Company's effective tax rate to the U. S. federal
income tax rate is as follows:



- --------------------------------------------------------------------------------------
2004 2003 2002
- --------------------------------------------------------------------------------------

Federal income tax rate 35.0% 35.0% 35.0%
Research and development credit (1.8) (3.3) (3.3)
Prior period tax credits (a) - - (5.4)
Income subject to other than
the federal income tax rate (7.5) (6.5) (2.7)
Change in foreign tax rates (0.4) - -
State taxes, net of federal benefits (3.1) 2.0 2.2
Change in state tax rates (0.8) - -
Valuation allowance 4.6 3.6 -
Other (credits) charges, net (2.7) (2.8) 2.3
- ------------------------------------------------------------------------------------
Effective tax rate 23.3% 28.0% 28.1%
- -------------------------------------------------------------------------------------


(a) In 2002 the Company recognized a $6.0 reduction in income tax expense
related to U. S. approval of a claim for refund with respect to prior
years' research and development tax credits.

In 2003 a tax benefit of $7.3 was allocated to the cumulative effect of
accounting change.

Tax benefits on stock option exercises of $11.7, $7.9 and $1.8 were
allocated directly to stockholders' equity for 2004, 2003 and 2002,
respectively.

52


12. EMPLOYEE BENEFIT PLANS

The Company has defined benefit pension plans that cover employees in the
United States and in a number of other countries. Almost all of the plans
provide defined benefits based on years of service and career average salary.
The Company also sponsors postretirement and postemployment benefit plans. The
postretirement plans provide medical and life insurance benefits to retirees who
meet minimum age and service requirements. The medical plans are contributory
and non-contributory with certain participant's contributions adjusted annually;
the life insurance plans are non-contributory. The accounting for the
postretirement plans anticipates future cost-sharing and changes to the plans.
The postretirement plans include a cap on the Company's share of costs for
recent and future retirees. The postemployment plans provide salary
continuation, disability related benefits, severance pay and continuation of
health costs during the period after employment but before retirement.

The Company uses a measurement date of December 31 for the U. S. and
Canadian pension and postretirement benefit plans and uses a measurement date of
November 30 for the majority of all other pension plans.



Pension Plans Postretirement Plans
---------------------------------- ----------------------------------
2004 2003 2002 2004 2003 2002
- ----------------------------------------- ---------- ----------- ----------- ---- --- ----------- ----------- ----------
Net periodic cost:

Service cost $ 14.4 $ 12.5 $ 11.3 $ 1.0 $ 1.4 $ 1.1
Interest cost 34.7 32.5 29.3 14.3 16.6 16.7
Expected return on plan assets (38.9) (35.5) (33.9) (4.9) (5.0) (5.4)
Net amortization and deferral 7.8 3.4 1.0 (10.6) (10.7) (9.4)
---------- ----------- ----------- ---- --- ----------- ----------- ----------
Net periodic expense (credit) $ 18.0 $ 12.9 $ 7.7 $(0.2) $ 2.3 $ 3.0
---------- ----------- ----------- ---- --- ----------- ----------- ----------

Weighted-average assumptions used
to determine net periodic cost,
during the year:
Discount rate 6.0% 6.4% 6.6% 6.3% 6.8% 7.3%
Expected return on plan assets 8.0% 8.1% 8.3% 6.5% 6.5% 7.0%
Rate of compensation increase 3%-10% 3%-10% 3%-10% - - -

Weighted-average assumptions used
to determine benefit obligations,
end of year:
Discount rate 5.6% 6.1% 6.6% 5.8% 6.3% 6.8%
Rate of compensation increase 3%-10% 3%-10% 3%-10% - - -
- ----------------------------------------- ---------- ----------- ----------- ---- --- ----------- ----------- ----------


The expected rate of return on U. S. plan assets was determined by
examining the annualized rates of return over the past five and ten year periods
for the major U. S. stock and bond indexes and the estimated long-term asset mix
of the plan assets of 55% - 65% stocks and 35% - 45% bonds. Since the long-term
average annualized return is approximately 9% - 11% for stocks and 5% - 7% for
bonds, the expected long-term weighted average return was estimated to be 8.5%
for the U. S. pension plans in 2004 and 2003. This return is based on an assumed
allocation of assets of 62% in stocks and 38% in bonds with long-term investment
returns of 10% and 6%, respectively. The expected long-term weighted average
return on all the Company's pension plans, including the U. S. plans, was 8.0%
and 8.1% in 2004 and 2003, respectively. For postretirement plans, all of which
are assets held in the U. S., the expected rate of return was 6.5% in 2004 and
2003, based on the same investment return assumptions and an assumed asset
allocation of 55% in stocks, 30% in bonds and 15% in cash in 2004 and 45% in
stocks, 33% in bonds and 22% in cash in 2003. The investment strategy for the
Company's worldwide benefit plan assets is to maintain broadly-diversified
portfolios of stocks, bonds and money market instruments that, along with
periodic plan contributions, provide the necessary liquidity for ongoing benefit
obligations.

The expected return on non-U.S. plan assets is also based on the historical
rates of return of the various asset classes in each country and the
corresponding asset mix. In the Netherlands, where the Company has its largest
non-U.S. pension plan, the assumed rate of return was 6.25% in 2004. This return
is based on assumed rates of return of 9% for equities and 5% for bonds and an
assumed asset allocation of 31% stocks and 69% bonds and cash.

53




Pension Plans Postretirement Plans
---------------------------------- -----------------------------------
2004 2003 2002 2004 2003 2002
- ----------------------------------------- ----------- ---------- ----------- ---- ---- ----------- ----------- -----------
Change in benefit obligation:

Benefit obligation at January 1 $ 565.4 $ 489.1 $ 404.0 $271.5 $253.6 $247.7
Addition of a plan 2.1 0.7 8.7 - - -
Service cost 14.4 12.5 11.3 1.0 1.4 1.1
Interest cost 34.7 32.5 29.3 14.3 16.6 16.7
Amendments (0.1) (0.2) - - - (31.2)
Acquisitions - 18.2 - - 2.7 -
Translation difference 10.2 16.1 9.9 0.1 0.1 0.1
Actuarial gains/(losses) 44.5 21.2 48.3 (15.7) 20.1 43.3
Employee contributions 0.9 0.5 0.6 3.4 2.6 2.2
Benefits paid (25.9) (25.2) (23.0) (26.0) (25.6) (26.3)
----------- ---------- ----------- ----------- ----------- -----------

Benefit obligation at December 31 $ 646.2 $ 565.4 $ 489.1 $248.6 $271.5 $253.6
----------- ---------- ----------- ----------- ----------- -----------

Accumulated benefit obligation at
December 31 $ 617.3 $ 544.2 $ 489.2 - - -
----------- ---------- ----------- ----------- ----------- -----------

Change in plan assets:
Fair value of plan assets at January 1 $ 430.5 $ 350.0 $354.7 $ 74.6 $ 70.5 $ 73.3
Addition of a plan - 0.3 6.5 - - -
Actual return/(losses) on plan assets 39.2 52.5 (18.1) 3.8 8.3 0.5
Company contributions 32.2 27.5 20.5 15.8 18.7 20.8
Employee contributions 0.9 0.5 0.6 3.4 2.7 2.2
Acquisitions - 10.7 - - - -
Translation difference 8.4 14.2 8.8 - - -
Benefits paid (25.9) (25.2) (23.0) (26.0) (25.6) (26.3)
----------- ---------- ----------- ----------- ----------- -----------

Fair value of plan assets at
December 31 $ 485.3 $ 430.5 $ 350.0 $ 71.6 $ 74.6 $ 70.5
----------- ---------- ----------- ----------- ----------- -----------


Funded status: $(160.9) $(134.9) $(139.1) $(177.0) $(196.9) $(183.1)
Unrecognized actuarial losses 212.4 174.1 170.9 20.6 35.0 18.6
Unrecognized prior service cost 0.9 0.3 (0.8) (74.5) (85.1) (95.7)
Unrecognized net transition obligation - - - - - -
----------- ---------- ----------- ----------- ----------- -----------
Net amount recognized $ 52.4 $ 39.5 $ 31.0 $(230.9) $(247.0) $(260.2)
----------- ---------- ----------- ----------- ----------- -----------

Amounts recognized in the consolidated
balance sheets consist of:
Prepaid benefit cost $ 24.1 $ 10.6 $ 3.9 - - -
Accrued benefit cost (147.9) (118.1) (119.1) (230.9) (247.0) (260.2)
Intangible asset 5.6 6.2 6.9 - - -
Accumulated other comprehensive
income, exclusive of deferred taxes 170.6 140.8 139.3 - - -
----------- ---------- ----------- ----------- ----------- -----------
Net amount recognized $ 52.4 $ 39.5 $ 31.0 $(230.9) $(247.0) $(260.2)
- ----------------------------------------- ----------- ---------- ----------- ---- ---- ----------- ----------- -----------


The accrued postretirement benefit cost recognized in the consolidated
balance sheets at December 31, 2004 and 2003 includes $20.0 in accrued expenses
at each date and $210.9 and $227.0, respectively, in pension and other
postretirement benefit liabilities.

The Company recorded a non-cash after-tax minimum pension liability
adjustment charge of $11.5 to Other Comprehensive Income in 2004 and a credit of
$1.2 and a charge of $92.6 in 2003 and 2002, respectively. The significant
charge in 2002 was a result of the combination of decreases in the fair value of
plan assets due to a declining equity market and increased pension liabilities
primarily due to the lower weighted average discount rate of 6.6% in 2002 from
7.0% in 2001. The charge to Other Comprehensive Income did not trigger any
special funding requirements. The Company has contributed to its U. S. pension
plan every year since its inception in 1993. The Company is not currently
required to make any minimum contributions to its U.S. plans other than the plan
associated with the acquisition of Avecia.

54


The assumed rate of future increases in the per capita cost of healthcare
benefits (healthcare cost trend rate) is 9.0% in 2005, decreasing to ultimate
trend of 5.0% in 2009. The healthcare cost trend rate has a significant effect
on the reported amounts of accumulated postretirement benefit obligation
("APBO") and related expense. A 1.0% change in assumed health care cost trend
rates would have the following effect:



2004 2003
-------------------------------- --------------------------------
1% Increase 1% Decrease 1% Increase 1% Decrease
- ----------------------------------------------------- -- ---------------- --------------- --- --------------- ----------------

Approximate effect on the total of service and
interest cost components of other postretirement
benefit cost $ 1.5 $ (1.2) $ 1.4 $ (1.3)

Approximate effect on accumulated
postretirement benefit obligation $23.9 $(21.2) $21.6 $(20.0)
- ----------------------------------------------------- -- ---------------- --------------- --- --------------- ----------------


At the end of 2004 and 2003, the projected benefit obligation, accumulated
benefit obligation, and fair value of plan assets for the U. S. pension plans,
pension plans outside the U. S., and pension plans with an accumulated benefit
obligation in excess of plan assets, were as follows:



U. S. Plans Non-U. S. Plans Total
----------------------- --------------------- ---------------------------
End of Year 2004 2003 2004 2003 2004 2003
- --------------------------------------- ----------- ----------- ---------- ---------- -------------- ------------

Projected benefit obligation $(506.2) $(455.7) $(68.4) $(55.1) $(574.6) $(510.8)
Accumulated benefit obligation (489.0) (438.8) (63.8) (51.2) (552.8) (490.0)
Fair value of plan assets 369.9 337.0 48.9 37.2 418.8 374.2
- --------------------------------------- --- ----------- ----------- --- ---------- ---------- -- -------------- ------------


The asset allocation for the Company's U. S. pension plans and
postretirement plans at the end of 2004 and 2003, and the target allocation for
2005, by asset category, are as follows:



U.S. Pension Plans Postretirement Plans
- --------------------------------------------------------------- ------------------------------------------------------------

Target Plan Target Plan
allocation Assets at Year End allocations Assets at Year End
-------------- -------------------- ------------ -------------------
Asset Category 2005 2004 2003 Asset Category 2005 2004 2003
- --------------------- -------------- -------- ----------- ------------------- ------------ --------- ---------

Equity Securities 63% 63% 59% Equity Securities 55% 55% 45%
Fixed Income 37% 37% 41% Fixed Income 45% 45% 55%
-------------- -------- ----------- ------------ --------- ---------
Total 100% 100% 100% Total 100% 100% 100%
- --------------------- --- -------------- - -------- ----------- -- ------------------- -- ------------ ---- --------- ---------


Non-U.S. Pension Plans
- ---------------------------------------------------------------

Target Plan
allocation Assets at Year End
-------------- --------------------
Asset Category 2005 2004 2003
- --------------------- -------------- -------- -----------
Equity Securities 20%-45% 41% 41%
Fixed Income 35%-70% 52% 38%
Cash and other 5%-15% 7% 21%
-------------- -------- -----------
Total 100% 100% 100%
- --------------------- --- -------------- - -------- ----------- --

The total fair value of U. S. pension and postretirement plan assets was
$441.5 and $411.6 at December 31, 2004 and 2003. The Company uses a combination
of active and passive stock and bond managers to invest the assets of the U. S.
and non-U.S pension and postretirement plans. The managers are selected based on
an analysis of, among other things, their historical investment results,
frequency of management turnover, cost structure, and assets under management.
Assets are periodically reallocated among the investment managers to maintain
the appropriate asset mix and occasionally transferred to new or existing
managers in the event that a manager is terminated.

55


Information about the expected cash flows for the U. S. pension and
postretirement benefit plans follows:



Expected Employer Contributions Pension Plans Postretirement Plans
- ---------------------------------------- ---------------------- ----------------------------------------------------------

2005 $10.0 $20.5





Postretirement Benefits Postretirement Benefits
Prior to Medicare Part D Anticipated Medicare Part
Expected Benefit Payments Pension Benefits Subsidy D Subsidy
- ---------------------------------------- ---------------------- -------------------------- ----------------------------

2005 $22.2 $20.3 $0.0
2006 23.0 21.1 2.9
2007 24.0 21.7 3.0
2008 25.1 21.9 3.2
2009 26.5 21.9 3.3
2010-2014 160.4 109.2 17.7
- ---------------------------------------- -- ---------------------- -- -------------------------- -- ----------------------------


The above table reflects the total benefits expected to be paid from the
plan and the Company's assets.

Information about the expected cash flows for the non-U. S. pension plans
follows:

Expected Employer Contributions Pension Plans
- ---------------------------------------- ----------------------
2005 $5.8



Expected Benefit Payments Pension Benefits
- ---------------------------------------- ----------------------
2005 $3.1
2006 3.4
2007 3.4
2008 4.1
2009 4.5
2010-2014 22.2
- ---------------------------------------- -- ----------------------

The above table reflects the total benefits expected to be paid from the
plans and the Company's assets.

The Company also sponsors various defined contribution retirement plans in
the United States and a number of other countries, consisting primarily of
savings and profit growth sharing plans. Contributions to the savings plans are
based on matching a percentage of employees' contributions. Contributions to the
profit growth sharing plans are generally based on the Company's financial
performance. Amounts expensed related to these plans in 2004, 2003, and 2002 are
as follows:

2004 2003 2002
- -------------------------- -- --------- --------- --------
U.S
Profit Growth Sharing $ 9.1 $ 5.5 $ 5.0
Savings Plan 7.0 6.1 5.7
-- --------- --------- --------
Total $16.1 $11.6 $10.7
-- --------- --------- --------

Non-U. S.
Others $ 1.2 $ 1.2 $ 1.0
- -------------------------- -- --------- --------- --------

The Company also sponsors postemployment plans that, in certain
circumstances, provide salary continuation, disability related benefits,
severance pay and continuation of health care coverage during the period after
employment but before retirement.

Certain of the Company's benefit plans provide for enhanced benefits in the
event of a "change of control" as defined in the plans.


56



13. ACCRUED EXPENSES

December 31, 2004 2003
- ----------------------------------------------------------------
Employee benefits $ 30.1 $ 27.4
Other postretirement employee benefits 20.0 20.0
Salaries and wages 19.1 15.5
Taxes other than income taxes 7.2 14.4
Environmental 10.0 11.0
Interest 7.8 7.2
Other 83.9 75.0
- ----------------------------------------------------------------
Total $178.1 $170.5
- ----------------------------------------------------------------

14. COMMON STOCK

The Company is authorized to issue 150 million shares of common stock with
a par value of $.01 per share, of which 39,834,777 shares were outstanding at
December 31, 2004. A summary of changes in common stock issued and treasury
stock is presented below.




Common Stock Treasury Stock
---------------------- ----------------------

Balance at December 31, 2001 48,132,640 8,511,532
Purchase of treasury stock - 1,225,282
Issuance pursuant to stock option plan - (293,647)
Award of performance stock and restricted stock (145,904)
Forfeitures and deferrals of stock awards - 35,408
---------------------- ----------------------
Balance at December 31, 2002 48,132,640 9,332,671
Purchase of treasury stock - 838,200
Issuance pursuant to stock option plan - (1,079,792)
Award of performance stock and restricted stock - (80,731)
Forfeitures and deferrals of stock awards - 129,549
---------------------- ----------------------
Balance at December 31, 2003 48,132,640 9,139,897
Purchase of treasury stock - 388,300
Issuance pursuant to stock option plan - (1,217,487)
Award of performance stock and restricted stock - (64,654)
Forfeitures and deferrals of stock awards - 51,807
---------------------- ----------------------
Balance at December 31, 2004 48,132,640 8,297,863
- -------------------------------------------------------------------------- ---------------------- ----------------------


In January 2004, the Board of Directors approved the initiation of a common
stock quarterly cash dividend program. During 2004, four quarterly cash
dividends of $0.10 per share were declared and paid totaling $15.7. No cash
dividends on common shares were declared or paid during 2003 or 2002.

On January 20, 2005, the Board of Directors declared a quarterly cash
dividend of $0.10 per common share, payable on February 25, 2005 to stockholders
of record as of February 10, 2005.

In March 2003, the Company announced an authorization to repurchase up to
an additional $100.0 of its outstanding common stock. The repurchases are made
from time to time on the open market or in private transactions and the shares
obtained under this authorization are anticipated to be utilized for stock
option plans, benefit plans and other corporate purposes. During 2004, the
Company repurchased 388,300 shares of its common stock at a cost of $13.1.
During 2003, the Company repurchased 838,200 shares of stock at a cost of $27.7
that completed its previous stock repurchase authorization and included $18.1
under its new authorization. In connection with the acquisition of Surface
Specialties, the Company suspended its stock buy-back program and does not
anticipate making future stock buy-backs for at least two years following
closing in order to maximize funds available for debt service and other
corporate purposes.

Stock Award and Incentive Plan: The 1993 Stock Award and Incentive Plan
(the "1993 Plan") provides for grants of a variety of awards, such as stock
options (including incentive stock options and nonqualified stock options),
restricted stock (including performance shares), and deferred stock awards and
dividend equivalents. In addition, automatic formula grants of restricted stock
and nonqualified stock options are awarded to non-employee directors. At
December 31, 2004, the Company had reserved approximately 7,568,370 shares for
issuance under the 1993 Plan.

57


The Company has utilized the stock option component of the 1993 Plan to
provide for the granting of nonqualified stock options at 100% of the market
price on the date the option is granted. Options are generally exercisable in
cumulative installments of 33 1/3% per year commencing one year after the date
of grant and annually thereafter, with contract lives of generally 10 years from
the date of grant.

A summary of stock options activity is presented below.




2004 2003 2002
------------------ --------------------- --------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
- ------------------------------------------------------------------------------------------------------
Shares under option:


Outstanding at beginning of year 6,320,110 $28.31 6,692,689 $26.15 6,250,734 $25.73
Granted 545,070 37.14 873,600 27.06 951,100 24.48
Exercised (1,217,487) 20.20 (1,079,792) 13.44 (293,647) 10.59
Forfeited (303,259) 38.57 (166,387) 31.68 (215,498) 27.70
- ------------------------------------------------------------------------------------------------------
Outstanding at end of year 5,344,434 $30.47 6,320,110 $28.31 6,692,689 $26.15
- -------------------------------------------------------------------------------------------------------
Options exercisable at end of year 4,049,069 $30.40 4,687,172 $28.64 4,996,336 $25.67
- -------------------------------------------------------------------------------------------------------


The following table summarizes information about stock options outstanding
and exercisable at December 31, 2004:




Options Outstanding Options Exercisable
------------------- --------------------
Weighted
Average Weighted
Remaining Average Weighted
Contractual Exercise Number Average
Range of Exercise Prices Outstanding Life (Years) Price Exercisable Price
- -------------------------------------------------------------------------------------

$ 2.77-10.00 1,859 3.19 $ 6.46 1,859 $ 6.46
11.66-24.44 1,795,633 5.17 22.45 1,564,483 22.23
25.08-37.75 2,453,351 6.48 30.70 1,405,603 29.72
38.00-47.34 684,091 2.35 40.23 668,424 40.22
47.81-55.00 409,500 3.08 48.09 408,700 48.09
- ------------------------------------------------------------------------------------
$ 2.77-55.00 5,344,434 5.25 $30.47 4,049,069 $30.40
- ------------------------------------------------------------------------------------



As provided under the 1993 Plan, the Company has also issued restricted
stock and performance stock. Restricted shares are subject to certain
restrictions on ownership and transferability that lapse upon vesting.
Performance share payouts are based on the attainment of certain financial
performance objectives and may vary depending on the degree to which the
performance objectives are met. Performance shares awarded in 2002, 2003 and
2004 relate to the 2004, 2005 and 2006 performance periods, respectively. The
total amount of stock-based compensation expense (income) recognized for
restricted stock and performance stock was $4.6 in 2004, $2.0 in 2003 and $(1.3)
in 2002. A summary of restricted stock and performance stock activity is as
follows:



- --------------------------------------------------------------------------------------------------------
2004 2003 2002
- --------------------------------------------------------------------------------------------------------

Outstanding awards - beginning of year 230,580 297,655 265,323
New awards granted 65,204 80,731 145,904
Shares with restrictions lapsed(1) (15,159) (13,739) (34,226)
Restricted shares forfeited (70,224) (134,067) (79,346)
- ---------------------------------------------------------------------------------------------------------
Outstanding awards - end of year 210,401 230,580 297,655
- ---------------------------------------------------------------------------------------------------------
Weighted average market value of new awards on award date $36.84 $26.93 $24.67
- ---------------------------------------------------------------------------------------------------------


(1) Shares with restrictions that lapsed in each period above include
shares deferred by certain participants. The Company issued these
participants equivalent deferred stock awards that will be distributed
in the form of shares of common stock, generally following termination
of employment.

The compensation costs that have been charged against income for restricted
stock and performance stock awards have been noted above. The effects of
applying the fair value method provided under SFAS No. 123 are shown in Note 1
and are not necessarily indicative of future amounts.

58


In the event of a "change of control" (as defined in the 1993 Plan), (i)
any award under the 1993 Plan carrying a right to exercise that was not
previously exercisable and vested will become fully exercisable and vested, (ii)
the restrictions, deferral limitations, payment conditions and forfeiture
applicable to any other award granted under the 1993 Plan will lapse and such
awards will be deemed fully vested and (iii) any performance conditions imposed
with respect to awards shall be deemed to be fully achieved.

15. PREFERRED STOCK

The Company is authorized to issue 20 million shares of preferred stock
with a par value of $.01 per share in one or more classes or series with rights
and privileges as adopted by the Board of Directors. At December 31, 2004, there
were no shares of preferred stock outstanding.

As of December 17, 1993, the Company had issued to Cyanamid, a subsidiary
of Wyeth, eight million shares of preferred stock in conjunction with Cytec's
spin-off from Cyanamid. At December 31, 2003 and through September, 2004, only
4,000 shares of Series C Cumulative Preferred Stock (the "Series C Stock")
remained outstanding. The Series C Stock, which had a redemption value of $25
per share, was redeemed on September 30, 2004 for $10.0 in cash. A charge to net
earnings available to common stockholders of $9.9 was recorded as a premium paid
to redeem preferred stock. The $10.0 payment was not tax deductible. The Company
also settled a series of disputed matters with Wyeth at a cost of $2.0 which is
recorded in other income (expense), net. The Series C shares were subsequently
retired.

The Series C Stock had a liquidation and redemption value of $0.1 and had
an annual dividend of $1.83 per share (7.32%). Under the terms of the Series C
Stock, the Company was subject to debt restrictions and restrictions on certain
payments which included payments of cash dividends on common stock, payments for
the repurchase of common stock outstanding and payments on certain classes of
debt.

16. OPERATIONS BY SEGMENT AND GEOGRAPHIC AREAS

Segments: The Company has four reportable segments: Water and Industrial
Process Chemicals, Performance Products, Specialty Materials and Building Block
Chemicals.

The Water and Industrial Process Chemicals segment produces water treating,
mining, and phosphine chemicals that are used mainly in water and wastewater
treatment, mineral separation processing and semiconductor manufacturing. The
Performance Products segment produces coatings chemicals, performance chemicals
and polymer additives that are used primarily in coatings, adhesives and
plastics applications. The Specialty Materials segment manufactures and sells
materials that are used mainly in commercial and military aviation and launch
vehicles, satellites and aircraft brakes. The Building Block Chemicals segment
manufactures acrylonitrile, acrylamide, hydrocyanic acid, melamine and sulfuric
acid. Some of these chemical intermediates are used in the manufacture of the
Company's specialty chemicals, with the remainder sold to third parties.

The accounting policies of the reportable segments are the same as those
described in Note 1. All intersegment sales prices are cost based. The Company
evaluates the performance of its operating segments based on earnings from
operations and cash flows of the respective segment.

59


Summarized segment information is as follows:



Water and
Industrial Building
Process Performance Specialty Block Total
Chemicals Products Materials Chemicals Segments
- -------------------------------------------------------------------------------------------------------------
2004

Net sales to external customers $409.1 $564.6 $487.0 $260.6 $1,721.3
Intersegment net sales -- 5.0 -- 85.0 90.0
- -------------------------------------------------------------------------------------------------------------
Total net sales 409.1 569.6 487.0 345.6 1,811.3
Earnings from operations 21.2 57.2 84.2 14.8 177.4
Percentage of sales 5.2% 10.0% 17.3% 4.3% 9.8%
Total assets 365.2 512.6 515.4 189.7 1,582.9
Capital expenditures 18.5 34.3 19.1 12.2 84.1
Depreciation and amortization 21.5 29.7 10.7 25.5 87.4
- -------------------------------------------------------------------------------------------------------------
2003
Net sales to external customers $362.2 $489.8 $408.7 $211.1 $1,471.8
Intersegment net sales -- -- -- 65.7 65.7
- -------------------------------------------------------------------------------------------------------------
Total net sales 362.2 489.8 408.7 276.8 1,537.5
Earnings from operations 20.3 37.3 66.3 20.3 144.2
Percentage of sales 5.6% 7.6% 16.2% 7.3% 9.4%
Total assets 347.9 479.6 478.9 197.5 1,503.9
Capital expenditures 26.0 33.7 18.3 10.0 88.0
Depreciation and amortization 20.0 29.6 11.5 27.3 88.4
- -------------------------------------------------------------------------------------------------------------
2002
Net sales to external customers $331.2 $452.3 $395.5 $167.2 $1,346.2
Intersegment net sales - - - 53.1 53.1
- -------------------------------------------------------------------------------------------------------------
Total net sales 331.2 452.3 395.5 220.3 1,399.3
Earnings from operations 26.2 39.6 65.7 5.6 137.1
Percentage of sales 7.9% 8.8% 16.6% 2.5% 9.8%
Total assets 248.9 389.5 477.8 204.4 1,320.6
Capital expenditures 15.3 10.2 13.4 7.9 46.8
Depreciation and amortization 17.2 28.4 10.7 26.8 83.1
- -------------------------------------------------------------------------------------------------------------


The following table provides a reconciliation of selected segment
information to corresponding amounts contained in the Company's Consolidated
Financial Statements:



- ---------------------------------------------------------------------------------------------
2004 2003 2002
- ---------------------------------------------------------------------------------------------
Net sales:

Net sales from segments $ 1,811.3 $1,537.5 $1,399.3
Elimination of intersegment revenue (90.0) (65.7) (53.1)
- ---------------------------------------------------------------------------------------------
Total consolidated net sales $ 1,721.3 $1,471.8 $1,346.2
- ---------------------------------------------------------------------------------------------
Earnings from operations:
Earnings from segments $ 177.4 $ 144.2 $ 137.1
Corporate unallocated (1) (2) (17.8) (3.1) (17.7)
- ---------------------------------------------------------------------------------------------
Total consolidated earnings from operations $ 159.6 $ 141.1 $ 119.4
- --------------------------------------------------------------------------------------------
Total assets:
Assets from segments $1,582.9 $1,503.9
Other assets (3) 643.2 522.0
- ---------------------------------------------------------------------------
Total consolidated assets $2,226.1 $2,025.9
- ---------------------------------------------------------------------------


(1) Includes $8.0 in 2004 relating to the settlement of a class action law
suit on behalf of purchasers of carbon fiber and other related matters
(Refer to Note 10).

(2) Earnings from operations in 2002 include restructuring charges of
$13.7 (Refer to Note 3).

(3) Includes cash and cash equivalents at December 31, 2004 and 2003, of
$323.8 and $251.1, respectively.

60


Operations by Geographic Areas: Net sales to unaffiliated customers
presented below are based upon the sales destination, which is consistent with
management's view of the business. U. S. exports included in net sales are based
upon the sales destination and represent direct sales of U. S.-based entities to
unaffiliated customers outside of the United States. Earnings from operations
are also based upon destination and consist of total net sales less operating
expenses. Identifiable assets are those assets used in the Company's operations
in each geographic area. Unallocated assets are primarily cash and cash
equivalents, deferred taxes, miscellaneous receivables, construction in progress
and the fair values of derivatives. Except for the United States, no country
accounted for more than 10% of consolidated net sales.



- -------------------------------------------------------------------------------------------------------
2004 2003 2002
- -------------------------------------------------------------------------------------------------------
Net sales

United States $ 802.4 $ 719.7 $ 685.8
Other Americas 188.0 151.6 139.5
Asia/Pacific 261.9 211.1 197.3
Europe/Middle East/Africa 469.0 389.4 323.6
- -------------------------------------------------------------------------------------------------------
Total $1,721.3 $1,471.8 $1,346.2
- -------------------------------------------------------------------------------------------------------
U. S. exports included in net sales above
Other Americas $ 70.7 $ 47.8 $ 40.3
Asia/Pacific 102.7 85.2 86.1
Europe/Middle East/Africa 61.0 53.6 38.3
- -------------------------------------------------------------------------------------------------------
Total $ 234.4 $ 186.6 $ 164.7
- --------------------------------------------------------------------------------------------------------
Earnings from operations (1) (2)
United States $ 61.6 $ 55.3 $ 37.0
Other Americas 31.2 27.3 24.9
Asia/Pacific 30.3 22.0 28.2
Europe/Middle East/Africa 36.5 36.5 29.3
- --------------------------------------------------------------------------------------------------------
Total $ 159.6 $ 141.1 $ 119.4
- --------------------------------------------------------------------------------------------------------

Identifiable assets
United States $ 976.5 $ 933.3
Other Americas 148.1 138.9
Asia/Pacific 82.7 76.6
Europe/Middle East/Africa 306.4 259.1
- -------------------------------------------------------------------------------------
Total 1,513.7 1,407.9
Equity in net assets of and advances to associated
companies 85.5 82.1
Unallocated assets 626.9 535.9
- -------------------------------------------------------------------------------------
Total assets $2,226.1 $2,025.9
- -------------------------------------------------------------------------------------



(1) Includes $8.0 in 2004 relating to the settlement of a class action
lawsuit in the U.S. on behalf of purchasers of carbon fiber and other
related matters (Refer to Note 10).

(2) Earnings from operations in 2002 include restructuring charges of
$13.6 and $0.1 in the U.S. and Europe/Middle East/Africa, respectively
(Refer to Note 3).

61


REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and Stockholders
Cytec Industries Inc.:

We have audited the accompanying consolidated balance sheets of Cytec
Industries Inc. and subsidiaries as of December 31, 2004 and 2003, and the
related consolidated statements of income, stockholders' equity and cash flows
for each of the years in the three-year period ended December 31, 2004. In
connection with our audits of the consolidated financial statements, we also
have audited the consolidated financial statement schedule, "Schedule II -
Valuation and Qualifying Accounts." These consolidated financial statements and
financial statement schedule are the responsibility of the Company's management.
Our responsibility is to express an opinion on these consolidated financial
statements and financial statement schedule based on our audits.

We conducted our audits in accordance with the standards of the Public
Company Accounting Oversight Board (United States). Those standards require that
we plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Cytec
Industries Inc. and subsidiaries as of December 31, 2004 and 2003, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 2004, in conformity with U.S. generally
accepted accounting principles. Also in our opinion, the related financial
statement schedule, when considered in relation to the basic consolidated
financial statements taken as a whole, presents fairly, in all material
respects, the information set forth therein.

As discussed in Note 1 to the consolidated financial statements, the
Company adopted the provisions of Statement of Financial Accounting Standards
No. 143, "Accounting for Asset Retirement Obligations," effective January 1,
2003. Also as discussed in Note 1 to the consolidated financial statements, the
Company adopted the provisions of Statement of Financial Accounting Standards
No. 142, "Goodwill and Other Intangible Assets," effective January 1, 2002.

We also have audited, in accordance with the standards of the Public
Company Accounting Oversight Board (United States), the effectiveness of Cytec
Industries Inc. and subsidiaries internal control over financial reporting as of
December 31, 2004, based on criteria established in Internal Control--Integrated
Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO), and our report dated February 17, 2005 expressed an
unqualified opinion on management's assessment of, and the effective operation
of, internal control over financial reporting.


/s/ KPMG LLP

Short Hills, New Jersey
February 17, 2005

62


REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and Stockholders
Cytec Industries Inc.:

We have audited management's assessment, included in the accompanying
Management's Report on Internal Control Over Financial Reporting, that Cytec
Industries Inc. and subsidiaries maintained effective internal control over
financial reporting as of December 31, 2004, based on criteria established in
Internal Control--Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO). Cytec Industries Inc.'s
management is responsible for maintaining effective internal control over
financial reporting and for its assessment of the effectiveness of internal
control over financial reporting. Our responsibility is to express an opinion on
management's assessment and an opinion on the effectiveness of the Company's
internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public
Company Accounting Oversight Board (United States). Those standards require that
we plan and perform the audit to obtain reasonable assurance about whether
effective internal control over financial reporting was maintained in all
material respects. Our audit included obtaining an understanding of internal
control over financial reporting, evaluating management's assessment, testing
and evaluating the design and operating effectiveness of internal control, and
performing such other procedures as we considered necessary in the
circumstances. We believe that our audit provides a reasonable basis for our
opinion.

A company's internal control over financial reporting is a process designed
to provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles. A company's internal control over
financial reporting includes those policies and procedures that (1) pertain to
the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the company; (2)
provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors of
the company; and (3) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of the company's
assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial
reporting may not prevent or detect misstatements. Also, projections of any
evaluation of effectiveness to future periods are subject to the risk that
controls may become inadequate because of changes in conditions, or that the
degree of compliance with the policies or procedures may deteriorate.

In our opinion, management's assessment that Cytec Industries Inc. and
subsidiaries maintained effective internal control over financial reporting as
of December 31, 2004, is fairly stated, in all material respects, based on
criteria established in Internal Control--Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission (COSO). Also,
in our opinion, Cytec Industries Inc. maintained, in all material respects,
effective internal control over financial reporting as of December 31, 2004,
based on criteria established in Internal Control--Integrated Framework issued
by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

We also have audited, in accordance with the standards of the Public
Company Accounting Oversight Board (United States), the consolidated balance
sheets of Cytec Industries Inc. and subsidiaries as of December 31, 2004 and
2003, and the related consolidated statements of income, stockholders' equity
and cash flows for each of the years in the three-year period ended December 31,
2004, and our report dated February 17, 2005 expressed an unqualified opinion on
those consolidated financial statements.

/s/ KPMG LLP

Short Hills, New Jersey
February 17, 2005


63




QUARTERLY DATA (UNAUDITED)

(Dollars in millions, except per share amounts) 1Q 2Q 3Q 4Q Year
- -------------------------------------------------------------------------------------------------------------------
2004

Net Sales $415.2 $422.0 $433.5 $450.6 $1,721.3
Gross profit (1) 103.1 108.0 99.4 99.6 410.1
Net earnings available to common
stockholders (2) 32.0 29.7 9.4 45.1 116.2
Basic net earnings available to common
stockholders per share (3) $ 0.82 $0.76 $0.24 $1.13 $2.94
Diluted net earnings available to common
stockholders per share (3) $0.80 $0.74 $0.23 $1.09 $2.84

2003
Net Sales $367.4 $374.9 $367.7 $361.8 $1,471.8
Gross profit (1) 95.0 95.9 83.1 82.9 356.9
Net earnings 15.3 25.4 22.1 14.6 77.4
Basic net earnings per common share:
Earning before accounting changes $0.75 $0.65 $0.56 $0.37 $2.34
Accounting Change (0.35) -- -- -- (0.35)
- -------------------------------------------------------------------------------------------------------------------
Basic net earnings per common share (3) $0.40 $0.65 $0.56 $0.37 $1.99

Diluted net earnings per common share:
Earnings before accounting change $0.73 $0.64 $0.55 $0.33 $2.27
Accounting change (0.34) -- -- -- (0.34)
- -------------------------------------------------------------------------------------------------------------------
Diluted net earnings per common share (3) $0.39 $0 .64 $0 .55 $0.33 $1.93

2002
Net Sales $318.0 $350.9 $332.8 $344.5 $1,346.2
Gross profit (1) 70.0 87.0 86.1 82.7 325.8
Net earnings 7.0 21.4 31.6 19.3 79.3
Basic net earnings per common share (3) $ 0.18 $ 0.54 $ 0.80 $ 0.49 $ 2.01
Diluted net earnings per common share (3) $ 0.17 $ 0.52 $ 0.78 $ 0.49 $ 1.96



(1) Gross profit is derived by subtracting manufacturing cost of sales
from net sales.

(2) First and second quarter results were restated to show the effect of
FSP 106-2 which was adopted during the third quarter of 2004.

(3) The sum of the quarters may not equal the full year basic and diluted
earnings per share since each period is calculated separately.


Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

Not applicable.

Item 9A. CONTROLS AND PROCEDURES

Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures

An evaluation was carried out by the Company's management, under the
supervision and with the participation of the Company's the Chief Executive
Officer and Chief Financial Officer, of the effectiveness of the Company's
disclosure controls and procedures as defined in Exchange Act Rule 13a-14, as of
December 31, 2004. Based upon that evaluation, the Chief Executive Officer and
Chief Financial Officer have concluded that the Company's current disclosure
controls and procedures are reasonably effective.

64


Management's Report on Internal Control Over Financial Reporting

Company management is responsible for establishing and maintaining adequate
internal controls over financial reporting, as defined in Exchange Act Rules
13a-15(f). Under the supervision and with the participation of the Company's
management, including the Chief Executive Officer and Chief Financial Officer,
an evaluation of the effectiveness of the Company's internal controls over
financial reporting was carried out. The evaluation was based on the criteria
established in Internal Control - Integrated Framework issued by the Committee
of Sponsoring Organizations of the Treadway Commission. Based on this
evaluation, management has concluded that the Company's internal controls over
financial reporting were effective as of December 31, 2004.

Attestation Report

Management's assessment of the effectiveness of internal controls over
financial reporting as of December 31, 2004 has been audited by KPMG LLP, an
independent registered public accounting firm, as stated in their report which
is included herein.

Changes in Internal Control

There were no changes in the Company's internal controls over financial
reporting during the fiscal quarter ended December 31, 2004 identified in the
above-referenced evaluations that has materially affected, or is reasonably
likely to materially affect, our internal control over financial reporting.
There have been no significant changes in the Company's internal controls
subsequent to the date of the evaluation by the Chief Executive Officer and
Chief Financial Officer.

Item 9B. OTHER INFORMATION

Not applicable.

65


PART III
--------

Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

Set forth below is certain information concerning the executive officers of
the Company. Each such person serves at the pleasure of the Board of Directors
of the Company.



Name Age Positions


D. Lilley 58 Mr. Lilley is Chairman of the Board, President and Chief Executive Officer of the
Company. He was elected Chairman in January 1999 and President and Chief Executive
Officer of the Company effective May 11, 1998, having previously served as President and
Chief Operating Officer of the Company from January 8, 1997.

J. P. Cronin 51 Mr. Cronin is Executive Vice President and Chief Financial Officer of the Company,
having previously served as Vice President and Chief Financial Officer of the Company
from its inception in 1993 until he was elected an Executive Vice President in September
1996.

S. D. Fleming 46 Mr. Fleming was elected as an officer of the Company in September 2004. He has been
President of Cytec Specialty Chemicals since April 2003, having previously served as
Vice President, Phosphine and Mining Chemicals and other executive positions in Cytec's
specialty chemicals businesses for more than four years.

S. C. Speak 47 Mr. Speak was elected as an officer of the Company in September 2004. He has been
President of Cytec Engineered Materials since January 2002, having previously served as
Vice President and General Manager, North America and Pacific Rim and other executive
positions in Cytec Engineered Materials for more than two years.

W. N. Avrin 49 Mr. Avrin is Vice President, Corporate and Business Development of the Company and has
held this position for more than five years.

D. M. Drillock 47 Mr. Drillock was elected Vice President, Controller and Investor Relations of the
Company in April 2002. He previously served as Controller for more than four years.

J. E. Marosits 52 Mr. Marosits was elected Vice President, Human Resources in July 2002. For more than
four years prior to that, he had been the Company's Director, Human Resources for
Building Block Chemicals and Corporate Manager, Labor Relations.

R. Smith 46 Mr. Smith was elected Vice President, General Counsel and Secretary of the Company
effective January 1, 2002, having previously served as Assistant General Counsel for
more than two years prior thereto.

T. P. Wozniak 51 Mr. Wozniak is Treasurer of the Company and has held this position for more than five
years.


The Company has adopted a Code of Ethics for Cytec Senior Executives which
is applicable to its chief executive officer, its chief financial officer, its
chief accounting officer and its controller. The Code of Ethics for Senior
Executive Officers sets forth certain of the Company's expectations, including
that the officers will act with honesty and integrity, will avoid actual and
apparent conflicts of interest, will comply with all applicable laws, will
disclose information that is complete and understandable and will act in good
faith and responsibly. The Code also requires the prompt internal reporting of
violations to the Chair of the Audit Committee. A current copy of the Code is
available on the Company's website accessible at www.Cytec.com. The Company will
disclose information regarding any amendment to the Code or any waiver from any
of its provisions on the same website.

The remainder of the information required by this Item is incorporated by
reference from the "Election of Directors" section of the Registrant's
definitive Proxy Statement for its 2005 Annual Meeting of Common Stockholders,
dated March 11, 2005.

66


Item 11. EXECUTIVE COMPENSATION

The information required by this Item is incorporated by reference from the
"Executive Compensation," the "Employment and Severance Arrangements," the
"Compensation under Retirement Plans," the "Compensation of Directors," the
"Compensation and Management Development Committee Report," the "Equity
Compensation Plan Information," and the "Performance Graph" sections of the
Registrant's definitive Proxy Statement for its 2005 Annual Meeting of Common
Stockholders, dated March 11, 2005.

Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The information required by this Item is incorporated by reference from the
"Cytec Stock Ownership by Directors & Officers" and the "Security Ownership of
Certain Beneficial Owners" sections of the Registrant's definitive Proxy
Statement for its 2005 Annual Meeting of Common Stockholders, dated March 11,
2005.

Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The information required by this Item is incorporated by reference from the
"Certain Relationships and Related Transactions" section of the Registrant's
definitive Proxy Statement for its 2005 Annual Meeting of Common Stockholders,
dated March 11, 2005.

Item 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

The information required by this Item is incorporated by reference from the
"Principal Accountant Fees and Services" section of the Registrant's definitive
Proxy Statement for its 2005 Annual Meeting of Common Stockholders, dated March
11, 2005.

67


PART IV
-------

Item 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a)(1) List of Financial Statements:

Cytec Industries Inc. and Subsidiaries Consolidated Financial
Statements (Refer to Item 8):

Consolidated Balance Sheets as of December 31, 2004 and 2003
Consolidated Statements of Income for the Years ended
December 31, 2004, 2003 and 2002
Consolidated Statements of Cash Flows for the Years ended
December 31, 2004, 2003 and 2002
Consolidated Statements of Stockholders' Equity for the Years
ended December 31, 2004, 2003 and 2002
Notes to Consolidated Financial Statements

Reports of Independent Registered Public Accounting Firm

(a)(2) Cytec Industries Inc. and Subsidiaries Financial Statement
Schedules

Schedule II - Valuation and Qualifying Accounts

Schedules, other than "Schedule II---Valuation and Qualifying Accounts,"
are omitted because of the absence of the conditions under which they are
required or because the information called for are included in the consolidated
financial statements or notes thereto.

(a)(3) Exhibits.

Exhibit No. Description
----------- -----------




2.1 Stock and Asset Purchase Agreement dated as of October 1, 2004 between UCB,
S.A. and the Registrant (incorporated by reference to exhibit 99.1 to
Registrant's current report on Form 8-K dated October 1, 2004).

3.1(a) Certificate of Incorporation (incorporated by reference to exhibit 3.1(a) to
Registrant's quarterly report on Form 10-Q for the quarter ended September 30,
1996).

3.1(b) Certificate of Amendment to Certificate of Incorporation dated May 13, 1997
(incorporated by reference to exhibit 3.1(a) to Registrant's quarterly report
on Form 10-Q for the quarter ended June 30, 1997).

3.1(c) Conformed copy of the Registrant's certificate of incorporation, as amended
(incorporated by reference to exhibit 3(c) to Registrant's registration
statement on Form S-8, registration number 333-45577).

3.2 By-laws, as amended through January 22, 2002 (incorporated by reference to
Exhibit 3.2 to Registrant's annual report on Form 10-K for the year ended
December 31, 2001).

4.1 Form of Common Stock Certificate (incorporated by reference to exhibit 4.1 to
Registrant's registration statement on Form 10).

4.2(a) Indenture, dated as of March 15, 1998 between the Registrant and PNC Bank,
National Association as Trustee (incorporated by reference to Exhibit 4.1 of
Registrant's current report on Form 8-K, dated March 18, 1998).

4.2(b) Supplemental Indenture, dated as of May 11, 1998 between the Registrant and PNC
Bank National Association, as Trustee (incorporated by reference to Exhibit 4.2
to Registrant's quarterly report on Form 10-Q for the quarter ended March 31,
1998).


68





4.3 6.75% Global Note due March 15, 2008 (incorporated by reference to Exhibit 4.3
of Registrant's current report on Form 8-K dated March 18, 1998).

4.4 6.846% Mandatory Par Put Remarketed Securities due May 11, 2025 (incorporated
by reference to Exhibit 4.5 to Registrant's quarterly report on Form 10-Q for
the quarter ended March 31, 1998).

4.5 4.60% Senior Note due 2013 (incorporated by reference to Exhibit 4.2 to
Registrant's quarterly report on Form 10-Q for the quarter ended June 30, 2003).

10.1(a) Five Year Term Loan Agreement dated as of February 15, 2005, among the
Registrant, the banks named therein and Citigroup Global Markets, Inc., as lead
arranger and book manager (incorporated by reference to exhibit 99.1 to
Registrant's current report on form 8-K dated February 15, 2005).

10.1(b) 364-day Term Loan Agreement dated as of February 15, 2005, among the
Registrant, the banks named therein and Citigroup Global Markets, Inc., as lead
arranger and book manager (incorporated by reference to exhibit 99.2 to
Registrant's current report on form 8-K dated February 15, 2005).

10.1(c) Five Year Credit Agreement dated as of February 15, 2005, among the Registrant,
the banks named therein and Citigroup Global Markets, Inc., as lead arranger
and book manager (incorporated by reference to exhibit 99.3 to Registrant's
current report on form 8-K dated February 15, 2005).

10.1(d) Three Year Credit Agreement dated as of April 11, 2002, among the Registrant,
the banks named therein and Citibank N.A., as Administrative Agent, Wachovia
Bank, as Syndication Agent, and ABN Amro Bank N. V., as Documentation Agent
(incorporated by reference to exhibit 10.6 to Registrant's quarterly report on
form 10-Q for the quarter ended March 31, 2002).

10.2(a) Partnership Agreement (the "CYRO Partnership Agreement") between Cyanamid
Plastics, Inc., and Rohacryl, Inc., dated July 1, 1976 (incorporated by
reference to exhibit 10.17 to Registrant's registration statement on Form 10).

10.2(b) Letter amendment, dated February 19, 1993, among CYRO Industries, Cyanamid
Plastics Inc. and Rohacryl Inc. to the CYRO Partnership Agreement
(incorporated by reference to Exhibit 10.1 to the Registrant's quarterly
report on Form 10-Q for the quarter ended March 31, 1998).

10.2(c) Letter amendment, dated as of March 27, 2002 between Cytec Plastics Inc. and
Rohacryl Inc., to the CYRO Partnership Agreement incorporated by reference to
Exhibit 10.8(c) to the Registrant's annual report on Form 10-K for the year
ended December 31, 2001).

10.3(a) Joint Venture Agreement (the "AMEL Joint Venture Agreement") between Cyanamid
Melamine Inc., and DCP Melamine North America, Inc., dated April 15, 1986
(incorporated by reference to exhibit 10.18(a) to Registrant's registration
statement on Form 10).

10.3(b) Amendment No. 1 to AMEL Joint Venture Agreement, dated April 30, 1987, by and
between Cyanamid Melamine Inc. and DCP Melamine North America, Inc.
(incorporated by reference to Exhibit 10.2 to Registrant's quarterly report on
Form 10-Q for the quarter ended March 31, 1998).

10.3(c) Amendment No. 2 to AMEL Joint Venture Agreement, dated May 1, 1994, by and
between DSM Melamine Americas, Inc. and Cytec Melamine Inc. (incorporated by
reference to Exhibit 10.3 to Registrant's quarterly report on Form 10-Q for
the quarter ended March 31, 1998).


69





10.3(d) Amendment No. 3 to AMEL Joint Venture Agreement, dated January 30, 1995 by and
between Cytec Melamine Inc. and DSM Melamine Americas, Inc. (incorporated by
reference to Exhibit 10.4 to Registrant's quarterly report on Form 10-Q for
the quarter ended March 31, 1998).

10.3(e) Agreement dated April 15, 1986 between Cyanamid and DSM Chemische Production
BV, as amended October 24, 1994 (incorporated by reference to exhibit 10.18(b)
to Registrant's annual report on Form 10-K for the year ended December 31,
1994).

10.4 Executive Compensation Plans and Arrangements (incorporated by reference to
exhibit 10.12 to Registrant's annual report on Form 10-K for the year ended
December 31, 2003).

10.4(a) 1993 Stock Award and Incentive Plan, as amended through October 16, 2003
(incorporated by reference to Exhibit 10.12(a) to the Registrant's quarterly
report on Form 10-Q for the quarter ended September 30, 2003).

10.4(b) Form of Performance Stock Award/Performance Cash Award Grant Letter.
(incorporated by reference to exhibit 10.12(b) to Registrant's annual report
on Form 10-K for the year ended December 31, 1999).

10.4(c) Rule No. 1 under 1993 Stock Award and Incentive Plan as amended through
January 20, 2003 (incorporated by reference to exhibit 10.12(c) to
Registrant's Annual Report on Form 10-K for the year ended December 31, 2002.)

10.4(d)(i) Form of Stock Option Grant Letter (incorporated by reference to exhibit
10.13(d) of Registrant's annual report on Form 10-K for the year ended
December 31, 1998).

10.4(d)(ii) Form of Stock Option Grant Letter used for grants to officers from January 21,
2002 through January 19, 2004 (incorporated by reference to Exhibit
10.12(d)(ii) to Registrant's annual report on Form 10-K for the year ended
December 31, 2001).

10.4(d)(iii) Form of Stock Option Grant Letter used for grants to officers from January 21,
2004 (incorporated by reference to exhibit 10.12 to Registrant's annual report
on Form 10-K for the year ended December 31, 2003).

10.4(d)(iv) Form of Performance Stock Award Grant Letter used for grants to officers from
January 21, 2004 (incorporated by reference to exhibit 10.12 to Registrant's
annual report on Form 10-K for the year ended December 31, 2003).

10.4(e) Rule No. 2, as amended through January 27, 1997, under 1993 Stock Award and
Incentive Plan (incorporated by reference to exhibit 10.13(e) to Registrant's
annual report on Form 10-K for the year ended December 31, 1996).

10.4(f) Executive Income Continuity Plan, as amended through September 12, 2003
(incorporated by reference to exhibit 10.12(f) to Registrant's quarterly
report on Form 10-Q for the quarter ended September 30, 2003).

10.4(g) Key Manager Income Continuity Plan, as amended through September 12, 2003
(incorporated by reference to exhibit 10.12(g) to Registrant's quarterly
report on Form 10-Q for the quarter ended September 30, 2003).

10.4(h) Employee Income Continuity Plan, as amended through September 12, 2003
(incorporated by reference to exhibit 10.12(h) to Registrant's quarterly
report on Form 10-Q for the quarter ended September 30, 2003).

10.4(i) Cytec Excess Retirement Benefit Plan, as amended through May 11, 2000
(incorporated by reference to exhibit 10.12(j) to Registrant's quarterly
report on Form 10-Q for the quarter ended June 30, 2000).




70





10.4(j) Cytec Supplemental Employees Retirement Plan, as amended through April 13,
2000 (incorporated by reference to exhibit 10.12(k) to Registrant's quarterly
report on Form 10-Q for the quarter ended June 30, 2000).

10.4(k) Cytec Executive Supplemental Employees Retirement Plan, as amended through
October 14, 1999 (incorporated by reference to exhibit 10.13(k) to
Registrant's quarterly report on Form 10-Q for the quarter ended September 30,
1999).

10.4(l) Cytec Compensation Tax Equalization Plan (incorporated by reference to exhibit
10(G) to Registrant's quarterly report on Form 10-Q for the quarter ended
September 30, 1994).

10.4(m) Cytec Supplemental Savings and Profit Sharing Plan, as amended and restated
through July 22, 2003 (incorporated by reference to exhibit 4.4 to
Registrant's Registration Statement on Form S-8, registration number
333-107221).

10.4(n) Amended and Restated Trust Agreement effective as of December 15, 1994 between
the Registrant and Vanguard Fiduciary Trust Company, as successor trustee
(incorporated by reference to exhibit 10.12(p) to Registrant's annual report
on Form 10-K for the year ended December 31, 1999).

10.4(o) Deferred Compensation Plan as amended through December 9, 2002 (incorporated
by reference to exhibit 10.12(o) to Registrant's annual report on Form 10-K
for the year ended December 31, 2002).

12 Computation of Ratio of Earnings to Fixed Charges

21 Subsidiaries of the Company (incorporated by reference to Exhibit 21 to
Registrant's annual report on Form 10-K for the year ended December 31, 2002).

23 Consent of KPMG LLP

24(a-h) Powers of Attorney of J. E. Akitt, C.A. Davis, A.G. Fernandes, L. L. Hoynes,
Jr., B. C. Johnson, W. P. Powell, J. R. Satrum and J. R. Stanley.

31.1 Certification of David Lilley, Chief Executive Officer pursuant to Rule
13a-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of
2002.

31.2 Certification of James P. Cronin, Chief Financial Officer pursuant to Rule
13a-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of
2002.

32.1 Certification of David Lilley, Chief Executive Officer pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.

32.2 Certification of James P. Cronin, Chief Financial Officer pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002.


71


SIGNATURES
----------


Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.


CYTEC INDUSTRIES INC.
(Registrant)



DATE: February 25, 2005 By: /S/ D. Lilley
---------------------------------------
D. Lilley
Chairman, President and Chief Executive
Officer


Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.


DATE: February 25, 2005 /S/ D. Lilley
-------------------------------------------
D. Lilley
Chairman, President and Chief Executive
Officer



DATE: February 25, 2005 /S/ J. P. Cronin
-------------------------------------------
J. P. Cronin, Executive Vice President,
Chief Financial and Accounting Officer

*
----------------------
J. E. Akitt, Director

*
----------------------
C.A. Davis, Director

*
----------------------
A.G. Fernandes, Director

*
----------------------
L. L. Hoynes, Jr., Director *By: /S/ R. Smith
-------------------
Attorney-in-Fact
*
----------------------
B. C. Johnson, Director

*
----------------------
W. P. Powell, Director

*
----------------------
J. R. Satrum, Director

*
----------------------
J. R. Stanley, Director


DATE: February 25, 2005

72


SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
Years Ended December 31, 2004, 2003 And 2002
(In Millions)



Additions or
(deductions)
charged or
Balance (credited) Other additions Balance
Description 12/31/2003 to expenses or (deductions) 12/31/2004
- ----------- ---------- ----------- --------------- ----------
Reserves deducted from
related assets:

Doubtful accounts receivable $ 7.6 $ 0.4 $ (l.3) 1 $ 6.7
Environmental accruals $ 79.6 $ (0.1) $ (8.8) 2 $ 70.7
Deferred tax asset valuation 3
allowance $ 4.6 - $ 7.6 $ 12.2


1 Principally bad debts written off, less recoveries.
2 Environmental remediation spending, net of $0.6 currency exchange.
3 Primarily attributable to U. S. state income tax net operating loss and credit
carryforwards.



Additions or
(deductions)
charged or
Balance (credited) Other additions Balance
Description 12/31/2002 to expenses or (deductions) 12/31/2003
- ----------- ---------- ----------- --------------- ----------
Reserves deducted from
related assets:

Doubtful accounts receivable $ 8.8 $ 0.2 $ (l.4) 1 $ 7.6
Total investments, advances
and other assets 2
$ 17.0 - $ (17.0) $ -
Environmental accruals $ 83.7 $ 1.8 $ (5.9) 3 $ 79.6
Deferred tax asset valuation 4
allowance - - $ 4.6 $ 4.6


1 Principally bad debts written off, less recoveries.
2 Liquidation of associated company and write-off of preferred stock of company
in bankruptcy both of which were fully reserved.
3 Environmental remediation spending of $9.3, net of $1.7 currency exchange and
$1.7 for the gross up of a certain liability and related receivable.
4 Attributable to U. S. state income tax net operating loss carryforwards.



Additions or
(deductions)
charged or
Balance (credited) Other additions Balance
Description 12/31/2001 to expenses or (deductions) 12/31/2002
- ----------- ---------- ----------- --------------- ----------
Reserves deducted from
related assets:

Doubtful accounts receivable $ 7.8 $ 2.2 $ (1.2) 1 $ 8.8
Total investments, advances
and other assets
$ 15.4 $ 1.7 2 $ (0.1) $ 17.0
Environmental accruals $ 93.9 - $ (10.2) 3 $ 83.7


1 Principally bad debts written off, less recoveries.
2 Write-off of unconsolidated associated company.
3 Environmental remediation spending, excluding external efforts.


73