**SECURITIES
        AND EXCHANGE COMMISSION**
 **WASHINGTON,
        D.C. 20549**
  
 **FORM
        10-Q**
 (Mark
        One)
 **x**
              **QUARTERLY
                  REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
                  ACT OF
                  1934**
  For
        the quarterly period ended September 30, 2005
  OR
  ** ̈**
              **TRANSITION
                  REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
                  ACT OF
                  1934**
  For
        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**
                **incorporation
                  or organization)**
              
              **(I.R.S.
                  Employer**
                **Identification
                  Number)****501
                  Merritt 7, Norwalk, CT**
              
              **06851****(Address
                  of principal executive offices)**
              
              **(Zip
                  Code)**
  **(203)
        229-2900**
 **(Registrant’s
        telephone number, including area code)**
 
 **N/A**
 **(Former
        Name, Former Address and Former Fiscal Year, If Changed from 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 an accelerated filer (as defined
        in Rule
        12b-2 of the Exchange Act). YES x NO  ̈
  Indicate
        by check mark whether the registrant is a shell company (as defined in Rule
        12b-2 of the Exchange Act). YES  ̈ NO x
 
 As
        of
        October 31, 2005, there were 23,655,938 outstanding shares of the registrant’s common stock.
  
  **ARCH
        CHEMICALS, INC.**
 
 INDEX
  Page
        Numbers
  PART I.
              FINANCIAL INFORMATIONItem
                1.
              Financial
                Statements
              2Condensed
                Consolidated Balance Sheets as of September 30, 2005 and
                December 31, 2004
              2Condensed
                Consolidated Statements of Income for the three and nine months
                ended September 30, 2005 and 2004
              3Condensed
                Consolidated Statements of Cash Flows for the nine months
                ended September 30, 2005 and 2004
              4Notes
                to Condensed Consolidated Financial Statements
              5Item
                  2.
              Management's
                Discussion and Analysis of Financial Condition and Results
                of Operations
              17Item
                3.
              Quantitative
                and Qualitative Disclosures About Market Risk
              29Item
                4.
              Controls
                and Procedures
              30PART
                II.
              OTHER
                INFORMATIONItem
                5.
              Other
                Information
              31Item
                6.
              Exhibits
              31Signatures
              32




**PART
                    I. FINANCIAL INFORMATION****Item
                    1. Financial Statements****ARCH
                    CHEMICALS, INC.**Condensed
                    Consolidated Balance Sheets(In
                    millions, except per share amounts)September
                    30,
                
                December
                    31,2005
                
                2004**ASSETS**
                
                (Unaudited)Current
                    assets:Cash
                    and cash equivalents
                
                $
                50.6
                
                $
                74.6Accounts
                    receivable, net
                
                
                134.4
                
                
                125.6Short-term
                    investment
                
                
                59.6
                
                
                53.3Inventories,
                    net
                
                
                169.8
                
                
                151.1Other
                    current assets
                
                
                38.2
                
                
                37.9Assets
                    held for sale
                
                
                16.5
                
                
                15.9Total
                    current assets
                
                
                469.1
                
                
                458.4Investments
                    and advances - affiliated companies at equity
                
                
                16.9
                
                
                15.5Property,
                    plant and equipment, net
                
                
                190.1
                
                
                211.6Goodwill
                
                
                196.3
                
                
                192.4Other
                    intangibles
                
                
                141.6
                
                
                151.2Other
                    assets
                
                
                57.7
                
                
                70.9Total
                    assets
                
                $
                1,071.7
                
                $
                1,100.0**LIABILITIES
                    AND SHAREHOLDERS' EQUITY**Current
                    liabilities:Short-term
                    borrowings
                
                $
                21.4
                
                $
                9.1Accounts
                    payable
                
                
                166.8
                
                
                160.2Accrued
                    liabilities
                
                
                84.8
                
                
                108.1Liabilities
                    associated with assets held for sale
                
                
                14.3
                
                
                12.2Total
                    current liabilities
                
                
                287.3
                
                
                289.6Long-term
                    debt
                
                
                212.7
                
                
                215.2Other
                    liabilities
                
                
                196.6
                
                
                235.4Total
                    liabilities
                
                
                696.6
                
                
                740.2Commitments
                    and contingenciesShareholders'
                    equity:Common
                    stock, par value $1 per share,Authorized
                    100.0 shares:23.6
                    shares issued and outstanding (23.4 in 2004)
                
                
                23.6
                
                
                23.4Additional
                    paid-in capital
                
                
                421.1
                
                
                418.2Retained
                    earnings
                
                
                37.5
                
                
                14.8Accumulated
                    other comprehensive loss
                
                
                (107.1
                )
                
                (96.6
                )Total
                    shareholders' equity
                
                
                375.1
                
                
                359.8Total
                    liabilities and shareholders' equity
                
                $
                1,071.7
                
                $
                1,100.0
  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
                      Months
                  
                  Nine
                      MonthsEnded
                      September 30,
                  
                  Ended
                      September 30,2005
                  
                  2004
                  
                  2005
                  
                  2004Sales
                  
                  $
                  314.2
                  
                  $
                  276.8
                  
                  $
                  1,026.8
                  
                  $
                  879.1Cost
                      of goods sold
                  
                  
                  231.1
                  
                  
                  202.9
                  
                  
                  743.3
                  
                  
                  626.2Selling
                      and administration
                  
                  
                  62.3
                  
                  
                  61.5
                  
                  
                  203.1
                  
                  
                  186.2Research
                      and development
                  
                  
                  5.8
                  
                  
                  3.7
                  
                  
                  16.1
                  
                  
                  11.0Other
                      (gains) and losses
                  
                  
                  0.9
                  
                  
                  1.5
                  
                  
                  0.9
                  
                  
                  1.4Restructuring
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  1.7Interest
                      expense
                  
                  
                  5.0
                  
                  
                  5.6
                  
                  
                  15.6
                  
                  
                  15.3Interest
                      income
                  
                  
                  0.1
                  
                  
                  0.3
                  
                  
                  0.5
                  
                  
                  0.7Income
                      from continuing operations before equity in earningsof
                      affiliated companies and taxes
                  
                  
                  9.2
                  
                  
                  1.9
                  
                  
                  48.3
                  
                  
                  38.0Equity
                      in earnings of affiliated companies
                  
                  
                  1.2
                  
                  
                  1.2
                  
                  
                  1.8
                  
                  
                  3.0Income
                      tax expense
                  
                  
                  3.7
                  
                  
                  1.5
                  
                  
                  15.3
                  
                  
                  15.1Income
                      from continuing operations
                  
                  
                  6.7
                  
                  
                  1.6
                  
                  
                  34.8
                  
                  
                  25.9Income
                      (loss) from discontinued operations, net of tax
                  
                  
                  (0.8
                  )
                  
                  4.2
                  
                  
                  (0.8
                  )
                  
                  8.1Gain
                      (loss) on sale of discontinued operations, net of tax
                  
                  
                  -
                  
                  
                  (0.2
                  )
                  
                  2.9
                  
                  
                  (0.2
                  )Net
                      income
                  
                  $
                  5.9
                  
                  $
                  5.6
                  
                  $
                  36.9
                  
                  $
                  33.8Basic
                      income per common share:Continuing
                      operations
                  
                  $
                  0.28
                  
                  $
                  0.07
                  
                  $
                  1.47
                  
                  $
                  1.12Income
                      (loss) from discontinued operations
                  
                  
                  (0.03
                  )
                  
                  0.18
                  
                  
                  (0.03
                  )
                  
                  0.35Gain
                      (loss) on sale of discountinued operations
                  
                  
                  -
                  
                  
                  (0.01
                  )
                  
                  0.12
                  
                  
                  (0.01
                  )Basic
                      income per common share
                  
                  $
                  0.25
                  
                  $
                  0.24
                  
                  $
                  1.56
                  
                  $
                  1.46Diluted
                      income per common share:Continuing
                      operations
                  
                  $
                  0.28
                  
                  $
                  0.07
                  
                  $
                  1.46
                  
                  $
                  1.11Income
                      (loss) from discontinued operations
                  
                  
                  (0.03
                  )
                  
                  0.18
                  
                  
                  (0.03
                  )
                  
                  0.34Gain
                      (loss) on sale of discountinued operations
                  
                  
                  -
                  
                  
                  (0.01
                  )
                  
                  0.12
                  
                  
                  (0.01
                  )Diluted
                      income per common share
                  
                  $
                  0.25
                  
                  $
                  0.24
                  
                  $
                  1.55
                  
                  $
                  1.44Weighted
                      average common shares outstanding:Basic
                  
                  
                  23.6
                  
                  
                  23.4
                  
                  
                  23.6
                  
                  
                  23.1Diluted
                  
                  
                  23.8
                  
                  
                  23.7
                  
                  
                  23.8
                  
                  
                  23.4Dividends
                      declared per share
                  
                  $
                  0.20
                  
                  $
                  0.20
                  
                  $
                  0.60
                  
                  $
                  0.60
  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)
  Nine
                      MonthsEnded
                      September 30,2005
                  
                  2004**Operating
                      activities**Net
                      income
                  
                  $
                  36.9
                  
                  $
                  33.8Adjustments
                      to reconcile net income to net cash andcash
                      equivalents (used in) provided by operating activities:(Income)
                      loss from discontinued operations
                  
                  
                  0.8
                  
                  
                  (8.1
                  )(Gain)
                      loss on sale of discontinued operations
                  
                  
                  (2.9
                  )
                  
                  0.2Other
                      (gains) and losses
                  
                  
                  0.9
                  
                  
                  1.4Equity
                      in (earnings) of affiliates
                  
                  
                  (1.8
                  )
                  
                  (3.0
                  )Depreciation
                      and amortization
                  
                  
                  34.9
                  
                  
                  34.3Deferred
                      taxes
                  
                  
                  10.3
                  
                  
                  6.1Restructuring
                  
                  
                  -
                  
                  
                  1.7Restructuring
                      payments
                  
                  
                  (1.4
                  )
                  
                  (3.3
                  )Changes
                      in assets and liabilities, net of purchaseand
                      sale of businesses:Accounts
                      receivable securitization program
                  
                  
                  10.0
                  
                  
                  49.2Receivables
                  
                  
                  (29.3
                  )
                  
                  (11.9
                  )Inventories
                  
                  
                  (25.8
                  )
                  
                  (3.8
                  )Other
                      current assets
                  
                  
                  0.2
                  
                  
                  (0.2
                  )Accounts
                      payable and accrued liabilities
                  
                  
                  (6.2
                  )
                  
                  7.7Noncurrent
                      liabilities
                  
                  
                  (31.6
                  )
                  
                  0.9Other
                      operating activities
                  
                  
                  1.8
                  
                  
                  4.5Net
                      operating activities from continuing operations
                  
                  
                  (3.2
                  )
                  
                  109.5Change
                      in net assets held for sale
                  
                  
                  3.2
                  
                  
                  6.0Net
                      operating activities
                  
                  
                  -
                  
                  
                  115.5**Investing
                      activities**Capital
                      expenditures
                  
                  
                  (11.0
                  )
                  
                  (12.4
                  )Business
                      acquired in purchase transaction, net of cash acquired
                  
                  
                  (3.1
                  )
                  
                  (214.8
                  )Cash
                      proceeds (payments) from the sale of a business
                  
                  
                  (3.8
                  )
                  
                  -Cash
                      proceeds from sales of buildings and land
                  
                  
                  -
                  
                  
                  0.9Other
                      investing activities
                  
                  
                  (0.3
                  )
                  
                  0.2Net
                      investing activities
                  
                  
                  (18.2
                  )
                  
                  (226.1
                  )**Financing
                      activities**Long-term
                      debt borrowings
                  
                  
                  111.0
                  
                  
                  228.0Long-term
                      debt repayments
                  
                  
                  (111.0
                  )
                  
                  (153.5
                  )Short-term
                      debt borrowings, net
                  
                  
                  11.7
                  
                  
                  18.6Dividends
                      paid
                  
                  
                  (14.2
                  )
                  
                  (13.8
                  )Other
                      financing activities
                  
                  
                  1.1
                  
                  
                  3.6Net
                      financing activities
                  
                  
                  (1.4
                  )
                  
                  82.9Effect
                      of exchange rate changes on cash and cash equivalents
                  
                  
                  (4.4
                  )
                  
                  1.6Net
                      decrease in cash and cash equivalents
                  
                  
                  (24.0
                  )
                  
                  (26.1
                  )Cash
                      and cash equivalents, beginning of year
                  
                  
                  74.6
                  
                  
                  64.8Cash
                      and cash equivalents, end of period
                  
                  $
                  50.6
                  
                  $
                  38.7**Supplemental
                      cash flow information**Income
                      taxes, net
                  
                  $
                  4.6
                  
                  $
                  6.8Interest
                      paid
                  
                  $
                  21.1
                  
                  $
                  20.3Issuance
                      of Arch Common Stock - Avecia acquisition
                  
                  $
                  1.7
                  
                  $
                  15.7
  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,
      2004.
      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 and nine months
      ended September 30, 2005, are not necessarily indicative of the results
      to
      be expected for the entire fiscal year.




Reclassifications
      of prior-year data have been made, where appropriate, to conform to the 2005
      presentation.




**2.
      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 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 and nine months ended September 30, 2005 and 2004.





**Three
                Months**
            
            **Nine
                Months****(in
                millions)**
            
            **Ended
                September 30,**
            
            **Ended
                September 30,****2005**
            
            **2004**
            
            **2005**
            
            **2004**Basic
            
            
            23.6
            
            
            23.4
            
            
            23.6
            
            
            23.1Common
                equivalent shares from stock optionsusing
                the treasury stock method
            
            
            0.2
            
            
            0.3
            
            
            0.2
            
            
            0.3Diluted
            
            
            23.8
            
            
            23.7
            
            
            23.8
            
            
            23.4





**3.
      Accounts Receivable/Short-Term Investment**





On
      June 27, 2005, the Company entered into a new accounts receivable securitization
      program with Three Pillars Funding LLC (“Three Pillars”), an affiliate of
      SunTrust Bank, and SunTrust Capital Markets, Inc. to replace the Company's
      previous accounts receivable securitization program which had expired on March
      30, 2005. Under
      this new program, 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 September
      30,
      2005, the Company, through ACRC, sold $10.0 million of participation interests
      in $69.6 million of accounts receivable. This sale has been reflected as a
      reduction of receivables in the condensed consolidated balance sheet. ACRC
      had
      not sold any participation interests in its accounts receivable at
      December 31, 2004 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 $59.6 million and $53.3 million at September 30, 2005 and
      December 31, 2004, 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 ($2.0 million at September 30, 2005 and
      $2.3 million at December 31, 2004) and had not been discounted due to
      the
      short-term nature of the underlying financial assets.





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


The
      costs
      of the program for the three and nine months ended September 30, 2005
      and
      2004 of $0.4 million and $0.8 million, and $0.3 million and $0.7 million,
      respectively, are included in Selling and administration expenses 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.





**4.
      Inventories**





**September
                30,**
            
            **December 31,****($
                in millions)**
            
            **2005**
            
            **2004**Raw
                materials and supplies
            
            $
            56.6
            
            $
            45.4Work
                in process
            
            
            8.2
            
            
            8.1Finished
                goods
            
            
            148.5
            
            
            142.0Inventories,
                gross
            
            
            213.3
            
            
            195.5LIFO
                reserve
            
            
            (43.5
            )
            
            (44.4
            )Inventories,
                net
            
            $
            169.8
            
            $
            151.1





Approximately
      45 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 September 30, 2005 reflect certain estimates relating
      to
      projected inventory quantities and costs at December 31, 2005.





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





**CMS
      Business**





Assets
      held for sale consists of the Company’s chemical management services business
      (“CMS”), which was retained after the sale of the microelectronic materials
      business to Fuji Photo Film Co., Ltd. (“Fuji”). The Company is pursuing all
      strategic options for its CMS business, including its sale.





The
      CMS
      business, which essentially services the customers of the sold microelectronic
      materials businesses, 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. The amounts actually realized by the Company at the time of sale
      could differ from the current net assets 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.





**Hickson
      Organics**





On
      August 11, 2003, the Company completed the sale of the Hickson organics
      operations in Castleford, England. The purchase price included two promissory
      notes aggregating £1.5
      million .
      As of December 31, 2004 the Company had placed a valuation reserve against
      both
      outstanding notes. In April 2005, the purchaser went into receivership and
      the
      operations were subsequently shut down. As a result of the receivership
      proceedings, the Company recovered £1.7
      million ( approximately
      $2.9 million) representing the principal and interest on the two outstanding
      notes. The Company received the cash payment on July 19, 2005. This gain was
      reflected as a gain on the sale of discontinued operations on the Condensed
      Consolidated Income Statement during the second quarter.





6




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


**Balance
      Sheet**





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





**September
                30,**
              **2005**
            
            **December
                31,**
              **2004********($
                in millions)**Accounts
                receivable, net
            
            $
            11.2
            
            $
            9.5Inventory
            
            
            4.5
            
            
            5.5Other
                current assets
            
            
            0.2
            
            
            0.2Property,
                plant and equipment, net
            
            
            0.4
            
            
            0.6Other
                assets
            
            
            0.2
            
            
            0.1Total
                assets associated with assets held for sale
            
            
            16.5
            
            
            15.9Accounts
                payable and accrued liabilities
            
            
            14.3
            
            
            12.2Total
                liabilities associated with assets held for sale
            
            
            14.3
            
            
            12.2Net
                assets held for sale
            
            $
            2.2
            
            $
            3.7





**Income
      (Loss) From Discontinued Operations**





Income
      (Loss) from Discontinued Operations for the three and nine months ended
      September 30, 2005 and 2004 include the following:





**Three
                Months Ended**
              **September
                30,**
            
            **Nine
                Months Ended**
              **September
                30,********($
                in millions)**
            
            **2005**
            
            **2004**
            
            **2005**
            
            **2004**Sales
                - CMS
            
            $
            2.5
            
            $
            2.7
            
            $
            8.1
            
            $
            8.2Sales
                - microelectronic materials businesses sold
            
            
            —
            
            
            37.2
            
            
            —
            
            
            110.9Total
                Sales
            
            $
            2.5
            
            $
            39.9
            
            $
            8.1
            
            $
            119.1Earnings
                (Loss) before taxes - microelectronicmaterials
                business (including CMS)
            
            $
            (1.3
            )
            $
            5.9
            
            $
            (1.3
            )
            $
            11.3Tax
                (benefit) expense
            
            
            (0.5
            )
            
            1.7
            
            
            (0.5
            )
            
            3.2Income
                (Loss) from discontinued operations
            
            $
            (0.8
            )
            $
            4.2
            
            $
            (0.8
            )
            $
            8.1





Included
      in the results for the three and nine months ended September 30, 2005 are
      severance and related costs associated with the termination of certain service
      contracts of the CMS business of $1.1 million.





**6.
      Goodwill and Other Intangibles**





The
      changes in the carrying amount of goodwill for the nine months ended September
      30, 2005 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, 2004
            
            $
            29.0
            
            $
            88.1
            
            $
            70.9
            
            $
            188.0
            
            $
            4.4
            
            $
            192.4Foreign
                exchange and other
            
            
            0.8
            
            
            (4.6
            )
            
            7.7
            
            
            3.9
            
            
            -
            
            
            3.9Balance,
                September 30, 2005
            
            $
            29.8
            
            $
            83.5
            
            $
            78.6
            
            $
            191.9
            
            $
            4.4
            
            $
            196.3





The
      gross
      carrying amount and accumulated amortization for other intangible assets as
      of
      September 30, 2005 and December 31, 2004 are as
      follows:





7





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


**September
                30, 2005**
            
            **December 31,
                2004****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
            
            
            69.0
            
            
            9.8
            
            
            59.2
            
            
            70.8
            
            
            7.7
            
            
            63.1Toxicology
                database
            
            
            16.0
            
            
            1.7
            
            
            14.3
            
            
            17.4
            
            
            0.9
            
            
            16.5Developed
                technology
            
            
            13.6
            
            
            0.9
            
            
            12.7
            
            
            14.7
            
            
            0.2
            
            
            14.5Other
            
            
            10.4
            
            
            4.4
            
            
            6.0
            
            
            10.5
            
            
            3.7
            
            
            6.8Total
                amortizable otherintangibles
            
            
            109.2
            
            
            17.0
            
            
            92.2
            
            
            113.6
            
            
            12.7
            
            
            100.9Total
                non-amortizable otherintangibles
                — trademarks
            
            
            49.8
            
            
            0.4
            
            
            49.4
            
            
            50.7
            
            
            0.4
            
            
            50.3Total
                other intangibles
            
            $
            159.0
            
            $
            17.4
            
            $
            141.6
            
            $
            164.3
            
            $
            13.1
            
            $
            151.2





The
      change in the gross carrying amount is principally due to the effect of foreign
      exchange.





Amortization
      expense for the three and nine months ended September 30, 2005 and 2004 was
      $1.9 million and $5.6 million, and $1.4 million and $3.3 million,
      respectively. Estimated amortization expense is $7.5 million for the
      year
      ended December 31, 2005, $8.6 million for each of the years ending
      December 31, 2006 through 2008, and $7.6 million for the year ended
      December 31, 2009.





In
      accordance with FASB Statement No. 142, “Goodwill and Other Intangibles,” the
      Company has elected to perform its annual goodwill and other non-amortizable
      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 first
      quarter, the Company completed these procedures and concluded that no impairment
      existed as of January 1, 2005.





**7.
      Debt**





The
      Company’s revolving credit facility contains a quarterly leverage ratio (debt /
      EBITDA) not to exceed 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 $53.2 million at
      September 30, 2005. As of September 30, 2005, 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. There were no outstanding borrowings under the credit
      facility at September 30, 2005.





The
      Company’s senior notes contain a quarterly leverage ratio (debt / EBITDA) not to
      exceed 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 $40.4 million
      at
      September 30, 2005.





At
      September 30, 2005, the Company had $39.6 million of outstanding letters
      of
      credit. In addition, the Company has agreed to guarantee 50% or up to $8.5
      million of Planar Solutions’ line of credit, which is provided by the Company’s
      joint venture partner. As of September 30, 2005, the Company had $6.0 million
      letters of guarantee outstanding for its Planar Solutions joint venture
      borrowings and certain equipment leases. The Company would be required to
      perform under the above guarantee in the case of nonpayment by Planar Solutions.
      On April 28, 2005, the Board of Directors of the Company approved an extension
      of this Planar Solutions guarantee through January 2007.





8




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





**8.
      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 2005. During the nine months ended
      September 30, 2005 and 2004, the majority of the Company’s foreign currency
      forward contracts qualified as effective cash flow hedges. The fair market
      value
      of the derivatives designated as effective cash flow hedges are recorded in
      Other Comprehensive Income (Loss) (see Note 11 for more
      information).





At
      September 30, 2005, the Company had forward contracts to sell foreign currencies
      with a U.S. dollar equivalent value of $3.5 million and forward contracts
      to buy foreign currencies with a U.S. dollar equivalent value of
      $9.0 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 rate 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 $2.3 million and $1.6 million at September 30, 2005 and December
      31,
      2004, respectively, and are included in Other Liabilities on 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.





**9.
      Employee Retirement Plans**





*Arch
      U.S. Pension and Retirement Plans*





As
      of
      September 30, 2005 and 2004, the components of net periodic benefit costs for
      the Arch U.S. Pension and Postretirement Plans were as follows:





**Three
                Months**
              **Ended
                September 30,**
            
            **Nine
                Months**
              **Ended
                September 30,****Arch
                U.S. Pension Plans**
            
            **2005**
            
            **2004**
            
            **2005**
            
            **2004****Net
                Periodic Benefit Expense:**Service
                cost (benefits earned during the period)
            
            $
            1.6
            
            $
            1.6
            
            $
            5.4
            
            $
            5.2Interest
                cost on the projected benefit obligation
            
            
            3.5
            
            
            3.0
            
            
            10.7
            
            
            9.5Expected
                return on plan assets
            
            
            (3.6
            )
            
            (2.7
            )
            
            (9.9
            )
            
            (8.5
            )Amortization
                of prior service cost
            
            
            0.1
            
            
            0.2
            
            
            0.2
            
            
            0.5Recognized
                actuarial loss
            
            
            0.8
            
            
            0.4
            
            
            2.9
            
            
            1.2Net
                periodic benefit cost
            
            $
            2.4
            
            $
            2.5
            
            $
            9.3
            
            $
            7.9





**Three
                Months**
              **Ended
                September 30,**
            
            **Nine
                Months**
              **Ended
                September 30,****Arch
                U.S. Postretirement Plan**
            
            **2005**
            
            **2004**
            
            **2005**
            
            **2004****Net
                Periodic Benefit Expense:**Service
                cost (benefits earned during the period)
            
            $
            0.1
            
            $
            0.2
            
            $
            0.3
            
            $
            0.5Interest
                cost on the projected benefit obligation
            
            
            0.2
            
            
            0.2
            
            
            0.8
            
            
            0.6Amortization
                of prior service cost
            
            
            0.1
            
            
            —
            
            
            0.2
            
            
            (0.1
            )Recognized
                actuarial loss
            
            
            —
            
            
            —
            
            
            —
            
            
            0.1Net
                periodic benefit cost
            
            $
            0.4
            
            $
            0.4
            
            $
            1.3
            
            $
            1.1




9


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




As
      of
      September 30, 2005 and 2004, the components of net periodic benefit costs for
      the Hickson U.K. and the Hickson U.K. Senior Executive retirement plans were
      as
      follows:


**Three
                  Months**
                **Ended
                    September 30,**
              
              **Nine
                  Months**
                **Ended
                    September 30,****2005**
              
              **2004**
              
              **2005**
              
              **2004****Net
                  Periodic Benefit Expense:**Service
                  cost (benefits earned during the period)
              
              $
              0.1
              
              $
              0.2
              
              $
              0.4
              
              $
              0.5Interest
                  cost on the projected benefit obligation
              
              
              4.4
              
              
              4.4
              
              
              13.5
              
              
              13.2Expected
                  return on plan assets
              
              
              (4.4
              )
              
              (4.6
              )
              
              (13.5
              )
              
              (13.9
              )Recognized
                  actuarial loss
              
              
              1.0
              
              
              0.6
              
              
              3.1
              
              
              1.9Net
                  periodic benefit cost
              
              $
              1.1
              
              $
              0.6
              
              $
              3.5
              
              $
              1.7





The
      Company’s minimum pension funding requirements as set forth by ERISA for its
      U.S. pension plans were originally expected to be $6.0 million in 2005
      and
      $32.0 million in 2006. In addition to the required contributions, the
      company made voluntary contributions to its U.S. pension plan of $33.5 million
      and $2.7 million in the second and third quarters of 2005, respectively, and
      as
      a result, there are no further minimum funding requirements expected for 2005
      and 2006 under current law. The
      Company also has minimum funding requirements for its U.K. pension plan, which
      are expected to be approximately $10.0 million in 2005 and 2006. As
      of
      September 30, 2005, $39.1 million had been contributed for the Arch U.S. pension
      plans and approximately $5.0 million, in aggregate, for its Hickson U.K. and
      Hickson U.K. Senior Executive retirement 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 September 30, 2005, the Company had $3.3 million
      in
      Other assets in the Condensed Consolidated Balance Sheets, a deferred
      compensation liability of $6.4 million and $2.4 million recorded as a reduction
      to equity for the Company’s stock held in the Rabbi Trust.





**10.
      Comprehensive Income**


Comprehensive
      income 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 for the
      three and nine months ended September 30, 2005 and 2004 was as
      follows:





**Three
                Months**
            
            **Nine
                Months****Ended
                September 30,**
            
            **Ended
                September 30,****2005**
            
            **2004**
            
            **2005**
            
            **2004**Net
                income
            
            $
            5.9
            
            $
            5.6
            
            $
            36.9
            
            $
            33.8Foreign
                currency translation adjustments
            
            
            7.5
            
            
            —
            
            
            (10.6
            )
            
            (5.2
            )Net
                unrealized gain (loss) on derivative instruments
            
            
            (0.4
            )
            
            (0.1
            )
            
            0.1
            
            
            —Total
                other comprehensive income (loss)
            
            
            7.1
            
            
            (0.1
            )
            
            (10.5
            )
            
            (5.2
            )Comprehensive
                income
            
            $
            13.0
            
            $
            5.5
            
            $
            26.4
            
            $
            28.6





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.





**11.
      Accumulated Net Unrealized Gain (Loss) on Derivative
      Instruments**





Changes
      in the accumulated net unrealized gain (loss) on derivative instruments for
      the
      three and nine months ended September 30, 2005 and 2004 are as
      follows:





10




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


**Three
                Months**
            
            **Nine
                Months****Ended
                September 30,**
            
            **Ended
                September 30,****2005**
            
            **2004**
            
            **2005**
            
            **2004**Beginning
                balance of accumulated net unrealizedgain
                (loss) on derivative instruments
            
            $
            0.3
            
            $
            0.1
            
            $
            (0.2
            )
            $
            -Net
                gain (loss) on cash flow hedges
            
            
            (0.1
            )
            
            -
            
            
            0.3
            
            
            -Reclassification
                into earnings
            
            
            (0.3
            )
            
            (0.1
            )
            
            (0.2
            )
            
            -Ending
                balance of accumulated net unrealizedgain
                (loss) on derivative instruments
            
            $
            (0.1
            )
            $
            -
            
            $
            (0.1
            )
            $
            -





The
      unrealized gains (losses) on derivative instruments included in Accumulated
      Other Comprehensive Loss are expected to be reclassified into earnings within
      the next 12 months.





**12.
      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.





As
      a result of the sale of the majority of the microelectronic materials businesses
      on November 30, 2004, the Company has restated its prior year condensed
      consolidated financial statements to include the results of the microelectronic
      materials businesses sold as a component of discontinued operations in
      accordance with SFAS 144. The Company has retained its 50 percent
      interest in Planar Solutions, LLC, its joint venture with Wacker Chemical
      Holding Corporation, which is included in Corporate Unallocated. In addition,
      as
      a result of the sale, the Company has reallocated certain centralized service
      costs to the Company’s segments that were previously allocated to the
      microelectronic materials segment for 2004 .





**Three
                  Months**
                **Ended
                  September 30,**
              
              **Nine
                  Months**
                **Ended
                  September 30,****($
                  in millions)**
              
              **2005**
              
              **2004**
              
              **2005**
              
              **2004****Sales:**Treatment
                  Products:HTH
                  Water Products
              
              $
              95.8
              
              $
              83.0
              
              $
              369.8
              
              $
              315.5Personal
                  Care and Industrial Biocides
              
              
              66.9
              
              
              65.5
              
              
              207.3
              
              
              172.9Wood
                  Protection and Industrial Coatings
              
              
              89.7
              
              
              86.2
              
              
              278.1
              
              
              267.8Total
                  Treatment Products
              
              
              252.4
              
              
              234.7
              
              
              855.2
              
              
              756.2Performance
                  Products:Performance
                  Urethanes
              
              
              59.0
              
              
              37.6
              
              
              158.8
              
              
              103.6Hydrazine
              
              
              2.8
              
              
              4.5
              
              
              12.8
              
              
              19.3Total
                  Performance Products
              
              
              61.8
              
              
              42.1
              
              
              171.6
              
              
              122.9Total
                  Sales
              
              $
              314.2
              
              $
              276.8
              
              $
              1,026.8
              
              $
              879.1**Segment
                  Operating Income (Loss), including****Equity
                  Income in Affiliated Companies:**Treatment
                  Products:HTH
                  Water Products
              
              $
              (2.3
              )
              $
              (6.9
              )
              $
              21.2
              
              $
              23.3Personal
                  Care and Industrial Biocides
              
              
              11.5
              
              
              16.9
              
              
              34.8
              
              
              38.1Wood
                  Protection and Industrial Coatings
              
              
              6.0
              
              
              7.1
              
              
              13.9
              
              
              20.7Total
                  Treatment Products
              
              
              15.2
              
              
              17.1
              
              
              69.9
              
              
              82.1Performance
                  Products:Performance
                  Urethanes
              
              
              5.3
              
              
              (2.0
              )
              
              9.5
              
              
              (7.3
              )Hydrazine
              
              
              (1.6
              )
              
              (1.3
              )
              
              (1.9
              )
              
              (1.2
              )Total
                  Performance Products
              
              
              3.7
              
              
              (3.3
              )
              
              7.6
              
              
              (8.5
              )Corporate
                  Unallocated
              
              
              (3.6
              )
              
              (5.4
              )
              
              (12.3
              )
              
              (16.3
              )
   11
  **ARCH
          CHEMICALS, INC.**
 Notes
          to
          Condensed Consolidated Financial Statements
 (Unaudited)
 Total
                  Segment Operating Income, includingEquity
                  Income in Affiliated Companies
              
              
              15.3
              
              
              8.4
              
              
              65.2
              
              
              57.3Equity
                  in Earnings of Affiliated
                  Companies
              
              
              (1.2
              )
              
              (1.2
              )
              
              (1.8
              )
              
              (3.0
              )Restructuring
              
              
              —
              
              
              —
              
              
              —
              
              
              (1.7
              )Total
                  Operating Income
              
              
              14.1
              
              
              7.2
              
              
              63.4
              
              
              52.6Interest
                  expense, net
              
              
              (4.9
              )
              
              (5.3
              )
              
              (15.1
              )
              
              (14.6
              )Total
                  Income from Continuing Operations before Taxes and Equity Income
                  (Loss) in
                  Affiliated Companies
              
              $
              9.2
              
              $
              1.9
              
              $
              48.3
              
              $
              38.0**Capital
                  Spending:**Treatment
                  Products:HTH
                  Water Products
              
              $
              1.0
              
              $
              1.1
              
              $
              2.9
              
              $
              3.0Personal
                  Care and Industrial Biocides
              
              
              1.6
              
              
              1.2
              
              
              3.9
              
              
              3.5Wood
                  Protection and Industrial Coatings
              
              
              1.1
              
              
              1.1
              
              
              2.8
              
              
              4.3Total
                  Treatment Products
              
              
              3.7
              
              
              3.4
              
              
              9.6
              
              
              10.8Performance
                  Products:Performance
                  Urethanes
              
              
              0.9
              
              
              0.2
              
              
              1.4
              
              
              0.7Hydrazine
              
              
              —
              
              
              —
              
              
              —
              
              
              0.9Total
                  Performance Products
              
              
              0.9
              
              
              0.2
              
              
              1.4
              
              
              1.6Total
                  Capital Spending
              
              $
              4.6
              
              $
              3.6
              
              $
              11.0
              
              $
              12.4




Segment
      operating income includes the equity in earnings (losses) of affiliated
      companies and excludes
      restructuring (income) expense, impairment expense and certain
      unallocated expenses of the corporate headquarters. 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.
      Restructuring**





Amounts
      related to the Company’s previous restructuring programs were essentially
      complete as of December 31, 2004, except for the 2004 program and the
      restructuring associated with the acquisition of the Avecia pool & spa and
      protection & hygiene businesses. The following table summarizes activity
      related to the 2004 restructuring program for severance related headcount costs
      in the hydrazine business due to the expiration of the government
      contract:





**($
                in millions)**
            
            **Severance**
              **Costs**2004
                Activity:Provision
            
            $
            2.1Payments
            
            
            0.6Reclass
                postemployment and insurance liabilities
            
            
            0.7Balance
                at December 31, 2004
            
            
            0.82005
                Activity:Payments
            
            
            0.5Balance
                at September 30, 2005
            
            $
            0.3





As
      a
      result of the acquisition of the Avecia pool & spa and protection &
      hygiene businesses, the Company incurred $4.6 million for headcount reductions
      at the U.S. and U.K. locations and office closure costs in the U.S. which has
      been included as a component of goodwill. The following table summarizes
      activity related to this plan:





12




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


**($
                in millions)**
            
            **Severance**
              **Costs**
            
            **Other
                Items**
            
            **Total**2004
                Activity:Provision
            
            $
            4.1
            
            $
            0.5
            
            $
            4.6Payments
            
            
            3.2
            
            
            -
            
            
            3.2Balance
                at December 31, 2004
            
            
            0.9
            
            
            0.5
            
            
            1.42005
                Activity:Payments
            
            
            0.6
            
            
            0.3
            
            
            0.9Balance
                at September 30, 2005
            
            $
            0.3
            
            $
            0.2
            
            $
            0.5





As
      of
      September 30, 2005, all affected employees have been notified of their
      termination; of these, some are still receiving severance benefits and fewer
      than five employees have not reached their termination date. At September 30,
      2005, $0.8 million of restructuring reserves was included in Accrued
      liabilities in the accompanying Condensed Consolidated Balance
      Sheets.





**14.
      Commitments and Contingencies**





In
      connection with the acquisition of Hickson, the Company assumed certain legal
      obligations, including a trial court judgment, in favor of a railroad, of
      approximately $8.5 million plus interest in a lawsuit associated with a wood
      preservative ingredient spillage in 1994. In 2002, a new trial resulted in
      a
      judgment of $2.6 million plus interest. The judgment was affirmed on appeal
      in
      February 2005 and is now final. In July 2005, the Company made a payment of
      $3.1
      million in full settlement of such obligation which had been fully
      accrued.





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 parties have reached an agreement to settle a portion
      of the litigation that involves claims by plaintiffs who are individuals. This
      agreement has received court approval and the settlement amount has been paid
      by
      the Company. The balance of the litigation primarily involves claims by a number
      of businesses for property damage. The Company has provided for its exposure
      in
      this litigation, $3.0 million, including the amount of its participation in
      the
      settlement, and 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. 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 remaining plaintiffs
      by
      the Company and reimbursement of such payment from the Company’s
      insurers.




There
      are
      no longer any 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 were
      significant in 2004, and 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 initially 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.





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


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 accrued
      approximately $4.1 million for the estimated taxes, related interest and a
      portion of the penalties associated with the claim ($0.9 million). As of
      September 30, 2005, the Company had estimated contingent liabilities related
      to
      the claims of approximately $1.6 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. In July 2005, the domestic producers filed with the Court of
      International Trade notices of their intent to challenge the DOC’s order as it
      relates to the margins assessed against the Chinese producers but such producers
      never pursued the challenge which is now time-barred .





In
      April 2005 and following an 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 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
      seeks unspecified fines, injunctive relief, and legal costs, among other things.
      The NZCC has the authority to assess fines from each corporate defendant equal
      to the highest of (i) NZ$10 million (approximately US$7 Million), (ii) three
      times the commercial gain from any contravention or (iii) 10% of the sales
      of
      the defendant. Penalties, if assessed, could have a material adverse effect
      on
      KANZ’s and KAIP’s business, financial condition, cash flows and results of
      operations. KANZ and KAIP are finalizing the proposed settlement regarding
      the
      claims brought against them by the NZCC. The proposed settlement is still
      subject to entering definitive documentation with the NZCC and to court
      approval. During 2005, the joint venture recorded a reserve of approximately
      $2.7 million related to its potential exposure for this case and as a result
      the
      Company’s equity in earnings (losses) was impacted by approximately $1.3
      million.




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 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 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.





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


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.





As
      part of the Hickson organics disposition in August 2003, the Company continues
      to be responsible for known environmental matters at the Castleford, England
      site. Such matters have previously been accrued for in its environmental reserve
      included in the consolidated financial statements. Additionally, regarding
      any
      unknown environmental matters that are identified subsequent to the sale of
      this
      business, the Company had agreed to share responsibility with the purchaser
      over
      a seven-year period, with the Company’s share decreasing to zero over the
      seven-year period with a maximum liability for such unknown environmental
      matters of £5.0 million. However, in April 2005, the purchaser went into
      receivership and is highly unlikely to be able to honor its environmental
      indemnification commitments to the Company. The receiver is in the process
      of
      selling off the purchaser’s assets and has recently sold the purchaser’s
      ownership interest in the former land and equipment of the Hickson plant site
      in
      Castleford, England. The Company does not believe there has been any change
      in
      its environmental exposure at the site.





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 nine months ended September 30,
      2005.





New
      U.K.
      tax legislation rules have been enacted that will affect a wide range of
      financing structures that U.S. groups have commonly used to invest in the U.K.
      The rules are complex and areas of uncertainty exist at this time. These new
      rules could increase the Company's effective tax rate by limiting its ability
      to
      obtain a U.K. tax deduction for certain of its U.K. interest expense. The
      Company has a deferred tax asset for this accrued interest of approximately
      $6.0
      million as of December 31, 2004. Depending on the application of these new
      rules, this deferred tax asset may not be recoverable and therefore, would
      increase the Company's effective tax rate.





**15.
      Avecia Acquisition**





On
      April 2, 2004, the Company completed the acquisition of Avecia’s pool &
      spa and protection & hygiene businesses for $230.8 million. The
      purchase price was further subject to a contingent payment of up to
      $5.0 million in cash based upon earnings attributable to North American
      sales of certain acquired products. An
      interim payment of $2.5 million was made in April 2005 based on 2004
      results.  In
      addition, the purchase price was subject to adjustment if the unfunded pension
      liability in the U.K. pension plan was determined to be less than
      $10.0 million, in which case the purchase price would be adjusted upwards
      by the difference between $10.0 million and the unfunded liability,
      with
      the consideration to be split equally between a contingent cash payment and
      up
      to 223,250 additional shares of the Company’s common stock. Based upon the final
      determination, the share consideration component of this adjustment was
      74,788 shares of common stock, which were issued in January 2005 with
      a
      value of $1.7 million. The contingent cash payment will be a maximum
      of
      $1.7 million and earned based upon cumulative global net sales of certain
      products through 2005. An interim payment of $0.5 million was made in April
      2005
      based on 2004 results. For additional information concerning the acquisition
      see
      the Company's
      Form 10-K for the year ended December 31, 2004 as well as the Form 8-K/A filed by the Company on June 16,
      2004 .





**Supplemental****** **Pro****** **Forma****Information**





The
      table
      below presents unaudited pro forma financial information in connection with
      the
      Avecia acquisition as if it had occurred on January 1, 2004.





The
      unaudited pro forma information below reflects pro forma adjustments which
      are
      based upon currently available information and certain estimates and
      assumptions, and therefore the actual results may have differed from the pro
      forma results. However, management believes that the assumptions provide a
      reasonable basis for presenting the significant effects of the transaction,
      and
      that the pro forma adjustments give appropriate effect to those assumptions
      and
      are properly applied in the pro forma financial information. This information
      should be read in conjunction with the Form 8-K/A, filed by the Company on
      June
      16, 2004, in connection with the Avecia acquisition, which contains unaudited
      pro forma combined condensed financial statements.





15
 
 **ARCH
          CHEMICALS, INC.**
 Notes
          to
          Condensed Consolidated Financial Statements
 (Unaudited)


The
      unaudited pro forma financial information is presented for illustrative purposes
      only and is not necessarily indicative of the operating results that would
      have
      occurred if the acquisition had been completed at the dates indicated. The
      information does not necessarily indicate the future operating results or
      financial position of “the Company”. The Avecia pool & spa business is
      seasonal in nature as its products are primarily used in the U.S. residential
      pool market.





**Nine
                Months****Ended**
              **September
                30,****($
                in millions, except per share amounts)**
            
            **2004**Sales
            
            $
            918.2Income
                from continuing operations
            
            
            28.6Net
                Income
            
            $
            36.5Basic
                income per common share:Continuing
                operations
            
            $
            1.23Net
                Income
            
            $
            1.57Diluted
                income per common share:Continuing
                operations
            
            $
            1.22Net
                Income
            
            $
            1.55





**16.
      Hydrazine Propellants Supply Contract**





On
      March
      29, 2005, the Company was notified by the U.S. Defense Energy Support Center
      (DESC) that it had been awarded a 20-year contract for approximately $149
      million for the production, storage, distribution and handling of hydrazine
      propellants for the U.S. government. Subsequent to the awarding of the contract,
      the Company was notified by the DESC that a competing bidder had filed a protest
      with the DESC regarding the award and consequently, contract performance
      was suspended pending final resolution of the protest. On April
      21, 2005, the Company was notified that the DESC denied the protest filed by
      a
      competing bidder. Consequently, the suspension of the contract has been lifted,
      and the Company has been instructed to re-initiate contract performance.





Under
      this new, long-term contract, full-scale production is not scheduled to begin
      until 2007. Since there are no revenues and only minimal incremental costs
      associated with the awarding of this contract in the current year, the Company
      does not expect this action to have a significant impact on Arch’s financial
      performance in 2005.




16




**Management's
        Discussion and Analysis of Financial Condition and Results of Operations
        -
        Continued**




**Overview**
 
 In
        analyzing the results of operations for the Company and its segments, the
        following matters should be considered. The Company’s Treatment 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
        and
        excludes certain unallocated expenses of the corporate headquarters. 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.
 
 As
        a
        result of the sale of the majority of the microelectronic materials businesses
        as of November 30, 2004, the Company has restated its prior year condensed
        consolidated financial statements to include the results of the microelectronic
        materials businesses sold and the loss on the disposition as a component
        of
        discontinued operations in accordance with the Statement of Financial Accounting
        Standard No. 144, “Accounting for the Impairment or Disposal of Long-Lived
        Assets” (“SFAS 144”). The Company has retained its 50 percent interest in Planar
        Solutions, LLC, its joint venture with Wacker Chemical Holding Corporation
        for
        the production and sale of chemical mechanical polarization (CMP) slurries
        and
        its chemical management services (CMS) business. The Company is pursuing
        all
        strategic options for the CMS business, including its sale. As a result,
        and in
        accordance with the accounting requirements of SFAS 144, the CMS business
        is
        reported as an asset held for sale and the results of operations are included
        in
        discontinued operations in the condensed consolidated financial statements.
 
 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**
              
              **Nine
                  Months****Ended
                  September 30,**
              
              **Ended
                  September 30,****2005**
              
              **2004**
              
              **2005**
              
              **2004**(In
                  millions, except per share amounts)Sales
              
              $
              314.2
              
              $
              276.8
              
              $
              1,026.8
              
              $
              879.1Gross
                  margin
              
              $
              83.1
              
              $
              73.9
              
              $
              283.5
              
              $
              252.9Selling
                  and administration
              
              
              62.3
              
              
              61.5
              
              
              203.1
              
              
              186.2Research
                  and development
              
              
              5.8
              
              
              3.7
              
              
              16.1
              
              
              11.0Other
                  (gains) and losses
              
              
              0.9
              
              
              1.5
              
              
              0.9
              
              
              1.4Restructuring
              
              
              -
              
              
              -
              
              
              -
              
              
              1.7Interest
                  expense, net
              
              
              4.9
              
              
              5.3
              
              
              15.1
              
              
              14.6Equity
                  in earnings of affiliated companies
              
              
              1.2
              
              
              1.2
              
              
              1.8
              
              
              3.0Income
                  tax expense
              
              
              3.7
              
              
              1.5
              
              
              15.3
              
              
              15.1Income
                  from continuing operations
              
              $
              6.7
              
              
              1.6
              
              $
              34.8
              
              
              25.9Diluted
                  income per common share from continuing operations
              
              $
              0.28
              
              $
              0.07
              
              $
              1.46
              
              $
              1.11
 
 17
 Management's
        Discussion and Analysis of
        Financial Condition and Results of Operations - Continued
 
 ***Three
        Months Ended September 30, 2005 Compared to 2004***
 
 Sales
        increased $37.4 million, or 13.5%, due to an increase in volumes
        (approximately 12 percent) and favorable pricing (approximately one percent).
        Sales were higher in the performance urethanes business due to an increase
        in
        overall volumes across all product lines and improved pricing that successfully
        mitigated higher raw material costs. Additionally, sales were higher in HTH
        water products due to an increase in residential swimming pool volumes of
        branded chlorinated isocyanurates as well as branded and non-branded calcium
        hypochlorite.
 
 Gross
        margin percentage was 26.4% and 26.7% for 2005 and 2004, respectively. Overall,
        the gross margin percentage was comparable as the increase in gross margin
        percentage for performance urethanes offset decreased gross margin percentages
        in the industrial biocides and wood protection businesses. The decrease in
        margin in the industrial biocides business was driven by price erosion due
        to
        new entrants into a mature segment of the protection & hygiene market and
        higher raw material costs primarily for glycols and sodium hypochlorite.
        The
        wood protection business’ decrease in gross margin percentage is primarily the
        result of increased raw materials costs for copper
        metal, monoethanolamine (“MEA”) and chromic acid .
        The
        increase in margin for the performance urethanes business is a result of
        the
        higher sales volumes and the improved pricing.
 
 Selling
        and administration expenses as a percentage of sales were 19.8% and 22.2%
        for
        2005 and 2004, respectively. These expenses increased in amount by
        $0.8 million. The September 2004 results benefited ($3.1 million)
        from a
        $6.1 million settlement of a favorable judgment obtained against a former
        owner
        of an acquired company. This was partially offset by lower selling and
        promotional expenses due to cost containment initiatives as well as lower
        legal
        costs in the HTH water products business.
 
 Other
        (gains) and losses in 2005 represents an additional charge for a portion
        of the
        penalties related to the Brazilian state import tax claim for the performance
        urethanes and water products businesses recorded in 2004. 2004 includes the
        charge for the Brazilian state import tax claim of $2.1 million in the
        performance urethanes, water products and hydrazine businesses, partially
        offset
        by the pre-tax gain of $0.6 million on the sale of a building in the personal
        care business.
 
 Interest
        expense, net, decreased $0.4 million as a result of lower debt levels during
        the
        quarter ended September 30, 2005.
 
 Equity
        in
        earnings of affiliated companies was comparable to the prior year. T he
        equity in earnings of the Koppers joint venture were lower as it was negatively
        affected ($0.6 million) by legal related costs for a proposed settlement
        with
        the New Zealand Commerce Commission ("NZCC") for a case that has been filed
        against its New Zealand joint venture ( Koppers
        Arch Wood Protection (NZ) Limited (“KANZ”)), in which the Company owns
        indirectly a 49% interest (see
        Note 14 in the Notes to Condensed Consolidated Financial Statements for more
        information).  This proposed settlement is subject to entering definitive
        documentation with the NZCC and to court approval. This
        was
        offset by the improved operating results of the Company’s Planar Solutions and
        Nordesclor joint ventures due primarily to higher sales.
 
 The
        tax
        rate on net income from continuing operations for the three months ended
        September 30, 2005 and 2004 was 35.3% and 48.0%, respectively. The
        lower
        rate in 2005 is primarily a result of lower foreign source income
        taxes.
 
 Income
        (loss) from discontinued operations, net of tax, represents the results in
        2005
        for the CMS business compared to the results of operations of the sold
        microelectronics materials business in 2004. Included in the results for
        the
        three months ended September 30, 2005 are severance and related costs associated
        with the termination of certain service contracts of the CMS business of
        $1.1
        million ($0.6 million after-tax).
 
 ***Nine
        Months Ended September 30, 2005 Compared to 2004***
 
 Sales
        increased $147.7 million, or 16.8%, due in part to the acquisition
        of
        Avecia’s pool & spa and protection & hygiene businesses and two small
        acquisitions of Latin American water products distributors ($35.7 million
        or approximately four percent). Excluding the impact of acquisitions, sales
        increased $112.0 million, or 12.7%, due to increase in volumes
        (approximately eight percent), favorable pricing (approximately three percent)
        and foreign exchange (approximately two percent). Sales were higher in the
        performance urethanes business due to an overall increase in volumes across
        all
        product lines and improved pricing that successfully mitigated higher raw
        material costs. Additionally, sales were higher for HTH water products due
        to an
        increase in volumes of branded chlorinated isocyanurates and branded and
        non-branded calcium hypochlorite. The sales increase attributable to favorable
        foreign exchange was principally in the HTH water products and industrial
        coatings businesses.
 
 18
 
  Management's
          Discussion and Analysis of
          Financial Condition and Results of Operations - Continued
 Gross
        margin percentage was 27.6% and 28.8% for 2005 and 2004, respectively. The
        decrease in the gross margin percentage was primarily in the HTH water products
        business and to a lesser extent in the industrial coatings and wood protection
        businesses. The decrease in the gross margin percentage in the HTH water
        products business was driven by unfavorable product mix, higher product sourcing
        costs related to the branded chlorinated isocyanurates product and increased
        freight and distribution costs. In the industrial coatings and wood protection
        businesses the decrease in the gross margin percentage is primarily the result
        of increased raw materials costs for copper
        metal, monoethanolamine (“MEA”), chromic acid and resins and, to a lesser
        extent, the effect of competitive pressures within the Italian coatings
        market .
        The
        decreases in gross margin percentages more than offset an increase for the
        performance urethanes business as a result of the higher sales volumes and
        the
        improved pricing.
 
 Selling
        and administration expenses as a percentage of sales were 19.8% and 21.2%
        for
        2005 and 2004, respectively. These expenses increased in amount by
        $16.9 million, primarily due to the acquisition of Avecia’s pool & spa
        and protection & hygiene businesses (approximately $10 million) and to
        a lesser extent the unfavorable effect of foreign exchange. These factors
        were
        slightly offset by lower costs associated with the conversion of customers
        to
        CCA-replacement preservatives in the wood protection business. In 2004, the
        personal care business benefited from a $6.1 million settlement of a favorable
        judgment obtained against a former owner of an acquired company, which was
        partially offset by higher self-insurance reserves ($3 million) for HTH water
        products.
 
 Other
        (gains) and losses in 2005 represents an additional charge for a portion
        of the
        penalties related to the Brazilian state import tax claim for the performance
        urethanes and water products businesses recorded in 2004. 2004 principally
        includes the charge for the Brazilian state import tax claim of $2.1 million
        in
        the performance urethanes, water products and hydrazine businesses, partially
        offset by the pre-tax gain of $0.6 million on the sale of a building in the
        personal care business.
 
 Interest
        expense, net, increased $0.5 million as a result of higher interest
        rates
        during the period ended September 30, 2005 as compared to those during the
        period ended September 30, 2004.
 
 Equity
        in
        earnings of affiliated companies decreased $1.2 million due primarily
        to
        lower operating results of the Koppers joint venture. T he
        Company’s results of equity in earnings (losses) of the Koppers joint venture
        were negatively affected ($2.5 million) by legal related costs for a
        proposed settlement with the NZCC for a case that has been filed against
        its New Zealand joint venture KANZ (see Note 14 in the Notes to Condensed Consolidated Financial Statements
        for
        more information).  This proposed settlement is subject to entering
        definitive documentation with the NZCC and to court approval. This
        was
        partially offset by higher profits for the Planar Solutions joint venture
        due to
        higher sales and lower operating costs.
 
 The
        tax
        rate on net income from continuing operations for the nine months ended
        September 30, 2005 and 2004 was 30.5% and 36.8%, respectively. In
        the
        second quarter of 2005, the Company reduced its estimated effective tax rate
        for
        the full year to 30% from 35% primarily as a result of lower foreign source
        income taxes and to a lesser extent an adjustment of prior year
        taxes.
 
 Income
        (loss) from discontinued operations, net of tax, reflects the results for
        the
        CMS business in 2005 compared to the results of operations of the sold
        microelectronics materials business in 2004. Included in the results for
        the
        nine months ended September 30, 2005 are severance and related costs associated
        with the termination of certain service contracts of the CMS business of
        $1.1
        million ($0.6 million after-tax).
 
 Gain
        on
        sale of discontinued operations, net of tax, represents the recovery of £1.7
        million (approximately $2.9 million) related to two outstanding notes from
        the
        sale of the Hickson organics Castleford operations, that were previously
        reserved as of December 31, 2004 due to uncertainty concerning the
        collectibility. The Company received the cash payment on July 19, 2005 for
        the
        principal and interest for these two outstanding notes.
 
 19
 
  Management's
          Discussion and Analysis of
          Financial Condition and Results of Operations - Continued
 ***Full
        Year Outlook***
 
 For
        full
        year 2005, sales are expected to increase approximately fifteen percent and
        earnings per share from continuing operations are expected to range from
        $1.20
        to $1.30, compared to $0.74 for the prior year, which included $0.12 of
        restructuring expense and an impairment charge. Depreciation and amortization
        is
        estimated to be approximately $45 million. Capital spending is anticipated
        to be approximately $20 million. The effective tax rate is assumed
        to be
        30 percent. 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 businesses, and the wood protection and industrial
        coatings businesses. Segment operating income includes the equity in earnings
        of
        affiliated companies and
        excludes restructuring (income) expense, impairment expense and
        certain unallocated expenses of the corporate headquarters. 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.
 
 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 segments. Other
        gains and (losses) that are directly related to the segments are included
        in
        segment operating results.
 
 As
        a result of the sale of the majority of the microelectronic materials businesses
        on November 30, 2004, the Company has restated its prior year condensed
        consolidated financial statements to include the results of the microelectronic
        materials businesses sold as a component of discontinued operations in
        accordance with SFAS 144. The Company has retained its 50 percent
        interest in Planar Solutions, LLC, its joint venture with Wacker Chemical
        Holding Corporation for the production and sale of CMP slurries and
        its
        CMS business. As a result, and in accordance with the accounting
        requirements of SFAS 144, the CMS business is reported as an asset
        held for
        sale and the results of operations are included in discontinued operations
        in
        the condensed consolidated financial statements. The results of its CMP joint
        venture have been included in General Corporate Expenses. In addition, as
        a
        result of the sale, the Company has reallocated certain centralized service
        costs to the Company’s segments that were previously allocated to the
        microelectronic materials segment for 2004.
 
 **Treatment
        Products**
 
 **Three
                  Months**
              
              **Nine
                  Months****Ended
                  September 30,**
              
              **Ended
                  September 30,****2005**
              
              **2004**
              
              **2005**
              
              **2004****($
                  in millions)****Results
                  of Operations:**SalesHTH
                  Water Products
              
              $
              95.8
              
              $
              83.0
              
              $
              369.8
              
              $
              315.5Personal
                  Care & Industrial Biocides
              
              
              66.9
              
              
              65.5
              
              
              207.3
              
              
              172.9Wood
                  Protection & Industrial Coatings
              
              
              89.7
              
              
              86.2
              
              
              278.1
              
              
              267.8Total
                  Treatment Products
              
              $
              252.4
              
              $
              234.7
              
              $
              855.2
              
              $
              756.2Operating
                  Income (Loss)HTH
                  Water Products
              
              $
              (2.3
              )
              $
              (6.9
              )
              $
              21.2
              
              $
              23.3Personal
                  Care & Industrial Biocides
              
              
              11.5
              
              
              16.9
              
              
              34.8
              
              
              38.1Wood
                  Protection & Industrial Coatings
              
              
              6.0
              
              
              7.1
              
              
              13.9
              
              
              20.7Total
                  Treatment Products
              
              $
              15.2
              
              $
              17.1
              
              $
              69.9
              
              $
              82.1
 
 20
  Management's
        Discussion and Analysis of
        Financial Condition and Results of Operations - Continued
  ***Three
        Months Ended September 30, 2005 Compared to 2004***
 
 Sales
        increased $17.7 million or approximately eight percent and operating
        income
        decreased $1.9 million. Sales increased due to higher volumes
        (approximately eight percent) and the favorable effect of foreign exchange
        (approximately one percent) offset by unfavorable pricing (approximately
        one
        percent).
 
 ***HTH
        Water Products***
 
 Sales
        increased $12.8 million, or approximately 15 percent. The sales increase
        is due
        to higher volumes (approximately 13 percent), favorable foreign exchange
        (approximately one percent) and favorable pricing (approximately one percent).
        The increase in sales volumes is due to higher North American residential
        swimming pool volumes that resulted from higher demand for branded chlorinated
        isocyanurates (Pace ® )
        as well
        as branded and non-branded calcium hypochlorite.
 
 Operating
        results improved $4.6 million primarily as a result of the higher sales and
        lower selling and administration costs due to cost containment initiatives
        in
        North America as well as lower legal expenses. Gross margin was comparable
        with
        the prior period as the impact of higher sales was offset by unfavorable
        product
        mix and product sourcing costs principally due to the new import duties.
 
 ***Personal
        Care and Industrial Biocides***
 
 Sales
        increased $1.4 million, or approximately two percent, due to higher
        volumes
        (approximately seven percent), which was offset by unfavorable pricing
        (approximately five percent). The higher volumes are attributable to continued
        strong demand for biocides used in antidandruff products and in industrial
        applications, including marine antifouling paints and building products.
        These
        increases in volumes have been partially offset by lower volumes resulting
        from
        a loss of market share to new entrants into a mature segment within the
        protection & hygiene market. The decrease in pricing is primarily a result
        of competitive pressures within certain product lines in the industrial biocides
        market, principally protection & hygiene.
 
 Operating
        income decreased $5.4 million. The operating results for the three
        months
        ended September 2004 benefited ($3.1 million) from a partial payment of a
        $6.1
        million settlement of a favorable judgment obtained against a former owner
        of an
        acquired company and a gain from the sale of a building ($0.6 million).
        Excluding these items, operating income decreased by $1.7 million
        primarily
        as a result of lower volumes and pricing in the protection & hygiene
        business.
 
 ***Wood
        Protection and Industrial Coatings***
 
 Sales
        increased $3.5 million, or approximately four percent, principally
        due to
        increased volumes. Higher sales volumes of Wolman® E and Tanalith® E
        (CCA-replacement products) were slightly offset by lower sales volumes of
        CCA
        products. The improved pricing in the industrial coatings business which
        mitigated higher raw material costs, principally for polyurethane and
        water-based products, was offset by the unfavorable pricing for CCA-replacement
        products in Europe.
 
 Operating
        income decreased $1.1 million over the prior year primarily due to
        the wood
        protection business, which was partially offset by the improved results in
        the
        industrial coatings business. The lower operating results in the wood protection
        business were due to the higher raw material costs and lower results of the Koppers joint venture, which were negatively affected ($0.6
        million) by legal related costs for a proposed settlement with the NZCC
        for
        a case that has been filed against its joint venture KANZ (see
        Note 14 in the Notes to Condensed Consolidated Financial Statements for more
        information). This proposed settlement is subject to entering definitive
        documentation with the NZCC and to court approval. In addition, operating
        income for industrial coatings improved as a result of the price increases
        in
        certain product lines to mitigate the higher raw material costs.
 
 21
  Management's
        Discussion and Analysis of
        Financial Condition and Results of Operations - Continued
 
 ***Nine
        Months Ended September 30, 2005 Compared to 2004***
 
 Sales
        increased $99.0 million or approximately 13 percent and operating
        income
        decreased $12.2 million. A portion of the increase in sales is due
        to the
        acquisition of Avecia’s pool & spa and protection & hygiene businesses
        and two small acquisitions of Latin American water products distributors
        ($35.7 million or approximately five percent). Excluding the impact
        of
        acquisitions, sales increased approximately eight percent due to higher volumes
        (approximately six percent) and favorable foreign exchange (approximately
        two
        percent).
 
 ***HTH
        Water Products***
 
 Sales
        increased $54.3 million, or approximately 17 percent. The sales increase
        is
        partly due to the acquisition of the Avecia pool & spa business and two
        small acquisitions of Latin American water products distributors
        ($11.6 million or approximately four percent). Excluding the effect
        of the
        acquisitions, sales increased $42.7 million or 13 percent, due to higher
        volumes
        (approximately ten percent), favorable foreign exchange (approximately two
        percent), and favorable pricing (approximately one percent). The increase
        in
        sales volumes is due to higher North American residential swimming pool volumes
        that resulted from higher demand for branded chlorinated isocyanurates
        (Pace ® ),
        branded and non-branded calcium-hypochlorite and pool maintenance products
        and
        accessories. In addition, sales were higher in the South African market due
        to
        increased demand.
 
 Operating
        income decreased by $2.1 million primarily as a result of lower gross
        margins due to an increase in overall cost of goods sold which was driven
        by
        unfavorable product mix, higher product sourcing costs and an increase in
        freight and distribution costs. The unfavorable mix is the result of higher
        volumes of chlorinated isocyanurates and lower volumes of non-chlorine branded
        products. The higher product sourcing costs were due to an increase in raw
        material costs as a result of import duties and utilization of an alternative
        supplier for chlorinated isocyanurates due to strong demand. The higher freight
        and distribution costs were due to higher volumes and inefficiencies experienced
        in the distribution channels. Operating expenses increased slightly due to
        higher selling and administration expenses related to pool dealer integration
        costs, as well as higher compensation and benefit-related costs. In addition,
        2004 included higher self-insurance reserves ($3 million).
 
 ***Personal
        Care and Industrial Biocides***
 
 Sales
        increased $34.4 million, or approximately 20 percent, principally
        due to
        the acquisition of Avecia’s protection & hygiene business
        ($24.1 million or approximately 14 percent). Excluding the effect
        of the
        acquisition, sales increased $10.3 million or approximately six percent,
        due to higher volumes (approximately eight percent) and favorable foreign
        exchange (approximately one percent), offset by unfavorable pricing
        (approximately three percent). The higher volumes are attributable to continued
        strong demand for biocides used in personal care products, including
        antidandruff products, and in industrial applications, including marine
        antifouling paints and building products. These increases in volumes have
        been
        partially offset by lower volumes in the protection & hygiene business as a
        result of loss of market share from new entrants into a mature segment within
        the protection & hygiene market. The decrease in pricing is primarily a
        result competitive pressure within certain product lines in the industrial
        biocides market, principally protection & hygiene.
 
 Operating
        income decreased $3.3 million. The nine months ended September 2004
        benefited from a payment of a $6.1 million settlement of a favorable judgment
        obtained against a former owner of an acquired company and a gain from the
        sale
        of a building ($0.6 million). Excluding these items, operating income increased
        $3.4 million as a result of the higher sales volumes as well as lower legal
        expenses. This was partially offset by one-time costs related to an abandoned
        acquisition.
 
 22
 
  Management's
          Discussion and Analysis of
          Financial Condition and Results of Operations - Continued
 ***Wood
        Protection and Industrial Coatings***
 
 Sales
        increased $10.3 million, or approximately four percent, due to the
        favorable effect of foreign exchange (approximately two percent), improved
        pricing (approximately one percent) and slightly higher volumes (approximately
        one percent). The improved pricing is a result of price increases to mitigate
        higher raw material costs primarily for polyurethane and water based products
        in
        the industrial coatings business. Higher sales volumes in the wood protection
        business of CCA-replacement products in Europe and to a lesser extent in
        North
        America, were partially offset by lower sales volumes in the industrial coatings
        business predominately due to a weakness in the Italian furniture market
        and
        also the loss of certain customers due to competitive pressures within the
        Italian market.
 
 Operating
        income decreased $6.8 million over the prior year. Unfavorable operating
        results in the industrial coatings business were driven by increased raw
        material costs as well as reduced demand in several core European furniture
        markets due to depressed market conditions and competitive pressures. The
        lower
        operating results in the wood protection business were due to the higher
        raw
        material costs which negatively impacted the business. In addition, wood
        protection’s equity in earnings of the Koppers joint venture were negatively affected
        ($2.5
        million) by legal related costs for a proposed settlement with the
        NZCC for
        a case that has been filed against its joint venture KANZ (see
        Note 14 in the Notes to Condensed Consolidated Financial Statements for more
        information). This proposed settlement is subject to entering definitive
        documentation with the NZCC and to court approval.
 
 **Performance
        Products**
 
 **Three
                  Months**
              
              **Nine
                  Months****Ended
                  September 30,**
              
              **Ended
                  September 30,****2005**
              
              **2004**
              
              **2005**
              
              **2004****($
                  in millions)**
              
              **($
                  in millions)****Results
                  of Operations**SalesPerformance
                  Urethanes
              
              $
              59.0
              
              $
              37.6
              
              $
              158.8
              
              $
              103.6Hydrazine
              
              
              2.8
              
              
              4.5
              
              
              12.8
              
              
              19.3Total
                  Performance Products
              
              $
              61.8
              
              $
              42.1
              
              $
              171.6
              
              $
              122.9Operating
                  income (loss)Performance
                  Urethanes
              
              $
              5.3
              
              $
              (2.0
              )
              $
              9.5
              
              $
              (7.3
              )Hydrazine
              
              
              (1.6
              )
              
              (1.3
              )
              
              (1.9
              )
              
              (1.2
              )Total
                  Performance Products
              
              $
              3.7
              
              $
              (3.3
              )
              $
              7.6
              
              $
              (8.5
              )
  ***Three
        Months Ended September 30, 2005 Compared to 2004***
 
 Sales
        increased $19.7 million, or approximately 47 percent, and operating
        results
        increased $7.0 million from prior year. The increase in sales is due
        to
        higher volumes (approximately 33 percent) and improved pricing (approximately
        14
        percent).
 
 ***Performance
        Urethanes***
 
 Performance
        urethanes sales increased approximately 57 percent over the prior year due
        to
        higher volumes and improved pricing. The increase in volumes was due to stronger
        demand across all product lines, particularly in glycols and specialty polyols,
        and higher contract manufacturing business. The improved pricing was principally
        due to successful price increases that mitigated higher raw material costs.
        Operating results improved $7.3 million as a result of higher sales
        volumes
        and improved margins from the price increases, which were slightly offset
        by
        increased compensation and benefit-related costs. In addition, the 2005
        operating results included an aditional charge ($0.7 million) for a portion
        of
        the penalties related to the Brazilian state import tax claim recorded in
        the
        2004 operating results ($1.6 million).
 
 23
 
  Management's
          Discussion and Analysis of
          Financial Condition and Results of Operations - Continued
 ***Hydrazine***
 
 Hydrazine
        sales decreased approximately 38 percent due primarily to lower volumes of
        Ultra
        Pure TM Hydrazine. Operating results decreased $0.3 million, primarily due
        to lower
        sales volumes that were mostly offset by cost-reduction
        efforts.
 
 ***Nine
        Months Ended September 30, 2005 Compared to 2004***
 
 Sales
        increased $48.7 million, or approximately 40 percent, and operating
        results
        increased $16.1 million from prior year. The increase in sales is
        due to
        improved pricing (approximately 23 percent) and higher volumes (approximately
        17
        percent).
 
 ***Performance
        Urethanes***
 
 Performance
        urethanes sales increased approximately 53 percent over the prior year due
        to
        higher volumes and improved pricing. The increase in volumes was due to stronger
        demand across all product lines, particularly in glycols and specialty polyols,
        and higher contract manufacturing business. The improved pricing was principally
        due to successful price increases that mitigated the higher raw material
        costs.
        Operating results improved $16.8 million as a result of higher sales
        volumes and improved margins from the price increases, which were slightly
        offset by increased compensation and benefits-related costs. In addition,
        the
        2005 operating results included an additional charge (0.7 million) for a
        portion
        of the penalties related to the Brazilian state import tax claim recorded
        in the
        2004 operating results ($1.6 million).
 
 ***Hydrazine***
 
 Hydrazine
        sales decreased approximately 34 percent due primarily to lower propellant
        revenues resulting from the expiration of the prior government contract in
        April
        2004 and lower government campaign sales. This was slightly offset by higher
        pricing for hydrazine hydrates. Operating results decreased $0.7 million
        as
        a result of the lower sales, which were slightly offset by cost-reduction
        efforts within the business due to the reduction in work force from last
        year.
 
 On
        March
        29, 2005, the Company was notified by the U.S. Defense Energy Support Center
        (DESC) that it had been awarded a 20-year contract for approximately $149
        million for the production, storage, distribution and handling of hydrazine
        propellants for the U.S. government. Under this new, long-term contract,
        full-scale production is not scheduled to begin until 2007.
 
 The
        Company continues to evaluate a decision to start up the hydrazine hydrates
        plant which is currently idle. The carrying value of such plant is approximately
        $5 million. If the Company decides not to start up the hydrates plant, the
        Company may incur a non-cash impairment charge and related shutdown costs.
        Any
        cash-related shutdown costs are expected to be less than $1 million.
  **Corporate
        Expenses (Unallocated)**
 
 **Three
                  Months**
              
              **Nine
                  Months****Ended
                  September 30,**
              
              **Ended
                  September 30,****2005**
              
              **2004**
              
              **2005**
              
              **2004****($
                  in millions)****Results
                  of Operations**Unallocated
                  Corporate Expenses
              
              $
              (3.6
              )
              $
              (5.4
              )
              $
              (12.3
              )
              $
              (16.3
              )
 
 24
 
  Management's
          Discussion and Analysis of
          Financial Condition and Results of Operations -
          Continued
 
 ***Three
        Months Ended September 30, 2005 Compared to 2004***
 
 The
        decrease in unallocated corporate expenses is principally due to lower incentive
        compensation and lower environmental costs associated with idle properties.
        The
        lower incentive compensation is due to a lower anticipated payout under the
        Company’s annual incentive plan.
 
 ***Nine
        Months Ended September 30, 2005 Compared to 2004***
 
 The
        decrease in unallocated corporate expenses is principally due to lower incentive
        compensation related costs, due to the change in stock price for the Company’s
        long-term incentive plan, and a lower anticipated payout under the Company’s
        annual incentive plan. In addition, 2005 benefited from lower environmental
        costs associated with the idle properties and the favorable operating results
        of
        the Planar Solutions joint venture due to higher sales and lower operating
        costs. This was partially offset by an increase in audit fees.
 
 **Liquidity,
        Investment Activity, Capital Resources and Other Financial
        Data**
 
 **Nine
                  Months****Ended
                  September 30,****Cash
                  Flow Data**
              
              **2005**
              
              **2004****($
                  in millions)****Provided
                  By (Used For)**Accounts
                  receivable securitization program
              
              $
              10.0
              
              $
              49.2Change
                  in working capital
              
              
              (61.1
              )
              
              (8.2
              )Change
                  in noncurrent liabilities
              
              
              (31.6
              )
              
              0.9Net
                  operating activities from continuing operations
              
              
              (3.2
              )
              
              109.5Capital
                  expenditures
              
              
              (11.0
              )
              
              (12.4
              )Business
                  acquired in purchase transaction
              
              
              (3.1
              )
              
              (214.8
              )Cash
                  proceeds (payments) from the sale of a business
              
              
              (3.8
              )
              
              -Net
                  investing activities
              
              
              (18.2
              )
              
              (226.1
              )Debt
                  borrowing, net
              
              
              11.7
              
              
              93.1Net
                  financing activities
              
              
              (1.4
              )
              
              82.9
  ***Nine
        Months Ended September 30, 2005 Compared to 2004***
 
 For
        the
        nine months ended September 30, 2005, $3.2 million was used
        for
        operating activities from continuing operations compared to $109.5 million
        provided by operating activities from continuing operations for the nine
        months
        ended September 30, 2004. This was primarily attributable to the lower
        utilization of the accounts receivable program in 2005 and voluntary
        contributions that were made to the Company’s pension plan of $36.2 million
        during 2005. Excluding the effect of the accounts receivable securitization
        program and the voluntary pension contributions, the additional use of cash
        from
        continuing operations was attributable to higher working capital. The use
        of
        cash from working capital was principally due to higher inventory levels
        due to
        increased pricing and to support the increase in sales as well as higher
        receivable balances as a result of increased sales.
 
 Capital
        expenditures for the nine months of 2005 were $1.4 million lower than
        2004
        due to lower capital expenditures for the wood protection and hydrazine
        businesses. Capital expenditures for 2005 are expected to be
        $20 million.
 
 25
 
  Management's
          Discussion and Analysis of
          Financial Condition and Results of Operations - Continued
 On
        April 2, 2004, the Company completed the acquisition of Avecia’s pool &
        spa and protection & hygiene businesses for $230.8 million. The
        purchase price was further subject to a contingent payment of up to
        $5.0 million in cash based upon earnings attributable to North American
        sales of certain acquired products. An
        interim payment of $2.5 million was made in April 2005 based on 2004
        results.  In
        addition, the purchase price was subject to adjustment if the unfunded pension
        liability in the U.K. pension plan was determined to be less than
        $10.0 million, in which case the purchase price would be adjusted
        upwards
        by the difference between $10.0 million and the unfunded liability,
        with
        the consideration to be split equally between a contingent cash payment and
        up
        to 223,250 additional shares of the Company’s common stock. Based upon the final
        determination, the share consideration component of this adjustment was
        74,788 shares of common stock, which were issued in January 2005 with
        a
        value of $1.7 million. The contingent cash payment will be a maximum
        of
        $1.7 million and earned based upon cumulative global net sales of
        certain
        products through 2005. An interim payment of $0.5 million was made in April
        2005
        based on 2004 results. For additional information concerning the acquisition
        see
        the Company's
        Form 10-K for the year ended December 31, 2004 as well as the Form 8-K/A filed by the Company on June 16,
        2004.
 
 Cash
        payments from the sale of a business in 2005 relate to certain expenses related
        to the sale of the microelectronic materials business to Fuji Photo Film
        Co.,
        Ltd., which occurred in November 2004. These expenses included the reimbursement
        of a working capital adjustment of $1.1 million as well as other disposition
        costs.
 
 Cash
        used
        in financing activities for the first nine months of 2005 was $1.4 million
        which
        was primarily the result of the dividends paid to shareholders of $14.2 million
        during the first nine months of 2005; this was partially offset by increased
        borrowings.
 
 Cash
        provided by financing activities in 2004 was primarily due to increased
        borrowings related to the acquisition of the Avecia pool & spa and
        protection & hygiene business; this was partially offset by the dividends
        paid to shareholders of $13.8 million during the first nine months of
        2004.
 
 The
        Company’s revolving credit facility contains a quarterly leverage ratio (debt /
        EBITDA) not to exceed 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 $53.2 million
        at
        September 30, 2005. As of September 30, 2005, 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
        September 30, 2005, the Company had $207.2 million of available borrowings
        under the credit facility .
 
 The
        Company’s senior notes contain a quarterly leverage ratio (debt / EBITDA) not to
        exceed 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 $40.4 million
        at
        September 30, 2005.
 
 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 $2.3 million
        and $1.6 million at September 30, 2005 and December 31, 2004, respectively,
        and
        are included in Other Liabilities on the accompanying Condensed Consolidated
        Balance Sheet, 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.
 
 26
 
  Management's
          Discussion and Analysis of
          Financial Condition and Results of Operations - Continued
 On June
        27, 2005, the Company entered into a new accounts receivable securitization
        program with Three Pillars Funding LLC and SunTrust Capital Markets, Inc.
        to
        replace the Company's previous accounts receivable securitization program
        which
        had expired .
        Under
        this program certain accounts receivable are sold, without recourse, through
        its
        wholly-owned subsidiary, Arch Chemicals Receivables Corp., a special-purpose
        corporation. At September 30, 2005, Arch Chemicals Receivables Corp. had
        sold
        $10.0 million of participation interests in $69.6 million of accounts
        receivable. The Company had not sold any participation interests in such
        accounts receivable at December 31, 2004 (see
        Note 3 of Notes to Condensed Consolidated Financial Statements) .
 
 At
        September 30, 2005, the Company had $39.6 million of outstanding letters
        of
        credit. In addition, the Company has agreed to guarantee 50% or up to $8.5
        million of Planar Solutions’ line of credit, which is provided by the Company’s
        joint venture partner. As of September 30, 2005, the Company had $6.0 million
        letters of guarantee outstanding for its Planar Solutions joint venture
        borrowings and certain equipment leases. On April, 28, 2005, the Board of
        Directors of the Company approved an extension of this Planar Solutions
        guarantee through January 2007.
 
 The
        Company believes that the credit facility, accounts receivable securitization
        program 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 is a co-defendant and/or defendant in several cases at September
        30,
        2005, 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.
 
 In
        July
        2005, the Company made a payment of $3.1 million in full settlement for a
        trial
        court judgment, in favor of a railroad, in a lawsuit associated with a wood
        preservative ingredient spillage in 1994, which had been fully accrued for
        in
        the Condensed Consolidated Balance Sheets.
 
 The
        Company’s minimum pension funding requirements as set forth by ERISA for its
        U.S. pension plans were originally expected to be $6.0 million in
        2005 and
        $32.0 million in 2006. The
        company made voluntary contributions to its U.S. pension plan of $36.2 million
        in 2005, and as a result, there are no further minimum funding requirements
        expected for 2005 and 2006 under current law. The
        Company also has minimum funding requirements for its U.K. pension plan,
        which
        are expected to be approximately $10.0 million in 2005 and 2006.
  On
        October 27, 2005, the Company declared a quarterly dividend of $0.20 on each
        share of the Company’s common stock. The dividend will be payable on December
        12, 2005, to shareholders of record at the close of business on November
        14,
        2005.
 
 27
 
  Management's
          Discussion and Analysis of
          Financial Condition and Results of Operations - Continued
 **Cautionary
        Statement under Federal Securities Laws**
 
 Except
        for historical information contained herein, the information set forth in
        this
        communication may contain 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; 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 and/or the overturning of the award to the Company
        of
        the new U.S. government contract for hydrazine propellants; 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.
  28
  **Item
        3.**  **Quantitative and Qualitative Disclosures about Market
        Risk**
  **Interest
        Rate Risk**
 
 The
        Company is exposed to interest rate risk on approximately 40 percent
        of its
        outstanding borrowings that are subject to floating rates. Based on the
        Company’s expected 2005 borrowing levels, an increase in interest rates of 100
        basis points would decrease the Company’s results of operations and cash flows
        by approximately $0.5 million to $1.0 million.
 
 **Foreign
        Currency Risk**
 
 At
        September 30, 2005, the Company had forward contracts to sell foreign currencies
        with a U.S. dollar equivalent value of $3.5 million and forward contracts
        to buy foreign currencies with notional amounts of $9.0 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
        September 30, 2005, 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, monoethanolamine (“MEA”) and resins. 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 $4 million. Holding other variables constant, a
        10 percent adverse change in the price of copper metal, MEA, resins
        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, 2004 for additional
        information on the above items.
  29
  **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.






30


**PART
        II. OTHER INFORMATION**
 
 **Item
        5.** **Other
        Information**
  As
        reported in Item 5 of the Company’s Form 10-K for the period ending June 30,
        2005, the Company reported it had agreed to the request of the staff of the
        Securities and Exchange Commission (“SEC”) to file the audited financial
        statements of the Company’s former FUJIFILM joint venture for the period ending
        March 31, 2005 as an amendment to the Company’s 2004 Form 10-K. The Company had
        sold its FUJIFILM joint venture in connection with the sale of the majority
        of
        its microelectronic materials business in 2004. Due to circumstances beyond
        the
        Company’s control, these financial statements have been delayed and are not
        expected to be filed until November 2005.
 
 **Item
        6.** **Exhibits**
  (a)  Exhibits
        required by Item 601 of Regulation S-K.
 
 **Exhibit No.**
              
              **Description**10.1
              
              Amendment,
                  dated as of November 3, 2005, to the Arch Supplementary and Deferral
                  Benefit Pension Plan.10.2
              
              Amendment,
                  dated as of November 3, 2005, to the Arch Senior Executive Pension
                  Plan.10.3
              
              Senior
                  Executive Life Insurance Plan(as
                  effective December 1, 2005).10.4
              
              Amendment,
                  dated as of November 3, 2005, to the Arch Chemicals, Inc. Employee
                  Deferral Plan.10.5
              
              Amendment,
                  dated as of November 3, 2005, to the Supplemental Contributing
                  Employee
                  Ownership Plan.31.1
              
              Certification
                  of Principal Executive Officer Pursuant to Section 302 of the
                  Sarbanes-Oxley Act of 2002.31.2
              
              Certification
                  of Principal Financial Officer Pursuant to Section 302 of the
                  Sarbanes-Oxley Act of 2002.32.
              
              Certification
                  of Chief Executive Officer and Chief Financial Officer pursuant
                  to 18
                  U.S.C. 1350.
 
  
  **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)November 
                  3, 2005
              By:
              /s/
                Louis S. MassimoLouis
                S. MassimoExecutive
                  Vice President and Chief Financial
                  Officer
   
  **Exhibit No.**
              
              **Description**10.1
              
              Amendment,
                  dated as of November 3, 2005, to the Arch Supplementary and Deferral
                  Benefit Pension Plan.10.2
              
              Amendment,
                  dated as of November 3, 2005, to the Arch Senior Executive Pension
                  Plan.10.3
              
              Key
                  Executive Death Benefits (as effective December 1,
                  2005).10.4
              
              Amendment,
                  dated as of November 3, 2005, to the Arch Chemicals, Inc. Employee
                  Deferral Plan.10.5
              
              Amendment,
                  dated as of November 3, 2005, to the Supplemental Contributing
                  Employee
                  Ownership Plan.31.1
              
              Certification
                  of Principal Executive Officer Pursuant to Section 302 of the
                  Sarbanes-Oxley Act of 2002.31.2
              
              Certification
                  of Principal Financial Officer Pursuant to Section 302 of the
                  Sarbanes-Oxley Act of 2002.32.
              
              Certification
                  of Chief Executive Officer and Chief Financial Officer pursuant
                  to 18
                  U.S.C. 1350.