CYTEC INDUSTRIES INC.

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 þ No o.

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o

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

At June 28, 2002, the aggregate market value of common stock held by non-affiliates was $1,231,616 based on the closing price ($31.44) of such stock on such date.

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

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

All predictions as to future results contain a measure of uncertainty and, accordingly, actual results could differ materially. Among the factors that could cause a difference are: changes in global and regional economies; the financial well-being of end consumers of the Company’s products, particularly the airline industry; changes in demand for the Company’s products or in the quality, costs and availability of its raw materials and energy; customer inventory destocking; the actions of competitors; currency exchange and interest rate fluctuations; technological change; the Company’s ability to renegotiate expiring long-term contracts; changes in employee relations, including possible strikes; government regulations; governmental funding for those military programs that utilize the Company’s products; litigation, including its inherent uncertainty; difficulties in plant operations and materials transportation; environmental matters; the results of and recoverability of investments in associated companies; returns on employee benefit plans assets and changes in the discount rates used to estimate employee benefit liabilities; changes in the medical cost trend rate; changes in accounting principles or new accounting standards; war, terrorism or sabotage; and other unforeseen circumstances. A number of these factors are discussed in this and other of the Company’s filings with the Securities and Exchange Commission.

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

The Company is a global specialty chemicals and specialty materials company that focuses on value-added products. The Company serves major markets for aerospace, water treatment and mining, automotive and industrial coatings, plastics and chemical intermediates. The Company manufactures the vast majority of its products and sells its products worldwide. The Company had net sales of $1,346.2 million and earnings from operations of $117.4 million in 2002. In addition, the Company has a 50% interest in each of two unconsolidated associated companies, and a one-third interest in a third. The associated companies had aggregate net sales of $307.5 million and gross profit of $60.5 million in 2002. The Company reported $6.1 million of equity in earnings of associated companies in 2002.

The Company operates in four segments: Water and Industrial Process Chemicals, Performance Products, Specialty Materials and Building Block Chemicals. Water and Industrial Process Chemicals principally include water treating chemicals, mining chemicals and phosphine chemicals and before November 2000, paper chemicals. Performance Products principally include coating chemicals, performance chemicals and polymer additives. Specialty Materials principally include advanced composites and adhesives. Building Block Chemicals principally include acrylonitrile, acrylamide, hydrocyanic acid, melamine and sulfuric acid. The Company characterizes its businesses as platform businesses and value businesses. Platform businesses are those businesses the Company believes have a competitive advantage to grow organically and by extension through strategic acquisitions. The Company expects these businesses to have sales growth over a business cycle considerably in excess of growth in gross domestic product. The Company also expects its platform businesses will need investment in research and development and possibly in capital to

increase global capacity to support sales growth. Value businesses are those businesses without the same growth characteristics and which are expected to build sales and profit growth through greater focus on manufacturing productivity. Value businesses will be expected to provide significant free cash flow and to increase their economic value with a greater focus on asset management. The Company’s platform businesses are water treating chemicals, mining chemicals, phosphine chemicals, coating chemicals, performance chemicals and specialty materials. The Company’s value businesses are polymer additives and building block chemicals.

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

The Company completed three acquisitions during 2001 and two divestitures during 2000. See Note 2 of the Notes to the Consolidated Financial Statements.

Unless indicated otherwise, the terms “Company” and “Cytec” each refer collectively to Cytec Industries Inc. and its subsidiaries. Cytec was incorporated as an independent public company in December 1993.

The Water and Industrial Process Chemicals segment had net sales to external customers of approximately $331.2 million in 2002 and $335.0 million in 2001, or approximately 24.6% and 24.2%, respectively, of the Company’s net sales in such years. Many of the Company’s products in this segment are manufactured using acrylamide, one of the Company’s building block chemicals.

Set forth below are the Company’s primary product lines and major products in the Water and Industrial Process Chemicals segment, and their principal applications.


(1)	Sales of this product line are also made by Mitsui Cytec Ltd. (“Mitsui Cytec”), an unconsolidated associated company owned 50% by Mitsui Chemicals, Inc. See “Associated Companies.”

Water Treating Chemicals: The Company’s water treating chemicals product line consists primarily of the manufacture and sale of products for use in such applications as sewage conditioners for municipal wastewater treatment, as treatments in industrial waste streams to remove suspended solids, as treatments of municipal drinking water and industrial influent water supplies, and as drilling mud conditioners for oil service companies. Increased demand for clean water, environmental regulations and regional and global economic development have increased demand for the Company’s water treating chemicals. To support this growing demand, Cytec completed significant expansions at its Mobile, Alabama and Bradford, England plants during 2001. Although Cytec sold its paper chemicals product line in two separate transactions in late 2000, it retained all of its production facilities, which are also used in its water treating and mining chemicals product lines, and Cytec now produces paper chemicals under a long term supply agreement for the purchasers of its paper chemicals product line. Cytec also retained its paper wastewater treating product line.

Competition is generally intense in wastewater treatment applications, particularly for municipal accounts, where contracts generally are awarded on a competitive bid basis, and for those industrial applications where technical service is not an important factor. Cytec markets its water treating chemicals through a specialized sales and technical services staff with an emphasis on sales to global full-service water treatment companies.

Mining Chemicals: The Company’s mining chemicals product line is primarily used in applications to separate minerals from ores. The Company has leading positions in the copper processing industry, particularly in the flotation of sulfide ores, and in the alumina processing industry, where its patented HxPams are particularly effective at the flocculation of “red mud.” The Company also sells phosphine chemicals specialty reagents which have leading positions in cobalt/nickel separation and copper sulfide recovery applications. The Company strives to develop new technologies as well as new formulations tailored for specific applications. Demand for mining chemicals is cyclical and varies with industry conditions for the particular minerals with respect to which the Company’s products have processing applications. The Company’s mining chemicals product lines are marketed primarily through a specialized sales and technical services staff. Cytec expects to continue expanding its sales presence in South America, Asia and Australia, the growth markets for the Company’s mineral processing chemicals.

Phosphine Chemicals: The Company’s phosphine chemicals are utilized for a variety of applications. The Company is the largest supplier of ultra-high purity phosphine gas, used in semiconductor manufacturing and light emitting diode applications, and has significant positions in various phosphine derivative products including phosphonium salts used in pharmaceutical catalysts and biocides. The Company acquired a phosphine fumigants product line in 1999. The Company marketed phosphine fumigants in the United States as an alternative to methyl bromide, which is required to be phased out by the end of 2004 due to its ozone depleting characteristics. Sales of phosphine fumigants are dependent upon obtaining and maintaining necessary registrations and approvals from applicable regulatory agencies and the Company is seeking product registrations for its fumigants in additional countries. The Company also seeks to broaden its product line through development of additional proprietary technologies for pharmaceuticals, specialty chemicals catalysts and reactive intermediate applications. The Company recently increased its plant capacity to meet increased customer demand and will consider further increases to meet future growth opportunities.

The Performance Products segment had net sales to external customers of approximately $452.3 million in 2002 and $434.7 million in 2001, or approximately 33.6% and 31.3%, respectively, of the Company’s net sales in such years. Set forth below are the Company’s primary performance products product lines, major products and their principal applications.


(1)	Sales of this product line are also made by Mitsui Cytec. See “Associated Companies.”

Coatings Chemicals: The Company believes that it is the largest global supplier of amino coating resins (“Resins”), which the Company markets primarily for industrial coatings applications under the CYMEL® trademark. The Company sells Resins worldwide to manufacturers producing coatings for automotive, marine, wood and metal finishings, and appliances, containers, coils and general industrial maintenance coatings. As part of the project to consolidate and increase the flexibility of the Company’s global Resins production, the Company completed an expansion of its Resins production capacity at its Lillestrom, Norway plant in the second half of 2001. The Company transferred production to this facility from a former tolling facility near the end of 2002. Many of the Company’s Resins are manufactured using melamine, one of the Company’s building block chemicals.

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

Performance Chemicals: The Company’s performance chemicals have different functionalities and are sold into varied end use applications. The largest product group is a line of adhesion promoters sold under the CYREZ® trademark. Adhesion promoters are used globally in the rubber industry, the major application being in the manufacture of tires. The Company’s adhesion promoters are manufactured using melamine, one of the Company’s building block chemicals.

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

The Company also manufactures and markets urethane chemicals and formulated urethane and epoxy systems. The Company’s urethane chemicals are sold primarily for use in high performance coating applications and inks and adhesives and formulated urethane systems are sold primarily for use as potting compounds in electrical applications.

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

Polymer Additives: The Company is a significant global supplier to the plastics industry of specialty additives which protect plastics from the ultraviolet radiation of sunlight and from oxidation. Typical end use applications of the Company’s products include a wide variety of polyolefins that are used in agricultural films, toys, lawn furniture and automotive applications, fibers for carpets, spandex applications, engineered plastics and automotive coatings. Ciba Specialty Chemicals AG is the dominant competitor in this product line. The Company seeks to enhance its position with new products based on proprietary chemistries and solutions-based technical support. In 2001 the Company launched its CYASORB THT family of light stabilizers based on the Company’s proprietary hindered amine light stabilizer and triazine chemistries. These chemistries provide much higher efficiency as ultraviolet light stabilizers than previous technologies.

The Company markets polymer additives through a dedicated sales and technical service staff. Sales are typically made directly to large customers and through distributors to smaller customers. The Company owns a one-third interest in PolymerAdditives.com, LLC, a business-to-business Internet joint venture formed by the Company, GE Specialty Chemicals, Inc. and Albemarle Corporation. PolymerAdditives.com offers customers the convenience of purchasing a variety of brand name polymer additives, including the Company’s light stabilizers and antioxidants, from one source with one order. During 2002, the Company reduced the carrying value of its net investment in this company to zero. Accordingly, the Company will no longer recognize its share of the joint venture’s expected future losses. The Company is not obligated to make any further capital contributions and is assessing the value of its distribution alternatives.

The Specialty Materials segment had net sales to external customers of approximately $395.5 million in 2002 and $450.2 million in 2001, or approximately 29.4% and 32.5%, respectively, of the Company’s net sales in such years. The specialty materials segment principally manufactures and sells aerospace materials that are used mainly in commercial and military aviation, satellite and launch vehicles, and aircraft brakes and high performance automotive applications such as F-1 racing cars.

Cytec Engineered Materials: The Company is the major global supplier of aerospace structural film adhesives and one of two major suppliers of aerospace advanced composite materials. Advanced composites are exceptionally strong and lightweight materials manufactured by impregnating fabrics and tapes made from high performance fibers (such as carbon) with epoxy, bismaleimide, phenolic, polyimide and other resins formulated or purchased by the Company. The Company acquired 3M’s composites business in 2001 to provide additional customer qualifications and new products.

The primary applications for both aerospace adhesives and advanced composites are commercial airliners, regional and business jets, military aircraft, satellites and launch vehicles, high performance automotive and specialty applications. Sales are dependent to a large degree on the commercial and military aircraft build rate and the number of applications and aircraft programs for which the Company is a qualified supplier. Every major commercial program in the Western world has qualified and uses certain of the Company’s products. Current military programs such as the F/ A-22 and

F/A-18 combat aircraft and the C-17 transport aircraft are examples of programs reliant on the Company’s products. In 2001 the Company was also named as the sole source provider of structural composites for the F-35 Joint Strike Fighter which is in development by a team led by Lockheed. The reduction in air passenger traffic after September 11, 2001 has caused financial problems for the airline industry with a consequential reduction in overall demand for large aircraft. The Company anticipates, however, that the long-term trend of growth in passenger air miles will recover.

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

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

The Company purchases from third parties all of the aramid and glass fibers and much of the carbon fibers and base resins used in the manufacture of composites. Other carbon fibers are sourced directly from Cytec Carbon Fibers as discussed below. See “Customers and Suppliers” and Item 3, “Legal Proceedings.”

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

Cytec Carbon Fibers: In 2001 the Company acquired BP’s carbon fibers business to enhance its ability to maintain a high quality, low cost supply of carbon fiber for its advance composite products.

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

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

The Building Block Chemicals segment had net sales to external customers of approximately $167.2 million in 2002 and $167.2 million in 2001, or approximately 12.4% and 12.1%, respectively, of the Company’s net sales in each year.

Building block chemicals are manufactured primarily at the Company’s world-scale, highly integrated Fortier facility. The Fortier facility is located on the bank of the Mississippi River near New Orleans, Louisiana and has ready access to all major forms of transportation and supplies of raw materials.

Acrylonitrile and Hydrocyanic Acid: The Company anticipates that over the near term it will use internally approximately 25% of its current acrylonitrile annual production capacity of 475 million pounds to produce acrylamide and that up to approximately 25% will be sold pursuant to a long term supply agreement and 25% through a long term distribution agreement, the first of which provides for a cost based price through the first quarter of 2005 and the second of which provides for a market based price. The profitability of producing acrylonitrile is influenced by supply and demand, by the cost of propylene, which is the largest component of the cost of producing acrylonitrile, and by manufacturing efficiency (i.e., yield and co-product recovery). Hydrocyanic acid is produced as a co-product of the acrylonitrile process. Substantially all of the hydrocyanic acid produced by the Company is sold to CYRO Industries (“CYRO”), an unconsolidated associated company, as a raw material for methyl methacrylate (“MMA”) under two long-term contracts, one of which expires in mid 2003. The Company is in the process of negotiating an extension of this agreement. The

Company is currently operating the plant at 100% capacity utilization, up from 75% utilization for a significant part of the first half of 2002 because of poor market conditions for acrylonitrile.

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

American Melamine Industries (“AMEL”), a 50% owned manufacturing joint venture with a subsidiary of DSM N.V., operates a melamine manufacturing plant with annual production capacity of approximately 160 million pounds at the Fortier facility. DSM, which is the world’s leading manufacturer of melamine, makes its melamine expertise available to AMEL under a license agreement. The Company anticipates that over the near term it will use internally up to 80% of its 50% share of AMEL’s annual melamine production, primarily for the production of Resins. The remainder of the Company’s share of production is sold to third parties. AMEL is the only North American manufacturer of melamine.

The Company sells sulfuric acid to third parties and also toll converts substantially all of CYRO’s spent sulfuric acid arising from the manufacture of MMA under a long-term service contract. This agreement is scheduled to expire at the end of 2003 and the Company is currently in the process of negotiating an extension.

The Company mothballed its only ammonia plant in 2001. The ammonia plant had been using higher cost, domestic natural gas as a raw material and consequently was not competitive with foreign sourced material. It is unlikely that the plant will restart.

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

The Company has an ownership interest in three unconsolidated associated companies as described below.

CYRO Industries (50% owned): CYRO manufactures and sells acrylic sheet and molding compound products, primarily under the ACRYLITE® trademark and MMA. CYRO operates primarily in North America and manufactures its acrylic products at four locations in the U.S. CYRO closed its Canadian manufacturing plant in 2001 in order to enhance its overall manufacturing efficiency. The Company’s partner in CYRO, an indirect subsidiary of Degussa A.G., has an affiliate, Rohm GmbH and Co. KG., that manufactures and sells acrylic sheet and molding compounds products and MMA primarily in Europe and makes its technological expertise available to CYRO.

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

Mitsui Cytec (50% owned): Mitsui Cytec manufactures and sells Resins in Japan and manufactures certain water treating and mining chemicals in Japan that it sells throughout Asia. The Company has licensed certain of its technologies to Mitsui Cytec on an exclusive basis in Japan and on an exclusive and non-exclusive basis in other parts of Asia.

PolymerAdditives.com LLC (33 1/3% owned): Cytec, GE Specialty Chemicals, Inc. and Albemarle Corporation each own a one-third interest in this business-to-business Internet joint venture which distributes a broad line of polymer additive products. See “Performance Products Segment – Polymer Additives.”

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

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

The Company has a diversity of product lines and in 2002, no customer accounted for more than 10% of the Company’s net sales. Sales to the Boeing Company and its subcontractors for commercial and military aerospace and other components were approximately $150 million, or 11% of consolidated net sales, in 2001, and approximately $153 million, or 10% of consolidated net sales, in 2000. See also the discussion above of the acrylonitrile long-term contracts under “Building Block Chemicals – Acrylonitrile” and the discussion of sales to CYRO and other associated companies in Note 5 of the Notes to the Consolidated Financial Statements.

With respect to suppliers, the Company’s vertical integration (i.e., its manufacture of intermediates used to manufacture certain water treating chemicals, mining chemicals, coating chemicals and performance chemicals and its manufacture of carbon fibers for advanced composites) helps protect it from being reliant on other companies for many significant intermediates. The significant raw materials required to manufacture the Company’s building block chemicals are natural gas, propylene, and sulfur, which are readily available. Natural gas is an important indirect raw material for many of the Company’s products, including Resins. Because natural gas is not easily transported, the price may vary widely between geographic regions. The price of natural gas in the United States has been volatile during the past few years and is significantly above the price in many other parts of the world. While the Company has not had any problems obtaining the natural gas that it needs, because many of the Company’s products compete with similar products made with less expensive natural gas available elsewhere, the Company may not be able to recover any or all of the increased cost of gas in manufacturing its products. The Fortier facility is served by a single propylene pipeline owned by a supplier, although the Company has made arrangements to allow other suppliers to use part of the pipeline’s capacity.

The Company generally attempts to retain multiple sources for high volume raw materials, other than its own building block chemicals, in order to minimize its reliance on any one supplier. The Company sources its requirements of cationic monomers from a single supplier under a long-term agreement. Cationic monomers are important raw materials in the water treating chemicals and mining chemicals product lines. The Company is dependent on a limited number of suppliers for carbon fibers that are used in many of the Company’s advanced composite products. Availability of certain carbon fibers has occasionally been quite limited, although availability has recently been adequate. The risk of future carbon fiber supply limitations is reduced now that the Company manufactures some of its own carbon fibers.

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

The Company operates on a worldwide basis with manufacturing plants located in eight countries (other than the United States). Export sales to unaffiliated customers from the United States were $164.7 million for 2002, $185.3 million for 2001 and $188.8 million for 2000 or approximately 12%, 13% and 12% of net sales in such years, respectively.

The Company markets its products internationally through Company sales offices, distributors and one associated company as described above. Foreign sales were approximately 49% in 2002, 47% in 2001 and 46% in 2000, of net sales to unaffiliated customers.

The Company’s identifiable assets located outside of the United States, by geographical region, at year end 2002 and 2001 are set forth in Note 17 of the Notes to the Consolidated Financial Statements.

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

During 2002, 2001 and 2000, the Company expended an aggregate of approximately $33.7 million, $32.4 million and $38.6 million, respectively, on Company-sponsored research and process development activities. Company research and process development expenses declined in 2001 primarily as the result of the divestiture of the Company’s paper chemicals business in late 2000.

The Company has approximately 1,500 United States and foreign patents and also has trademark applications and registrations for approximately 150 product names. The Company believes the loss of patent or trademark protection on any one product or process would not have a material adverse effect on the Company. While the existence of a patent is prima facie evidence of its validity, the Company cannot assure that any of the Company’s patents will not be challenged, and it cannot predict the outcome of any challenge.

Approximately 4,250 employees are engaged in the operations of the Company, excluding employees of associated companies. Approximately 2,100 of the Company’s employees are covered by union contracts. The Company believes that its relations with both employees and the related union leaderships are generally good.

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

The Company’s operations are also subject to various hazards incident to the production of industrial chemicals, including the use, handling, processing, storage and transportation of certain hazardous materials. Under certain circumstance, these hazards could cause personal injury and loss of life, severe damage to and destruction of property and equipment, environmental damage and suspension of operations. Claims arising from any future catastrophic occurrence at one of the Company’s locations may result in the Company being named as a defendant in lawsuits asserting potentially large claims.

The Company utilizes third party insurance to cover portions of certain of these risks to the extent that coverage is available and can be obtained on terms the Company believes are economically justifiable. After September 11, 2001, the availability of property insurance in particular became much tighter. The Company declined to obtain coverage for terrorist acts since it was not available at economic rates, and in response to an approximate tripling in proposed rates, the Company increased certain of its deductibles and self-retention amounts primarily in the area of property insurance.

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

In particular, under the Comprehensive Environmental Response, Compensation and Liability Act (“CERCLA”) and various other federal and state laws, a current or previous owner or operator of a facility may be liable for the removal or remediation of hazardous materials at the facility. Such laws typically impose liability without regard to whether the owner or operator knew of, or was responsible for, the presence of such hazardous materials. In addition, pursuant to the Resource Conservation and Recovery Act (“RCRA”) and state laws governing the generation, transportation, treatment, storage or disposal of solid and hazardous wastes, owners and operators of facilities may be liable for removal or remediation, or other corrective action at areas where hazardous materials have been released at a facility. The costs of removal, remediation or corrective action may be substantial, and the presence of hazardous materials in the environment at any of the Company’s facilities, or the failure to abate such materials promptly or properly, may adversely affect the Company’s ability to operate such facilities. CERCLA and analogous state laws also impose liability for investigative, removal and remedial costs on persons who dispose of or arrange for the disposal of hazardous substances at facilities owned or operated by third parties. Liability for investigative, removal and remedial costs under such laws is retroactive, strict, and joint and several.

The Clean Air Act and similar state laws govern the emission of pollutants into the atmosphere. The Federal Water Pollution Control Act and similar state laws govern the discharge of pollutants into the waters of the United States. RCRA and similar state laws govern the generation, transportation, treatment, storage, and disposal of solid and hazardous wastes. The Toxic Substances Control Act regulates the manufacture, processing, and distribution of chemical substances and mixtures, as well as the disposition of certain hazardous substances. In addition, certain state and federal laws govern the abatement, removal, and disposal of asbestos-containing materials and the maintenance of underground storage tanks and equipment which contains or is contaminated by polychlorinated biphenyls.

The costs of compliance with such laws and regulations promulgated thereunder may be substantial, and regulatory standards under such statutes tend to evolve towards more stringent requirements, which might, from time-to-time, make it uneconomic or impossible to continue operating a facility. Non-compliance with such requirements at any of the Company’s facilities could result in substantial civil penalties or the inability of the Company to operate all or part of the facility.

Note 10 of the Notes to the Consolidated Financial Statements is incorporated by reference herein.

The Company operates manufacturing and research facilities located in the United States, the United Kingdom, the Netherlands, Mexico, Canada, Colombia, Germany, Norway and Chile. Capital spending, exclusive of acquisitions, for the years ended 2002, 2001 and 2000 was approximately $62.2 million, $63.9 million, and $76.5 million, respectively. Capital expenditures in 2003 are expected to be in the range of $90.0 to $100.0 million. The anticipated increase in spending from 2002 levels is due primarily to a multi-year project to significantly upgrade and modernize the Stamford, Connecticut specialty chemicals research facility. The Company’s capital expenditures are intended to provide increased capacity, to improve the efficiency of production units, to improve the quality of the Company’s products, to modernize or replace older facilities, or to install equipment for protection of employees, neighboring communities and the environment.

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

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

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

Cytec and/or American Cyanamid Company (“Cyanamid”), the Company’s former parent company, are among several defendants in more than 35 cases, pending in various state and federal courts, in which plaintiffs assert claims for personal injury, property damage, and other claims for relief relating to lead pigment that was used as an ingredient decades ago in paint for use in buildings. Cytec has an agreement to indemnify Cyanamid in connection with such suits. The different suits were brought by government entities and individual plaintiffs, on behalf of themselves and others. The suits variously seek injunctive relief and compensatory and punitive damages, including funds for the cost of monitoring, detecting and removing lead based paint from buildings; for personal injuries allegedly caused by ingestion of lead based paint; and plaintiffs’ attorneys’ fees. The Company and Cyanamid believe that the suits against them are without merit and are vigorously defending against all such claims.

The Company has access to a substantial amount of primary and excess general liability insurance for property damage under the policies of Cyanamid. The Company believes these policies are available to cover a significant portion of both its defense costs and indemnity costs, if any, for lead related property damage. The Company is currently pursuing an agreement with various of its insurers concerning coverage with respect to the claims asserted in these suits.

In January 1999 the Company received a subpoena to testify before, and provide documents to, a federal grand jury in California investigating the carbon fiber and prepreg industry. The Company manufactures prepregs as part of its advanced composites product line. The Company has no reason to believe that it is a target of the grand jury investigation. After the grand jury investigation was commenced, the Company and the other companies subpoenaed to testify before the grand jury were named as defendants in two civil antitrust class actions in state and federal courts in California on behalf of purchasers of carbon fiber, which the complaints defined to include prepregs manufactured from carbon fiber. In each case the complaint alleges that the defendants, manufacturers of carbon fiber and/or prepregs manufactured therefrom, conspired to fix the prices of their products. The Company and other companies have also been named as defendants in a state civil antitrust action in the state court in Massachusetts. The Company denies that it conspired to fix prices. In connection with its acquisition of BP’s carbon fibers business, the Company was indemnified by BP on various matters including any liabilities BP’s carbon fibers business may have in these proceedings. The indemnity does not cover any liability the Company may have in its own right and not as a successor to BP’s carbon fibers business.

See also the first four paragraphs of “Environmental Matters” under “Business” in Item 1 and Note 10 of the Notes to the Consolidated Financial Statements.

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

Furthermore, the Company also has exposure to present and future claims with respect to workplace exposure, workers’ compensation and other matters arising from past events.

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

The Common Stock of the Company is listed on the New York Stock Exchange. On February 1, 2003, there were approximately 12,640 holders of record of the Common Stock of the Company.

The Company has not paid a cash dividend on its common stock. If consistent with its strategic direction, the Company may consider the appropriateness of paying a dividend among its alternative uses of cash. However, the Company is restricted from paying dividends in excess of certain amounts determined in accordance with the terms of its Series C Cumulative Preferred Stock. See Note 15 of the Notes to the Consolidated Financial Statements, which is incorporated by reference herein.

From time to time in connection with its stock repurchase program, the Company has sold unregistered put options entitling the holders to sell shares of the Company’s common stock to the Company. See Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations – Liquidity and Financial Condition.


(1)	Includes net restructuring charges of $10.3.
(2)	Includes net restructuring charges of $1.0.
(3)	Includes net restructuring charges of $2.4 and a charge of $1.7 for costs associated with a tax refund related to the prior years’ research and development tax credit.
(4)	Includes restructuring charges of $0.4.
(5)	Includes $2.0 of interest income related to the research and development tax credit.
(6)	Includes a $6.0 reduction in income tax expense related to a refund associated with prior years’ research and development tax credits.
(7)	Includes a restructuring charge of $4.6.
(8)	Includes a restructuring charge of $0.8 and $9.7 of goodwill amortization that is no longer amortized under Statement of Financial Accounting Standards No. 142 (“SFAS 142”), “Goodwill and Other Intangible Assets.”
(9)	Includes a restructuring charge of $2.3 related to the Company’s 50% share of restructuring charges recorded by CYRO Industries.


(10)	Includes a net restructuring charge of $3.3 and a charge of $1.4 for receivables due the Company from its former ammonia joint venture.
(11)	Includes net restructuring charges of $1.1.
(12)	Includes net restructuring charges of $5.7 and $9.4 of goodwill amortization that is no longer amortized under SFAS 142.
(13)	Includes a gain of $88.3 from the divestiture of the paper chemicals business, a gain of $13.3, discounted and net of expenses, from an environmental remediation insurance settlement, a gain of $7.1 from the sale of real estate at a former plant site and a charge of $4.8 for the write-down of receivables from the AC Molding Compounds joint venture.
(14)	Includes $8.5 of goodwill amortization that is no longer amortized under SFAS 142.
(15)	Includes a credit of $8.0 related to the utilization of prior years’ tax credits.
(16)	Includes $8.3 of goodwill amortization that is no longer amortized under SFAS 142.
(17)	Includes a gain of $4.4 related to the sale of the bulk molding compounds product line.

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

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

In the course of the Company’s ongoing operations, a number of strategic business acquisitions and dispositions have been made. All acquisitions have been recorded using the purchase method of accounting. Accordingly, the results of operations of the acquired companies have been included in the Company’s consolidated results from the dates of the respective acquisitions. (For further information about the Company’s acquisitions and dispositions, see Note 2 of the Notes to Consolidated Financial Statements.)

The Company expects to adopt Statement of Financial Accounting Standards (“SFAS”) No. 143, “Accounting for Asset Retirement Obligations” (“SFAS 143”) effective January 1, 2003 and SFAS No. 146, “Accounting for Costs Associated with Exit or Disposal Activities” (“SFAS 146”) effective January 1, 2003. SFAS 143 addresses the accounting and reporting requirements for legal obligations associated with the retirement of tangible long-lived assets, and SFAS 146 addresses the recognition and measurement of costs associated with an exit or disposal activity. In addition, the Company has adopted SFAS No. 141, “Business Combinations” (“SFAS 141”) effective July 1, 2001 and SFAS No. 142, “Goodwill and Other Intangible Assets” (“SFAS 142”) effective January 1, 2002, and SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities” (“SFAS 133”) effective January 1, 2001. (For further information on these current and pending accounting changes, see Note 1 of the Notes to Consolidated Financial Statements.)

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

The Company reports its net sales in four segments: Water and Industrial Process Chemicals, Performance Products, Specialty Materials and Building Block Chemicals. The Water and Industrial Process Chemicals and Performance Products segments are collectively referred to as Specialty Chemicals. (See Item 1. Business.)

The Company reports its net sales in four geographic regions: North America, Latin America, Asia/ Pacific Rim 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 Rim is comprised of Asia, Australia and the islands of the South Pacific Rim.

Net Sales to unaffiliated customers by business segment and geographic area are set forth below.


(1)	On November 1, 2000, the Company substantially divested its paper chemicals business, which had net sales of $97.9 in 2000. Sales for the retained portion of the paper chemicals business were $26.8 and $32.0 in 2002 and 2001, respectively.

Net sales in the United States were $685.8, $736.9 and $798.8 for 2002, 2001 and 2000, respectively. International net sales were $660.4, $650.2, and $693.7, or 49.1%, 46.9% and 46.5% of total net sales, for 2002, 2001 and 2000, respectively.

(For more information on the Company’s segments, see Note 17 of the Notes to the Consolidated Financial Statements and further discussions in the Segment Results section of Management’s Discussion and Analysis of Financial Condition and Results of Operations.)

Net sales for 2002 were $1,346.2, compared with $1,387.1 for 2001. The decrease was primarily due to a significant decrease in demand for commercial aircraft in the Specialty Materials segment that was partially offset by sales increases in the Performance Products segment.

Manufacturing cost of sales was $1,022.4, or 75.9% of net sales, for 2002 and included net restructuring charges of $10.3 for plant closure and employee related costs and expenses associated with discontinuing a product line. Excluding these charges, manufacturing cost of sales was $1,012.1, or 75.2% of net sales, for 2002. Manufacturing cost of sales was $1,070.1, or 77.1% of net sales for 2001, and included a restructuring charge of $4.6 related to the mothballing of the Fortier ammonia plant and the Company’s share of the related personnel reductions at the Fortier facility. Excluding these charges, manufacturing cost of sales was $1,065.5, or 76.8% of net sales, for 2001. The adjusted period-over-period increase in gross profit margins was due to lower raw material and energy costs, particularly natural gas, that was partially offset by lower selling volumes in the Specialty Materials segment.

Selling and technical services expenses increased $8.3, research and process development expenses increased $1.3 and administrative and general expenses increased $2.2. Included in 2002 were net restructuring charges of $1.6, $1.0 and $0.8 in selling and technical services, research and process development and administrative and general expenses, respectively, which primarily related to employee reductions in the Specialty Chemicals and Specialty Materials segments. Also included in administrative and general expenses for 2002 were charges of $1.7 for fees incurred in connection with a favorable cash settlement of a prior years’ research and development tax credit claim with the IRS. Included in selling and technical services expenses for 2001 was a restructuring charge of $0.8, which related to the Company’s share of personnel reductions at the Fortier facility. After adjusting for these items in both years,

selling and technical services expenses increased $7.5, research and process development expenses increased $0.3 and administrative and general expenses decreased $0.3. Selling and technical services increased due to head-count increases in certain regions and severance and relocation costs in other regions as the Company realigned its selling and customer service organizations and costs incurred to implement the Specialty Chemicals North American logistics network. Overall, operating expenses included increased accruals for incentive-based compensation. Incentive compensation is performance based, and for 2002 the Company exceeded several of its 2002 annual targets, whereas in 2001 economic conditions prevented the Company from attaining several of its 2001 performance targets and incentive-based compensation expenses were reduced accordingly.

Amortization of acquisition intangibles was $3.1, down $9.7 from the prior year period as goodwill is no longer amortized, effective January 1, 2002, under SFAS 142.

Other income, net, was $3.2 for 2002 and included foreign exchange gains of $2.8. Other income, net, was $7.9 for 2001 and included gains of $7.0 related to the sale of reclaimed land in Florida and the settlement of a royalty issue concerning mineral rights associated with a former phosphate rock mining joint venture also in Florida.

Equity in earnings of associated companies was $6.1 for 2002, compared with $0.1 for 2001. Included in 2002 and 2001 were restructuring charges of $0.4 and $2.3, respectively, related to CYRO’s shutdown of its Niagara Falls, Ontario, Canada facility, and CYRO’s share of infrastructure restructuring at the Company’s Fortier facility. Excluding these charges, equity in earnings of associated companies was $6.5 for 2002, compared with $2.4 for 2001. The increase in equity earnings of associated companies reflects higher sales and the benefits of the restructuring initiatives at CYRO. Sales at associated companies were $307.5 for 2002, an increase of 5% after excluding sales of the former AC Molding Compounds joint venture, which was shut-down in November 2001. Included in 2002 was a charge of $1.7 to reduce to zero the carrying value of the Company’s net investment in the one-third owned Polymer Additives.com, LLC joint venture. Accordingly, the Company will no longer recognize its share of the joint venture’s expected future losses. The terms of the joint venture agreement required the Company to make an additional contribution of $0.5 during 2002, and this required contribution was included in the amount of the charge recognized in 2002. The Company is not obligated to make any further capital contributions.

Interest expense, net, was $16.5 for 2002, compared with $19.6 for 2001. Included in 2002 was interest income of $2.0 received in connection with a favorable cash settlement of prior years’ research and development tax credit claims with the IRS. The remainder of the decrease was due to increased interest income attributable to higher cash balances during 2002.

The income tax provision was $30.9 for 2002 and included a reduction of $6.0 in connection with a cash settlement of prior years’ research and development tax credit claims. Excluding this item, the effective tax rate was 33.5%, down from 34.5% for the prior year period.

Net earnings for 2002 were $79.3, or $1.96 per diluted share, compared with $71.1, or $1.59 per diluted share, for 2001. Included in 2002 were after-tax net restructuring charges of $9.4, or $0.23 per diluted share, and a net credit of $6.2, or $0.15 per diluted share, related to prior year research and development tax credits broken down as follows: a reduction of $6.0, or $0.15 per diluted share, in income tax expense, after-tax interest income of $1.3, or $0.03 per diluted share, and an after-tax charge of $1.1 million, or $0.03 per diluted share, in administrative expenses for external costs associated with such tax planning. Excluding these items, adjusted net earnings for 2002 were $82.5, or $2.04 per diluted share. Included in 2001 were after-tax restructuring charges of $5.0, or $0.12 per diluted share, an after-tax extraordinary gain of $4.9, or $0.12 per diluted share, related to the acquisition of the assets of the carbon fibers business of BP, and after-tax goodwill amortization of $6.4, or $0.15 per diluted share, that is no longer required under SFAS 142. Excluding these items, adjusted net earnings for 2001 were $77.6, or $1.86 per diluted share. The adjusted period-over-period increase in net earnings and earnings per diluted share reflect lower raw material costs, higher selling volumes in the Performance Products and Building Block Chemicals segments, the benefits of the Company’s various rationalization and operational excellence efforts, higher interest income and the favorable effect of the Company’s stock repurchase program.

The decreases in selling volumes were due to lower water treatment sales in the North American municipal water market that the Company is de-emphasizing in favor of industrial markets. The paper and oilfield markets reflect lower levels of economic activity. Selling volumes for mining chemicals in the North and Latin American regions were also lower due to lower economic activity, while in the Asia/ Pacific Rim region selling volumes for mining chemicals were up due to increased demand in the copper and cobalt nickel markets. Phosphine sales were lower as a result of a certain customer experiencing reduced demand in their end market that resulted in lower purchases of the Company’s products.

Earnings from operations were $26.7, or 8.1% of net sales, in 2002, compared with $25.7, or 7.7% of net sales, in 2001. The improvement in earnings from operations was primarily the result of lower overall raw material costs and operating costs, and lower amortization expense of $1.1 from adopting SFAS No. 142.

Sales volumes increased in all product lines, particularly in the Asia/Pacific Rim region where sales benefited from improved market conditions. In the United States, demand in the automotive and general industrial markets improved as compared with 2001. The lower selling prices were primarily in the polymer additives product line.

Earnings from operations were $39.5, or 8.7% of net sales, in 2002, compared with $16.3, or 3.7% of net sales, in 2001. The improvement in earnings from operations is the result of the leverage achieved from higher selling volumes and lower raw material and operating costs. Also benefiting earnings was lower amortization expense of $1.2 from adopting SFAS No. 142.


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

The overall decrease in selling volume, which includes a 2.7% increase from acquisitions, reflects the significant decrease in demand for commercial aircraft. This affected sales in all regions and was partially offset by higher growth in the military (North America) and high performance auto sectors (primarily Europe).

Earnings from operations were $64.9, or 16.4% of net sales, in 2002, compared with $95.9, or 21.3% of net sales, in 2001. The decline in earnings from operations reflects the decrease in selling volumes, which were partially offset by efforts to keep costs aligned with demand and lower amortization expense of $7.4 from adopting SFAS No. 142.


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

The overall decrease in selling prices was primarily due to lower acrylonitrile and acrylamide selling prices during the first half of 2002. Demand for acrylonitrile improved with the recovery of certain of the Asia/ Pacific Rim economies and acrylamide sales were higher in Europe. Sales volumes in the North America region were negatively impacted by 6.7% due to the idling of the ammonia plant in April 2001.

Earnings from operations were $5.3 in 2002, compared with losses from operations of $18.7 in 2001. The improvement was due to higher acrylonitrile margins driven by increased demand in the export markets for acrylonitrile, by competitor’s supply disruptions, and by lower energy costs, principally natural gas in the United States and lower fixed expenses due to restructuring.

Net sales for 2001 were $1,387.1, compared with $1,492.5 for 2000. The decrease was due to sales decreases in the Water and Industrial Process Chemicals, Performance Products and Building Block Chemicals segments of $68.1, $39.3 and $36.6, respectively, that were partially offset by a sales increase in the Specialty Materials segment of $38.6. Excluding the effects of the November 1, 2000, paper chemicals business divestiture, sales in the Water and Industrial Process Chemicals segment decreased $2.2.

Manufacturing cost of sales was $1,070.1, or 77.1% of net sales, for 2001 and included a restructuring charge of $4.6 related to the mothballing of the Fortier ammonia plant and the Company’s share of the related personnel reduction at the Fortier facility. Excluding these charges, manufacturing cost of sales was $1,065.5, or 76.8% of net sales, for 2001. Manufacturing cost of sales was $1,078.7, or 72.3% of net sales, for 2000 and included net restructuring charges of $3.3 and a charge of $1.4 against receivables due to the Company from its 50%-owned ammonia joint venture. Excluding these charges, manufacturing cost of sales was $1,074.0, or 72.0% of net sales, for 2000. The adjusted period-over-period increase in manufacturing costs as a percentage of sales is due to lower production levels resulting from weaker demand in the Performance Products and Building Block Chemicals segments, the net adverse effects of exchange rate changes and higher raw material prices, particularly in the first quarter of 2001, that were partially offset by the benefits from higher selling prices.

Selling and technical services expenses decreased $24.2, research and process development expenses decreased $6.2 and administrative and general expenses decreased $2.9 primarily as a result of the divestiture of the paper chemicals business and the Company’s continuing cost control efforts. Amortization of acquisition intangibles increased $0.4 due to the additional amortization expense resulting from the acquisition of the composite materials business of 3M on March 30, 2001. Included in selling and technical services expenses for 2001 was a restructuring charge of $0.8 related to the Company’s share of the personnel reductions at the Fortier facility. Excluding this charge, selling and technical services expenses were $113.5 for 2001. Included in selling and technical service expenses for 2000 was a net restructuring charge of $5.4 primarily related to a workforce reduction and the discontinuance of a tolling operation. Excluding this charge, selling and technical services expenses were $133.1 for 2000. Excluding these items from both years, selling and technical service expenses decreased $19.6 year over year.

Other income, net, was $7.9 for 2001 and included gains of $7.0 related to the sale of reclaimed land in Florida and the favorable settlement of a royalty issue concerning mineral rights associated with a former phosphate rock mining

joint venture also in Florida. Other income, net, was $104.6 for 2000 and included a gain of $88.3 from the divestiture of the paper chemicals business, a gain of $13.3, discounted and net of expenses, from an insurance settlement with a group of insurance carriers for an environmental remediation coverage suit and a charge of $4.8 for the write-down of receivables due from the AC Moldings Compounds joint venture. Excluding these items, other income, net, was $7.8 for 2000 and included a gain of $7.1 from the sale of real estate.

Equity in earnings of associated companies was $0.1 for 2001 and included a charge of $2.3 for the Company’s 50% share of the CYRO’s restructuring charges, which included $3.7 related to the shutdown of CYRO’s manufacturing facility in Niagara Falls, Ontario, Canada, and $0.8 related to CYRO’s share of the infrastructure restructuring at the Company’s Fortier facility. Excluding this charge, equity in earnings of associated companies was $2.4 for 2001, down $12.6 from 2000. The decrease was due to lower sales at associated companies, primarily CYRO, and the fact that 2000 included earnings of $4.2 from the Criterion Catalyst joint venture, which was divested on July 10, 2000. Associated company sales were $306.9 in 2001, compared with $496.3 in 2000. Excluding sales of the divested Criterion Catalyst joint venture, 2001 sales of associated companies decreased 15% from 2000. Sales at CYRO decreased 14%, primarily due to lower selling volumes resulting from lower demand, especially in North America where the economy has been soft. For 2001 CYRO posted a small loss due to the restructuring charges previously mentioned. Excluding the restructuring charges, CYRO’s 2001 earnings decreased 73% from 2000. However, earnings in the second half of 2001 improved relative to the first half of 2001 as the restructuring benefits began to be realized.

Interest expense, net, was $19.6 for 2001, a decrease of $5.5 from 2000. The decrease reflects the lower outstanding debt levels during 2001.

The income tax provision was $34.9 for 2001 and $93.5 for 2000, which reflects an underlying effective tax rate of 34.5% for both years.

Earnings before extraordinary item were $66.2, or $1.59 per diluted share, for 2001, compared with $177.6, or $4.15 per diluted share, for 2000. Included in 2001 was $7.7 ($5.0 after-tax, or $0.12 per diluted share) from restructuring charges. Excluding these charges, adjusted earnings before extraordinary item for 2001 were $71.2, or $1.71 per diluted share. Included in 2000 was a gain of $88.3 ($57.8 after-tax, or $1.35 per diluted share) from the divestiture of the paper chemicals business and a gain of $13.3 ($8.7 after-tax, or $0.20 per diluted share) from an insurance settlement with a group of insurance carriers for an environmental remediation coverage suit. Also included in 2000 were charges of $11.5 ($7.5 after-tax, or $0.18 per diluted share) from net restructuring and other charges and a charge of $4.8 ($3.1 after-tax, or $0.07 per diluted share) for the write-down of receivables due from the AC Moldings Compounds joint venture. Excluding these items, adjusted earnings before extraordinary item for 2000 were $121.7, or $2.85 per diluted share. The adjusted year-over-year decline in earnings before extraordinary item of $50.5, or $1.14 per diluted share, was primarily due to lower sales volumes in the Performance Products and Building Block Chemicals segments, the adverse effects of unfavorable exchange rate changes and higher raw material prices, particularly in the first quarter of 2001. This was partially offset by increased sales volumes in the Specialty Materials segment, the benefits from higher selling prices in the Specialty Chemical segments (i.e., Water and Industrial Process Chemicals and Performance Products) and the favorable effect of the Company’s stock repurchase program.

During 2001 the Company recognized an extraordinary gain, net of taxes, of $4.9, or $0.12 per diluted share, related to its August 31, 2001, acquisition of the BP carbon fibers business. Taxes recorded on the transaction were $2.6. (For further information, see Note 2 of the Notes to Consolidated Financial Statements.)

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

The decreases in selling volumes were the result of a 16% decrease due to the divestiture of the paper chemicals business on November 1, 2000. The impact on each region was as follows: North America, 18%; Latin America, 11%; Asia/ Pacific Rim, 21% and Europe/ Middle East/ Africa, 12%.

Earnings from operations were $25.7, or 7.7% of net sales, in 2001, compared with $40.2, or 10.0% of net sales, in 2000. The decrease in earnings was primarily the result of lower selling volumes, higher raw material costs and the net adverse effects of exchange rate changes that were slightly offset by the benefits from higher selling prices and lower operating costs.

Overall sales volumes decreased as weakening economies around the world impacted demand from a broad base of industrial markets (e.g., automotive, industrial and plastic markets) served by the Performance Products segment.

Earnings from operations were $16.3, or 3.7% of net sales, in 2001, compared with $56.8, or 12.0% of net sales, in 2000. The decrease in earnings from operations reflects the impact of reduced sales and production levels resulting from weak demand, higher raw material costs and the net adverse effects of exchange rate changes that were partially offset by the benefits of higher selling prices.


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

The overall sales volume increases include a 2% increase resulting from the acquisition of the 3M composite materials business on March 30, 2001, and the acquisition of the BP carbon fibers business on August 31, 2001. (For further information on these acquisitions, see Note 2 of the Notes to Consolidated Financial Statements). The remaining sales volume increase was attributable to strong demand in aerospace applications (i.e., large commercial aircraft, regional jets and military aircraft).

Earnings from operations were $95.9, or 21.3% of net sales, in 2001, compared with $85.9, or 20.9%, of net sales, in 2000. The increase in earnings from operations reflects the increase in selling volumes and lower fixed costs per unit, which resulted from leveraging the segment’s manufacturing operations.


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

The overall decrease in sales volumes was due to poor demand, particularly for acrylonitrile and the shut down of the ammonia plant.

Losses from operations were $18.7 in 2001, compared with earnings from operations of $12.7 in 2000. Earnings (losses) from operations were negatively impacted by reduced production volumes in response to lower demand, lower selling prices and reduced acrylonitrile margin spreads as declines in selling prices more than offset decreases in overall raw material costs.

In the second quarter of 2001, the Company announced a restructuring at its Fortier facility, which included the indefinite mothballing of its ammonia manufacturing facility. (For further information on this restructuring charge, see Note 3 of the Notes to Consolidated Financial Statements and further discussions contained in this Management’s Discussion and Analysis.)

On March 27, 2001, the Company acquired the remaining 50% interest in the assets of the ammonia manufacturing joint venture, effective as of September 1, 2000, from the Company’s partner, LaRoche Industries Inc. ( For further information on this acquisition, see Note 2 of the Notes to Consolidated Financial Statements and further discussions contained in this Management’s Discussion and Analysis.)

At December 31, 2002, the Company’s cash and cash equivalents were $210.0, an increase of $126.4 from December 31, 2001.

Net cash flows provided by operating activities totaled $211.6 for the year ended December 31, 2002, compared with $142.3 for the year ended December 31, 2001. Accounts payable increased at the end of 2002 compared with 2001, but the impact on cash flows was magnified by a significant decrease in payables in 2001. The accounts payable opening balance for 2001 reflected higher raw material and natural gas prices related to production levels in the fourth quarter of 2000. Payment of these balances and lower production levels in response to the economic conditions last year resulted in a significant use of cash related to accounts payable in 2001. Conversely, as volumes increased in 2002, the accounts payable balance also increased. Accrued expenses increased over 2001 due to increases in incentive-based compensation and profit growth sharing accruals of $18.0 related to 2002 performance that will be paid in 2003. Conversely, in 2001 payments of $11.6 were made for the 2000 incentives but 2001 targets were generally not met so minimal performance incentive-based accruals were needed at the end of 2001. As a result, the statement of cash flows reflects a significant use of cash in 2001 related to accrued expenses compared with a source of cash for the current year. Also benefiting cash flows in 2002 were cash refunds of $10.6 related to 2001 tax losses and credits applied back to prior year’s income and a cash refund of $6.0 related to the settlement with the IRS of a claim related to prior years’ research and development tax credits and $2.0 of related interest income.

Payments against restructuring reserves for the years ended December 31, 2002 and 2001 were $7.1 and $8.0, respectively, and are reflected in the change in accrued expenses in the Consolidated Statements of Cash Flows. At December 31, 2002 and 2001, the restructuring liabilities to be paid were $3.6 and $4.6, respectively. The spending related to the remaining liabilities at December 31, 2002, is expected to be completed during 2003. Environmental

remediation spending, including internal efforts, for the years ended December 31, 2002 and 2001 was $13.3 and $13.7, respectively, and is reflected in the change in other liabilities on the Consolidated Statements of Cash Flows. The Company does not expect annual spending for environmental remediation to be significantly higher in the future than 2002 levels. (See Note 10 of the Notes to the Consolidated Financial Statements.)

Cash disbursements related to the Company’s defined benefit pension plans and postretirement benefits, including the Voluntary Employee Benefit Association Trust, were $41.3 and $40.4 for the years ended December 31, 2002 and 2001, respectively. (See Note 12 of the Notes to the Consolidated Financial Statements for information on the funded status of these plans.) The majority of the Company’s pension plans’ assets and liabilities are measured at December 31 each year for financial reporting purposes. Market returns on assets invested in the defined benefit pension trusts were negative during the past year. Additionally, because of the declines in interest rates and a corresponding decrease in the discount rates used to estimate its pension liabilities, the Company recorded a charge to other comprehensive income of $92.6 (after-tax) to reflect minimum pension liabilities at December 31, 2002. If asset returns do not improve or interest rates remain low, then additional funding may be required to certain of the defined benefit pension trusts. (See Note 12 of the Notes to the Consolidated Financial Statements for further information on Employee Benefits.)

Net cash flows used for investing activities totaled $56.4 for 2002, compared with $71.0 for 2001. Included in 2002 was capital spending of $62.2, proceeds from the sale of assets of $6.3, and an additional investment in the PolymerAdditives.com joint venture of $0.5. Included in 2001 was capital spending of $63.9, proceeds received from the sale of assets of $2.9, funding of $9.0 to acquire 3M’s composite materials business, the remaining 50% interest in the assets of the ammonia manufacturing joint venture and one other minor acquisition and an additional investment in the PolymerAdditives.com joint venture of $1.0. The Company currently expects capital spending to be in the range of $90.0 to $100.0 in 2003. The anticipated increase is due primarily to a multi-year project to upgrade and modernize the Stamford, Connecticut, specialty chemicals research facility.

The Company believes that, based on its expected operating results for 2003, it will be able to fund operating cash requirements and planned capital expenditures in 2003 from its internal cash generation. (For further discussion on risks, see Qualitative and Quantitative Disclosures About Market Risk, Critical Accounting Policies and Comments on Forward-Looking Statements below.)

Net cash flows used for financing activities totaled $36.7 for 2002, compared with $42.2 for 2001. In connection with the stock repurchase program discussed below, in 2002 the Company purchased 1,225,282 shares of Treasury Stock at a cost of $32.7, while in 2001 the Company purchased 1,711,300 shares of Treasury Stock at a cost of $52.3.

The Company has an active program to repurchase common shares. The repurchases are made from time to time on the open market or in private transactions, and the shares obtained are anticipated to be utilized for stock option plans, benefit plans and other corporate purposes. On November 2, 2000, the Company announced an authorization of $100.0 to repurchase shares of its outstanding common stock. Through December 31, 2002, the Company had repurchased 3,098,073 shares at a cost of $90.5 under this authorization. In connection with the Company’s stock repurchase program the Company sold 100,000 put options in 2002 that entitle the holder to sell an aggregate of 100,000 shares of the Company’s common stock to the Company at an exercise price of $29.505 per share. The Company received aggregate premiums of approximately $0.3 on the sale of such put options. (See Note 4 of the Notes to the Consolidated Financial Statements for further information.)

In April 2002, the Company executed a $100.0, three-year unsecured revolving credit agreement and a $100.0, 364-day unsecured revolving credit agreement with a one-year term out option. These two agreements replaced a $200.0 unsecured revolving credit agreement that was due to expire in July 2002. Revolving loans under the new agreements are available for the general corporate purposes of the Company and its subsidiaries, including without limitations, for purposes of making acquisitions permitted under the agreements. The credit agreements contain covenants customary for such facilities. The company was in compliance with all terms, covenants and conditions of its credit facilities. The Company also has available $10.0 for short-term use under an uncommitted credit facility and U.S. dollar equivalents of approximately $5.0 under foreign currency denominated overdraft facilities. There were no outstanding borrowings under these facilities at December 31, 2002.

At December 31, 2002 and 2001, long-term debt, including the current portion, consisted of the following:

The company currently intends to pay off the $100.0 principal amount of 6.50% Notes due March 15, 2003 from its available cash balances. (See Note 9 of the Notes to the Consolidated Financial Statements for further information.)

The Company does not guarantee any indebtedness of its unconsolidated associated companies.

The Company has a shelf registration statement with the Securities and Exchange Commission for $400.0 of debt securities, effective since December 2000, which may be offered by the Company from time to time. Proceeds of any sale will be used for general corporate purposes, which may include replacement of indebtedness and other liabilities, share repurchases, additions to working capital, capital expenditures and acquisitions. The Company has no immediate plans to offer securities under the registration statement.

The Company must maintain certain financial covenants contained in its Series C Cumulative Preferred Stock, as modified (“Series C Stock”). Under such covenants, the Company would have the ability to incur up to an additional $613.0 in debt at December 31, 2002. (For further information about the Series C Stock and financial covenants contained therein, see Note 15 of the Notes to Consolidated Financial Statements.)

The impact of inflation on the Company is considered insignificant since the rate of inflation has remained relatively low in recent years and investments in areas of the world where inflation poses a risk are limited.

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

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

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

Foreign Exchange Rate Risk: The risk of adverse exchange rate fluctuations is mitigated by the fact that there is no concentration of foreign currency exposure. In addition, the Company periodically enters into foreign exchange forward contracts primarily to hedge currency fluctuations of transactions denominated in foreign currencies. At December 31, 2002, the principal transactions hedged were accounts receivable, accounts payable and intercompany loans denominated in a currency other than the functional currency of the business. When hedging foreign currency exposures, the Company’s practice is to hedge such exposures with foreign exchange forward contracts denominated in the same

currency and with similar critical terms as the underlying exposure, and therefore, the instruments are effective at generating offsetting changes in the fair value, cash flows or future earnings of the hedged item or transaction.

At December 31, 2002, the currency and net contractual amounts of the Company’s foreign exchange forward contracts translated into U.S. dollar equivalent amounts were as follows:

The fair value of foreign exchange contracts, based on forward exchange rates at December 31, 2002, exceeded contract values by approximately $0.5. Assuming that year-end exchange rates between the underlying currencies of all outstanding foreign exchange contracts and the various hedged currencies were to adversely change by a hypothetical 10%, the change in the fair value of all outstanding contracts at year-end would be a decrease of approximately $3.8. However, since these contracts hedge foreign currency denominated transactions, any change in the fair value of the contracts would be offset by changes in the underlying value of the transaction being hedged.

Commodity Price Risk: The Company frequently uses natural gas forward contracts and swaps to reduce the volatility of natural gas costs used for utility purposes at certain of its facilities. These contracts typically correlate highly to the actual purchases of the commodity and have the effect of securing predetermined prices that the Company pays for the underlying commodity. While these contracts are primarily structured to limit the Company’s exposure to increases in commodity prices, they can also limit the potential benefit the Company might have otherwise received from decreases in commodity prices.

At December 31, 2002, the Company had $8.8 of natural gas forward contracts with January through December 2003 delivery dates outstanding and no natural gas swaps outstanding. At December 31, 2002, based on year-end NYMEX prices, the Company had net unrealized gains on its natural gas forward contracts of $1.9. Assuming that year-end prices were to decrease by a hypothetical 10%, the above gain would be reduced by approximately $0.9.

Interest Rate Risk: At December 31, 2002, the outstanding borrowings of the Company consisted primarily of fixed rate long-term debt, which had a carrying value of $315.9, a face value of $320.0 and a fair value, based on dealer quoted values, of approximately $336.0. Assuming other factors are held constant, interest rate changes generally affect the fair value of fixed rate debt, but do not impact the carrying value, earnings or cash flows. Accordingly, assuming a hypothetical increase of 1% in interest rates and all other variables remaining constant, interest expense would not change; however, the fair market value of the fixed rate long-term debt would decrease by approximately $7.7, but this change would not impact the carrying value.

Equity Price Risk: In connection with the Company’s stock repurchase program, the Company selectively utilizes freestanding put option contracts that are indexed to the Company’s stock and entitle the holder to sell shares of the Company’s common stock to the Company at specified exercise prices. At December 31, 2002, the Company had 100,000 put options outstanding that expire in March 2003 and entitle the holders to sell an aggregate of 100,000 shares of the Company’s common stock to the Company at an exercise price of $29.505 per share. The Company received aggregate premiums of approximately $0.3 on the sale of such put options. The put options outstanding at December 31, 2002, had exercise prices that were $2.225 per share higher than the Company’s closing stock price as of that date. Assuming that the Company’s stock price were to decrease by a hypothetical 10% from its year-end closing price, the Company could be subject to settling the options at a cost of $0.5 which would more than offset the aggregate premiums received on the sale of such put options. (For further information on the Company’s financial instruments, see Note 4 of the Notes to Consolidated Financial Statements.)

2003 Outlook: The Company expects full year 2003 diluted earnings per share to be up approximately 5% over the full year adjusted earnings per share of $2.04 for 2002. Overall, the Company expects continuing economic uncertainty and does not expect an economic recovery heading into 2003. Higher raw material and energy costs as well as higher employee benefit and insurance costs are expected. However, the continuance of the Company’s operational excellence

In the Water and Industrial Process Chemicals segment, modest sales increases of about 3% are expected, when compared with 2002 sales, as a result of new products and geographical expansion. Operating earnings are expected to grow about 10% with the increased sales and the ongoing impact of the Company’s operational excellence initiatives more than offsetting the higher costs of raw materials, employee benefits and insurance.

In the Performance Products segment, the Company anticipates overall market growth to be flat. However, based on international expansion and new products, the Company expects sales to increase by about 4%. The resulting profit and leverage from the higher sales and additional operational excellence programs are expected to increase earnings by approximately 20% over 2002.

In the Specialty Materials segment, the forecast of build rates for commercial aircraft is down from 2002 levels, and growth from new business will not be enough to offset the decline in the commercial aircraft build rates. The Company believes that its military and non-aerospace business will grow 6-8%. However, the expectation is for sales in 2003 to be down overall by about 4%. The Company expects full year earnings to be about 15% lower than 2002, reflecting the lower sales, a less favorable product mix and increased employee benefits and insurance costs.

In the Building Block Chemicals segment, demand in 2003 is expected to remain at the improved levels experienced in the second half of 2002, resulting in most of Cytec’s plants operating at full capacity. On the cost side, the Company expects propylene to be essentially flat with 2002 costs and natural gas to be in the range of $3.75 to $4.00 per MMBTU, after giving effect to the Company’s forward contracts. The net result of these factors is an expected operating profit in 2003 that would be approximately double the operating profit in 2002.

Based on the above full year assumptions, the Company expects first quarter 2003 net earnings to be in the range of $0.47 to $0.52 per diluted share. The Company will update the 2003 outlook when it reports its first quarter, 2003, operating results. There can be no assurances that sales or earnings will develop in the manner projected. Actual results may differ materially. See “Comments on Forward Looking Statements.”

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

Environmental: It is the Company’s policy to accrue, and charge against earnings, environmental cleanup costs when it is probable that a liability has been incurred and an amount is reasonably estimable. As assessments and cleanups proceed, these accruals are reviewed periodically and adjusted, if necessary, as additional information becomes available. These accruals can change substantially due to such factors as additional information on the nature or extent of contamination, methods of remediation required, changes in the apportionment of costs among responsible parties and other actions by governmental agencies or private parties. Cash expenditures often lag by a number of years behind the period in which an accrual is recorded.

Retirement Plans: The Company sponsors defined benefit pension and postretirement benefit plans. The postretirement plans provide medical and life insurance benefits to retirees who meet minimum age and service requirements. The key determinants of the accumulated benefit obligations for these plans (“APBO”) are the discount rate, the expected return on plan assets and, for the postretirement benefit plans, the healthcare cost trend rate. The healthcare cost trend rate has a significant effect on the reported amounts for the postretirement APBO and related expense. The discount rate used to determine the value of liabilities has a significant effect on the APBO, pension minimum liability recognition and expense. For example, a change of a quarter percentage point in either direction in the discount rate in 2003 would change postretirement benefit expense by approximately $0.3 and pension expense by approximately $1.5. The expected return on plan assets has a significant effect on expense, particularly for pensions. A change of a quarter percentage point in either direction in the expected return on plan assets would change net postretirement expense by approximately $0.2 and pension expense by approximately $0.9.

Impairment of Goodwill, Intangibles and Long-Lived Assets: As described in Note 1 of the Notes to the Consolidated Financial Statements, intangible assets, subject to amortization, and long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. Recoverability is determined by comparing the carrying amount of the assets to the future undiscounted net cash flows expected to be generated by the asset. Goodwill is reviewed for impairment at least annually by comparing the carrying value of the Company’s reporting units to their fair value. These evaluations involve amounts that are based on management’s best estimates and judgments. Because of the uncertainty inherent in such estimates, actual results may differ from these estimates. The Company is not aware of reasonably likely events or circumstances that would result in different amounts being estimated that would have a material impact on these assessments for impairment.

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

Foreign Currency Translation: Operations in non-U.S. subsidiaries are generally recorded in local currencies which are also the functional currencies for financial reporting purposes. The results of operations for non-U.S. subsidiaries are translated from local currencies into U.S. dollars using the average exchange rate during each period that approximates the results that would be obtained using actual exchange rates on the dates of individual transactions. Assets and liabilities are translated using exchange rates at the end of the period with translation adjustments recognized as a component of other comprehensive income.

Depreciation: Depreciation in the United States and Canada is provided primarily on a straight-line composite method over the estimated useful lives of various classes of assets, with rates periodically reviewed and adjusted if necessary. When such depreciable assets are sold or otherwise retired from service, their costs plus demolition costs less amounts realized on sale or salvage are charged or credited to the accumulated depreciation account. The average composite depreciation rates, expressed as a percentage of the average depreciable property in service, was 6.6% in 2002 and 6.4% in both 2001 and 2000. Depreciation for assets outside the United States and Canada is provided on a straight-line basis over the estimated useful lives of the assets. Expenditures for maintenance and repairs are charged to current operating expenses. Acquisitions, additions and betterments, either to provide necessary capacity, improve the efficiency of production units, modernize or replace older facilities or to install equipment for protection of the environment, are capitalized. The Company capitalizes interest costs incurred during the period of construction of plant and equipment. The interest costs capitalized in 2002, 2001 and 2000 were immaterial to the consolidated financial statements.

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

Goodwill and Other Acquisition Intangibles: Goodwill, representing the excess of acquisition costs over the fair value of net assets of acquired businesses, is not amortized but is reviewed for impairment at least annually and written down only in the periods in which it is determined that the recorded value is greater than the fair value. For the purposes of performing this impairment test, the Company’s business segments are its reporting units. The fair values of those reporting units, to which goodwill has been assigned, is compared with their recorded values. If recorded values are less than the fair values, no impairment is indicated. Intangible assets with determinable useful lives are amortized over their respective estimated useful lives and reviewed for impairment when events or changes in circumstances indicate that the carrying value may not be recoverable. The Company does not have intangibles with indefinite useful lives, other than goodwill. Goodwill and intangible assets acquired in business combinations completed before July 1, 2001, had been amortized through December 31, 2001, in accordance with generally accepted accounting principles prior to the issuance of Statement of Financial Accounting Standards (“SFAS”) No. 141, “Business Combinations” (“SFAS 141”) and SFAS No. 142, “Goodwill and Other Intangible Assets” (“SFAS 142”).

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

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

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

Environmental: It is the Company’s policy to accrue and charge against earnings environmental cleanup costs when it is probable that a liability has been incurred and an amount is reasonably estimatable. As assessments and cleanups proceed, these accruals are reviewed periodically and adjusted, if necessary, as additional information becomes available. These accruals are recorded without giving effect to any possible future insurance proceeds.

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

If repatriation of the undistributed earnings of the Company’s foreign subsidiaries and associated companies is anticipated, then income taxes are provided for such earnings.

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

Revenue Recognition: Revenue is generally recognized upon shipment of goods to customers. The Company’s revenue-earning activities involve delivering or producing goods, and revenues are considered to be earned when the Company has completed the process by which it is entitled to such revenues. The following criteria are used for revenue recognition: persuasive evidence of an arrangement exists, delivery has occurred, selling price is fixed or determinable and collection is reasonably assured.

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

Stock-Based Compensation: At December 31, 2002, the Company has stock-based employee compensation plans, which are described more fully in Note 14. The Company accounts for those plans under the recognition and measurement principles of APB Opinion No. 25, “Accounting for Stock Issued to Employees,” and related Interpretations. No stock-based compensation cost is reflected in net income for stock options, as all options granted under those plans had an exercise price equal to the market value of the underlying common stock on the date of the grant. Compensation cost for restricted stock is recorded based on the market value on the date of grant, and compensation cost for performance stock is recorded based on the quoted market price of the Company’s common stock at the end of each period through the date of vesting. The fair value of restricted and performance stock is charged to unearned compensation in Stockholders’ Equity and amortized to expense over the requisite vesting periods. The following table illustrates the effect on net income and earnings per share if the Company had applied the fair value

recognition provisions of SFAS No. 123, “Accounting for Stock-Based Compensation” (“SFAS 123)” to stock-based employee compensation:


(Mark One)
þ		ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

		For the fiscal year ended December 31, 2002

or

o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

		For the transition period from to






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





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


Title of Each Class		Name of Each Exchange on Which Registered

Common Stock, par value $.01 per share		New York Stock Exchange


Documents		Part of Form 10-K

Portions of Proxy Statement for 2003 Annual Meeting Of Common Stockholders, dated March 5, 2003.		Parts III, IV


			Page

Part I.
	Item 1.	Business		1
	Item 2.	Properties		9
	Item 3.	Legal Proceedings		10
	Item 4.	Submission Of Matters To A Vote Of Security Holders		11





Part II.
	Item 5.	Market For Registrant’s Common Equity And Related Stockholder Matters		12
	Item 6.	Selected Financial Data		13
	Item 7.	Management’s Discussion And Analysis Of Financial Condition And Results Of Operation		14
	Item 7a.	Quantitative And Qualitative Disclosures About Market Risk		23
	Item 8.	Financial Statements And Supplemental Data		27
	Item 9.	Changes In And Disagreements With Accountants On Accounting And Financial Disclosures		55





Part III.
	Item 10.	Directors And Executive Officers Of The Registrant		56
	Item 11.	Executive Compensation		56
	Item 12.	Security Ownership Of Certain Beneficial Owners And Management		56
	Item 13.	Certain Relationships And Related Transactions		56
	Item 14.	Controls And Procedures		57





Part IV.
	Item 15.	Exhibits, Financial Statement Schedules, And Reports On Form 8-K		58
		Signatures		62
		Certifications		63




Product Line	Major Products	Principal Applications


Water treating chemicals(1)	Flocculants, coagulants, filter aids, drilling mud additives, biocides	Water and wastewater treatment, oil field drilling

Mining chemicals(1)	Reagents, promoters, collectors, frothers, flocculants, defoamers, depressants, filter aids	Mineral, sulfide ore, alumina and coal processing

Phosphine chemicals	Phosphine and phosphine derivatives for mineral recovery and metals processing, solvent extractants, catalyst ligands, chemical and pharmaceutical intermediates, electronics, fumigation	Metal and mineral separation, catalysts, electronics, chemical and pharmaceutical processing and agricultural fumigants




Facility		Principal Segment


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




		1Q		2Q		3Q		4Q


2002
	High	$	31.67	$	34.00	$	31.99	$	27.89
	Low		22.64		27.33		21.41		19.20
2001
	High	$	39.50	$	38.01	$	38.13	$	27.63
	Low		28.375		30.85		19.00		22.55




	2002			2001			2000			1999			1998


Statements of income data:
Net sales	$	1,346.2		$	1,387.1		$	1,492.5		$	1,444.5		$	1,475.7
Manufacturing cost of sales		1,022.4	(1)		1,070.1	(7)		1,078.7	(10)		1,023.6			1,059.2
Research and process development		33.7	(2)		32.4			38.6	(11)		43.8			42.9
Other operating expenses		172.7	(3)		172.0	(8)		198.6	(12)		192.1	(14)		188.1	(16)
Earnings from operations		117.4			112.7			176.6			185.0			185.5
Other income, net		3.2			7.9			104.6	(13)		9.3			14.5	(17)
Equity in earnings of associated companies		6.1	(4)		0.1	(9)		15.0			5.6			20.3
Interest expense, net		16.5	(5)		19.6			25.1			26.9			22.4
Income tax provision		30.9	(6)		34.9			93.5			51.7	(15)		73.2
Earnings before extraordinary item		79.3			66.2			177.6			121.3			124.7
Extraordinary gain, net of taxes		–			4.9			–			–			–
Net earnings available for common stockholders	$	79.3		$	77.1		$	177.6		$	121.3		$	124.7
Net earnings per common share before extraordinary item
Basic	$	2.01		$	1.65		$	4.34		$	2.83		$	2.79
Diluted	$	1.96		$	1.59		$	4.15		$	2.73		$	2.68
Extraordinary item per common share
Basic		–		$	0.12			–			–			–
Diluted		–		$	0.12			–			–			–
Net earnings per common share
Basic	$	2.01		$	1.77		$	4.34		$	2.83		$	2.79
Diluted	$	1.96		$	1.71		$	4.15		$	2.73		$	2.68




Other data (at end of period, unless otherwise noted):
Additions to plants, equipment & facilities (annual)	$	62.2		$	63.9		$	76.5		$	77.4		$	103.8
Current assets		604.8			472.6			567.8			491.1			477.6
Current liabilities		430.8			282.0			358.9			366.1			394.4
Working capital		174.0			190.6			208.9			125.0			83.2
Plants, equipment and facilities, at cost		1,383.4			1,344.5			1,326.3			1,352.6			1,363.0
Net plant investment		577.9			598.0			616.2			655.7			667.5
Total assets		1,751.5			1,650.4			1,721.6			1,752.6			1,722.1
Long-term debt (including current maturities)		315.9			314.7			313.4			415.2			411.0
Other noncurrent liabilities		481.8			416.8			433.1			465.5			485.7
Total stockholders’ equity	$	622.9		$	636.9		$	616.2		$	505.8		$	431.0


Years ended December 31


	2002			2001			2000


Net sales		100.0	%		100.0	%		100.0	%
Manufacturing cost of sales		75.9			77.1			72.3
Gross profit		24.1			22.9			27.7
Selling and technical services		9.1			8.2			9.3
Research and process development		2.5			2.3			2.6
Administrative and general		3.5			3.2			3.2
Amortization of acquisition intangibles		0.2			0.9			0.8

Earnings from operations		8.7			8.1			11.8

Net earnings		5.9			5.1			11.9


								Europe/
		North		Latin		Asia/		Middle East/
		America		America		Pacific Rim		Africa		Total


2002
	Water and Industrial Process Chemicals(1)	$	139.9	$	51.5	$	50.1	$	89.7	$	331.2
	Performance Products		242.9		26.2		72.3		110.9		452.3
	Specialty Materials		290.7		1.3		14.7		88.8		395.5
	Building Block Chemicals		68.9		3.9		60.2		34.2		167.2

	Total	$	742.4	$	82.9	$	197.3	$	323.6	$	1,346.2

2001
	Water and Industrial Process Chemicals(1)	$	156.0	$	57.2	$	36.6	$	85.2	$	335.0
	Performance Products		238.0		27.2		65.7		103.8		434.7
	Specialty Materials		320.4		1.9		16.8		111.1		450.2
	Building Block Chemicals		82.6		4.7		51.6		28.3		167.2

	Total	$	797.0	$	91.0	$	170.7	$	328.4	$	1,387.1

2000
	Water and Industrial Process Chemicals(1)	$	196.2	$	63.4	$	50.3	$	93.2	$	403.1
	Performance Products		271.0		25.9		68.8		108.3		474.0
	Specialty Materials		290.1		1.0		16.1		104.4		411.6
	Building Block Chemicals		108.6		6.3		58.3		30.6		203.8

	Total	$	865.9	$	96.6	$	193.5	$	336.5	$	1,492.5



							% Change Due to
					Total
	2002		2001		% Change		Price		Volume/Mix		Exchange


North America	$	139.9	$	156.0		-10%		0%		-10%		0%
Latin America		51.5		57.2		-10%		10%		-10%		-10%
Asia/ Pacific Rim		50.1		36.6		37%		-3%		38%		2%
Europe/ Middle East/ Africa		89.7		85.2		5%		-2%		3%		4%

Total	$	331.2	$	335.0		-1%		0%		-1%		0%



	2002				2001

			Carrying				Carrying
	Face		Value		Face		Value


6.50% Notes Due March 15, 2003	$	100.0	$	99.9	$	100.0	$	99.3
6.75% Notes Due March 15, 2008		100.0		97.1		100.0		96.6
6.846% Mandatory Par Put Remarketed Securities		120.0		118.9		120.0		118.8

		320.0		315.9		320.0		314.7
Less: Current maturities		100.0		99.9		–		–

Long-term debt	$	220.0	$	216.0	$	320.0	$	314.7





	Buy

	Pound				Norwegian
Sell	sterling		Euro		krone


U.S. dollar	$	4.3	$	13.6	$	2.2
Pound sterling				8.6		1.1
Euro						6.8
Other				0.6		0.2


December 31,


(Dollars in millions, except per share amounts)


		2002			2001


Assets
Current assets
	Cash and cash equivalents	$	210.0		$	83.6
	Trade accounts receivable, less allowance for doubtful accounts of $8.8 and $7.8 in 2002 and 2001, respectively		199.7			179.3
	Other accounts receivable		39.3			32.3
	Inventories		131.3			147.3
	Deferred income taxes		17.3			22.1
	Other current assets		7.2			8.0

	Total current assets		604.8			472.6

Investment in associated companies			90.4			92.6
Plants, equipment and facilities, at cost			1,383.4			1,344.5
	Less: accumulated depreciation		(805.5	)		(746.5	)

	Net plant investment		577.9			598.0

Acquisition intangibles, net of accumulated amortization of $11.7 and $9.9 in 2002 and 2001, respectively			39.5			45.5
Goodwill			334.0			330.6
Deferred income taxes			71.6			48.4
Other assets			33.3			62.7

Total assets		$	1,751.5		$	1,650.4





Liabilities and Stockholders’ Equity
Current liabilities
	Current maturity of long-term debt	$	99.9		$	–
	Accounts payable		99.5			75.8
	Accrued expenses		175.8			157.8
	Income taxes payable		55.6			48.4

	Total current liabilities		430.8			282.0

Long-term debt			216.0			314.7
Pension and other postretirement benefit liabilities			359.3			288.3
Other noncurrent liabilities			122.5			128.5




Stockholders’ equity
	Preferred stock, 20,000,000 shares authorized; issued and outstanding 4,000 shares, Series C Cumulative, $.01 par value at liquidation value of $25 per share		0.1			0.1
	Common stock, $.01 par value per share, 150,000,000 shares authorized; issued 48,132,640 shares		0.5			0.5
	Additional paid-in capital		131.1			136.7
	Retained earnings		905.5			826.2
	Unearned compensation		(6.8	)		(4.0	)
	Additional minimum pension liability		(98.0	)		(5.4	)
	Accumulated translation adjustments		(18.8	)		(46.5	)
	Treasury stock, at cost, 9,332,671 shares in 2002, and 8,511,532 shares in 2001		(290.7	)		(270.7	)

	Total stockholders’ equity		622.9			636.9

Total liabilities and stockholders’ equity		$	1,751.5		$	1,650.4


Item 1.	BUSINESS


Item 2.	PROPERTIES


Item 8.	FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA


Years ended December 31,


(Dollars in millions, except per share amounts)


		2002		2001		2000


Net sales		$	1,346.2	$	1,387.1	$	1,492.5
Manufacturing cost of sales			1,022.4		1,070.1		1,078.7
Selling and technical services			122.6		114.3		138.5
Research and process development			33.7		32.4		38.6
Administrative and general			47.0		44.8		47.7
Amortization of acquisition intangibles			3.1		12.8		12.4

Earnings from operations			117.4		112.7		176.6
Other income, net			3.2		7.9		104.6
Equity in earnings of associated companies			6.1		0.1		15.0
Interest expense, net			16.5		19.6		25.1

Earnings before income taxes and extraordinary item			110.2		101.1		271.1
Income tax provision			30.9		34.9		93.5

Earnings before extraordinary item			79.3		66.2		177.6
Extraordinary gain, net of taxes of $2.6			–		4.9		–

Net earnings		$	79.3	$	71.1	$	177.6

Earnings before extraordinary item per common share
	Basic	$	2.01	$	1.65	$	4.34
	Diluted	$	1.96	$	1.59	$	4.15

Extraordinary item per common share
	Basic		–	$	0.12	$	–
	Diluted		–	$	0.12	$	–

Earnings per common share
	Basic	$	2.01	$	1.77	$	4.34
	Diluted	$	1.96	$	1.71	$	4.15


Years ended December 31,


(Dollars in millions)


		2002			2001			2000


Cash flows provided by (used for) operating activities
Net earnings		$	79.3		$	71.1		$	177.6




Noncash items included in net earnings:
Dividends from associated companies greater (less) than earnings			(5.5	)		2.3			(10.9	)
	Depreciation		81.5			78.4			80.0
	Amortization		2.2			11.9			16.6
	Deferred income taxes		27.9			9.6			32.1
	Gain on sale of assets		(1.2	)		(2.5	)		(62.3	)
	Loss on asset write-off		7.2			–			–
	Extraordinary gain, net of tax		–			(4.9	)		–
	Other		0.5			(4.6	)		(0.1	)




Changes in operating assets and liabilities:
	Trade accounts receivable		(12.5	)		30.6			(9.1	)
	Other receivables		(4.1	)		22.9			(19.6	)
	Inventories		21.9			24.7			(30.8	)
	Accounts payable		20.7			(28.3	)		(1.3	)
	Accrued expenses		19.3			(17.7	)		(11.9	)
	Income taxes payable		9.4			(12.7	)		(5.3	)
	Other assets		(4.6	)		(15.4	)		(10.2	)
	Other liabilities		(30.4	)		(23.1	)		(37.2	)

Net cash flows provided by operating activities			211.6			142.3			107.6

Cash flows provided by (used for) investing activities
	Additions to plants, equipment and facilities		(62.2	)		(63.9	)		(76.5	)
	Proceeds received on sale of assets		6.3			2.9			177.6
	Acquisition of businesses, net of cash received		–			(9.0	)		(1.0	)
	Investment in unconsolidated affiliates		(0.5	)		(1.0	)		(2.5	)

Net cash flows provided by (used for) investing activities			(56.4	)		(71.0	)		97.6

Cash flows provided by (used for) financing activities Proceeds from the exercise of stock options and warrants			3.1			9.5			6.9
	Purchase of treasury stock		(32.7	)		(52.3	)		(63.1	)
	Repayment of seller-financed debt		(7.4	)		–			–
	Change in long-term debt, including current maturities		–			–			(102.9	)
	Proceeds received on sale of put options		0.3			0.6			0.6

Net cash flows used for financing activities			(36.7	)		(42.2	)		(158.5	)

Effect of exchange rate changes on cash and cash equivalents			7.9			(2.3	)		(1.9	)

Increase in cash and cash equivalents			126.4			26.8			44.8
Cash and cash equivalents, beginning of period			83.6			56.8			12.0

Cash and cash equivalents, end of period		$	210.0		$	83.6		$	56.8



Years ended December 31, 2002, 2001 and 2000


(Dollars in millions)


														Additional
						Additional					Unearned			Minimum			Accumulated
		Preferred		Common		Paid-in			Retained		Compen-			Pension			Translation			Treasury
		Stock		Stock		Capital			Earnings		sation			Liability			Adjustment			Stock			Total


Balance at December 31, 1999		$	0.1	$	0.5	$	159.8		$	577.5	$	(1.9	)	$	–		$	(14.3	)	$	(215.9	)	$	505.8

Net earnings			–		–		–			177.6		–			–			–			–			177.6




Other comprehensive income:
	Minimum pension liability adjustment, net of taxes of $1.0		–		–		–			–		–			(1.9	)		–			–			(1.9	)
	Translation adjustments		–		–		–			–		–			–			(18.4	)		–			(18.4	)

Comprehensive income																							$	157.3
Award of, and changes in, performance & restricted stock			–		–		2.8			–		(5.5	)		–			–			2.7			–
Amortization of performance & restricted stock			–		–		–			–		3.5			–			–			–			3.5
Compensation costs on variable stock option award			–		–		0.7			–		–			–			–			–			0.7
Purchase of treasury stock			–		–		–			–		–			–			–			(63.1	)		(63.1	)
Exercise of stock options			–		–		(13.7	)		–		–			–			–			20.6			6.9
Premiums received on sales of put options			–		–		0.6			–		–			–			–			–			0.6
Tax benefit on stock options			–		–		4.5			–		–			–			–			–			4.5

Balance at December 31, 2000		$	0.1	$	0.5	$	154.7		$	755.1	$	(3.9	)	$	(1.9	)	$	(32.7	)	$	(255.7	)	$	616.2

Net earnings			–		–		–			71.1		–			–			–			–		$	71.1




Other comprehensive income:
	Minimum pension liability adjustment, net of taxes of $7.8		–		–		–			–		–			(3.5	)		–			–			(3.5	)
	Translation adjustments		–		–		–			–		–			–			(13.8	)		–			(13.8	)

Comprehensive income																							$	53.8
Award of, and changes in, performance & restricted stock			–		–		(2.0	)		–		0.6			–			–			1.4			–
Amortization of performance & restricted stock			–		–		–			–		(0.7	)		–			–			–			(0.7	)
Compensation costs on variable stock option award			–		–		(0.1	)		–		–			–			–			–			(0.1	)
Purchase of treasury stock			–		–		–			–		–			–			–			(52.3	)		(52.3	)
Exercise of stock options			–		–		(26.4	)		–		–			–			–			35.9			9.5
Premiums received on sales of put options			–		–		0.6			–		–			–			–			–			0.6
Tax benefit on stock options			–		–		9.9			–		–			–			–			–			9.9

Balance at December 31, 2001		$	0.1	$	0.5	$	136.7		$	826.2	$	(4.0	)	$	(5.4	)	$	(46.5	)	$	(270.7	)	$	636.9

Net earnings			–		–		–			79.3		–			–			–			–		$	79.3




Other comprehensive income:
	Minimum pension liability adjustment, net of taxes of $46.7		–		–		–			–		–			(92.6	)		–			–			(92.6	)
	Translation adjustments		–		–		–			–		–			–			27.7			–			27.7

Comprehensive income																							$	14.4
Award of, and changes in, performance & restricted stock			–		–		(1.5	)		–		(1.5	)		–			–			3.4			0.4
Amortization of performance & restricted stock			–		–		–			–		(1.3	)		–			–			–			(1.3	)
Purchase of treasury stock			–		–		–			–		–			–			–			(32.7	)		(32.7	)
Exercise of stock options			–		–		(6.2	)		–		–			–			–			9.3			3.1
Premiums received on sales of put options			–		–		0.3			–		–			–			–			–			0.3
Tax benefit on stock options			–		–		1.8			–		–			–			–			–			1.8

Balance at December 31, 2002		$	0.1	$	0.5	$	131.1		$	905.5	$	(6.8	)	$	(98.0	)	$	(18.8	)	$	(290.7	)	$	622.9