##### Table of Contents



As Filed with the Securities and Exchange Commission on
February 1, 2006








UNITED STATES SECURITIES AND EXCHANGE COMMISSION


Washington, D.C. 20549


Form 20-F


|           |  |                                                                                                     
|---------- |  | ----------------------------------------------------------------------------------------------------
|(Mark One) |  |                                                                                                     
|o          |  | REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR
    12(g) OF THE SECURITIES EXCHANGE ACT OF 1934
|          
|           |  | OR                                                                                                  
|          
|þ          |  | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934            
|          
|           |  | For the fiscal year ended December 31, 2005                                                         
|          
|           |  | OR                                                                                                  
|          
|o          |  | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934        
|          
|           |  | For the transition period
    from           to                                                     
|          
|o          |  | SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934     
|          
|           |  | Date of event requiring this shell company report                                                   

Ciba Specialty Chemicals Holding Inc.


(Exact name of Registrant as specified in its charter)


Switzerland


(Jurisdiction of incorporation or organization)


Klybeckstrasse 141


4002 Basel


Switzerland


(Address of principal executive offices)


Securities registered or to be registered pursuant to
Section 12(b) of the Act.


|                                                                                                                    |  |                                          
|------------------------------------------------------------------------------------------------------------------- |  | -----------------------------------------
|Title of Each Class                                                                                                 |  | Name of Each Exchange on Which Registered
|                                                                                                                    |  |                                          
|American Depositary shares,
    Each representing one half of one ordinary share,
    nominal value CHF 1 per share |  | New York Stock Exchange                  
|Ordinary shares, par value CHF 1 per share*                                                                         |  |                                          

Securities registered or to be registered pursuant to
Section 12(g) of the Act. None





(Title of Class)


Securities for which there is a reporting obligation pursuant
to Section 15(d) of the Act. None





(Title of Class)


o þ









o þ


þ o


12b-2


þ o o


þ o


12b-2 o þ







|  |                                                                                                                                                                               
|- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|* | Not for trading but only in connection with the registration of
    the American Depositary Shares pursuant to the requirements of
    the Securities and Exchange Commission.









---



##### 










|                                                              |           |  |                                                                                  |      |  |     | 
|------------------------------------------------------------- | --------- |  | -------------------------------------------------------------------------------- | ---- |  | --- | 
|                                                              |           |  |                                                                                  | Page | 
|                                                              |           |  |                                                                                  |      | 
|Introduction                                                  |           |  | 1                                                                                |     
|Currency Translation                                          |           |  | 1                                                                                |     
|Cautionary Statement Regarding
    Forward-Looking Statements |           |  | 1                                                                                |     
|PART I                                                        |           |  | 3                                                                                |     
|                                                              | Item 1.   |  | Identity of Directors, Senior Management
    and Advisors (N/ A)                 |      |  | 3   | 
|                                                              | Item 2.   |  | Offer Statistics and Expected Timetable (N/
    A)                               |      |  | 3   | 
|                                                              | Item 3.   |  | Key Information                                                                  |      |  | 3   | 
|                                                              | Item 4.   |  | Information on the Company                                                       |      |  | 13  | 
|                                                              | Item 5.   |  | Operating and Financial Review and
    Prospects                                 |      |  | 40  | 
|                                                              | Item 6.   |  | Directors, Senior Management and
    Employees                                   |      |  | 76  | 
|                                                              | Item 7.   |  | Major Shareholders and Related Party
    Transactions                            |      |  | 94  | 
|                                                              | Item 8.   |  | Financial Information                                                            |      |  | 95  | 
|                                                              | Item 9.   |  | The Offer and Listing                                                            |      |  | 97  | 
|                                                              | Item 10.  |  | Additional Information                                                           |      |  | 100 | 
|                                                              | Item 11.  |  | Quantitative and Qualitative Disclosures
    About Market Risk                   |      |  | 108 | 
|                                                              | Item 12.  |  | Description of Securities Other than Equity
    Securities (N/ A)                |      |  | 109 | 
|PART II                                                       |           |  | 109                                                                              |     
|                                                              | Item 13.  |  | Defaults, Dividend Arrearages and
    Delinquencies                              |      |  | 109 | 
|                                                              | Item 14.  |  | Material Modifications to the Rights of
    Security Holders and Use of Proceeds |      |  | 109 | 
|                                                              | Item 15.  |  | Controls and Procedures                                                          |      |  | 109 | 
|                                                              | Item 16.  |  | [Reserved]                                                                       |      |  |     | 
|                                                              | Item 16A. |  | Audit Committee Financial Expert                                                 |      |  | 109 | 
|                                                              | Item 16B. |  | Code of Ethics                                                                   |      |  | 109 | 
|                                                              | Item 16C. |  | Principal Accountant Fees and Services                                           |      |  | 109 | 
|                                                              | Item 16D. |  | Exemptions from the Listing Standards for
    Audit Committees (N/ A)            |      |  | 110 | 
|                                                              | Item 16E. |  | Purchases of Equity Securities by the
    Company                                |      |  | 110 | 
|PART III                                                      |           |  | 111                                                                              |     
|                                                              | Item 17.  |  | Financial Statements                                                             |      |  | 111 | 
|                                                              | Item 18.  |  | Financial Statements                                                             |      |  | 111 | 
|                                                              | Item 19.  |  | Exhibits                                                                         |      |  | 111 | 
|Signature                                                     |           |  | 113                                                                              |     
|EXHIBIT 8.1                                                  
|EXHIBIT 12.1                                                 
|EXHIBIT 12.2                                                 
|EXHIBIT 13.1                                                 
|EXHIBIT 23.1                                                 







---



##### Table of Contents






Introduction


20-F













Currency Translation







Cautionary Statement Regarding Forward-Looking Information




1



---



##### Table of Contents





1.1



---



##### Table of Contents





2



---



##### Table of Contents






PART I







|        |                                                          
|------- | ---------------------------------------------------------
|Item 1. | Identity of Directors, Senior Management and
    Advisors








|        |                                        
|------- | ---------------------------------------
|Item 2. | Offer Statistics and Expected Timetable








|        |                
|------- | ---------------
|Item 3. | Key Information

Selected Financial Data






|                                                                 |  |      |            |   |      |  |            |      |  |  |            |       |  |      |            |     |  |  |            |    
|---------------------------------------------------------------- |  | ---- | ---------- | - | ---- |  | ---------- | ---- |  |  | ---------- | ----- |  | ---- | ---------- | --- |  |  | ---------- | ---
|                                                                 |  | 2005 |            |   | 2004 |  |            | 2003 |  |  | 2002       |       |  | 2001 |           
|                                                                 |  |      |            |   |      |  |            |      |  |  |            |       |  |      |           
|Results of operations                                            |  |      |            |   |      |  |            |      |  |  |            |       |  |      |            |     |  |  |            |    
|Net sales                                                        |  |      | 7 419      |   |      |  | 7 027      |      |  |  | 6 646      |       |  |      | 7 085      |     |  |  | 7 367      |    
|Operating income (loss)                                          |  |      | (124       | ) |      |  | 521        |      |  |  | 563        |       |  |      | 769        |     |  |  | 753        |    
|Income (loss) from continuing operations, net of
    tax(1)(4)   |  |      | (286       | ) |      |  | 278        |      |  |  | 345        |       |  |      | 419        |     |  |  | 375        |    
|Income from discontinued operations, net of
    tax(5)           |  |      | 30         |   |      |  | 28         |      |  |  | 0          |       |  |      | 0          |     |  |  | 0          |    
|Cumulative effect of change in accounting principles, net of tax |  |      | 0          |   |      |  | 0          |      |  |  | (16        | )(2)  |  |      | 0          |     |  |  | 2          | (3)
|Net income
    (loss)(1)(4)                                      |  |      | (256       | ) |      |  | 306        |      |  |  | 329        |       |  |      | 419        |     |  |  | 377        |    
|Earnings (loss) per share, basic and diluted                     |  |      |            |   |      |  |            |      |  |  |            |       |  |      |            |     |  |  |            |    
|Continuing
    operations(1)(4)                                  |  |      | (4.38      | ) |      |  | 4.21       |      |  |  | 5.05       |       |  |      | 6.12       | (7) |  |  | 5.64       |    
|Discontinued
    operations(5)                                   |  |      | 0.46       |   |      |  | 0.43       |      |  |  | 0.00       |       |  |      | 0.00       |     |  |  | 0.00       |    
|Cumulative effect of change in accounting principles             |  |      | 0.00       |   |      |  | 0.00       |      |  |  | (0.23      | ) (2) |  |      | 0.00       |     |  |  | 0.04       | (3)
|Net income (loss) per
    share(1)(4)                            |  |      | (3.92      | ) |      |  | 4.64       |      |  |  | 4.82       |       |  |      | 6.12       | (7) |  |  | 5.68       |    
|Equity per share                                                 |  |      | 58.73      |   |      |  | 62.78      |      |  |  | 62.76      |       |  |      | 63.55      |     |  |  | 59.36      |    
|Dividend per
    share(6)                                        |  |      | 3.00       |   |      |  | 1.00       |      |  |  | 0.00       |       |  |      | 0.00       |     |  |  | 2.00       |    
|Capital reduction per
    share(6)                               |  |      | 0.00       |   |      |  | 2.00       |      |  |  | 3.00       |       |  |      | 3.00       |     |  |  | 1.00       |    
|Weighted average number of shares outstanding                    |  |      |            |   |      |  |            |      |  |  |            |       |  |      |            |     |  |  |            |    
|Basic                                                            |  |      | 65 288 741 |   |      |  | 66 059 479 |      |  |  | 68 361 123 |       |  |      | 68 549 964 |     |  |  | 66 419 147 |    
|Diluted                                                          |  |      | 65 288 741 |   |      |  | 66 059 479 |      |  |  | 68 361 123 |       |  |      | 72 036 457 |     |  |  | 66 419 147 |    

3



---



##### Table of Contents



|                                                   |  |      |        |    |      |  |        |      |  |  |        |    |  |      |        |    |  |  |        |   
|-------------------------------------------------- |  | ---- | ------ | -- | ---- |  | ------ | ---- |  |  | ------ | -- |  | ---- | ------ | -- |  |  | ------ | --
|                                                   |  | 2005 |        |    | 2004 |  |        | 2003 |  |  | 2002   |    |  | 2001 |       
|                                                   |  |      |        |    |      |  |        |      |  |  |        |    |  |      |       
|Other data  continuing operations                 |  |      |        |    |      |  |        |      |  |  |        |    |  |      |        |    |  |  |        |   
|Net sales development percentage                   |  |      | 6      | %  |      |  | 6      | %    |  |  | (6     | )% |  |      | (4     | )% |  |  | (7     | )%
|Depreciation and amortization of other intangibles |  |      | 421    |    |      |  | 394    |      |  |  | 366    |    |  |      | 385    |    |  |  | 408    |   
|Amortization of goodwill                           |  |      | 0      |    |      |  | 0      |      |  |  | 0      |    |  |      | 0      |    |  |  | 61     |   
|Restructuring, impairment and other charges        |  |      | 703    |    |      |  | 91     |      |  |  | 0      |    |  |      | 0      |    |  |  | 0      |   
|Adjusted
    EBITDA(10)                            |  |      | 297    |    |      |  | 915    |      |  |  | 929    |    |  |      | 1 154  |    |  |  | 1 222  |   
|Operating income margin                            |  |      | (1.7   | )% |      |  | 7.4    | %    |  |  | 8.5    | %  |  |      | 10.9   | %  |  |  | 10.2   | % 
|Adjusted EBITDA margin                             |  |      | 4.0    | %  |      |  | 13.0   | %    |  |  | 14.0   | %  |  |      | 16.3   | %  |  |  | 16.6   | % 
|Capital expenditures                               |  |      | 275    |    |      |  | 294    |      |  |  | 233    |    |  |      | 250    |    |  |  | 259    |   
|Research and development                           |  |      | 301    |    |      |  | 288    |      |  |  | 281    |    |  |      | 294    |    |  |  | 276    |   
|Personnel costs                                    |  |      | 1 835  |    |      |  | 1 761  |      |  |  | 1 722  |    |  |      | 1 771  |    |  |  | 1 804  |   
|Number of employees at year end                    |  |      | 19 105 |    |      |  | 19 338 |      |  |  | 18 658 |    |  |      | 19 007 |    |  |  | 19 683 |   
|Balance sheet data                                 |  |      |        |    |      |  |        |      |  |  |        |    |  |      |        |    |  |  |        |   
|Current assets                                     |  |      | 4 267  |    |      |  | 4 381  |      |  |  | 4 936  |    |  |      | 5 306  |    |  |  | 4 819  |   
|Property, plant and equipment, net                 |  |      | 2 724  |    |      |  | 3 015  |      |  |  | 2 963  |    |  |      | 3 196  |    |  |  | 3 565  |   
|Total assets                                       |  |      | 10 612 |    |      |  | 10 996 |      |  |  | 11 095 |    |  |      | 11 811 |    |  |  | 11 732 |   
|Short-term debt                                    |  |      | 277    |    |      |  | 559    |      |  |  | 259    |    |  |      | 1 496  |    |  |  | 316    |   
|Long-term debt                                     |  |      | 2 942  |    |      |  | 2 917  |      |  |  | 3 187  |    |  |      | 2 344  |    |  |  | 3 678  |   
|Common stock                                       |  |      | 69     |    |      |  | 212    |      |  |  | 433    |    |  |      | 649    |    |  |  | 721    |   
|Shareholders equity                               |  |      | 3 903  |    |      |  | 4 152  |      |  |  | 4 253  |    |  |      | 4 381  |    |  |  | 3 926  |   
|Business segment
    data(8)                       |  |      |        |    |      |  |        |      |  |  |        |    |  |      |        |    |  |  |        |   
|Plastic Additives                                  |  |      |        |    |      |  |        |      |  |  |        |    |  |      |        |    |  |  |        |   
|Net sales                                          |  |      | 1 938  |    |      |  | 1 895  |      |  |  | 1 822  |    |  |      | 1 903  |    |  |  | 1 913  |   
|Operating income                                   |  |      | 260    |    |      |  | 224    |      |  |  | 165    |    |  |      | 225    |    |  |  | 256    |   
|Adjusted EBITDA                                    |  |      | 355    |    |      |  | 319    |      |  |  | 265    |    |  |      | 332    |    |  |  | 375    |   
|Operating income margin                            |  |      | 13.4   | %  |      |  | 11.9   | %    |  |  | 9.1    | %  |  |      | 11.8   | %  |  |  | 13.4   | % 
|Adjusted EBITDA margin                             |  |      | 18.3   | %  |      |  | 16.8   | %    |  |  | 14.6   | %  |  |      | 17.5   | %  |  |  | 19.6   | % 
|Coating Effects                                    |  |      |        |    |      |  |        |      |  |  |        |    |  |      |        |    |  |  |        |   
|Net sales                                          |  |      | 1 804  |    |      |  | 1 818  |      |  |  | 1 807  |    |  |      | 1 920  |    |  |  | 1 944  |   
|Operating income                                   |  |      | 233    |    |      |  | 291    |      |  |  | 298    |    |  |      | 335    |    |  |  | 310    |   
|Adjusted EBITDA                                    |  |      | 340    |    |      |  | 394    |      |  |  | 395    |    |  |      | 434    |    |  |  | 409    |   
|Operating income margin                            |  |      | 12.9   | %  |      |  | 16.0   | %    |  |  | 16.5   | %  |  |      | 17.4   | %  |  |  | 15.9   | % 
|Adjusted EBITDA margin                             |  |      | 18.9   | %  |      |  | 21.7   | %    |  |  | 21.8   | %  |  |      | 22.6   | %  |  |  | 21.0   | % 
|Water & Paper Treatment                            |  |      |        |    |      |  |        |      |  |  |        |    |  |      |        |    |  |  |        |   
|Net sales                                          |  |      | 2 394  |    |      |  | 2 014  |      |  |  | 1 616  |    |  |      | 1 718  |    |  |  | 1 837  |   
|Operating income                                   |  |      | 128    |    |      |  | 128    |      |  |  | 125    |    |  |      | 163    |    |  |  | 147    |   
|Adjusted EBITDA                                    |  |      | 288    |    |      |  | 259    |      |  |  | 228    |    |  |      | 271    |    |  |  | 261    |   
|Operating income margin                            |  |      | 5.4    | %  |      |  | 6.3    | %    |  |  | 7.8    | %  |  |      | 9.5    | %  |  |  | 8.0    | % 
|Adjusted EBITDA margin                             |  |      | 12.0   | %  |      |  | 12.8   | %    |  |  | 14.1   | %  |  |      | 15.8   | %  |  |  | 14.2   | % 

4



---



##### Table of Contents



|                        |  |      |       |    |      |  |       |      |  |  |       |   |  |      |       |   |  |  |       |  
|----------------------- |  | ---- | ----- | -- | ---- |  | ----- | ---- |  |  | ----- | - |  | ---- | ----- | - |  |  | ----- | -
|                        |  | 2005 |       |    | 2004 |  |       | 2003 |  |  | 2002  |   |  | 2001 |      
|                        |  |      |       |    |      |  |       |      |  |  |       |   |  |      |      
|Textile Effects         |  |      |       |    |      |  |       |      |  |  |       |   |  |      |       |   |  |  |       |  
|Net sales               |  |      | 1 283 |    |      |  | 1 300 |      |  |  | 1 401 |   |  |      | 1 544 |   |  |  | 1 673 |  
|Impairment(9)           |  |      | (583  | )  |      |  | 0     |      |  |  | 0     |   |  |      | 0     |   |  |  | 0     |  
|Operating income (loss) |  |      | (520  | )  |      |  | 61    |      |  |  | 68    |   |  |      | 140   |   |  |  | 180   |  
|Adjusted EBITDA         |  |      | (468  | )  |      |  | 117   |      |  |  | 128   |   |  |      | 206   |   |  |  | 248   |  
|Operating income margin |  |      | (40.5 | )% |      |  | 4.7   | %    |  |  | 4.9   | % |  |      | 9.1   | % |  |  | 10.8  | %
|Adjusted EBITDA margin  |  |      | (36.5 | )% |      |  | 9.0   | %    |  |  | 9.2   | % |  |      | 13.4  | % |  |  | 14.8  | %

|                                     |  |                          |       |  |      |  |       |      |  |  |        |  |  |      |        |  |  |  |        | 
|------------------------------------ |  | ------------------------ | ----- |  | ---- |  | ----- | ---- |  |  | ------ |  |  | ---- | ------ |  |  |  | ------ | 
|Trading prices on the Swiss Exchange |  | 2005                     |       |  | 2004 |  |       | 2003 |  |  | 2002   |  |  | 2001 |       
|                                     |  |                          |       |  |      |  |       |      |  |  |        |  |  |      |       
|                                     |  | (Price per share in CHF) |      
|Annual highs                         |  |                          | 85.00 |  |      |  | 96.14 |      |  |  | 101.50 |  |  |      | 128.00 |  |  |  | 115.75 | 
|Annual lows                          |  |                          | 72.51 |  |      |  | 76.70 |      |  |  | 74.75  |  |  |      | 89.75  |  |  |  | 75.00  | 
|Period End                           |  |                          | 85.00 |  |      |  | 86.50 |      |  |  | 92.37  |  |  |      | 89.79  |  |  |  | 95.81  | 






|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | As of January 1, 2002, the Company adopted Financial
    Accounting Standards Board (FASB) Statement of Financial
    Accounting Standard (SFAS) No. 142 Goodwill and
    Other Intangible Assets, which requires that goodwill no
    longer be amortized to earnings. The results of operations on an
    adjusted basis, excluding goodwill amortization, had
    SFAS No. 142 been applied retroactively for 2001 would
    have been: income from continuing operations, net of
    tax  CHF 436 million; basic and diluted
    earnings per share for income from continuing
    operations  CHF 6.56 net income 
    CHF 438 million; basic and diluted earnings per share
    for net income  CHF 6.60.                                                                                                                                                                                                                                                                                              
|   
|(2) | The Company applied FASB Interpretation No. 46(R) to a
    previously unconsolidated trust that leases an asset to the
    Company, resulting in the consolidation by the Company of the
    trust in 2003.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   
|(3) | As of January 1, 2001, the Company adopted SFAS
    No. 133 Accounting for Derivative Instruments and
    Hedging Activities as amended.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|   
|(4) | Effective January 1, 2003, the Company adopted Financial
    Accounting Standards Board (FASB) Statement of Financial
    Accounting Standards No. 123, as amended. Had the Company
    applied the fair value method for all periods prior to 2003, pro
    forma income from continuing operations, net of tax would have
    been  in 2002 CHF 408 million, in 2001
    CHF 363 million; pro forma basic earnings per share
    for income from continuing operations would have
    been  in 2002 CHF 5.96, in 2001 CHF 5.45;
    pro forma diluted earnings per share for income from continuing
    operations would have been  in 2002 CHF 5.95, in
    2001 CHF 5.45; pro forma net income would have
    been  in 2002 CHF 408 million, in 2001
    CHF 365 million; pro forma basic earnings per share
    for net income would have been  in 2002
    CHF 5.96, in 2001 CHF 5.49; pro forma diluted earnings
    per share for net income would have been  in 2002
    CHF 5.95, in 2001 CHF 5.49.
|   
|(5) | Income from discontinued operations for 2005 and 2004 resulted
    from the release of previously established reserves following
    the settlements of disputes that had been initiated by Vantico
    (now owned by Huntsman Corporation), the purchaser of the
    Performance Polymers business. The Performance Polymers business
    had been sold to Vantico in 2000.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|   
|(6) | The Board of Directors proposes a cash dividend payment to the
    Companys shareholders in 2006 of CHF 3 per
    share, based on 2005 results, which is reflected in the 2005
    column in the table above. The dividend is subject to
    shareholder approval at the Annual General Meeting to be held on
    March 2, 2006.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  



| |                                                                                                                                                                                                                                                                                                                                                            
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The proposed dividend per share, based on the USD exchange rate
    of December 31, 2005 is USD 2.28. Based on the USD
    exchange rate at the payment date of May 18, 2005, the 2004
    capital reduction per share was USD 1.64. Based on the USD
    exchange rate at the payment date of March 8, 2005, the
    2004 dividend per share was USD 0.86.
|
| | Based on the USD exchange rate at the payment date of
    May 23, 2004, the 2003 capital reduction per share was
    USD 2.30.                                                                                                                                                                                                                             

5



---



##### Table of Contents





| |                                                                                                                                                       
| | ------------------------------------------------------------------------------------------------------------------------------------------------------
| | Based on the USD exchange rate at the respective payment date
    of the 2001 dividend, the USD equivalent of the dividend per
    share was USD 1.19.



|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(7) | For 2002, the figures presented are only basic per share
    amounts. Diluted per share amounts for 2002 are CHF 6.11
    for both income from continuing operations and net income.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|   
|(8) | In 2002, the Company implemented SFAS No. 142
    Goodwill and Other Intangible Assets. As a result of
    adopting this standard, the Company reclassified certain
    goodwill and other intangible assets to the segments that were
    previously reported as corporate items and not allocated to the
    segments. In addition, the Company reclassified goodwill
    amortization that was previously allocated to the segments to
    corporate and reclassified other intangible amortization from
    corporate to the segments corresponding to the other intangible
    asset reclassification. Amounts reported for the previous
    periods have been restated to conform to the 2002 presentation.
    In addition, in 2004 the Company reorganized from five into four
    reporting segments and restated all segment information to
    reflect the new structure.
|   
|(9) | The CHF 583 million impairment charge that is included in
    restructuring, impairment and other charges in 2005 consists of
    the impairment of the carrying values of certain long-lived
    assets of the Companys Textile Effects Segment. This
    impairment charge is considered a segment activity and is
    therefore charged to the Textile Effects Segment. All other
    restructuring, impairment and other charges relate primarily to
    Project Shape, which applies principally to the Company as a
    whole and therefore are included in Corporate and are not
    allocated to the segments.                                                                                                                                                                                                                                                               



|     |                                                                                                                                                                                                                            
|---- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(10) | Adjusted EBITDA is a non-U.S. GAAP financial measure. See Use of
    Certain Supplementary Financial Indicators in Item 5 
    Managements Discussion and Analysis for further discussion
    of the use of this measure.

6



---



##### Table of Contents



Exchange rate information




|                                  |           |            |        |        |      |  |        |        |  |  |            |        |  |  |        |        | 
|--------------------------------- | --------- | ---------- | ------ | ------ | ---- |  | ------ | ------ |  |  | ---------- | ------ |  |  | ------ | ------ | 
|Year                              |           | Average(1) |        |        | High |  |        | Low    |  |  | Period End |       
|                                  |           |            |        |        |      |  |        |        |  |  |            |       
|2001                              |           |            | 1.6893 |        |      |  | 1.8185 |        |  |  | 1.5878     |        |  |  | 1.6598 |       
|2002                              |           |            | 1.5566 |        |      |  | 1.7190 |        |  |  | 1.3833     |        |  |  | 1.3833 |       
|2003                              |           |            | 1.3374 |        |      |  | 1.4181 |        |  |  | 1.2380     |        |  |  | 1.2380 |       
|2004                              |           |            | 1.2426 |        |      |  | 1.3202 |        |  |  | 1.1338     |        |  |  | 1.1412 |       
|2005                              |           |            | 1.2507 |        |      |  | 1.3255 |        |  |  | 1.1466     |        |  |  | 1.3148 |       
|Months                            |           |            |        |        |      |  |        |        |  |  |            |        |  |  |        |       
|2005 January                      |           |            | 1.1769 |        |      |  | 1.1960 |        |  |  | 1.1466     |        |  |  | 1.1877 |       
|                                  | February  |            |        | 1.1918 |      |  |        | 1.2222 |  |  |            | 1.1585 |  |  |        | 1.1585 | 
|                                  | March     |            |        | 1.1756 |      |  |        | 1.2060 |  |  |            | 1.1501 |  |  |        | 1.1952 | 
|                                  | April     |            |        | 1.1954 |      |  |        | 1.2135 |  |  |            | 1.1788 |  |  |        | 1.1898 | 
|                                  | May       |            |        | 1.2172 |      |  |        | 1.2447 |  |  |            | 1.1927 |  |  |        | 1.2447 | 
|                                  | June      |            |        | 1.2665 |      |  |        | 1.2827 |  |  |            | 1.2456 |  |  |        | 1.2827 | 
|                                  | July      |            |        | 1.2945 |      |  |        | 1.3041 |  |  |            | 1.2754 |  |  |        | 1.2870 | 
|                                  | August    |            |        | 1.2629 |      |  |        | 1.2780 |  |  |            | 1.2487 |  |  |        | 1.2546 | 
|                                  | September |            |        | 1.2671 |      |  |        | 1.2967 |  |  |            | 1.2287 |  |  |        | 1.2890 | 
|                                  | October   |            |        | 1.2880 |      |  |        | 1.3022 |  |  |            | 1.2731 |  |  |        | 1.2900 | 
|                                  | November  |            |        | 1.3110 |      |  |        | 1.3255 |  |  |            | 1.2780 |  |  |        | 1.3148 | 
|                                  | December  |            |        | 1.3053 |      |  |        | 1.3210 |  |  |            | 1.2788 |  |  |        | 1.3148 | 
|2006 January (through January 27) |           |            | 1.2768 |        |      |  | 1.2938 |        |  |  | 1.2595     |        |  |  | 1.2798 |       






|    |                                                                                                                     
|--- | --------------------------------------------------------------------------------------------------------------------
|(1) | Represents the average of the Noon Buying Rates on the last
    business day of each month during the relevant year.

6.1



---



##### Table of Contents



Capitalization and Indebtedness (N/ A)


Reasons for the Offer and use of proceeds (N/ A)


Risk factors








| |                                                                                                                                                                                                                                      
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | As an international business, the Company is exposed to
    various global economic, political, social and local business
    risks that may have a material adverse effect on its financial
    condition and results of operations.









7



---



##### Table of Contents





| |                                                                                                                                                           
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------
| | The Company currently has operations in more than 120
    countries, and its results of operations may be adversely
    affected by currency fluctuations.





| |                                                                                                                                         
| | ----------------------------------------------------------------------------------------------------------------------------------------
| | Significant competition may force the Company to reduce
    its product prices which may adversely impact its results of
    operations.





| |                                                                                                                                                                                         
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The Companys inability to remain technologically
    innovative and to offer improved products and applications
    cost-effectively could negatively impact its operating
    results.





| |                                                                                                                                                              
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The cyclicality in the various industries served by the
    Company may have a material adverse effect on the Companys
    business and financial condition.



8



---



##### Table of Contents





| |                                                                                                                                                                                                                                                       
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The Company depends upon proprietary technologies, and its
    competitive position may be adversely affected if it fails to
    protect its intellectual property rights or is subject to claims
    that it is infringing upon the rights of others.







| |                                                                                                                                                                                                    
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Any disruption or deterioration in the quality of the raw
    materials available for the Companys products may have a
    material adverse effect on the results of the Companys
    operations.







| |                                                                                                          
| | ---------------------------------------------------------------------------------------------------------
| | Environmental laws and regulations may expose the Company
    to liability and result in increased costs.



9



---



##### Table of Contents







| |                                                                                        
| | ---------------------------------------------------------------------------------------
| | The EU Chemicals Policy may result in significant
    additional costs for the Company.





| |                                                                                               
| | ----------------------------------------------------------------------------------------------
| | The Companys business may be adversely affected by
    rigorous health and safety regulation.





| |                                                                                                                                                          
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------
| | Liabilities arising from the development, manufacturing
    and use of the Companys products may adversely impact the
    Companys financial condition.





| |                                                                                                                                                                                                                                           
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Change of control provisions and limitations on
    shareholder voting rights may render the Company an unattractive
    target for any transaction in which the Companys investors
    could receive a premium for their Shares or ADSs.







10



---



##### Table of Contents





| |                                                                                                                                                                                                     
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Under certain circumstances, the Company may not be
    permitted to continue to use the name CIBA, which
    could adversely affect its brand name recognition and its
    results of operations.





| |                                                                                                                                                                            
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The introduction of the euro and the replacement of
    currencies in which the Company presently conducts business may
    adversely affect the operations of the Company.





| |                                                                                                  
| | -------------------------------------------------------------------------------------------------
| | The Companys share price may be highly volatile and
    subject to sudden and significant drops.





| |                                                                                                                                                                                               
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The Companys inability to successfully manage and
    integrate businesses acquired or its alliances may adversely
    impact the Companys results of operation and financial
    condition.







| |   |                                                                                                                                                             
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | greater than expected costs and management time and effort
    involved in completing and integrating acquisitions or alliances;                            
|
| |  | potential disruption of our ongoing business and difficulty in
    maintaining or upgrading our standards, controls, information
    systems and procedures;

11



---



##### Table of Contents





| |   |                                                                                                                         
| | - | ------------------------------------------------------------------------------------------------------------------------
| |  | our inability to successfully integrate the services, products
    and personnel of any acquisition into its operations;
|
| |  | the potential incurrence of a significant amount of debt and
    contingent liabilities; and                            
|
| |  | realizing little, if any, return on the Companys
    investment.                                                       





| |                                                                                                                                                   
| | --------------------------------------------------------------------------------------------------------------------------------------------------
| | The Company is undergoing a strategic review of the Textile
    Effects Segment and may record additional impairment charges for
    that Segment.



12



---



##### Table of Contents








|        |                           
|------- | --------------------------
|Item 4. | Information on the Company

History and Development












Recent acquisition and divestiture activities













13



---



##### Table of Contents



Capital expenditures




Business Overview








|                                            |  |       |       |  |      |  |      |       |  |  |       |  |  |       |      |  |      |  |       |  |  |  |      | 
|------------------------------------------- |  | ----- | ----- |  | ---- |  | ---- | ----- |  |  | ----- |  |  | ----- | ---- |  | ---- |  | ----- |  |  |  | ---- | 
|                                            |  | 2005  |       |  | 2004 |  |      | 2003  | 
|                                            |  |       |       |  |      |  |      |       | 
|Amounts in CHF millions, except percentages |  | Sales |       |  | In % |  |      | Sales |  |  | In %  |  |  | Sales |      |  | In % | 
|                                            |  |       |       |  |      |  |      |       |  |  |       |  |  |       |      |  |      | 
|Europe                                      |  |       | 3 197 |  |      |  | 43%  |       |  |  | 3 050 |  |  |       | 44%  |  |      |  | 2 731 |  |  |  | 41%  | 
|Americas(i)                                 |  |       | 2 087 |  |      |  | 28%  |       |  |  | 2 046 |  |  |       | 29%  |  |      |  | 2 066 |  |  |  | 31%  | 
|Asia
    Pacific(ii)                        |  |       | 2 135 |  |      |  | 29%  |       |  |  | 1 931 |  |  |       | 27%  |  |      |  | 1 849 |  |  |  | 28%  | 
|                                            |  |       |       |  |      |  |      |       |  |  |       |  |  |       |      |  |      | 
|Total net sales                             |  |       | 7 419 |  |      |  | 100% |       |  |  | 7 027 |  |  |       | 100% |  |      |  | 6 646 |  |  |  | 100% | 
|                                            |  |       |       |  |      |  |      |       |  |  |       |  |  |       |      |  |      | 






|     |  |                                                                                           
|---- |  | ------------------------------------------------------------------------------------------
|(i)  |  | The Americas are comprised of North, Central and South America.                           
|    
|(ii) |  | Asia Pacific is comprised of Asia, Africa, the Middle East,
    Australia and New Zealand.

Organization












14



---



##### Table of Contents





Segments




|                                            |  |       |       |  |      |  |        |       |  |  |       |  |  |       |        |  |      |  |       |  |  |  |        | 
|------------------------------------------- |  | ----- | ----- |  | ---- |  | ------ | ----- |  |  | ----- |  |  | ----- | ------ |  | ---- |  | ----- |  |  |  | ------ | 
|                                            |  | 2005  |       |  | 2004 |  |        | 2003  | 
|                                            |  |       |       |  |      |  |        |       | 
|Amounts in CHF millions, except percentages |  | Sales |       |  | In % |  |        | Sales |  |  | In %  |  |  | Sales |        |  | In % | 
|                                            |  |       |       |  |      |  |        |       |  |  |       |  |  |       |        |  |      | 
|Plastic Additives                           |  |       | 1 938 |  |      |  | 26.1%  |       |  |  | 1 895 |  |  |       | 26.9%  |  |      |  | 1 822 |  |  |  | 27.4%  | 
|Coating Effects                             |  |       | 1 804 |  |      |  | 24.3%  |       |  |  | 1 818 |  |  |       | 25.9%  |  |      |  | 1 807 |  |  |  | 27.2%  | 
|Water & Paper Treatment                     |  |       | 2 394 |  |      |  | 32.3%  |       |  |  | 2 014 |  |  |       | 28.7%  |  |      |  | 1 616 |  |  |  | 24.3%  | 
|Textile Effects                             |  |       | 1 283 |  |      |  | 17.3%  |       |  |  | 1 300 |  |  |       | 18.5%  |  |      |  | 1 401 |  |  |  | 21.1%  | 
|                                            |  |       |       |  |      |  |        |       |  |  |       |  |  |       |        |  |      | 
|Total net sales                             |  |       | 7 419 |  |      |  | 100.0% |       |  |  | 7 027 |  |  |       | 100.0% |  |      |  | 6 646 |  |  |  | 100.0% | 
|                                            |  |       |       |  |      |  |        |       |  |  |       |  |  |       |        |  |      | 









Group Services






15



---



##### Table of Contents













Equity Affiliates








Company Strategy


best-in best-in


16



---



##### Table of Contents



Competition




Plastic Additives




| |         
| | --------
| | Overview





®








|                                                                                              |  |      |       |   |      |  |       |      |  |  |       |  
|--------------------------------------------------------------------------------------------- |  | ---- | ----- | - | ---- |  | ----- | ---- |  |  | ----- | -
|Amounts in CHF millions, except percentages                                                   |  | 2005 |       |   | 2004 |  |       | 2003 | 
|                                                                                              |  |      |       |   |      |  |       |      | 
|Total Segment net sales                                                                       |  |      | 1 938 |   |      |  | 1 895 |      |  |  | 1 822 |  
|Operating income                                                                              |  |      | 260   |   |      |  | 224   |      |  |  | 165   |  
|Capital expenditures                                                                          |  |      | 72    |   |      |  | 76    |      |  |  | 64    |  
|Research and development expenditures                                                         |  |      | 97    |   |      |  | 97    |      |  |  | 107   |  
|Contribution to the consolidated Company net sales from
    continuing operations, in percent |  |      | 26.1  | % |      |  | 26.9  | %    |  |  | 27.4  | %

17



---



##### Table of Contents





| |         
| | --------
| | Products





| |   |                                                                                                                                                                                                                                                                   
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Polymer protection products such as antioxidants, non-staining
    antiozonants, processing stabilizers, UV absorbers and
    hindered amine light stabilizers (HALS):                                                                                          
|
| |  | Special effects such as antifogging agents, antistatic agents,
    slip agents, antimicrobials, clarifying agents, shelf life
    extension, flame retardants, optical brighteners and additives
    for degradable plastics:                                     
|
| |  | Products for polymer recycling such as PET chain extenders,
    antioxidants and light stabilizer systems:                                                                                                                                                        
|
| |  | Specialized product forms and multi-component product packages,
    which simplify the incorporation process and improve worker
    hygiene and resin quality:                                                                                                    
|
| |  | Products for polymer design such as polymerization regulators:                                                                                                                                                                                                    
|
| |  | Products for lubricants such as antioxidants, metal
    deactivators, and antiwear additives:                                                                                                                                                                     
|
| |  | Light absorbers for fabric and personal care, rheology
    modifiers, actives for skin protection, carrier systems,
    conditioners, specialty colors for home and personal care
    products, laundry additives for comfort enhancement, and stain
    removers.

® ® ® ® ® ® ® ® ® ® ® ® ® ® ® tm


® ® ® ® easy-to


® ® ® ® ® ® ® ®


® ® ® ® ® ® ® ® ® ® ® ® ® ® ® ® ® ® ® ® ® ®


® ® ® ® ® ®


® ® ® ® ® ® ® ®


18



---



##### Table of Contents



® tm


tm ® ® tm tm ® ® ® ® ® ® ® ® ® ® ® ® ® ® ® ® ® ® ® ® ® ® ® ® ® ® ®




® ® ® ®




® ®






| |                                                            
| | -----------------------------------------------------------
| | UV Protection & Actives for the personal care
    industry:

® ® ® ® ®


19



---



##### Table of Contents





| |                                                                               
| | ------------------------------------------------------------------------------
| | Polymer Systems for the personal care and home and fabric
    care industries:

® ® ® ® ® ® ® ®




| |                                                                                       
| | --------------------------------------------------------------------------------------
| | Colorants & Stabilizers for the personal care and
    home and fabric care industries:

® ® ® ® ® ® ® ®




| |                                                 
| | ------------------------------------------------
| | Fabric Appearance for the laundry care industry:

® ® ® ® ® ® ® ®




| |                                             
| | --------------------------------------------
| | Stain Removal for the laundry care industry:

® tm






| |                               
| | ------------------------------
| | Customers and End-User Markets





| |                         
| | ------------------------
| | Research and Development



time-to


20



---



##### Table of Contents



Coating Effects




| |         
| | --------
| | Overview















21



---



##### Table of Contents





|                                                                                              |  |      |       |   |      |  |       |      |  |  |       |  
|--------------------------------------------------------------------------------------------- |  | ---- | ----- | - | ---- |  | ----- | ---- |  |  | ----- | -
|Amounts in CHF millions, except percentages                                                   |  | 2005 |       |   | 2004 |  |       | 2003 | 
|                                                                                              |  |      |       |   |      |  |       |      | 
|Total Segment net sales                                                                       |  |      | 1 804 |   |      |  | 1 818 |      |  |  | 1 807 |  
|Operating income                                                                              |  |      | 233   |   |      |  | 291   |      |  |  | 298   |  
|Capital expenditures                                                                          |  |      | 82    |   |      |  | 82    |      |  |  | 79    |  
|Research and development expenditures                                                         |  |      | 104   |   |      |  | 101   |      |  |  | 95    |  
|Contribution to the consolidated Company net sales from
    continuing operations, in percent |  |      | 24.3  | % |      |  | 25.9  | %    |  |  | 27.2  | %



| |         
| | --------
| | Products

® ® ® ® ® ® ® ® ®


® ® ® tm


® ® ® ®




| |                               
| | ------------------------------
| | Customers and End-User Markets







22



---



##### Table of Contents





| |                         
| | ------------------------
| | Research and Development







| |                        
| | -----------------------
| | Water & Paper Treatment





® tm




23



---



##### Table of Contents





|                                                                                              |  |      |       |   |      |  |       |      |  |  |       |  
|--------------------------------------------------------------------------------------------- |  | ---- | ----- | - | ---- |  | ----- | ---- |  |  | ----- | -
|Amounts in CHF millions, except percentages                                                   |  | 2005 |       |   | 2004 |  |       | 2003 | 
|                                                                                              |  |      |       |   |      |  |       |      | 
|Total Segment net sales                                                                       |  |      | 2 394 |   |      |  | 2 014 |      |  |  | 1 616 |  
|Operating income                                                                              |  |      | 128   |   |      |  | 128   |      |  |  | 125   |  
|Capital expenditures                                                                          |  |      | 89    |   |      |  | 81    |      |  |  | 55    |  
|Research and development expenditures                                                         |  |      | 48    |   |      |  | 42    |      |  |  | 33    |  
|Contribution to the consolidated Company net sales from
    continuing operations, in percent |  |      | 32.3  | % |      |  | 28.7  | %    |  |  | 24.3  | %



| |         
| | --------
| | Products

® ® ® tm


® ® ® ® ® ® ® ® ® tm ® tm ® ®


® ® ® ® ® ® ® ®


24



---



##### Table of Contents





| |                               
| | ------------------------------
| | Customers and End-User Markets







| |                         
| | ------------------------
| | Research and Development



Textile Effects




| |         
| | --------
| | Overview











|                                                                                              |  |      |       |   |      |  |       |      |  |  |       |  
|--------------------------------------------------------------------------------------------- |  | ---- | ----- | - | ---- |  | ----- | ---- |  |  | ----- | -
|Amounts in CHF millions, except percentages                                                   |  | 2005 |       |   | 2004 |  |       | 2003 | 
|                                                                                              |  |      |       |   |      |  |       |      | 
|Total Segment net sales                                                                       |  |      | 1 283 |   |      |  | 1 300 |      |  |  | 1 401 |  
|Operating income (loss)                                                                       |  |      | (520  | ) |      |  | 61    |      |  |  | 68    |  
|Capital expenditures                                                                          |  |      | 27    |   |      |  | 35    |      |  |  | 29    |  
|Research and development expenditures                                                         |  |      | 29    |   |      |  | 29    |      |  |  | 32    |  
|Contribution to the consolidated Company net sales from
    continuing operations, in percent |  |      | 17.3  | % |      |  | 18.5  | %    |  |  | 21.1  | %

25



---



##### Table of Contents





| |         
| | --------
| | Products

® ® ® ® ® ® ® ® ® ® ® ® ®


® ® ® ® ® ® ® ® ® ® ® ® ®




| |                               
| | ------------------------------
| | Customers and End-User Markets





| |                         
| | ------------------------
| | Research and Development

state-of


Manufacturing








26



---



##### Table of Contents



















Sales, Marketing and Distribution






27



---



##### Table of Contents









e-business business-to




Sourcing of Raw Materials




nd nd




Intellectual Property




28



---



##### Table of Contents







over-the


Regulatory Affairs






29



---



##### Table of Contents





Agreements with Novartis in Connection with the Spin-off










Insurance




Organizational Structure




30



---



##### Table of Contents





|                                                                           |  |                 |     |                               |         |  |   |               |  |  |          |  |  |                   |   |  |  |  |   | 
|-------------------------------------------------------------------------- |  | --------------- | --- | ----------------------------- | ------- |  | - | ------------- |  |  | -------- |  |  | ----------------- | - |  |  |  | - | 
|                                                                           |  |                 |     | Principal Function of Company |        
|                                                                           |  |                 |     |                               |        
|                                                                           |  | Group Holding % |     |                               | Selling |  |   | Manufacturing |  |  | Research |  |  | Services, Finance |  
|                                                                           |  |                 |     |                               |         |  |   |               |  |  |          |  |  |                   |  
|AMERICAS                                                                   |  |                 |     |                               |         |  |   |               |  |  |          |  |  |                   |   |  |  |  |   | 
|Argentina                                                                  |  |                 |     |                               |         |  |   |               |  |  |          |  |  |                   |   |  |  |  |   | 
|Ciba Especialidades Químicas S.A., Buenos Aires                            |  |                 | 100 |                               |         |  |  |               |  |  |          |  |  |                   |   |  |  |  |   | 
|Bermuda                                                                    |  |                 |     |                               |         |  |   |               |  |  |          |  |  |                   |   |  |  |  |   | 
|Chemical Insurance Company Ltd., Hamilton                                  |  |                 | 100 |                               |         |  |   |               |  |  |          |  |  |                   |   |  |  |  |  | 
|Ciba Specialty Chemicals Eurofinance Ltd., Hamilton                        |  |                 | 100 |                               |         |  |   |               |  |  |          |  |  |                   |   |  |  |  |  | 
|Ciba Specialty Chemicals International Finance Ltd., Hamilton              |  |                 | 100 |                               |         |  |   |               |  |  |          |  |  |                   |   |  |  |  |  | 
|Brazil                                                                     |  |                 |     |                               |         |  |   |               |  |  |          |  |  |                   |   |  |  |  |   | 
|Ciba Especialidades Químicas Ltda., São Paulo                              |  |                 | 100 |                               |         |  |  |               |  |  |         |  |  |                   |   |  |  |  |   | 
|Latexia Brazil Ltda., São Paulo                                            |  |                 | 100 |                               |         |  |  |               |  |  |         |  |  |                   |   |  |  |  |   | 
|Canada                                                                     |  |                 |     |                               |         |  |   |               |  |  |          |  |  |                   |   |  |  |  |   | 
|Ciba Specialty Chemicals Canada Inc., Mississauga                          |  |                 | 100 |                               |         |  |  |               |  |  |          |  |  |                   |   |  |  |  |   | 
|Chile                                                                      |  |                 |     |                               |         |  |   |               |  |  |          |  |  |                   |   |  |  |  |   | 
|Ciba Especialidades Químicas Ltd., Santiago de Chile                       |  |                 | 100 |                               |         |  |  |               |  |  |         |  |  |                   |   |  |  |  |   | 
|Colombia                                                                   |  |                 |     |                               |         |  |   |               |  |  |          |  |  |                   |   |  |  |  |   | 
|Ciba Especialidades Químicas S.A., Bogotá                                  |  |                 | 100 |                               |         |  |  |               |  |  |         |  |  |                   |   |  |  |  |   | 
|Guatemala                                                                  |  |                 |     |                               |         |  |   |               |  |  |          |  |  |                   |   |  |  |  |   | 
|Ciba Especialidades Químicas, S.A. (ACC), Guatemala                        |  |                 | 100 |                               |         |  |  |               |  |  |         |  |  |                   |   |  |  |  |   | 
|Mexico                                                                     |  |                 |     |                               |         |  |   |               |  |  |          |  |  |                   |   |  |  |  |   | 
|Ciba Especialidades Químicas Mexico S.A. de C.V., Mexico                   |  |                 | 100 |                               |         |  |  |               |  |  |         |  |  |                   |   |  |  |  |   | 
|Panama                                                                     |  |                 |     |                               |         |  |   |               |  |  |          |  |  |                   |   |  |  |  |   | 
|Ciba Especialidades Químicas Colon S.A., Colon                             |  |                 | 100 |                               |         |  |  |               |  |  |          |  |  |                   |   |  |  |  |   | 
|United States of America                                                   |  |                 |     |                               |         |  |   |               |  |  |          |  |  |                   |   |  |  |  |   | 
|Ciba Specialty Chemicals Corporation, Tarrytown, NY                        |  |                 | 100 |                               |         |  |  |               |  |  |         |  |  |                   |  |  |  |  |   | 
|ASIA PACIFIC                                                               |  |                 |     |                               |         |  |   |               |  |  |          |  |  |                   |   |  |  |  |   | 
|Australia                                                                  |  |                 |     |                               |         |  |   |               |  |  |          |  |  |                   |   |  |  |  |   | 
|Ciba Specialty Chemicals Pty. Ltd., Thomastown                             |  |                 | 100 |                               |         |  |  |               |  |  |         |  |  |                   |   |  |  |  |   | 
|Bahrain                                                                    |  |                 |     |                               |         |  |   |               |  |  |          |  |  |                   |   |  |  |  |   | 
|Ciba Specialty Chemicals Middle East W.L.L., Manama (Al Seef
    District) |  |                 | 100 |                               |         |  |  |               |  |  |          |  |  |                   |   |  |  |  |   | 

31



---



##### Table of Contents



|                                                              |  |                 |     |                               |         |  |   |               |  |  |          |  |  |                   |   |  |  |  |   | 
|------------------------------------------------------------- |  | --------------- | --- | ----------------------------- | ------- |  | - | ------------- |  |  | -------- |  |  | ----------------- | - |  |  |  | - | 
|                                                              |  |                 |     | Principal Function of Company |        
|                                                              |  |                 |     |                               |        
|                                                              |  | Group Holding % |     |                               | Selling |  |   | Manufacturing |  |  | Research |  |  | Services, Finance |  
|                                                              |  |                 |     |                               |         |  |   |               |  |  |          |  |  |                   |  
|China                                                         |  |                 |     |                               |         |  |   |               |  |  |          |  |  |                   |   |  |  |  |   | 
|Ciba Specialty Chemicals (China) Ltd., Shanghai               |  |                 | 100 |                               |         |  |  |               |  |  |          |  |  |                   |  |  |  |  |  | 
|Ciba Specialty Chemicals
    (Hong Kong) Ltd., Hong Kong      |  |                 | 100 |                               |         |  |  |               |  |  |          |  |  |                   |   |  |  |  |   | 
|Ciba Specialty Chemicals (Shanghai) Ltd., Shanghai            |  |                 | 100 |                               |         |  |  |               |  |  |          |  |  |                   |   |  |  |  |   | 
|Ciba Specialty Chemicals (Suzhou) Co., Ltd., Suzhou, Jiangsu  |  |                 | 100 |                               |         |  |  |               |  |  |         |  |  |                   |   |  |  |  |   | 
|Guangdong Ciba Specialty Chemicals Co. Ltd., Panyu, Guangdong |  |                 | 95  |                               |         |  |  |               |  |  |         |  |  |                   |   |  |  |  |   | 
|Guangzhou Ciba Specialty Chemicals Co. Ltd., Guangzhou        |  |                 | 80  |                               |         |  |  |               |  |  |         |  |  |                   |   |  |  |  |   | 
|Qingdao Ciba Dyes Co. Ltd., Qingdao                           |  |                 | 94  |                               |         |  |  |               |  |  |         |  |  |                   |   |  |  |  |   | 
|Qingdao Ciba Pigments Co. Ltd., Qingdao                       |  |                 | 91  |                               |         |  |  |               |  |  |         |  |  |                   |   |  |  |  |   | 
|Shanghai Ciba Gao-Qiao Chemicals Co. Ltd., Shanghai           |  |                 | 75  |                               |         |  |  |               |  |  |         |  |  |                   |   |  |  |  |   | 
|Shenzhen Ciba Specialty Chemicals Co. Ltd., Shenzhen          |  |                 | 85  |                               |         |  |  |               |  |  |         |  |  |                   |   |  |  |  |   | 
|Xiangtan Chemicals & Pigments Co. Ltd., Xiangtan              |  |                 | 49  |                               |         |  |  |               |  |  |         |  |  |                   |   |  |  |  |   | 
|India                                                         |  |                 |     |                               |         |  |   |               |  |  |          |  |  |                   |   |  |  |  |   | 
|Ciba India Private Ltd., Mumbai                               |  |                 | 100 |                               |         |  |   |               |  |  |          |  |  |                   |  |  |  |  |  | 
|Ciba Specialty Chemicals (India) Ltd.,
    Mumbai(1)          |  |                 | 69  |                               |         |  |  |               |  |  |         |  |  |                   |   |  |  |  |   | 
|Diamond Dye-Chem Ltd.,
    Mumbai(2)                          |  |                 | 69  |                               |         |  |  |               |  |  |         |  |  |                   |   |  |  |  |   | 
|Indonesia                                                     |  |                 |     |                               |         |  |   |               |  |  |          |  |  |                   |   |  |  |  |   | 
|PT Ciba Specialty Chemicals Indonesia, Jakarta                |  |                 | 83  |                               |         |  |  |               |  |  |         |  |  |                   |   |  |  |  |   | 
|PT Intercipta Kimia Pratama, Jakarta                          |  |                 | 60  |                               |         |  |  |               |  |  |         |  |  |                   |   |  |  |  |   | 
|PT Latexia Indonesia, Jakarta                                 |  |                 | 100 |                               |         |  |  |               |  |  |         |  |  |                   |   |  |  |  |   | 
|Japan                                                         |  |                 |     |                               |         |  |   |               |  |  |          |  |  |                   |   |  |  |  |   | 
|Chemipro Fine Chemical Kaisha Ltd., Kobe                      |  |                 | 51  |                               |         |  |  |               |  |  |         |  |  |                   |   |  |  |  |   | 
|Ciba Specialty Chemicals K.K., Osaka                          |  |                 | 100 |                               |         |  |  |               |  |  |          |  |  |                   |  |  |  |  |   | 
|Musashino-Geigy Company Ltd., Kitaibaraki                     |  |                 | 60  |                               |         |  |  |               |  |  |         |  |  |                   |   |  |  |  |   | 
|Nippon Alkyl Phenol Co. Ltd., Tokyo                           |  |                 | 46  |                               |         |  |  |               |  |  |         |  |  |                   |   |  |  |  |   | 
|Republic of Korea (South Korea)                               |  |                 |     |                               |         |  |   |               |  |  |          |  |  |                   |   |  |  |  |   | 
|Ciba Specialty Chemicals Korea Ltd., Seoul                    |  |                 | 100 |                               |         |  |  |               |  |  |          |  |  |                   |   |  |  |  |   | 
|Daihan Swiss Chemical Corporation, Seoul                      |  |                 | 100 |                               |         |  |  |               |  |  |         |  |  |                   |  |  |  |  |   | 
|Doobon Fine Chemical Co., Ltd., Chongwon-kun                  |  |                 | 63  |                               |         |  |  |               |  |  |         |  |  |                   |   |  |  |  |   | 

32



---



##### Table of Contents



|                                                                             |  |                 |     |                               |         |  |   |               |  |  |          |  |  |                   |   |  |  |  |   | 
|---------------------------------------------------------------------------- |  | --------------- | --- | ----------------------------- | ------- |  | - | ------------- |  |  | -------- |  |  | ----------------- | - |  |  |  | - | 
|                                                                             |  |                 |     | Principal Function of Company |        
|                                                                             |  |                 |     |                               |        
|                                                                             |  | Group Holding % |     |                               | Selling |  |   | Manufacturing |  |  | Research |  |  | Services, Finance |  
|                                                                             |  |                 |     |                               |         |  |   |               |  |  |          |  |  |                   |  
|Malaysia                                                                     |  |                 |     |                               |         |  |   |               |  |  |          |  |  |                   |   |  |  |  |   | 
|Ciba Specialty Chemicals (Malaysia) Sdn Bhd, Klang                           |  |                 | 70  |                               |         |  |  |               |  |  |         |  |  |                   |   |  |  |  |   | 
|New Zealand                                                                  |  |                 |     |                               |         |  |   |               |  |  |          |  |  |                   |   |  |  |  |   | 
|Ciba Specialty Chemicals N.Z. Ltd., Auckland                                 |  |                 | 100 |                               |         |  |  |               |  |  |         |  |  |                   |   |  |  |  |   | 
|Singapore                                                                    |  |                 |     |                               |         |  |   |               |  |  |          |  |  |                   |   |  |  |  |   | 
|Ciba Specialty Chemicals (Singapore) Pte. Ltd., Singapore                    |  |                 | 100 |                               |         |  |  |               |  |  |          |  |  |                   |   |  |  |  |   | 
|Ciba Specialty Chemicals Industries (Singapore) Pte. Ltd.,
    Jurong Island |  |                 | 100 |                               |         |  |  |               |  |  |         |  |  |                   |   |  |  |  |   | 
|South Africa                                                                 |  |                 |     |                               |         |  |   |               |  |  |          |  |  |                   |   |  |  |  |   | 
|Ciba Specialty Chemicals (Pty) Ltd., Spartan                                 |  |                 | 100 |                               |         |  |  |               |  |  |          |  |  |                   |   |  |  |  |   | 
|Taiwan                                                                       |  |                 |     |                               |         |  |   |               |  |  |          |  |  |                   |   |  |  |  |   | 
|Ciba Specialty Chemicals (Taiwan) Ltd., Kaohsiung                            |  |                 | 100 |                               |         |  |  |               |  |  |         |  |  |                   |   |  |  |  |   | 
|Thailand                                                                     |  |                 |     |                               |         |  |   |               |  |  |          |  |  |                   |   |  |  |  |   | 
|Ciba Specialty Chemicals (Thailand) Ltd., Bangkok                            |  |                 | 100 |                               |         |  |  |               |  |  |         |  |  |                   |   |  |  |  |   | 
|EUROPE                                                                       |  |                 |     |                               |         |  |   |               |  |  |          |  |  |                   |   |  |  |  |   | 
|Austria                                                                      |  |                 |     |                               |         |  |   |               |  |  |          |  |  |                   |   |  |  |  |   | 
|Ciba Spezialitätenchemie Österreich GmbH,
    Pischelsdorf/ Zwentendorf      |  |                 | 100 |                               |         |  |  |               |  |  |         |  |  |                   |   |  |  |  |   | 
|Belgium                                                                      |  |                 |     |                               |         |  |   |               |  |  |          |  |  |                   |   |  |  |  |   | 
|Ciba Specialty Chemicals N.V.,
    Groot-Bijgaarden                          |  |                 | 100 |                               |         |  |  |               |  |  |          |  |  |                   |   |  |  |  |   | 
|Denmark                                                                      |  |                 |     |                               |         |  |   |               |  |  |          |  |  |                   |   |  |  |  |   | 
|A/S Alfred Gad, Lynge                                                        |  |                 | 100 |                               |         |  |  |               |  |  |          |  |  |                   |   |  |  |  |   | 
|Finland                                                                      |  |                 |     |                               |         |  |   |               |  |  |          |  |  |                   |   |  |  |  |   | 
|Ciba Specialty Chemicals Oy, Raisio                                          |  |                 | 100 |                               |         |  |  |               |  |  |         |  |  |                   |  |  |  |  |  | 
|Finnamyl Oy, Raisio                                                          |  |                 | 100 |                               |         |  |  |               |  |  |         |  |  |                   |   |  |  |  |   | 
|France                                                                       |  |                 |     |                               |         |  |   |               |  |  |          |  |  |                   |   |  |  |  |   | 
|Ciba Spécialités Chimiques SA,
    Saint Fons                                |  |                 | 100 |                               |         |  |  |               |  |  |         |  |  |                   |  |  |  |  |   | 
|Ciba Specialty Chemicals Masterbatch SA, Saint Jeoire en Faucigny            |  |                 | 100 |                               |         |  |  |               |  |  |         |  |  |                   |  |  |  |  |   | 
|Germany                                                                      |  |                 |     |                               |         |  |   |               |  |  |          |  |  |                   |   |  |  |  |   | 
|Ciba Spezialitätenchemie Grenzach GmbH, Grenzach-Wyhlen                      |  |                 | 100 |                               |         |  |   |               |  |  |         |  |  |                   |  |  |  |  |   | 
|Ciba Spezialitätenchemie Holding Deutschland GmbH,
    Lampertheim           |  |                 | 100 |                               |         |  |   |               |  |  |          |  |  |                   |   |  |  |  |  | 
|Ciba Spezialitätenchemie Lampertheim GmbH, Lampertheim                       |  |                 | 100 |                               |         |  |  |               |  |  |         |  |  |                   |  |  |  |  |   | 
|Ciba Spezialitätenchemie Pfersee GmbH, Langweid/ Lech                        |  |                 | 100 |                               |         |  |  |               |  |  |         |  |  |                   |  |  |  |  |   | 

33



---



##### Table of Contents



|                                                                  |  |                 |     |                               |         |  |   |               |  |  |          |  |  |                   |   |  |  |  |   | 
|----------------------------------------------------------------- |  | --------------- | --- | ----------------------------- | ------- |  | - | ------------- |  |  | -------- |  |  | ----------------- | - |  |  |  | - | 
|                                                                  |  |                 |     | Principal Function of Company |        
|                                                                  |  |                 |     |                               |        
|                                                                  |  | Group Holding % |     |                               | Selling |  |   | Manufacturing |  |  | Research |  |  | Services, Finance |  
|                                                                  |  |                 |     |                               |         |  |   |               |  |  |          |  |  |                   |  
|Hungary                                                           |  |                 |     |                               |         |  |   |               |  |  |          |  |  |                   |   |  |  |  |   | 
|Ciba Specialty Chemicals Central Eastern Ltd., Budapest           |  |                 | 100 |                               |         |  |  |               |  |  |          |  |  |                   |   |  |  |  |   | 
|Italy                                                             |  |                 |     |                               |         |  |   |               |  |  |          |  |  |                   |   |  |  |  |   | 
|Ciba Specialty Chemicals S.p.A.,
    Sasso Marconi (Bologna)      |  |                 | 100 |                               |         |  |  |               |  |  |         |  |  |                   |  |  |  |  |   | 
|Magenta Master Fibers S.r.l., Milano                              |  |                 | 60  |                               |         |  |  |               |  |  |         |  |  |                   |   |  |  |  |   | 
|Luxembourg                                                        |  |                 |     |                               |         |  |   |               |  |  |          |  |  |                   |   |  |  |  |   | 
|Ciba Specialty Chemicals Finance Luxembourg S.A., Luxembourg      |  |                 | 100 |                               |         |  |   |               |  |  |          |  |  |                   |   |  |  |  |  | 
|Netherlands                                                       |  |                 |     |                               |         |  |   |               |  |  |          |  |  |                   |   |  |  |  |   | 
|Ciba Specialty Chemicals International Nederland B.V., Maastricht |  |                 | 100 |                               |         |  |   |               |  |  |          |  |  |                   |   |  |  |  |  | 
|Ciba Specialty Chemicals (Maastricht) B.V., Maastricht            |  |                 | 100 |                               |         |  |  |               |  |  |         |  |  |                   |  |  |  |  |   | 
|Ciba Specialty Chemicals Heerenveen B.V.,
    Heerenveen(3)       |  |                 | 100 |                               |         |  |  |               |  |  |         |  |  |                   |  |  |  |  |   | 
|Portugal                                                          |  |                 |     |                               |         |  |   |               |  |  |          |  |  |                   |   |  |  |  |   | 
|Ciba Especialidades Químicas Lda., Porto                          |  |                 | 100 |                               |         |  |  |               |  |  |          |  |  |                   |   |  |  |  |   | 
|Raisio Portugal-Produtos Químicos, Lda., Nogueira Maia            |  |                 | 51  |                               |         |  |  |               |  |  |          |  |  |                   |   |  |  |  |   | 
|Spain                                                             |  |                 |     |                               |         |  |   |               |  |  |          |  |  |                   |   |  |  |  |   | 
|Ciba Especialidades Químicas S.L., Barcelona                      |  |                 | 100 |                               |         |  |  |               |  |  |          |  |  |                   |   |  |  |  |   | 
|Raisio Echeveste, S.A., Tolosa                                    |  |                 | 100 |                               |         |  |  |               |  |  |         |  |  |                   |   |  |  |  |   | 
|Sweden                                                            |  |                 |     |                               |         |  |   |               |  |  |          |  |  |                   |   |  |  |  |   | 
|Ciba Specialty Chemicals Sweden AB, Göteborg                      |  |                 | 100 |                               |         |  |  |               |  |  |          |  |  |                   |   |  |  |  |   | 
|AB CDM, Västra Frölunda                                           |  |                 | 100 |                               |         |  |  |               |  |  |          |  |  |                   |   |  |  |  |   | 
|Switzerland                                                       |  |                 |     |                               |         |  |   |               |  |  |          |  |  |                   |   |  |  |  |   | 
|Ciba Specialty Chemicals Holding Inc.,
    Basel(4)               |  |                 |     |                               |         |  |   |               |  |  |          |  |  |                   |   |  |  |  |  | 
|Ciba Spécialités Chimiques Monthey SA, Monthey                    |  |                 | 100 |                               |         |  |   |               |  |  |         |  |  |                   |   |  |  |  |   | 
|Ciba Spezialitätenchemie AG, Basel                                |  |                 | 100 |                               |         |  |  |               |  |  |         |  |  |                   |  |  |  |  |   | 
|Ciba Spezialitätenchemie Finanz AG, Basel                         |  |                 | 100 |                               |         |  |   |               |  |  |          |  |  |                   |   |  |  |  |  | 
|Ciba Spezialitätenchemie International AG, Basel                  |  |                 | 100 |                               |         |  |   |               |  |  |          |  |  |                   |   |  |  |  |  | 
|Ciba Spezialitätenchemie Kaisten AG, Kaisten                      |  |                 | 100 |                               |         |  |   |               |  |  |         |  |  |                   |   |  |  |  |   | 
|Ciba Spezialitätenchemie Schweizerhalle AG, Muttenz               |  |                 | 100 |                               |         |  |   |               |  |  |         |  |  |                   |   |  |  |  |   | 
|Ciba Spezialitätenchemie Services AG, Basel                       |  |                 | 100 |                               |         |  |   |               |  |  |          |  |  |                   |   |  |  |  |  | 
|CIMO Compagnie Industrielle de Monthey SA, Monthey                |  |                 | 50  |                               |         |  |   |               |  |  |          |  |  |                   |   |  |  |  |  | 

34



---



##### Table of Contents



|                                                               |  |                 |     |                               |         |  |   |               |  |  |          |  |  |                   |   |  |  |  |   | 
|-------------------------------------------------------------- |  | --------------- | --- | ----------------------------- | ------- |  | - | ------------- |  |  | -------- |  |  | ----------------- | - |  |  |  | - | 
|                                                               |  |                 |     | Principal Function of Company |        
|                                                               |  |                 |     |                               |        
|                                                               |  | Group Holding % |     |                               | Selling |  |   | Manufacturing |  |  | Research |  |  | Services, Finance |  
|                                                               |  |                 |     |                               |         |  |   |               |  |  |          |  |  |                   |  
|Turkey                                                         |  |                 |     |                               |         |  |   |               |  |  |          |  |  |                   |   |  |  |  |   | 
|Ciba Özel Kimyevi Ürünler Sanayi ve Ticaret Ltd.,
    Istanbul |  |                 | 100 |                               |         |  |  |               |  |  |          |  |  |                   |   |  |  |  |   | 
|United Kingdom                                                 |  |                 |     |                               |         |  |   |               |  |  |          |  |  |                   |   |  |  |  |   | 
|Ciba Specialty Chemicals PLC, Macclesfield                     |  |                 | 100 |                               |         |  |  |               |  |  |         |  |  |                   |  |  |  |  |   | 
|Ciba Specialty Chemicals Investment PLC, Macclesfield          |  |                 | 100 |                               |         |  |   |               |  |  |          |  |  |                   |   |  |  |  |  | 
|Pira International Limited, Leatherhead                        |  |                 | 100 |                               |         |  |  |               |  |  |          |  |  |                   |  |  |  |  |   | 






|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | The shares of Ciba Specialty Chemicals (India) Ltd., Mumbai,
    (CSCIL) are listed on the Mumbai Stock Exchange
    (www.bseindia.com) under the scrip name CIBA SPE CH;
    the scrip code is 532184. The total market value of the 13 280
    819 outstanding shares of CSCIL as of December 31, 2005 was
    approximately CHF 225 million (INR 7 741 million). As
    of December 31, 2005 the Company held 9 200 887
    Equity Shares, representing 69.28 percent of the
    paid-up share capital
    of CSCIL.
|   
|(2) | Diamond Dye-Chem Limited is a wholly owned subsidiary of CSCIL.                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|   
|(3) | This company name became effective as of January 1, 2006.
    Until December 31, 2005 the companys name had been
    EFKA Additives B.V..                                                                                                                                                                                                                                                                                                                                                                               
|   
|(4) | Ciba Specialty Chemicals Holdings Inc. is the ultimate holding
    company of Ciba Specialty Chemicals Group. Its Shares are listed
    on the Swiss Exchange and, since August 2, 2000, the
    Companys American Depositary Shares (ADSs) are
    listed on the New York Stock Exchange. Two ADSs represent one
    Share of the Companys common stock.                                                                                                                                                              



Property, Plant and Equipment; Manufacturing






|                         |  |             |    |  |                     |                                                                                                                                                             
|------------------------ |  | ----------- | -- |  | ------------------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------
|                         |  | Size in     |    |  |                    
|Location                 |  | hectares(1) |    |  | Major Product Lines
|                         |  |             |    |  |                    
|EUROPE                   |  |             |    |  |                     |                                                                                                                                                             
|Basel, Switzerland       |  |             | 14 |  |                     | Textile Effects (reactive dyes for cellulose and wool, disperse,
    vat and acid dyes)                                                                     
|Bradford, United Kingdom |  |             | 28 |  |                     | Water & Paper Treatment (water treatment and paper
    chemicals, inks, soil additives, intermediate monomers, rheology
    modifiers and textile chemicals)

35



---



##### Table of Contents



|                        |  |             |    |  |                     |                                                                                                                                                                             
|----------------------- |  | ----------- | -- |  | ------------------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                        |  | Size in     |    |  |                    
|Location                |  | hectares(1) |    |  | Major Product Lines
|                        |  |             |    |  |                    
|Clayton, United Kingdom |  |             | 22 |  |                     | Water & Paper Treatment (specialty chemicals for paper
    coating)                                                                                                         
|Grenzach, Germany       |  |             | 52 |  |                     | Water & Paper Treatment (whiteners, specialty colors,
    antimicrobials, new businesses, cationic and solvent soluble
    dyes) Coating Effects (high performance pigments)

35.1



---



##### Table of Contents



|                              |  |             |    |  |                     |                                                                                                                                                                         
|----------------------------- |  | ----------- | -- |  | ------------------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                              |  | Size in     |    |  |                    
|Location                      |  | hectares(1) |    |  | Major Product Lines
|                              |  |             |    |  |                    
|Grimsby, United Kingdom       |  |             | 19 |  |                     | Water & Paper Treatment (water treatment chemicals)                                                                                                                     
|Guturrybay, Spain             |  |             | 2  |  |                     | Water & Paper Treatment (latex production)                                                                                                                              
|Heerenveen, Netherlands       |  |             | 2  |  |                     | Coating Effects (defoamers, slip and leveling, high molecular
    weight dispersants, wetting and dispersing agents)                                                    
|Huningue, France              |  |             | 12 |  |                     | Coating Effects (high performance pigment preparations, imaging
    and coating additives) Plastic Additives (polymer additives and
    process and lubricant additives)
|Kaipiainen, Finland           |  |             |   |  |                     | Water & Paper Treatment (latex production)                                                                                                                              
|Kaisten, Switzerland          |  |             | 59 |  |                     | Plastic Additives (polymer additives)                                                                                                                                   
|Kokemaeki, Finland            |  |             | 10 |  |                     | Water & Paper Treatment (starch production)                                                                                                                             
|Lampertheim, Germany          |  |             | 80 |  |                     | Plastic Additives (polymer additives, imaging and coating
    additives and process and lubricant additives)                                                            
|Langweid/ Lech, Germany       |  |             | 29 |  |                     | Textile Effects (fabric finishing and dyeing and printing
    auxiliaries)                                                                                              
|Lapua, Finland                |  |             | 23 |  |                     | Water & Paper Treatment (starch production)                                                                                                                             
|Maastricht, Netherlands       |  |             | 11 |  |                     | Coating Effects (dispersions and inorganic pigments)                                                                                                                    
|Mietoinen, Finland            |  |             | 8  |  |                     | Water & Paper Treatment (starch production)                                                                                                                             
|Monthey,
    Switzerland(2)   |  |             | 11 |  |                     | Water & Paper Treatment (whiteners) Coating Effects
    (high performance pigments)                                                                                     
|Mortara & Trivolzio, Italy    |  |             | 17 |  |                     | Coating Effects (imaging and coating additives)                                                                                                                         
|Paisley, United Kingdom       |  |             | 17 |  |                     | Coating Effects (classical pigments)                                                                                                                                    
|Pischelsdorf, Austria         |  |             |   |  |                     | Water & Paper Treatment (latex production)                                                                                                                              
|Pontecchio Marconi, Italy     |  |             | 12 |  |                     | Plastic Additives (polymer additives and production of
    insecticides for a third party)                                                                              
|Raisio, Finland               |  |             | 1  |  |                     | Water & Paper Treatment (sizing agents and additives
    for the paper industry)                                                                                        
|Ribecourt, France             |  |             |   |  |                     | Water & Paper Treatment (latex production)                                                                                                                              
|Saint Fons, France            |  |             | 9  |  |                     | Textile Effects (metal-complex and acid dyes)                                                                                                                           
|Saint Jeoire, France          |  |             | 5  |  |                     | Coating Effects (masterbatches)                                                                                                                                         
|Schweizerhalle, Switzerland   |  |             | 1  |  |                     | Coating Effects (polymer additives, Imaging and coating
    additives) Textile Effects (standardization)                                                                
|Toulouse, France              |  |             | 1  |  |                     | Water & Paper Treatment (sizing agents and additives
    for the paper industry)                                                                                        
|Veurne, Belgium               |  |             | 1  |  |                     | Water & Paper Treatment (starch production)                                                                                                                             
|                             
|AMERICAS                      |  |             |    |  |                     |                                                                                                                                                                         
|Atotonilquillo, Mexico        |  |             | 43 |  |                     | Textile Effects (disperse, basic and acid dyes, textile
    chemicals) Water & Paper Treatment (whiteners,
    photobleach)                                             
|Berwick, USA                  |  |             | 10 |  |                     | Water & Paper Treatment (sizing agents and additives
    for the paper industry)                                                                                        
|Camaçari, Brazil              |  |             | 14 |  |                     | Plastic Additives (polymer additives)                                                                                                                                   
|Charlotte, North Carolina USA |  |             | 6  |  |                     | Textile Effects (dyeing and printing auxiliaries)                                                                                                                       

36



---



##### Table of Contents



|                           |  |             |     |  |                     |                                                                                                                
|-------------------------- |  | ----------- | --- |  | ------------------- | ---------------------------------------------------------------------------------------------------------------
|                           |  | Size in     |     |  |                    
|Location                   |  | hectares(1) |     |  | Major Product Lines
|                           |  |             |     |  |                    
|Estrada do Colégio, Brazil |  |             | 4   |  |                     | Water & Paper Treatment (whiteners, fabric finishing)                                                          
|McIntosh, Alabama, USA     |  |             | 637 |  |                     | Plastic Additives (polymer additives and imaging and coating
    additives) Water & Paper Treatment (whiteners)
|Medellin, Colombia         |  |             | 4   |  |                     | Water & Paper Treatment (sizing agents and additives
    for the paper industry)                               
|Newport, Delaware USA      |  |             | 15  |  |                     | Coating Effects (high performance pigments)                                                                    
|Paulinia, Brazil           |  |             |    |  |                     | Water & Paper Treatment (latex production)                                                                     
|Puebla, Mexico             |  |             | 22  |  |                     | Plastic Additives (polymer additives and process and lubricant
    additives)                                  
|St. Gabriel, Louisiana USA |  |             | 81  |  |                     | Textile Effects (reactive and acid dyes)                                                                       
|Suffolk, Virginia USA      |  |             | 89  |  |                     | Water & Paper Treatment (water treatment chemicals)                                                            
|West Memphis, Arkansas USA |  |             | 60  |  |                     | Water & Paper Treatment (water treatment chemicals)                                                            
|ASIA-PACIFIC               |  |             |     |  |                     |                                                                                                                
|Ai-oi,
    Japan(3)        |  |             |    |  |                     | Plastic Additives (polymer additives and imaging and coating
    additives)                                    
|Ankleshwar, India          |  |             | 2   |  |                     | Water & Paper Treatment (whiteners)                                                                            
|Candra Sari, Indonesia     |  |             | 5   |  |                     | Textile Effects (textile chemicals)                                                                            
|Chiba,
    Japan(4)        |  |             |    |  |                     | Plastic Additives (polymer additives)                                                                          
|Goa, India                 |  |             | 14  |  |                     | Plastic Additives (polymer additives)                                                                          
|Isohara,
    Japan(5)      |  |             | 8   |  |                     | Plastic Additives (polymer additives)                                                                          
|Kaohsiung, Taiwan          |  |             | 4   |  |                     | Plastic Additives (polymer additives)                                                                          
|Mahachai, Thailand         |  |             | 4   |  |                     | Textile Effects (reactive dyes for cellulose)                                                                  
|Merak, Indonesia           |  |             | 6   |  |                     | Water & Paper Treatment (latex production)                                                                     
|Panyu,
    China(6)        |  |             | 5   |  |                     | Textile Effects (textile chemicals)                                                                            
|Perth, Australia           |  |             | 2   |  |                     | Water & Paper Treatment (water treatment chemicals)                                                            
|Qingdao,
    China(7)      |  |             | 1   |  |                     | Coating Effects (classical pigments)                                                                           
|Qingdao,
    China(8)      |  |             | 1   |  |                     | Textile Effects (wool and disperse dyes)                                                                       
|Serang, Indonesia          |  |             |    |  |                     | Water & Paper Treatment (sizing agents and additives
    for the paper industry)                               
|Shanghai,
    China(9)     |  |             | 6   |  |                     | Plastic Additives (polymer additives)                                                                          
|Ulsan, South Korea         |  |             | 7   |  |                     | Coating Effects (classical pigments)                                                                           
|Zhenjiang, China           |  |             | 10  |  |                     | Water & Paper Treatment (latex production)                                                                     






|    |                                                                                                                                                              
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | One hectare is equal to 2.471 United States acres.                                                                                                           
|   
|(2) | Most of the infrastructure facilities are shared with Syngenta
    and Huntsman through a joint venture in which the Company holds
    a 50 percent interest.
|   
|(3) | Joint venture with Chemipro Kasai Kaisha, Ltd., in which the
    Company holds a 51 percent interest.                                                        
|   
|(4) | Joint venture with Mitsui Petrochemical and Musashino-Geigy, in
    which the Company holds a 40 percent interest.                                           

37



---



##### Table of Contents





|    |                                                                                                                                                                                                                                     
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(5) | Effective January 2001, the Company acquired a controlling
    interest in Musashino-Geigy Co. Ltd., increasing its holdings
    from 50 percent to 60 percent in this joint venture
    with Musashino Chemical Laboratory Co. Ltd.
|   
|(6) | Venture with Panyu City Shilou Town Economical Development
    Company Limited, in which the Company holds a 95 percent
    interest.                                                                                               
|   
|(7) | Venture with Qingdao Double Peach, in which the Company holds a
    91.4 percent interest.                                                                                                                                          
|   
|(8) | Venture with Qingdao Double Peach, in which the Company holds a
    94 percent interest.                                                                                                                                            
|   
|(9) | Joint venture with Shanghai Gao-Qiao Petrochemical Company, in
    which the Company holds a 75 percent interest.                                                                                                                   



Environmental Matters






clean-up




38



---



##### Table of Contents



clean-up Clean-up










clean-up









|        |                                              
|------- | ---------------------------------------------
|Item 5. | Operating and Financial Review and Prospects.

Managements Discussion and Analysis of Financial
Condition and Results of Operations.




39



---



##### Table of Contents



Year in review  2005 compared to 2004


|                                                         |  |      |       |    |      |  |         |  
|-------------------------------------------------------- |  | ---- | ----- | -- | ---- |  | ------- | -
|Results of operations                                    |  | 2005 |       |    | 2004 | 
|                                                         |  |      |       |    |      | 
|Net sales                                                |  |      | 7 419 |    |      |  | 7 027   |  
|Gross profit                                             |  |      | 2 117 |    |      |  | 2 171   |  
|Operating income (loss)                                  |  |      | (124  | )  |      |  | 521     |  
|Income (loss) from continuing operations                 |  |      | (286  | )  |      |  | 278     |  
|Income from discontinued operations, net of tax          |  |      | 30    |    |      |  | 28      |  
|Net income (loss)                                        |  |      | (256  | )  |      |  | 306     |  
|Earnings (loss) per share, basic and diluted             |  |      |       |    |      |  |         |  
|Continuing operations                                    |  |      | (4.38 | )  |      |  | 4.21    |  
|Discontinued operations                                  |  |      | 0.46  |    |      |  | 0.43    |  
|Net income (loss) per share                              |  |      | (3.92 | )  |      |  | 4.64    |  
|Other data                                               |  |      |       |    |      |  |         |  
|Depreciation and amortization of other intangible assets |  |      | 421   |    |      |  | 394     |  
|Restructuring, impairment and other charges              |  |      | (703  | )  |      |  | (91     | )
|Adjusted
    EBITDA(1)                                   |  |      | 297   |    |      |  | 915     |  
|Net cash provided by operating activities                |  |      | 410   |    |      |  | 631     |  
|Net cash used in investing activities                    |  |      | (292  | )  |      |  | (1  051 | )
|Net cash used in financing activities                    |  |      | (526  | )  |      |  | (304    | )
|Free cash
    flow(1)                                    |  |      | 168   |    |      |  | 390     |  
|Net
    debt(1)                                          |  |      | 1 946 |    |      |  | 1 840   |  
|Shareholders equity at year-end                         |  |      | 3 903 |    |      |  | 4 152   |  
|Dividend per
    share(2)                                |  |      | 3.00  |    |      |  | 1.00    |  
|Capital reduction per
    share(2)                       |  |      | 0.00  |    |      |  | 2.00    |  
|Key performance ratios                                   |  |      |       |    |      |  |         |  
|Net sales development                                    |  |      | 6     | %  |      |  | 6       | %
|Net sales development in local currencies                |  |      | 4     | %  |      |  | 8       | %
|Expressed as a percentage of sales                       |  |      |       |    |      |  |         |  
|Gross profit                                             |  |      | 28.5  | %  |      |  | 30.9    | %
|Operating income (loss)                                  |  |      | (1.7  | )% |      |  | 7.4     | %
|Income (loss) from continuing operations                 |  |      | (3.9  | )% |      |  | 4.0     | %
|Net income (loss)                                        |  |      | (3.4  | )% |      |  | 4.4     | %
|Adjusted
    EBITDA(1)                                   |  |      | 4.0   | %  |      |  | 13.0    | %






|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Adjusted EBITDA, free cash flow and net debt are
    non-U.S.GAAP
    financial measures. See Use of Certain Supplementary Financial
    Indicators in this Managements Discussion and Analysis for
    further discussion of the use of these measures.                                                                                                                                                                                                                                                                                                                                                                                     
|   
|(2) | The Board of Directors proposes a cash payment to the
    Companys shareholders in 2006 totaling CHF 3 per
    share, based on 2005 results, which is reflected in the table
    above. The per share amounts presented above for 2004 reflect
    the dividend that was paid in 2005, based on 2004 results, as
    well as the capital reduction approved by the Companys
    shareholders in 2005, based on 2004 results. For further
    information see the Operational Review section of this
    Managements Discussion and Analysis and Item 6.
    Directors, Senior Management and Employees  Dividends
    and Dividend Policy.

40



---



##### Table of Contents



Summary












| |                   
| | ------------------
| | Operational review







41



---



##### Table of Contents









| |                                   
| | ----------------------------------
| | Cash flow and balance sheet review











| |                         
| | ------------------------
| | Significant other events





Critical accounting policies






42



---



##### Table of Contents





| |                                                                                              
| | ---------------------------------------------------------------------------------------------
| | Impairment testing of property, plant and equipment,
    goodwill and other intangible assets









| |                                          
| | -----------------------------------------
| | Environmental compliance and expenditures

clean-up








| |                                          
| | -----------------------------------------
| | Pension and other postretirement benefits



43



---



##### Table of Contents









| |             
| | ------------
| | Income taxes







Financial review




| |                                                                                                    
| | ---------------------------------------------------------------------------------------------------
| | Total sales higher, comparable sales also higher in Swiss
    francs and stable in local currencies



|                               |  |                       |    | 
|------------------------------ |  | --------------------- | -- | 
|Consolidated sales development |  | 2005 compared to 2004 |   
|                               |  |                       |   
|Volume/product mix/acquisition |  |                       | 2% | 
|Price                          |  |                       | 2% | 
|Currency                       |  |                       | 2% | 
|Total in Swiss francs          |  |                       | 6% | 

44



---



##### Table of Contents





Europe Americas Asia Pacific






|                              |  |      |     |  |      |  |     | 
|----------------------------- |  | ---- | --- |  | ---- |  | --- | 
|Geographic sales distribution |  | 2005 |     |  | 2004 | 
|                              |  |      |     |  |      | 
|Europe                        |  |      | 43% |  |      |  | 44% | 
|Americas(i)                   |  |      | 28% |  |      |  | 29% | 
|Asia
    Pacific(ii)          |  |      | 29% |  |      |  | 27% | 






|     |                                                                                           
|---- | ------------------------------------------------------------------------------------------
|(i)  | The Americas are comprised of North, Central and South America.                           
|    
|(ii) | Asia Pacific is comprised of Asia, Africa, the Middle East,
    Australia and New Zealand.



| |                                                                          
| | -------------------------------------------------------------------------
| | Gross profit reductions due to higher raw materials and
    utility costs





| |                                                   
| | --------------------------------------------------
| | Selling, general and administrative costs decrease



45



---



##### Table of Contents







| |                                                 
| | ------------------------------------------------
| | Investment in research and development sustained







| |                           
| | --------------------------
| | Textile Effects impairment





| |                                                                                            
| | -------------------------------------------------------------------------------------------
| | Operating income and adjusted EBITDA lower due to
    impairment of Textile Effects Segment

|                        |  |      |      |    |      |  |      |  
|----------------------- |  | ---- | ---- | -- | ---- |  | ---- | -
|                        |  | 2005 |      |    | 2004 | 
|                        |  |      |      |    |      | 
|Operating income (loss) |  |      | (124 | )  |      |  | 521  |  
|Adjusted EBITDA         |  |      | 297  |    |      |  | 915  |  
|Operating income margin |  |      | (1.7 | )% |      |  | 7.4  | %
|Adjusted EBITDA margin  |  |      | 4.0  | %  |      |  | 13.0 | %
|2005 compared to 2004   |  |      |      |    |      |  |      |  
|Operating income        |  |      | (124 | )% |      |  | 9    | %
|Adjusted EBITDA         |  |      | (67  | )% |      |  | 8    | %





46



---



##### Table of Contents



Plastic Additives results




|                      |  |                       |     |  
|--------------------- |  | --------------------- | --- | -
|Sales development     |  | 2005 compared to 2004 |    
|                      |  |                       |    
|Volume/product mix    |  |                       | (4) | %
|Price                 |  |                       | 5   | %
|Currency              |  |                       | 1   | %
|                      |  |                       |    
|Total in Swiss francs |  |                       | 2   | %
|                      |  |                       |    





Americas Europe Asia Pacific


|                                     |  |      |      |   |      |  |      |  
|------------------------------------ |  | ---- | ---- | - | ---- |  | ---- | -
|Operating income and adjusted EBITDA |  | 2005 |      |   | 2004 | 
|                                     |  |      |      |   |      | 
|Operating income                     |  |      | 260  |   |      |  | 224  |  
|Adjusted EBITDA                      |  |      | 355  |   |      |  | 319  |  
|Expressed as a percentage of sales:  |  |      |      |   |      |  |      |  
|Operating income                     |  |      | 13.4 | % |      |  | 11.9 | %
|Adjusted EBITDA                      |  |      | 18.3 | % |      |  | 16.8 | %



47



---



##### Table of Contents



|                              |  |      |       |      |  |  |       |  
|----------------------------- |  | ---- | ----- | ---- |  |  | ----- | -
|Asset management              |  | 2005 |       | 2004
|                              |  |      |       |     
|Net current operating assets: |  |      |       |      |  |  |       |  
|Absolute in CHF               |  |      | 453   |      |  |  | 393   |  
|As a percentage of sales      |  |      | 23    | %    |  |  | 21    | %
|Capital expenditures in CHF   |  |      | 72    |      |  |  | 76    |  
|Invested capital in CHF       |  |      | 1 441 |      |  |  | 1 321 |  
|Total assets in CHF           |  |      | 1 692 |      |  |  | 1 603 |  



Start-up


Coating Effects results




|                      |  |                       |    |   
|--------------------- |  | --------------------- | -- | --
|Sales development     |  | 2005 compared to 2004
|                      |  |                      
|Volume/product mix    |  |                       | (1 | )%
|Price                 |  |                       | (1 | )%
|Currency              |  |                       | 1  | % 
|                      |  |                       |    |   
|Total in Swiss francs |  |                       | (1 | )%
|                      |  |                       |    |   





Europe Americas


48



---



##### Table of Contents



Asia Pacific


|                                     |  |      |      |   |      |  |      |  
|------------------------------------ |  | ---- | ---- | - | ---- |  | ---- | -
|Operating income and adjusted EBITDA |  | 2005 |      |   | 2004 | 
|                                     |  |      |      |   |      | 
|Operating income                     |  |      | 233  |   |      |  | 291  |  
|Adjusted EBITDA                      |  |      | 340  |   |      |  | 394  |  
|Expressed as a percentage of sales:  |  |      |      |   |      |  |      |  
|Operating income                     |  |      | 12.9 | % |      |  | 16.0 | %
|Adjusted EBITDA                      |  |      | 18.9 | % |      |  | 21.7 | %



|                              |  |      |       |   |      |  |       |  
|----------------------------- |  | ---- | ----- | - | ---- |  | ----- | -
|Asset management              |  | 2005 |       |   | 2004 | 
|                              |  |      |       |   |      | 
|Net current operating assets: |  |      |       |   |      |  |       |  
|Absolute in CHF               |  |      | 579   |   |      |  | 501   |  
|As a percentage of sales      |  |      | 32    | % |      |  | 28    | %
|Capital expenditures in CHF   |  |      | 82    |   |      |  | 82    |  
|Invested capital in CHF       |  |      | 2 028 |   |      |  | 1 843 |  
|Total assets in CHF           |  |      | 2 275 |   |      |  | 2 090 |  



Water & Paper Treatment results




|                               |  |                       |     | 
|------------------------------ |  | --------------------- | --- | 
|Sales development              |  | 2005 compared to 2004 |    
|                               |  |                       |    
|Volume/product mix/acquisition |  |                       | 12% | 
|Price                          |  |                       | 5%  | 
|Currency                       |  |                       | 2%  | 
|                               |  |                       |    
|Total in Swiss francs          |  |                       | 19% | 
|                               |  |                       |    



49



---



##### Table of Contents





Europe Americas Asia Pacific




|                                     |  |      |      |   |      |  |      |  
|------------------------------------ |  | ---- | ---- | - | ---- |  | ---- | -
|Operating income and adjusted EBITDA |  | 2005 |      |   | 2004 | 
|                                     |  |      |      |   |      | 
|Operating income                     |  |      | 128  |   |      |  | 128  |  
|Adjusted EBITDA                      |  |      | 288  |   |      |  | 259  |  
|Expressed as a percentage of sales:  |  |      |      |   |      |  |      |  
|Operating income                     |  |      | 5.4  | % |      |  | 6.3  | %
|Adjusted EBITDA                      |  |      | 12.0 | % |      |  | 12.8 | %



|                              |  |      |       |   |      |  |       |  
|----------------------------- |  | ---- | ----- | - | ---- |  | ----- | -
|Asset management              |  | 2005 |       |   | 2004 | 
|                              |  |      |       |   |      | 
|Net current operating assets: |  |      |       |   |      |  |       |  
|Absolute in CHF               |  |      | 539   |   |      |  | 458   |  
|As a percentage of sales      |  |      | 23    | % |      |  | 23    | %
|Capital expenditures in CHF   |  |      | 89    |   |      |  | 81    |  
|Invested capital in CHF       |  |      | 3 283 |   |      |  | 3 164 |  
|Total assets in CHF           |  |      | 3 644 |   |      |  | 3 508 |  



50



---



##### Table of Contents



Textile Effects results






|                      |  |                       |      | 
|--------------------- |  | --------------------- | ---- | 
|Sales development     |  | 2005 compared to 2004
|                      |  |                      
|Volume/product mix    |  |                       | (1)% | 
|Price                 |  |                       | (1)% | 
|Currency              |  |                       | 1%   | 
|                      |  |                       |      | 
|Total in Swiss francs |  |                       | (1)% | 
|                      |  |                       |      | 



Europe Americas Asia Pacific


|                                     |  |      |       |      |  |  |     |  
|------------------------------------ |  | ---- | ----- | ---- |  |  | --- | -
|Operating income and adjusted EBITDA |  | 2005 |       | 2004
|                                     |  |      |       |     
|Impairment                           |  |      | (583  | )    |  |  | 0   |  
|Operating income                     |  |      | (520  | )    |  |  | 61  |  
|Adjusted EBITDA                      |  |      | (468  | )    |  |  | 117 |  
|Expressed as a percentage of sales:  |  |      |       |      |  |  |     |  
|Operating income                     |  |      | (40.5 | )%   |  |  | 4.7 | %
|Adjusted EBITDA                      |  |      | (36.5 | )%   |  |  | 9.0 | %



|                              |  |      |     |      |  |  |       |  
|----------------------------- |  | ---- | --- | ---- |  |  | ----- | -
|Asset management              |  | 2005 |     | 2004
|                              |  |      |     |     
|Net current operating assets: |  |      |     |      |  |  |       |  
|Absolute in CHF               |  |      | 411 |      |  |  | 393   |  
|As a percentage of sales      |  |      | 32  | %    |  |  | 30    | %
|Capital expenditures in CHF   |  |      | 27  |      |  |  | 35    |  
|Invested capital in CHF       |  |      | 561 |      |  |  | 1 158 |  
|Total assets in CHF           |  |      | 785 |      |  |  | 1 361 |  



51



---



##### Table of Contents





Consolidated balance sheets


|                                                     |  |      |        |  |      |  |        | 
|---------------------------------------------------- |  | ---- | ------ |  | ---- |  | ------ | 
|Selected balance sheet data as of December 31,       |  | 2005 |        |  | 2004 | 
|                                                     |  |      |        |  |      | 
|Cash and cash equivalents and short-term investments |  |      | 1 273  |  |      |  | 1 636  | 
|Total assets                                         |  |      | 10 612 |  |      |  | 10 996 | 
|Total shareholders equity                           |  |      | 3 903  |  |      |  | 4 152  | 





Liquidity and capital resources






| |                    
| | -------------------
| | Treasury management









52



---



##### Table of Contents







| |                  
| | -----------------
| | Capital resources









Start-up






| |         
| | --------
| | Net debt



|                                |  |      |        |   |      |  |        |  
|------------------------------- |  | ---- | ------ | - | ---- |  | ------ | -
|December 31,                    |  | 2005 |        |   | 2004 | 
|                                |  |      |        |   |      | 
|Short-term debt                 |  |      | 277    |   |      |  | 559    |  
|Long-term debt                  |  |      | 2 942  |   |      |  | 2 917  |  
|                                |  |      |        |   |      | 
|Total debt                      |  |      | 3 219  |   |      |  | 3 476  |  
|Less: cash and cash equivalents |  |      | (1 259 | ) |      |  | (1 614 | )
|Less: short-term investments    |  |      | (14    | ) |      |  | (22    | )
|                                |  |      |        |   |      | 
|Net debt                        |  |      | 1 946  |   |      |  | 1 840  |  
|                                |  |      |        |   |      | 

53



---



##### Table of Contents













| |           
| | ----------
| | Cash flows



|                                                           |  |      |      |   |      |  |      |  
|---------------------------------------------------------- |  | ---- | ---- | - | ---- |  | ---- | -
|Cash flows from operating activities                       |  | 2005 |      |   | 2004 | 
|                                                           |  |      |      |   |      | 
|Net income (loss)                                          |  |      | (256 | ) |      |  | 306  |  
|Deduct net income from discontinued operations, net of tax |  |      | (30  | ) |      |  | (28  | )
|Depreciation and amortization                              |  |      | 421  |   |      |  | 394  |  
|Net change in operating assets and liabilities             |  |      | (134 | ) |      |  | (226 | )
|Other, net                                                 |  |      | 409  |   |      |  | 185  |  
|                                                           |  |      |      |   |      | 
|Net cash provided by operating activities                  |  |      | 410  |   |      |  | 631  |  
|                                                           |  |      |      |   |      | 





|                                                                                 |  |      |      |   |      |  |        |  
|-------------------------------------------------------------------------------- |  | ---- | ---- | - | ---- |  | ------ | -
|Cash flows from investing activities                                             |  | 2005 |      |   | 2004 | 
|                                                                                 |  |      |      |   |      | 
|Capital expenditures                                                             |  |      | (275 | ) |      |  | (294   | )
|Sale (acquisition) of businesses, net of cash                                    |  |      | (50  | ) |      |  | (810   | )
|Proceeds from sale of assets and changes in loans and other
    long-term assets |  |      | 33   |   |      |  | 53     |  
|                                                                                 |  |      |      |   |      | 
|Net cash used in investing activities                                            |  |      | (292 | ) |      |  | (1 051 | )
|                                                                                 |  |      |      |   |      | 



54



---



##### Table of Contents





|                                                          |  |      |      |   |      |  |      |  
|--------------------------------------------------------- |  | ---- | ---- | - | ---- |  | ---- | -
|Cash flows from financing activities                      |  | 2005 |      |   | 2004 | 
|                                                          |  |      |      |   |      | 
|Increase (decrease) in short-term and long-term debt, net |  |      | (341 | ) |      |  | 55   |  
|Dividends paid                                            |  |      | (66  | ) |      |  | 0    |  
|Capital reduction paid                                    |  |      | (130 | ) |      |  | (197 | )
|Treasury stock transactions and other                     |  |      | 11   |   |      |  | (162 | )
|                                                          |  |      |      |   |      | 
|Net cash used in financing activities                     |  |      | (526 | ) |      |  | (304 | )
|                                                          |  |      |      |   |      | 









|                                                   |  |      |      |   |      |  |        |  
|-------------------------------------------------- |  | ---- | ---- | - | ---- |  | ------ | -
|Free cash flow                                     |  | 2005 |      |   | 2004 | 
|                                                   |  |      |      |   |      | 
|Net cash provided by operating activities          |  |      | 410  |   |      |  | 631    |  
|Less: net cash used in investing activities        |  |      | (292 | ) |      |  | (1 051 | )
|Add: (sale) acquisition of businesses, net of cash |  |      | 50   |   |      |  | 810    |  
|                                                   |  |      |      |   |      | 
|Free cash
    flow(i)                              |  |      | 168  |   |      |  | 390    |  
|                                                   |  |      |      |   |      | 






|    |                                                                                                                                                                                                                                                                                                                                                                                                           
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(i) | In financial statements published prior to 2005, the Company
    deducted a pro-forma CHF 2 per share dividend from the
    calculation of free cash flow. The 2004 free cash flow figure
    presented above and in the year in review  2005 compared
    to 2004 table in this Item 5  Operating and Financial
    Review and Prospects has been adjusted to correspond with the
    2005 calculation.





55



---



##### Table of Contents



Long-term obligations, commitments and contingencies




Payments by year, as from December 31, 2005


|                                                         |  |       |       |           |        |  |        |       |  |        |       |  |           |         |     |  |  |  |       | 
|-------------------------------------------------------- |  | ----- | ----- | --------- | ------ |  | ------ | ----- |  | ------ | ----- |  | --------- | ------- | --- |  |  |  | ----- | 
|                                                         |  |       |       | Less than |        |  | 1 to 3 |       |  | 3 to 5 |       |  | More than |        
|                                                         |  | Total |       |           | 1 year |  |        | years |  |        | years |  |           | 5 years |    
|                                                         |  |       |       |           |        |  |        |       |  |        |       |  |           |         |    
|Long-term debt, including
    current(i)                 |  |       | 2 916 |           |        |  | 4      |       |  |        | 1 021 |  |           |         | 310 |  |  |  | 1 581 | 
|Long-term obligations, including current
    portion(ii) |  |       | 1 474 |           |        |  | 87     |       |  |        | 173   |  |           |         | 170 |  |  |  | 1 044 | 
|Raw material purchase commitments                        |  |       | 618   |           |        |  | 245    |       |  |        | 311   |  |           |         | 48  |  |  |  | 14    | 
|Fixed assets and other purchase commitments              |  |       | 478   |           |        |  | 293    |       |  |        | 164   |  |           |         | 7   |  |  |  | 14    | 
|Lease commitments                                        |  |       | 134   |           |        |  | 36     |       |  |        | 46    |  |           |         | 25  |  |  |  | 27    | 
|                                                         |  |       |       |           |        |  |        |       |  |        |       |  |           |         |    
|Total                                                    |  |       | 5 620 |           |        |  | 665    |       |  |        | 1 715 |  |           |         | 560 |  |  |  | 2 680 | 
|                                                         |  |       |       |           |        |  |        |       |  |        |       |  |           |         |    






|    |  |                                                                                                                                                                                                                                                                                                
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(i) |  | Long-term debt shown is the face amount of the debt obligations.
    The amounts reported on the consolidated balance sheets and in
    note 13 to consolidated financial statements in
    Item 18  Financial Statements are net of
    discounts and premiums, in accordance with U.S. GAAP.



|     |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|---- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(ii) |  | Estimated payments for long-term obligations have been
    determined by the Company based on payment schedules for those
    long-term obligations where set payments exist. For long-term
    obligations with no set payment schedules, estimates have been
    made by the Company based on the most likely timing of cash
    payments based on the facts and circumstances that exist as of
    December 31, 2005. The ultimate timing of these future cash
    flows may differ due to events and circumstances that are out of
    the direct control of the Company. Also included are liabilities
    related to environmental matters, which are further discussed in
    note 21 to consolidated financial statements in
    Item 18  Financial Statements.



Effective income tax rate




56



---



##### Table of Contents



Year in review  2004 compared to 2003


|                                                         |  |      |       |   |      |  |       |   
|-------------------------------------------------------- |  | ---- | ----- | - | ---- |  | ----- | --
|Results of operations                                    |  | 2004 |       |   | 2003 | 
|                                                         |  |      |       |   |      | 
|Net sales                                                |  |      | 7 027 |   |      |  | 6 646 |   
|Gross profit                                             |  |      | 2 171 |   |      |  | 2 067 |   
|Operating income                                         |  |      | 521   |   |      |  | 563   |   
|Income from continuing operations                        |  |      | 278   |   |      |  | 345   |   
|Income from discontinued operations, net of tax          |  |      | 28    |   |      |  | 0     |   
|Cumulative effect of change in accounting principles     |  |      | 0     |   |      |  | (16   | ) 
|Net income                                               |  |      | 306   |   |      |  | 329   |   
|Earnings per share, basic and diluted                    |  |      |       |   |      |  |       |   
|Continuing operations                                    |  |      | 4.21  |   |      |  | 5.05  |   
|Discontinued operations                                  |  |      | 0.43  |   |      |  | 0.00  |   
|Cumulative effect of change in accounting principles     |  |      | 0.00  |   |      |  | (0.23 | ) 
|Net income per share                                     |  |      | 4.64  |   |      |  | 4.82  |   
|Other data                                               |  |      |       |   |      |  |       |   
|Depreciation and amortization of other intangible assets |  |      | 394   |   |      |  | 366   |   
|Restructuring and special charges                        |  |      | 91    |   |      |  | 0     |   
|Adjusted EBITDA                                          |  |      | 915   |   |      |  | 929   |   
|Net cash provided by operating activities                |  |      | 631   |   |      |  | 1 033 |   
|Free cash flow                                           |  |      | 259   |   |      |  | 728   |   
|Net debt                                                 |  |      | 1 840 |   |      |  | 1 049 |   
|Shareholders equity at year end                         |  |      | 4 152 |   |      |  | 4 253 |   
|Dividend per
    share(1)                                |  |      | 1.00  |   |      |  | 0.00  |   
|Capital reduction per
    share(1)                       |  |      | 2.00  |   |      |  | 3.00  |   
|Key performance ratios                                   |  |      |       |   |      |  |       |   
|Net sales development                                    |  |      | 6     | % |      |  | (6    | )%
|Net sales development in local currencies                |  |      | 8     | % |      |  | 0     | % 
|Expressed as a percentage of sales:                      |  |      |       |   |      |  |       |   
|Gross profit                                             |  |      | 30.9  | % |      |  | 31.1  | % 
|Operating income                                         |  |      | 7.4   | % |      |  | 8.5   | % 
|Income from continuing operations                        |  |      | 4.0   | % |      |  | 5.2   | % 
|Net income                                               |  |      | 4.4   | % |      |  | 5.0   | % 
|Adjusted EBITDA                                          |  |      | 13.0  | % |      |  | 14.0  | % 






|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | The per share amounts presented above for 2004 reflect the
    CHF 1 per share dividend and CHF 2 per share capital
    reduction payments made in 2005, based on 2004 results. The per
    share amounts presented above for 2003 reflect that no dividend
    was paid in 2004, based on 2003 results, as well as the
    CHF 3 per share capital reduction payment made in 2004,
    based on 2003 results. For further information see the
    Operational Review section of this Managements Discussion
    and Analysis and Item 6. Directors, Senior Management and
    Employees  Dividends and Dividend Policy.

Summary




| |           
| | ----------
| | Highlights



57



---



##### Table of Contents











| |                   
| | ------------------
| | Operational review











| |                                   
| | ----------------------------------
| | Cash flow and balance sheet review



58



---



##### Table of Contents











| |                         
| | ------------------------
| | Significant other events





Financial review




| |                                                                                                    
| | ---------------------------------------------------------------------------------------------------
| | Total sales higher, comparable sales also higher in local
    currencies and stable in Swiss francs



|                                             |  |                       |      | 
|-------------------------------------------- |  | --------------------- | ---- | 
|Consolidated sales development               |  | 2004 compared to 2003
|                                             |  |                      
|Volume/product mix                           |  |                       | 5%   | 
|Price                                        |  |                       | (3)% | 
|Currency                                     |  |                       | (2)% | 
|                                             |  |                       |      | 
|Total in Swiss francs excluding acquisitions |  |                       | 0%   | 
|Acquisitions                                 |  |                       | 6%   | 
|                                             |  |                       |      | 
|Total in Swiss francs                        |  |                       | 6%   | 
|                                             |  |                       |      | 

pick-up




59



---



##### Table of Contents









|                              |  |      |    |   |      |  |    |  
|----------------------------- |  | ---- | -- | - | ---- |  | -- | -
|Geographic sales distribution |  | 2004 |    |   | 2003 | 
|                              |  |      |    |   |      | 
|Europe                        |  |      | 44 | % |      |  | 41 | %
|Americas(1)                   |  |      | 29 | % |      |  | 31 | %
|Asia
    Pacific(2)           |  |      | 27 | % |      |  | 28 | %






|    |                                                                                           
|--- | ------------------------------------------------------------------------------------------
|(1) | The Americas are comprised of North, Central and South America.                           
|   
|(2) | Asia Pacific is comprised of Asia, Africa, the Middle East,
    Australia and New Zealand.



| |                                                                    
| | -------------------------------------------------------------------
| | Gross profit benefits from sales growth and acquisition
    effects





| |                                                                             
| | ----------------------------------------------------------------------------
| | Selling, general and administrative costs increase; lower in
    sales terms





| |                                                 
| | ------------------------------------------------
| | Investment in research and development sustained



60



---



##### Table of Contents







| |                                                                                            
| | -------------------------------------------------------------------------------------------
| | Operating income and adjusted EBITDA lower due to acquisition
    and restructuring effects

|                        |  |      |      |      |  |  |      |   
|----------------------- |  | ---- | ---- | ---- |  |  | ---- | --
|                        |  | 2004 |      | 2003
|                        |  |      |      |     
|Operating income        |  |      | 521  |      |  |  | 563  |   
|Adjusted EBITDA         |  |      | 915  |      |  |  | 929  |   
|Operating income margin |  |      | 7.4  | %    |  |  | 8.5  | % 
|Adjusted EBITDA margin  |  |      | 13.0 | %    |  |  | 14.0 | % 
|2004 compared to 2003   |  |      |      |      |  |  |      |   
|Operating income        |  |      | (7   | )%   |  |  | (27  | )%
|Adjusted EBITDA         |  |      | (2   | )%   |  |  | (20  | )%





Segments results




| |                          
| | -------------------------
| | Plastic Additives results



|                      |  |                       |      | 
|--------------------- |  | --------------------- | ---- | 
|Sales development     |  | 2004 compared to 2003
|                      |  |                      
|Volume/product mix    |  |                       | 9%   | 
|Price                 |  |                       | (2)% | 
|Currency              |  |                       | (3)% | 
|                      |  |                       |      | 
|Total in Swiss francs |  |                       | 4%   | 
|                      |  |                       |      | 





61



---



##### Table of Contents



Europe Americas Asia Pacific


|                                                   |  |      |      |      |  |  |      |  
|-------------------------------------------------- |  | ---- | ---- | ---- |  |  | ---- | -
|Operating income and adjusted EBITDA               |  | 2004 |      | 2003
|                                                   |  |      |      |     
|Operating income:                                  |  |      |      |      |  |  |      |  
|Absolute in CHF                                    |  |      | 224  |      |  |  | 165  |  
|As a percentage of sales (operating income margin) |  |      | 11.9 | %    |  |  | 9.1  | %
|Adjusted EBITDA:                                   |  |      |      |      |  |  |      |  
|Absolute in CHF                                    |  |      | 319  |      |  |  | 265  |  
|As a percentage of sales (adjusted EBITDA margin)  |  |      | 16.8 | %    |  |  | 14.6 | %



|                              |  |      |       |      |  |  |       |  
|----------------------------- |  | ---- | ----- | ---- |  |  | ----- | -
|Asset management              |  | 2004 |       | 2003
|                              |  |      |       |     
|Net current operating assets: |  |      |       |      |  |  |       |  
|Absolute in CHF               |  |      | 393   |      |  |  | 362   |  
|As a percentage of sales      |  |      | 21    | %    |  |  | 20    | %
|Capital expenditures in CHF   |  |      | 76    |      |  |  | 64    |  
|Invested capital in CHF       |  |      | 1 321 |      |  |  | 1 247 |  
|Total assets in CHF           |  |      | 1 603 |      |  |  | 1 514 |  





| |                        
| | -----------------------
| | Coating Effects results



|                      |  |                       |    |   
|--------------------- |  | --------------------- | -- | --
|Sales development     |  | 2004 compared to 2003
|                      |  |                      
|Volume/product mix    |  |                       | 6  | % 
|Price                 |  |                       | (3 | )%
|Currency              |  |                       | (2 | )%
|                      |  |                       |    |   
|Total in Swiss francs |  |                       | 1  | % 
|                      |  |                       |    |   



62



---



##### Table of Contents





Europe Americas Asia Pacific


|                                                   |  |      |      |   |      |  |      |  
|-------------------------------------------------- |  | ---- | ---- | - | ---- |  | ---- | -
|Operating income and adjusted EBITDA               |  | 2004 |      |   | 2003 | 
|                                                   |  |      |      |   |      | 
|Operating income:                                  |  |      |      |   |      |  |      |  
|Absolute in CHF                                    |  |      | 291  |   |      |  | 298  |  
|As a percentage of sales (operating income margin) |  |      | 16.0 | % |      |  | 16.5 | %
|Adjusted EBITDA:                                   |  |      |      |   |      |  |      |  
|Absolute in CHF                                    |  |      | 394  |   |      |  | 395  |  
|As a percentage of sales (adjusted EBITDA margin)  |  |      | 21.7 | % |      |  | 21.8 | %



|                              |  |      |       |   |      |  |       |  
|----------------------------- |  | ---- | ----- | - | ---- |  | ----- | -
|Asset management              |  | 2004 |       |   | 2003 | 
|                              |  |      |       |   |      | 
|Net current operating assets: |  |      |       |   |      |  |       |  
|Absolute in CHF               |  |      | 501   |   |      |  | 520   |  
|As a percentage of sales      |  |      | 28    | % |      |  | 29    | %
|Capital expenditures in CHF   |  |      | 82    |   |      |  | 79    |  
|Invested capital in CHF       |  |      | 1 843 |   |      |  | 1 762 |  
|Total assets in CHF           |  |      | 2 090 |   |      |  | 2 009 |  



63



---



##### Table of Contents





| |                                
| | -------------------------------
| | Water & Paper Treatment results



|                                          |  |                       |    |   
|----------------------------------------- |  | --------------------- | -- | --
|Sales development                         |  | 2004 compared to 2003
|                                          |  |                      
|Volume/product mix                        |  |                       | 6  | % 
|Price                                     |  |                       | (4 | )%
|Currency                                  |  |                       | (2 | )%
|                                          |  |                       |    |   
|Total in Swiss francs before acquisitions |  |                       | 0  | % 
|Acquisitions                              |  |                       | 25 | % 
|                                          |  |                       |    |   
|Total in Swiss francs                     |  |                       | 25 | % 
|                                          |  |                       |    |   





Europe Americas Asia
Pacific




|                                                   |  |      |      |      |  |  |      |  
|-------------------------------------------------- |  | ---- | ---- | ---- |  |  | ---- | -
|Operating income and adjusted EBITDA               |  | 2004 |      | 2003
|                                                   |  |      |      |     
|Operating income:                                  |  |      |      |      |  |  |      |  
|Absolute in CHF                                    |  |      | 128  |      |  |  | 125  |  
|As a percentage of sales (operating income margin) |  |      | 6.3  | %    |  |  | 7.8  | %
|Adjusted EBITDA:                                   |  |      |      |      |  |  |      |  
|Absolute in CHF                                    |  |      | 259  |      |  |  | 228  |  
|As a percentage of sales (adjusted EBITDA margin)  |  |      | 12.8 | %    |  |  | 14.1 | %



64



---



##### Table of Contents





|                              |  |      |       |      |  |  |       |  
|----------------------------- |  | ---- | ----- | ---- |  |  | ----- | -
|Asset management              |  | 2004 |       | 2003
|                              |  |      |       |     
|Net current operating assets: |  |      |       |      |  |  |       |  
|Absolute in CHF               |  |      | 458   |      |  |  | 346   |  
|As a percentage of sales      |  |      | 23    | %    |  |  | 21    | %
|Capital expenditures in CHF   |  |      | 81    |      |  |  | 55    |  
|Invested capital in CHF       |  |      | 3 164 |      |  |  | 2 411 |  
|Total assets in CHF           |  |      | 3 508 |      |  |  | 2 640 |  





| |                        
| | -----------------------
| | Textile Effects results



|                      |  |                       |      | 
|--------------------- |  | --------------------- | ---- | 
|Sales development     |  | 2004 compared to 2003
|                      |  |                      
|Volume/product mix    |  |                       | (2)% | 
|Price                 |  |                       | (3)% | 
|Currency              |  |                       | (2)% | 
|                      |  |                       |      | 
|Total in Swiss francs |  |                       | (7)% | 
|                      |  |                       |      | 



Europe Americas Asia Pacific


|                                                   |  |      |     |   |      |  |     |  
|-------------------------------------------------- |  | ---- | --- | - | ---- |  | --- | -
|Operating income and adjusted EBITDA               |  | 2004 |     |   | 2003 | 
|                                                   |  |      |     |   |      | 
|Operating income:                                  |  |      |     |   |      |  |     |  
|Absolute in CHF                                    |  |      | 61  |   |      |  | 68  |  
|As a percentage of sales (operating income margin) |  |      | 4.7 | % |      |  | 4.9 | %
|Adjusted EBITDA:                                   |  |      |     |   |      |  |     |  
|Absolute in CHF                                    |  |      | 117 |   |      |  | 128 |  
|As a percentage of sales (adjusted EBITDA margin)  |  |      | 9.0 | % |      |  | 9.2 | %



65



---



##### Table of Contents





|                              |  |      |       |   |      |  |       |  
|----------------------------- |  | ---- | ----- | - | ---- |  | ----- | -
|Asset management              |  | 2004 |       |   | 2003 | 
|                              |  |      |       |   |      | 
|Net current operating assets: |  |      |       |   |      |  |       |  
|Absolute in CHF               |  |      | 393   |   |      |  | 439   |  
|As a percentage of sales      |  |      | 30    | % |      |  | 31    | %
|Capital expenditures in CHF   |  |      | 35    |   |      |  | 29    |  
|Invested capital in CHF       |  |      | 1 158 |   |      |  | 1 111 |  
|Total assets in CHF           |  |      | 1 361 |   |      |  | 1 300 |  





| |                    
| | -------------------
| | Treasury management









66



---



##### Table of Contents





| |           
| | ----------
| | Cash flows



|                                                          |  |      |      |   |      |  |        | 
|--------------------------------------------------------- |  | ---- | ---- | - | ---- |  | ------ | 
|Cash flows from operating activities                      |  | 2004 |      |   | 2003 | 
|                                                          |  |      |      |   |      | 
|Net income                                                |  |      | 306  |   |      |  | 329    | 
|Deduct net income from discontinued operatons, net of tax |  |      | (28  | ) |      |  | 0      | 
|Depreciation and amortization                             |  |      | 394  |   |      |  | 366    | 
|Net change in operating assets and liabilities            |  |      | (226 | ) |      |  | 302    | 
|Other, net                                                |  |      | 185  |   |      |  | 36     | 
|                                                          |  |      |      |   |      | 
|Net cash provided by operating activities                 |  |      | 631  |   |      |  | 1  033 | 
|                                                          |  |      |      |   |      | 





|                                                                                  |  |      |        |   |      |  |      |  
|--------------------------------------------------------------------------------- |  | ---- | ------ | - | ---- |  | ---- | -
|Cash flows from investing activities                                              |  | 2004 |        |   | 2003 | 
|                                                                                  |  |      |        |   |      | 
|Capital expenditures                                                              |  |      | (294   | ) |      |  | (233 | )
|Sale (acquisition) of businesses, net of cash                                     |  |      | (810   | ) |      |  | (71  | )
|Proceeds from sale of assets and changes in loans and other
    long- term assets |  |      | 53     |   |      |  | 65   |  
|Cash flows used in investing activities, discontinued operations                  |  |      | 0      |   |      |  | 0    |  
|                                                                                  |  |      |        |   |      | 
|Net cash used in investing activities                                             |  |      | (1 051 | ) |      |  | (239 | )
|                                                                                  |  |      |        |   |      | 





|                                                          |  |      |      |   |      |  |      |  
|--------------------------------------------------------- |  | ---- | ---- | - | ---- |  | ---- | -
|Cash flows from financing activities                      |  | 2004 |      |   | 2003 | 
|                                                          |  |      |      |   |      | 
|Increase (decrease) in short-term and long-term debt, net |  |      | 55   |   |      |  | (394 | )
|Dividends paid                                            |  |      | 0    |   |      |  | 0    |  
|Capital reduction paid                                    |  |      | (197 | ) |      |  | (206 | )
|Treasury stock transactions and other                     |  |      | (162 | ) |      |  | (142 | )
|                                                          |  |      |      |   |      | 
|Net cash used in financing activities                     |  |      | (304 | ) |      |  | (742 | )
|                                                          |  |      |      |   |      | 



67



---



##### Table of Contents









|                                                   |  |      |        |      |  |  |       |  
|-------------------------------------------------- |  | ---- | ------ | ---- |  |  | ----- | -
|Free cash flow                                     |  | 2004 |        | 2003
|                                                   |  |      |        |     
|Net cash provided by operating activities          |  |      | 631    |      |  |  | 1 033 |  
|Less: net cash used in investing activities        |  |      | (1 051 | )    |  |  | (239  | )
|Add: (sale) acquisition of businesses, net of cash |  |      | 810    |      |  |  | 71    |  
|Less:
    dividends(1)                             |  |      | (131   | )    |  |  | (137  | )
|                                                   |  |      |        |      |  |  |       |  
|Free cash flow                                     |  |      | 259    |      |  |  | 728   |  
|                                                   |  |      |        |      |  |  |       |  






|    |                                                                                                                                                                                                                                                                                                                                                                                                                                
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | The Company considers CHF 2 per share to be the normal
    annual per share dividend amount expected by its shareholders.
    As a result, this amount is used in the Companys
    calculation of free cash flow. Actual per share dividends or
    other distributions to shareholders may differ from this per
    share amount (see the Operational Review section of this
    Managements Discussion and Analysis above).





Effective income tax rate




Change in accounting policy and new accounting standards




68



---



##### Table of Contents





Environmental matters




Use of certain supplementary financial indicators


non-U.S. non-U.S. non-U.S.


non-U.S.






| |                
| | ---------------
| | Adjusted EBITDA





69



---



##### Table of Contents









|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | does not include interest expense which, because the Company has
    borrowed money in order to finance its operations, is a
    necessary element of costs and ability to generate revenue.
    Therefore, any measure that excludes interest expense has
    material limitations. Management believes it compensates for
    this limitation by including net income, which includes interest
    expense, as another of its key financial indicators,                                
| 
| | does not include depreciation and amortization expense which,
    because the Company uses capital assets is a necessary element
    of costs and ability to generate revenue. Therefore, any measure
    that excludes depreciation and amortization expense has material
    limitations. Management believes it compensates for this
    limitation by including net income, which includes depreciation
    and amortization expense, as another of its key financial
    indicators,
| 
| | does not include taxes, the payment of which is a necessary
    element of the Companys operations. Therefore, any measure
    that excludes tax expense has material limitations. Management
    believes it compensates for this limitation by including net
    income, which includes tax expense, as another of its key
    financial indicators, and                                                                                                                              
| 
| | provides a measure of the Companys current performance
    without consideration of the amount of capital that has been
    historically invested in order to produce the Companys
    results. Management believes it compensates for this limitation
    by including free cash flow as another of its key financial
    indicators, as discussed above.                                                                                                                             



|                                                |  |      |      |   |      |  |      |  
|----------------------------------------------- |  | ---- | ---- | - | ---- |  | ---- | -
|Year ended December 31,                         |  | 2005 |      |   | 2004 | 
|                                                |  |      |      |   |      | 
|Adjusted EBITDA                                 |  |      | 297  |   |      |  | 915  |  
|Depreciation and amortization                   |  |      | (421 | ) |      |  | (394 | )
|                                                |  |      |      |   |      | 
|Operating income (loss)                         |  |      | (124 | ) |      |  | 521  |  
|Financial income and expense, net               |  |      | (137 | ) |      |  | (147 | )
|Provision for income taxes                      |  |      | (18  | ) |      |  | (92  | )
|Minority interest                               |  |      | (7   | ) |      |  | (4   | )
|Income from discontinued operations, net of tax |  |      | 30   |   |      |  | 28   |  
|                                                |  |      |      |   |      | 
|Net income (loss)                               |  |      | (256 | ) |      |  | 306  |  
|                                                |  |      |      |   |      | 







| |               
| | --------------
| | Free cash flow



70



---



##### Table of Contents







| |         
| | --------
| | Net debt





| |                 
| | ----------------
| | Invested capital





| |                        
| | -----------------------
| | Currency exchange rates



71



---



##### Table of Contents



Glossary of financial terms


Adjusted EBITDA


Adjusted EBITDA Margin


Basic Earnings per Share


Cash Flows from Operating Activities


Cash Flow Hedges


Commercial Paper


Comprehensive Income


Convertible Bonds


Defined Benefit Pension Plan


Defined Contribution Pension Plan


Derivatives, Derivative Financial Instruments


Diluted Earnings per Share


Equity per Share


Fair Value Hedges


Free Cash Flow


Goodwill


72



---



##### Table of Contents



Gross Profit Margin


Hedge


Hedged Item


Hedge Effectiveness


Hedge Ineffectiveness


Intensity


Invested Capital


Net Cash Provided by Operating Activities


Net Current Operating Assets


Net Debt


Net Sales Development


Net Sales Development percentage, in local currencies


Operating Income Margin


Other Intangible Assets not-to







|        |                                           
|------- | ------------------------------------------
|Item 6. | Directors, Senior Management and Employees

Corporate Governance


Numbers in square brackets refer to the Directive on
Information Relating to Corporate Governance (DCG)
of the SWX Swiss Exchange. An overview of major differences
between the Swiss and the U.S. corporate governance
practices can be found at: http://www.cibasc.com/investors


The Board of Directors and its Committees


day-to


73



---



##### Table of Contents









| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | a Lead Director (to counterbalance the combined mandates of
    Chairman and CEO) who chairs meetings of the Board which only
    the non-executive members of the Board are attending. He also
    leads the non-executive members of the Board in all matters that
    require a separate discussion and decision making process. In
    addition, the Lead Director chairs the Compensation Committee.
    Based on interviews with other Board members, he prepares a
    review of the performance of the Chairman and CEO. He may act as
    a liaison between the Board and the Chairman and CEO in delicate
    matters
|
| |  | broad supervisory and reviewing powers for the Board, directly
    supported by Internal Audit                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|
| |  | independence of Board Members who are all non-executives of the
    Company, with the exception of the Chairman                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|
| |  | independence of Board Committee Members who are equally all
    non-executives, with one exception being the Chairman serving on
    the Human Resources and Nomination and the Finance Committees                                                                                                                                                                                                                                                                                                                                                                                                                             
|
| |  | having Audit Committee Members who are all non-executives with
    significant expertise particularly in the area of finance                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|
| |  | having Compensation Committee Members who are all non-executives
    with broad practical experience in the area of employee and
    executive compensation                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|
| |  | an annual self-assessment of the Board                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|
| |  | receiving and providing continuous and comprehensive information
    including periodic and yearly reports prepared by management on
    finances, strategies, research and development, production
    planning and risk management [DCG 3.7].                                                                                                                                                                                                                                                                                                                                                                                

Topics of the Board in 2005




Board Committees [DCG 3.5]






| |                
| | ---------------
| | Audit Committee

Mission:


74



---



##### Table of Contents



20-F




| |                  
| | -----------------
| | Finance Committee

Mission:




| |                       
| | ----------------------
| | Compensation Committee

Mission:




| |                                         
| | ----------------------------------------
| | Human Resources and Nomination Committee

Mission:


75



---



##### Table of Contents



Members of the Board [DCG 3, 3.1, 3.2, 3.4.2]


|                                               |  |                        |  |             |  |           |  |           |      |                                     |  |                                                                                                                                                                                                                                                                                                                                                                                                     
|---------------------------------------------- |  | ---------------------- |  | ----------- |  | --------- |  | --------- | ---- | ----------------------------------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                                               |  |                        |  |             |  | Year      |  |           |      | Significant positions and political
|                                               |  |                        |  |             |  | appointed |  | Year term |      | mandates outside the Company       
|Name                                           |  | Date of birth          |  | Nationality |  | to board  |  | expires   |      | [DCG 3.2.a/b/c]                    
|                                               |  |                        |  |             |  |           |  |           |      |                                    
|Armin MeyerChairman and CEO                    |  | July 25,
    1949      |  | Swiss       |  | 1997      |  |           | 2008 |                                     |  | Member of the Board of Directors, Zurich Financial Services,
    Zurich Member of the Board, CEFIC (European Chemical Industry
    Council), Brussels Member of the Foundation Board
    IMD  International Institute for Management
    Development, Lausanne                                                                                                                                     
|Kurt FellerVice-Chairman,
    Lead Director    |  | August 31,
    1937    |  | Swiss       |  | 1999      |  |           | 2007 |                                     |  | Chairman of the Board of Directors, Rieter Holding Ltd.,
    Winterthur Vice- Chairman of the Board of Directors, Geberit
    Ltd., Jona Member of the Board of Directors, Scintilla Ltd.,
    Solothurn                                                                                                                                                                                            
|Erwin W. Heri                                  |  | March 6,
    1954      |  | Swiss       |  | 1997      |  |           | 2007 |                                     |  | Chairman of the Board of Directors, OZ Bankers AG,
    Pfäffikon Chairman of the Board of Directors, OZ Holding
    AG, Pfäffikon Member of the Board of Directors, Losinger
    AG, Berne Member of the Board of Directors, Hilti AG, Schaan/
    Liechtenstein, Trustee, Hilti Family Trust, Schaan,
    Liechtenstein, Chairman of the Investment Committee of State
    Pension (Publica), Berne
|Gertrud Höhler                                 |  | January 10,
    1941   |  | German      |  | 1997      |  |           | 2008 |                                     |  | Management Consultant Member of the Board of Directors,
    Bâloise-Holding, Basel Member of the Board of Directors,
    Georg Fischer Ltd., Schaffhausen                                                                                                                                                                                                                                           
|Jean-Marie Pierre Lehn                         |  | September 30,
    1939 |  | French      |  | 1997      |  |           | 2006 | (i)                                 |  | Professor of Chemistry, Nobel Prize Winner Member of the
    Scientific Board of the Novartis Venture Fund, Basel                                                                                                                                                                                                                                                                                   
|Peter Littmann                                 |  | December 21,
    1947  |  | German      |  | 1997      |  |           | 2006 | (i)                                 |  | Member of the Advisory Board, Nijenrode University, The
    Netherlands Member of the Harvard University Art Museums
    Visiting Committee, Cambridge, Massachusetts                                                                                                                                                                                                                              
|Uli Sigg                                       |  | April 29,
    1946     |  | Swiss       |  | 1999      |  |           | 2007 |                                     |  | Vice-Chairman of the Board of Directors, Ringier Group Member of
    the Advisory Board of China Development Bank, Beijing                                                                                                                                                                                                                                                                          
|Thomas KochSecretary (not member of the Board) |  | November 21,
    1954  |  | German      |  | 2004      |  |           |     |                                     |  | None                                                                                                                                                                                                                                                                                                                                                                                                

The Chairman of the Board and CEO [DCG 3.5.1]




76



---



##### Table of Contents









The Vice-Chairman and Lead Director [DCG 3.5.1]




Additional Information








Board Committee Memberships [DCG 3.5.2]


|              |  |                 |   |  |                   |                     |   |                      |              |  |           |  |  |  |   | 
|------------- |  | --------------- | - |  | ----------------- | ------------------- | - | -------------------- | ------------ |  | --------- |  |  |  | - | 
|              |  |                 |   |  |                   | Human Resources and |   |                      | Compensation | 
|Name          |  | Audit Committee |   |  | Finance Committee |                     |   | Nomination Committee |              |  | Committee | 
|              |  |                 |   |  |                   |                     |   |                      |              |  |           | 
|A. Meyer      |  |                 |   |  |                   |                     | Δ |                      |              |  | Δ         |  |  |  |   | 
|K. Feller     |  |                 | l |  |                   |                     | l |                      |              |  | l         |  |  |  | Δ | 
|E.W. Heri     |  |                 | Δ |  |                   |                     | l |                      |              |  |           |  |  |  |   | 
|G. Höhler     |  |                 |   |  |                   |                     |   |                      |              |  | l         |  |  |  | l | 
|J.-M. P. Lehn |  |                 |   |  |                   |                     |   |                      |              |  |           |  |  |  |   | 
|P. Littmann   |  |                 |   |  |                   |                     |   |                      |              |  | l         |  |  |  | l | 
|U. Sigg       |  |                 | l |  |                   |                     |   |                      |              |  |           |  |  |  |   | 






|  |           
|- | ----------
|Δ | = Chairman



|  |         
|- | --------
|l | = Member

77



---



##### Table of Contents







The Executive Committee [DCG 4, 4.1, 4.2]




|                 |  |                       |  |                      |  |                                      |  |                                                                                                                                                                                                                                                                  
|---------------- |  | --------------------- |  | -------------------- |  | ------------------------------------ |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                 |  |                       |  |                      |  |                                      |  | Significant positions and political mandates outside the                                                                                                                                                                                                         
|Name             |  | Date of birth         |  | Nationality          |  | Function                             |  | company [DCG 4.2.a/b/c]                                                                                                                                                                                                                                          
|                 |  |                       |  |                      |  |                                      |  |                                                                                                                                                                                                                                                                  
|Armin Meyer      |  | July 25,
    1949     |  | Swiss                |  | Chief Executive Officer (CEO)        |  | Member of the Board of Directors, Zurich Financial Services,
    Zurich Member of the Board of CEFIC (European Chemical Industry
    Council), Brussels Member of the Foundation Board
    IMD  International Institute for Management
    Development, Lausanne
|Brendan Cummins  |  | May 18,
    1951      |  | Irish                |  | Chief Operating Officer (COO)        |  | None                                                                                                                                                                                                                                                             
|Michael Jacobi   |  | January 30,
    1953  |  | German               |  | Chief Financial Officer (CFO)        |  | Member of the Board of Phonak Holding AG, Stäfa                                                                                                                                                                                                                  
|Martin Riediker  |  | June 28,
    1952     |  | Swiss                |  | Chief Technology Officer (CTO)       |  | Member of the Board, American Chemistry Council, Arlington
    Member of the Board, CIIT Centers for Health Research Member of
    the Advisory Board, Xintec inc, Research Triangle Park, North
    Carolina                                                    
|Hermann Angerer  |  | December 23,
    1947 |  | Swiss                |  | Head Segment Coating Effects         |  | None                                                                                                                                                                                                                                                             
|Eric Marohn      |  | June 3,
    1959      |  | American             |  | Head Segment Textile Effects         |  | None                                                                                                                                                                                                                                                             
|Mark Garrett     |  | May 11,
    1962      |  | Australian and Swiss |  | Head Segment Water & Paper Treatment |  | Member of the Board of TEGEWA Industry Association, Frankfurt am
    Main                                                                                                                                                                                        
|Giordano Righini |  | December 3,
    1949  |  | Italian              |  | Head Segment Plastic Additives       |  | None                                                                                                                                                                                                                                                             

Armin Meyer




78



---



##### Table of Contents









Brendan Cummins


Michael Jacobi


Martin Riediker


Hermann Angerer


79



---



##### Table of Contents



Eric Marohn


Mark Garrett


Giordano Righini




Changes since December 31, 2004




Business behavior




80



---



##### Table of Contents





Compensation




| |                                   
| | ----------------------------------
| | Principles of allocation [DCG 5.1]





| |                                         
| | ----------------------------------------
| | Deviation from accrual principle [DCG 5]





| |                                                 
| | ------------------------------------------------
| | Non-executive Members of the Board [DCG 5.2.2.b]





|                   |  |         |   |              |  |        |     |              |  |  |       |  |  |  |        | 
|------------------ |  | ------- | - | ------------ |  | ------ | --- | ------------ |  |  | ----- |  |  |  | ------ | 
|                   |  | Term    |   | Subscription |  |        |     | Strike price
|Year of Allocation |  | (years) |   | ratio        |  | Number |     | (CHF)       
|                   |  |         |   |              |  |        |     |             
|2001               |  |         | 5 |              |  |        | 1:1 |              |  |  | 6 892 |  |  |  | 109.20 | 
|2002               |  |         | 5 |              |  |        | 1:1 |              |  |  | 9 280 |  |  |  | 109.00 | 





| |                                                                                       
| | --------------------------------------------------------------------------------------
| | Executive Member of the Board and Members of the Executive
    Committee [DCG 5.2.2.a]



81



---



##### Table of Contents





|                         |  |         |                         |              |  |        |     |              |  |  |         |  |  |  |        | 
|------------------------ |  | ------- | ----------------------- | ------------ |  | ------ | --- | ------------ |  |  | ------- |  |  |  | ------ | 
|                         |  | Term    |                         | Subscription |  |        |     | Strike price
|Year of Allocation       |  | (years) |                         | ratio        |  | Number |     | (CHF)       
|                         |  |         |                         |              |  |        |     |             
|2001                     |  |         | 5                       |              |  |        | 1:1 |              |  |  | 65 672  |  |  |  | 109.20 | 
|2001 Supplementary grant |  |         | 4 years and 10.5 months |              |  |        | 1:1 |              |  |  | 19 572  |  |  |  | 109.20 | 
|2002                     |  |         | 5                       |              |  |        | 1:1 |              |  |  | 135 640 |  |  |  | 109.00 | 





| |                                     
| | ------------------------------------
| | Highest total compensation [DCG 5.9]





| |                          
| | -------------------------
| | Additional fees and loans





| |                         
| | ------------------------
| | Former Members [DCG 5.3]





| |                       
| | ----------------------
| | Closely Linked Persons





Labor relations






82



---



##### Table of Contents







| |       
| | ------
| | Europe









| |              
| | -------------
| | Other regions



Employees




|                        |  |        |        |          |  |              |       |       |  |  |       |  |  |  |        | 
|----------------------- |  | ------ | ------ | -------- |  | ------------ | ----- | ----- |  |  | ----- |  |  |  | ------ | 
|2005                    |  | Europe |        | Americas |  | Asia-Pacific |       | Total
|                        |  |        |        |          |  |              |       |      
|Plastic Additives       |  |        | 1 901  |          |  |              | 1 181 |       |  |  | 601   |  |  |  | 3 683  | 
|Coatings Effects        |  |        | 2 821  |          |  |              | 402   |       |  |  | 827   |  |  |  | 4 050  | 
|Water & Paper Treatment |  |        | 2 512  |          |  |              | 897   |       |  |  | 719   |  |  |  | 4 128  | 
|Textile Effects         |  |        | 1 746  |          |  |              | 547   |       |  |  | 1 052 |  |  |  | 3 345  | 
|Non-Segment             |  |        | 2 194  |          |  |              | 874   |       |  |  | 831   |  |  |  | 3 899  | 
|                        |  |        |        |          |  |              |       |       |  |  |       |  |  |  |        | 
|Total Company           |  |        | 11 174 |          |  |              | 3 901 |       |  |  | 4 030 |  |  |  | 19 105 | 
|                        |  |        |        |          |  |              |       |       |  |  |       |  |  |  |        | 

|                        |  |        |        |          |  |              |       |       |  |  |       |  |  |  |         | 
|----------------------- |  | ------ | ------ | -------- |  | ------------ | ----- | ----- |  |  | ----- |  |  |  | ------- | 
|2004                    |  | Europe |        | Americas |  | Asia-Pacific |       | Total
|                        |  |        |        |          |  |              |       |      
|Plastic Additives       |  |        | 1 927  |          |  |              | 1 127 |       |  |  | 655   |  |  |  | 3 709   | 
|Coatings Effects        |  |        | 2 956  |          |  |              | 409   |       |  |  | 543   |  |  |  | 3 908   | 
|Water & Paper Treatment |  |        | 2 569  |          |  |              | 995   |       |  |  | 626   |  |  |  | 4 190   | 
|Textile Effects         |  |        | 2 007  |          |  |              | 586   |       |  |  | 935   |  |  |  | 3 528   | 
|Non-Segment             |  |        | 2 274  |          |  |              | 930   |       |  |  | 798   |  |  |  | 4 002   | 
|                        |  |        |        |          |  |              |       |       |  |  |       |  |  |  |         | 
|Total Company           |  |        | 11 733 |          |  |              | 4 047 |       |  |  | 3 557 |  |  |  | 19  337 | 
|                        |  |        |        |          |  |              |       |       |  |  |       |  |  |  |         | 

83



---



##### Table of Contents



|                        |  |        |        |          |  |              |       |       |  |  |       |  |  |  |        | 
|----------------------- |  | ------ | ------ | -------- |  | ------------ | ----- | ----- |  |  | ----- |  |  |  | ------ | 
|2003                    |  | Europe |        | Americas |  | Asia-Pacific |       | Total
|                        |  |        |        |          |  |              |       |      
|Plastic Additives       |  |        | 1 821  |          |  |              | 1 179 |       |  |  | 639   |  |  |  | 3 639  | 
|Coatings Effects        |  |        | 3 000  |          |  |              | 407   |       |  |  | 511   |  |  |  | 3 918  | 
|Water & Paper Treatment |  |        | 2 136  |          |  |              | 1 019 |       |  |  | 474   |  |  |  | 3 629  | 
|Textile Effects         |  |        | 2 087  |          |  |              | 550   |       |  |  | 899   |  |  |  | 3 536  | 
|Non-Segment             |  |        | 2 235  |          |  |              | 923   |       |  |  | 778   |  |  |  | 3 936  | 
|                        |  |        |        |          |  |              |       |       |  |  |       |  |  |  |        | 
|Total Company           |  |        | 11 279 |          |  |              | 4 078 |       |  |  | 3 301 |  |  |  | 18 658 | 
|                        |  |        |        |          |  |              |       |       |  |  |       |  |  |  |        | 

Organizational and capital structure




|                               |  |                |            |               |  |                 |      |           |  |                   |  |  |                 | 
|------------------------------ |  | -------------- | ---------- | ------------- |  | --------------- | ---- | --------- |  | ----------------- |  |  | --------------- | 
|Security                       |  | Stock exchange |            | Ticker symbol |  | Security number |      | ISIN code
|                               |  |                |            |               |  |                 |      |          
|Share with CHF 1 nominal value |  |                | SWX/virt-x |               |  |                 | CIBN |           |  | 581 972           |  |  | CH 000 581972 4 | 
|ADS                            |  |                | NYSE       |               |  |                 | CSB  |           |  | CUSIP: 17162 W206 |  |  | N/A             | 





|                    |  |           |    |                |  |                    |             |                     |  |                         |   |           |  |           |    |           |  |  |   |  |  |  |    |  |  |  |   |  |  |  |    | 
|------------------- |  | --------- | -- | -------------- |  | ------------------ | ----------- | ------------------- |  | ----------------------- | - | --------- |  | --------- | -- | --------- |  |  | - |  |  |  | -- |  |  |  | - |  |  |  | -- | 
|                    |  | Nominal   |    |                |  |                    |             |                     |  |                         |   |           |  |          
|                    |  | value of  |    | Ordinary Share |  |                    |             |                     |  | Conditional capital for
|                    |  | Shares    |    | capital        |  | Authorized capital |             | Conditional capital |  | employee participation 
|                    |  |           |    |                |  |                    |             |                     |  |                        
|                    |  | 4 Para. 1 |    | 4 Para. 3      |  | 4 Para. 4          |             | 4 Para. 5          
|Date of Articles of |  |           |    |                |  |                    |             |                    
|Association         |  |           |    |                |  | Nominal            |             |                     |  | Nominal                 |   |           |  | Nominal  
|                    |  |           |    | Number         |  | value              |             | Number of           |  | value                   |   | Number of |  | value    
|Article in Articles |  |           |    | of Shares      |  | (CHF)              |             | Shares              |  | (CHF)                   |   | Shares    |  | (CHF)    
|of Association      |  | (CHF)     |    | (CHF)          |  | (million)          |             | (million)           |  | (million)               |   | (million) |  | (million) |    | (million)
|                    |  |           |    |                |  |                    |             |                     |  |                         |   |           |  |           |    |          
|April 20, 1998      |  |           | 10 |                |  |                    | 721 301 170 |                     |  |                         | 4 |           |  |           | 40 |           |  |  | 4 |  |  |  | 40 |  |  |  | 2 |  |  |  | 20 | 
|March 22, 2002      |  |           | 9  |                |  |                    | 649 171 053 |                     |  |                         | 4 |           |  |           | 36 |           |  |  | 4 |  |  |  | 36 |  |  |  | 2 |  |  |  | 18 | 
|March 6, 2003       |  |           | 6  |                |  |                    | 432 780 702 |                     |  |                         | 4 |           |  |           | 24 |           |  |  | 4 |  |  |  | 24 |  |  |  | 2 |  |  |  | 12 | 
|February 26, 2004   |  |           | 3  |                |  |                    | 212 479 851 |                     |  |                         | 4 |           |  |           | 12 |           |  |  | 4 |  |  |  | 12 |  |  |  | 2 |  |  |  | 6  | 
|March 3, 2005       |  |           | 1  |                |  |                    | 69 064 617  |                     |  |                         | 4 |           |  |           | 4  |           |  |  | 4 |  |  |  | 4  |  |  |  | 2 |  |  |  | 2  | 





84



---



##### Table of Contents





Group structure [DCG 1.1]




Voting cap and registration restrictions, nominees [DCG
2.6]






20-F




Annual General Meeting and extraordinary shareholders
meetings






85



---



##### Table of Contents







| |                                                                                                                                                                                                                                               
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (i) any change to the Companys business purpose,                                                                                                                                                                                             
|
| | (ii) the creation of Shares with privileged voting rights,                                                                                                                                                                                    
|
| | (iii) the creation of restrictions on the transferability
    of registered Shares, or the elimination of transfer
    restrictions [DCG 2.6.4],                                                                                              
|
| | (iv) an authorized or conditional increase in the
    Companys Share Capital,                                                                                                                                                                
|
| | (v) an increase in the Companys Share Capital by way
    of capitalization of reserves (Kapitalerhöhung aus
    Eigenkapital), against contribution in kind, for the acquisition
    of assets, or involving the grant of special privileges,
|
| | (vi) the restriction or elimination of preemptive rights of
    shareholders,                                                                                                                                                                 
|
| | (vii) a relocation of the domicile of the Company, or                                                                                                                                                                                         
|
| | (viii) the dissolution of the Company other than by
    liquidation (for example, by way of a merger).                                                                                                                                        



Dividends and dividend policy






|         |  |                  |   |                           |  |  |   | 
|-------- |  | ---------------- | - | ------------------------- |  |  | - | 
|         |  | Dividend payment |   | Capital reduction payment
|AGM Year |  | (CHF)            |   | (CHF)                    
|         |  |                  |   |                          
|1998     |  |                  | 2 |                           |  |  | 0 | 
|1999     |  |                  | 2 |                           |  |  | 0 | 
|2000     |  |                  | 2 |                           |  |  | 0 | 
|2001     |  |                  | 2 |                           |  |  | 0 | 
|2002     |  |                  | 2 |                           |  |  | 1 | 
|2003     |  |                  | 0 |                           |  |  | 3 | 
|2004     |  |                  | 0 |                           |  |  | 3 | 
|2005     |  |                  | 1 |                           |  |  | 2 | 
|2006(i)  |  |                  | 3 |                           |  |  | 0 | 






|    |                                                                                                                                                                                                                                                                                                                                          
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(i) | For the financial year 2005, the Board proposes to the
    shareholders to pay a dividend of CHF 3 per Share. The
    shareholders will vote on this proposal at the Companys
    AGM of shareholders on March 2, 2006. If the shareholders
    approve this proposal, the dividend payment is expected to be
    made on March 8, 2006.

Convertible bonds and warrants/ options [DCG 2.7]




86



---



##### Table of Contents



Additional information




| |                                     
| | ------------------------------------
| | Change of control provisions [DCG 7]

1 3






| |                 
| | ----------------
| | Auditors [DCG 8]







|                   |  |          |        |            |  |          |     |            |  |  |       |  |  |  |     | 
|------------------ |  | -------- | ------ | ---------- |  | -------- | --- | ---------- |  |  | ----- |  |  |  | --- | 
|                   |  | 2005     |        | 2004      
|                   |  |          |        |           
|                   |  | Thousand |        | In % of    |  | Thousand |     | In % of   
|                   |  | CHF      |        | total fees |  | CHF      |     | total fees
|                   |  |          |        |            |  |          |     |           
|Audit fees         |  |          | 6 210  |            |  |          | 59  |            |  |  | 5 704 |  |  |  | 93  | 
|Audit-related fees |  |          | 3 836  |            |  |          | 36  |            |  |  | 2     |  |  |  | 0   | 
|Tax fees           |  |          | 514    |            |  |          | 5   |            |  |  | 381   |  |  |  | 6   | 
|All other fees     |  |          | 28     |            |  |          | 0   |            |  |  | 44    |  |  |  | 1   | 
|                   |  |          |        |            |  |          |     |            |  |  |       |  |  |  |     | 
|Total fees         |  |          | 10 588 |            |  |          | 100 |            |  |  | 6 131 |  |  |  | 100 | 
|                   |  |          |        |            |  |          |     |            |  |  |       |  |  |  |     | 

S-X.




87



---



##### Table of Contents





| |                           
| | --------------------------
| | Information policy [DCG 9]













| |                
| | ---------------
| | Share ownership











88



---



##### Table of Contents







|                             |  |          |        |             |  |  |           |  
|---------------------------- |  | -------- | ------ | ----------- |  |  | --------- | -
|                             |  | Weighted |        |            
|                             |  | average  |        | Stock      
|                             |  | exercise |        | options    
|                             |  | price    |        | outstanding
|                             |  |          |        |            
|Balance at December 31, 2002 |  |          | 117.53 |             |  |  | 2 195 339 |  
|Options granted              |  |          | 82.60  |             |  |  | 176 627   |  
|Options exercised            |  |          | 0      |             |  |  | 0         |  
|Options canceled/forfeited   |  |          | 105.02 |             |  |  | (26 989   | )
|Options expired              |  |          | 160.00 |             |  |  | (264 355  | )
|                             |  |          |        |             |  |  |           |  
|Balance at December 31, 2003 |  |          | 109.34 |             |  |  | 2 080 622 |  
|                             |  |          |        |             |  |  |           |  
|Options granted              |  |          | 95.30  |             |  |  | 81 024    |  
|Options exercised            |  |          | 82.60  |             |  |  | (2 762    | )
|Options canceled/forfeited   |  |          | 114.48 |             |  |  | (72 239   | )
|Options expired              |  |          | 109.60 |             |  |  | (314 888  | )
|                             |  |          |        |             |  |  |           |  
|Balance at December 31, 2004 |  |          | 108.32 |             |  |  | 1 771 757 |  
|                             |  |          |        |             |  |  |           |  
|Options granted              |  |          | 0      |             |  |  | 0         |  
|Options exercised            |  |          | 0      |             |  |  | 0         |  
|Options canceled/forfeited   |  |          | 108.60 |             |  |  | (23 647   | )
|Options expired              |  |          | 104.48 |             |  |  | (243 860  | )
|                             |  |          |        |             |  |  |           |  
|Balance at December 31, 2005 |  |          | 108.77 |             |  |  | 1 504 250 |  
|                             |  |          |        |             |  |  |           |  
|Options exercised            |  |          | 0      |             |  |  | 0         |  
|Options canceled/forfeited   |  |          | 0      |             |  |  | 0         |  
|Options expired              |  |          | 109.20 |             |  |  | 271,557   |  
|                             |  |          |        |             |  |  |           |  
|Balance at January 27, 2006  |  |          | 108.68 |             |  |  | 1 232 693 |  
|                             |  |          |        |             |  |  |           |  



|                     |  |                 |               |                           |  |                           |           |             |  |                  |     |  |  |  |           |  |  |  |     | 
|-------------------- |  | --------------- | ------------- | ------------------------- |  | ------------------------- | --------- | ----------- |  | ---------------- | --- |  |  |  | --------- |  |  |  | --- | 
|                     |  |                 |               | Stock options outstanding |  | Stock options exercisable
|                     |  |                 |               |                           |  |                          
|                     |  | Weighted        |               |                           |  | Weighted                  |           |            
|                     |  | average         |               |                           |  | average                   |           |             |  | Weighted average
|                     |  | exercise price- |               | Number of                 |  | remaining                 |           | Number of   |  | remaining       
|                     |  | outstanding/    |               | outstanding               |  | contractual life          |           | outstanding |  | contractual life
|Exercise price range |  | exercisable     |               | options                   |  | (in years)                |           | options     |  | (in years)      
|                     |  |                 |               |                           |  |                           |           |             |  |                 
|82.60  111.40       |  |                 | 103.66/105.11 |                           |  |                           | 1 122 793 |             |  |                  | 3.9 |  |  |  | 1 022 068 |  |  |  | 3.5 | 
|160.00               |  |                 | 160.00/160.00 |                           |  |                           | 109 900   |             |  |                  | 1.9 |  |  |  | 109 900   |  |  |  | 1.9 | 
|                     |  |                 |               |                           |  |                           |           |             |  |                  |     |  |  |  |           |  |  |  |     | 
|                     |  |                 |               |                           |  |                           | 1 232 693 |             |  |                  |     |  |  |  | 1 131 968 |  |  |  |     | 
|                     |  |                 |               |                           |  |                           |           |             |  |                  |     |  |  |  |           |  |  |  |     | 

89



---



##### Table of Contents





|                             |  |          |       |             |  |  |         |  
|---------------------------- |  | -------- | ----- | ----------- |  |  | ------- | -
|                             |  | Weighted |       |            
|                             |  | average  |       |            
|                             |  | exercise |       | Rights     
|                             |  | price    |       | outstanding
|                             |  |          |       |            
|Balance at December 31, 2002 |  |          | 15.00 |             |  |  | 370 280 |  
|Rights granted               |  |          | 15.00 |             |  |  | 105 275 |  
|Rights exercised             |  |          | 15.00 |             |  |  | (20 005 | )
|                             |  |          |       |             |  |  |         |  
|Balance at December 31, 2003 |  |          | 15.00 |             |  |  | 455 550 |  
|                             |  |          |       |             |  |  |         |  
|Rights granted               |  |          | 15.00 |             |  |  | 104 200 |  
|Rights exercised             |  |          | 15.00 |             |  |  | (22 955 | )
|                             |  |          |       |             |  |  |         |  
|Balance at December 31, 2004 |  |          | 15.00 |             |  |  | 536 795 |  
|                             |  |          |       |             |  |  |         |  
|Rights granted               |  |          | 15.00 |             |  |  | 102 475 |  
|Rights exercised             |  |          | 15.00 |             |  |  | (57 055 | )
|                             |  |          |       |             |  |  |         |  
|Balance at December 31, 2005 |  |          | 15.00 |             |  |  | 582 215 |  
|                             |  |          |       |             |  |  |         |  
|Rights granted               |  |          | 10.00 |             |  |  | 114 750 |  
|Rights exercised             |  |          | 14.25 |             |  |  | (6 955  | )
|                             |  |          |       |             |  |  |         |  
|Balance at January 27, 2006  |  |          | 14.18 |             |  |  | 690 010 |  
|                             |  |          |       |             |  |  |         |  





| |                                        
| | ---------------------------------------
| | Change in control and reserve of shares












|        |                                                   
|------- | --------------------------------------------------
|Item 7. | Major Shareholders and Related Party Transactions.

Major Shareholders




90



---



##### Table of Contents





|                            |  |             |       |             |  |             |     |   |  |  |     |  
|--------------------------- |  | ----------- | ----- | ----------- |  | ----------- | --- | - |  |  | --- | -
|                            |  | January 27, |       | January 28, |  | January 30,
|                            |  | 2006        |       | 2005        |  | 2004       
|                            |  |             |       |             |  |            
|Chase Nominees Ltd, London* |  |             | 4.8%  |             |  |             | 4.8 | % |  |  | 5.6 | %
|Mellon Bank N.A., Everett*  |  |             | 3.76% |             |  |             |    |   |  |  | 2.6 | %
|Putnam Group, Boston        |  |             |      |             |  |             | 2.0 | % |  |  |    |  
|Nortrust Nominees, London*  |  |             | 2.18% |             |  |             |    |   |  |  |    |  










Related party transactions


F-1 F-43.









|        |                       
|------- | ----------------------
|Item 8. | Financial Information.

Consolidated financial statements




Other financial information




| |             
| | ------------
| | Export sales





| |                                                  
| | -------------------------------------------------
| | Legal, administrative and arbitration proceedings



91



---



##### Table of Contents









| |                              
| | -----------------------------
| | Dividends and dividend policy















92



---



##### Table of Contents





| |                    
| | -------------------
| | Significant changes








|        |                      
|------- | ---------------------
|Item 9. | The Offer and Listing

Principal trading market and price range




93



---



##### Table of Contents





|                                     |                              |                 |        |        |  |      |       |       |  |  |       |       |  |  |       |       | 
|------------------------------------ | ---------------------------- | --------------- | ------ | ------ |  | ---- | ----- | ----- |  |  | ----- | ----- |  |  | ----- | ----- | 
|                                     |                              | Price per Share
|                                     |                              |                
|Trading prices on the Swiss Exchange |                              | High            |        | Low    |  | High |       | Low  
|                                     |                              |                 |        |        |  |      |       |      
|                                     |                              | In CHF          |        | In USD
|                                     |                              |                 |        |       
|Annual highs and lows                |                              |                 |        |        |  |      |       |       |  |  |       |       |  |  |       |      
|2001                                 |                              |                 | 115.75 |        |  |      | 75.00 |       |  |  | 69.74 |       |  |  | 45.19 |      
|2002                                 |                              |                 | 128.00 |        |  |      | 89.75 |       |  |  | 92.53 |       |  |  | 64.88 |      
|2003                                 |                              |                 | 101.50 |        |  |      | 74.75 |       |  |  | 81.99 |       |  |  | 60.38 |      
|2004                                 |                              |                 | 96.14  |        |  |      | 76.70 |       |  |  | 81.81 |       |  |  | 59.77 |      
|2005                                 |                              |                 | 85.00  |        |  |      | 72.51 |       |  |  | 64.65 |       |  |  | 55.15 |      
|Quarterly highs and lows             |                              |                 |        |        |  |      |       |       |  |  |       |       |  |  |       |      
|2004                                 |                              |                 |        |        |  |      |       |       |  |  |       |       |  |  |       |      
|                                     | First Quarter                |                 |        | 96.14  |  |      |       | 82.24 |  |  |       | 75.84 |  |  |       | 64.87 | 
|                                     | Second Quarter               |                 |        | 90.70  |  |      |       | 82.05 |  |  |       | 72.44 |  |  |       | 65.54 | 
|                                     | Third Quarter                |                 |        | 89.70  |  |      |       | 76.70 |  |  |       | 71.93 |  |  |       | 61.50 | 
|                                     | Fourth Quarter               |                 |        | 86.50  |  |      |       | 78.00 |  |  |       | 75.80 |  |  |       | 68.35 | 
|2005                                 |                              |                 |        |        |  |      |       |       |  |  |       |       |  |  |       |      
|                                     | First Quarter                |                 |        | 84.24  |  |      |       | 75.38 |  |  |       | 70.48 |  |  |       | 63.07 | 
|                                     | Second Quarter               |                 |        | 79.23  |  |      |       | 72.51 |  |  |       | 61.77 |  |  |       | 56.53 | 
|                                     | Third Quarter                |                 |        | 80.50  |  |      |       | 74.00 |  |  |       | 62.45 |  |  |       | 57.41 | 
|                                     | Fourth Quarter               |                 |        | 85.00  |  |      |       | 72.75 |  |  |       | 64.65 |  |  |       | 55.33 | 
|Monthly highs and lows               |                              |                 |        |        |  |      |       |       |  |  |       |       |  |  |       |      
|2005                                 |                              |                 |        |        |  |      |       |       |  |  |       |       |  |  |       |      
|                                     | July                         |                 |        | 77.50  |  |      |       | 74.00 |  |  |       | 60.22 |  |  |       | 57.50 | 
|                                     | August                       |                 |        | 80.50  |  |      |       | 76.10 |  |  |       | 64.16 |  |  |       | 60.66 | 
|                                     | September                    |                 |        | 78.60  |  |      |       | 74.65 |  |  |       | 60.98 |  |  |       | 57.91 | 
|                                     | October                      |                 |        | 77.40  |  |      |       | 72.75 |  |  |       | 60.00 |  |  |       | 56.40 | 
|                                     | November                     |                 |        | 77.50  |  |      |       | 74.05 |  |  |       | 58.94 |  |  |       | 56.32 | 
|                                     | December                     |                 |        | 85.00  |  |      |       | 77.90 |  |  |       | 64.65 |  |  |       | 59.25 | 
|2006                                 |                              |                 |        |        |  |      |       |       |  |  |       |       |  |  |       |      
|                                     | January (through January 27) |                 |        | 84.95  |  |      |       | 81.20 |  |  |       | 66.38 |  |  |       | 63.45 | 



94



---



##### Table of Contents



|                                              |                              |                  |       |       |  |  |       |       | 
|--------------------------------------------- | ---------------------------- | ---------------- | ----- | ----- |  |  | ----- | ----- | 
|                                              |                              | Price per ADR(1)
|                                              |                              |                 
|Trading prices on the New York Stock Exchange |                              | High             |       | Low  
|                                              |                              |                  |       |      
|                                              |                              | In USD          
|Annual highs and lows                         |                              |                  |       |       |  |  |       |      
|2001                                          |                              |                  | 35.44 |       |  |  | 24.00 |      
|2002                                          |                              |                  | 40.60 |       |  |  | 30.83 |      
|2003                                          |                              |                  | 38.75 |       |  |  | 28.25 |      
|2004                                          |                              |                  | 40.61 |       |  |  | 30.10 |      
|2005                                          |                              |                  | 37.73 |       |  |  | 32.20 |      
|Quarterly highs and lows                      |                              |                  |       |       |  |  |       |      
|2004                                          |                              |                  |       |       |  |  |       |      
|                                              | First Quarter                |                  |       | 40.61 |  |  |       | 33.80 | 
|                                              | Second Quarter               |                  |       | 36.35 |  |  |       | 31.92 | 
|                                              | Third Quarter                |                  |       | 36.58 |  |  |       | 30.10 | 
|                                              | Fourth Quarter               |                  |       | 38.23 |  |  |       | 31.25 | 
|2005                                          |                              |                  |       |       |  |  |       |      
|                                              | First Quarter                |                  |       | 37.73 |  |  |       | 32.20 | 
|                                              | Second Quarter               |                  |       | 33.94 |  |  |       | 29.05 | 
|                                              | Third Quarter                |                  |       | 32.00 |  |  |       | 28.50 | 
|                                              | Fourth Quarter               |                  |       | 32.30 |  |  |       | 28.08 | 
|Monthly highs and lows                        |                              |                  |       |       |  |  |       |      
|2005                                          |                              |                  |       |       |  |  |       |      
|                                              | July                         |                  |       | 30.20 |  |  |       | 28.50 | 
|                                              | August                       |                  |       | 32.00 |  |  |       | 29.97 | 
|                                              | September                    |                  |       | 31.74 |  |  |       | 28.86 | 
|                                              | October                      |                  |       | 29.79 |  |  |       | 28.32 | 
|                                              | November                     |                  |       | 29.57 |  |  |       | 28.08 | 
|                                              | December                     |                  |       | 32.30 |  |  |       | 29.69 | 
|2006                                          |                              |                  |       |       |  |  |       |      
|                                              | January (through January 27) |                  |       | 33.18 |  |  |       | 31.72 | 






|    |                                                         
|--- | --------------------------------------------------------
|(1) | One ADR represents one half of one share of the Company.





|     |  |               |         |  |                |  |         |               |  |  |                |  |  |  |         | 
|---- |  | ------------- | ------- |  | -------------- |  | ------- | ------------- |  |  | -------------- |  |  |  | ------- | 
|     |  | First Quarter |         |  | Second Quarter |  |         | Third Quarter |  |  | Fourth Quarter | 
|     |  |               |         |  |                |  |         |               |  |  |                | 
|2005 |  |               | 425 936 |  |                |  | 402 477 |               |  |  | 365 419        |  |  |  | 405 860 | 
|2004 |  |               | 380 762 |  |                |  | 342 204 |               |  |  | 287 579        |  |  |  | 289 824 | 

95



---



##### Table of Contents





|     |  |               |        |                |  |               |        |                |  |  |        |  |  |  |        | 
|---- |  | ------------- | ------ | -------------- |  | ------------- | ------ | -------------- |  |  | ------ |  |  |  | ------ | 
|     |  | First quarter |        | Second quarter |  | Third quarter |        | Fourth quarter
|     |  |               |        |                |  |               |        |               
|2005 |  |               | 17 756 |                |  |               | 13 988 |                |  |  | 15 778 |  |  |  | 17 990 | 
|2004 |  |               | 4 287  |                |  |               | 2 511  |                |  |  | 5 353  |  |  |  | 3 073  | 



Trading practices and procedures on the Swiss
Exchange/virt-x




® ®









|         |                       
|-------- | ----------------------
|Item 10. | Additional Information

Memorandum and Articles of Incorporation
(Articles)






| |                       
| | ----------------------
| | Purpose of the Company





| |                     
| | --------------------
| | Conflict of interest



96



---



##### Table of Contents





| |          
| | ---------
| | Directors







| |                              
| | -----------------------------
| | Shares and Transfer of Shares











| |                        
| | -----------------------
| | Annual General Meetings





97



---



##### Table of Contents











| |            
| | -----------
| | Liquidation





| |                     
| | --------------------
| | Redemption Provision





| |                       
| | ----------------------
| | Sinking Fund Provision





| |                                     
| | ------------------------------------
| | Further Capital Calls by the Company





| |                   
| | ------------------
| | Mandatory Bid Rule





| |                  
| | -----------------
| | Preemptive Rights



98



---



##### Table of Contents













| |        
| | -------
| | Notices





| |                         
| | ------------------------
| | Duration and Liquidation





paid-up




| |                                     
| | ------------------------------------
| | Disclosure of Principal Shareholders

1 3 2 3




99



---



##### Table of Contents



Material Contracts




| |                      
| | ---------------------
| | ADR Deposit Agreement





| |             
| | ------------
| | EMTN Program





| |                  
| | -----------------
| | Exchange Controls



Taxation




| |               
| | --------------
| | Swiss Taxation



| |                                                 
| | ------------------------------------------------
| | Swiss Tax Consequences of Holding Shares or ADSs





100



---



##### Table of Contents









| |                                                     
| | ----------------------------------------------------
| | Swiss Withholding Tax on Dividends and Distributions









| |                                                        
| | -------------------------------------------------------
| | Stamp Duties upon Transfer of Securities (Umsatzabgabe)





| |                                  
| | ---------------------------------
| | Summary of Swiss Tax Consequences



101



---



##### Table of Contents







| |                       
| | ----------------------
| | United States Taxation







| |   |                                                                                                               
| | - | --------------------------------------------------------------------------------------------------------------
| |  | is not also resident of, or ordinarily resident in Switzerland
    for Swiss tax purposes;                    
|
| |  | is not engaged in a trade or business in Switzerland through a
    permanent establishment; and               
|
| |  | does not own, directly, indirectly or by attribution,
    10 percent or more of the Shares (by vote or value).









| |                                      
| | -------------------------------------
| | United States Income Tax on Dividends



102



---



##### Table of Contents









| |                                                                    
| | -------------------------------------------------------------------
| | United States Capital Gains Tax upon Disposal of ADSs or
    Shares





| |                                                                           
| | --------------------------------------------------------------------------
| | United States Information Reporting and Backup Withholding
    Obligations







| |                     
| | --------------------
| | Documents on Display








|         |                                                               
|-------- | --------------------------------------------------------------
|Item 11. | Quantitative and Qualitative Disclosures About Market
    Risk

Market risk due to fluctuating foreign currency exchange
rates and interest rates






103



---



##### Table of Contents














|         |                                                           
|-------- | ----------------------------------------------------------
|Item 12. | Description of Securities Other than Equity
    Securities






PART II







|         |                                                
|-------- | -----------------------------------------------
|Item 13. | Defaults, Dividend Arrearages and Delinquencies








|         |                                                                                
|-------- | -------------------------------------------------------------------------------
|Item 14. | Material Modification to the Rights of Security Holders
    and Use of Proceeds








|         |                        
|-------- | -----------------------
|Item 15. | Controls and Procedures

15d-15(e)


104



---



##### Table of Contents












|          |                                 
|--------- | --------------------------------
|Item 16A. | Audit Committee Financial Expert








|          |               
|--------- | --------------
|Item 16B. | Code of Ethics








|          |                                       
|--------- | --------------------------------------
|Item 16C. | Principal Accountant Fees and Services








|          |                                                               
|--------- | --------------------------------------------------------------
|Item 16D. | Exemptions from the Listing Standards for Audit
    Committees








|          |                                              
|--------- | ---------------------------------------------
|Item 16E. | Purchases of Equity Securities by the Company

|          |  |                     |           |  |                        |                     |       |                    |                    |  |                     |  |  |  |   | 
|--------- |  | ------------------- | --------- |  | ---------------------- | ------------------- | ----- | ------------------ | ------------------ |  | ------------------- |  |  |  | - | 
|          |  |                     |           |  |                        |                     |       | d) Maximum         |                   
|          |  |                     |           |  |                        |                     |       | number (or         |                   
|          |  |                     |           |  |                        | (c) Total number of |       |                    | approximate dollar | 
|          |  |                     |           |  |                        | Shares purchased as |       |                    | value) of Shares   | 
|          |  |                     |           |  |                        | part of publicly    |       |                    | that may yet be    | 
|          |  | (a) Total number    |           |  | (b) Average price paid |                     |       | announced plans or |                    |  | purchased under the | 
|          |  | of Shares purchased |           |  | per Share              |                     |       | programs           |                    |  | plans or programs   | 
|          |  |                     |           |  |                        |                     |       |                    |                    |  |                     | 
|Period    |  |                     |           |  |                        |                     |       |                    |                    |  |                     |  |  |  |   | 
|January   |  |                     | 0         |  |                        |                     | N/A   |                    |                    |  | 0                   |  |  |  | 0 | 
|February  |  |                     | 252,927   |  |                        |                     | 80.55 |                    |                    |  | 0                   |  |  |  | 0 | 
|March     |  |                     | 257,171   |  |                        |                     | 78.88 |                    |                    |  | 0                   |  |  |  | 0 | 
|April     |  |                     | 145,280   |  |                        |                     | 76.47 |                    |                    |  | 0                   |  |  |  | 0 | 
|May       |  |                     | 579,327   |  |                        |                     | 74.82 |                    |                    |  | 0                   |  |  |  | 0 | 
|June      |  |                     | 0         |  |                        |                     | N/A   |                    |                    |  | 0                   |  |  |  | 0 | 
|July      |  |                     | 19,920    |  |                        |                     | 75.08 |                    |                    |  | 0                   |  |  |  | 0 | 
|August    |  |                     | 111,583   |  |                        |                     | 77.78 |                    |                    |  | 0                   |  |  |  | 0 | 
|September |  |                     | 102,838   |  |                        |                     | 75.54 |                    |                    |  | 0                   |  |  |  | 0 | 
|October   |  |                     | 0         |  |                        |                     | N/A   |                    |                    |  | 0                   |  |  |  | 0 | 
|November  |  |                     | 2,580     |  |                        |                     | 72.56 |                    |                    |  | 0                   |  |  |  | 0 | 
|December  |  |                     | 0         |  |                        |                     | N/A   |                    |                    |  | 0                   |  |  |  | 0 | 
|Total     |  |                     | 1,471,626 |  |                        |                     | 76.95 |                    |                    |  | 0                   |  |  |  | 0 | 

buy-back


105



---



##### Table of Contents










PART III







|         |                     
|-------- | --------------------
|Item 17. | Financial Statements

20-F.







|         |                     
|-------- | --------------------
|Item 18. | Financial Statements








|         |         
|-------- | --------
|Item 19. | Exhibits



|                                                                                                         |  |      |      | 
|-------------------------------------------------------------------------------------------------------- |  | ---- | ---- | 
|Index to consolidated financial statements                                                               |  | Page |     
|                                                                                                         |  |      |     
|Report of Independent Public Accounting Firm 
    Ernst & Young Ltd                                     |  |      | F-2  | 
|Consolidated Statements of Income for the Years ended
    December 31, 2005, 2004 and 2003               |  |      | F-3  | 
|Consolidated Balance Sheets at December 31, 2005 and 2004                                                |  |      | F-4  | 
|Consolidated Statements of Cash Flows for the Years ended
    December 31, 2005, 2004 and 2003           |  |      | F-5  | 
|Consolidated Statements of Shareholders Equity for the
    Years ended December 31, 2005, 2004 and 2003 |  |      | F-6  | 
|Business Segment Data                                                                                    |  |      | F-7  | 
|Geographic Data                                                                                          |  |      | F-12 | 
|Notes to Consolidated Financial Statements                                                               |  |      | F-14 | 





| |      |    |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | ---- | -- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | +1   | .1 |  | Articles of Association of Ciba Specialty Chemicals Holding Inc.
    dated March 3, 2005                                                                                                                                                                                                                                                                                                                                                                                         
|
| | **1  | .2 |  | Specimen share certificate of Ciba Specialty Chemicals Holding
    Inc.                                                                                                                                                                                                                                                                                                                                                                                                          
|
| | *2   | .1 |  | Second Amended and Restated Deposit Agreement dated as of
    August 2, 2000, between Ciba Specialty Chemicals Holding
    Inc., Citibank, N.A., and the additional parties named therein.                                                                                                                                                                                                                                                                                       
|
| | *2   | .2 |  | Form of American Depositary Receipt of Ciba Specialty Chemicals
    Holding Inc.                                                                                                                                                                                                                                                                                                                                                                                                 
| | ***4 | .1 |  | EMTN Programme Agreement in respect of a USD 2 billion
    Euro Medium Term Note Programme dated March 27, 2003,
    among Ciba Specialty Chemicals PLC, Ciba Specialty Chemicals
    Corporation, Ciba Specialty Chemicals Eurofinance Ltd., Ciba
    Spezialitätenchemie Holding Deutschland GmbH, Ciba
    Specialty Chemicals Holding Inc., Credit Suisse First Boston
    (Europe) Limited and the additional parties named therein.                                        
|
| | ***4 | .2 |  | EMTN Deed of Covenant in respect of a USD 2 billion
    Euro Medium Term Note Programme dated March 27, 2003,
    by each of Ciba Specialty Chemicals Corporation, Ciba Specialty
    Chemicals Eurofinance Ltd., Ciba Specialty Chemicals PLC, Ciba
    Spezialitätenchemie Holding Deutschland GmbH, Ciba
    Specialty Chemicals Holding Inc., in favor of the account
    holders of Clearstream Banking, société anonyme and
    the additional beneficiaries named therein.

106



---



##### Table of Contents



| |      |    |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | ---- | -- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | ***4 | .3 |  | EMTN Deed of Guarantee in respect of a USD 2 billion
    Euro Medium Term Note Programme dated March 27, 2003,
    by Ciba Specialty Chemicals Holding Inc.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | ***4 | .4 |  | EMTN Agency Agreement in respect of a USD 2 billion
    Euro Medium Term Note Programme dated March 27, 2003,
    among Ciba Specialty Chemicals PLC, Ciba Specialty Chemicals
    Corporation, Ciba Specialty Chemicals Eurofinance Ltd., Ciba
    Spezialitätenchemie Holding Deutschland GmbH, Ciba
    Specialty Chemicals Holding Inc., The JP Morgan Chase Bank and
    J.P. Morgan Bank Luxembourg S.A. The total amount of
    long-term debt securities of the Company or of its subsidiaries
    authorized under any other instrument does not exceed
    10 percent of the total assets of the Company on a
    consolidated basis. The Company hereby agrees to furnish to the
    Commission, upon its request, a copy of any instruments defining
    the rights of holders of long-term debt of the Company or of its
    subsidiaries for which consolidated or unconsolidated financial
    statements are required to be filed.
| | **4  | .8 |  | Master Spin-off Agreement dated December 20, 1996, between
    Novartis AG and Ciba Specialty Chemicals Holding Inc.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| | **4  | .9 |  | Transaction Agreement re: Sale of the Performance Polymers
    division to Morgan Grenfell Private Equity dated
    December 14, 1999, by and between Ciba Specialty Chemicals
    Holding Inc. and Avanti N03.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | 8    | .1 |  | List of Certain Subsidiaries.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | 12   | .1 |  | Certification Pursuant to Rule 13a-14(A)/15d-14(A)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | 12   | .2 |  | Certification Pursuant to Rule 13a-14(A)/15d-14(A)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | 13   | .1 |  | Certification Pursuant to 18 U.S.C. Section 1350                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | 23   | .1 |  | Consent of Ernst & Young Ltd.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     






|    |  |                                                                                                                                                                                                           
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|+   |  | Incorporated by reference from the
    Form 6-K of Ciba
    Specialty Chemicals Holding Inc., furnished May 17, 2005.
    (File No. 333-56040)                                                            
|   
|*   |  | Incorporated by reference to Post-Effective Amendment No. 1
    to the Registration Statement of Ciba Specialty Chemicals
    Holding Inc. on
    Form F-6, filed
    August 2, 2000. (File No. 082-04541)
|   
|**  |  | Incorporated by reference to the Registration Statement of Ciba
    Specialty Chemicals Holding Inc. on
    Form 20-F                                                                                     
|   
|*** |  | Incorporated by reference to the Annual Report of Ciba Specialty
    Chemicals Holding Inc. on
    Form 20-F filed on
    February 1, 2005.                                                               

107



---



##### Table of Contents






Signature


20-F




| |                                       
| | --------------------------------------
| | Ciba Specialty Chemicals Holding Inc.,



| |     |                   
| | --- | ------------------
| | By: | /s/ Michael Jacobi

| |                     
| | --------------------
| |                     
| | Name: Michael Jacobi

| |        |                        
| | ------ | -----------------------
| | Title: | Chief Financial Officer



108



---



##### Table of Contents



Index to Consolidated Financial Statements


|                                                                                                             |  |      |      | 
|------------------------------------------------------------------------------------------------------------ |  | ---- | ---- | 
|                                                                                                             |  | Page |     
|                                                                                                             |  |      |     
|Report of Independent Registered Public Accounting
    Firm  Ernst & Young Ltd                              |  |      | F-2  | 
|Consolidated Statements of Income for the
    Years ended December 31, 2005, 2004 and 2003                   |  |      | F-3  | 
|Consolidated Balance Sheets at
    December 31, 2005 and 2004                                                |  |      | F-4  | 
|Consolidated Statements of Cash Flows for
    the Years ended December 31, 2005, 2004 and 2003               |  |      | F-5  | 
|Consolidated Statements of
    Shareholders Equity for the Years ended December 31,
    2005, 2004 and 2003 |  |      | F-6  | 
|Business Segment Data                                                                                        |  |      | F-7  | 
|Geographic Data                                                                                              |  |      | F-12 | 
|Notes to Consolidated Financial
    Statements                                                               |  |      | F-14 | 

F-1



---



##### Table of Contents



Report of Independent Registered Public Accounting Firm




















F-2



---



##### Table of Contents






Consolidated Statements of Income




|                                                                                       |  |       |    |      |  |      |            |      |  |  |            |   |  |  |            |  
|-------------------------------------------------------------------------------------- |  | ----- | -- | ---- |  | ---- | ---------- | ---- |  |  | ---------- | - |  |  | ---------- | -
|Year ended December 31,                                                                |  | Notes |    | 2005 |  | 2004 |            | 2003
|                                                                                       |  |       |    |      |  |      |            |     
|Net sales                                                                              |  |       |    |      |  |      | 7 419      |      |  |  | 7 027      |   |  |  | 6 646      |  
|Cost of goods sold                                                                     |  |       |    |      |  |      | (5 302     | )    |  |  | (4 856     | ) |  |  | (4 579     | )
|                                                                                       |  |       |    |      |  |      |            |      |  |  |            |   |  |  |            |  
|Gross profit                                                                           |  |       |    |      |  |      | 2 117      |      |  |  | 2 171      |   |  |  | 2 067      |  
|Selling, general and administrative                                                    |  |       |    |      |  |      | (1 178     | )    |  |  | (1 224     | ) |  |  | (1 190     | )
|Research and development                                                               |  |       |    |      |  |      | (301       | )    |  |  | (288       | ) |  |  | (281       | )
|Amortization of other intangible assets                                                |  |       | 8  |      |  |      | (59        | )    |  |  | (47        | ) |  |  | (33        | )
|Restructuring, impairment and other charges                                            |  |       | 23 |      |  |      | (703       | )    |  |  | (91        | ) |  |  | 0          |  
|                                                                                       |  |       |    |      |  |      |            |      |  |  |            |   |  |  |            |  
|Operating income (loss)                                                                |  |       |    |      |  |      | (124       | )    |  |  | 521        |   |  |  | 563        |  
|Interest expense                                                                       |  |       |    |      |  |      | (135       | )    |  |  | (141       | ) |  |  | (142       | )
|Interest income                                                                        |  |       |    |      |  |      | 21         |      |  |  | 33         |   |  |  | 34         |  
|Other financial expense, net                                                           |  |       |    |      |  |      | (23        | )    |  |  | (39        | ) |  |  | (24        | )
|                                                                                       |  |       |    |      |  |      |            |      |  |  |            |   |  |  |            |  
|Income (loss) from continuing operations before income taxes
    and minority interest |  |       |    |      |  |      | (261       | )    |  |  | 374        |   |  |  | 431        |  
|Provision for income taxes                                                             |  |       | 14 |      |  |      | (18        | )    |  |  | (92        | ) |  |  | (81        | )
|Minority interest                                                                      |  |       |    |      |  |      | (7         | )    |  |  | (4         | ) |  |  | (5         | )
|                                                                                       |  |       |    |      |  |      |            |      |  |  |            |   |  |  |            |  
|Income (loss) from continuing operations                                               |  |       |    |      |  |      | (286       | )    |  |  | 278        |   |  |  | 345        |  
|Income from discontinued operations, net of tax                                        |  |       | 21 |      |  |      | 30         |      |  |  | 28         |   |  |  | 0          |  
|Cumulative effect of change in accounting principles, net of tax                       |  |       |    |      |  |      | 0          |      |  |  | 0          |   |  |  | (16        | )
|                                                                                       |  |       |    |      |  |      |            |      |  |  |            |   |  |  |            |  
|Net income (loss)                                                                      |  |       |    |      |  |      | (256       | )    |  |  | 306        |   |  |  | 329        |  
|                                                                                       |  |       |    |      |  |      |            |      |  |  |            |   |  |  |            |  
|Earnings (loss) per share, basic and diluted                                           |  |       | 19 |      |  |      |            |      |  |  |            |   |  |  |            |  
|Continuing operations                                                                  |  |       |    |      |  |      | (4.38      | )    |  |  | 4.21       |   |  |  | 5.05       |  
|Discontinued operations                                                                |  |       |    |      |  |      | 0.46       |      |  |  | 0.43       |   |  |  | 0.00       |  
|Cumulative effect of change in accounting principles                                   |  |       |    |      |  |      | 0.00       |      |  |  | 0.00       |   |  |  | (0.23      | )
|                                                                                       |  |       |    |      |  |      |            |      |  |  |            |   |  |  |            |  
|Net income (loss) per share                                                            |  |       |    |      |  |      | (3.92      | )    |  |  | 4.64       |   |  |  | 4.82       |  
|                                                                                       |  |       |    |      |  |      |            |      |  |  |            |   |  |  |            |  
|Weighted average shares outstanding                                                    |  |       |    |      |  |      |            |      |  |  |            |   |  |  |            |  
|Basic and diluted                                                                      |  |       |    |      |  |      | 65 288 741 |      |  |  | 66 059 479 |   |  |  | 68 361 123 |  
|                                                                                       |  |       |    |      |  |      |            |      |  |  |            |   |  |  |            |  



F-3



---



##### Table of Contents






Consolidated Balance Sheets




|                                           |  |       |    |  |      |  |        |      |  |  |        |  
|------------------------------------------ |  | ----- | -- |  | ---- |  | ------ | ---- |  |  | ------ | -
|December 31,                               |  | Notes |    |  | 2005 |  |        | 2004 | 
|                                           |  |       |    |  |      |  |        |      | 
|ASSETS                                    
|Current assets                             |  |       |    |  |      |  |        |      |  |  |        |  
|Cash and cash equivalents                  |  |       |    |  |      |  | 1 259  |      |  |  | 1 614  |  
|Accounts receivable, net                   |  |       | 4  |  |      |  | 1 149  |      |  |  | 1 064  |  
|Inventories                                |  |       | 5  |  |      |  | 1 439  |      |  |  | 1 292  |  
|Prepaid and other current assets           |  |       |    |  |      |  | 420    |      |  |  | 411    |  
|                                           |  |       |    |  |      |  |        |      | 
|Total current assets                       |  |       |    |  |      |  | 4 267  |      |  |  | 4 381  |  
|Property, plant and equipment, net         |  |       | 6  |  |      |  | 2 724  |      |  |  | 3 015  |  
|Goodwill                                   |  |       | 7  |  |      |  | 1 495  |      |  |  | 1 561  |  
|Other intangible assets, net               |  |       | 8  |  |      |  | 831    |      |  |  | 823    |  
|Financial investments                      |  |       | 9  |  |      |  | 132    |      |  |  | 180    |  
|Other assets                               |  |       | 10 |  |      |  | 1 163  |      |  |  | 1 036  |  
|                                           |  |       |    |  |      |  |        |      | 
|Total assets                               |  |       |    |  |      |  | 10 612 |      |  |  | 10 996 |  
|                                           |  |       |    |  |      |  |        |      | 
|                                          
|LIABILITIES AND SHAREHOLDERS EQUITY      
|Current liabilities                        |  |       |    |  |      |  |        |      |  |  |        |  
|Accounts payable                           |  |       |    |  |      |  | 608    |      |  |  | 634    |  
|Short-term debt                            |  |       | 12 |  |      |  | 277    |      |  |  | 559    |  
|Income taxes payable                       |  |       |    |  |      |  | 106    |      |  |  | 116    |  
|Accruals and other current liabilities     |  |       | 11 |  |      |  | 900    |      |  |  | 831    |  
|                                           |  |       |    |  |      |  |        |      | 
|Total current liabilities                  |  |       |    |  |      |  | 1 891  |      |  |  | 2 140  |  
|Long-term debt                             |  |       | 13 |  |      |  | 2 942  |      |  |  | 2 917  |  
|Deferred income taxes                      |  |       | 14 |  |      |  | 404    |      |  |  | 413    |  
|Other liabilities                          |  |       | 15 |  |      |  | 1 392  |      |  |  | 1 306  |  
|                                           |  |       |    |  |      |  |        |      | 
|Total liabilities                          |  |       |    |  |      |  | 6 629  |      |  |  | 6 776  |  
|Minority interest                          |  |       |    |  |      |  | 80     |      |  |  | 68     |  
|Shareholders equity                       |  |       | 16 |  |      |  |        |      |  |  |        |  
|Common
    stock(i)                        |  |       |    |  |      |  | 69     |      |  |  | 212    |  
|Additional paid-in capital                 |  |       |    |  |      |  | 3 993  |      |  |  | 4 146  |  
|Retained earnings                          |  |       |    |  |      |  | 520    |      |  |  | 843    |  
|Accumulated other comprehensive loss       |  |       |    |  |      |  | (409   | )    |  |  | (575   | )
|Treasury stock, at
    cost(ii)            |  |       |    |  |      |  | (270   | )    |  |  | (474   | )
|                                           |  |       |    |  |      |  |        |      | 
|Total shareholders equity                 |  |       |    |  |      |  | 3 903  |      |  |  | 4 152  |  
|                                           |  |       |    |  |      |  |        |      | 
|Total liabilities and shareholders equity |  |       |    |  |      |  | 10 612 |      |  |  | 10 996 |  
|                                           |  |       |    |  |      |  |        |      | 






|     |  |                                                                                                                                                                                                                                                           
|---- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(i)  |  | Par value CHF 1 per share (December 31, 2004:
    CHF 3 per share), 79 064 617 shares
    authorized and 69 064 617 shares issued as of
    December 31, 2005 (80 826 617 shares
    authorized and 70 826 617 shares issued as of
    December 31, 2004).
|    
|(ii) |  | December 31, 2005: 2 607 215 treasury shares;
    December 31, 2004: 4 686 272 treasury shares.                                                                                                                                                           



F-4



---



##### Table of Contents






Consolidated Statements of Cash Flows




|                                                                                                             |  |      |       |      |  |      |        |   |  |  |        |  
|------------------------------------------------------------------------------------------------------------ |  | ---- | ----- | ---- |  | ---- | ------ | - |  |  | ------ | -
|Year ended December 31,                                                                                      |  | 2005 |       | 2004 |  | 2003
|                                                                                                             |  |      |       |      |  |     
|Cash flows from operating activities                                                                         |  |      |       |      |  |      |        |   |  |  |        |  
|Net income (loss)                                                                                            |  |      | (256  | )    |  |      | 306    |   |  |  | 329    |  
|Deduct income from discontinued operations, net of tax                                                       |  |      | (30   | )    |  |      | (28    | ) |  |  | 0      |  
|                                                                                                             |  |      |       |      |  |      |        |   |  |  |        |  
|Income (loss) from continuing operations                                                                     |  |      | (286  | )    |  |      | 278    |   |  |  | 329    |  
|Adjustments to reconcile income from continuing operations to
    net cash provided by operating activities: |  |      |       |      |  |      |        |   |  |  |        |  
|Depreciation and amortization                                                                                |  |      | 421   |      |  |      | 394    |   |  |  | 366    |  
|Deferred income taxes                                                                                        |  |      | (64   | )    |  |      | 24     |   |  |  | 30     |  
|Restructuring, impairment and other charges                                                                  |  |      | 703   |      |  |      | 91     |   |  |  | 0      |  
|Restructuring payments                                                                                       |  |      | (82   | )    |  |      | (11    | ) |  |  | 0      |  
|Gain on sale/disposal of assets, net                                                                         |  |      | (68   | )    |  |      | (2     | ) |  |  | (7     | )
|Realized gain on available-for-sale securities                                                               |  |      | (2    | )    |  |      | 0      |   |  |  | (12    | )
|Minority interest and other non-cash items, net                                                              |  |      | (78   | )    |  |      | 83     |   |  |  | 25     |  
|Changes in operating assets and liabilities:                                                                 |  |      |       |      |  |      |        |   |  |  |        |  
|Accounts receivable, net                                                                                     |  |      | 14    |      |  |      | (60    | ) |  |  | 56     |  
|Inventories                                                                                                  |  |      | (17   | )    |  |      | (45    | ) |  |  | 173    |  
|Accounts payable                                                                                             |  |      | (59   | )    |  |      | 34     |   |  |  | (9     | )
|Other operating assets and liabilities                                                                       |  |      | (72   | )    |  |      | (155   | ) |  |  | 82     |  
|                                                                                                             |  |      |       |      |  |      |        |   |  |  |        |  
|Net cash provided by operating activities                                                                    |  |      | 410   |      |  |      | 631    |   |  |  | 1 033  |  
|                                                                                                             |  |      |       |      |  |      |        |   |  |  |        |  
|Cash flows from investing activities                                                                         |  |      |       |      |  |      |        |   |  |  |        |  
|Capital expenditures                                                                                         |  |      | (275  | )    |  |      | (294   | ) |  |  | (233   | )
|Proceeds from sale of assets                                                                                 |  |      | 95    |      |  |      | 21     |   |  |  | 67     |  
|Sale (acquisition) of businesses, net of
    cash(i)                                                         |  |      | (50   | )    |  |      | (810   | ) |  |  | (71    | )
|Loans and other long-term assets                                                                             |  |      | (62   | )    |  |      | 32     |   |  |  | (2     | )
|                                                                                                             |  |      |       |      |  |      |        |   |  |  |        |  
|Net cash used in investing activities                                                                        |  |      | (292  | )    |  |      | (1 051 | ) |  |  | (239   | )
|                                                                                                             |  |      |       |      |  |      |        |   |  |  |        |  
|Cash flows from financing activities                                                                         |  |      |       |      |  |      |        |   |  |  |        |  
|Increase (decrease) in short-term debt, net                                                                  |  |      | (71   | )    |  |      | 51     |   |  |  | (25    | )
|Proceeds from long-term debt                                                                                 |  |      | 5     |      |  |      | 31     |   |  |  | 715    |  
|Repayments of long-term debt                                                                                 |  |      | (275  | )    |  |      | (27    | ) |  |  | (1 084 | )
|Dividends paid                                                                                               |  |      | (66   | )    |  |      | 0      |   |  |  | 0      |  
|Capital reduction paid                                                                                       |  |      | (130  | )    |  |      | (197   | ) |  |  | (206   | )
|Treasury stock transactions                                                                                  |  |      | 11    |      |  |      | (162   | ) |  |  | (142   | )
|                                                                                                             |  |      |       |      |  |      |        |   |  |  |        |  
|Net cash used in financing activities                                                                        |  |      | (526  | )    |  |      | (304   | ) |  |  | (742   | )
|                                                                                                             |  |      |       |      |  |      |        |   |  |  |        |  
|Effect of exchange rate changes on cash and cash
    equivalents                                             |  |      | 53    |      |  |      | (48    | ) |  |  | (27    | )
|                                                                                                             |  |      |       |      |  |      |        |   |  |  |        |  
|Net (decrease) increase in cash and cash equivalents                                                         |  |      | (355  | )    |  |      | (772   | ) |  |  | 25     |  
|Cash and cash equivalents, beginning of year                                                                 |  |      | 1 614 |      |  |      | 2 386  |   |  |  | 2 361  |  
|                                                                                                             |  |      |       |      |  |      |        |   |  |  |        |  
|Cash and cash equivalents, end of year                                                                       |  |      | 1 259 |      |  |      | 1 614  |   |  |  | 2 386  |  
|                                                                                                             |  |      |       |      |  |      |        |   |  |  |        |  
|Supplemental cash flow information                                                                           |  |      |       |      |  |      |        |   |  |  |        |  
|Cash paid for interest                                                                                       |  |      | (139  | )    |  |      | (144   | ) |  |  | (103   | )
|Cash paid for income taxes                                                                                   |  |      | (92   | )    |  |      | (108   | ) |  |  | (60    | )






|    |                                                                                                                                                                                                           
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(i) | Sale (acquisition) of businesses, net of cash, includes
    cash paid for acquisitions and cash payments attributable to the
    divestment in 2000 of the Performance Polymers business. See
    note 21.





F-5



---



##### Table of Contents






Consolidated Statements of Shareholders Equity


|                                                                                                    |  |       |    |        |  |            |      |          |  |               |       |                |  |          |      |       |  |  |      |   |  |  |      |   |  |  |      |   |  |  |       |  
|--------------------------------------------------------------------------------------------------- |  | ----- | -- | ------ |  | ---------- | ---- | -------- |  | ------------- | ----- | -------------- |  | -------- | ---- | ----- |  |  | ---- | - |  |  | ---- | - |  |  | ---- | - |  |  | ----- | -
|                                                                                                    |  |       |    |        |  |            |      |          |  | Accumulated   |       | Treasury stock |  |         
|                                                                                                    |  |       |    |        |  | Additional |      |          |  | other         |       |                |  |         
|(In millions of Swiss francs, except share and                                                      |  |       |    | Common |  | paid-in    |      | Retained |  | comprehensive |       | Unreserved     |  | Reserved |      |      
|per share data)                                                                                     |  | Notes |    | stock  |  | capital    |      | earnings |  | loss          |       | shares         |  | shares   |      | Total
|                                                                                                    |  |       |    |        |  |            |      |          |  |               |       |                |  |          |      |      
|Balance at December 31, 2002                                                                        |  |       |    |        |  |            | 649  |          |  |               | 4 205 |                |  |          | 208  |       |  |  | (362 | ) |  |  | (78  | ) |  |  | (241 | ) |  |  | 4 381 |  
|Net income                                                                                          |  |       |    |        |  |            |      |          |  |               |       |                |  |          | 329  |       |  |  |      |   |  |  |      |   |  |  |      |   |  |  | 329   |  
|Currency translation adjustments                                                                    |  |       |    |        |  |            |      |          |  |               |       |                |  |          |      |       |  |  | (135 | ) |  |  |      |   |  |  |      |   |  |  | (135  | )
|Realization of previously unrealized gain on available-for-sale
    securities, net of tax of CHF 4 |  |       | 9  |        |  |            |      |          |  |               |       |                |  |          |      |       |  |  | (4   | ) |  |  |      |   |  |  |      |   |  |  | (4    | )
|Unrealized gain on available-for-sale securities, net of tax of
    CHF 4                           |  |       |    |        |  |            |      |          |  |               |       |                |  |          |      |       |  |  | 5    |   |  |  |      |   |  |  |      |   |  |  | 5     |  
|Minimum pension liability adjustment, net of tax of CHF 1                                           |  |       |    |        |  |            |      |          |  |               |       |                |  |          |      |       |  |  | (2   | ) |  |  |      |   |  |  |      |   |  |  | (2    | )
|Other                                                                                               |  |       |    |        |  |            |      |          |  |               |       |                |  |          |      |       |  |  | (1   | ) |  |  |      |   |  |  |      |   |  |  | (1    | )
|                                                                                                    |  |       |    |        |  |            |      |          |  |               |       |                |  |          |      |       |  |  |      |   |  |  |      |   |  |  |      |   |  |  |       |  
|Comprehensive income (loss)                                                                         |  |       |    |        |  |            |      |          |  |               |       |                |  |          | 329  |       |  |  | (137 | ) |  |  |      |   |  |  |      |   |  |  | 192   |  
|Capital reduction
    paid(i)                                                                       |  |       |    |        |  |            | (216 | )        |  |               | 10    |                |  |          |      |       |  |  |      |   |  |  |      |   |  |  |      |   |  |  | (206  | )
|Treasury stock transactions                                                                         |  |       | 16 |        |  |            |      |          |  |               | 3     |                |  |          |      |       |  |  |      |   |  |  | 11   |   |  |  | (138 | ) |  |  | (124  | )
|Other                                                                                               |  |       |    |        |  |            |      |          |  |               | 11    |                |  |          | (1   | )     |  |  |      |   |  |  |      |   |  |  |      |   |  |  | 10    |  
|                                                                                                    |  |       |    |        |  |            |      |          |  |               |       |                |  |          |      |       |  |  |      |   |  |  |      |   |  |  |      |   |  |  |       |  
|Balance at December 31, 2003                                                                        |  |       |    |        |  |            | 433  |          |  |               | 4 229 |                |  |          | 536  |       |  |  | (499 | ) |  |  | (67  | ) |  |  | (379 | ) |  |  | 4 253 |  
|Net income                                                                                          |  |       |    |        |  |            |      |          |  |               |       |                |  |          | 306  |       |  |  |      |   |  |  |      |   |  |  |      |   |  |  | 306   |  
|Currency translation adjustments                                                                    |  |       |    |        |  |            |      |          |  |               |       |                |  |          |      |       |  |  | (76  | ) |  |  |      |   |  |  |      |   |  |  | (76   | )
|                                                                                                    |  |       |    |        |  |            |      |          |  |               |       |                |  |          |      |       |  |  |      |   |  |  |      |   |  |  |      |   |  |  |       |  
|Comprehensive income (loss)                                                                         |  |       |    |        |  |            |      |          |  |               |       |                |  |          | 306  |       |  |  | (76  | ) |  |  |      |   |  |  |      |   |  |  | 230   |  
|Capital reduction
    paid(i)                                                                       |  |       |    |        |  |            | (213 | )        |  |               | 16    |                |  |          |      |       |  |  |      |   |  |  |      |   |  |  |      |   |  |  | (197  | )
|Share cancellation                                                                                  |  |       | 16 |        |  |            | (8   | )        |  |               | (110  | )              |  |          |      |       |  |  |      |   |  |  |      |   |  |  | 118  |   |  |  | 0     |  
|Treasury stock transactions                                                                         |  |       | 16 |        |  |            |      |          |  |               | 2     |                |  |          |      |       |  |  |      |   |  |  | (3   | ) |  |  | (143 | ) |  |  | (144  | )
|Other                                                                                               |  |       |    |        |  |            |      |          |  |               | 9     |                |  |          | 1    |       |  |  |      |   |  |  |      |   |  |  |      |   |  |  | 10    |  
|                                                                                                    |  |       |    |        |  |            |      |          |  |               |       |                |  |          |      |       |  |  |      |   |  |  |      |   |  |  |      |   |  |  |       |  
|Balance at December 31, 2004                                                                        |  |       |    |        |  |            | 212  |          |  |               | 4 146 |                |  |          | 843  |       |  |  | (575 | ) |  |  | (70  | ) |  |  | (404 | ) |  |  | 4 152 |  
|Net loss                                                                                            |  |       |    |        |  |            |      |          |  |               |       |                |  |          | (256 | )     |  |  |      |   |  |  |      |   |  |  |      |   |  |  | (256  | )
|Currency translation adjustments                                                                    |  |       |    |        |  |            |      |          |  |               |       |                |  |          |      |       |  |  | 189  |   |  |  |      |   |  |  |      |   |  |  | 189   |  
|Minimum pension liability adjustment, net of tax of CHF 16                                          |  |       |    |        |  |            |      |          |  |               |       |                |  |          |      |       |  |  | (25  | ) |  |  |      |   |  |  |      |   |  |  | (25   | )
|Other                                                                                               |  |       |    |        |  |            |      |          |  |               |       |                |  |          |      |       |  |  | 2    |   |  |  |      |   |  |  |      |   |  |  | 2     |  
|                                                                                                    |  |       |    |        |  |            |      |          |  |               |       |                |  |          |      |       |  |  |      |   |  |  |      |   |  |  |      |   |  |  |       |  
|Comprehensive income (loss)                                                                         |  |       |    |        |  |            |      |          |  |               |       |                |  |          | (256 | )     |  |  | 166  |   |  |  |      |   |  |  |      |   |  |  | (90   | )
|Capital reduction
    paid(i)                                                                       |  |       |    |        |  |            | (138 | )        |  |               | 8     |                |  |          |      |       |  |  |      |   |  |  |      |   |  |  |      |   |  |  | (130  | )
|Cash dividends declared and
    paid(ii)                                                            |  |       |    |        |  |            |      |          |  |               |       |                |  |          | (66  | )     |  |  |      |   |  |  |      |   |  |  |      |   |  |  | (66   | )
|Share cancellation                                                                                  |  |       | 16 |        |  |            | (5   | )        |  |               | (157  | )              |  |          |      |       |  |  |      |   |  |  |      |   |  |  | 162  |   |  |  | 0     |  
|Treasury stock transactions                                                                         |  |       | 16 |        |  |            |      |          |  |               | (13   | )              |  |          |      |       |  |  |      |   |  |  | (105 | ) |  |  | 147  |   |  |  | 29    |  
|Other                                                                                               |  |       |    |        |  |            |      |          |  |               | 9     |                |  |          | (1   | )     |  |  |      |   |  |  |      |   |  |  |      |   |  |  | 8     |  
|                                                                                                    |  |       |    |        |  |            |      |          |  |               |       |                |  |          |      |       |  |  |      |   |  |  |      |   |  |  |      |   |  |  |       |  
|Balance at December 31, 2005                                                                        |  |       |    |        |  |            | 69   |          |  |               | 3 993 |                |  |          | 520  |       |  |  | (409 | ) |  |  | (175 | ) |  |  | (95  | ) |  |  | 3 903 |  






|     |  |                                                                                           
|---- |  | ------------------------------------------------------------------------------------------
|(i)  |  | Capital reduction paid in 2005 was CHF 2.00 per share (2004
    and 2003: 3.00 per share).
|    
|(ii) |  | Cash dividend declared and paid in 2005 was CHF 1.00 per
    share.                       





F-6



---



##### Table of Contents






Business Segment Data


|                                                    |  |                               |       |      |  |      |       |   |  |  |       |  
|--------------------------------------------------- |  | ----------------------------- | ----- | ---- |  | ---- | ----- | - |  |  | ----- | -
|Year ended December 31,                             |  | 2005                          |       | 2004 |  | 2003
|                                                    |  |                               |       |      |  |     
|                                                    |  | (In millions of Swiss francs)
|Net sales                                           |  |                               |       |      |  |      |       |   |  |  |       |  
|Plastic Additives                                   |  |                               | 1 938 |      |  |      | 1 895 |   |  |  | 1 822 |  
|Coating Effects                                     |  |                               | 1 804 |      |  |      | 1 818 |   |  |  | 1 807 |  
|Water & Paper Treatment                             |  |                               | 2 394 |      |  |      | 2 014 |   |  |  | 1 616 |  
|Textile Effects                                     |  |                               | 1 283 |      |  |      | 1 300 |   |  |  | 1 401 |  
|                                                    |  |                               |       |      |  |      |       |   |  |  |       |  
|Total net sales                                     |  |                               | 7 419 |      |  |      | 7 027 |   |  |  | 6 646 |  
|                                                    |  |                               |       |      |  |      |       |   |  |  |       |  
|                                                   
|Operating income (loss)                             |  |                               |       |      |  |      |       |   |  |  |       |  
|Plastic Additives                                   |  |                               | 260   |      |  |      | 224   |   |  |  | 165   |  
|Coating Effects                                     |  |                               | 233   |      |  |      | 291   |   |  |  | 298   |  
|Water & Paper Treatment                             |  |                               | 128   |      |  |      | 128   |   |  |  | 125   |  
|Textile
    Effects(ii)                             |  |                               | (520  | )    |  |      | 61    |   |  |  | 68    |  
|Corporate and other
    expenses(ii)                |  |                               | (225  | )    |  |      | (183  | ) |  |  | (93   | )
|                                                    |  |                               |       |      |  |      |       |   |  |  |       |  
|Total operating income (loss)                       |  |                               | (124  | )    |  |      | 521   |   |  |  | 563   |  
|                                                    |  |                               |       |      |  |      |       |   |  |  |       |  
|                                                   
|Restructuring, impairment and other
    charges(ii) |  |                               |       |      |  |      |       |   |  |  |       |  
|Plastic Additives                                   |  |                               | 0     |      |  |      | 0     |   |  |  | 0     |  
|Coating Effects                                     |  |                               | 0     |      |  |      | 0     |   |  |  | 0     |  
|Water & Paper Treatment                             |  |                               | 0     |      |  |      | 0     |   |  |  | 0     |  
|Textile Effects                                     |  |                               | 583   |      |  |      | 0     |   |  |  | 0     |  
|Corporate                                           |  |                               | 120   |      |  |      | 91    |   |  |  | 0     |  
|                                                    |  |                               |       |      |  |      |       |   |  |  |       |  
|Total restructuring, impairment and other charges   |  |                               | 703   |      |  |      | 91    |   |  |  | 0     |  
|                                                    |  |                               |       |      |  |      |       |   |  |  |       |  
|                                                   
|Adjusted
    EBITDA(i)                              |  |                               |       |      |  |      |       |   |  |  |       |  
|Plastic Additives                                   |  |                               | 355   |      |  |      | 319   |   |  |  | 265   |  
|Coating Effects                                     |  |                               | 340   |      |  |      | 394   |   |  |  | 395   |  
|Water & Paper Treatment                             |  |                               | 288   |      |  |      | 259   |   |  |  | 228   |  
|Textile
    Effects(ii)                             |  |                               | (468  | )    |  |      | 117   |   |  |  | 128   |  
|Corporate(ii)                                       |  |                               | (218  | )    |  |      | (174  | ) |  |  | (87   | )
|                                                    |  |                               |       |      |  |      |       |   |  |  |       |  
|Total adjusted EBITDA                               |  |                               | 297   |      |  |      | 915   |   |  |  | 929   |  
|                                                    |  |                               |       |      |  |      |       |   |  |  |       |  
|                                                   
|Depreciation and amortization                       |  |                               |       |      |  |      |       |   |  |  |       |  
|Plastic Additives                                   |  |                               | 95    |      |  |      | 95    |   |  |  | 100   |  
|Coating Effects                                     |  |                               | 107   |      |  |      | 103   |   |  |  | 97    |  
|Water & Paper Treatment                             |  |                               | 160   |      |  |      | 131   |   |  |  | 103   |  
|Textile Effects                                     |  |                               | 52    |      |  |      | 56    |   |  |  | 60    |  
|Corporate                                           |  |                               | 7     |      |  |      | 9     |   |  |  | 6     |  
|                                                    |  |                               |       |      |  |      |       |   |  |  |       |  
|Total depreciation and amortization                 |  |                               | 421   |      |  |      | 394   |   |  |  | 366   |  
|                                                    |  |                               |       |      |  |      |       |   |  |  |       |  





F-7



---



##### Table of Contents



Business Segment Data  (continued)




|                        |  |      |         |      |  |      |       |  |  |  |       | 
|----------------------- |  | ---- | ------- | ---- |  | ---- | ----- |  |  |  | ----- | 
|Year ended December 31, |  | 2005 |         | 2004 |  | 2003
|                        |  |      |         |      |  |     
|Operating income margin |  |      |         |      |  |      |       |  |  |  |       | 
|Plastic Additives       |  |      | 13.4%   |      |  |      | 11.9% |  |  |  | 9.1%  | 
|Coating Effects         |  |      | 12.9%   |      |  |      | 16.0% |  |  |  | 16.5% | 
|Water & Paper Treatment |  |      | 5.4%    |      |  |      | 6.3%  |  |  |  | 7.8%  | 
|Textile Effects         |  |      | (40.5)% |      |  |      | 4.7%  |  |  |  | 4.9%  | 
|                        |  |      |         |      |  |      |       |  |  |  |       | 
|Operating income margin |  |      | (1.7)%  |      |  |      | 7.4%  |  |  |  | 8.5%  | 
|                        |  |      |         |      |  |      |       |  |  |  |       | 

|                        |  |  |         |  |  |  |       |  |  |  |       | 
|----------------------- |  |  | ------- |  |  |  | ----- |  |  |  | ----- | 
|Adjusted EBITDA margin  |  |  |         |  |  |  |       |  |  |  |       | 
|Plastic Additives       |  |  | 18.3%   |  |  |  | 16.8% |  |  |  | 14.6% | 
|Coating Effects         |  |  | 18.9%   |  |  |  | 21.7% |  |  |  | 21.8% | 
|Water & Paper Treatment |  |  | 12.0%   |  |  |  | 12.8% |  |  |  | 14.1% | 
|Textile Effects         |  |  | (36.5)% |  |  |  | 9.0%  |  |  |  | 9.2%  | 
|                        |  |  |         |  |  |  |       |  |  |  |       | 
|Adjusted EBITDA margin  |  |  | 4.0%    |  |  |  | 13.0% |  |  |  | 14.0% | 
|                        |  |  |         |  |  |  |       |  |  |  |       | 

|                               |  |  |     |  |  |  |     |  |  |  |     | 
|------------------------------ |  |  | --- |  |  |  | --- |  |  |  | --- | 
|Research and development       |  |  |     |  |  |  |     |  |  |  |     | 
|Plastic Additives              |  |  | 97  |  |  |  | 97  |  |  |  | 107 | 
|Coating Effects                |  |  | 104 |  |  |  | 101 |  |  |  | 95  | 
|Water & Paper Treatment        |  |  | 48  |  |  |  | 42  |  |  |  | 33  | 
|Textile Effects                |  |  | 29  |  |  |  | 29  |  |  |  | 32  | 
|Corporate                      |  |  | 23  |  |  |  | 19  |  |  |  | 14  | 
|                               |  |  |     |  |  |  |     |  |  |  |     | 
|Total research and development |  |  | 301 |  |  |  | 288 |  |  |  | 281 | 
|                               |  |  |     |  |  |  |     |  |  |  |     | 

|                           |  |  |     |  |  |  |     |  |  |  |     | 
|-------------------------- |  |  | --- |  |  |  | --- |  |  |  | --- | 
|Capital expenditures       |  |  |     |  |  |  |     |  |  |  |     | 
|Plastic Additives          |  |  | 72  |  |  |  | 76  |  |  |  | 64  | 
|Coating Effects            |  |  | 82  |  |  |  | 82  |  |  |  | 79  | 
|Water & Paper Treatment    |  |  | 89  |  |  |  | 81  |  |  |  | 55  | 
|Textile Effects            |  |  | 27  |  |  |  | 35  |  |  |  | 29  | 
|Corporate                  |  |  | 5   |  |  |  | 20  |  |  |  | 6   | 
|                           |  |  |     |  |  |  |     |  |  |  |     | 
|Total capital expenditures |  |  | 275 |  |  |  | 294 |  |  |  | 233 | 
|                           |  |  |     |  |  |  |     |  |  |  |     | 





F-8



---



##### Table of Contents



Business Segment Data  (continued)


|                                                                |  |                       |        |      |  |  |        |  
|--------------------------------------------------------------- |  | --------------------- | ------ | ---- |  |  | ------ | -
|Balance at December 31,                                         |  | 2005                  |        | 2004
|                                                                |  |                       |        |     
|                                                                |  | (In millions of Swiss
|                                                                |  | francs, except       
|                                                                |  | percentages)         
|Net assets                                                      |  |                       |        |      |  |  |        |  
|Plastic Additives                                               |  |                       | 1 441  |      |  |  | 1 321  |  
|Coating Effects                                                 |  |                       | 2 028  |      |  |  | 1 843  |  
|Water & Paper Treatment                                         |  |                       | 3 283  |      |  |  | 3 164  |  
|Textile Effects                                                 |  |                       | 561    |      |  |  | 1 158  |  
|Shared operating net assets not allocated to segments
    (iii) |  |                       | 91     |      |  |  | 37     |  
|Non-operating net
    assets(iv)                                |  |                       | 1 253  |      |  |  | 1 636  |  
|                                                                |  |                       |        |      |  |  |        |  
|Invested
    capital(v)                                         |  |                       | 8 657  |      |  |  | 9 159  |  
|Items not included in invested capital                          |  |                       | (4 754 | )    |  |  | (5 007 | )
|                                                                |  |                       |        |      |  |  |        |  
|Total shareholders equity (total net assets)                   |  |                       | 3 903  |      |  |  | 4 152  |  
|                                                                |  |                       |        |      |  |  |        |  

|                                                     |  |      |        |   |      |  |        |  
|---------------------------------------------------- |  | ---- | ------ | - | ---- |  | ------ | -
|                                                     |  | 2005 |        |   | 2004 | 
|                                                     |  |      |        |   |      | 
|Components of items not included in invested capital |  |      |        |   |      |  |        |  
|Net deferred tax liabilities                         |  |      | (63    | ) |      |  | (157   | )
|Short-term debt                                      |  |      | (277   | ) |      |  | (559   | )
|Long-term debt                                       |  |      | (2 942 | ) |      |  | (2 917 | )
|Other liabilities                                    |  |      | (1 392 | ) |      |  | (1 306 | )
|Minority interest                                    |  |      | (80    | ) |      |  | (68    | )
|                                                     |  |      |        |   |      | 
|Total items not included in invested capital         |  |      | (4 754 | ) |      |  | (5 007 | )
|                                                     |  |      |        |   |      | 

|                                                           |  |      |        |  |      |  |        | 
|---------------------------------------------------------- |  | ---- | ------ |  | ---- |  | ------ | 
|Year ended December 31,                                    |  | 2005 |        |  | 2004 | 
|                                                           |  |      |        |  |      | 
|Total assets                                               |  |      |        |  |      |  |        | 
|Plastic Additives                                          |  |      | 1 692  |  |      |  | 1 603  | 
|Coating Effects                                            |  |      | 2 275  |  |      |  | 2 090  | 
|Water & Paper Treatment                                    |  |      | 3 644  |  |      |  | 3 508  | 
|Textile Effects                                            |  |      | 785    |  |      |  | 1 361  | 
|Shared operating assets not allocated to
    segments(iii) |  |      | 440    |  |      |  | 357    | 
|Non-operating
    assets(iv)                               |  |      | 1 776  |  |      |  | 2 077  | 
|                                                           |  |      |        |  |      | 
|Total assets                                               |  |      | 10 612 |  |      |  | 10 996 | 
|                                                           |  |      |        |  |      | 






|      |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|----- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(i)   |  | Adjusted EBITDA is calculated as operating income plus
    depreciation and amortization. In financial statements published
    prior to June 30, 2005, the company referred to adjusted
    EBITDA as EBITDA.                                                                                                                                                                                                                                         
|     
|(ii)  |  | The CHF 583 million impairment charge relating to the
    impairment of the carrying value of the Companys Textile
    Effects Segment described in note 23 is considered a
    segment activity and is therefore charged to the Textile Effects
    Segment. All other restructuring, impairment and other charges
    apply principally to the Company as a whole and therefore are
    included in Corporate and are not allocated to the segments.
|     
|(iii) |  | Shared operating net assets not allocated to segments and shared
    operating assets not allocated to segments include certain net
    assets and shared assets of Group Service Units and
    Headquarters. Group Service Units provide services to the
    segments.                                                                                                                                                                                





F-9



---



##### Table of Contents



Business Segment Data  (continued)




|     |  |                                                                                                                                                                                                                                                                                          
|---- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(iv) |  | Non-operating net assets and non-operating assets include
    primarily cash and cash equivalents and certain financial
    investments. Also included in non-operating net assets are
    certain Group Service Units current liabilities.                                             
|    
|(v)  |  | Invested capital equals total assets less non-interest bearing
    current liabilities (i.e., accounts payable, income taxes
    payable as well as accruals and other current liabilities,
    except the current portion of deferred tax liabilities) and less
    deferred tax assets.







Description of Segments












F-10



---



##### Table of Contents



Business Segment Data  (continued)










F-11



---



##### Table of Contents






Geographic Data


|                                                                           |  |                       |       |  |      |  |       |      |  |  |       | 
|-------------------------------------------------------------------------- |  | --------------------- | ----- |  | ---- |  | ----- | ---- |  |  | ----- | 
|Net sales to customers                                                     |  | 2005                  |       |  | 2004 |  |       | 2003 | 
|                                                                           |  |                       |       |  |      |  |       |      | 
|                                                                           |  | (In millions of Swiss |      
|                                                                           |  | francs)               |      
|Europe                                                                     |  |                       |       |  |      |  |       |      |  |  |       | 
|Germany                                                                    |  |                       | 615   |  |      |  | 635   |      |  |  | 584   | 
|United Kingdom                                                             |  |                       | 286   |  |      |  | 297   |      |  |  | 293   | 
|Italy                                                                      |  |                       | 333   |  |      |  | 355   |      |  |  | 340   | 
|France                                                                     |  |                       | 393   |  |      |  | 353   |      |  |  | 304   | 
|Rest of European
    Union(i)                                              |  |                       | 1 290 |  |      |  | 1 140 |      |  |  | 933   | 
|Switzerland                                                                |  |                       | 77    |  |      |  | 80    |      |  |  | 99    | 
|Rest of Europe                                                             |  |                       | 203   |  |      |  | 190   |      |  |  | 178   | 
|                                                                           |  |                       |       |  |      |  |       |      | 
|Total Europe                                                               |  |                       | 3 197 |  |      |  | 3 050 |      |  |  | 2 731 | 
|                                                                           |  |                       |       |  |      |  |       |      | 
|Americas                                                                   |  |                       |       |  |      |  |       |      |  |  |       | 
|United States of America                                                   |  |                       | 1 360 |  |      |  | 1 366 |      |  |  | 1 415 | 
|Canada                                                                     |  |                       | 219   |  |      |  | 212   |      |  |  | 199   | 
|Central America                                                            |  |                       | 165   |  |      |  | 154   |      |  |  | 167   | 
|South America                                                              |  |                       | 343   |  |      |  | 314   |      |  |  | 285   | 
|                                                                           |  |                       |       |  |      |  |       |      | 
|Total Americas                                                             |  |                       | 2 087 |  |      |  | 2 046 |      |  |  | 2 066 | 
|                                                                           |  |                       |       |  |      |  |       |      | 
|Asia Pacific                                                               |  |                       |       |  |      |  |       |      |  |  |       | 
|Japan                                                                      |  |                       | 431   |  |      |  | 406   |      |  |  | 381   | 
|Region China                                                               |  |                       | 545   |  |      |  | 482   |      |  |  | 440   | 
|Rest of Asia                                                               |  |                       | 752   |  |      |  | 641   |      |  |  | 627   | 
|Australia and New Zealand                                                  |  |                       | 162   |  |      |  | 158   |      |  |  | 159   | 
|Africa and Middle East                                                     |  |                       | 245   |  |      |  | 244   |      |  |  | 242   | 
|                                                                           |  |                       |       |  |      |  |       |      | 
|Total Asia Pacific                                                         |  |                       | 2 135 |  |      |  | 1 931 |      |  |  | 1 849 | 
|                                                                           |  |                       |       |  |      |  |       |      | 
|Total net sales to customers                                               |  |                       | 7 419 |  |      |  | 7 027 |      |  |  | 6 646 | 
|                                                                           |  |                       |       |  |      |  |       |      | 
|Net sales to customers are based on the final destination of the
    sale.





F-12



---



##### Table of Contents



Geographic Data  (continued)


|                              |  |                 |       |      |  |  |       | 
|----------------------------- |  | --------------- | ----- | ---- |  |  | ----- | 
|                              |  | Year ended     
|                              |  | December 31,   
|                              |  |                
|Long-lived assets             |  | 2005            |       | 2004
|                              |  |                 |       |     
|                              |  | (In millions of
|                              |  | Swiss francs)  
|Europe                        |  |                 |       |      |  |  |       | 
|Germany                       |  |                 | 287   |      |  |  | 366   | 
|United Kingdom                |  |                 | 415   |      |  |  | 453   | 
|Italy                         |  |                 | 170   |      |  |  | 171   | 
|France                        |  |                 | 121   |      |  |  | 161   | 
|Rest of European
    Union(i) |  |                 | 223   |      |  |  | 232   | 
|Switzerland                   |  |                 | 435   |      |  |  | 593   | 
|Rest of Europe                |  |                 | 0     |      |  |  | 1     | 
|                              |  |                 |       |      |  |  |       | 
|Total Europe                  |  |                 | 1 651 |      |  |  | 1 977 | 
|                              |  |                 |       |      |  |  |       | 
|Americas                      |  |                 |       |      |  |  |       | 
|United States of America      |  |                 | 669   |      |  |  | 663   | 
|Canada                        |  |                 | 5     |      |  |  | 3     | 
|Central America               |  |                 | 81    |      |  |  | 86    | 
|South America                 |  |                 | 27    |      |  |  | 24    | 
|                              |  |                 |       |      |  |  |       | 
|Total Americas                |  |                 | 782   |      |  |  | 776   | 
|                              |  |                 |       |      |  |  |       | 
|Asia Pacific                  |  |                 |       |      |  |  |       | 
|Japan                         |  |                 | 21    |      |  |  | 20    | 
|Region China                  |  |                 | 154   |      |  |  | 165   | 
|Rest of Asia                  |  |                 | 91    |      |  |  | 52    | 
|Australia and New Zealand     |  |                 | 17    |      |  |  | 18    | 
|Africa and Middle East        |  |                 | 8     |      |  |  | 7     | 
|                              |  |                 |       |      |  |  |       | 
|Total Asia Pacific            |  |                 | 291   |      |  |  | 262   | 
|                              |  |                 |       |      |  |  |       | 
|Total long-lived assets       |  |                 | 2 724 |      |  |  | 3 015 | 
|                              |  |                 |       |      |  |  |       | 






|    |                                                                                                                                                                                                                                    
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(i) | Rest of European Union includes all other European Union member
    countries as of December 31, 2005, that are not
    specifically listed. Amounts for 2004 and 2003 have been
    adjusted to include the same member countries.



| |                                                                                                                
| | ---------------------------------------------------------------------------------------------------------------
| | Long-lived assets represent property, plant and equipment, net
    and are shown by the location of the assets.





F-13



---



##### Table of Contents






Notes to Consolidated Financial Statements


(in millions of Swiss francs, except share and per share
data)




|   |                                           
|-- | ------------------------------------------
|1. | Summary of significant accounting policies



| |                   
| | ------------------
| | Company operations





| |                                        
| | ---------------------------------------
| | Basis of consolidation and presentation





| |                 
| | ----------------
| | Use of estimates





| |                             
| | ----------------------------
| | Foreign currency translation





| |                 
| | ----------------
| | Cash equivalents





| |                    
| | -------------------
| | Accounts receivable



F-14



---



##### Table of Contents



Notes to Consolidated Financial Statements 
(continued)




| |            
| | -----------
| | Inventories

first-in,




| |                              
| | -----------------------------
| | Property, plant and equipment







| |                                     
| | ------------------------------------
| | Goodwill and other intangible assets



| |         
| | --------
| | Goodwill









| |                        
| | -----------------------
| | Other intangible assets



F-15



---



##### Table of Contents



Notes to Consolidated Financial Statements 
(continued)








| |                      
| | ---------------------
| | Financial investments









| |                                 
| | --------------------------------
| | Derivative financial instruments





F-16



---



##### Table of Contents



Notes to Consolidated Financial Statements 
(continued)






| |                    
| | -------------------
| | Revenue recognition





| |             
| | ------------
| | Income taxes







| |                                          
| | -----------------------------------------
| | Environmental compliance and expenditures





| |                   
| | ------------------
| | Earnings per share





| |              
| | -------------
| | Restructuring



F-17



---



##### Table of Contents



Notes to Consolidated Financial Statements 
(continued)






| |                         
| | ------------------------
| | New accounting standards



| |                                            
| | -------------------------------------------
| | Consolidation of Variable Interest Entities











| |                                                                 
| | ----------------------------------------------------------------
| | Disclosures about pensions and other postretirement
    benefits







F-18



---



##### Table of Contents



Notes to Consolidated Financial Statements 
(continued)




| |      
| | -----
| | Other





| |                  
| | -----------------
| | Reclassifications





|   |                                       
|-- | --------------------------------------
|2. | Exchange rates of principal currencies

|    |  |               |  |  |      |                     |  |               |          |  |  |      |      |  |      |  |      |      |  |  |      |  |  |  |      | 
|--- |  | ------------- |  |  | ---- | ------------------- |  | ------------- | -------- |  |  | ---- | ---- |  | ---- |  | ---- | ---- |  |  | ---- |  |  |  | ---- | 
|    |  |               |  |  |      |                     |  | Balance Sheet |         
|    |  |               |  |  |      | Statement of Income |  |               | Year-End | 
|    |  |               |  |  |      | Average Rates       |  |               | Rates    | 
|    |  |               |  |  |      |                     |  |               |          | 
|    |  |               |  |  |      | 2005                |  |               | 2004     |  |  | 2003 |      |  | 2005 |  |      | 2004 | 
|    |  |               |  |  |      |                     |  |               |          |  |  |      |      |  |      |  |      |      | 
|1   |  | U.S. dollar   |  |  | (USD | )                   |  |               | 1.24     |  |  |      | 1.24 |  |      |  | 1.35 |      |  |  | 1.31 |  |  |  | 1.15 | 
|1   |  | British pound |  |  | (GBP | )                   |  |               | 2.26     |  |  |      | 2.27 |  |      |  | 2.20 |      |  |  | 2.28 |  |  |  | 2.21 | 
|1   |  | Euro          |  |  | (EUR | )                   |  |               | 1.55     |  |  |      | 1.54 |  |      |  | 1.52 |      |  |  | 1.56 |  |  |  | 1.54 | 
|100 |  | Japanese yen  |  |  | (JPY | )                   |  |               | 1.13     |  |  |      | 1.15 |  |      |  | 1.16 |      |  |  | 1.12 |  |  |  | 1.11 | 



|   |             
|-- | ------------
|3. | Acquisitions









|   |                    
|-- | -------------------
|4. | Accounts receivable

|                                |  |      |       |   |      |  |       |  
|------------------------------- |  | ---- | ----- | - | ---- |  | ----- | -
|                                |  | 2005 |       |   | 2004 | 
|                                |  |      |       |   |      | 
|Accounts receivable             |  |      | 1 224 |   |      |  | 1 145 |  
|Allowance for doubtful accounts |  |      | (75   | ) |      |  | (81   | )
|Total                           |  |      | 1 149 |   |      |  | 1 064 |  



|   |            
|-- | -----------
|5. | Inventories

|                                   |  |      |       |  |      |  |       | 
|---------------------------------- |  | ---- | ----- |  | ---- |  | ----- | 
|                                   |  | 2005 |       |  | 2004 | 
|                                   |  |      |       |  |      | 
|Raw materials                      |  |      | 216   |  |      |  | 196   | 
|Work in process and finished goods |  |      | 1 223 |  |      |  | 1 096 | 
|Total                              |  |      | 1 439 |  |      |  | 1 292 | 



F-19



---



##### Table of Contents



Notes to Consolidated Financial Statements 
(continued)




|   |                              
|-- | -----------------------------
|6. | Property, plant and equipment



|                                                  |  |      |     |               |           |  |              |           |  |  |             |   |  |       |      |   |       |  |        |   |  |  |        |  
|------------------------------------------------- |  | ---- | --- | ------------- | --------- |  | ------------ | --------- |  |  | ----------- | - |  | ----- | ---- | - | ----- |  | ------ | - |  |  | ------ | -
|                                                  |  | 2005 |     |               | 2004      | 
|                                                  |  |      |     |               |           | 
|                                                  |  |      |     | Machinery and |           |  | Construction |           |  |  |             |  
|                                                  |  | Land |     |               | Buildings |  |              | equipment |  |  | in progress |   |  | Total |      |   | Total | 
|                                                  |  |      |     |               |           |  |              |           |  |  |             |   |  |       |      |   |       | 
|Cost at January 1,                                |  |      | 112 |               |           |  | 1 881        |           |  |  | 5 490       |   |  |       | 195  |   |       |  | 7 678  |   |  |  | 7 553  |  
|Additions                                         |  |      | 1   |               |           |  | 4            |           |  |  | 42          |   |  |       | 228  |   |       |  | 275    |   |  |  | 294    |  
|Retirements/disposals                             |  |      | (4  | )             |           |  | (25          | )         |  |  | (89         | ) |  |       | (5   | ) |       |  | (123   | ) |  |  | (134   | )
|Changes in consolidation
    scope(i)             |  |      | 6   |               |           |  | 22           |           |  |  | 25          |   |  |       | 1    |   |       |  | 54     |   |  |  | 264    |  
|Currency adjustments                              |  |      | 6   |               |           |  | 93           |           |  |  | 280         |   |  |       | 10   |   |       |  | 389    |   |  |  | (207   | )
|Other(ii)                                         |  |      | 0   |               |           |  | (215         | )         |  |  | (941        | ) |  |       | (253 | ) |       |  | (1 409 | ) |  |  | (92    | )
|Cost at December 31,                              |  |      | 121 |               |           |  | 1 760        |           |  |  | 4 807       |   |  |       | 176  |   |       |  | 6 864  |   |  |  | 7 678  |  
|Accumulated depreciation at January 1,            |  |      |    |               |           |  | (946         | )         |  |  | (3 717      | ) |  |       |     |   |       |  | (4 663 | ) |  |  | (4 590 | )
|Depreciation                                      |  |      |    |               |           |  | (64          | )         |  |  | (298        | ) |  |       |     |   |       |  | (362   | ) |  |  | (347   | )
|Accumulated depreciation on retirements/disposals |  |      |    |               |           |  | 13           |           |  |  | 79          |   |  |       |     |   |       |  | 92     |   |  |  | 92     |  
|Currency adjustments                              |  |      |    |               |           |  | (36          | )         |  |  | (181        | ) |  |       |     |   |       |  | (217   | ) |  |  | 121    |  
|Other(ii)                                         |  |      |    |               |           |  | 155          |           |  |  | 855         |   |  |       |     |   |       |  | 1 010  |   |  |  | 61     |  
|Accumulated depreciation at December 31,          |  |      |    |               |           |  | (878         | )         |  |  | (3 262      | ) |  |       |     |   |       |  | (4 140 | ) |  |  | (4 663 | )
|Net book value at December 31,                    |  |      | 121 |               |           |  | 882          |           |  |  | 1 545       |   |  |       | 176  |   |       |  | 2 724  |   |  |  | 3 015  |  






|     |  |                                                                                                                                                                                                                                                                                                                                                            
|---- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(i)  |  | In 2005, changes in consolidation scope result from several
    minor acquisitions. In 2004, changes in consolidation scope
    result primarily from the acquisition of Raisio Chemicals.                                                                                                                                                                 
|    
|(ii) |  | In 2005, amounts in other for buildings and machinery and
    equipment consist primarily of the impairment of the Textile
    Effects Segment. See note 23. Amounts in other for
    construction in progress reflect the capitalization to buildings
    and/or machinery and equipment of construction projects that
    were completed during the year.



F-20



---



##### Table of Contents



Notes to Consolidated Financial Statements 
(continued)




|   |         
|-- | --------
|7. | Goodwill



|                        |  |              |       |  |              |  |    |                  |             |  |             |              |  |      |    |  |  |  |       | 
|----------------------- |  | ------------ | ----- |  | ------------ |  | -- | ---------------- | ----------- |  | ----------- | ------------ |  | ---- | -- |  |  |  | ----- | 
|                        |  |              |       |  |              |  |    | Foreign currency |             |  |            
|                        |  | December 31, |       |  |              |  |    |                  | translation |  |             | December 31, | 
|                        |  | 2004         |       |  | Acquisitions |  |    | Impairment(i)    |             |  | adjustments |              |  | 2005 |   
|                        |  |              |       |  |              |  |    |                  |             |  |             |              |  |      |   
|Plastic Additives       |  |              | 62    |  |              |  | 2  |                  |             |  | 0           |              |  |      | 3  |  |  |  | 67    | 
|Coating Effects         |  |              | 189   |  |              |  | 32 |                  |             |  | 0           |              |  |      | 2  |  |  |  | 223   | 
|Water & Paper Treatment |  |              | 1 154 |  |              |  | 14 |                  |             |  | 0           |              |  |      | 37 |  |  |  | 1 205 | 
|Textile Effects         |  |              | 156   |  |              |  | 0  |                  |             |  | (161        | )            |  |      | 5  |  |  |  | 0     | 
|Total                   |  |              | 1 561 |  |              |  | 48 |                  |             |  | (161        | )            |  |      | 47 |  |  |  | 1 495 | 






|    |                                                                           
|--- | --------------------------------------------------------------------------
|(i) | Relates to the impairment of the Textile Effects Segment. See
    note 23.



|   |                        
|-- | -----------------------
|8. | Other intangible assets



|                                             |  |                |       |  |              |  |      |              |  |  |     | 
|-------------------------------------------- |  | -------------- | ----- |  | ------------ |  | ---- | ------------ |  |  | --- | 
|                                             |  | Gross carrying |       |  | Accumulated  |  |      | Net carrying | 
|December 31, 2005                            |  | value          |       |  | amortization |  |      | value        | 
|                                             |  |                |       |  |              |  |      |              | 
|Developed technology and know-how            |  |                | 776   |  |              |  | (191 | )            |  |  | 585 | 
|Patents                                      |  |                | 87    |  |              |  | (25  | )            |  |  | 62  | 
|Trademarks and tradenames                    |  |                | 25    |  |              |  | (2   | )            |  |  | 23  | 
|Minimum pension liability  intangible asset |  |                | 6     |  |              |  |     |              |  |  | 6   | 
|Other                                        |  |                | 185   |  |              |  | (30  | )            |  |  | 155 | 
|Total                                        |  |                | 1 079 |  |              |  | (248 | )            |  |  | 831 | 

|                                             |  |  |       |  |  |  |      |   |  |  |     | 
|-------------------------------------------- |  |  | ----- |  |  |  | ---- | - |  |  | --- | 
|December 31, 2004                            |  |  |       |  |  | 
|                                             |  |  |       |  |  | 
|Developed technology and know-how            |  |  | 782   |  |  |  | (179 | ) |  |  | 603 | 
|Patents                                      |  |  | 84    |  |  |  | (15  | ) |  |  | 69  | 
|Trademarks and tradenames                    |  |  | 11    |  |  |  | (1   | ) |  |  | 10  | 
|Minimum pension liability  intangible asset |  |  | 8     |  |  |  |     |   |  |  | 8   | 
|Other                                        |  |  | 145   |  |  |  | (12  | ) |  |  | 133 | 
|Total                                        |  |  | 1 030 |  |  |  | (207 | ) |  |  | 823 | 





|   |                                      
|-- | -------------------------------------
|9. | Financial investments and instruments



| |                                                    
| | ---------------------------------------------------
| | Fair value of financial investments and instruments



F-21



---



##### Table of Contents



Notes to Consolidated Financial Statements 
(continued)




|                                              |  |       |       |  |       |  |       |       |  |  |       |  |  |  |       | 
|--------------------------------------------- |  | ----- | ----- |  | ----- |  | ----- | ----- |  |  | ----- |  |  |  | ----- | 
|                                              |  | 2005  |       |  | 2004  | 
|                                              |  |       |       |  |       | 
|                                              |  | Book  |       |  | Fair  |  |       | Book  |  |  | Fair  | 
|                                              |  | value |       |  | value |  |       | value |  |  | value | 
|                                              |  |       |       |  |       |  |       |       |  |  |       | 
|Long-term debt,
    including current portion |  |       | 2 946 |  |       |  | 3 027 |       |  |  | 3 175 |  |  |  | 3 256 | 







| |                      
| | ---------------------
| | Financial investments

|                                        |  |      |     |  |      |  |     | 
|--------------------------------------- |  | ---- | --- |  | ---- |  | --- | 
|                                        |  | 2005 |     |  | 2004 | 
|                                        |  |      |     |  |      | 
|Investments in equity affiliates        |  |      | 117 |  |      |  | 147 | 
|Investments in unconsolidated companies |  |      | 15  |  |      |  | 33  | 
|Total financial investments             |  |      | 132 |  |      |  | 180 | 





|                     |  |      |     |  |      |  |     |      |  |  |     | 
|-------------------- |  | ---- | --- |  | ---- |  | --- | ---- |  |  | --- | 
|                     |  | 2005 |     |  | 2004 |  |     | 2003 | 
|                     |  |      |     |  |      |  |     |      | 
|Sales                |  |      | 89  |  |      |  | 149 |      |  |  | 127 | 
|Income before taxes  |  |      | 4   |  |      |  | 1   |      |  |  | 4   | 
|Net income (loss)    |  |      | 3   |  |      |  | (1  | )    |  |  | 2   | 
|Total assets         |  |      | 90  |  |      |  | 178 |      |  |  | 110 | 
|Shareholders equity |  |      | 219 |  |      |  | 273 |      |  |  | 259 | 



| |                                 
| | --------------------------------
| | Derivative financial instruments



F-22



---



##### Table of Contents



Notes to Consolidated Financial Statements 
(continued)






| |                                 
| | --------------------------------
| | Foreign currency risk management







| |                              
| | -----------------------------
| | Interest rate risk management







| |                                              
| | ---------------------------------------------
| | Information with respect to fair value hedges





| |                                             
| | --------------------------------------------
| | Information with respect to cash flow hedges



F-23



---



##### Table of Contents



Notes to Consolidated Financial Statements 
(continued)




| |                                                                       
| | ----------------------------------------------------------------------
| | Information with respect to other derivative financial
    instruments





|    |             
|--- | ------------
|10. | Other assets

|                                             |  |      |       |  |      |  |       | 
|-------------------------------------------- |  | ---- | ----- |  | ---- |  | ----- | 
|                                             |  | 2005 |       |  | 2004 | 
|                                             |  |      |       |  |      | 
|Prepaid pension costs                        |  |      | 822   |  |      |  | 762   | 
|Deferred taxes                               |  |      | 278   |  |      |  | 203   | 
|Loans to third parties and equity affiliates |  |      | 19    |  |      |  | 19    | 
|Other                                        |  |      | 44    |  |      |  | 52    | 
|                                             |  |      |       |  |      | 
|Total                                        |  |      | 1 163 |  |      |  | 1 036 | 
|                                             |  |      |       |  |      | 



|    |                                       
|--- | --------------------------------------
|11. | Accruals and other current liabilities

|                                         |  |      |     |  |      |  |     | 
|---------------------------------------- |  | ---- | --- |  | ---- |  | --- | 
|                                         |  | 2005 |     |  | 2004 | 
|                                         |  |      |     |  |      | 
|Payroll and employee benefits            |  |      | 159 |  |      |  | 178 | 
|Taxes other than income taxes            |  |      | 75  |  |      |  | 77  | 
|Interest                                 |  |      | 82  |  |      |  | 85  | 
|Rebates                                  |  |      | 45  |  |      |  | 44  | 
|Restructuring provisions                 |  |      | 56  |  |      |  | 31  | 
|Environmental remediation and compliance |  |      | 35  |  |      |  | 32  | 
|Retirement and postemployment benefits   |  |      | 33  |  |      |  | 35  | 
|Deferred income taxes                    |  |      | 76  |  |      |  | 70  | 
|Other                                    |  |      | 339 |  |      |  | 279 | 
|                                         |  |      |     |  |      | 
|Total                                    |  |      | 900 |  |      |  | 831 | 
|                                         |  |      |     |  |      | 



|    |                
|--- | ---------------
|12. | Short-term debt

|                                  |  |      |     |  |      |  |     | 
|--------------------------------- |  | ---- | --- |  | ---- |  | --- | 
|                                  |  | 2005 |     |  | 2004 | 
|                                  |  |      |     |  |      | 
|Bank overdrafts                   |  |      | 14  |  |      |  | 8   | 
|Loans                             |  |      | 80  |  |      |  | 139 | 
|Other(i)                          |  |      | 179 |  |      |  | 154 | 
|Current portion of long-term debt |  |      | 4   |  |      |  | 258 | 
|                                  |  |      |     |  |      | 
|Total                             |  |      | 277 |  |      |  | 559 | 
|                                  |  |      |     |  |      | 






|    |                                                                                                                                             
|--- | --------------------------------------------------------------------------------------------------------------------------------------------
|(i) | Other includes employee and retiree deposits totaling CHF
    137 million at December 31, 2005 and
    CHF 141 million at December 31, 2004.



back-up


F-24



---



##### Table of Contents



Notes to Consolidated Financial Statements 
(continued)




short-term




|    |               
|--- | --------------
|13. | Long-term debt

|                                        |  |      |       |   |      |  |       |  
|--------------------------------------- |  | ---- | ----- | - | ---- |  | ----- | -
|                                        |  | 2005 |       |   | 2004 | 
|                                        |  |      |       |   |      | 
|Bonds and Euro Medium-Term Notes        |  |      | 2 881 |   |      |  | 3 036 |  
|Amounts owed to credit institutions     |  |      | 19    |   |      |  | 95    |  
|Other long-term debt                    |  |      | 46    |   |      |  | 44    |  
|                                        |  |      |       |   |      | 
|Total                                   |  |      | 2 946 |   |      |  | 3 175 |  
|Less: current portion of long-term debt |  |      | (4    | ) |      |  | (258  | )
|                                        |  |      |       |   |      | 
|Total long-term debt                    |  |      | 2 942 |   |      |  | 2 917 |  
|                                        |  |      |       |   |      | 

|                                                                                                                                                        |  |      |       |  |      |  |       | 
|------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---- | ----- |  | ---- |  | ----- | 
|Bonds and Euro Medium-Term Notes                                                                                                                        |  | 2005 |       |  | 2004 | 
|                                                                                                                                                        |  |      |       |  |      | 
|CHF 1 000 3.25% Straight Bonds, principal due 2008                                                                                                      |  |      | 1 035 |  |      |  | 1 052 | 
|EUR  500 4.875% Unsecured Notes, principal due
    2018                                                                                                 |  |      | 778   |  |      |  | 771   | 
|CHF  300 3.25% Straight Bonds, principal due 2009                                                                                                       |  |      | 302   |  |      |  | 302   | 
|USD  178 U.S. pollution control and
    industrial development bonds, principal due between 2008 and
    2028 (weighted average interest rate of 3.60%) |  |      | 219   |  |      |  | 206   | 
|                                                                                                                                                        |  |      |       |  |      | 
|Total Bonds                                                                                                                                             |  |      | 2 334 |  |      |  | 2 331 | 
|                                                                                                                                                        |  |      |       |  |      | 
|EUR  114(i) 4.875%
    Euro Medium-Term Note, principal due 2005                                                                                        |  |      | 0     |  |      |  | 176   | 
|GBP   243 6.50% Euro Medium-Term Note,
    principal due 2013                                                                                           |  |      | 547   |  |      |  | 529   | 
|                                                                                                                                                        |  |      |       |  |      | 
|Total Euro Medium-Term Notes                                                                                                                            |  |      | 547   |  |      |  | 705   | 
|                                                                                                                                                        |  |      |       |  |      | 
|Total Bonds and Euro Medium-Term Notes                                                                                                                  |  |      | 2 881 |  |      |  | 3 036 | 
|                                                                                                                                                        |  |      |       |  |      | 






|    |                                                                           
|--- | --------------------------------------------------------------------------
|(i) | The underlying note was denominated in German Marks (DEM
    223 million).





F-25



---



##### Table of Contents



Notes to Consolidated Financial Statements 
(continued)




|    |             
|--- | ------------
|14. | Income taxes



|                                                                                          |  |      |      |   |      |  |     |      |  |  |     | 
|----------------------------------------------------------------------------------------- |  | ---- | ---- | - | ---- |  | --- | ---- |  |  | --- | 
|                                                                                          |  | 2005 |      |   | 2004 |  |     | 2003 | 
|                                                                                          |  |      |      |   |      |  |     |      | 
|Domestic                                                                                  |  |      | 35   |   |      |  | 194 |      |  |  | 222 | 
|Foreign                                                                                   |  |      | (296 | ) |      |  | 180 |      |  |  | 209 | 
|                                                                                          |  |      |      |   |      |  |     |      | 
|Total income from continuing operations before income taxes
    and
    minority interest |  |      | (261 | ) |      |  | 374 |      |  |  | 431 | 
|                                                                                          |  |      |      |   |      |  |     |      | 



|                                                  |  |      |     |   |      |  |    |      |  |  |     |  
|------------------------------------------------- |  | ---- | --- | - | ---- |  | -- | ---- |  |  | --- | -
|                                                  |  | 2005 |     |   | 2004 |  |    | 2003 | 
|                                                  |  |      |     |   |      |  |    |      | 
|Domestic                                          |  |      | (5  | ) |      |  | 24 |      |  |  | 47  |  
|Foreign                                           |  |      | 86  |   |      |  | 42 |      |  |  | 48  |  
|                                                  |  |      |     |   |      |  |    |      | 
|Total current provision                           |  |      | 81  |   |      |  | 66 |      |  |  | 95  |  
|                                                  |  |      |     |   |      |  |    |      | 
|Domestic                                          |  |      | (5  | ) |      |  | 1  |      |  |  | (3  | )
|Foreign                                           |  |      | (58 | ) |      |  | 24 |      |  |  | (12 | )
|                                                  |  |      |     |   |      |  |    |      | 
|Total deferred provision                          |  |      | (63 | ) |      |  | 25 |      |  |  | (15 | )
|                                                  |  |      |     |   |      |  |    |      | 
|Share of taxes from earnings of equity affiliates |  |      | 0   |   |      |  | 1  |      |  |  | 1   |  
|                                                  |  |      |     |   |      |  |    |      | 
|Total provision for income taxes                  |  |      | 18  |   |      |  | 92 |      |  |  | 81  |  
|                                                  |  |      |     |   |      |  |    |      | 





|                               |  |         |     |   |      |  |    |      |  |  |    |  
|------------------------------ |  | ------- | --- | - | ---- |  | -- | ---- |  |  | -- | -
|In percent                     |  | 2005(i) |     |   | 2004 |  |    | 2003 | 
|                               |  |         |     |   |      |  |    |      | 
|Expected tax rate              |  |         | (30 | ) |      |  | 30 |      |  |  | 30 |  
|Non-deductible items           |  |         | 34  |   |      |  | 6  |      |  |  | 5  |  
|Tax free income                |  |         | (5  | ) |      |  | (2 | )    |  |  | (1 | )
|Income taxed at reduced rates  |  |         | (7  | ) |      |  | (4 | )    |  |  | (8 | )
|Changes in valuation allowance |  |         | 88  |   |      |  | 0  |      |  |  | 1  |  
|Other                          |  |         | (73 | ) |      |  | (6 | )    |  |  | (8 | )
|                               |  |         |     |   |      |  |    |      | 
|Effective tax rate             |  |         | 7   |   |      |  | 24 |      |  |  | 19 |  
|                               |  |         |     |   |      |  |    |      | 






|    |                                                                                                                                                                 
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------
|(i) | The expected tax rate for 2005 is a negative percent due to
    pre-tax losses normally being expected to result in a tax
    benefit rather than a tax expense.



F-26



---



##### Table of Contents



Notes to Consolidated Financial Statements 
(continued)












F-27



---



##### Table of Contents



Notes to Consolidated Financial Statements 
(continued)




|                                            |  |      |      |   |      |  |      |  
|------------------------------------------- |  | ---- | ---- | - | ---- |  | ---- | -
|Deferred tax assets                         |  | 2005 |      |   | 2004 | 
|                                            |  |      |      |   |      | 
|Pensions and other employee compensation    |  |      | 132  |   |      |  | 105  |  
|Inventory                                   |  |      | 27   |   |      |  | 29   |  
|Restructuring, impairment and other charges |  |      | 8    |   |      |  | 10   |  
|Environmental reserves                      |  |      | 135  |   |      |  | 135  |  
|Tax loss carryforwards                      |  |      | 330  |   |      |  | 133  |  
|Other                                       |  |      | 83   |   |      |  | 176  |  
|                                            |  |      |      |   |      | 
|Gross deferred tax assets                   |  |      | 715  |   |      |  | 588  |  
|Valuation allowances                        |  |      | (339 | ) |      |  | (110 | )
|                                            |  |      |      |   |      | 
|Net deferred tax assets                     |  |      | 376  |   |      |  | 478  |  
|                                            |  |      |      |   |      | 
|Deferred tax liabilities                    |  |      |      |   |      |  |      |  
|Property, plant and equipment               |  |      | (184 | ) |      |  | (311 | )
|Other                                       |  |      | (255 | ) |      |  | (324 | )
|                                            |  |      |      |   |      | 
|Gross deferred tax liabilities              |  |      | (439 | ) |      |  | (635 | )
|                                            |  |      |      |   |      | 
|Net deferred tax liabilities                |  |      | (63  | ) |      |  | (157 | )
|Included in                                 |  |      |      |   |      |  |      |  
|Prepaid and other current assets            |  |      | 139  |   |      |  | 123  |  
|Other assets                                |  |      | 278  |   |      |  | 203  |  
|Accruals and other current liabilities      |  |      | (76  | ) |      |  | (70  | )
|Deferred income taxes                       |  |      | (404 | ) |      |  | (413 | )
|                                            |  |      |      |   |      | 
|Net deferred tax liabilities                |  |      | (63  | ) |      |  | (157 | )
|                                            |  |      |      |   |      | 









|    |                  
|--- | -----------------
|15. | Other liabilities

|                                         |  |      |       |  |      |  |       | 
|---------------------------------------- |  | ---- | ----- |  | ---- |  | ----- | 
|                                         |  | 2005 |       |  | 2004 | 
|                                         |  |      |       |  |      | 
|Environmental remediation and compliance |  |      | 471   |  |      |  | 477   | 
|Retirement and postemployment benefits   |  |      | 747   |  |      |  | 665   | 
|Other                                    |  |      | 174   |  |      |  | 164   | 
|                                         |  |      |       |  |      | 
|Total                                    |  |      | 1 392 |  |      |  | 1 306 | 
|                                         |  |      |       |  |      | 

F-28



---



##### Table of Contents



Notes to Consolidated Financial Statements 
(continued)






|    |                     
|--- | --------------------
|16. | Shareholders equity









|                               |  |      |            |      |  |      |            |   |  |  |            |  
|------------------------------ |  | ---- | ---------- | ---- |  | ---- | ---------- | - |  |  | ---------- | -
|                               |  | 2005 |            | 2004 |  | 2003
|                               |  |      |            |      |  |     
|Treasury stock at January 1,   |  |      | 4 686 272  |      |  |      | 4 363 901  |   |  |  | 3 192 087  |  
|Purchased at market prices     |  |      | 1 471 626  |      |  |      | 3 589 462  |   |  |  | 2 374 611  |  
|Sold at market prices          |  |      | (1 788 683 | )    |  |      | (1 963 591 | ) |  |  | (1 202 797 | )
|Cancelled                      |  |      | (1 762 000 | )    |  |      | (1 303 500 | ) |  |  |           |  
|                               |  |      |            |      |  |      |            |   |  |  |            |  
|Treasury stock at December 31, |  |      | 2 607 215  |      |  |      | 4 686 272  |   |  |  | 4 363 901  |  
|                               |  |      |            |      |  |      |            |   |  |  |            |  





|                                      |  |      |      |      |  |  |      |  
|------------------------------------- |  | ---- | ---- | ---- |  |  | ---- | -
|                                      |  | 2005 |      | 2004
|                                      |  |      |      |     
|Currency translation adjustment       |  |      | (308 | )    |  |  | (497 | )
|Minimum pension liability, net of tax |  |      | (103 | )    |  |  | (78  | )
|Other, net of tax                     |  |      | 2    |      |  |  | 0    |  
|                                      |  |      |      |      |  |  |      |  
|Accumulated other comprehensive loss  |  |      | (409 | )    |  |  | (575 | )
|                                      |  |      |      |      |  |  |      |  

F-29



---



##### Table of Contents



Notes to Consolidated Financial Statements 
(continued)






|    |                               
|--- | ------------------------------
|17. | Stock based compensation plans











F-30



---



##### Table of Contents



Notes to Consolidated Financial Statements 
(continued)




|                             |  |                  |        |  |               |  |           |  
|---------------------------- |  | ---------------- | ------ |  | ------------- |  | --------- | -
|                             |  | Weighted average |        |  | Stock options | 
|                             |  | exercise price   |        |  | outstanding   | 
|                             |  |                  |        |  |               | 
|Balance at December 31, 2002 |  |                  | 117.53 |  |               |  | 2 195 339 |  
|Options granted              |  |                  | 82.60  |  |               |  | 176 627   |  
|Options exercised            |  |                  | 0      |  |               |  | 0         |  
|Options canceled/forfeited   |  |                  | 105.02 |  |               |  | (26 989   | )
|Options expired              |  |                  | 160.00 |  |               |  | (264 355  | )
|                             |  |                  |        |  |               | 
|Balance at December 31, 2003 |  |                  | 109.34 |  |               |  | 2 080 622 |  
|                             |  |                  |        |  |               | 
|Options granted              |  |                  | 95.30  |  |               |  | 81 024    |  
|Options exercised            |  |                  | 82.60  |  |               |  | (2 762    | )
|Options canceled/forfeited   |  |                  | 114.48 |  |               |  | (72 239   | )
|Options expired              |  |                  | 109.60 |  |               |  | (314 888  | )
|                             |  |                  |        |  |               | 
|Balance at December 31, 2004 |  |                  | 108.32 |  |               |  | 1 771 757 |  
|                             |  |                  |        |  |               | 
|Options granted              |  |                  | 0      |  |               |  | 0         |  
|Options exercised            |  |                  | 0      |  |               |  | 0         |  
|Options canceled/forfeited   |  |                  | 108.60 |  |               |  | (23 647   | )
|Options expired              |  |                  | 104.48 |  |               |  | (243 860  | )
|                             |  |                  |        |  |               | 
|Balance at December 31, 2005 |  |                  | 108.77 |  |               |  | 1 504 250 |  
|                             |  |                  |        |  |               | 



|                     |  |                  |               |                           |             |  |                           |                  |  |  |             |                  |  |                  |           |  |  |  |     | 
|-------------------- |  | ---------------- | ------------- | ------------------------- | ----------- |  | ------------------------- | ---------------- |  |  | ----------- | ---------------- |  | ---------------- | --------- |  |  |  | --- | 
|                     |  |                  |               | Stock options outstanding |             |  | Stock options exercisable |                 
|                     |  |                  |               |                           |             |  |                           |                 
|                     |  | Weighted average |               |                           |             |  | Weighted average          |                  |  |  |             | Weighted average | 
|                     |  | exercise price-  |               |                           | Number of   |  |                           | remaining        |  |  | Number of   |                  |  | remaining        |          
|                     |  | outstanding/     |               |                           | outstanding |  |                           | contractual life |  |  | outstanding |                  |  | contractual life |          
|Exercise price range |  | exercisable      |               |                           | options     |  |                           | (in years)       |  |  | options     |                  |  | (in years)       |          
|                     |  |                  |               |                           |             |  |                           |                  |  |  |             |                  |  |                  |          
|82.60-111.40         |  |                  | 104.73/105.97 |                           |             |  | 1 394 350                 |                  |  |  | 3.2         |                  |  |                  | 1 293 625 |  |  |  | 2.9 | 
|160.00               |  |                  | 160.00/160.00 |                           |             |  | 109 900                   |                  |  |  | 2.0         |                  |  |                  | 109 900   |  |  |  | 2.0 | 
|                     |  |                  |               |                           |             |  |                           |                  |  |  |             |                  |  |                  |          
|                     |  |                  |               |                           |             |  | 1 504 250                 |                  |  |  |             |                  |  |                  | 1 403 525 |  |  |  |     | 
|                     |  |                  |               |                           |             |  |                           |                  |  |  |             |                  |  |                  |          

F-31



---



##### Table of Contents



Notes to Consolidated Financial Statements 
(continued)




|                             |  |          |    |  |             |  |         |  
|---------------------------- |  | -------- | -- |  | ----------- |  | ------- | -
|                             |  | Exercise |    |  | Rights      | 
|                             |  | Price    |    |  | Outstanding | 
|                             |  |          |    |  |             | 
|Balance at December 31, 2002 |  |          | 15 |  |             |  | 370 280 |  
|Rights granted               |  |          | 15 |  |             |  | 105 275 |  
|Rights exercised             |  |          | 15 |  |             |  | (20 005 | )
|                             |  |          |    |  |             | 
|Balance at December 31, 2003 |  |          | 15 |  |             |  | 455 550 |  
|                             |  |          |    |  |             | 
|Rights granted               |  |          | 15 |  |             |  | 104 200 |  
|Rights exercised             |  |          | 15 |  |             |  | (22 955 | )
|                             |  |          |    |  |             | 
|Balance at December 31, 2004 |  |          | 15 |  |             |  | 536 795 |  
|                             |  |          |    |  |             | 
|Rights granted               |  |          | 15 |  |             |  | 102 475 |  
|Rights exercised             |  |          | 15 |  |             |  | (57 055 | )
|                             |  |          |    |  |             | 
|Balance at December 31, 2005 |  |          | 15 |  |             |  | 582 215 |  
|                             |  |          |    |  |             | 





| |                                        
| | ---------------------------------------
| | Change in control and reserve of shares







|    |                    
|--- | -------------------
|18. | Retirement benefits





| |                                   
| | ----------------------------------
| | Defined contribution pension plans





| |                              
| | -----------------------------
| | Defined benefit pension plans





F-32



---



##### Table of Contents



Notes to Consolidated Financial Statements 
(continued)










|                                             |                              |        |       |      |          |  |      |           |   |        |       |      |          |       |       |      |           |  |      |     |   |  |       |      |  
|-------------------------------------------- | ---------------------------- | ------ | ----- | ---- | -------- |  | ---- | --------- | - | ------ | ----- | ---- | -------- | ----- | ----- | ---- | --------- |  | ---- | --- | - |  | ----- | ---- | -
|                                             |                              | 2005   |       |      | 2004     | 
|                                             |                              |        |       |      |          | 
|                                             |                              | Funded |       |      | Unfunded |  |      |           |   | Funded |       |      | Unfunded |       |       |     
|                                             |                              | plans  |       |      | plans    |  |      | All plans |   |        | plans |      |          | plans |       |      | All plans | 
|                                             |                              |        |       |      |          |  |      |           |   |        |       |      |          |       |       |      |           | 
|Change in benefit obligation (PBO)           |                              |        |       |      |          |  |      |           |   |        |       |      |          |       |       |      |           |  |      |     |   |  |       |     
|PBO, beginning of year                       |                              |        | 3 419 |      |          |  | 522  |           |   |        | 3 941 |      |          |       | 3 110 |      |           |  | 525  |     |   |  | 3 635 |     
|                                             | Service cost                 |        |       | 86   |          |  |      | 9         |   |        |       | 95   |          |       |       | 79   |           |  |      | 9   |   |  |       | 88   |  
|                                             | Interest cost                |        |       | 152  |          |  |      | 28        |   |        |       | 180  |          |       |       | 149  |           |  |      | 27  |   |  |       | 176  |  
|                                             | Participant contributions    |        |       | 24   |          |  |      | 0         |   |        |       | 24   |          |       |       | 24   |           |  |      | 0   |   |  |       | 24   |  
|                                             | Actuarial (gain)
    loss(i) |        |       | 510  |          |  |      | 69        |   |        |       | 579  |          |       |       | 190  |           |  |      | (8  | ) |  |       | 182  |  
|                                             | Plan amendments              |        |       | (103 | )        |  |      | 0         |   |        |       | (103 | )        |       |       | (6   | )         |  |      | 0   |   |  |       | (6   | )
|                                             | Benefits paid                |        |       | (183 | )        |  |      | (26       | ) |        |       | (209 | )        |       |       | (133 | )         |  |      | (26 | ) |  |       | (159 | )
|                                             | Foreign currency translation |        |       | 92   |          |  |      | 6         |   |        |       | 98   |          |       |       | (41  | )         |  |      | (4  | ) |  |       | (45  | )
|                                             | Other                        |        |       | 26   |          |  |      | 3         |   |        |       | 29   |          |       |       | 47   |           |  |      | (1  | ) |  |       | 46   |  
|                                             |                              |        |       |      |          |  |      |           |   |        |       |      |          |       |       |      |           | 
|PBO, end of year                             |                              |        | 4 023 |      |          |  | 611  |           |   |        | 4 634 |      |          |       | 3 419 |      |           |  | 522  |     |   |  | 3 941 |     
|                                             |                              |        |       |      |          |  |      |           |   |        |       |      |          |       |       |      |           | 
|Change in plan assets                        |                              |        |       |      |          |  |      |           |   |        |       |      |          |       |       |      |           |  |      |     |   |  |       |     
|Fair value of plan assets, beginning of year |                              |        | 3 109 |      |          |  | 0    |           |   |        | 3 109 |      |          |       | 2 936 |      |           |  | 0    |     |   |  | 2 936 |     
|                                             | Actual return on plan assets |        |       | 335  |          |  |      | 0         |   |        |       | 335  |          |       |       | 221  |           |  |      | 0   |   |  |       | 221  |  
|                                             | Employer contributions       |        |       | 114  |          |  |      | 26        |   |        |       | 140  |          |       |       | 97   |           |  |      | 26  |   |  |       | 123  |  
|                                             | Participant contributions    |        |       | 24   |          |  |      | 0         |   |        |       | 24   |          |       |       | 24   |           |  |      | 0   |   |  |       | 24   |  
|                                             | Benefits paid                |        |       | (183 | )        |  |      | (26       | ) |        |       | (209 | )        |       |       | (133 | )         |  |      | (26 | ) |  |       | (159 | )
|                                             | Foreign currency translation |        |       | 76   |          |  |      | 0         |   |        |       | 76   |          |       |       | (30  | )         |  |      | 0   |   |  |       | (30  | )
|                                             | Other(i)                     |        |       | 185  |          |  |      | 0         |   |        |       | 185  |          |       |       | (6   | )         |  |      | 0   |   |  |       | (6   | )
|                                             |                              |        |       |      |          |  |      |           |   |        |       |      |          |       |       |      |           | 
|Fair value of plan assets, end of year       |                              |        | 3 660 |      |          |  | 0    |           |   |        | 3 660 |      |          |       | 3 109 |      |           |  | 0    |     |   |  | 3 109 |     
|                                             |                              |        |       |      |          |  |      |           |   |        |       |      |          |       |       |      |           | 
|PBO funded status                            |                              |        | (363  | )    |          |  | (611 | )         |   |        | (974  | )    |          |       | (310  | )    |           |  | (522 | )   |   |  | (832  | )   
|                                             |                              |        |       |      |          |  |      |           |   |        |       |      |          |       |       |      |           | 






|    |                                                                                                                                                                         
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(i) | Includes the addition to plan assets and PBO resulting from the
    merger of one of the Companys defined contribution plans
    into an existing defined benefit plan.

F-33



---



##### Table of Contents



Notes to Consolidated Financial Statements 
(continued)






| |                                                                                 
| | --------------------------------------------------------------------------------
| | Accumulated benefit obligation (ABO) status of
    defined benefit pension plans





| |                                   
| | ----------------------------------
| | ABO status of funded pension plans



|                                  |                                      |        |     |       |        |  |     |        |       |  |        |       |  |        |     |       |        |  |     |     |  |  |    |       | 
|--------------------------------- | ------------------------------------ | ------ | --- | ----- | ------ |  | --- | ------ | ----- |  | ------ | ----- |  | ------ | --- | ----- | ------ |  | --- | --- |  |  | -- | ----- | 
|                                  |                                      | 2005   |     |       | 2004   | 
|                                  |                                      |        |     |       |        | 
|                                  |                                      |        |     | Total |        |  |     |        | Total | 
|                                  |                                      | Fully- |     |       | Under- |  |     | funded |       |  | Fully- |       |  | Under- |     |       | funded | 
|Funded plans                      |                                      | funded |     |       | funded |  |     | plans  |       |  | funded |       |  | funded |     |       | plans  | 
|                                  |                                      |        |     |       |        |  |     |        |       |  |        |       |  |        |     |       |        | 
|                                  | Accumulated benefit obligation (ABO) |        |     | 3 061 |        |  |     | 362    |       |  |        | 3 423 |  |        |     | 2 580 |        |  |     | 458 |  |  |    | 3 038 | 
|                                  | Fair value of plan assets            |        |     | 3 397 |        |  |     | 263    |       |  |        | 3 660 |  |        |     | 2 743 |        |  |     | 366 |  |  |    | 3 109 | 
|                                  |                                      |        |     |       |        |  |     |        |       |  |        |       |  |        |     |       |        | 
|ABO status  fully (under) funded |                                      |        | 336 |       |        |  | (99 | )      |       |  | 237    |       |  |        | 163 |       |        |  | (92 | )   |  |  | 71 |      
|                                  |                                      |        |     |       |        |  |     |        |       |  |        |       |  |        |     |       |        | 



| |                          
| | -------------------------
| | Minimum pension liability







|                                                             |                                                                        |      |      |     |      |  |      |     |  
|------------------------------------------------------------ | ---------------------------------------------------------------------- | ---- | ---- | --- | ---- |  | ---- | --- | -
|                                                             |                                                                        | 2005 |      |     | 2004 | 
|                                                             |                                                                        |      |      |     |      | 
|Unrecognized prior service cost recorded as intangible asset |                                                                        |      | 4    |     |      |  | 8    |    
|                                                             | Recorded as other comprehensive income                                 |      |      | 119 |      |  |      | 127 |  
|                                                             | Currency adjustments                                                   |      |      | (18 | )    |  |      | (30 | )
|                                                             |                                                                        |      |      |     |      | 
|Additional minimum pension liability                         |                                                                        |      | (105 | )   |      |  | (105 | )  
|                                                             | Prepaid pension asset already recorded                                 |      |      | 12  |      |  |      | 19  |  
|                                                             |                                                                        |      |      |     |      | 
|                                                             | ABO status, plans where additional minimum liability required          |      |      | (93 | )    |  |      | (86 | )
|                                                             | Other under-funded plans, no additional minimum liability
    required |      |      | (6  | )    |  |      | (6  | )
|                                                             |                                                                        |      |      |     |      | 
|ABO status  All under-funded plans                          |                                                                        |      | (99  | )   |      |  | (92  | )  
|                                                             |                                                                        |      |      |     |      | 

F-34



---



##### Table of Contents



Notes to Consolidated Financial Statements 
(continued)




| |                                     
| | ------------------------------------
| | ABO status of unfunded pension plans



|                                      |                                |      |   |     |      |  |    |     | 
|------------------------------------- | ------------------------------ | ---- | - | --- | ---- |  | -- | --- | 
|                                      |                                | 2005 |   |     | 2004 | 
|                                      |                                |      |   |     |      | 
|Unfunded plans                        |                                |      |   |     |      |  |    |    
|                                      | Accumulated benefit obligation |      |   | 566 |      |  |    | 489 | 
|                                      | Accrued pension liability      |      |   | 574 |      |  |    | 505 | 
|                                      |                                |      |   |     |      | 
|Liability recognized in excess of ABO |                                |      | 8 |     |      |  | 16 |    
|                                      |                                |      |   |     |      | 



| |                                                           
| | ----------------------------------------------------------
| | Defined benefit pension related assets and
    liabilities





|                                                                 |  |        |        |   |          |  |      |           |  |        |        |   |          |       |        |   |           |  |      |   |  |  |        |  
|---------------------------------------------------------------- |  | ------ | ------ | - | -------- |  | ---- | --------- |  | ------ | ------ | - | -------- | ----- | ------ | - | --------- |  | ---- | - |  |  | ------ | -
|                                                                 |  | 2005   |        |   | 2004     | 
|                                                                 |  |        |        |   |          | 
|                                                                 |  | Funded |        |   | Unfunded |  |      |           |  | Funded |        |   | Unfunded |       |        |  
|                                                                 |  | plans  |        |   | plans    |  |      | All plans |  |        | plans  |   |          | plans |        |   | All plans | 
|                                                                 |  |        |        |   |          |  |      |           |  |        |        |   |          |       |        |   |           | 
|Prepaid benefit
    cost(i)                                      |  |        | 824    |   |          |  | 0    |           |  |        | 824    |   |          |       | 764    |   |           |  | 0    |   |  |  | 764    |  
|Accrued benefit
    liability(i)                                 |  |        | (112   | ) |          |  | (574 | )         |  |        | (686   | ) |          |       | (108   | ) |           |  | (505 | ) |  |  | (613   | )
|Minimum pension liability  intangible asset                     |  |        | 4      |   |          |  | 2    |           |  |        | 6      |   |          |       | 8      |   |           |  | 0    |   |  |  | 8      |  
|Accumulated other comprehensive income, pre tax                  |  |        | 119    |   |          |  | 49   |           |  |        | 168    |   |          |       | 127    |   |           |  | 0    |   |  |  | 127    |  
|Currency
    adjustments(ii)                                     |  |        | (18    | ) |          |  | 0    |           |  |        | (18    | ) |          |       | (30    | ) |           |  | 0    |   |  |  | (30    | )
|                                                                 |  |        |        |   |          |  |      |           |  |        |        |   |          |       |        |   |           | 
|Net pension asset (liability) on consolidated balance
    sheets |  |        | 817    |   |          |  | (523 | )         |  |        | 294    |   |          |       | 761    |   |           |  | (505 | ) |  |  | 256    |  
|Unrecognized net gain (loss)                                     |  |        | (1 272 | ) |          |  | (90  | )         |  |        | (1 362 | ) |          |       | (1 068 | ) |           |  | (19  | ) |  |  | (1 087 | )
|Unrecognized prior service cost                                  |  |        | 92     |   |          |  | 2    |           |  |        | 94     |   |          |       | (3     | ) |           |  | 2    |   |  |  | (1     | )
|                                                                 |  |        |        |   |          |  |      |           |  |        |        |   |          |       |        |   |           | 
|PBO funded status                                                |  |        | (363   | ) |          |  | (611 | )         |  |        | (974   | ) |          |       | (310   | ) |           |  | (522 | ) |  |  | (832   | )
|                                                                 |  |        |        |   |          |  |      |           |  |        |        |   |          |       |        |   |           | 






|    |                              
|--- | -----------------------------
|(i) | Current and long-term portion



|     |                                                                           
|---- | --------------------------------------------------------------------------
|(ii) | Currency effect on the prior year additional minimum pension
    liability

F-35



---



##### Table of Contents



Notes to Consolidated Financial Statements 
(continued)




| |                                         
| | ----------------------------------------
| | Net defined benefit plan pension expense



|                                            |  |              |      |   |                |  |      |           |  |  |      |   |  |      |    |  |      |  |    |      |  |  |      |  |  |      |      |   |  |  |      |   |  |  |      |  
|------------------------------------------- |  | ------------ | ---- | - | -------------- |  | ---- | --------- |  |  | ---- | - |  | ---- | -- |  | ---- |  | -- | ---- |  |  | ---- |  |  | ---- | ---- | - |  |  | ---- | - |  |  | ---- | -
|                                            |  | Funded plans |      |   | Unfunded plans |  |      | All plans | 
|                                            |  |              |      |   |                |  |      |           | 
|                                            |  | 2005         |      |   | 2004           |  |      | 2003      |  |  | 2005 |   |  | 2004 |    |  | 2003 |  |    | 2005 |  |  | 2004 |  |  | 2003 |     
|                                            |  |              |      |   |                |  |      |           |  |  |      |   |  |      |    |  |      |  |    |      |  |  |      |  |  |      |     
|Service cost                                |  |              | 86   |   |                |  | 79   |           |  |  | 76   |   |  |      | 9  |  |      |  | 9  |      |  |  | 8    |  |  |      | 95   |   |  |  | 88   |   |  |  | 84   |  
|Interest cost                               |  |              | 152  |   |                |  | 149  |           |  |  | 143  |   |  |      | 28 |  |      |  | 27 |      |  |  | 28   |  |  |      | 180  |   |  |  | 176  |   |  |  | 171  |  
|Expected return on plan assets              |  |              | (195 | ) |                |  | (208 | )         |  |  | (211 | ) |  |      | 0  |  |      |  | 0  |      |  |  | 0    |  |  |      | (195 | ) |  |  | (208 | ) |  |  | (211 | )
|Amortization of prior service cost          |  |              | 1    |   |                |  | 2    |           |  |  | 2    |   |  |      | 0  |  |      |  | 0  |      |  |  | 0    |  |  |      | 1    |   |  |  | 2    |   |  |  | 2    |  
|Other (gains), losses and amortization, net |  |              | 35   |   |                |  | 1    |           |  |  | 0    |   |  |      | 0  |  |      |  | 0  |      |  |  | 1    |  |  |      | 35   |   |  |  | 1    |   |  |  | 1    |  
|                                            |  |              |      |   |                |  |      |           |  |  |      |   |  |      |    |  |      |  |    |      |  |  |      |  |  |      |     
|Total net pension expense                   |  |              | 79   |   |                |  | 23   |           |  |  | 10   |   |  |      | 37 |  |      |  | 36 |      |  |  | 37   |  |  |      | 116  |   |  |  | 59   |   |  |  | 47   |  
|                                            |  |              |      |   |                |  |      |           |  |  |      |   |  |      |    |  |      |  |    |      |  |  |      |  |  |      |     



| |                
| | ---------------
| | Key assumptions



|                                        |  |      |     |   |      |  |     |  
|--------------------------------------- |  | ---- | --- | - | ---- |  | --- | -
|                                        |  | 2005 |     |   | 2004 | 
|                                        |  |      |     |   |      | 
|Discount (interest) rate                |  |      | 4.0 | % |      |  | 4.6 | %
|Rate of increase in compensation levels |  |      | 2.4 | % |      |  | 2.3 | %



|                                                 |  |      |     |   |      |  |     |      |  |  |     |  
|------------------------------------------------ |  | ---- | --- | - | ---- |  | --- | ---- |  |  | --- | -
|                                                 |  | 2005 |     |   | 2004 |  |     | 2003 | 
|                                                 |  |      |     |   |      |  |     |      | 
|Discount (interest) rate                         |  |      | 4.6 | % |      |  | 4.9 | %    |  |  | 5.1 | %
|Rate of increase in compensation levels          |  |      | 2.3 | % |      |  | 2.3 | %    |  |  | 2.4 | %
|Expected long-term rate of return on plan assets |  |      | 5.8 | % |      |  | 6.2 | %    |  |  | 6.2 | %





| |                                           
| | ------------------------------------------
| | Funded defined benefit pension plan assets



F-36



---



##### Table of Contents



Notes to Consolidated Financial Statements 
(continued)




|               |                   |                |     |    |                |  |     |      |   |  |  |           | 
|-------------- | ----------------- | -------------- | --- | -- | -------------- |  | --- | ---- | - |  |  | --------- | 
|               |                   | Actual plan    |     |    |               
|               |                   | asset          |     |    | Target plan    | 
|               |                   | allocation     |     |    | asset          | 
|               |                   | percentages at |     |    | allocation     | 
|               |                   | December 31,   |     |    | percentages at | 
|               |                   |                |     |    | December 31,   | 
|               |                   | 2005           |     |    | 2004           |  |     | 2005 |  
|               |                   |                |     |    |                |  |     |      |  
|Asset category |                   |                |     |    |                |  |     |      |   |  |  |          
|               | Equity securities |                |     | 38 | %              |  |     | 36   | % |  |  | 35% - 45% | 
|               | Debt securities   |                |     | 41 | %              |  |     | 48   | % |  |  | 40% - 50% | 
|               | Real estate       |                |     | 17 | %              |  |     | 12   | % |  |  | 10% - 20% | 
|               | Other             |                |     | 4  | %              |  |     | 4    | % |  |  | 0% - 10%  | 
|               |                   |                |     |    |                |  |     |      |  
|Total          |                   |                | 100 | %  |                |  | 100 | %    |   |  |  |          
|               |                   |                |     |    |                |  |     |      |  





|                                       |  |        |       |  |          |  |     |           |  |  |       | 
|-------------------------------------- |  | ------ | ----- |  | -------- |  | --- | --------- |  |  | ----- | 
|                                       |  | Funded |       |  | Unfunded |  |     |          
|Undiscounted Expected Benefit Payments |  | plans  |       |  | plans    |  |     | All plans | 
|                                       |  |        |       |  |          |  |     |           | 
|2006                                   |  |        | 133   |  |          |  | 27  |           |  |  | 160   | 
|2007                                   |  |        | 132   |  |          |  | 28  |           |  |  | 160   | 
|2008                                   |  |        | 142   |  |          |  | 29  |           |  |  | 171   | 
|2009                                   |  |        | 147   |  |          |  | 29  |           |  |  | 176   | 
|2010                                   |  |        | 158   |  |          |  | 30  |           |  |  | 188   | 
|Aggregate for 2011 through 2015        |  |        | 1 047 |  |          |  | 165 |           |  |  | 1 212 | 





| |                              
| | -----------------------------
| | Other postretirement benefits





|    |                   
|--- | ------------------
|19. | Earnings per share





F-37



---



##### Table of Contents



Notes to Consolidated Financial Statements 
(continued)






|    |                           
|--- | --------------------------
|20. | Related party transactions



| |                                       
| | --------------------------------------
| | Transactions with associated companies









|    |                              
|--- | -----------------------------
|21. | Commitments and contingencies



| |                  
| | -----------------
| | Lease commitments





| |                     
| | --------------------
| | Purchase commitments





| |           
| | ----------
| | Guarantees





F-38



---



##### Table of Contents



Notes to Consolidated Financial Statements 
(continued)






| |              
| | -------------
| | Contingencies











| |                      
| | ---------------------
| | Environmental Matters







F-39



---



##### Table of Contents



Notes to Consolidated Financial Statements 
(continued)


clean-up




clean-up Clean-up










clean-up


F-40



---



##### Table of Contents



Notes to Consolidated Financial Statements 
(continued)




| |                   
| | ------------------
| | Litigation Matters







|    |                                               
|--- | ----------------------------------------------
|22. | Valuation and qualifying accounts and reserves



| |                                
| | -------------------------------
| | Allowance for doubtful accounts

|                                         |  |      |     |   |      |  |     |      |  |  |     |  
|---------------------------------------- |  | ---- | --- | - | ---- |  | --- | ---- |  |  | --- | -
|For the year ended December 31,          |  | 2005 |     |   | 2004 |  |     | 2003 | 
|                                         |  |      |     |   |      |  |     |      | 
|Balance at beginning of year             |  |      | 81  |   |      |  | 85  |      |  |  | 96  |  
|Additions charged to cost and expenses   |  |      | 33  |   |      |  | 24  |      |  |  | 22  |  
|Deductions credited to cost and expenses |  |      | (28 | ) |      |  | (15 | )    |  |  | (13 | )
|Use of allowance and other,
    net(i)   |  |      | (16 | ) |      |  | (10 | )    |  |  | (18 | )
|Currency adjustments                     |  |      | 5   |   |      |  | (3  | )    |  |  | (2  | )
|                                         |  |      |     |   |      |  |     |      | 
|Balance at end of year                   |  |      | 75  |   |      |  | 81  |      |  |  | 85  |  
|                                         |  |      |     |   |      |  |     |      | 



| |                                                 
| | ------------------------------------------------
| | Allowance for obsolete and slow moving inventory

|                                         |  |      |     |   |      |  |     |      |  |  |     |  
|---------------------------------------- |  | ---- | --- | - | ---- |  | --- | ---- |  |  | --- | -
|For the year ended December 31,          |  | 2005 |     |   | 2004 |  |     | 2003 | 
|                                         |  |      |     |   |      |  |     |      | 
|Balance at beginning of year             |  |      | 46  |   |      |  | 50  |      |  |  | 58  |  
|Additions charged to cost and expenses   |  |      | 19  |   |      |  | 17  |      |  |  | 20  |  
|Deductions credited to cost and expenses |  |      | (18 | ) |      |  | (16 | )    |  |  | (22 | )
|Use of allowance and other,
    net(i)   |  |      | (5  | ) |      |  | (3  | )    |  |  | (4  | )
|Currency adjustments                     |  |      | 3   |   |      |  | (2  | )    |  |  | (2  | )
|                                         |  |      |     |   |      |  |     |      | 
|Balance at end of year                   |  |      | 45  |   |      |  | 46  |      |  |  | 50  |  
|                                         |  |      |     |   |      |  |     |      | 

F-41



---



##### Table of Contents



Notes to Consolidated Financial Statements 
(continued)




| |                                        
| | ---------------------------------------
| | Deferred income tax valuation allowance

|                                         |  |      |     |   |      |  |     |      |  |  |     |  
|---------------------------------------- |  | ---- | --- | - | ---- |  | --- | ---- |  |  | --- | -
|For the year ended December 31,          |  | 2005 |     |   | 2004 |  |     | 2003 | 
|                                         |  |      |     |   |      |  |     |      | 
|Balance at beginning of year             |  |      | 110 |   |      |  | 121 |      |  |  | 131 |  
|Additions charged to cost and expenses   |  |      | 296 |   |      |  | 11  |      |  |  | 22  |  
|Deductions credited to cost and expenses |  |      | (75 | ) |      |  | (20 | )    |  |  | (19 | )
|Other, net                               |  |      | 0   |   |      |  | 3   |      |  |  | 0   |  
|Currency adjustments                     |  |      | 8   |   |      |  | (5  | )    |  |  | (13 | )
|                                         |  |      |     |   |      |  |     |      | 
|Balance at end of year                   |  |      | 339 |   |      |  | 110 |      |  |  | 121 |  
|                                         |  |      |     |   |      |  |     |      | 






|    |                                                                                                                                                    
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------
|(i) | Use of allowance and other, net is primarily amounts
    written-off, additions applicable to acquisitions and
    miscellaneous other adjustments.

23.     Restructuring, impairment
and other charges






| |              
| | -------------
| | Project Shape





|                                       |  |           |     |   |       |  |     |   |  |       |  |  |  |  |     |  
|-------------------------------------- |  | --------- | --- | - | ----- |  | --- | - |  | ----- |  |  |  |  | --- | -
|                                       |  | Employee  |     |   | Other |  |     |   |  |      
|                                       |  | severance |     |   | costs |  |     |   |  | Total | 
|                                       |  |           |     |   |       |  |     |   |  |       | 
|Project Shape restructuring provisions |  |           |     |   |       |  |     |   |  |       |  |  |  |  |     |  
|Balance at December 31, 2003           |  |           | 0   |   |       |  | 0   |   |  |       |  |  |  |  | 0   |  
|Charged to operating income            |  |           | 17  |   |       |  | 13  |   |  |       |  |  |  |  | 30  |  
|Payments/settlements                   |  |           | (2  | ) |       |  | (7  | ) |  |       |  |  |  |  | (9  | )
|                                       |  |           |     |   |       |  |     |   |  |       |  | 
|Balance at December 31, 2004           |  |           | 15  |   |       |  | 6   |   |  |       |  |  |  |  | 21  |  
|Charged to operating income            |  |           | 73  |   |       |  | 24  |   |  |       |  |  |  |  | 97  |  
|Payments/settlements                   |  |           | (41 | ) |       |  | (29 | ) |  |       |  |  |  |  | (70 | )
|                                       |  |           |     |   |       |  |     |   |  |       |  | 
|Balance at December 31, 2005           |  |           | 47  |   |       |  | 1   |   |  |       |  |  |  |  | 48  |  
|                                       |  |           |     |   |       |  |     |   |  |       |  | 

F-42



---



##### Table of Contents



Notes to Consolidated Financial Statements 
(continued)


|                                          |  |           |    |  |       |  |    |            |  |  |       |  |  |  |     | 
|----------------------------------------- |  | --------- | -- |  | ----- |  | -- | ---------- |  |  | ----- |  |  |  | --- | 
|                                          |  | Employee  |    |  | Other |  |    |            |  | 
|                                          |  | severance |    |  | costs |  |    | Impairment |  |  | Total | 
|                                          |  |           |    |  |       |  |    |            |  |  |       | 
|Restructuring charged to operating income |  |           |    |  |       |  |    |            |  |  |       |  |  |  |     | 
|Incurred during 2004                      |  |           | 17 |  |       |  | 13 |            |  |  | 50    |  |  |  | 80  | 
|Incurred during 2005                      |  |           | 73 |  |       |  | 24 |            |  |  | 19    |  |  |  | 116 | 
|                                          |  |           |    |  |       |  |    |            |  |  |       | 
|Total incurred at December 31, 2005       |  |           | 90 |  |       |  | 37 |            |  |  | 69    |  |  |  | 196 | 
|                                          |  |           |    |  |       |  |    |            |  |  |       | 

F-42.1



---



##### Table of Contents



Notes to Consolidated Financial Statements 
(continued)




| |                                      
| | -------------------------------------
| | Impairment of Textile Effects Segment









| |      
| | -----
| | Other

in-process


F-43