We have elected to change our method of accounting for our continuing pension and other postemployment benefit (“OPEB”) plans, which consist of those plans that remained with Cytec following the divestiture of Coating Resins, to a more preferable method as permitted under U.S. GAAP. The new accounting method, referred to as mark-to-market (“MTM”), was adopted in the second quarter of 2013, and is retrospectively applied to our financial results for all periods. Our management believes that this change in accounting improves transparency of reporting of its operating results by recognizing the effects of economic and interest rate trends on pension and OPEB plan investments and assumptions in the year these actuarial gains and losses are incurred.

Historically, we had recognized pension and OPEB actuarial gains and losses annually in our consolidated balance sheets as accumulated other comprehensive income (loss) as a component of stockholders’ equity, and then amortized these gains and losses each quarter in our consolidated statements of income. The expected return on assets component of pension expense historically had been calculated using a five-year smoothing of asset gains and losses. In addition, the gain or loss component of pension and OPEB expense had historically been based on amortization of actuarial gains and losses that exceeded 10 percent of the greater of plan assets or projected benefit obligations over the average future service period of active employees.

Under the new method of accounting, our pension and OPEB costs consist of two elements: 1) ongoing costs recognized quarterly, which are comprised of service and interest costs, expected returns on plan assets, and amortization of prior service costs/credits; and 2) MTM gains and losses recognized annually, in the fourth quarter of each year, resulting from changes in actuarial assumptions and the differences between actual and expected returns on plan assets and discount rates. Any interim remeasurements triggered by a curtailment, settlement, or significant plan changes are recognized as an MTM adjustment in the quarter in which such remeasurement event occurs. This methodology is preferable under GAAP since it aligns more closely with fair value principles and does not delay the recognition of gains and losses into future periods. The new method has been retrospectively applied to the financial results of all periods presented.

Our operating segment results follow internal management reporting, which is used for making operating decisions and assessing performance. Historically, total pension and OPEB costs had been allocated to each segment. In conjunction with the change in accounting principle, the service cost, which represents the benefits earned by active employees during the period and amortization of prior service costs/credits, continue to be allocated to each business segment. Interest costs, expected return on assets, and the MTM adjustment for actuarial gains and losses are included in Corporate and Unallocated and are not allocated to the business segments. This change in expense allocation better reflects the underlying operating results of each business and is consistent with management’s review of the operating results of our segments.

The cumulative effect of the change in accounting for pension and OPEB plans was a decrease in retained earnings as of December 31, 2010 (the most recent measurement date prior to the change) of $187.2 and an increase in accumulated other comprehensive income of $191.8, for a net increase of $4.6 to total stockholders’ equity. Additionally, inventory increased by $8.0, current deferred tax assets decreased by $2.8, and current assets held for sale decreased by $0.6. See Note 14 “Employee Benefit Plans.”



Unaudited Consolidated Statement of Income
	Year ended December 31, 2013
	Previous			Effect of
	Accounting Method			Accounting Change			As Reported
Manufacturing cost of sales	$	1,329.3		$	(46.2	)	$	1,283.1
Selling and technical services	155.2			(8.6		)	146.6
Research and process development	53.3			(4.3		)	49.0
Administrative and general	132.9			(6.4		)	126.5
Earnings from operations	243.9			65.5			309.4
Other (expense) income, net	(8.7		)	1.3			(7.4		)
Earnings from continuing operations before income taxes	177.2			66.8			244.0
Income tax provision	46.7			25.6			72.3
Earnings from continuing operations	130.5			41.2			171.7
Earnings (loss) from discontinued operations, net of tax	(2.1		)	4.3			2.2
Net earnings	128.4			45.5			173.9
Net earnings attributable to Cytec Industries Inc.	128.0			45.5			173.5

Comprehensive income	$	119.5		$	(5.8	)	$	113.7
Comprehensive income attributable to Cytec Industries Inc.	119.3			(5.8		)	113.5

Basic earnings (loss) per common share
Continuing operations	$	3.31		$	1.05		$	4.36
Discontinued operations (net of noncontrolling interests)	(0.06		)	0.10			0.04
	$	3.25		$	1.15		$	4.40
Diluted earnings (loss) per common share
Continuing operations	$	3.25		$	1.02		$	4.27
Discontinued operations (net of noncontrolling interests)	(0.06		)	0.10			0.04
	$	3.19		$	1.12		$	4.31

Earnings from operations for the year ended December 31, 2013, includes a net benefit of $27.4 for MTM adjustments, consisting of the fourth quarter 2013 MTM adjustment, the portion deferred in inventory from the fourth quarter 2012 MTM adjustment, and the remeasurement of two of our U.S. plans triggered by the curtailment of the plans resulting from the Coatings business divestiture on April 3, 2013.



Unaudited Consolidated Statement of Income
	Year ended December 31, 2012
	As Previously			Effect of
	Reported			Accounting Change			Revised
Manufacturing cost of sales	$	1,181.5		$	21.4		$	1,202.9
Selling and technical services	147.8			5.5			153.3
Research and process development	52.9			1.1			54.0
Administrative and general	136.6			3.4			140.0
Earnings from operations	163.6			(31.4		)	132.2
Other (expense) income, net	(1.7		)	3.2			1.5
Earnings from continuing operations before income taxes	131.4			(28.2		)	103.2
Income tax provision	37.3			(9.8		)	27.5
Earnings from continuing operations	94.1			(18.4		)	75.7
Earnings from discontinued operations, net of tax	96.0			5.3			101.3
Net earnings	190.1			(13.1		)	177.0
Net earnings attributable to Cytec Industries Inc.	188.0			(13.1		)	174.9

Comprehensive income	$	191.0		$	(8.2	)	$	182.8
Comprehensive income attributable to Cytec Industries Inc.	189.4			(8.2		)	181.2

Basic earnings per common share
Continuing operations	$	2.04		$	(0.40	)	$	1.64
Discontinued operations (net of noncontrolling interests)	2.04			0.12			2.16
	$	4.08		$	(0.28	)	$	3.80
Diluted earnings per common share
Continuing operations	$	2.01		$	(0.39	)	$	1.62
Discontinued operations (net of noncontrolling interests)	2.01			0.11			2.12
	$	4.02		$	(0.28	)	$	3.74

Earnings from operations for the year ended December 31, 2012, includes charges of $55.5 for MTM adjustments, consisting of the 2012 fourth quarter MTM adjustment and the portion deferred in inventory from the fourth quarter 2011 MTM adjustment.



Unaudited Consolidated Statement of Income
	Year ended December 31, 2011
	As Previously			Effect of
	Reported			Accounting Change			Revised
Manufacturing cost of sales	$	992.2		$	35.8		$	1,028.0
Selling and technical services	127.2			5.4			132.6
Research and process development	45.0			2.5			47.5
Administrative and general	96.1			4.0			100.1
Earnings from operations	155.5			(47.7		)	107.8
Other (expense) income, net	(5.1		)	1.2			(3.9		)
Earnings from continuing operations before income taxes	114.3			(46.5		)	67.8
Income tax provision	28.3			(18.0		)	10.3
Earnings from continuing operations	86.0			(28.5		)	57.5
Earnings from discontinued operations, net of tax	124.9			6.6			131.5
Net earnings	210.9			(21.9		)	189.0
Net earnings attributable to Cytec Industries Inc.	207.8			(21.9		)	185.9

Comprehensive income	$	158.9		$	2.2		$	161.1
Comprehensive income attributable to Cytec Industries Inc.	155.7			2.2			157.9

Basic earnings per common share
Continuing operations	$	1.78		$	(0.59	)	$	1.19
Discontinued operations (net of noncontrolling interests)	2.51			0.14			2.65
	$	4.29		$	(0.45	)	$	3.84
Diluted earnings per common share
Continuing operations	$	1.75		$	(0.58	)	$	1.17
Discontinued operations (net of noncontrolling interests)	2.49			0.13			2.62
	$	4.24		$	(0.45	)	$	3.79

Earnings from operations for the year ended December 31, 2011, includes net charges of $60.5 for MTM adjustments, consisting of the fourth quarter of 2011 MTM adjustment, the portion of our fourth quarter of 2010 MTM adjustment that was deferred in inventory at the end of 2010, and an MTM adjustment triggered by the sale of our former Building Block Chemicals business in 2011.