CYT-9.30.2014-10Q
Table of Contents

 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
 ____________________________________________
FORM 10-Q
 ____________________________________________
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2014
Commission file number 1-12372
 ____________________________________________
CYTEC INDUSTRIES INC.
(Exact name of registrant as specified in its charter)
____________________________________________ 
Delaware
 
22-3268660
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification No).
 
 
Five Garret Mountain Plaza
Woodland Park, New Jersey
 
07424
(Address of principal executive offices)
 
(Zip Code)
Registrant’s telephone number, including area code (973) 357-3100
____________________________________________ 
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  ý    No  ¨.
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  ý    No  ¨.
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a small reporting company. See definition of “accelerated filer, large accelerated filer, and smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer
ý
Accelerated filer
¨
 
 
 
 
Non-accelerated filer
¨
Small reporting company
¨
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  ý
There were 72,073,871 shares of common stock outstanding at October 10, 2014.
 


Table of Contents

CYTEC INDUSTRIES INC. AND SUBSIDIARIES
10-Q Table of Contents
 
 
 
Page
 
Item 1.
 
 
 
 
Item 2.
Item 3.
Item 4.
 
 
 
 
 
 
Item 1.
Item 1a.
Item 6.
 
 


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Table of Contents

PART I – FINANCIAL INFORMATION

Item 1. CONSOLIDATED FINANCIAL STATEMENTS
CYTEC INDUSTRIES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(Dollars in millions, except per share amounts)
 
Three Months Ended 
 September 30,
 
Nine Months Ended 
 September 30,
 
2014
 
2013
 
2014
 
2013
Net sales
$
506.8

 
$
463.9

 
$
1,523.0

 
$
1,455.1

Manufacturing cost of sales
342.0

 
313.3

 
1,018.2

 
978.6

Selling and technical services
35.3

 
35.3

 
109.6

 
110.7

Research and process development
12.0

 
12.5

 
37.2

 
36.4

Administrative and general
31.0

 
32.3

 
93.3

 
93.4

Amortization of acquisition intangibles
3.6

 
3.6

 
10.9

 
11.1

Asset impairment charge

 
2.7

 

 
5.6

Earnings from operations
82.9

 
64.2

 
253.8

 
219.3

Other expense, net
1.6

 
0.3

 
2.2

 
8.8

Net loss on early extinguishment of debt

 

 

 
39.4

Interest expense, net
3.1

 
3.4

 
9.3

 
14.9

Earnings from continuing operations before income taxes
78.2

 
60.5

 
242.3

 
156.2

Income tax provision
24.4

 
16.1

 
70.2

 
40.4

Earnings from continuing operations
53.8

 
44.4

 
172.1

 
115.8

Earnings from operations of discontinued business, net of tax

 

 

 
31.6

Net (loss) gain on sale of discontinued operations, net of tax
(0.2
)
 
(0.6
)
 
11.0

 
(32.9
)
(Loss) earnings from discontinued operations, net of tax
(0.2
)
 
(0.6
)
 
11.0

 
(1.3
)
Net earnings
53.6

 
43.8

 
183.1

 
114.5

Less: Net earnings attributable to noncontrolling interests

 

 

 
(0.4
)
Net earnings attributable to Cytec Industries Inc.
$
53.6

 
$
43.8

 
$
183.1

 
$
114.1

Comprehensive income
$
2.1

 
$
66.5

 
$
134.1

 
$
52.6

Less: Comprehensive income attributable to noncontrolling interest

 

 

 
(0.2
)
Comprehensive income attributable to Cytec Industries Inc.
$
2.1

 
$
66.5

 
$
134.1

 
$
52.4

Earnings per share attributable to Cytec Industries Inc.
 
 
 
 
 
 
 
Basic earnings (loss) per common share
 
 
 
 
 
 
 
Continuing operations
$
0.74

 
$
0.61

 
$
2.38

 
$
1.42

Discontinued operations

 
(0.01
)
 
0.15

 
(0.02
)
 
$
0.74

 
$
0.60

 
$
2.53

 
$
1.40

Diluted earnings (loss) per common share
 
 
 
 
 
 
 
Continuing operations
$
0.73

 
$
0.60

 
$
2.34

 
$
1.40

Discontinued operations

 
(0.01
)
 
0.15

 
(0.02
)
 
$
0.73

 
$
0.59

 
$
2.49

 
$
1.38

Dividends per common share
$
0.125

 
$
0.063

 
$
0.250

 
$
0.188

See accompanying Notes to Consolidated Financial Statements

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Table of Contents

CYTEC INDUSTRIES INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(Dollars in millions, except per share amounts)
 
September 30,
2014
 
December 31,
2013
Assets
 
 
 
Current assets
 
 
 
Cash and cash equivalents
$
152.6

 
$
151.8

Trade accounts receivable, less allowance for doubtful accounts of $4.2 and $4.6 at September 30, 2014 and December 31, 2013, respectively
285.6

 
251.3

Other accounts receivable
87.0

 
74.4

Inventories
294.7

 
253.1

Deferred income taxes
31.4

 
32.1

Other current assets
25.0

 
25.1

Total current assets
876.3

 
787.8

Plants, equipment and facilities, at cost
1,669.3

 
1,567.1

Less: accumulated depreciation
(554.7
)
 
(520.1
)
Net plant investment
1,114.6

 
1,047.0

Acquisition intangibles, net of accumulated amortization of $68.0 and $58.0 at September 30, 2014 and December 31, 2013, respectively
148.3

 
161.1

Goodwill
514.4

 
521.3

Deferred income taxes
12.8

 
25.2

Other assets
151.0

 
138.1

Total assets
$
2,817.4

 
$
2,680.5

Liabilities
 
 
 
Current liabilities
 
 
 
Accounts payable
$
172.7

 
$
175.7

Short-term borrowings
2.9

 

Current maturities of long-term debt
0.1

 
0.1

Accrued expenses
186.6

 
178.4

Income taxes payable
14.1

 
14.2

Deferred income taxes
0.1

 
0.1

Total current liabilities
376.5

 
368.5

Long-term debt
716.7

 
716.2

Pension and other postretirement benefit liabilities
183.8

 
195.2

Other noncurrent liabilities
173.4

 
187.1

Deferred income taxes
37.9

 
31.6

Stockholders’ equity
 
 
 
Preferred stock, 20,000,000 shares authorized; none issued and outstanding

 

Common stock, $.01 par value per share, 150,000,000 shares authorized; issued 99,771,358 at September 30, 2014 and 99,451,504 at December 31, 2013
1.0

 
1.0

Additional paid-in capital
473.1

 
467.4

Retained earnings
1,737.9

 
1,572.8

Accumulated other comprehensive income
46.7

 
95.7

Treasury stock, at cost, 27,702,986 shares at September 30, 2014 and 28,442,748 shares at December 31, 2013
(929.6
)
 
(955.0
)
Total Cytec Industries Inc. stockholders’ equity
1,329.1

 
1,181.9

Total liabilities and stockholders’ equity
$
2,817.4

 
$
2,680.5

See accompanying Notes to Consolidated Financial Statements

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CYTEC INDUSTRIES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Dollars in millions)
 
Nine Months Ended September 30,
 
2014
 
2013
Cash flows provided by (used in) operating activities
 
 
 
Net earnings
$
183.1

 
$
114.5

Earnings (loss) from discontinued operations, net of tax
11.0

 
(1.3
)
Net earnings from continuing operations
172.1

 
115.8

Adjustments to reconcile net income to net cash provided by operating activities of continuing operations:
 
 
 
Depreciation
46.5

 
42.9

Amortization
13.5

 
15.4

Share-based compensation
9.8

 
9.8

Deferred income taxes
18.8

 
(14.8
)
Pension and postretirement benefit expense (income)
0.7

 
(13.4
)
Contributions to pension and postretirement plans
(10.6
)
 
(75.4
)
Asset impairment charges

 
5.6

Loss on early extinguishment of debt

 
39.4

Unrealized loss on foreign currency forward contracts
7.9

 
1.6

Other

 
0.4

Changes in operating assets and liabilities (excluding effects of divestitures):
 
 
 
Trade accounts receivable
(50.1
)
 
4.3

Other receivables
(5.6
)
 
7.0

Inventories
(48.7
)
 
(17.0
)
Other assets
3.0

 
(3.9
)
Accounts payable
22.4

 
22.8

Accrued expenses
(1.6
)
 
(8.5
)
Income taxes payable
4.2

 
(49.4
)
Other liabilities
(10.6
)
 
(5.8
)
Net cash provided by operating activities of continuing operations
171.7

 
76.8

Net cash provided by (used in) operating activities of discontinued operations
0.3

 
(107.4
)
Net cash provided by (used in) operating activities
172.0

 
(30.6
)
Cash flows (used in) provided by investing activities:
 
 
 
Additions to plants, equipment and facilities
(170.3
)
 
(219.9
)
Other investing activities, net
(0.1
)
 

Net cash used in investing activities of continuing operations
(170.4
)
 
(219.9
)
Net cash provided by investing activities of discontinued operations

 
1,017.0

Net cash (used in) provided by investing activities
(170.4
)
 
797.1

Cash flows provided by (used in) financing activities:
 
 
 
Proceeds from long-term debt
1.3

 
634.0

Payments on long-term debt
(0.4
)
 
(658.2
)
Change in short-term borrowings, net
2.9

 
2.2

Cash dividends
(17.9
)
 
(17.1
)
Proceeds from the exercise of stock options
14.3

 
21.3

Purchase of treasury stock

 
(750.1
)
Excess tax benefits from share-based payment arrangements
6.7

 
4.5

Net cash provided by (used in) financing activities
6.9

 
(763.4
)
Effect of currency rate changes on cash and cash equivalents
(7.7
)
 
(5.8
)
Increase (decrease) in cash and cash equivalents
0.8

 
(2.7
)
Cash and cash equivalents, beginning of period
151.8

 
179.3

Cash and cash equivalents, end of period
$
152.6

 
$
176.6

See accompanying Notes to Consolidated Financial Statements

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Table of Contents

CYTEC INDUSTRIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Currencies in millions, except per share amounts, unless otherwise indicated)

1. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements included herein have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) for reporting on Form 10-Q and accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim reporting. Certain information and footnote disclosures normally included in our annual consolidated financial statements have been condensed or omitted pursuant to such rules and regulations.
Financial statements prepared in accordance with U.S. GAAP require management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities, revenues and expenses and other disclosures. In the opinion of management, these condensed consolidated financial statements include all normal and recurring adjustments necessary for a fair presentation of the financial position and the results of our operations and cash flows for the interim periods presented.
The results of operations for any interim period are not necessarily indicative of the results of operations for the full year. These condensed consolidated financial statements should be read in conjunction with the Consolidated Financial Statements and Notes to Consolidated Financial Statements contained in the Company’s 2013 Annual Report on Form 10-K, filed with the SEC on February 21, 2014. Unless indicated otherwise, the terms “Company,” “Cytec,” “we,” “us,” and “our” each refer collectively to Cytec Industries Inc. and its subsidiaries.
Reclassifications
Certain amounts, including changes in our equity structure, reported for prior years in the unaudited consolidated financial statements and accompanying notes have been reclassified to conform to the current year’s presentation.
Except for the number of authorized shares and par value, all references to shares and per share data for all periods presented herein reflect the impact of the 2-for-1 stock split in the form of a stock dividend which was effective in September 2014. See Note 12 for additional information related to this stock split.
In the consolidated statement of cash flows for the nine months ended September 30, 2013, we have corrected certain immaterial prior period misclassifications, which related to proceeds received on a note receivable during the period and changes in accounts payable related to certain capital projects. These corrections resulted in a $12.6 decrease to net cash provided by operating activities of continuing operations, a $2.4 decrease to net cash used in investing activities of continuing operations, and an increase in net cash provided by investing activities of discontinued operations of $15.0. The corrections did not impact our consolidated statement of income for the nine months ended September 30, 2013 or consolidated balance sheet as of December 31, 2013.

2. NEW ACCOUNTING PRONOUCEMENTS
In May 2014, the Financial Accounting Standards Board issued Accounting Standards Update (“ASU”) No. 2014-09, “Revenue from Contracts with Customers,” which will supersede current revenue recognition guidance in Accounting Standards Codification Topic 605, “Revenue Recognition.” The new standard is based on the principle that revenue is recognized to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The new standard will also result in enhanced disclosures about revenue, provide guidance for transactions that were not previously addressed comprehensively, and clarify guidance for multiple-element arrangements. This new standard will be adopted in the first quarter of 2017 using one of two prescribed transition methods. We have not yet selected a transition method and are currently evaluating the impact this guidance will have on our future consolidated financial statements and related disclosures.


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Table of Contents

3. DISCONTINUED OPERATIONS AND OTHER DIVESTITURES
The following table displays summarized activity in our consolidated statements of income for discontinued operations during the three and nine months ended September 30, 2014 and 2013, related to our former Coating Resins (“Coatings”) segment and other divestitures. 
 
Three Months Ended September 30,
 
2014
 
2013
 
Coatings
 
Distribution Product Line
 
Total
 
Coatings
 
Total
Net sales
$

 
$

 
$

 
$

 
$

Earnings from operations of discontinued business before income taxes
$

 
$

 
$

 
$

 
$

Income tax expense on operations

 

 

 

 

Gain (loss) on sale of discontinued operations
(0.1
)
 
0.2

 
0.1

 
(0.8
)
 
(0.8
)
Income tax benefit (expense) on gain (loss) on sale
(0.3
)
 

 
(0.3
)
 
0.2

 
0.2

(Loss) earnings from discontinued operations, net of tax
$
(0.4
)
 
$
0.2

 
$
(0.2
)
 
$
(0.6
)
 
$
(0.6
)
 
Nine Months Ended September 30,
 
2014
 
2013
 
Coatings
 
Distribution Product Line
 
Pre-
Acquisition
Umeco
 
Total
 
Coatings
 
Distribution Product Line
 
Total
Net sales(1)
$

 
$

 
$

 
$

 
$
368.0

 
$

 
$
368.0

Earnings from operations of discontinued business before income taxes
$

 
$

 
$

 
$

 
$
48.1

 
$

 
$
48.1

Income tax expense on operations

 

 

 

 
(16.5
)
 

 
(16.5
)
(Loss) gain on sale of discontinued operations
(3.6
)
 
0.2

 
3.6

 
0.2

 
16.7

 
(12.5
)
 
4.2

Income tax benefit (expense) on (loss) gain on sale
10.8

 

 

 
10.8

 
(37.1
)
 

 
(37.1
)
(Loss) earnings from discontinued operations, net of tax
$
7.2

 
$
0.2

 
$
3.6

 
$
11.0

 
$
11.2

 
$
(12.5
)
 
$
(1.3
)
______________________
(1)
Net sales for the nine months ended September 30, 2013 includes sales from January 1 through April 2, 2013 from the former Coatings business.
Discontinued operations
Coating Resins
On April 3, 2013, we completed the divestiture of our remaining Coatings business to Advent International (“Advent”), a global private equity firm, for a total value of $1,133.0, including assumed liabilities of $118.0, resulting in a cumulative after-tax loss on sale of $16.9 in the year ended December 31, 2013. In the second quarter of 2013, we recorded an after-tax loss on the sale of $15.5, in addition to an after-tax charge of $4.3 in the first quarter of 2013 to adjust our carrying value of the disposal group to its fair value less cost to sell, based on the terms of the agreement. For the three months ended September 30, 2013, we recorded after-tax losses of approximately $0.6, which primarily related to certain tax liabilities for taxable periods (or portions thereof) ending on or before April 3, 2013. After-tax earnings from operations of the discontinued business for the nine months ended September 30, 2013 were $31.6.
In connection with the sale of the business to Advent, we agreed to retain certain liabilities, including liabilities for U.S. pension and other postretirement benefits and certain tax liabilities related to taxable periods (or portions thereof) ending on or before

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April 3, 2013. During the three and nine months ended September 30, 2014, we recorded after-tax charges of $0.1 and $1.3, respectively, related to certain of these tax liabilities. Additionally, in the second quarter of 2014, we recorded a tax benefit of $10.6 based on our best estimate of the purchase price allocation attributable to the Coatings business sold in various taxing jurisdictions, offset by after-tax charges of approximately $1.8 recorded in the first quarter of 2014 for purchase price and working capital adjustments and $0.3 recorded in the third quarter of 2014 to true up tax expense related to the divestiture.
The after-tax losses and the adjustment to carrying value are included in Net (loss) gain on sale of discontinued operations, net of tax in the consolidated statements of income. The results of operations and gain (loss) on sale of the former Coating Resins segment have been reported as discontinued operations, and are therefore excluded from both continuing operations and segment results for all periods presented. All previously reported financial information has been revised to conform to the current presentation.
Other divestitures
Industrial Materials distribution product line
On July 12, 2013, we sold the Industrial Materials distribution product line, which we acquired as part of the Umeco acquisition, to Cathay Investments for $8.6, subject to final working capital and other customary adjustments. In the second quarter of 2013, we recorded an after-tax charge of $12.5 to adjust our carrying value of the disposal group to its fair value less cost to sell, based on the terms of the agreement. In the third quarter of 2014, we recorded an after-tax benefit of $0.2 related to final purchase price and settlement of final working capital adjustments. These amounts are included in Net (loss) gain on sale of discontinued operations, net of tax in the consolidated statements of income.
The results of operations of the Industrial Materials distribution product line prior to its divestiture remained in continuing operations for all periods presented, as the results of operations for the business and assets and liabilities sold were not material enough to disclose as discontinued operations or assets held for sale.
Former Umeco entities divested prior to our acquisition
As part of our acquisition accounting for Umeco in 2012, we established reserves related to income tax and value added tax liabilities of an entity that had been divested by Umeco in 2011, for periods that were under audit prior to it its divestiture. We continued to accrue interest through the end of 2013. In the first quarter of 2014, we agreed to a settlement for audit periods through March 31, 2009, which resulted in a benefit of approximately $3.6. The benefit is included in Net (loss) gain on sale of discontinued operations, net of tax in the consolidated statement of income for the nine months ended September 30, 2014.

4. RESTRUCTURING OF OPERATIONS
In accordance with our accounting policy, restructuring costs are included in our Corporate and Unallocated operating results for segment reporting purposes, which is consistent with management’s view of its businesses. Aggregate pre-tax restructuring charges (credits) included in the consolidated statements of income were recorded by line item as follows: 
 
Three Months Ended 
 September 30,
 
Nine Months Ended 
 September 30,
 
2014
 
2013
 
2014
 
2013
Manufacturing cost of sales
$
0.1

 
$
0.2

 
$
0.3

 
$
(0.2
)
Selling and technical services

 

 

 
0.2

Administrative and general
(0.1
)
 
1.7

 
0.1

 
2.6

Asset impairment charge

 
2.6

 

 
2.6

Total
$

 
$
4.5

 
$
0.4

 
$
5.2

Updates to our 2013 restructuring initiatives are as follows:
During the first nine months of 2014, we recorded a net adjustment of $1.2 related to the 2013 restructuring initiatives. The remaining reserve relating to the 2013 restructuring initiatives at September 30, 2014 is $2.2.
Updates to our 2012 restructuring initiatives are as follows:
During the first nine months of 2014, we recorded a net credit adjustment of $0.8 to the 2012 restructuring initiatives. During 2013, we recorded an additional charge of $0.9 to these initiatives.The remaining reserve relating to the 2012 restructuring initiatives at September 30, 2014 is $3.1.

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Following are the changes in the restructuring reserve balance through the first nine months of 2014:
 
 
Restructuring Initiatives
 
 
2012
 
2013
 
Total
Balance at December 31, 2012
 
$
13.2

 
$

 
$
13.2

2013 charges
 
0.9

 
6.1

 
7.0

Non-cash items (1) (2)
 

 
(3.2
)
 
(3.2
)
Cash payments
 
(9.2
)
 
(1.2
)
 
(10.4
)
Currency translation adjustments
 
(0.1
)
 
0.1

 

Balance at December 31, 2013
 
$
4.8

 
$
1.8

 
$
6.6

First quarter (credits) charges
 
(0.1
)
 
0.2

 
0.1

Non-cash items(2)
 

 
(0.1
)
 
(0.1
)
Cash payments
 
(0.4
)
 
(0.1
)
 
(0.5
)
Balance at March 31, 2014
 
$
4.3

 
$
1.8

 
$
6.1

Second quarter (credits) charges
 
(0.7
)
 
1.0

 
0.3

Non-cash items(2)
 

 
(0.2
)
 
(0.2
)
Cash payments
 
(0.3
)
 

 
(0.3
)
Balance at June 30, 2014
 
$
3.3

 
$
2.6

 
$
5.9

Third quarter charges
 

 

 

Non-cash items (2)
 

 
(0.1
)
 
(0.1
)
Cash payments
 
(0.2
)
 
(0.3
)
 
(0.5
)
Balance at September 30, 2014
 
$
3.1

 
$
2.2

 
$
5.3

______________________
(1)
Includes a $2.8 charge for the write-off of plant assets at our manufacturing facility in Beelitz, Germany.
(2)
Includes accelerated depreciation of plant assets at our California sites.

5. SHARE-BASED COMPENSATION
Shares and per share data below have been adjusted for all periods to reflect the 2-for-1 stock split. See Note 12 for additional information related to this stock split.
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 the nine months ended September 30, 2014 and 2013, including the weighted-average fair value per option retroactively adjusted to reflect the effects of the 2-for-1 stock split, are noted in the following table: 
 
Nine Months Ended 
 September 30,
 
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
$
16.46

 
$
13.28

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

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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 September 17, 2014, (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), nonvested stock (including performance stock), SARS (including those settled with common shares) and deferred stock awards and dividend equivalents.
At September 30, 2014, there were approximately 8,000,000 shares reserved for issuance under the 1993 Plan, inclusive of approximately 3,500,000 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 nine months ended September 30, 2014 has been retroactively adjusted to reflect the effects of the 2-for-1 stock split and 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
3,898,092

 
$
24.96

 
 
 
 
Granted
566,850

 
44.39

 
 
 
 
Exercised
(1,375,222
)
 
24.27

 
 
 
 
Forfeited
(62,201
)
 
30.39

 
 
 
 
Outstanding at September 30, 2014
3,027,519

 
$
28.80

 
6.5
 
$
56.1

Exercisable at September 30, 2014
1,879,861

 
$
23.11

 
5.2
 
$
45.5

During the nine months ended September 30, 2014, we granted 566,850 stock options. The weighted-average grant-date fair value of the stock options granted during the nine months ended September 30, 2014 and 2013 was $16.46 and $13.28 per share, respectively. Total pre-tax compensation cost related to stock option and stock-settled SARS was $2.4 during both the three months ended September 30, 2014 and 2013, and $6.7 and $6.9 during the nine months ended September 30, 2014 and 2013, respectively. The total intrinsic value of stock options and stock-settled SARS exercised during the nine months ended September 30, 2014 and 2013 was $32.4 and $24.2, respectively. Treasury shares and newly issued shares have been utilized for stock option and stock-settled SARS exercises.
As of September 30, 2014, there was $7.1 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 $10.9 and $8.5 for the nine months ended September 30, 2014 and 2013, respectively. Cash received from stock options exercised was $14.3 and $21.3 for the nine months ended September 30, 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 nine months ended September 30, 2014 and 2013 was $0.7 and $0.4, respectively. The total amount of pre-tax (income) expense recognized for cash-settled SARS was $(0.1) and $0.5 for the nine months ended September 30, 2014 and 2013, respectively. The liability related to our cash-settled SARS was $0.3 and $1.2 at September 30, 2014 and December 31, 2013, respectively.

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Nonvested stock, nonvested stock units and performance stock
The 1993 Plan provides for the issuance of nonvested stock, nonvested stock units and performance stock. Nonvested 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 September 30, 2014.
A summary of nonvested stock and nonvested stock units for the nine months ended September 30, 2014 has been retroactively adjusted to reflect the effects of the 2-for-1 stock split and is presented below: 
Nonvested Stock and Nonvested Stock Units:
Number of
Units
 
Weighted 
Average
Grant Date
Fair Value
Per Unit
Nonvested at January 1, 2014
316,766

 
$
28.82

Granted
95,486

 
44.97

Vested
(102,254
)
 
26.12

Forfeited
(3,898
)
 
36.10

Nonvested at September 30, 2014
306,100

 
$
34.67

During the nine months ended September 30, 2014, we granted 73,480 nonvested stock units to employees and 22,006 shares of nonvested stock to primarily nine directors, which generally vest on the third anniversary of the grant date. The weighted average fair value of the nonvested stock and nonvested stock units on the grant date was $44.97 per share. The total amount of share-based compensation expense recognized for nonvested stock and nonvested stock units was $1.1 and $1.0 for the three months ended September 30, 2014 and 2013, respectively, and $2.9 and $2.7 for the nine months ended September 30, 2014 and 2013, respectively. As of September 30, 2014, there was $3.9 of total unrecognized compensation cost related to nonvested stock and nonvested stock units. That cost is expected to be recognized over a weighted-average period of 2 years.
Compensation cost related to all share-based compensation arrangements capitalized in inventory was approximately $0.6 and $0.5 as of September 30, 2014 and December 31, 2013, respectively.
At September 30, 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 $88.4 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 nine 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 September 30, 2014 and December 31, 2013, there is no remaining liability related to these awards.

6. EARNINGS PER SHARE (EPS)
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 nonvested 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. Under this method, an increase in the fair market value of the Company’s stock can result in a greater dilutive effect from potentially dilutive common shares. The proceeds 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.

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All share and per share data for the periods presented below reflect the effects of the 2-for-1 split. See Note 12 for additional information related to this stock split.
The following table sets forth the computation of basic and diluted earnings per common share for the three and nine months ended September 30, 2014 and 2013 (in thousands, except net earnings in millions and per share amounts): 
 
Three Months Ended 
 September 30,
 
Nine Months Ended 
 September 30,
 
2014
 
2013
 
2014
 
2013
Numerator:
 
 
 
 
 
 
 
Earnings from continuing operations
$
53.8

 
$
44.4

 
$
172.1

 
$
115.8

(Loss) earnings from discontinued operations, net of tax
(0.2
)
 
(0.6
)
 
11.0

 
(1.7
)
Net earnings attributable to Cytec Industries Inc.
$
53.6

 
$
43.8

 
$
183.1

 
$
114.1

Denominator:
 
 
 
 

 
 
Weighted average shares outstanding
72,498

 
72,463

 
72,234

 
81,320

Effect of dilutive shares:
 
 
 
 

 
 
Options and stock-settled SARS
984

 
1,209

 
1,058

 
1,318

Nonvested shares and units
185

 
223

 
208

 
216

Diluted average shares outstanding
73,667

 
73,895

 
73,500

 
82,854

Basic earnings (loss) per common share:
 
 
 
 

 
 
Earnings from continuing operations
$
0.74

 
$
0.61

 
$
2.38

 
$
1.42

(Loss) earnings from discontinued operations

 
(0.01
)
 
0.15

 
(0.02
)
Net earnings per common share attributable to Cytec Industries Inc.
$
0.74

 
$
0.60

 
$
2.53

 
$
1.40

Diluted earnings (loss) per common share:
 
 
 
 

 
 
Earnings from continuing operations
$
0.73

 
$
0.60

 
$
2.34

 
$
1.40

(Loss) earnings from discontinued operations

 
(0.01
)
 
0.15

 
(0.02
)
Net earnings per common share attributable to Cytec Industries Inc.
$
0.73

 
$
0.59

 
$
2.49

 
$
1.38

The following table sets forth the anti-dilutive shares/units excluded from the above calculation because their inclusion would have had an anti-dilutive effect on earnings per share (in thousands): 
 
Nine Months Ended 
 September 30,
 
2014
 
2013
Options
232

 
239

Stock-settled SARS

 

Nonvested shares and units

 

Total
232

 
239


7. INVENTORIES
Inventories consisted of the following: 
 
September 30, 2014
 
December 31, 2013
Finished goods
$
188.0

 
$
159.7

Work in progress
10.5

 
10.0

Raw materials and supplies
96.2

 
83.4

Total inventories
$
294.7

 
$
253.1



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8. DEBT
Long-term debt, including the current portion, consisted of the following: 
 
September 30, 2014
 
December 31, 2013
 
Face
 
Carrying
Value
 
Face
 
Carrying
Value
Five-year revolving credit line due June 2019
$

 
$

 
$

 
$

6.0% notes due October 1, 2015
141.8

 
141.7

 
141.8

 
141.7

8.95% notes due July 1, 2017
164.3

 
164.1

 
164.3

 
164.1

3.5% notes due April 1, 2023
400.0

 
397.6

 
400.0

 
397.4

Other
18.4

 
13.4

 
18.4

 
13.1

Total debt
$
724.5

 
$
716.8

 
$
724.5

 
$
716.3

Less: current maturities
(0.1
)
 
(0.1
)
 
(0.1
)
 
(0.1
)
Long-term debt
$
724.4

 
$
716.7

 
$
724.4

 
$
716.2

All of the outstanding notes are unsecured and may be repaid in whole or in part, at our option at any time subject to a prepayment adjustment.
Debt issuances and repurchases
On March 12, 2013, we issued $400.0 aggregate principal amount of 3.5% senior unsecured notes due April 1, 2023 (“3.5% notes”), which resulted in $394.6 in net proceeds after original issue discount and underwriting fees. In addition, on February 26, 2013, we called for the redemption of our 4.6% notes due July 1, 2013 (“4.6% notes”), and commenced offers to purchase our 6.0% notes due October 1, 2015 (“6.0% notes”) and our 8.95% notes due July 1, 2017 (“8.95% notes”). In March 2013, we applied the net proceeds from the issuance of the 3.5% notes as follows: (1) to redeem all $135.2 principal amount of our 4.6% notes for a purchase price of $136.8 plus accrued interest of $1.5; (2) to repurchase $107.8 principal amount of our 6.0% notes for a purchase price of $121.1 plus accrued interest of $3.1; and (3) to repurchase $85.1 principal amount of our 8.95% notes for a purchase price of $108.3 plus accrued interest of $1.8. The redemption of the 4.6% notes and repurchase of the 6.0% and 8.95% notes resulted in a loss of $39.4 including transaction costs, which is included in Net loss on early extinguishment of debt in the accompanying consolidated statement of income for the nine months ended September 30, 2013.
Revolving Credit Facility
At September 30, 2014, there were no borrowings outstanding under the Revolving Credit Facility (the “Facility”), and $400.0 was available for borrowing under the Facility. Under the terms of the Facility, in June 2014, we extended the term of the Facility one year to June 28, 2019. We are required to comply with certain customary financial covenants under the Revolving Credit Facility: (i) the ratio of consolidated total debt to consolidated earnings before interest, taxes, depreciation and amortization (“EBITDA”); and (ii) the ratio of consolidated EBITDA to consolidated interest expense. We are in compliance with these covenants and expect to be in compliance for the foreseeable future.
Fair value
At September 30, 2014 and December 31, 2013, the fair value of our debt was $747.3 and $731.2, respectively. The fair value of our debt is based on Level 2 inputs, as defined in Note 15. These inputs include a discounted cash flow analysis which incorporates the contractual terms of the notes and observable market-based inputs that include time value, interest rate curves, and credit spreads.
Interest
The weighted-average interest rate on all of our debt was 5.37% and 5.33% as of September 30, 2014 and 2013, respectively. We had $2.9 of short-term borrowings outstanding at September 30, 2014 for one of our international subsidiaries, and none at December 31, 2013. At September 30, 2014, the weighted-average interest rate on our short-term borrowings was 11.25%.


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9. ENVIRONMENTAL, CONTINGENCIES AND COMMITMENTS
Environmental Matters
We are 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.
As of September 30, 2014 and December 31, 2013, the aggregate environmental related accruals were $60.0 and $63.1, respectively, of which $11.9 was included in accrued expenses for both periods, with the remainder of $48.1 and $51.2 included in other noncurrent liabilities as of September 30, 2014, and December 31, 2013, respectively. Environmental remediation spending for the three months ended September 30, 2014 and 2013 was $1.7 and $1.2, respectively, and for the nine months ended September 30, 2014 and 2013 was $3.9 and $4.9, respectively.
We review our environmental remediation accruals quarterly, and adjust our environmental related accruals as needed based on new information. During the nine months ended September 30, 2014, our adjustments resulted in a net increase of $1.2 in our environmental related accruals, consisting of a decrease of $1.5 related primarily to an inactive U.S. site to revise its projected remediation costs based on new findings and approval of risk assessments by the regulatory authorities, offset by an increase of $2.7 related to several other sites.
Our environmental related 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 we are named in a new matter and determine that an accrual needs to be provided, or if we determine that we are not liable and no longer require an accrual.
Piles Creek
We were notified by the National Oceanic and Atmospheric Administration (“NOAA”), a federal natural resource trustee, that, after an environmental assessment, we are one of six parties potentially responsible for damages to natural resources in Piles Creek, a tidal influenced tributary partially running through an industrial area in Linden, New Jersey. A portion of Piles Creek runs adjacent to the Company’s previously closed landfill in Linden, New Jersey. NOAA further advised that it seeks compensation from the six potentially responsible parties in the form of restoring other tidal wetlands.
Thus far, no legal action has been taken by NOAA and the Company is investigating its contribution, if any, to this matter.
A further discussion of environmental matters can be found in Note 12 of Notes to Consolidated Financial Statements contained in our 2013 Annual Report on Form 10-K.
Other Contingencies
We are the subject of numerous lawsuits and claims incidental to the conduct of our or certain of our predecessors’ businesses, including lawsuits and claims relating to product liability and personal injury, including asbestos, environmental, contractual, employment and intellectual property matters.
As of September 30, 2014 and December 31, 2013, the aggregate self-insured and insured contingent liability was $45.6 and $46.9, respectively, and the related insurance recovery receivable for the liability as well as claims for past payments was $20.0 at both September 30, 2014 and December 31, 2013, respectively. The asbestos liability included in the above amounts at September 30, 2014 and December 31, 2013 was $37.5 and $37.9, respectively, and the insurance receivable related to the liability as well as claims for past payments was $19.6 at both September 30, 2014 and December 31, 2013, respectively. We anticipate receiving a net tax benefit for payment of those claims for which full insurance recovery is not realized.
Asbestos
We, like many other industrial companies, have been named as one of hundreds of defendants in a number of lawsuits filed in the U.S. by persons alleging bodily injury from asbestos. The claimants allege exposure to asbestos at facilities that we own or formerly owned, or from products that we formerly manufactured for specialized applications. Most of these cases involve numerous defendants, sometimes as many as several hundred. Historically, most of the closed asbestos claims against us have been dismissed without any indemnity payment by us; however, we can make no assurances that this pattern will continue.

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The following table presents information about the number of claimants involved in asbestos claims with us: 
 
Nine Months Ended 
 September 30, 2014
 
Year Ended December 31, 2013
Number of claimants at beginning of period
8,100

 
8,000

Number of claimants associated with claims closed during period

 
(100
)
Number of claimants associated with claims opened during period

 
200

Number of claimants at end of period
8,100

 
8,100

Numbers in the foregoing table are rounded to the nearest hundred and are based on information as received by us which may lag actual court filing dates by several months or more. Claims are recorded as closed when a claimant is dismissed or severed from a case. Claims are opened whenever a new claim is brought, including from a claimant previously dismissed or severed from another case.
Our asbestos related contingent liabilities and related insurance receivables are based on an actuarial study performed by a third party, which is updated every three years. During the third quarter of 2012, we completed an actuarial study of our asbestos related contingent liabilities and related insurance receivables, which will be updated again in the third quarter of 2015. The study is based on, among other things, the incidence and nature of historical claims data through June 30, 2012, the incidence of malignancy claims, the severity of indemnity payments for malignancy and non-malignancy claims, dismissal rates by claim type, estimated future claim frequency, settlement values and reserves, and expected average insurance recovery rates by claim type. The study assumes liabilities through 2049.
In 2012, as a result of our findings, we recorded a decrease of $2.1 to our self-insured and insured contingent liabilities for indemnity costs for pending and anticipated probable future claims and recorded a decrease of $1.0 related to receivables for probable insurance recoveries for these pending and future claims. The reserve decrease was attributable to lower projected claim filings offset by more severe malignancy rates and settlement value projections. The decrease in the receivable was a result of the lower gross liability and a shift in the types of future claims expected. Overall, we expect to recover approximately 48% of our future indemnity costs. We have completed Coverage-In-Place-Agreements with most of our larger insurance carriers.
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.
Lead Pigment
Over the past 20 years we have been named as defendants in more than fifty cases in the U.S. in which plaintiffs assert claims for personal injury, property damage, and other claims for relief relating to one or more kinds of lead pigment that were used as an ingredient decades ago in architectural paint. Eight lead ingestion personal injury cases remain outstanding. The different suits were brought by government entities and/or individual plaintiffs, on behalf of themselves and others. The suits variously sought 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’ fees. We settled one of these cases in 2005 for an immaterial amount in order to avoid litigation costs. In all of the others, we prevailed in court or were dismissed as a defendant.
We currently are one of several defendants in eight personal injury lead ingestion cases, consisting of 172 plaintiffs venued in federal and state courts in Milwaukee, Wisconsin. One of the eight cases consists of 164 claimants, each alleging personal injury as a result of the ingestion of white lead carbonate in paint. The remaining seven cases consist of less than 10 total plaintiffs. We believe that the eight personal injury cases against us are without merit.
In July 2005, in a case in which we were one of several defendants, the Supreme Court of Wisconsin held that Wisconsin’s risk contribution doctrine applies to bodily injury cases against manufacturers of white lead pigment. Under this doctrine, manufacturers of white lead pigment may be liable for injuries caused by white lead pigment based on their past market shares, unless they can prove they are not responsible for the white lead pigment which caused the injury in question. Seven of the eight personal injury cases, including the personal injury case consisting of 164 plaintiffs, were filed before January 2011, when the Wisconsin legislature passed legislation that will make it substantially more difficult to bring lead suits in the future, including a 25 year statute of repose. In June 2013, the Governor of Wisconsin signed into law the biennial budget which contained within it a provision that retroactively applies the 2011 law to all claims of lead poisoning whether filed or accrued.

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The defendants, including the Company, moved to dismiss the personal injury lead cases pending in Wisconsin state court pursuant to the new law. By decision dated March 2014 in the Wisconsin state court case styled Clark et al. v. American Cyanamid Company et al., the court denied the defendants motion holding unconstitutional the retroactive application of the new law. The defendants, including the Company, appealed the decision.
Also, in 2010, the United States District Court for the Eastern District of Wisconsin held that the risk contribution theory imposed by the Wisconsin Supreme Court for lead pigment violates the due process clause set forth in the 14th Amendment to the United States Constitution. The Court’s decision was appealed to the United States Circuit Court of Appeals for the Seventh Circuit. The Seventh Circuit Court of Appeals also requested that the parties brief the constitutionality of the new retroactivity provision in the biennial budget. A decision from the Seventh Circuit Court of Appeals remains pending.
Finally, in July 2009, the Wisconsin Supreme Court, in the case styled Ruben Godoy et al v. E.I. DuPont de Nemours et al., upheld a lower court’s decision dismissing the plaintiff’s strict liability and negligent defect causes of action for white lead carbonate. The decision in these cases, the new statutory law in Wisconsin, and our non-existent or diminutive market share, reinforces our belief that we have no liability in any of the eight Wisconsin cases, and accordingly, we have not recorded a loss contingency.
We have access to a substantial amount of primary and excess general liability insurance for public nuisance and believe these policies are available to cover a significant portion of both our defense costs and indemnity costs, if any, for lead pigment related public nuisance claims. We have agreements with two of our insurers to date which provide that they will pay for approximately fifty percent (50%) of our defense costs associated with lead pigment related public nuisance claims.
Other
Periodically, we enter into settlement discussions for lawsuits or claims for which we have meritorious defenses and for which an unfavorable outcome against us is not probable. In such instances, no loss contingency is recorded since a loss is not probable and it is our policy to expense defense costs as incurred. Typically, we consider 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 we believe, will not have a material adverse effect on our consolidated financial position, but could be material to our consolidated results of operations or cash flows in any one accounting period. We 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, we are 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.
A further discussion of other contingencies can be found in Note 12 of Notes to Consolidated Financial Statements contained in our 2013 Annual Report on Form 10-K.
Commitments
We frequently enter into long-term contracts with customers with terms that vary depending on specific industry practices. Our business is not substantially dependent on any single contract or any series of related contracts. Descriptions of our significant sales contracts at December 31, 2013 are set forth in Note 12 of Notes to Consolidated Financial Statements contained in our 2013 Annual Report on Form 10-K.


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10. COMPREHENSIVE INCOME
The components of comprehensive income, which represents the change in equity from non-owner sources, for the three and nine months ended September 30, 2014 and 2013 are as follows:
 
Three Months Ended 
 September 30,
 
Nine Months Ended 
 September 30,
 
2014
 
2013
 
2014
 
2013
Net earnings
$
53.6

 
$
43.8

 
$
183.1

 
$
114.5

Other comprehensive income:
 
 
 
 
 
 
 
Accumulated pension liability, net of tax
(0.4
)
 
(0.5
)
 
(1.3
)
 
16.8

Foreign currency translation adjustments
(51.1
)
 
23.2

 
(47.7
)
 
(78.7
)
Comprehensive income
$
2.1

 
$
66.5

 
$
134.1

 
$
52.6

Less: Comprehensive income attributable to noncontrolling interest

 

 

 
(0.2
)
Comprehensive income attributable to Cytec Industries Inc.
$
2.1

 
$
66.5

 
$
134.1

 
$
52.4

The following tables present changes in accumulated other comprehensive income (“AOCI”) by component for the three and nine months ended September 30, 2014 and 2013:
 
Three Months Ended September 30,
 
2014
 
2013
 
Accumulated Pension Liabilities
 
Cumulative Translation Adjustments
 
Total
 
Accumulated Pension Liabilities
 
Cumulative Translation Adjustments
 
Total
Balance, beginning of period
$
7.7

 
$
90.5

 
$
98.2

 
$
9.5

 
$
61.7

 
$
71.2

Other comprehensive income
before reclassifications

 
(51.1
)
 
(51.1
)
 

 
22.1

 
22.1

Amounts reclassified from
AOCI
(0.4
)
 

 
(0.4
)
 
(0.5
)
 
1.2

 
0.7

Net current period OCI
(0.4
)
 
(51.1
)
 
(51.5
)
 
(0.5
)
 
23.3

 
22.8

Balance, end of period
$
7.3

 
$
39.4

 
$
46.7

 
$
9.0

 
$
85.0

 
$
94.0

 
Nine Months Ended September 30,
 
2014
 
2013
 
Accumulated Pension Liabilities
 
Cumulative Translation Adjustments
 
Total
 
Accumulated Pension Liabilities
 
Cumulative Translation Adjustments
 
Total
Balance, beginning of period
$
8.6

 
$
87.1

 
$
95.7

 
$
(7.8
)
 
$
163.5

 
$
155.7

Other comprehensive income
before reclassifications

 
(47.7
)
 
(47.7
)
 

 
(21.8
)
 
(21.8
)
Amounts reclassified from
AOCI
(1.3
)
 

 
(1.3
)
 
16.8

 
(56.7
)
 
(39.9
)
Net current period OCI
(1.3
)
 
(47.7
)
 
(49.0
)
 
16.8

 
(78.5
)
 
(61.7
)
Balance, end of period
$
7.3

 
$
39.4

 
$
46.7

 
$
9.0

 
$
85.0

 
$
94.0


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The following table presents a summary of reclassification adjustments out of AOCI for the three and nine months ended September 30, 2014 and 2013:
 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
Affected line item in the Consolidated Statements of Income
Details of AOCI component
 
2014
 
2013
 
2014
 
2013
Amortization of defined benefit pension items
 
 
 
 
 
 
 
 
 
Prior service costs
 
$
(0.7
)
 
$
(0.8
)
 
$
(2.1
)
 
$
(2.4
)
(1) 
 
 
(0.7
)
 
(0.8
)
 
(2.1
)
 
(2.4
)
Total before tax
 
 
0.3

 
0.3

 
0.8

 
1.0

Tax benefit
 
 
$
(0.4
)
 
(0.5
)
 
(1.3
)
 
$
(1.4
)
Net of tax
Impact from sale of Coating Resins
 

 

 

 
18.2

Net (loss) gain on sale of discontinued operations, net of tax
Total pension reclassifications
 
$
(0.4
)
 
$
(0.5
)
 
$
(1.3
)
 
$
16.8

 
Cumulative translation adjustments
 
 
 
 
 
 
 
 
 
Impact from sale of Coating Resins
 
$

 
$
1.2

 
$

 
$
(56.7
)
Net (loss) gain on sale of discontinued operations, net of tax
__________________
(1)
These accumulated other comprehensive income components are included in the computation of net periodic pension cost, and allocated to various line items on the consolidated statements of income, primarily manufacturing cost of sales. See Note 16 - Employee Benefit Plans for additional information on net periodic pension cost.

11. INCOME TAXES
The effective tax rate for continuing operations for the three and nine months ended September 30, 2014 was a tax provision of 31.2%, or $24.4, and 29.0%, or $70.2, respectively, compared to a tax provision of 26.6%, or $16.1, and 25.9%, or $40.4, respectively, for the three and nine months ended September 30, 2013. The effective tax rate for the three months ended September 30, 2014 was generally consistent with our underlying annualized effective rate of 31.1% given the absence of any significant non-recurring transactional events. The effective tax rate for the nine months ended September 30, 2014 was favorably impacted by a tax benefit of $5.5 attributable to the reversal of certain tax reserves due to the settlement of tax audits and the expiration of the statute of limitations for the U.S. and other international jurisdictions, and was unfavorably impacted by tax expense of $2.3 related to pension and other postretirement benefit mark-to-market adjustments.
As of September 30, 2014, the amount of gross unrecognized tax benefits for continuing operations is $11.0 (excluding interest) of which $10.6 would impact our effective tax rate, if recognized. The amount of gross unrecognized tax benefits at December 31, 2013 for continuing operations was $16.7 (excluding interest), of which $15.4 would impact our effective tax rate, if recognized.
We recognize interest and penalties related to unrecognized tax benefits in income tax expense in the consolidated statements of income. We had recorded a liability for the payment of interest and penalties (gross) for continuing operations, of approximately $1.7 as of December 31, 2013. Activity for the nine months ended September 30, 2014 included a $0.2 increase for additional accruals and foreign exchange, which was offset by $0.6 due to settlements, thus resulting in a liability for the payment of interest of $1.3 as of September 30, 2014.

12. OTHER FINANCIAL INFORMATION
Stock split
On July 17, 2014, the Board of Directors declared a 2-for-1 split on our common stock in the form of a stock dividend. The stock dividend was distributed on September 17, 2014 to shareholders of record as of the close of business on September 2, 2014. Shareholders on the record date were entitled to receive one additional share for every share they owned on that date. As a result of the stock split, total shares of the Company’s common stock outstanding increased from approximately 36.0 million to approximately 72.1 million at the time of the split.

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Dividends
On July 17, 2014, the Board of Directors declared a $0.125 per common share cash dividend, payable on August 25, 2014 to shareholders of record as of August 11, 2014. Cash dividends paid in the third quarter of 2014 and 2013 were $9.0 and $4.5, respectively, and for the nine months ended September 30, 2014 and 2013 were $17.9 and $17.1, respectively. Dividends paid in the first nine months of 2013 include $1.8 paid by a majority owned subsidiary to its minority shareholder. On October 16, 2014, the Board of Directors declared a $0.125 per common share cash dividend, payable on November 25, 2014 to shareholders of record as of November 10, 2014.
Income taxes paid
Income taxes paid for the nine months ended September 30, 2014 and 2013 were $51.7 and $151.6, respectively. Included in 2013 is approximately $44.0 paid in the third quarter related to the tax gain in the disposal of the Coatings Resin business. It also includes a $21.0 corporate income tax payment primarily related to the divestiture of the PSA product line in 2012, which was statutorily due on December 17, 2012, but was deferred to February 1, 2013 as the Internal Revenue Service provided special tax relief for taxpayers in the federally-declared disaster areas struck by Hurricane Sandy.
Interest
Interest paid for the nine months ended September 30, 2014 and 2013 was $26.0 and $32.6, respectively. Interest income for the nine months ended September 30, 2014 and 2013 was $0.4 and $1.3, respectively.
Stock repurchases
During the three and nine months ended September 30, 2013, we repurchased 2,795,158 and 20,349,510 shares of our common stock at a total cost of $108.1 and $750.1, respectively. There were no repurchases during the nine months ended September 30, 2014. There were no amounts remaining under the buyback program as of September 30, 2014. On October 16, 2014, the Board of Directors authorized a share buyback program in the amount of $200.0.

13. SEGMENT INFORMATION
As discussed in Note 3, the former Coating Resins segment is reported as discontinued operations for all periods presented.
Summarized segment information for our four continuing segments for the three and nine months ended September 30, 2014 and 2013 is as follows: 
 
Three Months Ended 
 September 30,
 
Nine Months Ended 
 September 30,
Net sales:
2014
 
2013
 
2014
 
2013
Aerospace Materials
 
 
 
 
 
 
 
Sales to external customers
$
250.8

 
$
235.9

 
$
756.7

 
$
721.7

Intersegment sales
0.7

 
0.1

 
0.8

 
0.4

Industrial Materials
80.3

 
70.9

 
250.0

 
239.9

In Process Separation
108.2

 
91.2

 
308.3

 
286.4

Additive Technologies
 
 
 
 
 
 
 
Sales to external customers
67.5

 
65.9

 
208.0

 
207.1

Intersegment sales

 

 

 
0.3

Net sales from segments
507.5

 
464.0

 
$
1,523.8

 
$
1,455.8

Elimination of intersegment revenue
(0.7
)
 
(0.1
)
 
(0.8
)
 
(0.7
)
Total consolidated net sales
$
506.8

 
$
463.9

 
$
1,523.0

 
$
1,455.1


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Table of Contents

 
Three Months Ended 
 September 30,
 
Nine Months Ended 
 September 30,
Earnings from operations:
2014
 
% of
Sales
 
2013
 
% of
Sales
 
2014
 
% of
Sales
 
2013
 
% of
Sales
Aerospace Materials
$
45.7

 
18
%
 
$
40.7

 
17
%
 
$
136.4

 
18
%
 
$
140.4

 
19
%
Industrial Materials
6.8

 
9
%
 
5.1

 
7
%
 
24.7

 
10
%
 
13.0

 
5
%
In Process Separation
27.1

 
25
%
 
20.4

 
22
%
 
74.8

 
24
%
 
66.6

 
23
%
Additive Technologies
8.4

 
12
%
 
9.0

 
14
%
 
26.7

 
13
%
 
30.1

 
15
%
Earnings from segments
88.0

 
17
%
 
75.2

 
16
%
 
$
262.6

 
17
%
 
$
250.1

 
17
%
Corporate and Unallocated, net (1) (2)
(5.1
)
 

 
(11.0
)
 
 
 
(8.8
)
 

 
(30.8
)
 

Total earnings from operations
$
82.9

 
16
%
 
$
64.2

 
14
%
 
$
253.8

 
17
%
 
$
219.3

 
15
%
______________________
(1)
For the three and nine months ended September 30, 2014, Corporate and Unallocated, net includes restructuring charges of $0.0 and $0.4, respectively, related to prior year initiatives, and costs of $0.6 in connection with a lockout of employees at one of our plants. For the nine months ended September 30, 2014, it also includes benefits of $6.2 for net mark-to-market (“MTM”) adjustments of our pension and postretirement benefit plans representing the impact of inventory capitalization related to the fourth quarter 2013 MTM adjustment. For the three and nine months ended September 30, 2013, Corporate and Unallocated, net includes charges of $0.1 and $3.0, respectively, for the write down of certain manufacturing assets in our Nagpur, India facility, restructuring charges of $4.5 and $5.1, respectively, primarily for our 2013 initiatives, and charges of $0.7 and $1.2, respectively, related to costs to divest the Umeco distribution business. For the nine months ended September 30, 2013, it also includes benefits of $1.9 for net MTM adjustments of our pension and postretirement benefit plans representing the impact of inventory capitalization related to the fourth quarter 2012 MTM adjustment and the remeasurement of our U.S. plans triggered by the curtailment of the plans resulting from the Coatings business divestiture on April 3, 2013.
(2)
Corporate and Unallocated, net also included costs previously allocated to the operations of our discontinued Coating Resins segment of $12.2 for the nine months ended September 30, 2013. The 2013 amount included in Corporate and Unallocated, net relates to the period prior to the divestiture and, as required, these costs were allocated to the remaining operating segments beginning in the second quarter of 2013, following the sale.

14. GOODWILL AND OTHER ACQUISITION INTANGIBLES
The following is the activity in the goodwill balances for each segment. 
 
Aerospace
Materials
 
Industrial Materials
 
In Process Separation
 
Additive
Technologies
 
Total
Balance at December 31, 2013
$
238.5

 
$
186.1

 
$
68.9

 
$
27.8

 
$
521.3

2014 Activity:
 
 
 
 
 
 
 
 
 
Foreign currency translation adjustments
(2.2
)
 
(1.8
)
 
(2.9
)
 

 
(6.9
)
Balance at September 30, 2014:
$
236.3

 
$
184.3

 
$
66.0

 
$
27.8

 
$
514.4

Other acquisition intangibles consisted of the following major classes: 
 
Weighted
Average
Useful
Life
(Years)
 
Gross
Carrying Value
 
Accumulated
Amortization
 
Net
Carrying Value
 
2014
 
September 30, 2014
 
December 31,
2013
 
September 30, 2014
 
December 31,
2013
 
September 30, 2014
 
December 31,
2013
Technology-based
14.4
 
$
48.3

 
$
48.6

 
$
(26.0
)
 
$
(23.8
)
 
$
22.3

 
$
24.8

Marketing-related
10.1
 
14.1

 
14.3

 
(7.3
)
 
(6.5
)
 
6.8

 
7.8

Customer-related
15.8
 
153.9

 
156.2

 
(34.7
)
 
(27.7
)
 
119.2

 
128.5

Total
 
 
$
216.3

 
$
219.1

 
$
(68.0
)
 
$
(58.0
)
 
$
148.3

 
$
161.1

Amortization of acquisition intangibles for both the three months ended September 30, 2014 and 2013 was $3.6, and for the nine months ended September 30, 2014 and 2013 was $10.9 and $11.1, respectively.

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Assuming no change in the gross carrying amount of acquisition intangibles and the 2014 average currency exchange rates remain constant, the estimated future amortization expense for the next five years are as follows: 
 
2014
 
2015
 
2016
 
2017
 
2018
 
2019
Intangibles amortization expense
$
15.0

 
$
15.0

 
$
14.6

 
$
13.3

 
$
11.9

 
$
11.0


15. DERIVATIVE FINANCIAL INSTRUMENTS AND CERTAIN HEDGING ACTIVITIES
Foreign Currency Derivative and Hedging Activities
Currency forward contracts
We periodically enter into currency forward contracts primarily to hedge currency fluctuations of transactions denominated in currencies other than the functional currency of the respective entity. At September 30, 2014, the principal transactions hedged involved accounts receivable and accounts payable. When hedging currency exposures, our practice is to economically 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. The fair values of forward contracts are calculated each period. These forward contracts are not defined as hedging instruments and therefore, all changes in fair values are reported in Other expense, net.
At September 30, 2014, net contractual notional amounts of forward contracts outstanding translated into U.S. dollars (“USD”) totals $227.4. Of this total, $173.0 was attributed to the exposure in forward selling/purchase of USD, and $54.4 was attributable to the exposure in forward selling/purchase of Euros translated into USD equivalent amounts. The net (unfavorable) favorable fair values of currency contracts, based on forward exchange rates at September 30, 2014 and December 31, 2013 were $(6.5) and $1.4, respectively.
Credit risk
At September 30, 2014, we did not have derivative instruments that contained credit-related-risk contingent features or provisions that would trigger immediate settlement or require us to post collateral to our counterparties. Also as of September 30, 2014, we did not have any significant concentration of credit risk arising from our derivative instruments.
The following table summarizes the impact of derivative instruments on our consolidated balance sheets: 
 
Asset Derivatives
 
Liability Derivatives
 
September 30, 2014
 
December 31, 2013
 
September 30, 2014
 
December 31, 2013
Derivatives not designated as hedging instruments:
Balance 
Sheet
Location
 
Fair
Value
 
Balance 
Sheet
Location
 
Fair
Value
 
Balance 
Sheet
Location
 
Fair
Value
 
Balance 
Sheet
Location
 
Fair
Value
Foreign currency forwards
Other
current assets
 
$
0.6

 
Other
current assets
 
$
2.3

 
Accrued
expenses
 
$
7.1

 
Accrued
expenses
 
$
0.9

The following table summarizes the amount and location of gains or (losses) recognized in income for our derivatives not designated as hedges for the three and nine months ended September 30, 2014 and 2013
 
Location of Gain or (Loss)
Recognized in Income
on Derivative
 
Amount of Gain or (Loss)
Recognized in Income
on Derivative
Derivatives not designated as
hedging instruments:
 
 
Three Months Ended September 30,
 
Nine Months Ended 
 September 30,
 
 
2014
 
2013
 
2014
 
2013
Foreign currency forwards
Other expense, net
 
$
(13.0
)
 
$
6.3

 
$
(16.7
)
 
$
8.0


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Fair Value Measurements
We have certain assets and liabilities that are carried at fair value on a recurring basis in the financial statements, for which we determine the appropriate level in the fair value input hierarchy for each fair value measurement. The fair value hierarchy prioritizes the inputs, which refer broadly to assumptions market participants would use in pricing an asset or liability, into three levels. It gives the highest priority to quoted prices in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. The level in the fair value hierarchy within which a fair value measurement in its entirety falls is determined based on the lowest level input that is significant to the fair value measurement in its entirety. Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date. Level 2 inputs are inputs other than quoted prices within Level 1 that are observable for the asset or liability, either directly or indirectly, such as quoted prices for similar assets or liabilities in active markets, interest rates, exchange rates, and yield curves observable at commonly quoted intervals. Level 3 inputs are unobservable inputs for the asset or liability.
All of our derivatives are valued based on Level 2 inputs. Our currency forwards are valued based on readily available published indices for commodity prices and currency exchange rates.
The net fair value of our foreign currency forward contracts, based on Level 2 inputs, at September 30, 2014 was approximately $(6.5).
As of September 30, 2014, we did not have any non-financial assets and liabilities that are carried at fair value on a recurring basis in the consolidated financial statements or for which a fair value measurement was required for the nine months ended September 30, 2014. Included among our non-financial assets and liabilities that are not required to be measured at fair value on a recurring basis are plant, equipment and facilities, goodwill, acquisition intangibles, and asset retirement obligations. For more information regarding our hedging activities and derivative financial instruments, refer to Note 7 of Notes to Consolidated Financial Statements contained in our 2013 Annual Report on Form 10-K.

16. EMPLOYEE BENEFIT PLANS
Net periodic (benefit) cost for our pension and postretirement benefit plans was as follows: 
 
Pension Plans
 
Postretirement Plans
Three Months Ended September 30,
2014
 
2013
 
2014
 
2013
Service cost
$
0.9

 
$
1.3

 
$
0.3

 
$
0.2

Interest cost
10.9

 
9.9

 
2.0

 
1.8

Expected return on plan assets
(12.7
)
 
(13.6
)
 
(0.3
)
 
(0.4
)
Net amortization

 

 
(0.8
)
 
(0.8
)
Net periodic (benefit) cost
$
(0.9
)
 
$
(2.4
)
 
$
1.2

 
$
0.8

 
Pension Plans
 
Postretirement Plans
Nine Months Ended September 30,
2014
 
2013
 
2014
 
2013
Service cost
$
2.7

 
$
3.7

 
$
0.7

 
$
0.7

Interest cost
32.8

 
29.7

 
6.0

 
5.2

Expected return on plan assets
(38.3
)
 
(40.8
)
 
(1.0
)
 
(1.2
)
Net amortization
0.1

 
0.1

 
(2.3
)
 
(2.5
)
Curtailment gain (1)

 
(1.7
)
 

 
(6.0
)
Mark-to-market adjustment

 
(5.3
)
 

 
(3.0
)
Net periodic (benefit) cost
$
(2.7
)
 
$
(14.3
)
 
$
3.4

 
$
(6.8
)
______________________
(1)
Curtailment gains relate to the Coatings divestiture, and are included in Net (loss) gain on sale of discontinued operations, net of tax in the consolidated statements of income.
We disclosed in our 2013 Annual Report on Form 10-K that we expected to contribute $6.3 and $9.8 in 2014 to our pension and postretirement plans, respectively. Through September 30, 2014, actual contributions to our continuing pension and postretirement plans were $4.9 and $5.7, respectively.

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We also sponsor 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 in part on matching a percentage of employees’ contributions. Contributions to the profit growth sharing plans are generally based on our financial performance. Amounts expensed related to these plans for the three months ended September 30, 2014 and 2013 were $5.7 and $4.6, respectively, and for the nine months ended September 30, 2014 and 2013 were $18.2 and $17.6, respectively.
Bulk lump sum offer
In September 2014, we commenced a voluntary bulk lump-sum (“BLS”) offer program. We offered approximately 2,800 eligible terminated vested and divested employees under the pension plan a voluntary single lump-sum payment option in lieu of a future pension benefit. The payouts to the BLS eligible employees will be funded by assets of the pension plan, and are expected to be paid prior to December 31, 2014. The BLS program is part of our pension de-risking strategy and is expected to reduce volatility prospectively and lessen the administrative burden.

17. SUBSEQUENT EVENTS
Share buyback
On October 16, 2014, the Board of Directors authorized a share buyback program in the amount of $200.0.


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Item 2. 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. Currency amounts are in millions, except per share amounts. Percentages are approximate.
GENERAL
Overview
We are a global specialty materials and chemicals company focused on developing, manufacturing and selling value-added products. Our products serve a diverse range of end markets including aerospace and industrial materials, mining, and plastics. Sales price and volume by region and the impact of exchange rates on our reporting segments are important measures that are analyzed by management and are provided in our segment analysis.
We report 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, which is 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.
Increasing selling volumes, geographic expansion, and new product introductions are important factors of our profitability. Selling price changes and raw material cost changes year on year are also important factors of our profitability especially in years of high volatility. See our Segment Results for discussion of the year to year impact of these important factors.
Segments
We have four reportable business segments: Aerospace Materials, Industrial Materials, In Process Separation and Additive Technologies. The Aerospace Materials segment principally includes advanced composites, carbon fiber, and structural film adhesives. The Industrial Materials segment includes structural composite materials (high performance automotive, motorsports, recreation, tooling and other structural materials markets) and process materials (aerospace, wind energy, and other process materials markets). The In Process Separation segment includes mining chemicals and phosphine chemicals. The Additive Technologies segment includes polymer additives, specialty additives and formulated resins. We regularly review our segment reporting and classifications and may periodically change our reportable segments to align with operational changes.
As discussed below, the former Coating Resins segment was sold on April 3, 2013, and is reported as discontinued operations for all periods presented.
Discontinued operations
Coating Resins
On April 3, 2013, we completed the sale of our remaining Coating Resins (“Coatings”) business to Advent International (“Advent”), a global private equity firm, for a total value of $1,133.0, including assumed liabilities of approximately $118.0, resulting in a cumulative after-tax loss on sale of $16.9 in the year ended December 31, 2013. In the second quarter of 2013, we recorded an after-tax loss on the sale of $15.5, in addition to an after-tax charge of $4.3 in the first quarter of 2013 to adjust our carrying value of the disposal group to its fair value less cost to sell, based on the terms of the agreement. For the three months ended September 30, 2013, we recorded after-tax losses of approximately $0.6, which primarily related to certain tax liabilities for taxable periods (or portions thereof) ending on or before April 3, 2013. After-tax earnings from operations of the discontinued business for the nine months ended September 30, 2013 were $31.6.
In connection with the sale of the business to Advent, we agreed to retain certain liabilities, including liabilities for U.S. pension and other postretirement benefits and certain tax liabilities related to taxable periods (or portions thereof) ending on or before April 3, 2013. During the three and nine months ended September 30, 2014, we recorded after-tax charges of $0.1 and $1.3, respectively, related to certain of these tax liabilities. Additionally, in the second quarter of 2014, we recorded a tax benefit of $10.6 based on our best estimate of the purchase price allocation attributable to the Coatings business sold in various taxing jurisdictions, offset by after-tax charges of approximately $1.8 recorded in the first quarter of 2014 for purchase price and working capital adjustments and $0.3 recorded in the third quarter of 2014 to true up tax expense related to the divestiture.
The after-tax losses and the adjustment to carrying value are included in Net (loss) gain on sale of discontinued operations, net of tax in the consolidated statements of income. The results of operations and gain (loss) on sale of the former Coating Resins segment have been reported as discontinued operations, and are therefore excluded from both continuing operations and segment results for all periods presented. All previously reported financial information has been revised to conform to the current presentation.

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As of September 30, 2014, the final working capital adjustment on the Coatings divestiture transaction is in dispute. We believe we will recover at least the net amount we have recorded with respect to the final working capital adjustment.
Other divestitures
Sale of the Industrial Materials distribution product line
On July 12, 2013, we sold the Industrial Materials distribution product line, which we acquired as part of the Umeco acquisition, to Cathay Investments for $8.6, subject to final working capital and other customary adjustments. In the second quarter of 2013, we recorded an after-tax charge of $12.5 to adjust our carrying value of the disposal group to its fair value less cost to sell, based on the terms of the agreement. In the third quarter of 2014, we recorded an after-tax benefit of $0.2 related to final purchase price and settlement of final working capital adjustments. These amounts are included in Net (loss) gain on sale of discontinued operations, net of tax in the consolidated statements of income.
The results of operations of the former Industrial Materials distribution product line prior to its divestiture remain in continuing operations for all periods presented, as the results of operations for the business and assets and liabilities sold were not material enough to disclose as discontinued operations or assets held for sale.
Former Umeco entities divested prior to our acquisition
As part of our acquisition accounting for Umeco in 2012, we established reserves related to income tax and value added tax liabilities of an entity that had been divested by Umeco in 2011, for periods that were under audit prior to it its divestiture. We continued to accrue interest through the end of 2013. In the first quarter of 2014, we agreed to a settlement for audit periods through March 31, 2009, which resulted in a benefit of approximately $3.6