**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


**WASHINGTON,
      D.C. 20549**





**FORM
      10-Q**





(Mark
                One)
            
            QUARTERLY
                REPORT PURSUANT TO SECTION 13 OR 15(d) OF THEý
            
            SECURITIES
                EXCHANGE ACT OF 1934For
                the quarterly period ended March 31, 2006ORo
            
            TRANSITION
                REPORT PURSUANT TO SECTION 13 OR 15(d) OF THESECURITIES
                EXCHANGE ACT OF 1934For
                the transition period from ________________ to
                ________________





Commission
      file number: **1-14601**





**Arch
      Chemicals, Inc.**


(Exact
      name of registrant as specified in its charter)





**Virginia**
            
            **06-1526315**(State
                or other jurisdiction of
            
            (I.R.S.
                Employerincorporation
                or organization)
            
            Identification
                No.)**501
                Merritt 7**
            
            **06851****Norwalk,
                CT**
            
            (Zip
                Code)(Address
                of principal executive offices)





**(203)
      229-2900**


(Registrant’s
      telephone number, including area code)





**N/A**


(Former
      name, former address and former fiscal year, if changed since last
      report)





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 x No  ̈





Indicate
      by check mark whether the registrant is a large accelerated filer, an
      accelerated filer, or a non-accelerated filer. See definition of “accelerated
      filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check
      one): Large accelerated filer  ̈   Accelerated
      filer x  Non-accelerated filer  ̈





Indicate
      by check mark whether the registrant is a shell company (as defined in Rule
      12b-2 of the Exchange Act).  Yes  ̈ No x





Indicate
      the number of shares outstanding of each of the issuer's classes of common
      stock, as of the latest practicable date.





Class
            
            Outstanding
                at April 30, 2006Common
                Stock, $1 par value per share
            
            23,955,109 shares











**ARCH
      CHEMICALS, INC.**





INDEX





Page
      Numbers


PART
                  I. FINANCIAL INFORMATIONItem
                  1. Financial Statements
              
              2Condensed
                  Consolidated Balance Sheets as of March 31, 2006and
                  December 31, 2005
              
              2Condensed
                  Consolidated Statements of Income for the threemonths
                  ended March 31, 2006 and 2005
              
              3Condensed
                  Consolidated Statements of Cash Flows for the threemonths
                  ended March 31, 2006 and 2005
              
              4Notes
                  to Condensed Consolidated Financial Statements
              
              5Item
                  2. Management's Discussion and Analysis of Financial Condition
                  andResults
                  of Operations
              
              16Item
                  3. Quantitative and Qualitative Disclosures About Market
                  Risk
              
              23Item
                  4. Controls and Procedures
              
              24PART
                  II. OTHER INFORMATIONItem
                  1. Legal Proceedings
              
              25Item
                  1A. Risk Factors
              
              25Item
                  2. Unregistered Shares of Equity Securities and Use of
                  Proceeds
              
              25Item
                  6. Exhibits
              
              26Signatures
              
              27


**PART
                  I. FINANCIAL INFORMATION****Item
                  1. Financial Statements****ARCH
                  CHEMICALS, INC.**Condensed
                  Consolidated Balance Sheets(In
                  millions, except per share amounts)
  March
                  31,
              
              December
                  31,2006
              
              2005**ASSETS**
              
              (Unaudited)Current
                  Assets:Cash
                  and cash equivalents
              
              $
              35.9
              
              $
              43.1Accounts
                  receivable, net
              
              
              143.7
              
              
              133.1Short-term
                  investment
              
              
              49.6
              
              
              68.4Inventories,
                  net
              
              
              226.4
              
              
              172.0Other
                  current assets
              
              
              38.8
              
              
              39.8Assets
                  held for sale
              
              
              5.8
              
              
              8.3Total
                  current assets
              
              
              500.2
              
              
              464.7Investments
                  and advances - affiliated companies at equity
              
              
              5.8
              
              
              5.7Property,
                  plant and equipment, net
              
              
              186.5
              
              
              191.4Goodwill
              
              
              212.9
              
              
              211.5Other
                  intangibles
              
              
              138.8
              
              
              140.7Other
                  assets
              
              
              48.0
              
              
              47.9Total
                  assets
              
              $
              1,092.2
              
              $
              1,061.9**LIABILITIES
                  AND SHAREHOLDERS' EQUITY**Current
                  liabilities:Short-term
                  borrowings
              
              $
              13.3
              
              $
              8.5Current
                  portion of long-term debt
              
              
              152.2
              
              
              3.5Accounts
                  payable
              
              
              201.5
              
              
              174.6Accrued
                  liabilities
              
              
              74.3
              
              
              88.9Liabilities
                  associated with assets held for sale
              
              
              6.8
              
              
              9.1Total
                  current liabilities
              
              
              448.1
              
              
              284.6Long-term
                  debt
              
              
              67.7
              
              
              217.8Other
                  liabilities
              
              
              199.4
              
              
              194.5Total
                  liabilities
              
              
              715.2
              
              
              696.9Commitments
                  and contingenciesShareholders'
                  equity:Common
                  stock, par value $1 per share,Authorized
                  100.0 shares:23.9
                  shares issued and outstanding (23.6 in 2005)
              
              
              23.9
              
              
              23.6Additional
                  paid-in capital
              
              
              428.8
              
              
              422.2Retained
                  earnings
              
              
              37.3
              
              
              36.4Accumulated
                  other comprehensive loss
              
              
              (113.0
              )
              
              (117.2
              )Total
                  shareholders' equity
              
              
              377.0
              
              
              365.0Total
                  liabilities and shareholders' equity
              
              $
              1,092.2
              
              $
              1,061.9
  The
                  accompanying Notes to Condensed Consolidated Financial Statements
                  are an
                  integral part of the condensed consolidated financial
                  statements.





2




**ARCH
                  CHEMICALS, INC.**Condensed
                  Consolidated Statements of Income(Unaudited)(In
                  millions, except per share amounts)
  Three
                  MonthsEnded
                  March 31,2006
              
              2005Sales
              
              $
              317.8
              
              $
              301.3Cost
                  of goods sold
              
              
              229.9
              
              
              217.6Selling
                  and administration
              
              
              69.1
              
              
              69.7Research
                  and development
              
              
              4.6
              
              
              5.0Interest
                  expense
              
              
              5.5
              
              
              4.5Interest
                  income
              
              
              0.2
              
              
              0.1Income
                  from continuing operations before equity in earningsof
                  affiliated companies and taxes
              
              
              8.9
              
              
              4.6Equity
                  in earnings of affiliated companies
              
              
              0.2
              
              
              0.9Income
                  tax expense
              
              
              3.0
              
              
              1.9Income
                  from continuing operations
              
              
              6.1
              
              
              3.6Loss
                  from discontinued operations, net of tax
              
              
              (0.4
              )
              
              -Net
                  income
              
              $
              5.7
              
              $
              3.6Basic
                  income (loss) per common share:Continuing
                  operations
              
              $
              0.25
              
              $
              0.15Discontinued
                  operations
              
              
              (0.01
              )
              
              -Basic
                  income per common share
              
              $
              0.24
              
              $
              0.15Diluted
                  income (loss) per common share:Continuing
                  operations
              
              $
              0.25
              
              $
              0.15Discontinued
                  operations
              
              
              (0.01
              )
              
              -Diluted
                  income per common share
              
              $
              0.24
              
              $
              0.15Weighted
                  average common shares outstanding:Basic
              
              
              23.9
              
              
              23.6Diluted
              
              
              24.1
              
              
              23.8Dividends
                  declared per share
              
              $
              0.20
              
              $
              0.20
  The
                  accompanying Notes to Condensed Consolidated Financial Statements
                  are an
                  integral part of the condensed consolidated
                  financial statements.




3


**ARCH
                CHEMICALS, INC.**Condensed
                Consolidated Statements of Cash Flows(Unaudited)(In
                millions)




Three
                MonthsEnded
                March 31,2006
            
            2005**Operating
                activities**Net
                income
            
            $
            5.7
            
            $
            3.6Adjustments
                to reconcile net income to net cash andcash
                equivalents (used in) provided by operating activities:Loss
                from discontinued operations
            
            
            0.4
            
            
            -Equity
                in (earnings) of affiliates
            
            
            (0.2
            )
            
            (0.9
            )Depreciation
                and amortization
            
            
            11.3
            
            
            12.0Deferred
                taxes
            
            
            0.7
            
            
            (0.1
            )Restructuring
                payments
            
            
            (0.1
            )
            
            (0.7
            )Changes
                in assets and liabilities, net of purchaseand
                sale of businesses:Accounts
                receivable securitization program
            
            
            53.6
            
            
            -Receivables
            
            
            (43.7
            )
            
            (56.7
            )Inventories
            
            
            (53.4
            )
            
            (49.1
            )Other
                current assets
            
            
            0.3
            
            
            (2.3
            )Accounts
                payable and accrued liabilities
            
            
            12.5
            
            
            26.0Noncurrent
                liabilities
            
            
            5.7
            
            
            5.9Other
                operating activities
            
            
            0.4
            
            
            0.1Net
                operating activities from continuing operations
            
            
            (6.8
            )
            
            (62.2
            )Cash
                flows of discontinued operations
            
            
            (0.2
            )
            
            1.2Net
                operating activities
            
            
            (7.0
            )
            
            (61.0
            )**Investing
                activities**Capital
                expenditures
            
            
            (3.4
            )
            
            (3.1
            )Businesses
                acquired in purchase transaction, net of cash acquired
            
            
            (1.2
            )
            
            (0.1
            )Cash
                proceeds (payments) from the sale of a business
            
            
            (0.2
            )
            
            (3.5
            )Cash
                flows of discontinued operations
            
            
            -
            
            
            -Other
                investing activities
            
            
            (1.3
            )
            
            (0.7
            )Net
                investing activities
            
            
            (6.1
            )
            
            (7.4
            )**Financing
                activities**Long-term
                debt borrowings (repayments)
            
            
            (1.5
            )
            
            15.8Short-term
                debt borrowings
            
            
            4.6
            
            
            25.3Dividends
                paid
            
            
            (4.8
            )
            
            (4.7
            )Cash
                flows of discontinued operations
            
            
            -
            
            
            -Proceeds
                from stock options exercised and other financing
                activities
            
            
            6.9
            
            
            1.3Net
                financing activities
            
            
            5.2
            
            
            37.7Effect
                of exchange rate changes on cash and cash equivalents
            
            
            0.7
            
            
            (4.0
            )Net
                decrease in cash and cash equivalents
            
            
            (7.2
            )
            
            (34.7
            )Cash
                and cash equivalents, beginning of year
            
            
            43.1
            
            
            74.6Cash
                and cash equivalents, end of period
            
            $
            35.9
            
            $
            39.9**Supplemental
                cash flow information**Income
                taxes, net
            
            $
            1.2
            
            $
            -Interest
                paid
            
            $
            10.5
            
            $
            9.2




The
                accompanying Notes to Condensed Consolidated Financial Statements
                are an
                integral part of the condensed consolidated financial statements.




4


**ARCH
      CHEMICALS, INC.**


Notes
      to
      Condensed Consolidated Financial Statements


(Unaudited)





**1.
      Basis of Presentation**





These
      condensed consolidated financial statements have been prepared by Arch
      Chemicals, Inc. (with its consolidated subsidiaries, the “Company”), without
      audit, pursuant to the rules and regulations of the Securities and Exchange
      Commission and, in the opinion of the Company, reflect all adjustments
      (consisting of normal accruals) which are necessary to present fairly the
      results for interim periods. Certain information and footnote disclosures
      normally included in financial statements prepared in accordance with accounting
      principles generally accepted in the United States of America have been
      condensed or omitted pursuant to such rules and regulations; however, the
      Company believes that the disclosures are adequate to make the information
      presented not misleading. It is suggested that these condensed consolidated
      financial statements be read in conjunction with the consolidated financial
      statements, accounting policies and the notes thereto and management's
      discussion and analysis of financial condition and results of operations
      included in the Company's Form 10-K for the year ended December 31, 2005.
      The Company’s Treatment segment is seasonal in nature, in particular its HTH
      water products business as its products are primarily used in the U.S.
      residential pool market. Therefore, the results of operations for the Company
      and in particular the HTH water products business for the three months ended
      March 31, 2006, are not necessarily indicative of the results to be
      expected for the entire fiscal year.





**2.
      Share-Based Compensation**





On
      January 1, 2006, the Company adopted Statement of Financial Accounting Standards
      (SFAS) 123R, “Share-Based Payment”, utilizing the modified prospective method.
      The Company had previously accounted for its stock-based compensation plans
      under the recognition and measurement provisions of APB 25, “Accounting for
      Stock Issued to Employees” and related interpretations as permitted by SFAS 123,
“Accounting for Stock Based Compensation”. SFAS 123R requires all share-based
      payments to employees, including grants of employee stock options, to be
      recognized in the financial statements based on their fair values beginning
      with
      the first annual period after June 15, 2005. Due to the fact that all
      options have vested as of December 31, 2005, there was no related impact on
      the
      Company’s financial statements. In addition, the Company currently does not
      intend to issue any stock options to employees in 2006 or the foreseeable
      future. Under SFAS 123R, actual tax benefits recognized in excess of tax
      benefits previously established upon grant are reported as a financing cash
      inflow. Prior to adoption, such tax benefits are reported as a reduction of
      operating cash flows. The four stock-based compensation plans are described
      below:





·
            The
                1988 and 1996 Olin Stock Option Plans. At the time of the distribution
                of
                the Company from Olin Corporation, outstanding Olin options were
                converted
                into both an option to purchase Company common stock ("Company Options")
                and an option to purchase Olin common stock ("New Olin Options")
                with the
                same aggregate "intrinsic value" at the time of the Distribution
                as the
                old award. The Company is responsible for delivering shares of Company
                common stock upon exercise of Company Options, and Olin is responsible
                for
                the delivery of shares of Olin Common stock upon exercise of New
                Olin
                Options. Options granted to such employees under the Olin 1988 Stock
                Option Plan or the Olin 1996 Stock Option Plan retained the original
                term
                of the option. Options granted to such employees under the Olin 1996
                Stock
                Option Plan, which were not vested at the time of the Distribution,
                vested
                in accordance with their vesting schedule so long as the optionee
                remained
                employed at the Company. No additional Company Options will be granted
                under the 1988 and 1996 Olin Stock Option
                Plans.





·
            1999
                Long Term Incentive Plan seeks to encourage selected salaried employees
                to
                acquire a proprietary interest in the Company's growth and performance
                and
                to attract and retain qualified individuals. The plan provides for
                the
                ability to issue stock options, restricted stock and restricted stock
                units, and performance awards. The Plan requires that options be
                granted
                at an exercise price representing the fair market value of the common
                stock on the grant date. In general, the employee options vest and
                become
                exercisable within one to three years and all options are exercisable
                up
                to ten years from the date of grant.





·
            1999
                Stock Plan for Nonemployee Directors, is a directors compensation
                plan
                under which stock options and other stock awards may be granted to
                nonemployee directors. The Plan requires that options be granted
                at an
                exercise price representing the fair market value of the common stock
                on
                the grant date. In general, the directors' options are exercisable
                upon
                grant and all options are exercisable up to ten years from the date
                of
                grant.





5
 
 **ARCH
          CHEMICALS, INC.**
 Notes
          to
          Condensed Consolidated Financial Statements
 (Unaudited)


The
      following table summarizes stock option activity for the three months ended
      March 31, 2006 (number of options in thousands):





**Stock**
              **Options**
            
            **Weighted**
              **Average**
              **Price**
            
            **Range
                of Prices**Balance,
                December 31, 2005
            
            
            1,873
            
            $
            24.80
            
            $
            16.53
                — 31.92Options
                exercised
            
            
            260
            
            
            27.04
            
            
            17.38
                — 28.98Options
                cancelled or forfeited
            
            
            223
            
            
            28.84
            
            
            17.38
                — 31.92Balance,
                March 31, 2006
            
            
            1,390
            
            $
            23.74
            
            $
            16.53
                — 31.92





The
      following table summarizes information about stock options outstanding at March
      31, 2006 (number of options in thousands):





**Weighted
                Average****Range
                of**
            
            **Number
                Outstanding**
            
            **Remaining**
            
            **Option
                Exercise Price****Exercise
                Prices**
            
            **And
                Exercisable**
            
            **Contractual
                Life**
            
            **Outstanding
                and Exercisable**$16.53
                — $23.00
            
            
            850
            
            
            4 years
            
            $
            19.38$28.58
                — $31.92
            
            
            540
            
            
            1 years
            
            $
            30.591,390





The
      total
      intrinsic value of stock options exercised during the three months ended March
      31, 2006 was $0.7 million.





As
      part
      of the 1999 Long Term Incentive Plan, the Company currently grants selected
      executives and other key employees performance awards whose vesting is
      contingent upon meeting various performance measures and contains a retention
      feature. This component of compensation is designed to encourage the long-term
      retention of key executives and to tie a major part of executive compensation
      directly to Company performance and the long-term enhancement of shareholder
      value. The award of performance units was designed to recognize and reward
      targeted return on equity (“ROE”) over a three-year period. The performance
      awards are earned at the end of the three-year period provided the ROE target
      is
      achieved. There is an opportunity for accelerated payout of the performance
      awards if the ROE target is met or exceeded by the end of the second year after
      the grant. If the ROE target is not achieved by the end of year three, 50%
      of
      the performance awards will be forfeited and 50% of the performance awards
      will
      be paid out in cash as soon as administratively feasible following the end
      of
      year six if the executive is still employed at the Company.




The
      performance awards are settled in cash, which is based on the market price
      of
      the Company’s stock at the time of settlement. During the service period,
      compensation cost is recognized proportionately based on the Company’s estimate
      of achieving the financial targets. The performance awards are remeasured to
      reflect the market price of the Company’s stock, at each financial statement
      date until the award is settled. Total compensation expense of $1.1 million
      and
      $1.4 million was recognized for the three months ended March 31, 2006 and 2005,
      respectively. As of March 31, 2006, there was $13.4 million of total
      unrecognized compensation cost related to the unearned payment arrangements,
      which is expected to be recognized over a weighted-average period of three
      years
      based on current financial forecasts and current stock price.





The
      following table summarizes the performance award activity for the three months
      ended March 31, 2006 (number of awards in thousands):





**Performance**
              **Awards**Balance,
                December 31, 2005
            
            
            726Awarded
            
            
            296Paid
                out
            
            
            212Cancelled
                or forfeited
            
            
            -Balance,
                March 31, 2006
            
            
            810





6
 
 **ARCH
          CHEMICALS, INC.**
 Notes
          to
          Condensed Consolidated Financial Statements
 (Unaudited)


As
      of
      March 31, 2006 the closing stock price was $30.40. All performance awards vest
      upon attainment of the various financial targets or a portion after the
      retention period. As of March 31, 2006, no outstanding awards have
      vested.





**3.
      Earnings Per Share**





Basic
      earnings per share are computed by dividing net income by the weighted average
      number of common shares outstanding. Diluted earnings per share reflect the
      dilutive effect of stock options. Stock options of 0.3 million and 1.0
      million with exercise prices greater than the average market price of the
      Company's common stock are not included in the computation of diluted earnings
      per share for the three months ended March 31, 2006 and 2005.





**Three
                Months****(in
                millions)**
            
            **Ended
                March 31,****2006**
            
            **2005**Basic
            
            
            23.9
            
            
            23.6Common
                equivalent shares from stock optionsusing
                the treasury stock method
            
            
            0.2
            
            
            0.2Diluted
            
            
            24.1
            
            
            23.8





**4.
      Accounts Receivable/Short-Term Investment**





Under the
      Company’s accounts receivable securitization program with Three Pillars Funding
      LLC (“Three Pillars”), an affiliate of SunTrust Bank, and SunTrust Capital
      Markets, Inc., the
      Company sells undivided participation interests in certain domestic trade
      accounts receivable, without recourse, through its wholly-owned subsidiary,
      Arch
      Chemicals Receivables Corporation (“ACRC”), a special-purpose entity which is
      consolidated for financial reporting purposes. At March 31, 2006, the Company,
      through ACRC, sold $53.6 million of participation interests in $103.2 million
      of
      accounts receivable. This sale has been reflected as a reduction of receivables
      in the condensed consolidated balance sheet. At December 31, 2005, the Company,
      through ACRC, had not sold any participation interests in its accounts
      receivable under the prior program. The receivables sold under the
      securitization program have been accounted for as a sale in accordance with
      the
      provisions of SFAS No. 140, *Accounting
      for Transfers and Servicing of Financial Assets and Extinguishment of
      Liabilities* .




ACRC
      retains an interest in the pool of receivables purchased from the Company to
      the
      extent the receivables are not purchased by Three Pillars. To reflect this
      interest, which is subordinated, the fair value of the retained undivided
      interest of $49.6 million and $68.4 million at March 31, 2006 and
      December 31, 2005, respectively, was classified separately from Accounts
      receivable, net as a Short-term investment on the accompanying Condensed
      Consolidated Balance Sheets. Fair value of the retained undivided interest
      included a reserve for credit losses ($1.3 million at March 31, 2006 and $1.5
      million at December 31, 2005) and had not been discounted due to the
      short-term nature of the underlying financial assets.





The
      costs
      of the program for the three months ended March 31, 2006 and 2005 of
      $0.4 million and $0.1 million, respectively, are included in Selling and
      administration expense in the accompanying Condensed Consolidated Statements
      of
      Income. The Company had not recorded an asset or liability related to the
      servicing responsibility retained as the fees earned for servicing were
      estimated to approximate fair value.





**5.
      Inventories**





**March 31,**
            
            **December 31,****($
                in millions)**
            
            **2006**
            
            **2005**Raw
                materials and supplies
            
            $
            69.8
            
            $
            54.4Work
                in process
            
            
            9.2
            
            
            7.9Finished
                goods
            
            
            196.8
            
            
            159.1Inventories,
                gross
            
            
            275.8
            
            
            221.4LIFO
                reserve
            
            
            (49.4
            )
            
            (49.4
            )Inventories,
                net
            
            $
            226.4
            
            $
            172.0





7
 
 **ARCH
          CHEMICALS, INC.**
 Notes
          to
          Condensed Consolidated Financial Statements
 (Unaudited)


Approximately
      50 percent of the Company's inventories are valued by the dollar value last-in,
      first-out (“LIFO”) method of inventory accounting. Costs of other inventories
      are determined principally by the first-in, first-out method. Elements of costs
      in inventories include raw materials, direct labor and manufacturing overhead.
      Inventories under the LIFO method are based on an annual determination of
      quantities and costs as of the year-end; therefore, the condensed consolidated
      financial statements at March 31, 2006 reflect certain estimates relating
      to projected inventory quantities and costs at December 31,
      2006.





**6.
      Assets Held for Sale/Discontinued Operations**





Assets
      held for sale consists of the Company’s chemical management services (“CMS”)
      business, which was retained after the sale of the microelectronic materials
      business to Fuji Photo Film Co., Ltd. (“Fuji”). The CMS business, which
      essentially services the customers of the sold business, no longer has any
      connections to any of the retained Arch businesses and the Company began an
      active program to dispose of the business. As a result and in accordance with
      the accounting requirements of SFAS 144, the results of operations of the CMS
      business have been reported as an asset held for sale and a discontinued
      operation in the condensed consolidated financial statements.





During
      the first quarter of 2006, the Company was notified that two of its remaining
      three customers were going to cancel their contracts with the Company. Prior
      to
      the termination of the contracts, the Company was able to sell the remaining
      inventory to the successor of these contracts as well as transfer some of the
      business’ employees. Included in Loss from discontinued operations for the three
      months ended March 31, 2006 are severance and related costs associated with
      the
      termination of these customer contracts ($0.3 million pre-tax). The Company
      continues to actively work to complete the sale of the remaining assets, which
      are predominately located in the United States, but due to poor market
      conditions as well as changes within the current customer organization, the
      Company has not yet been able to sell the remaining assets.





The
      amounts actually realized (including future operating results) by the Company
      could differ materially from the amounts estimated in the condensed consolidated
      financial statements. Factors that could influence the ultimate outcome include,
      but are not limited to, general economic conditions, the Company’s ability to
      dispose of the business within the time, price and manner originally estimated
      and the retention of key customers during the divestiture period.





**Balance
      Sheet**





The
      major
      classes of assets and liabilities classified as assets held for sale are as
      follows:





**March
                31,**
              **2006**
            
            **December
                31,**
              **2005********($
                in millions)**Accounts
                receivable, net
            
            $
            3.5
            
            $
            6.1Inventory
            
            
            2.0
            
            
            1.8Other
                current assets
            
            
            0.1
            
            
            0.2Property,
                plant and equipment, net
            
            
            -
            
            
            -Other
                assets
            
            
            0.2
            
            
            0.2Total
                assets associated with assets held for sale
            
            
            5.8
            
            
            8.3Accounts
                payable and accrued liabilities
            
            
            6.8
            
            
            9.1Total
                liabilities associated with assets held for sale
            
            
            6.8
            
            
            9.1Net
                assets held for sale
            
            $
            (1.0
            )
            $
            (0.8
            )





**Loss
      From Discontinued Operations**





Loss
      from
      Discontinued Operations for the period ended March 31, 2006 and 2005 include
      the
      results of the CMS business as follows:





8


**ARCH
        CHEMICALS, INC.**
 Notes
        to
        Condensed Consolidated Financial Statements
 (Unaudited)





**Three
                Months Ended**
              **March
                31,********($
                in millions)**
            
            **2006**
            
            **2005**Sales
            
            $
            0.9
            
            $
            2.8Earnings
                (losses) before interest and taxes
            
            $
            (0.6
            )
            $
            -Tax
                benefit
            
            
            (0.2
            )
            
            -Loss
                from discontinued operations
            
            $
            (0.4
            )
            $
            -





**7.
      Goodwill and Other Intangibles**





The
      changes in the carrying amount of goodwill for the three months ended
      March 31, 2006 are as follows:





**HTH**
              **Water**
              **Products**
            
            **Personal**
              **Care****and**
              **Industrial**
              **Biocides**
            
            **Wood**
              **Protection
                and Industrial**
              **Coatings**
            
            **Total**
              **Treatment**
            
            **Performance**
              **Urethanes**
            
            **Total****($
                in millions)**Balance,
                December 31, 2005
            
            $
            40.7
            
            $
            84.7
            
            $
            81.7
            
            $
            207.1
            
            $
            4.4
            
            $
            211.5Post
                acquisition adjustment
            
            
            0.7
            
            
            -
            
            
            -
            
            
            0.7
            
            
            -
            
            
            0.7Foreign
                exchange and other
            
            
            0.4
            
            
            0.1
            
            
            0.2
            
            
            0.7
            
            
            -
            
            
            0.7Balance,
                March 31, 2006
            
            $
            41.8
            
            $
            84.8
            
            $
            81.9
            
            $
            208.5
            
            $
            4.4
            
            $
            212.9





The
      post
      acquisition adjustment for the HTH water products business reflects the
      estimated post-closing working capital payment related to the acquisition of
      the
      remaining 50 percent share of the Company’s water products joint venture,
      Nordesclor.





The
      gross
      carrying amount and accumulated amortization for other intangible assets as
      of
      March 31, 2006 and December 31, 2005 are as follows:





**March 31,
                2006**
            
            **December 31,
                2005****Gross
                Carrying****Amount**
            
            **Accumulated****Amortization**
            
            **Net
                Carrying****Amount**
            
            **Gross
                Carrying****Amount**
            
            **Accumulated****Amortization**
            
            **Net
                Carrying****Amount****($
                in millions)**Patents
            
            $
            0.2
            
            $
            0.2
            
            $
            -
            
            $
            0.2
            
            $
            0.2
            
            $
            -Customer
                lists
            
            
            69.3
            
            
            14.1
            
            
            55.2
            
            
            69.0
            
            
            12.8
            
            
            56.2Toxicology
                database
            
            
            15.7
            
            
            2.2
            
            
            13.5
            
            
            15.7
            
            
            2.0
            
            
            13.7Developed
                technology
            
            
            13.5
            
            
            1.4
            
            
            12.1
            
            
            13.5
            
            
            1.2
            
            
            12.3Other
            
            
            9.8
            
            
            4.6
            
            
            5.2
            
            
            10.5
            
            
            4.7
            
            
            5.8Total
                amortizable other intangibles
            
            
            108.5
            
            
            22.5
            
            
            86.0
            
            
            108.9
            
            
            20.9
            
            
            88.0Total
                non-amortizable otherintangibles
                — trademarks
            
            
            53.2
            
            
            0.4
            
            
            52.8
            
            
            53.1
            
            
            0.4
            
            
            52.7Total
                other intangibles
            
            $
            161.7
            
            $
            22.9
            
            $
            138.8
            
            $
            162.0
            
            $
            21.3
            
            $
            140.7





Amortization
      expense for the three months ended March 31, 2006 and 2005 was
      $2.1 million and $1.9 million, respectively. Estimated amortization
      expense is $8.6 million for each of the years ended December 31, 2006
      through 2008,
      and
      $7.6 million for the years ended December 31, 2009 and 2010.





In
      accordance with FASB Statement No. 142, “Goodwill and Other Intangibles,” the
      Company has elected to perform its annual goodwill and other intangibles
      impairment procedures for all reporting units as of January 1 of each year,
      or
      after, if events or circumstances change that could reduce the fair value of
      a
      reporting unit below its carrying value. During the quarter, the Company
      completed these procedures and concluded that no impairment exists as of January
      1, 2006.





9


**ARCH
          CHEMICALS, INC.**
 Notes
          to
          Condensed Consolidated Financial Statements
 (Unaudited)






**8.
      Debt**





In
      June
      2003, the Company entered into an unsecured $210.0 million senior revolving
      credit facility (“credit facility”), which expires in June 2006. The Company is
      in the process of replacing its credit facility with a new one. The Company’s
      current credit facility contains a quarterly leverage ratio of 3.50 and an
      interest coverage ratio (EBITDA/total interest expense) covenant not to be
      less
      than 3.0. Additionally, the credit facility restricts the payment of dividends
      and repurchase of stock to $65.0 million plus 50% of cumulative net income
      (loss) subject to certain limitations beginning June 20, 2003. This
      limitation was $47.7 million at March 31, 2006. As of March 31,
      2006, facility fees payable on the credit facility are 0.3%. The facility fees
      can range from 0.2% to 0.4% depending on the Company’s quarterly leverage
      ratios. The Company may select various floating rate borrowing options,
      including, but not limited to, LIBOR plus a spread that can range from 0.55%
      to
      1.35% depending on the Company’s quarterly leverage ratios. There were no
      outstanding borrowings under the credit facility at March 31,
      2006.





In
      March
      2002, the Company issued $211.0 million of unsecured senior notes to certain
      institutional investors in two series. The Series A notes of $149.0 million
      are
      due in March 2007 and the Series B notes of $62.0 million are due in March
      2009.
      At March 31, 2006, the Series A notes were reclassified to Current portion
      of
      long-term debt in the Condensed Consolidated Balance Sheets. The Company’s
      senior notes contain a quarterly leverage ratio of 3.50 and a debt to total
      capitalization ratio of 55%. In addition, the notes contain a fixed coverage
      ratio covenant of 2.25 and a covenant that restricts the payment of dividends
      and repurchases of stock to $65.0 million less cumulative dividends and
      repurchases of stock plus 50% of cumulative net income (loss) under certain
      circumstances beginning January 1, 2002. This limitation was
      $33.3 million at March 31, 2006.





At
      March 31, 2006, the Company had $43.4 million of outstanding letters
      of credit and no letters of guarantee outstanding.





**9.
      Derivative Instruments and Hedging**





*Foreign
      Currency*





The
      Company uses foreign currency forward contracts as a means of hedging exposure
      to foreign currency risk. It is the Company's policy to hedge up to 80% of
      its
      anticipated purchase and sales commitments denominated or expected to be
      denominated in a foreign currency. Accordingly, the Company has purchased
      forward contracts to hedge its exposure to the variability of future foreign
      currency cash flows through December 2006. During the three months ended
      March 31, 2006 and 2005, the majority of the Company’s foreign currency
      forward contracts qualified as effective cash flow hedges; the remainder of
      the
      foreign currency contracts did not meet the criteria of SFAS 133 to qualify
      for effective hedge accounting.





At
      March 31, 2006, the Company had forward contracts to sell foreign
      currencies with a U.S. dollar equivalent value of $22.7 million and forward
      contracts to buy foreign currencies with a U.S. dollar equivalent value of
      $16.9 million. The fair value of these forward contracts is included in
      Other current assets and Accrued liabilities, respectively, on the accompanying
      Condensed Consolidated Balance Sheets.





*Debt
      and Interest*





In
      May 2003, the Company entered into interest rate swap agreements under
      which the Company swapped the 7.94% fixed interest rate on $80.0 million
      principal amount of unsecured senior notes for floating rate interest based
      on
      six-month LIBOR plus 5.4539%. The counter parties to these agreements are major
      financial institutions. The agreements expire in March 2007. The Company
      has designated the swap agreements as fair value hedges of the risk of changes
      in the value of fixed rate debt due to changes in interest rates for a portion
      of its fixed rate borrowings under SFAS 133. Accordingly, the swap
      agreements have been recorded at their fair market value of $2.2 million
      and $2.5 million at March 31, 2006 and December 31, 2005, respectively, are
      included in Accrued liabilities and Other liabilities, respectively, on the
      accompanying Condensed Consolidated Balance Sheets, with a corresponding
      decrease in the carrying amount of the related debt. Due to the short-term
      nature of the swap, the balances have been reclassified to current liabilities
      at March 31, 2006. No gain or loss has been recorded as the contracts meet
      the
      criteria of SFAS 133 to qualify for hedge accounting treatment with no
      ineffectiveness.





10
 
 **ARCH
            CHEMICALS, INC.**
 Notes
            to
            Condensed Consolidated Financial Statements
 (Unaudited)


**10.
      Employee Retirement Plans**





*Arch
      U.S. Pension and Retirement Plans*





As
      of
      March 31, 2006 and 2005, the components of net periodic benefit costs for
      the Arch U.S. Pension and Retirement Plans were as follows:





**Pension
                Benefits**
            
            **Postretirement
                Benefits****($
                in millions)**
            
            **2006**
            
            **2005**
            
            **2006**
            
            **2005****Net
                Periodic Benefit Expense:**Service
                cost (benefits earned during the period)
            
            $
            1.9
            
            $
            1.9
            
            $
            0.1
            
            $
            0.1Interest
                cost on the projected benefit obligation
            
            
            3.7
            
            
            3.6
            
            
            0.2
            
            
            0.3Expected
                return on plan assets
            
            
            (3.6
            )
            
            (2.9
            )
            
            —
            
            
            —Amortization
                of prior service cost
            
            
            —
            
            
            0.1
            
            
            0.1
            
            
            —Recognized
                actuarial loss
            
            
            1.2
            
            
            1.0
            
            
            —
            
            
            —Net
                periodic benefit cost
            
            $
            3.2
            
            $
            3.7
            
            $
            0.4
            
            $
            0.4





*Hickson
      U.K Pension Plans*





As
      of
      March 31, 2006 and 2005, the components of net periodic benefit costs for
      the Hickson U.K. and the Hickson U.K. Senior Executive retirement plans were
      as
      follows:





**Pension
                Benefits****($
                in millions)**
            
            **2006**
            
            **2005****Net
                Periodic Benefit Expense:**Service
                cost (benefits earned during the period)
            
            $
            0.2
            
            $
            0.1Interest
                cost on the projected benefit obligation
            
            
            4.3
            
            
            4.6Expected
                return on plan assets
            
            
            (4.1
            )
            
            (4.6
            )Recognized
                actuarial loss
            
            
            1.4
            
            
            1.1Net
                periodic benefit cost
            
            $
            1.8
            
            $
            1.2





There
      are
      no minimum funding requirements anticipated for 2006 for the Company’s U.S.
      pension plans ,
      due
      primarily to the voluntary pension funding made in 2005 of $36.2 million.
      Pension expense is expected to be approximately $1.0 million higher in 2006. The
      Company has minimum funding requirements for its U.K. pension plans
      of approximately $15 million, which is approximately $5 million higher
      than 2005, and pension expense is expected to be $6 million higher in
      2006. As of
      March 31, 2006, there have been no contributions for the Arch U.S. pension
      plans and $0.2 million was contributed to the U.K. pension plans.




*Deferred
      Compensation Plans*





In
      2004,
      the Company established rabbi trusts (collectively, the “Rabbi Trust”) for its
      three deferred compensation plans, namely, the 1999 Stock Plan for Non-employee
      Directors, the Supplemental Contributing Employee Ownership Plan and the
      Employee Deferral Plan. At March 31, 2006, the Company had $4.7 million in
      Other
      assets and a deferred compensation liability of $9.1 million in Other
      liabilities in the Condensed Consolidated Balance Sheets. At December 31, 2005,
      the Company had $3.5 million in Other assets and a deferred compensation
      liability of $6.9 million in Other liabilities in the Condensed Consolidated
      Balance Sheets. In addition, at March 31, 2006 and December 31, 2005,
      respectively, the Company had $2.4 million recorded as a reduction to equity
      for
      the Company’s stock held in the Rabbi Trust.





11


**ARCH
          CHEMICALS, INC.**
 Notes
          to
          Condensed Consolidated Financial Statements
 (Unaudited)





**11.
      Comprehensive Income (Loss)**





Comprehensive
      income (loss) includes the change in the cumulative translation adjustment,
      minimum pension liability and the change in the fair value of derivative
      financial instruments, which qualify for hedge accounting. Comprehensive income
      (loss) for the three months ended March 31, 2006 and 2005 was as
      follows:





**Three
                Months****($
                in millions)**
            
            **Ended
                March 31,****2006**
            
            **2005**Net
                income
            
            $
            5.7
            
            $
            3.6Foreign
                currency translation adjustments
            
            
            4.2
            
            
            (10.5
            )Net
                unrealized loss on derivative instruments
            
            
            —
            
            
            —Total
                other comprehensive income (loss)
            
            
            4.2
            
            
            (10.5
            )Comprehensive
                income (loss)
            
            $
            9.9
            
            $
            (6.9
            )





The
      Company does not provide for U.S. income taxes on foreign currency translation
      adjustments since it does not provide for such taxes on undistributed earnings
      of foreign subsidiaries.





**12.
      Accumulated Net Unrealized Gain (Loss) on Derivative
      Instruments**





Changes
      in the accumulated net unrealized gain (loss) on derivative instruments for
      the
      three months ended March 31, 2006 and 2005 are as follows:





**Three
                Months****($
                in millions)**
            
            **Ended
                March 31,****2006**
            
            **2005**Beginning
                balance of accumulated net unrealizedloss
                on derivative instruments
            
            $
            (0.2
            )
            $
            (0.2
            )Net
                gain (loss) on cash flow hedges
            
            
            —
            
            
            0.1Reclassification
                into earnings
            
            
            —
            
            
            0.1Ending
                balance of accumulated net unrealizedloss
                on derivative instruments
            
            $
            (0.2
            )
            $
            —





The
      unrealized losses on derivative instruments included in Accumulated other
      comprehensive loss are expected to be reclassified into earnings within the
      next
      12 months.





**13.
      Segment Reporting**





The
      Company has organized its business portfolio into two operating segments to
      reflect the Company’s business strategy. The two segments are treatment products
      and performance products. The treatment products segment includes three
      reportable business units: the HTH water products business, the personal care
      and industrial biocides business, and the wood protection and industrial
      coatings business.





12
 
 **ARCH
            CHEMICALS, INC.**
 Notes
            to
            Condensed Consolidated Financial Statements
 (Unaudited)


**Three
                Months**
              **Ended
                March 31,****($
                in millions)**
            
            **2006**
            
            **2005****Sales:**Treatment
                Products:HTH
                Water Products
            
            $
            99.4
            
            $
            90.8Personal
                Care and Industrial Biocides
            
            
            66.4
            
            
            69.8Wood
                Protection and Industrial Coatings
            
            
            87.2
            
            
            87.1Total
                Treatment Products
            
            
            253.0
            
            
            247.7Performance
                Products:Performance
                Urethanes
            
            
            60.4
            
            
            48.9Hydrazine
            
            
            4.4
            
            
            4.7Total
                Performance Products
            
            
            64.8
            
            
            53.6Total
                Sales
            
            $
            317.8
            
            $
            301.3**Segment
                Operating Income (Loss), including****Equity
                Income in Affiliated Companies:**Treatment
                Products:HTH
                Water Products
            
            $
            4.3
            
            $
            —Personal
                Care and Industrial Biocides
            
            
            10.9
            
            
            12.5Wood
                Protection and Industrial Coatings
            
            
            0.9
            
            
            1.3Total
                Treatment Products
            
            
            16.1
            
            
            13.8Performance
                Products:Performance
                Urethanes
            
            
            3.8
            
            
            0.9Hydrazine
            
            
            (0.2
            )
            
            (0.7
            )Total
                Performance Products
            
            
            3.6
            
            
            0.2Corporate
                Unallocated
            
            
            (5.3
            )
            
            (4.1
            )Total
                Segment Operating Income, including EquityIncome
                in Affiliated Companies
            
            
            14.4
            
            
            9.9Equity
                in Earnings of Affiliated Companies
            
            
            (0.2
            )
            
            (0.9
            )Total
                Operating Income
            
            
            14.2
            
            
            9.0Interest
                expense, net
            
            
            (5.3
            )
            
            (4.4
            )Total
                Income from Continuing Operations before Equity Income in Affiliated
                Companies and Taxes
            
            $
            8.9
            
            $
            4.6**Capital
                Spending:**Treatment
                Products:HTH
                Water Products
            
            $
            1.0
            
            $
            1.2Personal
                Care and Industrial Biocides
            
            
            1.3
            
            
            0.9Wood
                Protection and Industrial Coatings
            
            
            0.6
            
            
            0.7Total
                Treatment Products
            
            
            2.9
            
            
            2.8Performance
                Products:Performance
                Urethanes
            
            
            0.5
            
            
            0.3Hydrazine
            
            
            —
            
            
            —Total
                Performance Products
            
            
            0.5
            
            
            0.3Total
                Capital Spending
            
            $
            3.4
            
            $
            3.1





Segment
      operating income includes the equity in earnings of affiliated companies and excludes
      restructuring (income) expense and impairment expense .
      Included in the results of corporate unallocated is the equity income of the
      Planar Solutions joint venture through November 2005, the date of sale. The
      Company includes the equity income (loss) of affiliates in its segment operating
      results as it believes it to be relevant and useful information for investors
      as
      these affiliates are the means by which certain segments participate in certain
      geographic regions. Furthermore, the Company includes equity income (loss)
      as a
      component of segment operating results because the Company includes it to
      measure the performance of the segment. Other
      gains and (losses) that are directly related to the segments are included in
      segment operating results. The Company believes the exclusion of restructuring
      and impairment expenses from segment operating income provides additional
      perspective on the Company’s underlying business trends and provides useful
      information to investors by excluding amounts from the Company’s results that
      the Company believes are not indicative of ongoing operating
      results.





13
 
 **ARCH
            CHEMICALS, INC.**
 Notes
            to
            Condensed Consolidated Financial Statements
 (Unaudited)


**14.
      Commitments and Contingencies**





The
      Company is a co-defendant in consolidated litigation arising from a fire in
      August 2000, which destroyed a warehouse in which the Company’s water treatment
      products were stored. The portion of the litigation involving claims by
      individuals was settled and the settlement amount was paid by the Company in
      2004. In 2006, the remaining claims were settled and the case was
      dismissed.




There
      are
      no CCA-related putative class action lawsuits pending against the Company or
      its
      subsidiaries, and there are fewer than ten other CCA-related personal injury
      lawsuits in which the Company and/or one or more of the Company’s subsidiaries
      is named. Individuals
      in these lawsuits allege injury occurred as a result of  exposure
      to CCA-treated wood. The Company and its subsidiaries deny the material
      allegations of all the various CCA-related claims and have vigorously defended
      and will continue to vigorously defend them. As a result, legal defense and
      related costs associated with these cases may be significant in the future.
      Based on the information currently available to the Company, the Company does
      not believe the resolution of these cases is likely to have a material adverse
      effect on its consolidated financial condition, cash flow or results of
      operations.





In
      April
      2004, the Company was served with a complaint by two parents, their minor child
      and the parents acting as personal representatives of the estates of their
      two
      other children. In the complaint, which was filed in Oregon state court against
      the Company, two of its subsidiaries, and others, plaintiffs allege that a
      fire
      caused by a spontaneous exothermic chemical reaction of the Company’s pool
      chlorination products with other common household products erupted in the
      parents’ vehicle while occupied by the family. Plaintiffs ask for damages,
      including non-economic damages of $40.0 million per plaintiff. The Company
      is
      effectively self-insured for the first $3.0 million in this case, regardless
      of
      the number of plaintiffs. The Company has provided $3.0 million of
      self-insurance reserves related to its potential exposure in this case and
      does
      not expect any final resolution of this case, net of an expected insurance
      recovery, to have a material adverse effect on results of operations or
      financial position of the Company. Given that the Company’s applicable insurance
      policies provide coverage on a reimbursement basis, there may be a lag between
      any payment ultimately paid to the plaintiffs by the Company and reimbursement
      of such payment from the Company’s insurers .





In
      Brazil, the Company uses a third-party agent to process and pay certain state
      import duties. The Company was notified of claims for unpaid state import
      duties, including interest and potential penalties. The Company has $1.3 million
      accrued for the remaining open tax year as of March 31, 2006. As of
      March 31, 2006, the Company had estimated contingent liabilities related to
      the claims of approximately $0.3 million .





In
      May
      2004, the U.S. Department of Commerce (“DOC”) and the U.S. International Trade
      Commission (“ITC”) initiated antidumping duty investigations of Chinese and
      Spanish suppliers of chlorinated isocyanurates and related chemicals as a result
      of petitions filed by domestic producers who asserted that these products were
      being imported and sold in the U.S.A. at prices below normal value. One of
      the
      suppliers being investigated is a major supplier of chlorinated isocyanurates
      to
      the Company. In May 2005, the DOC issued its final determinations and found
      margins ranging from approximately 76% to 286% for Chinese producers and
      approximately 25% for Spanish producers, with a margin of approximately 76%
      applicable to the Company’s primary Chinese supplier. In June 2005, the ITC
      found that the imports caused injury to the domestic industry following which
      the DOC issued antidumping orders incorporating the ITC’s findings. As a result
      of the orders, the Company started to make cash deposits of antidumping duties
      at the rate of 76% of the value of the product imported. The producers and
      importers, such as the Company, may request annually a review of the orders
      which may result in a further adjustment of the final duties to be
      assessed.





14
 
 **ARCH
            CHEMICALS, INC.**
 Notes
            to
            Condensed Consolidated Financial Statements
 (Unaudited)


In
      April
      2005 and following a governmental investigation, Koppers Arch Wood
      Protection (NZ) Limited (“KANZ”), a New Zealand joint venture company in
      which the Company owns indirectly a 49% interest, was named as a defendant
      in a
      civil suit filed by the New Zealand Commerce Commission (“NZCC”) regarding
      industry competitive practices. A number of other companies and individuals,
      including Koppers Arch Investments Pty Limited (“KAIP”), an Australian entity in
      which the Company owns indirectly a 49% interest, and a current KANZ and KAIP
      Board member, and certain unrelated entities, were also named as defendants.
      KANZ manufactures and markets wood preservative products throughout New Zealand
      and KAIP is a holding company for related joint venture companies. The NZCC
      sought unspecified fines, injunctive relief, and legal costs, among other
      things. In April 2006, the High Court of New Zealand approved the joint
      venture’s proposed settlement with the NZCC. The settlement calls for the
      payment of NZ$3.7 million ($2.2 million) and discontinues the proceedings
      against KANZ, KAIP and the board member. As of March 31, 2006, this penalty
      has
      been fully reserved for in the joint venture’s financial statements.





Similarly,
      Koppers Arch Wood Protection (Aust) Pty Ltd (“KAWP”), an Australian joint
      venture company in which the Company owns indirectly a 49% interest and the
      majority shareholder of KANZ, has made an application for leniency under the
      Australian Competition and Consumer Commission’s (“ACCC”) policy for cartel
      conduct. The ACCC has granted immunity to KAWP, subject to fulfillment of
      certain conditions. If these conditions are not fulfilled, the ACCC may penalize
      KAWP for any violations of the competition laws of Australia. Such penalties,
      if
      assessed against KAWP, could have a material adverse effect on KAWP’s business,
      financial condition, cash flows and results of operations.





As
      a
      result of the Company’s ownership in such Australian and New Zealand entities,
      an unfavorable resolution and any additional litigation relating to this matter
      could have a material adverse effect on equity in earnings of affiliated
      companies and dividends received .





In
      1999,
      Olin and the Company entered into an agreement, which specifies that the Company
      is only responsible for certain environmental liabilities at the Company's
      current operating plant sites and certain offsite locations. Olin retained
      the
      liability for all former Olin plant sites and former waste disposal sites.
      In
      connection with the acquisition of Hickson, the Company acquired certain
      environmental exposures and potential liabilities of current and past operating
      sites all of which have been accrued for in the accompanying condensed
      consolidated financial statements.





Environmental
      exposures are difficult to assess for numerous reasons, including the
      identification of new sites, developments at sites resulting from investigatory
      studies and remedial activities, advances in technology, changes in
      environmental laws and regulations and their application, the scarcity of
      reliable data pertaining to identified sites, the difficulty in assessing the
      involvement and financial capability of other potentially responsible parties
      and the Company's ability to obtain contributions from other parties and the
      length of time over which site remediation occurs. It is possible that some
      of
      these matters (the outcomes of which are subject to various uncertainties)
      may
      be resolved unfavorably against the Company.





There
      are
      a variety of non-environmental legal proceedings pending or threatened against
      the Company. There have been no significant changes in status of such items,
      other than those described above, during the three months ended March 31,
      2006.





**15.
      Acquisitions**





On
      December 28, 2005, the Company completed the acquisition of the remaining 50
      percent share of its Nordesclor joint venture. The total purchase price, net
      of
      cash received, was $16.7 million, inclusive of expenses paid and an estimated
      working capital adjustment, which was paid in the first quarter of 2006. The
      purchase price is further subject to a contingent payment of up to $2.0 million
      in cash based on cumulative earnings over the next two years. The allocation
      of
      the purchase price to the acquired net tangible and intangible assets and
      assumed liabilities is based upon preliminary estimates of fair value and is
      subject to change.




15




**Item
        2.  Management's Discussion and Analysis of Financial Condition and Results
        of Operations**
  **Overview**
 
 In
        analyzing the results of operations for the Company and its segments, the
        following matters should be considered. The Company’s Treatment Products segment
        is seasonal in nature, in particular the HTH water products business.
        Historically, approximately 40 - 50% of the sales in the HTH water products
        business occur in the second quarter of the fiscal year, as retail sales
        in the
        U.S. residential pool market are concentrated between Memorial Day and the
        Fourth of July. Accordingly, results of operations for the periods presented
        are
        not necessarily indicative of the results to be expected for an entire fiscal
        year. Segment operating income includes the equity in earnings of affiliated
        companies. The Company includes the equity income (loss) of affiliates in
        its
        segment operating results as it believes it to be relevant and useful
        information for investors as these affiliates are the means by which certain
        segments participate in certain geographic regions. Furthermore equity income
        (loss) is included as a component of segment operating results because the
        Company includes it to measure the performance of the segment. Other gains
        and
        (losses) that are directly related to the segments are included in segment
        operating results.
 
 The
        term
“Company” as used in Item 2 of this Report means Arch Chemicals, Inc. and
        its consolidated subsidiaries unless the context indicates
        otherwise.
 
 **Results
        of Operations**
 
 **Consolidated**
 
 **Three
                  Months****Ended
                  March 31,****2006**
              
              **2005**(In
                  millions, except per share amounts)Sales
              
              $
              317.8
              
              $
              301.3Gross
                  margin
              
              $
              87.9
              
              $
              83.7Selling
                  and administration
              
              
              69.1
              
              
              69.7Research
                  and development
              
              
              4.6
              
              
              5.0Interest
                  expense, net
              
              
              5.3
              
              
              4.4Equity
                  in earnings of affiliated companies
              
              
              0.2
              
              
              0.9Income
                  tax expense
              
              
              3.0
              
              
              1.9Loss
                  from discontinued operations, net of tax
              
              
              (0.4
              )
              
              -Net
                  income
              
              $
              5.7
              
              $
              3.6Diluted
                  income per common share - continuing operations
              
              $
              0.25
              
              $
              0.15
 ***Three
        Months Ended March 31, 2006 Compared to 2005***
 
 Sales
        increased $16.5 million, or approximately five percent, due in part to the
        acquisition of the remaining 50 percent of the Company’s water products joint
        venture, Nordesclor ($10.3 million or three percent). Excluding the impact
        of
        the acquisition, sales increased $6.2 million, or two percent, due to
        favorable pricing (approximately five percent), partially offset by
        unfavorable foreign exchange (approximately two percent) and a decrease in
        volumes (approximately one percent).  The higher pricing was principally in
        the HTH water products and performance urethanes  businesses. Higher
        volumes in the performance urethanes business due to continued strong demand
        across most product lines was more then offset by lower sales volumes in
        the
        industrial biocides and water products businesses. The lower sales volumes
        in
        HTH water products were due to the shedding of
        unprofitable business.
 
 16
 
 Management's Discussion and Analysis of Financial
          Condition and Results of Operations - Continued
 Gross
        margin percentage was 27.7% and 27.8% for 2006 and 2005, respectively. The
        gross
        margin percentage was comparable period over period, as higher margins in
        HTH
        water products were offset by lower margins in the industrial biocides and
        wood
        protection businesses. The improved margins in HTH water products are due
        to the
        favorable pricing and product mix in the North American market. The decrease
        in
        margins in the industrial biocides and wood protection businesses is due
        primarily to the higher raw material costs.
 
 Selling
        and administration expenses decreased as a percentage of sales to 21.7% in
        2006
        from 23.1% in 2005. These expenses decreased in amount by $0.6 million.
        Selling and administration costs related to the acquisition of the remaining
        50
        percent of the Company’s water products joint venture, Nordesclor, were
        $1.2 million. Excluding the impact of the acquisition, these expenses
        decreased $1.8 million, which is primarily due to overall lower selling and
        promotional costs as well as both lower legal fees and bad debt expense in
        the
        industrial coatings business.
 
 Interest
        expense, net, increased $0.9 million as a result of higher interest rates
        during
        the period ended March 31, 2006 as compared to those during the period ended
        March 31, 2005.
 
 Equity
        in
        earnings of affiliated companies decreased $0.7 million due to Nordesclor,
        whose results have been consolidated since the date of acquisition (December
        2005), as well as the disposition of the Planar Solutions joint venture in
        November 2005.
 
 The
        tax
        rate on net income from continuing operations for the three months ended
        March 31, 2006 and 2005 was 33.0% and 35.0%, respectively. The current year
        effective tax rate of 33.0% is consistent with the full year 2005 effective
        tax
        rate.
 
 Loss
        from
        discontinued operations, net of tax, reflects the results of operations for
        the
        CMS business. Included in the results for the three months ended March 31,
        2006
        are severance and related costs associated with the termination of certain
        service contracts of $0.3 million ($0.2 million
        after-tax).
 
 ***Second
        Quarter and Full Year Outlook***
 
 The
        Company anticipates earnings from continuing operations in the second quarter
        2006 to be in the $1.20 to $1.30 per share range, compared to $1.03 for the
        prior-year quarter. The significant improvement is principally driven by
        the
        Company's HTH water products business as operating income is expected to
        improve
        $16 to $20 million over the prior period quarter.
 
 For
        full
        year 2006, sales are expected to increase approximately six to eight percent
        and
        earnings per share from continuing operations are expected to range from
        $1.60
        to $1.70, compared to the Company’s earlier guidance of $1.50 to $1.60 per
        share. The increase in the estimate is principally due to higher earnings
        in the
        hydrazine business of approximately $0.06 per share due to an amendment to
        the
        Company’s government contract resulting in lower costs and higher facility fees
        in 2006 and the decrease in the estimated effective tax rate from 35 percent
        to
        33 percent, or approximately $0.04 per share. The
        revised full-year guidance reflects higher operating income from the performance
        urethanes  business, offset by additional pension expense and lower
        operating income from the wood protection business due to rising copper prices.Depreciation and amortization is estimated to be approximately $45
        million. Capital spending is anticipated to be in the $30 to $35 million
        range.
        Pension expense is expected to increase by approximately $7 million over
        prior
        year. See “Cautionary Statement under Federal Securities Laws”
below.
  ***Segment
        Information***
 
 The
        Company has organized its business portfolio into two operating segments
        to
        reflect the Company’s business strategy. The two segments are treatment products
        and performance products. The treatment products segment includes three
        reportable business units: the HTH water products business, the personal
        care
        and industrial biocides business, and the wood protection and industrial
        coatings business. Segment operating income includes the equity in earnings
        of
        affiliated companies and
        excludes restructuring (income) expense and impairment expense . The
        Company believes the exclusion of restructuring and impairment expenses from
        segment operating income provides additional perspective on the Company’s
        underlying business trends and provides useful information to investors by
        excluding amounts from the Company’s results that the Company believes are not
        indicative of ongoing operating results.
 
 17
 
 Management's Discussion and Analysis of Financial
          Condition and Results of Operations - Continued
 The
        Company includes the equity income (loss) of affiliates in its segment operating
        results as it believes it to be relevant and useful information for investors
        as
        these affiliates are the means by which certain segments participate in certain
        geographic regions. Furthermore, the Company includes it to measure the
        performance of the segment. Other
        gains and (losses) that are directly related to the segments are included
        in
        segment operating results.
 
 **Treatment
        Products**
 
 **Three
                  Months****Ended
                  March 31,****2006**
              
              **2005****($
                  in millions)****Results
                  of Operations:**SalesHTH
                  Water Products
              
              $
              99.4
              
              $
              90.8Personal
                  Care and Industrial Biocides
              
              
              66.4
              
              
              69.8Wood
                  Protection and Industrial Coatings
              
              
              87.2
              
              
              87.1Total
                  Treatment Products
              
              $
              253.0
              
              $
              247.7Operating
                  IncomeHTH
                  Water Products
              
              $
              4.3
              
              $
              -Personal
                  Care and Industrial Biocides
              
              
              10.9
              
              
              12.5Wood
                  Protection and Industrial Coatings
              
              
              0.9
              
              
              1.3Total
                  Treatment Products
              
              $
              16.1
              
              $
              13.8
 
 ***Three
        Months Ended March 31, 2006 Compared to 2005***
 
 Sales
        increased $5.3 million, or two percent, and operating income increased $2.3
        million. The increase in sales is due to the acquisition of the remaining
        50
        percent of the Company’s water products joint venture, Nordesclor ($10.3 million
        or four percent). Excluding the impact of the acquisition, sales decreased
        $5.0
        million, or two percent, as higher pricing (approximately three percent)
        was
        offset by unfavorable foreign exchange (approximately three percent) and
        lower
        volumes (approximately two percent) in the industrial biocides and HTH
        water products businesses.
 
 The
        increase in operating income is primarily due to improved operating results
        of
        HTH water products.
 
 ***HTH
        Water Products***
 
 Sales
        increased $8.6 million, or approximately nine percent, principally due to
        favorable pricing (approximately seven percent) for both branded and non-branded
        pool treatment products in the North American market. The remaining increase
        in
        sales is due to volumes (approximately three percent) slightly offset by
        unfavorable foreign exchange (approximately one percent). The increase in
        volumes is due to the acquisition of the remaining 50 percent of the Company’s
        water products joint venture, Nordesclor ($10.3 million or 11 percent),
        partially offset by lower volumes in North America from shedding unprofitable
        business (approximately eight percent).
 
 Operating
        results increased $4.3 million primarily as a result of the positive
        contribution of the acquired business, improved pricing primarily for the
        North
        American product lines, favorable product mix and cost containment initiatives.
        In addition, included in the results of operations are costs associated with
        exiting the Spanish market and certain reorganization costs at the Company's
        Charleston, Tennessee manufacturing location.
 
 18
 Management's
        Discussion and Analysis of
        Financial Condition and Results of Operations - Continued
  ***Personal
        Care and Industrial Biocides***
 
 Sales
        decreased $3.4 million, or approximately five percent, due to lower volumes
        (approximately three percent) and unfavorable foreign exchange (approximately
        three percent), partially offset by favorable pricing (approximately one
        percent). The lower volumes are attributable to competitive pressures within
        the
        building products market and to a lesser extent the marine paint market.
        The
        Company has increased prices on many product lines within the building products
        and metalworking fluid markets to partially mitigate the higher raw material
        costs. In addition, sales of antidandruff products were comparable to the
        prior
        year quarter.
 
 Operating
        income decreased $1.6 million as a result of the lower sales volumes and
        a
        decrease in gross margin, partially offset by lower selling and administration
        costs. The decrease in gross margin is due primarily to higher raw material
        costs in the industrial biocides business.
 
 ***Wood
        Protection and Industrial Coatings***
 
 Sales
        were comparable as higher volumes (approximately four percent) and favorable
        pricing (approximately one percent) were offset by unfavorable effect of
        foreign
        exchange (approximately five percent). Higher volumes in both the export
        and
        Italian furniture markets in the industrial coatings business and of
        CCA-products used in industrial applications in the wood protection business
        were slightly offset by lower volumes of *Wolman* *®* E products used in residential applications in the wood protection
        business.
 
 Operating
        income decreased over the prior year as lower margins in the wood protection
        business were mostly offset by lower operating expenses in the industrial
        coatings business. The lower margins in the wood protection business were
        primarily driven by higher raw material costs. The lower expenses in the
        industrial coatings business are principally due to a decrease in expense
        for
        bad debts and legal fees .
 
 **Performance
        Products**
 
 **Three
                  Months****Ended
                  March 31,****2006**
              
              **2005****($
                  in millions)****Results
                  of Operations**SalesPerformance
                  Urethanes
              
              $
              60.4
              
              $
              48.9Hydrazine
              
              
              4.4
              
              
              4.7Total
                  Performance Products
              
              $
              64.8
              
              $
              53.6Operating
                  income (loss)Performance
                  Urethanes
              
              $
              3.8
              
              $
              0.9Hydrazine
              
              
              (0.2
              )
              
              (0.7
              )Total
                  Performance Products
              
              $
              3.6
              
              $
              0.2
 
 ***Three
        Months Ended March 31, 2006 Compared to 2005***
 
 Sales
        increased $11.2 million, or approximately 21 percent, and operating income
        increased $3.4 million from prior year. The increase in sales is due to
        improved pricing (approximately 13 percent) and higher volumes (approximately
        eight percent).
 
 19
 
 Management's Discussion and Analysis of Financial
          Condition and Results of Operations - Continued
 ***Performance
        Urethanes***
 
 Performance
        urethanes sales increased approximately 24 percent over the prior year due
        to
        improved pricing (approximately 13 percent) and higher volumes (approximately
        11
        percent). The improved pricing was principally due to successful price increases
        to mitigate higher raw material costs. The increase in volumes was due to
        stronger demand across most product lines, particularly specialty polyols
        and
        glycols. Operating income improved $2.9 million as a result of improved margins
        from improved pricing and higher volumes.
 
 ***Hydrazine***
 
 Hydrazine
        sales decreased approximately six percent due primarily to lower Ultra
        Pure TM Hydrazine volumes. This was mostly offset by the facility fees from the new
        U.S.
        Government contract. Operating results improved as a result of lower
        manufacturing costs.
 
 **Corporate
        Expenses (Unallocated)**
 
 **Three
                  Months****Ended
                  March 31,****2006**
              
              **2005****($
                  in millions)****Results
                  of Operations**Unallocated
                  Corporate Expenses
              
              $
              (5.3
              )
              $
              (4.1
              )
  ***Three
        Months Ended March 31, 2006 Compared to 2005***
 
 The
        increase in unallocated corporate expenses is principally due to higher audit
        fees as well as higher costs associated with the Company’s accounts receivable
        securitization program. In addition, 2005 benefited from favorable operating
        results of the Planar Solutions joint venture, which was sold in November
        2005.
 
 **Liquidity,
        Investment Activity, Capital Resources and Other Financial
        Data**
 
 **Three
                  Months****Ended
                  March 31,****Cash
                  Flow Data**
              
              **2006**
              
              **2005****($
                  in millions)****Provided
                  By (Used For)**Accounts
                  receivable securitization program
              
              $
              53.6
              
              $
              -Change
                  in working capital
              
              
              (84.3
              )
              
              (82.1
              )Net
                  operating activities from continuing operations
              
              
              (6.8
              )
              
              (62.2
              )Capital
                  expenditures
              
              
              (3.4
              )
              
              (3.1
              )Businesses
                  acquired, net of cash
              
              
              (1.2
              )
              
              (0.1
              )Cash
                  proceeds (payments) from the sale of a business
              
              
              (0.2
              )
              
              (3.5
              )Net
                  investing activities
              
              
              (6.1
              )
              
              (7.4
              )Debt
                  borrowings (repayments)
              
              
              3.1
              
              
              41.1Net
                  financing activities
              
              
              5.2
              
              
              37.7
 
 20
 Management's
        Discussion and Analysis of
        Financial Condition and Results of Operations -
        Continued
 
 ***Three
        Months Ended March 31, 2006 Compared to 2005***
 
 For
        the
        three months ended March 31, 2006 $6.8 million was used for
        operating activities from continuing operations compared to $62.2 million
        used for operating activities from continuing operations for the three months
        ended March 31, 2005. This was primarily attributable to the Company utilizing
        the accounts receivable securitization program during the first quarter of
        2006
        to fund its seasonal working capital needs. The Company’s previous accounts
        receivable program expired in March 2005, and as a result the Company utilized
        its credit facilities to fund the working capital needs during the three
        months
        ended March 31, 2005. A new accounts receivable program was entered into
        in June
        2005.
 
 Capital
        expenditures for the first three months of 2006 were $0.3 million higher
        than
        2005. Capital expenditures for 2006 are expected to be in the $30 to
        $35 million range.
 
 The
        cash
        paid for businesses acquired relates to a contingent payment for the unfunded
        pension liability in the U.K. pension plan of $0.5
        million and $0.7 million for an estimated working capital payment related
        to the Nordesclor acquisition. For
        additional information concerning the acquisitions, see the Company's Form
        10-K
        for the year ended December 31, 2005.
 
 Cash
        payments from the sale of a business in 2006 and 2005 relate to certain expenses
        from the sale of the microelectronic materials business to Fuji Photo Film
        Co.,
        Ltd., which occurred in November 2004. The 2005 expenses included the
        reimbursement of a working capital adjustment of $1.1 million as well as
        other
        disposition costs.
 
 Cash
        provided by financing activities for the first three months of 2006 was $5.2
        million compared to $37.7 million of cash provided by financing activities
        for
        the first three months of 2005. The decrease was due to lower borrowings.
        For
        the three months ended March 31, 2005, the Company used its credit facilities
        to
        fund the working capital needs as a result of the expired accounts receivable
        securitization program. A new accounts receivable program was entered into
        in
        June 2005.
 
 On
        March 24, 2006, the Company paid a quarterly dividend of $0.20 on each
        share of common stock. Total dividends paid to shareholders were
        $4.8 million in 2006 compared to $4.7 million in 2005.
 
 The
        Company’s revolving credit facility contains a quarterly leverage ratio of 3.50
        and an interest coverage ratio (EBITDA/total interest expense) covenant not
        to
        be less than 3.0. Additionally, the credit facility restricts the payment
        of
        dividends and repurchase of stock to $65.0 million plus 50% of cumulative
        net income (loss) subject to certain limitations beginning June 20, 2003.
        This limitation was $47.7 million at March 31, 2006. As of
        March 31, 2006, facility fees payable on the credit facility are 0.30%. The
        facility fees can range from 0.2% to 0.4% depending on the Company’s quarterly
        leverage ratios. The Company may select various floating rate borrowing options,
        including, but not limited to, LIBOR plus a spread that can range from 0.55%
        to
        1.35% depending on the Company’s quarterly leverage ratios. At
        March 31, 2006, the Company had $210.0 million of available borrowings
        under the credit facility .
        The
        credit facility expires in June 2006, and the Company is in the process of
        replacing the credit facility with a new one.
 
 The
        Company’s senior notes contain a quarterly leverage ratio of 3.50 and a debt to
        total capitalization ratio of 55%. In addition, the notes contain a covenant
        that restricts the payment of dividends and repurchases of stock to
        $65.0 million less cumulative dividends and repurchases of stock plus 50%
        of cumulative net income (loss) under certain circumstances beginning
        January 1, 2002. This limitation was $33.3 million at March 31,
        2006.
 
 In
        May 2003, the Company entered into interest rate swap agreements under
        which the Company swapped the 7.94% fixed interest rate on $80.0 million
        principal amount of unsecured senior notes for floating rate interest based
        on
        six-month LIBOR plus 5.4539%. The counter parties to these agreements are
        major
        financial institutions. The agreements expire in March 2007. The Company
        has designated the swap agreements as fair value hedges of the risk of changes
        in the value of fixed rate debt due to changes in interest rates for a portion
        of its fixed rate borrowings under SFAS 133. Accordingly, the swap
        agreements have been recorded at their fair market value of $2.2 million at
        March 31, 2006 and are included in Accrued liabilities in the accompanying
        Condensed Consolidated Balance Sheets, with a corresponding decrease in the
        carrying amount of the related debt. No gain or loss has been recorded as
        the
        contracts meet the criteria of SFAS 133 to qualify for hedge accounting
        treatment with no ineffectiveness.
 
 21
 
 Management's Discussion and Analysis of Financial
          Condition and Results of Operations - Continued
 Under
        the
        Company’s accounts receivable securitization program, certain accounts
        receivable are sold, without recourse, through its wholly-owned subsidiary,
        Arch
        Chemicals Receivables Corp., a special-purpose corporation. At March 31,
        2006,
        the Company sold $53.6 million of participation interests in $103.2 million
        of
        accounts receivable. The Company had not sold any participation interests
        in
        such accounts receivable at December 31, 2005 (see
        Note 4 of Notes to Condensed Consolidated Financial Statements) .
 
 At
        March 31, 2006 the Company had $43.4 million of outstanding letters of
        credit and no letters of guarantee outstanding.
 
 The
        Company believes that the credit facility and cash provided by operations
        are
        adequate to satisfy its liquidity needs for the near future. However, if
        Company
        earnings were to fall significantly below current expectations, a risk exists
        that the Company would not meet its quarterly leverage, interest coverage,
        fixed
        charge coverage or debt to total capitalization ratio covenants which could
        trigger a default condition under its debt agreements. The Company's credit
        facility expires in June 2006 and the Company is currently in the process
        of
        replacing the existing credit facility with a new one.
 
 The
        Company is a co-defendant and/or defendant in several cases at March 31,
        2006, and has provided for its exposure for these cases. The Company does
        not
        expect any final resolution of these cases, net of an expected insurance
        recovery, to have a material adverse effect on results of operations or
        financial position of the Company. However, given that the Company’s applicable
        insurance policies provide coverage on a reimbursement basis, there may be
        a lag
        between any payment ultimately paid by the Company and reimbursement of such
        payment from the Company’s insurers.
 
 There
        are
        no minimum funding requirements anticipated for its U.S. pension plans for
        2006.
        The minimum funding requirements for its U.K. pension plans are currently
        expected to be approximately $15 million in 2006.
  On
        April 27, 2006, the Company declared a quarterly dividend of $0.20 on each
        share of the Company’s common stock. The dividend will be payable on
        June 12, 2006, to shareholders of record at the close of business on
        May 11, 2006.
 
 **Cautionary
        Statement under Federal Securities Laws**
 
 Except
        for historical information contained herein, the information set forth in
        this
        Form 10-Q contains forward-looking statements that are based on management's
        beliefs, certain assumptions made by management and management's current
        expectations, outlook, estimates and projections about the markets and economy
        in which the Company and its various businesses operate. Words such as
        "anticipates," "believes," "estimates," "expects," "forecasts," "opines,"
        "plans," "predicts," "projects," "should," "targets" and variations of such
        words and similar expressions are intended to identify such forward-looking
        statements. These statements are not guarantees of future performance and
        involve certain risks, uncertainties and assumptions ("Future Factors"),
        which
        are difficult to predict. Therefore, actual outcomes and results may differ
        materially from what is expected or forecasted in such forward-looking
        statements. The Company undertakes no obligation to update publicly any
        forward-looking statements, whether as a result of future events, new
        information or otherwise. Future Factors which could cause actual results
        to
        differ materially from those discussed include but are not limited to: general
        economic and business and market conditions; lack of moderate growth or
        recession in U.S. and European economies; increases in interest rates; economic
        conditions in Asia; worsening economic and political conditions in Venezuela;
        changes in foreign currencies against the U.S. dollar; customer acceptance
        of
        new products; efficacy of new technology; changes in U.S. laws and regulations;
        increased competitive and/or customer pressure; the Company's ability to
        maintain chemical price increases; higher-than-expected raw material costs
        and
        availability for certain chemical product lines; an increase in anti-dumping
        duties on certain products; increased foreign competition in the calcium
        hypochlorite markets; unfavorable court, arbitration or jury decisions or
        tax
        matters; the supply/demand balance for the Company's products, including
        the
        impact of excess industry capacity; failure to achieve targeted cost-reduction
        programs; changes in assumptions regarding pension expense and funding; capital
        expenditures in excess of those scheduled; environmental costs in excess
        of
        those projected; the occurrence of unexpected manufacturing
        interruptions/outages at customer or company plants; reduction in expected
        government contract orders; a decision by the Company not to start up the
        hydrates manufacturing facility; unfavorable weather conditions for swimming
        pool use; inability to expand sales in the professional pool dealer market;
        and
        gains or losses on derivative instruments .
 
 22
 
 **Item
            3.**  **Quantitative and Qualitative Disclosures about Market
            Risk**
  **Interest
        Rate Risk**
 
 The
        Company is exposed to interest rate risk on approximately 45 percent of its
        outstanding borrowings that are subject to floating rates. Based on the
        Company’s expected 2006 borrowing levels, an increase in interest rates of 100
        basis points would decrease the Company’s annual results of operations and cash
        flows by approximately $0.6 million.
 
 **Foreign
        Currency Risk**
 
 At
        March 31, 2006, the Company had forward contracts to sell foreign
        currencies with a U.S. dollar equivalent value of $22.7 million and forward
        contracts to buy foreign currencies with notional amounts of $16.9 million.
        The fair value of these forward contracts is included in Other Current Assets
        and Accrued Liabilities, respectively.
 
 Holding
        all other variables constant, if there were a 10 percent change in foreign
        currency exchange rates, the net effect on the Company's annual cash flows
        would
        be an increase (decrease) of between $1.0 million to $2.0 million
        related to the unhedged portion, as any increase (decrease) in cash flows
        resulting from the Company's hedge forward contracts would be offset by an
        equal
        (decrease) increase in cash flows on the underlying transaction being hedged.
        The application of SFAS 133 may cause increased volatility in the Company's
        results of operations for interim periods in the future, if the Company changes
        its policies, or if some of the derivative instruments do not meet the
        requirements for hedge accounting.
 
 **Commodity
        Price Risk**
 
 The
        Company is exposed to commodity price risk related to the price volatility
        of
        natural gas utilized at certain manufacturing sites. Depending on market
        conditions, the Company may purchase derivative commodity instruments to
        minimize the risk of price fluctuations. It is the Company’s policy to hedge up
        to 80 percent of its natural gas purchases during a calendar year. At March
        31, 2006, the Company had no forward contracts to purchase natural gas. In
        addition, the Company is exposed to price risk related to the price volatility
        of certain other raw materials including the ongoing purchase of propylene,
        copper metal, chromic acid, resins and monoethanolamine (“MEA”). Holding other
        variables constant, a 10 percent adverse change in the price of propylene
        would decrease the Company’s results of operations and cash flows by
        approximately $3 million. Holding other variables constant, a
        10 percent adverse change in the price of copper metal, chromic acid,
        resins, MEA and natural gas would decrease the Company’s results of operations
        and cash flows between $1 million to $2 million each .
 
 See
        the
        Company's Form 10-K for the year ended December 31, 2005 for additional
        information on the above items.
 
 23
 **Item
        4.**  **Controls and Procedures**
  As
        of the
        end of the period covered by this report, the Company conducted an evaluation,
        under the supervision and with the participation of the Company’s chief
        executive officer and chief financial officer, of the effectiveness of the
        design and operation of the Company’s disclosure controls and procedures as
        defined in Rule 13a-15(e) and 15d-15(e) under the Securities Exchange Act
        of
        1934, as amended (“Exchange Act”). Based on this evaluation, the Company’s chief
        executive officer and chief financial officer concluded that as of the end
        of
        such period such disclosure controls and procedures (i) were reasonably designed
        to ensure that information required to be disclosed by the Company in reports
        it
        files or submits under the Exchange Act is recorded, processed, summarized
        and
        reported within the time period specified in the rules and forms of the
        Securities and Exchange Commission and (ii) were effective. The Company also
        has
        investments in certain unconsolidated entities. As the Company does not control
        or manage these entities, its disclosure controls and procedures with respect
        to
        such entities are necessarily more limited than those it maintains with respect
        to its consolidated subsidiaries.
 
 There
        have not been any changes in the Company's internal control over financial
        reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under
        the
        Exchange Act) during the fiscal quarter to which this report relates that
        have
        materially affected, or are reasonably likely to materially affect, the
        Company's internal control over financial reporting.


24


**PART
      II. OTHER INFORMATION**




**Item 1.****Legal Proceedings******
 
 In
        April
        2005 and following a governmental investigation, Koppers Arch Wood
        Protection (NZ) Limited (“KANZ”), a New Zealand joint venture company in
        which the Company owns indirectly a 49% interest, was named as a defendant
        in a
        civil suit filed by the New Zealand Commerce Commission (“NZCC”) regarding
        industry competitive practices. A number of other companies and individuals,
        including Koppers Arch Investments Pty Limited (“KAIP”), an Australian entity in
        which the Company owns indirectly a 49% interest, a current KANZ and KAIP
        Board
        member, and certain unrelated entities were also named as defendants. KANZ
        manufactures and markets wood preservative products throughout New Zealand
        and
        KAIP is a holding company for related joint venture companies. The NZCC sought
        unspecified fines, injunctive relief, and legal costs, among other things.
        In
        April 2006, the High Court of New Zealand approved the joint venture’s proposed
        settlement with the NZCC. The proposed settlement calls for the payment of
        a
        penalty of NZ$3.7 million (approximately $2.2 million) and discontinues the
        proceedings against KANZ, KAIP and the Board member.
 
 **Item
        1A. Risk Factors**
 
 The
        description of the investigation regarding our New Zealand joint venture
        contained in Item 1A. of the Company’s Form 10-K for the period ending December
        31, 2005 is hereby amended to supply the following updated
        information:
  **Our
                    joint venture in New Zealand was involved in civil litigation
                    related to
                    industry competitive practices. It has now settled the government’s claims
                    against it. If additional liabilities or penalties result from
                    this
                    matter, those could have a material adverse effect on the business,
                    financial condition, results of operations and cash flows of
                    the joint
                    venture.**
                  
                  In
                    April 2006, the High Court of New Zealand approved the joint
                    venture’s
                    proposed settlement with the NZCC. The settlement calls for the
                    payment of
                    NZ$3.7 million (approximately $2.2 million) and discontinues
                    the
                    proceedings against KANZ, KAIP and the Board member. In connection
                    with
                    the settlement, KANZ and KAIP admitted wrongdoing. In light of
                    the
                    settlement amount, the Company is not expected to receive dividends
                    from
                    the joint venture in the near future. Claims by third parties
                    may be
                    brought against the joint venture entities seeking damages. These
                    claims,
                    if successful, could have a material adverse effect on KANZ’s and KAIP’s
                    business, financial condition, cash flows and results of operations.
  **Item 2.
          **Unregistered
          Sales of Equity Securities and Use of
          Proceeds****
  In
        January 2006, an employee delivered to the Company 5,123 shares of the Company’s
        Common Stock as payment for the exercise price of an outstanding employee
        stock
        option under the 1999 Long Term Incentive
        Plan as indicated in the table below.
  **Period**
              
              **(a)**
                **Total Number of**
                **Shares (or Units)**
                **Purchased**
              
              **(b)**
                **Weighted Average**
                **Price
                  Paid per**
                **Share
                  (or Unit)**
              
              **(c)**
                **Total Number of**
                **Shares
                  (or units)**
                **Purchased as Part of**
                **Publicly
                  Announced**
                **Plans
                  or Programs**
              
              **(d)**
                **Maximum Number (or**
                **Approximate
                  Dollar**
                **Value)
                  of Shares (or**
                **Units) that May Yet Be**
                **Purchased
                  Under the**
                **Plans
                  or Programs**January
                  1, 2006 through January 31, 2006
              
              
              5,123
              
              $
              30.13
              
              
              0
              
              
              N/AFebruary
                  1, 2006 through February 28, 2006
              
              
              0
              
              
              N/A
              
              
              0
              
              
              N/AMarch
                  1, 2006 through March 31, 2006
              
              
              0
              
              
              N/A
              
              
              0
              
              
              N/ATotal
              
              
              5,123
              
              $
              30.13
              
              
              0
              
              
              N/A
 
 
 25
 
 **Item 6.**   **Exhibits**
  Exhibit
                  No.
              
              Description31.1
              
              Certification
                  of Principal Executive Officer Pursuant to Rules 13(a)-15(e) and
                  15d-15(c).31.2
              
              Certification
                  of Principal Financial Officer Pursuant to Rules 13(a)-15(e) and
                  15d-15(c).32
              
              Certification
                  of Chief Executive Officer and Chief Financial Officer pursuant
                  to 18
                  U.S.C. 1350.
 
 
 26
  **SIGNATURES**
  Pursuant
        to the requirements of the Securities Exchange Act of 1934, the registrant
        has
        duly caused this report to be signed on its behalf by the undersigned thereunto
        duly authorized.
  ARCH
                  CHEMICALS, INC.
                (Registrant)May
                  5, 2006
              
              
              
              By:
              
              /s/Louis
                      S. MassimoLouis
                  S. Massimo
                Executive
                  Vice President and Chief Financial
                  Officer
 
  27
  EXHIBIT
        INDEX
  Exhibit
                  No.
              
              Description31.1
              
              Certification
                  of Principal Executive Officer Pursuant to Rules 13(a)-15(e) and
                  15d-15(c).31.2
              
              Certification
                  of Principal Financial Officer Pursuant to Rules 13(a)-15(e) and
                  15d-15(c).32
              
              Certification
                  of Chief Executive Officer and Chief Financial Officer pursuant
                  to 18
                  U.S.C. 1350.