##### 



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D.C. 20549
 FORM 10-K
 þ
    
    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the fiscal year ended December 31, 2006
 or
 o
    
    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 1-3507
 ROHM AND HAAS COMPANY
  DELAWARE
    
    23-1028370(State or other jurisdiction of 
incorporation or organization)
    
    (I.R.S. Employer Identification No.)
 100 INDEPENDENCE MALL WEST, PHILADELPHIA, PA
    
    19106(Address of principal executive offices)
    
    (Zip Code)Registrants telephone
number, including area code: (215) 592-3000
 Securities registered pursuant to Section 12(b) of the Act:
 Title of Each Class
    
    Name of each exchange on which registeredCommon Stock of $2.50 par value
    
    New York Stock Exchange
 Securities registered pursuant to Section 12(g) of the Act:
 þ o
 o þ
 þ o
 þ o
  þ o o
 o þ
 
  DOCUMENTS INCORPORATED BY REFERENCE




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Rohm and Haas Company 2006 Form 10-K
Table of Contents
 Item
    
    PagePART IItem 1A
    
    Cautionary Statements and Risk Factors
    
    
    1Item 1
    
    Business
    
    
    3Item 1B
    
    Unresolved Staff Comments
    
    
    16Item 2
    
    Properties
    
    
    17Item 3
    
    Legal Proceedings
    
    
    19Item 4
    
    Submission of Matters to a Vote of Security Holders
    
    
    19PART IIItem 5
    
    Market for the Registrants Common Equity, Related
Stockholder Matters and Issuer Purchases of Equity Securities
    
    
    20Item 6
    
    Selected Financial Data
    
    
    23Item 7
    
    Managements Discussion and Analysis of Financial Condition
and Results of Operations
    
    
    24Item 7A
    
    Quantitative and Qualitative Disclosures about Market Risk
    
    
    46Item 8
    
    Financial Statements and Supplementary Data
    
    
    48Item 9
    
    Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure
    
    
    109Item 9A
    
    Controls and Procedures
    
    
    109Item 9B
    
    Other Information
    
    
    109PART IIIItem 10
    
    Directors, Executive Officers and Corporate Governance
    
    
    110Item 11
    
    Executive Compensation
    
    
    112Item 12
    
    Security Ownership of Certain Beneficial Owners and Management
and Related Stockholder Matters
    
    
    112Item 13
    
    Certain Relationships and Related Transactions, and
Director Independence
    
    
    112Item 14
    
    Principal Accountant Fees and Services
    
    
    112PART IVItem 15
    
    Exhibits and Financial Statement Schedules
    
    
    113SIGNATURES
    
    
    
    
    
    
    117




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##### 



PART I
 Item 1A. Cautionary Statements and Risk Factors
  Ø
    
    Changes in foreign currencies or economic conditions may adversely affect our financial
results.Approximately 53% of our sales are derived from outside the United States, a significant portion
of which are denominated in foreign currencies. Also, significant production facilities are
located outside of the United States. Our financial results therefore can be affected by
changes in foreign currency rates. We use certain financial instruments to mitigate these
effects, but we do not hedge our foreign currency exposure in a manner that would entirely
eliminate the effects of changes in foreign exchange rates on our earnings, cash flows and fair
values of assets and liabilities. Accordingly, reported sales, net earnings, cash flows and
fair values have been and in the future may be affected by changes in foreign exchange rates.
In addition, because of the extensive nature of our foreign business activities, financial
results could be adversely affected by changes in worldwide economic conditions, changes in
trade policies or tariffs, changes in interest rates, and political unrest.Ø
    
    Actions by our competitors or changes in demand may adversely affect our financial results.Our products are sold in a competitive, global economy. Competitors include many large
multinational chemical firms based in Europe, Asia and the United States. New competitive
products or pricing policies of our competitors can materially affect demand for and pricing of
our products. In addition, financial results are subject to fluctuations in demand, the
efficient running of our manufacturing facilities, the seasonal activity of certain of our
businesses and weather conditions, particularly for the Salt segment. We also manufacture and
sell our products to customers in industries and countries that are experiencing periods of
rapid change, most notably countries in Eastern Europe, Latin America and the Asia-Pacific
region. These factors can affect demand for our products and therefore may have a significant
impact on financial results.Ø
    
    Restrictions on, and increased costs of, raw material supplies and energy may adversely
affect our financial results.From time to time, certain raw materials we require become limited. It is likely this will
occur again in the future. Should such limitations arise, disruptions of our supply chain may
lead to higher prices and/or shortages. Also, we are subject to volatility in raw material
prices and energy. While we try to increase the prices of our products to cover increases in
our costs, we may not be able to raise our prices as quickly as the
costs rise if at all. These limitations and increased costs could
adversely affect our financial results. (See additional discussion of
raw materials in Item 1.)Ø
    
    Capacity limitation or an incident affecting the Houston ship channel area may adversely
affect our financial results.From time to time, we experience significant capacity limitations in our manufacturing
operations. In addition, an incident affecting the Houston ship channel area could materially impact our
financial results as it could significantly affect both our operations and our sources of
supply. These limitations, disruptions in supply and capacity constraints could adversely affect
financial results.
 1




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##### 



Ø
    
    Failure of our intellectual property protections, failure to develop new technology or the
development
and successful implementation of new, competing technologies by our competitors could adversely
affect future financial results.We have invested significant resources in intellectual properties such as patents, trademarks,
copyrights and trade secrets. Since we depend on these intellectual resources for our financial
stability and future growth, we rely on the protection that these intellectual property rights
provide. A loss of those protections could adversely affect our financial results. In
addition, if we fail to develop new technology or if our competitors successfully develop and
implement new, competing technologies in the market place, our future financial results could be
significantly impacted.Ø
    
    Failure to realize benefits from joint ventures, acquisitions or alliances could adversely
affect future
financial results.We have entered, and in the future may enter, into arrangements with other companies to expand
product offerings and to enhance our own capabilities. We may continue to make strategic
acquisitions and divestitures. The success of acquisitions of new technologies, companies and
products, or arrangements with third parties, is not predictable and there can be no assurance
that we will be successful in realizing our objectives, or that realization may not take longer
than anticipated, or that there will not be unintended adverse consequences from these actions.Ø
    
    Environmental costs and litigation results could adversely affect our financial results.The company takes its environmental responsibilities very seriously, but there is a risk of
environmental impact inherent in chemical manufacturing operations. In addition, laws and
regulations require significant expenditures for environmental protection equipment, compliance
and remediation. Future developments and more stringent environmental regulations may require
us to make additional unforeseen environmental expenditures. These additional costs may
adversely affect our financial results. We are also subject to other litigation in the course
of business. Adverse results in litigation could adversely affect our financial results.Ø
    
    Inability to attract, develop or retain quality employees could adversely impact our ability
to achieve our objectives.We have objectives in our businesses and regions to sustain and grow the company. Continued
success in achieving the objectives of the company depends on the recruitment, development and
retention of qualified employees. Without these employees, we may not be able to achieve these
objectives.
 2




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Item 1. Business
 The Company
   Net Sales (in millions)
 
 Net Sales by Region (in millions)
 
 3




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##### 



Automotive Coatings
  Our Strategic Focus
   
    
    Position Our Portfolio For Accelerated Growth by leveraging our integrated
acrylic monomer and polymer chain; accelerating investment in Electronic Materials;
creating or expanding platforms that address the growing needs in
food, health, water, energy,
and other areas in the developed and developing worlds; and supplementing our organic
growth with highly selective bolt-on acquisitions which bring a growth platform technology
or geographic supplement to our core businesses.
    
    Build Value-Creating Business Models in Emerging Markets through customizing
closer to customers; finding solutions that are affordable and meet local requirements;
organizing in a manner that enables rapid decision-making; investing in local talent; and
building plant facilities that can compete effectively with local and regional players as
well as multinational players.
    
    Innovate with a Market / Customer Focus by increasingly shifting the focus
and delivery of technology programs closer to the customer, driving to faster and more
tailored output.
    
    Operational Excellence / Continuous Improvement by maintaining flat
conversion costs over the next three years; building more capital-efficient plants in
emerging markets; continuing to optimize our global footprint; and increasing global
sourcing, especially from low-cost countries.
    
    Deploy Right Talent in Right Places by ensuring that leadership talent with
the right depth and breadth is in place to drive the profitable
growth of our businesses through shifting deployment of more key leaders to locations outside the USA; and continuing to
drive the nurturing and development of our global workforce.
 Cash Generation
  4




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##### 



Corporate Governance
  
    
    Ethical and legal behavior at all times;
    
    Integrity in all business interactions; and
    
    Trust by doing what we promise.
  Our Businesses
  Net Sales by Business Segment (in millions)
 
 5




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##### 



COATINGS
 Architectural
and Functional Coatings Powder Coatings
 Net Sales (in millions)
 
 Net Sales by Business Unit (in millions)
 
  Architectural and Functional Coatings
 6




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##### 



Business
    
    Markets
    
    Products
    
    End UsesArchitectural and
    
       Building and construction
    
       An array of versatile acrylic
emulsion
    
       House paintsFunctional Coatings
    
    
    
    polymers and other technologies   Home improvement
    
       A range of additives, such as
thickeners,
    
       Traffic paintsextenders and opacifiers   Paper
    
    
    
       Metal coatings   Graphic arts
    
    
    
       Coated papers   Apparel
    
    
    
       Printing inks   Home and office goods
    
    
    
       Non-woven fibers   Transportation
    
    
    
       Textile finishes   Insulation   LeatherPowder Coatingsproduces a comprehensive line of powder coatings that are sprayed onto
consumer and industrial products in a solid form. During the powder coating process, tiny
particles receive an electrostatic charge as they pass through a sprayer, which causes them to
adhere to the product. The product is later cured at a high temperature, where the particles melt
onto the product to form the final coating. Powder coatings are often more cost-effective than
liquid coatings, while providing similar or enhanced benefits, including increased durability such
as temperature and wear resistance. Our powder coatings are used on a wide variety of products,
ranging from door handles to patio and deck furniture, to windshield wipers, televisions and
industrial shelving.Business
    
    Markets
    
    Products
    
    End UsesPowder Coatings
    
       Home and office
goods
    
       Epoxy, polyester,
silicone and
acrylic powder coatings
    
       Architectural aluminum   Recreation
    
       Lamineer  a low
temperature curing coating
    
       Shelving   Lawn and garden
    
    
    
       Tables and chairs   Transportation
    
    
    
       Office furniture   Building and
construction
    
    
    
       Cabinetry   Machinery   Gas grills
 
 7




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MONOMERS
  Net Sales (in millions)
 
 Internal and External Net Sales (in millions)
 
 Business
    
    Markets
    
    Products
    
    End UsesMonomers
    
       Building and
    
       Methyl methacrylate
    
       Adhesivesconstruction
    
       Acrylic acid
    
       Paints and coatings   Personal care
    
       Associated esters
    
       Floor polishes   Automotive
    
       Specialty monomers
    
       Hair sprays   Packaging
    
    
    
       Super absorbent products   Chemicals
 8




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PERFORMANCE CHEMICALS
 Plastics Additives Consumer
and Industrial Specialties, Process Chemicals
 Net Sales (in millions)
 
 
 9




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Business
    
    Markets
    
    Products
    
    End UsesPlastics Additives
    
       Building and
construction
   Packaging
   Home and office goods
   Transportation
    
       A wide range of additives that
impart desired properties into
the end plastic or help processing
machinery run more efficiently
(acrylic-based impact modifiers
and processing aids, tin-based
stabilizers and lubricants)
    
       Polyvinyl chloride pipe   Vinyl siding   Wall systems   Vinyl windows   Fencing and decks   Plastic packaging   Interior auto parts   Appliances and business
machines
 Consumer and Industrial
Specialties
    
       Household products   Personal care   Industrial processing   Building and
construction
    
       Antimicrobials, dispersants,
acrylic emulsions and a range of
other technologies
    
       Laundry and
dishwater detergents
   Shampoos and conditioners
   Floor polishes   Paints
 Process Chemicals
    
       Paper   Industrial
processing
   Lubricants   Fuels   Water processing   Food processing   Electronics   Bioprocessing   Chemical
processing
    
       Anion and cation ion
exchange
resins
   Sodium borohydride and
related technologies
   Salt-forming bases   Adsorbents
    
       Newspaper   Corrosion
inhibitors   Pharmaceutical
processes   Dyes   Soft drinks
and juices
   Ultra pure
water
   Catalysis   Electricity
production
 
 10




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##### 



ELECTRONIC MATERIALS
 Semiconductor
Technologies, Circuit Board Technologies Packaging and Finishing Technologies .
 Net Sales (in millions)
 
 Net Sales by Business Unit (in millions)
 
  11




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Circuit Board Technologies
 Business
    
    Markets
    
    Products
    
    End UsesCircuit Board Technologies
    
       Electronic devices   Communication   Computers   Transportation   Recreation
    

   Enabling technology for all
aspects of the manufacture
of printed circuit boards
   Products such as: photoresists,
solder mask, electroless and
electrolytic copper
    
       Cellular phones   Personal computers   Cars and trucks   LCD and plasma
displays   Electronic games
 Packaging and Finishing Technologies
 Business
    
    Markets
    
    Products
    
    End UsesPackaging and Finishing
Technologies
    

   Electronic
devices   Connector
finishing   Semiconductor
packaging   Surface
finishing
    

   Materials and
technology for
integrated circuit
packaging,
connectors and industrial
finishing
    
       Cellular phones   Personal computers   Cars and trucks   Home appliances   Office equipment   Electronic games
 Semiconductor Technologies
 Business
    
    Markets
    
    Products
    
    End UsesSemiconductor Technologies
    

   Electronics
and
communication
devices
   Transportation   Home and
office goods   Recreation
    

   Essential technology
for
creating state-of-the-art
integrated circuits:
photoresists, developers,
removers, anti-reflective
coatings, chemical
mechanical planarization
(CMP) pads and slurries
    
       Cellular phones   Personal computers   Cars and trucks   Home appliances   Office equipment   Electronic games
  12




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##### 



SALT
 TM
 Net Sales (in millions)
 
  Business
    
    Markets
    
    Product
    
    End UsesSalt
    
       Consumer   Food processing   Industrial  processing   Chemical processing   Water conditioning   Agricultural
    
       Salt
    
       Table salt   Home and industrial water conditioning
salt
   Ice control salt (highway
de-icing and consumer)
   Chemical/industrial processing salt
   Industrial food processing
 13




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ADHESIVES AND SEALANTS
  Net Sales (in millions)
 
      Business
    
    Markets
    
    Products
    
    End UsesAdhesives and Sealants
    
       Packaging   Automotive   Construction   Graphic arts   Medical   Tapes and label
industries
    
       Laminating adhesives   Heat seal coatings   Cold seal adhesives   Pressure sensitive adhesives   Primers and coatings   Rubber-to-metal bonding
adhesives
   Flocking agents
    
       Flexible packaging   Paper and film labels and
decals
   Consumer, industrial and
specialty tapes
   Masking film   Anti-vibration components   Caulks and sealants   Laminated panels
 14




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Raw Materials
    Competition and Seasonality
  Environmental
 Contingent Liabilities,
Guarantees and Commitments
 Research and Development
   15




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Where Can You Find More Information About Rohm and Haas Company?
  Corporate Office:
 
 Phone Numbers:
 Main line:  Investors line:
 Website: www.rohmhaas.com (intended to be an inactive textual reference only)
 Copies of our corporate governance policies, charters of the Board of Directors and
the Board committees and our Code of Business Conduct and Ethics can be obtained free
of charge by accessing the Governance section of our website or by writing to the
address listed below:
 Address:
  Copies of our annual reports on Form 10-K , quarterly reports on Form 10-Q , current
reports on Form 8-K and amendments to those reports filed with the U.S. Securities and
Exchange Commission (SEC) can be obtained free of charge, by accessing the Investors
page on our website. Hard copies may be obtained free of charge, excluding exhibits,
by writing to the address listed below:
 Address:
 www.sec.gov (intended to be an
inactive textual reference only).
 Item 1B. Unresolved Staff Comments
  16




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Item 2. Properties
  Research andManufacturing
    
    
    TechnicalCountry
    
    
    Location
    
    
    Reportable Segment
    
    
    Locations
    
    
    FacilitiesNon-U.S.
    
    
    Argentina
    
    
    Zarate
    
    
    (1,2,4)
    
    
    XAustralia
    
    
    Geelong
    
    
    (1,2,4)
    
    
    X
    
    
    XBahamas
    
    
    Inagua
    
    
    (5)
    
    
    XBrazil
    
    
    Jacarei
    
    
    (1,2,4)
    
    
    X
    
    
    XCanada
    
    
    Iles-De-La-Madeleine
    
    
    (5)
    
    
    XLindbergh
    
    
    (5)
    
    
    XOjibway
    
    
    (5)
    
    
    XPugwash
    
    
    (5)
    
    
    XRegina
    
    
    (5)
    
    
    XWest Hill
    
    
    (1,2,4)
    
    
    XWindsor
    
    
    (5)
    
    
    XChina
    
    
    Beijing
    
    
    (1,2)
    
    
    XDongGuan
    
    
    (3)
    
    
    X
    
    
    XHong Kong
    
    
    (3)
    
    
    X
    
    
    XShanghai
    
    
    (1,2,4)
    
    
    X
    
    
    XColombia
    
    
    Barranquilla
    
    
    (1,2,3,4,6)
    
    
    XFrance
    
    
    Chauny
    
    
    (4)
    
    
    XLauterbourg
    
    
    (1,2,4)
    
    
    XSemoy
    
    
    (1,2)
    
    
    XValbonne
    
    
    (1,2,4)
    
    
    
    
    
    XVillers-Saint-Paul
    
    
    (1,4)
    
    
    XGermany
    
    
    Arnsberg
    
    
    (1)
    
    
    X
    
    
    XBremen
    
    
    (2)
    
    
    XStrullendorf
    
    
    (1)
    
    
    XIndia
    
    
    Taloja
    
    
    (1,2)
    
    
    X
    
    
    XIndonesia
    
    
    Cilegon
    
    
    (1,2,4)
    
    
    XItaly
    
    
    Castronno
    
    
    (3,4)
    
    
    XMozzanica
    
    
    (1,2,4)
    
    
    XMozzate
    
    
    (2)
    
    
    XParona
    
    
    (2)
    
    
    XRomano dEzzelino
    
    
    (1)
    
    
    X
    
    
    XJapan
    
    
    Kyoto
    
    
    (3)
    
    
    XMie
    
    
    (3)
    
    
    XNagoya
    
    
    (1,4)
    
    
    XOhmiya
    
    
    (3)
    
    
    
    
    
    XSasakami
    
    
    (3)
    
    
    X
    
    
    XSoma
    
    
    (4)
    
    
    XMexico
    
    
    Apizaco
    
    
    (1,2,4,6)
    
    
    XToluca
    
    
    (2)
    
    
    XNetherlands
    
    
    Delfzijl
    
    
    (4)
    
    
    XNew Zealand
    
    
    Auckland
    
    
    (1,2,4)
    
    
    XPhilippines
    
    
    Las Pinas
    
    
    (1,2,4)
    
    
    XSingapore
    
    
    Singapore
    
    
    (1,2,3,4)
    
    
    X
    
    
    XSouth Africa
    
    
    New Germany
    
    
    (1,2,4)
    
    
    XSouth Korea
    
    
    Chonan
    
    
    (3)
    
    
    X
    
    
    XSpain
    
    
    Castellón
    
    
    (1)
    
    
    X
    
    
    XTudela
    
    
    (1,2,4)
    
    
    XSweden
    
    
    Landskrona
    
    
    (1,2,4)
    
    
    XSwitzerland
    
    
    Littau/Lucerne
    
    
    (3)
    
    
    XBuchs/Acima
    
    
    (4)
    
    
    X
    
    
    XTaiwan
    
    
    Chunan
    
    
    (3)
    
    
    X
    
    
    XMin-Hsiung
    
    
    (1,2,4)
    
    
    XTaoyuan Hsien
    
    
    (3)
    
    
    X
    
    
    XThailand
    
    
    Maptaphut
    
    
    (1,2,4)
    
    
    XUnited Kingdom
    
    
    Coventry
    
    
    (3)
    
    
    X
    
    
    XDewsbury
    
    
    (1,2,4)
    
    
    XGrangemouth
    
    
    (4)
    
    
    XJarrow
    
    
    (4)
    
    
    X
 17




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##### 



Research andManufacturing
    
    
    TechnicalState
    
    
    Location
    
    
    Reportable Segment
    
    
    Locations
    
    
    FacilitiesU.S.
    
    
    Arizona
    
    
    Glendale
    
    
    (5)
    
    
    XPhoenix
    
    
    (3)
    
    
    
    
    
    XCalifornia
    
    
    Davis
    
    
    (4)
    
    
    
    
    
    XHayward
    
    
    (1,2,4,6)
    
    
    XLa Mirada
    
    
    (1,2)
    
    
    XLong Beach
    
    
    (5)
    
    
    XNewark
    
    
    (5)
    
    
    XDelaware
    
    
    Newark
    
    
    (3)
    
    
    X
    
    
    XFlorida
    
    
    Cape Canaveral
    
    
    (5)
    
    
    XIllinois
    
    
    Kilbourn
    
    
    (4)
    
    
    XElston Dock
    
    
    (5)
    
    
    XElgin
    
    
    (2,5)
    
    
    
    
    
    XElk Grove
    
    
    (2)
    
    
    XKankakee
    
    
    (1,2)
    
    
    XRingwood
    
    
    (1,2)
    
    
    XIndiana
    
    
    Warsaw
    
    
    (1)
    
    
    XKansas
    
    
    Hutchinson
    
    
    (5)
    
    
    XKentucky
    
    
    Louisville
    
    
    (1,2,4,6)
    
    
    XLouisiana
    
    
    Weeks Island
    
    
    (4,5)
    
    
    XMassachusetts
    
    
    Marlborough
    
    
    (3)
    
    
    X
    
    
    XNorth Andover
    
    
    (3,4)
    
    
    X
    
    
    XWoburn
    
    
    (4)
    
    
    X
    
    
    XMichigan
    
    
    Manistee
    
    
    (5)
    
    
    XNew Jersey
    
    
    Perth Amboy
    
    
    (5)
    
    
    XNew York
    
    
    Freeport
    
    
    (3)
    
    
    X
    
    
    XSilver Springs
    
    
    (5)
    
    
    XNorth Carolina
    
    
    Charlotte
    
    
    (1,2)
    
    
    X
    
    
    XOhio
    
    
    Cincinnati
    
    
    (4)
    
    
    X
    
    
    XFairport
    
    
    (5)
    
    
    XRittman
    
    
    (5)
    
    
    XWest Alexandria
    
    
    (2)
    
    
    X
    
    
    XPennsylvania
    
    
    Bristol
    
    
    (1,2,4,6)
    
    
    XPhiladelphia
    
    
    (4)
    
    
    XReading
    
    
    (1)
    
    
    X
    
    
    XSpring House
    
    
    (1,2,4,6)
    
    
    
    
    
    XTennessee
    
    
    Knoxville
    
    
    (1,2,4,6)
    
    
    XTexas
    
    
    Bayport
    
    
    (4,6)
    
    
    XDeer Park
    
    
    (4,6)
    
    
    X
    
    
    XLone Star
    
    
    (1,2)
    
    
    XGrand Saline
    
    
    (5)
    
    
    XUtah
    
    
    Grantsville
    
    
    (5)
    
    
    XVirginia
    
    
    Blacksburg
    
    
    (3)
    
    
    X
    
    
    XWashington
    
    
    Elma
    
    
    (4)
    
    
    X
 (1)
    
    Coatings(2)
    
    Adhesives and Sealants(3)
    
    Electronic Materials(4)
    
    Performance Chemicals(5)
    
    Salt, including mines and evaporation facilities(6)
    
    Monomers 18




---



##### 



Item 3. Legal Proceedings
  Item 4. Submission of Matters to a Vote of Security Holders
  19




---



##### 



PART II
 Item 5. Market for the Registrants Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities
  Period
    
    High
    
    Low
    
    Cash Dividend20041st Quarter
    
    $
    43.69
    
    
    $
    37.21
    
    
    $
    0.222nd Quarter
    
    
    41.75
    
    
    
    35.90
    
    
    
    0.253rd Quarter
    
    
    43.15
    
    
    
    36.97
    
    
    
    0.254th Quarter
    
    
    45.41
    
    
    
    40.07
    
    
    
    0.2520051st Quarter
    
    $
    50.00
    
    
    $
    41.29
    
    
    $
    0.252nd Quarter
    
    
    49.23
    
    
    
    42.42
    
    
    
    0.293rd Quarter
    
    
    47.75
    
    
    
    39.47
    
    
    
    0.294th Quarter
    
    
    49.70
    
    
    
    39.78
    
    
    
    0.2920061st Quarter
    
    $
    51.56
    
    
    $
    49.96
    
    
    $
    0.292nd Quarter
    
    
    52.60
    
    
    
    45.24
    
    
    
    0.333rd Quarter
    
    
    50.56
    
    
    
    42.77
    
    
    
    0.334th Quarter
    
    
    53.86
    
    
    
    46.71
    
    
    
    0.33
 
 20




---



##### 



Total Number of Shares
    
    Approximate Dollar ValueTotal Number
    
    Average Price
    
    Purchased as Part of
    
    of Shares that May Yet Beof Shares
    
    Paid per
    
    Publicly Announced
    
    Purchased Under the Plans orPeriod
    
    Purchased
    
    Share
    
    Plans or Programs (1)
    
    Programs (1)October 1, 2006 -
October 31, 2006
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    462,961,817November 1, 2006 -
November 30, 2006
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    462,961,817December 1, 2006 -
December 31, 2006
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    462,961,817Total
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    462,961,817
 Notes:
 (1)
    
    In December 2004, our Board of Directors authorized the repurchase of up to $1 billion of our
common stock through 2008, with the timing of the purchases depending on market conditions and
other priorities for cash. As of December 31, 2006, we repurchased 11.7 million shares at a
cost of $537 million. 21




---



##### 



FIVE-YEAR CUMULATIVE TOTAL RETURN TO STOCKHOLDERS
 Rohm and Haas, S&P 500 Composite Index, S&P 500 Chemicals Index and
S&P 500 Specialty Chemicals Index
 % Return to shareholders, 02 to 06
 
 
 22




---



##### 



Item 6. Selected Financial Data
  Five-Year Summary of Selected Financial Data  (in millions, except per share, stockholders and employees)
 For the Year Ended December 31,See notes
    
    2006(1,5)
    
    2005(1, 2)
    
    2004(1,2)
    
    2003(2,3)
    
    2002(2,4)Statement of Operating InformationNet sales
    
    $
    8,230
    
    
    $
    7,885
    
    
    $
    7,186
    
    
    $
    6,314
    
    
    $
    5,618Gross profit
    
    
    2,474
    
    
    
    2,366
    
    
    
    2,091
    
    
    
    1,879
    
    
    
    1,754Earnings from continuing operations
before income taxes, minority interest and
cumulative effect of accounting change
    
    
    1,042
    
    
    
    868
    
    
    
    698
    
    
    
    397
    
    
    
    291Earnings from continuing operations
before cumulative effect of accounting
change
    
    
    755
    
    
    
    616
    
    
    
    484
    
    
    
    275
    
    
    
    197Discontinued operations:(Loss) incomefrom discontinued line of
business, net of income tax
    
    
    (4
    )
    
    
    22
    
    
    
    12
    
    
    
    13
    
    
    
    13(Loss) gainon disposal of discontinued line
of
business, net of income tax
    
    
    (16
    )
    
    
    (1
    )
    
    
    1
    
    
    
    
    
    
    
    (7
    )Cumulative effect of accounting change, net of
income taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (8
    )
    
    
    (773
    )Net earnings (loss)
    
    $
    735
    
    
    $
    637
    
    
    $
    497
    
    
    $
    280
    
    
    $
    (570
    )As a % of Net SalesGross profit
    
    
    30.1
    %
    
    
    30.0
    %
    
    
    29.1
    %
    
    
    29.8
    %
    
    
    31.2
    %Selling and administrative expense
    
    
    12.5
    %
    
    
    12.6
    %
    
    
    13.4
    %
    
    
    13.8
    %
    
    
    14.9
    %Research and development expense
    
    
    3.6
    %
    
    
    3.4
    %
    
    
    3.6
    %
    
    
    3.6
    %
    
    
    4.4
    %Earnings from continuing operationsBasic
    
    $
    3.45
    
    
    $
    2.78
    
    
    $
    2.17
    
    
    $
    1.24
    
    
    $
    0.89Diluted
    
    
    3.41
    
    
    
    2.75
    
    
    
    2.16
    
    
    
    1.24
    
    
    
    0.89Cash dividends per common share
    
    
    1.28
    
    
    
    1.12
    
    
    
    0.97
    
    
    
    0.86
    
    
    
    0.82Common stock price:High
    
    $
    53.86
    
    
    $
    50.00
    
    
    $
    45.41
    
    
    $
    43.05
    
    
    $
    42.60Low
    
    
    42.77
    
    
    
    39.47
    
    
    
    35.90
    
    
    
    26.26
    
    
    
    30.19Year-end close
    
    
    51.12
    
    
    
    48.42
    
    
    
    44.23
    
    
    
    42.71
    
    
    
    32.48Weighted average number of common shares
outstanding  basic
    
    
    218.9
    
    
    
    221.9
    
    
    
    222.9
    
    
    
    221.5
    
    
    
    220.9Weighted average number of common shares
outstanding  diluted
    
    
    221.2
    
    
    
    223.9
    
    
    
    224.2
    
    
    
    222.4
    
    
    
    221.9Balance Sheet Data(6)Land, buildings and equipment, gross
    
    $
    8,150
    
    
    $
    7,850
    
    
    $
    7,940
    
    
    $
    7,628
    
    
    $
    7,187Total Assets
    
    
    9,553
    
    
    
    9,695
    
    
    
    10,095
    
    
    
    9,511
    
    
    
    9,605Current portion of long-term debt
    
    
    281
    
    
    
    11
    
    
    
    11
    
    
    
    10
    
    
    
    48Other short-term borrowings
    
    
    112
    
    
    
    110
    
    
    
    66
    
    
    
    98
    
    
    
    132Long-term debt
    
    
    1,688
    
    
    
    2,074
    
    
    
    2,563
    
    
    
    2,473
    
    
    
    2,878Total Debt
    
    
    2,081
    
    
    
    2,195
    
    
    
    2,640
    
    
    
    2,581
    
    
    
    3,058Stockholders equity (5)
    
    
    4,031
    
    
    
    3,917
    
    
    
    3,697
    
    
    
    3,357
    
    
    
    3,119Number of registered stockholders
    
    
    8,957
    
    
    
    8,406
    
    
    
    8,726
    
    
    
    9,106
    
    
    
    9,140Number of employees
    
    
    15,815
    
    
    
    15,924
    
    
    
    16,067
    
    
    
    16,661
    
    
    
    17,005
 Notes:
 (1)
    
    The results of the years ended December 31, 2004, 2005 and 2006 reflect the
consolidation of a joint venture as of January 1, 2004. This joint venture was
previously accounted for as an equity method investment in our reported results. 23




---



##### 



(2)
    
    The results of the years ended December 31, 2002, 2003, 2004 and 2005 have been
reclassified to reflect Automotive Coatings as a discontinued operation (see Note 2
to the Consolidated Financial Statements).(3)
    
    In 2003, in accordance with SFAS No. 143 Asset Retirement Obligations, we
recorded a transition charge of $11 million ($8 million after-tax) as a cumulative
effect of accounting change.(4)
    
    As a result of our impairment testing in connection with the adoption of SFAS No.
142 Goodwill and Other Intangible Assets, a charge of $830 million ($773 million
after-tax) was recorded as a cumulative effect of accounting change in 2002.(5)
    
    As a result of the implementation of SFAS No. 158 Employers Accounting for
Defined Benefit Pension and Other Postretirement Plans, we
recorded a $245 million
charge to stockholders equity (see Note 9 to the Consolidated Financial
Statements).(6)
    
    Reclassified to conform to current year presentation. Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations
   2006  A Year in Review
  
    
    The continued growth in our core businesses of Electronic Materials and Coatings;
    
    The acceleration of growth in the emerging markets of China, India, Central and
Eastern Europe, Turkey and Latin America;
    
    The investment in new facilities to expand our global research, technical service and
manufacturing footprint;
    
    The balanced deployment of cash for investment in growth initiatives,
double-digit dividend increase, stock repurchases and voluntary pension
contributions; and,
    
    The implementation of a strategic plan that will accelerate profitable growth and
provide greater shareholder value over the next several years.
  Critical
Accounting Estimates
  
    
    the estimate is complex in nature or requires a high degree of
judgment, and
    
    the use of different estimates and assumptions could have a material
impact on the Consolidated Financial Statements.
 24




---



##### 



Ø Litigation and Environmental Reserves
     Ø Income Taxes
    25




---



##### 



Ø Restructuring
  Ø Long-Lived Assets
    
    
    Estimated future cash flowsThe key variables that we must estimate to determine future cash flows include assumptions
for sales volume, selling prices, raw material prices, labor and other employee benefit
costs, capital additions and other economic or market-related factors. Significant
management judgment is involved in estimating these variables, and they include inherent
uncertainties since they are forecasting future events. For example, unanticipated changes
in competition, customer sourcing requirements and product maturity would all have a
significant impact on these estimates.
 26




---



##### 




    
    Discount rate
We employ a Weighted Average Cost of Capital (WACC) approach to determine our discount
rate for goodwill recoverability testing. Our WACC calculation includes factors such as the
risk free rate of return, cost of debt and expected equity premiums. The factors in this
calculation are largely external to our company, and therefore are beyond our control. The
average WACC utilized in our annual test of goodwill recoverability as of May 31, 2006, was
10.14%, which was based upon average business enterprise value. A 1% increase in the WACC will result in an approximate 12% decrease in the computed fair value of our reporting units. A 1% decrease in the WACC
will result in an approximate 16% increase in the computed fair value of our reporting units.
The following table summarizes the major factors that influenced the
rate:
 2006
    
    2005Risk free rate of return
    
    5.3%
    
    4.5%Cost of debt
    
    7.0%
    
    5.9%Market risk premium
    
    4.0%
    
    4.0%
    Ø Pension and Other Employee Benefits
     27




---



##### 



Weighted-averageassumptions used to determinebenefit obligation for years endedDecember 31,
    
    2006
    
    2005U.S.
    
    Non-U.S.
    
    U.S.
    
    Non-U.S.Discount rate
    
    5.90%
    
    5.09%
    
    5.70%
    
    4.85 %Rate of compensation increase
    
    4.00%
    
    3.91%
    
    4.00%
    
    3.91%
 Weighted-average assumptionsused to determine net pensionexpense for years endedDecember 31,
    
    2006
    
    2005
    
    2004U.S.
    
    Non-U.S.
    
    U.S.
    
    Non-U.S.
    
    U.S.
    
    Non-U.S.Discount rate
    
    5.70%
    
    4.77%
    
    5.80%
    
    5.49%
    
    6.25%
    
    5.73%Estimated return on plan assets
    
    8.50%
    
    6.97%
    
    8.50%
    
    7.37%
    
    8.50%
    
    7.40%Rate of compensation increase
    
    4.00%
    
    3.88%
    
    4.00%
    
    4.14%
    
    4.00%
    
    4.14%
  CombinedWeighted-Average
    
    
    Estimated Return on Plan
    
    
    Increase/(Decrease)Discount Rate
    
    
    Assets
    
    
    Pension Expense(in millions)
    
    U.S.
    
    
    Non-U.S.
    
    
    U.S.
    
    
    Non-U.S.
    
    
    U.S.
    
    
    Non-U.S.100 basis point increase
    
    $
    (28
    )
    
    $
    (10
    )
    
    $
    (14
    )
    
    $
    (6
    )
    
    $
    (42
    )
    
    $
    (16
    )100 basis point decrease
    
    
    30
    
    
    
    10
    
    
    
    14
    
    
    
    6
    
    
    
    44
    
    
    
    16
  Weighted-Average DiscountRate(in millions)
    
    U.S.
    
    Non-U.S.100 basis point increase
    
    $
    1
    
    
    $
    (1
    )100 basis point decrease
    
    
    (1
    )
    
    
    1
 Ø Share-Based Compensation
 Share-Based Payments.
 28




---



##### 



Reportable
Segments at December 31, 2006
  Net SalesAdhesivesPerformance
    
    Electronic
    
    
    
    
    
    and
    
    Segment(in millions)
    
    Coatings
    
    Monomers
    
    Chemicals
    
    Materials
    
    Salt
    
    Sealants
    
    Elims.
    
    TotalNorth America2006
    
    $
    1,568
    
    
    $
    391
    
    
    $
    698
    
    
    $
    437
    
    
    $
    829
    
    
    $
    276
    
    
    $
    
    
    
    $
    4,1992005(1)
    
    
    1,464
    
    
    
    424
    
    
    
    673
    
    
    
    371
    
    
    
    925
    
    
    
    277
    
    
    
    
    
    
    
    4,1342004(1)
    
    
    1,278
    
    
    
    352
    
    
    
    620
    
    
    
    351
    
    
    
    829
    
    
    
    258
    
    
    
    
    
    
    
    3,688Europe2006
    
    $
    647
    
    
    $
    230
    
    
    $
    638
    
    
    $
    226
    
    
    $
    
    
    
    $
    289
    
    
    $
    
    
    
    $
    2,0302005(1)
    
    
    644
    
    
    
    221
    
    
    
    619
    
    
    
    206
    
    
    
    
    
    
    
    298
    
    
    
    
    
    
    
    1,9882004(1)
    
    
    631
    
    
    
    163
    
    
    
    582
    
    
    
    220
    
    
    
    
    
    
    
    297
    
    
    
    
    
    
    
    1,893Asia-Pacific2006
    
    $
    312
    
    
    $
    7
    
    
    $
    328
    
    
    $
    901
    
    
    $
    
    
    
    $
    111
    
    
    $
    
    
    
    $
    1,6592005(1)
    
    
    291
    
    
    
    4
    
    
    
    304
    
    
    
    755
    
    
    
    
    
    
    
    101
    
    
    
    
    
    
    
    1,4552004(1)
    
    
    261
    
    
    
    2
    
    
    
    308
    
    
    
    679
    
    
    
    
    
    
    
    89
    
    
    
    
    
    
    
    1,339Latin America2006
    
    $
    156
    
    
    $
    25
    
    
    $
    114
    
    
    $
    
    
    
    $
    
    
    
    $
    47
    
    
    $
    
    
    
    $
    3422005(1)
    
    
    135
    
    
    
    28
    
    
    
    94
    
    
    
    
    
    
    
    
    
    
    
    51
    
    
    
    
    
    
    
    3082004(1)
    
    
    111
    
    
    
    26
    
    
    
    80
    
    
    
    
    
    
    
    
    
    
    
    49
    
    
    
    
    
    
    
    266Segment Elims.2006
    
    $
    
    
    
    $
    1,273
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    (1,273
    )
    
    $
    2005(1)
    
    
    
    
    
    
    1,171
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,171
    )
    
    
    2004(1)
    
    
    
    
    
    
    840
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (840
    )
    
    
    Total2006
    
    $
    2,683
    
    
    $
    1,926
    
    
    $
    1,778
    
    
    $
    1,564
    
    
    $
    829
    
    
    $
    723
    
    
    $
    (1,273
    )
    
    $
    8,2302005(1)
    
    
    2,534
    
    
    
    1,848
    
    
    
    1,690
    
    
    
    1,332
    
    
    
    925
    
    
    
    727
    
    
    
    (1,171
    )
    
    
    7,8852004(1)
    
    
    2,281
    
    
    
    1,383
    
    
    
    1,590
    
    
    
    1,250
    
    
    
    829
    
    
    
    693
    
    
    
    (840
    )
    
    
    7,186
 (in millions)
    
    2006
    
    2005(1)
    
    2004(1)Net Earnings from Continuing OperationsCoatings
    
    $
    230
    
    
    $
    216
    
    
    $
    208Monomers
    
    
    201
    
    
    
    197
    
    
    
    95Performance Chemicals
    
    
    163
    
    
    
    167
    
    
    
    151Electronic Materials
    
    
    235
    
    
    
    143
    
    
    
    127Salt
    
    
    38
    
    
    
    55
    
    
    
    49Adhesives and Sealants
    
    
    55
    
    
    
    19
    
    
    
    37Corporate
    
    
    (167
    )
    
    
    (181
    )
    
    
    (183
    )Total
    
    $
    755
    
    
    $
    616
    
    
    $
    484
 Note:
 
 (1)
    
    The results for the years ended December 31, 2005 and 2004 have been
reclassified to reflect Automotive Coatings as a discontinued operation (see
Note 2 to the consolidated financial statements). Electronic Materials Salt Primary Materials, Paint and
Coatings Materials, Packaging and Building Materials Performance Materials. Primary Materials . Paint and Coatings Materials Packaging and
Building Materials
 29




---



##### 



Performance
Materials
 Consolidated Results of Operations for the Years Ended December 31, 2004 through December 31,
2006
 Net
Sales and Gross Profits
 .
 2006 from 2005
    
    2005 from 2004Sales Change
    
    %
    
    %Selling price
    
    2
    
    9Currency
    
    (1)
    
    1Demand/Volume
    
    3
    
    (1)Other
    
    
    
    1Total Change
    
    4%
    
    10%
    Selling
and Administrative Expense
   30




---



##### 



Research
and Development Expense
  Interest
Expense
  Amortization
of Finite-lived Intangible Assets
  Share
of Affiliate Earnings, net
   Restructuring
and Asset Impairments
 Severance and Employee Benefits
   31




---



##### 



Asset
Impairments
    Other
Income, net
    Income
Taxes
   32




---



##### 



Results of Operations for the Years Ended December 31, 2004 through December 31, 2006   By Business Segment
 COATINGS
 Architectural and Functional Coatings Powder Coatings
 Powder Coatings
 Architectural and Functional Coatings Powder Coatings Powder Coatings
 Powder Coatings Powder Coatings
 Automotive Coatings Acquisitions and Dispositions of Assets
 MONOMERS
 Year Ended December 31,(in millions)
    
    2006
    
    2005
    
    2004Total Sales
    
    $
    1,926
    
    
    $
    1,848
    
    
    $
    1,383Elimination of Inter-segment Sales
    
    
    (1,273
    )
    
    
    (1,171
    )
    
    
    (840
    )Third Party Sales
    
    $
    653
    
    
    $
    677
    
    
    $
    543
 Architectural and Functional Coatings, Adhesives
and Sealants, and Performance Chemicals
 33




---



##### 



PERFORMANCE CHEMICALS
 Plastics Additives Consumer and Industrial Specialties Process Chemicals
  Plastics Additives Consumer and Industrial Specialties Process
Chemicals
 34




---



##### 



ELECTRONIC MATERIALS
 Semiconductor Technologies Circuit
Board Technologies Packaging and Finishing Technologies
  Circuit Board Technologies Semiconductor Technologies Packaging and Finishing Technologies
  SALT
    35




---



##### 



ADHESIVES AND SEALANTS
     CORPORATE
   36




---



##### 



LIQUIDITY AND CAPITAL RESOURCES
 Overview
  
    
    Reinvesting in core businesses to drive profitable growth through our capital
expenditure program;
    
    Investing in new platforms that address the growing needs in health, water, energy, and
other areas in the developed and developing worlds;
    
    Supplementing our organic growth with highly selective bolt-on acquisitions which bring
a growth platform technology or geographic supplement to our core businesses;
    
    Continuing to pay higher cash dividends to our stockholders (Dividend payouts have
increased at an average of 10.5% compound annual growth rate since 1978); and
    
    Repurchasing shares to improve overall returns to our stockholders.
  Year EndedDecember 31,(in millions)
    
    2006
    
    2005Cash provided by operating activities
    
    $
    840
    
    
    $
    947Net long-term debt (reduction)
    
    
    (159
    )
    
    
    (341
    )Capital expenditures
    
    
    (404
    )
    
    
    (333
    )Dividends
    
    
    (283
    )
    
    
    (250
    )Stock repurchases
    
    
    (264
    )
    
    
    (273
    )Stock option exercise proceeds
    
    
    74
    
    
    
    82
  Cash
Provided by Operating Activities
 Automotive
Coatings
  37




---



##### 



Pension
Plan and Postretirement Benefit Plan Funding and
Liability
      Capital
Expenditures
  Ø
    
    2006
 (1)
    
    Completion of the new research and development center in Shanghai, China;(2)
    
    Opening of the new CMP Research and Manufacturing Center in Taiwan;(3)
    
    A project in our Louisville, Kentucky Plant to meet new environmental requirements;(4)
    
    Expansions in our Qingpu, China and Weeks Island, Louisiana Plants to increase capacity;(5)
    
    Construction of new manufacturing facilities in Queratero, Mexico and Chennai, India. Both
facilities will be completed in 2007.
 Ø
    
    2005
 (1)
    
    Construction of a new research and development center in Shanghai, China which was completed in
2006;(2)
    
    Capacity initiatives within the North American emulsion manufacturing locations;(3)
    
    Process control systems at our Knoxville, Tennessee facility; and(4)
    
    Volatile organic compound reduction and quality/capacity improvements at our Chauny, France
facility.
 38




---



##### 



Ø
 
  (in millions)
    
    2006
    
    
    2005
    
    
    2004Cost savings and infrastructure
    
    $
    263
    
    
    $
    248
    
    
    $
    211Capacity additions and new products
    
    
    65
    
    
    
    61
    
    
    
    59ERP infrastructure
    
    
    
    
    
    
    
    
    
    
    26Research facilities and equipment
    
    
    65
    
    
    
    15
    
    
    
    16Capitalized interest cost
    
    
    11
    
    
    
    9
    
    
    
    10Total
    
    $
    404
    
    
    $
    333
    
    
    $
    322
  Dividends
  Dividend Paid
    
    AmountYear
    
    (Per common share)
    
    (In millions)2004
    
    $0.97
    
    $2172005
    
    1.12
    
    2502006
    
    1.28
    
    283
 
 Share
Repurchase Program
  39




---



##### 



Liquidity
and Debt
  December 31,
    
    
    December 31,(in millions)
    
    2006
    
    
    2005Short-term obligations
    
    $
    393
    
    
    $
    121Long-term debt
    
    
    1,688
    
    
    
    2,074Total debt
    
    $
    2,081
    
    
    $
    2,195Cash and cash equivalents
    
    $
    593
    
    
    $
    566Restricted cash
    
    
    3
    
    
    
    4Total
    
    $
    596
    
    
    $
    570
 Debt
    Use
of Derivative Instruments to Manage Market Risk
    40




---



##### 



Contractual
Obligations
  (in millions)
    
    Payments due by periodContractual obligations
    
    Total
    
    
    Within 1 year
    
    
    2-3 years
    
    
    4-5 years
    
    
    Over 5 yearsLong-term debt, including current portion
    
    $
    1,945
    
    
    $
    281
    
    
    $
    44
    
    
    $
    23
    
    
    $
    1,597Interest on long-term debt
    
    
    1,925
    
    
    
    105
    
    
    
    182
    
    
    
    180
    
    
    
    1,458Operating leases
    
    
    174
    
    
    
    62
    
    
    
    72
    
    
    
    40
    
    
    
    Purchase obligations (1,2)
    
    
    3,031
    
    
    
    1,338
    
    
    
    1,252
    
    
    
    269
    
    
    
    172Pension and other employee benefit funding
(3)
    
    
    625
    
    
    
    79
    
    
    
    159
    
    
    
    157
    
    
    
    230ESOP Loan Guarantees
    
    
    146
    
    
    
    6
    
    
    
    13
    
    
    
    16
    
    
    
    111Interest on ESOP Loan Guarantees
    
    
    118
    
    
    
    14
    
    
    
    27
    
    
    
    24
    
    
    
    53Total contractual cash obligations(4)
    
    $
    7,964
    
    
    $
    1,885
    
    
    $
    1,749
    
    
    $
    709
    
    
    $
    3,621
 Notes :
 
 (1)
    
    For our requirements contracts, we have assumed that our existing business segments will
require materials and services generally consistent with prior years. The amount of the
obligation is based upon either projected requirements or historical spend. Our purchase
obligations include raw materials, indirect materials, traffic and logistics, utilities and
energy, information technology and communications contracts.(2)
    
    These obligations include evergreen contracts that renew automatically until specifically
cancelled by either party. We have assumed that our evergreen contracts will continue
through 2007.(3)
    
    Forecasting qualified pension plan contributions requires the usage of certain
assumptions such as interest rates used to calculate plan liabilities, demographic
assumptions used to determine changes in participation, and rates of return on assets;
therefore, we feel it is appropriate to only forecast out 5 years due to the uncertainties
of the future assumptions. The non-qualified plan and other employee benefits reflect
expected future benefit payments, which are forecasted out through 2016. See Note 9 to our
Consolidated Financial Statements.(4)
    
    In December 2004, our Board of Directors authorized the repurchase of up to $1 billion of
our common stock through 2008, with the timing of the purchases depending on market
conditions and other priorities for cash. As of December 31, 2006, we had repurchased $537
million of our stock or 11.7 million shares under the current authorization.
 Trading
Activities
  Unconsolidated
Entities
  Environmental
Matters and Litigation
   41




---



##### 



Accruals
  (in millions)
    
    BalanceDecember 31, 2004
    
    $
    137Amounts charged to earnings
    
    
    38Spending
    
    
    (28
    )December 31, 2005
    
    $
    147Amounts charged to earnings
    
    
    25Spending
    
    
    (31
    )December 31, 2006
    
    $
    141
 Wood-Ridge/Berrys
Creek
   Other
Environmental Expenditures
    42




---



##### 



Climate
Change
   2 2 2 2
 Litigation
      43




---



##### 



Acquisitions
and Divestitures
  Working
Capital
   (millions)
    
    2006
    
    
    2005InventoriesYear-end balance
    
    $
    984
    
    
    $
    798Annual turnover
    
    
    6.5x
    
    
    
    6.7xDays cost of sales in ending inventory
    
    
    62
    
    
    
    52Customer receivables, netYear-end balance
    
    $
    1,316
    
    
    $
    1,269Annual turnover
    
    
    6.2x
    
    
    
    6.0xDays sales outstanding
    
    
    58
    
    
    
    57
 Notes:
 
    
    Days sales outstanding were calculated by dividing ending net customer receivables by daily
sales for the fourth quarter.
    
    Days cost of sales in ending inventory was calculated by dividing ending inventory by daily
cost of sales for the fourth quarter.
    
    For customer receivables, annual turnover figures are calculated by dividing annual sales by
the average customer receivables balance.
    
    For inventories, annual turnover figures are calculated by dividing cost of goods sold by the
average inventory balance.
 Asset Turnover
 44




---



##### 



ACCOUNTING
PRONOUNCEMENTS ISSUED BUT NOT YET ADOPTED
 Fair Value Option for Financial Assets and Financial
Liabilities
 The Fair Value Option for Financial Assets and
Financial Liabilities, Fair Value Measurements
 Accounting
for Planned Major Maintenance Activities
 AUG AIR-1 Elements of Financial Statements,
 Fair
Value Measurements
 Fair Value Measurements,
 Accounting
for Uncertainty in Income Taxes
 Accounting for Uncertainty in Income Taxes. Accounting for Income Taxes.
 Accounting
for Servicing of Financial Assets
 Accounting for Servicing of Financial Assets an
Amendment of FASB Statement No. 140. Accounting for Transfers
and Servicing of Financial Assets and Extinguishments of Liabilities
 45




---



##### 



Certain
Hybrid Financial Instruments
 Accounting for Certain Hybrid Financial
Instruments. Accounting for Derivative Instruments and Hedging
Activities Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities.
 Item 7A: Quantitative and Qualitative Disclosures about Market Risk
     Foreign
Exchange Rate Risk
  46




---



##### 



Interest
Rate Risk
  Commodity
Price Risk
  47




---



##### 



Item 8: Financial Statements and Supplementary Data
 PageManagements Report on Internal Control Over Financial Reporting
    
    
    49Report of Independent Registered Public Accounting Firm
    
    
    50Consolidated Financial Statements:Consolidated Statements of Operations for the years ended December 31, 2006, 2005, and 2004
    
    
    52Consolidated Statements of Cash Flows for the years ended December 31, 2006, 2005, and 2004
    
    
    53Consolidated Balance Sheets as of December 31, 2006 and 2005
    
    
    54Consolidated Statements of Stockholders Equity for the years ended December 31, 2006,
2005, and 2004
    
    
    55Notes to Consolidated Financial Statements
    
    
    56
 48




---



##### 



Managements Report on Internal Control Over Financial Reporting
     /s/ Raj L. Gupta
    
    /s/ Jacques M. CroisetiereRaj L. Gupta
    
    Jacques M. CroisetiereChairman, President and Chief Executive Officer
    
    Executive Vice-President and Chief Financial Officer
  49




---



##### 



Report of Independent Registered Public Accounting Firm
   Consolidated financial statements and financial statement schedule
   Internal control over financial reporting
 Internal
Control  Integrated Framework Internal Control  Integrated Framework
 50




---



##### 



51




---



##### 



Rohm and Haas Company and Subsidiaries
Consolidated Statements of Operations
 For the years ended December 31,
    
    2006
    
    
    2005
    
    
    2004(in millions, except per share amounts)Net sales
    
    $
    8,230
    
    
    $
    7,885
    
    
    $
    7,186Cost of goods sold
    
    
    5,756
    
    
    
    5,519
    
    
    
    5,095Gross profit
    
    
    2,474
    
    
    
    2,366
    
    
    
    2,091Selling and administrative expense
    
    
    1,026
    
    
    
    995
    
    
    
    966Research and development expense
    
    
    292
    
    
    
    268
    
    
    
    259Interest expense
    
    
    94
    
    
    
    117
    
    
    
    133Amortization of intangibles
    
    
    56
    
    
    
    55
    
    
    
    58Restructuring and asset impairments
    
    
    27
    
    
    
    98
    
    
    
    18Loss on early extinguishment of debt
    
    
    
    
    
    
    17
    
    
    
    Share of affiliate earnings, net
    
    
    10
    
    
    
    9
    
    
    
    6Other (income), net
    
    
    (53
    )
    
    
    (43
    )
    
    
    (35
    )Earnings from continuing operations before income taxes,
and minority interest
    
    
    1,042
    
    
    
    868
    
    
    
    698Income taxes
    
    
    274
    
    
    
    242
    
    
    
    203Minority interest
    
    
    13
    
    
    
    10
    
    
    
    11Earnings from continuing operations
    
    
    755
    
    
    
    616
    
    
    
    484Discontinued operations:Net (loss) earnings of discontinued lines of business, net of income tax
expense (benefit) of $14, $(16) and $3 in 2006, 2005 and 2004, respectively
    
    
    (20
    )
    
    
    21
    
    
    
    13Net earnings
    
    
    735
    
    
    
    637
    
    
    
    497Basic earnings per share (in dollars):From continuing operations
    
    $
    3.45
    
    
    $
    2.78
    
    
    $
    2.17(Loss) income from discontinued operation
    
    
    (0.09
    )
    
    
    0.09
    
    
    
    0.06Net earnings per share
    
    $
    3.36
    
    
    $
    2.87
    
    
    $
    2.23Diluted earnings per share (in dollars):From continuing operations
    
    $
    3.41
    
    
    $
    2.75
    
    
    $
    2.16(Loss) income from discontinued operation
    
    
    (0.09
    )
    
    
    0.10
    
    
    
    0.06Net earnings per share
    
    $
    3.32
    
    
    $
    2.85
    
    
    $
    2.22Weighted average common shares outstanding  basic
    
    
    218.9
    
    
    
    221.9
    
    
    
    222.9Weighted average common shares outstanding  diluted
    
    
    221.2
    
    
    
    223.9
    
    
    
    224.2
  52




---



##### 



Rohm and Haas Company and Subsidiaries
Consolidated Statements of Cash Flows
 For the years ended December 31,
    
    2006
    
    
    2005
    
    
    2004(in millions)Cash Flows from Operating ActivitiesNet earnings
    
    $
    735
    
    
    $
    637
    
    
    $
    497Adjustments to reconcile net earnings to net cash provided by operating activities:Loss (gain) on disposal of business, net of income taxes
    
    
    16
    
    
    
    1
    
    
    
    (1
    )Loss (gain) on sale of assets
    
    
    7
    
    
    
    (12
    )
    
    
    (19
    )Provision for allowance for doubtful accounts
    
    
    6
    
    
    
    11
    
    
    
    11Provision for deferred taxes
    
    
    (37
    )
    
    
    (66
    )
    
    
    (32
    )Restructuring and asset impairments
    
    
    34
    
    
    
    98
    
    
    
    18Depreciation
    
    
    407
    
    
    
    422
    
    
    
    419Amortization of finite-lived intangibles
    
    
    58
    
    
    
    59
    
    
    
    62Share-based compensation
    
    
    48
    
    
    
    50
    
    
    
    22Loss on extinguishment of debt
    
    
    
    
    
    
    17
    
    
    
    Premium paid on debt retirement
    
    
    (6
    )
    
    
    (46
    )
    
    
    Changes in assets and liabilitiesAccounts receivable
    
    
    (30
    )
    
    
    (123
    )
    
    
    (123
    )Inventories
    
    
    (154
    )
    
    
    (29
    )
    
    
    11Prepaid expenses and other current assets
    
    
    3
    
    
    
    8
    
    
    
    13Accounts payable and accrued liabilities
    
    
    (44
    )
    
    
    (15
    )
    
    
    8Federal, foreign and other income taxes payable
    
    
    (96
    )
    
    
    89
    
    
    
    (21
    )Payments to
fund US qualified pension plans
    
    
    (137
    )
    
    
    (125
    )
    
    
    Other, net
    
    
    30
    
    
    
    (29
    )
    
    
    60Net cash provided by operating activities
    
    
    840
    
    
    
    947
    
    
    
    925Cash Flows from Investing ActivitiesAcquisitions of businesses affiliates and intangibles
    
    
    (46
    )
    
    
    (20
    )
    
    
    (5
    )Proceeds from disposal of business, net
    
    
    256
    
    
    
    
    
    
    
    8Decrease (increase) in restricted cash
    
    
    1
    
    
    
    45
    
    
    
    (49
    )Cash received from consolidating joint venture
    
    
    
    
    
    
    
    
    
    
    2Proceeds from the sale of land, buildings and equipment
    
    
    12
    
    
    
    24
    
    
    
    28Capital expenditures for land, buildings and equipment
    
    
    (404
    )
    
    
    (333
    )
    
    
    (322
    )(Payments) proceeds to settle hedge of net investment in foreign subsidiaries
    
    
    (22
    )
    
    
    31
    
    
    
    (23
    )Net cash used by investing activities
    
    
    (203
    )
    
    
    (253
    )
    
    
    (361
    )Cash Flows from Financing ActivitiesProceeds from issuance of long-term debt
    
    
    23
    
    
    
    70
    
    
    
    71Repayments of long-term debt
    
    
    (182
    )
    
    
    (411
    )
    
    
    (13
    )Purchase of common stock
    
    
    (264
    )
    
    
    (273
    )
    
    
    Tax benefit on stock options
    
    
    8
    
    
    
    
    
    
    
    Proceeds from exercise of stock options
    
    
    74
    
    
    
    82
    
    
    
    47Net change in short-term borrowings
    
    
    (50
    )
    
    
    90
    
    
    
    (42
    )Payment of dividends
    
    
    (283
    )
    
    
    (250
    )
    
    
    (217
    )Net cash used by financing activities
    
    
    (674
    )
    
    
    (692
    )
    
    
    (154
    )Net (decrease) increase in cash and cash equivalents
    
    
    (37
    )
    
    
    2
    
    
    
    410Effect of exchange rate changes on cash and cash equivalents
    
    
    64
    
    
    
    (61
    )
    
    
    19Cash and cash equivalents at the beginning of the year
    
    
    566
    
    
    
    625
    
    
    
    196Cash and cash equivalents at the end of the year
    
    $
    593
    
    
    $
    566
    
    
    $
    625Supplemental Cash Flow InformationCash paid during the year for:Interest, net of amounts capitalized
    
    $
    109
    
    
    $
    147
    
    
    $
    139Income taxes, net of refunds received
    
    
    381
    
    
    
    251
    
    
    
    224
  53




---



##### 



Rohm and Haas Company and Subsidiaries
Consolidated Balance Sheets
 December 31,
    
    2006
    
    
    2005(in millions, except share data)AssetsCash and cash equivalents
    
    $
    593
    
    
    $
    566Restricted cash
    
    
    3
    
    
    
    4Receivables, net
    
    
    1,570
    
    
    
    1,485Inventories
    
    
    984
    
    
    
    798Prepaid expenses and other current assets
    
    
    254
    
    
    
    269Current assets of discontinued operations
    
    
    7
    
    
    
    50Total current assets
    
    
    3,411
    
    
    
    3,172Land, buildings and equipment, net of accumulated depreciation
    
    
    2,669
    
    
    
    2,642Investments in and advances to affiliates
    
    
    112
    
    
    
    103Goodwill, net of accumulated amortization
    
    
    1,541
    
    
    
    1,525Other intangible assets, net of accumulated amortization
    
    
    1,487
    
    
    
    1,503Other assets
    
    
    324
    
    
    
    476Other assets of discontinued operations
    
    
    9
    
    
    
    274Total Assets
    
    $
    9,553
    
    
    $
    9,695Liabilities and Stockholders EquityLiabilities:Short-term obligations
    
    $
    393
    
    
    $
    121Trade and other payables
    
    
    684
    
    
    
    611Accrued liabilities
    
    
    816
    
    
    
    809Income taxes payable
    
    
    93
    
    
    
    193Current liabilities of discontinued operations
    
    
    2
    
    
    
    11Total current liabilities
    
    
    1,988
    
    
    
    1,745Long-term debt
    
    
    1,688
    
    
    
    2,074Employee benefits
    
    
    735
    
    
    
    651Deferred income taxes
    
    
    754
    
    
    
    902Other liabilities
    
    
    230
    
    
    
    241Other liabilities of discontinued operations
    
    
    5
    
    
    
    54Total Liabilities
    
    
    5,400
    
    
    
    5,667Minority Interest
    
    
    122
    
    
    
    111Commitments and contingenciesStockholders Equity:Preferred stock; par value  $1.00; authorized - 25,000,000 shares;
issued  no shares
    
    
    
    
    
    
    Common stock; par value  $2.50; authorized - 400,000,000 shares;
issued - 242,078,349 shares
    
    
    605
    
    
    
    605Additional paid-in capital
    
    
    2,214
    
    
    
    2,152Retained earnings
    
    
    2,218
    
    
    
    1,7625,037
    
    
    
    4,519Treasury stock at cost (2006 - 23,239,920 shares;
2005 - 20,115,637 shares)
    
    
    (608
    )
    
    
    (409
    )ESOP shares (2006 - 8,585,684 shares; 2005 - 9,220,434 shares)
    
    
    (82
    )
    
    
    (88
    )Accumulated other comprehensive loss
    
    
    (316
    )
    
    
    (105
    )Total Stockholders Equity
    
    
    4,031
    
    
    
    3,917Total Liabilities and Stockholders Equity
    
    $
    9,553
    
    
    $
    9,695
  54




---



##### 



Rohm and Haas Company and Subsidiaries
Consolidated Statements of Stockholders Equity
  Number of
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Number ofShares of
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Shares of
    
    
    
    
    
    
    
    
    
    
    AccumulatedCommon
    
    
    
    
    
    
    Additional
    
    
    
    
    
    
    Treasury
    
    
    
    
    
    
    
    
    
    
    Other
    
    
    Total
    
    
    
    TotalStock
    
    
    Common
    
    
    Paid-in
    
    
    Retained
    
    
    Stock
    
    
    Treasury
    
    
    
    
    
    
    Comprehensive
    
    
    Stockholders'
    
    
    
    Comprehensive(in millions, except share amounts in thousands)
    
    Outstanding
    
    
    Stock
    
    
    Capital
    
    
    Earnings
    
    
    Outstanding
    
    
    Stock
    
    
    ESOP
    
    
    Income (Loss)
    
    
    Equity
    
    
    
    Income2004Balance January 1, 2004
    
    
    223,125
    
    
    $
    605
    
    
    $
    2,002
    
    
    $
    1,087
    
    
    
    18,954
    
    
    $
    (185
    )
    
    $
    (100
    )
    
    $
    (52
    )
    
    $
    3,357Net earnings
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    497
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    497
    
    
    
    $
    497Current period changes in fair value, net of taxes of $3
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (6
    )
    
    
    (6
    )
    
    
    
    (6
    )Reclassification to earnings, net of taxes of ($3)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5
    
    
    
    5
    
    
    
    
    5Cumulative translation adjustment, net of taxes of ($59)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3
    
    
    
    3
    
    
    
    
    3Change in minimum pension liability, net of taxes of $13
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (30
    )
    
    
    (30
    )
    
    
    
    (30
    )Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    469Repurchase of common stockCommon stock issued:Stock-based compensation
    
    
    2,136
    
    
    
    
    
    
    
    60
    
    
    
    
    
    
    
    (2,136
    )
    
    
    19
    
    
    
    
    
    
    
    
    
    
    
    79ESOP
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6
    
    
    
    
    
    
    
    6Tax benefit on ESOP
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3Common dividends ($0.97 per share)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (217
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (217
    )Balance December 31, 2004
    
    
    225,261
    
    
    $
    605
    
    
    $
    2,062
    
    
    $
    1,370
    
    
    
    16,818
    
    
    $
    (166
    )
    
    $
    (94
    )
    
    $
    (80
    )
    
    $
    3,6972005Net earnings
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    637
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    637
    
    
    
    $
    637Current period changes in fair value, net of taxes of ($4)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7
    
    
    
    7
    
    
    
    
    7Reclassification to earnings, net of taxes of ($1)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2
    
    
    
    2
    
    
    
    
    2Cumulative translation adjustment, net of taxes of $5
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (13
    )
    
    
    (13
    )
    
    
    
    (13
    )Change in minimum pension liability, net of taxes of $1
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (21
    )
    
    
    (21
    )
    
    
    
    (21
    )Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    612Repurchase of common stock
    
    
    (5,974
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,974
    
    
    
    (273
    )
    
    
    
    
    
    
    
    
    
    
    (273
    )Common stock issued:Stock-based compensation
    
    
    2,676
    
    
    
    
    
    
    
    90
    
    
    
    
    
    
    
    (2,676
    )
    
    
    30
    
    
    
    
    
    
    
    
    
    
    
    120ESOP
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6
    
    
    
    
    
    
    
    6Tax benefit on ESOP
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5Common dividends ($1.12 per share)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (250
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (250
    )Balance December 31, 2005
    
    
    221,963
    
    
    $
    605
    
    
    $
    2,152
    
    
    $
    1,762
    
    
    
    20,116
    
    
    $
    (409
    )
    
    $
    (88
    )
    
    $
    (105
    )
    
    $
    3,9172006Net earnings
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    735
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    735
    
    
    
    $
    735Current period changes in fair value, net of taxes of ($5)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    10
    
    
    
    10
    
    
    
    
    10Reclassification to earnings, net of taxes of $6
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (11
    )
    
    
    (11
    )
    
    
    
    (11
    )Cumulative
translation adjustment, net of taxes of $8
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2
    )
    
    
    (2
    )
    
    
    
    (2
    )Change in
minimum pension liability, net of taxes of ($11)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    35
    
    
    
    35
    
    
    
    
    35Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    767Adjustment to initially apply FASB Statement No. 158, net
of tax of $127
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (243
    )
    
    
    (243
    )Repurchase of common stock
    
    
    (5,697
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,697
    
    
    
    (264
    )
    
    
    
    
    
    
    
    
    
    
    (264
    )Common stock issued:Stock-based compensation
    
    
    2,573
    
    
    
    
    
    
    
    62
    
    
    
    
    
    
    
    (2,573
    )
    
    
    65
    
    
    
    
    
    
    
    
    
    
    
    127ESOP
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6
    
    
    
    
    
    
    
    6Tax benefit on ESOP
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4Common dividends ($1.28 per share)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (283
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (283
    )Balance December 31, 2006
    
    
    218,839
    
    
    $
    605
    
    
    $
    2,214
    
    
    $
    2,218
    
    
    
    23,240
    
    
    $
    (608
    )
    
    $
    (82
    )
    
    $
    (316
    )
    
    $
    4,031
  55




---



##### 



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 Note 1: Organization and Summary of Significant Accounting Policies
 Nature of Business
  Use of Estimates
  Reclassifications
  Principles of Consolidation
 Consolidation of Variable Interest
Entities
     56




---



##### 



Foreign Currency Translation
    Cost of Goods Sold
  Revenue Recognition
    Accounts Receivable and Allowance for Doubtful Accounts
  Earnings Per Share
  57




---



##### 



Cash and Cash Equivalents
  Inventories
  Land, Buildings and Equipment, and Accumulated Depreciation
  Capitalized Software
 Accounting for the Costs of Computer Software Developed or Obtained for Internal
Use.
 Goodwill and Indefinite-Lived Intangible Assets
 .
 Goodwill and Other Intangible Assets
  Impairment of Long-Lived Assets
   58




---



##### 



Research and Development
  Litigation and Environmental Contingencies and Reserves
     59




---



##### 



Income Taxes
   Retirement Benefits
  Employers Accounting for Defined Benefit
Pension and Other Postretirement Plans
 Treasury Stock
  Share-Based Compensation
 Accounting for Stock Issued to Employees
 Accounting for Stock-Based Compensation.
 Accounting for Stock Issued to Employees, Accounting for Stock-Based Compensation  Transition and Disclosure,
 60




---



##### 



Accounting for Derivative Instruments and Hedging Activities
 Accounting
for Derivative Instruments and Hedging Activities,
      Note 2: Acquisitions and Dispositions of Assets
 2006
 Automotive Coatings Automotive Coatings Automotive Coatings
 Recognition of Deferred Tax Assets for a Parent Companys
Excess Tax Basis in the Stock of a Subsidiary That is Accounted for as a Discontinued Operation,
 Accounting for the Impairment or Disposal of Long-Lived Assets,
 61




---



##### 



Automotive Coatings
 (in millions)
    
    2006
    
    
    2005
    
    
    2004Net sales from discontinued operation
    
    $
    78
    
    
    $
    109
    
    
    $
    114(Loss) earnings from discontinued line of business
    
    
    (7
    )
    
    
    5
    
    
    
    16Income tax benefit (expense)
    
    
    3
    
    
    
    17
    
    
    
    (4
    )(Loss) income from discontinued line of business,
net of income tax
    
    $
    (4
    )
    
    $
    22
    
    
    $
    12Gain on sale of discontinued operation
    
    $
    1
    
    
    $
    
    
    
    $
    Income tax on sale of discontinued line of business
    
    
    (23
    )
    
    
    
    
    
    
    Loss on disposal of discontinued line of business
    
    
    (22
    )
    
    
    
    
    
    
    Net (loss) earnings from discontinued operation
    
    $
    (26
    )
    
    $
    22
    
    
    $
    12
 Automotive Coatings
 (in millions)
    
    2006
    
    
    2005Current assets of discontinued operation
    
    $
    7
    
    
    $
    50Land, buildings and equipment, net
    
    
    3
    
    
    
    39Investments in and advances to affiliates
    
    
    
    
    
    
    43Goodwill
    
    
    4
    
    
    
    76Intangible assets
    
    
    1
    
    
    
    115Other
    
    
    1
    
    
    
    1Other assets of discontinued operation
    
    
    9
    
    
    
    274Total Assets of discontinued operation
    
    $
    16
    
    
    $
    324Current liabilities of discontinued operation
    
    $
    2
    
    
    $
    11Deferred income based taxes
    
    
    2
    
    
    
    52Other long-term liabilities
    
    
    3
    
    
    
    2Other liabilities of discontinued operation
    
    
    5
    
    
    
    54Total Liabilities of discontinued operation
    
    $
    7
    
    
    $
    65
  ®
 62




---



##### 



2005
  2004
  Note 3: Provision for Restructuring and Asset Impairments
 Employers Accounting for Postemployment Benefits. Accounting for the
Impairment or Disposal of Long-lived Assets.
 Restructuring and Asset Impairments
 (in millions)
    
    2006
    
    
    2005
    
    
    2004Severance and employee benefits (net)
    
    $
    23
    
    
    $
    19
    
    
    $
    18Asset impairments, net of gains on sales
    
    
    2
    
    
    
    79
    
    
    
    2Other, including contract lease termination penalties
    
    
    2
    
    
    
    
    
    
    
    (2
    )Amount charged to earnings
    
    $
    27
    
    
    $
    98
    
    
    $
    18
 Restructuring and Asset Impairments by Business Segment
 Pre-Tax(in millions)Business Segment
    
    2006
    
    
    2005
    
    
    2004Coatings
    
    $
    14
    
    
    $
    18
    
    
    $
    2Monomers
    
    
    2
    
    
    
    
    
    
    
    1Performance Chemicals
    
    
    1
    
    
    
    2
    
    
    
    5Electronic Materials
    
    
    (1
    )
    
    
    31
    
    
    
    3Salt
    
    
    5
    
    
    
    
    
    
    
    Adhesives and Sealants
    
    
    2
    
    
    
    54
    
    
    
    3Corporate
    
    
    4
    
    
    
    (7
    )
    
    
    4Total
    
    $
    27
    
    
    $
    98
    
    
    $
    18
 63




---



##### 



Restructuring by Initiative
 Severance and
    
    
    Contract and leaseEmployee
    
    
    termination and(in millions)
    
    benefits
    
    
    other costs
    
    
    Total2006 Initiatives:Initial Charge
    
    $
    26
    
    
    $
    
    
    
    $
    26Payments
    
    
    (3
    )
    
    
    
    
    
    
    (3
    )Changes in estimate
    
    
    (1
    )
    
    
    
    
    
    
    (1
    )December 31, 2006 ending balance
    
    
    22
    
    
    
    
    
    
    
    222005 Initiatives:Initial Charge
    
    $
    36
    
    
    $
    1
    
    
    $
    37Payments
    
    
    (3
    )
    
    
    (1
    )
    
    
    (4
    )Changes in estimate
    
    
    
    
    
    
    
    
    
    
    December 31, 2005 ending balance
    
    
    33
    
    
    
    
    
    
    
    33Payments
    
    
    (19
    )
    
    
    
    
    
    
    (19
    )Changes in estimate
    
    
    (1
    )
    
    
    2
    
    
    
    1December 31, 2006 ending balance
    
    
    13
    
    
    
    2
    
    
    
    152004 Initiatives:Initial Charge
    
    $
    33
    
    
    $
    1
    
    
    $
    34Payments
    
    
    (3
    )
    
    
    
    
    
    
    (3
    )Changes in estimate
    
    
    (3
    )
    
    
    
    
    
    
    (3
    )December 31, 2004 ending balance
    
    
    27
    
    
    
    1
    
    
    
    28Payments
    
    
    (19
    )
    
    
    
    
    
    
    (19
    )Changes in estimate
    
    
    (5
    )
    
    
    (1
    )
    
    
    (6
    )December 31, 2005 ending balance
    
    
    3
    
    
    
    
    
    
    
    3Payments
    
    
    (2
    )
    
    
    
    
    
    
    (2
    )Changes in estimate
    
    
    (1
    )
    
    
    
    
    
    
    (1
    )December 31, 2006 ending balance
    
    
    
    
    
    
    
    
    
    
    Balance at December 31, 2006
    
    $
    35
    
    
    $
    2
    
    
    $
    37
  Restructuring Initiatives
 2006 Initiatives
   64




---



##### 



2005 Initiatives
     2004 Initiatives
   Asset Impairments
 2006 Impairments
   2005 Impairments
  65




---



##### 



2004 Impairments
  Note 4: Other Income, Net
  (in millions)
    
    2006
    
    
    2005
    
    
    2004Royalty income
    
    $
    4
    
    
    $
    3
    
    
    $
    2Foreign exchange losses and related hedging costs
    
    
    (16
    )
    
    
    (8
    )
    
    
    (19
    )Interest income
    
    
    27
    
    
    
    17
    
    
    
    9Sales of real estate
    
    
    3
    
    
    
    12
    
    
    
    11Sale of remaining interest in European Salt business
    
    
    
    
    
    
    
    
    
    
    8Other, net
    
    
    35
    
    
    
    19
    
    
    
    24Total
    
    $
    53
    
    
    $
    43
    
    
    $
    35
 Note 5: Financial Instruments
  Currency Hedges
  (1)
    
    To preserve the U.S. dollar values of anticipated non-U.S. dollar cash flows
and earnings, primarily with respect to transactions forecast to occur within a
one-year period;(2)
    
    To prevent changes in the values of assets and liabilities denominated in
currencies other than the legal entitys functional currency which may create undue
earnings volatility (we refer to this hedging activity as asset and liability
hedging); and(3)
    
    To hedge the dollar values of our net investments in operations outside the
U.S.
  66




---



##### 



Hedges entered to preserve the U.S. dollar values of anticipated non-U.S. dollar cash flows and
earnings
   Accounting for Derivative Instruments and Hedging
Activities
 Asset and liability hedging
  Net investment hedging
  67




---



##### 



ForeignCurrencyTranslation
    
    Cumulative(in millions)
    
    Hedges
    
    Impact on Net
    
    TranslationGains/(Losses)
    
    of Net Investment
    
    Investment
    
    AdjustmentBalance as of December 31, 2004
    
    $
    (140
    )
    
    $
    165
    
    
    $
    25Changes in fair value
    
    
    74
    
    
    
    (87
    )
    
    
    (13
    )Balance as of December 31, 2005
    
    $
    (66
    )
    
    
    78
    
    
    
    12Changes in fair value
    
    
    (68
    )
    
    
    66
    
    
    
    (2
    )Balance as of December 31, 2006
    
    $
    (134
    )
    
    $
    144
    
    
    $
    10
  Commodity Hedges
   Interest Rate Hedges
    68




---



##### 



Hedge Designation(in millions)
    
    Fair Value
    
    Cash Flow
    
    Net Investment
    
    OtherDerivatives-net asset/(liability):Currency hedges
    
    $
    
    
    
    $
    2
    
    
    $
    
    
    
    $
    (3
    )Long-term investments in foreign subsidiaries (net investments)
    
    
    
    
    
    
    
    
    
    
    (23
    )
    
    
    Commodity hedges
    
    
    
    
    
    
    (2
    )
    
    
    
    
    
    
    Interest rate hedges
    
    
    
    
    
    
    11
    
    
    
    
    
    
    
    Total derivatives
    
    
    
    
    
    
    11
    (a)
    
    
    (23
    )(b)
    
    
    (3
    )( c )Debt:Long-term investments in foreign subsidiaries (net investments)
    
    
    
    
    
    
    
    
    
    
    (484
    )(d )
    
    
    Total
    
    $
    
    
    
    $
    11
    
    
    $
    (507
    )
    
    $
    (3
    )
 
 (a)
    
    Comprises assets of $13 million and liabilities of $2 million.(b)
    
    Comprises assets of $10 million and liabilities of $33 million.(c)
    
    Comprises assets of $3 million and liabilities of $6 million.(d)
    
    Represents fair value of foreign denominated debt issuances formally designated as a hedge of
net investment.
 69




---



##### 



Note 6: Fair Values and Carrying Amounts of Financial Instruments
  Ø
    
    Cash and cash equivalents, restricted cash, accounts receivable, accounts payable and notes payable  the carrying
amount approximates fair value due to the short maturity of these instruments.
 Ø
    
    Short- and long-term debt  quoted market prices for the same or similar issues at current rates offered to us for
debt with the same or similar remaining maturities and terms.
 Ø
    
    Interest rate swap agreements  market prices of the same or similar agreements quoted as of the balance sheet date.
 Ø
    
    Foreign currency option contracts  Black-Scholes calculation using market data as of the balance sheet date.
 Ø
    
    Foreign currency forward and swap agreements  application of market data as of the balance sheet date to contract
terms.
 Ø
    
    Commodity swap, option and collar contracts  counter-party quotes as of the balance sheet date.
   Asset/(Liability)
 2006
    
    2005Carrying
    
    
    
    
    
    Carrying(in millions)
    
    Amount
    
    Fair Value
    
    Amount
    
    Fair ValueShort-term debt
    
    $
    (393
    )
    
    $
    (393
    )
    
    $
    (121
    )
    
    $
    (121
    )Long-term debt
    
    
    (1,899
    )
    
    
    (2,128
    )
    
    
    (2,050
    )
    
    
    (2,424
    )Interest rate swap agreements
    
    
    
    
    
    
    
    
    
    
    1
    
    
    
    1Interest rate lock agreements
    
    
    11
    
    
    
    11
    
    
    
    2
    
    
    
    2Foreign currency options
    
    
    2
    
    
    
    2
    
    
    
    6
    
    
    
    6Foreign exchange forward and swap contracts
    
    
    (26
    )
    
    
    (26
    )
    
    
    13
    
    
    
    13Natural gas swap agreements
    
    
    (2
    )
    
    
    (2
    )
    
    
    
    
    
    
    
 Note 7: Income Taxes
  (in millions)
    
    2006
    
    2005
    
    2004United StatesParent and Subsidiaries
    
    $
    688
    
    
    $
    520
    
    
    $
    369Affiliates
    
    
    
    
    
    
    (2
    )
    
    
    1ForeignSubsidiaries
    
    
    344
    
    
    
    340
    
    
    
    322Affiliates
    
    
    10
    
    
    
    10
    
    
    
    6Earnings from continuing operations before income taxes and minority interest
    
    $
    1,042
    
    
    $
    868
    
    
    $
    698
 70




---



##### 



(in millions)
    
    2006
    
    2005
    
    2004Income taxes on U.S. earningsFederalCurrent
    
    $
    208
    
    
    $
    172
    
    
    $
    128Deferred
    
    
    (18
    )
    
    
    (47
    )
    
    
    (20
    )State and other
    
    
    8
    
    
    
    9
    
    
    
    2Total taxes on U.S. earnings
    
    
    198
    
    
    
    134
    
    
    
    110Taxes on foreign earningsCurrent
    
    
    99
    
    
    
    127
    
    
    
    105Deferred
    
    
    (23
    )
    
    
    (19
    )
    
    
    (12
    )Total taxes on foreign earnings
    
    
    76
    
    
    
    108
    
    
    
    93Total Income Taxes
    
    $
    274
    
    
    $
    242
    
    
    $
    203
  (in millions)
    
    2006
    
    2005
    
    2004Discontinued lines of business
    
    $
    14
    
    
    $
    (16
    )
    
    $
    3
  (in millions)
    
    2006
    
    2005Deferred tax assets related to:Compensation and benefit programs
    
    $
    288
    
    
    $
    286Asset impairments and restructuring reserves
    
    
    15
    
    
    
    26Accruals for waste disposal site remediation
    
    
    28
    
    
    
    38All other
    
    
    113
    
    
    
    112Total deferred tax assets
    
    
    444
    
    
    
    462Deferred tax liabilities related to:Intangible assets
    
    
    504
    
    
    
    524Depreciation and amortization
    
    
    383
    
    
    
    428Pension programs
    
    
    5
    
    
    
    80All other
    
    
    109
    
    
    
    137Total deferred tax liabilities
    
    
    1,001
    
    
    
    1,169Net deferred tax liability
    
    $
    557
    
    
    $
    707
   (in millions)
    
    2006
    
    2005Prepaid expenses and other current assets
    
    $
    149
    
    
    $
    168Other assets
    
    
    52
    
    
    
    29Accrued liabilities
    
    
    4
    
    
    
    2Deferred income taxes
    
    
    754
    
    
    
    902Net deferred tax liability
    
    $
    557
    
    
    $
    707
 71




---



##### 



2006
    
    2005
    
    2004%
    
    %
    
    %Statutory tax rate
    
    
    35.0
    
    
    
    35.0
    
    
    
    35.0U.S. business credits
    
    
    (2.7
    )
    
    
    (2.3
    )
    
    
    (2.8
    )Foreign, including credits
    
    
    (5.4
    )
    
    
    (2.1
    )
    
    
    (2.7
    )Change in tax contingencies
    
    
    0.3
    
    
    
    (3.0
    )
    
    
    Other, net
    
    
    (0.9
    )
    
    
    0.3
    
    
    
    (0.4
    )Effective tax rate
    
    
    26.3
    
    
    
    27.9
    
    
    
    29.1
  Note 8: Segment Information
    Ø
    
    CoatingsThis segment is comprised of two businesses: Architectural and Functional Coatingsand Powder
Coatings. Architectural and Functional Coatingsproduces acrylic emulsions and additives that
are used to make industrial and decorative coatings, varnishes and specialty finishes. This
segment also offers products that serve a wide variety of coatings to: industrial markets for
use on metal, wood and in traffic paint; the building industry for use in roofing materials,
insulation and cement markets; and consumer markets for use in paper, textiles and non-woven
fibers, graphic arts and leather markets. Powder Coatingsproduces a comprehensive line of
powder coatings that are sprayed onto consumer and industrial products and parts in a solid
form. Our powder coatings are used on a wide variety of products, ranging from door handles to
patio and deck furniture, to windshield wipers, televisions and industrial shelving. The
results of the Automotive Coatings business which were previously reported in the Coatings
Segment are now reflected as a discontinued operation. More information is provided in Note 2,
Acquisitions and Disposition of Assets.Ø
    
    MonomersThis segment produces methyl methacrylate, acrylic acid and associated esters as well as
specialty monomer products. Monomers serve as the building block for many of the acrylic
technologies in our other business segments and are sold externally for applications such as
super absorbent polymers and acrylic sheet.
 72




---



##### 



Ø
    
    Performance ChemicalsThis segment includes the sales and operating results of Plastics Additives, Process Chemicals,
Consumer and Industrial Specialtiesand other smaller business groups. These businesses provide
products that serve a diverse set of markets, from consumer products, to additives used to
manufacture plastic and vinyl products, to water treatment and purification processes for food
and pharmaceutical markets, to newsprint processing.Ø
    
    Electronic MaterialsThis segment provides cutting-edge technology for use in telecommunications, consumer
electronics and household appliances. The Circuit Board Technologiesbusiness develops and
delivers the technology, materials and fabrication services for increasingly powerful,
high-density printed circuit boards in computers, cell phones, automobiles and many other
electronic devices. Our Packaging and Finishing Technologiesdevelops and delivers innovative
materials and processes that boost the performance of a diverse range of electronic,
optoelectronic and industrial packaging and finishing business. Semiconductor Technologies
develop and supply integrated products and technologies on a global basis enabling our customers
to drive leading edge semiconductor design to boost performance of semiconductor devices powered
by smaller and faster chips. This business also develops and delivers materials used for
chemical mechanical planarization (CMP), the process used to create the flawless surfaces
required to allow manufacturers to make faster and more powerful integrated circuits and
electronic substrates.Ø
    
    SaltSome of the most recognized consumer brand names and product symbols are found here, including
the leading brand of table salt in the United States  Morton Salt, with its little Salt Girl,
and Windsor Salt, Canadas leading brand. Even though the consumer salt business is best known,
this segment extends well beyond this market and includes salt used for water conditioning, ice
control, food processing and chemical/industrial use.Ø
    
    Adhesives and SealantsThe Adhesives and Sealants segment provides a vast array of formulated, value-adding products
derived from a broad range of technologies including our world-class acrylic technology. This
segment offers various products including packaging, pressure sensitive, construction, and
transportation adhesives based on numerous chemistries and technologies, including acrylic
emulsion polymers markets.The table below presents net sales by business segment. Segment eliminations are presented for
intercompany sales between segments.
 (in millions)
    
    2006
    
    2005
    
    2004Coatings
    
    $
    2,683
    
    
    $
    2,534
    
    
    $
    2,281Monomers
    
    
    1,926
    
    
    
    1,848
    
    
    
    1,383Performance Chemicals
    
    
    1,778
    
    
    
    1,690
    
    
    
    1,590Electronic Materials
    
    
    1,564
    
    
    
    1,332
    
    
    
    1,250Salt
    
    
    829
    
    
    
    925
    
    
    
    829Adhesives and Sealants
    
    
    723
    
    
    
    727
    
    
    
    693Elimination of Inter-segment Sales
    
    
    (1,273
    )
    
    
    (1,171
    )
    
    
    (840
    )Total
    
    $
    8,230
    
    
    $
    7,885
    
    
    $
    7,186
 73




---



##### 



Adhesives2006
    
    
    
    
    
    
    
    
    
    Performance
    
    Electronic
    
    
    
    
    
    and(in millions)
    
    Coatings
    
    Monomers
    
    Chemicals
    
    Materials
    
    Salt
    
    Sealants
    
    Corporate(2)
    
    TotalEarnings(loss)from
continuing operations(1)
    
    $
    230
    
    
    $
    201
    
    
    $
    163
    
    
    $
    235
    
    
    $
    38
    
    
    $
    55
    
    
    $
    (167
    )
    
    $
    755Share of affiliate
earnings, net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    9
    
    
    
    
    
    
    
    1
    
    
    
    
    
    
    
    10Depreciation
    
    
    75
    
    
    
    79
    
    
    
    72
    
    
    
    56
    
    
    
    77
    
    
    
    23
    
    
    
    21
    
    
    
    403Amortization
    
    
    8
    
    
    
    1
    
    
    
    15
    
    
    
    17
    
    
    
    7
    
    
    
    7
    
    
    
    1
    
    
    
    56Segment assets
    
    
    1,567
    
    
    
    418
    
    
    
    1,242
    
    
    
    1,131
    
    
    
    1,527
    
    
    
    925
    
    
    
    2,727
    
    
    
    9,537Capital additions
    
    
    74
    
    
    
    69
    
    
    
    54
    
    
    
    82
    
    
    
    48
    
    
    
    11
    
    
    
    66
    
    
    
    404
 Adhesives2005
    
    
    
    
    
    
    
    
    
    Performance
    
    Electronic
    
    
    
    
    
    and(in millions)
    
    Coatings
    
    Monomers
    
    Chemicals
    
    Materials
    
    Salt
    
    Sealants
    
    Corporate(2)
    
    TotalEarnings (loss)from
continuing operations (1)
    
    $
    216
    
    
    $
    197
    
    
    $
    167
    
    
    $
    143
    
    
    $
    55
    
    
    $
    19
    
    
    $
    (181
    )
    
    $
    616Share of affiliate
earnings, net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8
    
    
    
    
    
    
    
    1
    
    
    
    
    
    
    
    9Depreciation
    
    
    80
    
    
    
    84
    
    
    
    69
    
    
    
    57
    
    
    
    72
    
    
    
    25
    
    
    
    28
    
    
    
    415Amortization
    
    
    7
    
    
    
    1
    
    
    
    13
    
    
    
    17
    
    
    
    7
    
    
    
    8
    
    
    
    2
    
    
    
    55Segment assets
    
    
    1,470
    
    
    
    829
    
    
    
    1,350
    
    
    
    1,566
    
    
    
    1,641
    
    
    
    1,017
    
    
    
    1,498
    
    
    
    9,371Capital additions
    
    
    59
    
    
    
    76
    
    
    
    40
    
    
    
    62
    
    
    
    40
    
    
    
    8
    
    
    
    45
    
    
    
    330
 Adhesives2004
    
    
    
    
    
    
    
    
    
    Performance
    
    Electronic
    
    
    
    
    
    and(in millions)
    
    Coatings
    
    Monomers
    
    Chemicals
    
    Materials(3)
    
    Salt
    
    Sealants
    
    Corporate(2)
    
    TotalEarnings (loss)from continuing operations (1)
    
    $
    208
    
    
    $
    95
    
    
    $
    151
    
    
    $
    127
    
    
    $
    49
    
    
    $
    37
    
    
    $
    (183
    )
    
    $
    484Share of affiliate
earnings, net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3
    
    
    
    
    
    
    
    3
    
    
    
    
    
    
    
    6Depreciation
    
    
    82
    
    
    
    62
    
    
    
    86
    
    
    
    51
    
    
    
    70
    
    
    
    38
    
    
    
    25
    
    
    
    414Amortization
    
    
    7
    
    
    
    1
    
    
    
    13
    
    
    
    21
    
    
    
    7
    
    
    
    8
    
    
    
    1
    
    
    
    58Segment assets
    
    
    1,527
    
    
    
    823
    
    
    
    1,450
    
    
    
    1,697
    
    
    
    1,663
    
    
    
    1,153
    
    
    
    1,435
    
    
    
    9,748Capital additions
    
    
    60
    
    
    
    74
    
    
    
    34
    
    
    
    49
    
    
    
    35
    
    
    
    11
    
    
    
    56
    
    
    
    319
 Notes:
 (1)
    
    Earnings from continuing operations were taxed using our overall consolidated effective tax
rate.(2)
    
    Corporate includes items such as corporate governance costs, interest income and expense,
environmental remediation expense, insurance recoveries, exploratory research and development
expense, balance sheet currency translation gains and losses, any unallocated portion of shared
services and certain discrete period tax items.(3)
    
    In accordance with FIN 46R, Consolidation of
Variable Interest Entities, an interpretation
of ARB 51, effective January 1, 2004, we have consolidated the assets, liabilities, and results
of operations of a joint venture accounted for within the Electronic Materials segment. As a
result, assets for this segment have increased, and share of affiliate earnings has been reduced
on a comparative basis. 74




---



##### 



Asia-European
    
    Pacific(in millions)
    
    U.S.
    
    Region
    
    Region
    
    Other
    
    Total2006Net Sales
    
    $
    3,845
    
    
    $
    2,030
    
    
    $
    1,659
    
    
    $
    696
    
    
    $
    8,230Long-lived Assets
    
    
    1,639
    
    
    
    415
    
    
    
    384
    
    
    
    231
    
    
    
    2,6692005Net Sales
    
    $
    3,763
    
    
    $
    1,988
    
    
    $
    1,455
    
    
    $
    679
    
    
    $
    7,885Long-lived Assets
    
    
    1,680
    
    
    
    417
    
    
    
    301
    
    
    
    244
    
    
    
    2,6422004Net Sales
    
    $
    3,288
    
    
    $
    1,893
    
    
    $
    1,339
    
    
    $
    666
    
    
    $
    7,186Long-lived Assets(1)
    
    
    1,824
    
    
    
    539
    
    
    
    286
    
    
    
    244
    
    
    
    2,893
 Notes:
 (1)
    
    Certain prior year reclassifications have been made to conform to current year
presentations. Electronic Materials Salt Primary
Materials, Paint and Coatings
Materials, Packaging and Building Materials Performance Materials. Primary Materials . Paint and Coatings Materials Packaging and Building Materials Performance Materials
  Note 9: Retirement Benefits
    75




---



##### 



Employers Accounting for Defined Benefit Pension
and Other Postretirement Plans
  Before Application of
    
    
    
    
    
    
    After Application of(in millions)
    
    SFAS No. 158
    
    
    Adjustments
    
    
    SFAS No. 158Other assets
    
    $
    616
    
    
    $
    (292
    )
    
    $
    324Total Assets
    
    $
    9,845
    
    
    $
    (292
    )
    
    $
    9,553Accrued liabilities
    
    $
    845
    
    
    $
    (29
    )
    
    $
    816Total current liabilities
    
    
    2,017
    
    
    
    (29
    )
    
    
    1,988Employee benefits
    
    
    626
    
    
    
    109
    
    
    
    735Deferred income taxes
    
    
    881
    
    
    
    (127
    )
    
    
    754Total Liabilities
    
    
    5,447
    
    
    
    (47
    )
    
    
    5,400Accumulated other comprehensive loss
 unrecognized losses and prior
service cost, net, on pension and
postretirement obligations
    
    
    (87
    )
    
    
    (243
    )
    
    
    (330
    )Accumulated other comprehensive loss
 cumulative translation adjustments
    
    
    12
    
    
    
    (2
    )
    
    
    10Total accumulated other comprehensive loss
    
    
    (71
    )
    
    
    (245
    )
    
    
    (316
    )Total Liabilities and Stockholders Equity
    
    $
    9,845
    
    
    $
    (292
    )
    
    $
    9,553
  76




---



##### 



Qualified Pension Plans
  2006
    
    2005
    
    2004(in millions)
    
    U.S.
    
    Non-U.S.
    
    U.S.
    
    Non-U.S.
    
    U.S.
    
    Non-U.S.Components of net periodic pension expense:Service cost
    
    $
    57
    
    
    $
    20
    
    
    $
    56
    
    
    $
    19
    
    
    $
    55
    
    
    $
    16Interest cost
    
    
    95
    
    
    
    34
    
    
    
    92
    
    
    
    32
    
    
    
    92
    
    
    
    28Expected return on plan assets
    
    
    (122
    )
    
    
    (39
    )
    
    
    (113
    )
    
    
    (35
    )
    
    
    (124
    )
    
    
    (32
    )Amortization of net gain existing at adoption of SFAS No. 87
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1
    )
    
    
    
    
    
    
    (1
    )Unrecognized prior service cost
    
    
    2
    
    
    
    
    
    
    
    2
    
    
    
    1
    
    
    
    3
    
    
    
    1Unrecognized net actuarial loss
    
    
    28
    
    
    
    10
    
    
    
    25
    
    
    
    6
    
    
    
    8
    
    
    
    3Net periodic
pension expense, excluding special items (1)
    
    
    60
    
    
    
    25
    
    
    
    62
    
    
    
    22
    
    
    
    34
    
    
    
    15Settlement and curtailment losses
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1
    
    
    
    
    
    
    
    Special termination benefits
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2Special items (2)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1
    
    
    
    
    
    
    
    2Net periodic pension expense
    
    $
    60
    
    
    $
    25
    
    
    $
    62
    
    
    $
    23
    
    
    $
    34
    
    
    $
    17
 Notes:
 (1)
    
    Amount represents traditional net periodic pension expense (income) components.(2)
    
    Settlement and curtailment losses (gains), and special termination benefits,
which include severance and early retirement costs.  Weighted-average assumptionsused to determine net expense forthe period January 1, - December
    
    2006
    
    2005
    
    200431,
    
    U.S.
    
    Non-U.S.
    
    U.S.
    
    Non-U.S.
    
    U.S.
    
    Non-U.S.Discount rate
    
    
    5.70
    %
    
    
    4.77
    %
    
    
    5.80
    %
    
    
    5.49
    %
    
    
    6.25
    %
    
    
    5.73
    %Expected return on plan assets
    
    
    8.50
    %
    
    
    6.97
    %
    
    
    8.50
    %
    
    
    7.37
    %
    
    
    8.50
    %
    
    
    7.40
    %Rate of compensation increase
    
    
    4.00
    %
    
    
    3.88
    %
    
    
    4.00
    %
    
    
    4.14
    %
    
    
    4.00
    %
    
    
    4.14
    %
  77




---



##### 



2006(in millions)
    
    U.S.
    
    Non-U.S.Amounts recognized in accumulated other comprehensive lossNet actuarial loss
    
    $
    256
    
    
    $
    142Prior service cost
    
    
    10
    
    
    
    (1
    )$
    266
    
    
    $
    141
  Pension(in millions)
    
    U.S.
    
    Non-U.S.Net actuarial loss
    
    $
    11
    
    
    $
    8Prior service cost
    
    
    2
    
    
    
    $
    13
    
    
    $
    8
  Weighted-average assumptions used to determine benefit
    
    2006
    
    2005obligation for years ended December 31,
    
    U.S.
    
    Non-U.S.
    
    U.S.
    
    Non-U.S.Discount rate
    
    
    5.90
    %
    
    
    5.09
    %
    
    
    5.70
    %
    
    
    4.85
    %Rate of compensation increase
    
    
    4.00
    %
    
    
    3.91
    %
    
    
    4.00
    %
    
    
    3.91
    %
 78




---



##### 



2006
    
    2005(in
millions)
    
    U.S.
    
    Non-U.S.
    
    U.S.
    
    Non-U.S.Change in pension benefit obligation:Pension benefit obligation at beginning of year
    
    $
    1,749
    
    
    $
    665
    
    
    $
    1,601
    
    
    $
    602Service cost, excluding expenses
    
    
    57
    
    
    
    20
    
    
    
    56
    
    
    
    19Interest cost
    
    
    95
    
    
    
    34
    
    
    
    92
    
    
    
    32Participant contributions
    
    
    
    
    
    
    4
    
    
    
    
    
    
    
    2Plan amendments
    
    
    
    
    
    
    (5
    )
    
    
    
    
    
    
    2Actuarial (gain) loss
    
    
    (66
    )
    
    
    (29
    )
    
    
    109
    
    
    
    59Benefits paid
    
    
    (152
    )
    
    
    (26
    )
    
    
    (109
    )
    
    
    (25
    )Acquisitions and plan transfers
    
    
    
    
    
    
    26
    
    
    
    
    
    
    
    22Curtailments
    
    
    
    
    
    
    (1
    )
    
    
    
    
    
    
    Settlements
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (6
    )Special termination benefits
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Foreign currency translation adjustment
    
    
    
    
    
    
    57
    
    
    
    
    
    
    
    (42
    )Pension benefit obligation at end of year
    
    $
    1,683
    
    
    $
    745
    
    
    $
    1,749
    
    
    $
    665Change in plan assets:Fair value of plan assets at beginning of year
    
    $
    1,586
    
    
    $
    511
    
    
    $
    1,457
    
    
    $
    432Actual return on plan assets
    
    
    216
    
    
    
    57
    
    
    
    113
    
    
    
    74Employer contribution
    
    
    137
    
    
    
    57
    
    
    
    125
    
    
    
    42Participant contributions
    
    
    
    
    
    
    4
    
    
    
    
    
    
    
    2Acquisitions and plan transfers
    
    
    
    
    
    
    20
    
    
    
    
    
    
    
    20Settlements
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (6
    )Benefits paid
    
    
    (152
    )
    
    
    (26
    )
    
    
    (109
    )
    
    
    (25
    )Administrative expenses
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1
    )Foreign currency translation adjustment
    
    
    
    
    
    
    44
    
    
    
    
    
    
    
    (27
    )Fair value of plan assets at end of year
    
    $
    1,787
    
    
    $
    667
    
    
    $
    1,586
    
    
    $
    511Funded status at end of year
    
    $
    104
    
    
    $
    (78
    )
    
    $
    (163
    )
    
    $
    (154
    )Unrecognized prior service cost
    
    
    
    
    
    
    
    
    
    
    12
    
    
    
    5Unrecognized actuarial loss
    
    
    
    
    
    
    
    
    
    
    444
    
    
    
    186Net amounts recognized
    
    
    
    
    
    
    
    
    
    $
    293
    
    
    $
    37Amounts recognized in the consolidated balance sheets:Other assets
    
    $
    104
    
    
    $
    27
    
    
    $
    293
    
    
    $
    13Accrued liabilities
    
    
    
    
    
    
    (1
    )
    
    
    
    
    
    
    (50
    )Employee benefits
    
    
    
    
    
    
    (104
    )
    
    
    
    
    
    
    (44
    )Accumulated other comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    118Net amounts recognized
    
    $
    104
    
    
    $
    (78
    )
    
    $
    293
    
    
    $
    37
 Automotive Coatings
  79




---



##### 



Percentage of Plan AssetsTargeted %
    
    Actual %
    
    Targeted %
    
    Actual %2006
    
    2006
    
    2005
    
    2005Asset Category
    
    U.S.
    
    Non-U.S.
    
    U.S.
    
    Non-U.S.
    
    U.S.
    
    Non-U.S.
    
    U.S.
    
    Non-U.S.Equity securities
    
    
    61
    
    
    
    49
    
    
    
    62
    
    
    
    49
    
    
    
    67
    
    
    
    58
    
    
    
    66
    
    
    
    58Debt securities
    
    
    21
    
    
    
    36
    
    
    
    20
    
    
    
    36
    
    
    
    20
    
    
    
    35
    
    
    
    19
    
    
    
    33Insurance contracts
    
    
    
    
    
    
    8
    
    
    
    
    
    
    
    8
    
    
    
    
    
    
    
    4
    
    
    
    
    
    
    
    4Real estate
    
    
    7
    
    
    
    5
    
    
    
    7
    
    
    
    6
    
    
    
    7
    
    
    
    3
    
    
    
    8
    
    
    
    3Hedge funds
    
    
    5
    
    
    
    
    
    
    
    4
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Other
    
    
    6
    
    
    
    2
    
    
    
    7
    
    
    
    1
    
    
    
    6
    
    
    
    
    
    
    
    7
    
    
    
    2Total
    
    
    100
    
    
    
    100
    
    
    
    100
    
    
    
    100
    
    
    
    100
    
    
    
    100
    
    
    
    100
    
    
    
    100
     (in millions)
    
    U.S.
    
    Non-U.S.2007
    
    $
    106
    
    
    $
    252008
    
    
    114
    
    
    
    272009
    
    
    121
    
    
    
    292010
    
    
    124
    
    
    
    312011
    
    
    138
    
    
    
    342012-2016
    
    
    797
    
    
    
    204
 80




---



##### 



2006
    
    2005(in millions)
    
    U.S.
    
    Non-U.S.
    
    U.S.
    
    Non-U.S.Plans for which accumulated benefit obligation exceeds assets:Projected benefit obligation
    
    $
    
    
    
    $
    (480
    )
    
    $
    
    
    
    $
    (580
    )Accumulated benefit obligation
    
    
    
    
    
    
    (447
    )
    
    
    
    
    
    
    (516
    )Fair value of plan assets
    
    
    
    
    
    
    379
    
    
    
    
    
    
    
    423
 Non-Qualified Pension Plans
  (in millions)
    
    2006
    
    
    2005
    
    
    2004Components of net periodic pension expense:Service cost
    
    $
    2
    
    
    $
    2
    
    
    $
    1Interest cost
    
    
    9
    
    
    
    9
    
    
    
    9Unrecognized prior service cost
    
    
    1
    
    
    
    1
    
    
    
    1Other amortization, net
    
    
    4
    
    
    
    4
    
    
    
    4Net periodic pension expense
    
    $
    16
    
    
    $
    16
    
    
    $
    15
 81




---



##### 



Weighted-average assumptions used to determine netexpense for the period January 1, - December 31,
    
    2006
    
    2005
    
    2004Discount rate
    
    
    5.70
    %
    
    
    5.80
    %
    
    
    6.25
    %Rate of compensation increase
    
    
    4.00
    %
    
    
    4.00
    %
    
    
    4.00
    %
   Weighted-average assumptions used to determinebenefit obligation for years ended December 31,
    
    2006
    
    2005Discount rate
    
    
    5.90
    %
    
    
    5.70
    %Rate of compensation increase
    
    
    4.00
    %
    
    
    4.00
    %
 82




---



##### 



(in millions)
    
    2006
    
    
    2005Change in pension benefit obligation:Pension benefit obligation at beginning of year
    
    $
    156
    
    
    $
    152Service cost, excluding expenses
    
    
    2
    
    
    
    2Interest cost
    
    
    9
    
    
    
    9Actuarial (gain) loss
    
    
    (1
    )
    
    
    5Benefits paid
    
    
    (11
    )
    
    
    (12
    )Pension benefit obligation at end of year
    
    $
    155
    
    
    $
    156Change in plan assets:Fair value of plan assets at beginning of year
    
    $
    
    
    
    $
    Employer contribution
    
    
    11
    
    
    
    12Benefits paid
    
    
    (11
    )
    
    
    (12
    )Fair value of plan assets at end of year
    
    $
    
    
    
    $
    Funded status at end of year
    
    $
    (155
    )
    
    $
    (156
    )Unrecognized prior service cost
    
    
    
    
    
    
    1Unrecognized actuarial loss
    
    
    
    
    
    
    64Net amounts recognized
    
    
    
    
    
    $
    (91
    )Amounts recognized in the consolidated balance sheets:Other assets
    
    $
    
    
    
    $
    1Accrued liabilities
    
    
    (10
    )
    
    
    (10
    )Employee benefits
    
    
    (145
    )
    
    
    (134
    )Accumulated other comprehensive loss
    
    
    
    
    
    
    52Net amounts recognized
    
    $
    (155
    )
    
    $
    (91
    )
   (in millions)
    
    Total2007
    
    $
    102008
    
    
    122009
    
    
    122010
    
    
    122011
    
    
    112012-2016
    
    
    60
   83




---



##### 



Other Postretirement Benefits
  (in millions)
    
    2006
    
    2005
    
    2004Components of net periodic postretirement cost:Service cost
    
    $
    5
    
    
    $
    5
    
    
    $
    5Interest cost
    
    
    25
    
    
    
    26
    
    
    
    28Expected Return on Plan Assets
    
    
    (1
    )
    
    
    
    
    
    
    Net amortization
    
    
    
    
    
    
    (1
    )
    
    
    (2
    )Net periodic postretirement cost
    
    $
    29
    
    
    $
    30
    
    
    $
    31
  2006
    
    2005
    
    2004Weighted-average assumptions for annual expense:Discount rate
    
    
    5.60
    %
    
    
    5.60
    %
    
    
    6.25
    %Health care cost trend rate (current rate)
    
    
    9.00
    %
    
    
    10.00
    %
    
    
    10.00
    %Health care cost trend rate (ultimate rate)
    
    
    5.00
    %
    
    
    5.00
    %
    
    
    5.00
    %Health care cost trend rate (year ultimate rate reached)
    
    
    2010
    
    
    
    2010
    
    
    
    2009
  (in millions)
    
    2006Amounts
recognized in accumulated other comprehensive loss:Net actuarial loss
    
    $
    41Prior service credit
    
    
    (10
    )$
    31
   84




---



##### 



(in millions)
    
    2006
    
    
    2005Change in postretirement benefit obligation:Benefit obligation at beginning of year
    
    $
    486
    
    
    $
    497Service cost
    
    
    5
    
    
    
    5Interest cost
    
    
    25
    
    
    
    26Contributions
    
    
    17
    
    
    
    16Actuarial loss
    
    
    (20
    )
    
    
    21Medicare Part D subsidy
    
    
    
    
    
    
    (24
    )Benefits paid
    
    
    (56
    )
    
    
    (55
    )Foreign currency translation adjustment
    
    
    1
    
    
    
    Benefit obligation at end of year
    
    $
    458
    
    
    $
    486Plan assets
    
    $
    25
    
    
    $
    12Funded
status at end of year
    
    $
    (433
    )
    
    $
    (474
    )Unrecognized prior service credit
    
    
    
    
    
    
    (12
    )Unrecognized actuarial loss
    
    
    
    
    
    
    63Net amounts recognized
    
    
    
    
    
    $
    (423
    )Amounts recognized in the consolidated balance sheets:Accrued liabilities
    
    $
    (39
    )
    
    
    (42
    )Employee benefits
    
    
    (394
    )
    
    
    (381
    )Net amounts recognized
    
    $
    (433
    )
    
    $
    (423
    )
  2006
    
    2005
    
    2004Weighted-average assumptions for year-end APBO:Discount rate
    
    
    5.90
    %
    
    
    5.60
    %
    
    
    5.60
    %Health care cost trend rate (current rate)
    
    
    10.00
    %
    
    
    9.00
    %
    
    
    10.00
    %Health care cost trend rate (ultimate rate)
    
    
    5.00
    %
    
    
    5.00
    %
    
    
    5.00
    %Health care cost trend rate (year ultimate rate reached)
    
    
    2012
    
    
    
    2010
    
    
    
    2010
   1-Percentage Point
    
    1-Percentage PointIncrease
    
    Decrease(in millions)
    
    2006
    
    2005
    
    2006
    
    2005Effect on total of service and interest cost components
    
    $
    1
    
    
    $
    1
    
    
    $
    (1
    )
    
    $
    (1
    )Effect on postretirement benefit obligation
    
    
    15
    
    
    
    12
    
    
    
    (11
    )
    
    
    (9
    )
  85




---



##### 



Total net benefitpayments before
    
    Estimated amountMedicare Part D
    
    of Medicare Part D(in millions)
    
    subsidy
    
    subsidy2007
    
    $
    43
    
    
    $
    32008
    
    
    43
    
    
    
    42009
    
    
    43
    
    
    
    42010
    
    
    42
    
    
    
    42011
    
    
    42
    
    
    
    42012-2016
    
    
    192
    
    
    
    22
  Note 10: Employee Benefits
 (in millions)
    
    2006
    
    2005Postretirement health care and life insurance benefits
    
    $
    394
    
    
    $
    381Unfunded supplemental pension plan
    
    
    145
    
    
    
    134Long-term disability benefit costs
    
    
    42
    
    
    
    40Foreign pension liabilities
    
    
    104
    
    
    
    44Other
    
    
    50
    
    
    
    52Total
    
    $
    735
    
    
    $
    651
  Note 11: Restricted Cash
  Note 12: Receivables, net
 (in millions)
    
    2006
    
    2005Customers
    
    $
    1,356
    
    
    $
    1,312Affiliates
    
    
    18
    
    
    
    23Employees
    
    
    12
    
    
    
    5Other
    
    
    224
    
    
    
    1881,610
    
    
    
    1,528Less: allowance for doubtful accounts
    
    
    40
    
    
    
    43Total
    
    $
    1,570
    
    
    $
    1,485
  86




---



##### 



Note 13: Inventories
  (in millions)
    
    2006
    
    2005Finished products and work in process
    
    $
    818
    
    
    $
    638Raw materials
    
    
    121
    
    
    
    118Supplies
    
    
    45
    
    
    
    42Total
    
    $
    984
    
    
    $
    798
  Note 14: Prepaid Expenses and Other Current Assets
 (in millions)
    
    2006
    
    2005Deferred tax assets
    
    $
    149
    
    
    $
    168Prepaid expenses
    
    
    67
    
    
    
    81Fair market value of interest rate lock (see Note 5)
    
    
    11
    
    
    
    Other current assets
    
    
    27
    
    
    
    20Total
    
    $
    254
    
    
    $
    269
 Note 15: Land, Buildings and Equipment, net
 (in millions)
    
    2006
    
    2005Land
    
    $
    142
    
    
    $
    139Buildings and improvements
    
    
    1,729
    
    
    
    1,683Machinery and equipment
    
    
    5,721
    
    
    
    5,531Capitalized interest
    
    
    340
    
    
    
    329Construction in progress
    
    
    218
    
    
    
    1688,150
    
    
    
    7,850Less: Accumulated depreciation
    
    
    5,481
    
    
    
    5,208Total
    
    $
    2,669
    
    
    $
    2,642
    87




---



##### 



Note 16: Goodwill and Other Intangible Assets, net
 Goodwill
 AdhesivesPerformance
    
    Electronic
    
    
    
    
    
    and(in millions)
    
    Coatings
    
    Monomers
    
    Chemicals
    
    Materials
    
    Salt
    
    Sealants
    
    TotalBalance as of January 1, 2005(1)
    
    $
    241
    
    
    $
    29
    
    
    $
    180
    
    
    $
    370
    
    
    $
    357
    
    
    $
    471
    
    
    $
    1,648Goodwill related to acquisitions(2)
    
    
    
    
    
    
    
    
    
    
    6
    
    
    
    11
    
    
    
    
    
    
    
    
    
    
    
    17Currency
effects and other(3)
    
    
    (8
    )
    
    
    
    
    
    
    (12
    )
    
    
    (2
    )
    
    
    (1
    )
    
    
    (10
    )
    
    
    (33
    )Opening balance sheet adjustments(4)
    
    
    (21
    )
    
    
    
    
    
    
    (18
    )
    
    
    (17
    )
    
    
    (28
    )
    
    
    (23
    )
    
    
    (107
    )Balance as of December 31, 2005
    
    $
    212
    
    
    $
    29
    
    
    $
    156
    
    
    $
    362
    
    
    $
    328
    
    
    $
    438
    
    
    $
    1,525Goodwill related to acquisitions(2)
    
    
    
    
    
    
    
    
    
    
    6
    
    
    
    8
    
    
    
    
    
    
    
    
    
    
    
    14Currency effects and other(3)
    
    
    3
    
    
    
    
    
    
    
    5
    
    
    
    (2
    )
    
    
    (5
    )
    
    
    1
    
    
    
    2Balance as of December 31, 2006
    
    $
    215
    
    
    $
    29
    
    
    $
    167
    
    
    $
    368
    
    
    $
    323
    
    
    $
    439
    
    
    $
    1,541
 Notes:
 
 (1)
    
    Certain prior year balances have been reclassified to conform to the current year
presentation.(2)
    
    Goodwill related to acquisitions is due to the following: $8.0 million and $11.0 million,
respectively, Electronic Materials  buyback of additional shares of CMPT; $6.0 million and
$6.0 million, respectively, Performance Chemicals  related to the 2006 acquisition of
Floralife®, Inc., and 2005 acquisition of a joint venture.(3)
    
    Certain goodwill amounts are denominated in foreign currencies and are translated using the
appropriate U.S. dollar exchange rate.(4)
    
    Primarily relates to adjustments to opening balance sheet liabilities due to the favorable
resolution of tax audits resulting in the reduction of opening balance sheet tax reserves and
valuation allowances. 88




---



##### 



Intangible Assets
   Gross Asset Value
 Finite Lived
    
    Indefinite LivedPatents,Developed
    
    Customer
    
    
    
    
    
    Licenses &(in millions)
    
    Technology
    
    Lists
    
    Tradename
    
    Other
    
    Strategic
    
    Tradename
    
    TotalBalance as
of January 1, 2005
    
    $
    383
    
    
    $
    873
    
    
    $
    142
    
    
    $
    164
    
    
    $
    62
    
    
    $
    318
    
    
    $
    1,942Retirements
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4
    )
    
    
    
    
    
    
    
    
    
    
    (4
    )Currency
    
    
    1
    
    
    
    20
    
    
    
    3
    
    
    
    2
    
    
    
    13
    
    
    
    10
    
    
    
    49Acquisitions
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Impairments
    
    
    (1
    )
    
    
    (28
    )
    
    
    (7
    )
    
    
    (2
    )
    
    
    
    
    
    
    
    
    
    
    (38
    )Balance as of
December 31, 2005
    
    $
    383
    
    
    $
    865
    
    
    $
    138
    
    
    $
    160
    
    
    $
    75
    
    
    $
    328
    
    
    $
    1,949Currency
    
    
    6
    
    
    
    13
    
    
    
    3
    
    
    
    (1
    )
    
    
    
    
    
    
    
    
    
    
    21Acquisitions
    
    
    9
    
    
    
    3
    
    
    
    
    
    
    
    13
    
    
    
    
    
    
    
    1
    
    
    
    26Balance as of December 31, 2006
    
    $
    398
    
    
    $
    881
    
    
    $
    141
    
    
    $
    172
    
    
    $
    75
    
    
    $
    329
    
    
    $
    1,996
 Accumulated Amortization
 Finite Lived
    
    Indefinite LivedPatents,Developed
    
    Customer
    
    
    
    
    
    Licenses &(in millions)
    
    Technology
    
    Lists
    
    Tradename
    
    Other
    
    Strategic
    
    Tradename
    
    TotalBalance as
of January 1, 2005
    
    $
    (126
    )
    
    $
    (123
    )
    
    $
    (27
    )
    
    $
    (91
    )
    
    $
    (4
    )
    
    $
    (20
        )
    
    $
    (391
    )Additions
    
    
    (23
    )
    
    
    (21
    )
    
    
    (2
    )
    
    
    (9
    )
    
    
    
    
    
    
    
    
    
    
    (55
    )Currency
    
    
    
    
    
    
    (5
    )
    
    
    (2
    )
    
    
    
    
    
    
    (1
    )
    
    
    (1
    )
    
    
    (9
    )Impairments
    
    
    
    
    
    
    5
    
    
    
    3
    
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    9Balance as of
December 31, 2005
    
    $
    (149
    )
    
    $
    (144
    )
    
    $
    (28
    )
    
    $
    (99
    )
    
    $
    (5
    )
    
    $
    (21
    )
    
    $
    (446
    )Additions
    
    
    (24
    )
    
    
    (23
    )
    
    
    (4
    )
    
    
    (5
    )
    
    
    
    
    
    
    
    
    
    
    (56
    )Currency
    
    
    (3
    )
    
    
    (3
    )
    
    
    (1
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (7
    )Balance as of
December 31, 2006
    
    $
    (176
    )
    
    $
    (170
    )
    
    $
    (33
    )
    
    $
    (104
    )
    
    $
    (5
    )
    
    $
    (21
    )
    
    $
    (509
    )Net Book Value
    
    $
    222
    
    
    $
    711
    
    
    $
    108
    
    
    $
    68
    
    
    $
    70
    
    
    $
    308
    
    
    $
    1,487
  89




---



##### 



® Accounting for the Impairment or Disposal of Long-Lived Assets
 Annual SFAS No. 142 Impairment Review
 Goodwill and Other Intangible Assets,
 SFAS No. 144 Impairment Review
 Accounting for the Impairment or Disposal of Long-Lived Assets.
  Note 17: Other Assets
 (in millions)
    
    2006
    
    2005Prepaid pension cost (see Note 9)
    
    $
    131
    
    
    $
    306Rabbi trust assets (see Note 9)
    
    
    71
    
    
    
    63Insurance receivables
    
    
    28
    
    
    
    28Deferred tax assets (see Note 7)
    
    
    52
    
    
    
    29Other employee benefit assets
    
    
    16
    
    
    
    20Fair market value of interest rate swaps (see Note 5)
    
    
    
    
    
    
    1Other non-current assets
    
    
    26
    
    
    
    29Total
    
    $
    324
    
    
    $
    476
 Note 18: Borrowings
 Short-Term Obligations
 (in millions)
    
    2006
    
    2005Other short-term borrowings
    
    $
    112
    
    
    $
    110Current portion of long-term debt
    
    
    281
    
    
    
    11Total
    
    $
    393
    
    
    $
    121
  90




---



##### 



Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities.
 Long-Term Debt and Other Financing Arrangements
  (in millions)
    
    Currency
    
    Maturities
    
    2006
    
    20056.0% notes
    
    Euro
    
    2007
    
    $
    211
    
    
    $
    190TIBOR(1) plus 0.45% notes
    
    Japanese Yen
    
    2007
    
    
    59
    
    
    
    59TIBOR(1) plus 0.45% notes
    
    Japanese Yen
    
    2008
    
    
    
    
    
    
    707.40% notes
    
    U.S. Dollar
    
    2009
    
    
    
    
    
    
    100TIBOR(1) plus 0.45% notes
    
    Japanese Yen
    
    2009
    
    
    23
    
    
    
    8.74% obligation
    
    U.S. Dollar
    
    2012
    
    
    19
    
    
    
    213.50% notes
    
    Euro
    
    2012
    
    
    319
    
    
    
    2859.25% debentures
    
    U.S. Dollar
    
    2020
    
    
    144
    
    
    
    1459.80% notes
    
    U.S. Dollar
    
    2020
    
    
    91
    
    
    
    987.85% debentures
    
    U.S. Dollar
    
    2029
    
    
    882
    
    
    
    8823.50% notes
    
    Japanese Yen
    
    2032
    
    
    167
    
    
    
    170Fair market value adjustments
    
    
    
    
    
    
    20
    
    
    
    29Other
    
    
    
    
    
    
    34
    
    
    
    361,969
    
    
    
    2,085Less:current portion
    
    
    
    
    
    
    281
    
    
    
    11Total
    
    
    
    
    
    $
    1,688
    
    
    $
    2,074
 Note:
 (1)
    
    Six-month Tokyo Interbank Offered Rate (TIBOR)        Debtors
Accounting for a Modification or Exchange of Debt
Instruments,
 91




---



##### 



  
        Note 19: Accrued Liabilities
 (in millions)
    
    2006
    
    2005Salaries and wages
    
    $
    170
    
    
    $
    198Interest
    
    
    52
    
    
    
    53Sales incentive programs and other selling accruals
    
    
    69
    
    
    
    78Taxes, other than income taxes
    
    
    107
    
    
    
    83Employee benefits
    
    
    93
    
    
    
    138Derivative instruments
    
    
    41
    
    
    
    8Reserve for restructuring (see Note 3)
    
    
    37
    
    
    
    37Deferred Revenue on Supply Contracts
    
    
    10
    
    
    
    10Insurance and legal
    
    
    4
    
    
    
    9Marketing and sales promotion
    
    
    14
    
    
    
    14Reserve for environmental remediation (see Note 26)
    
    
    40
    
    
    
    36Other
    
    
    179
    
    
    
    145Total
    
    $
    816
    
    
    $
    809
 92




---



##### 



Note 20: Other Liabilities
 (in millions)
    
    2006
    
    2005Reserves for environmental remediation (see Note 26)
    
    $
    101
    
    
    $
    111Deferred revenue on supply contracts
    
    
    34
    
    
    
    46Legal contingencies
    
    
    42
    
    
    
    42Asset retirement obligations
    
    
    15
    
    
    
    14Other
    
    
    38
    
    
    
    28Total
    
    $
    230
    
    
    $
    241
  Asset Retirement(in millions)
    
    ObligationsBalance as of January 1, 2004
    
    $
    13Liabilities settled
    
    
    (1
    )Accretion expense
    
    
    1Currency effects
    
    
    1Revisions in estimated cash flows
    
    
    Balance as of December 31, 2004
    
    $
    14Liabilities settled
    
    
    Accretion expense
    
    
    1Currency effects
    
    
    Revisions in estimated cash flows
    
    
    (1
    )Balance as of December 31, 2005
    
    $
    14Liabilities settled
    
    
    (1
    )Accretion expense
    
    
    1Currency effects
    
    
    1Revisions in estimated cash flows
    
    
    Balance as of December 31, 2006
    
    $
    15
  93




---



##### 



Note 21: Earnings Per Share
  Earnings
    
    Shares
    
    Per Share(in millions, except per share amounts)
    
    (Numerator)
    
    (Denominator)
    
    Amount2006Net earnings from continuing operations available to stockholders
    
    $
    755
    
    
    
    218.9
    
    
    $
    3.45Dilutive effect of options and non-vested restricted stock(1)
    
    
    
    
    
    
    2.3Diluted earnings from continuing operations per share
    
    $
    755
    
    
    
    221.2
    
    
    $
    3.412005Net earnings from continuing operations available to stockholders
    
    $
    616
    
    
    
    221.9
    
    
    $
    2.78Dilutive effect of options and non-vested restricted stock(1)
    
    
    
    
    
    
    2.0Diluted earnings from continuing operations per share
    
    $
    616
    
    
    
    223.9
    
    
    $
    2.752004Net earnings from continuing operations available to stockholders
    
    $
    484
    
    
    
    222.9
    
    
    $
    2.17Dilutive effect of options and non-vested restricted stock(1)
    
    
    
    
    
    
    1.3Diluted earnings from continuing operations per share
    
    $
    484
    
    
    
    224.2
    
    
    $
    2.16
 Note:
 (1)
    
    There were approximately 0.7 million shares, 0.7 million shares and
1.2 million shares in 2006, 2005 and 2004, respectively, attributable to
stock options that were excluded from the calculation of diluted earnings
per share as the exercise price of the stock options was greater than the
average market price. Note 22: Stockholders Equity
 Accounting
Practices for Certain Employee Stock Ownership Plans Employers Accounting for Employee Stock Ownership Plans.
   94




---



##### 



Stockholders Rights Plan
  Share Repurchase Program
  Note 23: Share-Based Compensation Plans
  1999 Stock Plan
  Non-Employee Directors Stock Plans of 1997 and 2005
 American Jobs Creation Act of 2004,
 95




---



##### 



Rohm and Haas Company Non-Qualified Savings Plan
 American Jobs Creation Act of
2004
 Share-Based Compensation Overview
    Share-Based Payment. Accounting for Stock-Based Compensation,
 
    
    Forfeiture rate  SFAS No. 123R requires the recognition of expense only for awards that will
eventually vest. The provision requires pre-vesting forfeitures to be estimated at the time of
grant and modified, if necessary, if actual forfeitures differ from estimated forfeitures. Our
forfeiture rates were based upon historical share-based compensation cancellations through December
31, 2005. The estimated forfeiture rates resulted in an immaterial adjustment to current unvested
awards.
    
    Tax benefits  SFAS No. 123R requires tax benefits resulting from share-based compensation in
excess of compensation cost recognized to be classified as financing cash flows in the Consolidated
Statements of Cash Flows. Prior to the adoption of SFAS No. 123R, tax benefits resulting from
share-based compensation were classified as operating cash flows.
    
    Tax windfall pool  SFAS No. 123R requires companies to calculate a cumulative pool of tax
windfalls, offset by tax shortfalls, using historical data from the original implementation date of
SFAS No. 123. We have calculated a tax windfall pool as of December 31, 2006; therefore, any
future tax shortfalls related to share-based compensation should be charged against additional
paid-in capital up to the amount of our windfall pool.
 96




---



##### 



Stock Options
   Weighted-AverageWeighted-
    
    Remaining
    
    AggregateShares
    
    Average
    
    Contractual
    
    Intrinsic(000s)
    
    Exercise Price
    
    Term
    
    Value (000s)Outstanding at January 1, 2004
    
    
    11,246
    
    
    $
    34.29Granted
    
    
    737
    
    
    
    40.20Forfeited
    
    
    (163
    )
    
    
    36.62Exercised
    
    
    (1,589
    )
    
    
    30.27Outstanding at December 31, 2004
    
    
    10,231
    
    
    
    35.30Granted
    
    
    705
    
    
    
    48.60Forfeited
    
    
    (108
    )
    
    
    40.03Exercised
    
    
    (2,404
    )
    
    
    33.99Outstanding at December 31, 2005
    
    
    8,424
    
    
    
    36.73Granted
    
    
    791
    
    
    
    50.37Forfeited
    
    
    (97
    )
    
    
    47.65Exercised
    
    
    (2,205
    )
    
    
    34.16
    
    
    
    
    
    
    $
    36,062Outstanding at December 31, 2006
    
    
    6,913
    
    
    
    38.96
    
    
    
    5.36
    
    
    $
    84,090Options exercisable at
December 31, 2006
    
    
    5,573
    
    
    $
    36.69
    
    
    
    4.59
    
    
    $
    80,411
   97




---



##### 



2006
    
    
    2005
    
    
    2004Volatility
    
    
    28.83
    
    
    
    30.47
    
    
    
    33.85Risk-free interest rate
    
    
    4.67
    %
    
    
    4.08
    %
    
    
    3.32
    %Dividend yield
    
    
    3.26
    %
    
    
    1.83
    %
    
    
    2.24
    %Expected life (in years)
    
    
    6
    
    
    
    5
    
    
    
    6
 
    
    The volatility rate is based upon historical stock price over the expected life of the option.
    
    The risk-free interest rate assumption is based upon observed interest rates appropriate for
the expected life of the option.
    
    The dividend yield rate was based upon historical information as well as estimated future
dividend payouts.
    
    The expected life is based upon the simplified method, which is defined in Staff Accounting
Bulletin No. 107.
  Options Outstanding

    Options ExercisableNumber
    
    Weighted-Average
    
    
    
    
    
    NumberRange of Exercise
    
    Outstanding
    
    Remaining Life
    
    Weighted-Average
    
    Exercisable
    
    Weighted-AveragePrices
    
    (000s)
    
    (Years)
    
    Exercise Price
    
    (000s)
    
    Exercise Price$20 - 25
    
    
    111
    
    
    
    1.66
    
    
    $
    21.76
    
    
    
    111
    
    
    $
    21.7625 - 30
    
    
    691
    
    
    
    5.48
    
    
    
    28.25
    
    
    
    691
    
    
    
    28.2530 - 35
    
    
    1,198
    
    
    
    3.74
    
    
    
    32.94
    
    
    
    1,198
    
    
    
    32.9435 - 40
    
    
    2,994
    
    
    
    5.08
    
    
    
    39.16
    
    
    
    2,801
    
    
    
    39.0940 - 46
    
    
    544
    
    
    
    2.90
    
    
    
    41.40
    
    
    
    544
    
    
    
    41.4046 - 50
    
    
    1,375
    
    
    
    8.62
    
    
    
    49.55
    
    
    
    228
    
    
    
    48.60
 Restricted Stock
  Weighted-
    
    
    AggregateAverage Fair
    
    
    IntrinsicShares (000s)
    
    
    Value Per Share
    
    
    Value (000's)Nonvested at January 1, 2004
    
    
    1,351
    
    
    $
    22.91Granted
    
    
    758
    
    
    
    40.68Forfeited
    
    
    (53
    )
    
    
    30.83Vested
    
    
    (102
    )
    
    
    33.05Nonvested at December 31, 2004
    
    
    1,954
    
    
    
    33.52Granted
    
    
    555
    
    
    
    47.82Forfeited
    
    
    (92
    )
    
    
    47.82Vested
    
    
    (218
    )
    
    
    27.47Nonvested at December 31, 2005
    
    
    2,199
    
    
    
    37.25Granted
    
    
    614
    
    
    
    50.16Forfeited
    
    
    (130
    )
    
    
    40.24Vested
    
    
    (133
    )
    
    
    36.82
    
    
    $
    6,569Nonvested at December 31, 2006
    
    
    2,550
    
    
    $
    40.23
 98




---



##### 



Long-term Performance Share Plan (LTPSP)
   Financial Accounting Standards Board Statement No. 148 (SFAS No. 148)
 Accounting for Stock-Based Compensation  Transition
and Disclosure,
 (in millions, except per share amounts)
    
    2004Net earnings from continuing operations, as reported
    
    $
    484Add:     Share-based employee compensation expense included in reported
net earnings, after-tax
    
    
    13Deduct:     Total share-based compensation expense determined under the
fair-value based method for all awards, net of related tax effects.
    
    
    (26
    )Pro forma net earnings from continuing operations
    
    $
    471
 2004Net earnings per share from continuing operationsBasic, as reported
    
    $
    2.17Basic, pro forma
    
    
    2.11Diluted, as reported
    
    $
    2.16Diluted, pro forma
    
    
    2.10
 Note 24: Accumulated Other Comprehensive Loss
  (in millions)
    
    2006
    
    
    2005
    
    
    2004Cumulative translation adjustments
    
    $
    10
    
    
    $
    12
    
    
    $
    25Minimum pension liability adjustments
    
    
    
    
    
    
    (122
    )
    
    
    (101
    )Unrecognized
losses and prior service cost, net, on pension and postretirement
obligations
    
    
    (330
    )
    
    
    
    
    
    
    Net gain (loss) on derivative instruments
    
    
    4
    
    
    
    5
    
    
    
    (4
    )Accumulated other comprehensive loss
    
    $
    (316
    )
    
    $
    (105
    )
    
    $
    (80
    )
 99




---



##### 



Note 25: Leases
   FutureMinimum Lease(in millions)
    
    Payments2007
    
    $
    622008
    
    
    412009
    
    
    312010
    
    
    222011
    
    
    18
 Note 26: Contingent Liabilities, Guarantees and Commitments
   Ø Remediation Reserves and Reasonably Possible Amounts
  (in millions)
    
    BalanceDecember 31, 2004
    
    $
    137Amounts charged to earnings
    
    
    38Spending
    
    
    (28
    )December 31, 2005
    
    $
    147Amounts charged to earnings
    
    
    25Spending
    
    
    (31
    )December 31, 2006
    
    $
    141
  100




---



##### 



Ø
    
    Wood-Ridge/Berrys Creek
   Ø
    
    Moss Point
   Ø
    
    Paterson
  101




---



##### 



Ø
    
    Martin Aaron Superfund Site
  Ø
    
    Groundwater Treatment and Monitoring
  Ø
    
    Manufacturing Sites
  Insurance
Litigation
  Self-Insurance
  Other
Litigation
     102




---



##### 



103




---



##### 



Indemnifications
  104




---



##### 



Note 27: New Accounting Pronouncements
 Fair
Value Option for Financial Assets and Financial
Liabilities
 The Fair Value Option for Financial Assets and
Financial Liabilities,
 Accounting for Planned Major Maintenance Activities
 AUG AIR-1 Elements of Financial Statements,
 Employers Accounting for Defined Benefit Pension and Other Postretirement Benefit Plans
 Employers Accounting for Defined Benefit Pension
and Other Postretirement Plans
 Fair Value Measurements
 Fair Value Measurements,
 Quantifying Misstatements
 Quantifying Misstatements.
 Accounting for Uncertainty in Income Taxes
 Accounting for Uncertainty in Income Taxes. Accounting for Income Taxes.
 105




---



##### 



Accounting for Servicing of Financial Assets
 Accounting for Servicing of Financial Assets an
Amendment of FASB Statement No. 140. Accounting for Transfers
and Servicing of Financial Assets and Extinguishments of Liabilities
 Certain Hybrid Financial Instruments
 Accounting for Certain Hybrid Financial
Instruments. Accounting for Derivative Instruments and Hedging
Activities Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities
 Non-monetary Transactions
 Accounting for Purchases and Sales of Inventory
with the Same Counterparty Accounting for Nonmonetary
Transactions.
 Inventory Costs
 Inventory Costs, an amendment of ARB No. 43,
Chapter 4
 Accounting Changes and Error Corrections
 Accounting Changes and Error Corrections Accounting Changes Reporting Accounting
Changes in Interim Financial Statements-An Amendment of APB Opinion No. 28
 106




---



##### 



Note 28: Summarized Quarterly Data (unaudited)
 Quarterly Results of Operations (unaudited)
 1st
    
    
    2nd
    
    
    3rd
    
    
    4th
    
    
    Year(in millions, except share data)
    
    Quarter
    
    
    Quarter
    
    
    Quarter
    
    
    Quarter
    
    
    2006Net sales
    
    $
    2,058
    
    
    $
    2,081
    
    
    $
    2,065
    
    
    $
    2,026
    
    
    $
    8,230Gross profit
    
    
    643
    
    
    
    628
    
    
    
    602
    
    
    
    601
    
    
    
    2,474Provision for restructuring and asset
impairments
    
    
    4
    
    
    
    
    
    
    
    6
    
    
    
    17
    
    
    
    27Net earnings from continuing operations
    
    
    207
    
    
    
    192
    
    
    
    189
    
    
    
    167
    
    
    
    755Net earnings
    
    
    207
    
    
    
    166
    
    
    
    186
    
    
    
    176
    
    
    
    735Basic earnings per share, in dollars:From continuing operations(1)
    
    
    0.94
    
    
    
    0.88
    
    
    
    0.87
    
    
    
    0.77
    
    
    
    3.45Net earnings(1)
    
    
    0.94
    
    
    
    0.75
    
    
    
    0.86
    
    
    
    0.81
    
    
    
    3.36Diluted earnings per share, in dollars:From continuing operations(1)
    
    
    0.93
    
    
    
    0.87
    
    
    
    0.86
    
    
    
    0.76
    
    
    
    3.41Net earnings(1)
    
    
    0.93
    
    
    
    0.75
    
    
    
    0.85
    
    
    
    0.80
    
    
    
    3.32Note:
 (1)
    
    Earnings per share for the year may not equal the sum of quarterly earnings per share due to
changes in weighted average share calculations. Quarterly Results of Operations (unaudited)
 1st
    
    
    2nd
    
    
    3rd
    
    
    4th
    
    
    Year(in millions, except share data)
    
    Quarter
    
    
    Quarter
    
    
    Quarter
    
    
    Quarter
    
    
    2005Net sales
    
    $
    1,993
    
    
    $
    1,978
    
    
    $
    1,927
    
    
    $
    1,987
    
    
    $
    7,885Gross profit
    
    
    601
    
    
    
    587
    
    
    
    570
    
    
    
    608
    
    
    
    2,366Provision for restructuring and asset
impairments
    
    
    (4
    )
    
    
    33
    
    
    
    (2
    )
    
    
    71
    
    
    
    98Net earnings from continuing operations
    
    
    153
    
    
    
    172
    
    
    
    163
    
    
    
    128
    
    
    
    616Net earnings
    
    
    159
    
    
    
    178
    
    
    
    169
    
    
    
    131
    
    
    
    637Basic earnings per share, in dollars:From continuing operations(1)
    
    
    0.69
    
    
    
    0.77
    
    
    
    0.74
    
    
    
    0.58
    
    
    
    2.78Net earnings(1)
    
    
    0.71
    
    
    
    0.80
    
    
    
    0.76
    
    
    
    0.60
    
    
    
    2.87Diluted earnings per share, in dollars:From continuing operations(1)
    
    
    0.68
    
    
    
    0.76
    
    
    
    0.73
    
    
    
    0.58
    
    
    
    2.75Net earnings(1)
    
    
    0.70
    
    
    
    0.79
    
    
    
    0.76
    
    
    
    0.59
    
    
    
    2.85Note:
 (1)
    
    Earnings per share for the year may not equal the sum of quarterly earnings
per share due to changes in weighted average share calculations. 107




---



##### 



Note 29: Subsequent Events
   108




---



##### 



Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
  Item 9A. Controls and Procedures
 a)
    
    Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures


Under the supervision and with the participation of our management, including our principal
executive officer and principal financial officer, we conducted an evaluation of our disclosure
controls and procedures, as such term is defined under Rule 13a-15(e) promulgated under the
Securities Exchange Act of 1934, as amended (the Exchange Act). Based on this evaluation, our
principal executive officer and our principal financial officer concluded that our disclosure
controls and procedures were effective as of the end of the period covered by this annual
report. During 2006, our principal executive officer and our principal financial officer have
signed their certifications as required by the Sarbanes-Oxley Act of 2002. In 2006, our CEO also
certified, without qualification, to the New York Stock Exchange (NYSE) that he was not aware of
any violation by the Company of NYSE corporate governance standards.b)
    
    Managements Report on Internal Control Over Financial Reporting

Our managements report on Internal Control Over Financial Reporting is set forth in Item 8 and
incorporated herein by reference.Our managements assessment of the effectiveness of our internal control over financial
reporting as of December 31, 2006 has been audited by PricewaterhouseCoopers LLP, an independent
registered public accounting firm, as stated in their report which is set forth in Item 8.c)
    
    Changes in Internal Controls Over Financial Reporting

There have been no changes in our internal control over financial reporting that occurred during
the quarter ended December 31, 2006 that have materially affected, or are likely to materially
effect, our internal control over financial reporting.
 Item 9B. Other Information
  109




---



##### 



PART III
 Item 10. Directors, Executive Officers and Corporate Governance
  DIRECTORS
 William J. Avery
 Raj L. Gupta
 David W. Haas
 Thomas
W. Haas
 Richard L. Keyser
 Rick J. Mills
 Jorge P. Montoya
 Sandra O. Moose
 Gilbert S. Omenn
 Gary L. Rogers
 110




---



##### 



Ronaldo H. Schmitz
 George M. Whitesides
 Marna C. Whittington
 Committees
 
 EXECUTIVE OFFICERS
  Alan E. Barton
 Pierre R. Brondeau
 Jacques M. Croisetiere
 Raj L. Gupta
 Robert A. Lonergan
 Anne Wilms
 111




---



##### 



Item 11. Executive Compensation
  Item 12.
    
    Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters
  Equity Compensation Plan Information (1)
  Number of securitiesremaining available forNumber of securities to be
    
    
    
    
    
    future issuance under equityissued upon exercise of
    
    Weighted-average exercise
    
    compensation plansoutstanding options,
    
    price of outstanding
options,
    
    (excluding securities reflectedPlan category
    
    warrants and rights
    
    warrants and rights
    
    in column(a))(2)(in thousands)
    
    (a)
    
    (b)
    
    (c)Equity compensation
plans approved by
security holders
    
    
    9,649
    (3)
    
    
    28.46
    (3)
    
    
    15,056Equity compensation
plans not approved
by security holders
    
    
    220
    (4)
    
    
    
    
    
    
    36Total
    
    
    9,869
    
    
    
    28.46
    
    
    
    15,092Note:
 (1)
    
    Refer to Note 23 to the Consolidated Financial Statements for a description of the plans.(2)
    
    Excludes shares that will be issued pursuant to the Companys matching contributions
under the Non-Qualified Savings Plan.(3)
    
    Includes shares available for issuance under the 2004 Amended and Restated Stock Plan and
the 2005 Non-Employee Directors Stock Plan.(4)
    
    Includes shares available for issuance under the 1997 Non-Employee Directors Stock Plan. Item 13. Certain Relationships and Related Transactions, and Director Independence
  Item 14. Principal Accountant Fees and Services
  112




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##### 



PART IV
 Item 15. Exhibits and Financial Statement Schedule
  1.
    
    All Financial Statements:
        2.
    
    Financial Statements Schedule
  Financial Statement Schedule
    
    Page #§     II  Valuation and qualifying accounts for the years
2006, 2005 and 2004
    
    
    118
   EXHIBITNUMBER
    
    DESCRIPTION3.01
    
    Certificate of Incorporation of Rohm and Haas Company (incorporated
by reference to Exhibit 3 to Rohm and Haas Companys report on Form
10-K/A filed March 29, 2001 (the 2000 10-K/A)).3.02
    
    Bylaws of Rohm and Haas Company (incorporated by reference to
Exhibit 3 to Rohm and Haas Companys report on Form 10-Q filed May
5, 2002).4.01
    
    Description of Rohm and Haas Common Stock (incorporated by
reference to Item 5 of Rohm and Haas Companys report on Form 10-Q
filed September 30, 1996).4.02
    
    Indenture, dated as of June 1, 1990, between Morton International,
Inc. and Continental Bank, National Association, as Trustee
(incorporated by reference to Exhibit 4(c) to Morton International,
Inc.s Registration Statement on Form S-1 filed May 9, 1990).4.03
    
    Indenture, dated as of May 1, 1992, between Rohm and Haas Company
and Wachovia Bank, N.A., successor in interest to CoreStates Bank,
N.A. (formerly, The Philadelphia National Bank), as Trustee
(incorporated by reference to Exhibit 4 to Rohm and Haas Companys
report on Form 10-K filed March 29, 1993).4.04
    
    First Supplemental Indenture, dated as of April 28, 1997, among
Morton International, Inc., New Morton International, Inc., and
First Trust, National Association, as Trustee (incorporated by
reference to Exhibit 10.01 to New Morton International, Inc.s
Current Report on Form 8-K dated May 2, 1997).
 113




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##### 



EXHIBITNUMBER
    
    DESCRIPTION4.05
    
    Indenture, dated as of July 1, 1999, between Rohm and Haas Company
and Chase Manhattan Trust Company, National Association, as Trustee
(incorporated by reference to Exhibit 4.1 to Rohm and Haas
Companys Registration Statement on Form S-4 filed July 30, 1999).4.06
    
    Rights Agreement, dated as of October 26, 2000, between Rohm and
Haas Company and EquiServe Trust Company, N.A., as Rights Agent
(incorporated by reference to Exhibit 4 to Rohm and Haas Companys
Registration Statement on Form 8-A dated October 26, 2000).4.07
    
    Certificate of Designation of Series A Junior Participating
Preferred Stock of Rohm and Haas Company dated October 31, 2000
(incorporated by reference to Exhibit 4 to the 2000 10-K/A).4.08
    
    Fiscal Agency Agreement, dated September 19, 2005, (incorporated by
reference to Exhibit 4.1 to Rohm and Haas Companys current report
on Form 8-K dated September 22, 2005).10.01*
    
    1997 Non-Employee Directors Stock Plan (incorporated by reference
to Exhibit 10.2 to Rohm and Haas Companys report on Form 10-K
filed March 21, 1997).10.02*
    
    Amended and Restated Rohm and Haas Stock Plan (incorporated by
reference to Appendix C to Rohm and Haas Companys Definitive Proxy
Statement on Schedule 14A filed March 26, 2001).10.03*
    
    2004 Amended and Restated Stock Plan (incorporated by reference to Appendix D to Rohm and Haas Companys Definitive Proxy Statement on
Schedule 14A filed March 19, 2004).10.04*
    
    Form of Continuity Agreement, dated as of July 1, 2001, between
Rohm and Haas Company and key executives (incorporated by reference
to Exhibit 10 to Rohm and Haas Companys report on Form 10-Q filed
August 14, 2001).10.05*
    
    Rohm and Haas Company Non-Qualified Savings Plan, as Amended and
Restated effective January 1, 2003 (incorporated by reference to
Exhibit 10.04 to Rohm and Haas Companys report on Form 10-K filed
March 8, 2004).10.06*
    
    2004 Rohm and Haas Company Annual Incentive Plan (incorporated by
reference to Appendix B to Rohm and Haas Companys Definitive Proxy
Statement on Schedule 14A filed March 19, 2004).10.07*
    
    2004 Rohm and Haas Company Long-Term Performance Plan (incorporated
by reference to Appendix C to Rohm and Haas Companys Definitive
Proxy Statement on Schedule 14A filed March 19, 2004).10.08
    
    Five-Year Credit Agreement (incorporated by reference from Exhibit
10.1 to Rohm and Haas Companys Current Report on Form 8-K dated
December 21, 2005).10.09
    
    Amendment to the Five-year Credit Agreement (incorporated by
reference to Exhibit 10.1 of Rohm and Haas Companys Form 8-K filed
December 19, 2006).10.10*
    
    2005 Rohm and Haas Company Non-Employee Directors Stock Plan
(incorporated by reference to Exhibit 10.1 of Rohm and Haas
Companys Form 8-K filed May 11, 2005).10.11*
    
    2005 Rohm and Haas Company Non-Qualified Savings Plan (incorporated
by reference to
 114




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##### 



EXHIBITNUMBER
    
    DESCRIPTIONExhibit 10.2 of Rohm and Haas Companys Form 8-K filed May 11, 2005).12.01
    
    Statements regarding Computation of Ratios of Rohm and Haas Company.14.00
    
    Rohm and Haas Company Code of Business Conduct and Ethics
(incorporated by reference to Companys website) www.rohmhaas.com
(intended to be an inactive textual reference only).21.01
    
    Subsidiaries of Rohm and Haas Company.23.01
    
    Consent of PricewaterhouseCoopers LLP.31.01
    
    Certification Pursuant to Rule 13a-14(a)/15d-14(a).31.02
    
    Certification Pursuant to Rule 13a-14(a)/15d-14(a).32
    
    Certification furnished pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
 
 *
    
    Management contract or compensatory plan or arrangement filed pursuant to Item 601(b)
(10) (iii) of Regulation S-K. 115




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##### 



STOCKHOLDER INFORMATION
Stock Exchange Listing
 Transfer Agent and Registrar
 Annual Meeting of Stockholders  Chemical Heritage Foundation, 315 Chestnut Street, Philadelphia, PA 19106.
 Independent Registered Public Accountants
 116




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##### 



SIGNATURES
  /s/ Jacques M. CroisetiereJacques M. CroisetiereExecutive Vice-President and Chief Financial Officer
   /s/ Raj L. Gupta
    
    /s/ Jorge P. MontoyaRaj L. Gupta 
Director, Chairman, President and 
Chief Executive Officer
    
    Jorge P. Montoya
Director/s/ William J. Avery
    
    /s/ Sandra O. MooseWilliam J. Avery 
Director
    
    Sandra O. Moose
Director/s/ David W. Haas
    
    /s/ Gilbert S. OmennDavid W. Haas 
Director
    
    Gilbert S. Omenn
Director/s/ Thomas W. Haas
    
    /s/ Gary L. RogersThomas W. Haas 
Director
    
    Gary L. Rogers
Director/s/ Richard L. Keyser
    
    /s/ Ronaldo H. SchmitzRichard L. Keyser 
Director
    
    Ronaldo H. Schmitz
Director/s/ Rick J. Mills
    
    /s/ George M. WhitesidesRick J. Mills 
Director
    
    George M. Whitesides
Director/s/ Marna C. WhittingtonMarna C. Whittington
Director
 117




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##### 



SCHEDULE II
   Bad Debts:
 Year Ended December 31,(in millions)
    
    2006
    
    
    2005
    
    
    2004Deducted from Accounts Receivable 
Allowances for losses:Balance at beginning of year
    
    $
    43
    
    
    $
    49
    
    
    $
    57Additions charged to earnings
    
    
    6
    
    
    
    8
    
    
    
    11Charge-offs, net of recoveries
    
    
    (9
    )
    
    
    (14
    )
    
    
    (19
    )Balance at end of year
    
    $
    40
    
    
    $
    43
    
    
    $
    49
 Lower of Cost or Market Reserve (LCM Reserve):
 Year Ended December 31,(in millions)
    
    2006
    
    
    2005
    
    
    2004Deducted from Inventories 
Allowances for reserves:Balance at beginning of year
    
    $
    1
    
    
    $
    1
    
    
    $
    Additions charged to earnings
    
    
    1
    
    
    
    1
    
    
    
    1Reversals, Other
    
    
    (1
    )
    
    
    (1
    )
    
    
    Balance at end of year
    
    $
    1
    
    
    $
    1
    
    
    $
    1
 LIFO Reserve:
 Year Ended December 31,(in millions)
    
    2006
    
    
    2005
    
    
    2004Deducted from Inventories 
Allowances for reserves:Balance at beginning of year
    
    $
    120
    
    
    $
    94
    
    
    $
    48Additions charged to earnings
    
    
    7
    
    
    
    26
    
    
    
    46Balance at end of year
    
    $
    127
    
    
    $
    120
    
    
    $
    94
 118