SHARE-BASED COMPENSATION

The fair value of each option or stock-settled share appreciation right (“SARS”) award is estimated on the grant date using a binomial-lattice option valuation model. Stock-settled SARS are economically valued the same as stock options. The binomial-lattice model takes into account variables such as volatility, dividend yield, and risk-free interest rate. In addition, the binomial-lattice model considers the contractual term of the option, the probability that the option will be exercised prior to the end of its contractual life, and the probability of termination or retirement of the option holder in computing the value of the option.

The weighted average assumptions for three months ended March 31, 2014 and 2013 are noted in the following table:



	Three Months Ended March 31,
	2014			2013
Expected life (years)	6.3			6.2
Expected volatility	34.6		%	36.2		%
Expected dividend yield	0.63		%	0.78		%
Risk-free interest rate	3.00		%	1.86		%
Weighted-average fair value per option	$	32.79		$	26.56

The expected life of options granted is derived from the output of the option valuation model and represents the period of time that options granted are expected to be outstanding. Expected volatilities are based on the combination of implied market volatility and our historical volatility. The risk-free rate for periods within the contractual life of the option is based on the U.S. Treasury yield curve in effect at the time of grant. As share-based compensation recognized in the consolidated statement of income is based on awards ultimately expected to vest, we incorporate the probability of pre-vesting forfeiture in determining the number of expected vested options. The forfeiture rate is based on the historical forfeiture experience and prospective actuarial analysis.

Stock Award and Incentive Plan

The 1993 Stock Award and Incentive Plan, as amended on January 31, 2012, (the “1993 Plan” or “Amended Plan”) provides for grants of a variety of awards, such as stock options (including incentive stock options and nonqualified stock options), non-vested stock (including performance stock), SARS (including those settled with common shares) and deferred stock awards and dividend equivalents. At March 31, 2014 there were approximately 4,300,000 shares reserved for issuance under the 1993 Plan, inclusive of 2,000,000 shares reserved for issuance for all outstanding share-based compensation grants.

Stock options and stock-settled SARS

We have utilized the stock option component of the 1993 Plan to provide for the granting of nonqualified stock options and stock-settled SARS with an exercise price at 100% of the market price on the date of the grant. Options and stock-settled SARS are generally exercisable in installments of one-third per year commencing one year after the grant date and annually thereafter, with contract lives of generally 10 years from the grant date.

A summary of stock options and stock-settled SARS activity for the three months ended March 31, 2014 is presented below:



Options and Stock-Settled SARS Activity:	Number of Units		Weighted Average Exercise Price Per Unit		Weighted Average Remaining Contractual Life (Years)	Aggregate Intrinsic Value
Outstanding at January 1, 2014	1,949,046		$	49.91
Granted	272,803		88.27
Exercised	(466,881	)	50.15
Forfeited	(1,972	)	77.21
Outstanding at March 31, 2014	1,752,996		$	55.78	6.7	$	73.3
Exercisable at March 31, 2014	1,179,420		$	46.07	5.5	$	60.8

During the three months ended March 31, 2014, we granted 272,803 stock options. The weighted-average grant-date fair value of the stock options granted during the three months ended March 31, 2014 and 2013 was $32.79 and $26.56 per share, respectively. Total pre-tax compensation cost related to stock option and stock-settled SARS was $2.0 and $1.7 during the three months ended March 31, 2014 and 2013, respectively. The total intrinsic value of stock options and stock-settled SARS exercised during the three months ended March 31, 2014 and 2013 was $19.8 and $8.8, respectively. Treasury shares and newly issued shares have been utilized for stock option and stock-settled SARS exercises. The total fair value of stock options and stock-settled SARS vested during the three months ended March 31, 2014 and 2013 was $6.7 and $7.7, respectively.

As of March 31, 2014, there was $11.7 of total unrecognized compensation cost related to stock options and stock-settled SARS. That cost is expected to be recognized over a weighted-average period of 1.4 years as the majority of our awards vest over 3 years.

Total tax benefits realized from share-based awards was $6.8 and $3.7 for the three months ended March 31, 2014 and 2013, respectively. Cash received from stock options exercised was $8.1 and $8.8 for the three months ended March 31, 2014 and 2013, respectively.

Cash-settled SARS

Our 1993 Plan also provides for the granting of cash-settled SARS, which were granted during 2004 and 2005. Cash-settled SARS are liability-classified awards. Cash used to settle cash-settled SARS exercised during the three months ended March 31, 2014 and 2013 was $0.4 for both periods. The total amount of pre-tax (income) expense recognized for cash-settled SARS was $(0.1) and $0.2 for the three months ended March 31, 2014 and 2013, respectively. The liability related to our cash-settled SARS was $0.7 at March 31, 2014 and $1.2 at December 31, 2013.

Non-vested stock, non-vested stock units and performance stock

The 1993 Plan provides for the issuance of non-vested stock, non-vested stock units and performance stock. Non-vested stock and stock units are subject to certain restrictions on ownership and transferability that lapse upon vesting. Performance stock 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. We did not grant any performance stock in 2014 and 2013, and there were no outstanding performance stock awards as of March 31, 2014.

A summary of non-vested stock and non-vested stock units for the three months ended March 31, 2014 is presented below:



Non-vested Stock and Non-vested Stock Units:	Number of Units		Weighted Average Grant Date Fair Value Per Unit
Nonvested at January 1, 2014	173,762		$	56.85
Granted	35,450		86.77
Vested	(38,533	)	51.48
Forfeited	(607	)	77.43
Nonvested at March 31, 2014	170,072		$	64.26

During the three months ended March 31, 2014, we granted 35,450 non-vested stock units to employees, which generally vest on the third anniversary of the grant date. The weighted average fair value of the non-vested stock and non-vested stock units on the grant date was $86.77 per share. The total amount of share-based compensation expense recognized for non-vested stock and non-vested stock units was $0.9 for both the three months ended March 31, 2014 and 2013, respectively. As of March 31, 2014, there was $4.8 of total unrecognized compensation cost related to non-vested stock and non-vested stock units. That cost is expected to be recognized over a weighted-average period of 1.8 years.

Compensation cost related to all share-based compensation arrangements capitalized in inventory was approximately $0.5 as of both March 31, 2014 and December 31, 2013.

As of March 31, 2014 and December 31, 2013, our Additional paid-in capital pool (“APIC Pool”), which represents excess tax benefits available to absorb potential future tax deficiencies, was $85.5 and $81.7, respectively.

As discussed in Note 5 of Notes to Consolidated Financial Statements contained in our 2013 Annual Report on Form 10-K, in 2012, in connection with the planned divestiture of Coating Resins, certain unvested stock options and restricted stock units that had been accounted for as equity awards were reclassified to be accounted for as liability awards. During the first three months of 2013, due to the change in the fair market value of Cytec’s stock, we recognized expense of $0.9 related to these awards. The expense recorded for these liability awards was recognized in Earnings from operations of discontinued business, net of tax on the consolidated statement of income. The divestiture was completed on April 3, 2013, and accordingly the liability for these unvested options and restricted stock units was settled in cash in the second quarter of 2013. At March 31, 2014 and December 31, 2013, there is no remaining liability related to these awards.