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

We are a global specialty chemicals and materials company and sell our products to diverse major markets for aerospace, adhesives, automotive and industrial coatings, chemical intermediates, inks, 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.

In the course of our ongoing operations, a number of strategic product line acquisitions and dispositions have been made. The results of operations of the acquired businesses have been included in our consolidated results from the dates of the respective acquisitions.

We also 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 consistent with management's view of the business. North America consists of the United States and Canada. Latin America includes Mexico, Central America, South America and the Caribbean Islands. Asia/Pacific is comprised of Asia, Australia and the islands of the South Pacific Rim.

Raw material cost changes year on year are an important factor in profitability especially in years of high volatility. Global oil and natural gas costs in certain countries are highly volatile and many of our raw materials are derived from these two commodities. Discussion of the year to year impact of raw materials and energy is provided in our segment discussion. In addition, higher global demand levels and, occasionally, operating difficulties at suppliers, have limited the availability of certain of our raw materials.

Beginning in January 2009, we initiated various restructuring initiatives within our Specialty Chemical segments and corporate service functions. We are on schedule with the implementation and approval of these actions to reduce our structural costs and anticipate that the elimination of most of these positions will be completed by the end of 2009. In addition, in the second and third quarters of 2009, we also initiated restructuring actions within our Engineered Materials segment to respond to lower demand due to inventory destocking and sharper than expected decline in business and regional jet build rates. The aforementioned structural cost reduction actions are expected to improve 2009 results by approximately $50.0 and the expected full year annualized run rate savings has now increased to approximately $125.0. In addition to these restructuring initiatives, we have implemented additional short-term cost reduction and liquidity measures across our operations. These short-term measures include the implementation of furloughs in certain production facilities in order to better align our cost structure with our expectations for demand in 2009, a global salary freeze and bonus limitations, except as required by local law and contracts, and suspension of the company matching contributions to the 401(k) savings program for all U.S. salaried and non-bargaining employees effective May 1, 2009. These short-term actions are expected to improve 2009 operating earnings by approximately $74.0.

In April of 2009, we reorganized our business structure to align with our revised strategic direction. Accordingly, the mining and phosphine product lines which were previously part of the Performance Chemicals segment became our In Process Separation segment. The polymer additives, specialty additives and polyurethanes product lines, which were previously part of the Performance Chemicals segment, became our Additive Technologies segment. As of May 19, 2009, the polyurethane product line has been divested. The liquid coating resins, powder coating resins, and Radcure product lines, which comprised the former Surface Specialties segment, and the urethane resins product line, which was previously part of the Performance Chemicals segment, were combined to form the Coating Resins segment; urethane resins is now included as part of the liquid coating resins product line. The remaining former Performance Chemical segment product lines, which are pressure sensitive adhesives and formulated resins, were combined into our Engineered Materials segment. The Building Block Chemicals segment remained unchanged. In summary, we now report five operating segments, Coating Resins, In Process Separation, Additive Technologies, Engineered Materials, and Building Block Chemicals, as well as Corporate and Unallocated. Coating Resins, Additive Technologies, and In Process Separation are referred to collectively as Cytec Specialty Chemicals. The Surface Specialties and Performance Chemicals segments ceased to exist as part of this reorganization.

Quarter Ended September 30, 2009, Compared With Quarter Ended September 30, 2008

Consolidated Results

Net sales for the third quarter of 2009 were $740.2 compared with $963.0 for the third quarter of 2008. Overall, sales decreased 23% driven by volume decreases of 12%, price decreases of 10%, and unfavorable changes in exchange rates of 1%. Coating Resins sales decreased 23% primarily due to volume decreases and to a lesser extent price decreases and unfavorable changes in exchange rates. Additive Technologies sales decreased 20%, In Process Separation sales decreased 14%, and Engineered Materials sales decreased 24%; the decline in each of the segment is primarily due to lower volumes. Building Block Chemicals sales decreased 29% primarily due to lower selling prices partially offset by higher sales volumes.

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

Manufacturing cost of sales was $605.4 or 81.8% of sales in the third quarter of 2009, compared with $765.8, or 79.5% of sales in the third quarter of 2008. The 2.3% increase in manufacturing cost as a percent of sales, is primarily due to lower fixed cost absorption, higher restructuring expenses and unfavorable mix, partially offset by raw material price decreases. The lower fixed cost absorption relates to lower production volumes resulting from lower demand and our initiative to lower inventory levels. Manufacturing costs decreased $160.4, which includes $60.9 associated with the lower production volumes, $110.8 related to lower material costs, $21.1 related to reduced spending and cost savings initiatives and $11.2 due to changes in exchange rates partially offset by $27.2 of unfavorable fixed cost absorption as described above. The third quarter of 2009 includes a restructuring charge of $21.0 which is substantially comprised of a manufacturing cost savings initiative mostly related to the announced closure of our Specialty Chemical manufacturing operations in La Llagosta, Spain and Bogota, Colombia as well as an additional restructuring initiative launched in the third quarter of 2009 within our Engineered Materials segment. The third quarter of 2008 included a net restructuring charge of $1.5 primarily related to restructuring our Specialty Chemical segments. See Note 4 to the consolidated financial statements for additional detail. The third quarter of 2008 also includes $1.4 of incremental accelerated depreciation on assets at our Pampa, Texas site that we exited in 2008.

Selling and technical services expenses were $48.6 in the third quarter of 2009 versus $57.4 in the third quarter of 2008. The decrease includes $6.8 related to reduced spending and cost savings initiatives, $1.5 related to changes in exchange rates, and $2.7 of lower costs associated with restructuring initiatives. Research and process development expenses were $17.2 versus $19.2 in the prior year. The decrease includes $1.6 related to reduced spending and cost savings initiatives and $0.2 related to changes in exchange rates. Administrative and general expenses were $29.6 versus $30.8 in the prior year. The decrease includes $2.3 related to reduced spending and cost savings initiatives, $0.7 related to changes in exchange rates and $0.5 of lower restructuring expenses. These decreases were partially offset by $1.9 of consulting costs incurred related to working capital and savings initiatives launched in 2009 and $0.5 of higher credit facility fees.

Amortization of acquisition intangibles was $9.7 in the third quarter of 2009 versus $10.0 in the third quarter of 2008 due to decreases in Coating Resins as a result of changes in exchange rates.

Other income/(expense), net was income of $6.9 in the third quarter of 2009 compared with expense of $1.6 in the third quarter of 2008. Other income/(expense) in 2009 includes a gain of $8.9 realized upon the sale of land leased to a third party after the third party exercised its option to purchase the land. Equity in earnings of associated companies was $0.2 versus $0.4 in the prior year.

Loss on early extinguishment of debt of $8.6 includes the net loss incurred on the repurchase of $234.6 principal amount of our 5.5% Notes with an original maturity of October 1, 2010 for a purchase price of $242.8 plus accrued interest of $3.7 and $15.4 principal amount of our 4.6% Notes with an original maturity of July 1, 2013 for a purchase price of $14.6. Both of the debt repurchases were completed under an offer to repurchase the Notes that expired during the third quarter of 2009.

Interest expense, net was $7.6 compared with $8.7 in the prior year. The decrease includes a benefit of $1.2 related to increased capitalization of interest due to a higher mix of eligible capital expenditures in 2009 and a $1.2 benefit associated with our cross currency swaps, which represents the amortization of unrealized gains associated with our five year cross currency swap. This amortization will cease in October 2010. Interest expense, net also includes $1.9 of higher interest associated with our 8.95% Notes due 2017, the proceeds of which were received and used during the third quarter to repurchase a portion of our 5.5% and 4.6% Notes as discussed above. See Note 15 of the consolidated financial statements for further information of amortization related to cross currency swaps.

The effective income tax rate for the quarter ended September 30, 2009 was a tax provision of 36.9% ($7.6) compared to a tax provision of 33.1% ($23.1) for the quarter ended September 30, 2008. The 2009 effective tax rate for the quarter was unfavorably impacted by a shift in earnings to higher tax jurisdictions and limitations on certain favorable U.S. tax benefits. Excluding the impact of the restructuring charges, the underlying estimated annual income tax rate for the quarter ended September 30, 2009 was 32.2% (excluding accrued interest on unrecognized tax benefits) with an underlying tax rate of 34.0% including such interest compared to a rate of 31.7% for the prior year period.

The effective tax rate for the quarter ended September 30, 2008, was unfavorably impacted by a shift in our earnings to higher tax jurisdictions, and the expiration of the U.S. R&D tax credit effective December 31, 2007. Although the U.S. Government reinstated the R&D tax credit retroactively to January 1, 2008, the October 3, 2008 enactment date of this legislation precluded the recording of any such benefit until the fourth quarter of 2008. The rate was favorably affected by the incremental accelerated depreciation charge related to our U.S. Pampa facility.

Net income for the third quarter of 2009 was $12.5 ($0.26 per diluted share), a $33.8 decrease from the net earnings of $46.3 ($0.96 per diluted share) in the same period in 2008. Included in the third quarter of 2009 was a $15.3 of after-tax expenses related to restructuring costs, an after-tax loss of $5.5 associated with the repurchase of debt under a tender offer, an after-tax gain of $5.7 associated with the transfer of ownership of land to a third party, and an after-tax benefit of $0.1 associated with an update of our asbestos contingent liability and related insurance receivable. Net earnings for the third quarter of 2008 include a $0.9 after-tax charge related to incremental accelerated depreciation on our Pampa, Texas manufacturing site that we exited and relocated the manufacturing to one of our other existing facilities. Also included in the third quarter of 2008 are $4.0 of after-tax restructuring costs primarily related to our Coating Resins segment.

Segment Results

Year-to-year comparisons and analyses of changes in net sales by segment and region are set forth below and reflect the new organizational and reporting structure of its reportable segments for all periods presented.

Coating Resins



                                                            Total                  % Change Due to
                                        2009      2008     % Change      Price      Volume/Mix      Currency
North America                          $  70.3   $  90.1        -22 %       -7 %           -15 %           0 %
Latin America                             13.9      21.1        -34 %       -4 %           -30 %           0 %
Asia/Pacific                              78.2      87.3        -10 %       -7 %            -5 %           2 %
Europe/Middle East/Africa                173.9     239.9        -28 %       -4 %           -20 %          -4 %

Total                                  $ 336.3   $ 438.4        -23 %       -5 %           -16 %          -2 %

Overall sales were down 23% primarily due to decreased volumes of 16%, reflecting lower demand across all regions and product lines (except powder coating resins which increased in Asia Pacific), due to the continued global recession as demand in industrial markets decreased compared to the prior period. Overall selling prices were down 5% with decreases across all product lines reflecting lower raw material costs and price concessions given in powder coating resins to recover volumes. Unfavorable changes in exchange rates decreased sales 2%.

Earnings from operations were $18.5 or 6% of sales in 2009, compared with earnings from operations of $22.7 or 5% of sales in 2008. The $4.2 decrease in earnings is principally due to the negative impacts of $23.4 from lower selling prices, $27.7 due to lower selling volumes, and $10.6 of lower fixed cost absorption due to reduced production volumes as a result of the aforementioned lower selling volumes and our initiative to reduce inventory levels. These negative impacts were partially offset by favorable impacts of $39.3 from lower raw material costs, $11.6 from lower manufacturing and operating expenses due to reduced spending and cost savings initiatives, $4.0 from lower freight costs due to lower volumes, and $1.2 from changes in exchange rates. Manufacturing cost of sales in 2008 also included $1.4 of incremental accelerated depreciation on assets at our Pampa, Texas site given our decision to exit the site and consolidate production.

Additive Technologies



                                                           Total                  % Change Due to
                                         2009     2008    % Change      Price      Volume/Mix      Currency
North America                           $ 26.2   $ 32.6        -20 %        1 %           -21 %           0 %
Latin America                              5.5      5.6         -2 %       -2 %             2 %          -2 %
Asia/Pacific                              15.5     17.1         -9 %        0 %           -10 %           1 %
Europe/Middle East/Africa                 17.7     25.9        -32 %       -3 %           -26 %          -3 %

Total                                   $ 64.9   $ 81.2        -20 %       -1 %           -18 %          -1 %

Overall sales were down 20%, primarily due to decreased selling volumes of 18%, reflecting lower volumes across most regions and product lines as a result of the exit of our polyurethane product line in 2009 and polymer additives commodity product lines during 2008 and partly due to the continued global economic weakness. Overall selling prices were slightly down as price decreases in specialty additives reflecting competitive pricing were partially offset by slight increases in polymer additives. Unfavorable changes in exchange rates decreased sales 1%.

Earnings from operations were $3.1 or 5% of sales in 2009, compared with $6.1 or 8% in 2008. The $3.0 decrease in earnings is principally due to the negative impacts of $4.4 of lower fixed cost absorption due to reduced production volumes as a result of the aforementioned lower selling volumes and our initiative to reduce inventory levels, $3.3 related to lower selling volumes, and $0.8 of lower selling prices. These negative impacts were partially offset by favorable impacts of $4.1 from lower manufacturing and operating expenses due to reduced spending and cost savings initiatives, $1.2 from lower freight costs due to lower volumes, $0.3 of lower raw material prices, and $0.1 related to changes in exchange rates.

In Process Separation



                                                           Total                  % Change Due to
                                         2009     2008    % Change      Price      Volume/Mix      Currency
North America                           $ 20.4   $ 20.6         -1 %        2 %            -3 %           0 %
Latin America                             19.7     26.2        -25 %        0 %           -25 %           0 %
Asia/Pacific                              16.1     19.2        -16 %       -4 %           -10 %          -2 %
Europe/Middle East/Africa                 15.0     17.1        -12 %       -3 %            -7 %          -2 %

Total                                   $ 71.2   $ 83.1        -14 %       -1 %           -12 %          -1 %

Overall sales were down 14%, primarily due to decreased selling volumes of 12%, reflecting lower volumes across all regions in mining product lines due to the weak global economic conditions. Overall selling prices were down 1% as price decreases in mining product lines were partially offset by increases in phosphine and phosphorous product lines. Unfavorable changes in exchange rates decreased sales 1%.

Earnings from operations were $12.5 or 18% of sales in 2009, compared with $19.0, or 23% in 2008. The $6.5 decrease in earnings is principally due to the negative impacts of $5.7 related to lower selling volumes, $2.0 of lower fixed cost absorption due to reduced production volumes as a result of the aforementioned lower selling volumes and our initiative to reduce inventory levels, $1.7 of higher raw material prices, $0.9 of lower selling prices, and $0.8 of increased manufacturing costs. These negative impacts were partially offset by favorable impacts of $2.3 from lower freight costs due to lower volumes, $1.3 from lower operating expenses due to reduced spending and cost savings initiatives, and $1.2 from changes in exchange rates.

Engineered Materials



                                                            Total                  % Change Due to
                                        2009      2008     % Change      Price      Volume/Mix      Currency
North America                          $ 101.4   $ 132.1        -23 %        1 %           -24 %           0 %
Latin America (1)                          1.4       1.3         -          -               -             -
Asia/Pacific                              12.0      15.7        -24 %       -3 %           -21 %           0 %
Europe/Middle East/Africa                 54.4      72.3        -25 %        2 %           -25 %          -2 %

Total                                  $ 169.2   $ 221.4        -24 %        1 %           -24 %          -1 %

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

Overall sales were down 24% due to decreased selling volumes, driven primarily by lower build rates and customer inventory destocking in the business and regional jets markets, destocking actions from customers who supply the large commercial transport sector and lower overall commercial aircraft build rates, and lower demand in the high performance automotive market driven by build rate reductions. These decreases were partially offset by increased volumes in military applications due to increased production. Pressure sensitive adhesives selling volumes were adversely impacted due to and the impact of the global recession on industrial markets. Overall selling prices were up 1% with increases across all product lines except for formulated resins. Unfavorable changes in exchange rates decreased sales 1%.

Earnings from operations were $18.3 or 11% of sales in 2009, compared with $40.5, or 18% of sales in 2008. The $22.2 decrease in earnings is principally due to the negative impacts of $32.7 due to lower selling volumes, $7.7 of lower fixed cost absorption due to reduced production volumes as a result of the aforementioned lower selling volumes and our initiative to reduce inventory levels, and $0.1 of unfavorable changes in exchange rates. These negative impacts were partially offset by favorable impacts of $14.2 from lower net manufacturing and operating expenses primarily due to reduced spending and cost savings initiatives, $1.8 from increased selling prices, $1.5 of lower raw material costs, and $0.8 from lower freight costs due to lower volumes.

Building Block Chemicals



                                                           Total                  % Change Due to
                                        2009     2008     % Change      Price      Volume/Mix      Currency
North America                          $ 56.4   $ 109.0        -48 %      -48 %             0 %           0 %
Latin America (1)                         1.4       1.7         -          -               -             -
Asia/Pacific (2)                          3.3        -          -          -               -             -
Europe/Middle East/Africa                37.5      28.2         33 %      -50 %            83 %           0 %

Total                                  $ 98.6   $ 138.9        -29 %      -51 %            22 %           0 %

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

(2) Due to unusually large volume/price fluctuation percentage, comparisons are not meaningful.

Overall sales decreased 29% primarily due to lower selling prices of 51%, driven primarily by lower costs of propylene and ammonia used in the manufacturing of acrylonitrile where pricing closely follows raw material cost movements and in melamine due to price competition. Overall selling volumes were up 22% primarily due to the improved demand for acrylonitrile into the acrylic fibers market.

Earnings from operations were $4.8, or 5% of sales in 2009, compared with a loss of $1.3, or -1% of sales in 2008. The $6.1 increase in earnings is primarily due to the favorable impacts of $71.4 of lower raw material costs, $4.9 of higher selling volumes, $2.0 of lower manufacturing costs related to higher acid regeneration operations in 2009 coupled with $1.5 of higher plant spending in 2008 due to hurricane Gustav, $0.2 of lower operating expenses due to reduced spending and cost savings initiatives, and $0.2 of lower freight costs. These favorable impacts were partially offset by negative impacts of $71.5 due to lower selling prices, and $2.6 of lower fixed cost absorption due to inventory reductions.

Nine months ended September 30, 2009, Compared With Nine months ended September 30, 2008

Consolidated Results

Net sales for the first nine months of 2009 were $2,037.5 compared with $2,941.7 for 2008. Overall, sales declined 31% driven by volume decreases of 22%, price decreases of 7%, and unfavorable changes in exchange rates of 2%. In the Coating Resins segment, sales decreased 36% primarily due to decreased selling volumes and to a lesser extent changes in exchange rates. Additive Technologies segment sales decreased 29% due to decreased selling volumes and unfavorable changes in exchange rates. In Process Separation segment sales decreased 18% due to decreased sales volumes and changes in exchange rates, partially offset by price increases. Engineered Materials segment sales decreased 21% primarily due to reduced selling volumes. Building Block Chemicals segment sales declined 39% primarily due to lower selling prices resulting from raw material price declines, partially offset by volume increases.

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

Manufacturing cost of sales was $1,706.2 or 83.7% of sales for the first nine months of 2009 compared with $2,334.6 or 79.4% of sales for the first nine months of 2008. The 4.3% increase in manufacturing cost of sales as a percent of sales is primarily due to lower fixed cost absorption and higher restructuring expenses which were partially offset by raw material price decreases. The lower fixed cost absorption relates to lower production volumes resulting from lower demand and our initiative to lower inventory levels. Manufacturing costs decreased $628.4, which includes $366.6 associated with lower volumes, $239.3 related to lower material costs, $54.7 related to reduced spending and cost savings initiatives, and $70.5 due to changes in exchange rates partially offset by $63.2 of unfavorable fixed cost absorption. Manufacturing cost of sales for the nine months ended September 30, 2009 also includes $5.0 of expenses related to environmental contingent liabilities and $1.2 of accelerated depreciation related to our polyurethane product line assets in Asia that were sold in the second quarter of 2009. Manufacturing cost of sales for the first nine months of 2009 includes restructuring charges of $47.0 which includes manufacturing cost savings initiatives launched within our Specialty Chemical and Engineered Materials segments and corporate functions throughout 2009. The first nine months of 2008 includes a restructuring charge of $5.0 primarily related to restructuring our manufacturing operations in France, West Virginia and Connecticut and $4.2 of incremental accelerated depreciation on assets at our Pampa, Texas site that we exited in 2008. See Note 4 to the consolidated financial statements for additional detail.

Selling and technical services expenses were $148.6 in the first nine months of 2009 versus $176.1 in the first nine months of 2008. The decrease includes $21.5 related to reduced spending and cost savings initiatives and $9.9 related to changes in exchange rates, partially offset by $1.1 of higher costs associated with restructuring initiatives, and $0.6 of additional bad debt expense due to a customer bankruptcy. Research and process development expenses were $56.1 versus $62.5 in the prior year. The decrease includes $4.9 related to reduced spending and cost savings initiatives and $2.7 related to changes in exchange rates, partially offset by $3.2 of higher costs associated with restructuring initiatives. Administrative and general expenses were $90.1 versus $89.6 in the prior year. The increase includes $2.5 of higher costs associated with . . .