Table ofContents

 

 

 

**U.S. SECURITIES AND EXCHANGECOMMISSION**

**Washington, D.C.  20549**

 

**FORM 10-K**

**(Mark One)**

** **

| **x** | ** ** | **ANNUAL REPORT PURSUANT TO  SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934** |
|-------|------------|-----------------------------------------------------------------------------------------------------|

 

**For the fiscal year ended December 31, 2009**

** **

**OR**

 

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

 

**For the transition period from             to**

 

**Commission File No. 1-15339**

** **

**Chemtura Corporation******

(Exact name of registrant as specified inits charter)

 

| **Delaware**                                                   | ** ** | **52-2183153**                          |
|----------------------------------------------------------------|------------|-----------------------------------------|
| (State or other jurisdiction of incorporation or organization) |       | (I.R.S. Employer Identification Number) |

 

| **1818 Market Street, Suite 3700,  Philadelphia, Pennsylvania** | ** ** | **19103**  |
|----------------------------------------------------------------------|------------|------------|
| **199 Benson Road, Middlebury, Connecticut**                         | ** ** | **06749**  |
| (Address of principal executive offices)                             |       | (Zip Code) |

 

Registrant’s telephone number, including area code: **(203) 573****-****2000**

 

Securities registered pursuant to Section 12(b) of the Act:

 

| **Title of each class**           | ** ** | **Name of each exchange on which registered** |
|-----------------------------------|------------|----------------------------------------------------|
| **Common Stock, $0.01 par value** | ** ** | **NONE**                                           |

 

Securitiesregistered pursuant to Section 12(g) of the Act:  **NONE**

 

Indicateby check mark whether the registrant is a well-known seasoned issuer, asdefined in Rule 405 of the Securities Act Yes o   Nox

 

Indicate by check markif the registrant is not required to file reports pursuant to Section 13or Section 15(d) of the Act. Yes o   No x

 

Indicate by check markwhether the registrant (1) has filed all reports required to be filed by Section 13or 15(d) of the Securities Exchange Act of 1934 during the preceding 12months (or for such shorter period that the registrant was required to filesuch reports), and (2) has been subject to such filing requirements forthe past 90 days.     Yes o   No x

 

Indicate by check markwhether the registrant has submitted electronically and posted on its corporateWeb site, if any, every Interactive Data File required to be submitted andposted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) duringthe preceding 12 months (or for such shorter period that the registrant wasrequired to submit and post such files). Yes o No o

 

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

 

Indicateby check mark whether the registrant is a large accelerated filer, anaccelerated filer, a non-accelerated filer or a smaller reporting company.  See definition of “accelerated filer,” “largeaccelerated file” and “smaller reporting company” in Rule 12b-2 of theExchange Act. (Check off):

 

| Large  accelerated filer o                    |   | Accelerated  filer x         |
|-----------------------------------------------|--------|------------------------------|
|                                          |   |                         |
| Non-accelerated  filer o                      |   | Smaller  reporting company o |
| (Do not check if a smaller reporting company) |   |                         |

 

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

 

The aggregate market value of the votingand non-voting common equity held by non-affiliates of the registrant, computedas of June 30, 2009, based on the value of the last sales price of theseshares as quoted on Pink Sheets Electronic Quotation Service was $57,973,041.

 

The number of voting shares of CommonStock of the registrant outstanding as of January 29, 2010 was242,935,715.

** **

**DOCUMENTS INCORPORATED BYREFERENCE**

 

Part III of this Form 10-K willbe filed with the Securities and Exchange Commission as an amendment to this Form 10-Kin accordance with General Instruction G(3).

 

 

 

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| ** **        | ** **                                                                                                          | **Page**   |
|-------------------|---------------------------------------------------------------------------------------------------------------------|------------|
| **PART I**   | ** **                                                                                                          | ** ** |
| Item 1.           | Business                                                                                                            | 2          |
|              |                                                                                                                |       |
| Item 1A.          | Risk Factors                                                                                                        | 16         |
|              |                                                                                                                |       |
| Item 1B.          | Unresolved  Staff Comments                                                                                          | 24         |
|              |                                                                                                                |       |
| Item 2.           | Properties                                                                                                          | 24         |
|              |                                                                                                                |       |
| Item 3.           | Legal Proceedings                                                                                                   | 26         |
|              |                                                                                                                |       |
| Item 4.           | Submission  of Matters to a Vote of Security Holders                                                           | 26         |
|              |                                                                                                                |       |
| **PART II**  |                                                                                                                |       |
| Item 5.           | Market for  Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases  of Equity Securities | 27         |
|              |                                                                                                                |       |
| Item 6.           | Selected  Financial Data                                                                                            | 28         |
|              |                                                                                                                |       |
| Item 7.           | Management’s  Discussion and Analysis of Financial Condition and Results of Operations                         | 30         |
|              |                                                                                                                |       |
| Item 7A.          | Quantitative  and Qualitative Disclosures About Market Risk                                                    | 60         |
|              |                                                                                                                |       |
| Item 8.           | Financial  Statements and Supplementary Data                                                                        | 62         |
|              |                                                                                                                |       |
| Item 9.           | Changes In  and Disagreements with Accountants on Accounting and Financial Disclosure                               | 126        |
|              |                                                                                                                |       |
| Item 9A.          | Controls and  Procedures                                                                                            | 126        |
|              |                                                                                                                |       |
| Item 9B.          | Other Information                                                                                                   | 127        |
|              |                                                                                                                |       |
| **PART III** |                                                                                                                |       |
| Item 10.          | Directors,  Executive Officers and Corporate Governance                                                             | 127        |
|              |                                                                                                                |       |
| Item 11.          | Executive  Compensation                                                                                             | 128        |
|              |                                                                                                                |       |
| Item 12.          | Security  Ownership of Certain Beneficial Owners and Management and Related  Stockholder Matters               | 128        |
|              |                                                                                                                |       |
| Item 13.          | Certain  Relationships and Related Transactions and Director Independence                                           | 128        |
|              |                                                                                                                |       |
| Item 14.          | Principal  Accountant Fees and Services                                                                             | 128        |
|              |                                                                                                                |       |
| **PART IV**  |                                                                                                                |       |
| Item 15.          | Exhibits  and Financial Statement Schedules                                                                         | 129        |
|              |                                                                                                                |       |
|              | Signatures                                                                                                          | 135        |

 

**1**

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**Tableof Contents**

 

**PART I.**

 

**Item 1.  Business**

 

CERTAIN DISCLOSURES INCLUDED IN THISANNUAL REPORT ON FORM 10-K FOR THE FISCAL YEAR ENDED DECEMBER 31, 2009CONSTITUTE FORWARD-LOOKING STATEMENTS THAT ARE SUBJECT TO RISK ANDUNCERTAINTY.  SEE ITEM 7. - MANAGEMENT’SDISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS -FORWARD-LOOKING STATEMENTS.

 

WHEN WE USE THE TERMS “CORPORATION,” “COMPANY,”“CHEMTURA,” “REGISTRANT,” “WE,” “US” AND “OUR,” UNLESS OTHERWISE INDICATED ORTHE CONTEXT OTHERWISE REQUIRES, WE ARE REFERRING TO CHEMTURA CORPORATION ANDITS CONSOLIDATED SUBSIDIARIES.

 

**OVERVIEW**

 

Chemtura Corporation, together with itsconsolidated subsidiaries is dedicated to delivering innovative,application-focused specialty chemical and consumer products offerings.  Our principal executive offices are locatedin Philadelphia, Pennsylvania and Middlebury, Connecticut.  We operate in a wide variety of end-useindustries, including automotive, transportation, construction, packaging,agriculture, lubricants, plastics for durable and non-durable goods,electronics, and pool and spa chemicals.

 

**(a) GENERAL DEVELOPMENT OF BUSINESS**

 

Chemtura,incorporated in Delaware in 1999, is the successor to Crompton &Knowles Corporation (“Crompton & Knowles”), which was incorporated inMassachusetts in 1900 and engaged in the manufacture and sale of specialtychemicals beginning in 1954.  Crompton &Knowles traces its roots to the Crompton Loom Works incorporated in the1840s.  We expanded our specialtychemical business through acquisitions in the United States and Europe,including the 1996 acquisition of Uniroyal Chemical Company, Inc. (“Uniroyal”),the 1999 merger with Witco Corporation (“Witco”) and the 2005 acquisition ofGreat Lakes Chemical Corporation (“Great Lakes”).

 

We are a global diversified producer of specialtychemicals, polymer products and crop protection chemicals and a leading U.S.supplier of pool and spa chemicals.  Mostof our chemical products are sold to industrial manufacturing customers for useas additives, ingredients, or intermediates that add value to their endproducts.  Our crop protection productsare sold through dealers and distributors to growers.  Our pool and spa chemicals are sold throughlocal dealers, large retailers and mass merchants.  We are a market leader in many of our keyproduct lines.  Of our $2.5 billion ofnet sales in 2009, approximately 49% were to customers in the United States andCanada, 31% to Europe and Africa, 15% to Asia/Pacific and 5% to Latin America.

 

**Liquidity and Bankruptcy Proceedings**

 

Weentered 2009 with significantly constrained liquidity.  The fourth quarter of 2008 saw anunprecedented reduction in orders for our products as the global recessiondeepened and customers saw or anticipated reductions in demand in theindustries they served.  The impact wasmore pronounced on those business segments that served cyclically exposedindustries. As a result, our sales and overall financial performancedeteriorated resulting in non-compliance with the two financial maintenancecovenants under our Amended and Restated Credit Agreement, dated as of July 31,2007 (the “2007 Credit Facility”) as of December 31, 2008.  On December 30, 2008, we obtained a90-day waiver of compliance with these covenants from the lenders under the2007 Credit Facility.

 

Ourliquidity was further constrained in the fourth quarter of 2008 by changes inthe availability under our accounts receivable financing facilities in theUnited States and Europe.  Theeligibility criteria and reserve requirements under our prior U.S. accountsreceivable facility (the “U.S. Facility”) tightened in the fourth quarter of2008 following a credit rating downgrade, significantly reducing the value ofaccounts receivable that could be sold under the U.S. Facility compared withthe third quarter of 2008.  Additionally,the availability and access to our European accounts receivable financingfacility (the “European Facility”) was restricted in late December 2008because of our financial performance resulting in the inability to selladditional receivables under the European Facility.

 

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Thecrisis in the credit markets compounded the liquidity challenges we faced.  Under normal market conditions, we believe wewould have been able to refinance our $370 million notes maturing on July 15,2009 (the “2009 Notes”) in the debt capital markets.  However, with the deterioration of the creditmarket in the late summer of 2008 combined with our deteriorating financialperformance, we did not believe we would be able to refinance the 2009 Notes oncommercially reasonable terms, if at all. As a result, we sought to refinance the 2009 Notes through the sale ofone of our businesses.

 

OnJanuary 23, 2009, our special-purpose subsidiary entered into a newthree-year U.S. accounts receivable financing facility (the “2009 U.S. Facility”)that restored most of the liquidity that we had available to us under the priorU.S. accounts receivable facility before the fourth quarter of 2008 eventsdescribed above.  However, despite goodfaith discussions, we were unable to agree to terms under which we could resumethe sale of accounts receivable under our European Facility during the firstquarter of 2009.  The balance of accountsreceivable previously sold under the European Facility continued to decline,offsetting much of the benefit to liquidity gained by the new 2009 U.S.Facility.  During the second quarter of2009, with no agreement to restart the European Facility, the remaining balanceof the accounts receivable previously sold under the facility were settled andthe European Facility was terminated.

 

January 2009saw no improvement in customer demand from the depressed levels in December 2008and some business segments experienced further deterioration.  Although February and March of 2009saw incremental improvement in net sales compared to January 2009, overallbusiness conditions remained difficult as sales declined by 43% in the firstquarter of 2009 compared to the first quarter of 2008.  As awareness grew of our constrained liquidityand deteriorating financial performance, suppliers began restricting tradecredit and, as a result, liquidity dwindled further.  Despite moderate cash generation throughinventory reductions and restrictions on discretionary expenditures, our trade creditcontinued to tighten, resulting in unprecedented restrictions on our ability toprocure raw materials.

 

InJanuary and February of 2009, we were in the midst of the asset saleprocess with the objective of closing a transaction prior to the July 15,2009 maturity of the 2009 Notes. Potential buyers conducted due diligence and worked towards submittingtheir final offers on several of our businesses.  However, with the continuing recession andspeculation about our financial condition, potential buyers becameprogressively more cautious.  Certainpotential buyers expressed concern about our ability to perform our obligationsunder a sale agreement.  They increasedtheir due diligence requirements or decided not to proceed with atransaction.  In March 2009, weconcluded that although there were potential buyers of our businesses, a salewas unlikely to be closed in sufficient time to offset the continueddeterioration in liquidity or at a value that would provide sufficientliquidity to both operate the business and meet our impending debt maturities.

 

ByMarch 2009, dwindling liquidity and growing restrictions on availabletrade credit resulted in production stoppages as raw materials could notbe purchased on a timely basis.  At thesame time, we concluded that it was improbable that we could resume sales ofaccounts receivable under our European Facility or complete the sale of abusiness in sufficient time to provide the immediate liquidity we needed tooperate.  Absent such an infusion ofliquidity, we would likely experience increased production stoppages orsustained limitations on our business operations that ultimately would have adetrimental effect on the value of our business as a whole.  Specifically, the inability to maintain andstabilize our business operations would result in depleted inventories, missedsupply obligations and damaged customer relationships.

 

##### **Having carefully explored and exhausted all possibilitiesto gain near-term access to liquidity, we determined that debtor-in-possessionfinancing presented the best available alternative for us to meet our immediateand ongoing liquidity needs and preserve the value of the business.  As a result, having obtained the commitmentof a $400 million senior secured super-priority debtor-in-possession creditagreement (the “DIP Credit Facility”), Chemtura and 26 of our subsidiariesorganized in the United States (collectively, the “Debtors”) filed for reliefunder Chapter 11 of Title 11 of the United States Bankruptcy Code (the “BankruptcyCode”) on March 18, 2009 (the “Petition Date”) in the United StatesBankruptcy Court for the Southern District of New York (the “Bankruptcy Court”).  The Chapter 11 cases are being jointlyadministered by the Bankruptcy Court. Our non-U.S. subsidiaries and certain U.S. subsidiaries were notincluded in the filing and are not subject to the requirements of theBankruptcy Code.  Our U.S. and worldwideoperations are expected to continue without interruption during the Chapter 11reorganization process.**

 

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TheDebtors own substantially all of our U.S. assets.  The Debtors consist of Chemtura and thefollowing subsidiaries:

 
| ·   A&M Cleaning Products LLC   |   | ·   Crompton Colors Incorporated           |   | ·   Kem Manufacturing Corporation          |
|-----------------------------------------------|--------|------------------------------------------------------|--------|------------------------------------------------------|
| ·   Aqua Clear Industries, LLC      |   | ·   Crompton Holding Corporation           |   | ·   Laurel Industries Holdings, Inc.  |
| ·   ASEPSIS, Inc.              |   | ·   Crompton Monochem, Inc.           |   | ·   Monochem, Inc.                    |
| ·   ASCK, Inc.                 |   | ·   GLCC Laurel, LLC                       |   | ·   Naugatuck Treatment Company            |
| ·   BioLab, Inc.               |   | ·   Great Lakes Chemical Corporation       |   | ·   Recreational Water Products, Inc. |
| ·   BioLab Company Store, LLC       |   | ·   Great Lakes Chemical Global, Inc. |   | ·   Uniroyal Chemical Company Limited      |
| ·   Biolab Franchise Company, LLC   |   | ·   GT Seed Treatment, Inc.           |   | ·   Weber City Road LLC                    |
| ·   BioLab Textile Additives, LLC   |   | ·   HomeCare Labs, Inc                     |   | ·   WRL of Indiana, Inc.              |
| ·   CNK Chemical Realty Corporation |   | ·   ISCI, Inc.                        |   |                                                 |

 

Theprincipal U.S. assets and business operations of the Debtors are owned byChemtura, BioLab, Inc. and Great Lakes Chemical Corporation.

 

TheChapter 11 cases were filed to gain liquidity for continuing operations whilethe Debtors restructure their balance sheets to allow us to continue as aviable going concern.  While we believewe will be able to achieve these objectives through the Chapter 11reorganization process, there can be no certainty that we will be successful indoing so.

 

UnderChapter 11 of the Bankruptcy Code, the Debtors are operating their U.S.businesses as a debtor-in-possession (“DIP”) under the protection of theBankruptcy Court from their pre-filing creditors and claimants.  Since the filing, all orders of theBankruptcy Court sufficient to enable the Debtors to conduct normal businessactivities, including “first day” motions and the interim and final approval ofthe DIP Credit Facility and amendments thereto, have been entered by theBankruptcy Court.  While the Debtors aresubject to Chapter 11, all transactions outside the ordinary course of businesswill require the prior approval of the Bankruptcy Court.

 

Asa consequence of the Chapter 11 cases, substantially all pre-petitionlitigation and claims against the Debtors have been stayed.  Accordingly, no party may take any action tocollect pre-petition claims or to pursue litigation arising as a result ofpre-petition acts or omissions except pursuant to an order of the BankruptcyCourt.

 

OnAugust 21, 2009, the Bankruptcy Court established October 30, 2009 asthe deadline for the filing of proofs of claim against the Debtors (the “BarDate”).  Under certain limitedcircumstances, some creditors may be permitted to file proofs of claim afterthe Bar Date.  Accordingly, it ispossible that not all potential proofs of claim were filed as of the filing ofthis Annual Report.

 

TheDebtors have received approximately 15,300 proofs of claim covering a broadarray of areas.  Approximately 8,000proofs of claim have been asserted in “unliquidated” amounts or contain anunliquidated component that are treated as being asserted in “unliquidated”amounts.  Excluding proofs of claim in “unliquidated”amounts, the aggregate amount of proofs of claim filed totaled approximately$23.6 billion.  See Note 21 - LegalProceedings and Contingencies in the Notes to Consolidated Financial Statementsfor a discussion of the types of proofs of claim filed against the Debtors.

 

Weare in the process of evaluating the amounts asserted in and the factual andlegal basis of the proofs of claim filed against the Debtors.  Based upon our initial review and evaluation,which is continuing, a significant number of proofs of claim are duplicativeand/or legally or factually without merit. As to those claims, we have filed and intend to file objections with theBankruptcy Court.  However, there can beno assurance that these claims will not be allowed in full.

 

Further,while we believe we have insurance to cover certain asserted claims, there canbe no assurance that material uninsured obligations will not be allowed asclaims in the Chapter 11 cases.  Becauseof the substantial number of asserted contested claims, as to which review andanalysis is ongoing, there is no assurance as to the ultimate value of claimsthat will be allowed in these Chapter 11 cases, nor is there any assurance asto the ultimate recoveries for our stakeholders, including our bondholders andshareholders.  The differences betweenamounts recorded by the Debtors and proofs of claim filed by the creditors willcontinue to be investigated and resolved through the claims reconciliationprocess.

 

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Wehave recognized certain charges related to expected allowed claims.  As we complete the process of evaluating andresolving the proofs of claim, appropriate adjustments to our ConsolidatedFinancial Statements will be made. Adjustments may also result from actions of the Bankruptcy Court,settlement negotiations, rejection of executory contracts and real propertyleases, determination as to the value of any collateral securing claims andother events.  Any such adjustments couldbe material to our financial condition or results of operations in any givenperiod.  For additional information onliabilities subject to compromise, see Note 4 - Liabilities Subject toCompromise and Reorganization Items, Net in the Notes to Consolidated FinancialStatements.

 

Asprovided by the Bankruptcy Code, the Debtors have the exclusive right to fileand solicit acceptance of a plan of reorganization (the “Plan”) for 120 daysafter the Petition Date with the possibility of extensions thereafter.  On February 23, 2010, the BankruptcyCourt granted our application for an extension of the period during which wehave the exclusive right to file a Plan from February 11, 2010 to June 11,2010.  The Bankruptcy Court hadpreviously granted our applications for extensions of the exclusivity period onJuly 28, 2009 and October 27, 2009. There can be no assurance that a Plan will be filed by the Debtors orconfirmed by the Bankruptcy Court, or that any such Plan will beconsummated.  After a Plan has been filedwith the Bankruptcy Court, the Plan, along with a disclosure statement approvedby the Bankruptcy Court, will be sent to all creditors and other partiesentitled to vote to accept or reject the Plan. Following the solicitation period, the Bankruptcy Court will considerwhether to confirm the Plan.  In order toconfirm a Plan, the Bankruptcy Court must make certain findings as required bythe Bankruptcy Code.  The BankruptcyCourt may confirm a Plan notwithstanding the non-acceptance of the Plan by animpaired class of creditors or equity security holders if certain requirementsof the Bankruptcy Code are met.

 

OnFebruary 9, 2010, the Bankruptcy Court gave interim approval of an Amendedand Restated Senior Secured Super-Priority Debtor-in-Possession CreditAgreement (the “Amended and Restated DIP Credit Agreement”) by and among theDebtors, Citibank N.A. and the other lenders party thereto.  The Amended and Restated DIP Credit Agreementprovides for a first priority and priming secured revolving and term loancredit commitment of up to an aggregate of $450 million.  The proceeds of the loans and other financialaccommodations incurred under the Amended and Restated DIP Credit Agreementwere used to, among other things, refinance the obligations outstanding underthe DIP Credit Facility and provide working capital for general corporatepurposes.  The Amended and Restated DIPCredit Agreement provided a substantial reduction in our financing coststhrough interest rate reductions and the avoidance of the extension fees thatwould have been payable under the DIP Credit Facility in February and May 2010.  It also provided us with greater flexibilityto operate our business.  The Amended andRestated DIP Credit Agreement closed on February 12, 2010 with the drawingof the $300 million term loan.  On February 18,2010, the Bankruptcy Court entered a final order providing full access to theAmended and Restated DIP Credit Agreement. The Amended and Restated DIP Credit Agreement matures on the earlier of 364 days afterthe closing, the effective date of a Plan or the date of termination in wholeof the Commitments (as defined in the Amended and Restated DIP CreditAgreement).

 

Theultimate recovery by the Debtors’ creditors and our shareholders, if any, willnot be determined until confirmation and implementation of a Plan.  No assurance can be given as to whatrecoveries, if any, will be assigned in the Chapter 11 cases to each of theseconstituencies.  A Plan could result inour shareholders receiving little or no value for their interests and holdersof the Debtors’ unsecured debt, including trade debt and other generalunsecured creditors, receiving less, and potentially substantially less, thanpayment in full for their claims. Because of such possibilities, the value of our common stock andunsecured debt is highly speculative. Accordingly, we urge that appropriate caution be exercised with respectto existing and future investments in any of these securities.  Although the shares of our common stockcontinue to trade on the Pink Sheets Electronic Quotation Service (“Pink Sheets”)under the symbol “CEMJQ,” the trading prices may have little or no relationshipto the actual recovery, if any, by the holders under any eventual BankruptcyCourt-approved Plan.  The opportunity forany recovery by holders of our common stock under such Plan is uncertain as allcreditors’ claims must be met in full, with interest where due, before valuecan be attributed to the common stock and, therefore, the shares of our commonstock may be cancelled without any compensation pursuant to such Plan.

##### ** **

Continuationof our operations as a going concern is contingent upon, among other things,our ability (i) to comply with the terms and conditions of the Amended andRestated DIP Credit Agreement; (ii) to obtain confirmation of a Plan underthe Bankruptcy Code; (iii) to return to profitability; (iv) togenerate sufficient cash flow from operations; and (v) to obtain financingsources to meet our future obligations. These matters raise substantial doubt about our ability to continue as agoing concern.  The ConsolidatedFinancial Statements do not reflect any adjustments relating to therecoverability and classification of recorded asset amounts or the amounts andclassification of liabilities that might result from the outcome of theseuncertainties.  Additionally, a Plancould materially change amounts reported in the Consolidated FinancialStatements, which do not give effect to all adjustments of the carrying valueof assets and liabilities that may be necessary as a consequence of completinga reorganization under Chapter 11 of the Bankruptcy Code.

 

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**ProposedDivestiture**

 

OnDecember 23, 2009, we entered into a Share and Asset Purchase Agreementwith SK Atlas, LLC and SK Capital Partners II, LP (collectively “SK”), NewYork-based private equity concerns focusing on the specialty materials,chemicals and healthcare industries, whereby SK has agreed to acquire ourglobal polyvinyl chloride (“PVC”) additives business.  The sale will include certain assets, thestock of a European subsidiary and the assumption by SK of certain liabilities.

 

OnDecember 23, 2009, we filed a motion with the Bankruptcy Court (the “SaleMotion”), pursuant to Section 363 of the Bankruptcy Code, seeking, amongother things, approval of an auction process and bidding procedures that wouldgovern the sale of the PVC additives business to SK or another bidder with thehighest or otherwise best offer and approval of the sale of the PVC additivesbusiness in accordance with the auction process and bidding procedures.  On January 14, 2010, the BankruptcyCourt entered an order (the “Bidding Procedures Order”) establishing an auctionprocess and bidding procedures (the “Auction”) to govern the sale of the PVCadditives business.  On January 15,2010, we entered into Amendment No. 3 of the DIP Credit Facility thatprovided for, among other things, the consent of our DIP lenders to the sale ofthe PVC additives business.  The lendersunder the Amended and Restated DIP Credit Agreement also consented to thistransaction.  Pursuant to the BiddingProcedures Order, the Auction was held on February 22, 2010.  At the Auction, Artek Aterian Holding Companyand its sponsors, Aterian Investment Partners Distressed Opportunities, LP andArtek Surfin Chemicals Ltd. (collectively, “Artek”), emerged as the bidder withthe highest and otherwise best bid for the PVC additives business.

 

OnFebruary 23, 2010, pursuant to the Bidding Procedures Order and followingthe Auction, we entered into a Share and Asset Purchase Agreement (“Artek SAPA”)with Artek whereby Artek agreed to acquire our PVC additives business for cashconsideration of $16 million and to assume certain liabilities, includingcertain pension and environmental liabilities. The purchase price is subject to certain adjustments including apost-closing net working capital adjustment. On February 23, 2010, the Bankruptcy Court held a hearing on theSale Motion pursuant to Section 363 of the Bankruptcy Code and issued anorder approving, among other things, the sale of the PVC additives business toArtek.  The transaction is expected toclose in the second quarter of 2010.  TheArtek SAPA resulted in an incremental $14 million of cash proceeds andfavorable sales contract modifications compared to the initial share and assetpurchase agreement with SK.

 

ThePVC additives business subject to the Artek SAPA had net sales of $236 millionin 2009, and $374 million in 2008 and $357 million in 2007.

 

**(b) FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS**

 

**Informationas to the sales, operating profit, depreciation and amortization, assets,capital expenditures and earnings on investments carried on the equity methodattributable to each of our business segments during each of our last threefiscal years is set forth in Note 22 - Business Segments in the Notes toConsolidated Financial Statements.**

 

Effectivefor the quarter ended March 31, 2009, we made component realignmentswithin our reporting segments, which were also renamed.  These modifications reflect the changes toour organizational structure announced on January 19, 2009.  The renamed reporting segments are: ConsumerPerformance Products, Industrial Performance Products (petroleum additives,urethanes and antioxidants), Crop Protection Engineered Products and IndustrialEngineered Products (flame retardants and brominated performance products,organometallics, PVC additives and surfactants).  Industrial Engineered Products is the formerPolymer Additives segment excluding our antioxidant product line and IndustrialPerformance Products is the former Performance Specialties segment nowincluding our antioxidant product line. The Other segment has been eliminated and absorbed into the IndustrialPerformance Products and Industrial Engineered Products segments.  The presentation of the Consumer Products andCrop Protection segments is unchanged. Prior period segment data has been restated to conform to the currentperiod presentation.

 

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**(c) NARRATIVE DESCRIPTION OF BUSINESS**

 

The table belowillustrates each segment’s net sales for the year ended December 31, 2009as well as each segment’s major products, end-use markets and brands.

 
| ** **                | ** ** | **Consumer**                                                                                                                                                                                                                                                                                    | ** ** | **Industrial**                                                                                                                                                                                                                                                                                                                                                           | ** ** | **Crop Protection**                                                                                                                                                                                                                                                                                                                                                                                       | ** ** | **Industrial**                                                                                                                                                                                                                                                                                           |
|---------------------------|------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ** **                | ** ** | **Performance Products**                                                                                                                                                                                                                                                                        | ** ** | **Performance Products**                                                                                                                                                                                                                                                                                                                                                 | ** ** | **Engineered Products**                                                                                                                                                                                                                                                                                                                                                                                   | ** ** | **Engineered Products**                                                                                                                                                                                                                                                                                  |
|                      |       |                                                                                                                                                                                                                                                                                            |       |                                                                                                                                                                                                                                                                                                                                                                     |       |                                                                                                                                                                                                                                                                                                                                                                                                      |       |                                                                                                                                                                                                                                                                                                     |
| **2009 Net Sales**        |       | $457  million                                                                                                                                                                                                                                                                                   |       | $999  million                                                                                                                                                                                                                                                                                                                                                            |       | $332  million                                                                                                                                                                                                                                                                                                                                                                                             |       | $753  million                                                                                                                                                                                                                                                                                            |
|                      |       |                                                                                                                                                                                                                                                                                            |       |                                                                                                                                                                                                                                                                                                                                                                     |       |                                                                                                                                                                                                                                                                                                                                                                                                      |       |                                                                                                                                                                                                                                                                                                     |
| **Key Products**          |       | · Swimming  Pool & Spa Chemicals

· Cleaning  Products                                                                                                                                                                                                             |       | · Petroleum  Additives

· Urethanes

· Antioxidants

· UV  Stabilizers

· Elastomer  Additives                                                                                                                                                                                                                         |       | · Seed  Treatment

· Fungicides

· Miticides

· Insecticides

· Growth  Regulants

· Herbicides                                                                                                                                                                                                                                               |       | · Brominated  Performance Products

· Flame  Retardants

· Fumigants

· Organometallics

· PVC  Additives

· Surfactants                                                                                                                     |
|                      |       |                                                                                                                                                                                                                                                                                            |       |                                                                                                                                                                                                                                                                                                                                                                     |       |                                                                                                                                                                                                                                                                                                                                                                                                      |       |                                                                                                                                                                                                                                                                                                     |
| **Major End-Use Markets** |       | · Pools  and Spas

· Water  Parks

· Resorts

· Municipal  Pools· Cleaners                                                                                                                                                                    |       | · Building  and Construction

· Packaging

· Consumer  Products

· Lubricants

· Engine  and Gear Oils

· Industrial  Oils and Greases

· Coatings

· Adhesives

· Sealants

· Automotive                                                                            |       | · Agriculture                                                                                                                                                                                                                                                                                                                                                                                   |       | · Plastics

· Agriculture

· Fine  Chemical

· Oilfield

· Building  and Construction

· Solar

· Coatings

· Pharmaceuticals

· Electronics

· Consumer  Durables

· Paints  and Polymers |
|                      |       |                                                                                                                                                                                                                                                                                            |       |                                                                                                                                                                                                                                                                                                                                                                     |       |                                                                                                                                                                                                                                                                                                                                                                                                      |       |                                                                                                                                                                                                                                                                                                     |
| **Key Brands**            |       | BioGuard®

Aqua  Chem®

BAYROL®

Guardex®

Pool  Time®

ProGuard®

Spa  Essentials®

SpaGuard®

Spa  Time®

Omni®

Mineral  Springs®

The  Works®

Greased  Lightning®

Poolbrite®

Cristal®

Miami®

Sun® |       | Naugalubes®

Naugard®

Hybase®

Lobase®

Synton®

Hatcol®

Adiprene®Vibrathane®

Fomrez®

Witcobond®

Trixene®

Weston®

Anderol®

Royco®

Petronate®

Durad®

Calcinate®

Reolube®

Anox®

Ultranox®

Polybond®

Royaltuf®

Lowilite®

Lowinox® |       | Vitavax®

Acramite®

Omite®

Floramite®

Rimon®

ProCure®

Firestorm®

Casoron®

Royal  MH-30®

Royaltac®

Off-Shoot  T®

Flupro®

Rancona®

Anchor®

Adept®

Dimilin®

Micromite®

Blizzard®

B-Nine®

Temprano®

Terraguard®

Viticure®

Pantera®

Enhance®

Grain  Guard® |       | GeoBrom®

Firemaster®

Kronitex®

Fyrebloc®

Pyrobloc®

Smokebloc®

Thermoguard®

Mark  OBS®

Timonox®                                                                                                                                                      |

 

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**Consumer Performance Products**

 

ConsumerPerformance Products are performance chemicals that are sold to consumers forin-home and outdoor use.  ConsumerPerformance Products include recreational water purification products soldunder a variety of branded labels through local dealers and large retailers toassist consumers in the maintenance of their swimming pools and spas andbranded cleaners and degreasers sold primarily through mass merchants toconsumers for home cleaning.

 

Ourpool and spa product line produces and distributes sanitizers, algaecides,biocides, oxidizers, pH balancers, mineral balancers and other specialtychemicals and accessories.  Our primary channelsof distribution are pool and spa dealers and mass-market retailers throughoutNorth America, Europe, Australia and South Africa.  We hold a leading position in the NorthAmerican pool and spa chemical business and we plan to strengthen our positionby expanding our dealer channels and our presence with leading mass marketretailers.  Brands include BioGuard®,Aqua Chem®, BAYROL®, Guardex®, Pool Time®, ProGuard®, Spa Essentials®,SpaGuard®, Spa Time®, Omni®, Mineral Springs®, The Works®, Greased Lightning®,Poolbrite®, Cristal®, Miami® and Sun®.

 

TheConsumer Performance Products business also operates in the specialty andmulti-purpose cleaners business with The Works® brand of non-abrasive bathroomcleaners, glass and surface cleaners, toilet bowl cleaners, drain openers andrust and calcium removers, as well as the Greased Lightning® family ofmultipurpose cleaners.  Our primarychannels of distribution are to major national and regional retailers in thedo-it-yourself, hardware, mass market, club and discount sectors.

 

TheConsumer Performance Products segment had net sales of $457 million for 2009,$516 million for 2008 and $567 million for 2007.  This segment represented 18%, 15% and 15% ofour total net sales in 2009, 2008 and 2007, respectively.

 

**IndustrialPerformance Products**

 

IndustrialPerformance Products are engineered specialty chemicals.  Industrial Performance Products includepetroleum additives that provide detergency, friction modification andcorrosion protection in motor oils, greases, refrigeration and turbinelubricants; castable urethane prepolymers engineered to provide superiorabrasion resistance and durability in many industrial and recreationalapplications; and polyurethane dispersions and urethane prepolymers used invarious types of coatings such as wood floor finishes, automotive clear coatsand textiles treatments; plastic antioxidants additives that inhibit thedegradation of polymers caused by air and heat during manufacture and use; UVstabilizers additives that protect materials against the harmful effects ofultra-violet light; and elastomer additives products that protect elastomersand rubber compounds such as tires from cracking and deteriorating fromexposure to ozone as well as providing resistance to oxygen and heatdegradation.  These products are solddirectly to manufacturers and through distribution channels.

 

OnFebruary 29, 2008, we completed the acquisition of the remaining shares ofBaxenden Chemicals Ltd (“Baxenden”). Baxenden complements our existing Witcobond® dispersions and Fomrez®polyester polyols segment offering related products in key customer areas.  The acquisition allowed us access to widerapplications in the urethanes segment and strengthened our position in Europe.

 

OnJanuary 31, 2007, we completed the acquisition of the stock of KaufmanHoldings Corporation, which complemented our existing Industrial PerformanceProducts segment by offering related products in key customer areas, providingthe opportunity to strengthen alliances with major suppliers, and offeringpotential distribution synergies.

 

TheIndustrial Performance Products segment had net sales of $999 million for 2009,$1,465 million for 2008 and $1,513 million for 2007.  This segment represented 39%, 41% and 40% ofour total net sales in 2009, 2008 and 2007, respectively.  Themajor product offerings of this segment are described below.

 

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*Petroleum Additives*

 

We are a global manufacturer and marketer ofhigh-performance additive components used in transport and industrial lubricantapplications. We are the global leader for alkylated diphenylaminesantioxidants (“ADPAs”), which are marketed as Naugalubes® and usedpredominately in motor oils.  Theseadditives play a critical role in meeting rising regulatory standards forengine performance.  The componentproduct line also includes overbased and neutral calcium sulfonates used inmotor oils and marine lubricants. These sulfonates, marketed as Hybase® andLobase®, are oil-soluble surfactantswhose properties include detergency and corrosion protection to help lubricantskeep car, truck, and ship engines clean with minimal wear.  Additionally, we manufacture barium andsodium sulfonates, which provide corrosion protection and emulsification inmetalworking fluids and other industrial lubricants.

 

We provide a variety of other highly specialized,high value products including our high-viscosity polyalphaolefins, marketed as Synton®, and our broad portfolio of esters marketedas Hatcol®.  These products are used in the production of syntheticlubricants for automotive, refrigeration, aviation, and industrialapplications.  We are also the world’sleader in high performing calcium sulfonate specialty greases and phosphateester based fluids and additives for power generation fluids and for use inanti-wear agents in a variety of lubricants.

 

We are also a specialty supplier of high performancefinished lubricants serving the aviation and industrial markets.  Our product line has extensive originalequipment manufacturer approvals and is marketed under our Anderol® and Royco®brands, as well as for private label customers.

 

*Urethanes*

 

We are a leading supplier of high-performance casturethane polymers with more than 200 variations in our product offerings.  Our urethanes offer high abrasion resistanceand durability in industrial and performance-specific applications.  These characteristics allow us to market oururethanes to niche manufacturers where such qualities are imperative, includingfor industrial and printing rolls, mining machinery and equipment, mechanicalgoods, solid industrial tires and wheels, and sporting and recreational goods,including roller board and roller skate wheels.

 

Adiprene®/Vibrathane®urethane prepolymers are sold by our direct sales force and throughdistribution partners in the United States, Canada, Australia, Europe, LatinAmerica and the Far East, and are used in cast elastomer applications wheredurability and chemical resistance is required. Our products are used in applications as diverse as polishing pads forthe semiconductor industry to high performance screens for the miningindustry.  Customers in each region areserviced by a dedicated technical staff whose support is a critical componentof the product offering.  We believe the relatively low capital requirements of thisbusiness provide us with the ability to operate cost effectively.  Lastly, our development capabilities allow usto differentiate ourselves in these markets by tailoring our products to thespecialized needs of each customer application which sets us apart from ourcompetitors.

 

Our urethane chemicals business provides productsfor a variety of end uses and applications. The urethane chemicals businessconsists primarily of three product lines: Fomrez® saturated polyester polyols, Witcobond® polyurethane dispersions, and Trixene® blocked isocyanates.   Fomrez® polyester polyols are employed inindustrial applications such as flexible foam for seating.  Our Witcobond® polyurethane dispersions are sold to a larger and more diverse customerbase primarily for applications such as glass fiber sizing, wood floor coatingsand ballistics protection applications. Our Trixene® productrange includes blocked isocyanates and specialty polymer systems used ina wide range of coating, adhesive, sealant and elastomer applications.   Our focus on customer intimacy in the urethanechemicals business enables us to tailor specific product offerings to meet ourcustomers’ most demanding application requirements.

 

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*Antioxidants*

 

Operating worldwide manufacturing facilities to meetthe needs of the large global petrochemical producers as well as regionalcompounders, our antioxidants and UV stabilizer business is comprised of fiveproduct families.  We are one of theworld’s largest suppliers of plastic antioxidants additives that inhibit thedegradation of polymers caused by air and heat during manufacture and use. OurUV stabilizers additives protect materials against the harmful effects ofultra-violet light. The elastomer additives products protect elastomersand rubber compounds such as tires from cracking and deteriorating fromexposure to ozone as well as providing resistance to oxygen and heatdegradation. Our inhibitors prevent polymerization in production of certainmonomers and the polymer modifier products are used as coupling agents andimpact modifiers for polymers for use in engineering applications in markets suchas automotive and building and construction.

 

Incorporating such additives into resin systemsimproves the durability and longevity of plastics used in packaging, consumerdurables, automotive parts and electrical components.  Through our proprietary technology, we areable to offer “Powder Free” solutions so our customers can avoid the hazards ofworking with powders in a chemical environment. At the same time, we areproficient in blending a variety of these materials into specializedformulations uniquely tailored to customer specific end-use requirements.

 

**CropProtection Engineered Products**

 

Our Crop Protection Engineered Products businessfocuses on specific target applications in six major product lines whichinclude seed treatments, fungicides, miticides, insecticides, growth regulantsand herbicides.  We have developed ourproducts for use primarily on high-value target crops such as tree and vinefruits, ornamentals and nuts and secondarily for commodity row crops such assoybeans, oilseed rape and corn.  Ourdedicated sales force works with growers and distributors to promote the use ofour products throughout a crop’s growth cycle and to address selectiveregional, climate, and growth opportunities. We expand our presence in worldwide targeted markets by developing oracquiring crop protection products and obtaining registrations for new uses andgeographies where demand for our products and services has potential forgrowth.  We develop and sell our own productsand we also sell and register products manufactured by others on a licenseand/or resale basis.

 

Our seed treatments are used to coat seeds in orderto protect the seed during germination and initial growth phases. Seedtreatment is an environmentally attractive form of crop protection involvinglocalized use of agricultural chemicals at much lower use rates than otheragrichemical treatments.  We anticipategrowth in seed treatment resulting from the expanded use of higher valuegenetically modified seed.  On March 24,2006, we acquired the Trace Chemicals business from Bayer CropScience LP.  Trace Chemicals is a leader in farmer-appliedseed treatments in markets serving the United States.  The acquisition enhanced our offerings inthis fast growing crop application.

 

The Crop Protection Engineered Products businessworks closely with our customers, distributors, research stations andindividual growers as part of an on-the-ground coordinated effort.  We develop products in response to ongoingcustomer demands, drawing upon existing technologies and tailoring them tomatch immediate needs. For example, a grower’s crops may require varying levelsof treatment depending on weather conditions and the degree of infestation. Ourresearch and technology is therefore geared towards responding to threats tocrops around the world as they emerge under a variety of conditions.

 

Our Crop Protection Engineered Products businessbenefits from nearly 50 years of experience in the field, along with productregistrations in more than 90 countries. Our experience with registeringproducts is a valuable asset, as registration is a significant barrier toentry, particularly in developed countries. Registration of products is a complex process in which we have developedproficiency over time.  The breadth of ourdistribution network and the depth of our experience enable us to focus onprofitable applications that have been less sensitive to competitive pricingpressures than broad commodity segments. This position allows us to attractlicensing and resale opportunities from partner companies providing us newproducts and technologies to accompany our own existing chemistries.

 

TheCrop Protection Engineered Products business sells its products in NorthAmerica through a distribution network consisting of more than 100 distributoroutlets that sell directly to end use customers.  Internationally, our direct sales forceservices over 1,400 distributors, dealers, cooperatives, seed companies andlarge growers.

 

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The Crop Protection Engineered Products segment hadnet sales of $332 million for 2009, $394 million for 2008 and $352 million for2007.  This segment represented 13%, 11% and9% of our total net sales in 2009, 2008 and 2007, respectively.

 

# **Industrial Engineered Products**

 

Weare a global leader in manufacturing and selling an extensive line of additivesand organometallic specialties to a broad range of industries includingplastics, agriculture, fine chemicals, oilfield, building and construction,electronics and automotive industries. The chemical additives of the Industrial Engineered Products businessare designed to improve the performance of polymers in their end-useapplications.  Segment products includebrominated performance products, flame retardants, fumigants, organometallics,PVC additives and surfactants.  Theproducts are sold across the entire value chain ranging from direct sales tomonomer producers, polymer manufacturers, compounders and fabricators, finechemical manufacturers and oilfield service companies to industry distributors.

 

The Industrial Engineered Products segment had netsales of $753 million for 2009, $1,171 million for 2008 and $1,315 million for2007.  This segment represented 30%, 33%and 35% of our total net sales in 2009, 2008 and 2007, respectively.  The major product offerings of this segmentare described below.

 

*Flame Retardants and Brominated PerformanceProducts*

 

Our flame retardant business holds a leading globalposition with a comprehensive offering of bromine, phosphorus andantimony-based flame retardants.  Withincreasing regulatory and fire safety performance demands, the use of theseproducts continues to grow in electrical components, construction materials,automotive and furniture/furnishing applications.

 

We are backward integrated to brine, a primarysource of bromine and have a well developed business in supplying other typesof brominated performance products to a variety of industries includingagricultural, fine chemicals, pharmaceutical, electronics and oil welldrilling.  We have entered into a seriesof long-term supply and purchase agreements with TETRA Technologies, Inc.(“TETRA”), primarily to sell bromine to TETRA on an exclusive basis.

 

Part of our expertise in bromine-based materialis the production and distribution of methyl bromide, a fumigant used toimprove crop yields and protect grain in storage from pest infestation.  Such materials are regularly used to treatfood processing plants, breweries, warehouses and grain elevators, as well asrail cars, truck trailers and intermodal containers.  While the use of methyl bromide has beenrestricted by regulations, it continues to play an important role in protectingthe food chain.  Where effectivealternatives are not available, our products continue to be employed at cargoports where agricultural commodities need to be treated quickly andcomprehensively to prevent transmission of infestation across internationalborders and as a pre-plant treatment to control weeds, diseases, insects andnematodes in high value food crops leading to increased yields and higher freshproduce quality.

 

On January 14, 2010, we announced a long-termstrategic sourcing agreement with global specialty chemicals company AlbemarleCorporation. The transaction represents a key milestone in our flame retardantsbusiness strategic reorganization process. The strategic agreement will allow us to further strengthen operationsat our most productive brine field in South Arkansas.  In addition, this agreement will providegreater opportunities for us to reinvest in new, innovative flame retardantsand brominated performance products designed as part of our “Greener is Better”program, which is focused on offering customers greener solutions withoutsacrificing safety or quality.

 

On January 25, 2010, our Board of Directorsapproved a restructuring plan involving the consolidation and idling of certainassets within the flame retardants business operations in El Dorado,Arkansas.  The restructuring plan wasapproved by the Bankruptcy Court on February 23, 2010 and is expected tobe completed by the fourth quarter of 2010. As a result of the restructuring plan, we expect to record costs ofapproximately $40 million, primarily in the first half of 2010, consisting ofapproximately $35 million in accelerated depreciation of property, plant andequipment and approximately $5 million in other facility-related shutdowncosts, which include accelerated recognition of asset retirement obligations,decommissioning of wells and pipelines and severance.  In addition to the aforementioned costs, weexpect cash costs, including capital costs, to be approximately $20 millionprimarily in 2010 in order to execute the consolidation of operations intoremaining facilities.

 

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*Organometallics*

 

Organometallics are a special group of metalcontaining organic chemicals which play a significant role in a variety ofindustrial applications.  Organometallicsare essential components used to initiate the polymerization reactions thattransform monomers into polymers.  Theyare also used as precursors in glass coatings, in the production ofsemiconductors and photovoltaic panels, as well as for the production of manypharmaceutical ingredients and as catalysts for curing certain paints andpolymers.

 

*PVC Additives*

 

Our PVC additives consist primarily of heatstabilizers that are essential to the processing of heat sensitive resins.  Without the inclusion of such specialtyadditives, scorching of the resin during fabrication could result, compromisingthe functionality and appearance of the finished product.  High-value end-use applications with suchdemanding aesthetic standards include vinyl exterior siding, synthetic flooringand window profiles.  Other large volumeconstruction-related uses include plumbing and drainage pipe, electricalconduit and wire and cable coatings.

 

OnFebruary 23, 2010, we entered into a Share and Asset Purchase Agreementwith Artek, whereby Artek agreed to acquire our PVC additives business.  For additional information regarding thisdivestiture, see “Proposed Divestiture” above under General Development ofBusiness.

 

*Surfactants*

 

Surfactants help to homogenize multi-component resinsystems and to facilitate lubricity in the processing and fabrication of suchresins.  On February 29, 2008, wecompleted the sale of our oleochemicals business, which was the largest portionof our surfactants product offering.  The oleochemicals business had net sales ofapproximately $160 million in 2007.

 

**Sources of Raw Materials**

 

Hydrocarbon-based andinorganic chemicals constitute the majority of the raw materials required tomanufacture our products.  Thesematerials are generally available from a number of sources, some of which areforeign.  We use significant amounts of chemicals derived from ethylene, propylene andbenzene.  In addition, chlorine, caustic,other petrochemicals, tin and soybean oil represent the key materials used inour chemical manufacturing processes. Major requirements for key raw material are purchased typically pursuantto multi-year contracts.  Largeincreases in the cost of such key raw materials, as well as natural gas, whichpowers some key production facilities, could adversely affect our operatingmargins if we are not able to pass the higher costs on to our customers throughhigher selling prices.  While temporaryshortages of raw materials we use may occur occasionally, key raw materialshave generally been available.  However,there can be no assurance that unforeseen developments will not affect our rawmaterial supplies and their continuing availability and price are subject to,among other things, domestic and world markets, political conditions andregulations.  For additional informationrelated to these risks, see Item 1A. - Risk Factors.

 

**Seasonal Business**

 

With the exception of the Crop ProtectionEngineered Products segment and the pool and spa product line in our ConsumerPerformance Products segment, no material portion of any segment of ourbusiness is significantly seasonal.  OurCrop Protection Engineered Products segment is seasonal in nature andcorresponds to agricultural cycles. Similarly, in the Consumer Performance Products segment, approximately80% of net sales are generated from sales from our pool chemicals businessserving the North American and European recreational water market.  These markets generally record higher salesin the second and third quarters of each year.

 

**Customers**

 

No one customer accounted for more than tenpercent of our consolidated net sales.

 

**Employees**

 

We had approximately 4,400 full timeemployees at December 31, 2009.

 

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**Backlog**

 

We do not consider backlogto be a significant indicator of the level of future sales activity.  In general, we do not manufacture ourproducts against a backlog of orders. Production and inventory levels are based on the level of incoming ordersas well as projections of future demand. Therefore, we believe that backlog information is not material tounderstanding our overall business and should not be considered a reliableindicator of our ability to achieve any particular level of sales or financialperformance.

 

**Competitive Conditions**

 

Thebreadth of our product offering provides multiple channels for growth andlessens our dependence on any one market or end-use application. We sell ourproducts in more than 100 countries. This worldwide presence reduces our exposure to any one country’s orregion’s economy.

 

Wehave a broad customer base and believe that our products, many of which wecustomize for the specific needs of our customers, allow us to enhance customerloyalty and attract customers that value product innovation and reliablesupply.

 

Productperformance, quality, price, and technical and customer service are allimportant factors in competing in substantially all of our businesses.

 

Weface significant competition in many of the industries in which we operate dueto the trends toward global expansion and consolidation by competitors.  Some of our existing competitors are largerthan we are and may have more resources and better access to capital marketsfor continued expansion or new product development than we do.  Some of our competitors also have a greaterproduct range, are more vertically integrated or have better distributioncapability than we do for specific products or geographical areas.

 

**Research and Development**

 

Allof our businesses conduct research and development activities to increasecompetitiveness.  Our businesses conductresearch and development activities to develop new, and optimize existing,production technologies, as well as to develop commercially viable new productsand applications while also maintaining existing product registrations requiredby regulatory agencies around the world. Our research and development expenditures totaled $38 million in 2009,$51 million in 2008 and $62 million in 2007.

 

**Intellectual Property andLicenses**

 

We attach great importance to patents, trademarks,copyrights and product designs in order to protect our investment in researchand development, manufacturing and marketing. Our policy is to seek wide protection for significant products andprocess developments on our major applications. We also seek to register trademarks extensively as a means of protectingthe brand names of our products.

 

We have approximately 3,500 United States and foreigngranted patents and pending patent applications and approximately 4,700 UnitedStates and foreign registered and pending trademarks.  Patents, trademarks, trade secrets in thenature of know-how, formulations, and manufacturing techniques assist us inmaintaining the competitive position of certain of our products.  Our intellectual property is of particularimportance to a number of specialty chemicals we manufacture and sell.  However, we do business in countries whereprotection may be limited and difficult to enforce.  We are licensed to use certain patents andtechnology owned by other companies, including some foreign companies, tomanufacture products complementary to our own products, for which we payroyalties in amounts not considered material, in the aggregate, to ourconsolidated results.  Products to whichwe have such rights include certain crop protection chemicals.

 

Neither our business as a whole nor any particular segmentis materially dependant upon any one particular patent, trademark, copyright ortrade secret.

 

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**EnvironmentalMatters**

 

Chemical companies aresubject to extensive environmental laws and regulations concerning, among otherthings, emissions to the air, discharges to land, surface, subsurface strataand water and the generation, handling, storage, transportation, treatment anddisposal of waste and other materials. Chemical companies are also subject to other federal, state, local andforeign laws and regulations regarding health and safety matters.

 

*Environmental Health and SafetyRegulation* - We believe that our business, operations andfacilities are being operated in substantial compliance, in all materialrespects, with applicable environmental, health and safety laws andregulations, many of which provide for substantial fines and criminal sanctionsfor violations.  The ongoing operationsof chemical manufacturing plants, however, entail risks in these areas andthere can be no assurance that material costs or liabilities will not be incurred.  In addition, future developments ofenvironmental, health and safety laws and regulations and related enforcementpolicies, could bring into question the handling, manufacture, use, emission ordisposal of substances or pollutants at facilities we own, use or control.  These developments could involve potentialsignificant expenditures in our manufacture, use or disposal of certainproducts or wastes.  To meet changingpermitting and regulatory standards, we may be required to make significantsite or operational modifications, potentially involving substantialexpenditures and reduction or suspension of certain operations.  We incurred $9 million of costs for capitalprojects and $48 million for operating and maintenance costs related toenvironmental health and safety programs at our facilities during 2009.  In 2010, we expect to incur approximately $23million of costs for capital projects and $66 million for operating andmaintenance costs related to environmental health and safety programs at our facilities.  During 2009, we paid $9 million to remediatepreviously utilized waste disposal sites and current and past facilities.  We expect to spend approximately $14 million during2010 to remediate such waste disposal sites and current and former facilities.

 

*Pesticide Regulation* - Our CropProtection Engineered Products business is subject to regulation under variousfederal, state, and foreign laws and regulations relating to the manufacture,sale and use of pesticide products.

 

In August 1996,Congress enacted the Food Quality Protection Act of 1996 (“FQPA”), which madesignificant changes to the Federal Insecticide, Fungicide, and Rodenticide Act(“FIFRA”), governing U.S. sale and use of pesticide products and the FederalFood, Drug, and Cosmetic Act (“FFDCA”), which limits pesticide residues onfood.  FQPA facilitated registrations and re-registrations of pesticidesfor special (so called “minor”) uses under FIFRA and authorized collection ofmaintenance fees to support pesticide re-registrations. Coordination ofregulations implementing FIFRA and FFDCA is now required.  Food safetyprovisions of FQPA establish a single standard of safety for pesticide residueon raw and processed foods, require that information be provided through largefood retail stores to consumers about the health risks of pesticide residuesand how to avoid them, preempt state and local food safety laws if they arebased on concentrations of pesticide residues below recently establishedfederal residue limits (called “tolerances”), and ensure that tolerancesprotect the health of infants and children.

 

FFDCA, as amended byFQPA, authorized the Environmental Protection Agency (“EPA”) to set a tolerancefor a pesticide in or on food at a level which poses “a reasonable certainty ofno harm” to consumers.  The EPA is required to review all tolerances forall pesticide products.  Most of our products have successfully completedreview, others are currently under review and other products will be reviewedunder this standard in the future.

 

The European UnionCommission has established procedures whereby all existing crop protectionactive ingredient chemicals commercially available in the European Union (the “EU”)are to be reviewed.  Regulation 91/414became effective in 1993 and the process was updated in 2007 and 2008. Theoriginal list of existing chemicals was prioritized and divided into 4parts.  We had four chemicals on thefirst list, three of which were successfully supported through the review,which results in inclusion onto Annex I of 91/414, while the fourth waswithdrawn by us for commercial reasons.  The remainder of ourproducts will be reviewed in the future with the overall process expected to becompleted by the end of 2010. The process may lead to full registration inmember states of the EU or may lead to some restrictions or cancellation ofregistrations if it is determined that a product poses an unacceptable risk.

 

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*Chemical Regulation* *—* In December 2006,the European Union signed the Registration, Evaluation and Authorization ofChemicals (“REACh”) legislation.  This legislation requires chemicalmanufacturers and importers in the EU to demonstrate the safety of the chemicalsubstances contained in products.  The effective date of the legislationwas June 1, 2007 and it required all covered substances to bepre-registered by November 30, 2008.  Since December 1, 2008, noproduct containing covered substances can be manufactured in or imported intothe EU unless the substances therein have been pre-registered.  The full registration of REACh will be phasedin over the next ten years.  Theregistration deadlines are as follows: 2010 for chemical substancesmanufactured or imported in excess of 1,000 metric tons per year and forsubstances deemed to be particularly harmful to humans or the environment, 2013for substances manufactured or imported in the EU between 100 and 1,000 metrictons per year and 2018 for substances manufactured or imported in the EU inquantities greater than 1 metric ton per year.  The registration processwill require expenditures and resource commitments to compile and filecomprehensive chemical dossiers on the use and attributes of each chemicalsubstance and to perform chemical safety assessments.  In addition, each registration phase carrieswith it a registration fee, which ranges from €31,000 (approximately $45,000)per substance for high-risk, high tonnage band substances to €1,600(approximately $2,000) for substances registered in the lowest tonnage band andrisk.  We pre-registered approximately 1,100 substances and submittedapproximately 2,100 pre-registration dossiers covering multiple affiliatedlegal entities.  Our REACh costs in 2009were approximately $1 million.  Weanticipate REACh-related costs of approximately $11 million in 2010 (includingthe first wave of registration fees), $3 million in 2011 and $6 million in2012.  The implementation of the REACh registration process may affect ourability to manufacture and sell certain products in the future.

 

**(d) GEOGRAPHIC INFORMATION**

 

The information with respect to net sales andproperty, plant and equipment attributable to each of our major geographicareas served for each of our last three fiscal years is set forth in the Note22 - Business Segments in the Notes to Consolidated Financial Statements.

 

**(e) AVAILABLE INFORMATION**

 

Our internet website addressis www.chemtura.com.  We make availablefree of charge on or through our internet website our Annual Report on Form 10-K,Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, andamendments to those reports filed or furnished pursuant to Section 13(a) or15(d) of the Securities Exchange Act of 1934, as soon as reasonablypracticable after we electronically file such material with, or furnish it to,the Securities and Exchange Commission.

 

Our Corporate Governance Principles, Code of BusinessConduct and charters for our Audit Committee and our Organization, Compensationand Governance Committee are available on our website and will be available,free of charge, to any stockholder who requests them from the CorporateSecretary at Chemtura Corporation, 199 Benson Road, Middlebury, CT 06749USA.  The information contained on ourwebsite is not incorporated by reference in this Annual Report on Form 10-Kand should not be considered a part of this Annual Report.

 

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**Item 1A.  Risk Factors**

 

Thefactors described below represent the most significant risks that couldmaterially and adversely affect our financial condition, results of operationsor cash flows.  Except as otherwiseindicated, these factors may or may not occur and we cannot predict thelikelihood of any such factor occurring.

 

**RISK RELATING TO OUR BANKRUPTCY**

 

**For the duration of the Chapter 11cases, our operations, including our ability to execute our business plan, aresubject to the risks and uncertainties associated with bankruptcy, whichinclude the following:**

 

·                  Our ability to prosecute, confirm andconsummate a Plan, which has not yet been proposed as of the date of thisAnnual Report;

·                  Our ability to consummate strategic sales ofour assets or certain business divisions or restructure or consolidate ouroperations in accordance with the Bankruptcy Code and orders of the BankruptcyCourt;

·                  The actions and decisions of our creditors,shareholders and other third parties who have interests in the Chapter 11 casesthat may be inconsistent with our plans;

·                  Our ability to obtain Bankruptcy Courtapproval with respect to motions in the Chapter 11 cases prosecuted from timeto time;

·                  Our ability to obtain and maintaincommercially reasonable terms with vendors and service providers;

·                  Our ability to obtain and maintain financingnecessary to carry out our operations and continue to use the cash collateralof our secured lenders under our Amended and Restated DIP Credit Agreement;

·                  Our ability to maintain contracts and leasesthat are critical to our operations;

·                  Risks associated with third parties seekingand obtaining Bankruptcy Court approval to terminate or shorten the exclusivityperiod for us to confirm a proposed Plan, to appoint a Chapter 11 trustee or toconvert our Chapter 11 cases to Chapter 7 proceedings; and

·                  Our ability to utilize net operating losscarry-forwards.

 

Theserisks and uncertainties could affect our business and operations in variousways.  For example, negative events orpublicity associated with the Chapter 11 cases could adversely affect our revenuesand the relationship with our customers, as well as with suppliers andemployees, which in turn could adversely affect our operations and financialcondition, particularly if the Chapter 11 cases are unexpectedly protracted.  Also, transactions outside the ordinarycourse of business are subject to the prior approval of the Bankruptcy Court,which may limit our ability to respond timely to certain events or takeadvantage of certain opportunities.

 

Asa result of the Chapter 11 cases, realization of assets and liquidation ofliabilities are subject to uncertainty. While operating under the protection of the Bankruptcy Code, and subjectto Bankruptcy Court approval or otherwise as permitted in the normal course ofbusiness, we may sell or otherwise dispose of assets or certain businesses andliquidate or settle liabilities for amounts other than those reflected in ourfinancial statements.  Further, a Plancould materially change the amounts and classifications reported in ourConsolidated Financial Statements, which do not give effect to any adjustmentsto the carrying value of assets or amounts of liabilities that might benecessary as a consequence of confirmation of a Plan.

 

Becauseof the risks and uncertainties associated with the Chapter 11 cases, theultimate impact that events occurring during these proceedings will have on ourbusiness, financial condition and results of operations cannot be accuratelypredicted or quantified.  Additionally,the result of any confirmed Plan may result in cancellation of our commonstock, the sale of all or substantially all of our assets, and/or the failureof the Company to continue as a public company, which could cause anyinvestment in the Company to become worthless.

 

Inlight of the foregoing, trading in our securities during the Chapter 11 casesis highly speculative and poses substantial risks. Holders of our securitiesmay have their securities cancelled and in return receive no payment or otherconsideration, or a payment or other consideration that is less than the parvalue or the purchase price of such securities.

 

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**Our stock is no longer listed on anational securities exchange. It will likely be more difficult for stockholdersand investors to sell our common stock or to obtain accurate quotations of theshare price of our common stock.**

 

Effective March 18,2009, the NYSE suspended trading of our common stock and delisted the stock on April 16,2009.  Our stock is now traded over thecounter and is quoted on the Pink Sheets. We may not be able to re-list our common stock on a national securitiesexchange and our stock may not continue to be traded on the Pink Sheets.  The trading of our common stock over thecounter negatively impacts the trading price of our common stock and the levelsof liquidity available to our stockholders. In connection with the delisting of our stock, there may also be othernegative implications, including the potential loss of confidence in ourCompany by suppliers, customers and employees and the loss of institutionalinvestor interest in our common stock.

 

**A long period of operations underChapter 11 protection may harm our business.**

 

Along period of operations under Chapter 11 protection could adversely affectour business and operations.  So long asour Chapter 11 cases continue, our senior management will be required to spenda significant amount of time and effort dealing with the reorganization insteadof focusing exclusively on our business operations.  A prolonged period of operating under Chapter11 protection may also make it more difficult to attract and retain managementand other key personnel necessary to the success and growth of ourbusiness.  In addition, the longer theChapter 11 cases continue, the more likely it is that our customers andsuppliers will lose confidence in our ability to successfully reorganize ourbusinesses and seek to establish alternative commercial relationships.

 

Furthermore,so long as the Chapter 11 cases continue, we will be required to incursubstantial costs for professional fees and other expenses associated with theadministration of the Chapter 11 cases. A prolonged continuation of the Chapter 11 cases may also require us toseek additional financing.  If we requireadditional financing during the Chapter 11 cases and we are unable to obtainthe financing on favorable terms or at all, our chances of successfullyreorganizing our businesses may be seriously jeopardized, and as a result, anysecurities in our Company could become devalued or become worthless.

 

**We may not be able to obtainconfirmation of a Chapter 11 reorganization plan or consummate strategic assetsor business divestitures.**

 

Tosuccessfully emerge from Chapter 11 bankruptcy protection as a viable entity,or even to confirm a Plan, we must meet certain statutory requirements withrespect to adequacy of disclosure with respect to a Plan, soliciting andobtaining the requisite acceptances of the Plan, and fulfilling other statutoryconditions for confirmation, which have not occurred to date.  We may not receive the requisite acceptancesof constituencies in the Chapter 11 cases to confirm any future Plan. Even ifthe requisite acceptances of a Plan are received, the Bankruptcy Court may notconfirm such a Plan.

 

Ifany future Plan is not confirmed by the Bankruptcy Court, it is unclear whetherwe would be able to reorganize our businesses and what, if anything, holders ofclaims against us would ultimately receive with respect to their claims.

 

Inthe event a Plan is not ultimately confirmed, with Bankruptcy Court approval,it is likely that we will seek to consummate strategic sales of assets in whichcase it is likely that holders of claims would receive substantially differenttreatment than they would receive if we were to emerge from Chapter 11bankruptcy protection as a viable, reorganized entity.  We may not be ableto consummate strategic sales of our assets on terms that are favorable to us,or at all, and any such sales outside the ordinary course of business would besubject to Bankruptcy Court approval.

 

**A plan of reorganization mayresult in holders of our common stock receiving no distribution on account oftheir interests and cancellation of their common stock**.

 

Underthe priority scheme established by the Bankruptcy Code, unless creditors agreeotherwise, post-petition liabilities and pre-petition liabilities must besatisfied in full, with interest, before stockholders are entitled to receiveany distribution or retain any property under a Plan.  The ultimate recovery to creditors and/orstockholders, if any, will not be determined until confirmation of a Plan.  No assurance can be given as to what values,if any, will be ascribed in the Chapter 11 cases to each of theseconstituencies or what types or amounts of distributions, if any, they wouldreceive.  A Plan could result in holdersof our common stock receiving no distribution on account of their interests andcould result in the cancellation of their existing stock.  If certain requirements of the BankruptcyCode are met, a Plan can be confirmed notwithstanding its rejection by theclass comprising the interests of our equity security holders.  Therefore,an investment in our common stock is highly speculative and may becomeworthless (or be canceled) in the future without any required approval orconsent of such shareholders.

 

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**We may be unable to raise theadditional capital needed to fund our businesses, which would prevent us fromcontinuing operations, even if substantially all of our debts are dischargedthrough the Chapter 11 cases.**

 

Evenif our debts are reduced or discharged through the Chapter 11 cases, we mayneed to raise additional funds through debt or equity financing or othervarious means to fund our business after the completion of the Chapter 11cases. In such a case, adequate funds may not be available when needed or maynot be available on favorable terms. If we need to raise additional funds inthe future by issuing equity securities and assuming existing stockholderscontinue to hold shares of common stock after the confirmation of a Plan,dilution to existing stockholders may result, and such securities may haverights, preferences and privileges senior to those of our common stock. We maybe unable to raise additional funds by issuing debt due to restrictivecovenants contained in our senior debt or other exit financing confirmed aspart of a Plan, of which there can be no assurance, which may restrict ourability to expend or raise capital in the future.

 

**The agreements governing our debtcontain restrictions that could significantly restrict our ability to operateour business.**

 

OurAmended and Restated DIP Credit Agreement, as was consistent with our DIPCredit Facility, contains a number of covenantswhich, among other things, limit the incurrence of additional debt, aggregatecapital expenditures, additional operating leases, issuance of capital stock,issuance of guarantees, liens, investments, disposition of assets, dividends,certain payments, mergers, change of business, transactions with affiliates,prepayments of debt, repurchases of stock and redemptions of certain otherindebtedness and other matters customarily restricted in such agreements.Our ability to comply with the covenants, agreements and restrictions containedin our Amended and Restated DIP Credit Agreement may be affected by eventsbeyond our control, including prevailing economic, financial, and industryconditions.  There can be no assurancethat we would be able to comply with such covenants, agreements, orrestrictions in the future. Additionally, breach of any of the covenants imposed on us by the termsof the Amended and Restated DIP Credit Agreement could result in a defaultunder the agreement. In the event of a default, the lenders could terminatetheir commitments to us and could accelerate the repayment of all of ourindebtedness under the agreement.  Insuch case, we may not have sufficient funds to pay the total amount ofaccelerated obligations, and our lenders under the Amended and Restated DIPCredit Agreement could proceed against the collateral securing theagreement.  Any acceleration in therepayment of our indebtedness or related foreclosure could adversely affect ourbusiness.

 

**RISK RELATING TO OUR BUSINESS ENVIRONMENT AND OPERATIONS**

 

**The worldwide and general economic factors and difficultconditions in the global capital and credit markets have affected and maycontinue to adversely affect our business, as well as the industries of many ofour customers and suppliers, which are cyclical in nature.**

 

Some of the markets in which our end-use customersparticipate, such as the automotive, electronics and building and constructionindustries, are cyclical in nature, thus posing a risk to us which is beyondour control. These markets are highly competitive, to a large extent driven byend-use markets, and may experience overcapacity, all of which may affectdemand for and pricing of our products.

 

External factors, includinggeneral economic conditions, international events and circumstances, competitoractions and governmental regulation are beyond our control and can causefluctuations in demand and volatility in the price of raw materials and othercosts that can intensify the impact of economic cycles on our operations.  Weproduce a broad range of products that are used as additives and components inother products in a wide variety of end-use applications.  As a result, our products may be negativelyimpacted by supply and demand instability in other industries and the effectsof that instability on supply chain participants.  Economic and political conditions incountries in which we operate may also adversely impact our operations.  These same risks may also impact thefinancial markets and may negatively affect our access to capital.  While these external factors may adverselyaffect our businesses, we believe that thebreadth of our product offering lessens our dependence on any one market andthat our worldwide presence further reduces our exposure to economic conditionsor political instability in any one country or region.

 

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Declines in late 2008 and in 2009 in consumer andbusiness confidence and spending, together with severe reductions in theavailability of credit and volatility in the capital and credit markets,demonstrated the sensitivity of our businesses to changes in economicconditions, caused us to commence the Chapter 11 proceedings and have adverselyaffected the business and economic environment in which we operate and theprofitability of our business. Accordingly, if the global financial crisis and current economicdownturn continue or worsen, our business, results of operations and financialcondition could be further adversely affected.

 

**Significantcompetition may force us to reduce prices, which may adversely impact ourresults of operations.**

 

Weface significant competition in many of the industries in which we operate dueto the trend toward global expansion and consolidation by competitors.  Some of our existing competitors are largerthan we are and may have more resources and better access to capital markets tofacilitate continued expansion or new product development.  Some of our competitors also have greaterproduct range or better distribution capability than we do for specificproducts or geographic regions.  Pricecompetition also exists in some of the markets in which we participate wherecustomers are sensitive to changes in price. Additionally, other factors such as industry overcapacity and lower coststructures have the effect of putting downward pressure on prices.  We expect that we will continue to face newcompetitive challenges as well as additional risks inherent in internationaloperations in developing regions.  Wealso expect to face increased competition from the further use and introductionof generic and alternative products by our competitors.  This increased competition could cause us toreduce our prices and take other steps to compete effectively, which couldnegatively affect our financial condition, results of operations or cashflows.  In addition, even if we were toraise prices, the reactions of our competitors and customers to such price increases could cause us to reevaluateand possibly reverse such price increases or risk a loss in sales volumes.

 

**Thecyclicality of the chemicals industry may cause significant fluctuations in ouroperating results or cash flows.**

 

Ourhistorical operating results reflect the cyclical and volatile nature of thesupply and demand balance of the chemicals industry.  The chemicals industry has experiencedalternating periods of inadequate capacity and tight supply, allowing pricesand profit margins to increase, followed by periods when substantial capacityis added, resulting in oversupply, over-capacity and corresponding decliningutilization rates, causing declining prices and profit margins.  The cyclicality of the industries in which weoperate may result in volatile operating results and cash flow over ourbusiness cycle.  Future growth in productdemand may not be sufficient to utilize current or future capacity.  Excess industry capacity may continue todepress our volumes and margins on some products.  Due to excess industry capacity, risingenergy costs and rising raw materials costs, our operating results may bevolatile.

 

**Anydisruption in the availability or price of the raw materials or energy utilizedfor our products may have a material adverse effect on our operating results.**

 

Wepurchase large amounts of raw materials and energy for our businesses.  The costs of these materials and energy, inthe aggregate, represent a substantial portion of our operating expenses.  The prices and availability of the rawmaterials we use vary with market conditions and may be highly volatile.  Over the past few years, and particularly in2008, we have experienced significant cost increases in purchases ofpetrochemicals, tin, soybean oil, other raw materials and our primary energysource, natural gas.** **While we have and will continue toattempt to match raw material or energy price increases with correspondingproduct price increases, we may not be able to immediately raise productprices, if at all.  Ultimately, ourability to pass on increases in the cost of raw materials or energy tocustomers is greatly dependent upon market conditions and raising pricescharged to our customers could result in a loss of sales volume.  There have been in the past, and will likelybe in the future, periods of time during which we are unable to pass rawmaterial and energy price increases on to our customers, in whole or in part.** **Reactionsby our customers and competitors to our price increases could cause us toreevaluate and possibly reverse such price increases, which may increase ouroperating expenses and negatively affect our operating results.

 

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**Theresults of our Crop Protection Engineered Products segment is dependent onweather, disease, and pest conditions and can be affected by local and regionaleconomic circumstances.  The results ofour Consumer Performance Products business are also dependent on weatherconditions.  Adverse weather or economicconditions could materially affect our results of operations.**

 

Salesvolumes for our Crop Protection Engineered Products business, as with allagricultural products, are subject to the sector’s dependency on weather,disease, and pest infestation conditions. Adverse weather conditions in a particular region could materiallyadversely affect our Crop Protection Engineered Products business.  Demand for crop protection products is alsoinfluenced by the agricultural policies of governments and regulatoryauthorities particularly in developing countries in regions where we dobusiness, such as in Asia and Latin America. Changes in governmental policies or product registration requirementscould have an adverse impact on our ability to market and sell ourproducts.  Our crop protection productsare typically sold pursuant to contracts with extended payment terms in LatinAmerica and Europe.  Customary extendedpayment periods, which are tied to particular crop growing cycles, make ourCrop Protection Engineered Products business susceptible to losses fromreceivables during economic downturns and may adversely affect our financialcondition, operating results or our cash flows.

 

Ourpool and spa products in the Consumer Performance Products business areprimarily used in swimming pools and spas. Demand for these products is influenced by a variety of factors includingseasonal weather patterns.  An adversechange in weather patterns during pool season could adversely affect the demandfor and profitability of our pool and spa products.  This occurred in the United States in the2008 and 2009 pool seasons when weather was unseasonably cold and wet.

 

**Impairmentcharges may affect our results of operations in the future.**

 

Managementregularly tests for goodwill impairment on an annual basis each July 31,and more frequently if events occur or circumstances arise that would morelikely than not reduce the fair value of a reporting unit to an amount belowits carrying value.  We also test forother possible long-lived asset impairments if events occur or circumstancesarise that would indicate that the carrying value amount of such long-livedassets may not be recoverable.  Anyresulting impairment loss would be a non-cash charge and may have a materialadverse impact on our results of operations in any future period in which werecord a charge.

 

**Our results of operations are subject to exchange rate and othercurrency risks.  A significant movementin exchange rates could adversely impact our results of operations.**

 

Significantportions of our businesses are conducted in currencies other than the U.S.dollar.  This means that foreign currencyexchange rates affect our operating results.

 

Effectsof exchange rate fluctuations upon our future operating results cannot bepredicted because of the number of currencies involved, the variability ofcurrency exposures, and the potential volatility of currency exchange rates.  We will face risks arising from the impositionof exchange controls and currency devaluations. Restrictions with our debt agreements and constraints on our liquiditytoday restrict our ability to hedge foreign exchange exposures.  Exchange controls may limit our ability toconvert foreign currencies into U.S. dollars or to remit dividends and otherpayments by our foreign subsidiaries or businesses located in or conductedwithin a country imposing controls.  Currencydevaluations result in diminished value of funds denominated in the currency ofthe country instituting the devaluation. Actions of this nature could adversely affect our earnings or cashflows.

 

**We haveunfunded and underfunded pension plans and post-retirement health care plans,which, if changes to the funded status occur, could adversely impact ourfinancial condition, results of operations or cash flows.**

 

Wehave unfunded obligations under our domestic tax-qualified defined benefitpension plan totaling approximately $249 million on a projected benefitobligation basis as of December 31, 2009. Further declines in the value of the plan investments or unfavorablechanges in laws or regulations that govern pension plan funding couldmaterially change the timing and amount of required pension funding.  We also sponsor foreign and non-qualifiedpension plans under which there are substantial unfunded liabilities totalingapproximately $191 million on a projected benefit obligation basis as of December 31,2009.  Foreign regulatory authorities mayseek to have the Debtors take responsibility for some portion of theseobligations.  In addition, we sponsorpost-retirement health care plans under which there are substantial unfundedliabilities totaling approximately $150 million on a projected benefitobligation basis as of December 31, 2009. Mandatory funding contributions with respect to our tax-qualifiedpension plans and potential unfunded benefit liability claims could have amaterial adverse effect on our financial condition, results of operations orcash flows.

 

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**Productionfacilities are subject to operating risks that may adversely affect ourfinancial condition, results of operations or cash flows.**

 

Weare dependent on the continued operation of our production facilities.  Such production facilities are subject tohazards associated with the manufacturing, handling, storage, andtransportation of chemical materials and products, including pipeline leaks andruptures, explosions, fires, inclement weather and natural disasters, terroristattacks, mechanical failure, unscheduled downtime, labor difficulties,transportation interruptions, remediation complications, chemical spills,discharges or releases of toxic or hazardous gases, storage tank leaks, andother environmental risks.  These hazardscan cause personal injury and loss of life, severe damage to, or destructionof, property and equipment and environmental damage, fines, civil or criminalpenalties and liabilities.  Theoccurrence of these events may disrupt production and could have an adverseeffect on the production and profitability of a particular manufacturingfacility and our business, financial condition, results of operations or cashflows.

 

**Aninability to remain technologically innovative and to offer improved productsand services in a cost-effective manner could adversely impact our operatingresults.**

 

Ouroperating results are influenced in part by our ability to introduce newproducts and services that offer distinct value to our customers.  For example, our Crop Protection EngineeredProducts business seeks to provide tailored products for our customers’ oftenunique problems, which requires an ongoing level of innovation.  In many of the markets where we sell ourproducts, the products are subject to a traditional product life cycle.  We devote significant human and financialresources to develop new technologically advanced products and services and wemay not be successful in our research and development efforts.

 

**We are dependent upon a trained, dedicated sales force, theloss of which could materially affect our operations.**

 

Manyof our products are sold and supported through dedicated staff and specificallytrained personnel.  The loss of thissales force due to market or other conditions could affect our ability to selland support our products effectively, which could have an adverse effect on ourresults of operations.

 

**RISKS RELATING TO LEGAL AND REGULATORY MATTERS**

 

**Currentand future litigation, governmental investigations and administrative claims,including antitrust-related governmental investigations and lawsuits, could harmour financial condition, results of operations or cash flows.**

 

Weare involved in several significant lawsuits and claims relating toenvironmental and chemical exposure matters. In addition, we are routinely subject to other civil claims, litigationand arbitration, and regulatory investigations arising in the ordinary courseof our present businesses, as well as with respect to our divestedbusinesses.  Some of these claims andlawsuits relate to product liability claims, including claims related to currentand former products and asbestos related claims concerning the premises andhistoric products of our corporate affiliates and predecessors.  We also could become subject to additionalclaims in the future.  An adverse outcomeof one or more of these claims could have a material adverse effect on ourbusiness, financial condition, results of operations or cash flows.

 

Weare currently involved in a number of governmental investigations andadministrative claims, including antitrust-related governmental investigationsand civil lawsuits.  Further, we haveincurred and could incur additional expenses in the future in connection withantitrust-related matters, including expenses related to our cooperation withgovernmental authorities and defense related civil lawsuits.

 

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**Environmental,health and safety regulatory matters could have a substantial negative impact onour financial condition, results of operations or cash flows.**

 

Weare subject to extensive federal, state, local and foreign environmental,safety and health laws and regulations concerning, among other things,emissions in the air, discharges to land and water, and the generation,handling, treatment and disposal of hazardous waste and other materials.  Our operations entail the risk of violationsof those laws and sanctions for violations such as clean-up costs, costs ofwaste disposal, and payments for property damage and personal injury.  Although it is our policy to comply with suchlaws and regulations, it is possible that we have not been or may not be at alltimes in compliance with all of these requirements.

 

Inaddition, these requirements, and enforcement of these requirements, may becomemore stringent in the future.  Theultimate cost of compliance with any such requirements could be material.  Non-compliance could subject us to materialliabilities such as government fines or orders, third-party lawsuits,remediations, and settlements or the suspension of non-compliantoperations.  We may also be required tomake significant site or operational modifications at substantial cost.  Future regulatory or other developments couldalso restrict or eliminate the use of or require us to make modifications toour products, packaging, manufacturing processes and technology, which couldhave a significant adverse impact on our cash flows and results of operations.

 

Atany given time, we are involved in claims, litigation, administrativeproceedings, settlements, and investigations of various types in a number ofjurisdictions involving potential environmental liabilities, including clean-upcosts associated with hazardous waste disposal sites, natural resource damages,property damage, personal injury, and regulatory compliance ornoncompliance.  The resolution of theseenvironmental matters could have a material adverse effect on our financialcondition, results of operations or cash flows.

 

**We arean international company and are exposed to risks in the countries in which wehave significant operations or interests. Changes in foreign laws and regulatory requirements, export controls orinternational tax treaties could adversely affect our financial condition,results of operations or cash flows.**

 

Weare dependent, in large part, on the economies of the countries in which wemanufacture and market our products.  Ofour 2009 net sales, 49% were to customers in the U.S. and Canada, 31% to Europeand Africa, 15% to Asia/Pacific and 5% to Latin America.  Our net property, plant and equipment at December 31,2009 was located 64% in the U.S. and Canada, 29% in Europe and Africa, 5% inAsia/Pacific and 2% in Latin America. The economies of countries in these areas are in different stages ofsocioeconomic development.  Consequently,we are exposed to risks from changes in foreign currency exchange rates,interest rates, inflation, governmental spending, political and social instability,natural disasters and other political, economic or social developments that maymaterially affect our financial condition, results of operations or cashflows.  We may also face difficultiesmanaging and administering an internationally dispersed business.  In particular, the management of ourpersonnel across several countries can present logistical and managerialchallenges.  Additionally, internationaloperations present challenges related to operating under different businesscultures and languages.  We may have tocomply with unexpected changes in foreign laws and regulatory requirementswhich could negatively impact our operations and ability to manage our globalfinancial resources.  Export controls orother regulatory restrictions could prevent us from shipping our products intoand from some markets.  We may not beable to adequately protect our intellectual property overseas due touncertainty of laws and enforcement in a number of countries relating to theprotection of intellectual property rights. Changes in tax regulation and international tax treaties couldsignificantly reduce the financial performance of our foreign operations or themagnitude of their contributions to our overall financial performance.

 

We are in the process of reviewing variouscustomer incentive, commission and promotional payment practices of the CropProtection Engineered Products segment in its Europe, Middle East and Africaregion, with particular emphasis on certain Central Asian countries that areconsidered part of that region.  Thereview is being conducted under the oversight of the Audit Committee of theBoard of Directors and with the assistance of outside counsel and forensicaccounting consultants.  While the reviewis not yet complete, substantial progress has been made, but it has not yetbeen possible to determine whether all such practices or payments wereconsistent with applicable U.S. or international laws and regulations thatapply to these operations. We cannot currently predict the timing or theoutcome of this review, nor can we it reasonably estimate the likelihood,nature or amount of monetary or other sanctions, if any, that might be imposedshould the review identify that certain payments were inconsistent withapplicable laws or regulations.  Webelieve that there is no matter connected with this review that would lead to amaterial change to the financial statements included in this report on Form10-K.

 

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**The inability to register ourproducts in member states of the EU under the REACh legislation may lead tosome restrictions or cancellations of registrations, which could impact ourability to manufacture and sell certain products.**

 

In December 2006, theEU signed the REACh legislation.  This legislation requires chemicalmanufacturers and importers in the EU to demonstrate the safety of the chemicalsubstances contained in products.  The effective date of the legislationwas June 1, 2007 and it required all covered substances to bepre-registered by November 30, 2008.  Since December 1, 2008, noproduct containing covered substances can be manufactured in or imported intothe EU unless the substances therein have been pre-registered.  The full registration of REACh will be phasedin over the next ten years.  Theregistration deadlines are as follows: 2010 for chemical substancesmanufactured or imported in excess of 1,000 metric tons per year and forsubstances deemed to be particularly harmful to humans or the environment, 2013for substances manufactured or imported in the EU between 100 and 1,000 metrictons per year and 2018 for substances manufactured or imported in the EU inquantities greater than 1 metric ton per year.  The registration processwill require expenditures and resource commitments to compile and filecomprehensive chemical dossiers on the use and attributes of each chemicalsubstance and to perform chemical safety assessments.  In addition, each registration phase carrieswith it a registration fee, which ranges from €31,500 (approximately $45,000)per substance for high-risk, high tonnage band substances to €1,600(approximately $2,000) for substances registered in the lowest tonnage band andrisk.  We pre-registered approximately 1,100 substances and submittedapproximately 2,100 pre-registration dossiers covering multiple affiliatedlegal entities.  Our REACh costs in 2009were approximately $1 million.  Weanticipate REACh-related costs of approximately $11 million in 2010 (includingthe first wave of registration fees), $3 million in 2011 and $6 million in2012.  The implementation of REAChregistration processes may affect our ability to manufacture and sell certainproducts in the future.

 

**Ourbusiness depends upon many proprietary technologies, including patents andlicenses.  Our competitive position couldbe adversely affected if we fail to protect our patents or other intellectualproperty rights, or if we become subject to claims that we are infringing uponthe rights of others.**

 

Wehave approximately 3,500 United States and foreign granted patents and pendingpatent applications and approximately 4,700 United States and foreignregistered and pending trademarks. Patents, trademarks, trade secrets in the nature of know-how,formulations, and manufacturing techniques assist us in maintaining thecompetitive position of certain of our products.  Our intellectual property is of particularimportance to a number of specialty chemicals we manufacture and sell.  We are licensed to use certain patents andtechnology owned by other companies, including some foreign companies, tomanufacture products complementary to our own products, for which we payroyalties in amounts not considered material, in the aggregate, to ourconsolidated results.  Our trademarks orthe patents we own or license may be challenged, and due to such challenges wecould lose our exclusive rights to our proprietary technologies, which wouldadversely affect our competitive position and our results of operations.

 

Wealso rely on unpatented proprietary know-how and continuing technologicalinnovation and other trade secrets to develop and maintain our competitiveposition.  While it is our policy toenter into confidentiality agreements with our employees and third parties torestrict the use and disclosure of our trade secrets and proprietary know-how,those confidentiality agreements may be breached.  In addition, adequate remedies may not beavailable in the event of an unauthorized use or disclosure of such tradesecrets and know-how, and others could obtain knowledge of such trade secretsthrough independent development or other access by legal means.  The failure of our patents, trademarks orconfidentiality agreements to protect our processes, apparatuses, technology,trade secrets, or proprietary know-how could have a material adverse effect onour business, financial condition, results of operations, or cash flows.

 

**Ourpatents may not provide full protection against competing manufacturers outsideof the United States, the EU countries, and certain other developedcountries.  Weaker protection mayadversely impact our sales and results of operations.**

 

Insome of the countries in which we operate, such as China, the laws protectingpatent holders are significantly weaker than in the United States, the EU andcertain other developed countries. Weaker protection may help competing manufacturers be or become morecompetitive in markets where, but for the weaker protection, they might nototherwise be able to introduce competing products for a number of years.  We therefore tend, in these regions, to relymore heavily upon trade secret and know-how protection, as applicable, than wedo patents.  In addition, for our cropprotection products being sold in China, we rely on regulatory protection ofintellectual property provided by regulatory agencies that may not provide uswith complete protection against competitors.

 

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**Item 1B.  Unresolved Staff Comments**

 

None.

 

**Item 2. Properties**

 

The following table sets forth informationregarding our principal operating properties and other significant propertiesas of December 31, 2009.  TheDebtors have the right, subject to Bankruptcy Court approval and certain otherconditions, to assume or reject their executory contracts and real propertyleases.  The Debtors are currently in theprocess of evaluating all executory contracts and real property leasespertaining to owned and leased real estate. All of the following properties are owned except where otherwiseindicated:

 
| **Location**      | ** ** | **Facility**                             | ** ** | **Reporting  Segment**                                                |
|-------------------|------------|------------------------------------------|------------|-----------------------------------------------------------------------|
|              |       |                                     |       |                                                                  |
| **UNITED STATES** |       |                                     |       |                                                                  |
| Alabama           |       |                                     |       |                                                                  |
| Bay Minette       |       | Plant                                    |       | Industrial  Performance Products                                      |
|              |       |                                     |       |                                                                  |
| Arkansas          |       |                                     |       |                                                                  |
| El Dorado         |       | Plant                                    |       | Industrial  Engineered Products                                       |
|              |       |                                     |       |                                                                  |
| California        |       |                                     |       |                                                                  |
| McFarland         |       | Repackaging  Warehouse                   |       | Industrial  Engineered Products                                       |
|              |       |                                     |       |                                                                  |
| Connecticut       |       |                                     |       |                                                                  |
| Middlebury*       |       | Executive  Offices, Research Center |       | Corporate  Offices                                                    |
| Naugatuck         |       | Research  Center                         |       | Industrial  Performance Products                                      |
|              |       |                                     |       |                                                                  |
| Georgia           |       |                                     |       |                                                                  |
| Conyers           |       | Plant                                    |       | Consumer  Performance Products                                        |
| Lawrenceville*    |       | Office,  Research Center                 |       | Consumer  Performance Products                                        |
|              |       |                                     |       |                                                                  |
| Illinois          |       |                                     |       |                                                                  |
| Mapleton          |       | Plant                                    |       | Industrial  Engineered Products                                       |
| Pekin*            |       | Plant                                    |       | Crop  Protection Engineered Products                                  |
|              |       |                                     |       |                                                                  |
| Indiana           |       |                                     |       |                                                                  |
| Ashley(1)         |       | Plant                                    |       | Consumer  Performance Products                                        |
| West Lafayette    |       | Office,  Research Center                 |       | Industrial  Engineered Products                                       |
|              |       |                                     |       |                                                                  |
| Louisiana         |       |                                     |       |                                                                  |
| Taft(2)           |       | Plant                                    |       | Industrial  Engineered Products                                       |
| Lake Charles      |       | Plant                                    |       | Consumer  Performance Products                                        |
|              |       |                                     |       |                                                                  |
| Michigan          |       |                                     |       |                                                                  |
| Adrian            |       | Plant                                    |       | Consumer  Performance Products                                        |
|              |       |                                     |       |                                                                  |
| New  Jersey       |       |                                     |       |                                                                  |
| East Hanover      |       | Plant                                    |       | Industrial  Performance Products                                      |
| Fords             |       | Plant                                    |       | Industrial  Performance Products                                      |
| Perth Amboy       |       | Plant                                    |       | Industrial  Performance Products                                      |
|              |       |                                     |       |                                                                  |
| North  Carolina   |       |                                     |       |                                                                  |
| Gastonia          |       | Plant                                    |       | Industrial  Performance Products, Crop Protection Engineered Products |
|              |       |                                     |       |                                                                  |
| Pennsylvania      |       |                                     |       |                                                                  |
| Philadelphia*     |       | Executive  Offices                       |       | Corporate  Offices                                                    |
|              |       |                                     |       |                                                                  |
| West  Virginia    |       |                                     |       |                                                                  |
| Morgantown        |       | Plant,  Research Center                  |       | Industrial  Engineered Products, Industrial Engineered Products       |

 

24

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| **Location**       | ** ** | **Facility**            | ** ** | **Reporting  Segment**                                                                                 |
|--------------------|------------|-------------------------|------------|--------------------------------------------------------------------------------------------------------|
|               |       |                    |       |                                                                                                   |
| **INTERNATIONAL**  |       |                    |       |                                                                                                   |
| Brazil             |       |                    |       |                                                                                                   |
| Rio Claro          |       | Plant                   |       | Industrial  Engineered Products, Industrial Performance Products, Crop Protection  Engineered Products |
| Sao Paulo*         |       | Office                  |       | Industrial  Engineered Products, Industrial Performance Products, Crop Protection  Engineered Products |
|               |       |                    |       |                                                                                                   |
| Canada             |       |                    |       |                                                                                                   |
| Elmira             |       | Plant                   |       | Industrial  Performance Products, Crop Protection Engineered Products, Industrial  Engineered Products |
| Guelph             |       | Research  Center        |       | Crop  Protection Engineered Products                                                                   |
| Scarborough*       |       | Plant                   |       | Industrial  Performance Products                                                                       |
| West Hill          |       | Plant                   |       | Consumer  Performance Products, Industrial Performance Products                                        |
|               |       |                    |       |                                                                                                   |
| France             |       |                    |       |                                                                                                   |
| Catenoy            |       | Plant                   |       | Industrial  Performance Products                                                                       |
| Dardilly*          |       | Office                  |       | Consumer  Performance Products                                                                         |
|               |       |                    |       |                                                                                                   |
| Germany            |       |                    |       |                                                                                                   |
| Bergkamen*         |       | Plant,  Research Center |       | Industrial  Engineered Products                                                                        |
| Lampertheim(2)     |       | Plant,  Research Center |       | Industrial  Engineered Products                                                                        |
| Waldkraiburg       |       | Plant                   |       | Industrial  Performance Products                                                                       |
| Planegg*           |       | Office                  |       | Consumer  Performance Products                                                                         |
|               |       |                    |       |                                                                                                   |
| Italy              |       |                    |       |                                                                                                   |
| Latina             |       | Plant                   |       | Industrial  Performance Products, Crop Protection Engineered Products                                  |
| Milan(3)           |       | Office                  |       | Industrial  Performance Products                                                                       |
| Pedrengo           |       | Plant                   |       | Industrial  Performance Products                                                                       |
|               |       |                    |       |                                                                                                   |
| Mexico             |       |                    |       |                                                                                                   |
| Altamira           |       | Plant                   |       | Industrial  Engineered Products, Industrial Performance Products                                       |
| Cuautitlan         |       | Plant                   |       | Industrial  Engineered Products, Industrial Performance Products                                       |
| Reynosa            |       | Plant                   |       | Industrial  Engineered Products                                                                        |
|               |       |                    |       |                                                                                                   |
| The  Netherlands   |       |                    |       |                                                                                                   |
| Amsterdam          |       | Plant                   |       | Crop  Protection Engineered Products                                                                   |
|               |       |                    |       |                                                                                                   |
| Republic  of China |       |                    |       |                                                                                                   |
| Nanjing            |       | Plant                   |       | Industrial  Performance Products                                                                       |
| Shanghai*          |       | Office                  |       | Corporate                                                                                              |

 

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| **Location**    | ** ** | **Facility**                  | ** ** | **Reporting  Segment**                                                          |
|-----------------|------------|-------------------------------|------------|---------------------------------------------------------------------------------|
|            |       |                          |       |                                                                            |
| Singapore*      |       | Administrative,  Sales Office |       | Industrial  Engineered Products, Industrial Performance Products, Corporate     |
|            |       |                          |       |                                                                            |
| South  Africa   |       |                          |       |                                                                            |
| Atlantis        |       | Plant                         |       | Consumer  Performance Products                                                  |
|            |       |                          |       |                                                                            |
| South  Korea    |       |                          |       |                                                                            |
| Pyongtaek(4)    |       | Plant                         |       | Industrial  Performance Products                                                |
|            |       |                          |       |                                                                            |
| Switzerland     |       |                          |       |                                                                            |
| Frauenfeld*     |       | Office                        |       | Industrial  Engineered Products, Corporate, Crop Protection Engineered Products |
|            |       |                          |       |                                                                            |
| Taiwan          |       |                          |       |                                                                            |
| Kaohsiung(5)    |       | Plant                         |       | Industrial  Engineered Products, Industrial Performance Products                |
|            |       |                          |       |                                                                            |
| United  Kingdom |       |                          |       |                                                                            |
| Accrington      |       | Plant                         |       | Industrial  Performance Products                                                |
| Droitwich       |       | Plant                         |       | Industrial  Performance Products                                                |
| Evesham         |       | Research  Center              |       | Crop  Protection Engineered Products                                            |
| Langley*        |       | Office                        |       | Crop  Protection Engineered Products, Corporate                                 |
| Trafford Park   |       | Plant                         |       | Industrial  Engineered Products,  Industrial  Performance Products         |

 

----

| *   | Leased  property.                                                                                                                                                                     |
|-----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (1) | We  are in the process of terminating production at this facility and moving it  to another domestic location.  This is  expected to be completed in the second quarter of 2010. |
| (2) | We  have received an offer to sell this facility.   This sale is expected to be completed in the first half of 2010.                                                             |
| (3) | Facility  leased by Anderol Italia S.r.l, which is 51% owned by us.                                                                                                                   |
| (4) | Facility  owned by Asia Stabilizers Co. Ltd., which is 65% owned by us.                                                                                                               |
| (5) | Facility  owned by Uniroyal Chemical Taiwan Ltd., which is 80% owned by us.                                                                                                           |

 

**Item 3. Legal Proceedings**

 

SeeNote 21 – Legal Proceedings and Contingencies in the Notes to ConsolidatedFinancial Statements for a description of our legal proceedings.

 

**Item 4. Submission of Matters to a Vote of Security Holders**

 

None.

 

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**PART II.**

 

**Item5.  Market for Registrant’s CommonEquity, Related Stockholder Matters and Issuer Purchases of Equity Securities**

 

**Our common stocktraded on the New York Stock Exchange (“NYSE”) under the symbol “CEM” untiltrading was halted after our Chapter 11 bankruptcy filing on March 18,2009.  Effective March 18, 2009, theNYSE suspended trading of our common stock and delisted the stock on April 16,2009.  Our stock is now traded over thecounter and is quoted on the Pink Sheet Electronic Quotation Service (“PinkSheets”) under the symbol “CEMJQ”.**

 

**The following tablesummarizes the range of market prices for our common stock as reported by thePink Sheet or the NYSE as applicable and the amount of dividends per share byquarter during the past two years:**

 
| ** **                         | ** ** | **2009**   | ** ** |
|------------------------------------|------------|------------|------------|
| ** **                         | ** ** | **First**  | ** ** | **Second** | ** ** | **Third** | ** ** | **Fourth** | ** ** |
| **Dividends per common share (a)** | ** ** | **$**      | **—** | ** ** | **—** | ** ** | **—** | ** ** | **—** | ** ** |
| **Market price per common share:** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| **High**                           | ** ** | **$**      | **1.55**   | ** ** | **0.48** | ** ** | **1.14** | ** ** | **1.48** | ** ** |
| **Low**                            | ** ** | **$**      | **0.03**   | ** ** | **0.04** | ** ** | **0.19** | ** ** | **0.47** | ** ** |

 
| ** **                     | ** ** | **2008**  | ** ** |
|--------------------------------|------------|-----------|------------|
| ** **                     | ** ** | **First** | ** ** | **Second** | ** ** | **Third** | ** ** | **Fourth** | ** ** |
| Dividends per common share (a) |       | $         | 0.05       |   | 0.05 |   | 0.05 |   | — |   |
| Market price per common share: |       |      |       |   |   |   |   |   |   |
| High                           |       | $         | 8.75       |   | 8.81 |   | 6.94 |   | 5.31 |   |
| Low                            |       | $         | 5.77       |   | 5.67 |   | 4.11 |   | 1.02 |   |

 

----

**(a)   On October 30,2008, the Company suspended the payment of dividends.**

 

**The number ofholders of record of our common stock on January 31, 2010 wasapproximately 5,300.  Trading in ourcommon stock during the pendency of our Chapter 11 cases is highly speculativeand poses substantial risks.  See Item1A. — Risk Factors for a discussion of additional risks related to our commonstock.**

 

**PERFORMANCE GRAPH**

 

**The following graphcompares the cumulative total return on our common stock for the last fivefiscal years with the returns on the Standard & Poor’s 500 Stock Indexand the S&P 500 Specialty Chemicals Index, assuming an investment of $100on December 31, 2004 and the reinvestment of all dividends.**

 

**COMPARISON OF FIVE-YEAR**

**CUMULATIVE TOTAL RETURN AMONG CHEMTURA CORPORATION,**

**S&P 500 AND S&P 500 SPECIALTY CHEMICALS**

 

 
| ** **                          | ** ** | **12/31/04** | ** ** | **12/31/05** | ** ** | **12/31/06** | ** ** | **12/31/07** | ** ** | **12/31/08** | ** ** | **12/31/09** | ** ** |
|-------------------------------------|------------|--------------|------------|--------------|------------|--------------|------------|--------------|------------|--------------|------------|--------------|------------|
| **CHEMTURA CORPORATION**            |       | $            | 100.0      |         | $          | 109.2        |       | $            | 84.5       |         | $          | 69.8         |       | $ | 12.8 |   | $ | 11.2 |   |
| **S&P 500**                     |       | $            | 100.0      |         | $          | 104.9        |       | $            | 121.5      |         | $          | 128.1        |       | $ | 80.7 |   | $ | 102.1 |   |
| **S&P 500 SPECIALTY CHEMICALS** |       | $            | 100.0      |         | $          | 103.9        |       | $            | 127.5      |         | $          | 147.6        |       | $ | 123.0 |   | $ | 175.2 |   |

 

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**Item 6.  Selected Financial Data**

 

**The following reflectsselected financial data for Chemtura Corporation for each of its last fivefiscal years.  The information belowshould be read in conjunction with Item 7 — Management’s Discussion andAnalysis of Financial Condition and Results of Operations and Item 8 -Financial Statements and Supplementary Data of this Annual Report.  The financial information presented may notbe indicative of future performance.**

 
| **(In millions of dollars, except per share data)**                                             | ** ** | **2009**   | ** ** | **2008**   | ** ** | **2007**   | ** ** | **2006**   | ** ** | **2005 (a)** | ** ** |
|-------------------------------------------------------------------------------------------------|------------|------------|------------|------------|------------|------------|------------|------------|------------|--------------|------------|
| **Summary of Operations**                                                                       | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** **   | ** ** |
| Net sales                                                                                       | ** ** | **$**      | **2,541**  | ** ** | 3,546      | ** ** | 3,747      |       | 3,458      |         | 2,739      |   |
| Gross profit                                                                                    | ** ** | **$**      | **594**    | ** ** | 736        | ** ** | 864        |       | 831        |         | 703        |   |
| Selling, general and administrative                                                             | ** ** | **$**      | **293**    | ** ** | 332        | ** ** | 372        |       | 362        |         | 309        |   |
| Depreciation and amortization                                                                   | ** ** | **$**      | **173**    | ** ** | 237        | ** ** | 269        |       | 204        |         | 150        |   |
| Research and development                                                                        | ** ** | **$**      | **38**     | ** ** | 51         | ** ** | 62         |       | 61         |         | 50         |   |
| Facility closures, severance and related costs                                                  | ** ** | **$**      | **3**      | ** ** | 26         | ** ** | 36         |       | 5          |         | 23         |   |
| Antitrust costs                                                                                 | ** ** | **$**      | **10**     | ** ** | 12         | ** ** | 35         |       | 90         |         | 49         |   |
| Merger costs (b)                                                                                | ** ** | **$**      | **—** | ** ** | —     | ** ** | —     |       | 17         |         | 45         |   |
| In-process research and development (b)                                                         | ** ** | **$**      | **—** | ** ** | —     | ** ** | —     |       | —     |         | 73         |   |
| Loss (gain) on sale of business (c)                                                             | ** ** | **$**      | **—** | ** ** | 25         | ** ** | 15         |       | 11         |         | (3         | ) |
| Impairment of long-lived assets (d)                                                             | ** ** | **$**      | **104**    | ** ** | 986        | ** ** | 19         |       | 80         |         | —     |   |
| Changes in estimates related to expected allowable  claims (e)                                  | ** ** | **$**      | **73**     | ** ** | —     | ** ** | —     |       | —     |         | —     |   |
| Equity income                                                                                   | ** ** | **$**      | **—** | ** ** | (4         | )          | (3         | )          | (4         | )            | (2         | ) |
| Operating (loss) profit                                                                         | ** ** | **$**      | **(100**   | **)**      | (929       | )          | 59         |       | 5          |         | 9          |   |
| Interest expense                                                                                | ** ** | **$**      | **(70**    | **)**      | (78        | )          | (87        | )          | (102       | )            | (108       | ) |
| Loss on early extinguishment of debt                                                            | ** ** | **$**      | **—** | ** ** | —     | ** ** | —     |       | (44        | )            | (55        | ) |
| Other (expense) income, net                                                                     | ** ** | **$**      | **(17**    | **)**      | 9          | ** ** | (5         | )          | (5         | )            | (9         | ) |
| Reorganization items, net (f)                                                                   | ** ** | **$**      | **(97**    | **)**      | —     | ** ** | —     |       | —     |         | —     |   |
| Loss from continuing operations before income taxes  and cumulative effect of accounting change | ** ** | **$**      | **(284**   | **)**      | (998       | )          | (33        | )          | (146       | )            | (163       | ) |
| Income tax (provision) benefit                                                                  | ** ** | **$**      | **(5**     | **)**      | 27         | ** ** | (4         | )          | (126       | )            | (49        | ) |
| Loss from continuing operations before cumulative  effect of accounting change                  | ** ** | **$**      | **(289**   | **)**      | (971       | )          | (37        | )          | (272       | )            | (212       | ) |
| Earnings from discontinued operations, net of tax                                               | ** ** | **$**      | **—** | ** ** | —     | ** ** | 18         |       | 20         |         | 33         |   |
| (Loss) gain on sale of discontinued operations, net  of tax                                     | ** ** | **$**      | **(3**     | **)**      | —     | ** ** | 24         |       | 47         |         | (4         | ) |
| Cumulative effect of accounting change, net of tax                                              | ** ** | **$**      | **—** | ** ** | —     | ** ** | —     |       | —     |         | (1         | ) |
| Net (loss) earnings                                                                             | ** ** | **$**      | **(292**   | **)**      | (971       | )          | 5          |       | (205       | )            | (184       | ) |
| Less: net earnings attributable to non-controlling  interests                                   | ** ** | **$**      | **(1**     | **)**      | (2         | )          | (8         | )          | (1         | )            | (3         | ) |
| Net loss attributable to Chemtura Corporation                                                   | ** ** | **$**      | **(293**   | **)**      | (973       | )          | (3         | )          | (206       | )            | (187       | ) |
|                                                                                            |       |       |       |       |       |       |       |       |       |         |       |
| **Amounts attribuable to Chemtura  Corporation common shareholders:**                           |       |       |       |       |       |       |       |       |       |         |       |
| Loss from continuing operations, net of tax                                                     | ** ** | **$**      | **(290**   | **)**      | (973       | )          | (45        | )          | (273       | )            | (215       | ) |
| Earnings from discontinued operations, net of tax                                               | ** ** | **$**      | **—** |       | —     |       | 18         |       | 20         |         | 33         |   |
| (Loss) gain on sale of discontinued operations, net  of tax                                     | ** ** | **$**      | **(3**     | **)**      | —     |       | 24         |       | 47         |         | (4         | ) |
| Cumulative effect of accounting change, net of tax                                              | ** ** | **$**      | **—** |       | —     |       | —     |       | —     |         | (1         | ) |
| Net loss attributable to Chemtura Corporation                                                   | ** ** | **$**      | **(293**   | **)**      | (973       | )          | (3         | )          | (206       | )            | (187       | ) |

 

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| **(In millions, except per share data)**                    | ** ** | **2009**   | ** ** | **2008** | ** ** | **2007** | ** ** | **2006** | ** ** | **2005 (a)** | ** ** |
|-------------------------------------------------------------|------------|------------|------------|----------|------------|----------|------------|----------|------------|--------------|------------|
| **Per Share Statistics**                                    |       |       |       |     |       |     |       |     |       |         |       |
|                                                        |       |       |       |     |       |     |       |     |       |         |       |
| Loss from continuing operations, net of tax                 | ** ** | **$**      | **(1.19**  | **)**    | (4.01      | )        | (0.18      | )        | (1.13      | )            | (1.21      | ) |
| Earnings from discontinued operations, net of tax           | ** ** | **$**      | **—** |     | —     |     | 0.07       |     | 0.08       |         | 0.18       |   |
| (Loss) gain on sale of discontinued operations, net  of tax | ** ** | **$**      | **(0.01**  | **)**    | —     |     | 0.10       |     | 0.20       |         | (0.02      | ) |
| Cumulative effect of accounting change, net of tax          | ** ** | **$**      | **—** |     | —     |     | —     |     | —     |         | —     |   |
| Net loss attributable to Chemtura Corporation               | ** ** | **$**      | **(1.20**  | **)**    | (4.01      | )        | (0.01      | )        | (0.85      | )            | (1.05      | ) |
| Dividends                                                   | ** ** | **$**      | **—** |     | 0.15       |     | 0.20       |     | 0.20       |         | 0.20       |   |
| Book value                                                  | ** ** | **$**      | **0.71**   |     | 2.01       |     | 7.84       |     | 7.14       |         | 7.58       |   |
| Common stock trading range:                                 | High       |       | **$**      | **1.55** |       | 8.81     |       | 12.33    |       | 13.53        |       | 17.95 |   |
|                                                        | Low        | ** ** | **$**      | **0.03** |       | 1.02     |       | 6.95     |       | 7.75         |       | 9.89 |   |
| Average shares outstanding - Basic                          | ** ** | **242.9**  |       | 242.3    |       | 241.6    |       | 240.5    |       | 178.4        |       |
| Average shares outstanding - Diluted                        | ** ** | **242.9**  |       | 242.3    |       | 241.6    |       | 240.5    |       | 178.4        |       |
|                                                        |       |       |       |     |       |     |       |     |       |         |       |
| **Financial Position**                                      |       |       |       |     |       |     |       |     |       |         |       |
| Working capital (deficiency) (g)                            | ** ** | **$**      | **908**    |     | (558       | )        | 700        |     | 497        |         | 566        |   |
| Current ratio (g)                                           | ** ** | **2.6**    |       | 0.7      |       | 2.0      |       | 1.6      |       | 1.6          |       |
| Total assets                                                | ** ** | **$**      | **3,118**  |     | 3,057      |     | 4,416      |     | 4,399      |         | 4,986      |   |
| Total debt, including short-term borrowings (g)             | ** ** | **$**      | **255**    |     | 1,204      |     | 1,063      |     | 1,111      |         | 1,370      |   |
| Stockholders’ equity                                   | ** ** | **$**      | **172**    |     | 488        |     | 1,899      |     | 1,719      |         | 1,820      |   |
| Total capital employed (g)                                  | ** ** | **$**      | **427**    |     | 1,692      |     | 2,962      |     | 2,830      |         | 3,190      |   |
| Debt to total capital % (g)                                 | ** ** | **59.7**   |       | 71.2     |       | 35.9     |       | 39.3     |       | 42.9         |       |

 
| **(In millions of dollars, except for number of employees)** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
|------------------------------------------------------------------------------------------------------|------------|------------|------------|------------|------------|------------|------------|------------|------------|------------|------------|
| **Other Statistics**                                                                                 |       |       |       |       |       |       |       |       |       |       |       |
| Net cash provided by (used in) operations                                                            | ** ** | **$**      | **49**     |       | (11        | )          | 149        |       | 251        |       | (79        | ) |
| Capital spending from continuing operations                                                          | ** ** | **$**      | **56**     |       | 121        |       | 115        |       | 122        |       | 97         |   |
| Depreciation from continuing operations                                                              | ** ** | **$**      | **134**    |       | 192        |       | 229        |       | 163        |       | 122        |   |
| Amortization from continuing operations                                                              | ** ** | **$**      | **39**     |       | 45         |       | 40         |       | 41         |       | 28         |   |
| Approximate number of employees at end of year                                                       | ** ** | **4,400**  |       | 4,700      |       | 5,100      |       | 6,200      |       | 6,600      |       |

 

----

| (a)     | Due  to the inclusion of the operating results of Great Lakes subsequent to the  acquisition on July 1, 2005, results are not directly comparable.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
|---------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (b)     | Merger  costs are non-capitalized costs associated with the merger of the Company and  Great Lakes. The write-off of $73 million of in-process research and  development is also the direct result of the merger with Great Lakes.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
| (c)     | Loss  (gain) on sale of business primarily included a $26 million loss relating to  the sale of the oleochemicals business in 2008, a $15 million loss on the  sale of assets relating to the sale of the Celogen® product line in 2007, a  $12 million loss on the sale of the IWA business in 2006, and a $3 million  gain in 2005 on the reversal of a reserve related to the 2001 sale of the  Industrial Colors business.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
| (d)     | The  2009 charge included the impairment of goodwill of $37 million within the  Consumer Performance Products segment, and the impairment of property, plant  and equipment and intangibles assets, net of $53 million and $14 million,  respectively, for the Industrial Engineered Products segments.****The 2008  charge primarily included a $985 million impairment of goodwill associated  with the Consumer Performance Products, Industrial Performance Products and  Industrial Engineered Products segments. The 2007 charge primarily included a  $9 million reduction in the value of assets relating to the closure and sale  of the Ravenna, Italy facility and a $4 million write-off of construction in  progress associated with certain facilities affected by the 2007  restructuring programs. The 2006 charge primarily included a $52 million  impairment of the fluorine business as a result of the Company’s annual  impairment review and a $22 million impairment of non-current assets of the  fluorine business due to a loss of a significant customer. |
| (e)     | Changes  in estimates related to expected allowable claims of $73 million relate to  adjustments to liabilities subject to compromise (primarily legal and  environmental reserves) as a result of the proofs of claim evaluation  process.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
| (f)     | Reorganization  items, net of $97 million represent professional fees; the write-off of debt  discounts, premiums and debt issuance costs; the write-off of deferred  financing expenses related to the termination of the 2009 U.S. Facility;  impacts from rejections or terminations of executory contracts and real  property leases; impacts from the settlement of claims; and reorganization  initiatives.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| **(g)** | **The 2009 amounts exclude  liabilities subject to compromise which are included separately on the  balance sheet.**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |

 

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**Item 7.  Management’s Discussionand Analysis of Financial Condition and Results of Operations**

 

THE FOLLOWING DISCUSSIONAND ANALYSIS SHOULD BE READ IN CONJUNCTION WITH OUR CONSOLIDATED FINANCIALSTATEMENTS INCLUDED IN ITEM 8 OF THIS FORM 10-K.

 

**THIS MANAGEMENT’S DISCUSSION AND ANALYSIS OFFINANCIAL CONDITION AND RESULTS OF OPERATIONS CONTAINS FORWARD-LOOKINGSTATEMENTS.  SEE “FORWARD-LOOKINGSTATEMENTS” FOR A DISCUSSION OF CERTAIN OF THE UNCERTAINTIES, RISKS ANDASSUMPTIONS ASSOCIATED WITH THESE STATEMENTS.**

** **

**PROCEEDINGSUNDER CHAPTER 11 OF THE BANKRUPTCY CODE**

 

OnMarch 18, 2009 (the “Petition Date”), Chemtura and 26 of our subsidiaries organized in the United States(collectively, the “Debtors”) filed voluntary petitions for relief underChapter 11 of Title 11 of the Bankruptcy Code (“Bankruptcy Code”) in the UnitedStates Bankruptcy Court for the Southern District of New York (the “BankruptcyCourt”).  The Chapter 11 cases are beingjointly administered by the Court.  Ournon-U.S. subsidiaries and certain U.S. subsidiaries were not included in thefiling and are not subject to the requirements of the Bankruptcy Code.  Our U.S. and worldwide operations areexpected to continue without interruption during the Chapter 11 reorganizationprocess.

 

Forfurther discussion of the Chapter 11 cases, see Item 7. - BankruptcyProceedings under Liquidity and Capital Resources and Note 1 - Nature ofOperations and Bankruptcy Proceedings in the Notes to Consolidated FinancialStatements.

** **

**EXECUTIVE OVERVIEW**

** **

**Our primary goal in 2009 was stabilizing ourbusiness operations, obtaining sufficient liquidity to operate our business andadjusting to the changes created by our**filing for protection underChapter 11 of the Bankruptcy Code.  We believe we have achieved thoseobjectives.  Upon filing for Chapter 11,we obtained the commitment of a $400 million senior secured super-prioritydebtor-in-possession credit agreement (the “DIP Credit Facility”), whichprovided liquidity necessary for us to continue operations as adebtor-in-possession (“DIP”).  On February 12,2010, we refinanced our existing DIP Credit Facility with a $450 million creditfacility (the “Amended and Restated DIP Credit Agreement”) which substantiallyreduced our financing costs and provided greater flexibility to operate ourbusiness.  Since filing for protectionunder Chapter 11, we have reviewed approximately 13,000 executory contracts andreal property leases, identifying those that are redundant or onerous, and wehave begun the process of rejecting those executory contacts and real propertyleases that do not further our business objectives.  We have developed a long range business planthat sets a course on strengthening and growing our businesses as well asidentifying assets and activities that no longer fit our core businesses.  As part of our business plan, we alsoinitiated various restructuring activities, including the restructuring in 2010of certain operations of our flame retardants business and initiated the saleof our polyvinyl chloride (“PVC”) additives business which we expect will becompleted in the first half of 2010.

** **

**In 2009, we improved our financial health andmet or exceeded our financial objectives by:**

** **

·                  Generating positive cashflow (1) over thelast four quarters and accumulating substantial cash balances by both theDebtors and our international subsidiaries;

 

·                  Achieving or exceedingperformance levels required by the DIP Credit Facility; and

 

·                  Identifying, and now workingclosely with, several financial institutions we expect will lead our exitfinancing.  The support of theseinstitutions offers us the potential to finance our plan of reorganization (the“Plan”) and emerge as a financially sound, stand-alone global company.

 

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(1)                                                          We define “positivecash flow” as net cash provided from operating activities, excluding cashinflows and outflows associated with our former accounts receivable financingfacilities, less cash flows from investing activities related to capitalexpenditures.  This is not an accountingmeasure in accordance with U.S. generally accepted accounting principles (“GAAP”).  This measure does not consider cash flowsrequired to meet maturities of debt or repayments under our former accountsreceivable financing facilities.  Forcustomers, vendors and employees, it does indicate whether our totalindebtedness, net of cash and cash equivalents, is increasing or reducing.  See our Consolidated Statement of Cash Flowsunder Item 8 for complete information.

 

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Atthe same time, we initiated various actions to reshape our Company into astronger, leaner global enterprise focused on growth.  These initiatives included, among otherthings:

** **

·                  Increasing strategicinvestments to improve efficiency, such as our enterprise resource planning (“ERP”)initiatives that have enabled the activities related to over 90 percent of netsales now to be managed on a single global instance of SAP and offeringsimplified and standardized business processes;

 

·                  Focusing on investments inresearch and development (“R&D”), which is beginning to result in importantand innovative new product offerings such as GeobromTM, Weston® 705, and two newflame retardant products being produced today on pilot plant scale;

 

·                  Improving order processingto enhance responsiveness and delivery to customers;

 

·                  Transferring certainoperations to third-party logistics providers, enabling us to maintain servicelevels at a more competitive cost;

 

·                  Growing our globalantioxidant business with a planned additional expansion of capacity at GulfStabilizer Industries (“GSI”), our joint venture facility in Al Jubail, SaudiArabia; and

 

·                  Advancing towards a jointventure between Al Zamil Group Holding Company and Chemtura OrganometallicsGmbH, our wholly owned German subsidiary, to build a world-scale metal alkylsmanufacturing facility in Jubail Industrial City, Saudi Arabia.

** **

**Our key challenges in 2010 will be toimplement our business plans and to emerge from Chapter 11.  To emerge we must first file a Plan togetherwith a disclosure statement with the Bankruptcy Court.  After a Plan has been filed, the Plan, alongwith a disclosure statement approved by the Bankruptcy Court, will be sent toall creditors and other parties in interest entitled to vote to accept orreject the Plan.  Following thesolicitation period, the Bankruptcy Court will consider whether to confirm thePlan.  In order to confirm a Plan, theBankruptcy Court must make certain findings as required by the BankruptcyCode.  We continue to face challenges,but we believe our accomplishments in 2009 and our initiatives in 2010 willposition us to emerge successfully from Chapter 11 in 2010 as a financiallysound and more focused global enterprise.**

 

**OURBUSINESS**

 

Weare among the larger publicly traded specialty chemical companies in the UnitedStates dedicated to delivering innovative,application-focused specialty chemical solutions and consumer products.  Our principal executive offices are locatedin Philadelphia, Pennsylvania and Middlebury, Connecticut.  We operate in a wide variety of end-use industries, including automotive,transportation, construction, packaging, agriculture, lubricants, plastics fordurable and non-durable goods, electronics, and pool and spa chemicals. Themajority of our chemical products are sold to industrial manufacturingcustomers for use as additives, ingredients or intermediates that add value totheir end products.  Our crop andconsumer products are sold to dealers, distributors and major retailers.  We are a market leader in many of our keyproduct lines and transact business in more than 100 countries.

 

The primary economic factors thatinfluence the operations and sales of our Industrial Engineered Products andIndustrial Performance Products segments are industrial production, residentialand commercial construction, electronic component production and polymerproduction.  In addition, our CropProtection Engineered Products segment is influenced by worldwide weather,disease and pest infestation conditions. Our Consumer Performance Products segment is also influenced by generaleconomic conditions impacting consumer spending and weather conditions.  For additional factors that impact ourperformance, see Item 1A. - Risk Factors.

 

Other factors affecting our financial performanceinclude industry capacity, customer demand, raw material and energy costs, andselling prices. Selling prices are influenced by the global demand and supplyfor the products we produce.  Our strategy is topursue selling prices that reflect the value of our products and to pass onhigher costs for raw material and energy to preserve our profit margins.

 

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**2009OVERVIEW**

 

Annualsales for 2009 decreased $1 billion or 28% compared with 2008.  This decrease was attributable to a $912million reduction in sales volume, $46 million in unfavorable currencytranslation, a $31 million reduction due to the divestiture in the firstquarter of 2008 of the oleochemicals business and reduced selling prices of $16million.  The benefit of the 2008increase in selling prices for the Consumer Performance Products segment didnot fully offset reduced selling prices in the other three segments.

 

Operatingprofit for the Consumer Performance Products segment increased 26% comparedwith 2008 due to increased selling prices, lower selling, general andadministrative (“SG&A”) and research and development (“R&D”)(collectively “SGA&R”) expenses, and lower raw material, energy anddistribution costs, partially offset by lower volume, unfavorable product mixand higher manufacturing costs.

 

TheIndustrial Performance Products segment operating profit decreased 13% comparedwith 2008 due to lower volume caused by the global economic recession as well asreduced selling prices, lower volume and unfavorable product mix, partiallyoffset by lower raw material, energy, manufacturing, SGA&R, anddistribution costs.

 

TheCrop Protection Engineered Products segment operating profit decreased 46%compared with 2008 due to lower volume as crop prices fell and growers hadrestricted access to credit as well as unfavorable product mix, and highermanufacturing, raw material and energy costs, partially offset by lowerSGA&R costs.

 

TheIndustrial Engineered Products segment operating profit decreased 165% comparedwith 2008 due to lower volume caused by the global economic recession as wellas unfavorable product mix, reduced selling prices, and higher manufacturingcosts, partially offset by lower raw material, energy, SGA&R anddistribution costs.

 

We have undertaken various cost reduction initiativesover the past several years and continue to implement cost reductions.  Our long term goal remains to improvegross profit margins and reduce SGA&R expenditures as a percentage of totalnet sales on a global basis.  With thesharp reduction in sales volume due to the global economic recession in 2009,SGA&R expenditures in 2009 were up to 13% of net sales compared with 11% ofnet sales in 2008 despite a $52 million reduction in SGA&R spendingcompared with 2008.

 

**LIQUIDITYAND CAPITAL RESOURCES**

 

**Bankruptcy Proceedings**

 

We entered 2009 withsignificantly constrained liquidity.  Thefourth quarter of 2008 saw an unprecedented reduction in orders for ourproducts as the global recession deepened and customers saw or anticipatedreductions in demand in the industries they served.  The impact was more pronounced on thosebusiness segments that served cyclically exposed industries. As a result, oursales and overall financial performance deteriorated resulting in ournon-compliance with the two financial maintenance covenants under our Amendedand Restated Credit Agreement, dated as of July 31, 2007 (the “2007 CreditFacility”) as of December 31, 2008. On December 30, 2008, we obtained a 90-day waiver of compliancewith these covenants from the lenders under the 2007 Credit Facility.

 

Our liquidity was furtherconstrained in the fourth quarter of 2008 by changes in the availability underour accounts receivable financing facilities in the United States andEurope.  The eligibility criteria andreserve requirements under our prior U.S. accounts receivable facility (the “U.S.Facility”) tightened in the fourth quarter of 2008 following a credit ratingdowngrade, significantly reducing the value of accounts receivable that couldbe sold under the U.S. Facility compared with the third quarter of 2008.  Additionally, the availability and access toour European accounts receivable financing facility (the “European Facility”)was restricted in late December 2008 because of our financial performanceresulting in our inability to sell additional receivables under the EuropeanFacility.

 

The crisis in the creditmarkets compounded the liquidity challenges we faced.  Under normal market conditions, we believedwe would have been able to refinance our $370 million notes maturing on July 15,2009 (the “2009 Notes”) in the debt capital markets.  However, with the deterioration of the creditmarket in the late summer of 2008 combined with our deteriorating financialperformance, we did not believe we would be able to refinance the 2009 Notes oncommercially reasonable terms, if at all. As a result, we sought to refinance the 2009 Notes through the sale ofone of our businesses.

 

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On January 23, 2009,our special-purpose subsidiary entered into a new three-year U.S. accountsreceivable financing facility (the “2009 U.S. Facility”) that restored most ofthe liquidity that we had available to us under the prior U.S. accountsreceivable facility before the fourth quarter of 2008 events describedabove.  However, despite good faithdiscussions, we were unable to agree to terms under which we could resume thesale of accounts receivable under our European Facility during the firstquarter of 2009.  The balance of accountsreceivable previously sold under the facility continued to decline, offsettingmuch of the benefit to liquidity gained by the new 2009 U.S. Facility.  During the second quarter of 2009, with noagreement to restart the European Facility, the remaining balance of theaccounts receivable previously sold under the facility were settled and theEuropean Facility was terminated.

 

January 2009 saw noimprovement in customer demand from the depressed levels in December 2008and some business segments experienced further deterioration.  Although February and March of 2009saw incremental improvement in net sales compared to January 2009, overallbusiness conditions remained difficult as sales declined by 43% in the firstquarter of 2009 compared to the first quarter of 2008.  As awareness grew of our constrainedliquidity and deteriorating financial performance, suppliers began restrictingtrade credit and, as a result, liquidity dwindled further.  Despite moderate cash generation throughinventory reductions and restrictions on discretionary expenditures, our tradecredit continued to tighten, resulting in unprecedented restrictions on ourability to procure raw materials.

 

In January and February of2009, we were in the midst of the asset sale process with the objective ofclosing a transaction prior to the July 15, 2009 maturity of the 2009Notes.  Potential buyers conducted duediligence and worked towards submitting their final offers on several of ourbusinesses.  However, with the continuingrecession and speculation about our financial condition, potential buyers becameprogressively more cautious.  Certainpotential buyers expressed concern about our ability to perform obligationsunder a sale agreement.  They increasedtheir due diligence requirements or decided not to proceed with a transaction.  In March 2009, we concluded thatalthough there were potential buyers of our businesses, a sale was unlikely tobe closed in sufficient time to offset the continued deterioration in liquidityor at a value that would provide sufficient liquidity to both operate thebusiness and meet our impending debt maturities.

 

By March 2009,dwindling liquidity and growing restrictions on available trade credit resultedin production stoppages as raw materials could not be purchased on atimely basis.  At the same time, weconcluded that it was improbable that we could resume sales of accountsreceivable under our European Facility or complete the sale of a business insufficient time to provide the immediate liquidity we needed to operate.  Absent such an infusion of liquidity, we wouldlikely experience increased production stoppages or sustained limitationson our business operations that ultimately would have a detrimental effect onthe value of our business as a whole. Specifically, the inability to maintain and stabilize our businessoperations would result in depleted inventories, missed supply obligations anddamaged customer relationships.

 

Having carefully exploredand exhausted all possibilities to gain near-term access to liquidity, wedetermined that the DIP Credit Facility presented the best available alternativefor us to meet our immediate and ongoing liquidity needs and preserve the valueof the business.  As a result, havingobtained the commitment of the DIP Credit Facility, Chemtura and 26 of oursubsidiaries organized in the United States (collectively, the “Debtors”) filedfor relief under the Bankruptcy Code on March 18, 2009 in the Court.  The Chapter 11 cases are being jointlyadministered by the Court.  Our non-U.S.subsidiaries and certain U.S. subsidiaries were not included in the filing andare not subject to the requirements of the Bankruptcy Code.  Our U.S. and worldwide operations areexpected to continue without interruption during the Chapter 11 reorganizationprocess.

 

TheDebtors own substantially all of our U.S. assets.  The Debtors consist of Chemtura and thefollowing subsidiaries:

 
| · | A&M Cleaning  Products LLC   | · | Crompton Colors  Incorporated           | · | Kem Manufacturing  Corporation          |
|--------|----------------------------------|--------|-----------------------------------------|--------|-----------------------------------------|
| · | Aqua Clear Industries,  LLC      | · | Crompton Holding  Corporation           | · | Laurel Industries  Holdings, Inc.  |
| · | ASEPSIS, Inc.               | · | Crompton  Monochem, Inc.           | · | Monochem, Inc.                     |
| · | ASCK, Inc.                  | · | GLCC Laurel, LLC                        | · | Naugatuck Treatment  Company            |
| · | BioLab, Inc.                | · | Great Lakes Chemical  Corporation       | · | Recreational Water  Products, Inc. |
| · | BioLab Company Store,  LLC       | · | Great Lakes Chemical  Global, Inc. | · | Uniroyal Chemical  Company Limited      |
| · | Biolab Franchise  Company, LLC   | · | GT Seed  Treatment, Inc.           | · | Weber City Road LLC                     |
| · | BioLab Textile  Additives, LLC   | · | HomeCare Labs, Inc                      | · | WRL of  Indiana, Inc.              |
| · | CNK Chemical Realty  Corporation | · | ISCI, Inc.                         |   |                                    |

 

Theprincipal U.S. assets and business operations of the Debtors are owned byChemtura, BioLab, Inc. and Great Lakes Chemical Corporation.

 

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OnMarch 18, 2009, Raymond E. Dombrowski, Jr. was appointed ChiefRestructuring Officer.  In connectionwith this appointment, we entered into an agreement with Alvarez &Marsal North America, LLC (“A&M”) to compensate A&M for Mr. Dombrowski’sservices as Chief Restructuring Officer on a monthly basis at a rate of $150thousand per month and incentive compensation in the amount of $3 millionpayable upon the earlier of (a) the consummation of a Chapter 11 Plan or (b) thesale, transfer, or other disposition of all or a substantial portion of theassets or equity of the Company.  Mr. Dombrowski isindependently compensated pursuant to arrangements with A&M, a financialadvisory and consulting firm specializing in corporate restructuring. Mr. Dombrowskiwill not receive any compensation directly from us and will not participate inany of our employee benefit plans.

 

TheChapter 11 cases were filed to gain liquidity for continuing operations whilethe Debtors restructure their balance sheets to allow us to continue as aviable going concern.  While we believewe will be able to achieve these objectives through the Chapter 11reorganization process, there can be no certainty that we will be successful indoing so.

 

UnderChapter 11 of the Bankruptcy Code, the Debtors are operating their U.S.businesses as a debtor-in-possession under the protection of the BankruptcyCourt from their pre-filing creditors and claimants.  Since the filing, all orders of the BankruptcyCourt sufficient to enable the Debtors to conduct normal business activities,including “first day” motions and the interim and final approval of the DIPCredit Facility and amendments thereto, have been entered by the BankruptcyCourt.  While the Debtors are subject toChapter 11, all transactions outside the ordinary course of business willrequire the prior approval of the Bankruptcy Court.

 

OnMarch 20, 2009, the Bankruptcy Court approved the Debtors’ “first day”motions.  Specifically, the BankruptcyCourt granted the Debtors, among other things, interim approval to access $190million of its $400 million DIP Credit Facility, approval to pay outstandingemployee wages, health benefits, and certain other employee obligations andauthority to continue to honor their current customer policies and programs, inorder to ensure the reorganization process will not adversely impact theircustomers.  On April 29, 2009, theBankruptcy Court entered a final order providing full access to the $400million DIP Credit Facility.  TheBankruptcy Court also approved Amendment No. 1 to the DIP Credit Facilitywhich provided for, among other things: (i) an increase in the outstandingamount of inter-company loans the Debtors could make to our non-debtor foreignsubsidiaries from $8 million to $40 million; (ii) a reduction in therequired level of borrowing availability under the minimum availabilitycovenant; and (iii) the elimination of the requirement to pay additionalinterest expense if a specified level of accounts receivable financing was notavailable to our European subsidiaries.

 

OnJuly 13, 2009, the Company and the parties to the DIP Credit Facilityentered into Amendment No. 2 to the DIP Credit Facility subject toapprovals by the Court and our Board of Directors which approvals were obtainedon July 14 and July 15, 2009, respectively.  The DIP Credit Facility was amended toprovide for, among other things, an option by us to extend the maturity of theDIP Credit Facility for two consecutive three month periods subject to thesatisfaction of certain conditions. Prior to Amendment No. 2, the DIP Credit Facility matured on theearlier of 364 days from the first borrowing, the effective date of a Plan orthe date of termination in whole of the Commitments (as defined in the DIPCredit Facility).

 

Asa consequence of the Chapter 11 cases, substantially all pre-petitionlitigation and claims against the Debtors have been stayed.  Accordingly, no party may take any action tocollect pre-petition claims or to pursue litigation arising as a result ofpre-petition acts or omissions except pursuant to an order of the BankruptcyCourt.

 

OnAugust 21, 2009, the Bankruptcy Court established October 30, 2009 asthe deadline for the filing of proofs of claim against the Debtors (the “BarDate”).  Under certain limitedcircumstances, some creditors may be permitted to file proofs of claims afterthe Bar Date.  Accordingly, it ispossible that not all potential proofs of claim were filed as of the filing ofthis Annual Report.

 

TheDebtors have received approximately 15,300 proofs of claim covering a broadarray of areas.  Approximately 8,000proofs of claim have been asserted in “unliquidated” amounts or contain anunliquidated component that are treated as being asserted in “unliquidated”amounts.  Excluding proofs of claim in “unliquidated”amounts, the aggregate amount of proofs of claim filed totaled approximately$23.6 billion.  See Note 21 - LegalProceedings and Contingencies in the Notes to Consolidated Financial Statementsfor a discussion of the types of proofs of claim filed against the Debtors.

 

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Weare in the process of evaluating the amounts asserted in and the factual andlegal basis of the proofs of claim filed against the Debtors.  Based upon our initial review and evaluation,which is continuing, a significant number of proofs of claim are duplicativeand/or legally or factually without merit. As to those claims, we have filed and intend to file objections with theBankruptcy Court.  However, there can beno assurance that these claims will not be allowed in full.

 

Further,while the Debtors believe they have insurance to cover certain asserted claims,there can be no assurance that material uninsured obligations will not beallowed as claims in the Chapter 11 cases. Because of the substantial number of asserted contested claims, as towhich review and analysis is ongoing, there is no assurance as to the ultimatevalue of claims that will be allowed in these Chapter 11 cases, nor is thereany assurance as to the ultimate recoveries for the Debtors’ stakeholders,including the Debtors’ bondholders and shareholders.  The differences between amounts recorded bythe Debtors and proofs of claims filed by the creditors will continue to beinvestigated and resolved through the claims reconciliation process.

 

Wehave recognized certain charges related to expected allowed claims.  As we complete the process of evaluating and resolvingthe proofs of claim, appropriate adjustments to our Consolidated FinancialStatements will be made.  Adjustments mayalso result from actions of the Bankruptcy Court, settlement negotiations,rejection of executory contracts and real property leases, determination as tothe value of any collateral securing claims and other events.  Any such adjustments could be material to ourfinancial condition or results of operations in any given period.  For additional information on liabilitiessubject to compromise, see Note 4 - Liabilities Subject to Compromise andReorganization Items, Net in the Notes to Consolidated Financial Statements.

 

Asprovided by the Bankruptcy Code, the Debtors have the exclusive right to fileand solicit acceptance of a Plan for 120 days after the Petition Date with thepossibility of extensions thereafter.  OnFebruary 23, 2010, the Bankruptcy Court granted our application for anextension of the period during which we have the exclusive right to file a Planfrom February 11, 2010 to June 11, 2010.  The Bankruptcy Court had previously grantedour applications for an extension of the exclusivity period on July 28,2009 and October 27, 2009.  Therecan be no assurance that a Plan will be filed by the Debtors or confirmed bythe Bankruptcy Court, or that any such Plan will be consummated.  After a Plan has been filed with theBankruptcy Court, the Plan, along with a disclosure statement approved by theBankruptcy Court, will be sent to all creditors and other parties entitled tovote to accept or reject the Plan.  Inorder to confirm a Plan, the Bankruptcy Court must make certain findings asrequired by the Bankruptcy Code.  TheBankruptcy Court may confirm a Plan notwithstanding the non-acceptance of thePlan by an impaired class of creditors or equity security holders if certainrequirements of the Bankruptcy Code are met.

 

OnJanuary 15, 2010 we entered into Amendment No. 3 of the DIP CreditFacility that provided for, among other things, the consent of our DIP lendersto the sale of the PVC additives business.

 

OnFebruary 9, 2010, the Bankruptcy Court gave interim approval of an Amendedand Restated Senior Secured Super-Priority Debtor-in-Possession CreditAgreement (the “Amended and Restated DIP Credit Agreement”) by and among theDebtors, Citibank N.A. and the other lenders party thereto.  The Amended and Restated DIP Credit Agreementprovides for a first priority and priming secured revolving and term loancredit commitment of up to an aggregate of $450 million.  The proceeds of the loans and other financialaccommodations incurred under the Amended and Restated DIP Credit Agreementwere used to, among other things, to refinance the obligations outstandingunder the DIP Credit Facility and provide working capital for general corporatepurposes.  The Amended and Restated DIPCredit Agreement provided a substantial reduction in the Company’s financingcosts through interest rate reductions and the avoidance of the extension feesthat would have been payable under the DIP Credit Facility in February andMay 2010.  It also provided us withgreater flexibility to operate our business. The Amended and Restated DIP Credit Agreement closed on February 12,2010 with the drawings of the $300 million term loan.  On February 18, 2010, the BankruptcyCourt entered a final order providing full access to the Amended and RestatedDIP Credit Agreement.  The Amended andRestated DIP Credit Agreement matures on the earlier of 364 days after the closing,the effective date of a Plan or the date of termination in whole of theCommitments (as defined in the Amended and Restated DIP Credit Agreement).

 

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Theultimate recovery by the Debtors’ creditors and our shareholders, if any, willnot be determined until confirmation and implementation of a Plan.  No assurance can be given as to whatrecoveries, if any, will be assigned in the Chapter 11 cases to each of these constituencies.  A Plan could result in our shareholdersreceiving little or no value for their interests and holders of the Debtors’unsecured debt, including trade debt and other general unsecured creditors,receiving less, and potentially substantially less, than payment in full fortheir claims.  Because of suchpossibilities, the value of our common stock and unsecured debt is highlyspeculative.  Accordingly, we urge thatappropriate caution be exercised with respect to existing and futureinvestments in any of these securities. Although the shares of our common stock continue to trade on the PinkSheets Electronic Quotation Service (“Pink Sheets”) under the symbol “CEMJQ,”the trading prices may have little or no relationship to the actual recovery, ifany, by the holders under any eventual Bankruptcy Court-approved Plan.  The opportunity for any recovery by holdersof our common stock under such Plan is uncertain as all creditors’ claims mustbe met in full, with interest where due, before value can be attributed to thecommon stock and, therefore, the shares of our common stock may be cancelledwithout any compensation pursuant to such Plan.

 

Continuationof our operations as a going concern is contingent upon, among other things,our ability and/or the Debtors’ ability (i) to comply with the terms andconditions of the Amended and Restated DIP Credit Agreement, as amended; (ii) toobtain confirmation of a Plan under the Bankruptcy Code; (iii) to returnto profitability; (iv) to generate sufficient cash flow from operations;and (v) to obtain financing sources to meet our future obligations.  These matters raise substantial doubt aboutour ability to continue as a going concern. The Consolidated Financial Statements do not reflect any adjustmentsrelating to the recoverability and classification of recorded asset amounts orthe amounts and classification of liabilities that might result from theoutcome of these uncertainties. Additionally, a Plan could materially change amounts reported in theConsolidated Financial Statements, which do not give effect to all adjustmentsof the carrying value of assets and liabilities that may be necessary as aconsequence of completing reorganization under Chapter 11 of the BankruptcyCode.

 

Inaddition, as part of our emergence from bankruptcy protection, we may berequired to adopt fresh start accounting in a future period.  If fresh start accounting is applicable, ourassets and liabilities will be recorded at fair value as of the fresh startreporting date.  The fair value of ourassets and liabilities as of such fresh start reporting date may differmaterially from the recorded values of assets and liabilities on ourConsolidated Balance Sheets.  Further, iffresh start accounting is required, our financial results after the applicationof fresh start accounting may be different from historical trends.

 

**Restructuring**

 

In 2009, we initiated acomprehensive review process to strengthen our core businesses and improve ourfinancial health, a process that is continuing in 2010.  As part of this process, we have undertaken areview of each of our businesses, individually and as part of ourportfolio.  The review includes adetermination of whether to continue in, consolidate, reorganize, exit orexpand our businesses, operations and product lines.  In each case, we determined whether, on ashort-term or long-term basis, the business, operation or product lineconstitutes a strategic fit with our core business as a global provider of specialtychemical products, contributes to our financial health and will achieve ourbusiness objectives.  If it does not, wewill implement initiatives which may include, among other things, limiting orexiting the business, operation or product line, consolidating operations orfacilities or selling or otherwise disposing of the business or asset.   Our review process also involves expandingbusinesses and product lines and bringing new products to market withsignificant growth opportunities.  Ourgoal is to reshape our Company into a stronger and leaner global enterprisefocused on growth.

 

As a result of our reviewprocess, we have identified certain assets for potential sale.  In other cases, we have determined thatrestructuring or consolidating our operations or changing the way we do businessor bring our products to market would further our business goals.  As the review process continues, additionalassets may be sold or restructured, operations may be consolidated or exitedand businesses, operations and product lines may be expanded.

 

In particular, during thefourth quarter of 2009, we initiated the process of selling our PVC additivesbusiness which resulted on February 23, 2010 in a definitive purchaseagreement to sell our PVC additives business. The proposed transaction is expected to close in the second quarter of2010.  On January 25, 2010, weannounced a restructuring plan involving the consolidation and idling ofcertain assets within the Flame Retardants business operations in El Dorado,Arkansas.  We transferred certain operationsto third-party logistics providers, enabling us to maintain service levels at amore competitive cost.  We also enteredinto raw material supply agreements that will reduce the costs of our products.

 

As we implement theseinitiatives, we also focused on growth opportunities.  We plan to expand capacity at Gulf StabilizerIndustries, our joint venture facility in Al Jubail, Saudi Arabia and advancetowards a joint venture between Al Zamil Group Holding Company and ChemturaOrganometallics GmbH to build a world-scale metal alkyls manufacturing facilityin Jubail Industrial City, Saudi Arabia. We have also brought to market new and innovative product offerings.

 

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We are reviewingapproximately 13,000 of our executory contracts and real property leases todetermine whether they constitute a strategic fit within our core business and,if not, to evaluate whether they should be assumed, rejected or restructured aspermitted under the Bankruptcy Code. While this process is not complete, we have taken actions accordingly,including rejecting various executory contracts and real property leases thatdo not further our business objectives.

 

Beginning in 2008 andcontinuing in 2009, we initiated cost reduction, working capital and otherinitiatives that generated positive cash flow over the last four quarters andallowed us to accumulate substantial cash balances.  We have achieved or exceeded all performancelevels required in the DIP Credit Facility.

 

We believe that thesecontinuing restructuring activities and growth initiatives have improved ourfinancial strength which we believe will allow us to emerge successfully fromChapter 11 in 2010.

 

**Reorganization Items**

 

We have and will continue to incur substantialexpenses resulting from our Chapter 11 cases. Reorganization items, net presented in our Consolidated Statement ofOperations represent the direct and incremental costs related to our Chapter 11cases such as professional fees, gains related to the settlement of claims inthe Chapter 11 cases and rejections or terminations of executory contracts andreal property leases.  During 2009, werecorded $97 million of reorganization items, net.  We expect that our restructuring activitiesin 2010 will likely result in additional charges for reorganization items, netthat could be material to our results of operations, financial condition orcash flows in any given period.  Foradditional information on reorganization items, net, see Note 4 - LiabilitiesSubject to Compromise and Reorganization Items, Net in the Notes toConsolidated Financial Statements.

 

**Cash Flows from OperatingActivities**

 

Netcash provided by operating activities was $49 million in 2009 compared with $11million of net cash used in operating activities in 2008. Changes in keyaccounts are summarized below:

 
| **Favorable  (unfavorable)**                         | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
|------------------------------------------------------|------------|------------|------------|------------|------------|------------|------------|
| **(In millions)**                                    | ** ** | **2009**   | ** ** | **2008**   | ** ** | **Change** | ** ** |
| Accounts  receivable                                 |       | $          | 36         |       | $          | 89         |       | $ | (53 | ) |
| Impact  of accounts receivable facilities            |       | (103       | )          | (136       | )          | 33         |       |
| Inventories                                          |       | 85         |       | (12        | )          | 97         |       |
| Accounts  payable                                    |       | 16         |       | (25        | )          | 41         |       |
| Pension  and post-retirement health care liabilities |       | (26        | )          | (46        | )          | 20         |       |
| Liabilities  subject to compromise                   |       | (31        | )          | —     |       | (31        | )          |
|                                                      |            |            |            |            |            |            |            |  |  |  |

 

During 2009, accounts receivable decreased by $36 millionas compared with an $89 million decrease in 2008. The 2009 and 2008 decreasesin accounts receivable were driven by reduced sales and the benefit of ourcollection efforts.  In 2009, thedecrease in the proceeds from the sale of accounts receivable was $103 million,compared with a decrease of $136 million in 2008.  The decrease in 2009 was due to thetermination of the 2009 U.S. Facility which was a condition of theestablishment of the DIP Credit Facility and the restricted availability andaccess to the European Facility leading to its termination in the secondquarter of 2009.  The decrease in 2008related to reduced accounts receivable and changes in the terms of the accountsreceivable facilities in both the U.S. and Europe.  Inventory decreased by $85 million in 2009 ascompared with an increase of $12 million in 2008.  The decrease in 2009 was primarily due tolower product costs, inventory reduction initiatives and lower demand.  The increase in 2008 was primarily due to theimpact of increases in the costs of raw material and packaging.  Accounts payable increased by $16 million in2009 and decreased by $25 million in 2008 primarily due to the timing of vendorpayments.  Liabilities subject tocompromise were affected by payments of $31 million against pre-petitionliabilities that were approved by the Bankruptcy Court.

 

During2009, our pension and post-retirement healthcare liabilities decreased by $26million, primarily due to contributions. Contributions amounted to $28 million in 2009, which include $15 millionfor domestic plans and $13 million for international plans.  During 2008, our pension and post-retirementhealthcare liabilities decreased by $46 million primarily due to contributions.  Contributions amounted to $42 million in2008, which included $22 million for domestic plans and $20 million forinternational plans.

 

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Netcash provided by operating activities in 2009 also reflected the impact ofvarious charges and changes in pre-existing reserves.  A summary of these items and the net impacton cash flows provided by (used in) operating activities is as follows:

 
| ** **                                     | ** ** | **Net Change per** | ** ** | ** **    | ** ** | ** **   | ** ** |
|------------------------------------------------|------------|--------------------|------------|---------------|------------|--------------|------------|
| ** **                                     | ** ** | **Consolidated**   | ** ** | **2009**      | ** ** | **2009**     | ** ** |
| ** **                                     | ** ** | **Statement of**   | ** ** | **Expense**   | ** ** | **Cash**     | ** ** |
| **(In millions)**                              | ** ** | **Cash Flows**     | ** ** | **(Benefit)** | ** ** | **Payments** | ** ** |
| Interest  payable                              |       | $                  | 25         |          | $          | 70           |       | $ | (45 | ) |
| Income  taxes payable                          |       | (28                | )          | 5             |       | (33          | )          |
| Facility  closure, severance and related costs |       | (22                | )          | 3             |       | (25          | )          |
| Antitrust  settlement costs                    |       | —             |       | 6             |       | (6           | )          |
| Environmental  liabilities                     |       | 11                 |       | 20            |       | (9           | )          |
| Management  incentive plans                    |       | 5                  |       | 9             |       | (4           | )          |
|                                                |            |                    |            |               |            |              |            |  |  |  |

 

Netcash provided by operating activities in 2009 also reflected the impact ofcertain non-cash charges, including $173 million of depreciation andamortization expense, $104 million in impairment charges, $73 million for changes inestimates related to expected allowable claims, $35 million ofreorganization items, net and $11 million related to other non-cash charges.

 

**Cash Flows from Investing andFinancing Activities**

 

Netcash used in investing activities was $58 million for 2009, which reflected netproceeds from prior year divestments of the oleochemicals and fluorinechemicals businesses of $3 million offset by $5 million of net cash paid asdeferred consideration for a prior year acquisition.  Additionally, capital expenditures for 2009amounted to $56 million as compared with $121 million for 2008 due to ourcontinuing effort to control discretionary cash expenditures and restrictionsunder our DIP Credit Facility. Expenditures were primarily related to U.S. and foreign facilities, theSAP project and environmental and other compliance requirements.

 

Net cash provided byfinancing activities was $173 million for 2009, which included proceeds fromthe DIP Credit Facility of $250 million, partially offset by payments of debtissuance costs on the DIP Credit Facility of $30 million, net repayments on the2007 Credit Facility of $28 million, and net payments on other borrowings of$19 million.

 

Dividendpayments totaled $36 million in 2008.  OnOctober 30, 2008, we announced that we would suspend the payment ofdividends to conserve cash and expand liquidity in a period of economicuncertainty. There were no dividend payments in 2009.

 

**ContractualObligations and Other Cash Requirements**

 

Wehave obligations to make future cash payments under contracts and commitments,including long-term debt agreements, lease obligations, environmental liabilities,antitrust settlements, post-retirement health care liabilities, facilityclosures, severance and related costs, and other long-term liabilities.

 

The following table summarizes our significantcontractual obligations and other cash requirements as of December 31,2009.  Payments associated withliabilities subject to compromise, except for those liabilities approved by theBankruptcy Court, have been excluded from the table below, as we cannotaccurately forecast the future amounts and timing of the payments given theinherent uncertainties associated with our Chapter 11 cases.

 

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| ** **                                                   | ** ** | ** ** | **Payments Due by Period** | ** ** |
|--------------------------------------------------------------|------------|------------|----------------------------|------------|
| **(In millions)**                                            | ** ** | ** ** | ** **                 | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | **2015 and** | ** ** |
| **Contractual  Obligations***                                | ** ** | ** ** | **Total**                  | ** ** | **2010** | ** ** | **2011** | ** ** | **2012** | ** ** | **2013** | ** ** | **2014** | ** ** | **Thereafter** | ** ** |
| Total  debt (including capital leases)                       | ** ** | **(a)**    | **$**                      | 254        | ** ** | **$** | 252 | ** ** | **$** | — | ** ** | **$** | 1 | ** ** | **$** | — | ** ** | **$** | 1 | ** ** | **$** | — |   |
| Operating  leases                                            | ** ** | **(b)**    | 79                         |       | 17 |   | 10 |   | 8 |   | 6 |   | 6 |   | 32 |   |
| Contractual  antitrust settlements                           | ** ** | **(c)**    | 6                          |       | 6 |   | — |   | — |   | — |   | — |   | — |   |
| Facility  closures, severance and related cost liabilities   | ** ** | **(d)**    | 4                          |       | 4 |   | — |   | — |   | — |   | — |   | — |   |
| Capital  expenditures                                        | ** ** | **(e)**    | 12                         |       | 12 |   | — |   | — |   | — |   | — |   | — |   |
| Interest  payments                                           | ** ** | **(f)**    | 29                         |       | 29 |   | — |   | — |   | — |   | — |   | — |   |
| Subtotal  - Contractual Obligations                          |       |       | 384                        |       | 320 |   | 10 |   | 9 |   | 6 |   | 7 |   | 32 |   |
| Environmental  liabilities                                   | ** ** | **(g)**    | 84                         |       | 14 |   | 18 |   | 11 |   | 8 |   | 6 |   | 27 |   |
| Post-retirement  health care liabilities                     | ** ** | **(h)**    | 17                         |       | 1 |   | 1 |   | 1 |   | 1 |   | 1 |   | 12 |   |
| Other  long-term liabilities (excluding pension liabilities) | ** ** | ** ** | 33                         |       | 2 |   | 7 |   | 3 |   | 3 |   | 1 |   | 17 |   |
| Total  cash requirements                                     |       |       | **$**                      | 518        | ** ** | **$** | 337 | ** ** | **$** | 36 | ** ** | **$** | 24 | ** ** | **$** | 18 | ** ** | **$** | 15 | ** ** | **$** | 88 |   |

 

----

*Additional information is provided in the Debt, Leases, Legal Proceedings andContingencies, Pension and Other Post-Retirement Plans, Restructuring and AssetImpairment Activities, and Income Taxes Notes to our Consolidated FinancialStatements.

 
| (a)    | Our  debt agreements include various bank loans and future minimum payments under  capital leases for which payments will be payable through 2014. As the  Amended and Restated DIP Credit Agreement was entered into in  February 2010, it is not reflected as an obligation as of  December 31, 2009. The future  minimum lease payments under capital leases at December 31, 2009 were  not significant. Obligations by period reflect stated contractual due dates.  Debt obligations in this table exclude $1.2 billion of liabilities subject to  compromise. |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
| (b)    | Represents  operating lease obligations primarily related to buildings, land and  equipment. Such obligations are net of future sublease income and will be  expensed over the life of the related lease contracts. Includes leases  renegotiated through the Chapter 11 cases that received Bankruptcy Court  approval.                                                                                                                                                                                                                                                           |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
| (c)    | Represents  final installment payments of fines provided in the settlement of U.S. and  Canadian antitrust cases, which received Bankruptcy Court approval. Under the  agreement reached with the U.S. and Canadian authorities, the amount of these  payments can increase if general unsecured creditors receive 62% or more of  their claims under the terms of the Plan confirmed by the Bankruptcy Court.                                                                                                                                                                     |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
| (d)    | Represents  estimated payments from accruals related to our cost reduction programs.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
| (e)    | Represents  capital commitments for various open projects.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
| (f)    | Represents  interest payments related to various debt agreements. Interest obligations in  the table exclude interest payable on $1.2 billion of debt obligations  classified as liabilities subject to compromise.                                                                                                                                                                                                                                                                                                                                                                |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
| (g)    | We  have environmental liabilities for future remediation and operating and  maintenance costs directly related to remediation. We estimate that the  environmental liability could range up to $164 million. We have recorded a  liability for environmental remediation of $122 million at December 31,  2009 of which $42 million is classified as liabilities subject to compromise.  Environmental liability obligations in the table exclude the $42 million  classified as liabilities subject to compromise.                                                          |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
| (h)    | We  have post-retirement health care plans that provide health and life insurance  benefits to certain retired and active employees and their beneficiaries.  These plans are generally not pre-funded and expenses are paid by us as  incurred, with the exception of certain inactive government related plans  that are paid from plan assets. Post-retirement health care liability  obligations in the table exclude $133 million of liabilities subject to  compromise.                                                                                                      |

 

During2009, we made payments of $31 million and $2 million for operating leases andunconditional purchase obligations, respectively.

 

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Wefund our defined benefit pension plans based on the minimum amounts required bylaw plus additional voluntary contribution amounts we deem appropriate.  Estimated future funding requirements arehighly dependent on factors that are not readily determinable.  These include changes in legislation, returnsearned on pension investment and other factors related to assumptions regardingfuture liabilities.  We made contributionsof $28 million in 2009 to our domestic and international pension andpost-retirement benefit plans (including payments made by us directly to planparticipants).  See “Critical AccountingEstimates” below for details regarding current pension assumptions.  To the extent that current assumptions arenot realized, actual funding requirements may be significantly different fromthose described below.  Applying theprovisions of the Pension Protection Act of 2006, we are not required tocontribute to the domestic qualified pension plans in 2010.  The following table summarizes the estimatedfuture funding requirements for defined benefit pension plans under currentassumptions:

 
| ** **                                     | ** ** | **Funding Requirements by Period** | ** ** |
|------------------------------------------------|------------|---------------------------------------------------|------------|
| **(In millions)**                         | ** ** | **2010**                                          | ** ** | **2011** | ** ** | **2012** | ** ** | **2013** | ** ** | **2014** | ** ** |
| Qualified domestic pension  plans              |       | $                                                 | —     |   | $ | 30 |   | $ | 56 |   | $ | 45 |   | $ | 42 |   |
| International and  non-qualified pension plans |       | 17                                                |       | 17 |   | 18 |   | 18 |   | 20 |   |
| Total pension plans                            |       | $                                                 | 17         |   | $ | 47 |   | $ | 74 |   | $ | 63 |   | $ | 62 |   |

 

##### **OtherSources and Uses of Cash**

 

##### **We expectto finance our continuing operations and capital spending requirements for 2010with cash flows provided by operating activities, available cash and cashequivalents, and borrowings under the Amended and Restated DIP Credit Agreementand other sources.  Cash and cash equivalentsas of December 31, 2009 were $236 million.**

##### ** **

##### **BankCovenants and Guarantees**

##### ** **

##### **On March 18,2009, the Debtors entered into a $400 million DIP Credit Facility arranged byCitigroup Global Markets Inc. with Citibank, N.A. as Administrative Agent.  On March 20, 2009, the Bankruptcy Courtentered an interim order providing approval for the Debtors to access $190million of the DIP Credit Facility in the form of a $165 million term loan anda $25 million revolving credit facility. The DIP Credit Facility closed on March 23, 2009 with the drawingof the $165 million term loan.  Theinitial proceeds were used to fund the termination of the 2009 U.S. Facility,pay fees and expenses associated with the transaction and fund business operations.**

##### ** **

##### **On April 28,2009, the Company, certain of our subsidiaries that are guarantors under theDIP Credit Facility, the banks, financial institutions and other institutionallenders party to the DIP Credit Facility (the “Lenders”), and Citibank, N.A.,as Administrative Agent for the Lenders, entered into Amendment No. 1 tothe DIP Credit Facility.  Amendment No. 1amended the DIP Credit Facility to provide for, among other things, (i) anincrease in the outstanding amount of inter-company loans the Debtors couldmake to our non-debtor foreign subsidiaries from $8 million to $40 million; (ii) areduction in the required level of borrowing availability under the minimumavailability covenant; and (iii) the elimination of the requirement to payadditional interest expense if a specified level of accounts receivablefinancing was not available to our European subsidiaries.  On April 29, 2009, the Bankruptcy Courtgranted final approval of the DIP Credit Facility, as amended pursuant toAmendment No. 1 thereto.**

##### ** **

##### **The DIPCredit Facility was comprised of the following: (i) a $250 million non-amortizing term loan; (ii) a $64million revolving credit facility; and (iii) an $86 million revolvingcredit facility representing the “roll-up” of certain outstanding securedamounts owed to lenders under the existing 2007 Credit Facility who havecommitments under the DIP Credit Facility. In addition, a sub-facility for letters of credit (“Letters of Credit”)in an aggregate amount of $50 million were available under the unusedcommitments of the revolving credit facilities.**

##### ** **

##### **TheBankruptcy Court entered a final order providing full access to the $400million DIP Credit Facility on April 29, 2009.  On May 4, 2009, we drew the $85 millionbalance of the $250 million term loan and used the proceeds together with cashon hand to fund the $86 million “roll up” of certain outstanding securedamounts owed to certain lenders under the 2007 Credit Facility as approved bythe final order.**

 

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##### **On July 13,2009, the Company and the parties to the DIP Credit Facility entered intoAmendment No. 2 to the DIP Credit Facility subject to approvals by theBankruptcy Court and our Board of Directors which approvals were obtained on July 14and July 15, 2009, respectively. Amendment No. 2 amended the DIP Credit Facility to provide for,among other things, our option to extend the maturity of the DIP CreditFacility for two consecutive three month periods subject to the satisfaction ofcertain conditions.  Prior to Amendment No. 2,the DIP Credit Facility matured on the earlier of 364 days (from the PetitionDate), the effective date of a Plan or the date of termination in whole of theCommitments (as defined in the DIP Credit Facility).**

##### ** **

##### **On January 15,2010, we entered into Amendment No. 3 of the DIP Credit Facility thatprovided for, among other things, the consent of our DIP lenders to the sale ofthe PVC additives business.**

##### ** **

##### **On February 9,2010, the Bankruptcy Court gave interim approval of the Amended and RestatedDIP Credit Agreement.  The Amended andRestated DIP Credit Agreement provides for a first priority and priming securedrevolving and term loan credit commitment of up to an aggregate of $450million.  The Amended and Restated DIPCredit Agreement consists of a $300 million term loan and a $150 millionrevolving credit facility.  The proceedsof the term loan and other financial accommodations incurred under the Amended andRestated DIP Credit Agreement were used to, among other things, refinance theobligations outstanding under the DIP Credit Facility and provide workingcapital for general corporate purposes. The Amended and Restated DIP Credit Agreement provided a substantialreduction in our financing costs through interest rate reductions and avoidanceof the extension fees that would have been payable under the DIP CreditFacility in February and May 2010. The Amended and Restated DIP Credit Agreement closed on February 12,2010 with the drawings of the $300 million term loan and**matures on the earlier of 364days after the closing, the effective date of a Plan or the date of terminationin whole of the Commitments (as defined in the Amended and Restated DIP CreditAgreement).

 

##### **The Amendedand Restated DIP Credit Agreement, as was the DIP Credit Facility, is securedby a super-priority lien on substantially all of our U.S. assets, including (i) cash,(ii) accounts receivable; (iii) inventory; (iv) machinery, plantand equipment; (v) intellectual property; (vi) pledges of the equityof first tier subsidiaries; and (vii) pledges of debt and otherinstruments.**

##### ** **

##### **Availabilityof credit under the Amended and Restated DIP Credit Agreement, as wasavailability under the DIP Credit Facility, is equal to (i) the lesser of (a) theBorrowing Base (as defined below) and (b) the effective commitments underthe DIP Credit Facility minus (ii) the aggregate amount of the DIP Loansand any undrawn or unreimbursed Letters of Credit.  Borrowing Base is the sum of (i) 80% ofthe Debtors’ eligible accounts receivable, plus (ii) the lesser of (a) 85%of the net orderly liquidation value percentage (as defined in the DIP CreditFacility) of the Debtors’ eligible inventory and (b) 75% of the cost ofthe Debtors’ eligible inventory, plus (iii) $275 million ($125 millionunder the DIP Credit Facility), less certain reserves determined in thediscretion of the Administrative Agent to preserve and protect the value of thecollateral.  As of December 31,2009, extensions of credit outstanding under the DIP Credit Facility consistedof the $250 million term loan and Letters of Credit of $19 million.**

##### ** **

##### **Borrowingsunder the DIP Credit Facility term loans and the $64 million revolving facilitybore interest at a rate per annum equal to, at our election, (i) 6.5% plusthe Base Rate (defined as the higher of (a) 4%; (b) Citibank N.A.’spublished rate; or (c) the Federal Funds rate plus 0.5%) or (ii) 7.5%plus the Eurodollar Rate (defined as the higher of (a) 3% or (b) thecurrent LIBOR rate adjusted for reserve requirements).  Borrowings under the $86 million revolvingfacility bear interest at a rate per annum equal to, at our election, (i) 2.5%plus the Base Rate or (ii) 3.5% plus the Eurodollar Rate.  Additionally, we paid an unused commitmentfee of 1.5% per annum on the average daily unused portion of the revolvingfacilities and a letter of credit fee on the average daily balance of themaximum daily amount available to be drawn under Letters of Credit equal to theapplicable margin above the Eurodollar Rate applicable for borrowings under theapplicable revolving 2007 Credit Facility. Certain fees were payable to the lenders upon the reduction ortermination of the commitment and upon the substantial consummation of a Planas described more fully in the DIP Credit Facility including an exit feepayable to the Lenders of 2% of “roll-up” commitments and 3% of all othercommitments.  These fees were paid uponthe funding of the term loan under the Amended and Restated DIP CreditAgreement.**

 

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Borrowings under the Amended and Restated DIP CreditAgreement term loan bear interest at a rate per annum equal to, at ourelection, (i) 3.0% plus the Base Rate (defined as the higher of (a) 3%;(b) Citibank N.A.’s published rate; or (c) the Federal Funds rateplus 0.5%) or (ii) 4.0% plus the Eurodollar Rate (defined as the higher of(a) 2% or (b) the current LIBOR rate adjusted for reserverequirements).  Borrowings under the $150million revolving facility bear interest at a rate per annum equal to, at ourelection, (i) 3.25% plus the Base Rate or (ii) 4.25% plus theEurodollar Rate.  Additionally, we pay anunused commitment fee of 1.0% per annum on the average daily unused portion ofthe revolving facilities and a letter of credit fee on the average dailybalance of the maximum daily amount available to be drawn under Letters ofCredit equal to the applicable margin above the Eurodollar Rate applicable forborrowings under the applicable revolving 2007 Credit Facility.

 

##### **Ourobligations as borrower under the Amended and Restated DIP Credit Agreement, asthey were under the DIP Credit Facility, are guaranteed by our U.S.subsidiaries who are Debtors in the Chapter 11 cases, which own substantiallyall of our U.S. assets.  The obligationsmust also be guaranteed by each of our subsidiaries that become party to theChapter 11 cases, subject to specified exceptions.**

##### ** **

##### **All amountsowing by us and the guarantors under the Amended and Restated DIP CreditAgreement and certain hedging arrangements and cash management services, asthey were under the DIP Credit Facility, are secured, subject to a carve-out asset forth in the Amended and Restated DIP Credit Agreement (the “Carve-Out”),for professional fees and expenses (as well as other fees and expensescustomarily subject to such Carve-Out), by (i) a first priority perfectedpledge of (a) all notes owned by us and the guarantors and (b) allcapital stock owned by us and the guarantors (subject to certain exceptionsrelating to their respective foreign subsidiaries) and (ii) a firstpriority perfected security interest in all other assets owned by us and theguarantors, in each case, junior only to liens as set forth in the Amended andRestated DIP Credit Agreement and the Carve-Out.**

##### ** **

##### **The Amendedand Restated DIP Credit Agreement, as did the DIP Credit Facility, requiresthat we meet certain financial covenants including the following: (a) minimumcumulative monthly earnings before interest, taxes, and depreciation (“EBITDA”),after certain adjustments, on a consolidated basis; (b) a maximum varianceof the weekly cumulative cash flows of the Debtors, compared to an agreed uponforecast; (c) minimum borrowing availability of $20 million; and (d) maximumquarterly capital expenditures.  Inaddition, the Amended and Restated DIP Credit Agreement contains covenantswhich, among other things, limit the incurrence of additional debt, operatingleases, issuance of capital stock, issuance of guarantees, liens, investments,disposition of assets, dividends, certain payments, mergers, change ofbusiness, transactions with affiliates, prepayments of debt, repurchases ofstock and redemptions of certain other indebtedness and other matterscustomarily restricted in such agreements. As of December 31, 2009, we were in compliance with the covenantrequirements of the DIP Credit Facility.**

##### ** **

##### **The Amendedand Restated DIP Credit Agreement contains events of default triggered upon,among others things, payment defaults, breaches of representations andwarranties, and covenant defaults.**

 

Wehave standby letters of credit and guarantees with various financial institutionsthe majority of which were issued under the 2007 Credit Facility.  Any additional drawings of letter of creditsissued under the 2007 Credit Facility will be classified as liabilities subjectto compromise in the Consolidated Balance Sheet.  At December 31, 2009, we had $52 millionof outstanding letters of credit and guarantees primarily related toliabilities for environmental remediation, vendor deposits, insuranceobligations and European value added tax obligations.  The outstanding letters of credit include $33million issued under the 2007 Credit Facility that are pre-petition liabilitiesand $19 million issued under the DIP Credit Facility letter of creditsub-facility.  We also had $17 million ofthird party guarantees at December 31, 2009 for which we have reserved $2million at December 31, 2009, which represents the probability weightedfair value of these guarantees.

 

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**RESULTS OFOPERATIONS**

 
| **(In millions, except per share data)** | ** ** | **2009**   | ** ** | **2008** | ** ** | **2007** | ** ** |
|-------------------------------------------------------------------|------------|------------|------------|----------|------------|----------|------------|
| **Net Sales**                                                     | ** ** | ** ** |       |     |       |     |       |
| Consumer Performance  Products                                    | ** ** | **$**      | **457**    |     | $          | 516      |       | $ | 567 |   |
| Industrial Performance  Products                                  | ** ** | **999**    |       | 1,465    |       | 1,513    |       |
| Crop Protection Engineered  Products                              | ** ** | **332**    |       | 394      |       | 352      |       |
| Industrial Engineered  Products                                   | ** ** | **753**    |       | 1,171    |       | 1,315    |       |
| **Net Sales**                                                     | ** ** | **$**      | **2,541**  |     | $          | 3,546    |       | $ | 3,747 |   |
|                                                              | ** ** | ** ** |       |     |       |     |       |
| **Operating  Profit (Loss)**                                      | ** ** | ** ** |       |     |       |     |       |
| Consumer Performance  Products                                    | ** ** | **$**      | **63**     |     | $          | 50       |       | $ | 62 |   |
| Industrial Performance  Products                                  | ** ** | **91**     |       | 105      |       | 140      |       |
| Crop Protection Engineered  Products                              | ** ** | **42**     |       | 78       |       | 58       |       |
| Industrial Engineered  Products                                   | ** ** | **(11**    | **)**      | 17       |       | 36       |       |
| **Segment  Operating Profit**                                     | ** ** | **185**    |       | 250      |       | 296      |       |
| ** **                                                        | ** ** | ** ** |       |     |       |     |       |
| General corporate expense  including amortization                 | ** ** | **(95**    | **)**      | (98      | )          | (92      | )          |
| Change in useful life of  property, plant and equipment           | ** ** | **—** |       | (32      | )          | (40      | )          |
| Facility closures,  severance and related costs                   | ** ** | **(3**     | **)**      | (26      | )          | (36      | )          |
| Antitrust costs                                                   | ** ** | **(10**    | **)**      | (12      | )          | (35      | )          |
| Loss on sale of businesses                                        | ** ** | **—** |       | (25      | )          | (15      | )          |
| Impairment of long-lived  assets                                  | ** ** | **(104**   | **)**      | (986     | )          | (19      | )          |
| Changes in estimates related  to expected allowable claims        | ** ** | **(73**    | **)**      | —   |       | —   |       |
| **Total  Operating (Loss) Profit**                                | ** ** | **(100**   | **)**      | (929     | )          | 59       |       |
|                                                              | ** ** | ** ** |       |     |       |     |       |
| Interest expense                                                  | ** ** | **(70**    | **)**      | (78      | )          | (87      | )          |
| Other (expense) income, net                                       | ** ** | **(17**    | **)**      | 9        |       | (5       | )          |
| Reorganization items, net                                         | ** ** | **(97**    | **)**      | —   |       | —   |       |
|                                                              | ** ** | ** ** |       |     |       |     |       |
| Loss from continuing operations  before income taxes              | ** ** | **(284**   | **)**      | (998     | )          | (33      | )          |
| Income tax (provision)  benefit                                   | ** ** | **(5**     | **)**      | 27       |       | (4       | )          |
|                                                              | ** ** | ** ** |       |     |       |     |       |
| Loss from continuing  operations                                  | ** ** | **(289**   | **)**      | (971     | )          | (37      | )          |
| Earnings from discontinued  operations, net of tax                | ** ** | **—** |       | —   |       | 18       |       |
| (Loss) gain on sale of  discontinued operations, net of tax       | ** ** | **(3**     | **)**      | —   |       | 24       |       |
| **Net (loss)  earnings**                                          | ** ** | **(292**   | **)**      | (971     | )          | 5        |       |
| Less: net earnings  attributable to non-controlling interests     | ** ** | **(1**     | **)**      | (2       | )          | (8       | )          |
| **Net loss  attributable to Chemtura Corporation**                | ** ** | **$**      | **(293**   | **)**    | $          | (973     | )          | $ | (3 | ) |

 
| **EARNINGS (LOSS) PER SHARE - BASIC  AND DILUTED - ATTRIBUTABLE TO CHEMTURA CORPORATION:** | ** ** | ** ** | ** ** | ** ** |   |   |   |   |   |   |
|--------------------------------------------------------------------------------------------|------------|------------|------------|------------|--------|--------|--------|--------|--------|--------|
| Loss from continuing  operations                                                           | ** ** | **$**      | **(1.19**  | **)**      | $      | (4.01  | )      | $      | (0.18  | )      |
| Earnings from discontinued  operations                                                     | ** ** | **—** |       | —     |   | 0.07   |   |
| (Loss) gain on sale of  discontinued operations                                            | ** ** | **(0.01**  | **)**      | —     |   | 0.10   |   |
| **Net loss  attributable to Chemtura Corporation**                                         | ** ** | **$**      | **(1.20**  | **)**      | $      | (4.01  | )      | $      | (0.01  | )      |

 

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**2009 COMPARED TO 2008**

 

**Overview**

 

Consolidatednet sales of $2.5 billion for 2009 were $1 billion lower than the prioryear.  The decrease in net sales wasattributable to reduced sales volumes of $912 million primarily due to theglobal economic slow down and its impact on the industries we supply,unfavorable currency translation of $46 million, the impact of the divestitureof the oleochemicals business in the Industrial Engineered Products segment of$31 million and reduced selling prices of $16 million.  The reduction in volume impacted allsegments, particularly the Industrial Performance Products and the IndustrialEngineered Products segments.  Allsegments experienced a reduction in selling prices, except for the ConsumerPerformance Products segment.  Sellingprice increases that occurred in 2008 within the Consumer Performance Productssegment were in response to increases in the costs of raw materials.

 

Grossprofit decreased by $142 million to $594 million for 2009 as compared with2008.  The decrease in gross profit wasprimarily driven by a $256 million reduction in sales volume and unfavorableproduct mix, $28 million from unfavorable manufacturing costs (largely due tolower plant utilization), $16 million from lower selling prices, $9 million inunfavorable foreign currency translation, a $5 million benefit in 2008 frominsurance proceeds and other decreases in costs of $1 million.  These impacts were partially offset by a $142million decrease in raw material and energy costs, $22 million in lowerdistribution costs, a $7 million charge in 2008 for an assumed lease and a $2million reduction in accelerated asset retirement obligations.  Gross profit as a percentage of salesincreased to 23% in 2009 from 21% in 2008 mainly due to lower direct productcosts.

 

Selling,general and administrative (“SG&A”) expense of $293 million for 2009 was$39 million lower than in 2008.  Thedecrease in SG&A reflected the favorable benefit of our restructuringprograms and tight control of discretionary spending.  Favorable foreign currency translationcontributed $7 million to the reduction, which was offset by the benefit of a$4 million pension plan curtailment gain in 2008.

 

Depreciationand amortization expense of $173 million for 2009 was $64 million lower than in2008.  This decrease is primarily due toaccelerated depreciation taken in 2008 related to the divested oleochemicalsbusiness and our legacy enterprise resource planning (“ERP”) systems.

 

Researchand development (“R&D”) expense of $38 million for 2009 was $13 millionlower than in 2008 as a result of cost reduction initiatives.

 

Facilityclosure, severance and related costs of $3 million in 2009 and $26 million in2008 were primarily due to our restructuring program announced in December 2008which involved a worldwide reduction in our professional and administrativestaff of approximately 500 people.

 

Weincurred antitrust costs of $10 million in 2009, which primarily represented ajudgment in litigation related to certain rubber chemical claimants and legalcosts associated with antitrust investigations and civil lawsuits.  Antitrust costs of $12 million in 2008 wereprimarily related to settlement offers made to certain rubber chemicalclaimants and legal costs associated with antitrust investigations and civillawsuits.

 

Losson sale of business of $25 million in 2008 was primarily related to the sale ofthe oleochemicals business.

 

Werecorded a charge of $104 million in 2009 for the impairment of long-livedassets.  The 2009 charge included theimpairment of goodwill of $37 million for the Consumer Performance Productssegment, and the impairment of property, plant and equipment and intangiblesassets of $53 million and $14 million, respectively, for the polyvinyl chloride(“PVC”) additives business, a component of the Industrial Engineered Productssegments.  The impairment charges wereprincipally the result of underperformance of the reporting units in thesesegments contributed by weaker industry demand due to the global economicrecession.  These factors resulted inreduced expectations for future cash flows and lower estimated fair values forthe respective assets.

 

Werecorded a charge of $986 million in 2008 for the impairment of long-livedassets.  The 2008 charge included theimpairment of goodwill of $540 million for the Consumer Performance Productssegment, $82 million for the Industrial Performance Products segment and $363million for the Industrial Engineered Products segment.  The impairment charges were primarily theresult of updated long-term financial projections and the deterioratingfinancial performance in the fourth quarter of 2008, coupled with adverseequity market conditions.

 

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Weincurred charges of $73 million for changes in estimates related to expectedallowable claims.  These chargesrepresent adjustments to liabilities subject to compromise (primarily legal andenvironmental reserves) as a result of the proofs of claim evaluation process.

 

Weincurred an operating loss of $100 million for 2009 compared with an operatingloss of $929 million for 2008.  Thedecrease in the operating loss of $829 million reflected the $882 milliondecrease in impairment of long-lived assets, primarily due to the goodwillimpairment in 2008; a $64 million decrease in depreciation and amortizationexpense, primarily due to accelerated depreciation taken in 2008; a $52 milliondecrease in SG&A and R&D (“SGA&R”) expenses due to the benefits ofour restructuring and other cost reduction initiatives; a $25 million loss onthe sale of the oleochemicals business in 2008; a $23 million decrease infacility closures, severance and related costs; and a $2 million decrease inantitrust costs.  These favorable impactswere partially offset by a $142 million decrease in gross profit discussedabove, a $73 million charge in 2009 for changes in estimates related to expectedallowable claims and $4 million in lower equity income.

 

Lossfrom continuing operations attributable to Chemtura for 2009 was $290 million,or $1.19 per diluted share, as compared with a loss of $973 million, or $4.01per diluted share in 2008.

 

**Consumer Performance Products**

 

Netsales for the Consumer Performance Products segment decreased by $59 million to$457 million in 2009 compared with $516 million in 2008.  Operating profit increased $13 million in2009 to $63 million compared with $50 million in 2008.

 

The$59 million decrease in net sales was driven by reduced sales volume of $89million and the impact of unfavorable foreign currency translation of $8million, partially offset by $38 million in price increases in response tosignificant raw material cost increases experienced in 2008.  The lower net sales volume in 2009 was theresult of unseasonably cold and wet weather conditions in the North Americanmarket which negatively impacted the pool and spa business, the exit from ourpool and spa distribution business in mid-2008 and supply disruptions due toconstrained liquidity early in the 2009 season which negatively impacted salesin our home cleaning business.

 

Operatingprofit increased by $13 million due to higher selling prices of $38 million,and the benefit of cost reductions, including $9 million in lower raw materialand energy costs, a $7 million reduction in distribution costs and a $20million decrease in SGA&R and other costs. As part of our reorganization initiatives, in the U.S., this segmenttransitioned to third party providers to reduce its distribution costs andimprove customer service.  In September 2009,the U.S. operations also transitioned to a single instance of SAP and retiredthe legacy ERP system.  These costreduction benefits were partially offset by a $46 million reduction in salesvolume and unfavorable product mix combined with an $11 million increase inmanufacturing costs, a $3 million increase in accelerated depreciation expenseand a $1 million impact from unfavorable foreign currency translation.

 

**Industrial Performance Products**

 

Netsales in the Industrial Performance Products segment decreased by $466 millionto $999 million in 2009 compared with $1,465 million in 2008.  Operating profit decreased $14 million in2009 to $91 million compared with $105 million in 2008.

 

The$466 million decrease in net sales resulted from reduced sales volume of $414million, $36 million in lower selling prices and $16 million in unfavorableforeign currency translation.  Allproduct lines experienced reduced sales volumes year-over-year due to theglobal economic recession, although demand improved during the second half of2009.  The lower sales prices in 2009reflect corresponding reductions in raw material costs.

 

Thissegment’s product lines that are mostly exposed to cyclical industrial andconsumer durable markets felt the brunt of the global economic recession.  Antioxidant products used in poly-olefinssuch as poly-propylene saw dramatic declines in volume starting in the latterpart of the fourth quarter of 2008 and through much of the first half of2009.  Castable urethane products used bysmall to mid-size manufacturers of industrial components and in the electronicsand mining industries also saw significant declines in demand.  However, the sale of petroleum additives usedin transportation lubricants and fuels proved more robust, recovering to nearnormal levels after some industry destocking at the start of the globaleconomic recession.  Industrial demandstarted to show modest recovery by summer and continued to expand in the secondhalf of 2009, but is still significantly lower than it was before the globaleconomic recession.

 

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Operatingprofit decreased by $14 million due to a $106 million reduction in sales volumeand unfavorable product mix, a $36 million decrease in selling prices, a $1million increase in accelerated depreciation of property, plant and equipmentand a $1 million decrease in equity income. These unfavorable drivers were partially offset by an $84 milliondecrease in raw material and energy costs, a $16 million decrease in SGA&R,an $11 million decrease in manufacturing costs, an $8 million decrease indistribution costs, a $2 million decrease in accelerated recognition of assetretirement obligations, a $2 million benefit from favorable foreign currencytranslation and a $7 million decrease in other costs.  This segment acted quickly at the outset ofthe global economic recession, to manage its production capacity and make fixedcosts variable, mitigating some of the impact of the declines in demand.  However, it preserved spending on criticalnew product development programs to enable it to continue to build a platformfor future growth.

 

**Crop Protection Engineered Products**

 

Netsales for the Crop Protection Engineered Products segment decreased by $62million to $332 million in 2009 compared with $394 million in 2008.  Operating profit decreased $36 million to $42million in 2009 compared with $78 million in 2008.

 

Thedecrease in net sales of $62 million reflected $47 million in lower salesvolume and $15 million in unfavorable foreign currency translation.  2009 proved to be a difficult and challengingyear for the global agricultural industry. Crop prices declined reducing grower profitability and constraints inthe global credit markets limited the capacity of growers to finance theircrops.  In addition, there was a productcancellation in the European market.  Asa result, global demand from growers declined and dealers and distributorsreduced inventory, particularly in emerging markets.  This segment saw the greatest weakness ineastern European markets, although demand was soft in all markets.  The Latin American market experienced a slowstart to the growing season, but demand from Brazil strengthened in the middleof the southern hemisphere’s summer.

 

Operatingprofit decreased by $36 million primarily due to $24 million of lower volumeand unfavorable product mix, $11 million in higher manufacturing costs, $3million due to higher raw material costs, $3 million in unfavorable foreigncurrency translation and $1 million of increased distribution costs, which werepartly offset by $6 million of SGA&R and other cost reductions.  Demand has been affected by loweragricultural commodity prices and the impact of the reduced availability ofcredit to growers.  Manufacturing costsincreased primarily due to lower production levels, driven in part by theproduct cancellation in the European market.

 

**Industrial Engineered Products**

 

Netsales in the Industrial Engineered Products segment decreased by $418 millionto $753 million in 2009 compared with $1,171 million in 2008.  The operating loss of $11 million in 2009reflected a deterioration of $28 million compared with a $17 million operatingprofit in 2008.

 

Thedecrease in net sales of $418 million reflected a decline in sales volume of$364 million, a $31 million reduction in sales volume due to the divestiture ofthe oleochemicals business in February 2008, a $17 million reduction inselling prices which reflect corresponding reductions in raw material costs and$6 million in unfavorable foreign currency translation.

 

Asour most cyclically exposed segment, Industrial Engineered Products experiencedthe greatest impact from the global economic recession.  The primary industries served by this segmentare electronics, building and construction, automotive and consumer durables.  All industries experienced very sharpdeclines in demand in the latter part of the fourth quarter of 2008 whichcontinued through the spring of 2009.  Bysummer, electronics demand started to recover benefiting the segment’s flameretardant product line.  This recoverycontinued throughout the balance of the year. While demand from other industries stabilized by the summer, recoveryhas been very slow.  The building andconstruction industry, which is the primary industry for the segment’s PVCadditives products and utilizes flame retardant products, remained weak.  The organometallics product line with morespecialized application experienced a smaller impact from the global recessionand continued to develop new applications for its products.

 

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Thedeterioration in operating profit of $28 million in 2009 reflected an $80million reduction due to lower volume and unfavorable product mix, $18 millionin unfavorable manufacturing costs (primarily due to lower plant utilization),$17 million in decreased selling prices, a $3 million decrease in equity incomeand $1 million in unfavorable foreign currency translation.  This segment also acted quickly at the outsetof the global economic recession, to manage its production capacity and reducefixed manufacturing costs, mitigating some of the impact of the declines indemand.  However, it preserved spendingon critical new product development programs to enable it to continue to builda platform for future growth. These decreases in operating profit werepartially offset by a $53 million decrease in raw material and energy costs, a$14 million reduction in accelerated depreciation of certain assets, an $11million benefit from lower SGA&R, an $8 million reduction in distributioncosts and $5 million of other cost reductions.

 

**GeneralCorporate**

 

Generalcorporate expense includes costs and expenses that are of a general nature ormanaged on a corporate basis.  Thesecosts primarily represent corporate administration services net of costsallocated to the business segments, costs related to corporate headquarters,management compensation plan expenses related to executives and corporatemanagers and worldwide amortization expense. Functional costs are allocated between the business segments and generalcorporate expense.

 

Generalcorporate expense was $95 million for 2009, which included $39 million ofamortization expense related to intangibles, compared with $98 million for2008, which included $45 million of amortization expense.

 

Thedecrease in general corporate expense of $3 million was primarily driven by a$9 million reduction in depreciation and amortization expense (amortizationexpense in 2008 included a $4 million charge related to the acceleration ofamortization of the intangible value of our discontinued Sun® brand productline) and a $7 million charge in the first quarter of 2008 related to anassumed lease.  These decreases were partiallyoffset by a $5 million benefit in 2008 related to the recovery of insuranceproceeds; $4 million in higher pension and other post-retirement benefit plancosts; and a $4 million pension plan curtailment gain in 2008.

 

Corporateaccelerated deprecation of property, plant and equipment included a charge of$32 million in 2008 primarily related to our project to upgrade our legacy ERPsystems to a single instance of SAP.

 

**OtherExpenses**

 

Interestexpense of $70 million in 2009 was $8 million lower than 2008.  Lower interest expense from not recordingcontractual interest expense on unsecured debt as a result of the Chapter 11filing was partially offset by an increase due to borrowings under the DIPCredit Facility at higher interest rates than our pre-petition debt.

 

Otherexpense, net was $17 million in 2009 compared with other income, net of $9million in 2008.  The increase in expenseis primarily due to losses from unfavorable foreign exchange impacts of $48million, primarily resulting from our inability to purchase foreign currency forwardcontracts under the terms of our DIP Credit Facility, partially offset by lowerfees of $14 million associated with the termination of our accounts receivablefinancing facilities and fees of $6 million in 2008 associated with the 2007Credit Facility amendment and waiver.

 

**Reorganization items, net of $97 million represented items realized orincurred by us related to our reorganization under Chapter 11.  Reorganization items, net during 2009included professional fees directly associated with the reorganization; thewrite-off of debt discounts, premiums and debt issuance costs; the write-off ofdeferred financing expenses related to the termination of the 2009 U.S.Facility; rejections or terminations of executory contracts and real propertyleases; gains on the settlement of claims; and reorganization initiatives forwhich Bankruptcy Court approval had been obtained.**

** **

**Income Taxes**

** **

Ourincome tax expense in 2009 was $5 million compared with a benefit of $27million in 2008.  The 2009 income taxexpense included an increase to our valuation allowance and the impact of adecrease in the liability for an unrecognized tax benefit of $9 million as aresult of the expiration of the statute of limitation, bankruptcy claimsadjustments and favorable audit settlements or payments related to the prioryears.  We provided a full valuationallowance against the tax benefit associated with our U.S. net operatingloss.  The 2008 income tax benefitincluded the impact of a goodwill impairment charge and the increase of avaluation allowance against our deferred tax assets.

 

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**Discontinued Operations**

 

Theloss on sale of discontinued operations in 2009 was $3 million (net of $1million of tax), which represented an adjustment for a loss contingency relatedwith the sale of the OrganoSilicones business in July 2003.

 

**2008COMPARED TO 2007**

 

**Overview**

 

Consolidatednet sales of $3.5 billion for 2008 were $201 million lower than in 2007.  Net sales decreased by $227 million due tolower volume and $205 million due to business divestitures (oleochemicals andorganic peroxides businesses and the Celogen®, Diamond, and Terraclor product lines),which were partially offset by $159 million in increased selling prices, $52million in favorable foreign currency translation and $20 million from theKaufman Holdings Corporation (“Kaufman”) acquisition in the first quarter of2007.

 

Grossprofit decreased by $128 million to $736 million for 2008 as compared with2007.  Gross profit as a percentage ofsales declined to 21% in 2008 from 23% in 2007. The decrease in gross profit reflected a $205 million impact fromincreased raw material and energy costs, $41 million in lower volume, $30million in unfavorable manufacturing costs and $11 million in other costincreases.  These unfavorable factorswere partially offset by $159 million in higher selling prices.  Unfavorable manufacturing costs were primarilydriven by temporary plant closures during the fourth quarter of 2008.

 

SG&Aexpense of $332 million for 2008 was $40 million lower than in 2007.  This decrease is primarily due to the impactof our restructuring program that was announced in June 2007 and othercost reduction initiatives.

 

Depreciationand amortization expense of $237 million for 2008 was $32 million lower than in2007.  This decrease is primarily due toa net reduction in accelerated depreciation of property, plant and equipment of$23 million.  In 2007, accelerateddepreciation was related to the closure of certain antioxidant manufacturingfacilities in Europe and in 2008 it was principally related to theoleochemicals business which was sold in the first quarter of 2008.

 

R&Dexpense of $51 million for 2008 was $11 million lower than in 2007 as a resultof cost reduction initiatives.

 

Facilityclosure, severance and related costs for 2008 were $26 million, which was dueprimarily to our restructuring program announced in December 2008.  The 2007 costs of $36 million were primarilyseverance costs related to our 2007 cost savings initiatives.

 

Weincurred antitrust costs of $12 million in 2008 compared with $35 million in2007.  Antitrust costs for 2008 wereprimarily related to settlement offers made to certain rubber chemicalclaimants and legal costs associated with antitrust investigations and civillawsuits.  Antitrust costs for the sameperiod in 2007 primarily represented settlement offers made to certain urethaneand rubber chemicals claimants, indirect case claimants, securities classaction plaintiffs and legal costs associated with the antitrust investigationsand civil lawsuits.

 

Losson sale of business of $25 million in 2008 was primarily related to the sale ofthe oleochemicals business.  The loss onsale of business of $15 million in 2007 was primarily related to the sale ofthe Celogen® product line.

 

Theimpairment of long-lived assets of $986 million in 2008 was primarily relatedto reducing the carrying value of goodwill in our Consumer PerformanceProducts, Industrial Performance Products and Industrial Engineered Productssegments.  The impairment of long-livedassets was $19 million in 2007.  Includedin this charge was $9 million related to our Ravenna, Italy facility, $4million related to facilities affected by the 2007 restructuring programs, $3million related to the sale of the Marshall, Texas facility and $3 millionrelated to our legacy ERP systems.

 

Weincurred an operating loss of $929 million for 2008 compared with an operatingprofit of $59 million for 2007.  Thedecrease in operating profit reflected a $967 million increase in impairment oflong-lived assets (2008 included a $985 million impairment of goodwill associatedwith the Consumer Performance Products, Industrial Performance Products andIndustrial Engineered Products segments), a $128 million decrease in grossprofit discussed above and a $10 million increase in loss on sale ofbusiness.  These unfavorable impacts werepartially offset by a $51 million decrease in SGA&R expenses due to savingsfrom the 2007 restructuring program and cost-reduction initiatives, a $32million decrease in depreciation and amortization, a $23 million decrease inantitrust costs, a $10 million decrease in facility closures, severance andrelated costs and $1 million in higher equity income.

 

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Lossfrom continuing operations attributable to Chemtura Corporation for 2008 was$973 million, or $4.01 per diluted share, as compared to a loss of $45 million,or $0.18 per diluted share, for 2007.

 

**ConsumerPerformance Products**

 

TheConsumer Performance Products segment reported net sales of $516 million for2008, compared with $567 million for 2007. Operating profit was $50 million for 2008, which reflected a decrease of$12 million compared with $62 million in 2007.

 

Thenet sales decrease of $51 million was due to a $72 million decrease in salesvolume, partially offset by improvements in selling prices of $14 million andfavorable foreign currency translation of $7 million.  The loss in volume during 2008 isattributable to lower volume of distributor sales, following the decision to terminatesales through this channel, lower dealer and international sales due to acombination of poor weather conditions and constrained consumer spending,partially offset by higher sales in the mass market channel.

 

Thereduction in operating profit was primarily driven by $35 million in lowervolume, $10 million of higher raw material costs and $2 million fromunfavorable manufacturing costs.  Thesedecreases in operating profit were partly offset by a $14 million increase inselling prices, a $9 million reduction in the cost of marketing programs, a $7million reduction in corporate charges, a $4 million reduction in distributioncosts and $1 million from foreign currency translation.

 

**IndustrialPerformance Products**

 

Netsales in the Industrial Performance Products segment of $1.5 billion for 2008decreased by $48 million as compared with 2007. Operating profit decreased $35 million to $105 million compared with$140 million in 2007.

 

Thenet sales decrease of $48 million was due to a $112 million decrease in volumeand a $52 million decrease related to divestitures partially offset by an $80million benefit from higher selling prices, $20 million from the first quarter2007 acquisition of Kaufman, and a $16 million benefit related to favorableforeign currency translation.

 

Thereduction in operating profit reflected raw material cost increases of $89million, a $20 million impact from lower volume, increased manufacturing costsof $9 million and higher distribution costs of $6 million. These unfavorablefactors were partially offset by $80 million from higher selling prices, a $5million reduction in corporate charges, and a $4 million increase due to theKaufman acquisition.

 

**CropProtection Engineered Products**

 

Netsales for the Crop Protection Engineered Products segment were $394 million for2008, an increase of $42 million over 2007. Operating profit of $78 million increased by $20 million compared with$58 million in 2007.

 

Theincrease in net sales reflected an increase of $44 million from organic volumegrowth primarily due to increased demand for products across Europe and an $8million benefit from foreign currency translation, offset by $3 million inreduced selling prices and $7 million due to the sale of certain product lines.

 

Theincrease in operating profit was primarily driven by $19 million in highervolume and favorable product mix, $4 million from lower manufacturing costs, $3million from reduced R&D project spending, $3 million from reducedcorporate charges, $2 million due to favorable foreign currency translation, a$1 million reduction in provision for doubtful accounts and a net reduction of$4 million from other cost savings programs. These favorable factors were partly offset by the product linedivestitures that reduced operating profit by $6 million, increased rawmaterials costs of $4 million, distribution cost increases of $3 million, and a$3 million decrease in selling prices.

 

**IndustrialEngineered Products**

 

Netsales for the Industrial Engineered Products segment of $1.2 billion in 2008decreased by $144 million compared with 2007. Operating profit of $17 million for 2008 decreased $19 million comparedwith $36 million for 2007.

 

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Thedecrease in net sales reflected a $145 million reduction resulting from thedivestiture of the oleochemicals business and the organic peroxides productline, and a decrease in volume of $86 million related primarily to the flameretardants and PVC additives product lines. These reductions were partially offset by a $67 million increase due toimprovements in selling prices primarily to recover higher raw material andenergy costs, and $20 million of favorable foreign currency translation.

 

Operatingprofit reflected the impact of $102 million in raw material and energy costincreases, $19 million of increased manufacturing costs, $6 million related todivestitures and $4 million from lower volume and unfavorable product mix.  These decreases in operating profit werepartially offset by $67 million from increased selling prices, a $16 millionreduction in accelerated depreciation of certain assets, $7 million reductionin corporate charges, $7 million from lower SG&A expenditures, $7 millionof favorable currency translation, $4 million from lower distribution costs, $3million in reduced R&D spending and a $1 million increase in equity income.

 

**GeneralCorporate**

 

Generalcorporate expense was $98 million for 2008, which included $45 million ofamortization expense related to intangibles, compared with $92 million for2007, which included $40 million of amortization expense.

 

Amortizationexpense in 2008 included a $4 million charge related to the acceleration ofamortization of the intangible value of our discontinued Sun® brand productline.  The remaining increase incorporate expense of $2 million was primarily due to a $7 million chargerelating to an assumed lease, a $4 million benefit in 2007 from the sale of anoffice lease and a $1 million pension settlement in Canada.  These increases were offset by a $5 millioncurtailment gain due to the decision to eliminate future earnings benefits ofparticipants in certain international pension plans and a $5 million benefitrelated to the recovery of insurance proceeds.

 

Corporateaccelerated deprecation of property, plant and equipment included a charge of$32 million in 2008 and $40 million in 2007 primarily related to our project toupgrade our legacy ERP systems to a single instance of SAP and ourrestructuring programs.

 

**OtherExpenses**

 

Interestexpense of $78 million for 2008 was $9 million lower than in 2007.  The decrease was primarily due to loweraverage borrowings.

 

Otherincome, net was $9 million in 2008 compared with $5 million of expense in2007.  The $14 million increase in incomereflected an increase in favorable foreign currency gains of $14 million, lowercosts associated with the accounts receivable facilities of $5 million and anincrease in interest income of $1 million, partially offset by $6 million offees and expenses associated with the 2007 Credit Facility amendment and waiverin December 2008.

 

**Income Taxes**

** **

Ourincome tax benefit from continuing operations was $27 million in 2008 comparedwith tax expense of $4 million in 2007, an increase in tax benefit of $31million.  This change is principally dueto the mix of domestic versus foreign earnings, a book based goodwillimpairment charge and the increase of a valuation allowance against ourdeferred tax assets.

 

**Discontinued Operations**

** **

Gainon sale of discontinued operations in 2007 was $24 million (net of $13 millionof tax).  The gain included $23 millionrelated to the sale of the EPDM business and $2 million related to the finalcontingent earn-out proceeds related to the sale of the OrganoSiliconesbusiness, partially offset by a loss of $1 million from the sale of the opticalmonomers business.

 

Earningsfrom discontinued operations in 2007 was $18 million (net of $9 million oftax), which reflected the operations of the EPDM, fluorine and optical monomersbusinesses that were subsequently sold.

 

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# **CRITICAL ACCOUNTING ESTIMATES**

#  

OurConsolidated Financial Statements have been prepared in conformity withaccounting principles generally accepted in the United States, which require usto make estimates and assumptions that affect the amounts and disclosuresreported in the Consolidated Financial Statements and accompanying notes.  Accounting estimates and assumptionsdescribed in this section are those we consider to be the most critical to anunderstanding of our financial statements because they inherently involvesignificant judgments and uncertainties. For all of these estimates, we note that future events rarely developexactly as forecast, and the best estimates routinely require adjustment.  Actual results could differ from suchestimates.  The following paragraphssummarize our critical accounting estimates. Significant accounting policies used in the preparation of ourConsolidated Financial Statements are discussed in the Notes to ConsolidatedFinancial Statements.

 

### **Liabilities Subjectto Compromise**

###  

Our ConsolidatedFinancial Statements include, as liabilities subject to compromise, certainpre-petition liabilities generally subject to an automatic bankruptcy stay thatwere recorded in our Consolidated Balance Sheets at the time of our Chapter 11filings with the exception of those items approved by the Bankruptcy Court tobe settled.  In addition, we alsoreflected asliabilities subject to compromise estimates of expected allowed claims relatingto liabilities for rejected and repudiated executory contracts and realproperty leases, environmental, litigation, accounts payable and accruedliabilities, debt and other liabilities. These expected allowed claims require us to estimate the likely claimamount that will be allowed by the Bankruptcy Court prior to the BankruptcyCourt’s ruling on the individual claims. These estimates are based on reviews of claimants’ supporting material,obligations to mitigate such claims, and assessments by us and third-partyadvisors.  We expect that our estimates,although based on the best available information, will change due to actions ofthe Bankruptcy Court, better information becoming available, negotiations, rejectionor repudiation of executory contracts and real property leases, and thedetermination as to the value of any collateral securing claims, proofs ofclaim or other events.  See Note 21 —Legal Proceedings and Contingencies in the Notes to the Consolidated FinancialStatements for further discussion of the Company’s Chapter 11 claimsassessment.

 

### **Carrying Value ofGoodwill and Long-Lived Assets**

###  

Wehave elected to perform our annual goodwill impairment procedures for all ofour reporting units in accordance with Accounting Standards Codification(“ASC”) Subtopic 350-20, Intangibles — *Goodwill and Other -Goodwill* (“ASC 350-20”) as of July 31, or sooner, if eventsoccur or circumstances change that would more likely than not reduce the fairvalue of a reporting unit below its carrying value.

 

Ourcash flow projections, used to estimate the fair value of our reporting units,are based on subjective estimates. Although we believe that our projections reflect our best estimates ofthe future performance of our reporting units, changes in estimated revenues oroperating margins could have an impact on the estimated fair values.  Any increases in estimated reporting unitcash flows would have had no impact on the carrying value of that reportingunit.  However, a decrease in futureestimated reporting unit cash flows could require us to determine whetherrecognition of a goodwill impairment charge was required.  The assessment is required to be performed intwo steps: step one to test for a potential impairment of goodwill and, ifpotential impairments are identified, step two to measure the impairment lossthrough a full fair valuing of the assets and liabilities of the reporting unitutilizing the acquisition method of accounting.

 

Wealso perform corroborating analysis of our fair value estimates utilized forour step 1 tests at each annual and interim testing date.  Prior to 2009, this corroborating analysisincluded reconciling the sum of the reporting unit fair values to our marketcapitalization value.  This corroboratinganalysis supported the conclusion that the reduction in certain reporting unitfair values for each subsequent test in 2008 was correlated to our decliningstock price during the second half of 2008. The implied control premiums resulting from this corroborating analysisrevealed a range of 25% to 35% which was deemed reasonable for our industry.

 

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Duringthe quarter ended March 31, 2009, there was continued weakness in theglobal financial markets, resulting in additional decreases in the valuation ofpublic companies and restricted availability of capital.  Additionally, our stock price continued todecline due to the constrained liquidity, deteriorating financial performanceand the Debtors filing of a petition for relief under Chapter 11 of the UnitedStates Bankruptcy Code.  These eventswere of sufficient magnitude for us to conclude that it was appropriate toperform a goodwill impairment review as of March 31, 2009.  We used our own estimates of the effects ofthe macroeconomic changes on the markets we serve to develop an updated view ofour projections.  Those updatedprojections were used to compute updated estimated fair values of our reportingunits.  Based on these estimated fairvalues used to test goodwill for impairment in accordance with ASC 350-20, weconcluded that no impairment existed in any of our reporting units at March 31,2009.

 

Thefinancial performance of certain reporting units was negatively impacted versusexpectations due to the cold and wet weather conditions during the first halfof 2009.  Based on this fact along withthe macro economic factors described above, we concluded that it wasappropriate to perform a goodwill impairment review as of June 30,2009.  We used the updated projections inour long-range plan to compute estimated fair values of our reportingunits.  These projections indicated thatthe estimated fair value of the Consumer Performance Products reporting unitwas less than its carrying value.  Basedon our preliminary analysis, an estimated goodwill impairment charge of $37million was recorded for this reporting unit in the second quarter of 2009 (representingthe remaining goodwill in this reporting unit). We finalized our analysis of the goodwill impairment charge in the thirdquarter of 2009 and no change to the estimated charge was required.

 

Wedid not perform corroborating analysis of estimated fair values by using marketcapitalization for the March 31, 2009 and June 30, 2009 interimimpairment test.  Our stock price haddeclined significantly as of March 31, 2009 as a result of the bankruptcyfiling and its potential impact on equity holders who lack priority in ourcapital structure.  A reconciliation to amarket capitalization based upon such a share price was not deemed to beappropriate since this was not a representative fair value of the reportingunits in accordance with ASC 350-20 and ASC Topic 820, *Fair ValueMeasurements and Disclosures*(“ASC 820”) (fair value assumes anexchange in an orderly transaction (not a forced liquidation or distresssale)).

 

Wedid perform alternative corroborating analysis procedures of our reporting unitfair value estimates at March 31, 2009 and June 30, 2009.  This analysis included comparing reportingunit revenue and EBITDA multiples of enterprise value to comparable companiesin the same industry.  Beyond comparisonsof revenue and EBITDA multiples, we also compared fair value estimates to thewritten expressions of value received from third parties for certain reportingunits during our asset sale processes that were conducted in the fourth quarterof 2008 and the first quarter of 2009. All aspects of the various corroborating analyses performed as of March 31,2009 and June 30, 2009 confirmed that the fair value estimates for therespective reporting units were reasonable.

 

Weconcluded that no additional goodwill impairment existed in any of ourreporting units based on the annual review as of July 31, 2009.

 

Forthe quarters ended September 30, 2009 and December 31, 2009, ourconsolidated performance was in line with expectations while the performance ofour Crop Protection Engineered Products reporting unit was belowexpectations.  However, the longer-termforecasts for this reporting unit are still sufficient to support the level ofgoodwill.  As such, we concluded that nocircumstances exist that would more likely than not reduce the fair value of anyof our reporting units below their carrying amount and an interim impairmenttest was not considered necessary as of September 30, 2009 and December 31,2009.

 

Wecontinually monitor and evaluate business and competitive conditions thataffect our operations and reflects the impact of these factors in our financialprojections.  If permanent or sustainedchanges in business, competitive conditions or stock price occur, they can leadto revised projections that could potentially give rise to impairment charges.

 

Weevaluate the recoverability of the carrying value of our long-lived assets,excluding goodwill, whenever events or changes in circumstances indicate thatthe carrying value may not be recoverable. We realize that events and changes in circumstances can be more frequentin the course of a U.S. bankruptcy process. Under such circumstances, we assess whether the projected undiscountedcash flows of our businesses are sufficient to recover the existing unamortizedcarrying value of our long-lived assets. If the undiscounted projected cashflows are not sufficient, we calculate the impairment amount by severalmethodologies, including discounting the projected cash flows using ourweighted average cost of capital and valuation estimates from thirdparties.  The amount of the impairment iswritten-off against earnings in the period in which the impairment has beendetermined.

 

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**EnvironmentalMatters**

 

We are involved in claims, litigation, administrativeproceedings and investigations of various types in a number ofjurisdictions.  A number of such mattersinvolve claims for a material amount of damages and relate to or allegeenvironmental liabilities, including clean-up costs associated with hazardouswaste disposal sites, natural resource damages, property damage and personalinjury.  The Comprehensive EnvironmentalResponse, Compensation and Liability Act of 1980, as amended (“CERCLA”), andcomparable state statutes, impose strict liability upon various classes ofpersons with respect to the costs associated with the investigation andremediation of waste disposal sites. Such persons are typically referred to as “Potentially ResponsibleParties” or PRPs.  We have beenidentified by federal, state or local governmental agencies, or by other PRPs,as a PRP at various locations in the United States.  In addition, we are involved withenvironmental remediation and compliance activities at some of our current andformer sites in the United States and abroad.

 

Eachquarter, we evaluate and review estimates for future remediation, operation andmanagement costs directly related to remediation, to determine appropriateenvironmental reserve amounts. For each site where the cost of remediation isprobable and reasonably estimable, we determine the specific measures that arebelieved to be required to remediate the site, the estimated total cost tocarry out the remediation plan, the portion of the total remediation costs tobe borne by us and the anticipated time frame over which payments toward theremediation plan will occur. At sites where we expect to incur ongoingoperation and maintenance expenditures, we accrue on an undiscounted basis fora period of generally 10 years, those costs which are probable and reasonablyestimable.  Where settlement offers havebeen extended to resolve an environmental liability as part of the Chapter 11cases, the amounts of those offers have been accrued and are reflected in theConsolidated Balance Sheet as liabilities subject to compromise.

 

Asof December 31, 2009, our reserve for environmental remediation activitiestotaled $122 million of which $42 million was included in liabilities subjectto compromise on the Consolidated Balance Sheets.  We estimate that environmental liabilitiescould range up to $164 million at December 31, 2009.  Our reserves include estimates fordeterminable clean-up costs.  At a numberof these sites, the extent of contamination has not yet been fully investigatedor the final scope of remediation is not yet determinable.

 

Inaddition, it is possible that our estimates for environmental remediationliabilities may change in the future should additional sites be identified,further remediation measures be required or undertaken, current laws andregulations be modified or additional environmental laws and regulations beenacted and as negotiations with respect to certain sites continue or ascertain liabilities relating to such sites are resolved as part of the Chapter11 cases.

 

Weintend to assert all meritorious legal defenses and will pursue other equitablefactors that are available with respect to these matters.  The resolution of the environmental mattersnow pending or hereafter asserted against us could require us to pay remedialcosts or damages, which are not currently determinable, that could exceed ourpresent estimates, and as a result could have, either individually or in theaggregate, a material adverse effect on our financial condition, results ofoperations or cash flows.

 

**Pension and Other Post-Retirement Benefits Expense**

 

Ourcalculation of pension and other post-retirement benefits expense is dependenton a number of assumptions. These assumptions include discount rates, health carecost trend rates, expected long-term rates of return on plan assets, mortalityrates, expected salary and wage increases, and other relevant factors. Components of pension and other post-retirement benefits expense includeinterest and service cost on the pension and other post-retirement benefitplans, expected return on plan assets and amortization of certain unrecognizedcosts and obligations.  Actual results that differ from the assumptionsutilized are accumulated and amortized over future periods and, therefore,generally affect recognized expense and the recorded obligation in futureperiods.  While we believe that the assumptions used are appropriate,differences in actual experience or significant changes in assumptions wouldaffect our pension and other post-retirement benefits costs and obligations.

 

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TheDebtors voluntarily filed for Chapter 11 on March 18, 2009.  However, we intend to continue to makeminimum required funding requirements to the domestic qualified pension plansin the future.  We have suspendedpayments under the domestic non-qualified pension arrangements, and theBankruptcy Court has approved our motion to modify and/or terminate certaindomestic post-retirement medical benefits. We have not finalized any modifications and/or terminations to thoseplans and therefore any impact from these potential modifications and/orterminations have not been reflected in the financial condition for theseplans, nor in any of the estimates presented in this discussion.  Prior to the bankruptcy filing, weimplemented caps on the level of domestic post-retirement benefits for activeemployees who are expected to retire in the future, and these were accountedfor as an amendment with effect from January 1, 2009. None of theinternational programs were affected by the bankruptcy filing.

 

*Pension Plans*

 

Pensionliabilities are measured on a discounted basis and the assumed discount rate isa significant assumption. At each measurement date, the discount rate is basedon interest rates for high-quality, long-term corporate debt securities withmaturities comparable to our liabilities. At December 31, 2009, we utilized a discount rate of 5.70% for ourdomestic qualified pension plan compared to 6.00% at December 31,2008.  For the international and non-qualified plans, a weightedaverage discount rate of 5.55% was used at December 31, 2009, compared to5.82% used at December 31, 2008.  Asa sensitivity measure, a 25 basis point reduction in the discount rate for allplans would result in approximately a $1 million decrease in pre-tax earningsfor 2010.

 

Domesticdiscount rates adopted at December 31, 2009 utilized an interest rateyield curve to determine the discount rate pursuant to guidance codified underASC 715.  The yield curve is comprised of AAA/AA bonds with maturitiesbetween zero and thirty years.  We discounted the annual cash flows of ourdomestic pension plans using this yield curve and developed a single-pointdiscount rate matching the respective plan’s payout structure.

 

Asimilar approach is used to determine the appropriate discount rates for theinternational plans. The actual method used varies from country to countrydepending on the amount of available information on bond yields to be able toestimate a single-point discount rate to match the respective plan’s benefitdisbursements.

 

Ourweighted average estimated rate of compensation increase was 3.74% forapplicable domestic and international pension plans combined at December 31,2009.  As a sensitivity measure, an increase of 25 basis points in theestimated rate of compensation increase would decrease pre-tax earnings for 2010by an immaterial amount.

 

Theexpected return on pension plan assets is based on our investment strategy,historical experience, and expectations for long-term rates of return. Wedetermine the expected rate of return on plan assets for the domestic andinternational pension plans by applying the expected returns on various assetclasses to our target asset allocation.

 

Weutilized a weighted average expected long-term rate of return of 7.75% on alldomestic plan assets and a weighted average rate of 7.50% for the internationalplan assets for the year ended December 31, 2009.  This assumption is a long-term assessment offuture expectations and should not be unduly influenced by short-termperformance.

 

Historicalreturns are evaluated based on an arithmetic average of annual returns derivedfrom recognized passive indices, such as the S&P 500, for the major assetclasses. We looked at the arithmetic averages of annual investment returns frompassive indices, assuming a portfolio of investments that follow the currenttarget asset allocation for the domestic plans over several business cycles, toobtain an indication of the long-term historical market performance.  The arithmetic average return over the past20 years was 8.30%, and over the past 30 years it was 11.10%. Both of thesevalues exceeded the 7.75% domestic expected return on assets.

 

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Theupturn in global equity markets in 2009 was reflected in the investmentperformance of our pension plan assets. The actual annualized return on planassets for the domestic plans for the 12 months ended December 31, 2009was approximately 9% (net of investment expenses), which was above the expectedreturn on asset assumption for the year. The international plans fared better,earning a weighted average return of approximately 16% (in local currencyterms, before allowing for the weakening of the U.S. dollar against majorcurrencies in 2009) and approximately 29% in U.S. dollar terms (resulting incurrency gains of approximately $23 million on plan assets). This favorableperformance in U.S. dollar terms has to be viewed in the context of currencylosses of approximately $30 million on benefit obligations for theinternational pension arrangements.

 

Ourtarget asset allocation for the domestic pension plans is based on investing50% of plan assets in equity instruments, 45% of plan assets in fixed incomeinvestments and 5% in real estate.  The target allocation was reviewed andchanged during 2008, with a view to managing the level and volatility ofinvestment returns.  At December 31,2009, 53% of the portfolio was invested in equities, 41% in fixed incomeinvestments and 6% in real estate and other investments.

 

Wehave unrecognized actuarial losses relating to our pension plans which havebeen included in our Consolidated Balance Sheet but not in our ConsolidatedStatements of Operations. The extent to which these unrecognized actuariallosses will impact future pre-tax earnings depends on whether the unrecognizedactuarial losses are deferred through the asset-smoothing mechanism (the marketrelated value as defined by ASC Topic 715-30, *DefinedBenefit Plans — Pensions* (“ASC 715-30”), or through amortization inpre-tax earnings to the extent that they exceed a 10% amortization corridor, asdefined by ASC 715-30, which provides for amortization over the averageremaining participant career. The amortization of unrecognized net losses existingas of December 31, 2009 will result in a $7 million decrease to pre-taxearnings for 2010 ($7 million for the qualified domestic plans and animmaterial amount for the international and non-qualified plans). Since futuregains and losses beyond 2009 are a result of various factors described herein,it is not possible to predict with certainty to what extent the combination ofcurrent and future losses may exceed the 10 percent amortization corridor andthereby be subject to further amortization. At the end of 2009, unrecognized net losses amounted to $344 million forthe qualified domestic plans and $63 million for the international andnon-qualified plans.  Of theseunrecognized losses, $96 million for the domestic plans and $18 million for theinternational plans are deferred through the asset smoothing mechanism asrequired by ASC 715.

 

Pension(income) expense is calculated based upon certain assumptions includingdiscount rate, expected long-term rate of return on plan assets, mortalityrates and expected salary and wage increases.  Actual results that differfrom the current assumptions utilized are accumulated and amortized over futureperiods and will affect pension expense in future periods.  The followingtable estimates the future pension expense, based upon current assumptions:

 
| ** **                                    | ** ** | **Pension  Expense By Period** | ** ** |
|-----------------------------------------------|------------|--------------------------------|------------|
| **(In  millions)**                            | ** ** | **2010**                       | ** ** | **2011** | ** ** | **2012** | ** ** | **2013** | ** ** | **2014** | ** ** |
|                                          |       |                           |       |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Qualified domestic pension plans              |       | $                              | 1          |   | $ | 3 |   | $ | 4 |   | $ | 4 |   | $ | — |   |
| International and non-qualified pension plans |       | 8                              |       | 8 |   | 8 |   | 7 |   | 6 |   |
| Total pension plans                           |       | $                              | 9          |   | $ | 11 |   | $ | 12 |   | $ | 11 |   | $ | 6 |   |

 

Thefollowing tables show the impact of a 100 basis point change in the actualreturn on assets on the pension (income) expense.

 
| ** **                                    | ** ** | **Change in  Pension Expense By Period**          | ** ** |
|-----------------------------------------------|------------|---------------------------------------------------|------------|
| ** **                                    | ** ** | **2010**                                          | ** ** | **2011** | ** ** | **2012** | ** ** | **2013** | ** ** | **2014** | ** ** |
| *Increase (decrease)*                         | ** ** | 100 Basis Point *Increase* in Investment Returns  | ** ** |
| * *                                      | ** ** | ** **                                        | ** ** |
| Qualified domestic pension plans              |       | $                                                 | —     |   | $ | — |   | $ | — |   | $ | (1 | ) | $ | (1 | ) |
| International and non-qualified pension plans |       | —                                            |       | (1 | ) | (1 | ) | (1 | ) | (1 | ) |
| Total pension plans                           |       | $                                                 | —     |   | $ | (1 | ) | $ | (1 | ) | $ | (2 | ) | $ | (2 | ) |
|                                          |       |                                              |       |   |   |   |   |   |   |   |   |
| *Increase (decrease)*                         |       | 100 Basis Point *Decrease* in  Investment Returns |       |
| * *                                      |       |                                              |       |
| Qualified domestic pension plans              |       | $                                                 | —     |   | $ | — |   | $ | — |   | $ | 1 |   | $ | 1 |   |
| International and non-qualified pension plans |       | —                                            |       | 1 |   | 1 |   | 1 |   | 1 |   |
| Total pension plans                           |       | $                                                 | —     |   | $ | 1 |   | $ | 1 |   | $ | 2 |   | $ | 2 |   |

 

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*Other Post-Retirement Benefits*

 

Weprovide post-retirement health and life insurance benefits for current retiredand active employees and their beneficiaries and covered dependents for certaindomestic and international employee groups.

 

Thediscount rates adopted by us for the valuation of the post-retirement healthcare plans were determined using the same methodology as for the pensionplans.  At December 31, 2009, weutilized a weighted average discount rate of 5.40% for domestic post-retirementhealth care plans, compared to 6.00% at December 31, 2008.  Based on the duration of the liabilities for theinternational plans, a weighted average rate of 5.8% was used.  As a sensitivity measure, a 25 basis pointreduction in the discount rate would result in an immaterial decrease inpre-tax earnings for 2010.

 

Assumedhealth care cost trend rates are based on past and current health care costtrends, considering such factors as health care inflation, changes in healthcare utilization or delivery patterns, technological advances, and the overallhealth of plan participants.   Weuse health care trend cost rates starting with an initial level of 7.50% forthe domestic arrangements and grading down to an ultimate level of 5.00%. Forthe international arrangements, the weighted average initial rate is 9.50%,grading down to 5.00%.

 

Thepre-tax post-retirement healthcare expense was $6 million in 2009.  Thefollowing table summarizes projected post-retirement benefit expense based uponthe various assumptions discussed above.

 
| ** **                                                | ** ** | **Pre-Tax  Expense by Period** | ** ** |
|-----------------------------------------------------------|------------|--------------------------------|------------|
| **(In  millions)**                                        | ** ** | **2010**                       | ** ** | **2011** | ** ** | **2012** | ** ** | **2013** | ** ** | **2014** | ** ** |
| Domestic and international post-retirement benefit  plans |       | $                              | 7          |   | $ | 7 |   | $ | 6 |   | $ | 6 |   | $ | 5 |   |
|                                                           |            |                                |            |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

### **Income Taxes**

###  

Incometaxes payable reflects our current tax provision and management’s best estimateof the tax liability relating to the outcome of uncertain tax positions.  If the actual outcome of uncertain taxpositions differs from our best estimates, an adjustment to income taxespayable could be required, which may result in additional income tax expense orbenefit.

 

Werecord deferred tax assets and liabilities based on differences between thebook and tax basis of assets and liabilities using the enacted tax ratesexpected to apply to taxable income in the periods in which the deferred taxliability or asset is expected to be settled or realized.  We also record deferred tax assets for theexpected future tax benefits of net operating losses and income tax creditcarryforwards.

 

Valuationallowances are established when we determine that it is more likely than notthat the results of future operations may not generate sufficient taxableincome to realize our deferred tax assets during the carryforward period.  We consider the scheduled reversal ofdeferred tax assets and liabilities, projected future taxable income, and taxplanning strategies in making this assessment. Thus, changes in future results of operations could result inadjustments to our valuation allowances.

 

Tax expense for 2009 includes a benefit of $8 millionrelating to earnings of certain foreign subsidiaries where we have recorded adeferred income tax liability associated with the intent to repatriate thoseearnings in a subsequent period.  We also haveearnings of certain foreign subsidiaries where we consider these earnings to beindefinitely reinvested in our operations. As such, no U.S. tax cost has been provided on approximately $490million of earnings at December 31, 2009. If we change our intent related to these earnings additional tax wouldbe required.

 

Weadopted certain provisions of ASC Topic 740, *Income Taxes*(“ASC 740”) on January 1, 2007.  ASC740 prescribes a recognition threshold and measurement attributes for thefinancial statement recognition and measurement of tax positions taken, orexpected to be taken, in tax returns. Under ASC 740, the economic benefit associated with a tax position willonly be recognized if it is more likely than not that a tax position ultimatelywill be sustained.  After this thresholdis met, a tax position is reported at the largest amount of benefit that ismore likely than not to be ultimately sustained.  ASC 740 also provides guidance onderecognition, classification, interest and penalties, accounting in interimperiods, disclosure and transition.

 

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Asa result of the implementation of ASC 740, we recognized a $2 million decreasein the liability for unrecognized tax benefits. The liability for unrecognized tax benefits at adoption was $56 million.  Included in the balance of unrecognized taxbenefits at January 1, 2007 was $44 million of tax benefits that, ifrecognized, would affect the effective tax rate.  Also included in the balance of unrecognizedtax benefits at January 1, 2007 was $16 million of tax benefits that, ifrecognized, would result in a decrease to goodwill recorded in purchasebusiness combinations.  Effective January 1,2009, all adjustments to unrecognized tax benefits related to these priorbusiness combinations are recorded in the Consolidated Statement of Operationsin accordance with ASC Topic 805, *Business Combinations*(“ASC 805”).

 

Wehave a liability for unrecognized tax benefits of $76 million and $85 millionat December 31, 2009 and 2008, respectively.

 

# **ACCOUNTING DEVELOPMENTS**

#  

Forinformation on accounting developments see Note 2 — Basis of Presentation andSummary of Significant Accounting Policies.

 

**OUTLOOK**

 

Weview the Chapter 11 process as an opportunity to reshape our Company into astronger, leaner global enterprise focused on growth.  From an operating standpoint, we are pursuinggrowth opportunities while making significant progress in enhancing theefficiency and effectiveness of our businesses. Initiatives in these areas include the following:

 

·                  Increasing strategic investments to improveefficiency, such as our ERP initiatives that have enabled the activitiesrelated to over 90 percent of net sales now to be managed on a single globalinstance of SAP and offering simplified and standardized business processes;

 

·                  Focusing on investments in R&D, which isbeginning to result in important and innovative new product offerings such asGeobromTM, Weston® 705, and two new flame retardant products being producedtoday on pilot plant scale;

 

·                  Improving order processing to enhanceresponsiveness and delivery to customers;

 

·                  Transferring certain operations tothird-party logistics providers, enabling us to maintain service levels at amore competitive cost;

 

·                  Growing our global antioxidant business witha planned additional expansion of our capacity at Gulf Stabilizer Industries(“GSI”), our joint venture facility in Al Jubail, Saudi Arabia; and

 

·                  Advancing towards our joint venture betweenAl Zamil Group Holding Company and Chemtura Organometallics GmbH, our whollyowned German subsidiary, to build a world-scale metal alkyls manufacturingfacility in Jubail Industrial City, Saudi Arabia.

 

Ourkey challenges in 2010 will be to implement our business plans and to emergefrom Chapter 11.  As part of these actions,we are undertaking a thorough review of our operations and business activitiesto determine whether to continue in, restructure or exit from thoseactivities.  As a result of our ongoingreview process, we have implemented the following initiatives:

 

·                  On February 23, 2009, we entered into aShare and Asset Purchase Agreement with Artek, whereby Artek agreed to acquireour PVC additives business;

 

·                  Announced a plan to reorganize andconsolidate our operations at our Flame Retardants business facilities in ElDorado, Arkansas.  The restructuring planis subject to Bankruptcy Court approval and, if such approval is obtained, isexpected to be completed by the fourth quarter of 2010.  As a result of the restructuring plan, weexpect to record costs of approximately $40 million, primarily in the firsthalf of 2010, consisting of approximately $35 million in accelerateddepreciation of property, plant and equipment and approximately $5 million inother facility-related shutdown costs, which include accelerated recognition ofasset retirement obligations, decommissioning of wells and pipelines andseverance.  We expect cash costs,including capital costs, to be approximately $20 million primarily in 2010.

 

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Weare also reviewing approximately 13,000 of our real property leases andexecutory contracts to determine whether they constitute a strategic fit withour core businesses and, if not, to evaluate whether they should be assumed,rejected or restructured as permitted under the Bankruptcy Code.  While this review is not complete, we havetaken actions accordingly, including rejecting various executory contracts andreal property leases.

 

Inaddition, we are improving our financial health and are currently meeting orexceeding our financial objectives by:

 

·                  Generating positive cash flow (as previouslydefined) over the last four quarters and accumulating substantial cash balancesby both the Debtors and our international subsidiaries;

 

·                  Achieving or exceeding performance levelsrequired by the DIP Credit Facility; and

 

·                  Identifying, and now working closely with,several financial institutions we expect will lead our exit financing.  The support of these institutions will enableus to finance our Plan and emerge as a financially sound, stand-alone global company.

 

Ouroperations outside the United States are not part of the Chapter 11 cases.  These operations have demonstrated financialstrength and the ability to operate unaffected by the Chapter 11 process.  These operations have virtually nothird-party funded debt and have generated substantial cash flow during 2009,which they retain to fund operations and increase liquidity.

 

Asdescribed above, we have met numerous business milestones during the Chapter 11cases, demonstrating operational credibility and maintaining an aggressiveChapter 11 timetable.  We believe ouractions and overall performance have gained the confidence of our customers andsuppliers, as well as our creditors and other stakeholders, and that theadditional time allotted for the claims reconciliation process will lead to astronger company, better positioned to deliver superior service and financialresults.

 

Sincethe beginning of this process, our goal was to develop a consensual Plan withas many of our stakeholders as possible. We continue to work collaboratively with our official committee ofunsecured creditors and other stakeholders in developing a Plan that isexpected to include a substantial debt-to-equity conversion.  We believe that this approach offers thequickest overall path to emergence while building a stronger, more focused andnimble global enterprise, best equipped to grow and meet the needs of ourcustomers.

 

Inaddition to emerging from Chapter 11, our focus in 2010 will remain onimproving our core businesses, rationalizing our manufacturing footprint and“right-sizing” our cost structure, while developing products and applicationsthat generate profitable organic revenue growth.  We continue to work to improve the productivityof our manufacturing plants and the efficiency of our business processes.  As part of those actions, we are increasingour capital spending from $56 million in 2009 to approximately $120 million in2010 as we implement our business plans. These actions remain focused on improving the operating profitability ofour businesses and increasing net cash provided by operations.

 

Forthe longer term, our businesses continue to benefit from a number of seculartrends that may provide continued future growth opportunities including:

 

·                  Consumer demand for increasingly moreeffective pool and spa sanitation benefits our Consumer Performance Productssegment;

 

·                  The increasing requirements for cleaneremissions from motor vehicles, greater service life for engines and thereduction in “greenhouse gas” emissions benefit our additive and lubricantproduct lines within our Industrial Performance Products segment;

 

·                  The demand for higher yields from specialtyhigh value agricultural crops worldwide benefits our Crop Protection EngineeredProducts segment; and

 

·                  Consumer demand for improved flame retardancy“Greener is Better” program in household goods supported by increasingregulation in many countries worldwide benefits our broad range of flameretardant products within our Industrial Engineered Products segment;

 

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**FUTURE PERFORMANCE INDICATORS**

 

Ourhistorical financial performance may not be indicative of our future financialperformance during the pendency of the Chapter 11 cases or beyond based on,among other things:

 

·                  We do not accrue interest expense on ourunsecured pre-petition debt during the pendency of our Chapter 11 cases, exceptpursuant to orders of the Bankruptcy Court;

 

·                  We expect to further rationalize ourmanufacturing footprint and “right-size” our cost structure;

 

·                  We will continue to incur reorganizationcosts for professional fees and other costs associated with the Chapter 11cases;

 

·                  We have rejected, repudiated or terminatedcertain unprofitable or burdensome executory contracts and real propertyleases, and we may further seek to reject, repudiate or terminate executorycontracts and real property leases in the future;

 

·                  We have assumed or are seeking to assumecertain beneficial executory contracts and real property leases, and we mayfurther seek to assume executory contracts and real property leases in thefuture;

 

·                  As part of our emergence from Chapter 11, wemay be required to adopt fresh start accounting in a future period, resultingin the re-measurement of our assets and liabilities to fair value as of thefresh start reporting date, which may differ materially from historicalvaluations; and

 

·                  If fresh start accounting is required, ourfinancial results after the application of fresh start accounting may bedifferent from historical trends.

 

# **FORWARD-LOOKING STATEMENTS**

#  

Thisdocument includes forward-looking statements within the meaning of Section 27(a) ofthe Securities Act of 1933 and Section 21(e) of the Exchange Act of1934.  These forward-looking statementsare identified by terms and phrases such as “anticipate,” “believe,” “intend,”“estimate,” “expect,” “continue,” “should,” “could,” “may,” “plan,” “project,”“predict,” “will” and similar expressions and include references to assumptionsand relate to our future prospects, developments and business strategies.

 

Factorsthat could cause our actual results to differ materially from those expressedor implied in such forward-looking statements include, but are not limited to:

 

·                  The ability to complete a restructuring ofour balance sheet;

·                  The ability to have the Bankruptcy Courtapprove motions required to sustain operations during the Chapter 11 cases;

·                  The uncertainties of the Chapter 11restructuring process including the potential adverse impact on our operations,management, employees and the response of our customers;

·                  Our estimates of the cost to settle proofs ofclaim presented in the Chapter 11 cases;

·                  The ability to develop, confirm andconsummate a Chapter 11 plan of reorganization;

·                  The ability to be compliant with our debtcovenants or obtain necessary waivers and amendments;

·                  The ability to reduce our indebtednesslevels;

·                  General economic conditions;

·                  Significant international operations andinterests;

·                  The ability to obtain increases in sellingprices to offset increases in raw material and energy costs;

·                  The ability to retain sales volumes in theevent of increasing selling prices;

·                  The ability to absorb fixed cost overhead inthe event of lower volumes;

·                  Pension and other post-retirement benefitplan assumptions;

·                  The ability to successfully complete theturnaround of our Industrial Engineered Products segment;

·                  The ability to implement the El Dorado,Arkansas restructuring program;

·                  The ability to obtain growth from demand forpetroleum additive, lubricant and agricultural product applications;

 

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·                  The ability to sustainprofitability in our Crop Protection Engineered Products segment due to newgeneric competition.  Additionally, theCrop Protection Engineered Products segment is dependent on disease and pestconditions, as well as local, regional, regulatory and economic conditions;

·                  The ability to sell methyl bromide due toregulatory restrictions;

·                  Changes in weather conditions which couldadversely affect the seasonal selling cycles in both our Consumer PerformanceProducts and Crop Protection Engineered Products segments;

·                  Changes in the availability and/or quality ofour energy and raw materials;

·                  The ability to collect our outstandingreceivables;

·                  Changes in interest rates and foreigncurrency exchange rates;

·                  Changes in technology, market demand andcustomer requirements;

·                  The enactment of more stringent U.S. andinternational environmental laws and regulations;

·                  The ability to realize expected cost savingsunder our restructuring plans, Six Sigma and Lean manufacturing initiatives;

·                  The ability to recover our deferred taxassets;

·                  The ability to support the goodwill andlong-lived assets related to our businesses; and

·                  Other risks and uncertainties detailed inItem 1A. Risk Factors in our filings with the Securities and ExchangeCommission.

 

Thesestatements are based on our estimates and assumptions and on currentlyavailable information.  Theforward-looking statements include information concerning our possible orassumed future results of operations, and our actual results may differsignificantly from the results discussed. Forward-looking information is intended to reflect opinions as of thedate this Form 10-K was filed.  Weundertake no duty to update any forward-looking statements to conform thestatements to actual results or changes in our operations.

 

# **ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURESABOUT MARKET RISK**

 

Ouractivities expose our earnings, cash flows and financial condition to a varietyof market risks, including the effects of changes in foreign currency exchangerates, interest rates and energy prices. Prior to March 2009, we maintained a risk-management strategy thatutilized derivative instruments as needed to mitigate risk against foreigncurrency movements and to manage interest rate and energy pricevolatility.  We did not enter into derivativefinancial instruments for trading or speculative purposes.

 

Wehave short-term exposure to changes in foreign currency exchange ratesresulting from transactions entered into by us and our foreign subsidiaries incurrencies other than their local currency (primarily trade payables andreceivables).  We are also exposed tocurrency risk on inter-company transactions (including inter-companyloans).  We manage these transactionalcurrency risks on a consolidated basis, which allows us to net our exposure.  Prior to March 2009, we purchasedforeign currency forward contracts, primarily denominated in Euros, BritishPounds Sterling, Canadian dollars, Mexican Pesos and Australian dollars tohedge our transaction exposure.  However,as a result of the Chapter 11 filing, we no longer have financing arrangementsthat permit us to purchase foreign currency forward contracts or hedginginstruments to continue our prior practice. As a result, our ability to hedge changes in foreign currency exchangerates resulting from transactions was restricted beginning in the first quarterof 2009.

 

When we are permitted by ourfinancing agreements to enter into foreign currency forward contracts, thesecontracts generally are settled on a monthly basis.  Realized and unrealized gains and losses onforeign currency forward contracts are recognized in other income (expense),net, to offset the impact of valuing recorded foreign currency trade payables,receivables and inter-company transactions. We have not designated these derivatives as hedges in accordance withU.S. generally accepted accounting principles (“GAAP”) although we believethese instruments help reduce our exposure to foreign currency risk.  The net effect of the realized and unrealizedforeign currency gains and losses, including the effect of derivatives and theeffect of underlying transactions, resulted in a pre-tax loss of $23 million, apre-tax gain of $25 million and a pre-tax gain of $11 million in 2009, 2008 and2007, respectively.

 

The following table provides information about ourfinancial instruments that are sensitive to changes in interest rates.  The table presents principal cash flows andrelated weighted-average interest rates by stated maturity date for ourdebt.  Debt maturities exclude $1.2billion of liabilities subject to compromise as we cannot accurately forecastthe future level and timing of the repayments given the inherent uncertaintiesassociated with the Chapter 11 cases. Weighted-average variable interest rates are based on the applicablefloating rate index as of December 31, 2009.

 

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# **InterestRate Sensitivity**

 
| ** **             | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | **2015 and**   | ** ** | ** ** | ** ** | **Fair Value**  | ** ** |
|------------------------|------------|------------|------------|------------|------------|------------|------------|------------|------------|------------|------------|----------------|------------|------------|------------|-----------------|------------|
| **(In millions)**      | ** ** | **2010**   | ** ** | **2011**   | ** ** | **2012**   | ** ** | **2013**   | ** ** | **2014**   | ** ** | **Thereafter** | ** ** | **Total**  | ** ** | **at 12/31/09** | ** ** |
| Variable  rate debt    |       | $          | 252        |       | $          | —     |       | $          | 1          |       | $          | —         |       | $          | 1          |            | $          | — |   | $ | 254 |   | $ | 254 |   |
| Average  rate debt (a) |       | 10.42      | %          | 4.41       | %          | 4.41       | %          | 4.40       | %          | 4.40       | %          | 0.00           | %          |       |       |            |       |
|                        |            |            |            |            |            |            |            |            |            |            |            |                |            |            |            |                 |            |  |  |  |  |  |  |  |  |

 

----

**(a)**          Average interest rateis based on rates in effect at December 31, 2009.

 

**We used price swapcontracts as cash flow hedges to convert a portion of our forecasted naturalgas purchases from variable price to fixed price purchases.  These contracts involved the exchange of paymentsover the life of the contracts without an exchange of the notional amount uponwhich the payments are based.  Thedifferential paid or received as natural gas prices change was recognized as anadjustment to cost of goods sold when the related inventory layer is sold.  These contracts have been terminated by thecounterparties due to our Chapter 11 proceedings and have been classified asliabilities subject to compromise.  As ofthe termination date, the contracts were deemed to be effective and we maintainedhedge accounting given that the forecasted hedge transactions wereprobable.  At December 31, 2009, wehad no remaining outstanding price swaps since the contracts expired in December 2009.**

 

**At December 31,2008, we had a committed U.S. Facility which provided funding for the sale ofup to $100 million of our eligible U.S. receivables to certain purchasers.  On January 23, 2009, we entered into the2009 U.S. Facility with up to $150 million of capacity and a three-year termwith certain lenders under our 2007 Credit Facility.  Lenders who participated reduced theircommitments to the 2007 Credit Facility pro-rata to their commitments topurchase U.S. eligible accounts receivable under the 2009 U.S. Facility.  The 2009 U.S. Facility was terminated on March 23,2009 as a condition of the Debtors entering into the DIP Credit Facility andthe European Facility was terminated in the second quarter of 2009.  At December 31, 2008, $36 million ofU.S. accounts receivable have been sold at an average cost of approximately3.52% and $67 million of European accounts receivable have been sold at anaverage cost of approximately 6.16% (for further information see Note 7 — Saleof Accounts Receivables included in the Notes to the Consolidated FinancialStatements).**

 

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# **Item8.  Financial Statements andSupplementary Data**

#  

# **CHEMTURACORPORATION AND SUBSIDIARIES**

# **(DEBTOR-IN-POSSESSION)**

# **CONSOLIDATEDSTATEMENTS OF OPERATIONS**

Years ended December 31, 2009,2008, and 2007

*(Inmillions, except per share data)*

 
| ** **                                                                                 | ** ** | **2009**   | ** ** | **2008** | ** ** | **2007** | ** ** |
|--------------------------------------------------------------------------------------------|------------|------------|------------|----------|------------|----------|------------|
|                                                                                       |       |       |       |     |       |     |       |
| **NET SALES**                                                                              | ** ** | **$**      | **2,541**  |     | $          | 3,546    |       | $ | 3,747 |   |
|                                                                                       |       |       |       |     |       |     |       |
| **COSTS AND EXPENSES**                                                                     |       |       |       |     |       |     |       |
| Cost  of goods sold                                                                        | ** ** | **1,947**  |       | 2,810    |       | 2,883    |       |
| Selling,  general and administrative                                                       | ** ** | **293**    |       | 332      |       | 372      |       |
| Depreciation  and amortization                                                             | ** ** | **173**    |       | 237      |       | 269      |       |
| Research  and development                                                                  | ** ** | **38**     |       | 51       |       | 62       |       |
| Facility  closures, severance and related costs                                            | ** ** | **3**      |       | 26       |       | 36       |       |
| Antitrust  costs                                                                           | ** ** | **10**     |       | 12       |       | 35       |       |
| Loss  on sale of business                                                                  | ** ** | **—** |       | 25       |       | 15       |       |
| Impairment  of long-lived assets                                                           | ** ** | **104**    |       | 986      |       | 19       |       |
| Changes  in estimates related to expected allowable claims                                 | ** ** | **73**     |       | —   |       | —   |       |
| Equity  income                                                                             | ** ** | **—** |       | (4       | )          | (3       | )          |
|                                                                                       |       |       |       |     |       |     |       |
| **OPERATING (LOSS) PROFIT**                                                                | ** ** | **(100**   | **)**      | (929     | )          | 59       |       |
| Interest  expense (a)                                                                      | ** ** | **(70**    | **)**      | (78      | )          | (87      | )          |
| Other  (expense) income, net                                                               | ** ** | **(17**    | **)**      | 9        |       | (5       | )          |
| Reorganization  items, net                                                                 | ** ** | **(97**    | **)**      | —   |       | —   |       |
|                                                                                       |       |       |       |     |       |     |       |
| Loss  from continuing operations before income taxes                                       |       | **(284**   | **)**      | (998     | )          | (33      | )          |
| Income  tax (provision) benefit                                                            | ** ** | **(5**     | **)**      | 27       |       | (4       | )          |
|                                                                                       |       |       |       |     |       |     |       |
| Loss  from continuing operations                                                           | ** ** | **(289**   | **)**      | (971     | )          | (37      | )          |
| Earnings  from discontinued operations, net of tax                                         | ** ** | **—** |       | —   |       | 18       |       |
| (Loss)  gain on sale of discontinued operations, net of tax                                | ** ** | **(3**     | **)**      | —   |       | 24       |       |
|                                                                                       |       |       |       |     |       |     |       |
| Net  (loss) earnings                                                                       | ** ** | **(292**   | **)**      | (971     | )          | 5        |       |
|                                                                                       |       |       |       |     |       |     |       |
| Less:  net earnings attributable to non-controlling interests                              | ** ** | **(1**     | **)**      | (2       | )          | (8       | )          |
|                                                                                       |       |       |       |     |       |     |       |
| Net  loss attributable to Chemtura Corporation                                             | ** ** | **$**      | **(293**   | **)**    | $          | (973     | )          | $ | (3 | ) |
|                                                                                       |       |       |       |     |       |     |       |
| **EARNINGS (LOSS) PER SHARE - BASIC AND DILUTED -  ATTRIBUTABLE TO CHEMTURA CORPORATION:** |       |       |       |     |       |     |       |
| Loss  from continuing operations, net of tax                                               | ** ** | **$**      | **(1.19**  | **)**    | $          | (4.01    | )          | $ | (0.18 | ) |
| Earnings  from discontinued operations, net of tax                                         | ** ** | **—** |       | —   |       | 0.07     |       |
| (Loss)  gain on sale of discontinued operations, net of tax                                | ** ** | **(0.01**  | **)**      | —   |       | 0.10     |       |
| Net  loss attributable to Chemtura Corporation                                             | ** ** | **$**      | **(1.20**  | **)**    | $          | (4.01    | )          | $ | (0.01 | ) |
|                                                                                       |       |       |       |     |       |     |       |
| Basic  and diluted weighted-average shares outstanding                                     | ** ** | **242.9**  |       | 242.3    |       | 241.6    |       |
|                                                                                       |       |       |       |     |       |     |       |
| **AMOUNTS ATTRIBUTABLE TO CHEMTURA CORPORATION COMMON  SHAREHOLDERS:**                     |       |       |       |     |       |     |       |
| Loss  from continuing operations, net of tax                                               | ** ** | **$**      | **(290**   | **)**    | $          | (973     | )          | $ | (45 | ) |
| Earnings  from discontinued operations, net of tax                                         | ** ** | **—** |       | —   |       | 18       |       |
| (Loss)  gain on sale of discontinued operations, net of tax                                | ** ** | **(3**     | **)**      | —   |       | 24       |       |
| Net  loss attributable to Chemtura Corporation                                             | ** ** | **$**      | **(293**   | **)**    | $          | (973     | )          | $ | (3 | ) |

 

----

(a)          Interest expense excludes contractual interest expense of $63 million for2009.

 

See Accompanying Notes to Consolidated FinancialStatements.

 

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# **CHEMTURACORPORATION AND SUBSIDIARIES**

# **(DEBTOR-IN-POSSESSION)**

**CONSOLIDATED BALANCE SHEETS**

As of December 31, 2009 and 2008

*(In millions, except per share data)*

* *
| ** **                                                                                                       | ** ** | **2009**   | ** ** | **2008** | ** ** |
|------------------------------------------------------------------------------------------------------------------|------------|------------|------------|----------|------------|
| **ASSETS**                                                                                                       |       |       |       |     |       |
|                                                                                                             |       |       |       |     |       |
| CURRENT  ASSETS                                                                                                  |       |       |       |     |       |
| Cash  and cash equivalents                                                                                       | ** ** | **$**      | **236**    |     | $          | 68 |   |
| Accounts  receivable                                                                                             | ** ** | **471**    |       | 392      |       |
| Inventories                                                                                                      | ** ** | **540**    |       | 611      |       |
| Other  current assets                                                                                            | ** ** | **230**    |       | 184      |       |
| Total  current assets                                                                                            | ** ** | **1,477**  |       | 1,255    |       |
|                                                                                                             |       |       |       |     |       |
| NON-CURRENT  ASSETS                                                                                              |       |       |       |     |       |
| Property,  plant and equipment                                                                                   | ** ** | **750**    |       | 862      |       |
| Goodwill                                                                                                         | ** ** | **235**    |       | 265      |       |
| Intangible  assets, net                                                                                          | ** ** | **474**    |       | 517      |       |
| Other  assets                                                                                                    | ** ** | **182**    |       | 158      |       |
|                                                                                                             |       |       |       |     |       |
| Total  Assets                                                                                                    | ** ** | **$**      | **3,118**  |     | $          | 3,057 |   |
|                                                                                                             |       |       |       |     |       |
| **LIABILITIES AND STOCKHOLDERS’ EQUITY**                                                                    |       |       |       |     |       |
|                                                                                                             |       |       |       |     |       |
| CURRENT  LIABILITIES                                                                                             |       |       |       |     |       |
| Short-term  borrowings                                                                                           | ** ** | **$**      | **252**    |     | $          | 3 |   |
| Current  portion of long-term debt                                                                               | ** ** | **—** |       | 1,178    |       |
| Accounts  payable                                                                                                | ** ** | **128**    |       | 243      |       |
| Accrued  expenses                                                                                                | ** ** | **184**    |       | 361      |       |
| Income  taxes payable                                                                                            | ** ** | **5**      |       | 28       |       |
| Total  current liabilities                                                                                       | ** ** | **569**    |       | 1,813    |       |
|                                                                                                             |       |       |       |     |       |
| NON-CURRENT  LIABILITIES                                                                                         |       |       |       |     |       |
| Long-term  debt                                                                                                  | ** ** | **3**      |       | 23       |       |
| Pension  and post-retirement health care liabilities                                                             | ** ** | **173**    |       | 508      |       |
| Other  liabilities                                                                                               | ** ** | **199**    |       | 225      |       |
| Total  liabilities not subject to compromise                                                                     | ** ** | **944**    |       | 2,569    |       |
|                                                                                                             |       |       |       |     |       |
| LIABILITIES  SUBJECT TO COMPROMISE                                                                               | ** ** | **2,002**  |       | —   |       |
|                                                                                                             |       |       |       |     |       |
| STOCKHOLDERS’  EQUITY                                                                                       |       |       |       |     |       |
| Common  stock - $.01 par value Authorized - 500.0 shares Issued - 254.4 shares in  2009 and 254.1 shares in 2008 |       | **3**      |       | 3        |       |
| Additional  paid-in capital                                                                                      | ** ** | **3,039**  |       | 3,036    |       |
| Accumulated  deficit                                                                                             | ** ** | **(2,482** | **)**      | (2,189   | )          |
| Accumulated  other comprehensive loss                                                                            | ** ** | **(234**   | **)**      | (208     | )          |
| Treasury  stock at cost - 11.5 shares                                                                            | ** ** | **(167**   | **)**      | (167     | )          |
| Total  Chemtura Corporation stockholders’ equity                                                            | ** ** | **159**    |       | 475      |       |
|                                                                                                             |       |       |       |     |       |
| Non-controlling  interests                                                                                       | ** ** | **13**     |       | 13       |       |
| Total  stockholders’ equity                                                                                 | ** ** | **172**    |       | 488      |       |
|                                                                                                             |       |       |       |     |       |
| Total  Liabilities and Stockholders’ Equity                                                                 | ** ** | **$**      | **3,118**  |     | $          | 3,057 |   |

 

See Accompanying Notes to Consolidated FinancialStatements.

 

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# **CHEMTURACORPORATION AND SUBSIDIARIES**

# **(DEBTOR-IN-POSSESSION)**

**CONSOLIDATED STATEMENTS OF CASH FLOWS**

Years ended December 31, 2009,2008 and 2007

*(In millions)*

 
| **Increase  (decrease) in cash**                                                                                                | ** ** | **2009**   | ** ** | **2008** | ** ** | **2007** | ** ** |
|---------------------------------------------------------------------------------------------------------------------------------|------------|------------|------------|----------|------------|----------|------------|
| **CASH FLOWS FROM OPERATING  ACTIVITIES**                                                                                       | ** ** | ** ** |       |     |       |     |       |
| Net loss attributable to Chemtura Corporation                                                                                   |       | $          | **(293**   | **)**    | $          | (973     | )          | $ | (3 | ) |
| Adjustments to reconcile net loss attributable to  Chemtura Corporation to net cash provided by (used in) operating activities: | ** ** | ** ** |       |     |       |     |       |
| Loss on sale of business                                                                                                        | ** ** | **—** |       | 25       |       | 15       |       |
| Loss (gain) on sale of discontinued operations                                                                                  | ** ** | **3**      |       | —   |       | (24      | )          |
| Impairment of long-lived assets                                                                                                 | ** ** | **104**    |       | 986      |       | 19       |       |
| Depreciation and amortization                                                                                                   | ** ** | **173**    |       | 237      |       | 275      |       |
| Stock-based compensation expense                                                                                                | ** ** | **3**      |       | 5        |       | 10       |       |
| Reorganization items, net                                                                                                       | ** ** | **35**     |       | —   |       | —   |       |
| Changes  to estimates related to expected allowable claims                                                                      | ** ** | **73**     |       | —   |       | —   |       |
| Provision for doubtful accounts                                                                                                 | ** ** | **5**      |       | 3        |       | 4        |       |
| Equity income                                                                                                                   | ** ** | **—** |       | (4       | )          | (3       | )          |
| Deferred taxes                                                                                                                  | ** ** | **—** |       | (74      | )          | (23      | )          |
| Changes in assets and liabilities, net:                                                                                         | ** ** | ** ** |       |     |       |     |       |
| Accounts receivable                                                                                                             | ** ** | **36**     |       | 89       |       | 22       |       |
| Impact of accounts receivable facilities                                                                                        | ** ** | **(103**   | **)**      | (136     | )          | (41      | )          |
| Inventories                                                                                                                     | ** ** | **85**     |       | (12      | )          | 10       |       |
| Other current assets                                                                                                            | ** ** | **(4**     | **)**      | (41      | )          | (1       | )          |
| Other assets                                                                                                                    | ** ** | **(10**    | **)**      | 2        |       | 20       |       |
| Accounts payable                                                                                                                | ** ** | **16**     |       | (25      | )          | (20      | )          |
| Accrued expenses                                                                                                                | ** ** | **(15**    | **)**      | (61      | )          | (113     | )          |
| Income taxes payable                                                                                                            | ** ** | **(28**    | **)**      | (11      | )          | (11      | )          |
| Deposit for civil antitrust settlements in escrow                                                                               | ** ** | **—** |       | 15       |       | 36       |       |
| Pension and post-retirement health care liabilities                                                                             | ** ** | **(26**    | **)**      | (46      | )          | (22      | )          |
| Liabilities subject to compromise                                                                                               | ** ** | **(31**    | **)**      | —   |       | —   |       |
| Other liabilities                                                                                                               | ** ** | **26**     |       | 17       |       | 3        |       |
| Other                                                                                                                           | ** ** | **—** |       | (7       | )          | (4       | )          |
| Net cash provided by (used in) operating activities                                                                             | ** ** | **49**     |       | (11      | )          | 149      |       |
|                                                                                                                            | ** ** | ** ** |       |     |       |     |       |
| **CASH FLOWS FROM INVESTING  ACTIVITIES**                                                                                       | ** ** | ** ** |       |     |       |     |       |
| Net proceeds from divestments                                                                                                   | ** ** | **3**      |       | 64       |       | 186      |       |
| Payments for acquisitions, net of cash acquired                                                                                 | ** ** | **(5**     | **)**      | (41      | )          | (165     | )          |
| Capital expenditures                                                                                                            | ** ** | **(56**    | **)**      | (121     | )          | (117     | )          |
| Other investing activities                                                                                                      | ** ** | **—** |       | —   |       | 13       |       |
| Net cash used in investing activities                                                                                           | ** ** | **(58**    | **)**      | (98      | )          | (83      | )          |
|                                                                                                                            | ** ** | ** ** |       |     |       |     |       |
| **CASH FLOWS FROM FINANCING  ACTIVITIES**                                                                                       | ** ** | ** ** |       |     |       |     |       |
| Proceeds from debtor-in-possession credit facility,  net                                                                        | ** ** | **250**    |       | —   |       | —   |       |
| (Payments on) proceeds from credit facility, net                                                                                | ** ** | **(28**    | **)**      | 180      |       | —   |       |
| Proceeds from long term borrowings                                                                                              | ** ** | **1**      |       | 1        |       | —   |       |
| Payments on long term borrowings                                                                                                | ** ** | **(18**    | **)**      | (31      | )          | —   |       |
| Payments on short term borrowings, net                                                                                          | ** ** | **(2**     | **)**      | (1       | )          | (48      | )          |
| Premium paid on early extinguishment of debt                                                                                    | ** ** | **—** |       | (1       | )          | —   |       |
| Payments for debt issuance costs                                                                                                | ** ** | **(30**    | **)**      | —   |       | —   |       |
| Dividends paid                                                                                                                  | ** ** | **—** |       | (36      | )          | (48      | )          |
| Proceeds from exercise of stock options                                                                                         | ** ** | **—** |       | 1        |       | 7        |       |
| Other financing activities                                                                                                      | ** ** | **—** |       | 1        |       | (1       | )          |
| Net cash provided by (used in) financing activities                                                                             | ** ** | **173**    |       | 114      |       | (90      | )          |
|                                                                                                                            | ** ** | ** ** |       |     |       |     |       |
| **CASH AND CASH EQUIVALENTS**                                                                                                   | ** ** | ** ** |       |     |       |     |       |
| Effect of exchange rates on cash and cash  equivalents                                                                          | ** ** | **4**      |       | (14      | )          | 6        |       |
| Change in cash and cash equivalents                                                                                             | ** ** | **168**    |       | (9       | )          | (18      | )          |
| Cash and cash equivalents at beginning of year                                                                                  | ** ** | **68**     |       | 77       |       | 95       |       |
| Cash and cash equivalents at end of year                                                                                        |       | $          | **236**    |     | $          | 68       |       | $ | 77 |   |

 

See Accompanying Notes to Consolidated FinancialStatements.

 

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# **CHEMTURACORPORATION AND SUBSIDIARIES**

# **(DEBTOR-IN-POSSESSION)**

**CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY**

Years ended December 31, 2009, 2008 and 2007

*(In millions, except per share data)*

 
| ** **                                                                                    | ** ** | ** ** | ** ** | ** **   | ** ** | ** ** | ** ** | ** **     | ** ** | ** **      | ** ** | **Accumulated**    | ** ** | ** **   | ** ** | ** **      | ** ** | ** ** | ** ** |
|-----------------------------------------------------------------------------------------------|------------|------------|------------|--------------|------------|------------|------------|----------------|------------|-----------------|------------|--------------------|------------|--------------|------------|-----------------|------------|------------|------------|
| ** **                                                                                    | ** ** | **Common** | ** ** | ** **   | ** ** | ** ** | ** ** | **Additional** | ** ** | ** **      | ** ** | **Other**          | ** ** | ** **   | ** ** | **Non**         | ** ** | ** ** | ** ** |
| ** **                                                                                    | ** ** | **Shares** | ** ** | **Treasury** | ** ** | **Common** | ** ** | **Paid-in**    | ** ** | **Accumulated** | ** ** | **Comprehensive**  | ** ** | **Treasury** | ** ** | **Controlling** | ** ** | ** ** | ** ** |
| ** **                                                                                    | ** ** | **Issued** | ** ** | **Shares**   | ** ** | **Stock**  | ** ** | **Capital**    | ** ** | **Deficit**     | ** ** | **Income  (Loss)** | ** ** | **Stock**    | ** ** | **Interests**   | ** ** | **Total**  | ** ** |
| **Balance, January 1, 2007**                                                             |       | 252.3      |       | 11.5         |       | 3          |       | 3,005          |       | (1,128          | )          | (34                | )          | (167         | )          | 40              |       | 1,719      |       |
| Comprehensive  income:                                                                        |       |       |       |         |       |       |       |           |       |            |       |               |       |         |       |            |       |       |       |
| Net  (loss) earnings                                                                          |       |       |       |         |       |       |       |           |       | (3              | )          |               |       |         |       | 8               |       | 5          |       |
| Equity  adjustment for translation of foreign currencies, net of deferred tax expense  of $44 |       |       |       |         |       |       |       |           |       |            |       | 145                |       |         |       | (1              | )          | 144        |       |
| Unrecognized  pension and post-retirement plan costs, net of deferred tax expense of $18      |       |       |       |         |       |       |       |           |       |            |       | 50                 |       |         |       | 3               |       | 53         |       |
| Changes  in fair value of derivatives                                                         |       |       |       |         |       |       |       |           |       |            |       | 7                  |       |         |       |            |       | 7          |       |
| Total  comprehensive income                                                                   |       |       |       |         |       |       |       |           |       |            |       |               |       |         |       |            |       | 209        |       |
| Cash  dividends ($0.20 per share)                                                             |       |       |       |         |       |       |       |           |       | (48             | )          |               |       |         |       |            |       | (48        | )          |
| Other                                                                                         |       |       |       |         |       |       |       |           |       |            |       |               |       |         |       | (4              | )          | (4         | )          |
| Stock-based  compensation                                                                     |       |       |       |         |       |       |       | 10             |       |            |       |               |       |         |       |            |       | 10         |       |
| Stock  options exercised                                                                      |       | 0.9        |       |         |       |       |       | 8              |       |            |       |               |       |         |       |            |       | 8          |       |
| Other  issuances                                                                              |       | 0.4        |       |         |       |       |       | 5              |       |            |       |               |       |         |       |            |       | 5          |       |
| **Balance, December 31, 2007**                                                           |       | 253.6      |       | 11.5         |       | 3          |       | 3,028          |       | (1,179          | )          | 168                |       | (167         | )          | 46              |       | 1,899      |       |
| Effect  of change in measurement date for pension plans                                       |       |       |       |         |       |       |       |           |       | (1              | )          |               |       |         |       |            |       | (1         | )          |
| **Balance, January 1, 2008**                                                             |       | 253.6      |       | 11.5         |       | 3          |       | 3,028          |       | (1,180          | )          | 168                |       | (167         | )          | 46              |       | 1,898      |       |
| Comprehensive  loss:                                                                          |       |       |       |         |       |       |       |           |       |            |       |               |       |         |       |            |       |       |       |
| Net  (loss) earnings                                                                          |       |       |       |         |       |       |       |           |       | (973            | )          |               |       |         |       | 2               |       | (971       | )          |
| Equity  adjustment for translation of foreign currencies, net of deferred tax expense  of $10 |       |       |       |         |       |       |       |           |       |            |       | (189               | )          |         |       | (2              | )          | (191       | )          |
| Unrecognized  pension and post-retirement plan costs, net of deferred tax benefit of $19      |       |       |       |         |       |       |       |           |       |            |       | (186               | )          |         |       |            |       | (186       | )          |
| Changes  in fair value of derivatives                                                         |       |       |       |         |       |       |       |           |       |            |       | (1                 | )          |         |       |            |       | (1         | )          |
| Total  comprehensive loss                                                                     |       |       |       |         |       |       |       |           |       |            |       |               |       |         |       |            |       | (1,349     | )          |
| Cash  dividends ($0.15 per share)                                                             |       |       |       |         |       |       |       |           |       | (36             | )          |               |       |         |       |            |       | (36        | )          |
| Dividends                                                                                     |       |       |       |         |       |       |       |           |       |            |       |               |       |         |       | (1              | )          | (1         | )          |
| Acquisition  of noncontrolling interests’ share of subsidiaries                          |       |       |       |         |       |       |       |           |       |            |       |               |       |         |       | (35             | )          | (35        | )          |
| Other                                                                                         |       |       |       |         |       |       |       |           |       |            |       |               |       |         |       | 3               |       | 3          |       |
| Stock-based  compensation                                                                     |       |       |       |         |       |       |       | 6              |       |            |       |               |       |         |       |            |       | 6          |       |
| Stock  options exercised                                                                      |       | 0.1        |       |         |       |       |       | 1              |       |            |       |               |       |         |       |            |       | 1          |       |
| Other  issuances                                                                              |       | 0.4        |       |         |       |       |       | 1              |       |            |       |               |       |         |       |            |       | 1          |       |
| **Balance, December 31, 2008**                                                           |       | 254.1      |       | 11.5         |       | 3          |       | 3,036          |       | (2,189          | )          | (208               | )          | (167         | )          | 13              |       | 488        |       |
| Comprehensive  loss:                                                                          |       |       |       |         |       |       |       |           |       |            |       |               |       |         |       |            |       |       |       |
| Net  loss                                                                                     |       |       |       |         |       |       |       |           |       | (293            | )          |               |       |         |       | 1               |       | (292       | )          |
| Equity  adjustment for translation of foreign currencies                                      |       |       |       |         |       |       |       |           |       |            |       | 51                 |       |         |       |            |       | 51         |       |
| Unrecognized  pension and post-retirement plan costs, net of deferred tax provision of $1     |       |       |       |         |       |       |       |           |       |            |       | (78                | )          |         |       |            |       | (78        | )          |
| Changes  in fair value of derivatives                                                         |       |       |       |         |       |       |       |           |       |            |       | 1                  |       |         |       |            |       | 1          |       |
| Total  comprehensive loss                                                                     |       |       |       |         |       |       |       |           |       |            |       |               |       |         |       |            |       | (318       | )          |
| Other                                                                                         |       |       |       |         |       |       |       |           |       |            |       |               |       |         |       | (1              | )          | (1         | )          |
| Stock-based  compensation                                                                     |       |       |       |         |       |       |       | 3              |       |            |       |               |       |         |       |            |       | 3          |       |
| Other  issuances                                                                              |       | 0.3        |       |         |       |       |       | —         |       |            |       |               |       |         |       |            |       | —     |       |
| **Balance, December 31, 2009**                                                           |       | 254.4      |       | 11.5         |       | $          | 3          |           | $          | 3,039           |       | $                  | (2,482     | )            | $          | (234            | )          | $          | (167       | ) | $ | 13 |   | $ | 172 |   |
|                                                                                               |            |            |            |              |            |            |            |                |            |                 |            |                    |            |              |            |                 |            |            |            |  |  |  |  |  |  |  |

 

See Accompanying Notes to Consolidated FinancialStatements.

 

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# **CHEMTURACORPORATION AND SUBSIDIARIES**

# **(DEBTOR-IN-POSSESSION)**

#  

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

 

**1) NATURE OF OPERATIONS AND BANKRUPTCY PROCEEDINGS**

 

**Nature of Operations**

 

Chemtura Corporation, together with its consolidatedsubsidiaries (the “Company” or “Chemtura”) is dedicated to deliveringinnovative, application-focused specialty chemical and consumer productofferings.  Chemtura’s principal executiveoffices are located in Philadelphia, Pennsylvania and Middlebury,Connecticut.  Chemtura operates in a widevariety of end-use industries, including automotive, transportation,construction, packaging, agriculture, lubricants, plastics for durable andnon-durable goods, electronics, and pool and spa chemicals.

 

Chemtura is the successor to Crompton & KnowlesCorporation (“Crompton & Knowles”), which was incorporated inMassachusetts in 1900 and engaged in the manufacture and sale of specialtychemicals beginning in 1954.  Crompton &Knowles traces its roots to the Crompton Loom Works incorporated in the1840s.  Chemtura expanded its specialty chemical business through acquisitions inthe United States and Europe, including the 1996 acquisition of UniroyalChemical Company, Inc. (“Uniroyal”), the 1999 merger with WitcoCorporation (“Witco”) and the 2005 acquisition of Great Lakes ChemicalCorporation (“Great Lakes”).

 

**Liquidity and Bankruptcy Proceedings**

 

The Company entered 2009 with significantly constrainedliquidity.  The fourth quarter of 2008saw an unprecedented reduction in orders for the Company’s products as theglobal recession deepened and customers saw or anticipated reductions in demandin the industries they served.  Theimpact was more pronounced on those business segments that served cyclicallyexposed industries. As a result, the Company’s sales and overall financialperformance deteriorated resulting in the Company’s non-compliance with the twofinancial maintenance covenants under its Amended and Restated CreditAgreement, dated as of July 31, 2007 (the “2007 Credit Facility”) as of December 31,2008.  On December 30, 2008, theCompany obtained a 90-day waiver of compliance with these covenants from thelenders under the 2007 Credit Facility.

 

The Company’s liquidity was further constrained in thefourth quarter of 2008 by changes in the availability under its accountsreceivable financing facilities in the United States and Europe.  The eligibility criteria and reserverequirements under the Company’s prior U.S. accounts receivable facility (the “U.S.Facility”) tightened in the fourth quarter of 2008 following a credit ratingdowngrade, significantly reducing the value of accounts receivable that couldbe sold under the U.S. Facility compared with the third quarter of 2008.  Additionally, the availability and access tothe Company’s European accounts receivable financing facility (the “EuropeanFacility”) was restricted in late December 2008 because of the Company’sfinancial performance resulting in the Company’s inability to sell additionalreceivables under the European Facility.

 

The crisis in the credit markets compounded theliquidity challenges faced by the Company. Under normal market conditions, the Company believed it would have beenable to refinance its $370 million notes maturing on July 15, 2009 (the “2009Notes”) in the debt capital markets. However, with the deterioration of the credit market in the late summerof 2008 combined with the Company’s deteriorating financial performance, theCompany did not believe it would be able to refinance the 2009 Notes oncommercially reasonable terms, if at all. As a result, the Company sought to refinance the 2009 Notes through thesale of one of its businesses.

 

On January 23, 2009, a special-purpose subsidiaryof the Company entered into a new three-year U.S. accounts receivable financingfacility (the “2009 U.S. Facility”) that restored most of the liquidity thatthe Company had available to it under the prior U.S. accounts receivablefacility before the fourth quarter of 2008 events described above.  However, despite good faith discussions, theCompany was unable to agree to terms under which it could resume the sale ofaccounts receivable under its European Facility during the first quarter of2009.  The balance of accounts receivablepreviously sold under the facility continued to decline, offsetting much of thebenefit to liquidity gained by the new 2009 U.S. Facility.  During the second quarter of 2009, with noagreement to restart the European Facility, the remaining balance of theaccounts receivable previously sold under the facility were settled and theEuropean Facility was terminated.

 

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January 2009 saw no improvement in customer demandfrom the depressed levels in December 2008 and some business segmentsexperienced further deterioration. Although February and March of 2009 saw incrementalimprovement in net sales compared to January 2009, overall businessconditions remained difficult as sales declined by 43% in the first quarter of2009 compared to the first quarter of 2008. As awareness grew of the Company’s constrained liquidity anddeteriorating financial performance, suppliers began restricting trade creditand, as a result, liquidity dwindled further. Despite moderate cash generation through inventory reductions andrestrictions on discretionary expenditures, the Company’s trade creditcontinued to tighten, resulting in unprecedented restrictions on its ability toprocure raw materials.

 

In January and February of 2009, the Companywas in the midst of the asset sale process with the objective of closing atransaction prior to the July 15, 2009 maturity of the 2009 Notes.  Potential buyers conducted due diligence andworked towards submitting their final offers on several of the Company’sbusinesses.  However, with the continuingrecession and speculation about the financial condition of the Company,potential buyers became progressively more cautious.  Certain potential buyers expressed concernabout the Company’s ability to perform its obligations under a saleagreement.  They increased their duediligence requirements or decided not to proceed with a transaction.  In March 2009, the Company concludedthat although there were potential buyers of its businesses, a sale wasunlikely to be closed in sufficient time to offset the continued deteriorationin liquidity or at a value that would provide sufficient liquidity to bothoperate the business and meet the Company’s impending debt maturities.

 

By March 2009, dwindling liquidity and growingrestrictions on available trade credit resulted in production stoppages asraw materials could not be purchased on a timely basis.  At the same time, the Company concluded thatit was improbable that it could resume sales of accounts receivable under itsEuropean Facility or complete the sale of a business in sufficient time toprovide the immediate liquidity it needed to operate.  Absent such an infusion of liquidity, theCompany would likely experience increased production stoppages orsustained limitations on its business operations that ultimately would have adetrimental effect on the value of the Company’s business as a whole.  Specifically, the inability to maintain andstabilize its business operations would result in depleted inventories, missedsupply obligations and damaged customer relationships.

 

Having carefully explored and exhausted allpossibilities to gain near-term access to liquidity, the Company determinedthat debtor-in-possession financing presented the best available alternativefor the Company to meet its immediate and ongoing liquidity needs and preservethe value of the business.  As a result,having obtained the commitment of a $400 million senior secured super-prioritydebtor-in-possession credit facility agreement (the “DIP Credit Facility”),Chemtura and 26 of its subsidiaries organized in the United States (collectively,the “Debtors”) filed for relief under Chapter 11 of Title 11 of the UnitedStates Bankruptcy Code (the “Bankruptcy Code”) on March 18, 2009 (the “PetitionDate”) in the United States Bankruptcy Court for the Southern District of NewYork (the “Bankruptcy Court”).  TheChapter 11 cases are being jointly administered by the Bankruptcy Court.  The Company’s non-U.S. subsidiaries andcertain U.S. subsidiaries were not included in the filing and are not subjectto the requirements of the Bankruptcy Code. The Company’s U.S. and worldwide operations are expected to continuewithout interruption during the Chapter 11 reorganization process.

 

The Debtors own substantially all of the Company’s U.S.assets.  The Debtors consist of Chemturaand the following subsidiaries:

 
| · | A&M Cleaning  Products LLC   | ·   Crompton Colors Incorporated           | · | Kem Manufacturing  Corporation          |
|--------|----------------------------------|------------------------------------------------------|--------|-----------------------------------------|
| · | Aqua Clear Industries,  LLC      | ·   Crompton Holding Corporation           | · | Laurel Industries  Holdings, Inc.  |
| · | ASEPSIS, Inc.               | ·   Crompton Monochem, Inc.           | · | Monochem, Inc.                     |
| · | ASCK, Inc.                  | ·   GLCC Laurel, LLC                       | · | Naugatuck Treatment  Company            |
| · | BioLab, Inc.                | ·   Great Lakes Chemical Corporation       | · | Recreational Water  Products, Inc. |
| · | BioLab Company Store,  LLC       | ·   Great Lakes Chemical Global, Inc. | · | Uniroyal Chemical  Company Limited      |
| · | Biolab Franchise  Company, LLC   | ·   GT Seed Treatment, Inc.           | · | Weber City Road LLC                     |
| · | BioLab Textile  Additives, LLC   | ·   HomeCare Labs, Inc                     | · | WRL of  Indiana, Inc.              |
| · | CNK Chemical Realty  Corporation | ·   ISCI, Inc.                        |   |                                    |

 

The principal U.S. assets and business operations of theDebtors are owned by Chemtura, BioLab, Inc. and Great Lakes ChemicalCorporation.

 

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On March 18, 2009, Raymond E. Dombrowski, Jr.was appointed Chief Restructuring Officer. In connection with this appointment, the Company entered into anagreement with Alvarez & Marsal North America, LLC (“A&M”) tocompensate A&M for Mr. Dombrowski’s services as Chief RestructuringOfficer on a monthly basis at a rate of $150 thousand per month and incentivecompensation in the amount of $3 million payable upon the earlier of (a) theconsummation of a Chapter 11 plan of reorganization (“Plan”) or (b) thesale, transfer, or other disposition of all or a substantial portion of theassets or equity of the Company.  Mr. Dombrowskiis independently compensated pursuant to arrangements with A&M, a financialadvisory and consulting firm specializing in corporate restructuring. Mr. Dombrowskiwill not receive any compensation directly from the Company and will notparticipate in any of the Company’s employee benefit plans.

 

The Chapter 11 cases were filed to gain liquidity forcontinuing operations while the Debtors restructure their balance sheets toallow the Company to continue as a viable going concern.  While the Company believes it will be able toachieve these objectives through the Chapter 11 reorganization process, therecan be no certainty that it will be successful in doing so.

 

Under Chapter 11 of the Bankruptcy Code, the Debtors areoperating their U.S. businesses as a debtor-in-possession (“DIP”) under theprotection of the Bankruptcy Court from their pre-filing creditors andclaimants.  Since the filing, all ordersof the Bankruptcy Court sufficient to enable the Debtors to conduct normalbusiness activities, including “first day” motions and the interim and finalapproval of the DIP Credit Facility and amendments thereto, have been enteredby the Bankruptcy Court.  While theDebtors are subject to Chapter 11, all transactions outside the ordinary courseof business will require the prior approval of the Bankruptcy Court.

 

On March 20, 2009, the Bankruptcy Court approvedthe Debtors’ “first day” motions. Specifically, the Bankruptcy Court granted the Debtors, among otherthings, interim approval to access $190 million of its $400 million DIP CreditFacility, approval to pay outstanding employee wages, health benefits, andcertain other employee obligations and authority to continue to honor theircurrent customer policies and programs, in order to ensure the reorganizationprocess will not adversely impact their customers.  On April 29, 2009, the Bankruptcy Courtentered a final order providing full access to the $400 million DIP CreditFacility.  The Bankruptcy Court alsoapproved Amendment No. 1 to the DIP Credit Facility which provided for,among other things: (i) an increase in the outstanding amount ofinter-company loans the Debtors could make to the non-debtor foreignsubsidiaries of the Company from $8 million to $40 million; (ii) areduction in the required level of borrowing availability under the minimumavailability covenant; and (iii) the elimination of the requirement to payadditional interest expense if a specified level of accounts receivablefinancing was not available to the Company’s European subsidiaries.

 

On July 13, 2009, the Company and the parties tothe DIP Credit Facility entered into Amendment No. 2 to the DIP CreditFacility subject to approvals by the Bankruptcy Court and the Company’s Boardof Directors which approvals were obtained on July 14 and July 15,2009, respectively.  Amendment No. 2amended the DIP Credit Facility to provide for, among other things, an optionby the Company to extend the maturity of the DIP Credit Facility for twoconsecutive three month periods subject to the satisfaction of certainconditions.  Prior to Amendment No. 2,the DIP Credit Facility matured on the earlier of 364 days (from the PetitionDate), the effective date of a Plan or the date of termination in whole of theCommitments (as defined in the DIP Credit Facility).

 

Asa consequence of the Chapter 11 cases, substantially all pre-petitionlitigation and claims against the Debtors have been stayed.  Accordingly, no party may take any action tocollect pre-petition claims or to pursue litigation arising as a result ofpre-petition acts or omissions except pursuant to an order of the BankruptcyCourt.

 

OnAugust 21, 2009, the Bankruptcy Court established October 30, 2009 asthe deadline for the filing of proofs of claim against the Debtors (the “BarDate”).  Under certain limitedcircumstances, some creditors may be permitted to file proofs of claim afterthe Bar Date.  Accordingly, it ispossible that not all potential proofs of claim were filed as of the filing ofthis Annual Report.

 

TheDebtors have received approximately 15,300 proofs of claim covering a broadarray of areas.  Approximately 8,000proofs of claim have been asserted in “unliquidated” amounts or contain anunliquidated component that are treated as being asserted in “unliquidated”amounts.  Excluding proofs of claim in “unliquidated”amounts, the aggregate amount of proofs of claim filed totaled approximately$23.6 billion.  See Note 21 - LegalProceedings and Contingencies for a discussion of the types of proofs of claimfiled against the Debtors.

 

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TheCompany is in the process of evaluating the amounts asserted in and the factualand legal basis of the proofs of claim filed against the Debtors.  Based upon the Company’s initial review andevaluation, which is continuing, a significant number of proofs of claim areduplicative and/or legally or factually without merit.  As to those claims, the Company has filed andintends to file objections with the Bankruptcy Court.  However, there can be no assurance that theseclaims will not be allowed in full.

 

Further, while the Debtors believe they have insuranceto cover certain asserted claims, there can be no assurance that materialuninsured obligations will not be allowed as claims in the Chapter 11cases.  Because of the substantial numberof asserted contested claims, as to which review and analysis is ongoing, thereis no assurance as to the ultimate value of claims that will be allowed in theChapter 11 cases, nor is there any assurance as to the ultimate recoveries forthe Debtors’ stakeholders, including the Debtors’ bondholders and the Company’sshareholders.  The differences betweenamounts recorded by the Debtors and proofs of claim filed by the creditors willcontinue to be investigated and resolved through the claims reconciliationprocess.

 

TheCompany has recognized certain charges related to expected allowed claims.  As the Company completes the process ofevaluating and resolving the proofs of claim, appropriate adjustments to theCompany’s Consolidated Financial Statements will be made.  Adjustments may also result from actions ofthe Bankruptcy Court, settlement negotiations, rejection of executory contractsand real property leases, determination as to the value of any collateralsecuring claims and other events.  Anysuch adjustments could be material to the Company’s results of operations andfinancial condition in any given period. For additional information on liabilities subject to compromise, seeNote 4 - Liabilities Subject to Compromise and Reorganization Items, Net.

 

Asprovided by the Bankruptcy Code, the Debtors have the exclusive right to fileand solicit acceptance of a Plan for 120 days after the Petition Date with thepossibility of extensions thereafter.  OnFebruary 23, 2010, the Bankruptcy Court granted the Company’s applicationfor extensions of the period during which it has the exclusive right to file aPlan from February 11, 2010 to June 11, 2010.  The Bankruptcy Court had previously grantedthe Company’s application for an extension of the exclusivity period on July 28,2009 and October 27, 2009.  There can be no assurance that a Plan will befiled by the Debtors or confirmed by the Bankruptcy Court, or that any suchPlan will be consummated.  After a Planhas been filed with the Bankruptcy Court, the Plan, along with a disclosurestatement approved by the Bankruptcy Court, will be sent to all creditors andother parties entitled to vote to accept or reject the Plan.  Following the solicitation period, theBankruptcy Court will consider whether to confirm the Plan.  In order to confirm a Plan, the BankruptcyCourt must make certain findings as required by the Bankruptcy Code.  The Bankruptcy Court may confirm a Plannotwithstanding the non-acceptance of the Plan by an impaired class of creditorsor equity security holders if certain requirements of the Bankruptcy Code aremet.

 

OnJanuary 15, 2010 the Company entered into Amendment No. 3 of the DIPCredit Facility that provided for, among other things, the consent of theCompany’s DIP lenders to the sale of the PVC additives business.

 

On February 9, 2010, the Court gave interimapproval of an Amended and Restated Senior Secured Super-PriorityDebtor-in-Possession Credit Agreement (the “Amended and Restated DIP CreditAgreement”) by and among the Debtors, Citibank N.A. and the other lenders partythereto.  The Amended and Restated DIPCredit Agreement provides for a first priority and priming secured revolvingand term loan credit commitment of up to an aggregate of $450 million.  The proceeds of the loans and other financialaccommodations incurred under the Amended and Restated DIP Credit Agreementwere used to, among other things, refinance the obligations outstanding underthe DIP Credit Facility and provide working capital for general corporatepurposes.  The Amended and Restated DIPCredit Agreement provided a substantial reduction in the Company’s financingcosts through interest rate reductions and the avoidance of the extension feesthat would have been payable under the DIP Credit Facility in February andMay 2010.  The Amended andRestated DIP Credit Agreement closed on February 12, 2010 with the drawingof the $300 million term loan.  On February 18,2010, the Bankruptcy Court entered a final order providing full access to theAmended and Restated DIP Credit Agreement. The Amended and Restated DIP Credit Agreement matures on the earlier of 364 days afterthe closing, the effective date of a Plan or the date of termination in wholeof the Commitments (as defined in the Amended and Restated DIP CreditAgreement).

 

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The ultimate recovery by the Debtors’ creditors and theCompany’s shareholders, if any, will not be determined until confirmation andimplementation of a Plan.  No assurancecan be given as to what recoveries, if any, will be assigned in the Chapter 11cases to each of these constituencies.  APlan could result in the Company’s shareholders receiving little or no valuefor their interests and holders of the Debtors’ unsecured debt, including tradedebt and other general unsecured creditors, receiving less, and potentiallysubstantially less, than payment in full for their claims.  Because of such possibilities, the value ofthe Company’s common stock and unsecured debt is highly speculative.  Accordingly, the Company urges thatappropriate caution be exercised with respect to existing and futureinvestments in any of these securities. Although the shares of the Company’s common stock continue to trade onthe Pink Sheets Electronic Quotation Service (“Pink Sheets”) under the symbol “CEMJQ,”the trading prices may have little or no relationship to the actual recovery,if any, by the holders under any eventual Bankruptcy Court-approved Plan.  The opportunity for any recovery by holdersof the Company’s common stock under such Plan is uncertain as all creditors’claims must be met in full, with interest where due, before value can beattributed to the common stock and, therefore, the shares of the Company’scommon stock may be cancelled without any compensation pursuant to such Plan.

 

Continuation of the Company as a going concern iscontingent upon, among other things, the Company’s and/or Debtors’ ability (i) tocomply with the terms and conditions of the Amended and Restated DIP CreditAgreement; (ii) to obtain confirmation of a Plan under the BankruptcyCode; (iii) to return to profitability; (iv) to generate sufficientcash flow from operations; and (v) to obtain financing sources to meet theCompany’s future obligations.  Thesematters raise substantial doubt about the Company’s ability to continue as agoing concern.  The ConsolidatedFinancial Statements do not reflect any adjustments relating to therecoverability and classification of recorded asset amounts or the amounts andclassification of liabilities that might result from the outcome of theseuncertainties.  Additionally, a Plancould materially change amounts reported in the Consolidated FinancialStatements, which do not give effect to all adjustments of the carrying valueof assets and liabilities that may be necessary as a consequence of completinga reorganization under Chapter 11 of the Bankruptcy Code.

 

In addition, as part of the Company’s emergence frombankruptcy protection, the Company may be required to adopt fresh startaccounting in a future period.  If freshstart accounting is applicable, our assets and liabilities will be recorded atfair value as of the fresh start reporting date.  The fair value of our assets and liabilitiesas of such fresh start reporting date may differ materially from the recordedvalues of assets and liabilities on our Consolidated Balance Sheets.  Further, if fresh start accounting isrequired, the financial results of the Company after the application of freshstart accounting may not be comparable to historical trends.

 

**2) BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES**

 

**Basis of Presentation**

 

The accompanying Consolidated Financial Statementsinclude the accounts of Chemtura and the wholly-owned and majority-ownedsubsidiaries that it controls.  Otheraffiliates in which the Company has a 20% to 50% ownership interest or anon-controlling majority interest are accounted for in accordance with theequity method.  Other investments inwhich the Company has less than 20% ownership are recorded at cost.  All significant intercompany balances andtransactions have been eliminated in consolidation.

 

The Consolidated Financial Statements have been preparedin accordance with Accounting Standards Codification (“ASC”) Section 852-10-45, *Reorganizations- Other Presentation Matters* (“ASC 852-10-45”).  ASC 852-10-45 does not ordinarily affect orchange the application of U.S. generally accepted accounting principles (“GAAP”).  However, it does require the Company todistinguish transactions and events that are directly associated with thereorganization in connection with the Chapter 11 cases from the ongoingoperations of the business.  Expensesincurred and settlement impacts due to the Chapter 11 cases are reportedseparately as reorganization items, net on the Consolidated Statements ofOperations for the year ended December 31, 2009.  Interest expense related to pre-petitionindebtedness has been reported only to the extent that it will be paid duringthe pendency of the Chapter 11 cases or is permitted by Bankruptcy Courtapproval or is expected to be an allowed claim. The pre-petition liabilities subject to compromise are disclosedseparately on the December 31, 2009 Consolidated Balance Sheet.  These liabilities are reported at the amountsexpected to be allowed by the Bankruptcy Court, even if they may be settled fora lesser amount.  These expected allowedclaims require management to estimate the likely claim amount that will beallowed by the Bankruptcy Court prior to its ruling on the individualclaims.  These estimates are based onreviews of claimants’ supporting material, obligations to mitigate such claims,and assessments by management and third-party advisors.  The Company expects that its estimates,although based on the best available information, will change as the claims areresolved by the Bankruptcy Court.

 

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The Consolidated Financial Statements have been preparedin conformity with GAAP, which require the Company to make estimates andassumptions that affect the reported amounts of assets and liabilities anddisclosures of contingent assets and liabilities at the date of the financialstatements and the reported amounts of revenues and expenses during thereporting period.  Actual results coulddiffer from these estimates.

 

**Discontinued Operations**

 

The Company sold certain assets and assigned certainliabilities of its EPDM business on June 29, 2007 and its optical monomersbusiness on October 31, 2007. The Company sold itsfluorine chemical business on January 31,2008.  As a result, the operations ofthese businesses have been classified as discontinued operations in theConsolidated Statements of Operations for all periods presented.  The Consolidated Statements of Cash Flowshave not been adjusted to reflect the discontinued operations and, thus,include the cash flows of the discontinued businesses.  See Note 5 - Acquisitions and Divestments -Discontinued Operations for further information.

 

**Accounting Policies**

 

*Revenue Recognition*

 

Substantiallyall of the Company’s revenues are derived from the sale of products.  Revenue is recognized when risk of loss of,and title to, the product is transferred to the customer.  Revenue is recorded net of taxes collectedfrom customers that are remitted to governmental authorities with the collectedtaxes recorded as current liabilities until remitted to the respectivegovernmental authorities.  The Company’sproducts are sold subject to various shipping terms. The Company’s terms ofdelivery are included on its sales invoices and order confirmation documents.

 

*Customer Rebates*

 

The Company accrues for theestimated cost of customer rebates as a reduction of sales.  Customer rebates are primarily based oncustomers achieving defined sales targets over a specified period of time.  The Company estimates the cost of theserebates based on the likelihood of the rebate being achieved and recognizes thecost as a deduction from sales when such sales are recognized.  Rebate programs are monitored on a regularbasis and adjusted as required.  TheCompany’s accruals for customer rebates were $19 million and $21 million at December 31,2009 and 2008, respectively.

 

***Operating Costs and Expenses***

 

Cost of goods sold (“COGS”)includes all costs incurred in manufacturing goods, including raw materials,direct manufacturing costs and manufacturing overhead.  COGS also includes warehousing, distribution,engineering, purchasing, customer service, environmental, health and safetyfunctions, and shipping and handling costs for outbound product shipments.  Selling, general and administrative expenses(“SG&A”) include costs and expenses related to the following functions andactivities: selling, advertising, legal, provision for doubtful accounts,corporate facilities and corporate administration.  SG&A also includes accounting,information technology, finance and human resources, excluding direct supportin manufacturing operations, which is included as COGS.  Research and development expenses (“R&D”)include basic and applied research and development activities of a technicaland non-routine nature.  R&D costsare expensed as incurred.  COGS, SG&Aand R&D expenses exclude depreciation and amortization expenses which arepresented on a separate line in the Consolidated Statements of Operations.

 

*Other Income (Expense), Net*

 

Otherincome (expense), net includes costs associated with the Company’s accountsreceivable facilities, foreign exchange gains (losses), and interest income.

 

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| **(In millions)**                                 | ** ** | **2009**   | ** ** | **2008** | ** ** | **2007** | ** ** |
|---------------------------------------------------|------------|------------|------------|----------|------------|----------|------------|
|                                              |       |       |       |     |       |     |       |
| Costs  of accounts receivable facilities          | ** ** | **$**      | **(2**     | **)**    | $          | (16      | )          | $ | (21 | ) |
| Foreign  exchange gain (loss)                     | ** ** | **(23**    | **)**      | 25       |       | 11       |       |
| Interest  income                                  | ** ** | **7**      |       | 8        |       | 7        |       |
| Other  accounts receivable financing              | ** ** | **(1**     | **)**      | (1       | )          | (1       | )          |
| Fees  associated with debt waivers and amendments | ** ** | **—** |       | (6       | )          | —   |       |
| Other  items, individually less than $1 million   | ** ** | **2**      |       | (1       | )          | (1       | )          |
|                                              | ** ** | **$**      | **(17**    | **)**    | $          | 9        |       | $ | (5 | ) |

 

*Allowancefor Doubtful Accounts*

 

Included in accounts receivable are allowances fordoubtful accounts in the amount of $32 million in 2009 and $26 million in2008.  The allowance for doubtfulaccounts reflects a reserve representing the Company’s estimate of the amountsthat may not be collectible.  In additionto reviewing delinquent accounts receivable, the Company considers many factorsin estimating its reserves, including historical data, experience, customertypes, credit worthiness, and economic trends. From time to time, the Companymay adjust its assumptions for anticipated changes in any of these or otherfactors expected to affect collection.

 

*InventoryValuation*

 

Inventories are valued at the lowerof cost or market. Cost is determined using the first-in, first-out (“FIFO”)method.

 

# ***Property, Plant and Equipment***

 

Property,plant and equipment are carried at cost, less accumulated depreciation.  Depreciation expense from continuingoperations ($134 million in 2009, $192 million in 2008, and $229 million in2007) is computed on the straight-line method using the following ranges ofasset lives: land improvements - 3 to 20 years; buildings and improvements - 2to 40 years; machinery and equipment - 2 to 25 years; information systems and equipment- 2 to 10 years; and furniture, fixtures and other - 1 to 10 years.

 

Renewalsand improvements that significantly extend the useful lives of the assets arecapitalized.  Capitalized leased assetsand leasehold improvements are depreciated over the shorter of their usefullives or the remaining lease term. Expenditures for maintenance and repairs are charged to expense asincurred.

 

# ***Intangible Assets***

 

Patents, trademarks and other intangibles arebeing amortized principally on a straight-line basis using the following rangesfor their estimated useful lives: patents 4 to 20 years; trademarks 7 to 35years; customer relationships 10 to 30 years; production rights 11 years; andother intangibles 5 to 20 years.  SeeNote 10 — Goodwill and Intangible Assets for further details.

#  

# ***Recoverability of Long-Lived Assets andGoodwill***

 

The Company evaluates therecoverability of the carrying value of its long-lived assets, excludinggoodwill, whenever events or changes in circumstances indicate that thecarrying value may not be recoverable. Under such circumstances, the Companyassesses whether the projected undiscounted cash flows of its businesses aresufficient to recover the existing unamortized cost of its long-livedassets.  If the undiscounted projectedcash flows are not sufficient, the Company calculates the impairment amount bydiscounting the projected cash flows using its weighted-average cost ofcapital.  The amount of the impairment iswritten off against earnings in the period in which the impairment isdetermined.

 

The Company evaluates therecoverability of the carrying value of goodwill on an annual basis as of July 31,or when events occur or circumstances change. See Note 10 — Goodwill and Intangible Assets for further details.

 

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*Environmental Liabilities*

 

Eachquarter the Company evaluates and reviews estimates for future remediation,operation and management costs directly related to remediation, to determineappropriate environmental reserve amounts. For each site where the cost of remediation is probable and reasonablyestimable, we determine the specific measures that are believed to be requiredto remediate the site, the estimated total cost to carry out the remediationplan, the portion of the total remediation costs to be borne by the Company andthe anticipated time frame over which payments toward the remediation plan willoccur. At sites where the Company expects to incur ongoing operations andmaintenance expenditures, the Company accrues on an undiscounted basis for aperiod of generally 10 years, those costs which are probable and reasonablyestimable.  Where settlement offers havebeen extended to resolve an environmental liability as part of the Chapter 11cases, the amounts of those offers have been accrued and are reflected in theConsolidated Balance Sheet as liabilities subject to compromise.

 

*Litigationand Contingencies*

 

Inaccordance with guidance now codified under ASC Topic 450, *Contingencies*,the Company records in its Consolidated Financial Statements amountsrepresenting the Company’s estimated liability for claims, guarantees andlitigation.  As information about currentor future litigation or other contingencies becomes available, managementassesses whether such information warrants the recording of additional expensesrelating to those contingencies.  SeeNote 21 — Legal Proceedings andContingencies for further details.

 

*Stock-BasedCompensation*

 

InDecember 2004, the FASB issued guidance now codified under ASC Topic 718, *Compensation — Stock Compensation*.  ASC 718 requires all share-based payments toemployees, including grants of employee stock options, to be recognized in thefinancial statements based on their fair value beginning with the first annualperiod after June 15, 2005. Effective January 1, 2006, the Company adopted the provisions ofASC 718 using the modified prospective method. Under the modified prospectivemethod, the compensation cost for all new awards and awards modified,repurchased or cancelled after the date of adoption of ASC 718, as well as theunrecognized compensation cost of unvested awards as of the date of adoption,are recognized in earnings based on the grant-date fair value of those awards.

 

TheCompany recognizes compensation cost for stock-based awards issued after January 1,2006 over the requisite service period for each separately vesting tranche, asif multiple awards were granted. Stock-based compensation expense recognized was $3 million, $5 million,and $10 million for the years ended December 31, 2009, 2008, and 2007,respectively, primarily attributable to the Company’s stock option program.

 

# ***Derivative Instruments***

 

Derivative instruments are presented in the accompanyingConsolidated Financial Statements at fair value as required by GAAP.  See Note 18 - Derivative Instruments andHedging Activities for further details.

#  

# ***Translation of Foreign Currencies***

 

Balance sheet accounts denominated in foreign currenciesare translated at the current rate of exchange as of the balance sheet date,while revenues and expenses are translated at average rates of exchange duringthe periods presented.  The cumulativeforeign currency adjustments resulting from such translation are included inaccumulated other comprehensive income (loss).

 

***Cash Flows***

 

Cash and cash equivalents include bank term deposits withoriginal maturities of three months or less. Included in the Company’s cash balance at December 31, 2009 and2008, are $2 million and $1 million, respectively, of restricted cash that isrequired to be on deposit to support certain letters of credit and performanceguarantees, the majority of which will be settled within one year.

 

Cash payments included interest payments of $45 millionin 2009, $80 million in 2008, and $85 million in 2007. Cash payments alsoincluded income tax payments (net of refunds) of $33 million in 2009, $60million in 2008, and $52 million in 2007.

 

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**Accounting Developments**

 

*RecentlyImplemented*

 

EffectiveJanuary 1, 2007, the Company adopted guidance now codified withinAccounting Standards Codification (“ASC”) 740 — Income Taxes (“ASC 740”), whichclarifies the accounting for uncertainty in income taxes recognized inaccordance with ASC 740.  Under ASC 740,the Company may recognize a tax benefit from an uncertain tax position only ifit is more likely than not that the tax position will be sustained onexamination by the taxing authorities, based on the technical merits of theposition.  ASC 740 also provides guidanceon derecognition, classification, interest and penalties on income taxes,accounting in interim periods and requires increased disclosures.  As a result of adopting the provisions of ASC740, the Company recognized a $2 million decrease in the income tax payableliability for unrecognized tax benefits which was accounted for as a $6 millionincrease in non-current deferred tax assets and an $8 million decrease ingoodwill.

 

InDecember 2007, the FASB issued guidance now codified as ASC Section 810-10-65,*Consolidations — Transition and Open Effective DateInformation* (“ASC 810-10-65”), which requires companies to treatnon-controlling interests (commonly referred to as minority interests) as aseparate component of shareholders’ equity and not as a liability.  The provisions of ASC 810-10-65 are effectiveas of the beginning of the Company’s 2009 fiscal year.  The presentation and disclosure requirementsof ASC 810-10-65 were applied on a retrospective basis for all periods presented.

 

InDecember 2007, the FASB issued guidance now codified as ASC Topic 805, *Business Combinations* (“ASC 805”), which requires, amongother items, that identifiable assets, liabilities, non-controlling interestsand goodwill acquired in a business combination be recorded at full fairvalue.  The provisions of ASC 805 areeffective as of the beginning of the Company’s 2009 fiscal year.  The adoption of ASC 805 did not have amaterial impact on the Company’s consolidated financial condition and results ofoperations.  Future adjustments made tovaluation allowances on deferred taxes and acquired tax contingenciesassociated with acquisitions made prior to 2009 will impact the statement ofoperations based on the provisions of ASC 805.

 

EffectiveJanuary 1, 2008, the Company adopted ASC Topic 820, *Fair ValueMeasurements and Disclosures* (“ASC 820”) with respect to itsfinancial assets and liabilities.  In February 2008,the FASB issued updated guidance related to fair value measurements, which isincluded in ASC 820.  The updatedguidance provided a one year deferral of the effective date of ASC 820 fornon-financial assets and non-financial liabilities, except those that arerecognized or disclosed in the financial statements at fair value at leastannually.  Therefore, the Company adoptedthe provisions of ASC 820 for non-financial assets and non-financialliabilities effective January 1, 2009, and such adoption did not have amaterial impact on the Company’s consolidated financial condition and resultsof operations.

 

InMarch 2008, the FASB issued guidance now codified as ASC Topic 815, *Derivatives and Hedging* (“ASC 815”), which requirescompanies with derivative instruments to disclose information about how and whya company uses derivative instruments, how derivative instruments and relatedhedged items are accounted for under ASC 815, and how derivative instrumentsand related hedged items affect a company’s financial condition, financialperformance, and cash flows.  Theprovisions of ASC 815 are effective as of the beginning of the Company’s 2009fiscal year.  The Company has adopted theprovisions of ASC 815 as of December 31, 2009 and its adoption did nothave a material impact on its results of operation, financial condition ordisclosures.

 

InDecember 2008 the FASB issued guidance now codified as ASC Topic 715, *Compensation - Retirement Benefits* (“ASC 715”) whichrequires additional disclosures about plan assets of defined benefit pensionand other postretirement benefit plans. The provisions of ASC 715 are effectivefor fiscal years ending after December 15, 2009.   The Company has adopted the provisions ofASC 715 as of December 31, 2009 and its adoption did not have a materialimpact on its results of operation, financial condition or disclosures.

 

InMay 2009, the FASB issued guidance now codified as ASC Topic 855, *Subsequent Events* (“ASC 855”), which provides authoritativeaccounting literature related to evaluating subsequent events.  ASC 855 is similar to the current guidancewith some exceptions that are not intended to result in significant change tocurrent practice.  ASC 855 definessubsequent events and also requires the disclosure of the date through which anentity has evaluated subsequent events and the basis for that date.  The provisions of ASC 855 are effective forinterim or annual financial periods ending after June 15, 2009. TheCompany has adopted the provisions of ASC 855 effective as of June 30,2009 and its adoption did not have a material impact on its results ofoperations, financial condition or its disclosures.

 

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InJune 2009, FASB issued guidance now codified as ASC Topic 105,*Generally Accepted Accounting Principles* (“ASC 105”).  ASC 105 establishes only two levels of GAAP,authoritative and non-authoritative.  TheFASB Accounting Standards Codification (the “Codification”) is the source ofauthoritative, nongovernmental GAAP, except for rules and interpretivereleases of the Securities and Exchange Commission (“SEC”), which are sourcesof authoritative GAAP for SEC registrants. All other non-grandfathered, non-SEC accounting literature not includedin the Codification will become non-authoritative.  The standard is effective for financialstatements for interim or annual reporting periods ending after September 15,2009.  As the Codification was notintended to change or alter existing GAAP, it will not have any impact on theCompany’s financial condition and results of operations.  References made to FASB guidance throughoutthis document have been updated for the Codification.

 

*FutureImplementations*

 

InJune 2009, the FASB issued guidance now codified as ASC Topic 810, *Consolidation* (“ASC 810”), which amends certain guidance fordetermining whether an entity is a variable interest entity (“VIE”).  ASC 810 requires an enterprise to perform ananalysis to determine whether the Company’s variable interests give it acontrolling financial interest in a VIE. A company would be required to assess whether it has an implicitfinancial responsibility to ensure that a VIE operates as designed whendetermining whether it has the power to direct the activities of the VIE thatmost significantly impact the entity’s economic performance.  In addition, ASC 810 requires ongoingreassessments of whether an enterprise is the primary beneficiary of aVIE.  The standard is effective forfinancial statements for interim or annual reporting periods that begin after November 15,2009.  Earlier application isprohibited.  The Company is currentlyevaluating the impact of ASC 810.

 

**Risks and Uncertainties**

 

As the Company currentlyoperates its business as debtors-in-possession under the jurisdiction of the BankruptcyCourt, and in accordance with the applicable provisions of the Bankruptcy Code,it is subject to the risks and uncertainties associated with its’ Chapter 11cases which include the following:

 

·                  The ability toobtain and maintain normal terms with customers’ vendors and service providers;

·                  The ability toobtain approval by the Bankruptcy Court for transactions outside the ordinarycourse of business;

·                  Limitations onour ability to obtain Bankruptcy Court approval with respect to motions in theChapter 11 cases; and

·                  Limitations onour ability to avoid or reject executory contracts and real property leasesthat are burdensome or uneconomical.

 

In order to successfullyemerge from Chapter 11, the Company must develop, obtain requisite Bankruptcy Courtand creditor approval of, and consummate a Plan.  If a Plan is not confirmed or if the Companyis unable to successfully consummate a Plan after confirmation, it is unclearwhether it would be able to reorganize the business and what if any distributionwould be made to claimants.

 

The Company’s revenues arelargely dependent on the continued operation of its manufacturingfacilities.  There are many risksinvolved in operating chemical manufacturing plants, including the breakdown,failure or substandard performance of equipment, operating errors, naturaldisasters, the need to comply with directives of, and maintain all necessarypermits from, government agencies and potential terrorist attacks.  The Company’s operations can be adverselyaffected by raw material shortages, labor force shortages or work stoppages andevents impeding or increasing the cost of transporting its raw materials andfinished products.  The occurrence ofmaterial operational problems, including but not limited to the events describedabove, may have a material adverse effect on the productivity and profitabilityof a particular manufacturing facility. With respect to certain facilities, such events could have a materialeffect on the Company as a whole.

 

The Company’s operations arealso subject to various hazards incident to the production of industrialchemicals.  These include the use,handling, processing, storage and transportation of certain hazardousmaterials.  Under certain circumstances,these hazards could cause personal injury and loss of life, severe damage toand destruction of property and equipment, environmental damage and suspensionof operations.  Claims arising from anyfuture catastrophic occurrence at any one of its facilities may result in theCompany being named as a defendant in lawsuits asserting potential claims.

 

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The Company performs ongoingcredit evaluations of its customers’ financial condition including anassessment of the impact, if any, of prevailing economic conditions.  The Company generally does not requirecollateral from its customers.  TheCompany is exposed to credit losses in the event of nonperformance bycounterparties on derivative instruments when utilized.  The counterparties to these transactions aremajor financial institutions, which may be adversely affected by the currentglobal credit crisis.  However, theCompany considers the risk of default to be minimal.

 

International operations aresubject to various risks which may or may not be present in U.S.operations.  These risks includepolitical instability, the possibility of expropriation, restrictions ondividends and remittances, instabilities of currencies, requirements forgovernmental approvals for new ventures and local participation in operationssuch as local equity ownership and workers’ councils.  Currency fluctuations between the U.S. dollarand the currencies in which the Company conducts business have caused and willcontinue to cause foreign currency transaction gains and losses, which may bematerial.  Any of these events could havean adverse effect on the Company’s international operations.

 

**3) CONDENSED DEBTOR COMBINED FINANCIALSTATEMENTS**

 

Condensed Combined FinancialStatements for the Debtors as of and for the year-ended December 31, 2009are presented below.  These CondensedCombined Financial Statements include investments in subsidiaries carried underthe equity method.

 

CondensedCombined Statement of Operations

(Debtor-in-Possession)

(Inmillions)

** **

| ** **                                                 | ** ** | **Year Ended**             | ** ** |
|------------------------------------------------------------|------------|----------------------------|------------|
| ** **                                                 | ** ** | **December 31, 2009** | ** ** |
|                                                       |       |                       |       |
| Net sales                                                  |       | $                          | 1,958      |   |
|                                                       |       |                       |       |
| Cost of goods sold                                         |       | 1,589                      |       |
| Selling, general and administrative                        |       | 183                        |       |
| Depreciation and amortization                              |       | 113                        |       |
| Research and development                                   |       | 21                         |       |
| Antitrust costs                                            |       | 9                          |       |
| Changes in estimates related to expected allowable  claims |       | 73                         |       |
| Impairment of long-lived assets                            |       | 54                         |       |
|                                                       |       |                       |       |
| Operating loss                                             |       | (84                        | )          |
|                                                       |       |                       |       |
| Interest expense                                           |       | (77                        | )          |
| Other expense, net                                         |       | (18                        | )          |
| Reorganization items, net                                  |       | (96                        | )          |
| Equity in net loss of subsidiaries                         |       | (43                        | )          |
|                                                       |       |                       |       |
| Loss before income taxes                                   |       | (318                       | )          |
| Income tax benefit                                         |       | 25                         |       |
| Net loss                                                   |       | $                          | (293       | ) |

 

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CondensedCombined Balance Sheet

(Debtor-in-Possession)

asof December 31, 2009

(Inmillions)

 

| ASSETS                                          | ** ** | ** ** | ** ** |
|-------------------------------------------------|------------|------------|------------|
| Current assets                                  |       | $          | 706        |   |
| Intercompany receivables                        |       | 538        |       |
| Investment in subsidiaries                      |       | 1,942      |       |
| Property, plant and equipment                   |       | 422        |       |
| Goodwill                                        |       | 149        |       |
| Other assets                                    |       | 397        |       |
| Total assets                                    |       | $          | 4,154      |   |
|                                            |       |       |       |
| LIABILITIES AND STOCKHOLDERS’ EQUITY       |       |       |       |
| Current liabilities                             |       | $          | 395        |   |
| Intercompany payables                           |       | 65         |       |
| Other long-term liabilities                     |       | 73         |       |
| Total liabilities not subject to compromise     |       | 533        |       |
| Liabilities subject to compromise (a)           |       | 3,449      |       |
| Total stockholders’ equity                 |       | 172        |       |
| Total liabilities and stockholders’ equity |       | $          | 4,154      |   |

 

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| (a) Includes inter-company payables of $1,447  million. |
|--------------------------------------------------------------|

 

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CondensedCombined Statement of Cash Flows

(Debtor-in-Possession)

Yearended December 31, 2009

(Inmillions)

 

| **Increase (decrease) to cash**                               | ** ** | ** ** | ** ** |
|------------------------------------------------------------------------------|------------|------------|------------|
| CASH FLOWS FROM OPERATING ACTIVITIES                                         | ** ** | ** ** | ** ** |
| Net loss                                                                     |       | $          | (293       | ) |
| Adjustments to reconcile net loss to net cash used  in operating activities: |       |       |       |
| Impairment of long-lived assets                                              |       | 54         |       |
| Depreciation and amortization                                                |       | 113        |       |
| Stock-based compensation expense                                             |       | 3          |       |
| Changes in estimates related to expected allowable  claims                   |       | 73         |       |
| Reorganization items, net                                                    |       | 34         |       |
| Changes in assets and liabilities, net                                       |       | (64        | )          |
| Net cash used in operating activities                                        |       | (80        | )          |
|                                                                         |       |       |       |
| CASH FLOWS FROM INVESTING ACTIVITIES                                         | ** ** | ** ** | ** ** |
| Net proceeds from divestments                                                |       | 3          |       |
| Payments for acquisitions, net of cash acquired                              |       | (5         | )          |
| Capital expenditures                                                         |       | (34        | )          |
| Net cash used in investing activities                                        |       | (36        | )          |
|                                                                         |       |       |       |
| CASH FLOWS FROM FINANCING ACTIVITIES                                         |       |       |       |
| Proceeds from debtor-in-possession facility, net                             |       | 250        |       |
| Payments on credit facility, net                                             |       | (28        | )          |
| Payments on long term borrowings                                             |       | (18        | )          |
| Payments for debt issuance costs                                             |       | (30        | )          |
| Net cash provided by financing activities                                    |       | 174        |       |
|                                                                         |       |       |       |
| CASH AND CASH EQUIVALENTS                                                    | ** ** | ** ** | ** ** |
| Change in cash and cash equivalents                                          |       | 58         |       |
| Cash and cash equivalents at beginning of period                             |       | 23         |       |
| Cash and cash equivalents at end of period                                   |       | $          | 81         |   |

 

**4) LIABILITIES SUBJECT TOCOMPROMISE AND REORGANIZATION ITEMS, NET**

 

As a consequence of theChapter 11cases, substantially all claims and litigation against the Debtors inexistence prior to the filing of the petitions for relief or relating to actsor omissions prior to the filing of the petitions for relief are stayed.  These estimated claims are reflected in theConsolidated Balance Sheet as liabilities subject to compromise as of December 31,2009.  These amounts represent theCompany’s best estimate of known or potential pre-petition liabilities that areprobable of resulting in an allowed claim against the Debtors in connectionwith the Chapter 11 cases and are recorded at the estimated amount of theallowed claim which may be different from the amount for which the liabilitywill be settled.  Such claims remainsubject to future adjustments. Adjustments may result from actions of the Bankruptcy Court,negotiations, rejection or acceptance of executory contracts and real propertyleases, determination as to the value of any collateral securing claims, proofsof claim or other events.

 

The Bankruptcy Courtestablished October 30, 2009 as the Bar Date for filing proofs of claimagainst the Debtors.  The Debtors havereceived approximately 15,300 proofs of claim covering a broad array ofareas.  The Company is in the process ofevaluating the amounts asserted in and the factual and/or legal basis of theproofs of claim filed against the Debtors. These proofs of claim may result in additional liabilities, some or allof which may be subject to compromise, and the amounts of which may bematerial.  See Note — 21 LegalProceedings and Contingencies for further discussion of the Company’s Chapter11 claims assessment.

 

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Liabilities subject tocompromise consist of the following:

 
| ** **                                           | ** ** | **As of**                  | ** ** |
|------------------------------------------------------|------------|----------------------------|------------|
| **(In millions)**                                    | ** ** | **December 31, 2009** | ** ** |
| 6.875%  Notes due 2016 (a)                           |       | $                          | 500        |   |
| 7%  Notes due July 2009 (a)                     |       | 370                        |       |
| 6.875%  Debentures due 2026 (a)                      |       | 150                        |       |
| 2007  Credit Facility (a)                            |       | 152                        |       |
| Other  borrowings                                    |       | 3                          |       |
| Total  debt subject to compromise                    |       | 1,175                      |       |
|                                                 |       |                       |       |
| Pension  and post-retirement health care liabilities |       | 410                        |       |
| Accounts  payable                                    |       | 130                        |       |
| Environmental  reserves                              |       | 42                         |       |
| Litigation  reserves                                 |       | 125                        |       |
| Unrecognized  tax benefits and other taxes           |       | 78                         |       |
| Accrued  interest expense                            |       | 7                          |       |
| Other  miscellaneous liabilities                     |       | 35                         |       |
| Total  liabilties subject to compromise              |       | $                          | 2,002      |   |

 

Reorganization items arepresented separately in the Consolidated Statements of Operations on a netbasis and represent items realized or incurred by the Company as a directresult of the Debtors’ Chapter 11 cases.

 

The reorganization items,net recorded in the Consolidated Statements of Operations consists of thefollowing:

 
| ** **                                                                                  | ** ** | **Year-Ended**             | ** ** |
|---------------------------------------------------------------------------------------------|------------|----------------------------|------------|
| **(In millions)**                                                                           | ** ** | **December 31, 2009** | ** ** |
| Professional  fees                                                                          |       | $                          | 60         |   |
| Write-off  of debt discounts and premiums (a)                                               |       | 24                         |       |
| Write-off  of debt issuance costs (a)                                                       |       | 7                          |       |
| Write-off  of deferred charges related to termination of U.S. accounts receivable  facility |       | 4                          |       |
| Rejections  or terminations of lease and other contract agreements (b)                      |       | 9                          |       |
| Severance  - closure of manufacturing plants and warehouses (b)                             |       | 1                          |       |
| Claim  settlements (c)                                                                      |       | (8                         | )          |
| Total  reorganization items, net                                                            |       | $                          | 97         |   |

 

----

(a)          The carrying value ofpre-petition debt has been adjusted to its respective face value as thisrepresents the expected allowable claim in the Chapter 11 cases.  As a result, unamortized debt issuance costs,discounts and premiums were charged to reorganization items, net on theConsolidated Statements of Operations.

(b)         Represents charges for costsavings initiatives for which Bankruptcy Court approval has been obtained orrequested.  For additional informationsee Note 6 — Restructuring and Asset Impairment Activities.

(c)          Represents the differencebetween the settlement amount of certain pre-petition obligations and thecorresponding carrying value of the recorded liabilities.

 

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**5)ACQUISITIONS AND DIVESTMENTS**

 

**Acquisitions**

 

*GLCC Laurel, LLC*

 

On March 12, 2008, the Companypurchased the remaining interest in GLCC Laurel, LLC for a note payable of $11million.  The note was paid in September 2008.  As GLCC Laurel, LLC was already beingconsolidated by the Company in its financial statements, the purchase price wasallocated to reduce the non-controlling interest by $23 million.  The value of the long-lived assets wasreduced by $14 million (as the fair value of the assets exceeded the purchaseprice) with the residual amounts allocated to other assets.

 

*Baxenden*

 

On February 29, 2008, theCompany acquired the remaining stock of Baxenden Chemicals Limited Plc forapproximately $26 million.  The purchase price was allocated to goodwillof $9 million; intangible assets of $ 7 million; property, plant, and equipmentof $5 million; and other net assets of $5 million.

 

*Kaufman*

 

OnJanuary 31, 2007, the Company acquired the stock of Kaufman HoldingsCorporation (“Kaufman”).  In 2007, theCompany paid the sellers $160 million plus an additional $5 million for workingcapital adjustments and transaction costs. Additionally, a final payment of $5 million was made in 2009 to thesellers in accordance with the sale agreement.

 

Theacquired assets and assumed liabilities have been recorded at their fair valueand the excess cost of the acquired net assets over their fair value has beenrecorded as goodwill.  The total purchaseprice has been allocated to the acquired net tangible and intangible assets andassumed liabilities based upon valuations and estimates of fair value.

 

Thetotal Kaufman purchase price of $170 million included $61 million of goodwill;$58 million of intangible assets; $45 million of net working capital; $42million of property, plant and equipment and $2 million of other assets offsetby $38 million of other long-term liabilities.

 

**DiscontinuedOperations**

 

TheCompany has classified the following transactions as discontinued operations inthe Consolidated Statements of Operations for all periods presented.  TheCompany determined the cash flows associated with the continuation ofactivities are deemed indirect and the Company evaluated whether it hadsignificant continued involvement in the operations of the disposedbusinesses.  Accordingly, the Company didnot deem its involvement with the disposed businesses subsequent to sale to besignificant.

 

Earnings from discontinued operations for periods withactivities consists of the following:

 
| ** **        | ** ** | **2007**       | ** ** |
|-------------------|------------|----------------|------------|
| **(In millions)** | ** ** | **Net  Sales** | ** ** | **Pre-tax  Earnings  from  Discontinued  Operations** | ** ** | **Income  Tax  Expense** | ** ** | **Earnings from  Discontinued   Operations** | ** ** |
| Fluorine          |       | $              |  49   |   | $ | 14 |   | $ | (5 | ) | $ |  9 |   |
| Optical  Monomers |       | 31             |       | 3 |   | — |   | 3 |   |
| EPDM              |       | 99             |       | 8 |   | (3 | ) | 5 |   |
| OrganoSilicones   |       | —         |       | 2 |   | (1 | ) | 1 |   |
| Total             |       | $              | 179        |   | $ | 27 |   | $ | (9 | ) | $ | 18 |   |

 

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*FluorineDivestiture*

 

OnJanuary 31, 2008, the Company completed the sale of its fluorine chemicalbusiness located at the Company’s El Dorado, Arkansas facility for animmaterial net loss.  The assets soldconsisted of patents and intangible assets of $12 million, inventory of $8million, fixed assets of $8 million and other current liabilities of $1million.

 

*OpticalMonomers Divestiture*

 

OnOctober 31, 2007, the Company completed the sale of its optical monomersbusiness, which included its Ravenna, Italy manufacturing facility, for cashproceeds of $24 million.  The Companyreported a net of tax loss of $1 million (a loss of $2 million related to thesale of its optical monomers business in discontinued operations and a gain of$1 million related to the sale of certain antioxidants assets in COGS).  The net assets sold included $8 million ofaccounts receivable, $9 million of inventories, $5 million of intangibleassets, $5 million of assets at the Company’s manufacturing facilities and $2million of current liabilities.

 

*EPDMDivestiture*

 

OnJune 29, 2007, the Company completed the sale of its EPDM business, theCelogen® foaming agents product line related to rubber chemicals, and itsGeismar, Louisiana facilities for cash proceeds of $137 million, plus $16 millionin promissory notes paid in installments between closing and September 30,2007. The Company reported a net of tax gain of $8 million (a gain of $23million related to the sale of the EPDM business in discontinued operations anda loss of $15 million related to the sale of foaming agents in loss on sale ofbusiness). The assets sold included $23 million of accounts receivable, $36million of inventories and $63 million of assets at the Company’s manufacturingfacilities.  In connection with this sale,the Company entered into certain transitional service and supply agreements forperiods initially ranging from 90 days to six months which may be extended atthe mutual consent of both parties. Since June 30, 2007, the Company didnot have any continuing involvement in the EPDM business.

 

*OrganoSilicones Divestiture*

 

On July 31, 2003, the Company sold certain assetsand assigned certain liabilities of its OrganoSilicones business unit to theSpecialty Materials division of General Electric Company (“GE”) and acquired GE’sSpecialty Chemicals business.  As aresult of this transaction, the Company was to receive quarterly earn-outpayments through December of 2006 based on the minimum required paymentsand additional payments contingent on the combined performance of GE’s existingSilicones business and the OrganoSilicones business that GE acquired from theCompany through September of 2006.  The total of such earn-out proceeds was for aminimum of $105 million and a maximum of $250 million, of which the Companyreceived a total of $175 million over the term of the agreement ($9 million in 2007, $54 million in 2006, $63million in 2005, $40 million in 2004 and $9 million in 2003).

 

Uponthe expiration of the performance contingency on September 30, 2006 and theexpiration of the earn-out period, the total cumulative additional expectedcontingent earn-out of $67 million ($46 million, net of taxes) was recognizedas a gain on the sale of discontinued operations for the year ended December 31,2006 in the Consolidated Statement of Operations.  Included in this amount was a receivable of$6 million related to the contingent payout received in 2007.  During the first quarter of 2007, the Companyreceived its final earn-out payment from GE of $9 million.  As a result, the Company recorded a gain onsale of discontinued operations of $3 million ($2 million, net of taxes) forthe year ended December 31, 2007 in the Consolidated Statement ofOperations. During 2007, the Company also recorded earnings from discontinued operationsof $2 million ($1 million, net of taxes) for adjustments related to the sale ofthe OrganoSilicones business.

 

During2009, the Company recorded an accrual of $4 million ($3 million, net of taxes)related to the divestiture of its OrganoSilicones business.  This accrual related to a loss contingencyfor information that became available during 2009.

 

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# **Other Dispositions**

 

*Oleochemical Divestiture*

 

OnFebruary 29, 2008, the Company completed the sale of its oleochemicalsbusiness which included the Company’s Memphis, Tennessee facility and recordeda net loss of $26 million.  The assetssold included inventory of $26 million, accounts receivable of $23 million,goodwill of $13 million, net fixed assets of $7 million and intangible assetsof $1 million.  The oleochemicalsbusiness had revenues of approximately $160 million in 2007.  As the Company does not capture fullyabsorbed costs, and certain assets and liabilities at the level of anindividual product line (such as oleochemicals), cash flows for this businesswere determined not to be clearly distinguishable from the rest of the Companyand therefore the operational results for oleochemicals were not classified asa discontinued operation.

 

*Organic Peroxides Divestiture*

 

On July 31, 2007, theCompany completed the sale of its organic peroxides business located at theCompany’s Marshall, Texas facility. As a result, the Company recorded a pre-taxasset impairment charge of $3 million in the quarter ended June 30, 2007,to reduce the carrying value of the property, plant and equipment to be sold toits estimated fair value prior to the sale. This sale transaction did not have a material impact on the Company’searnings, financial condition or cash flows.

 

**Proposed Divestiture**

 

***PVC Additives Sale***

** **

**On December 23, 2009, the Company entered intoa Share and Asset Purchase Agreement with SK, New York-based private equityconcerns focusing on the specialty materials, chemicals and healthcareindustries, whereby SK has agreed to acquire the Company’s global PVC additivesbusiness.  The sale will include certainassets, the stock of a European subsidiary and the assumption by SK of certainliabilities.**

** **

**On December 23, 2009, the Company filed amotion with the Bankruptcy Court (the “Sale Motion”), pursuant to Section 363of the Bankruptcy Code, seeking, among other things, approval of an auctionprocess and bidding procedures that would govern the sale of the PVC additivesbusiness to SK or another bidder with the highest or otherwise best offer andapproval of the sale of the PVC additives business in accordance with theauction process and bidding procedures. On January 14, 2010, the Bankruptcy Court entered an order (the “BiddingProcedures Order”) establishing an auction process and bidding procedures (the “Auction”)to govern the sale of the PVC additives business.  On January 15, 2010, the Company enteredinto Amendment No. 3 of the DIP Credit Facility that provided for, amongother things, the consent of its DIP lenders to the sale of the PVC additivesbusiness.  The lenders under the Amendedand Restated DIP Credit Agreement also consented to this transaction.  Pursuant to the Bidding Procedures Order, theAuction was held on February 22, 2010. At the Auction, Artek Aterian Holding Company and its sponsors, AterianInvestment Partners Distressed Opportunities, LP and Artek Surfin ChemicalsLtd. (collectively, “Artek”), emerged as the bidder with the highest andotherwise best bid for the PVC additives business.**

** **

**On February 23, 2010, pursuant to the BiddingProcedures Order and following the Auction, the Company entered into a Shareand Asset Purchase Agreement (“Artek SAPA”) with Artek whereby Artek agreed toacquire the Company’s PVC additives business for cash consideration of $16million and to assume certain liabilities, including certain pension andenvironmental liabilities.  The purchaseprice is subject to certain adjustments including a post-closing net workingcapital adjustment.  On February 23,2010, the Bankruptcy Court held a hearing on the Sale Motion pursuant to Section 363of the Bankruptcy Code and issued an order approving, among other things, thesale of the PVC additives business to Artek. The transaction is expected to close in the second quarter of 2010.  The Artek SAPA resulted in an incremental $14million of cash proceeds and favorable sales contract modifications compared tothe initial share and asset purchase agreement with SK.**

** **

**The PVC additives business subject to the Artek SAPAhad net sales of $236 million in 2009, $374 million in 2008 and $357 million in2007.**

 

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**6) RESTRUCTURING AND ASSETIMPAIRMENT ACTIVITIES**

 

**Restructuring Activities**

 

During2009, the Company obtained approval of the Bankruptcy Court to implementcertain cost savings and growth initiatives and filed motions to obtainapproval for additional initiatives. These initiatives included the closure of a manufacturing plant inAshley, Indiana, the consolidation of warehouses related to its ConsumerPerformance Products business, the reduction of leased space at two of its U.S.office facilities, and the rejection of various unfavorable real propertyleases and executory contracts.  As aresult of these initiatives, the Company recorded pre-tax charges of $9 million($4 million was recorded to reorganization items, net for severance and realproperty lease rejections, $3 million was recorded to depreciation andamortization expense for accelerated depreciation, $1 million was recorded toCOGS and $1 million was recorded to SG&A for asset disposals andaccelerated asset retirement obligations).

 

OnDecember 11, 2008, the Company announced a worldwide restructuring programto reduce cash fixed costs.  Thisinitiative involved a worldwide reduction in the Company’s professional andadministrative staff by approximately 500 people.  The Company recorded a pre-tax severancecharge of $26 million for this program during the fourth quarter of 2008 tofacility closures, severance and related costs in the Consolidated Statement ofOperations.  In 2009, the Companyrecorded an additional $3 million of pre-tax charges primarily for severancerelated to this program.

 

OnJune 4, 2007, the Company announced its plan to close the antioxidantfacilities at Pedrengo and Ravenna, Italy, and two intermediate chemicalproduct lines at Catenoy, France.  Theseactions resulted in the reduction of approximately 190 positions.  The Company recorded pre-tax charges of $49million during 2007 ($33 million of accelerated depreciation was recorded todepreciation and amortization expense; $11 million primarily for severance wasrecorded to facility closures, severance and related costs; a $4 million assetimpairment charge was recorded to impairment of long-lived assets and $1million of accelerated asset retirement obligations were recognized inCOGS).  In 2008, the Company recorded anadditional $1 million of pre-tax charges primarily for severance related tothis program.

 

OnApril 4, 2007, the Company announced the realignment of its businesssegments, streamlining of the organization, reevaluation of its manufacturingfootprint and the redirection of efforts to focus on end-use markets.  In June 2007, the Company identifiedmore than 600 positions for reduction and approved several locations forclosure.  The Company recorded pre-taxcharges relating to these actions, primarily for severance totaling $28 millionin 2007 to facility closures, severance and related costs in the ConsolidatedStatement of Operations.  In 2008, theCompany recorded an additional $1 million of pre-tax charges primarily forseverance related to this program.

 

**In addition, during2008 and 2007, the Company recorded pre-tax credits of $2 million and $4million, respectively, primarily to adjust the reserve for unrecoverable futurelease costs at the Tarrytown, NY facility and for other reserves no longerdeemed necessary.**

 

**A summary of thecharges and adjustments related to these restructuring programs is as follows:**

 
| **(In millions)**                              | ** ** | **Severance  and  Related  Costs** | ** ** | **Other  Facility  Closure  Costs** | ** ** | **Total**  | ** ** |
|------------------------------------------------|------------|------------------------------------|------------|-------------------------------------|------------|------------|------------|
| Balance  at January 1, 2007               |       | $                                  | 9          |                                | 10         |       | 19         |   |
| 2007  charge (credit)                          |       | 37                                 |       | (1                                  | )          | 36         |       |
| Cash  payments                                 |       | (24                                | )          | (3                                  | )          | (27        | )          |
| Non-cash  charges and accretion                |       | 1                                  |       | —                              |       | 1          |       |
| Balance  at December 31, 2007             |       | 23                                 |       | 6                                   |       | 29         |       |
| 2008  charge (credit)                          |       | 27                                 |       | (1                                  | )          | 26         |       |
| Cash  payments                                 |       | (24                                | )          | (2                                  | )          | (26        | )          |
| Non-cash  charges and accretion                |       | 3                                  |       | (1                                  | )          | 2          |       |
| Balance  at December 31, 2008             |       | 29                                 |       | 2                                   |       | 31         |       |
| Facility  closure, severance and related costs |       | 2                                  |       | 1                                   |       | 3          |       |
| Reorganization  initiatives, net               |       | 1                                  |       | 3                                   |       | 4          |       |
| Cash  payments                                 |       | (23                                | )          | (2                                  | )          | (25        | )          |
| **Balance at December 31, 2009**          | ** ** | **$**                              | **9**      | ** **                          | **4**      | ** ** | **$**      | **13** | ** ** |
|                                                |            |                                    |            |                                     |            |            |            |  |  |

 

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AtDecember 31, 2009, $4 million of the reserve was included in accruedexpenses on the Consolidated Balance Sheet and $9 million was recorded inliabilities subject to compromise on the Consolidated Balance Sheet.  At December 31, 2008, the reserve of $31million was included in accrued expenses.

** **

**Proposed Restructuring Initiatives**

** **

**On January 25, 2010, the Company’s Board of Directorsapproved a restructuring plan involving the consolidation and idling of certainassets within the flame retardants business operations in El Dorado,Arkansas.  The restructuring plan wasapproved by the Bankruptcy Court on February 23, 2010.  The restructuring plan is expected to becompleted by the fourth quarter of 2010. As a result of the restructuring plan, the Company expects to recordcosts of approximately $40 million, primarily in the first half of 2010,consisting of approximately $35 million in accelerated depreciation ofproperty, plant and equipment and approximately $5 million in otherfacility-related shutdown costs, which include accelerated recognition of assetretirement obligations, decommissioning of wells and pipelines andseverance.  In addition to the aforementionedcosts, the Company expects cash costs, including capital costs, to beapproximately $20 million primarily in 2010 in order to execute theconsolidation of operations into remaining facilities.**

#  

# **Asset Impairment Activities**

 

Inaccordance with ASC Topic 350, *Intangibles — Goodwill andOther* (“ASC 350”) and ASC Topic 360, *Property,Plant and Equipment* (“ASC 360”), the Company recorded pre-taxcharges totaling $104 million, $986 million, and $19 million in 2009, 2008 and2007, respectively as an impairment of long-lived assets in the ConsolidatedStatements of Operations, which include the following items:

 

·                  In the fourth quarter of 2009, the Companyrecorded an impairment of long-lived assets of $7 million primarily related tofurther reducing the carrying value of property, plant and equipment of its PVCadditives business, a component of the Industrial Engineered Products reportingsegment, to reflect the revised estimated fair value of the assets.  The decrease in fair value is the result ofthe definitive agreement entered into with SK Atlas, LLC and SK Capital PartnersII, LP (collectively “SK”) in December 2009, whereby they will acquire thePVC additives business from the Company.

 

·                  In the second quarter of 2009, the Companyexperienced continued year-over-year revenue reductions from the impact of theglobal recession in the electronic, building and construction industries.  In addition, the Consumer PerformanceProducts segment revenues were impacted by cooler and wetter than normalweather in the northeastern and mid-western regions of the United States.  Based on these factors, the Company reviewedthe recoverability of the long-lived assets of its segments in accordance withASC Section 360-10-35, *Property, Plant, andEquipment — Subsequent Measurements* (“ASC 360-10-35”).  The Company evaluates the recoverability ofthe carrying value of its long-lived assets, excluding goodwill, wheneverevents or changes in circumstances indicate that the carrying value may not berecoverable. The Company realizes that events and changes in circumstances canbe more frequent in the course of a U.S. bankruptcy process.  Under such circumstances, the Companyassesses whether the projected undiscounted cash flows of its businesses aresufficient to recover the existing unamortized carrying value of its long-livedassets. If the undiscounted projected cash flows are not sufficient, theCompany calculates the impairment amount by several methodologies, includingdiscounting the projected cash flows using its weighted average cost of capitaland valuation estimates from third parties. The amount of the impairment is written-off against earnings in theperiod in which the impairment has been determined in accordance with ASC360-10-35.

 

Forthe PVC additives business, a component of the Industrial Engineered Productsreporting segment, the carrying value of the long-lived assets was in excess ofthe undiscounted cash flows.  As aresult, the Company recorded a pre-tax impairment charge of $60 million in thesecond quarter of 2009 to write-down the value of property, plant andequipment, net by $48 million and intangible assets, net by $12 million.  The $60 million charge was included inimpairment of long-lived assets in the Consolidated Statements of Operations.

 

Dueto the factors cited above, the Company also concluded it was appropriate toperform a goodwill impairment review as of June 30, 2009.  The Company used the updated projections inits long-range plan to compute estimated fair values of its reportingunits.  These projections indicated thatthe estimated fair value of the Consumer Performance Products reporting unitwas less than its carrying value.  Basedon the Company’s preliminary analysis, an estimated goodwill impairment chargeof $37 million was recorded for this reporting unit in the second quarter of2009 (representing the remaining goodwill in this reporting unit).  The Company finalized its analysis of thegoodwill impairment charge in the third quarter of 2009 and no change to theestimated charge was required (see Note 10 - Goodwill and Intangible Assets forfurther information).

 

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·                  In the fourth quarter of 2008, the Companyrecorded an impairment of long-lived assets of $665 million related to reducingthe carrying value of goodwill in the Company’s Consumer Performance Products,Industrial Performance Products and Industrial Engineered Products segments(see Note 10 — Goodwill and Intangible Assets).

 

·                  In the third quarter of 2008, the Companyrecorded an impairment of long-lived assets of $1 million related to reducingthe carrying value of property, plant and equipment at the Company’s Catenoy,France facility, which was the result of the product line closures previouslyannounced.

 

·                  In the second quarter of 2008, the Companyrecorded an impairment of long-lived assets of $320 million related to reducingthe carrying value of goodwill in the Company’s Consumer Performance Productssegment (see Note 10 — Goodwill and Intangible Assets).

 

·                  In the fourth quarter of 2007, the Companyrecorded an impairment charge of $3 million related to the write-off ofconstruction in progress costs associated with software that will no longer beutilized due to the Company’s plan to consolidate its multiple enterpriseresource planning (“ERP”) systems onto a single SAP platform.

 

·                  In the third quarter of 2007, the Companyrecorded an impairment charge of $9 million, related to the reduction in thevalue of certain assets at the Company’s Ravenna, Italy facility, which was theresult of the closure of the antioxidant facility at this site and the plan tosell the remaining assets at this site as part of the sale of the opticalmonomers business that was completed in October 2007.

 

·                  In the second quarter of 2007, the Companyrecorded an impairment charge of $3 million to reduce the carrying value of theproperty, plant and equipment to be sold to its estimated fair value related toits organic peroxides business located at the Company’s Marshall, Texasfacility.  Such sale was completed on July 31,2007 (see Note 5 — Acquisitions and Divestments for further details).

 

·                  In the second quarter of 2007, the Companyrecorded an impairment charge of $4 million related to the write-off of constructionin progress at certain facilities affected by the restructuring programannounced on June 4, 2007.

 

# **7) SALE OF ACCOUNTS RECEIVABLE**

 

AtDecember 31, 2008, the Company had a committed U.S. Facility whichprovided funding for the sale of up to $100 million of its eligible U.S.receivables to certain purchasers.  On January 23,2009, the Company entered into the 2009 U.S. Facility with up to $150 millionof capacity and a three-year term with certain lenders under its 2007 CreditFacility.  Lenders who participatedreduced their commitments to the 2007 Credit Facility pro-rata to theircommitments to purchase U.S. eligible accounts receivable under the 2009 U.S.Facility.  At December 31, 2008, $36million of domestic accounts receivable had been sold under the former U.S.Facility, representing the maximum amount permitted under the terms of thisfacility, at an average cost of approximately 3.52%.  The former U.S. Facility was terminated uponthe effectiveness of the 2009 U.S. Facility.

 

Underthe respective U.S. facilities, certain subsidiaries of the Company were ableto sell their accounts receivable to a special purpose entity (“SPE”) that wascreated for the purpose of acquiring such receivables and selling an undividedinterest therein to certain purchasers. In accordance with the receivables purchase agreements, the purchaserswere granted an undivided ownership interest in the accounts receivable ownedby the SPE.  The amount of such undividedownership interest will vary based on the level of eligible accounts receivableas defined in the agreement.  Inaddition, the purchasers retain a security interest in all the receivablesowned by the SPE, which was $209 million as of December 31, 2008.  The balance of the unsold receivables ownedby the SPE was included in the Company’s accounts receivable balance on theConsolidated Balance Sheet.

 

The2009 U.S. Facility was terminated on March 23, 2009 as a condition of theDebtors entering into the DIP Credit Facility. All accounts receivable was were sold back by the purchasers and the SPEto their original selling entity using proceeds of $117 million from the DIPCredit Facility.

 

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Certainof the Company’s European subsidiaries maintained a separate European Facilityto sell up to approximately $244 million (€175 million) of the eligibleaccounts receivable directly to a purchaser as of December 31, 2008.  At December 31, 2008, $67 million ofinternational accounts receivable had been sold under this facility at anaverage cost of approximately 6.16%. This facility terminated during the second quarter and there were nooutstanding accounts receivable that had been sold as of June 30,2009.  The availability and access to theEuropean Facility was restricted by the purchaser in late December 2008 inlight of the Company’s financial performance. As a result, the Company was unable to sell additional accountsreceivable under this program during the first and second quarters of2009.  Despite good faith discussions,the Company was unable to conclude an agreement to resume sales of accountsreceivable under the European Facility either prior to the Chapter 11 filing orthereafter.  During the second quarter of2009, with no agreement to restart the European Facility, the remaining balanceof the accounts receivable previously sold under this facility was settled andthe facility was terminated.

#  

# **The costsassociated with these facilities of $2 million, $16 million and $21 million for2009, 2008, and 2007, respectively, are included in other income (expense), netin the Consolidated Statements of Operations.**

 

Additionally,following the termination of the 2009 U.S. Facility, deferred financing costsof approximately $4 million related to this facility were charged toreorganization items, net in the Consolidated Statements of Operations.

#  

# **8) INVENTORIES**

 
| **(In millions)**           | ** ** | **2009** | ** ** | **2008** | ** ** |
|-----------------------------|------------|----------|------------|----------|------------|
| Finished  goods             | ** ** | **$**    | **350**    |     | $          | 401 |   |
| Work  in process            | ** ** | **46**   |       | 49       |       |
| Raw  materials and supplies | ** ** | **144**  |       | 161      |       |
| ** **                  | ** ** | **$**    | **540**    |     | $          | 611 |   |

 

Included in the above net inventory balances areinventory obsolescence reserves of approximately $36 million and $31 million atDecember 31, 2009 and 2008, respectively.

#  

# **9) PROPERTY, PLANT AND EQUIPMENT**

 
| **(In millions)**                  | ** ** | **2009**  | ** ** | **2008** | ** ** |
|------------------------------------|------------|-----------|------------|----------|------------|
| Land  and improvements             | ** ** | **$**     | **81**     |     | $          | 83 |   |
| Buildings  and improvements        | ** ** | **242**   |       | 248      |       |
| Machinery  and equipment           | ** ** | **1,238** |       | 1,233    |       |
| Information  systems and equipment | ** ** | **225**   |       | 190      |       |
| Furniture,  fixtures and other     | ** ** | **26**    |       | 30       |       |
| Construction  in progress          | ** ** | **63**    |       | 80       |       |
|                               | ** ** | **1,875** |       | 1,864    |       |
| Less:  accumulated depreciation    | ** ** | **1,125** |       | 1,002    |       |
|                               | ** ** | **$**     | **750**    |     | $          | 862 |   |

 

Depreciation expense from continuing operations amountedto $134 million, $192 million and $229 million for 2009, 2008 and 2007,respectively.  Depreciation expense fromcontinuing operations includes accelerated depreciation of certain fixed assetsassociated with the Company’s restructuring programs and the consolidations ofits legacy ERP systems of $5 million, $47 million and $70 million for 2009,2008, and 2007, respectively.

 

Additionally, an impairment charge of $53 million towrite-down the value of property, plant and equipment, net was recorded in 2009related to the Company’s PVC additives business.  Refer to Note 6 — Restructuring and AssetImpairment Activities for further information on asset impairments.

# ** **

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# **10) GOODWILL AND INTANGIBLE ASSETS**

 

**Goodwill**

 

Goodwillby reportable segment is as follows:

 
| ** **                                         | ** ** | ** **      | ** ** | ** **      | ** ** | **Crop**       | ** ** | ** **     | ** ** | ** ** | ** ** |
|----------------------------------------------------|------------|-----------------|------------|-----------------|------------|----------------|------------|----------------|------------|------------|------------|
| ** **                                         | ** ** | **Consumer**    | ** ** | **Industrial**  | ** ** | **Protection** | ** ** | **Industrial** | ** ** | ** ** | ** ** |
| ** **                                         | ** ** | **Performance** | ** ** | **Performance** | ** ** | **Engineered** | ** ** | **Engineered** | ** ** | ** ** | ** ** |
| **(In millions)**                                  | ** ** | **Products**    | ** ** | **Products**    | ** ** | **Products**   | ** ** | **Products**   | ** ** | **Total**  | ** ** |
|                                               |       |            |       |            |       |           |       |           |       |       |       |
| Goodwill  at December 31, 2007                |       | $               | 584        |            | 275        |           | 57         |           | 543        |       | $          | 1,459 |   |
| Accumulated  impairments at December 31, 2007 |       | —          |       | (8              | )          | —         |       | (142           | )          | (150       | )          |
| Net  Goodwill at December 31, 2007            |       | 584             |       | 267             |       | 57             |       | 401            |       | 1,309      |       |
|                                               |       |            |       |            |       |           |       |           |       |       |       |
| Impairment  charges                                |       | (540            | )          | (82             | )          | —         |       | (363           | )          | (985       | )          |
| Acquisitions  and dispositions                     |       | —          |       | 9               |       | —         |       | (13            | )          | (4         | )          |
| Foreign  currency translation and other            |       | (7              | )          | (23             | )          | —         |       | (25            | )          | (55        | )          |
| Goodwill  at December 31, 2008                |       | 577             |       | 261             |       | 57             |       | —         |       | 895        |       |
| Accumulated  impairments at December 31, 2008 |       | (540            | )          | (90             | )          | —         |       | —         |       | (630       | )          |
| Net  Goodwill at December 31, 2008            |       | 37              |       | 171             |       | 57             |       | —         |       | 265        |       |
|                                               |       |            |       |            |       |           |       |           |       |       |       |
| Impairment  charges                                |       | (37             | )          | —          |       | —         |       | —         |       | (37        | )          |
| Foreign  currency translation                      |       | —          |       | 7               |       | —         |       | —         |       | 7          |       |
| Goodwill at December 31, 2009                 |       | —          |       | 268             |       | 57             |       | —         |       | 325        |       |
| Accumulated impairments at December 31, 2009  |       | —          |       | (90             | )          | —         |       | —         |       | (90        | )          |
| **Net Goodwill at December 31, 2009**         |       | $               | **—** | ** **      | **178**    | ** **     | **57**     | ** **     | **—** | ** ** | **$**      | **235** | ** ** |

 

TheCompany has elected to perform its annual goodwill impairment procedures forall of its reporting units in accordance with ASC Subtopic 350-20*, Intangibles — Goodwill and Other - Goodwill* (“ASC 350-20”)as of July 31, or sooner, if events occur or circumstances change thatwould more likely than not reduce the fair value of a reporting unit below itscarrying value.  The Company estimatesthe fair value of its reporting units utilizing income and market approachesthrough the application of discounted cash flow and market comparable methods(Level 3 inputs as described in Note 19 — Financial Instruments and Fair ValueMeasurements).  The assessment isrequired to be performed in two steps: step one to test for a potentialimpairment of goodwill and, if potential impairments are identified, step twoto measure the impairment loss through a full fair valuing of the assets andliabilities of the reporting unit utilizing the acquisition method ofaccounting.

 

TheCompany continually monitors and evaluates business and competitive conditionsthat affect its operations and reflects the impact of these factors in itsfinancial projections.  If permanent orsustained changes in business or, competitive conditions occur, they can lead torevised projections that could potentially give rise to impairment charges.

 

*Year2009*

 

Duringthe quarter ended March 31, 2009, there was continued weakness in theglobal financial markets, resulting in additional decreases in the valuation ofpublic companies and restricted availability of capital.  Additionally, the Company’s stock pricecontinued to decrease due to constrained liquidity, deteriorating financialperformance and the Debtors filing of a petition for relief under Chapter 11 ofthe Bankruptcy Code.  These events wereof sufficient magnitude to the Company to conclude it was appropriate toperform a goodwill impairment review as of March 31, 2009.  The Company used its own estimates of theeffects of the macroeconomic changes on the markets it serves to develop anupdated view of its projections.  Thoseupdated projections have been used to compute updated estimated fair values ofits reporting units.  Based on theseestimated fair values used to test goodwill for impairment in accordance withASC 350-20, the Company concluded that no impairment existed in any of itsreporting units at March 31, 2009.

 

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Thefinancial performance of certain reporting units was negatively impacted versusexpectations due to the cold and wet weather conditions during the first halfof 2009.  This fact along with thecontinued macro economic factors cited above resulted in the Company concludingit was appropriate to perform a goodwill impairment review as of June 30,2009.  The Company used the updatedprojections in their long-range plan to compute estimated fair values of itsreporting units.  These projectionsindicated that the estimated fair value of the Consumer Performance Productsreporting unit was less than its carrying value.  Based on the Company’s preliminary analysis,an estimated goodwill impairment charge of $37 million was recorded for thisreporting unit in the second quarter of 2009 (representing the remaininggoodwill in this reporting unit).  TheCompany finalized its analysis of the goodwill impairment charge in the thirdquarter of 2009 and no change to the estimated charge was required.

 

TheCompany concluded that no additional goodwill impairment existed in any of itsreporting units based on the annual review as of July 31, 2009.

 

Forthe quarters ended September 30, 2009 and December 31, 2009, theCompany’s consolidated performance was in line with expectations while theperformance of the Company’s Crop Protection Engineered Products reporting unitwas below expectations.  However, thelonger-term forecasts for this reporting unit are still sufficient to supportits level of goodwill.  As such, theCompany concluded that no circumstances exist that would more likely than notreduce the fair value of any of its reporting units below their carrying amountand an interim impairment test was not considered necessary as of September 30,2009 and as of December 31, 2009.

 

*Year2008*

 

Duringthe quarter ended June 30, 2008, the Company updated its long-termfinancial projections for each of its businesses.  The projections for the Consumer PerformanceProducts segment indicated an inability to sustain the level of goodwill associatedwith that segment.  A goodwill impairmentcharge of $320 million was recorded in this reporting unit in the secondquarter of 2008.

 

TheCompany concluded that no additional goodwill impairment existed in any of itsreporting units based on the annual review as of July 31, 2008.

 

Duringthe third quarter of 2008, significant weakness developed in global financialmarkets, resulting in decreases in the valuation of public companies andrestricted availability of capital. Further, it appeared that the global economy was entering into arecession.  During this period, theCompany’s stock price fell to a value that was at a significant discount to theper share value of the Company’s book value. These events were of sufficient magnitude for the Company to concludethat it was appropriate to perform a goodwill impairment review as of September 30,2008.

 

Withthe speed of events, there was not yet a body of forecast information fromwhich to assess the likely intensity or duration of the recession or quantifythe likely impact on the industries the Company serves.  The Company therefore used its own estimatesof the effects of the macroeconomic changes on the industries its serves todevelop an updated view of its projections. Those updated projections were used to compute updated estimated fairvalues of its reporting units.  Based onthese estimated fair values used to test goodwill for impairment, the Companyconcluded that no impairment existed in any of its reporting units at September 30,2008.

 

TheCompany saw order volumes decline sharply in November and December of2008 as its customers experienced, or anticipated, reductions in demand fromthe industries they serve. These order reductions primarily related to theCompany’s Industrial Performance Products and Industrial Engineered Productsbusiness segments in electronic, polyolefin, building and construction andgeneral industrial applications.  TheCompany also adjusted its plant production rates to align with customer demandand its inventory reduction goals. As a result, a significant number of theCompany’s facilities were idled during various times in the latter part of thefourth quarter of 2008.

 

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Thechanges in financial performance during the fourth quarter of 2008 and theoutlook for 2009, coupled with continuing adverse equity market conditions thatcaused a decrease in current market multiples and the Company’s stock price,were of sufficient magnitude for the Company to conclude that it wasappropriate to perform a goodwill impairment analysis during the fourth quarterof 2008.  These updated projections,which estimate the effects and timing of the macroeconomic changes on theindustries the Company serves, were used to compute updated estimated fairvalues of its reporting units.  Based onthe estimated fair values, the Consumer Performance Products, IndustrialPerformance Products and Industrial Engineered Products segments indicated aninability to sustain the level of goodwill associated with each segment.  Goodwill impairment charges of $220 million,$82 million and $363 million were recorded in the Consumer PerformanceProducts, Industrial Performance Products and Industrial Engineered Productsreporting units, respectively, in the fourth quarter of 2008.

 

**IntangibleAssets**

 

TheCompany’s intangible assets (excluding goodwill) are comprised of thefollowing:

 
| ** **              | ** ** | **2009**        | ** ** | **2008**                      | ** ** |
|-------------------------|------------|-----------------|------------|-------------------------------|------------|
| **(In millions)**       | ** ** | **Gross  Cost** | ** ** | **Accumulated  Amortization** | ** ** | **Net  Intangibles** | ** ** | **Gross  Cost** | ** ** | **Accumulated  Amortization** | ** ** | **Net Intangibles** | ** ** |
| Patents                 |       | $               | **127**    | ** **                    | **$**      | **(49** | **)** | **$** | **78** |   | $ | 137 |   | $ | (50 | ) | $ | 87 |   |
| Trademarks              | ** ** | **273**         | ** ** | **(61**                       | **)**      | **212** |   | 285 |   | (51 | ) | 234 |   |
| Customer  relationships | ** ** | **152**         | ** ** | **(38**                       | **)**      | **114** |   | 155 |   | (35 | ) | 120 |   |
| Production  rights      | ** ** | **45**          | ** ** | **(19**                       | **)**      | **26** |   | 45 |   | (15 | ) | 30 |   |
| Other                   | ** ** | **76**          | ** ** | **(32**                       | **)**      | **44** |   | 73 |   | (27 | ) | 46 |   |
| Total                   |       | $               | **673**    | ** **                    | **$**      | **(199** | **)** | **$** | **474** | ** ** | **$** | 695 |   | $ | (178 | ) | $ | 517 |   |

 

Thedecrease in gross intangible assets since December 31, 2008 is primarilydue to the write-off of $19 million related to fully amortized intangibles(offset within accumulated amortization) and a pre-tax impairment charge in thesecond quarter of 2009 of $12 million to write down the value of intangibleassets, partially offset by foreign currency translation.  See Note 6 - Restructuring and AssetImpairment Activities for further information regarding the pre-tax impairmentcharge.

 

During2008, the Company acquired the remaining stock of Baxenden Chemicals LimitedPlc and accordingly recorded patents of $1 million (weighted average usefullife of 7 years), trademarks of $1 million (useful life of 25 years) andcustomer relationships of $5 million (useful life of 30 years).

 

Amortizationexpense from continuing operations related to intangible assets includingequity investments amounted to $39 million in 2009, $45 million in 2008, and$40 million in 2007.  Estimatedamortization expense of intangible assets including equity investments for thenext five fiscal years is as follows: $36 million (2010), $36 million (2011),$35 million (2012), $35 million (2013) and $28 million (2014).

 

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**11) DEBT**

 

The Company’s debt is comprised of the following:

 
| **(In millions****)**                                                                                                                     | ** ** | **2009**   | ** ** | **2008** | ** ** |
|-------------------------------------------------------------------------------------------------------------------------------------------|------------|------------|------------|----------|------------|
|                                                                                                                                      |       |       |       |     |       |
| 6.875  % Notes due 2016, net of unamortized discount of $2 million in 2008, with an  effective interest rate of 6.93% in 2008 (a)         |       | **$**      | **500**    |     | $          | 498 |   |
| 7%  Notes due July 15, 2009, net of unamortized premium of $4 million in 2008,  with an effective interest rate of 5.03% in 2008 (a) |       | **370**    |       | 374      |       |
| 6.875%  Debentures due 2026, net of unamortized discount of $24 million in 2008, with  an effective interest rate of 7.26% in 2008 (a)    |       | **150**    |       | 126      |       |
| 2007  Credit Facility (a)                                                                                                                 | ** ** | **152**    |       | 180      |       |
| DIP  Credit facility                                                                                                                      | ** ** | **250**    |       | —   |       |
| Other  borrowings (b)                                                                                                                     | ** ** | **8**      |       | 26       |       |
| Total  Debt                                                                                                                               | ** ** | **1,430**  |       | 1,204    |       |
|                                                                                                                                      |       |       |       |     |       |
| Less:  Short-term borrowings                                                                                                              | ** ** | **(252**   | **)**      | (3       | )          |
| Current  portion of long-term debt                                                                                                        | ** ** | **—** |       | (1,178   | )          |
| Liabilities  subject to compromise                                                                                                        | ** ** | **(1,175** | **)**      | —   |       |
|                                                                                                                                      |       |       |       |     |       |
| Total  Long-Term Debt                                                                                                                     | ** ** | **$**      | **3**      |     | $          | 23 |   |

 

----

(a)   Outstandingbalance is classified as liabilities subject to compromise on the ConsolidatedBalance Sheet at December 31, 2009.

(b)   $3million of other borrowings is classified as liabilities subject to compromiseon the Consolidated Balance Sheet at December 31, 2009.

 

**In March 2009,the carrying value of pre-petition debt was adjusted to its respective facevalue as this represented the expected allowable claim in the Chapter 11cases.  As a result, discounts andpremiums of $24 million were charged to reorganization items, net on theConsolidated Statements of Operations.**

 

**The Company’s financialperformance deteriorated sharply in the fourth quarter of 2008 resulting inpart in the Company’s inability to comply as of December 31, 2008 with thetwo financial maintenance covenants under its 2007 Credit Facility.  A default under the 2007 Credit Facilitywould have resulted in cross-defaults under the terms of the Company’s new U.S.accounts receivable facility, the 7% Notes due July 15, 2009 (“2009 Notes”),the 6.875% Notes due 2016 (“2016 Notes”) and the 6.875% Debentures due 2026 (“2026Debentures”).  In light of the Company’snon-compliance with these financial maintenance covenants for which the Companyreceived a 90-day waiver, and given that it was probable that the Company wouldnot have been in compliance with these covenants after the expiration of the90-day waiver period and for the balance of 2009, advances under the 2007Credit Facility and other debt obligations that contain cross-default andacceleration provisions have been recorded as current.  Therefore, during the fourth quarter of 2008,the Company classified its debt obligations under the 2007 Credit Facility, the2016 Notes and the 2026 Debentures as current liabilities.**

 

**In February 2008,the Company repurchased $30 million of its outstanding 2009 Notes.  The loss associated with the earlyextinguishment of the debt was less than $1 million for the year ended December 31,2008.**

 

**Debtor-in-PossessionCredit Facility**

 

OnMarch 18, 2009, the Debtors entered into a $400 million senior secured DIPCredit Facility arranged by Citigroup Global Markets Inc. with Citibank, N.A.as Administrative Agent, subject to approval by the Bankruptcy Court.  On March 20, 2009, the Bankruptcy Courtentered an interim order approving the Debtors access to $190 million of theDIP Credit Facility in the form of a $165 million term loan and a $25 millionrevolving credit facility.  The DIPCredit Facility closed on March 23, 2009 with the drawing of the $165million term loan.  The initial proceedswere used to fund the termination of the 2009 U.S. Facility, pay fees andexpenses associated with the transaction and to fund business operations.

 

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OnApril 28, 2009, the Company, certain of its subsidiaries that areguarantors under the DIP Credit Facility, the banks, financial institutions andother institutional lenders party to the DIP Credit Facility (the “Lenders”),and Citibank, N.A., as Administrative Agent for the Lenders, entered intoAmendment No. 1 to the DIP Credit Facility.  Amendment No. 1 amended the DIP CreditFacility to provide for, among other things, (i) an increase in theoutstanding amount of inter-company loans the Debtors could make to thenon-debtor foreign subsidiaries of the Company from $8 million to $40 million; (ii) areduction in the required level of borrowing availability under the minimumavailability covenant; and (iii) the elimination of the requirement to payadditional interest expense if a specified level of accounts receivablefinancing was not available to the Company’s European subsidiaries.  On April 29, 2009, the Bankruptcy Courtgranted final approval of the DIP Credit Facility, as amended pursuant toAmendment No. 1 thereto.  On May 4,2009, the Company drew the $85 million balance of the $250 million term loanand used the proceeds together with cash on hand to fund the $86 million “rollup” of certain outstanding secured amounts owed to certain lenders under the2007 Credit Facility as approved by the final order.

 

TheDIP Credit Facility is comprised of the following:  (i) a $250 million non-amortizing termloan; (ii) a $64 million revolving credit facility; and (iii) an $86million revolving credit facility representing the “roll-up” of certainoutstanding secured amounts owed to lenders under the prior 2007 CreditFacility who made commitments under the DIP Credit Facility.  In addition, a sub-facility for letters ofcredit (“Letters of Credit”) in an aggregate amount of $50 million wasavailable under the unused commitments of the revolving credit facilities.

 

OnJuly 13, 2009, the Company and the parties to the DIP Credit Facilityentered into Amendment No. 2 to the DIP Credit Facility subject toapprovals by the Bankruptcy Court and the Company’s Board of Directors whichapprovals were obtained on July 14 and July 15, 2009,respectively.  Amendment No. 2 amended the DIP Credit Facilityto provide for, among other things, an option by the Company to extend the maturityof the DIP Credit Facility for two consecutive three month periods subject tothe satisfaction of certain conditions.  Prior to Amendment No. 2,the DIP Credit Facility matured on the earlier of 364 days from the firstborrowing, the effective date of a Plan or the date of termination in whole ofthe Commitments (as defined in the DIP Credit Facility).

 

OnJanuary 15, 2010, the Company entered into Amendment No. 3 of the DIPCredit Facility that provided for, among other things, the consent of our DIP lendersto the sale of the PVC additives business.

 

On February 9,2010, the Bankruptcy Court gave interim approval of the Amended and RestatedDIP Credit Agreement by and among the Debtors, Citibank N.A. and the otherlenders party thereto.  The Amended andRestated DIP Credit Agreement provides for a first priority and priming securedrevolving and term loan credit commitment of up to an aggregate of $450million.  The Amended and Restated DIPCredit Agreement consists of a $300 million term loan and a $150 millionrevolving credit facility.  The proceedsof the term loan under the Amended and Restated DIP Credit Agreement were usedto, among other things, refinance the obligations outstanding under the DIPCredit Facility and provide working capital for general corporatepurposes.  The Amended and Restated DIPCredit Agreement provided a substantial reduction in the Company’s financingcosts through interest rate reductions and avoidance of the extension fees thatwould have been payable under the DIP Credit Facility in February and May 2010.  The Amended and Restated DIP Credit Agreementclosed on February 12, 2010 with the drawings of the $300 million termloan.  On February 18, 2010, theBankruptcy Court entered a final order providing full access to the Amended andRestated DIP Credit Agreement.  TheAmended and Restated DIP Credit Agreement matures on the earlier of 364 days after the closing,the effective date of a Plan or the date of termination in whole of theCommitments (as defined in the Amended and Restated DIP Credit Agreement).

 

TheAmended and Restated DIP Credit Agreement, as did the DIP Credit Facility, issecured by a super-priority lien on substantially all of the Company’s U.S.assets, including (i) cash; (ii) accounts receivable; (iii) inventory;(iv) machinery, plant and equipment; (v) intellectual property; (vi) pledgesof the equity of first tier subsidiaries; and (vii) pledges of debt andother instruments.

 

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Availabilityof credit under the Amended and Restated DIP Credit Agreement, as did the DIPCredit Facility, is equal to (i) the lesser of (a) the Borrowing Base(as defined below) and (b) the effective commitments under the DIP CreditFacility minus (ii) the aggregate amount of the DIP Loans and any undrawnor unreimbursed Letters of Credit. Borrowing Base is the sum of (i) 80% of the Debtors’ eligibleaccounts receivable, plus (ii) the lesser of (a) 85% of the netorderly liquidation value percentage (as defined in the DIP Credit Facility) ofthe Debtors’ eligible inventory and (b) 75% of the cost of the Debtors’eligible inventory, plus (iii) $275 million ($125 million under the DIPCredit Facility), less certain reserves determined in the discretion of theAdministrative Agent to preserve and protect the value of the collateral.  As of December 31, 2009, extensions ofcredit outstanding under the DIP Credit Facility consisted of the $250 millionterm loan and Letters of Credit of $19 million.

 

Borrowingsunder the DIP Credit Facility term loans and the $64 million revolving facilitybore interest at a rate per annum equal to, at the Company’s election, (i) 6.5%plus the Base Rate (defined as the higher of (a) 4%; (b) CitibankN.A.’s published rate; or (c) the Federal Funds rate plus 0.5%) or (ii) 7.5%plus the Eurodollar Rate (defined as the higher of (a) 3% or (b) thecurrent LIBOR rate adjusted for reserve requirements).  Borrowings under the $86 million revolvingfacility bore interest at a rate per annum equal to, at the Company’s election,(i) 2.5% plus the Base Rate or (ii) 3.5% plus the EurodollarRate.  Additionally, the Company paid anunused commitment fee of 1.5% per annum on the average daily unused portion ofthe revolving facilities and a letter of credit fee on the average dailybalance of the maximum daily amount available to be drawn under Letters ofCredit equal to the applicable margin above the Eurodollar Rate applicable forborrowings under the applicable revolving DIP Credit Facility.  Certain fees were payable to the lenders uponthe reduction or termination of the commitment and upon the substantialconsummation of a Plan as defined in the DIP Credit Facility including an exitfee payable to the Lenders of 2% of “roll-up” commitments and 3% of all othercommitments.  These fees were paid uponthe funding of the term loan under the Amended and Restated DIP CreditAgreement.

 

Borrowings under the Amended and Restated DIP CreditAgreement term loan bear interest at a rate per annum equal to, at the Company’selection, (i) 3.0% plus the Base Rate (defined as the higher of (a) 3%;(b) Citibank N.A.’s published rate; or (c) the Federal Funds rateplus 0.5%) or (ii) 4.0% plus the Eurodollar Rate (defined as the higher of(a) 2% or (b) the current LIBOR rate adjusted for reserverequirements).  Borrowings under the $150million revolving facility bear interest at a rate per annum equal to, at theCompany’s election, (i) 3.25% plus the Base Rate or (ii) 4.25% plusthe Eurodollar Rate.  Additionally, theCompany pays an unused commitment fee of 1.0% per annum on the average dailyunused portion of the revolving facilities and a letter of credit fee on theaverage daily balance of the maximum daily amount available to be drawn underLetters of Credit equal to the applicable margin above the Eurodollar Rateapplicable for borrowings under the applicable revolving 2007 Credit Facility.

 

Theobligations of the Company as borrower under the Amended and Restated DIPCredit Agreement, as did the DIP Credit Facility, are guaranteed by the Company’sU.S. subsidiaries who are Debtors in the Chapter 11 cases, which, together withthe Company, own substantially all of the Company’s U.S. assets.  The obligations must also be guaranteed byeach of the Company’s subsidiaries that become party to the Chapter 11 cases,subject to specified exceptions.

 

Allamounts owing by the Company and the guarantors under the Amended and RestatedDIP Credit Agreement, as did the DIP Credit Facility, and certain hedgingarrangements and cash management services are secured, subject to a carve-outas set forth in the Amended and Restated DIP Credit Agreement (the “Carve-Out”),for professional fees and expenses (as well as other fees and expensescustomarily subject to such Carve-Out), by (i) a first priority perfectedpledge of (a) all notes owned by the Company and the guarantors and (b) allcapital stock owned by the Company and the guarantors (subject to certain exceptionsrelating to their respective foreign subsidiaries) and (ii) a firstpriority perfected security interest in all other assets owned by the Companyand the guarantors, in each case, junior only to liens as set forth in theAmended and Restated DIP Credit Agreement and the Carve-Out.

 

TheAmended and Restated DIP Credit Agreement, as did the DIP Credit Facility,requires the Company to meet certain financial covenants including thefollowing: (a) minimum cumulative monthly earnings before interest, taxes,and depreciation (“EBITDA”), after certain adjustments, on a consolidatedbasis; (b) a maximum variance of the weekly cumulative cash flows of theDebtors, compared to an agreed upon forecast; (c) minimum borrowingavailability of $20 million; and (d) maximum quarterly capitalexpenditures.  In addition, the Amendedand Restated DIP Credit Agreement contains covenants which, among other things,limit the incurrence of additional debt, operating leases, issuance of capitalstock, issuance of guarantees, liens, investments, disposition of assets,dividends, certain payments, mergers, change of business, transactions withaffiliates, prepayments of debt, repurchases of stock and redemptions ofcertain other indebtedness and other matters customarily restricted in suchagreements.  As of December 31,2009, the Company was in compliance with the covenant requirements of the DIPCredit Facility.

 

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TheAmended and Restated DIP Credit Agreement contains events of default,including, among others, payment defaults and breaches of representations andwarranties, (such as non-compliancewith covenants and the existence of a material adverse effect (as defined inthe agreement)).

 

**OtherDebt Obligations**

 

TheChapter 11 filing constituted an event of default under, or otherwise triggeredrepayment obligations with respect to, several of the debt instruments andagreements relating to direct and indirect financial obligations of the Debtors(collectively “Pre-petition Debt”).  Allobligations under the Pre-petition Debt have become automatically andimmediately due and payable.  The Debtorsbelieve that any efforts to enforce the payment obligations under thePre-petition Debt have been stayed as a result of the Chapter 11 cases.  As a result, interest accruals and paymentsfor the unsecured Pre-petition Debt have ceased as of the petition date.  The amount of contractual interest expensenot recorded in 2009 was approximately $63 million.  The Pre-petition Debt as of December 31,2009 consisted of $500 million of 2016 Notes, $370 million of 2009 Notes, $150million of 2026 Debentures (collectively the “Notes”), $152 million due in 2010under the 2007 Credit Facility and $3 million of other borrowings.  Pursuant to the final order of the BankruptcyCourt approving the DIP Credit Facility, the Debtors have acknowledged thepre-petition secured indebtedness associated with the 2007 Credit Facility tobe no less than $139 million (now $53 million after the “roll-up” in connectionwith the Company’s entry into the DIP Credit Facility).

 

The2007 Credit Facility is guaranteed by certain U.S. subsidiaries of the Company(the “Domestic Subsidiary Guarantors”). Pursuant to a 2007 Credit Facility covenant, the Company and theDomestic Subsidiary Guarantors were, in June of 2007, required to providea security interest in the equity of their first tier subsidiaries (limited to66% of the voting stock of first-tier foreign subsidiaries).  Under the terms of the indentures for theNotes, the Company was required to provide security for the Notes on an equaland ratable basis if (and for so long as) the principal amount of secured debtexceeded certain thresholds related to the Company’s assets.  The thresholds varied under each of theindentures.  In order to avoid having theNotes become equally and ratably secured with the 2007 Credit Facilityobligations, the lenders agreed to limit the amount secured by the pledgedequity to the maximum amount that would not require the Notes to become equallyand ratably secured (the “Maximum Amount”). In connection with the amendment and waiver agreement dated December 30,2008, the Company and the Domestic Subsidiary Guarantors entered into a SecondAmended and Restated Pledge and Security Agreement.  In addition to the prior pledge of equitygranted to secure the 2007 Credit Facility obligations, the Company and the DomesticSubsidiary Guarantors granted a security interest in their inventory.  The value of this security interest continuesto be limited to the Maximum Amount.

 

Priorto December 30, 2008, borrowings under the 2007 Credit Facility incurredinterest at the EURIBO Rate (as defined in the 2007 Credit Facility agreement)plus a margin ranging from 0% to 1.6%.  Afacility fee was payable on unused commitments at a rate ranging from 0.125% to0.4%.  During the waiver period, themargin added to calculate interest rates increased from 0.60% to 2.60% perannum for base rate advances and from 1.60% to 3.60% per annum for EURIBO Rateadvances.  Additionally, the unusedcommitment fee increased from 0.40% to 1.00% per annum.

 

Borrowingsunder the 2007 Credit Facility at December 31, 2009 were $152 million.  During the second quarter of 2009, borrowingsunder the 2007 Credit Facility were reduced by $86 million following the entryof the final order of the DIP Credit Facility by the Bankruptcy Court approvingthe “roll-up” of these advances. Further, following the drawing of certain letters of credit issued underthe 2007 Credit Facility, borrowings increased during 2009 by $49 million.

 

TheCompany has standby letters of credit and guarantees with various financialinstitutions the majority of which were issued under the 2007 CreditFacility.  Any additional drawings ofletter of credits issued under the 2007 Credit Facility will be classified asliabilities subject to compromise in the Consolidated Balance Sheet.  At December 31, 2009, the Company had$52 million of outstanding letters of credit and guarantees primarily relatedto liabilities for environmental remediation, vendor deposits, insuranceobligations and European value added tax obligations.  The outstanding letters of credit include $33million issued under the 2007 Credit Facility and are pre-petition liabilitiesand $19 million issued under the DIP Credit Facility letter of creditsub-facility.  The Company also had $17million of third party guarantees at December 31, 2009 for which it hasreserved $2 million at December 31, 2009, which represents the probabilityweighted fair value of these guarantees.

 

# **Maturities**

 

At December 31, 2009, the scheduled maturities ofdebt not subject to compromise primarily related to borrowings under the DIPCredit Facility are as follows: 2010 - $252 million; 2011 - $0 million; 2012 -$1 million; 2013 - $0 million; 2014 - $1 million and thereafter $0 million.

 

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TheAmended and Restated DIP Credit Agreement closed on February 12, 2010 withthe drawing of the $300 million term loan. The proceeds from the term loan under the Amended and Restated DIPCredit Agreement were used among other things, to refinance the obligationsoutstanding under the DIP Credit Facility and provide working capital forgeneral corporate purposes.  The Amended andRestated DIP Credit Agreement matures on the earlier of 364 days after the closing,the effective date of a Plan or the date of termination in whole of theCommitments (as defined in the Amended and Restated DIP Credit Agreement).

 

Debt maturities exclude $1,175 million of liabilitiessubject to compromise as the Company cannot accurately forecast the futurelevel and timing of the repayments given the inherent uncertainties associatedwith the Chapter 11 cases.

 

# **12) LEASES**

 

At December 31, 2009, minimumrental commitments, primarily for buildings, land and equipment undernon-cancelable operating leases, net of sublease income, amounted to $17million (2010), $10 million (2011), $8 million (2012), $6 million (2013), $6million (2014), $32 million (2015 and thereafter) and $79 million in theaggregate.  Sublease income is notsignificant in future periods.  Rentalexpenses under operating leases were $31 million (2009), $31 million (2008),and $34 million (2007), net of sublease income of $1 million (2008) and $10million (2007).

 

Future minimum rental commitments exclude real property leasesthat have been rejected with Bankruptcy Court approval on or beforeDecember 31, 2009.

#  

Future minimum lease payments undercapital leases at December 31, 2009 were not significant.

 

Real estate taxes, insurance and maintenance expensesgenerally are obligations of the Company and, accordingly, are not included aspart of rental payments.  It is expectedthat in the normal course of business, leases that expire will be renewed orreplaced by similar leases.

#  

# **13)INCOME TAXES**

 

The components of earnings (loss)from continuing operations before income taxes and the income tax provision(benefit) are as follows:

 
| **(In  millions)**                                   | ** ** | **2009**   | ** ** | **2008**   | ** ** | **2007**   | ** ** |
|------------------------------------------------------|------------|------------|------------|------------|------------|------------|------------|
|                                                 | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Pre-tax  (Loss) Earnings from Continuing Operations: | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Domestic                                             | ** ** | **$**      | **(256**   | **)**      | $          | (721       | )          | $ | (77 | ) |
| Foreign                                              | ** ** | **(28**    | **)**      | (277       | )          | 44         |       |
| ** **                                           | ** ** | **$**      | **(284**   | **)**      | $          | (998       | )          | $ | (33 | ) |
| ** **                                           |       |       |       |       |       |       |       |
| Income  Tax Provision (Benefit)                      |       |       |       |       |       |       |       |
| Domestic                                             |       |       |       |       |       |       |       |
| Current                                              | ** ** | **$**      | **(3**     | **)**      | $          | 4          |       | $ | (6 | ) |
| Deferred                                             | ** ** | **(22**    | **)**      | (82        | )          | (7         | )          |
| ** **                                           | ** ** | **$**      | **(25**    | **)**      | $          | (78        | )          | $ | (13 | ) |
| Foreign                                              |       |       |       |       |       |       |       |
| Current                                              | ** ** | **$**      | **8**      |       | $          | 43         |       | $ | 33 |   |
| Deferred                                             | ** ** | **22**     |       | 8          |       | (16        | )          |
| ** **                                           | ** ** | **$**      | **30**     |       | $          | 51         |       | $ | 17 |   |
| Total                                                |       |       |       |       |       |       |       |
| Current                                              | ** ** | **$**      | **5**      |       | $          | 47         |       | $ | 27 |   |
| Deferred                                             | ** ** | **—** |       | (74        | )          | (23        | )          |
| ** **                                           | ** ** | **$**      | **5**      |       | $          | (27        | )          | $ | 4 |   |

 

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The provision(benefit) for income taxes from continuing operations differs from the Federalstatutory rate for the following reasons:

 
| **(In millions)**                                       | ** ** | **2009**   | ** ** | **2008** | ** ** | **2007** | ** ** |
|---------------------------------------------------------|------------|------------|------------|----------|------------|----------|------------|
| Income  tax benefit at the U.S. statutory rate          | ** ** | **$**      | **(99**    | **)**    | $          | (349     | )          | $ | (12 | ) |
| Antitrust  legal settlements                            | ** ** | **1**      |       | 2        |       | 4        |       |
| Foreign  rate differential                              | ** ** | **40**     |       | 24       |       | 1        |       |
| State  income taxes, net of federal benefit             | ** ** | **1**      |       | (1       | )          | 7        |       |
| Tax  audit settlements                                  | ** ** | —     |       | —   |       | 12       |       |
| Valuation  allowances                                   | ** ** | **100**    |       | 44       |       | (1       | )          |
| U.S.  tax on foreign earnings                           | ** ** | **(1**     | **)**      | (11      | )          | 28       |       |
| Nondeductible  reorganizational expenses                | ** ** | **15**     |       | —   |       | —   |       |
| Nondeductible  expenses, / (nonincludable income) other | ** ** | **(1**     | **)**      | (3       | )          | 1        |       |
| Post-petition  interest expense                         | ** ** | **(22**    | **)**      | —   |       | —   |       |
| Goodwill                                                | ** ** | **—** |       | 291      |       | —   |       |
| Income  tax credits                                     | ** ** | **(7**     | **)**      | 1        |       | (4       | )          |
| Tax  law changes                                        | ** ** | **—** |       | (1       | )          | (10      | )          |
| Surrender  of insurance policies                        | ** ** | **—** |       | —   |       | 7        |       |
| Taxes  attributable to prior periods                    | ** ** | **(21**    | **)**      | (15      | )          | (26      | )          |
| Other,  net                                             | ** ** | **(1**     | **)**      | (9       | )          | (3       | )          |
| Actual  income tax provision (benefit)                  | ** ** | **$**      | **5**      |     | $          | (27      | )          | $ | 4 |   |

 

Deferred taxes are recorded based on differences betweenthe book and tax basis of assets and liabilities using currently enacted taxrates and regulations. The components of the deferred tax assets andliabilities are as follows:

 
| **(In millions)**                                     | ** ** | **2009** | ** ** | **2008** | ** ** |   |   |
|-------------------------------------------------------|------------|----------|------------|----------|------------|--------|--------|
| Deferred  tax assets:                                 |       |     |       |     |       |   |   |
| Pension  and other post-retirement liabilities        | ** ** | **$**    | **211**    |     | $          | 203    |   |   |   |
| Net  operating loss carryforwards                     | ** ** | **229**  |       | 168      |       |   |   |
| Other  accruals                                       | ** ** | **58**   |       | 77       |       |   |   |
| Tax  credit carryforwards                             | ** ** | **77**   |       | 72       |       |   |   |
| Accruals  for environmental remediation               | ** ** | **38**   |       | 31       |       |   |   |
| Inventories  and other                                | ** ** | **31**   |       | 23       |       |   |   |
| Financial  instruments                                | ** ** | **3**    |       | 6        |       |   |   |
| Total  deferred tax assets                            | ** ** | **647**  |       | 580      |       |   |   |
| Valuation  allowance                                  | ** ** | **(380** | **)**      | (191     | )          |   |   |
| Net  deferred tax assets after valuation allowance    | ** ** | **267**  |       | 389      |       |   |   |
| ** **                                            |       |     |       |     |       |   |   |
| Deferred  tax liabilities:                            |       |     |       |     |       |   |   |
| Foreign  earnings of subsidiaries                     | ** ** | **(153** | **)**      | (178     | )          |   |   |
| Property,  plant and equipment                        | ** ** | **(67**  | **)**      | (108     | )          |   |   |
| Intangibles                                           | ** ** | **(32**  | **)**      | (18      | )          |   |   |
| Other                                                 | ** ** | **(17**  | **)**      | (94      | )          |   |   |
| Total  deferred tax liabilities                       | ** ** | **(269** | **)**      | (398     | )          |   |   |
| Net  deferred tax liability after valuation allowance | ** ** | **$**    | **(2**     | **)**    | $          | (9     | )      |   |   |

 

Net current and non-current deferred taxes from each taxjurisdiction are included in the following accounts:

 

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| **(In millions)**                  | ** ** | **2009**   | ** ** | **2008** | ** ** |   |   |
|------------------------------------|------------|------------|------------|----------|------------|--------|--------|
| Net  current deferred taxes        |       |       |       |     |       |   |   |
| Other  current assets              | ** ** | **$**      | **27**     |     | $          | 10     |   |   |   |
| Other  current liabilities         | ** ** | **—** |       | (34      | )          |   |   |
| Net  non-current deferred taxes    |       |       |       |     |       |   |   |
| Other  assets                      | ** ** | **59**     |       | 58       |       |   |   |
| Other  liabilities                 | ** ** | **(62**    | **)**      | (43      | )          |   |   |
| Liabilities  subject to compromise | ** ** | **(26**    | **)**      | —   |       |   |   |
|                                    |            |            |            |          |            |        |        |  |  |

 

The Company had valuation allowancesrelated to U.S. operations of $310 million, $153 million and $69 million at December 31,2009, 2008 and 2007, respectively.  TheCompany had valuation allowances related to foreign operations of $70 million,$38 million and $17 million at December 31, 2009, 2008 and 2007,respectively.  A valuation allowance hasbeen provided for deferred tax assets where it is more likely than not theseassets will expire before the Company is able to realize their benefit.  Of the $189 million change in the totalvaluation allowance during 2009, $142 million was recorded to the income taxprovision in the Consolidated Statements of Operations and $47 million wasrecorded to other comprehensive income in the Consolidated Balance Sheet.  Of the $105 million change in the total valuationallowance during 2008 $44 million was recorded to the income tax provision inthe Consolidated Statements of Operations and $56 million and $5 million wasrecorded to other comprehensive income and goodwill, respectively, in theConsolidated Balance Sheet.  The changein the valuation allowance was primarily related to management’s determinationthat the realization of its deferred tax assets is not more likely thennot.  This valuation allowance will bemaintained until it is more likely than not that remaining deferred assets willbe realized.  When this occurs, theCompany’s income tax expense will be reduced by a decrease in its valuationallowance, which could have a significant impact on the Company’s futureearnings.

 

At December 31, 2009, theCompany had gross federal, state, and foreign net operating loss (“NOL”)carryforwards of $385 million, $960 million, and $435 million, respectively.  The Company also had federal and state taxcredit carryforwards of $74 million and $3 million, respectively.  State and foreign NOL’s and credits expire2010-2029, federal credits expire 2010-2029 and federal NOL’s expire 2022-2029.

 

At December 31, 2008, theCompany had gross federal, state, and foreign NOL carryforwards of $245million, $812 million and $169 million, respectively.  The Company also has federal and state taxcredits carry forwards of $68 million and $3 million, respectively.

 

The Company considers earnings ofcertain foreign subsidiaries to be indefinitely invested in theiroperations.  At December 31, 2009,such earnings amounted to $490 million.

 

The Company also has not recognized adeferred tax liability for the difference between the book basis and tax basisof investments in the common stock of foreign subsidiaries.  Such differences relate primarily to theunremitted earnings of both Witco’s and Great Lakes’ foreign subsidiaries priorto their mergers with the Company.  Thebasis difference in subsidiaries of Witco, acquired on September 1, 1999,is approximately $238 million and the basis difference in subsidiaries of GreatLakes, acquired on July 1, 2005, is approximately $67 million.  Estimating the tax liability that would ariseif these earnings were repatriated is not practicable at this time.

 

Duringthe year ended December 31, 2008, the Company recorded an increase to itsliability for unrecognized tax benefits of approximately $19 million.  During the year ended December 31, 2009,the Company recorded a decrease to its liability for unrecognized tax benefitsof approximately $9 million.  Inaccordance with ASC 740, the Company recognizes interest and penalties relatedto unrecognized tax benefits as a component of income tax expense.

 

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Thebeginning and ending amount of unrecognized tax benefits reconciles as follows:

 
| **(In millions)**                                         | ** ** | **2009** | ** ** | **2008** | ** ** | **2007** | ** ** |
|----------------------------------------------------------------|------------|----------|------------|----------|------------|----------|------------|
| Balance,  January 1                                       | ** ** | **$**    | **85**     |     | $          | 66       |       | $ | 56 |   |
| ** **                                                     |       |     |       |     |       |     |       |
| Gross  increases for tax positions taken during current year   | ** ** | **2**    |       | 16       |       | —   |       |
| Gross  increases for tax positions taken during a prior period | ** ** | **45**   |       | 29       |       | 21       |       |
| Gross  decreases for tax positions taken during a prior period | ** ** | **(44**  | **)**      | (12      | )          | (10      | )          |
| Gross  decreases due to bankruptcy claims adjustment           | ** ** | **(5**   | **)**      | —   |       | —   |       |
| Decreases  from the expiration of the statute of limitations   | ** ** | **(1**   | **)**      | (7       | )          | (1       | )          |
| Settlements  / payments                                        | ** ** | **(8**   | **)**      | (5       | )          | —   |       |
| Foreign  currency impact                                       | ** ** | **2**    |       | (2       | )          | —   |       |
| ** **                                                     |       |     |       |     |       |     |       |
| Balance,  December 31                                     | ** ** | **$**    | **76**     |     | $          | 85       |       | $ | 66 |   |

 

TheCompany recognized $1 million, $3 million and $4 million of interest related tounrecognized tax benefits within tax expense in its Consolidated Statements ofOperations in 2009, 2008 and 2007, respectively.  The Company also recognized in itsConsolidated Balance Sheets at December 31, 2009 and 2008 a total amountof $12 million and $11 million of interest, respectively, related tounrecognized tax benefits.

 

TheCompany and its subsidiaries file income tax returns in the U.S., various U.S.states and certain foreign jurisdictions. The Company has completed its federal examination through December 31,2005.  The tax years 2006-2008 remainopen to examination.

 

Foreign and United States jurisdictions have statutes oflimitations generally ranging from 3 to 5 years.  The Company has a number of state, local andforeign examinations currently in process. Major foreign exams in process include Canada, the Netherlands and theUnited Kingdom.

 

TheCompany believes it is reasonably possible that its unrecognized tax benefitsmay decrease by less than $1 million within the next year.  This reduction may occur due to the statuteof limitations expirations or conclusion of examinations by taxauthorities.  The Company further expectsthat the amount of unrecognized tax benefits will continue to change as theresult of ongoing operations, the outcomes of audits, and the expiration of thestatute of limitations.  This change isnot expected to have a significant impact on the results of operations or thefinancial condition of the Company.

#  

# **14) EARNINGS(LOSS) PER COMMON SHARE AND CAPITAL STOCK**

 

The computation of basic earnings (loss) per commonshare is based on the weighted average number of common sharesoutstanding.  The computation of dilutedearnings (loss) per common share is based on the weighted average number ofcommon and common share equivalents outstanding.  The computation of diluted earnings (loss)per share equals the basic earnings (loss) per common share calculation sincecommon stock equivalents were antidilutive due to losses from continuingoperations.  The Company had no commonstock equivalents in 2009 and 2008 for purposes of computing diluted earnings(loss) per share.   Common stockequivalents amounted to 0.5 million in 2007.

 

The weighted average common shares outstanding are 242.9million, 242.3 million and 241.6 million for the years ended December 31,2009, 2008 and 2007, respectively.

 

The shares of common stock underlying the Company’soutstanding stock options of 6.8 million, 12.7 million and 6.3 million at December 31,2009, 2008 and 2007, respectively, were excluded from the calculation ofdiluted earnings (loss) per share because the exercise prices of the stockoptions were greater than or equal to the average price of the common shares asof such dates.  These options could bedilutive if the average share price increases and is greater than the exerciseprice of these options.  The Company’sperformance-based restricted stock units (“RSUs”) of 0.5 million, 1.2 millionand 1.5 million at December 31, 2009, 2008 and 2007, respectively, werealso excluded from the calculation of diluted earnings (loss) per share becausethe specified performance criteria for the vesting of these RSUs had not yetbeen met.  These RSUs could be dilutivein the future if the specified performance criteria are met.

 

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The Company is authorized to issue500 million shares of $0.01 par value common stock.  There were 254.4 million and 254.1 millionshares issued at December 31, 2009 and 2008, respectively, of which 11.5million were held as treasury stock at December 31, 2009 and 2008.

 

The Company is authorized to issue 0.3 million shares of$0.10 par value preferred stock, none of which are outstanding.  On September 3, 1999, the Companydeclared a dividend distribution of one Preferred Share Purchase Right (“Rights”)on each outstanding share of common stock. These Rights entitle stockholders to purchase one one-hundredth of ashare of a new series of junior participating preferred stock at an exerciseprice of $100.  The Rights are onlyexercisable if a person or group acquires 15% or more of the Company’s commonstock or announces a tender offer which, if successful, would result inownership of 15% or more of the Company’s common stock.

 

**15) ACCUMULATED OTHER COMPREHENSIVE (LOSS) INCOME**

 

An analysis of the Company’s comprehensive (loss) incomefor the years ended 2009, 2008 and 2007 are as follows:

 
| **(In millions)**                                                  | ** ** | **2009** | ** ** | **2008** | ** ** | **2007** | ** ** |
|--------------------------------------------------------------------|------------|----------|------------|----------|------------|----------|------------|
| Net  (loss) earnings                                               | ** ** | **$**    | **(292**   | **)**    | $          | (971     | )          | $ | 5 |   |
| Other  comprehensive (loss) income, net of tax:                    |       |     |       |     |       |     |       |
| Foreign  currency translation adjustments                          | ** ** | **51**   |       | (191     | )          | 144      |       |
| Unrecognized  pension and other post-retirement benefit costs      | ** ** | **(78**  | **)**      | (186     | )          | 53       |       |
| Change  in fair value of derivatives                               | ** ** | **1**    |       | (1       | )          | 7        |       |
| Comprehensive  (loss) income                                       | ** ** | **(318** | **)**      | (1,349   | )          | 209      |       |
| Comprehensive  income attributable to the non-controlling interest | ** ** | **(1**   | **)**      | —   |       | (10      | )          |
| Comprehensive  (loss) income attributable to Chemtura Corporation  | ** ** | **$**    | **(319**   | **)**    | $          | (1,349   | )          | $ | 199 |   |

 

The components of accumulated other comprehensive loss,net of tax at December 31, 2009 and 2008 is as follows:

 
| **(In millions)**                                             | ** ** | **2009**   | ** ** | **2008** | ** ** | ** ** | ** ** |
|---------------------------------------------------------------|------------|------------|------------|----------|------------|------------|------------|
| Foreign  currency translation adjustment                      | ** ** | **$**      | **114**    |     | $          | 63         |       |   |   |
| Unrecognized  pension and other post retirement benefit costs | ** ** | **(348**   | **)**      | (270     | )          |       |       |
| Change  in fair value of derivatives                          | ** ** | **—** |       | (1       | )          |       |       |
| Accumulated  other comprehensive (loss) income                | ** ** | **$**      | **(234**   | **)**    | $          | (208       | )          |   |   |

 

Reclassifications from other comprehensive (loss) incometo COGS related to the Company’s natural gas price swap contracts aggregated toa $2 million pre-tax loss, $1 million pre-tax loss and $10 million pre-tax lossduring 2009, 2008 and 2007, respectively.

 

# **16) STOCKINCENTIVE PLANS**

 

TheCompany utilizes various employee stock-based compensation plans.  Awards under these plans are granted toeligible officers, management employees and non-employee directors.  Awards may be made in the form of incentivestock options, non-qualified stock options, stock appreciation rights,restricted stock and/or RSUs.  Under theplans, the Company issues additional shares of common stock upon the exerciseof stock options or the vesting of RSUs.

 

Allfuture issuances of shares of common stock under the Company’s stock-basedcompensation plans have been postponed as a result of the Chapter 11cases.  Accordingly, the Company urges that appropriate caution be exercised withrespect to existing and future investments in any of these securities.  Although the shares of the Company’s commonstock continue to trade on the Pink Sheets, the trading prices may have littleor no relationship to the actual recovery, if any, by the holders under anyeventual Bankruptcy Court-approved Plan. The opportunity for any recovery by holders of the Company’s commonstock under such Plan is uncertain as all creditors’ claims must be met infull, with interest before value can be attributed to the common stock and,therefore, the shares of the Company’s common stock and certain employee stockbased compensation plans, may be cancelled without any compensation pursuant tosuch Plan.

 

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**Description of the Plans**

 

The Company has five plans that have been utilized toissue stock-based compensation awards to officers, management employees andnon-employee directors, the 1988 Long-Term Incentive Plan (“1988 Plan”), the1993 Stock Option Plan for Non-Employee Directors (“1993 Stock Option Plan”),the 1998 Long-Term Incentive Plan (“1998 Plan”), the 2001 Employee Stock OptionPlan (“2001 Plan”) and the 2006 Chemtura Corporation Long-Term Incentive Plan (“2006Plan”).  The 1988 Plan, the 1993 StockOption Plan, the 1998 Plan and the 2001 Plan are closed to future equitygrants.  The 2006 Plan permits thegrant of various forms of stock-based compensation awards, including amongother things, incentive stock options, non-qualified stock options, stockappreciation rights, restricted stock and RSUs. The 2006 Plan provides for the issuance of a maximum of 10.5 millionshares, of which 4.0 million have been granted. Shares granted under the 2006 Plan pursuant to awards other than stockoptions and stock appreciation rights are limited to one-third of the totalmaximum number of shares available for award under the 2006 Plan.  Non-qualified and incentive stock options maybe granted under the 2006 plan at prices equal to the fair market value of theunderlying common shares on the date of the grant.  All outstanding stock options will expire notmore than ten years from the date of the grant.

 

OnJuly 27, 2009, the Organization, Compensation and Governance Committee ofthe Board of Directors (the “Committee”) adopted the Emergence Incentive Plan (“EIP”),subject to the approval of the Bankruptcy Court, which approval was received onJuly 28, 2009.  The EIP provides theopportunity for participants to earn an award that will be granted upon theCompany’s emergence from Chapter 11 in the form of time-based RSUs and/or stockoptions, if feasible, and/or in cash. The form of consideration will be determined by the Company’s Board ofDirectors upon emergence from Chapter 11. The number of employees included in the EIP and the size of the awardpool are based upon specific consolidated EBITDA levels achieved during thetwelve month period that will immediately precede the Company’s emergence fromChapter 11.  The maximum award pool couldamount to $17 million.  No awards havebeen granted under the EIP since the Company has not emerged from Chapter 11.

 

Totalstock-based compensation expense, including amounts for RSUs and stock options,was $3 million, $5 million and $10 million for the years ended December 31,2009, 2008 and 2007, respectively. Stock-based compensation expense was primarily reported inSG&A.  Approximately 80% of thecompensation expense related to stock options was allocated to the operatingsegments in 2009, 2008 and 2007.  Allother stock-based compensation expense has been allocated to Corporate.

 

**Stock OptionPlans**

 

InFebruary 2008 and December 2008, the Company’s Board of Directorsapproved the grant of stock options covering 2.7 million and 0.3 millionshares, respectively, with an exercise price equal to the fair market value ofthe underlying common stock at the date of grant. These options vest ratablyover a four year period.

 

InFebruary 2007 and April 2007 the Board of Directors approved thegrant of stock options covering 1.7 million and 0.1 million shares,respectively, with an exercise price equal to the fair market value of theunderlying common stock at the date of grant. These options vest ratably over a four year period.

 

TheCompany uses the Black-Scholes option-pricing model to determine thecompensation expense related to stock options.  The Company has elected to recognizecompensation cost for stock option awards granted equally over the requisiteservice period for each separately vesting tranche, as if multiple awards weregranted.  Using this method, the weightedaverage fair value of stock options granted during the years ended December 31,2008 and 2007 was $3.38 and $5.40, respectively.  No stock options were granted in 2009. TheBlack-Scholes option-pricing model requires the use of variousassumptions.  The following table presentsthe weighted average assumptions used:

 
| ** **               | ** ** | **Year Ended December 31,** | ** ** |
|--------------------------|------------|----------------------------------|------------|
| ** **               | ** ** | **2009**                         | ** ** | **2008** | ** ** | **2007** | ** ** |
| Dividend yield           | ** ** | **N/A**                          |       | 2.3 | % | 1.7 | % |
| Expected volatility      | ** ** | **N/A**                          |       | 46 | % | 48 | % |
| Risk-free interest rate  | ** ** | **N/A**                          |       | 3.2 | % | 4.6 | % |
| Expected life (in years) | ** ** | **N/A**                          |       | 6 |   | 6 |   |

 

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Theweighted average expected life of six years for the 2008 and 2007 grantsreflects the simplified method, which defines the expected life as the averageof the contractual term of the options and the weighted average vesting periodfor all option tranches. The Company continues to use the simplified methodbecause there is insufficient data to develop a justifiable expected term.  Expected volatility for the 2008 and 2007option grants is based primarily on historical volatility over the six yearsprior to the option grant date.

 

Changes during 2009, 2008 and 2007 in shares underoption are summarized as follows:

 
| ** **                  | ** ** | ** **          | ** **           | ** **  | ** ** | ** **        | ** ** | **Weighted**  | ** ** | ** **        | ** ** |
|-----------------------------|------------|---------------------|----------------------|-------------|------------|-------------------|------------|---------------|------------|-------------------|------------|
| ** **                  | ** ** | ** **          | ** **           | ** **  | ** ** | ** **        | ** ** | **Average**   | ** ** | **Aggregate**     | ** ** |
| ** **                  | ** ** | ** **          | ** **           | ** **  | ** ** | ** **        | ** ** | **Remaining** | ** ** | **Intrinsic**     | ** ** |
| ** **                  | ** ** | **Price Per Share** | ** **           | **Shares**  | ** ** | **Contractual**   | ** ** | **Value**     | ** ** |
| ** **                  | ** ** | **Range**           | ** **           | **Average** | ** ** | **(in millions)** | ** ** | **Life**      | ** ** | **(in millions)** | ** ** |
| Outstanding  at 1/1/07      |       | $                   |  5.85-26.41     |        | $          |  11.77       |       | 15.2          |       |              |       |   |   |
| Granted                     |       | 7.54-12.06          |                 | 11.95       |       | 1.9               | ** ** |          |       |              |       |
| Exercised                   |       | 5.85-11.26          |                 | 7.85        |       | (0.9              | )          | ** **    |       | $                 |  3    |   |
| Lapsed                      |       | 5.85-26.41          |                 | 16.56       |       | (4.6              | )          |          |       |              |       |
| Outstanding  at 12/31/07    |       | 5.85-21.74          |                 | 10.19       |       | 11.6              |       | 5.4           |       | 2                 |       |
| Granted                     |       | 1.50-8.71           |                 | 7.97        |       | 3.1               |       |          |       |              |       |
| Exercised                   |       | 5.85-8.34           |                 | 8.13        |       | (0.1              | )          |          |       | —            |       |
| Lapsed                      |       | 5.85-21.74          |                 | 11.27       |       | (2.7              | )          |          |       |              |       |
| Outstanding  at 12/31/08    |       | 1.50-21.74          |                 | 9.38        |       | 11.9              |       | 5.6           |       | —            |       |
| Lapsed                      |       | 5.85-21.74          |                 | 9.22        |       | (5.5              | )          |          |       |              |       |
| **Outstanding at 12/31/09** | ** ** | **$**               | ** 1.50-15.89** | ** **  | **$**      | ** 9.52**    | ** ** | **6.4**       | ** ** | **5.7**           | ** ** | **$** | **—** | ** ** |
| ** **                  | ** ** | ** **          | ** **           | ** **  | ** ** | ** **        | ** ** | ** **    | ** ** | ** **        | ** ** |
| Exercisable  at 12/31/07    |       | $                   |  5.85-21.74     |        | $          |  9.71        |       | 8.7           |       |              |       |   |   |
| Exercisable  at 12/31/08    |       | $                   |  5.85-21.74     |        | $          |  9.54        |       | 8.2           |       |              |       |   |   |
| **Exercisable at 12/31/09** | ** ** | **$**               | ** 1.50-15.89** | ** **  | **$**      | ** 10.05**   | ** ** | **4.4**       | ** ** | **4.6**           | ** ** | **$** | **—** | ** ** |

 

Duringthe year ended December 31, 2009 and 2008, the Company had 6.5 million and5.4 million shares available for grant respectively.

 

Totalremaining unrecognized compensation cost associated with unvested stock optionsat December 31, 2009 was $2 million, which will be recognized over theweighted average period of approximately one year.

 

**RestrictedStock Plans**

 

InFebruary 2008, the Board of Directors granted long-term incentive awardsof 0.4 million time-based RSUs, which will vest three and a half years from thedate of grant.  The Board of Directorsalso granted in February 2008 long-term incentive awards in the form ofperformance-based RSU’S for the 2008 to 2010 performance period.  The RSUs vest on February 1, 2011 uponthe achievement of certain levels of cumulative consolidated EBITDA during thethree year performance period.  EBITDA isadjusted to exclude certain categories of income and expense as defined in theaward.  The awards are for a maximum of0.8 million shares.

 

InFebruary 2007 and February 2008, 0.1 million RSUs were granted tonon-employee directors, which are to be settled upon termination of servicefrom the Board of Directors.

 

InFebruary 2007, the Board of Directors granted long-term incentive awardsof 0.1 million time-based RSUs, which vest three and a half years from the dateof grant.  The Board of Directors alsogranted in February 2007 long-term incentive awards in the form ofperformance-based RSUs for the 2007 to 2009 performance period.  The RSUs vest upon the achievement of certainlevels of cumulative, consolidated EBITDA during the three year performanceperiod.  EBITDA is adjusted to excludecertain categories of income or expense as defined in the award.  The awards are for a maximum of 0.5 millionshares.  In April 2007, the Board ofDirectors granted additional performance based RSUs for the 2007 to 2009performance period for a maximum of 0.1 million shares.  The RSUs for the 2007 to 2009 performanceperiod were cancelled as the performance criteria was not achieved.

 

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InDecember 2007, the Board of Directors granted long-term incentive awardsof 0.1 million time-based RSUs, which vest ratably on the first, second andthird anniversary of the grant.

 

Thefair value of RSUs without market conditions is determined based on the numberof shares granted and the quoted closing price of the Company’s stock at thedate of grant. To determine the fair value of RSUs with market conditions, theCompany uses the Monte Carlo simulation method. The Company’s determination of the fair value of RSUs with marketconditions on the date of grant is affected by its stock price as well asassumptions regarding a number of highly complex and subjective variables,including expected volatility and risk-free interest rate.  If other reasonable assumptions are used, theresults may differ.

 

Thefair value of all RSUs with market conditions is amortized on a straight-linevesting basis over the derived service periods. In the case of accelerated vesting based on the market performance ofthe Company’s common stock, the compensation costs related to the vested awardsthat have not previously been amortized are recognized upon vesting.

 

RSUsaward activity for the years ended December 31, 2009, 2008 and 2007 is asfollows:

 
| ** **                                      | ** ** | ** **        | ** ** | **Weighted**    | ** ** | ** **        | ** ** |
|-------------------------------------------------|------------|-------------------|------------|-----------------|------------|-------------------|------------|
| ** **                                      | ** ** | ** **        | ** ** | **Average**     | ** ** | **Aggregate**     | ** ** |
| ** **                                      | ** ** | **Shares**        | ** ** | **Grant  Date** | ** ** | **Fair  Value**   | ** ** |
| ** **                                      | ** ** | **(in millions)** | ** ** | **Fair  Value** | ** ** | **(in millions)** | ** ** |
| Unvested  RSU awards, January 1, 2007      |       | 2.3               |       | $               | 8.70       |              |       |   |
| Granted                                         |       | 1.0               |       | 11.25           |       |              |       |
| Vested                                          |       | (0.4              | )          | 9.69            |       | $                 | 3          |   |
| Canceled  or expired                            |       | (0.7              | )          | 10.21           |       |              |       |
| Unvested  RSU awards, December 31, 2007    |       | 2.2               |       | 9.24            |       | 17                |       |
| Granted                                         |       | 1.3               |       | 8.57            |       |              |       |
| Vested                                          |       | (0.4              | )          | 11.55           |       | 2                 |       |
| Canceled  or expired                            |       | (1.1              | )          | 8.90            |       |              |       |
| Unvested  RSU awards, December 31, 2008    |       | 2.0               |       | 8.58            |       | 3                 |       |
| Canceled  or expired                            |       | (0.8              | )          | 7.00            |       |              |       |
| **Unvested RSU awards, December 31, 2009** | ** ** | **1.2**           | ** ** | **$**           | **9.51**   | ** **        | **$**      | **2** | ** ** |

 

Totalremaining unrecognized compensation expense associated with unvested RSUs at December 31,2009 was $1 million, which will be recognized over the weighted average periodof approximately one year.

 

**TaxBenefits of Stock-Based Compensation Plans**

 

Priorto the adoption ASC 718, any benefit the Company received from tax deductionsresulting from the exercise of stock options and RSUs was presented in the cashflow from operations section of the Consolidated Statements of Cash Flows. ASC718 requires the benefits of tax deductions in excess of grant-date fair valuebe presented in the cash flow from financing section of the ConsolidatedStatements of Cash Flows.  The Companydid not obtain any cash tax benefit associated with shares exercised during theyear ended December 31, 2009, 2008 and 2007 as the Company’s taxableincome has been offset by net operating loss carry forwards and foreign taxcredits. Cash proceeds received from option exercises during the years ended December 31,2008 and 2007 were $1 million and $7 million, respectively.

 

The Company has an Employee Stock Purchase Plan (“ESPP”).  The ESPP permits eligible employees toannually elect to have up to 10% of their compensation withheld for thepurchase of shares of the Company’s common stock at 85% of the average of thehigh and low sale prices on the date of purchase, up to a maximum of twentyfive thousand dollars.  As of December 31,2009, 0.5 million shares of common stock were available for future issuanceunder the ESPP.  The ESPP was suspendedupon the Company’s Chapter 11 filing.

 

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# **17) PENSION AND OTHER POST-RETIREMENT PLANS**

 

The Company has several defined benefit and defined contribution pension plans covering substantially all of its domestic employees and certain international employees.  Benefits under the defined benefit plans are primarily based on the employees’ years of service and compensation during employment.  Effective January 1, 2006, the Company eliminated future earnings benefits to participants of its domestic defined benefit plans for non-bargained employees. All active non-bargained employees would subsequently earn benefits under defined contribution plans for all service incurred on or after January 1, 2006. The Company’s funding policy for the defined benefit plans is based on contributions at the minimum annual amounts required by law plus such amounts as the Company may deem appropriate.  Contributions for the defined contribution plans are determined as a percentage of the covered employee’s salary.  Plan assets consist of publicly traded securities and investments in commingled funds administered by independent investment advisors.

 

International employees are covered by various pensionbenefit arrangements, some of which are considered to be defined benefit plansfor financial reporting purposes.  Assetsof these plans are comprised primarily of equity investments, fixed-incomeinvestments and insurance contracts. Benefits under these plans are primarily based upon levels ofcompensation.  Funding policies are basedon legal requirements, tax considerations and local practices.

 

The Company also provides health and life insurancebenefits for substantially all of its active domestic employees and certainretired and international employees. These plans are generally not prefunded and are paid by the Company asincurred.

 

The Company adopted the balance sheet recognition provisions of ASC 715 as of December 31, 2006.  The Company adopted the change to the December 31 measurement date (from November) in 2008 and adjusted beginning retained earnings by $1 million before tax ($1 million net of taxes) as of January 1, 2008 accordingly.

 

**Benefit Obligations**

 
| ** **                                                                    | ** ** | **Defined Benefit Pension Plans** | ** ** | ** **              | ** ** | ** **            | ** ** |
|-------------------------------------------------------------------------------|------------|-----------------------------------|------------|-------------------------|------------|-----------------------|------------|
| ** **                                                                    | ** ** | **Qualified**                     | ** ** | **International and**   | ** ** | **Post-Retirement**   | ** ** |
| ** **                                                                    | ** ** | **Domestic Plans**                | ** ** | **Non-Qualified Plans** | ** ** | **Health Care Plans** | ** ** |
| **(In millions)**                                                             | ** ** | **2009**                          | ** ** | **2008**                | ** ** | **2009**              | ** ** | **2008** | ** ** | **2009** | ** ** | **2008** | ** ** |
| Change  in projected benefit obligation:                                      | ** ** | ** **                        |       |                    | ** ** | ** **            |       |   | ** ** | ** ** |   |   |   |
| Projected  benefit obligation at beginning of year                            | ** ** | **$**                             | **826**    |                    | $          | 817                   |       | $ | **366** |   | $ | 488 |   | $ | **155** |   | $ | 157 |   |
| Effect  of change in asset measurement date                                   | ** ** | **—**                        |       | (1                      | )          | **—**            |       | 1 | ** ** | **—** |   | — |   |
| Service  cost                                                                 | ** ** | **1**                             |       | 1                       | ** ** | **3**                 |       | 4 | ** ** | **1** |   | 1 |   |
| Interest  cost                                                                | ** ** | **50**                            |       | 49                      | ** ** | **22**                |       | 25 | ** ** | **8** |   | 9 |   |
| Plan  participants’ contributions                                        | ** ** | **—**                        |       | —                  | ** ** | **1**                 |       | 1 | ** ** | **—** |   | — |   |
| Actuarial  (gains) losses                                                     | ** ** | **57**                            |       | 19                      | ** ** | **23**                |       | (21 | ) | **9** |   | 6 |   |
| Foreign  currency exchange rate                                               | ** ** | **—**                        |       | —                  | ** ** | **30**                |       | (97 | ) | **2** |   | (4 | ) |
| Benefits  paid                                                                | ** ** | **(60**                           | **)**      | (59                     | )          | **(21**               | **)**      | (20 | ) | **(16** | **)** | (14 | ) |
| Plan  amendments                                                              | ** ** | **—**                        |       | —                  | ** ** | **—**            |       | — | ** ** | **(9** | **)** | — |   |
| Curtailments                                                                  | ** ** | **—**                        |       | —                  | ** ** | **—**            |       | (6 | )(a) | **—** |   | — |   |
| Settlements                                                                   | ** ** | **—**                        |       | —                  | ** ** | **(3**                | **)**(b)   | (9 | )(b) | **—** |   | — |   |
| Projected  benefit obligation at end of year                                  | ** ** | **$**                             | **874**    |                    | $          | 826                   |       | $ | **421** |   | $ | 366 |   | $ | **150** |   | $ | 155 |   |
|                                                                          | ** ** | ** **                        |       |                    | ** ** | ** **            |       |   | ** ** | ** ** |   |   |   |
| Accumulated  benefit obligation at end of year                                | ** ** | **$**                             | **873**    |                    | $          | 824                   |       | $ | **410** |   | $ | 355 | ** ** | ** ** |   |   |   |
|                                                                          | ** ** | ** **                        |       |                    | ** ** | ** **            |       |   | ** ** | ** ** |   |   |   |
| Weighted-average  year-end assumptions used to determine benefit obligations: | ** ** | ** **                        |       |                    | ** ** | ** **            |       |   | ** ** | ** ** |   |   |   |
| Discount  rate                                                                | ** ** | **5.70**                          | **%**      | 6.00                    | %          | **5.56**              | **%**      | 5.82 | % | **5.44** | **%** | 6.01 | % |
| Rate  of compensation increase                                                | ** ** | **4.00**                          | **%**      | 4.00                    | %          | **3.20**              | **%**      | 3.17 | % |   |   |   |   |
| Rate  of increase in the per capita cost of covered health care benefits      |       |                              |       |                    | ** ** | ** **            |       |   | ** ** | **7.73** | **%** | 7.64 | % |

 

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(a)              A curtailment forinternational non-qualified plans was incurred due to the elimination of futurebenefit accruals for plans.

**(b)**             Settlementsare related to the impact of the Company’s restructuring programs on affectedemployees.

 

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A 7.73% weighted-average rate of increase in the percapita cost of covered health care benefits was assumed for the accumulatedpost-retirement benefit obligation as of December 31, 2009.  The rate was assumed to decrease gradually toa weighted average rate of 5.0% over approximately the next 6 to 10 years.  Assumed health care cost trend rates have asignificant effect on the post-retirement benefit obligation reported for thehealth care plans.  A one percentagepoint increase in assumed health care cost trend rates would increase theaccumulated post-retirement benefit obligation by $7 million for health carebenefits as of December 31, 2009.  Aone percentage point decrease in assumed health care cost trend rates woulddecrease the accumulated post-retirement benefit obligation by $6 million forhealth care benefits as of December 31, 2009.

** **

**Plan Assets**

 
| ** **                                      | ** ** | **Defined Benefit Pension Plans** | ** ** | ** **              | ** ** | ** **            | ** ** |
|-------------------------------------------------|------------|-----------------------------------|------------|-------------------------|------------|-----------------------|------------|
| ** **                                      | ** ** | **Qualified**                     | ** ** | **International and**   | ** ** | **Post-Retirement**   | ** ** |
| ** **                                      | ** ** | **Domestic Plans**                | ** ** | **Non-Qualified Plans** | ** ** | **Health Care Plans** | ** ** |
| **(In millions)**                               | ** ** | **2009**                          | ** ** | **2008**                | ** ** | **2009**              | ** ** | **2008** | ** ** | **2009** | ** ** | **2008** | ** ** |
| Change  in plan assets:                         | ** ** | ** **                        |       |                    | ** ** | ** **            |       |   | ** ** | ** ** |   |   |   |
| Fair  value of plan assets at beginning of year | ** ** | **$**                             | **630**    |                    | $          | 773                   | ** ** | **$** | **186** |   | $ | 297 | ** ** | **$** | **—** |   | $ | — |   |
| Effect  of change in asset measurement date     | ** ** | **—**                        |       | —                  | ** ** | **—**            |       | 9 | ** ** | **—** |   | — |   |
| Actual  return on plan assets                   | ** ** | **55**                            |       | (90                     | )          | **30**                |       | (44 | ) | **—** |   | — |   |
| Foreign  currency exchange rate changes         | ** ** | **—**                        |       | —                  | ** ** | **23**                |       | (69 | ) | **—** |   | — |   |
| Employer  contributions                         | ** ** | **—**                        |       | 6                       | ** ** | **13**                |       | 22 | ** ** | **15** |   | 14 |   |
| Plan  participants’ contributions          | ** ** | **—**                        |       | —                  | ** ** | **1**                 |       | 1 | ** ** | **—** |   | — |   |
| Benefits  paid                                  | ** ** | **(60**                           | **)**      | (59                     | )          | **(20**               | **)**      | (21 | ) | **(15** | **)** | (14 | ) |
| Settlements                                     | ** ** | **—**                        |       | —                  | ** ** | **(3**                | **)**(a)   | (9 | )(a) | **—** |   | — |   |
| Fair  value of plan assets at end of year       | ** ** | **$**                             | **625**    |                    | $          | 630                   | ** ** | **$** | **230** |   | $ | 186 | ** ** | **$** | **—** |   | $ | — |   |

 

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**(a) Settlements are primarily related to the impact of the Company’s restructuringprograms on affected employees.**

 

**The Company’s pension plan assets are managedby outside investment managers.  Assetsare monitored monthly to ensure they are within the range of parameters as setforth by the Company.  The Company’sinvestment strategy with respect to pension assets is to achieve the expectedrate of return within an acceptable or appropriate level of risk.  The Company’s investment strategy is designedto promote diversification, to moderate volatility and to attempt to balancethe expected return with risk levels. The target allocations for qualifieddomestic plans are 50% equity securities, 45% fixed income securities and 5% toall other types of investments.  Thetarget allocations for international pension plans are 62% equity securities,36% fixed income securities and 2% to all other types of investments.  Equity securities include Chemtura’s commonstock in the amount of $7 million as of December 31, 2008.  The Plans’ investment in Chemtura stock wassold during 2009.**

** **

**The fair values of the Chemtura Corporation’sdefined benefit pension plan assets at December 31, 2009, by asset categoryare as follows:**

** **
| ** **                                       | ** ** | **Fair  Value Measurements at December 31, 2009** | ** ** |
|--------------------------------------------------|------------|--------------------------------------------------------|------------|
| ** **                                       | ** ** | **Defined  Benefit Pension Plans**                     | ** ** |
| ** **                                       | ** ** | **Qualified  Domestic Plans**                          | ** ** | **International  and Non-Qualified Plans** | ** ** |
| **(In  millions)**                               | ** ** | **Total**                                              | ** ** | **Quoted  Prices in  Active  Markets for  Identical  Assets  (Level 1)** | ** ** | **Significant  Observable  Inputs  (Level 2)** | ** ** | **Significant  Unobservable  Inputs  (Level 3)** | ** ** | **Total** | ** ** | **Quoted  Prices in  Active  Markets for  Identical  Assets  (Level 1)** | ** ** | **Significant  Observable  Inputs  (Level 2)** | ** ** | **Significant  Unobservable  Inputs  (Level 3)** | ** ** |
| Equity  securities:                              |       |                                                   |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| U.S.equities  (a)                                |       | $                                                      | 65         |   | $ | 65 |   | $ | — |   | $ | — |   | $ | — |   | $ | — |   | $ | — |   | $ | — |   |
| International  equities (a)                      |       | 59                                                     |       | 59 |   | — |   | — |   | — |   | — |   | — |   | — |   |
| Pooled  equity (b)                               |       | 230                                                    |       | 190 |   | 40 |   | — |   | 143 |   | 17 |   | 126 |   | — |   |
| Preferred  stock                                 |       | 1                                                      |       | — |   | 1 |   | — |   | — |   | — |   | — |   | — |   |
| Fixed  income securities:                        |       |                                                   |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| U.S.  government bonds (c)                       |       | 98                                                     |       | — |   | 98 |   | — |   | — |   | — |   | — |   | — |   |
| International  government bonds (c)              |       | —                                                 |       | — |   | — |   | — |   | 1 |   | — |   | 1 |   | — |   |
| U.S.  corporate bonds (d)                        |       | 125                                                    |       | — |   | 125 |   | — |   | — |   | — |   | — |   | — |   |
| International  corporate bonds (d)               |       | 25                                                     |       | — |   | 25 |   | — |   | 1 |   | — |   | 1 |   | — |   |
| Pooled  fixed income funds (e)                   |       | —                                                 |       | — |   | — |   | — |   | 83 |   | — |   | 83 |   | — |   |
| Private  equity & other insturments (f) |       | —                                                 |       | — |   | — |   | — |   | 1 |   | — |   | — |   | 1 |   |
| Money  market funds (g)                          |       | 22                                                     |       | 22 |   | — |   | — |   | — |   | — |   | — |   | — |   |
| Cash &  cash equivalents                |       | —                                                 |       | — |   | — |   | — |   | 1 |   | 1 |   | — |   | — |   |
|                                             |       | $                                                      | 625        |   | $ | 336 |   | $ | 289 |   | $ | — |   | $ | 230 |   | $ | 18 |   | $ | 211 |   | $ | 1 |   |

 

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(a)         U.S. and internationalequities are comprised of shares of common stock in various sized U.S. andinternational companies from a diverse set of industries.  Common stock is valued at the closing pricereported on the U.S. and international exchanges where the security is activelytraded.

(b)         Pooled equity funds include mutual and collectivefunds that invest primarily in marketable equity securities of various sizedcompanies in a diverse set of industries in various regions of the world.   Shares of publicly traded mutual funds arevalued at the closing price reported on the U.S. and international exchangeswhere the underlying securities are actively traded.  Units of collective funds are valued at theper unit value determined by the fund manager, which in based on market priceof the underlying securities.

(c)          U.S. and internationalgovernment bonds include U.S. treasury, municipal and agency obligations andinternational government debt.  Suchinstruments are valued at quoted market prices for those instruments or oninstitutional bid valuations.

(d)        U.S. and internationalcorporate bonds from a diverse set of industries and regions.  Such instruments are valued using similarsecurities in active markets and observable data or broker or dealerquotations.

(e)         Pooled fixed income fundsare fixed income funds that invest primarily in corporate and governmentbonds.  Such instruments are valued usingsimilar securities in active markets and observable data or broker or dealerquotations.

(f)           Private equity and otherinstruments include instruments for which there are significant unobservableinputs.  The decrease in the fair value of these assets wasless than $1 million during 2009 and primarily relates to payments.

(g)        Money market funds primarilyincludes high-grade money market instruments with short maturities (less than90 days).

 

**Funded Status**

** **

**The funded status at the end of the year, andthe related amounts recognized on the statement of financial condition, are asfollows:**

 
| ** **                                                                                 | ** ** | **Defined Benefit Pension Plans** | ** ** | ** **              | ** ** | ** **            | ** ** |
|--------------------------------------------------------------------------------------------|------------|-----------------------------------|------------|-------------------------|------------|-----------------------|------------|
| ** **                                                                                 | ** ** | **Qualified**                     | ** ** | **International and**   | ** ** | **Post-Retirement**   | ** ** |
| ** **                                                                                 | ** ** | **Domestic Plans**                | ** ** | **Non-Qualified Plans** | ** ** | **Health Care Plans** | ** ** |
| **(In millions)**                                                                          | ** ** | **2009**                          | ** ** | **2008**                | ** ** | **2009**              | ** ** | **2008** | ** ** | **2009** | ** ** | **2008** | ** ** |
| Funded  status, end of year:                                                               | ** ** | ** **                        |       |                    | ** ** | ** **            |       |   | ** ** | ** ** |   |   |   |
| Fair  value of plan assets                                                                 | ** ** | **$**                             | **625**    |                    | $          | 630                   | ** ** | **$** | **230** |   | $ | 186 | ** ** | **$** | **—** |   | $ | — |   |
| Benefit  obligations                                                                       | ** ** | **874**                           |       | 826                     | ** ** | **421**               |       | 366 | ** ** | **150** |   | 155 |   |
| Net  amount recognized                                                                     | ** ** | **$**                             | **(249**   | **)**                   | $          | (196                  | )          | **$** | **(191** | **)** | $ | (180 | ) | **$** | **(150** | **)** | $ | (155 | ) |
|                                                                                       | ** ** | ** **                        |       |                    | ** ** | ** **            |       |   | ** ** | ** ** |   |   |   |
| Amounts  recognized in the statement of financial position at the end of year consist  of: | ** ** | ** **                        |       |                    | ** ** | ** **            |       |   | ** ** | ** ** |   |   |   |
| Noncurrent  assets                                                                         | ** ** | **$**                             | **—** |                    | —     | ** **            | **1**      |   | 1 | ** ** | **—** |   | — |   |
| Current  liability                                                                         | ** ** | **—**                        |       |                    | ** ** | **(5**                | **)**      | (9 | ) | **(1** | **)** | (13 | ) |
| Noncurrent  liability                                                                      | ** ** | **—**                        |       | (196                    | )          | **(158**              | **)**      | (172 | ) | **(16** | **)** | (142 | ) |
| Liabilities  subject to compromise                                                         | ** ** | ** **                        | **(249**   | **)**                   |       | —                |       | ** ** | **(29** | **)** |   | — |   | ** ** | **(133** | **)** |   | — |   |
| Net  amount recognized                                                                     | ** ** | **$**                             | **(249**   | **)**                   | $          | (196                  | )          | **$** | **(191** | **)** | $ | (180 | ) | **$** | **(150** | **)** | $ | (155 | ) |
|                                                                                       | ** ** | ** **                        |       |                    |       |                  |       |   |   |   |   |   |   |
| Amounts  recognized in accumulated other comprehensive loss consist of:                    | ** ** | ** **                        |       |                    |       |                  |       |   |   |   |   |   |   |
| Net  actuarial loss/(gain)                                                                 | ** ** | **$**                             | **343**    |                    | $          | 288                   | ** ** | **$** | **63** |   | $ | 54 | ** ** | **$** | **50** |   | $ | 44 |   |
| Prior  service cost/(credit)                                                               | ** ** | **1**                             |       | 2                       | ** ** | **—**            |       | — | ** ** | **(42** | **)** | (39 | ) |
|                                                                                       | ** ** | **$**                             | **344**    |                    | $          | 290                   | ** ** | **$** | **63** |   | $ | 54 | ** ** | **$** | **8** |   | $ | 5 |   |

 

Theestimated amounts that will be amortized from accumulated other comprehensiveloss into net periodic benefit cost in 2010 are as follows:

 
| **(In millions)**           | ** ** | **Qualified  Domestic  Plans** | ** ** | **International  and Non-  Qualified  Plans** | ** ** | **Other  Post-  Retirement  Health Care Plans** | ** ** |
|-----------------------------|------------|--------------------------------|------------|-----------------------------------------------|------------|-------------------------------------------------|------------|
| Actuarial (gain)/loss       | ** ** | **$**                          | **7**      | ** **                                    | **$**      | **1**                                           | ** ** | **$** | **3** | ** ** |
| Prior service (credit)/cost | ** ** | **—**                     | ** ** | **—**                                    | ** ** | **(4**                                          | **)**      |
| Total                       | ** ** | **$**                          | **7**      | ** **                                    | **$**      | **1**                                           | ** ** | **$** | **(1** | **)** |

 

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The current liabilities positions areincluded in accrued expenses on the Company’s Consolidated Balance Sheets andthe non-current liabilities positions are shown as pension and post-retirementhealth care liabilities.  Domestic liabilities are included inliabilities subject to compromise.

 

TheCompany made no discretionary contributions to its domestic qualified pensionplans in 2009 and $6 million of discretionary contributions in 2008. TheCompany’s funding assumptions for its domestic pension plans assume no significantchange with regards to demographics, legislation, plan provisions, or actuarialassumptions or methods to determine the estimated funding requirements. ThePension Protection Act, which was passed in 2006, extends interest rate relieffor qualified domestic pension plans until 2008, at which time a newmethodology for determining required funding amounts will be phased in.  The Company contributed approximately $28million and $20 million to its international pension, domestic non-qualifiedpension and post retirement plans in 2009 and 2008, respectively.  There were no discretionary payments for theinternational plans during 2009 and 2008.

 

Theprojected benefit obligation and fair value of plan assets for pension andpost-retirement plans with a projected benefit obligation in excess of planassets at December 31, 2009 and 2008 were as follows:

 
| **(In millions)**                                                      | ** ** | **2009**   | ** ** | **2008** | ** ** |
|------------------------------------------------------------------------|------------|------------|------------|----------|------------|
| Projected  benefit obligation in excess of plan assets at end of year: | ** ** | ** ** |       |     |       |
| Projected  benefit obligation                                          | ** ** | **$**      | **1,436**  |     | $          | 1,339 |   |
| Fair  value of plan assets                                             | ** ** | **845**    |       | 808      |       |
|                                                                        |            |            |            |          |            |  |  |

 

Theprojected benefit obligation, accumulated benefit obligation and fair value ofplan assets for pension and post-retirement plans with an accumulated benefitobligation in excess of plan assets at December 31, 2009 and 2008 were asfollows:

** **
| **(In millions)**                                                        | ** ** | **2009**   | ** ** | **2008** | ** ** |
|--------------------------------------------------------------------------|------------|------------|------------|----------|------------|
| Accumulated  benefit obligation in excess of plan assets at end of year: | ** ** | ** ** |       |     |       |
| Projected  benefit obligation                                            | ** ** | **$**      | **1,286**  |     | $          | 1,179 |   |
| Accumulated  benefit obligation                                          | ** ** | **1,274**  |       | 1,167    |       |
| Fair  value of plan assets                                               | ** ** | **845**    |       | 803      |       |
|                                                                          |            |            |            |          |            |  |  |

 

**ExpectedCash Flows**

 

Information about the expected cash flows for the domesticqualified defined benefit plans, international and non-qualified definedbenefit plans and post-retirement health care plans are as follows:

 
| ** **                        | ** ** | **Defined Benefit Pension Plans** | ** ** | ** **                                  | ** ** |
|-----------------------------------|------------|-----------------------------------|------------|---------------------------------------------|------------|
| **(in millions)**                 | ** ** | **Qualified  Domestic Plans**     | ** ** | **International and  Non-Qualified  Plans** | ** ** | **Post-Retirement  Health Care  Plans** | ** ** |
| Expected Employer  Contributions: |       |                              |       |                                        |       |   |   |
| 2010                              |       | $                                 | —     |                                        | $          | 17 |   | $ | 14 |   |
|                              |       |                              |       |                                        |       |   |   |
| Expected Benefit  Payments (a):   |       |                              |       |                                        |       |   |   |
| 2010                              |       | 59                                |       | 19                                          |       | 14 |   |
| 2011                              |       | 58                                |       | 19                                          |       | 14 |   |
| 2012                              |       | 59                                |       | 21                                          |       | 14 |   |
| 2013                              |       | 59                                |       | 22                                          |       | 13 |   |
| 2014                              |       | 59                                |       | 25                                          |       | 13 |   |
| 2015-2019                         |       | 303                               |       | 132                                         |       | 59 |   |
|                                   |            |                                   |            |                                             |            |  |  |  |  |  |

 

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(a)         The expected benefit paymentsare based on the same assumptions used to measure the Company’s benefitobligation at the end of the year and include benefits attributable toestimated future employee service.

 

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**Net Periodic Cost**

 
| ** **                                         | ** ** | **Defined Benefit Pension Plans** | ** ** | ** **              | ** ** | ** **            | ** ** | ** ** | ** ** |
|----------------------------------------------------|------------|-----------------------------------|------------|-------------------------|------------|-----------------------|------------|------------|------------|
| ** **                                         | ** ** | **Qualified**                     | ** ** | **International and**   | ** ** | **Post-Retirement**   | ** ** |
| ** **                                         | ** ** | **Domestic Plans**                | ** ** | **Non-Qualified Plans** | ** ** | **Health Care Plans** | ** ** |
| **(In millions)**                                  | ** ** | **2009**                          | ** ** | **2008**                | ** ** | **2007**              | ** ** | **2009**   | ** ** | **2008** | ** ** | **2007** | ** ** | **2009** | ** ** | **2008** | ** ** | **2007** | ** ** |
| Components  of net periodic benefit cost (credit): | ** ** | ** **                        |       |                    |       |                  | ** ** | ** ** |       |   |   |   | ** ** | ** ** |   |   |   |   |   |
|                                               | ** ** | ** **                        |       |                    |       |                  | ** ** | ** ** |       |   |   |   | ** ** | ** ** |   |   |   |   |   |
| Service  cost                                      | ** ** | **$**                             | **—** |                    | $          | 1                     |       | $          | 1          | ** ** | **$** | **3** |   | $ | 4 |   | $ | 7 | ** ** | **$** | **—** |   | $ | 1 |   | $ | 1 |   |
| Interest  cost                                     | ** ** | **50**                            |       | 49                      |       | 46                    | ** ** | **22**     |       | 25 |   | 25 | ** ** | **9** |   | 9 |   | 9 |   |
| Expected  return on plan assets                    | ** ** | **(56**                           | **)**      | (63                     | )          | (62                   | )          | **(18**    | **)**      | (21 | ) | (20 | ) | **—** |   | — |   | — |   |
| Amortization  of prior service cost                | ** ** | **—**                        |       | —                  |       | —                | ** ** | **—** |       | — |   | — | ** ** | **(6** | **)** | — |   | — |   |
| Recognized  actuarial (gains) losses               | ** ** | **5**                             |       | 7                       |       | 7                     | ** ** | **1**      |       | 1 |   | 4 | ** ** | **2** |   | 2 |   | 2 |   |
| Curtailment  gain recognized                       | ** ** | **—**                        |       | —                  |       | —                | ** ** | **—** |       | (6 | ) | (1 | ) | **—** |   | (3 | ) | (3 | ) |
| Settlement  loss recognized                        | ** ** | **—**                        |       | —                  |       | —                | ** ** | **—** |       | 2 |   | — | ** ** | **—** |   | — |   | — |   |
| Other                                              | ** ** | **—**                        |       | —                  |       | —                | ** ** | **—** |       | 1 |   | 1 | ** ** | **1** |   | — |   | — |   |
| Net  periodic benefit cost (credit)                | ** ** | **$**                             | **(1**     | **)**                   | $          | (6                    | )          | $          | (8         | ) | **$** | **8** |   | $ | 6 |   | $ | 16 | ** ** | **$** | **6** |   | $ | 9 |   | $ | 9 |   |

 
| ** **                                                | ** ** | **Defined Benefit Plans** | ** ** | ** **              | ** ** | ** **            | ** ** | ** ** | ** ** |
|-----------------------------------------------------------|------------|---------------------------|------------|-------------------------|------------|-----------------------|------------|------------|------------|
| ** **                                                | ** ** | **Qualified**             | ** ** | **International and**   | ** ** | **Post-Retirement**   | ** ** |
| ** **                                                | ** ** | **Domestic Plans**        | ** ** | **Non-Qualified Plans** | ** ** | **Health Care Plans** | ** ** |
| ** **                                                | ** ** | **2009**                  | ** ** | **2008**                | ** ** | **2007**              | ** ** | **2009**   | ** ** | **2008** | ** ** | **2007** | ** ** | **2009** | ** ** | **2008** | ** ** | **2007** | ** ** |
| Weighted-average  assumptions used to determine net cost: |       |                      |       |                    |       |                  | ** ** | ** ** |       |   |   |   | ** ** | ** ** |   |   |   |   |   |
|                                                      | ** ** | ** **                |       |                    |       |                  | ** ** | ** ** |       |   |   |   | ** ** | ** ** |   |   |   |   |   |
| Discount  rate                                            | ** ** | **6.00**                  | **%**      | 6.00                    | %          | 5.63                  | %          | **5.90**   | **%**      | 5.46 | % | 4.68 | % | **6.04** | **%** | 5.87 | % | 5.46 | % |
| Expected  return on plan assets                           | ** ** | **7.75**                  | **%**      | 8.50                    | %          | 8.50                  | %          | **7.50**   | **%**      | 7.50 | % | 7.36 | % |   |   |   |   |   |   |
| Rate  of compensation increase                            | ** ** | **4.00**                  | **%**      | 4.00                    | %          | 4.00                  | %          | **3.60**   | **%**      | 3.22 | % | 3.08 | % |   |   |   |   |   |   |

 

The expected return on pension plan assetsis based on our investment strategy, historical experience, and ourexpectations for long term rates of return. The Company determines the long-term rate of return assumptions for thedomestic and international pension plans based on its investment allocationbetween various asset classes.  Theexpected rate of return on plan assets is derived by applying the expectedreturns on various asset classes to the Company’s target asset allocation.  The expected returns are based on theexpected performance of the various asset classes and are further supported byhistorical investment returns. The Company utilized a weighted average expectedlong-term rate of 7.75% on all domestic assets and a weighted average rate of7.50% for the international plan assets for the year ended December 31,2009.

 

Assumed health care cost trend rates have a significanteffect on the service and interest cost components reported for the health careplans. A one percentage point increase in assumed health care cost trend ratesincreases the service and interest cost components of net periodicpost-retirement health care benefit cost by less than $1 million for 2009.  A one percentage point decrease in assumedhealth care cost trend rates decreases the service and interest cost componentsof net periodic post-retirement health care benefit cost by less than $1million for 2009.

 

The Company’s cost of its defined contribution plans was$13 million for 2009 and $18 million for 2008 and 2007.

 

**18)DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES**

 

TheCompany’s activities expose its earnings, cash flows and financial condition toa variety of market risks, including the effects of changes in foreign currencyexchange rates, interest rates and energy prices.  The Company maintained a risk managementstrategy that used derivative instruments to mitigate risk against foreigncurrency movements and to manage energy price volatility.  In accordance with ASC Topic 815, *Derivatives and Hedging* (“ASC 815”), the Company recognizesin accumulated other comprehensive loss (“AOCL”) any changes in the fair valueof all derivatives designated as cash flow hedging instruments.  The Company does not enter into derivativeinstruments for trading or speculative purposes.

 

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TheCompany used price swap contracts as cash flow hedges to convert a portion ofits forecasted natural gas purchases from variable price to fixed pricepurchases.  These contracts weredesignated as hedges of a portion of the Company’s forecasted natural gaspurchases, and these contracts involve the exchange of payments over the lifeof the contracts without an exchange of the notional amount upon which thepayments are based.  The differentialpaid or received as natural gas prices change is reported in AOCL.  These amounts are subsequently reclassifiedinto COGS when the related inventory layer is sold.  These contracts have been terminated by thecounterparties due to the Company’s Chapter 11 cases and have been classifiedas liabilities subject to compromise.  Asof the termination date, the contracts were deemed to be effective and theCompany has maintained hedge accounting given that the forecasted hedgetransactions are probable.  At December 31, 2009, the Company had nooutstanding price swaps since the contracts expired in December 2009.  At December 31, 2008, the Company hadoutstanding price swaps with an aggregate notional amount of approximately $6million, based on the contract price and outstanding quantities of 910 millionBTU’s at December 31, 2008.

 

**All price swapcontracts have been entered into with major financial institutions.  The risk associated with these transactionsis the cost of replacing these agreements at current market rates in the eventof default by the counterparties.  Managementbelieves the risk of incurring such losses is remote.  In the fourth quarter of 2007, the Companyceased the purchase of additional price swap contracts as a cash flow hedge offorecasted natural gas purchases and established fixed price contracts withphysical delivery with its natural gas vendor. All price swap contracts have matured as of December 31, 2009.**

 

The Company has exposure to changes in foreign currencyexchange rates resulting from transactions entered into by the Company and itsforeign subsidiaries in currencies other than their local currency (primarilytrade payables and receivables).  TheCompany is also exposed to currency risk on intercompany transactions(including intercompany loans).  TheCompany manages these transactional currency risks on a consolidated basis,which allows it to net its exposure.  TheCompany has traditionally purchased foreign currency forward contracts,primarily denominated in Euros, British Pound Sterling, Canadian dollars,Mexican Pesos and Australian dollars to manage its transaction exposure.  These contracts are generally recognized inother income (expense), net to offset the impact of valuing recorded foreigncurrency trade payables, receivables and intercompany transactions.  The Company has not designated thesederivatives as hedges, although it believes these instruments reduce theCompany’s exposure to foreign currency risk. The aggregate notional amount of these contracts at December 31,2008 was approximately $520 million. However, as a result of the changes in the Company’s financialcondition, it no longer has financing arrangements that provide for thecapacity to purchase foreign currency forward contracts or hedging instrumentsto continue its prior practice.  As aresult, the Company’s ability to hedge changes in foreign currency exchangerates resulting from transactions was limited beginning in the first quarter of2009.  The net effect of the realized andunrealized gains and losses on these derivatives and the underlyingtransactions resulted in a pre-tax loss of $23 million, a pre-tax gain of $25million and a pre-tax gain of $11 million in 2009, 2008 and 2007, respectively.

 

Thefollowing table summarizes the fair value amounts of the Company’s derivativeinstruments by location on the balance sheet for the years ended December 31,2009 and 2008:

 
| ** **                                             | ** ** | **Asset  Derivatives**            | ** ** | **Liability  Derivatives** | ** ** |
|--------------------------------------------------------|------------|-----------------------------------|------------|----------------------------|------------|
| ** **                                             | ** ** | ** **                        | ** ** | **2009**                   | ** ** | **2008** | ** ** | ** ** | ** ** | **2009** | ** ** | **2008** | ** ** |
| **(In  millions)**                                     | ** ** | **Balance  Sheet Classification** | ** ** | **Fair  Value**            | ** ** | **Fair  Value** | ** ** | **Balance  Sheet Classification** | ** ** | **Fair  Value** | ** ** | **Fair  Value** | ** ** |
| **Derivatives designated as hedging instruments:**     |       |                              |       |                       |       |   |   |   |   |   |   |   |   |
| Commodity  contracts                                   |       |                              |       |                       |       |   |   | Accrued expenses |   | $ | — |   | $ | (2 | ) |
|                                                   |       |                              |       |                       |       |   |   |   |   |   |   |   |   |
| **Derivatives not designated as hedging instruments:** |       |                              |       |                       |       |   |   |   |   |   |   |   |   |
| Foreign  exchange contracts                            |       | Other current assets              |       | $                          | —     |   | $ | 58 |   | Accrued expenses |   | — |   | (24 | ) |
|                                                   |       |                              |       |                       |       |   |   |   |   |   |   |   |   |
| Total  derivatives                                     |       |                              |       | $                          | —     |   | $ | 58 |   |   |   | $ | (2 | ) | $ | (26 | ) |

 

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Thefollowing table summarizes the effect of derivative instruments on the Company’sConsolidated Statements of Operations for the years ended December 31,2009 and 2008:

 
| **Derivatives in Cash  Flow Hedging** | ** ** | **Gain (Loss) Recognized in OCI  (Effective Portion)** | ** ** | **Classification of Derivative  Gain (Loss) Reclassified from  Accumulated OCI into Income** | ** ** | **Gain (Loss) Reclassified from  Accumulated OCI into Income  (Effective Portion)** | ** ** |
|---------------------------------------|------------|--------------------------------------------------------|------------|----------------------------------------------------------------------------------------------|------------|-------------------------------------------------------------------------------------|------------|
| **Relationships**                     | ** ** | **2009**                                               | ** ** | **2008**                                                                                     | ** ** | **(Effective Portion)**                                                             | ** ** | **2009** | ** ** | **2008** | ** ** |
| Commodity  contracts                  |       | —                                                 |       | (2                                                                                           | )          | Cost of goods sold                                                                  |       | (2 | ) | (1 | ) |

 
| **Derivatives  Not  Designated as Hedging** | ** ** | **Classification  of Gain (Loss)** | ** ** | **Amount  of Gain (Loss)  Recognized in Income** | ** ** | ** ** | ** ** | ** ** | ** ** |
|---------------------------------------------|------------|------------------------------------|------------|--------------------------------------------------|------------|------------|------------|------------|------------|
| **Relationships**                           | ** ** | **Recognized  in Income**          | ** ** | **2009**                                         | ** ** | **2008**   | ** ** | ** ** | ** ** | ** ** | ** ** |
| Foreign  exchange contracts                 |       | Other income (expense)             |       | (26                                              | )          | (39        | )          |       |       |   |   |

 

# **19) FINANCIAL INSTRUMENTS AND FAIR VALUE MEASUREMENTS**

 

**Financial Instruments**

 

The carrying amounts for cash andcash equivalents, accounts receivable, other current assets, accounts payableand other current liabilities, excluding liabilities subject to compromise,approximate their fair value because of the short-term maturities of theseinstruments.  The fair value of debt isbased primarily on quoted market values. For debt that has no quoted market value, the fair value is estimated bydiscounting projected future cash flows using the Company’s incrementalborrowing rate.  The fair value of theforeign currency forward contracts is the amount at which the contracts couldbe settled based on current spot rates. The fair value of price swap contracts is the amount at which thecontracts could be settled based on independent quotes.

 

The following table presents thecarrying amounts and estimated fair values of material financial instrumentsused by the Company in the normal course of its business:

 
| ** **                          | ** ** | **2009**     | ** ** | **2008**   | ** ** |
|-------------------------------------|------------|--------------|------------|------------|------------|
| ** **                          | ** ** | **Carrying** | ** ** | **Fair**   | ** ** | **Carrying** | ** ** | **Fair** | ** ** |
| **(In millions)**                   | ** ** | **Amount**   | ** ** | **Value**  | ** ** | **Amount** | ** ** | **Value** | ** ** |
| ** **                          | ** ** | ** **   | ** ** | ** ** |       |   |   |   |   |
| Total  debt                         | ** ** | **$**        | **(1,430** | **)**      | **$**      | **(1,459** | **)** | $ | (1,204 | ) | $ | (850 | ) |
| Foreign  currency forward contracts | ** ** | **$**        | **—** | ** ** | **$**      | **—** |   | $ | 34 |   | $ | 34 |   |
| Price  swap contracts               | ** ** | **$**        | **—** | ** ** | **$**      | **—** |   | $ | (2 | ) | $ | (2 | ) |

 

Total debt includes liabilitiessubject to compromise with a carrying amount of $1.2 billion (fair value of$1.2 billion).

 

**Fair ValueMeasurements**

 

Effective January 1, 2008, theCompany adopted the provisions of guidance now codified under ASC 820 withrespect to its financial assets and liabilities that are measured at fair valuewithin the financial statements on a recurring basis.  ASC 820 specifies a hierarchy of valuationtechniques based on whether the inputs to those valuation techniques areobservable or unobservable.  Observableinputs reflect market data obtained from independent sources, whileunobservable inputs reflect the Company’s market assumptions.  The fair value hierarchy specified by ASC 820is as follows:

 

·                 Level 1 — Quoted prices in active markets foridentical assets and liabilities.

·                 Level 2 — Quoted prices for similar assets andliabilities in active markets, quoted prices for identical or similar assetsand liabilities in markets that are not active or other inputs that areobservable or can be corroborated by observable market date.

·                 Level 3 — Unobservable inputs that are supported bylittle or no market activity and that are significant to the fair value of theassets and liabilities.

 

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The following table presents theCompany’s assets and liabilities that are measured and carried at fair value ona recurring basis.

 
| ** **                                                                              | ** ** | **2009**    | ** ** | **2008**    | ** ** |
|-----------------------------------------------------------------------------------------|------------|-------------|------------|-------------|------------|
| **(In millions)**                                                                       | ** ** | **Level 1** | ** ** | **Level 2** | ** ** | **Level 1** | ** ** | **Level 2** | ** ** |
| Assets                                                                                  | ** ** | ** **  |       |        |       |   |   |   |   |
| Derivative  instruments (a)                                                             | ** ** | **$**       | **—** | ** **  | **$**      | **—** |   | $ | — |   | $ | 58 |   |
| Investments  held in trust related to a****nonqualified  deferred compensation plan (b) | ** ** | **1**       |       | **—**  |       | 1 |   | — |   |
| Assets  at fair value                                                                   | ** ** | **$**       | **1**      | ** **  | **$**      | **—** |   | $ | 1 |   | $ | 58 |   |
| ** **                                                                              | ** ** | ** **  |       |        |       |   |   |   |   |
| Liabilities                                                                             | ** ** | ** **  |       |        |       |   |   |   |   |
| Derivative  instruments (a)                                                             | ** ** | **$**       | **—** | ** **  | **$**      | **—** |   | $ | — |   | $ | 26 |   |
| Deferred  compensation liability (b)                                                    | ** ** | **1**       | ** ** | **—**  |       | 1 |   | — |   |
| Liabilities  at fair value                                                              | ** ** | **$**       | **1**      | ** **  | **$**      | **—** |   | $ | 1 |   | $ | 26 |   |

 

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(a)         Derivative instruments includeforeign currency forward contracts and commodity price swaps.  These fair values were measured based uponquoted prices for similar assets and liabilities in active markets.

(b)        Represents the deferral ofcompensation, the Company’s match and investment earnings related to theCompany’s Supplemental Savings Plan. These securities are considered generalassets of the Company until distributed to the participant and are included inother assets in the Consolidated Balance Sheets. A corresponding liability isincluded in liabilities subject to compromise at December 31, 2009 andother liabilities at December 31, 2008 in the Consolidated Balance Sheets.Quoted market prices were used to determine fair values of the investments heldin a trust with a third-party brokerage firms.

 

Level 3 fair value measurements areutilized by the Company in its impairment reviews of Goodwill (see Note 10 —Goodwill and Intangible Assets).  Fairvalue measurements of benefit plan assets included in net benefit planliabilities are discussed in Note 17 — Pension and Other Post-Retirement Plans.

 

# **20) ASSET RETIREMENT OBLIGATIONS**

 

The Company applies the provisions of guidance nowcodified under ASC Topic 410, *Asset Retirements andEnvironmental Obligations* (“ASC 410”), which require companies to make estimates regarding future events inorder to record a liability for asset retirement obligations in the period inwhich a legal obligation is created. Such liabilities are recorded atfair value, with an offsetting increase to the carrying value of the relatedlong-lived assets.  The fair value isestimated by discounting projected cash flows over the estimated life of theassets using the Company’s credit adjusted risk-free rate applicable at thetime the obligation is initially recorded. In future periods, the liability is accreted to its present value andthe capitalized cost is depreciated over the useful life of the relatedasset.  The Company also adjusts theliability for changes resulting from revisions to the timing or the amount ofthe original estimate.  Upon retirementof the long-lived asset, the Company either settles the obligation for itsrecorded amount or incurs a gain or loss.

 

TheCompany’s asset retirement obligations include estimates for all assetretirement obligations identified for its worldwide facilities.  TheCompany’s asset retirement obligations are primarily the result of legalobligations for the removal of leasehold improvements and restoration ofpremises to their original condition upon termination of leases atapproximately 22 facilities, legal obligations to close approximately 95 brinesupply, brine disposal, waste disposal, and hazardous waste injection wells andthe related pipelines at the end of their useful lives, and decommissioning anddecontamination obligations that are legally required to be fulfilled uponclosure of approximately 37 of the Company’s manufacturing facilities.

 

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The following is a summary of the change in the carryingamount of the asset retirement obligations during 2009 and 2008, the net bookvalue of assets related to the asset retirement obligations at December 31,2009 and 2008 and the related depreciation expense recorded in 2009 and 2008.

 
| **(In millions)**                                                    | ** ** | **2009**   | ** ** | **2008** | ** ** |
|----------------------------------------------------------------------|------------|------------|------------|----------|------------|
| Asset  retirement obligation balance at beginning of year            | ** ** | **$**      | **23**     |     | $          | 26 |   |
| Liabilities  assumed (includes purchase accounting adjustments)      | ** ** | **—** |       | 2        |       |
| Accretion  expense — cost of goods sold (a)                     | ** ** | **4**      |       | 4        |       |
| Payments                                                             | ** ** | **(2**     | **)**      | (8       | )          |
| Foreign  currency translation                                        | ** ** | **1**      |       | (1       | )          |
| Asset  retirement obligation balance at end of year                  | ** ** | **$**      | **26**     |     | $          | 23 |   |
|                                                                 |       |       |       |     |       |
| Net  book value of asset retirement obligation assets at end of year | ** ** | **$**      | **2**      |     | $          | 2 |   |
|                                                                 |       |       |       |     |       |
| Depreciation  expense                                                | ** ** | **$**      | **1**      |     | $          | 1 |   |

 

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(a) The 2009 and 2008 accretion expense included$1 million and $3 million, respectively, primarily due to the acceleration ofthe recognition of asset retirement obligations for several of the Company’sleased sites and manufacturing facilities resulting from revisions to theestimated lease termination or closure dates.

 

AtDecember 31, 2009, $9 million of the asset retirement obligation balancewas included in accrued expenses, $15 million was included in other liabilitiesand $2 million was included in liabilities subject to compromise on theConsolidated Balance Sheet.  At December 31,2008, $7 million was included in accrued expenses and $16 million was includedin other liabilities on the Consolidated Balance Sheet.

 

### **21) LEGALPROCEEDINGS AND CONTINGENCIES**

 

TheCompany is involved in claims, litigation, administrative proceedings andinvestigations of various types in a number of jurisdictions.  A number of such matters involve, or mayinvolve, claims for a material amount of damages and relate to or allegeenvironmental liabilities, including clean-up costs associated with hazardouswaste disposal sites, natural resource damages, property damage and personal injury.  As a result of the Chapter 11 cases,substantially all pre-petition litigation and claims against the Debtors havebeen stayed.  Accordingly, unlessindicated otherwise, each case described below is stayed.

 

**Chapter 11 Claims Assessment**

 

The Bankruptcy Court established October 30,2009 as the Bar Date.  Under certainlimited circumstances, some creditors may be permitted to file proofs of claimafter the Bar Date.  Accordingly, it ispossible that not all potential proofs of claim were filed as of the filing ofthis Annual Report.

 

As of March 5, 2010, the Debtors have receivedapproximately 15,300 proofs of claim covering a broad array of areas.  Approximately 8,000 proofs of claim have beenasserted in “unliquidated” amounts or contain an unliquidated component thatare treated as being asserted in “unliquidated” amounts.  Excluding proofs of claim in “unliquidated”amounts, the aggregate amount of proofs of claim filed totaled approximately$23.6 billion.  The table belowsummarizes the proofs of claim by type and amount (in millions) as of thefiling of this Annual Report.

 
| **Claim  Type**                     | ** ** | **No. of Claims** | ** ** | **Amount** | ** ** |
|-------------------------------------|------------|------------------------|------------|------------|------------|
| Environmental                       |       | 254                    |       | $          | 247        |   |
| Litigation                          |       | 10,742                 |       | 9,361      |       |
| PBGC                                |       | 324                    |       | 13,634     |       |
| Employee, Benefits & Wages |       | 1,115                  |       | 43         |       |
| Bond                                |       | 32                     |       | 152        |       |
| Trade                               |       | 1,985                  |       | 154        |       |
| 503(b)(9)                           |       | 68                     |       | 6          |       |
| Other                               |       | 783                    |       | 41         |       |
| Total                               |       | 15,303                 |       | $          | 23,638     |   |

 

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The Company is in the process of evaluating theamounts asserted in and the factual and legal basis of the proofs of claimfiled against the Debtors.  Based uponthe Company’s initial review and evaluation, which is continuing, a significantnumber of proofs of claim are duplicative and/or legally or factually withoutmerit.  As to those claims, the Companyhas filed or intends to file objections with the Bankruptcy Court.  On February 23, 2010, in response to theCompany’s omnibus objections filed on February 2, 2010 to approximately4,300 proofs of claim, the Bankruptcy Court expunged 4,147 proofs of claimtotaling approximately $46 million. Since the Bar Date and as of March 5, 2010, 883 proofs of claim havebeen withdrawn totaling approximately $12 million.  The Pension Benefit Guaranty Corporation (“PBGC”)filed 324 proofs of claim totaling $13.6 billion.  The Company believes that these proofs ofclaim are duplicative as 12 proofs of claim have been filed against each of the27 Debtors.   Excluding the duplicativeproofs of claim, the PBGC filed 12 proofs of claim totaling approximately $500million.

 

The Company has recognized $73 million as changesin estimates related to expected allowable claims in liabilities subject tocompromise in the Consolidated Financial Statements.  As the Debtors complete the process ofevaluating and/or resolving the proofs of claim, appropriate adjustments to theConsolidated Financial Statements will be made. Adjustments may also result from actions of the Bankruptcy Court,settlement negotiations, rejection of executory contracts and real propertyleases, determination as to the value of any collateral securing claims andother events.  For additional informationon liabilities subject to compromise, see Note 4 — Liabilities Subject toCompromise and Reorganization Items, Net in the Notes to Consolidated FinancialStatements.

 

**Environmental Liabilities**

** **

The Company is involved inenvironmental matters of various types in a number of jurisdictions.  A number of such matters involve claims formaterial amounts of damages and relate to or allege environmental liabilities,including clean up costs associated with hazardous waste disposal sites andnatural resource damages.  As part of theChapter 11 cases, the Debtors expect to retain responsibility for environmentalcleanup liabilities relating to currently owned or operated sites (i.e., sitesthat remain part of the Debtors’ estate) and discharge in the Chapter 11 casesliabilities relating to formerly owned or operated sites and third-party sites(i.e., sites that are no longer or never were part of the Debtors’estate).  To that end, on November 3,2009, the Debtors initiated an Adversary Proceeding against the United Statesand various States seeking a ruling from the Bankruptcy Court that the Debtors’liabilities with respect to formerly owned or operated sites and third-partysites are dischargeable in the Chapter 11 cases.  On January 19, 2010, the Debtors filedan amended complaint.  In view of theissues of law raised in the pleadings, estimates relating to environmentalliabilities with respect to formerly owned or operated sites and third-partysites, or offers made to settle such liabilities, are classified as liabilitiessubject to compromise****in the****Company’s Consolidated Balance Sheet.  See****Note 4 — Liabilities Subject toCompromise and Reorganization Items, Net.

 

Each quarter, the Company evaluates and reviewsestimates for future remediation and other costs to determine appropriateenvironmental reserve amounts.  For eachsite where the cost of remediation is probable and reasonably estimable, theCompany determines the specific measures that are believed to be required toremediate the site, the estimated total cost to carry out the remediation plan,the portion of the total remediation costs to be borne by the Company and theanticipated time frame over which payments toward the remediation plan willoccur. At sites where the Company expects to incur ongoing operation andmaintenance expenditures, the Company accrues on an undiscounted basis for aperiod of generally 10 years those costs which the Company believes areprobable and reasonably estimable.  Inaddition, where settlement offers have been extended to resolve anenvironmental liability as part of the Chapter 11 cases, the amounts of thoseoffers have been accrued and are reflected in the Consolidated Balance sheet asliabilities subject to compromise.  SeeNote 4 — Liabilities Subject to Compromise and Reorganization Items, Net.

 

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The total amount accrued for such environmentalliabilities as of December 31, 2009 and December 31, 2008, was $122million and $107 million, respectively.  AtDecember 31, 2009 and December 31, 2008, $16 million and $12 million,respectively, of these environmental liabilities were reflected as accruedexpenses, $64 million and $95 million, respectively, were reflected as otherliabilities and as of December 31, 2009, $42 million was classified asliabilities subject to compromise on the Consolidated Balance Sheets.  The Company estimates that environmentalliabilities could range up to $164 million at December 31, 2009.  The Company’s accruals for environmentalliabilities include estimates for determinable clean-up costs.  The Company recorded a pre-tax charge of $20million in 2009, $5 million in 2008 and $4 million in 2007, to increase itsenvironmental liabilities and made payments of $9 million in 2009 and $15million in 2008 for clean-up costs, which reduced its environmentalliabilities.  At certain sites, theCompany has contractual agreements with certain other parties to shareremediation costs.  The Company has areceivable of $12 million at December 31, 2009 and December 31, 2008to reflect probable recoveries.  At anumber of these sites, the extent of contamination has not yet been fullyinvestigated or the final scope of remediation is not yet determinable. TheCompany intends to assert all meritorious legal defenses and will pursue otherequitable factors that are available with respect to these matters. However,the final cost of clean-up at these sites could exceed the Company’s presentestimates, and could have, individually or in the aggregate, a material adverseeffect on the Company’s financial condition, results of operations or cashflows.  The Company’s estimates forenvironmental remediation liabilities may change in the future shouldadditional sites be identified, further remediation measures be required orundertaken, current laws and regulations be modified or additionalenvironmental laws and regulations be enacted, and as negotiations with respectto certain sites continue or as certain liabilities relating to such sites areresolved as part of the Chapter 11 cases.

 

The Comprehensive Environmental Response,Compensation and Liability Act of 1980, as amended (“CERCLA”), and comparablestate statutes, impose strict liability upon various classes of persons withrespect to the costs associated with the investigation and remediation of wastedisposal sites.  Such persons aretypically referred to as “Potentially Responsible Parties” or PRPs.  The Company and several of its subsidiarieshave been identified by federal, state or local governmental agencies or byother PRPs, as a PRP at various locations in the United States.  Because in certain circumstances these lawshave been construed to authorize the imposition of joint and several liability,the Environmental Protection Agency (“EPA”) and comparable state agencies couldseek to recover all costs involving a waste disposal site from any one of thePRPs for such site, including the Company, despite the involvement of otherPRPs.  In many cases, the Company is oneof a large number of PRPs with respect to a site.  In a few instances, the Company is the soleor one of only a handful of PRPs performing investigation and remediation.  Where other financially responsible PRPs areinvolved, the Company expects that any ultimate liability resulting from suchmatters will be apportioned between the Company and such other parties.  The Company presently anticipates that many,if not all, of the Debtors’ CERCLA and comparable liabilities with respect topre-petition activities and relating to third-party waste sites will beresolved as part of the Chapter 11 cases. In addition, the Company is involved with environmental remediation andcompliance activities at some of its current and former sites in the UnitedStates and abroad.  The more significantof these matters are described below.  Asdiscussed above, the Debtors presently intend to retain environmental clean upresponsibility at currently owned or operated sites and discharge in theChapter 11 cases liabilities relating to formerly owned or operated sites andthird-party sites.

 

**Governmental Investigation AllegingViolations of Environmental Laws**

 

*Conyers* - Clean Air Act Investigation — The U.S. EPA isinvestigating alleged violations of law by the Company arising out of theGeneral Duty Clause of the Clean Air Act, the emergency release notificationrequirements of CERCLA and/or the Emergency Planning and Community Right toKnow Act, and the Clean Water Act and is seeking a penalty and other relief inexcess of one hundred thousand dollars. The Company intends to assert allmeritorious legal defenses to these alleged violations and will continue toassess relevant facts and attempt to negotiate an acceptable resolution withthe EPA. The Company does not believe that the resolution of this matter willhave a material adverse effect on the Company’s financial condition, results ofoperation or cash flows.

 

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**Litigation and Claims**

 

*Tricor*

 

This case involves two related properties inBakersfield, California; the Oildale Refinery (the “Refinery”) and the Mt. PosoTank Farm (“Mt. Poso”). The Refinery and Mt. Poso were previously owned andoperated by a division of Witco Corp., a predecessor of the Company. In 1997,the Refinery and portions of Mt. Poso were sold to Golden Bear AcquisitionCorp. Under the terms of sale, Witco retained certain environmental obligationswith respect to the Refinery and Mt. Poso. Golden Bear operated the refineryfor several years before filing bankruptcy in 2001. Tricor Refining LLC (“Tricor”)purchased the Refinery and related assets out of bankruptcy. In 2004, Tricorcommenced an action against the Company alleging that the Company failed to complywith its obligations under an environmental agreement that was assumed byTricor when it acquired the assets of Golden Bear.

 

The case was bifurcated and in July 2007,the California Superior Court, Kern County, entered an interlocutory judgmentfinding liability against the Company based on breach of contract.  Thereafter, Tricor elected to terminate thecontract and seek monetary damages in the amount of $31 million (plus attorneysfees) based on the alleged cost of cleaning up the Refinery.  The damages phase of the trial began in November 2008and the testimony phase of the trial was completed on March 16, 2009.  The Company calculated cleanup costs atapproximately $2 million.  Post-trialbriefing of the case was stayed by the Chapter 11 cases, but the stay wassubsequently lifted by stipulation of the parties and approval of theBankruptcy Court.  Briefing was concludedon November 3, 2009.  On January 28,2010, the California Superior Court rendered a judgment awarding damages toTricor in the amount of approximately $3 million including interest andcosts.  Tricor did not seek damages withrespect to Mt. Poso, and the parties have entered into a tolling agreementrelating to this aspect of the case.  TheCalifornia Court’s decision relieved Tricor of any obligation to take title toany portion of Mt. Poso.  While Tricorhas a right to appeal, the Company does not believe that the resolution of thismatter will have a material adverse effect on the Company’s results ofoperations, financial condition or cash flows.

 

*Conyers*

 

The Company and certain of its former officersand employees were named as defendants in five putative state class actionlawsuits filed in three counties in Georgia and one putative class actionlawsuit filed in the United States District Court for the Northern District ofGeorgia pertaining to the fire at the Company’s Conyers, Georgia warehouse on May 25,2004.  Of the five putative state classactions, two were voluntarily dismissed by the plaintiffs, leaving three suchlawsuits, all of which are now pending in the Superior Court of RockdaleCounty, Georgia.  These remainingputative state class actions, as well as the putative class action pending infederal district court, seek recovery for economic and non-economic damagesallegedly arising from the fire. Punitive damages are sought in the *Davis* case inRockdale County, Georgia and in the Martin case in the United States DistrictCourt for the Northern District of Georgia. The *Martin* case also seeks a declaratoryjudgment to reform certain settlements, as well as medical monitoring andinjunctive relief.

 

The Company was also named as a defendant infifteen lawsuits filed by individual or multi-party plaintiffs in the Georgiaand Federal courts pertaining to the May 25, 2004 fire at its Conyers,Georgia warehouse.  Eight of theselawsuits remain.  The plaintiffs in theseremaining lawsuits seek recovery for economic and non-economic damages, includingpunitive damages in five of the eight remaining lawsuits.  One of the lawsuits, the *Diana Smith*case, was filed in the United States District Court for the Northern Districtof Georgia against the Company, as well as the City of Conyers and RockdaleCounty, and included allegations similar to those in the other lawsuits noted above,but adding claims for alleged civil rights violations, federal OccupationalSafety and Health Administration violations, Georgia Racketeer Influenced andCorrupt Organizations Act violations, criminal negligence, recklessendangerment, false imprisonment, and kidnapping, among other claims.  The federal law claims were dismissed withprejudice and the state law claims were dismissed without prejudice.  The Court has also dismissed withoutprejudice the plaintiffs’ claims against the City of Conyers and RockdaleCounty. The *Diana Smith* case was subsequentlyrefiled.  In 2008, the Company moved todismiss certain of the refiled claims. The court granted the Company’s motion in March of 2008.  Plaintiffs have appealed the dismissal ofthese claims.  The remainder of theplaintiffs’ claims are proceeding.

 

The Debtors are currently in discussions withthe claimants to resolve their claims amicably. In addition, at the time of the fire, the Company maintained, andcontinues to maintain, property and general liability insurance.  The Company believes that its generalliability policies will adequately cover any third-party claims and legal andprocessing fees in excess of the amounts that were recorded through December 31,2009.

 

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*Albemarle Corporation*

 

In May 2002, Albemarle Corporation filedtwo complaints against the Company in the United States District Court for theMiddle District of Louisiana, one alleging that the Company infringed threeprocess patents held by Albemarle Corporation relating to bromine vacuum towertechnology, and the other alleging that the Company infringed or contributed toor induced the infringement of a patent relating to the use ofdecabromodiphenyl ethane as a flame retardant in thermoplastics. On a motion bythe Company and over Albemarle’s objection, the cases were consolidated.  In addition, the Company filed a counterclaimwith the District Court in the flame retardant cases, alleging, among otherthings, that the Albemarle patent is invalid or was obtained as a result ofinequitable conduct from the United States Patent and Trademark Office.  In March 2004, Albemarle amended its consolidatedcomplaint to add additional counts of patent infringement and trade secretviolations.  On October 25, 2005,Albemarle filed a complaint against the Company and Great Lakes ChemicalCorporation in the United States District Court for the Middle District ofLouisiana alleging that the Company and Great Lakes infringed a recentlygranted U.S. patent held by Albemarle relating to a decabromodiphenyl ethane “wetcake” intermediate product.  On December 24,2009, the Company and Abemarle reached a settlement agreement whereby eachcompany granted cross-licenses to the other with respect to each other’sdecabromodiphenyl ethane products, as well as other terms and conditions.  On January 21, 2010, the settlement wasapproved by the Bankruptcy Court.  On January 29,2010, the two complaints in the Middle District of Louisiana were dismissedwith prejudice.  This matter is nowconcluded.

 

*Diacetyl Litigation*

 

Beginning in 2004, food industry factory workersbegan alleging that exposure to diacetyl, a butter flavoring ingredient widelyused in the food industry between 1982 and 2005, caused respiratoryillness.  Product liability actions werefiled throughout the United States alleging that diacetyl was defectively designedand manufactured and that diacetyl manufacturers and distributors had failed toproperly warn the end users of diacetyl’s dangers.  Currently, there are eighteen diacetyllawsuits pending against the Company and/or Chemtura Canada Co./Cie (“ChemturaCanada”), a wholly-owned subsidiary, among others.

 

On June 17, 2009, the Company filed anAdversary Proceeding in the Bankruptcy Court seeking to extend the automaticstay to Chemtura Canada, a non-debtor, and Citrus & Allied Essences,Ltd. (“Citrus”), Chemtura Canada’s exclusive reseller in North America, inconnection with all current and future product liability actions involvingdiacetyl.  The Bankruptcy Court grantedthe Company’s request for a temporary restraining order on June 23,2009.  The Company also filed a motionseeking to transfer existing diacetyl-related claims against the Company,Chemtura Canada and Citrus to the U.S. District Court for the Southern Districtof New York, with the goal of resolving the diacetyl litigation as effectivelyand expeditiously as possible.  Thatmotion was granted by Order dated January 22, 2010 and the District Courtreferred all transferred and consolidated claims to the Bankruptcy Court forresolution.

 

The Company believes that it and Chemtura Canadahave significant insurance coverage with respect to these claims, subject tovarious self-insured retentions, limits and terms of coverage.  The first layer carriers who issued “occurrence”based policies to the Company and Chemtura Canada, which policies shouldprovide coverage for these diacetyl claims, are all American InternationalGroup (“AIG”) companies.  AIG hasreserved its rights to deny coverage under those policies with respect to theCompany and Chemtura Canada.  On February 4,2010, AIG filed a lawsuit against Chemtura Canada and Zurich Insurance Companyin the Supreme Court of New York seeking, among other things, a declarationrelieving AIG of its coverage obligations with respect to Chemtura Canada.  In addition, AIG filed a motion to lift theautomatic stay seeking to add the Company to its state court lawsuit so thatAIG could seek a determination of its coverage obligations as to theCompany.  The Company has opposed thatmotion.  On February 25, 2010,Chemtura Canada filed a notice of removal of the AIG lawsuit to the US DistrictCourt for the Southern District of New York. On March 3, 2010, the Company and Chemtura Canada filed anAdversary Proceeding in the Bankruptcy Court against AIG, seeking a declarationof AIG’s obligations to indemnify and defend both Chemtura and Chemtura Canada,subject to various self-insured retentions, limits and terms of coverage.  While the Company believes that the issuesconcerning insurance coverage for these matters should be resolved in theBankruptcy Court, no determination has yet been made by the court concerningwhich action shall proceed or in which such action will proceed.

 

The diacetyl claims could, either individuallyor in the aggregate, have a material adverse effect on the Company’s financialcondition, results of operations or cash flows.  The Company has developed a range of the estimatedloss for diacetyl-related claims.  As ofDecember 31, 2009, the Company has recorded a liability related to these claimsat the minimum of this range.

 

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*Biolab UK*

 

This matter involves a criminal prosecution byUnited Kingdom (“UK”) authorities against Biolab UK Limited (“Biolab UK”)arising out of a September 4, 2006 fire at Biolab UK’s warehouse inAndoversford Industrial Estate near Cheltenham. The exact cause of the fire has not been determined.  In this matter, it is alleged that the firecaused a water main at the warehouse to melt, and that the combination ofcontaminated fire suppression water and water from the melted water mainoverloaded the facility’s water containment system, causing that water to flowoff the warehouse property and into the River Coln, a public river.  The event is alleged to have caused a fishkill and environmental damage.  The fireis also alleged to have caused a plume of smoke to travel from the facility,resulting in the evacuation of nearby residences and businesses, as well as asmall property damage claim which has been resolved, and one personal injuryclaim which is pending.  On July 14,2009, the UK Environmental Agency (“EA”) commenced a criminal action againstBiolab UK.  The EA brought 5 charges, onecharge alleging pollution of controlled waters (the River Coln) in violation ofthe Water Resources Act 1991 (“WRA”), a strict liability statute, and fourcharges alleging various violations of the Control of Major Accident HazardsRegulations 1999 (“COMAH”).  This matteris currently pending in the Magistrate’s Court in Gloucester County.  The Company is defending this action, andexpert evaluation is currently in progress.

 

Each quarter the Company evaluates and reviewspending claims and litigation to determine the amount, if any, that should beaccrued with respect to such matters.  Asof December 31, 2009 and December 31, 2008, the Company’s accrual forprobable and reasonably estimable liabilities in the legal proceedingsdescribed above is immaterial.  Inaddition, the related receivable to reflect probable insurance recoveries isalso immaterial.

 

The Company intends to assert all meritoriouslegal defenses and will pursue other equitable factors that are available withrespect to these matters.  The resolutionof the legal proceedings now pending or hereafter asserted against the Companycould require the Company to pay costs or damages in excess of its presentestimates, and as a result could, either individually or in the aggregate, havea material adverse effect on the Company’s financial condition, results ofoperations or cash flows.

 

In addition to the matters referred to above,the Company is subject to routine litigation in connection with the ordinarycourse of its business.  These routinematters have not had a material adverse effect on the Company, its business orfinancial condition in the past, and the Company does not expect theselitigations, individually or in the aggregate, to have a material adverseeffect on its business or its financial condition in the future, but it cangive no assurance that such will be the case.

** **

**Antitrust Investigations and Related Matters**

 

*Rubber Chemicals*

 

OnMay 27, 2004, the Company pled guilty to one-count charging the Companywith participating in a combination and conspiracy to suppress and eliminatecompetition by maintaining and increasing the price of certain rubber chemicalssold in the United States and elsewhere during the period July 1995 to December 2001.  The U.S. federal district court imposed afine of $50 million, payable in six annual installments, without interest,beginning in 2004.  In light of theCompany’s cooperation with the U.S. Department of Justice (“DOJ”), the courtdid not impose any period of corporate probation.  On May 28, 2004,the Company pled guilty to one count of conspiring to lessen competition undulyin the sale and marketing of certain rubber chemicals in Canada.  The Canadian federal court imposed a sentencerequiring the Company to pay a fine of CDN $9 million (approximately U.S. $7million), payable in six annual installments, without interest, beginning in2004.  The Company paid (in U.S. dollars)$2 million in 2005, $7 million in 2006, $12 million in 2007 and $17 million in2008.  A reserve of $10 million was includedin liabilities subject to compromise at December 31, 2009 and a reserve of$18 million was included in accrued expenses at December 31, 2008.  On May 26, 2009, the U.S. District Courtfor the Northern District of California signed a joint stipulation and ordermodifying the fine and the payment schedule for the final installment of $16million of the original $50 million due to be paid on May 27, 2009.  Under the court’s order, the Company will paya total of $10 million in four installments: $2.5 million on or before June 30,2009; $2.5 million on or before December 31, 2009; $2.5 million on orbefore June 30, 2010; and $2.5 million on or before December 31,2010.  The Company also negotiated anagreement with Canadian authorities whereby the Company would pay a total ofCDN $1.8 million (approximately U.S. $1.6 million) in satisfaction of theoutstanding amount on the Canadian fine according to the followingschedule:  CDN $450,000 (approximatelyU.S. $390,000) on or before June 30, 2009; CDN $450,000 (approximatelyU.S. $390,000) on or before December 31, 2009; CDN $450,000 (approximatelyU.S. $390,000) on or before June 30, 2010; and CDN $450,000 (approximatelyU.S. $390,000) on or before December 31, 2010.  After receiving Bankruptcy Court approval,the Company paid the first and second installments of $5 million and CDN $0.9million (approximately U.S. $0.8 million) in July 2009 and December 2009.

 

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*European Union (“EU”) Investigations*

 

TheCompany and certain of its subsidiaries (collectively referred to as the “Company”in this paragraph) were subjects of an investigation conducted by the EuropeanCommission (“EC”) with respect to possible antitrust violations relating to thesale and marketing of various classes of heat stabilizers. Such investigationsconcerned anticompetitive practices, including price fixing and customer ormarket allocations, undertaken by the Company and certain of its officers andemployees.  The Company cooperated withthe EC’s investigation.  As a result, theCompany received from the EC written assurances of conditional amnesty withrespect to certain classes of heat stabilizers. The assurances of amnesty wereconditioned upon several factors, including continued cooperation with theEC.  The Company continued to activelycooperate with the EC regarding the heat stabilizer investigation.  On November 11, 2009, the EC issued afinal decision, imposing fines totaling €173 million (approximately $260million) on ten different companies that were found to have engaged in illegalcartel activities between 1987 and 2001, and confirming that the Company,although found to have participated in the cartel, would not be subject to anyfine as a result of the immunity granted to the Company.  This matter is now concluded.

 

*Civil Lawsuits*

 

Theactions described below under “U.S. Civil Antitrust Actions” are in variousprocedural stages of litigation. Although the actions described below have nothad a material adverse impact on the Company, the Company cannot predict theoutcome of any of those actions. The Company will seek cost-effectiveresolution of the various pending and threatened legal proceedings against theCompany; however, the resolution of any civil claims now pending or hereafterasserted against the Company could have a material adverse effect on theCompany’s financial condition, results of operations or cash flows.  TheCompany has established as of December 31, 2009 reserves for all directand indirect purchaser claims, as further described below.

 

*U.S. Civil Antitrust Actions*

 

*Directand Indirect Purchaser Lawsuits* - The Company, individuallyor together with its subsidiary Uniroyal Chemical Company, Inc., nowmerged into Chemtura Corporation (referred to as “Uniroyal” for the purpose ofthe descriptions below), and other companies, are defendants in variousproceedings filed in state and federal courts, as described below.

 

*FederalLawsuits* - The Company and certain of its subsidiaries aredefendants in two lawsuits pending in the federal courts.  One of these suits is a Massachusettsindirect purchaser claim premised upon violations of state law.  The suit was originally filed inMassachusetts state court in May 2005 as an indirect purchaser action, andwas subsequently removed to the United States District Court, District ofMassachusetts.  The complaint initiallyrelated to purchases of any product containing rubber and urethane products,defined to include EPDM, nitrile rubber and urethanes, but is now limited tourethanes only.  On September 12,2008, the Company received final court approval of a settlement agreementcovering this action.  The other suit,described separately below under the sub-heading “Bandag,” was originally filedas a direct purchaser suit on June 29, 2006 in the United States DistrictCourt, Middle District of Tennessee and was subsequently transferred to theUnited States District Court, Northern District of California.  In both of these actions, and in all actionspending in state courts (further described below), the plaintiffs seek, amongother things, treble damages, costs (including attorneys’ fees) and injunctiverelief preventing further violations of the improper conduct alleged in thecomplaint.  Neither of these federal suitsis expected to have a material adverse effect on the Company’s financialcondition, results of operations or cash flows.

 

*Bandag* - This suitwas originally brought by Bridgestone Americas Holding, Inc, BridgestoneFirestone North American Tire, LLC, and Pirelli Tire, LLC (all of whom havesince settled) along with the remaining plaintiff, Bandag Incorporated (n/k/a/Bridgestone Bandag, LLC), with respect to purchases of rubber chemicals fromthe Company, Uniroyal and several of the world-wide leading suppliers of rubberchemicals.  This suit alleges that theCompany and Uniroyal, along with other rubber chemical manufacturers, conspiredto fix the prices of rubber chemicals, and to divide the rubber chemicals marketsin violation of Section 1 of the Sherman Act.  Bandag Incorporated, a designer andmanufacturer of tire re-treading, directly purchased from the Company and fromthe other defendants to this suit, and in doing so, claims to have paidartificially inflated prices for rubber chemicals. Bandag has requested trebledamages, costs (including attorneys’ fees) and such other relief as the courtmay deem appropriate.  The Company hasagreed to utilize binding arbitration to try the claims at issue in thisaction.  The arbitration hearings wereheld on March 4 through March 6, 2009.  On May 5, 2009, the Bankruptcy Courtentered an order modifying the automatic stay to allow the arbitration toproceed in order to liquidate the amount of this pre-petition claim.  On July 28, 2009, the arbitration panelissued its decision, awarding Bandag damages in the amount of $8 million andattorneys’ fees in the amount of $6 million. On September 4, 2009, the District Court for the Northern Districtof California confirmed the arbitration panel’s award and entered a judgmentagainst the Company in the amount of $14 million.  This judgment is subject to compromise in theCompany’s Chapter 11 cases.

 

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*StateLawsuits* - The Company, individually or together withUniroyal, are defendants in certain indirect purchaser antitrust class actionlawsuits filed in state courts involving the sale of urethanes and urethanechemicals.  The complaints in theseactions principally allege that the defendants conspired to fix, raise,maintain or stabilize prices for urethanes and urethane chemicals, sold in theUnited States in violation of certain antitrust statutes and consumerprotection and unfair or deceptive practices laws of the relevant jurisdictionsand that this caused injury to the plaintiffs who paid artificially inflatedprices for such products as a result of such alleged anticompetitiveactivities.  There are currently 13 statecomplaints pending.  On September 12,2008, the Company received final court approval of a settlement agreementcovering one of these actions.  Inaddition, on December 23, 2008, the Company received preliminary courtapproval of a settlement agreement covering the remaining 12 complaints, all ofwhich are pending in a coordinated proceeding in the Superior Court of theState of California for the County of San Francisco.  None of these state lawsuits individually orin the aggregate are expected to have a material adverse effect on the Companyfinancial condition, results of operations or cash flows.

 

*Australian Civil Antitrust Matters*

 

OnSeptember 27, 2007, the Company and one of its subsidiaries (collectivelyreferred to as the “Company” in this paragraph) were sued in the Federal Courtof Australia for alleged price fixing violations with respect to the sale ofrubber chemicals in Australia.  Theapplicant filed an amended Statement of Claim on November 21, 2008.  The Company’s application to have the amendedStatement of Claim struck was granted on November 6, 2009.  The applicant has lodged an application forleave to appeal that decision which is scheduled to be heard on March 4,2010.  The Company has also lodged anapplication to have the proceeding dismissed on the basis that, at this stage,there is no statement of claim before the Federal Court.  The Company’s application is scheduled to beheard on February 10, 2010.  TheCompany does not expect this matter to have a material adverse effect on itsfinancial condition, results of operations or cash flows.

 

**Federal Securities Class Action**

 

TheCompany, certain of its former officers and directors (the “Crompton IndividualDefendants”), and certain former directors of the Company’s predecessor WitcoCorp. are defendants in a consolidated class action lawsuit, filed on July 20,2004, in the United States District Court, District of Connecticut (the “FederalDistrict Court”), brought by plaintiffs on behalf of themselves and a classconsisting of all purchasers or acquirers of the Company’s stock between October 1998and October 2002 (the “Federal Securities Class Action”).  The consolidated amended complaintprincipally alleges that the Company and the Crompton Individual Defendantscaused the Company to issue false and misleading statements that violated thefederal securities laws by reporting inflated financial results resulting froman alleged illegal, undisclosed price-fixing conspiracy.  The putative class includes former WitcoCorp. shareholders who acquired their securities in the Crompton-Witco mergerpursuant to a registration statement that allegedly contained misstatedfinancial results.  The complaint assertsclaims against the Company and the Crompton Individual Defendants under Section 11of the Securities Act of 1933, Section 10(b) of the SecuritiesExchange Act of 1934, and Rule 10b-5 promulgated thereunder.  Plaintiffs also assert claims for controlperson liability under Section 15 of the Securities Act of 1933 and Section 20of the Securities Exchange Act of 1934 against the Crompton IndividualDefendants. The complaint also asserts claims for breach of fiduciary dutyagainst certain former directors of Witco Corp. for actions they allegedly tookas Witco Corp. directors in connection with the Crompton-Witco merger. Theplaintiffs seek, among other things, unspecified damages, interest, andattorneys’ fees and costs. The Company and the Crompton Individual Defendantsfiled a motion to dismiss the complaint on September 17, 2004 and theformer directors of Witco Corp. filed a motion to dismiss the complaint in February 2005.  On November 28, 2008, the parties signeda settlement agreement (the “November 2008 Settlement Agreement”).  The Federal District Court grantedpreliminary approval of the November 2008 Settlement Agreement on December 12,2008 and scheduled a June 12, 2009 final approval hearing which hearingwas subsequently rescheduled for November 11, 2009.  The November 2008 Settlement Agreementprovided for payment by or on behalf of defendants of $21 million.

 

OnSeptember 17, 2009, the Federal District Court entered an order cancellingthe final approval hearing of the November 2008 Settlement Agreement dueto the automatic stay resulting from Chapter 11 cases.  The Federal District Court also denied on December 31,2009 the motions to dismiss the complaint filed by the Company, the CromptonIndividual Defendants and the former directors of Witco Corp.  The motions to dismiss were denied withoutprejudice to renew following resolution of the Chapter 11 cases.  In October 2009, the Bankruptcy Courtissued an Order authorizing the Company to enter into a settlement stipulationrequiring the return of $9 million that the Company transferred to theplaintiffs prior to its Chapter 11 filing in connection with the November 2008Settlement Agreement (the “Pre-Petition Payment”).  The Company entered into such settlementstipulation, and $9 million was returned to the Company.  On October 20, 2009, the FederalDistrict Court granted defendants’ uncontested motion to extend their time torespond to the complaint in the Federal Securities Class Action untiltwenty-one days after a Plan for the Company confirmed in the Chapter 11 casesbecomes effective.

 

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**LegalAccruals**

 

At December 31, 2009, the Company had anaccrual of $125 million which was classified as liabilities subject tocompromise for the litigation and claims described above and at December 31,2008, the Company had an accrual of $30 million which was classified as accruedexpenses, relating to the remaining U.S. direct and indirect purchaserlawsuits, and the federal securities class action lawsuit described under “FederalSecurities Class Action.”  TheCompany periodically reviews its accruals as additional information becomesavailable, and may adjust its accruals based on actual settlement offers andother later occurring events.

 

The reserve activity for antitrust relatedlitigation is summarized as follows:

 
| ** **                             | ** ** | ** **                | ** ** | ** **                 | ** ** | ** **                       | ** ** | **Civil Case  Reserves**     | ** ** |
|----------------------------------------|------------|---------------------------|------------|----------------------------|------------|----------------------------------|------------|------------------------------|------------|
| ** **                             | ** ** | **Governmental Reserves** | ** ** | **U.S. Civil**             | ** ** |
| **(In millions)**                      | ** ** | **U.S. DOJ  Fines**       | ** ** | **Canada  Federal  Fines** | ** ** | **Total U.S  and Canada  Fines** | ** ** | **and  Securities  Matters** | ** ** |
| Balance  January 1, 2007          |       | $                         | 37         |                       | $          | 6                                |       | $                            | 43         |   | $ | 102 |   |
| Antitrust  costs, excluding legal fees |       | —                    |       | —                     |       | —                           |       | 24                           |       |
| Payments                               |       | (10                       | )          | (2                         | )          | (12                              | )          | (83                          | )          |
| Accretion  - Interest                  |       | 2                         |       | —                     |       | 2                                |       | —                       |       |
| Foreign  currency translation          |       | —                    |       | 1                          |       | 1                                |       | —                       |       |
| Balance  December 31, 2007        |       | 29                        |       | 5                          |       | 34                               |       | 43                           |       |
| Antitrust  costs, excluding legal fees |       | —                    |       | —                     |       | —                           |       | 7                            |       |
| Payments                               |       | (14                       | )          | (3                         | )          | (17                              | )          | (20                          | )          |
| Accretion  - Interest                  |       | 1                         |       | —                     |       | 1                                |       | —                       |       |
| Balance  December 31, 2008        |       | 16                        |       | 2                          |       | 18                               |       | 30                           |       |
| Antitrust  costs, excluding legal fees |       | (2                        | )          | —                     |       | (2                               | )          | 6                            |       |
| Payments                               |       | (5                        | )          | (1                         | )          | (6                               | )          | —                       |       |
| **Balance December 31, 2009**     | ** ** | **$**                     | **9**      | ** **                 | **$**      | **1**                            | ** ** | **$**                        | **10**     | ** ** | **$** | **36** | ** ** |

 

**Other**

 

TheCompany is routinely subject to other civil claims, litigation and arbitration,and regulatory investigations, arising in the ordinary course of its business,as well as in respect of its divested businesses. Some of these claims andlitigations relate to product liability claims, including claims related to theCompany’s current products and asbestos-related claims concerning premises andhistoric products of its corporate affiliates and predecessors. The Companybelieves that it has strong defenses to these claims. These claims have not hada material impact on the Company to date and the Company believes thelikelihood that a future material adverse outcome will result from these claimsis remote. However, the Company cannot be certain that an adverse outcome ofone or more of these claims would not have a material adverse effect on itsfinancial condition, results of operations or cash flows.

** **

**Internal Review of Customer Incentive, Commissionand Promotional Payment Practices**

** **

**The Company is in the process ofreviewing various customer incentive, commission and promotional paymentpractices of the Crop Protection Engineered Products segment in its Europe,Middle East and Africa region, with particular emphasis on certain CentralAsian countries that are considered part of that region.  The review is being conducted under theoversight of the Audit Committee of the Board of Directors and with theassistance of outside counsel and forensic accounting consultants.  While the review is not yet complete,substantial progress has been made, but it has not yet been possible todetermine whether all such practices or payments were consistent withapplicable U.S. or international laws and regulations that apply to these operations.The Company cannot currently predict the timing or the outcome of this review,nor can it reasonably estimate the likelihood, nature or amount of monetary orother sanctions, if any, that might be imposed should the review identify thatcertain payments were inconsistent with applicable laws or regulations.  The Company believes that there is no matterconnected with this review that would lead to a material change to thefinancial statements included in this report on Form 10-K.**

** **

**Guarantees**

** **

The Company has standby letters of credit and guaranteeswith various financial institutions.  At December 31,2009 and 2008, the Company had $64 million and $107 million, respectively, ofoutstanding letters of credit and guarantees primarily related to its liabilitiesfor environmental remediation, vendor deposits, insurance obligations andEuropean value added tax (VAT) obligations.

 

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TheCompany has applied the disclosure provisions of ASC Topic 460, *Guarantees*(“ASC 460”), to its agreements that containguarantee or indemnification clauses.  The Company is a party to several agreementspursuant to which it may be obligated to indemnify a third party with respectto certain loan obligations of joint venture companies in which the Company hasan equity interest.  These obligationsarose to provide initial financing for a joint venture start-up, fund anacquisition and/or provide project capital. Such obligations mature through February 2015.  In the event that any of the joint venturecompanies were to default on these loan obligations, the Company wouldindemnify the other party up to its proportionate share of the obligation basedupon its ownership interest in the joint venture.  At December 31, 2009, the maximumpotential future principal and interest payments due under these guaranteeswere $17 million and $1 million, respectively. In accordance with ASC 460, the Company has accrued $2 million inreserves, which represents the probability weighted fair value of theseguarantees at December 31, 2009. The reserve has been included inlong-term liabilities on the Consolidated Balance Sheet at December 31,2009 with an offset to the investment included in other assets.

 

The Company also has a customer guarantee, in which theCompany has contingently guaranteed certain debt obligations of one of itscustomers.  The amount of this guaranteewas $2 million at December 31, 2009 and December 31, 2008.  Based on past experience and on theunderlying circumstances, the Company does not expect to have to perform underthis guarantee.

 

 

AtDecember 31, 2009, unconditional purchase obligations wereinsignificant.  Unconditional purchaseobligations exclude liabilities subject to compromise as the Company cannotaccurately forecast the future level and timing of the repayments given theinherent uncertainties associated with the Chapter 11 cases.

 

In the ordinary course of business, the Company entersinto contractual arrangements under which the Company may agree to indemnify athird party to such arrangement from any losses incurred relating to theservices they perform on behalf of the Company or for losses arising fromcertain events as defined within the particular contract, which may include,for example, litigation, claims or environmental matters relating to theCompany’s past performance.  For anylosses that the Company believes are probable and which are estimable, the Companyhas accrued for such amounts in its Consolidated Balance Sheets.

 

**22)****BUSINESSSEGMENTS**

 

TheCompany evaluates a segment’s performance based on several factors, of whichthe primary factor is operating profit (loss). In computing operating profit (loss) by segment, the following itemshave not been deducted:  (1) generalcorporate expense; (2) amortization; (3) facility closures, severanceand related costs; (4) antitrust costs; (5) certain accelerateddepreciation; (6) loss on sale of business; (7) impairment oflong-lived assets; and (8) changes in estimates related to expected allowableclaims.  These items have been excludedfrom the Company’s presentation of segment operating profit (loss) because theyare not reported to the chief operating decision maker for purposes ofallocating resources among reporting segments or assessing segmentperformance.  The accounting policies ofthe reporting segments are the same as those described in Note 2 — Basis ofPresentation and Summary of Significant Accounting Policies included herein.

 

Effective for the quarter ended March 31,2009, the Company made component realignments within its reporting segments,which were also renamed.  Thesemodifications reflect the changes to its organizational structure announced on January 19,2009.  The renamed reporting segmentsare: Consumer Performance Products, Industrial Performance Products, CropProtection Engineered Products and Industrial Engineered Products.  Industrial Engineered Products is the formerPolymer Additives segment excluding the Company’s antioxidant product line andIndustrial Performance Products is the former Performance Specialties segmentnow including the Company’s antioxidant product line.  The Other segment has been eliminated andabsorbed into the Industrial Performance Products and Industrial EngineeredProducts segments.  The presentation ofthe Consumer Products and Crop Protection segments is unchanged.  Prior period segment data has been restated to conform tothe current period presentation.

 

**Consumer Performance Products**

 

Consumer Performance Products are performancechemicals that are sold to consumers for in-home and outdoor use.  Consumer Performance Products include avariety of a) branded recreational water purification products sold throughlocal dealers and large retailers to assist consumers in the maintenance oftheir pools and spas and b) branded cleaners and degreasers sold primarilythrough mass merchants to consumers for home cleaning.

 

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**Industrial Performance Products**

 

Industrial Performance Products are engineeredsolutions of customers’ specialty chemical needs.  Industrial Performance Products includepetroleum additives that provide detergency, friction modification andcorrosion protection in motor oils, greases, refrigeration and turbinelubricants; castable urethane prepolymers engineered to provide superiorabrasion resistance and durability in many industrial and recreationalapplications; polyurethane dispersions and urethane prepolymers used in varioustypes of coatings such as clear floor finishes, high-gloss paints and textilestreatments; and antioxidants that improve the durability and longevity ofplastics used in food packaging, consumer durables, automotive components andelectrical components.  These productsare sold directly to manufacturers and through distribution channels.

 

**Crop Protection Engineered Products**

 

Crop Protection Engineered Products develops,supplies, registers and sells agricultural chemicals formulated for specificcrops in various geographic regions for the purpose of enhancing quality andimproving yields.  The business focuseson specific target markets in six major product lines: seed treatments,fungicides, miticides, insecticides, growth regulators and herbicides.  These products are sold directly to growersand to major distributors in the agricultural sector.

 

**Industrial Engineered Products**

 

Industrial Engineered Products are chemicaladditives designed to improve the performance of polymers in their end-useapplications.  Industrial EngineeredProducts include brominated performance products, flame retardants, fumigants,organometallics and PVC additives.  Theproducts are sold across the entire value chain ranging from direct sales tomonomer producers, polymer manufacturers, compounders and fabricators, finechemical manufacturers and oilfield service companies to industry distributors.

 

**GeneralCorporate Expense and Other Charges**

 

General corporate expense includes costs andexpenses that are of a general corporate nature or managed on a corporatebasis, including amortization expense. These costs are primarily for corporate administration services net ofcosts allocated to the business segments, costs related to corporateheadquarters and management compensation plan expenses for executives andcorporate managers.  Facility closures,severance and related costs are primarily for severance costs related to theCompany’s cost savings initiatives.  Theantitrust costs are primarily for settlements and legal costs associated withantitrust investigations and related civil lawsuits.  Accelerated depreciation relates to certainassets affected by the Company’s restructuring programs, divestitures andlegacy ERP systems.  The loss on sale ofbusiness in 2008 relates primarily to the sale of the oleochemicals businessand the loss in 2007 relates primarily to the sale of the Celogen® productline.  Impairment of long-lived assets in2009 is related to reducing the carrying value of goodwill and intangibles inthe Consumer Performance Products segment and property, plant and equipment,net and intangible assets, net in the Industrial Engineered Products segment.  Impairment of long-lived assets in 2008 isrelated primarily to reducing the carrying value of goodwill in the ConsumerPerformance Products, Industrial Performance Products and Industrial EngineeredProducts segments.  The impairment oflong-lived assets in 2007 includes impairments associated with the sale of theCompany’s Marshall, Texas facility, the write-off of construction in progressassociated with certain facilities affected by the 2007 restructuring programs,the reduction in the value of certain assets at the Company’s Ravenna, Italyfacility and write-off of construction in progress software costs that nolonger will be utilized.  Changes in estimates related to expectedallowable claims relates to adjustments to liabilities subject to compromise(primarily legal and environmental reserves) as a result of the proofs of claimevaluation process.  Corporateassets are principally cash and cash equivalents, intangible assets (includinggoodwill) and other assets (including deferred tax assets) maintained forgeneral corporate purposes.

 

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A summary of business data for the Company’s reportablesegments for the years 2009, 2008 and 2007 is as follows:

 

# **Information by Business Segment**

*(In millions)*

** **
| ** **                           | ** ** | **2009**   | ** ** | **2008**   | ** ** | **2007**   | ** ** |
|--------------------------------------|------------|------------|------------|------------|------------|------------|------------|
| **Net  Sales**                       | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Consumer  Performance Products       |       | $          | **457**    |       | $          | 516        |       | $ | 567 |   |
| Industrial  Performance Products     | ** ** | **999**    |       | 1,465      |       | 1,513      |       |
| Crop  Protection Engineered Products | ** ** | **332**    |       | 394        |       | 352        |       |
| Industrial  Engineered Products      | ** ** | **753**    |       | 1,171      |       | 1,315      |       |
| **Net Sales**                        |       | $          | **2,541**  |       | $          | 3,546      |       | $ | 3,747 |   |

** **
| ** **                                                 | ** ** | **2009**   | ** ** | **2008** | ** ** | **2007** | ** ** |
|------------------------------------------------------------|------------|------------|------------|----------|------------|----------|------------|
| **Operating (Loss) Profit**                                |       |       | ** ** |     |       |     |       |   |   |   |
| Consumer  Performance Products                             |       | $          | **63**     |     | $          | 50       |       | $ | 62 |   |
| Industrial  Performance Products                           | ** ** | **91**     |       | 105      |       | 140      |       |
| Crop  Protection Engineered Products                       | ** ** | **42**     |       | 78       |       | 58       |       |
| Industrial  Engineered Products                            | ** ** | **(11**    | **)**      | 17       |       | 36       |       |
| **Segment Operating Profit**                               | ** ** | **185**    |       | 250      |       | 296      |       |
|                                                       | ** ** | ** ** |       |     |       |     |       |
| General  corporate expense                                 | ** ** | **(56**    | **)**      | (53      | )          | (52      | )          |
| Amortization                                               | ** ** | **(39**    | **)**      | (45      | )          | (40      | )          |
| Change  in useful life of property, plant and equipment    | ** ** | **—** |       | (32      | )          | (40      | )          |
| Facility  closures, severance and related costs            | ** ** | **(3**     | **)**      | (26      | )          | (36      | )          |
| Antitrust  costs                                           | ** ** | **(10**    | **)**      | (12      | )          | (35      | )          |
| Loss  on sale of business                                  | ** ** | **—** |       | (25      | )          | (15      | )          |
| Impairment  of long-lived assets                           | ** ** | **(104**   | **)**      | (986     | )          | (19      | )          |
| Changes  in estimates related to expected allowable claims | ** ** | **(73**    | **)**      | —   |       | —   |       |
| **Total Operating (Loss) Profit**                          | ** ** | **(100**   | **)**      | (929     | )          | 59       |       |
| ** **                                                 | ** ** | ** ** |       |     |       |     |       |
| Interest  expense                                          | ** ** | **(70**    | **)**      | (78      | )          | (87      | )          |
| Other  (expense) income, net                               | ** ** | **(17**    | **)**      | 9        |       | (5       | )          |
| Reorganization  items, net                                 | ** ** | **(97**    | **)**      | —   |       | —   |       |
|                                                       | ** ** | ** ** |       |     |       |     |       |
| **Loss from continuing operations before income taxes**    |       | $          | **(284**   | **)**    | $          | (998     | )          | $ | (33 | ) |

** **
| ** **                           | ** ** | **2009**   | ** ** | **2008**   | ** ** | **2007**   | ** ** |
|--------------------------------------|------------|------------|------------|------------|------------|------------|------------|
| **Depreciation  and Amortization**   | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Consumer  Performance Products       |       | $          | **13**     |       | $          | 11         |       | $ | 13 |   |
| Industrial  Performance Products     | ** ** | **41**     |       | 44         |       | 47         |       |
| Crop  Protection Engineered Products | ** ** | **8**      |       | 7          |       | 4          |       |
| Industrial  Engineered Products      | ** ** | **68**     |       | 91         |       | 103        |       |
|                                 | ** ** | **130**    |       | 153        |       | 167        |       |
| Corporate                            | ** ** | **43**     |       | 84         |       | 102        |       |
| Total  continuing operations         | ** ** | **173**    |       | 237        |       | 269        |       |
| Discontinued  operations             | ** ** | **—** |       | —     |       | 6          |       |
|                                 |       | $          | **173**    |       | $          | 237        |       | $ | 275 |   |

** **
| ** **                       | ** ** | **2009**   | ** ** | **2008**   | ** ** | **2007**   | ** ** |
|----------------------------------|------------|------------|------------|------------|------------|------------|------------|
| **Equity  Income (Loss)**        | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Industrial  Performance Products | ** ** | **(1**     | **)**      | 2          |       | 2          |       |
| Industrial  Engineered Products  | ** ** | **1**      |       | 2          |       | 1          |       |
|                             |       | $          | **—** |       | $          | 4          |       | $ | 3 |   |
|                                  |            |            |            |            |            |            |            |  |  |  |

 

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| ** **                           | ** ** | **2009**   | ** ** | **2008** | ** ** | **2007** | ** ** |
|--------------------------------------|------------|------------|------------|----------|------------|----------|------------|
| **Segment Assets**                   | ** ** | ** ** |       |     |       |     |       |
| Consumer  Performance Products       |       | $          | **272**    |     | $          | 270      |       | $ | 292 |   |
| Industrial  Performance Products     | ** ** | **717**    |       | 744      |       | 834      |       |
| Crop  Protection Engineered Products | ** ** | **311**    |       | 229      |       | 189      |       |
| Industrial  Engineered Products      | ** ** | **631**    |       | 744      |       | 803      |       |
|                                 | ** ** | **1,931**  |       | 1,987    |       | 2,118    |       |
| Discontinued  operations             | ** ** | **—** |       | —   |       | 22       |       |
| Corporate                            | ** ** | **1,187**  |       | 1,070    |       | 2,276    |       |
|                                 |       | $          | **3,118**  |     | $          | 3,057    |       | $ | 4,416 |   |

** **
| ** **                           | ** ** | **2009**   | ** ** | **2008** | ** ** | **2007** | ** ** |
|--------------------------------------|------------|------------|------------|----------|------------|----------|------------|
| **Capital Expenditures**             | ** ** | ** ** |       |     |       |     |       |
| Consumer  Performance Products       |       | $          | **4**      |     | $          | 6        |       | $ | 7 |   |
| Industrial  Performance Products     | ** ** | **16**     |       | 27       |       | 27       |       |
| Crop  Protection Engineered Products | ** ** | **8**      |       | 4        |       | 4        |       |
| Industrial  Engineered Products      | ** ** | **19**     |       | 51       |       | 64       |       |
|                                 | ** ** | **47**     |       | 88       |       | 102      |       |
| Corporate                            | ** ** | **9**      |       | 33       |       | 13       |       |
| Total  continuing operations         | ** ** | **56**     |       | 121      |       | 115      |       |
| Discontinued  operations             | ** ** | **—** |       | —   |       | 2        |       |
|                                 |       | $          | **56**     |     | $          | 121      |       | $ | 117 |   |

 
| ** **                           | ** ** | **2009**   | ** ** | **2008** | ** ** | **2007** | ** ** |
|--------------------------------------|------------|------------|------------|----------|------------|----------|------------|
| **Equity Method Investments**        | ** ** | ** ** |       |     |       |     |       |
| Industrial  Performance Products     |       | $          | **19**     |     | $          | 21       |       | $ | 16 |   |
| Crop  Protection Engineered Products | ** ** | **2**      |       | 2        |       | 2        |       |
| Industrial  Engineered Products      | ** ** | **8**      |       | 14       |       | 11       |       |
|                                 | ** ** | **29**     |       | 37       |       | 29       |       |
| Corporate                            | ** ** | **—** |       | —   |       | 4        |       |
|                                 |       | $          | **29**     |     | $          | 37       |       | $ | 33 |   |

 

**Informationby Geographic Area**

*(Inmillions)*

 

Net sales are based on location of customer.

 
| ** **     | ** ** | **2009**   | ** ** | **2008** | ** ** | **2007** | ** ** |
|----------------|------------|------------|------------|----------|------------|----------|------------|
| **Net sales**  | ** ** | ** ** |       |     |       |     |       |
| United  States |       | $          | **1,195**  |     | $          | 1,611    |       | $ | 1,878 |   |
| Canada         | ** ** | **43**     |       | 76       |       | 103      |       |
| Latin  America | ** ** | **135**    |       | 190      |       | 158      |       |
| Europe/Africa  | ** ** | **799**    |       | 1,141    |       | 1,103    |       |
| Asia/Pacific   | ** ** | **369**    |       | 528      |       | 505      |       |
|           |       | $          | **2,541**  |     | $          | 3,546    |       | $ | 3,747 |   |

 
| ** **                        | ** ** | **2009**   | ** ** | **2008** | ** ** | **2007** | ** ** |
|-----------------------------------|------------|------------|------------|----------|------------|----------|------------|
| **Property, Plant and Equipment** | ** ** | ** ** |       |     |       |     |       |
| United  States                    |       | $          | **422**    |     | $          | 523      |       | $ | 603 |   |
| Canada                            | ** ** | **59**     |       | 53       |       | 63       |       |
| Latin  America                    | ** ** | **16**     |       | 12       |       | 28       |       |
| Europe/Africa                     | ** ** | **219**    |       | 246      |       | 300      |       |
| Asia/Pacific                      | ** ** | **34**     |       | 28       |       | 38       |       |
|                              |       | $          | **750**    |     | $          | 862      |       | $ | 1,032 |   |

 

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**23) SUMMARIZED UNAUDITED QUARTERLYFINANCIAL DATA**

** **
| ** **                                                                                     | ** ** | **2009**   | ** ** |
|------------------------------------------------------------------------------------------------|------------|------------|------------|
| **(In millions, except per share data)**                                                       | ** ** | **First**  | ** ** | **Second** | ** ** | **Third** | ** ** | **Fourth** | ** ** |
| Net  sales                                                                                     | ** ** | **$**      | **517**    | ** ** | **$** | **687** | ** ** | **$** | **681** | ** ** | **$** | **656** | ** ** |
| Gross  profit                                                                                  | ** ** | **$**      | **99**     | ** ** | **$** | **152** | ** ** | **$** | **168** | ** ** | **$** | **175** | ** ** |
|                                                                                           | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |   |   |   |
| **AMOUNTS ATTRIBUTABLE TO CHEMTURA CORPORATION COMMON  SHAREHOLDERS:**                         | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |   |   |   |
| (Loss)  earnings from continuing operations, net of tax                                        | ** ** | **$**      | **(94**    | **)** | **$** | **(118** | **)** | **$** | **12** | ** ** | **$** | **(90** | **)** |
| Loss  on sale of discontinued operations, net of tax                                           | ** ** | **—** | ** ** | **—** | ** ** | **(4** | **)** | **1** | ** ** |
| Net  (loss) earnings attributable to Chemtura Corporation                                      | ** ** | **$**      | **(94**    | **)(a)** | **$** | **(118** | **)(b)** | **$** | **8** | **(c)** | **$** | **(89** | **)(d)** |
|                                                                                           | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |   |   |   |
| **EARNINGS (LOSS) PER SHARE - BASIC AND DILUTED -  ATTRIBUTABLE TO CHEMTURA CORPORATION (h):** |       |       |       |   |   |   |   |   |   |
| (Loss)  earnings from continuing operations, net of tax                                        | ** ** | **$**      | **(0.39**  | **)** | **$** | **(0.49** | **)** | **$** | **0.05** | ** ** | **$** | **(0.36** | **)** |
| Loss  on sale of discontinued operations, net of tax                                           | ** ** | **—** | ** ** | **—** | ** ** | **(0.02** | **)** | **—** | ** ** |
| Net  (loss) earnings attributable to Chemtura Corporation                                      | ** ** | **$**      | **(0.39**  | **)** | **$** | **(0.49** | **)** | **$** | **0.03** | ** ** | **$** | **(0.36** | **)** |

 
| ** **                                                                                  | ** ** | **2008**  | ** ** |
|---------------------------------------------------------------------------------------------|------------|-----------|------------|
| ** **                                                                                  | ** ** | **First** | ** ** | **Second** | ** ** | **Third** | ** ** | **Fourth** | ** ** |
| Net  sales                                                                                  |       | $         | 909        |   | $ | 1,023 |   | $ | 924 |   | $ | 690 |   |
| Gross  profit                                                                               |       | $         | 184        |   | $ | 248 |   | $ | 193 |   | $ | 111 |   |
|                                                                                        |       |      |       |   |   |   |   |   |   |
| Net (loss)  earnings attributable to Chemtura Corporation                                   |       | $         | (21        | )(e) | $ | (273 | )(f) | $ | 11 |   | $ | (690 | )(g) |
|                                                                                        |       |      |       |   |   |   |   |   |   |
| EARNINGS  (LOSS) PER SHARE - BASIC AND DILUTED - ATTRIBUTABLE TO CHEMTURA CORPORATION  (h): |       |      |       |   |   |   |   |   |   |
| Net (loss)  earnings attributable to Chemtura Corporation                                   |       | $         | (0.09      | ) | $ | (1.13 | ) | $ | 0.05 |   | $ | (2.84 | ) |

 

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(a)         The net lossfor the first quarter of 2009 included pre-tax charges for reorganizationitems, net of $40 million, facility closures of $3 million and antitrust costsof $2 million.

(b)        The net lossfor the second quarter of 2009 included pre-tax charges for asset impairmentsof $97 million ($48million for property, plant and equipment and $12 million for intangibleassets, net in the Industrial Engineered Products segment and $37 millionrelating to goodwill in the Consumer Performance Products segment), antitrustcosts of $8 million and reorganization item, net of $6 million.

(c)         Earnings fromcontinuing operations for the third quarter of 2009 included pre-tax chargesfor reorganization items, net of $20 million.

(d)        The net lossfor the fourth quarter of 2009 included pre-tax charges for changes inestimates related to expected allowable claims of $73 million, reorganizationitems, net of $31 million and impairment of long lived assets of $7 millionrelating primarily to property, plant and equipment for the IndustrialEngineered Products segment.

(e)         The net lossfor the first quarter of 2008 included pre-tax charges for loss on sale ofbusiness related to oleochemicals of $23 million.

(f)           The net lossfor the second quarter of 2008 included pre-tax charges for goodwill impairmentof $320 million relating to the Consumer Performance Products segment andantitrust costs of $11 million.

(g)        The net lossfor the fourth quarter of 2008 included pre-tax charges for goodwill impairmentof $665 million relating to the Consumer Performance Products, IndustrialPerformance Products and Industrial Engineered Products segments, and facilityclosure of $26 million.

(h)        The sum of theearnings per common share for the four quarters may not equal the totalearnings per common share for the full year due to quarterly changes in theaverage number of shares outstanding.

 

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**Reportof Independent Registered Public Accounting Firm**

** **

The Board of Directorsand Stockholders

Chemtura Corporation:

 

We have audited theaccompanying consolidated balance sheets of Chemtura Corporation andsubsidiaries (Debtor-In Possession) (the “Company”) as of December 31,2009 and 2008, and the related consolidated statements of operations,stockholders’ equity, and cash flows for each of the years in the three-yearperiod ended December 31, 2009.  Inconnection with our audits of the consolidated financial statements, we alsohave audited the financial statement Schedule II, Valuation and QualifyingAccounts.  We also have audited Chemtura Corporation’s internal controlover financial reporting as of December 31, 2009, based on criteriaestablished in*Internal Control  — Integrated Framework* issued bythe Committee of Sponsoring Organizations of the Treadway Commission (COSO).The Company’s management is responsible for these consolidated financialstatements and financial statement schedule, for maintaining effective internalcontrol over financial reporting, and for its assessment of the effectivenessof internal control over financial reporting, included in the accompanyingManagement’s Annual Report on Internal Control over Financial Reporting (Item9A(b)). Our responsibility is to express an opinion on these consolidatedfinancial statements and financial statement schedule and an opinion on theCompany’s internal control over financial reporting based on our audits.

 

We conducted our auditsin accordance with the standards of the Public Company Accounting OversightBoard (United States). Those standards require that we plan and perform theaudits to obtain reasonable assurance about whether the financial statementsare free of material misstatement and whether effective internal control overfinancial reporting was maintained in all material respects. Our audits of theconsolidated financial statements included examining, on a test basis, evidencesupporting the amounts and disclosures in the financial statements, assessingthe accounting principles used and significant estimates made by management,and evaluating the overall financial statement presentation.  Our audit of internal control over financialreporting included obtaining an understanding of internal control overfinancial reporting, assessing the risk that a material weakness exists, andtesting and evaluating the design and operating effectiveness of internalcontrol based on the assessed risk.  Our audits also included performingsuch other procedures as we considered necessary in the circumstances. Webelieve that our audits provide a reasonable basis for our opinions.

 

Acompany’s internal control over financial reporting is a process designed toprovide reasonable assurance regarding the reliability of financial reportingand the preparation of financial statements for external purposes in accordancewith generally accepted accounting principles. A company’s internal controlover financial reporting includes those policies and procedures that(1) pertain to the maintenance of records that, in reasonable detail,accurately and fairly reflect the transactions and dispositions of the assetsof the company; (2) provide reasonable assurance that transactions arerecorded as necessary to permit preparation of financial statements inaccordance with generally accepted accounting principles, and that receipts andexpenditures of the company are being made only in accordance withauthorizations of management and directors of the company; and (3) providereasonable assurance regarding prevention or timely detection of unauthorizedacquisition, use, or disposition of the company’s assets that could have amaterial effect on the financial statements.

 

Becauseof its inherent limitations, internal control over financial reporting may notprevent or detect misstatements. Also, projections of any evaluation ofeffectiveness to future periods are subject to the risk that controls maybecome inadequate because of changes in conditions, or that the degree ofcompliance with the policies or procedures may deteriorate.

 

In our opinion, the consolidated financial statementsreferred to above present fairly, in all material respects, the financialposition of Chemtura Corporation and subsidiaries as of December 31, 2009and 2008, and the results of their operations and their cash flows for each ofthe years in the three-year period ended December 31, 2009, in conformitywith U.S. generally accepted accounting principles.   Also, in our opinion, the related financialstatement schedule, when considered in relation to the basic consolidatedfinancial statements taken as a whole, presents fairly, in all materialrespects the information set forth therein. Also, in our opinion, Chemtura Corporation maintained, in all materialrespects,  effective internal controlover financial reporting as of December 31, 2009, based on criteriaestablished in*Internal Control—IntegratedFramework* issued by COSO.

 

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The accompanyingconsolidated financial statements and financial statement schedule have beenprepared assuming that the Company will continue as a going concern. Asdiscussed in Note 1 to the consolidated financial statements, on March 18,2009, Chemtura Corporation and 26 of its subsidiaries organized in the UnitedStates filed for relief under Chapter 11 of Title 11 of the United States BankruptcyCode and there are uncertainties inherent in the bankruptcy process.  The Company also has suffered recurringlosses from continuing operations.  Thesefactors raise substantial doubt about the Company’s ability to continue as agoing concern. Management’s plans in regard to these matters are also describedin Note 1. The consolidated financial statements and financial statementschedule do not include any adjustments that might result from the outcome ofthis uncertainty.

 

Asdiscussed in Note 2 to Notes to Consolidated Financial Statements, the Company,due to the adoption of new accounting principles, in 2009, changed its methodof accounting for fair value measurements for non-financial assets andliabilities, and non-controlling interests; in 2008, changed its method ofaccounting for fair value measurements for financial assets and liabilities;and in 2007, changed its method of accounting for uncertainty in income taxes.

 

/s/KPMG LLP

 

Stamford,Connecticut

March 12,2010

 

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**Item9.  Changes in and Disagreements WithAccountants on Accounting and Financial Disclosure**

 

**Not applicable.**

 

**Item 9A.  Controls and Procedures**

 

*(a) Disclosure Controls and Procedures*

 

As of December 31, 2009, our management,including our Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”),have conducted an evaluation of the effectiveness of the design and operationof our disclosure controls and procedures pursuant to Rule 13a-15(e) andRule 15d-15(e) under the Securities Exchange Act of 1934, asamended.  Based on that evaluation, ourCEO and CFO concluded that our disclosure controls and procedures as of December 31,2009 were effective.

 

*(b) Management’s Annual Report on InternalControl Over Financial Reporting*

 

Our management is responsible for establishingand maintaining adequate internal control over financial reporting, as suchterm is defined in Rule 13a-15(f) under the Securities Exchange Actof 1934, as amended.  Under thesupervision of management and with the participation of our management,including our CEO and CFO, we conducted an evaluation of the effectiveness of ourinternal control over financial reporting as of December 31, 2009 based onthe framework in *Internal Control-Integrated Framework*issued by the Committee of Sponsoring Organizations of the TreadwayCommission.  Based on our evaluation, weconcluded that our internal control over financial reporting was effective asof December 31, 2009.

 

KPMG LLP, the independent registered publicaccounting firm that audited the financial statements included in this AnnualReport on Form 10-K, has issued an attestation report, which is includedelsewhere within this Form 10-K, on the effectiveness of Chemtura’sinternal control over financial reporting.

 

*(c) Remediation of Previously DisclosedMaterial Weakness*

 

As of December 31, 2008, managementidentified that the Company did not provide adequate oversight to ensure atimely and effective review of its income tax accounts.  In particular, the Company did not maintaineffective monitoring of key review controls in its income tax process.  This deficiency resulted in the failure todetect breakdowns in its review controls over the intra-period tax allocationprocess and the appropriate balance sheet classification of deferred incometaxes and led to a material misstatement in the Company’s income tax accountsin its preliminary financial statements as of December 31, 2008 that wereincluded in its press release dated February 25, 2009.  These misstatements were corrected prior tothe filing of the 2008 Annual Report on Form 10-K.

 

As a result of the material weakness describedabove, management concluded that our internal control over financial reportingwas not effective as of December 31, 2008.

 

During 2009, management took various actions tostrengthen internal controls and improve its disclosure controls over itsincome tax accounts.  As a result, weremediated the previously reported material weakness by performing thefollowing remediation activities:

 

·                 Implemented additional procedures thatinclude strengthened review procedures over the tax accounts and additionalinterim review procedures at September 30, 2009 to ensure earlyidentification of year end issues.

·                 Assigned additional resources to our taxdepartment, including additional tax consultants.

·                 Enhanced accounting and tax training forthe US and international teams.

 

With the implementation of the above measures,the Company believes that it has improved internal controls over financialreporting and that our internal control over financial reporting was effective asof December 31, 2009.

 

*(d) Changes in Internal Control over FinancialReporting*

 

Otherthan the remediation of the 2008 material weakness addressed under Item 9A. (c) above,there were no changes in the Company’s internal control over financialreporting that occurred in the fourth quarter ended December 31, 2009,that has materially affected, or is reasonably likely to materially affect, theCompany’s internal control over financial reporting.

 

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**Item 9B.  Other Information**

 

Not Applicable.

 

**PART III.**

 

**Item 10.  Directors, Executive Officers and CorporateGovernance**

 

Except as set forth herein, the informationrequested by this item will be filed with the SEC as an amendment to this Form 10-Kin accordance with General Instruction G (3).

 

**EXECUTIVE OFFICERS OF THE REGISTRANT**

 

The executive officers of Chemtura Corporationare as follows:

 

**Craig A. Rogerson,**53, has served as Chairman, President and ChiefExecutive Officer of the Company since December 2008.  Previously, Mr. Rogerson served asPresident, Chief Executive Officer and director of Hercules Incorporated from December 2003until its acquisition by Ashland, Incorporated on November 13, 2008.

 

**Chet H. Cross,**51, has served as Executive Vice President andGroup President - Engineered Products since January 2010.  From December 2008 to January 2010,Mr. Cross was Vice President of Operations of Ashland Inc’s AshlandHercules Water Technologies division. Previously, Mr. Cross served for over 20 years with HerculesIncorporated in a variety of positions of increasing responsibility, mostrecently as General Manager of Hercules’ Americas pulp and paper business andPresident of Hercules Canada.

 

**David G. Dickey,** 40, has served as Executive Vice President andGroup President - Performance Products since January 2009 and previouslyserved as Chief Functional and Services Officer from December 2007 to December 2008.  Mr. Dickey joined Chemtura in March 2006as Vice President, Global Supply Chain, Non-Manufacturing.  Previously, Mr. Dickey served as GeneralManager for Carrier, a division of United Technologies Corporation.

 

**Stephen C. Forsyth,**54, has served as Executive VicePresident and Chief Financial Officer since April 2007.  Mr. Forsyth was also Treasurer from June 2007to November 2008.  Previously, Mr. Forsythserved for 26 years with Hexcel Corporation in a variety of executivecapacities, most recently as Executive Vice President and Chief FinancialOfficer.

 

**Billie S. Flaherty**, 52, has served as Senior Vice President,General Counsel and Secretary since January 2009.  Previously, Ms. Flaherty served asAssociate General Counsel for Chemtura, having joined the Company in October 2005.  Prior to joining Chemtura, she served as VicePresident, Environmental, Health and Safety for Pitney Bowes Inc.

 

**Kevin V. Mahoney**, 55, has served as Senior Vice President andCorporate Controller since October 2006. Previously, Mr. Mahoney spent 18 years with American ExpressCompany, most recently as Senior Vice President of Corporate Reporting,responsible for financial reporting globally.

 

**Alan M. Swiech**, 51, has served as Senior Vice President, HumanResources since January 2009. Previously Mr. Swiech served as Vice President, Human Resources forChemtura, having joined the Company in April 2006.  Prior to joining Chemtura Mr. Swiechserved as Vice President - Administration for Akebono Corporation NA, andPresident of AMAK LLC.

 

**Carol V. Anderson**, 45, has served as Vice President and Treasurersince November 2008.  Since joiningChemtura in 2000, Ms. Anderson has served as Director of TreasuryOperations and most recently as Assistant Treasurer.  Prior to joining Chemtura, Ms. Andersonspent 14 years with International Paper Company in various internationalfinancial functions.

 

**Raymond E. Dombrowski**, 55, has served as Chief RestructuringOfficer since March 2009 responsible for overseeing restructuringactivities and communicating Chemtura’s restructuring progress to the board ofdirectors, creditor groups and other interested parties.  Mr. Dombrowski is a managing directorwith Alvarez & Marsal North America, LLC with more than 15 years offinancial restructuring experience.

 

There is no familyrelationship between any of such officers, and there is no arrangement orunderstanding between any of them and any other person pursuant to which anysuch officer was selected as an officer.

 

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**Item 11. Executive Compensation**

 

The information requested bythis item will be filed with the SEC as an amendment to this Form 10-K inaccordance with General Instruction G (3).

 

**Item 12.  Security Ownership ofCertain Beneficial Owners and Management and Related Stockholder Matters**

 

The information requested by this item will befiled with the SEC as an amendment to this Form 10-K in accordance withGeneral Instruction G (3).

 

**Item 13.  Certain Relationships and RelatedTransactions, and Director Independence**

 

The information requested bythis item will be filed with the SEC as an amendment to this Form 10-K inaccordance with General Instruction G (3).

 

**Item 14.  Principal Accountant Fees and Services**

 

The information requested bythis item will be filed with the SEC as an amendment to this Form 10-K inaccordance with General Instruction G (3).

 

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**PART IV.**

 

**Item 15.  Exhibits and FinancialStatement Schedules**

 

(a)  The following documents are filedas part of this report:

 

1.               Financial statements and Report ofIndependent Registered Public Accounting Firm, as required by Item 8 of thisform.

 

(i)     ConsolidatedStatements of Operations for the years ended December 31, 2009, 2008, and2007;

(ii)    Consolidated BalanceSheets as of December 31, 2009 and 2008;

(iii)   Consolidated Statementsof Cash Flows for the years ended December 31, 2009, 2008, and 2007;(iv)   Consolidated Statements of Stockholders’ Equity for theyears ended December 31, 2009, 2008 and 2007; 

(v)    Notes to ConsolidatedFinancial Statements; and 

(vi)   Report of IndependentRegistered Public Accounting Firm.

 

2.               Financial Statement Schedule II,Valuation and Qualifying Accounts, required by Regulation S-X is includedherein.

 

3.               The following exhibits are either filedherewith or incorporated herein by reference to the respective reports andregistration statements identified in the parenthetical clause following thedescription of the exhibit:

 
| **Exhibit No.** | ** ** | **Description**                                                                                                                                                                                                                                                                                                                                                            |
|----------------------|------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 3(i)(a)              |       | Amended  and Restated Certificate of Incorporation of the Registrant dated  September 1, 1999 (incorporated by reference to  Exhibit 3(i)(a) to the Registrant’s Form 10-K for the fiscal  year ended December 31, 2001 (“2001 Form 10-K”)).                                                                                  |
|                 |       |                                                                                                                                                                                                                                                                                                                                                                       |
| 3(i)(b)              |       | Certificate  of Amendment of Amended and Restated Certificate of Incorporation of the  Registrant dated April 27, 2000 (incorporated by reference to  Exhibit 3(i)(b) to the Registrant’s 2001 Form 10-K).                                                                                                                                        |
|                 |       |                                                                                                                                                                                                                                                                                                                                                                       |
| 3(i)(c)              |       | Certificate  of Change of Location of Registered Office and of Registered Agent dated  May 18, 2000 (incorporated by reference to Exhibit 3(i)(c) to  the Registrant’s 2001 Form 10-K).                                                                                                                                                           |
|                 |       |                                                                                                                                                                                                                                                                                                                                                                       |
| 3(i)(d)              |       | Certificate  of Amendment of Amended and Restated Certificate of Incorporation of the  Registrant dated July 1, 2005 (incorporated by reference to  Exhibit 4.1 to the Registrant’s Form 8-K dated July 1, 2005  (“July 1, 2005 8-K”)).                                                                                            |
|                 |       |                                                                                                                                                                                                                                                                                                                                                                       |
| 3(i)(e)              |       | Certificate  of Amendment of Amended and Restated Certificate of Incorporation of the  Registrant dated May 2, 2006 (incorporated by reference to  Exhibit 3(i)(e) to the Registrant’s Form 10-Q for the period  ended March 31, 2006 (“March 31, 2006 10-Q”)).                                                               |
|                 |       |                                                                                                                                                                                                                                                                                                                                                                       |
| 3(ii)                |       | By-laws  of the Registrant (incorporated by reference to Exhibit 3(ii) to  the Registrant’s March 31, 2006 10-Q).                                                                                                                                                                                                                                      |
|                 |       |                                                                                                                                                                                                                                                                                                                                                                       |
| 3(iii)               |       | Amendment  to the By-laws of the Registrant (incorporated by reference to  Exhibit 3(ii) to the Registrant’s Form 8-K dated  April 30, 2007 (“April 30, 2007 8-K”)).                                                                                                                                                               |
|                 |       |                                                                                                                                                                                                                                                                                                                                                                       |
| 4.1                  |       | Indenture,  dated as of February 1, 1993, between Witco Corporation and The Chase  Manhattan Bank, N.A. relating to $150 million of 6.875% debentures due 2026  (incorporated by reference to Exhibit 4.1 to the Registrant’s  Form 10-K for the fiscal year ended December 31, 2008, as amended  (“2008 Form 10-K/A”)).           |
|                 |       |                                                                                                                                                                                                                                                                                                                                                                       |
| 4.2                  |       | Indenture,  dated as of July 16, 1999, between Great Lakes Chemical Corporation and  The First National Bank of Chicago relating to $400 million of 7% notes due  July 15, 2009 (incorporated by reference to Exhibit 4.2 to the 2008  Form 10-K/A).                                                                                                   |
|                 |       |                                                                                                                                                                                                                                                                                                                                                                       |
| 4.3                  |       | Rights  Agreement, dated as of September 2, 1999, by and between the Registrant  and ChaseMellon Shareholder Services, L.L.C., as Rights Agent (incorporated  by reference to Exhibit 4.1 to the Registrant’s Form 8-A dated  September 28, 1999).                                                                                                |
|                 |       |                                                                                                                                                                                                                                                                                                                                                                       |
| 4.4                  |       | Form of  First Supplemental Indenture, dated February 1, 1996, by and among Witco  Corporation, Chase Manhattan Bank, N.A., the Initial Trustee, and Fleet  National Bank of Connecticut, the Note Trustee, relating to the 6 1/8% Notes  due 2006 and 6 7/8% Notes due 2026 (incorporated by reference to  Exhibit 4.4 to the 2008 Form 10-K/A).      |
|                 |       |                                                                                                                                                                                                                                                                                                                                                                       |
| 4.5                  |       | Second  Supplemental Indenture, dated as of August 5, 2004, between Crompton  Corporation and U.S. Bank, National Association, to the 1993 Indenture  (incorporated by reference to Exhibit 4.4 of the Company’s Registration  Statement on Form S-4 Registration Number 333-119641, filed on  October 8, 2004 (“2004 Form S-4”)). |

 

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| 4.6    |   | Fourth  Supplemental Indenture, dated as of July 1, 2005. to the Indenture dated  as of February 1, 1993, among the Registrant, the Guarantors signatory  thereto, Manufacturers and Traders Trust Company, as trustee, and U.S. Bank  National Association, as Trustee (incorporated by reference to  Exhibit 10.4 to the Registrant’s July 1, 2005 Form 8-K  (“July 1, 2005 8-K”)). |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                               |
| 4.7    |   | Indenture,  dated as of August 16, 2004, among Crompton Corporation, the Guarantors  listed on Schedule A thereto, Wells Fargo Bank, National Association, as  trustee and Deutsche Bank Trust Company Americas as Note Custodian, Paying  Agent and Registrar, relating to the Registrant’s 9 7/8% Senior Notes due  2012 (incorporated by reference to Exhibit 4.5 of the 2004 S-4).                              |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                               |
| 4.8    |   | Indenture,  dated as of August 16, 2004, among Crompton Corporation, the Guarantors  listed on Schedule A thereto, Wells Fargo Bank, National Association, as  trustee and Deutsche Bank Trust Company Americas as Note Custodian, Paying  Agent and Registrar, relating to the Registrant’s Senior Floating Rate Notes  due 2010 (incorporated by reference to Exhibit 4.6 of the 2004 S-4).                       |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                               |
| 4.9    |   | Supplemental  Indenture dated as of May 31, 2005, by and between Crompton Corporation  and Wells Fargo Bank, National Association, as Trustee, relating to Crompton  Corporation Senior Floating Rate Notes due 2010 (incorporated by reference to  Exhibit 4.1 to the Registrant’s Form 8-K dated June 1, 2005  (“June 1, 2005 8-K”).                                                     |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                               |
| 4.10   |   | Supplemental  Indenture dated as of May 31, 2005, by and between Crompton Corporation  and Wells Fargo Bank, National Association, as Trustee, relating to Crompton  Corporation 9 7/8% Senior Notes due 2012 (incorporated by reference to  Exhibit 4.2 to the June 1, 2005 8-K).                                                                                                                                  |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                               |
| 4.11   |   | Indenture  dated as of April 24, 2006, by and among the Registrant as Issuer, the  Guarantors named therein and Wells Fargo Bank, N.A., as Trustee relating to  the Registrant’s 6.875% Notes due 2016 (incorporated by reference to  Exhibit 10.1 to the Registrant’s March 31, 2006 Form 10-Q).                                                                                                    |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                               |
| 4.12   |   | Supplemental  Indenture, dated as of February 11, 2009, among GLCC LAUREL, LLC, BIOLAB  COMPANY STORE, LLC and BIOLAB FRANCHISE COMPANY, LLC, each an indirect  subsidiary of Registrant, and Wells Fargo Bank, N.A., as Trustee  (incorporated by reference to Exhibit 10.61 to Registrant’s  Form 10-K for the fiscal year ended December 31, 2008 (“2008  Form 10-K”)).                 |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                               |
| 4.13   |   | Supplemental  Indenture, dated as of July 1, 2005, to the Indenture dated as of  July 16, 1999, among Great Lakes Chemical Corporation, the Registrant,  the Guarantors signatory thereto and J.P. Morgan Trust Company, National  Association, as Trustee (incorporated by reference to Exhibit 10.5 to  the July 1, 2005 8-K).                                                                               |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                               |
| 10.1   |   | Supplement  No. 1, dated as of March 26, 2004, to the Security Agreement dated  as of December 21, 2001, among the Registrant, various subsidiaries of  the Registrant, and Citicorp USA, Inc., as Collateral Agent  (incorporated by reference to Exhibit 10.3 to the Registrant’s  Form 10-Q for the period ended March 31, 2004).                                                       |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                               |
| 10.2   |   | Credit  Agreement, dated as of August 16, 2004, among Crompton Corporation, the  Lenders from time to time party thereto, Deutsche Bank AG, Cayman Islands  Branch, as Deposit Bank and Deutsche Bank AG New York Branch, as  Administrative Agent (incorporated by reference to Exhibit 10.43 to the  2004 Form S-4).                                                                                              |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                               |
| 10.3   |   | Security  Agreement, dated as of August 16, 2004, among Crompton Corporation,  certain of its subsidiaries from time to time party thereto and Deutsche Bank  AG New York Branch as Collateral Agent (incorporated by reference to  Exhibit 10.47 of the 2004 Form S-4).                                                                                                                                            |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                               |
| 10.4   |   | Pledge  Agreement, dated as of August 16, 2004, among Crompton Corporation,  certain of its subsidiaries from time to time party thereto and Deutsche Bank  AG New York Branch, as Pledgee (incorporated by reference to  Exhibit 10.48 to the 2004 Form S-4).                                                                                                                                                      |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                               |
| 10.5   |   | Subsidiaries  Guaranty, dated as of August 16, 2004, among certain subsidiaries of  Crompton Corporation and Deutsche Bank AG New York Branch, as Administrative  Agent (incorporated by reference to Exhibit 10.49 of the 2004 form S-4).                                                                                                                                                                               |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                               |
| 10.6+  |   | Form of  Supplemental Savings Plan, effective January 1, 2005, by and between the  Registrant and various key management personnel (incorporated by reference to  Exhibit 10.1 to the February 28, 2005 8-K).                                                                                                                                                                                                  |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                               |
| 10.7+  |   | 2005  Crompton Corporation Short-Term Incentive Plan, effective January 1,  2005 (incorporated by reference to Exhibit 10.1 to the Registrant’s  Form 8-K dated April 27, 2005).                                                                                                                                                                                                                          |

 

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| 10.8   |   | Credit  Agreement, dated as of July 1, 2005, among the Registrant, the Lenders  listed therein, Citibank, N.A., as Agent, and Bank of America, N.A., as  Syndication Agent (incorporated by reference to Exhibit 10.1 to the  Registrant’s Form 8-K dated July 1, 2005 (“July 1, 2005  8-K”)).                                                                                                           |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                             |
| 10.9   |   | Amendment  No. 1 to the Credit Agreement by and among the Registrant, various  lenders and Citibank, N.A., as Agent, dated as of December 12, 2005 (the  “2005 Credit Agreement”) (incorporated by reference to Exhibit 10.1 to  the Registrant’s Form 8-K dated December 15, 2005  (“December 15, 2005 8-K”)).                                                                           |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                             |
| 10.10  |   | Amended  and Restated Credit Agreement by and among the Registrant, various lenders  and Citibank, N.A., as Agent, dated as of December 12, 2005  (incorporated by reference to Exhibit 10.2 to the December 15, 2005  8-K).                                                                                                                                                                                                      |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                             |
| 10.11  |   | Amendment  No. 2, dated as of December 31, 2005, to the 2005 Credit Agreement  by and among the Registrant, various lenders and Citibank N.A., as Agent,  dated as of July 1, 2005, as amended and restated by Amendment  No. 1 dated as of December 12, 2005 (incorporated by reference to  Exhibit 10.1 to the Registrant’s Form 8-K dated February 15,  2006).                                   |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                             |
| 10.12  |   | Amendment  No. 3, dated as of December 31, 2005, to the Credit Agreement by  and among the Registrant, various lenders and Citibank N.A., as Agent, dated  as of July 1, 2005, as amended and restated by Amendment No. 1  dated as of December 12, 2005 (incorporated by reference to  Exhibit 10.1 to the Registrant’s Form 8-K dated March 20,  2006.)                                           |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                             |
| 10.13+ |   | Chemtura  Corporation 2006 Long-Term Incentive Plan, effective April 27, 2006  (incorporated by reference to Exhibit 10.1 to the Registrant’s  April 27, 2006 Form 8-K).                                                                                                                                                                                                                                                |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                             |
| 10.14  |   | Form of  Amendment No. 4 to the Credit Agreement by and among the Registrant,  various lenders and Citibank, N.A., as Agent, dated as of May 9, 2006  (incorporated by reference to Exhibit 10.1 to the Registrant’s  May 26, 2006 Form 8-K).                                                                                                                                                                 |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                             |
| 10.15+ |   | Employment  Agreement dated as of June 13, 2006, by and between the Registrant and  Robert L. Wood (incorporated by reference to Exhibit 10.1 to the  Registrant’s June 19, 2006 Form 8-K).                                                                                                                                                                                                                             |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                             |
| 10.16  |   | Form of  Amendment No. 5 to the Credit Agreement by and among the Registrant,  various lenders and Citibank, N.A., as Agent, dated as of December 14,  2006 (incorporated by reference to Exhibit 10.1 to the Registrant’s  December 15, 2006 Form 8-K).                                                                                                                                                      |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                             |
| 10.17  |   | Form of  Amendment No. 6 to the Credit Agreement by and among the Registrant,  various lenders and Citibank, N.A., as Agent, dated as of February 27,  2007 (incorporated by reference to Exhibit 10.1 to the Registrant’s  February 28, 2007 Form 8-K).                                                                                                                                                      |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                             |
| 10.18+ |   | Employment  of Stephen C. Forsyth was accompanied by a sign-on bonus, performance-based  restricted stock, restricted stock grant, stock options, participation in the  Management Incentive Plan, Key Executive and Key Employee Severance Plan,  Supplemental Savings Plan, and the “Flexperq” Program (incorporated by  reference to the Registrant’s April 9, 2007 Form 8-K  (“April 9, 2007 8-K”)). |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                             |
| 10.19+ |   | 2007-2009  Chemtura Corporation Long-Term Incentive Plan, effective March 28, 2007  (incorporated by reference to Exhibit 10.2 to the March 29, 2006  Form 8-K).                                                                                                                                                                                                                                                             |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                             |
| 10.20+ |   | Agreement  dated November 28, 2007 by and between the Registrant and David G.  Dickey, (incorporated by reference to Exhibit 10.84 to the Registrant’s  Form 10-K for the fiscal year ended December 31, 2007 (“2007  10-K”)).                                                                                                                                                                                |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                             |
| 10.21+ |   | Separation  Agreement and General Release dated January 21, 2008, by and between  Gary P. Yeaw and the Registrant (incorporated by reference to  Exhibit 99.1 to the Registrant’s January 23, 2008 Form 8-K  (“January 23, 2008 8-K”)).                                                                                                                                                                  |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                             |
| 10.22+ |   | 2008  Chemtura Corporation Management Incentive Program, effective  February 28, 2008 (incorporated by reference to Exhibit 10.1 to the  Registrant’s March 3, 2008 Form 8-K (“March 3, 2008 8-K”)).                                                                                                                                                                                                     |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                             |
| 10.23+ |   | 2008-2010 Chemtura  Corporation Long-Term Incentive Plan, effective February 28, 2008  (incorporated by reference to Exhibit 10.2 to the March 3, 2008  8-K).                                                                                                                                                                                                                                                                     |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                             |
| 10.24+ |   | The  Board of Directors of the Registrant adopted a new compensation schedule  (dated as of October 28, 2008) for non-employee members of the Board of  Directors, (reported the Registrant’s October 31, 2008 Form 8-K  (“October 31, 2008 8-K”)).                                                                                                                                                           |

 

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| 10.25  |   | Amendment  Number 1 to Receivables Purchase Agreement (dated as of May 31, 2007),  (incorporated by reference to Exhibit 10.86 to the Registrant’s  September 30, 2006 Form 10-Q (“September 30, 2006 10-Q”)).                                                                                                                                                                                                                                                                                                                                                                                                                   |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
| 10.26  |   | Letter  Agreement Regarding Receivables Purchase Agreement (dated as of May 31,  2007) (incorporated by reference to Exhibit 10.87 to the  September 30, 2006 10-Q).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
| 10.27  |   | Amendment  Number 2 to Amended and Restated Receivables Purchase Agreement (dated as of  June 28, 2007), (incorporated by reference to Exhibit 10.88 to the  September 30, 2006 10-Q).                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
| 10.28  |   | First  Amendment, dated as of May 31, 2007 to Fourth Amended and Restated  Receivables Sale Agreement Dated as of September 28, 2006, (incorporated  by reference to Exhibit 10.89 to the September 30, 2006 10-Q).                                                                                                                                                                                                                                                                                                                                                                                                                                  |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
| 10.29  |   | Amendment  No. 2 to Fourth Amended and Restated Receivables Sale Agreement (dated  as of June 28, 2007), (incorporated by reference to Exhibit 10.90  to the September 30, 2006 10-Q).                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
| 10.30  |   | Third  Amendment, dated as of August 31, 2007 to Fourth Amended and Restated  Receivables Sale Agreement Dated as of September 28, 2006, (incorporated  by reference to Exhibit 10.91 to the September 30, 2006 10-Q).                                                                                                                                                                                                                                                                                                                                                                                                                               |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
| 10.31+ |   | Employment  Agreement dated as of December 8, 2008, by and between the Registrant  and Craig A. Rogerson (incorporated by reference to Exhibit 10.86 to the  Registrant’s December 9, 2008 Form 8-K (“December 9, 2008  8-K”)).                                                                                                                                                                                                                                                                                                                                                                                                  |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
| 10.32+ |   | Separation  Agreement and General Release, dated as of December 8, 2008, by and  between Mr. Robert L. Wood and the Registrant (incorporated by reference  to Exhibit 99.1 to the Registrant’s December 16, 2008 Form 8-K  (“December 16, 2008 8-K”)).                                                                                                                                                                                                                                                                                                                                                                      |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
| 10.33+ |   | Separation  Agreement and General Release dated January 19, 2009, by and between  Lynn A. Schefsky and the Registrant (incorporated by reference to  Exhibit 99.1 to the Registrant’s February 5, 2009 Form 8-K  (“February 5, 2009 8-K”)).                                                                                                                                                                                                                                                                                                                                                                                      |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
| 10.34  |   | Sixth  Amendment and Waiver Agreement, dated as of December 30, 2008, to the  Fourth Amended and Restated Receivables Sale Agreement dated as of  September 28, 2006, by and among Crompton & Knowles Receivables  Corporation, as seller (“Seller”), Chemtura Corporation, as the initial  collection agent, The Royal Bank of Scotland plc (as successor to ABN AMRO  Bank N.V.), as agent, and various other banks and liquidity providers  (incorporated by reference to Exhibit 10.1 to the Registrant’s  December 30, 2008 Form 8-K/A filed on January 2, 2009  (“December 30, 2008 8-K/A”)). |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
| 10.35  |   | Form of  Amended and Restated Supplemental Savings Plan, effective January 1,  2009, by and between the Registrant and various eligible employees  (incorporated by reference to Exhibit 10.1 to the January 2, 2009  8-K)).                                                                                                                                                                                                                                                                                                                                                                                                                         |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
| 10.36  |   | Form of  Receivables Purchase Agreement, dated as of January 23, 2009, by and among  Registrant, as Seller, Registrant as the Servicer, Citicorp USA, Inc.,  as Agent, Citigroup Global Markets Inc., as Arranger and The Royal Bank of  Scotland Plc, as Syndication Agent (incorporated by reference to  Exhibit 10.92 to the Registrant’s January 27, 2009 Form 8-K  (“January 27, 2009 8-K”)).                                                                                                                                                                                                                     |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
| 10.37  |   | Form of  Receivables Sale Agreement, dated as of January 23, 2009, by and among  Registrant, Great Lakes Chemical Corporation, GLCC Laurel, LLC, and  BioLab, Inc. as Sellers, Chemtura Receivables LLC, as Buyer, Registrant  as Buyer’s Servicer, and Citicorp USA, Inc., as Agent, (incorporated by  reference to Exhibit 10.93 to the Registrant’s January 27, 2009  Form 8-K (“January 27, 2009 8-K”)).                                                                                                                                                                                                 |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
| 10.38  |   | Addendum,  dated as of February 13, 2009, to Separation Agreement and General  Release, dated as of December 8, 2008, by and between Mr. Robert L.  Wood and the Registrant (Separation Agreement and General Release  incorporated by reference to Exhibit 99.1 to the Registrant’s  December 16, 2008 Form 8-K (“December 16, 2008 8-K”)).                                                                                                                                                                                                                                                                           |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
| 10.39  |   | Amended  and Restated Pledge Agreement from the pledgors referred to therein to  Citibank, N.A., as agent, dated as of July 31, 2007 (incorporated by  reference to Exhibit 10.2 to the Registrant’s Form 8-K dated  August 6, 2007 (“August 6, 2007 8-K”)).                                                                                                                                                                                                                                                                                                                                                                     |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
| 10.40  |   | Amendment  No. 1, dated as of September 30, 2007, to the Amended and Restated  Credit Agreement dated as of July 31, 2007, with its lenders  (incorporated by reference to Exhibit 10.1 to the Registrant’s  Form 8-K dated November 5, 2007 (“November 5, 2007 8-K”)).                                                                                                                                                                                                                                                                                                                                                |

 

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| 10.41  |   | Waiver  and Amendment No. 2, dated as of December 30, 2008, to the Amended  and Restated Credit Agreement dated July 31, 2007 (the “2007 Credit  Agreement”) with Citibank, N.A., as agent, and the other lenders and agents  party thereto )incorporated by reference to Exhibit 10.2 to the  Registrant’s December 30, 2008 Form 8-K/A filed on January 2,  2009 (“December 30, 2008 8-K/A”), previously filed with the referenced  report on Form 8-K filed by Registrant on December 31, 2008. |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| 10.42  |   | Second  Amended and Restated Pledge and Security Agreement, dated as of  December 30, 2008, among Chemtura Corporation, certain domestic  subsidiaries of Chemtura Corporation, and Citibank, N.A., as agent  (incorporated by reference to Exhibit 10.3 to the December 30, 2008  8-K/A).                                                                                                                                                                                                                                                                     |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| 10.43+ |   | Chemtura  Corporation Supplemental Savings Plan (incorporated by reference to  Exhibit 10.1 to the Registrant’s January 2, 2009 Form 8-K).                                                                                                                                                                                                                                                                                                                                                                                                                |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| 10.44  |   | Receivables  Purchase Agreement dated as of January 23, 2009 (incorporated by  reference to Exhibit 10.92 to the Registrant’s January 26, 2009  Form 8-K (“January 26, 2009 8-K”)).                                                                                                                                                                                                                                                                                                                                                   |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| 10.45  |   | Receivables  Sales Agreement dated as of January 23, 2009 (incorporated by reference  to Exhibit 10.93 to the January 26, 2009 8-K).                                                                                                                                                                                                                                                                                                                                                                                                                           |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| 10.46  |   | Separation  Agreement and General Release, dated as of January 19, 2009, between Chemtura  Corporation and Lynn A. Schefsky (incorporated by reference to  Exhibit 99.1 to the Registrant’s February 5, 2009 Form 8-K).                                                                                                                                                                                                                                                                                                                              |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| 10.47+ |   | 2009  Chemtura Corporation Management Incentive Program (incorporated by reference  to Exhibit 10.1 to the Registrant’s March 10, 2009 Form 8-K).                                                                                                                                                                                                                                                                                                                                                                                                         |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| 10.48+ |   | Chemtura  Corporation Executive and Key Employee Severance Plan (incorporated by  reference to Exhibit 10.1 to the Registrant’s March 13, 2009  Form 8-K).                                                                                                                                                                                                                                                                                                                                                                                                |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| 10.49  |   | Senior  Secured Superpriority Debtor-in-Possession Credit Agreement, dated as of  March 18, 2009 (incorporated by reference to Exhibit 10.1 to the  Registrant’s Form 10-Q for the period ended March 31, 2009  (“March 31, 2009 10-Q”).                                                                                                                                                                                                                                                                                              |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| 10.50  |   | Amendment  No. 1, dated as of April 29, 2009, to the Senior Secured  Superpriority Debtor-in-Possession Credit Agreement, dated as of  March 18, 2009 (incorporated by reference to Exhibit 10.2 to the  March 31, 2009 10-Q”)).                                                                                                                                                                                                                                                                                                                |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| 10.51  |   | Letter  Agreement, dated March 18, 2009, between the Company and  Alvarez & Marsal North America, LLC (incorporated by reference to  Exhibit 10.3 to the March 31, 2009 10-Q).                                                                                                                                                                                                                                                                                                                                                                        |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| 10.52  |   | Separation  Agreement and General Release, dated as of July 1, 2009, between  Chemtura Corporation and Robert Wedinger (incorporated by reference to  Exhibit 99.1 to the Registrant’s July 9, 2009 Form 8-K).                                                                                                                                                                                                                                                                                                                                       |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| 10.53  |   | Amendment  No. 2, dated as of July 13, 2009, to the Senior Secured  Superpriority Debtor-in-Possession Credit Agreement, dated as of  March 18, 2009 (incorporated by reference to Exhibit 10.1 to the  Registrant’s July 16, 2009 Form 8-K).                                                                                                                                                                                                                                                                                              |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| 10.54  |   | 2009  Chemtura Corporation Management Incentive Program (incorporated by reference  to Exhibit 10.1 to the Registrant’s Form 10-Q for the period ended  June 30, 2009).                                                                                                                                                                                                                                                                                                                                                                                   |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| 10.55  |   | Share  and Asset Purchase Agreement, dated December 23, 2009, among Chemtura  Corporation, SK Atlas, LLC and SK Capital Partners II, LP (incorporated by  reference to Exhibit 2.1 to the Registrant’s December 23, 2009  Form 8-K).                                                                                                                                                                                                                                                                                                                 |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| 10.56  |   | Senior  Secured Superpriority Debtor-in-Possession Credit Agreement, dated as of  March 18, 2009, including Schedules and Exhibits (incorporated by  reference to Exhibit 10.1 to the Registrant’s Form 10-Q for the  period ended September 30, 2009).                                                                                                                                                                                                                                                                                              |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| 10.57  |   | Amendment  No. 3, dated as of January 15, 2010, to the Senior Secured  Superpriority Debtor-in Possession Credit Agreement, dated as of  March 18, 2009.*                                                                                                                                                                                                                                                                                                                                                                                                      |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| 10.58  |   | Share  and Asset Purchase Agreement between Chemtura Corporation and SK Atlas, LLC  and SK Capital Partners II, LLP, dated December 15, 2010.*                                                                                                                                                                                                                                                                                                                                                                                                                           |

 

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| 10.59  |   | Amended  and Restated Senior Secured Superpriority Debtor-in-Possession Credit  Agreement, dated February 4, 2010.*                                                                                                                                                                                                                             |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                                                                                                                 |
| 10.60  |   | Share  and Asset Purchase Agreement by and among Artek Aterian Holding Company, LLC,  Aterian Investment Partners Distressed Opportunities, LP, Artek Surfin  Chemicals Ltd. and Chemtura Corporation, dated February 23, 2010  (incorporated by reference to Exhibit 2.1 to the Registrant’s  February 24, 2010 Form 8-K). |
|   |   |                                                                                                                                                                                                                                                                                                                                                 |
| 18     |   | Independent  Registered Public Accounting Firm’s Preferability Letter concerning the  change in the measurement date for the Company’s defined benefit and other  post-retirement benefit plans from December 31 to November 30  (incorporated by reference to Exhibit 18 to the Registrant’s 2005  Form 10-K).   |
|   |   |                                                                                                                                                                                                                                                                                                                                                 |
| 21     |   | Subsidiaries  of the Registrant.*                                                                                                                                                                                                                                                                                                                    |
|   |   |                                                                                                                                                                                                                                                                                                                                                 |
| 23     |   | Consent  of Independent Registered Public Accounting Firm. *                                                                                                                                                                                                                                                                                         |
|   |   |                                                                                                                                                                                                                                                                                                                                                 |
| 24     |   | Form of  Power of Attorney from directors and executive officers of the Registrant  authorizing signature of this report.* (Original on file at principal  executive offices of Registrant).                                                                                                                                                    |
|   |   |                                                                                                                                                                                                                                                                                                                                                 |
| 31.1   |   | Certification  of Periodic Financial Reports by the Registrant’s Chief Executive Officer  (Section 302).*                                                                                                                                                                                                                                  |
|   |   |                                                                                                                                                                                                                                                                                                                                                 |
| 31.2   |   | Certification  of Periodic Financial Reports by the Registrant’s Chief Financial Officer  (Section 302).*                                                                                                                                                                                                                                  |
|   |   |                                                                                                                                                                                                                                                                                                                                                 |
| 32.1   |   | Certification  of Periodic Financial Reports by the Registrant’s Chief Executive Officer (Section 906).*                                                                                                                                                                                                                                   |
|   |   |                                                                                                                                                                                                                                                                                                                                                 |
| 32.2   |   | Certification  of Periodic Financial Reports by the Registrant’s Chief Financial Officer  (Section 906).*                                                                                                                                                                                                                                  |

 

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*   Copies of these Exhibits are filedwith this Annual Report on Form 10-K.

 

+  This Exhibit is a compensatoryplan, contract or arrangement in which one or more directors or executiveofficers of the Registrant participate.

 

PLEASE NOTE: Readers should not rely upon any covenants, representations, orwarranties that may be contained in agreements or other documents filed asExhibits to, or incorporated by reference in, this Annual Report on Form 10-K.  Any such covenants, representations, orwarranties may have been qualified or superseded in separate schedules orexhibits not filed with or incorporated by reference herein, may reflect theparties’ negotiated risk allocation in the particular transaction, may bequalified by materiality standards that differ from those applicable forsecurities law purposes, and may not be true as of the date of this AnnualReport on Form 10-K or any other date and may be subject to waivers by anyor all of the parties.  Where exhibitsand schedules to agreements filed or incorporated by reference as Exhibitshereto are not included in these exhibits, such exhibits and schedules toagreements are not included or incorporated by reference herein.

 

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**SIGNATURES**

 

Pursuant to the requirementsof Section 13 or 15(d) of the Securities Exchange Act of 1934, theRegistrant has duly caused this report to be signed on its behalf by theundersigned, thereunto duly authorized.

 

 
|                      |   | CHEMTURA CORPORATION                                  |
|---------------------------|--------|-------------------------------------------------------|
|                      |   | (Registrant)                                          |
|                      |   |                                                  |
| Date: March 12, 2010 |   | By:                                                   | /s/ Stephen C. Forsyth |
|                      |   | Stephen C. Forsyth                                    |
|                      |   | Executive Vice President  and Chief Financial Officer |

 

 

Pursuant to the requirementsof the Securities Exchange Act of 1934, this report has been signed below bythe following persons on behalf of the Registrant and in the capacities and onthe date indicated.

 
| **Name**             | ** ** | **Title**                                                                                             |
|----------------------|------------|-------------------------------------------------------------------------------------------------------|
| Craig A. Rogerson *  |       | Chairman of the Board,  President, Chief Executive Officer and Director (Principal Executive Officer) |
|                 |       |                                                                                                  |
| Stephen C. Forsyth   |       | Executive Vice President  and Chief Financial Officer (Principal Financial Officer)                   |
|                 |       |                                                                                                  |
| Kevin V. Mahoney     |       | Senior Vice President and  Corporate Controller (Principal Accounting Officer)                        |
|                 |       |                                                                                                  |
| Nigel D. T. Andrews* |       | Director                                                                                              |
|                 |       |                                                                                                  |
| James W. Crownover*  |       | Director                                                                                              |
|                 |       |                                                                                                  |
| Martin M. Hale*      |       | Director                                                                                              |
|                 |       |                                                                                                  |
| Roger L. Headrick*   |       | Lead Director                                                                                         |
|                 |       |                                                                                                  |
| Burton M. Joyce*     |       | Director                                                                                              |
|                 |       |                                                                                                  |
| Bruce F. Wesson*     |       | Director                                                                                              |
|                 |       |                                                                                                  |
| John K. Wulff*       |       | Director                                                                                              |

 

 
| Date:  March 12,  2010 | *By:                | /s/ Stephen C. Forsyth |
|---------------------------------------|---------------------|------------------------|
|                                  | Stephen C. Forsyth  |
|                                  | as attorney-in-fact |

 

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**Schedule II**

 

**Valuation and Qualifying Accounts**

(In millions of dollars)

 
| ** **                      | ** ** | ** **      | ** ** | **Additions**   | ** ** | ** **     | ** ** | ** ** | ** ** | ** **  | ** ** |
|---------------------------------|------------|-----------------|------------|-----------------|------------|----------------|------------|------------|------------|-------------|------------|
| ** **                      | ** ** | **Balance  at** | ** ** | **charged  to** | ** ** | ** **     | ** ** | ** ** | ** ** | **Balance** | ** ** |
| ** **                      | ** ** | **beginning**   | ** ** | **costs  and**  | ** ** | ** **     | ** ** | ** ** | ** ** | **at end**  | ** ** |
| ** **                      | ** ** | **of year**     | ** ** | **expenses**    | ** ** | **Deductions** | ** ** | **Other**  | ** ** | **of year** | ** ** |
| 2009:                           | * *   | * *        |       |            | * *   | * *       |       |       |       |        |       |
| Allowance for doubtful accounts |       | $               | 26         | * *        | 5          |           | (2         | )(a)       | 3          | (c)         | 32         |   |
| Reserve for customer rebates    | * *   | 21              |       | 27              | * *   | (31            | )(b)       | 2          | (c)        | 19          |       |
|                            | * *   | * *        |       |            | * *   | * *       |       |       |       |        |       |
| 2008:                           | * *   | * *        |       |            | * *   | * *       |       |       |       |        |       |
| Allowance for doubtful accounts |       | $               | 32         | * *        | 3          |           | (4         | )(a)       | (5         | )(c)        | 26         |   |
| Reserve for customer rebates    | * *   | 27              |       | 30              | * *   | (36            | )(b)       | —     |       | 21          |       |
|                            | * *   | * *        |       |            | * *   | * *       |       |       |       |        |       |
| 2007:                           |       |            |       |            | * *   | * *       |       |       |       |        |       |
| Allowance for doubtful accounts |       | $               | 32         | * *        | 4          |           | (7         | )(a)       | 3          | (c)         | 32         |   |
| Reserve for customer rebates    |       | 29              |       | 45              | * *   | (48            | )(b)       | 1          | (c)        | 27          |       |
|                            |       |            |       |            |       |           |       |       |       |        |       |

 

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(a)   Representsprimarily accounts written off as uncollectible (net of recoveries).

(b)   Representsprimarily payment to the customers.

(c)   Representsprimarily the translation effect of balances denominated in foreign currencies.

 

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