**U.S. SECURITIES AND EXCHANGE COMMISSION**

**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, 2007**                                                                                  |
| **OR**     |
| ** ** | ** ** | ** **                                                                                                                            |
| **o**      | ** ** | **TRANSITION  REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE  ACT OF 1934**                         |
| ** ** | ** ** | **For the transition period  from         to       ** |

 

**CommissionFile 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) |
|                                                            | ** ** | ** **                               |
| **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: |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------|

 

| ** **                         | ** ** | **Name of each exchange**    |
|------------------------------------|------------|------------------------------|
| **Title of each class**            | ** ** | **on which registered**      |
|                               |       |                         |
| **Common  Stock, $0.01 par value** | ** ** | **New  York Stock Exchange** |

 

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

 

| Indicate by check mark  whether the registrant is a well-known seasoned issuer, as defined in  Rule 405 of the Securities Act Yes x   No o            |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                                                                                                                                                                     |
| Indicate by check mark  if the registrant is not required to file reports pursuant to Section 13  or Section 15(d) of the Act. Yes o   No x |

 

  Indicate by check mark whether the registrant (1) has filed allreports required to be filed by Section 13 or 15(d) of the SecuritiesExchange Act of 1934 during the preceding 12 months (or for such shorter periodthat the registrant was required to file such reports), and (2) has beensubject to such filing requirements for the past 90 days.     Yes x   No o

 

   Indicateby check mark if disclosure of delinquent filers pursuant to Item 405 ofRegulation S-K is not contained herein, and will not be contained, to the bestof registrant’s knowledge, in definitive proxy or information statementsincorporated by reference in Part III of this Form 10-K or anyamendment to this Form 10-K.  o

 

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

 

   Large accelerated filer   x   Accelerated filer  o  Non-acceleratedfiler  o  Smallerreporting company  o

                                                                                (Donot check if a smaller                                                                                   reportingcompany)

 

   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 voting andnon-voting common equity held by non-affiliates of the registrant, computed asof June 29, 2007 was $2,676,529,352.

    The number of voting shares of CommonStock of the registrant outstanding as of February 1, 2008 was242,130,355.

 

**DOCUMENTS INCORPORATED BYREFERENCE**

****Proxy Statementfor Annual Meeting of Stockholders on May 14, 2008                      Part III

 

 

 

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| **PART I**   | ** ** | ** **                                                                                                          | ** ** | **Page**   |
|-------------------|------------|---------------------------------------------------------------------------------------------------------------------|------------|------------|
| Item 1.           |       | Business                                                                                                            |       | 2          |
|              |       |                                                                                                                |       |       |
| Item 1A.          |       | Risk  Factors                                                                                                       |       | 10         |
|              |       |                                                                                                                |       |       |
| Item 1B.          |       | Unresolved  Staff Comments                                                                                          |       | 16         |
|              |       |                                                                                                                |       |       |
| Item 2.           |       | Properties                                                                                                          |       | 16         |
|              |       |                                                                                                                |       |       |
| Item 3.           |       | Legal  Proceedings                                                                                                  |       | 18         |
|              |       |                                                                                                                |       |       |
| Item 4.           |       | Submission  of Matters to Vote of Security Holders                                                             |       | 25         |
|              |       | Executive  Officers of the Registrant                                                                               |       |       |
|              |       |                                                                                                                |       |       |
| **PART II**  | ** ** | ** **                                                                                                          | ** ** | ** ** |
| Item 5.           |       | Market for  Registrant’s Common Equity, Related Stockholder  Matters and Issuer Purchases of Equity Securities |       | 26         |
|              |       |                                                                                                                |       |       |
| Item 6.           |       | Selected Financial  Data                                                                                            |       | 27         |
|              |       |                                                                                                                |       |       |
| Item 7.           |       | Management’s  Discussion and Analysis of Financial  Condition and Results of Operations                        |       | 29         |
|              |       |                                                                                                                |       |       |
| Item 7A.          |       | Quantitative  and Qualitative Disclosures about Market Risk                                                    |       | 52         |
|              |       |                                                                                                                |       |       |
| Item 8.           |       | Financial  Statements and Supplementary Data                                                                        |       | 54         |
|              |       |                                                                                                                |       |       |
| Item 9.           |       | Changes in and Disagreements with Accountants on  Accounting and Financial Disclosure                               |       | 115        |
|              |       |                                                                                                                |       |       |
| Item 9A.          |       | Controls and  Procedures                                                                                            |       | 115        |
|              |       |                                                                                                                |       |       |
| Item 9B.          |       | Other Information                                                                                                   |       | 115        |
|              |       |                                                                                                                |       |       |
| **PART III** | ** ** | ** **                                                                                                          | ** ** | ** ** |
| Item 10.          |       | Directors,  Executive Officers of the Registrant and Corporate  Governance                                          |       | 116        |
|              |       |                                                                                                                |       |       |
| Item 11.          |       | Executive  Compensation                                                                                             |       | 116        |
|              |       |                                                                                                                |       |       |
| Item 12.          |       | Security  Ownership of Certain Beneficial Owners and  Management and Related Stockholder Matters               |       | 117        |
|              |       |                                                                                                                |       |       |
| Item 13.          |       | Certain  Relationships and Related Transactions, and Director  Independence                                         |       | 117        |
|              |       |                                                                                                                |       |       |
| Item 14.          |       | Principal  Accountant Fees and Services                                                                             |       | 117        |
|              |       |                                                                                                                |       |       |
| **PART IV**  | ** ** | ** **                                                                                                          | ** ** | ** ** |
| Item  15.         |       | Exhibits  and Financial Statement Schedules                                                                         |       | 118        |
|              |       |                                                                                                                |       |       |
|              |       | Signatures                                                                                                          |       | 129        |

** **

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** **

**PART I.**

** **

**ITEM1.  BUSINESS**

** **

**Overview**

** **

Chemtura Corporation, together with itsconsolidated subsidiaries, is among the largest publicly-traded specialtychemical companies in the United States.

 

Our headquarters are located inMiddlebury, Connecticut.  We also haveoffices in other locations in North America, as well as throughout the world.

 

Certain disclosures included in thisAnnual Report on Form 10-K constitute forward-looking statements that aresubject to risk and uncertainty.  See “Item7. Management’s Discussion and Analysis of Financial Condition and Results ofOperations - Forward-Looking Statements.”

** **

When we use the terms the “Corporation,” “Company,”“Registrant,” “we,” “us” and “our,” unless otherwise indicated or the contextotherwise requires, we are referring to Chemtura Corporation and itsconsolidated subsidiaries (“Chemtura”).

** **

**(a) GeneralDevelopment of Business**

** **

Chemtura is the successorto Crompton & Knowles Corporation, which was incorporated inMassachusetts in 1900, and engaged in the manufacture and sale of specialtychemicals beginning in 1954.  We expandedour specialty chemical business through acquisitions in the United States andEurope, including the 1996 acquisition of Uniroyal Chemical Company, Inc.(“Uniroyal”), the 1999 merger with Witco Corporation (“Witco”) and the 2005merger with Great Lakes Chemical Corporation (“Great Lakes”).

 

Today,we are a global diversified producer of specialty chemicals and polymerproducts and are a leading U.S. supplier of home pool and spa chemicals. Ourproducts are used in a wide variety of end-use markets, including automotive,transportation, construction, packaging, agriculture, lubricants, plastics fordurable and non-durable goods, electronics and the home pool and spa chemicalmarkets. Most of our chemical products are sold to industrial manufacturingcustomers for use as additives, ingredients, or intermediates that add value totheir end products.  Our pool and spachemicals are sold to dealers, distributors and major retailers.  We are a market leader in many of our keyproduct lines.  We manufacture and sellmore than 3,500 products and formulations in more than 100 countries. Of our$3.7 billion net sales in 2007, approximately 53% were to customers in theUnited States and Canada, 29% to Europe and Africa, 14% to Asia/Pacific, and 4%to Latin America.

 

Divestitures andAcquisitions

On March 12, 2008, theCompany purchased the remaining 50% outstanding shares of GLCC Laurel, LLC.

 

On February 29, 2008, theCompany completed the sale of its oleochemicals business.  The oleochemicals business had revenue ofapproximately $175 million in 2007.

 

On February 29, 2008, theCompany purchased the remaining 46.5% outstanding shares of Baxenden ChemicalsLimited.

 

On January 31, 2008,the Company completed the sale of its fluorine chemical business located at theCompany’s El Dorado, Arkansas facility. The fluorine chemical business had revenue of approximately $49 millionin 2007.  The Company has presented theresults of the fluorine chemical business as a discontinued operation in theaccompanying financial statements included in Part II Item 8 of this Form 10-K.

 

On October 31, 2007,the Company completed the sale of its optical monomers business, which includesthe Company’s Ravenna, Italy manufacturing facility, for cash proceeds of $24million resulting in a net loss of $1

 

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million.  As a result, the Company has presented theresults of the optical monomers business as a discontinued operation in theaccompanying financial statements included in Part II Item 8 of this Form 10-K.

 

On July 31, 2007,the Company completed the sale of its organic peroxides business located at itsMarshall, Texas facility.  This sale transactiondid not have a material impact on the Company’s earnings, financial position orcash flows.

 

On June 29, 2007,the Company completed the sale of its EPDM business, the Celogen® foamingagents product line related to rubber chemicals, and its Geismar, Louisianafacilities for cash proceeds at closing and promissory notes since collectedtotaling $153 million. The Company reported a net of tax gain of$8 million ($23 million related to the sale of the EPDM business indiscontinued operations and a loss of $15 million related to the sale offoaming agents in continuing operations).

 

On January 31, 2007,the Company completed the acquisition of the stock of Kaufman HoldingsCorporation (“Kaufman”) in an all-cash transaction.  The net cash paid for this transaction onclosing was $165 million. The Kaufman acquisition compliments the Company’sexisting Performance Specialties segment in offering related products in keycustomer areas, providing the opportunity to strengthen alliances with majorsuppliers, and offering potential distribution synergies.

 

Strategic Initiatives

The Company’s strategy isto focus on its core businesses, rationalizing its manufacturing footprint andcost structure while developing products and applications that generateprofitable organic revenue growth.  Toimplement this strategy, the Company is rationalizing its business portfolio bydivesting non-core and underperforming businesses and assets and hasimplemented a number of restructuring programs to reduce manufacturing andfunctional costs.  The Company continuesto focus its resources on generating growth from new product and applicationdevelopment and geographic expansion.  Wemay supplement these organic growth initiatives by acquiring businesses andassets that will facilitate growth.  TheCompany announced three strategic cost saving restructuring initiatives in thesecond quarter of 2007 and launched an initiative in the fourth quarter of 2007to consolidate its multiple ERP systems onto a single SAP platform.

 

On December 10,2007, the Company announced the formation of the Office of the Chairman,designed to increase organizational focus, speed decision making and improveexecution.

 

On December 18,2007, the Company announced that its Board of Directors has authorizedmanagement to consider a wide range of strategic alternatives available to theCompany to enhance shareholder value.

 

**(b) FinancialInformation 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 three fiscalyears is set forth in Note 23 – Business Segment Data in the Notes toConsolidated Financial Statements.

** **

Our businesses aregrouped into five reporting segments: Polymer Additives (antioxidants,brominated performance products, flame retardant polymer additives, fumigants, polymeradditives & initiators, PVC additives and surfactants), PerformanceSpecialties (petroleum additives and urethanes), Consumer Products, CropProtection, and Other (principally industrial water additives and rubberchemicals).  Details on the various typesof products and services provided by each segment are summarized in theNarrative Description of the Business section below.

** **

**(c) NarrativeDescription of Business**

** **

**Products and Services**

 

We manufacture and marketa wide variety of polymer and specialty chemical products.  The majority of our products are sold toindustrial customers for use as additives, ingredients or intermediates thatimpart particular characteristics to the customers’ end products.  Our consumer products are sold to dealers,distributors and major national retailers. We manufacture and sell more than 3,500 products and formulations inmore than 100 countries.  The end-usemarkets we serve include agriculture,automotive, construction, electronics, packaging, industrial lubricants,and pool and spa chemical.

 

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The principal productsand services offered are described below.

 

**PolymerAdditives**

 

We are a global leader insupplying a broad line of additives to the plastics, agricultural, finechemical and oilfield industries. Polymer additives are chemical additives designed to improve theperformance of polymers in their end-use applications.  The Polymer Additives segment manufacturesand sells products that serve a broad range of industries.  Polymer Additives products includeantioxidants, brominated performance products, flame retardants, fumigants,polymerization additives and initiators, PVC additives and surfactants.  The products are sold across the entire valuechain ranging from direct sales to monomer producers, polymer manufacturers, compoundersand fabricators to industry distributors.

 

ThePolymer Additives segment had net sales of $1.8 billion for 2007, $1.7 billionfor 2006 and $1.2 billion for 2005.  Thissegment represents 48%, 50% and 46% of the Company’s total net sales in 2007,2006, and 2005, respectively.  The majorproduct offerings of this segment are:

 

Antioxidants

Ourantioxidant business consists of a wide range of additives that inhibit thedegradation of polymers caused by oxidation and light.  Incorporating such additives into resinsystems improves the durability and longevity of plastics used in foodpackaging, consumer durables, automotive components and electricalcomponents.  We are proficient inblending a variety of these materials into specialized formulations uniquelytailored to customer specific end-use requirements.

 

BrominatedPerformance Products

Weare back integrated to a primary source of bromine and have a well developedbusiness in supplying other types of brominated performance products to avariety of industries including agricultural, fine chemicals, pharmaceutical,electronics and oil well drilling. Bromine is also a key raw material for certain of our flame retardantproducts.  On December 18, 2006, theCompany entered into several long-term supply and purchase agreements withTETRA Technologies, Inc., primarily to sell bromine to TETRA on anexclusive basis over a 23 year period and to purchase sodium chloride over aperiod of 20 years.

 

FlameRetardant Polymer Additives

Ourflame retardant business holds a leading global position with a comprehensiveoffering of bromine, phosphorus and antimony-based flame retardants.  With increasing regulatory and fire safety performancedemands, the use of these products continues to grow in electrical components,construction materials, automotive and furniture/furnishing applications.

 

Fumigants

Part ofour expertise in bromine-based material is the production and distribution ofmethyl bromide, a fumigant used to improve crop yields, and protect grain instorage from pest infestation.  Suchmaterials are regularly used to treat food processing plants, breweries,warehouses and grain elevators, as well as rail cars, truck trailers andintermodal containers.  While the use ofmethyl bromide has been restricted by regulations, it continues to play animportant role in protecting the food chain. Where safe and effective alternatives are not available, our productscontinue to be employed at cargo ports where agricultural commodities need tobe treated quickly and comprehensively to prevent transmission of infestationacross international borders and as a pre-plant treatment to control weeds,diseases, insects and nematodes in high value food crops leading to increasedyields and higher fresh produce quality.

 

PolymerizationAdditives & Initiators

Catalystsand inhibitors are chemicals used to initiate and terminate the polymerizationreactions that transform monomers into polymers.  Polymer modifiers are materials incorporatedinto resins to improve tensile strength and impact resistance or to modulatedensity and impart elasticity.

 

PVCAdditives

Ourpolyvinyl chloride (“PVC”) additives consist primarily of heat stabilizers thatare 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

 

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wireand cable coatings.  As the trend toreduce the use of traditional heavy metal stabilizers (lead and cadmium)continues, Chemtura is well positioned with a family of commercially proven,greener organic based heat stabilizers.

 

Surfactants

Surfactantshelp to homogenize multi-component resin systems and to facilitate lubricity inthe processing and fabrication of such resins. 

 

OnFebruary 29, 2008, the Company completed the sale of its oleochemicalsbusiness.  The oleochemical business hadrevenues of approximately $175 million in 2007.

 

**Performance Specialties**

 

Performance Specialtiesare engineered chemical solutions. Performance Specialties include petroleum additives that providedetergency, friction modification and corrosion protection in motor oils,greases, refrigeration and turbine lubricants; castable urethane prepolymersengineered to provide superior abrasion resistance and durability in manyindustrial and recreational applications; and polyurethane dispersions used invarious types of coatings such as clear floor finishes, high-gloss paints andtextiles treatments.  These products aresold directly to manufacturers and through distribution channels.

 

On January 31, 2007,the Company completed the acquisition of the stock of Kaufman, whichcompliments the Company’s existing Performance Specialties segment offeringrelated products in key customer areas, providing the opportunity to strengthenalliances with major suppliers, and offering potential distribution synergies.

 

The PerformanceSpecialties reporting segment had net sales of $911 million for 2007, $670million for 2006 and $619 million for 2005 which represents 24%, 19%, and 23%of the Company’s total net sales, respectively. This segment is further defined as petroleum additives and urethanes.

 

PetroleumAdditives

Weare a global manufacturer and marketer of high-performance additive componentsused in transport and industrial lubricant applications. We are the globalleader for alkylated diphenylamines antioxidants (“ADPAs”), which are marketedas Naugalubes® and used predominately in motor oils.  These additives play a critical role inmeeting rising regulatory standards for engine performance.  The component product line also includesoverbased and neutral calcium sulfonates used in motor oils and marinelubricants. These sulfonates, marketed as Hybase® and Lobase®, are oil-soluble surfactants whose properties include detergency andcorrosion protection to help lubricants keep car, truck, and ship engines cleanwith minimal wear.  Additionally, wemanufacture barium and sodium sulfonates, which provide corrosion protectionand emulsification in metalworking fluids and antioxidants.  These chemicals are widely used by ourcustomers in engine oils, gear oils, industrial oils and greases.

 

Weprovide a variety of other highly specialized, high value products.  Foremost, our high-viscosity polyalphaolefins(“PAOs”), marketed as Synton®, and our broad portfolio of esters marketedas Hatcol®, are used in theproduction of synthetic lubricants for automotive, refrigeration, aviation, andindustrial applications.  We are also theworld’s leader in high performing calcium sulfonate specialty greases andphosphate ester based fluids and additives for power generation fluids andanti-wear.

 

Weare also a specialty supplier of high performance finished lubricants servingthe aviation and industrial market segments. Our product line has extensive original equipment manufacturer (“OEM”)approvals, and is marketed under our Anderol® and Royco® brands, as well as forprivate label customers.

 

Urethanes

Weare a leading supplier of high-performance castable urethane polymers, withmore than 200 variations in our product offering. Our urethanes offer highabrasion resistance and durability in industrial and performance-specificapplications. These characteristics allow us to market our urethanes to nichemanufacturers where such qualities are imperative, including for industrial andprinting rolls, mining machinery and equipment, mechanical goods, solidindustrial tires and wheels, and sporting and recreational goods, includinggolf ball covers and skate wheels.

 

Adiprene®/Vibrathane®urethane prepolymers are sold directly by a dedicated sales force in the UnitedStates, Canada and Australia and through direct sales distributorships inEurope, Latin America and the Far East. Customers are serviced worldwide by a dedicated technical staff whosesupport is a critical component of the product offering.  We believe the relatively low capital requirements of this business provide us with theability to

 

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operatevery cost effectively. Our development capabilities allow us to differentiateourselves in these markets by tailoring our products to the specialized needsof each customer application, which sets us apart from our competitors.

 

Oururethane additives business provides key products to global polyurethaneprocessors. The urethane additives business is comprised of two product lines: Fomrez® saturated polyester polyols and Witcobond® polyurethane dispersions. Polyester polyols are employed in industrial applications such asflexible foam for seating. Our polyurethane dispersions are sold to a largerand more diverse customer base primarily for coating applications such asflooring, fiberglass sizing, and textiles. The major markets served by oururethane additives business are automotive, construction, leather/textilefinishing, and furniture. Sub-markets include coatings, adhesives, sealants,elastomers and insulation.

 

Baxenden ChemicalsLimited, our 53.5% owned consolidated subsidiary, is engaged in the manufactureand marketing of isocyanate derivatives, polyester polyols and specialty polymersystems used in a wide range of applications. The major markets served by Baxenden are transportation, construction,surface coatings, leather and textile finishing.  Baxenden is focused on specialty polymer andresin chemistry and novel curing mechanisms for such polymers.  The core technology is urethane and acrylicchemistry and also includes novel polyesters and esterification processes.  On February 29, 2008, the Company purchasedthe remaining 46.5% of Baxenden Chemicals Limited.

 

**ConsumerProducts**

 

Consumer Products areperformance chemicals that are sold to consumers for in-home and outdooruse.  Consumer Products includerecreational water purification products sold under a variety of branded labelsthrough local dealers and large retailers to assist consumers in themaintenance of their pools and spas, and branded cleaners and degreasers soldprimarily through mass merchants to consumers for home cleaning.

 

Our pool and spa productline produces and distributes sanitizers, algicides, biocides, oxidizers, pHbalancers, mineral balancers and other specialty chemicals andaccessories.  Our primary channels ofdistribution are pool and spa dealers, wholesale distributors, and mass-marketretailers throughout North America, Europe, Australia and South Africa.  We believe that we hold the leading positionin the North American pool and spa chemical business and we plan to strengthenour position by expanding our dealer channels and our presence with leading massmarket retailers.  Brands include BioGuard®,Aquachem®, Pooltime®, Omni®, Sun®, Hydrotech®, Guardex®, Bayrol®, Poolbrite®,Miami®, and Crystal®.

 

The Consumer Productsbusiness also operates in the specialty and multi-purpose cleaners businesswith “The Works” brand of non-abrasive bathroom cleaners, glass and surfacecleaners, toilet bowl cleaners, drain openers and rust and calcium removers, aswell as the “Greased Lightning” family of multipurpose cleaners.  Our primary channels of distribution are tomajor national retailers in the do-it-yourself, hardware, mass market, club,and discount sectors.

 

The Consumer Productssegment had net sales of $567 million for 2007, $566 million for 2006 and $261million for 2005.  This segmentrepresents 15%, 16% and 10% of the Company’s total net sales in 2007, 2006 and2005, respectively.

 

**Crop Protection**

 

OurCrop Protection business focuses on specific target markets in five majorproduct lines: fungicides, miticides, insecticides, growth regulants andherbicides.  We have primarily developedour products for use on high-value target markets, 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 products, and we also sell and registerproducts manufactured by others on a license and/or resale basis.

 

Ourseed treatments are used to coat seeds in order to protect the seed duringgermination and initial growth phases. Seed treatment is an environmentallyattractive form of crop protection, involving localized use of agriculturalchemicals at much lower use rates than other agrichemical treatments.  We anticipate growth in seed

 

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treatmentresulting from the expanded use of higher value genetically modified seed.  On March 24, 2006, the Company acquiredthe Trace Chemicals business from Bayer CropScience LP.  Trace Chemicals is a leader in farmer-appliedseed treatments in markets serving the United States.  The acquisition serves to enhance the Company’sofferings in this fast growing crop market.

 

TheCrop Protection business works closely with our customers, distributors,research stations and individual growers, as part of an on-the-groundcoordinated effort. We develop products in response to ongoing customerdemands, drawing upon existing technologies and tailoring them to matchimmediate needs. For example, a grower’s crops may require varying levels oftreatment 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.

 

OurCrop Protection business benefits from nearly 50 years of experience in thefield, along with product registrations in more than 90 countries. Ourexperience with registering products is a valuable asset, as registration is asignificant barrier to entry, particularly in developed countries. Registrationof products is a complex process in which we have developed proficiency overtime. The breadth of our distribution network and the depth of our experienceenable us to focus on profitable markets that have been less sensitive tocompetitive pricing pressures than broad commodity segments of the market. Thisposition allows us to attract licensing and resale opportunities from partnercompanies providing us new products and technologies to accompany our ownexisting chemistries.

 

The Crop Protectionbusiness sells its products in North America through a distribution networkconsisting of more than 100 distributor outlets that sell directly to end usecustomers. Internationally, the Crop Protection business’s direct sales forceservices over 1,400 distributors, dealers, cooperatives, seed companies andlarge growers.

 

TheCrop Protection reporting segment had net sales for 2007 of $352 million, $311million for 2006 and $330 million for 2005, which represents 9%, 9% and 12% of the Company’s totalnet sales in 2007, 2006 and 2005, respectively.

 

**Other**

 

The Other segmentconsists of the Company’s non-core businesses that are in the process of beingsold or are undergoing strategic assessment. This category presently includes industrial water additives and rubberchemicals.  The polymer processingequipment business was also included until it was sold in April 2005.  The rubber chemicals business sold theCelogen® foaming agents product line in the second quarter of 2007, and itsantioxidants, secondary accelerators, bonding agents, waxes, and someantiozonants were realigned under our Polymer Additives segment.  Rubber chemicals represented in this segmentare 6PPD antiozonants and their derivatives, and primary accelerators.

 

IndustrialWater Additives (“IWA”) are used in the desalination processes andinclude antiscalents, corrosion inhibitors, dispersants, antifoams and superiorbromine-based non-oxidizing and oxidizing microbiological controlproducts.   The IWA business was divestedin the second quarter of 2006, however the Company continues to manufacture andsell these products to the purchaser of this business under supply agreements.

 

Rubber Chemicals are antiozonants which protect rubbercompounds from cracking and deteriorating from exposure to ozone as well asproviding resistance to oxygen and heat. The primary accelerators are used to accelerate the rubber curing duringfabrication.

 

TheOther reporting segment had net sales of $111 million in 2007, $199 million in2006 and $280 million in 2005, which represents 3%, 6% and 10% of the Company’s total net sales in2007, 2006 and 2005, respectively.

 

**Sources of Raw Materials**

 

Hydrocarbon-based and inorganic chemicals constitutemost of the raw materials required to manufacture our products.  These materials are generally available froma number of sources, some of which are foreign. We use significant amounts ofethylene, propylene, benzene, chlorine, caustic, petrochemicals, tin, soybeanoil, and tallow in many of our chemical manufacturing processes.  Large increases in the cost of suchkey raw materials, as well as natural gas which powers some key productionfacilities, could adversely affect our operating margins if we are not able topass the higher costs on to our customers through higher selling prices.  While temporary shortages of raw materials weuse may occur occasionally, key raw materials are generally

 

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available. However, their continuing availability and price are subject to domesticand world market and political conditions and regulations.  Major requirements for key raw materials aretypically purchased pursuant to multi-year contracts.

 

**Seasonal Business**

 

With the exception of the Crop Protectionbusiness and the pool and spa product line in our Consumer Products segment, nomaterial portion of any segment of our business is significantly seasonal.  Our crop business is seasonal in nature andcorresponds to agricultural cycles. Similarly, the largest portion, approximately 80%, of our pool chemicalsbusiness serves the U.S. recreational water market and generally records highersales in the later part of the second quarter and the early part of the thirdquarter of each year.

 

**Customers**

 

No one customer’s business accounts for morethan ten percent of our consolidated net sales.

 

**Employees**

 

The Company has approximately 5,100 fulltime employees of its wholly owned operations at December 31, 2007.

 

**Competitive Conditions**

 

The breadth of our productoffering provides multiple channels for growth and lessens our dependence onany one market. We sell our products in more than 100 countries, and thisworldwide presence further reduces our exposure to any one country’s or region’seconomy.

 

We have a broad client baseand believe that our products, many of which we customize for the specificneeds of our customers, allow us to enhance customer loyalty and attractcustomers that value product innovation and reliable supply.

 

Product performance,quality, price, and technical and customer service are all important factors incompeting in substantially all of our businesses.

 

We face significantcompetition in many of the markets in which we operate as a result of the trends toward global expansion andconsolidation by competitors.  Some ofour existing competitors are larger than we are and may have more resources andbetter access to capital markets for continued expansion or new productdevelopment than we do.  Some of ourcompetitors also have a greater product range or better distribution capabilitythan we do for specific products or geographical areas.

 

**Research and Development**

 

Our research anddevelopment expenditures totaled $62 million in 2007, $61 million in 2006 and$50 million in 2005.  Research anddevelopment works with each business within the Company to help bring safe andeffective new products to market in a timely manner while also maintainingexisting product registrations required by regulatory agencies around theworld.

 

**Intellectual Property and Licenses**

 

We have approximately 2,600 United States and foreignpatents and pending applications and have trademark protection forapproximately 900 product names. Patents, trade names, trademarks, know-how, trade secrets, formulae, andmanufacturing techniques assist in maintaining the competitive position ofcertain of our products.  Patents,formulae, and know-how are of particular importance in the manufacture of anumber of specialty chemicals manufactured and sold by us.  We are licensed to use certain patents andtechnologies owned by other companies, including some foreign companies, tomanufacture products complementary to our own products, for which we payroyalties in amounts not considered material to our consolidated financialresults.  Products to which we have suchrights include certain crop protection chemicals.

 

8

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**EnvironmentalMatters**

 

Chemical companies are subject to extensiveenvironmental laws and regulations concerning, among other things, emissions tothe air, discharges to land, surface, subsurface strata and water and thegeneration, handling, storage, transportation, treatment and disposal of wasteand other materials.  Chemical companiesare also subject to other federal, state and local laws and regulationsregarding health and safety matters.

 

*Environmental Health and Safety Regulation* We believe that our business, operationsand facilities have been and are being operated in substantial compliance, inall material respects, with applicable environmental and health and safety lawsand regulations, many of which provide for substantial fines and criminalsanctions for violations.  The ongoingoperations of chemical manufacturing plants, however, entail risks in theseareas and there can be no assurance that material costs or liabilities will notbe incurred.  In addition, futuredevelopments, such as increasingly strict requirements of environmental andhealth and safety laws and regulations and enforcement policies there under,could bring into question the handling, manufacture, use, emission or disposalof substances or pollutants at facilities owned, used or controlled by us orour manufacture, use or disposal of certain products or wastes and couldinvolve potentially significant expenditures. To meet changing permitting and regulatory standards, we may be requiredto make significant site or operational modifications, potentially involvingsubstantial expenditures and reduction or suspension of certainoperations.  We incurred $27 million ofcosts for capital projects and $77 million for operating and maintenance costsrelated to environmental health and safety programs at our facilities during2007.  In 2008, we expect to incurapproximately $37 million of costs for capital projects and $67 million foroperating and maintenance costs related to environmental health and safetyprograms at our facilities.  During 2007,we paid $30 million to clean up previously utilized waste disposal sites and toremediate current and past facilities. We expect to spend approximately $27 million during 2008 to clean upsuch waste disposal sites and to remediate current and former facilities.

 

*Pesticide Regulation* Our Crop Protection business is subject to regulationunder various federal, state, and foreign laws and regulations relating to themanufacture, sale and use of pesticide products.

 

In August 1996, Congress enacted theFood Quality Protection Act of 1996 (“FQPA”), which made significant changes tothe Federal Insecticide, Fungicide, and Rodenticide Act (“FIFRA”), governingU.S. sale and use of pesticide products and the Federal Food, Drug, andCosmetic Act (“FFDCA”), which limits pesticide residues on food.  FQPAfacilitated registrations and re-registrations of pesticides for special (socalled “minor”) uses under FIFRA and authorized collection of maintenance feesto support pesticide re-registrations. Coordination of regulations implementingFIFRA and FFDCA is now required.  Food safety provisions of FQPA establisha single standard of safety for pesticide residue on raw and processed foods,require that information be provided through large food retail stores toconsumers about the health risks of pesticide residues and how to avoid them,preempt state and local food safety laws if they are based on concentrations ofpesticide residues below recently established federal residue limits (called “tolerances”),and ensure that tolerances protect the health of infants and children.

 

FFDCA, as amended by FQPA, authorizes theEnvironmental Protection Agency (“EPA”) to set a tolerance for a pesticide inor on food at a level which poses “a reasonable certainty of no harm” toconsumers.  The EPA is required to review all tolerances for all pesticideproducts.  Most of our products have successfully completed review, othersare currently under review and other products will be reviewed under thisstandard in the future.

 

The European Union (EU) Commission hasestablished procedures whereby all existing crop protection active ingredientchemicals commercially available in the EU are to be reviewed.  Theregulation 91/414 came into force in 1993 and the process was updated in 2007and 2008. The original list of existing chemicals was prioritized anddivided into 4 parts; Chemtura had four chemicals on the first list, three ofwhich were successfully supported through the review, which results ininclusion onto Annex I of 91/414, while the fourth was withdrawn by the Companyfor commercial reasons.  The remainder of our products will bereviewed in future years with the overall process expected to be completed bythe end of 2010. The process may lead to full registration in member states ofthe EU or may lead to some restrictions or cancellation of registrations if itis determined that a product poses an unacceptable risk.

 

*Chemical Regulation**- REACH*In December 2006,the European Union signed the Registration, Evaluation and Authorization ofChemicals (REACH) legislation.  Thislegislation will require chemical manufacturers and importers in the EuropeanUnion to prove the safety of their products. The effective date of the legislation was June 1, 2007 and itrequires all covered substances to be pre-registered by November 30,2008.  Products

 

9

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containing covered substances cannot be manufacturedor imported into the EU after this date unless they are pre-registered.  The full registration requirements of REACHwill be phased in over the next ten years. The Company does not anticipate any significant impact to its financialposition or results of operations in 2008; however, the impact of thislegislation in 2009 and beyond is unknown at this time and the Company willneed to incur additional expense to affect the registration of its productsunder these regulations.  It is possiblethat REACH may affect our ability to manufacture and sell certain products.

 

**(d) Geographic Information**

 

The information with respect to 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 Note23 - Business Segment Data in the Notes to Consolidated Financial Statements.

 

We consider that the risks relating tooperations of our foreign subsidiaries are comparable to those of other U.S.companies which operate subsidiaries in developed countries.  These risks include risks of politicalchange, change in tax regulations, change in business climate, economic changesand foreign currency volatility.

 

**(e) Available Information**

 

Our internet website address is www.chemtura.com.  We make available free of charge on orthrough our internet website our Annual Report on Form 10-K, QuarterlyReports on Form 10-Q, Current Reports on Form 8-K, and amendments tothose reports filed or furnished pursuant to Section 13(a) or 15(d) ofthe Securities Exchange Act of 1934, as soon as reasonably practicable after weelectronically file such material with, or furnish it to, the Securities andExchange Commission (“SEC”).

 

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.

 

**ITEM 1A.  RISK FACTORS**

 

The factors describedbelow represent the principal risks that could materially adversely affect ourfinancial condition, results of operations and cash flows.  Except as otherwise indicated, these factorsmay or may not occur and we cannot predict the likelihood of any such factoroccurring.  Other risk factors may existthat we do not consider significant based on information that is currentlyavailable.  In addition, new risks mayemerge at any time, and we cannot predict those risks or estimate the extent towhich they may affect our financial performance.

 

**Adecline in general economic conditions and other external factors may adverselyimpact our results of operations.**

 

External factors, including general economicconditions, international events and circumstances, competitor actions andgovernmental regulation are beyond our control and can cause fluctuations indemand and volatility in the price of raw materials and other costs that canintensify the impact of economic cycles on our operations.  We producea broad range of products that are used as additives and components in otherproducts in a wide variety of end-use markets.  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 and thatour worldwide presence further reduces our exposure to economic conditions orpolitical instability in any one country or region.

 

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**Significant competition may forceus to reduce prices, which may adversely impact our results of operations.**

 

We face significantcompetition in many of the markets in which we operate as a result of the trendtoward global expansion andconsolidation by competitors.  Some ofour existing competitors are larger than we are and may have more resources andbetter access to capital markets to facilitate continued expansion or newproduct development.  Some of ourcompetitors also have greater product range or better distribution capabilitythan we do for specific products or geographic regions.  Price competition also exists in some of themarkets in which we participate where customers are sensitive to changes inprice.  Additionally, other factors suchas industry overcapacity and lower cost structures have the effect of puttingdownward pressure on prices.  We expectthat we will continue to face new competitive challenges as well as additionalrisks inherent in international operations in developing regions.  We also expect to face increased competitionfrom the further use and introduction of generic and alternative products byour competitors.  This increasedcompetition could cause us to reduce our prices and take other steps to competeeffectively, which could negatively affect our results of operations and 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.

 

**The cyclicality of the chemicalsindustry may cause significant fluctuations in our operating results and cashflows.**

 

Our historical operatingresults reflect the cyclical and volatile nature of the supply and demand balanceof the chemicals industry.  The chemicalsindustry has experienced alternating periods of inadequate capacity and tightsupply, allowing prices and profit margins to increase, followed by periodswhen substantial capacity is added, resulting in oversupply, over-capacity andcorresponding declining utilization rates, causing declining prices and profitmargins.  The cyclicality of the marketsin which we operate may result in volatile operating results and cash flow overour business cycle.  Future growth inproduct demand may not be sufficient to utilize current or futurecapacity.  Excess industry capacity maycontinue to depress our volumes and margins on some products.  As a result of excess industry capacity,rising energy costs and rising raw materials costs, operating results may bevolatile.

 

**Any disruption in theavailability or price of the raw materials or energy utilized for our productsmay have a material adverse effect on our operating results.**

 

We purchase large amountsof raw materials and energy for our businesses. The costs of these materials and energy, in the aggregate, represent asubstantial portion of our operating expenses. The prices and availability of the raw materials we use vary with marketconditions and may be highly volatile. Over the past few years, we have experienced significant cost increasesin purchases of petrochemicals, tin, soybean oil, other raw materials and ourprimary energy source, natural gas.** **While we may attempt to match rawmaterial or energy price increases with corresponding product price increases,we may not be able to immediately raise product prices, if at all.  Ultimately, our ability to pass on increasesin the cost of raw materials or energy to customers is greatly dependent uponmarket conditions and raising prices could result in a loss of salesvolume.  There have been in the past, andwill likely be in the future, periods of time during which we are unable topass raw material and energy price increases on to our customers, in whole orin part.** **Reactions by our customers and competitors to our priceincreases could cause us to reevaluate and possibly reverse such priceincreases, which may increase our operating expenses and negatively affect ouroperating results.

 

**The results of our Crop Protectionbusiness are dependent on weather, disease, and pest conditions and can beaffected by local and regional economic circumstances.  The results of our Consumer Products businessare also dependent on weather conditions. Adverse weather or economic conditions could materially affect ourresults of operations.**

 

Sales volumes for ourCrop Protection business, as with all agricultural products, are subject to thesector’s dependency on weather, disease, and pest infestation conditions.  Adverse conditions in a particular regioncould materially adversely affect our Crop Protection 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 our products.  Also, Crop Protection products typically aresold pursuant to contracts with extended payment terms in Latin America and

 

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Europe.  Customary extended payment periods, which aretied to particular crop growing cycles, make our Crop Protection businesssusceptible to losses from receivables during economic downturns and mayadversely affect our operating results and our cash flows.

 

Our pool and spa productsin the Consumer Products business are primarily used in swimming pools and hottubs.  Demand for these products isinfluenced by a variety of factors including seasonal weather patterns.  An adverse change in weather patterns duringpool season could adversely affect the demand for and profitability of our pooland spa products.

 

**Current and future litigation,governmental investigations and administrative claims, includingantitrust-related governmental investigations and lawsuits, could harm ourfinancial condition, results of operations and cash flows.**

 

We are currently involvedin a number of governmental investigations and administrative claims, includingantitrust-related governmental investigations and civil lawsuits.  Further, we have incurred and could incuradditional expense in the future in connection with antitrust-related matters,including expenses related to our cooperation with governmental authorities anddefense related civil lawsuits.

 

We are also involved inseveral significant lawsuits and claims relating to environmental matters.  In addition, we are routinely subject to othercivil claims, litigation and arbitration, and regulatory investigations,arising in the ordinary course of our present businesses as well as withrespect to our divested businesses.  Someof these claims and lawsuits relate to product liability claims, includingclaims related to current products and asbestos related claims concerning thepremises and historic products of our corporate affiliates andpredecessors.  We also could becomesubject to additional claims in the future. An adverse outcome of one or more of these claims could have a materialadverse effect on our business, results of operations or cash flows.

 

**Environmental, health and safetyregulation matters could have a substantial negative impact on our results ofoperations and cash flows.**

 

We are subject toextensive federal, state, local and foreign environmental, safety and healthlaws, and regulations concerning, among other things, emissions in the air,discharges to land and water, and the generation, handling, treatment anddisposal 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.

 

In addition, theserequirements, and enforcement of these requirements, may become more stringentin the future.  The ultimate cost ofcompliance 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 flow and results of operations.

 

At any given time, we areinvolved in claims, litigation, administrative proceedings, settlements, andinvestigations of various types in a number of jurisdictions involvingpotential environmental liabilities, including clean-up costs associated withhazardous waste disposal sites, natural resource damages, property damage,personal injury, and regulatory compliance or noncompliance.  The resolution of these environmental matterscould have a material adverse effect on our results of operations or cash flow.

 

**We are an international companyand are exposed to risks in the countries in which we have significantoperations or interests.  Changes inforeign laws and regulatory requirements, export controls or international taxtreaties could adversely affect our results of operations.**

 

We are dependent, inlarge part, on the economies of the countries in which we manufacture andmarket our products.  Of our 2007 netsales, 53% were to customers in the U.S. and Canada, 29% to Europe and Africa,14% to Asia/Pacific and 4% to Latin America. Our net property, plant and equipment at December 31, 2007 waslocated 64% in the U.S. and Canada, 29% in Europe and Africa, 4% inAsia/Pacific and 3% in Latin America. The economies of countries in these areas are in different stages ofsocioeconomic development.  Consequently,we

 

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are exposed to risks fromchanges in foreign currency exchange rates, interest rates, inflation,governmental spending, social instability and other political, economic orsocial developments that may materially affect, positively or negatively, ourresults of operations or cash flows.  Wemay also face difficulties managing and administering an internationallydispersed business.  In particular, themanagement of our personnel across several countries can present logistical andmanagerial challenges.  Additionally,international operations present challenges related to operating underdifferent business cultures and languages; we may have to comply withunexpected changes in foreign laws and regulatory requirements which couldnegatively impact our operations and ability to manage our global financialresources; export controls or other regulatory restrictions could prevent usfrom shipping our products into and from some markets; we may not be able toadequately protect our trademarks and other intellectual property overseas dueto uncertainty of laws and enforcement in a number of countries relating to theprotection of intellectual property rights; and changes in tax regulation andinternational tax treaties could significantly reduce the financial performanceof our foreign operations or the magnitude of their contributions to ouroverall financial performance.

 

**The inability to register our products in memberstates of the European Union, under the REACH legislation, may lead to somerestrictions or cancellation of registrations, which could impact our abilityto manufacture and sell certain products.**

 

In December 2006, the European Union signed theRegistration, Evaluation and Authorization of Chemicals (REACH)legislation.  This legislation willrequire chemical manufacturers and importers in the European Union to prove thesafety of their products.  The effectivedate of the legislation was June 1, 2007 and it requires all coveredsubstances to be pre-registered by November 30, 2008.  Products containing covered substances cannotbe manufactured or imported into the EU after this date unless they arepre-registered.  The full registrationrequirements of REACH will be phased in over the next ten years.  The Company does not anticipate any significantimpact to its financial position or results of operations in 2008; however, theimpact of this legislation in 2009 and beyond is unknown at this time and theCompany will need to incur additional expense to affect the registration of itsproducts under these regulations.  It ispossible that REACH may affect our ability to sell and manufacture certainproducts.

 

**Ourresults of operations are subject to exchange rate and other currencyrisks.  A significant movement inexchange rates could adversely impact our results of operations.**

 

Significant portions ofour businesses are conducted in currencies other than the U.S. dollar.  This means that foreign currency exchangerates affect our operating results.  Thefollowing table shows the impact of foreign currency exchange rates on ourpre-tax loss from continuing operations and net sales for 2007, 2006 and 2005:

 
| ** **                                                                                                             | ** ** | **Year Ended December 31** | ** ** |
|------------------------------------------------------------------------------------------------------------------------|------------|-------------------------------------------|------------|
| **(In millions)**                                                                                                 | ** ** | **2007**                                  | ** ** | **2006** | ** ** | **2005** | ** ** |
| Pre-tax loss  from continuing operations                                                                               |       | $                                         | (41        | ) | $ | (147 | ) | $ | (166 | ) |
| Impact of favorable  (unfavorable) foreign currency translation on pre-tax earnings (loss) from  continuing operations |       | $                                         | (6         | ) | $ | (3 | ) | $ | 1 |   |
| Net sales                                                                                                              |       | $                                         | 3,747      |   | $ | 3,458 |   | $ | 2,739 |   |
| Impact of  favorable foreign currency translation on net sales                                                         |       | $                                         | 61         |   | $ | 6 |   | $ | 20 |   |

 

Effects of exchange ratefluctuations upon our future operating results cannot be predicted because ofthe number of currencies involved, the variability of currency exposures, andthe potential volatility of currency exchange rates.

 

We will face risksarising from the imposition of exchange controls and currencydevaluations.  Exchange controls maylimit our ability to convert foreign currencies into U.S. dollars or to remitdividends and other payments by our foreign subsidiaries or businesses locatedin or conducted within a country imposing controls.  Currency devaluations result in diminishedvalue of funds denominated in the currency of the country instituting adevaluation.  Actions of this naturecould adversely affect our earnings or cash flow.

 

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**We have unfunded and underfundedpension plans and post-retirement health care plans, which, if changes to thefunded status occur, could adversely impact our results of operations or cashflows.**

 

We have unfundedobligations under our domestic tax-qualified defined benefit pension plans,totaling approximately $44 million on a projected benefit obligation basis asof December 31, 2007.  A significantdecline in the value of the plan investments in the future 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 $182 million on a projected benefit obligation basis as of December 31,2007.  In addition, we sponsorpost-retirement health care plans under which there are substantial unfundedliabilities, totaling approximately $156 million on a projected benefitobligation basis as of December 31, 2007. 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 flow.

 

**Changes in our sales strategy mayimpact our results of operations and our ability to service our customers.**

 

We use third-partydistributors for sales and service to some customers that purchase small annualquantities of our products.  We believethat this action will lower our costs associated with serving smallercustomers, thus enhancing profitability and reducing our investment ininventory.  However, it is possible thatchanging our sales strategy with respect to these customers could result in theloss of volume to some customers or some disruption in selling and in inventorymanagement during the transition.

 

**We aredependent upon a trained, dedicated sales force, the loss of which couldmaterially affect our operations.**

 

Many of our products aresold and supported through dedicated staff and specifically trainedpersonnel.  The loss of this sales forcedue to market or other conditions could affect our ability to sell and supportour products effectively, which could have an adverse effect on our results ofoperations.

 

**Production facilities are subjectto operating risks that may adversely affect our financial condition or resultsof operations.**

 

We are dependent on thecontinued 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, mechanicalfailure, unscheduled downtime, labor difficulties, transportationinterruptions, remediation complications, chemical spills, discharges orreleases of toxic or hazardous gases, storage tank leaks, and otherenvironmental risks.  These hazards cancause personal injury and loss of life, severe damage to, or destruction of,property and equipment and environmental damage, fines, and liabilities andcould have a material adverse effect on our business, financial condition,results of operations or cash flows.

 

**Our business depends upon manyproprietary technologies, including patents and licenses.  Our competitive position could be adverselyaffected if we fail to protect our patents or other intellectual propertyrights, or if we become subject to claims that we are infringing upon therights of others.**

 

We have over 2,600 UnitedStates and foreign patents and pending applications and have trademarkprotection for approximately 900 product names. 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 as a result of suchchallenges we could lose our exclusive rights to our proprietary technologies,which would adversely affect our competitive position and our results ofoperations.

 

We also rely onunpatented proprietary know-how and continuing technological innovation andother trade secrets to develop and maintain our competitive position.  While it is our policy to enter intoconfidentiality agreements with

 

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our employees and thirdparties to restrict the use and disclosure of our trade secrets and proprietaryknow-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.

 

**Our patents may not provide fullprotection against competing manufacturers outside of the United States, theEuropean Union countries, and certain other developed countries.  Weaker protection may adversely impact oursales and results of operations.**

 

In some of the countriesin which we operate, such as China, the laws protecting patent holders aresignificantly weaker than in the United States, the European Union, and certainother developed countries.  Weakerprotection may help competing manufacturers be or become more competitive inmarkets where, but for the weaker protection, they might not otherwise be ableto 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.

 

**An inability to remaintechnologically innovative and to offer improved products and services in acost-effective manner could adversely impact our operating results.**

 

Our operating results areinfluenced in part by our ability to introduce new products and services thatoffer distinct value to our customers. For example, our Crop Protection business seeks to provide tailoredproducts for our customers’ often unique problems, which requires an ongoinglevel of innovation.  In many of the marketswhere we sell our products, the products are subject to a traditional productlife cycle.  We devote significant humanand financial resources to develop new technologically advanced products andservices and we may not be successful in our research and development efforts.

 

**Convergence of our informationsystems could have an adverse effect on our internal controls over financialreporting or our results of operations.**

 

We are consolidating ourmultiple ERP systems on a single SAP platform in order to standardize ourbusiness process and data, together with creating efficiencies in processinginformation.  The transition from thesesystems or the inability to transition to one standard system could adverselyaffect our business and operations and the timeliness with which we report ourinternal and external operating results.

 

**Any discord with our venturepartners could potentially adversely affect the business and operations of theventures and in turn the business and operations of the Company.**

 

A portion of ouroperations is conducted through certain ventures. We share control of theseventures with third parties and in the event that our venture partners do notobserve their venture obligations, it is possible that the affected venturewould not be able to operate in accordance with its business plans or that wewould have to increase our level of commitment to the venture to give effect tothose plans.  By making thesearrangements with third parties we run the risk of encountering differences ofopinion or having difficulty reaching consensus with respect to certainbusiness issues.

 

**Aninability to execute our portfolio transformation plan could adversely affectour financial condition.**

 

The assessment of thecurrent businesses in our portfolio continues to be a multi-year task and weare in discussions regarding potential transactions.  Announcements will be made as agreementsbecome firm.  There can be no assurancethat any of these transactions can be successfully completed or that we willrealize the proceeds or cost savings we anticipate receiving.

 

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**ITEM1B.  UNRESOLVED STAFF COMMENTS**

 

None.

** **

** ITEM 2. PROPERTIES**

** **

The following table sets forth information asto the principal operating properties and other significant properties of theCorporation and its subsidiaries as of February 6, 2008.  All properties are owned except whereotherwise indicated:

 
| **Location**       | ** ** | **Facility**                              | ** ** | **Reporting Segment**                                               |
|--------------------|------------|-------------------------------------------|------------|---------------------------------------------------------------------|
|               |       |                                      |       |                                                                |
| **UNITED  STATES** | ** ** | ** **                                | ** ** | ** **                                                          |
| Alabama            |       |                                      |       |                                                                |
| Bay  Minette       |       | Plant                                     |       | Polymer Additives                                                   |
|               |       |                                      |       |                                                                |
| Arkansas           |       |                                      |       |                                                                |
| El  Dorado         |       | Plant                                     |       | Polymer Additives                                                   |
|               |       |                                      |       |                                                                |
| California         |       |                                      |       |                                                                |
| McFarland          |       | Repackaging Warehouse                     |       | Polymer Additives                                                   |
|               |       |                                      |       |                                                                |
| Connecticut        |       |                                      |       |                                                                |
| Middlebury         |       | Corporate  Offices, Research Center* |       | Corporate Headquarters                                              |
| Naugatuck          |       | Research Center                           |       | Polymer Additives                                                   |
|               |       |                                      |       |                                                                |
| Georgia            |       |                                      |       |                                                                |
| Conyers            |       | Plant                                     |       | Consumer Products                                                   |
| Lawrenceville      |       | Office, Laboratory*                       |       | Consumer Products                                                   |
|               |       |                                      |       |                                                                |
| Illinois           |       |                                      |       |                                                                |
| Mapleton           |       | Plant                                     |       | Polymer Additives                                                   |
| Pekin              |       | Plant, Warehouse*                         |       | Crop Protection                                                     |
|               |       |                                      |       |                                                                |
| Indiana            |       |                                      |       |                                                                |
| Ashley             |       | Plant                                     |       | Consumer Products                                                   |
| West  Lafayette    |       | Office, Laboratory                        |       | Polymer Additives                                                   |
|               |       |                                      |       |                                                                |
| Louisiana          |       |                                      |       |                                                                |
| Taft               |       | Plant                                     |       | Polymer Additives                                                   |
| Lake  Charles      |       | Plant                                     |       | Consumer Products                                                   |
|               |       |                                      |       |                                                                |
| Michigan           |       |                                      |       |                                                                |
| Adrian             |       | Plant                                     |       | Consumer Products,  Other                                           |
|               |       |                                      |       |                                                                |
| New Jersey         |       |                                      |       |                                                                |
| East  Hanover      |       | Plant                                     |       | Performance Specialties                                             |
| Fords              |       | Plant                                     |       | Performance Specialties                                             |
| Perth  Amboy       |       | Plant                                     |       | Polymer Additives,  Performance Specialties                         |
|               |       |                                      |       |                                                                |
| North Carolina     |       |                                      |       |                                                                |
| Gastonia           |       | Plant                                     |       | Polymer Additives,  Performance Specialties, Crop Protection, Other |
|               |       |                                      |       |                                                                |
| Tennessee          |       |                                      |       |                                                                |
| Memphis            |       | Plant                                     |       | Polymer Additives                                                   |
|               |       |                                      |       |                                                                |
| West Virginia      |       |                                      |       |                                                                |
| Morgantown         |       | Plant, Research Center                    |       | Polymer Additives,  Performance Specialties, Other                  |
|               |       |                                      |       |                                                                |
| **INTERNATIONAL**  | ** ** | ** **                                | ** ** | ** **                                                          |
| Argentina          |       |                                      |       |                                                                |
| Buenos  Aires      |       | Office*                                   |       | Crop Protection                                                     |
|               |       |                                      |       |                                                                |
| Australia          |       |                                      |       |                                                                |
| Adelaide           |       | Office*                                   |       | Crop Protection                                                     |
| Seven  Hills       |       | Office, Laboratory*                       |       | Performance Specialties                                             |
|               |       |                                      |       |                                                                |
| Belgium            |       |                                      |       |                                                                |
| Antwerp            |       | Office*                                   |       | Corporate                                                           |
| Herentals          |       | Laboratory*                               |       | Polymer Additives                                                   |

 

16

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| **Location**      | ** ** | **Facility**                   | ** ** | **Reporting Segment**                                               |
|-------------------|------------|--------------------------------|------------|---------------------------------------------------------------------|
|              |       |                           |       |                                                                |
| Brazil            |       |                           |       |                                                                |
| Rio  Claro        |       | Plant                          |       | Polymer Additives, Performance  Specialties, Crop Protection, Other |
| Sao  Paulo        |       | Office*                        |       | Polymer Additives,  Performance Specialties, Crop Protection, Other |
|              |       |                           |       |                                                                |
| Canada            |       |                           |       |                                                                |
| Elmira            |       | Plant                          |       | Polymer Additives,  Performance Specialties, Crop Protection, Other |
| Guelph            |       | Research Center                |       | Crop Protection                                                     |
| Oakville          |       | Plant*                         |       | Performance Specialties                                             |
| Scarborough       |       | Plant*                         |       | Performance Specialties                                             |
| West  Hill        |       | Plant                          |       | Performance Specialties                                             |
|              |       |                           |       |                                                                |
| France            |       |                           |       |                                                                |
| Catenoy           |       | Plant                          |       | Polymer Additives                                                   |
| Dardilly          |       | Office*                        |       | Consumer Products                                                   |
|              |       |                           |       |                                                                |
| Germany           |       |                           |       |                                                                |
| Bergkamen         |       | Plant, Research Center*        |       | Polymer Additives                                                   |
| Lampertheim       |       | Plant, Research Center         |       | Polymer Additives                                                   |
| Waldkraiburg      |       | Plant                          |       | Polymer Additives                                                   |
| Planegg           |       | Office*                        |       | Consumer Products                                                   |
|              |       |                           |       |                                                                |
| Italy             |       |                           |       |                                                                |
| Latina            |       | Plant                          |       | Polymer Additives,  Performance Specialties, Crop Protection, Other |
| Milan             |       | Office (1)                     |       | Performance Specialties                                             |
| Pedrengo          |       | Plant                          |       | Polymer Additives                                                   |
|              |       |                           |       |                                                                |
| Mexico            |       |                           |       |                                                                |
| Altamira          |       | Plant                          |       | Polymer Additives,  Performance Specialties, Other                  |
| Reynosa           |       | Plant                          |       | Polymer Additives                                                   |
|              |       |                           |       |                                                                |
| The Netherlands   |       |                           |       |                                                                |
| Amsterdam         |       | Plant                          |       | Crop Protection                                                     |
|              |       |                           |       |                                                                |
| Republic of China |       |                           |       |                                                                |
| Nanjing           |       | Plant                          |       | Performance Specialties                                             |
| Shanghai          |       | Office*                        |       | Corporate                                                           |
|              |       |                           |       |                                                                |
| Russia            |       |                           |       |                                                                |
| Kazan  City       |       | Office*                        |       | Crop Protection                                                     |
| Moscow            |       | Office*                        |       | Crop Protection,  Performance Specialties, Polymer Additives        |
|              |       |                           |       |                                                                |
| Singapore         |       | Administrative, Sales  Office* |       | Polymer Additives,  Performance Specialties, Corporate              |
|              |       |                           |       |                                                                |
| South Africa      |       |                           |       |                                                                |
| Atlantis          |       | Plant                          |       | Consumer Products                                                   |
|              |       |                           |       |                                                                |
| South Korea       |       |                           |       |                                                                |
| Pyongtaek         |       | Plant (2)                      |       | Polymer Additives                                                   |
|              |       |                           |       |                                                                |
| Switzerland       |       |                           |       |                                                                |
| Frauenfeld        |       | Office*                        |       | Polymer Additives,  Corporate                                       |
|              |       |                           |       |                                                                |
| Taiwan            |       |                           |       |                                                                |
| Kaohsiung         |       | Plant (3)                      |       | Polymer Additives,  Performance Specialties, Other                  |
|              |       |                           |       |                                                                |
| United Kingdom    |       |                           |       |                                                                |
| Accrington        |       | Plant (4)                      |       | Performance Specialties                                             |
| Droitwich         |       | Plant (4)                      |       | Performance Specialties                                             |
| Evesham           |       | Research Center                |       | Crop Protection                                                     |
| Langley           |       | Office*                        |       | Performance  Specialties, Crop Protection                           |
| Trafford  Park    |       | Plant                          |       | Polymer Additives,  Performance Specialties, Other                  |

 

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*                 Facility leasedby the Corporation.

(1)          Facility leased byAnderol Italia S.r.l, which is 51% owned by the Corporation.

(2)          Facility owned by AsiaStabilizers Co. Ltd., which is 65% owned by the Corporation.

(3)          Facility owned byUniroyal Chemical Taiwan Ltd., which is 80% owned by the Corporation.

(4)          Facility owned byBaxenden Chemicals Limited, which is 53.5% owned by the Corporation.  On February 29, 2008, the Company purchasedthe remaining 46.5% of Baxenden Chemicals Limited.

 

17

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**ITEM3.  LEGAL PROCEEDINGS**

** **

The Corporation is involved in claims,litigation, administrative proceedings and investigations of various types in anumber of jurisdictions.  A number ofsuch matters involve, or may involve, claims for a material amount of damagesand relate to or allege environmental liabilities, including clean-up costsassociated with hazardous waste disposal sites, natural resource damages,property damage and personal injury.

 

**Environmental Liabilities**

 

Each quarter, the Company evaluates andreviews estimates for future remediation and other costs to determineappropriate environmental reserve amounts. For each site where the cost of remediation is probable and estimable, adetermination is made of 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, which is generally 10 years, where it believes that such costs areestimable.  The total amount accrued forsuch environmental liabilities at December 31, 2007, was $118million.  The Company estimates theenvironmental liability could range up to $160 million at December 31,2007.  The Company’s reserves includeestimates for determinable clean-up costs. The Company recorded a pre-tax charge of $4 million in 2007, $7 millionin 2006 and $3 million in 2005 to increase its environmental liabilities andmade payments of $30 million in 2007 and $25 million in 2006 for clean-upcosts, which reduced its environmental liabilities.  At certain sites, the Company has contractualagreements with certain other parties to share remediation costs.  The Company has a receivable of $13 millionat December 31, 2007 to reflect probable recoveries.  At a number of these sites, the extent ofcontamination has not yet been fully investigated or the final scope ofremediation is not yet determinable. The Company intends to assert allmeritorious legal defenses and will pursue other equitable factors that areavailable with respect to these matters. However, the final cost of clean-up atthese sites could exceed the Company’s present estimates and could have,individually or in the aggregate, a material adverse effect on the Company’sfinancial condition, results of operations and cash flows. It is reasonablypossible that the Company’s estimates for environmental remediation liabilitiesmay change in the future should additional sites be identified, furtherremediation measures be required or undertaken, current laws and regulations bemodified or additional environmental laws and regulations be enacted.

 

The Company and some of its subsidiaries havebeen identified by federal, state or local governmental agencies, and by otherpotentially responsible parties (a “PRP”) under the Comprehensive EnvironmentalResponse, Compensation and Liability Act of 1980, as amended, or comparablestate statutes, as a PRP with respect to costs associated with waste disposalsites at various locations in the United States.  Because in certain circumstances these lawshave been construed to authorize joint and several liability, the EPA couldseek to recover all costs involving a waste disposal site from any one of thePRP’s for such site, including the Company, despite the involvement of otherPRP’s.  In many cases, the Company is oneof several hundred PRP’s so identified. In a few instances, the Company is the sole or one of only a handful ofparties performing investigation and remediation.  Where other financially responsible PRP’s areinvolved, the Company expects that any ultimate liability resulting from suchmatters will be apportioned between the Company and such other parties.  In addition, the Company is involved withenvironmental remediation and compliance activities at some of its current andformer sites in the United States and abroad.  The more significant of these matters are described below.

 

*Vertac*– On April 22, 2007, the Supreme Court denied the petitions for writs ofcertiorari.  This decision lets standprior rulings under which Uniroyal Chemical Co./Cie has liability to the UnitedStates for approximately $3 million and liability to Hercules Incorporated forapproximately $1 million.  Adding accruedinterest, Chemtura paid a total of approximately $4 million in 2007 to satisfyits obligation to the United States and Hercules under the judgment.

 

*Conyers – Clean Air ActInvestigation* – The U.S. EPA is investigating alleged violationsof law by the Company arising out of the General Duty Clause of the Clean AirAct, the emergency release notification requirements of the ComprehensiveEnvironmental Response, Compensation and Liability Act and/or the EmergencyPlanning and Community Right to Know Act, and the Clean Water Act and isseeking a penalty and other relief in excess of one hundred thousand dollars.The Company intends to assert all meritorious legal defenses and will continueto assess relevant facts and attempt to negotiate an acceptable settlement withthe EPA. The Company does not believe that the resolution of this matter willhave a material adverse effect on the Company’s financial condition.

 

18

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*Petrolia*- In April 2004, the Company and other owners of property near the Company’sformer Petrolia, Pennsylvania facility were named as defendants in a toxic tortclass action lawsuit alleging contamination in and around the named areas thatgave rise to certain property damage and personal injuries.  Theplaintiffs also sought clean-up by the defendants of the allegedcontamination.  On October 18, 2005, the Court issued its MemorandumOpinion and Order denying the plaintiffs’ motion for class certification, andon August 2, 2006, the Pennsylvania Superior Court affirmed the lowercourt’s opinion. Multiple lawsuits have been filed against the Company byindividuals who were a part of the putative class.  The matter has proceeded to the discoveryphase.  The company believes that it hasmeritorious defenses and will be filing dispositive motions.

 

*Scarborough  —* In 2006, theOntario Ministry of the Environment brought an action against Chemtura Co./Ciein connection with a 2004 release of naphtha sulfonic acid at Chemtura Co./Cie’sScarborough, Ontario, Canada facility.  In 2007, Chemtura Co./Cie paid apenalty in the amount of approximately one hundred thousand CDN dollars(approximately one hundred thousand U.S. dollars) to settle this matter.

 

**Legal Proceedings**

 

*Tricor* – This caseinvolves two related properties in Bakersfield, California; the OildaleRefinery (“the Refinery”) and the Mt. Poso Tank Farm (“Mt. Poso”). The Refineryand Mt. Poso were previously owned and operated by a division of Witco Corp., apredecessor of the Company. In 1997, the Refinery and portions of Mt. Poso wassold to Golden Bear Acquisition Corp. Under the terms of sale, Witco retainedcertain environmental obligations with respect to the Refinery and Mt. Poso.Golden Bear operated the refinery for several years before filing bankruptcy in2001. Tricor Refining LLC (“Tricor”) purchased the Refinery and related assetsout of bankruptcy. In 2004, Tricor commenced an action against the Companyalleging that the Company failed to comply with its environmental obligations.

 

In July 2007, the Court entered anorder finding liability against Chemtura. A second phase of the trial, whichwill determine the damages to which Tricor may be entitled, is scheduled totake place in July 2008. The Company will continue to defend this casevigorously. The Company does not believe that the resolution of this matterwill have a material adverse effect on the Company’s financial condition.

 

*Conyers*- The Company and certain of its former officers and employees were named asdefendants in five putative state class action lawsuits filed in three countiesin Georgia and one putative class action lawsuit filed in the United StatesDistrict Court for the Northern District of Georgia pertaining to the fire atthe Company’s Conyers, Georgia warehouse on May 25, 2004.  Of the five putative state class actions, twowere voluntarily dismissed by the plaintiffs, leaving three such lawsuits, allof which are now pending in the Superior Court of Rockdale County, Georgia.  These remaining putative state class actions,as well as the putative class action pending in federal district court, seekrecovery for economic and non-economic damages allegedly arising from thefire.  Punitive damages are sought in theDavis case in Rockdale County, Georgia and in the Martin case in the UnitedStates District Court for the Northern District of Georgia.  The Martincase also seeks a declaratory judgment to reform certain settlements, as wellas medical monitoring and injunctive relief. The Company intends to vigorously defend against these lawsuits.

 

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 these lawsuits remain.  The plaintiffsin these remaining lawsuits seek recovery for economic and non-economicdamages, including punitive damages in five of the eight remaininglawsuits.  One of the lawsuits, the Diana Smith case, was filed in the UnitedStates District Court for the Northern District of Georgia against the Company,as well as the City of Conyers and Rockdale County, and included allegationssimilar to those in the other lawsuits noted above, but adding claims foralleged civil rights violations, federal Occupational Safety and HealthAdministration violations, Georgia Racketeer Influenced and CorruptOrganizations Act violations, criminal negligence, reckless endangerment, falseimprisonment, 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 subsequently refiled and is pending in theSuperior Court of Rockdale County, Georgia.  The Company intends to vigorously defend against these lawsuits.

 

On or about January 8, 2007, the Companywas named as a defendant in a lawsuit filed by an individual, George J.Collins, in the Superior Court of Gwinnett County, Georgia.  The lawsuit includes allegations pertainingto the May 25, 2004 fire at its Conyers, Georgia warehouse, and seeksrecovery for economic and non-economic

 

19

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damages, including punitive damages.  The action has been transferred to the StateCourt for Gwinnett County, Georgia.  TheCompany intends to vigorously defend against this lawsuit.

 

Within one day of the fire, the Companyestablished a claims office to resolve all legitimate economic and personalinjury claims in the Rockdale County, Georgia area.  The Company stillmaintains a claims office in Conyers, and continues to negotiate the settlementof claims whether submitted through the claims office or otherwise.At the timeof the fire, the Company maintained, and continues to maintain, property andgeneral 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 31,2007.

 

*Albemarle Corporation -*In May 2002, Albemarle Corporation filed two complaints against theCompany in the United States District Court for the Middle District ofLouisiana, one alleging that the Company infringed three process patents heldby Albemarle Corporation relating to bromine vacuum tower technology, and theother alleging that the Company infringed or contributed to or induced theinfringement of a patent relating to the use of decabromodiphenyl ethane as aflame retardant in thermoplastics. On a motion by the Company and overAlbemarle’s objection, the cases were consolidated.  In addition, theCompany filed a counterclaim with the District Court in the flame retardantcases, alleging, among other things, that the Albemarle patent is invalid orwas obtained as a result of inequitable conduct from the United States Patentand Trademark Office. In March 2004, Albemarle amended its consolidatedcomplaint to add additional counts of patent infringement and trade secretviolations.  The Company believes that the allegations of Albemarle in theconsolidated complaint, as well as the allegations in the additional counts,are without basis, factually or legally, and intends to defend the casevigorously.  On October 25, 2005, Albemarle filed a complaint againstChemtura Corporation and Great Lakes Chemical Corporation in the United StatesDistrict Court for the Middle District of Louisiana alleging that Chemtura andGreat Lakes infringed a recently granted U.S. patent held by Albemarle relatingto a decabromodiphenyl ethane “wet cake” intermediate product.  TheCompany believes that the allegations of the complaint are without basis,factually or legally, and intends to defend the case vigorously.

 

*OSCA –*Great Lakes previously held interests in OSCA, Inc., which interests weredivested to BJ Services Company in May 2002.  OSCA is a party tocertain pending litigation regarding a blowout of a well in the Gulf of Mexicooperated by Newfield Exploration Company.  In the lawsuit, the plaintiffsclaimed that OSCA and the other defendants breached their contracts to performwork-over operations on the well and were negligent in performing thoseoperations. Pursuant to an indemnification agreement between Great Lakes and BJServices entered into at the time of the sale of OSCA, Great Lakes agreed toremain responsible for 75% of any uninsured liability and costs in excess of $3million incurred by OSCA upon settlement or final determination of this pendinglitigation. In April 2002, a jury found OSCA and the other defendantsresponsible for those claims and determined OSCA’s share of the damages. In connection with the lawsuit, OSCA asserted claims against its insurers andinsurance brokers in support of insurance coverage for this incident. Followinga related trial on these insurance coverage claims, the court issued its finaljudgments on the underlying liability claims and the insurance coverage claims,entering judgment against OSCA for a net amount of approximately $13 millionplus interest and finding that such amount was not covered by insurance. TheCompany and BJ Services appealed certain of the liability and insurancecoverage decisions.  In April 2006, the United States Fifth CircuitCourt of Appeals affirmed the jury’s verdict on liability against OSCA, butreversed in part the District Court’s decision regarding insurance coverageavailable to OSCA and remanded the matter to the District Court.  Afterthe case was remanded, OSCA’s insurer agreed to provide coverage for about halfof the outstanding judgment against OSCA, leaving approximately $6 million atissue for the District Court to address on remand.  Thereafter, the parties filed cross motionsfor summary judgment with the District Court on the remaining coverageissues.  On September 30, 2007, theDistrict Court granted summary judgment in OSCA’s favor on two out of the threeremaining categories of costs in dispute. This ruling requires AISLIC, OSCA’s insurer, to cover an additional $4million (plus interest) of OSCA liability to Newfield, leaving approximately $2million still at issue.  On or aboutFebruary 25, 2008, AISLIC agreed to cover virtually all of the $2 millionremaining at issue.  The only remainingmatter is AISLIC’s obligation to pay OSCA’s attorney’s fees and costsassociated with the underlying liability action (approximately $2million).  This matter will be mediatedin the second quarter of 2008.

 

Each quarter the Companyevaluates and reviews pending claims and litigation to determine appropriatereserve amounts.  As of December 31, 2007, the Company’s accrual forprobable loss in the aforementioned legal proceeding cases is immaterial. In addition, the related receivable to reflect probable insurance recoveries isalso immaterial.

 

The Company intends toassert all meritorious legal defenses and will pursue other equitable factorsthat are available with respect to these matters.  The resolution of thelegal proceedings now pending or hereafter asserted against the Company or anyof its subsidiaries could require the Company to pay costs or damages in excessof

 

20

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its present estimates,and as a result could, either individually or in the aggregate, have a materialadverse effect on the Company’s financial condition, results of operations andcash flows.

 

In addition to thematters referred to above, the Company is subject to routine litigation inconnection with the ordinary course of its business.  These routine matters have not had a materialadverse effect on the Company, its business or financial condition in the past,and the Company does not expect this litigation, individually or in theaggregate, to have a material adverse effect on its business or its financialcondition in the future, but it can give no assurance that such will be thecase.

 

**Antitrust Investigations and Related Matters**

 

Antitrust Investigations

 

*RubberChemicals*

 

On May 27, 2004, theCompany pled guilty to a one-count information charging the Company withparticipating 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 from July 1995to December 2001. The U.S. federal court imposed a fine of $50 million,payable in six annual installments, without interest, beginning in 2004. Inlight of the Company’s cooperation with the U.S. Department of Justice (the “DOJ”),the court did not impose any period of corporate probation.  On May 28,2004, the Company pled guilty to one count of conspiring to lessen competitionunduly in the sale and marketing of certain rubber chemicals in Canada. TheCanadian federal court imposed a sentence requiring the Company to pay a fineof CDN $9 million (approximately U.S. $7 million), payable in six annualinstallments, without interest, beginning in 2004. The Company paid (in U.S.dollars) $2 million in 2005, $7 million in 2006 and $12 million in 2007.Remaining cash payments for the U.S. and Canadian fines are expected to equal(in U.S. dollars) approximately $17 million in 2008; and $19 million in2009.  At December 31, 2007,reserves of $17 million and $17 million related to these settlements have beenincluded in accrued expenses and other liabilities, respectively, on theCompany’s consolidated balance sheet.

 

The Company and certainof its subsidiaries were previously the subject of a coordinated civilinvestigation by the European Commission (the “EC”) with respect to the saleand marketing of rubber chemicals.  OnDecember 21, 2005, the Company announced that the EC imposed a fine of Euro 14million (approximately U.S. $16 million) on the Company in connection with theEC’s rubber chemicals investigation.  Theamount of the fine reflects the EC’s maximum leniency of a 50 percent reductionin the fine, resulting from the Company’s continual cooperation with the ECthroughout its investigation.  InDecember 2005, the Company recorded a pre-tax charge of $16 million for the ECfine.  The Company paid this fine inApril 2006.  At December 31, 2006, therewere no remaining EC investigations of the Company with respect to its sale andmarketing of rubber chemicals.

 

European Union (“EU”)Investigations

 

The Company and certainof its subsidiaries are subjects of, and continue to cooperate in, coordinatedcriminal and civil investigations being conducted by the European Commission(the “EC”) with respect to possible antitrust violations relating to the saleand marketing of various classes of heat stabilizers and nitrile rubber. Suchinvestigations concern anticompetitive practices, including price fixing andcustomer or market allocations, undertaken by the Company and such subsidiariesand certain of their officers and employees. The Company and its subsidiaries that are subject to the investigationshave received from each the EC and the EU verbal or written assurances ofconditional amnesty from prosecution and fines with respect to nitrile rubberand conditional amnesty with respect to certain classes of heat stabilizers.The assurances of amnesty are conditioned upon several factors, includingcontinued cooperation with the EU. The Company is actively cooperating with theEU regarding such investigations.

 

Civil Lawsuits

 

The actions describedbelow under “U.S. Civil Antitrust Actions” are in various procedural stages oflitigation.  Although the actionsdescribed below have not had a material adverse impact on the Company, wecannot predict the outcome of any of those actions. The Company will seekcost-effective resolutions of the various pending and threatened legalproceedings against the Company; however, the resolution of any civil claimsnow pending or hereafter asserted against the Company or any of itssubsidiaries could have a material adverse effect on the Company’s financialcondition, results of operations or cash flows.  The Company hasestablished reserves for all direct and indirect purchaser claims as of December 31,2007.

 

The Company reviews itsreserves for civil lawsuits on a quarterly basis.  The Company alsoadjusts its reserves quarterly to reflect its current best estimates.

 

21

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*U.S. Civil Antitrust Actions*

 

*Directand Indirect Purchaser Lawsuits*. The Company, individually or together with itssubsidiary Uniroyal Chemical Company, Inc., now known as Chemtura USACorporation (referred to as “Uniroyal” for the purposes of the description ofthe Company’s lawsuits), and other companies, are defendants in variousproceedings filed in state and federal courts, described below.

 

*Federal Lawsuits. *The Company and certain of its subsidiaries continuesto be a defendant in two lawsuits pending in the federal courts.  One of these suits is a Massachusettsindirect purchaser claim premised upon violations of state law.  In both of these actions, and in all actions pendingin state courts (further described below), the plaintiffs seek, among otherthings, treble damages, costs (including attorneys’ fees) and injunctive reliefpreventing further violations or the improper conduct alleged in thecomplaint.  As described above, one suchfederal suit was originally filed in Massachusetts state court in May 2005as an indirect purchaser claim, and was subsequently removed to the UnitedStates District Court, District of Massachusetts.  This complaint initially related to purchasesof any product containing rubber and urethane products, defined to includeEPDM, nitrile rubber, urethanes, but is now limited to urethanes only.  The Company has reached a settlementagreement in principle with the plaintiffs, which has not yet beenfinalized.  The other suit, describedseparately below under the sub-heading “Bandag” was originally filed as adirect 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. Neither of thesefederal suits is expected to have a material adverse effect on the Company.

 

*Bandag. *This suit was originally brought by BridgestoneAmericas Holding, Inc, Bridgestone Firestone North American Tire, LLC, andPirelli Tire, LLC (all of whom have since settled) along with the remainingplaintiff, Bandag Incorporated, with respect to purchases of rubber chemicalsfrom the Company, Uniroyal and several of the world-wide leading suppliers ofrubber chemicals.  This suit alleges thatthe Company and Uniroyal, along with other rubber chemical manufacturersconspired to fix the prices of the rubber chemicals, and to divide the rubberchemicals markets in 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.  Discovery in thissuit is currently on-going, with an expected trial date of early 2009.

 

*State Lawsuits*The Company, individually or togetherwith Uniroyal, also continues to be a defendant in certain indirect purchaserantitrust class action lawsuits filed in state courts involving the sale ofurethanes and urethane chemicals.  Thecomplaints in these actions principally allege that the defendants conspired tofix, raise, maintain or stabilize prices for urethanes and urethane chemicals,as applicable, sold in the United States in violation of certain antitruststatutes and consumer protection and unfair or deceptive practices laws of therelevant jurisdictions and that this caused injury to the plaintiffs who paidartificially inflated prices for such products as a result of such allegedanticompetitive activities.  There are currently 22 separate state actionspending.  The Company has reached asettlement agreement in principle with the plaintiffs in 2 of these actions, andhas received preliminary court approval of a settlement agreement in 7 of theseactions.  The Company has settled 12indirect purchaser antitrust class action lawsuits that were pending on January1, 2007.  None of these state lawsuits individuallyor in the aggregate are expected to have a material adverse effect on theCompany.

 

At December 31,2007, the Company had a remaining reserve of $43 million included in accruedexpenses on its consolidated balance sheet relating to the remaining U.S.direct and indirect purchaser lawsuits, the federal securities class actionlawsuit described under “Federal Securities Class Action” below and theshareholder derivative lawsuit described under “Shareholder Derivative Lawsuit”below.  These reserves cover all directand indirect purchaser antitrust claims. The Company periodically reviews its accruals as additional informationbecomes available, and may adjust its accruals based on actual settlementoffers and other later occurring events. The Company is unable toestimate the reasonably possible loss, if any, in excess of the accrual as noneof these claims have been reduced to judgment.

 

*Australian Civil AntitrustMatters*

 

On September 27,2007, the Company was sued in the Federal Court of Australia for alleged pricefixing violations with respect to the sale of rubber chemicals inAustralia.  The Company has not yetresponded to the complaint, nor at this early stage assessed it merits.  The Company does not expect this matter willbe material.

 

The reserve activity forantitrust related litigation is summarized as follows:

 

22

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Governmental Reserves:

 
| **(In millions)**                      | ** ** | **U.S. DOJ   Fines** | ** ** | **Canada**

**Federal  Fines** | ** ** | **Total U.S.  and Canada  Fines** | ** ** | **European  Commission** | ** ** |
|---------------------------------------------|------------|--------------------------------|------------|--------------------------------|------------|---------------------------------------------|------------|--------------------------|------------|
| Balance January  1, 2005                    |       | $                              | 40         |                           | $          | 6                                           |       | $                        | 46         |   | $ | — |   |
| 2005 Antitrust  costs, excluding legal fees |       |                           | —     |                           |       | —                                      |       |                     | —     |   |   | 16 |   |
| Payments                                    |       |                           | (2         | )                              |       | —                                      |       |                     | (2         | ) |   | — |   |
| Accretion -  Interest                       |       | 3                              |       | —                         |       | 3                                           |       | —                   |       |
| Balance  December 31, 2005             |       | $                              | 41         |                           | $          | 6                                           |       | $                        | 47         |   | $ | 16 |   |
| Payments                                    |       | (6                             | )          | (1                             | )          | (7                                          | )          | (17                      | )          |
| Accretion -  Interest                       |       | 2                              |       | 1                              |       | 3                                           |       | —                   |       |
| Foreign currency  translation               |       | —                         |       | —                         |       | —                                      |       | 1                        |       |
| Balance  December 31, 2006             |       | 37                             |       | 6                              |       | 43                                          |       | $                        | —     |   |
| Payments                                    |       | (10                            | )          | (2                             | )          | (12                                         | )          |                     |       |
| Accretion -  Interest                       |       | 2                              |       | —                         |       | 2                                           |       |                     |       |
| Foreign currency  translation               |       | —                         |       | 1                              |       | 1                                           |       |                     |       |
| **Balance  December 31, 2007**         | ** ** | **$**                          | **29**     | ** **                     | **$**      | **5**                                       | ** ** | **$**                    | **34**     | ** ** | ** ** | ** ** |

 

Civil Case Reserves:

 
| **(In millions)**                      | ** ** | **U.S. Civil  and  Securities  Matters** | ** ** | **Canada Civil  Matters** | ** ** | **Total Civil  and  Securities  Matters** | ** ** |
|---------------------------------------------|------------|-----------------------------------------------|------------|--------------------------------|------------|------------------------------------------------|------------|
| Balance January  1, 2005                    |       | $                                             | 93         |                           | $          | —                                         |       | $ | 93 |   |
| 2005 Antitrust  costs, excluding legal fees |       |                                          | 9          |                           |       | 10                                             |       |   | 19 |   |
| Payments                                    |       |                                          | (53        | )                              |       | (4                                             | )          |   | (57 | ) |
| Accretion                                   |       | 2                                             |       | —                         |       | 2                                              |       |
| Balance  December 31, 2005             |       | $                                             | 51         |                           | $          | 6                                              |       | $ | 57 |   |
| 2006 Antitrust  costs, excluding legal fees |       | 81                                            |       | (2                             | )          | 79                                             |       |
| Payments                                    |       | (30                                           | )          | (4                             | )          | (34                                            | )          |
| Balance  December 31, 2006             |       | 102                                           |       | $                              | —     |                                           | 102        |   |
| 2007 Antitrust  costs, excluding legal fees |       | 24                                            |       |                           |       | 24                                             |       |
| Payments                                    |       | (83                                           | )          |                           |       | (83                                            | )          |
| **Balance  December 31, 2007**         | ** ** | **$**                                         | **43**     | ** **                     | ** ** | ** **                                     | **$**      | **43** | ** ** |
|                                             |            |                                               |            |                                |            |                                                |            |  |  |  |  |  |  |

 

Federal Securities Class Action

 

The Company, certain of its former officers anddirectors (the “Crompton Individual Defendants”), and certain former directorsof the Company’s predecessor Witco Corp. are defendants in a consolidated classaction lawsuit, filed on July 20, 2004, in the United States DistrictCourt, District of Connecticut, brought by plaintiffs on behalf of themselvesand a class consisting of all purchasers or acquirers of the Company’s stockbetween October 1998 and October 2002. The consolidated amendedcomplaint principally alleges that the Company and the Crompton IndividualDefendants caused the Company to issue false and misleading statements thatviolated the federal securities laws by reporting inflated financial resultsresulting from an alleged illegal, undisclosed price-fixing conspiracy. Theputative class includes former Witco Corp. shareholders who acquired theirsecurities in the Crompton-Witco merger pursuant to a registration statementthat allegedly contained misstated financial 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. Plaintiffsalso assert claims for control person liability under Section 15 of theSecurities Act of 1933 and Section 20 of the Securities Exchange Act of1934 against the Crompton Individual Defendants. The complaint also assertsclaims for breach of fiduciary duty against certain former directors of WitcoCorp. for actions they allegedly took as Witco Corp. directors in connectionwith the Crompton-Witco merger. The plaintiffs seek, among other things,unspecified damages, interest, and attorneys’ fees and costs. The Company andthe Crompton Individual Defendants filed a motion to dismiss on September 17,2004, which is now fully briefed and pending. The former directors of WitcoCorp. filed a motion to dismiss in February 2005, which is pending. On July 22,2005, the court granted a motion by the Company and the Crompton IndividualDefendants to stay discovery in the related Connecticut shareholder derivativelawsuit (described below under “Shareholder Derivative Lawsuit”), pendingresolution of the motion to dismiss by the Company and Crompton IndividualDefendants.

 

Shareholder Derivative Lawsuit

 

Certain current directors and one formerdirector and officer of the Company (the “Individual Defendants”) aredefendants in a shareholder derivative lawsuit filed on August 25, 2003 inConnecticut state court, nominally

 

23

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brought on behalf of the Company. The Company isa nominal defendant in the lawsuit. The plaintiff filed an amended complaint onNovember 19, 2004. The amended complaint principally alleges that theIndividual Defendants breached their fiduciary duties by causing or allowingthe Company to issue false and misleading financial statements by inflatingfinancial results resulting from an alleged illegal, undisclosed price-fixingconspiracy. The plaintiff contends that this wrongful conduct caused theCompany’s financial results to be inflated, cost the Company its credibility inthe marketplace and market share, and has and will continue to cost the Companymillions of dollars in investigative and legal fees. The plaintiff seeks, amongother things, compensatory and punitive damages against the director defendantsin unspecified amounts, prejudgment interest, and attorneys’ fees and costs.The Company filed a motion to strike all counts of the complaint on January 12,2005 for failure to allege adequately that a pre-lawsuit demand on the Company’sBoard of Directors by the plaintiff would have been futile and was thusexcused.  This motion was subsequentlydenied by the court.  Discovery in thislawsuit has been stayed by the United States District Court, District of Connecticut,pending resolution of the motion to dismiss filed by Company’s and the CromptonIndividual Defendants in the related consolidated securities class actionlawsuit described above under “Federal Securities Class Action.”

 

Other

 

The Company is routinely subject to other civil claims,litigation and arbitration, and regulatory investigations, arising in theordinary course of its present business as well as in respect of its divestedbusinesses. Some of these claims and litigations relate to product liabilityclaims, including claims related to the Company’s current products andasbestos-related claims concerning premises and historic products of itscorporate affiliates and predecessors. The Company believes that it has strongdefenses to these claims. These claims have not had a material impact on theCompany to date and the Company believes the likelihood that a future materialadverse outcome will result from these claims is remote. However, the Companycannot be certain that an adverse outcome of one or more of these claims wouldnot have a material adverse effect on its financial condition, results ofoperations, or cash flows.

** **

**24**

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** **

**ITEM4.  SUBMISSION OF MATTERS TO VOTE OFSECURITY HOLDERS**

** **

No matters were submitted to a vote of securityholders during the fourth quarter of the fiscal year covered by this report.

 

**EXECUTIVE OFFICERS OF THE REGISTRANT**

 

The executive officers of the Corporation are asfollows:

 

**Robert L. Wood,**age 53, has servedas President and Chief Executive Officer of the Company since January 2004and Chairman since April 2004. Previously, Mr. Wood served for 27 years with The Dow ChemicalCompany in a variety of executive capacities, most recently as business groupPresident for Thermosets and Dow Automotive.

 

**Stephen Forsyth,**age****52, has servedas Executive Vice President, Chief Financial Officer since April 2007 andTreasurer June 2007.  Previously, Mr. Forsythserved for 26 years with Hexcel Corporation in a variety of executivecapacities, most recently as Executive Vice President and Chief FinancialOfficer.

 

**Robert S. Wedinger,****PhD**, age 50,has served as Chief Business Officer since December 2007 and GroupPresident of Performance Specialties since April 2007.  Dr. Wedinger joined Chemtura in 2006 asVice President and General Manager of Process Chemicals and Polymers.  Previously, Dr. Wedinger served in avariety of executive capacities, most recently as Vice President and GeneralManager of Performance Materials at J.M. Huber Corporation.

 

**David G. Dickey,** age 39, has served as Chief Functional andServices Officer since December 2007. Mr. Dickey joined Chemtura in March 2006 as Vice President,Global Supply Chain, Non-Manufacturing. Previously, Mr. Dickey served as General Manager for Carrier, adivision of United Technologies Corporation.

 

**Gregory E. McDaniel**, age 56, has served as Group President, CropProtection since April 2007, as Executive Vice President, Strategy, NewBusiness Development and Technology from 2006 to 2007 and as Senior VicePresident, Strategy & New Business Development from 2004 to 2006.  Previously, Mr. McDaniel served for 28years with The Dow Chemical Company in a variety of executive capacities, mostrecently as Vice President and Director of New Business Development and Mergersand Acquisitions within the Polyurethane and Thermosets groups.

 

**Lynn A. Schefsky**, age 59, has served as Senior Vice President,General Counsel since 2004 and Secretary since December 2007.  Previously, Mr. Schefsky served for 19years with The Dow Chemical Company in a variety of legal positions, mostrecently as Global Managing Counsel for Thermosets and Dow Automotive.

 

**Kevin V. Mahoney**, age 53, has servedas Senior Vice President and Corporate Controller since October 2006.  Previously, Mr. Mahoney spent 18 yearswith American Express Company, where he most recently was Senior Vice Presidentof Corporate Reporting, responsible for financial reporting globally.

 

The term of office of each of the above-namedexecutive officers lasts until the first meeting of the Board of Directorsfollowing the next annual meeting of stockholders and until the election andqualification of his or her successor.

 

There is no family relationship between any ofsuch officers, and there is no arrangement or understanding between any of themand any other person pursuant to which any such officer was selected as anofficer.

** **

**25**

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** **

**PART II.**

** **

**ITEM 5.  MARKET FOR REGISTRANT’S COMMON EQUITY,RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES**

** **

**The following table summarizes therange of market prices for Chemtura Corporation’s common stock on the New YorkStock Exchange and the amount of dividends per share by quarter during the pasttwo years:**

** **
| ** **                          | ** ** | **2007**   | ** ** |
|-------------------------------------|------------|------------|------------|
| ** **                          | ** ** | **First**  | ** ** | **Second** | ** ** | **Third** | ** ** | **Fourth** | ** ** |
| **Dividends  per common share**     | ** ** | **$**      | **0.05**   | ** ** | **0.05** | ** ** | **0.05** | ** ** | **0.05** | ** ** |
| **Market  price per common share:** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| **High**                            | ** ** | **$**      | **12.33**  | ** ** | **12.02** | ** ** | **11.98** | ** ** | **10.10** | ** ** |
| **Low**                             | ** ** | **$**      | **9.34**   | ** ** | **10.08** | ** ** | **8.42** | ** ** | **6.95** | ** ** |
| ** **                          | ** ** | **2006**   | ** ** |
| ** **                          | ** ** | **First**  | ** ** | **Second** | ** ** | **Third** | ** ** | **Fourth** | ** ** |
| Dividends per  common share         |       | $          | 0.05       |   | 0.05 |   | 0.05 |   | 0.05 |   |
| Market price per  common share:     |       |       |       |   |   |   |   |   |   |
| High                                |       | $          | 13.53      |   | 12.43 |   | 9.40 |   | 9.79 |   |
| Low                                 |       | $          | 10.15      |   | 8.43 |   | 7.75 |   | 8.00 |   |

** **

**The number of registered holders ofcommon stock of the Company on February 1, 2008 was approximately 5,500.**

** **

**Performance Graph**

**The following graph compares thecumulative total return on the common stock of the Company for the last fivefiscal years with the returns on the Standard & Poor’s 500 Stock Indexand the Chemicals (Specialty)–500 Index, assuming the investment of $100 in theCompany’s common stock, the S&P 500 Index and the Chemicals (Specialty)–500Index on December 31, 2002, and the reinvestment of all dividends.**

** **

**COMPARISONOF FIVE-YEAR**

**CUMULATIVETOTAL RETURN AMONG CHEMTURA CORPORATION,**

**S&P500 AND S&P 500 SPECIALTY CHEMICALS**

** **

****

 
| ** **                          | ** ** | **12/31/02** | ** ** | **12/31/03** | ** ** | **12/31/04** | ** ** | **12/31/05** | ** ** | **12/31/06** | ** ** | **12/31/07** | ** ** |
|-------------------------------------|------------|--------------|------------|--------------|------------|--------------|------------|--------------|------------|--------------|------------|--------------|------------|
| **CHEMTURA CORPORATION**            |       | $            | 100.0      |         | $          | 124.8        |       | $            | 211.2      |         | $          | 230.7        |       | $ | 178.5 |   | $ | 147.4 |   |
| **S&P 500**                     |       | $            | 100.0      |         | $          | 128.7        |       | $            | 142.7      |         | $          | 149.7        |       | $ | 173.3 |   | $ | 182.8 |   |
| **S&P 500 SPECIALTY CHEMICALS** |       | $            | 100.0      |         | $          | 119.2        |       | $            | 137.4      |         | $          | 142.8        |       | $ | 175.2 |   | $ | 202.8 |   |

 

**The above graph assumes an initialinvestment of $100 on December 31, 2002. Total return includes reinvestments of dividends.**

** **

**The Chemicals (Specialty)-500 Indexcompanies are as follows:  Ecolab Inc.,Great Lakes Chemical Corporation, International Flavors & FragrancesInc., Rohm & Haas Company and Sigma-Aldrich Corporation.  Information for Great Lakes ChemicalCorporation is included through 2004, as Great Lakes merged with the Company inJuly 2005.**

** **

**26**

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** **

**ITEM6.  SELECTED FINANCIAL DATA**

** **

**The selected financial data for theCompany for each of its last five fiscal years follows:**

** **
| **(In millions of dollars, except per share data)**           | ** ** | **2007**   | ** ** | **2006**    | ** ** | **2005 (a)** | ** ** | **2004 (a)** | ** ** | **2003 (a)** | ** ** |
|--------------------------------------------------------------------------------------------------|------------|------------|------------|-------------|------------|-------------------|------------|-------------------|------------|-------------------|------------|
| **Summary  of Operations**                                                                       |       |       |       |        |       |              |       |              |       |              |       |
| Net sales                                                                                        | ** ** | **$**      | **3,747**  |        | 3,458      |              | 2,739      |              | 2,112      |              | 1,798      |   |
| Gross profit                                                                                     | ** ** | **$**      | **885**    |        | 856        |              | 720        |              | 498        |              | 440        |   |
| Selling, general  and administrative                                                             | ** ** | **$**      | **393**    |        | 387        |              | 326        |              | 266        |              | 255        |   |
| Depreciation and  amortization                                                                   | ** ** | **$**      | **269**    |        | 204        |              | 150        |              | 112        |              | 95         |   |
| Research and  development                                                                        | ** ** | **$**      | **62**     |        | 61         |              | 50         |              | 47         |              | 48         |   |
| Facility  closures, severance and related costs                                                  | ** ** | **$**      | **36**     |        | 5          |              | 23         |              | 62         |              | 17         |   |
| Antitrust costs                                                                                  | ** ** | **$**      | **35**     |        | 90         |              | 49         |              | 114        |              | 78         |   |
| Merger costs (d)                                                                                 | ** ** | **$**      | **—** |        | 17         |              | 45         |              | —     |              | —     |   |
| In-process  research and development (d)                                                         | ** ** | **$**      | **—** |        | —     |              | 73         |              | —     |              | —     |   |
| (Gain) loss on  sale of assets and businesses (b)                                                | ** ** | **$**      | **15**     |        | 11         |              | (3         | )                 | (95        | )                 | (4         | ) |
| Impairment of  long-lived assets (c)                                                             | ** ** | **$**      | **19**     |        | 80         |              | —     |              | —     |              | —     |   |
| Equity income                                                                                    | ** ** | **$**      | **(3**     | **)**       | (4         | )                 | (2         | )                 | (14        | )                 | (13        | ) |
| Operating profit  (loss)                                                                         | ** ** | **$**      | **59**     |        | 5          |              | 9          |              | 6          |              | (36        | ) |
| Interest expense                                                                                 | ** ** | **$**      | **87**     |        | 102        |              | 108        |              | 78         |              | 90         |   |
| Loss on early  extinguishment of debt                                                            | ** ** | **$**      | **—** |        | 44         |              | 55         |              | 20         |              | 25         |   |
| Other expense,  net                                                                              | ** ** | **$**      | **13**     |        | 6          |              | 12         |              | 11         |              | 2          |   |
| Loss from  continuing operations before income taxes and cumulative effect of accounting  change |       | **$**      | **(41**    | **)**       | (147       | )                 | (166       | )                 | (103       | )                 | (153       | ) |
| Income tax (benefit)  provision                                                                  | ** ** | **$**      | **4**      | ** **  | 126        |              | 49         |              | (54        | )                 | (35        | ) |
| Loss from  continuing operations before cumulative effect of accounting change                   |       | **$**      | **(45**    | **)**       | (273       | )                 | (215       | )                 | (49        | )                 | (118       | ) |
| Earnings from  discontinued operations                                                           | ** ** | **$**      | **18**     |        | 20         |              | 33         |              | 12         |              | 25         |   |
| Gain (loss) on  sale of discontinued operations                                                  | ** ** | **$**      | **24**     |        | 47         |              | (4         | )                 | 2          |              | 112        |   |
| Cumulative  effect of accounting change (e)                                                      | ** ** | **$**      | **—** |        | —     |              | (1         | )                 | —     |              | —     |   |
| Net earnings  (loss)                                                                             | ** ** | **$**      | **(3**     | **) ** | (206       | )                 | (187       | )                 | (35        | )                 | 19         |   |
| **Per  Share Statistics**                                                                        |       |       |       |        |       |              |       |              |       |              |       |
| Basic and  Diluted                                                                               |       |       |       |        |       |              |       |              |       |              |       |
| Loss from  continuing operations before cumulative effect of accounting change                   |       | **$**      | **(0.18**  | **)**       | (1.13      | )                 | (1.21      | )                 | (0.43      | )                 | (1.05      | ) |
| Earnings from  discontinued operations                                                           | ** ** | **$**      | **0.07**   |        | 0.08       |              | 0.18       |              | 0.11       |              | 0.22       |   |
| Gain (loss) on  sale of discontinued operations                                                  | ** ** | **$**      | **0.10**   |        | 0.20       |              | (0.02      | )                 | 0.02       |              | 1.00       |   |
| Cumulative  effect of accounting change                                                          | ** ** | **$**      | **—** |        | —     |              | —     |              | —     |              | —     |   |
| Net earnings  (loss)                                                                             | ** ** | **$**      | **(0.01**  | **)**       | (0.85      | )                 | (1.05      | )                 | (0.30      | )                 | 0.17       |   |
| Dividends                                                                                        | ** ** | **$**      | **0.20**   |        | 0.20       |              | 0.20       |              | 0.20       |              | 0.20       |   |
| Book value                                                                                       | ** ** | **$**      | **7.65**   |        | 6.97       |              | 7.40       |              | 2.84       |              | 2.64       |   |
| Common stock  trading range:                                                                     | High       | ** ** | **$**      | **12.33**   |       | 13.53             |       | 17.95             |       | 11.80             |       | 7.75 |   |
|                                                                                             | Low        | ** ** | **$**      | **6.95**    |       | 7.75              |       | 9.89              |       | 5.02              |       | 3.63 |   |
| Average shares  outstanding - Basic                                                              | ** ** | **241.6**  |       | 240.5       |       | 178.4             |       | 114.7             |       | 112.5             |       |
| Average shares  outstanding - Diluted                                                            | ** ** | **241.6**  |       | 240.5       |       | 178.4             |       | 114.7             |       | 112.5             |       |
|                                                                                             |       |       |       |        |       |              |       |              |       |              |       |
| **Financial  Position**                                                                          |       |       |       |        |       |              |       |              |       |              |       |
| Working capital                                                                                  | ** ** | **$**      | **698**    |        | 497        |              | 566        |              | 338        |              | 164        |   |
| Current ratio                                                                                    | ** ** | **2.0**    |       | 1.6         |       | 1.6               |       | 1.5               |       | 1.2               |       |
| Total assets                                                                                     | ** ** | **$**      | **4,416**  |        | 4,399      |              | 4,986      |              | 2,679      |              | 2,529      |   |
| Total debt,  including short-term borrowings                                                     | ** ** | **$**      | **1,063**  |        | 1,111      |              | 1,370      |              | 867        |              | 815        |   |
| Stockholders’ equity  (f)                                                                   | ** ** | **$**      | **1,853**  |        | 1,679      |              | 1,775      |              | 329        |              | 303        |   |
| Total capital  employed                                                                          | ** ** | **$**      | **2,916**  |        | 2,790      |              | 3,145      |              | 1,196      |              | 1,118      |   |
| Debt to total  capital %                                                                         | ** ** | **36.5**   |       | 39.8        |       | 43.6              |       | 72.5              |       | 72.9              |       |

 

27

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| **(In millions of dollars, except for number of employees)** | ** ** | **2007**  | ** ** | **2006** | ** ** | **2005** | ** ** | **2004** | ** ** | **2003** | ** ** |
|------------------------------------------------------------------------------------------------------|------------|-----------|------------|----------|------------|----------|------------|----------|------------|----------|------------|
| **Other  Statistics**                                                                                |       |      |       |     |       |     |       |     |       |     |       |
| Net cash  provided by (used in) operations                                                           | ** ** | **$**     | **149**    |     | 251        |     | (79        | )        | 36         |     | (15        | ) |
| Capital spending  from continuing operations                                                         | ** ** | **$**     | **115**    |     | 122        |     | 97         |     | 60         |     | 77         |   |
| Depreciation  from continuing operations                                                             | ** ** | **$**     | **229**    |     | 163        |     | 122        |     | 95         |     | 82         |   |
| Amortization  from continuing operations                                                             | ** ** | **$**     | **40**     |     | 41         |     | 28         |     | 17         |     | 13         |   |
| Number of  employees at end of year                                                                  | ** ** | **5,144** |       | 6,187    |       | 6,578    |       | 4,773    |       | 5,521    |       |

 

----

**(a)**Due to the inclusion of the operating results of GreatLakes subsequent to the merger on July 1, 2005, prior period results arenot directly comparable.

**(b)**(Gain) loss on sale of assets and businesses, net primarily includes a$15 million loss on the sale of assets relating to the sale of the Celogen® productline in 2007, a $12 million loss on the sale of the IWA business in 2006, a $3million gain on the reversal of a reserve related to the 2001 sale of theIndustrial Colors business in 2005, income related to the sale of the Gustafsonjoint venture of $94 million in 2004 and a $4 million gain on the reversal of areserve related to the 2002 sale of the Industrial Specialties business in2003.

**(c)**The 2007 charge includes a $3 million impairment relatingto the sale of property, plant and equipment at the Marshall, Texas facility,$4 million write-off of a construction in progress associated with certainfacilities affected by the 2007 restructuring programs, $9 million reduction inthe value of assets relating to the closure and sale of the Ravenna, Italyfacility and $3 million write-off of construction in progress for softwarecosts that will no longer be utilized.  The2006 charge includes $52 million impairment of the fluorine business as aresult of the Company’s annual impairment review, a $22 million impairment ofnon-current assets of the fluorine business due to a loss of a significantcustomer and $6 million impairment due to the write-down of assets retainedsubsequent to the sale of the IWA business.

**(d)**Merger costs are non-capitalizable costs associated withthe merger of the Company and Great Lakes. The write-off of $73 million of in-process research and development isalso the direct result of the merger with Great Lakes.

**(e)**2005 results include a cumulative effect of accountingchange of less than $1 million, related to the implementation of FinancialAccounting Standards Board (FASB) Interpretation No. 47, “Accounting forConditional Asset Retirement Obligations.”

**(f)**  The Company adopted the provisions of Staff Accounting BulletinNo. 108, “Considering the Effects of Prior Year Misstatements whenQuantifying Misstatements in the Current Year Financial Statements,” (SAB 108)in the quarter ended December 31, 2006. As a result of adopting SAB 108 and electing to use the one-timetransitional adjustment, the Company made an adjustment to the opening balanceof retained earnings for $12 million ($4 million net of tax) in 2006.

** **

**28**

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** **

**ITEM7.  MANAGEMENT’S DISCUSSION AND ANALYSISOF FINANCIAL CONDITION AND RESULTS OF OPERATIONS**

 

**INTRODUCTION**

** **

Description of Business

The Company is among thelargest publicly traded specialty chemical companies in the United States andis dedicated to delivering innovative,market-focused specialty chemical solutions and consumer products.  The Company is headquartered in Middlebury,Connecticut, and operates in awide variety of end-use markets, including automotive, transportation,construction, packaging, agriculture, lubricants, plastics for durable andnon-durable goods, electronics, and home pool and spa chemicals. The majorityof our chemical products are sold to industrial manufacturing customers for useas additives, ingredients or intermediates that add value to their endproducts.  Our crop and consumer productsare 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 Company’s operations and sales are industrial production,residential and commercial construction, auto production and resinproduction.  In addition, the Company’sCrop Protection segment is influenced by worldwide weather, disease and pestinfestation conditions. The Company’s Consumer Products segment is alsoinfluenced by general economic conditions impacting consumer spending andweather conditions.

 

Othermajor factors affecting the Company’s financial performance include industrycapacity, customer demand, raw material and energy costs, and selling prices.Selling prices are influenced by global demand and supply factors.  The Company’s strategy is to pursue selling pricesthat reflect the value of our products and to pass on higher costs for rawmaterial and energy so as to preserve our profit margins. Our strategictarget is to achieve a 15% minimum average operating profit margin across ourbusiness portfolio.

 

Annual sales for 2007increased $289 million or 8% compared with 2006.  This increase is due primarily to $181 millionof sales resulting from the Kaufman acquisition in January 2007 and $61million from strengthening foreign currency. Additional sales of $43 million resulted from successful priceincreases, most notably within the Polymer Additives, Performance Specialtiesand Consumer Products segments, reflecting increases in the costs of rawmaterials.  The Company’s increases toselling prices during the year have not offset increases in raw material costsduring 2007.  Product mix improvements,primarily in Plastic Additives and Crop Protection segments, resulted in netincreased sales of $13 million.  Saleswere reduced by $9 million due to divestiture activity, primarily related tosale of the Industrial Water Additives business in May 2006.

 

The Polymer Additivessegment operating profit decreased 41% compared with the prior year.  Higher selling prices and product miximprovements, particularly in non-flame retardant plastic additive productlines, were not sufficient to offset increases in raw material and energycosts.  However, the segment experiencedcost savings programs and favorable manufacturing efficiencies during 2007.

 

The PerformanceSpecialties segment operating profit rose 21% over last year, led by anincrease resulting from the Kaufman acquisition, increased sales volume, higherselling prices and favorable foreign currency translation.  Rising raw materials costs were partiallyoffset by customer pricing, improving efficiencies and a favorable sales mix.

 

Operating profit forConsumer Products increased 3% in 2007 despite net sales that were essentiallyflat for the year.  Operating profitbenefited primarily from higher pricing and favorable foreign currencytranslation, which were offset by volume losses.

 

The Crop Protectionsegment operating profit improved 64% in 2007. Sales rose primarily from organic growth and favorable foreign exchange,partially reduced by price concessions to maintain market share againstincreased global competition.  Operatingprofit benefited from favorable product mix and improved economic conditions inBrazil.

 

TheCompany has undertaken various cost reduction initiatives over the past severalyears and continues to aggressively pursue cost reductions.  The Company is assessing cost savings opportunities ona global basis to realize its goal of achieving selling, general andadministrative and research and development expenditures that are less than 11%of total sales, as well as other cost improvement initiatives to improve theCompany’s gross margins.

 

29

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Strategic Initiatives

 

The Company’s strategy isto focus on its core businesses, rationalizing its manufacturing footprint andcost structure while developing products and applications that generateprofitable organic revenue growth.  Toimplement this strategy, the Company is rationalizing its business portfolio bydivesting non-core and underperforming businesses and assets and hasimplemented a number of restructuring programs to reduce manufacturing andfunctional costs.  The Company continuesto focus its resources on generating growth from new product and applicationdevelopment and geographic expansion.  Wemay supplement these organic growth initiatives by acquiring businesses andassets that will facilitate growth.  TheCompany announced three strategic cost saving restructuring initiatives in thesecond quarter of 2007 and launched an initiative in the fourth quarter of 2007to consolidate its multiple ERP systems onto a single SAP platform.

 

As a result of divestituresof its non-core businesses, its strategic cost saving initiatives and theconsolidation of its legacy ERP systems, the Company accelerated thedepreciation and the recognition of the asset retirement obligations related tocertain assets at several of its global facilities for which there was a changein the estimated useful lives of certain assets. In addition, the Company hasestimated the severance and related costs it will incur due to employeereductions. As a result of these initiatives, the Company recorded pre-taxcharges for accelerated depreciation of $70 million, facility closures,severance and related costs of $40 million, asset impairment charges of $19million and accelerated recognition of asset retirement obligations of $7million in operating profit on its consolidated statement of operations for theyear ended December 31, 2007.  Therewill be continuing charges related to the announced divestiture and costreduction programs in 2008 as these actions are brought to completion.  The Company continues to evaluate itsmanufacturing footprint and business processes seeking further opportunities toreduce cost and increase its operating effectiveness which may result infurther charges in 2008.

 

On December 10,2007, the Company announced the formation of the Office of the Chairman,designed to increase organizational focus, speed decision making and improveexecution.

 

On December 18,2007, the Company announced that its Board of Directors has authorizedmanagement to consider a wide range of strategic alternatives available to theCompany to enhance shareholder value.

 

# **Significant Transactions and Events**

 

During the year ended December 31,2007 and through the date of this filing, the following significanttransactions occurred:

 

·                  On January 31, 2007, the Companycompleted the acquisition of the stock of Kaufman Holdings Corporation (“Kaufman”)in an all-cash transaction.  The net cashpaid for this transaction was $165 million. The Kaufman acquisition complementsthe Company’s existing Performance Specialties segment in offering relatedproducts in key customer areas, providing the opportunity to strengthenalliances with major suppliers, and offering potential distribution synergies.

 

·                  On April 4, 2007, the Companyannounced the realignment of its business segments, streamlining of theorganization, reevaluation of its manufacturing footprint and the redirectionof efforts to focus on end-use markets. In June 2007, the Company identified more than 600 positionreductions, approved several locations for closure and is continuing toevaluate additional locations.  As aresult of these actions, the Company recorded pre-tax charges primarily forseverance of $28 million in 2007 to facility closures, severance and relatedcosts in the consolidated statement of operations, of which $3 million wasrecorded in the fourth quarter, $3 million in the third quarter, $20 million inthe second quarter and $2 million in the first quarter of 2007.  The Company is continuing to evaluate itsworkforce and operating facilities and additional restructuring charges mayresult in 2008.

 

·                  On June 4, 2007, the Companyformally announced its plan to close the antioxidant facilities at Pedrengo andRavenna, Italy, and two intermediate chemical product lines at Catenoy,France.  The actions, which are inaddition to the restructuring plan announced on April 4, 2007, impactapproximately 190 employees.  The Companyrecorded pre-tax charges of $49 million during 2007 ($33 million of accelerateddepreciation was recorded to depreciation and amortization expense; $11 millionprimarily for severance was recorded to facility closures, severance andrelated costs; a $4 million asset impairment charge was recorded to impairmentof long-lived assets; and $1 million accelerated asset retirement obligationswas recognized in cost of products sold). Of these charges, $1 million was recorded in the fourth quarter, $5million in the third quarter, $32 million in the second quarter and $11 millionin the first quarter of 2007.

 

30

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·                  On June 29, 2007, the Companycompleted the sale of its EPDM business, the Celogen® foaming agents productline related to rubber chemicals, and its Geismar, Louisiana facility for cashproceeds at closing and promissory notes since collected totaling $153 million.  The Company reported a net of tax gain of $8million ($23 million related to the sale of the EPDM business in discontinuedoperations and a loss of $15 million related to the sale of foaming agents incontinuing operations).  The Companyutilized the cash proceeds to reduce debt incurred in the first quarter of 2007for the purchase of Kaufman, repaying amounts outstanding under its revolvingcredit facility in full during the second quarter.

 

·                  On July 27, 2007, the Companyannounced that it will not renew the lease on its Oakville, Ontario facilityand is exploring strategic options for this facility and will consolidatecertain of its Oakville’s operations into other facilities.  The Company also announced its plans toconsolidate its Scarborough, Ontario facility into its West Hill, Ontario plantand to sell surplus land and office buildings at the West Hill facility.  Employee reductions are included in the 2007restructuring initiative announced on April 4, 2007.

 

·                  On July 31, 2007, the Companycompleted the sale of its organic peroxide business located in Marshall,Texas.  This sale transaction did not have amaterial impact on the Company’s earnings, financial position or cash flows.

 

·                  During 2007, the Company recorded a $9million asset impairment charge, primarily related to the Company’s Ravenna,Italy facility.  This was the result ofthe closure of the antioxidant business and the plan to sell the opticalmonomers business at this site.

 

·                  On October 31, 2007, the Companyannounced that it sold its optical monomers business for cash proceeds of $24million resulting in a net loss of $1 million. Included in the transaction was the Company’s Ravenna, Italymanufacturing facility.  The opticalmonomers business is reported as a discontinued operation in the accompanyingconsolidated financial statements.

 

·                  On January 31, 2008, the Companycompleted the sale of its fluorine chemical business located at the Company’sEl Dorado, Arkansas facility.  Thefluorine chemical business had revenue of approximately $49 million in2007.  The fluorine chemical business isreported as a discontinued operation in the accompanying consolidated financialstatements included in Part II Item 8 of this Form 10-K.

 

·              On February 29, 2008, the Company completedthe sale of its oleochemicals business. The oleochemicals business had revenue of approximately $175 million in2007.

 

·              On February 29, 2008, the Companypurchased the remaining 46.5% outstanding shares of Baxenden Chemicals Limited.

 

·                 On March 12,2008, the Company purchased the remaining 50% outstanding shares of GLCCLaurel, LLC.

 

·              The Company has approximately 5,100employees at December 31, 2007, a 5% reduction in the fourth quarter.  The reduction reflects the impact of theCompany’s restructuring activities, the Company’s divestitures during theperiod and natural attrition.  Additionalreductions are expected as the Company completes its announced restructuringand divestiture actions.

 

 

**ANTITRUST INVESTIGATIONS AND RELATED MATTERS**

 

The Company is party tovarious governmental and civil antitrust proceedings.  For information on these proceedings(including information on Company reserves with respect to these proceedings),see**Note 21 – Legal Matters inthe Notes to Consolidated Financial Statements, and Item 3 “Legal Proceedings”under Part I of this document.

** **

**LIQUIDITYAND CAPITAL RESOURCES**

 

**Acquisition**

 

On January 31, 2007,the Company completed the acquisition of the stock of Kaufman in an all-cashtransaction. The net cash paid for this acquisition was $165 million.  Additionally, a deferred payment of $5million will be paid to the sellers on the second anniversary of the closingdate, subject to any indemnification claims. The Kaufman acquisitioncompliments the Company’s existing Performance Specialties segment in offeringrelated products in key customer areas, providing the opportunity to strengthenalliances with major suppliers, and offering potential distribution synergies.

 

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**Significant2007 Divestitures**

 

OnJune 29, 2007, the Company completed the sale of its EPDM business, theCelogen® foaming agents product line, and its Geismar, Louisiana facility forcash proceeds at closing and promissory notes since collected totaling $153million.  Additionally, the Companyincurred $5 million in transaction costs in the second quarter of 2007.  The Company reported a net of tax gain of $8million ($23 million related to the sale of the EPDM business in discontinuedoperations and a loss of $15 million related to the sale of foaming agents incontinuing operations).  The Companyutilized the cash proceeds to reduce debt incurred in the first quarter of 2007for the purchase of Kaufman.

 

On October 31, 2007,the Company completed the sale of its optical monomers business which includesthe Company’s Ravenna, Italy manufacturing facility for cash proceeds of $24million paid at closing.  The Companyreported a net of tax loss of $1 million ($2 million related to the sale of theoptical monomers business in discontinued operations and a gain of $1 millionrelated to the sale of antioxidants in continuing operations).  The assets sold include $8 million inaccounts receivable, $9 million in inventories and $5 million ofassets at the Company’s manufacturing facilities and $2 million of currentliabilities.

 

Theconsolidated statements of cash flows have not been adjusted to reflect thediscontinued operations and, thus, include the cash flows of the discontinued businesses.  The absence of discontinued operations will not have amaterial impact on future operating cash flows, liquidity or capital resourcesof the Company.

 

##### **Cash Flows from Operations**

Net cash provided byoperations was $149 million in 2007 compared to $251 million of net cashprovided by operations in 2006.   Changesin key working capital accounts are summarized below:

 
| **Favorable (unfavorable)**      | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
|---------------------------------------|------------|------------|------------|------------|------------|------------|------------|
| **(In millions)**                | ** ** | **2007**   | ** ** | **2006**   | ** ** | **Change** | ** ** |
| Accounts  receivable                  |       | $          | 26         |       | $          | 23         |       | $ | 3 |   |
| Accounts receivable  - securitization |       | (41        | )          | 194        |       | (235       | )          |
| Inventories                           |       | 10         |       | 18         |       | (8         | )          |
| Accounts payable                      |       | (20        | )          | (33        | )          | 13         |       |
|                                       |            |            |            |            |            |            |            |  |  |  |

 

During 2007, accounts receivable decreased by $26 millionas compared to a $23 million decrease in 2006. The 2007 decrease in accountsreceivable was primarily a result of improved collections anddivestitures.  In 2007, the decrease insecuritization programs was $41, compared to an increase of $194 million in2006. The decrease in 2007 is related to a reduction of the fundingrequirements under the securitization programs, while the increase in 2006 wasdue to the inclusion of Great Lakes accounts receivable.  Inventory decreased $10 million in 2007reflecting primarily planned reductions due to changes in sales strategy, thesale of EPDM and the Celogen® product line. The decrease in 2007 and 2006 inaccounts payable is primarily due to timing of vendor payments and additionalutilization of early payment discounts offered by vendors.

 

During 2007, the Company’spension and post-retirement healthcare liabilities decreased by $22 million.This decrease includes contributions of $36 million, which includes $23 millionfor domestic plans and $13 millions for international plans.

 

Net cash provided byoperations in 2007 was also affected by various charges and preexistingreserves.  A summary of these items andthe net impact on cash flows provided by (used in) operations is as follows:

 
| **(In millions)**                         | ** ** | **Net Change per  Consolidated  Statement of  Cash Flows** | ** ** | **2007  Expense** | ** ** | **2007  Cash  Payments** | ** ** |
|------------------------------------------------|------------|--------------------------------------------------------------------------------|------------|-------------------|------------|--------------------------|------------|
| Antitrust  settlement costs                    |       | $                                                                              | (39        | )                 | $          | 20                       |       | $ | (59 | ) |
| Facility  closure, severance and related costs |       | 9                                                                              |       | 36                |       | (27                      | )          |
| Interest expense                               |       | 2                                                                              |       | 87                |       | (85                      | )          |
| Environmental  liabilities                     |       | (26                                                                            | )          | 4                 |       | (30                      | )          |
| Management  incentive plans                    |       | 5                                                                              |       | 7                 |       | (2                       | )          |
| Income taxes                                   |       | (45                                                                            | )          | 4                 |       | (49                      | )          |
|                                                |            |                                                                                |            |                   |            |                          |            |  |  |  |

 

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Net cash provided by operations in 2007 also reflects the impact ofcertain non-cash charges, including $275 million of depreciation andamortization expenses.

 

##### **Cash Flows from Investing and FinancingActivities**

 

Net cash used in investing activities was $83 million for 2007, whichreflects net proceeds from divestments of $186 million and $165 million of netcash paid for the Kaufman acquisition. Additionally, capital expenditures for 2007 amounted to $117 million as comparedwith $128 million for 2006. Expenditures were primarily related to domestic andforeign facilities and environmental and other compliance requirements.

 

Net cash used infinancing activities was $90 million for 2007, which included payments onshort-term borrowings of $48 million, dividend payments of $48 million andother financing activities of $1 million, partially offset by proceeds from theexercise of stock options of $7 million.

 

**ContractualObligations and Other Cash Requirements**

** **

TheCompany has obligations to make future cash payments under contracts andcommitments, including long-term debt agreements, lease obligations,environmental liabilities, antitrust settlements, post-retirement health careliabilities, facility closures, severance and related cost liabilities, and otherlong-term liabilities.

 

The following table summarizes the Company’ssignificant contractual obligations and other cash requirements as of December 31,2007:

 
| **(In millions)**                                       | ** ** | **Payments Due by Period** | ** ** |
|--------------------------------------------------------------|------------|-------------------------------------------|------------|
| ** **                                                   | ** ** | ** **                                | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | **2013 and** | ** ** |
| **Contractual Obligations***                            | ** ** | **Total**                                 | ** ** | **2008** | ** ** | **2009** | ** ** | **2010** | ** ** | **2011** | ** ** | **2012** | ** ** | **Thereafter** | ** ** |
| Total debt  (including capital leases)                       | **(a)**    | **$**                                     | 1,076      | ** ** | **$** | 5 | ** ** | **$** | 402 | ** ** | **$** | 1 | ** ** | **$** | — | ** ** | **$** | — | ** ** | **$** | 668 | ** ** |
| Operating leases                                             | **(b)**    | 155                                       |       | 30 |   | 24 |   | 20 |   | 15 |   | 13 |   | 53 |   |
| Contractual  antitrust settlements                           | **(c)**    | 37                                        |       | 18 |   | 19 |   | — |   | — |   | — |   | — |   |
| Facility  closures, severance and related cost liabilities   | **(d)**    | 29                                        |       | 27 |   | 2 |   | — |   | — |   | — |   | — |   |
| Capital  expenditures                                        | **(e)**    | 14                                        |       | 14 |   | — |   | — |   | — |   | — |   | — |   |
| Interest  payments                                           | **(f)**    | 547                                       |       | 74 |   | 73 |   | 45 |   | 45 |   | 45 |   | 265 |   |
| Unconditional  purchase obligations                          | **(g)**    | 92                                        |       | 5 |   | 4 |   | 7 |   | 7 |   | 7 |   | 62 |   |
| Subtotal -  Contractual Obligations                          |       | 1,950                                     |       | 173 |   | 524 |   | 73 |   | 67 |   | 65 |   | 1,048 |   |
| Environmental  liabilities                                   | **(h)**    | 128                                       |       | 27 |   | 21 |   | 18 |   | 14 |   | 11 |   | 37 |   |
| Other antitrust  settlements                                 | **(i)**    | 13                                        |       | 13 |   | — |   | — |   | — |   | — |   | — |   |
| Post-retirement  health care liabilities                     | **(j)**    | 155                                       |       | 13 |   | 12 |   | 12 |   | 11 |   | 11 |   | 96 |   |
| Unrecognized tax  benefits                                   | ** ** | 66                                        |       | 20 |   | — |   | 18 |   | — |   | 4 |   | 24 |   |
| Other long-term  liabilities (excluding pension liabilities) |       | 41                                        |       | 3 |   | 15 |   | 4 |   | 3 |   | 3 |   | 13 |   |
| Total cash  requirements                                     | ** ** | **$**                                     | 2,353      | ** ** | **$** | 249 | ** ** | **$** | 572 | ** ** | **$** | 125 | ** ** | **$** | 95 | ** ** | **$** | 94 |   | **$** | 1,218 |   |

 

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

 
| (a) |   | The  Company’s debt agreements include various notes, debentures, bank loans and  future minimum payments under capital leases for which payments will be  payable through 2026. The future minimum lease payments under capital leases at  December 31, 2007 were not significant.                                              |
|-----|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (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.                                                                                                                        |
| (c) |   | Primarily  related to the settlement of U.S. and Canadian fines, payable in installments  through 2009.                                                                                                                                                                                                                                    |
| (d) |   | Represents  estimated payments from accruals related to the Company’s cost reduction  programs, including $5 million of unrecoverable future lease costs related to  the closure of the Tarrytown, NY site.                                                                                                                           |
| (e) |   | Represents  capital commitments for various open projects.                                                                                                                                                                                                                                                                                 |
| (f) |   | Represents  interest payments related to the Company’s various debt agreements.                                                                                                                                                                                                                                                       |
| (g) |   | Primarily  represents unconditional purchase commitments to purchase raw materials and  tolling arrangements with outside vendors.                                                                                                                                                                                                         |
| (h) |   | The  Company has environmental liabilities for future remediation and operating  and maintenance costs directly related to remediation. The Company estimates  the environmental liability could range up to $160 million. The Company has  recorded a liability for environmental remediation of $118 million at  December 31, 2007. |

 

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| (i) |   | Includes  $3 million related to the expected settlement of direct and indirect purchaser  class action lawsuits and $10 million (net of estimated insurance recovery of  $11 million) related to securities case.                                                                                                                                                  |
|-----|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (j) |   | The  Company has 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 the Company as incurred, with the exception of certain inactive government  related plans that are paid from plan assets. |

 

During 2007, the Company made payments of $34 million and $9 millionfor operating leases and unconditional purchase obligations, respectively.

 

The Company funds its defined benefit pension plans based on theminimum amounts required by law plus additional voluntary contribution amountsthe Company deems appropriate.  Estimatedfuture funding requirements are highly dependent on factors that are notreadily determinable.  These includechanges in legislation, returns earned on pension investment and other factorsrelated to assumptions regarding future liabilities.  The Company made a contribution of $36million in 2007.  See “CriticalAccounting Estimates” below for details regarding current pension assumptions.** **To the extent thatcurrent assumptions are not realized, actual funding requirements may besignificantly different from those set out below.   The Company may make additional voluntarycontributions in 2008 using proceeds from possible divestitures to reduce itsfuture funding requirements.  There is nofuture funding requirements for the qualified domestic pension plans.  The following table summarizes the estimatedfuture funding requirements for the International and non-qualified pensionplans under current assumptions:

 
| ** **                                     | ** ** | **Funding Requirements by Period** | ** ** |
|------------------------------------------------|------------|---------------------------------------------------|------------|
| **(In millions)**                         | ** ** | **2008**                                          | ** ** | **2009** | ** ** | **2010** | ** ** | **2011** | ** ** | **2012** | ** ** |
| International  and non-qualified pension plans |       | $                                                 | 22         |   | $ | 24 |   | $ | 22 |   | $ | 23 |   | $ | 26 |   |
|                                                |            |                                                   |            |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

##### **Other Sources and Uses of Cash**

 

The Company expects to finance its continuing operations and capital spendingrequirements for 2008 with cash flows provided by operations, proceeds fromsales of businesses, available cash and cash equivalents, additional sales ofaccounts receivable under its securitization programs, borrowings under itsrevolving credit or other sources, including the debt capital markets.

 

At December 31, 2007, the Company had a five-year credit facility availablethrough July 2010 (the Credit Facility) of $750 million.  There were noborrowings under the Credit Facility at December 31,2007.  The Company also has aworking capital facility in the amount of $25 million available through August 2008,of which there were no borrowings at December 31, 2007.

 

In addition, as of December 31, 2007, the Company had an accountsreceivable securitization program to sell up to $275 million of domesticreceivables to agent banks.  The domesticaccounts receivable program provides that up to $100 million of theconsideration payable to the Company may be in the form of letters of creditissued to the Company or its designees. As of December 31, 2007, $119 million of domestic accountsreceivable had been sold under this program. In addition, the Company’s European subsidiaries had a separate programto sell up to approximately $225 million of their eligible accounts receivableto agent banks.  As of December 31,2007, $120 million of international accounts receivable had been sold underthis program.

 

Included in cashand cash equivalents in the Company’s consolidated balance sheets at December 31,2007 and 2006, are $2 million of restricted cash that is required to be ondeposit to support certain letters of credit and performance guarantees, themajority of which will be settled within one year.  There are no additional legal restrictions onthese cash balances.

 

##### **Bank Covenants and Guarantees**

 

##### **As a result of the May 2007rating agency downgrade of the long-term senior unsecured debt to Ba2 by Moody’sInvestors Services, the Company and the Domestic Subsidiary Guarantors wererequired to provide a security interest in the stock of their first tiersubsidiaries and other equity interests (limited to 66% of the voting stock offirst-tier foreign subsidiaries) pursuant to a covenant in the Company’s creditfacility.  The Company’s credit rating atDecember 31, 2007 is BB+ (Stable) by Standard and Poors and Ba2 (Stable)by Moody’s Investors Services, Inc. Additionally, under the terms of the indentures for the 7% Notes due2009, 6.875% Notes due 2016 and the 6.875% Debentures (the “Notes”), theCompany would be required to secure the Notes on an equal and ratable basiswith other certain indebtedness if secured debt thresholds are exceeded.  The Company amended and restated its Pledge**

 

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##### **Agreement, on July 31, 2007, sothat the Credit Facility would only be secured up to the lowest debt thresholdamount under the Notes.**

##### ** **

##### **The Company’s various debt agreementscontain covenants that limit the Company’s ability to enter into certaintransactions, such as incurring additional indebtedness, increasing the Company’sdividends, and entering into acquisitions, dispositions and jointventures.  The Company is required toreport compliance with certain financial covenants to its lenders on aquarterly basis.  Under these covenants,the Company is required to maintain a leverage ratio (adjusted total debt toadjusted earnings before interest, taxes, depreciation and amortization (“BankEBITDA”), with adjustments to both debt and earnings being made in accordancewith the terms of the Credit Facility agreement) and an interest coverage ratio(Bank EBITDA to interest expense as defined in the credit facilityagreement).  In February 2007,amendments were made to the interest coverage ratio and leverage ratio for thequarterly periods March 31, 2007 through September 30, 2007, subjectto being reset following the sale of the EPDM business.  In May 2007, further amendments weremade to the Credit Agreement, after the rating agency downgrade, to permit thesale of certain non-core businesses.  On July 31,2007, the Company entered into an amendment to its Credit Agreement thatgenerally increased covenant levels for a series of events including: accountsreceivable securitization; liens; investments; asset sales and the debt ceilingbefore security is required to be granted. On November 5, 2007 the Company entered into a further amendment ofits Credit Facility that reduced the interest coverage ratio for the periodsending September 30, 2007 and December 31, 2007. The amendment providesthe Company the flexibility to complete its restructuring actions in theseperiods given lower than expected earnings in the third quarter of 2007.  The Company was in compliance with thecovenants of its various debt agreements at December 31, 2007.  On March 7, 2008, the Company received awaiver by its Credit Facility lender extending the period in which it isrequired to deliver its annual audit report for the year of 2007 from 10 to 15days after the date by which it was initially required to file its Form 10-Kwith the Securities and Exchange Commission.**

##### ** **

The Company has standby letters of credit and guarantees with variousfinancial institutions.  At December 31,2007, the Company had $101 million of outstanding letters of credit andguarantees primarily related to liabilities for environmental remediation andinsurance obligations.  The Company alsohad $17 million of third party guarantees at December 31, 2007 for whichit has reserved for $2 million at December 31, 2007, which represents the probabilityweighted fair value of these guarantees.

 

As liquiditypermits, the Company may from time to time seek to retire its outstandingpublic debt through open market purchases, privately negotiated transactions orotherwise.  Whether the Company makes anysuch repurchases, and the terms of any such repurchases, will depend onprevailing market conditions, the Company’s liquidity position, contractualrestrictions and other factors.

 

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**RESULTS OF OPERATIONS**

 
| **(In millions, except per share data)**                                | ** ** | **2007**   | ** ** | **2006**    | ** ** | **2005** | ** ** |
|--------------------------------------------------------------------------------------------------|------------|------------|------------|-------------|------------|----------|------------|
| **Net  Sales**                                                                                   |       |       |       |        |       |     |       |
| Polymer  Additives                                                                               | ** ** | **$**      | **1,806**  |        | $          | 1,712    |       | $ | 1,249 |   |
| Performance  Specialies                                                                          | ** ** | **911**    |       | 670         |       | 619      |       |
| Consumer  Products                                                                               | ** ** | **567**    |       | 566         |       | 261      |       |
| Crop Protection                                                                                  | ** ** | **352**    |       | 311         |       | 330      |       |
| Other                                                                                            | ** ** | **111**    |       | 199         |       | 280      |       |
| **Net  Sales**                                                                                   | ** ** | **$**      | **3,747**  |        | $          | 3,458    |       | $ | 2,739 |   |
|                                                                                             |       |       |       |        |       |     |       |
| **Operating  Profit**                                                                            |       |       |       |        |       |     |       |
| Polymer  Additives                                                                               | ** ** | **$**      | **77**     |        | $          | 130      |       | $ | 99 |   |
| Performance  Specialies                                                                          | ** ** | **140**    |       | 115         |       | 115      |       |
| Consumer  Products                                                                               | ** ** | **72**     |       | 70          |       | 23       |       |
| Crop Protection                                                                                  | ** ** | **79**     |       | 48          |       | 74       |       |
| Other                                                                                            | ** ** | **(6**     | **)**      | (4          | )          | 24       |       |
| **Segment  Operating Profit**                                                                    | ** ** | **362**    |       | 359         |       | 335      |       |
|                                                                                             |       |       |       |        |       |     |       |
| General  corporate expense including amortization                                                | ** ** | **(158**   | **)**      | (133        | )          | (102     | )          |
| Change in useful  life of property, plant and equipment                                          | ** ** | **(40**    | **)**      | (18         | )          | —   |       |
| Facility  closures, severance and related costs                                                  | ** ** | **(36**    | **)**      | (5          | )          | (23      | )          |
| Antitrust costs                                                                                  | ** ** | **(35**    | **)**      | (90         | )          | (49      | )          |
| Merger costs                                                                                     | ** ** | **—** |       | (17         | )          | (45      | )          |
| In-process  research and development                                                             | ** ** | **—** |       | —      |       | (73      | )          |
| (Loss) gain on  sale of businesses                                                               | ** ** | **(15**    | **)**      | (11         | )          | 3        |       |
| Impairment of  long-lived assets                                                                 | ** ** | **(19**    | **)**      | (80         | )          | —   |       |
| Purchase  accounting inventory fair value impact                                                 | ** ** | **—** |       | —      |       | (37      | )          |
| **Total  Operating Profit**                                                                      | ** ** | **59**     |       | 5           |       | 9        |       |
|                                                                                             |       |       |       |        |       |     |       |
| Interest expense                                                                                 | ** ** | **(87**    | **)**      | (102        | )          | (108     | )          |
| Loss on early  extinguishment of debt                                                            | ** ** | **—** |       | (44         | )          | (55      | )          |
| Other expense,  net                                                                              | ** ** | **(13**    | **)**      | (6          | )          | (12      | )          |
| Loss from  continuing operations before income taxes and cumulative effect of accounting  change |       | **(41**    | **)**      | (147        | )          | (166     | )          |
| Income tax provision                                                                             | ** ** | **4**      | ** ** | 126         |       | 49       |       |
| Loss from  continuing operations before cumulative effect of accounting change                   |       | **(45**    | **)**      | (273        | )          | (215     | )          |
| Earnings from  discontinued operations                                                           | ** ** | **18**     |       | 20          |       | 33       |       |
| Gain (loss) on  sale of discontinued operations                                                  | ** ** | **24**     |       | 47          |       | (4       | )          |
| Cumulative  effect of accounting change                                                          | ** ** | **—** |       | —      |       | (1       | )          |
| **Net  Loss**                                                                                    | ** ** | **$**      | **(3**     | **) ** | $          | (206     | )          | $ | (187 | ) |
|                                                                                             |       |       |       |        |       |     |       |
| **Basic  and Diluted Earnings (Loss) Per Common Share**                                          |       |       |       |        |       |     |       |
| Loss from  continuing operations before

cumulative  effect of accounting change                 |       | **$**      | **(0.18**  | **)**       | $          | (1.13    | )          | $ | (1.21 | ) |
| Earnings from  discontinued operations                                                           | ** ** | **0.07**   |       | 0.08        |       | 0.18     |       |
| Gain (loss) on  sale of discontinued operations                                                  | ** ** | **0.10**   |       | 0.20        |       | (0.02    | )          |
| Cumulative  effect of accounting change                                                          | ** ** | **—** |       | —      |       | —   |       |
| **Net  Loss**                                                                                    | ** ** | **$**      | **(0.01**  | **) ** | $          | (0.85    | )          | $ | (1.05 | ) |

 

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**2007 COMPARED TO 2006**

 

**Overview**

 

Consolidated net sales for 2007 of $3.8 billion rose $289 million ascompared to 2006 net sales of $3.5 billion. The increase in sales primarily reflects a net $173 million attributableto acquisitions and divestitures, $61 million of favorable foreign currencyimpact, $43 million from higher selling prices and other increases of $12million, primarily related to sales volume and product mix.   The increases in selling prices occurredwithin the Polymer Additives, Performance Specialties and Consumer Productssegments and were the result of passing raw material cost increases through tocustomers.  The Company’s selling pricesincreases during the year have not offset increases in raw material costsduring 2007.

 

Gross profit increased $29 million for 2007 as compared with 2006.  Gross profit as a percentage of salesdeclined to 24% from 25% for 2007 and 2006, respectively.  The gross profit increase is due to $43million in higher selling prices, a $38 million benefit related to higher salesvolume and changes in product mix, a net $38 million related to acquisitionsand divestitures, $10 million in manufacturing cost savings initiatives andother increases of $1 million.  Theseincreases were partially offset by higher raw material and energy costs of $99million and a $2 million unfavorable foreign currency impact.

 

Selling, general and administrative expense (“SG&A”) of $393million for 2007 increased $6 million from $387 million for 2006. SG&A in2007 included higher spending related to legal fees, insurance and pensioncosts, which were principally offset by restructuring savings.

 

Depreciation and amortization expense of $269 million was $65 millionhigher than 2006 due primarily to the acceleration of depreciation related tothe change in the useful life of certain fixed assets at several of the Company’smanufacturing facilities and the Kaufman acquisition in the first quarter of2007.

 

Research and development expense of $62 million for 2007 was $1 millionhigher than 2006.

 

Facility closures, severance and related costs were $36 million for2007, as compared with $5 million for 2006. The 2007 costs are primarily for severance costs related to therestructuring plans announced in the second quarter of 2007.  The 2006 costs were primarily severance costsrelated to the Company’s 2006 cost savings initiatives, offset in part by thereversal of reserves related to the Company’s 2004 activity-based restructuringinitiative that were no longer deemed necessary.

 

The Company incurred antitrust costs of $35 million for 2007 ascompared with $90 million for 2006. Antitrust costs for 2007 includes $20million for settlement offers made to certain urethanes, rubber chemical,securities case claimants and  $15million for legal costs associated with the antitrust investigations and civillawsuits.  The 2006 costs included $70million primarily for settlement offers made to certain rubber chemicals, EPDM,plastic additives, urethanes, indirect case, and securities class actionclaimants and $20 million for legal costs associated with the antitrustinvestigations and civil lawsuits.

 

**The Company incurred $17million of merger costs in 2006.  Thesenon-capitalizable costs primarily consist of consulting expenses and relocationrelated costs directly attributable to the merger with Great Lakes (“Merger”)and severance for Crompton employees. No merger costs were incurred in 2007.**

** **

The loss on sale of businesses of $15 million in 2007 primarily relatesto the sale of the Celogen® productline in June 2007.  The loss on saleof businesses in 2006 primarily related to the sale of the IWA business in May 2006.

 

TheCompany recorded a charge of $19 million for the impairment of long-livedassets for 2007, which included $9 million related to the Company’s Ravenna,Italy facility, $4 million related to facilities affected by the 2007restructuring programs, $3 million related to the sale of the Marshall, Texasfacility and $3 million related to the Company’s legacy ERP systems.  The $80 million charge for impairment ofnon-current assets in 2006 included $52 million for the impairment of goodwillrelated to the fluorine business, $22 million related to the impairment ofcertain tangible and intangible assets of the fluorine business and $6 millionrelated to the retained long-lived assets of the IWA business, which was soldin May 2006.

 

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Operating profit of $59 million for 2007 increased $54 million ascompared to operating profit of $5 million for 2006.  This increase is primarily due a increase ingross profit of $29 million, lower antitrust costs of $55 million, lower mergercosts of $17 million and a $61 million reduction in charges for the impairmentof long-lived assets, partially offset by a $65 million increase indepreciation and amortization expense, $31 million higher facility closures,severance and related costs, higher SG&A of $6 million, an increased losson sale of businesses of $4 million, a $1 million increase in research anddevelopment costs and other cost increases of $1 million.

 

Loss from continuing operations for 2007 was $45 million, or $0.18 perdiluted share, as compared to a loss of $273 million, or $1.13 per dilutedshare, for the same period of 2006.  Thisincrease is primarily due to the increase in operating profit discussed aboveand decreases in interest expense, loss on early extinguishment of debt andincome tax expense, which are discussed below after the segment results.

 

**Polymer Additives**

 

Net sales for the Polymer Additives segment were $1.8 billion in 2007,an increase of $94 million from sales of $1.7 billion for 2006.  Reported operating income of $77 million in2007 was $53 million lower than that reported for the same period in 2006.

 

The increase in net sales reflected the Company’s ability to regainsales volume, primarily in plastic surfactants and PVC plastic additivesproducts, which accounted for $39 million of the improvement and $26 millionrelated to the effect of favorable foreign currency impact.  Additionally, selling price increases of $30million reflect the Company’s ability to pass through a portion of theescalating cost of raw materials.

 

The decrease in operating income was impacted by $77 million of rawmaterial and energy cost increases, $30 million in accelerated depreciation and$6 million of unfavorable foreign currency impact.  These factors were partially offset by a $30million increase in customer price, a net $19 million increase due to productmix, $8 million in favorable cost and manufacturing efficiencies and $3 millionof other increases.

 

**Performance Specialties**

 

Net sales in the Performance Specialties segment were $911 million in2007, an increase of $241 from sales of $670 million for the same period in2006.  Reported operating income was $140million, an increase of $25 million from $115 million reported for the sameperiod in 2006.

 

The increase in net sales is driven by the acquisition of Kaufmanaccounting for $181 million, organic sales volume growth of $34 million, $14million from the favorable effect of foreign currency translation and $12million of higher selling prices. Selling price increases reflect the Company’s ability to pass through aportion of raw material increases to customers.

 

The increase in operating income reflects a $23 million benefit fromthe Kaufman acquisition.  Additionally,results from improved efficiencies and changes in sales mix towards highermargin products accounted for $9 million. These factors were offset by $19 million related to the rising cost ofraw materials of which $12 million was recaptured through certain pricing.

 

**Consumer Products**

 

Net sales for the Consumer Products segment were $567 million in 2007,an increase of $1 million from sales of $566 million for the same period in 2006.  Reported operating income of $72 million for2007, increased by $2 million from the $70 million reported for the same periodin 2006.

 

The increase in net sales is driven by improvement in selling prices of$11 million, a $10 million benefit related to the effect of favorable foreigncurrency and $1 million related to an acquisition in late 2006.  These factors were partially offset by adecrease of $21 million in sales volume. The loss of volume is primarily attributable to lower volume inprofessional sales, household and international channels, which were mostlyoffset by higher sales in the U.S. mass market channel.

 

The increase in operating income reflects the $11 million increase inselling price, a net $2 million benefit from favorable foreign currencytranslation.  These factors werepartially offset by a $5 million due to increased corporate charges, $3 millioncharge related to manufacturing efficiencies and $3 million of increased rawmaterials costs.

 

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**Crop Protection**

 

Net sales for the Crop Protection segment were $352 million for 2007,an increase of $41 million from sales of $311 million for the same period in2006.  Operating income of $79 millionfor 2007 increased by $31 million over the same period in 2006.

 

The increase in net sales reflects increases of $36 million fromorganic sales volume growth, a $10 million benefit from foreign currencytranslation and $2 million of growth from acquisitions.  The increase in sales volume is primarily dueto increased global demand in our insecticides product line and greater agriculturaldemand across Europe.   These factorswere partially offset by a $7 million decline in customer selling prices.  The decline in selling prices reflectsincreased competition from generically branded products.

 

The increase in operating income reflects $15 million in highervolumes, $6 million in cost savings initiatives and $1 million related to thefavorable effect of foreign currency. Additionally, the results of $4 million gain from the sales of certain assetsin the fourth quarter and $1 million from the full year impact of the Traceacquisition.  In 2006 there was an $11million charge in Brazil for doubtful accounts that was not required in2007.  These factors were partiallyoffset by a decline in selling prices of $7 million.

 

**Other**

 

Net sales for the Company’s other businesses, primarily non-coreoperations, were $111 million for 2007 representing a decrease of $88 millioncompared with net sales of $199 million for the same period in 2006.  The decline in net sales reflects the sale ofthe Celogen® foaming agent product line in the second quarter of 2007.  Operating loss increased to $6 million for2007 compared to a loss of $4 million in the same period of 2006.

 

**General Corporate**

 

General corporate expenses include costs and expenses that are of ageneral nature or managed on a corporate basis. These costs primarily represent corporate administration services, costsrelated to corporate headquarters, and management compensation plan expensesrelated to executives and corporate managers.  General corporate expenses also include allamortization expenses.  General corporateexpenses of $158 million for 2007 increased by $25 million compared with sameperiod in 2006, due primarily to an increase in insurance of $9 million, higherlegal fees of $9 million, $5 million in additional incentive compensation, and$2 million in lobbying costs.

 

**Other Expenses**

 

Interest expense decreased by $15 million for 2007 compared with thesame period in 2006.  The decrease wasdue primarily to the early retirement of the Company’s 9.875% Senior Notes due2012 and the Floating Rate Notes due 2010 in 2006.

 

Other expense, net was $13 million for 2007 as compared with otherexpense, net of $6 million for 2006.  Theincrease was primarily due to higher minority interest expense of $7 millionand an increase of $5 million in costs associated with securitization and otheraccounts receivable financing programs, offset by favorable foreign currency of$21 million.  Additionally, 2006 includedincome of $12 million related to equity income and the gain on sale of theCompany’s Davis Standard joint venture, which was sold in October 2006 and$4 million for a favorable settlement of a contractual matter.

 

**During 2006, the Companyrecorded a loss on early extinguishment of debt of $44 million, which includesa $20 million loss from the May 2006 retirement of the 2010 Notes and a$24 million loss from the July 2006 retirement of the 2012 Notes.**

** **

**Income Taxes**

** **

The Company’s income tax expense for continuing operations was $4 millionfor 2007 as compared with income tax expense of $126 million for the sameperiod of 2006.

 

The tax benefit of the Company’s pre-tax loss in 2007 was reduced bynon-deductible antitrust costs, the establishment of tax reserves for uncertaintax positions and foreign income subject to U.S. taxation, net of the relieffrom tax law changes and income tax credits, resulting in tax expense of $4million for the year.

 

**Discontinued Operations**

** **

For 2007, the Company recorded a gain on sale of discontinued operationsof $24 million (net of taxes of $13 million), or $0.10 per diluted share.  The net after-tax gain is comprised of a gainof $3 million related to the sale of the OrganoSilicones business representingthe recognition of final contingent earn-out proceeds, a gain of $23

 

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related to the sale of the EPDM business on July 29, 2007 and aloss of $2 million related to the sale of optical monomers on October 31,2007.

 

For 2006, the Company recorded a gain on sale of discontinuedoperations of $47 million (net of taxes of $21 million), or $0.20 per dilutedshare, related to the sale of the OrganoSilicones business to General ElectricCompany (“GE”) in July of 2003. This gain primarily represents the recognition of the additionalcontingent earn-out proceeds.

 

Earnings from discontinued operations in 2007 of $18 million (net ofincome tax of $9 million), or $0.07 per common share, related to the EPDMbusiness sold in June 2007, the optical monomers business sold in October 2007,the fluorine business sold in January 2008 and adjustments related to thesale of the OrganoSilicones business sold in July 2003.  Earnings from discontinued operations in 2006of $20 million (net of income tax of $10 million), or $0.08 per common share,related to the EPDM business, the optical monomers business and the fluorinebusiness.

 

**2006 COMPARED TO 2005**

 

**Overview**

** **

**Net sales for 2006 of $3.5billion were $719 million above net sales for the comparable period of 2005 of$2.7 billion. The increase was primarily due to $811 million in additionalsales resulting from the Merger, a $63 million increase in selling prices and$6 million due to favorable foreign currency translation, partially offset by a$92 million decrease in sales volume, the exclusion of $48 million of sales dueto the deconsolidation of the Company’s Polymer Processing Equipment businessin April 2005 and $21 million associated with a change in the character ofsales now made under continuing supply agreements entered into in connectionwith the divestiture of the Industrial Water Additives (“IWA”) business in May 2006.**

** **

**Gross profit was $856 millionor 25% of sales for 2006 as compared with $720 million or 26% of sales for2005.  Gross profit increased by $136 millionprimarily as a result of profits attributable to the Merger through the firstsix months of 2006 of $243 million, $63 million from increased selling prices,a $37 million purchase accounting inventory write-off during the third quarterof 2005 and $20 million of savings attributable to cost reductioninitiatives.  These benefits weresubstantially offset by higher raw material and energy costs of $73 million,reductions in volume of $49 million, a $34 million decrease due to otheracquisition and divestiture activity, $28 million of unfavorable manufacturingvariances primarily related to lower production volume, higher freight costs of$15 million related to fuel surcharges, the deconsolidation of the PolymerProcessing Equipment business in 2005 of $9 million, charges to reserveobsolete and slow moving inventory of $9 million, $7 million of other charges,the impact of the sale of IWA of $2 million and unfavorable currencytranslation of $1 million.**

** **

**Selling, general andadministrative expenses were $387 million for 2006 as compared with $326million for 2005, an increase of $61 million over the prior year. Theincrease was primarily attributable to $98 million of additional costsincurred by the Company from the inclusion of expenses through the first sixmonths of 2006 which were not included prior to the Merger and $9 millionrelated to the incremental effect of stock option expense.  These costs were partially offset by savingsof $24 million from merger synergy programs, a decrease of$11 million due to the deconsolidation of the Polymer Processing Equipmentbusiness in early 2005, a decrease of $1 million due to the sale of IWA, $5million of other charges and $2 million due to the sale of a urethane productline in 2006 and $3 million of other charges. All segments benefited from theCompany’s cost savings programs, with Plastic Additives deriving the mostsignificant benefit.**

** **

**Depreciation and amortizationof $204 million increased by $54 million over 2005 primarily due tothe Merger and $16 million of additional depreciation expense due to the changein useful life of assets at several of the Company’s manufacturingfacilities.  Research and developmentcosts of $61 million increased by $11 million over the prior year,primarily as a result of additional costs resulting from the Merger through thefirst six months of 2006.**

** **

**Facility closures, severanceand related costs were $5 million in 2006 as compared with $23 million in2005.  The 2006 costs are primarilyseverance costs related to the Company’s 2006 cost savings initiatives, offsetin part by the reversal of reserves related to the Company’s 2004activity-based restructuring initiative that were no longer deemed necessary.The 2005 costs included $20 million for unrecoverable future lease costs andasset write-offs related to the closure of the Company’s former research anddevelopment facility in Tarrytown, New York.**

** **

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** **

**The Company recordedantitrust costs of $90 million for 2006 as compared with $49 million for2005.  The 2006 costs included $70million primarily for settlement offers made to certain rubber chemicals, EPDM,plastic additives, urethanes, indirect case, and securities class actionclaimants and $20 million for legal costs associated with the antitrustinvestigations and civil lawsuits.  The2005 costs included a $19 million related to civil settlements in the UnitedStates, $16 million settlement payment to the European Commission and $14 millionfor legal costs associated with antitrust investigations and related civillawsuits.**

** **

**The $80 million charge forimpairment of non-current assets in 2006 included $52 million for theimpairment of goodwill related to the Fluorine business, $22 million related tothe impairment of certain tangible and intangible assets of the Fluorinebusiness and $6 million related to the retained long-lived assets of the IWAbusiness, which was sold in May 2006.**

** **

**The Company incurred $17million of merger costs in 2006 compared to $45 million in 2005.  These non-capitalizable costs primarilyconsist of consulting expenses and relocation related costs directlyattributable to the Merger and severance for Crompton employees.**

** **

**The loss on sale ofbusinesses in 2006 primarily relates to the sale of the IWA business in May 2006.  The 2005 gain on sale of business is theresult of the reversal of certain reserves related to the sale of theIndustrial Colors business sold in 2001.**

** **

**Operating profit was $5million for 2006 as compared with $9 million for 2005.  The $4 million decrease is primarily due to$62 million of higher SG&A, $54 million of higher depreciation andamortization, $11 million of higher research and development costs, $40 millionof higher antitrust costs, a $14 million net loss on the sale of businesses andan $80 million charge for the impairment of certain long-lived assets,partially offset by and increase in gross profit of $135 million, $18 millionof reduced facility closure, severance and related costs, $28 million lowermerger costs, and $3 million of higher equity income.  Additionally, operating profit in 2005included a write-off of in-process research and development of $73 million.**

** **

**The loss from continuingoperations for the year ended December 31, 2006 was $273 million, or $1.13per diluted share, compared with the loss from continuing operations of $215million, or $1.21 per diluted share, for the year ended December 31,2005.  The decrease primarily reflectsthe decline in operating profit discussed above and an increase in tax expenseof $77 million and $7 million of unfavorable currency translation.  Additionally, these declines were partlyoffset by a reduction in costs associated with the loss on early extinguishmentof debt of $11 million, a decrease in interest expense of $6 million, a $6million gain on the sale of the Company’s equity interest in the Davis Standardventure as well as $6 million of additional equity income generated by thisventure in 2006 prior to the sale and other benefits of $1 million.**

** **

**PolymerAdditives**

** **

**Polymer Additives sales of$1.7 billion for 2006 increased by $463 million or 37% compared with 2005primarily due to a 35% increase in sales resulting from the Merger through thefirst six months of 2006.  Sales volumeincreased slightly as a result of market regain programs instituted afterunfavorable customer reactions to late 2005 price increases.  Lower sales prices of 2% in the non-flameretardant plastic additives business was offset by selling price increases of13% in the flame retardant business and 6% in agricultural products.**

** **

**2006 operating profit forPolymer Additives of $130 million increased by $31 million over 2005, primarilydue to additional operating profit resulting from the Merger of $70 million,increased selling prices mainly in the flame retardants business of $26million, cost reduction program savings of $25 million and $2 million fordirect costs resulting from Hurricanes Katrina and Rita in 2005, partiallyoffset by higher raw material and energy costs of $33 million, unfavorable manufacturingvariances of $15 million, lower volume of $13 million primarily in thenon-flame retardants plastic additives business, higher freight costs of $9million, additional charges related to inventory reserves of $7 million, $5million of additional depreciation expense due to a change in the useful lifeof certain fixed assets, $1 million due to unfavorable currency translation andother costs of $9 million.**

** **

**PerformanceSpecialties**

** **

**Performance Specialties salesof $670 million for 2006 increased by 8% from prior year due to higher sellingprices of 7%, 3% increase in sales due to the Merger, and 1% in volume whichwas partially offset by a sales decrease by 2% resulting from the divestitureof a Urethanes product line. Petroleum additives sales increased by 15% fromthe prior year due to Merger related sales of 6% through the first six monthsof 2006 and higher selling prices of 13%, which offset higher raw material andenergy costs, partially offset by lower overall sales volume of**

** **

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** **

**3%.   Urethanessales were 2% higher than 2005 due to increased volume of 4% primarilyresulting from increased demand from existing North American customers,geographic penetration into emerging Eastern European markets while higherselling prices, related to the successful pass-through of higher materialcosts, accounted for an additional 1% increase.  Gains were partiallyoffset by a 4% decrease resulting from a divested, break-even product line.**

** **

**2006 operating profit of $115million remained flat to 2005.  ThePerformance Specialties segment experienced higher raw material and energypricing of $31 million, a decrease in volume of $7 million, $4 million inincreased freight, $3 million charges for higher tolling costs, $2 million ininventory write-offs and $4 million for other charges, which were offset by $43million of higher selling prices primarily in Petroleum/Lube Additives, $4million in operating profit from businesses acquired in the Merger through thefirst six months of 2006, $3 million from cost reduction program savings andthe net impact of divesting a Urethanes product line of $1 million.**

** **

**CropProtection**

** **

**Crop Protection net sales of$311 million in 2006 decreased by 6% from 2005 primarily due to lower salesvolume of 4% and lower selling prices of 3%. Sales volume and pricing reductions were primarily related to declinesin volume due to North American weather, competition in the miticides businessand economic pressures in Brazilian agricultural markets.**

** **

**2006 operating profit of $48million decreased by $26 million from the prior year mainly due to $8 millionof lower sales volume related to North American weather, competition in themiticides markets, economic pressures in Brazilian agricultural markets, $3million of unfavorable manufacturing variances and other costs of $4million.  In response to the marketconditions mentioned above, the segment has reduced certain selling prices by$9 million in order to retain business. In addition, the Company increased its provision for doubtful accountsby $9 million to cover diminished liquidity in Brazilian agriculturalmarkets.  Reductions were partiallyoffset by gains due to cost savings programs of $4 million, $2 million for theinclusion of the acquisition of the Trace Chemicals business and raw materialprice decreases $1 million.**

** **

**ConsumerProducts**

** **

**Consumer Products sales in2006 of $566 million increased by $305 million compared to 2005.  The increase in sales was primarily due to a$318 million increase from the Merger through the first six months of 2006 andother benefits of $1 million, partially offset by a decline in consumerproducts sales of $14 million during the second half of 2006 mainly due tolower sales volume of 10% partially offset by higher selling prices of 4%.**

** **

**Operating profit in 2006 of$70 million increased by $47 million compared to 2005 primarily due toadditional operating profit resulting from the Merger of $47 million throughthe first six months of 2006, increased selling prices of $11 million, costreduction program savings of $4 million and favorable manufacturing variancesof $3 million.  These factors were offsetby lower sales volume of $14 million and higher raw material costs of $4million.**

** **

**Other**

** **

**Other sales were $199 millionand $280 million for the years ended 2006 and 2005, respectively.  The decrease in sales was primarily due to adecrease of $48 million resulting from the deconsolidation of the PolymerProcessing Equipment business on April 29, 2005, reduced volume of $45million in rubber chemicals, a $21 million decrease resulting from the sale ofIWA and other decreases of $2 million, partially offset by $35 million ofadditional sales in 2006 resulting from the Merger.  Rubber chemicals also experienced lowerpricing of 4% due to excess industry supply and competitive pressure.**

** **

**2006 operating loss of $4million decreased by $28 million from a profit in 2005, principally due to $10million primarily related to lower production volume, $9 million of unfavorablemanufacturing variances net of cost savings, higher raw material and energycosts of $8 million, $4 million of additional depreciation expense due to achange in the useful life of certain fixed assets and unfavorable currencytranslation of $1 million.**

** **

**In 2005, Polymer ProcessingEquipment represents four months of consolidated results prior to the formationof the Davis-Standard LLC venture and the deconsolidation of the business on April 29,2005.**

** **

**GeneralCorporate**

** **

**General corporate expenseincludes costs and expenses that are of a general corporate nature or managedon a corporate basis. These costs primarily represent corporate administrationservices, costs related to corporate headquarters and management compensationplan expenses related to executives and corporate managers.**

** **

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** **

**General corporate expensealso includes all amortization expense. General corporate expense of $133million for 2006 increased by $31 million compared to the same period in 2005primarily due to $13 million of amortization expense attributable to theMerger, $11 million of higher spending on strategic and corporate developmentactivities and other merger related expenses, $9 million of additionaldepreciation expense due to a change in the useful life of certain fixedassets, partially offset by cost reductions of $2 million.**

** **

**Other Expenses**

** **

**Interest expense decreased $6million, or 6%, from 2005.  The decrease was due primarily to a reductionof $49 million resulting from the early retirement of the 2012 Notes in 2006,the 2010 Notes in 2006 and 2005 and the 7.75% debentures in 2005, a $4 millionbenefit resulting from the amortization of a purchase accounting fair valueadjustments relating to debt assumed in the Merger and a $2 million decreasedue to the elimination of accretion of the discount on antitrust civilliabilities, partially offset by $24 million expense incurred in connectionwith the April 2006 issuance of the 2016 Notes, $14 million additionalexpense associated with 7% notes assumed in the Merger, a $5 million expensefor amortization of fair value adjustments relating to environmentalliabilities assumed in the Merger, $5 million expense resulting from higheraverage borrowings on the Credit Facility at higher market interest rates and$2 million additional expense from working capital facility agreements.**

** **

**Other expense, net, was $6million for 2006 as compared with other expense, net, of $12 million for 2005.The decrease is primarily attributable to a $6 million increase to equityincome from the Company’s Davis Standard venture, a gain on sale of the DavisStandard venture of $6 million, a $2 million decrease in minority interestexpense, a $2 million reduction in post-retirement benefits expense related tothe capping of benefits for certain plans acquired as part of the merger withWitco in 1999 related to businesses for which the Company does not have anycontinuing involvement and a $2 million increase in interest income from taxsettlements, partially offset by $7 million of unfavorable currencytranslation, an increase of $3 million in costs associated with securitizationand other accounts receivable financing programs due primarily to the inclusionof former Great Lakes entities in the securitization program and other expensesof $2 million.**

** **

**During 2006, the Companyrecorded a loss on early extinguishment of debt of $44 million, which includesa $20 million loss from the May 2006 retirement of the 2010 Notes and a$24 million loss from the July 2006 retirement of the 2012 Notes. The $20 million loss associated with the retirement of the 2010 Notes includesa premium of $16 million and write-off of unamortized deferred costs of $4million. The $24 million loss associated with the 2012 Notes includes a premiumof $20 million and a write-off of unamortized deferred costs of $4 million.**

** **

**As a result of the tender of$60 million of the Company’s Senior Floating Rate Notes due 2010 and $216million of its 9.875% Senior Notes due 2012, the retirement of its outstanding$110 million aggregate principal amount of 7.75% bonds due in 2023, and thereplacement of its existing $220 million domestic credit facility with a $600million five-year credit facility available through July 2010, the Companyrecorded a loss on early extinguishment of debt of $55 million in 2005.  The 2005 loss primarily includes the premiumspaid to tender the Senior Notes and the 7.75% bonds and the write-off ofunamortized debt issuance costs related to the Senior Notes, 7.75% bonds and $220million credit facility.**

** **

**IncomeTaxes**

** **

**The income tax expense fromcontinuing operations for 2006 was $126 million and the income tax expense for2005 was $49 million.**

** **

**The tax expense was negativelyaffected by a number of items for 2006 including the impact of the write-off ofnon-deductible goodwill associated with the IWA divestiture and goodwillimpairment related to the Fluorine business, and non-deductible antitrustcosts, offset by favorable tax examination settlements and tax legislative changes.  Further, tax expense for 2006 includes acharge of $156 million relating to certain earnings of foreign subsidiarieswhere the Company has recorded a deferred income tax liability with the intentto repatriate those earnings in a subsequent period.  The Company had historically consideredsubstantially all of the earnings of its foreign subsidiaries to be permanentlyreinvested in their operations.  If thisdeferred tax liability had not been recognized, a valuation allowance fordomestic net deferred tax assets would have been required.**

** **

**Discontinued Operations**

** **

**For 2006, the Companyrecorded a gain on sale of discontinued operations of $47 million (net of taxesof $21 million), or $0.20 per diluted share, related to the sale of theOrganoSilicones business to GE in July of 2003.  This gain primarilyrepresents the recognition of the additional contingent earn-out proceedsrelated to the combined performance of GE’s existing Silicones business and theOrganoSilicones business from the date of the sale**

** **

**43**

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** **

**through September 30,2006.  For 2005, the loss on the sale ofdiscontinued operations of $4 million (net of an income tax benefit of $3million), or $0.02 per common share, which was primarily due to a purchaseprice adjustment for the settlement of certain matters related to the July 2003sale of the Company’s OrganoSilicones business to GE.**

** **

**Earnings from discontinuedoperations in 2006 of $20 million (net of income tax of $10 million), or $0.08per common share, related to the EPDM business sold in June 2007, theoptical monomers business sold in October 2007 and the fluorine businesssold in January 2008.  Earnings fromdiscontinued operations in 2005 of $33 million (net of income tax of $17million), or $0.18 per common share, related to the Company’s Refined Productsbusiness unit, which was sold in June 2005, the EPDM business, the opticalmonomers business and the fluorine business.**

** **

# **CRITICAL ACCOUNTING ESTIMATES**

# ** **

The Company’s consolidated financial statements have been prepared inconformity with accounting principles generally accepted in the United States,which require the Company to make estimates and assumptions that affect theamounts and disclosures reported in the consolidated financial statements andaccompanying notes. Accounting estimates and assumptions in this section arethose the Company considers to be the most critical to understanding of ourfinancial statements because they inherently involve significant judgments anduncertainties. For all of these estimates, we caution that future events rarelydevelop exactly as forecast, and the best estimates routinely requireadjustment.  Actual results could differfrom such estimates. The following paragraphs summarize the Company’s criticalaccounting estimates.  Significantaccounting policies used in the preparation of the Company’s consolidatedfinancial statements are discussed in the Notes to Consolidated FinancialStatements.

 

### **Recoverability of Long-Lived Assets and Goodwill**

 

The Company evaluates the recoverability of the carrying value of itslong-lived assets, excluding goodwill, whenever events or changes incircumstances indicate that the carrying value may not be recoverable. Undersuch circumstances, the Company assesses whether the projected undiscountedcash flows of its businesses are sufficient to recover the existing unamortizedcost of its long-lived assets. If the undiscounted projected cash flows are notsufficient, the Company calculates the impairment amount by discounting theprojected cash flows using its weighted average cost of capital. The amount ofthe impairment is written-off against earnings in the period in which theimpairment has been determined in accordance with FASB Statement No. 144, “Accountingfor the Impairment or Disposal of Long-Lived Assets.”

 

The Company tests the recoverability of goodwill for each of itsreporting units on an annual basis as of July 31, or sooner if eventsoccur or circumstances change, by comparing the net book value to the estimatedfair value of each of its reporting units to determine if there is a potentialimpairment issue. The fair value is estimated based on discounted projectedcash flows. In estimating the discounted projected cash flows, the Companyutilizes estimated long-term revenue and cash flow forecasts developed as partof its planning process, as well as assumptions of terminal value, togetherwith its weighted average cost of capital, to determine fair value. If the fairvalue is not sufficient to cover the carrying value of the reporting unit, theCompany calculates the goodwill impairment amount related to that reportingunit in accordance with FASB Statement 142, “Goodwill and Other IntangibleAssets.” Any impairment is charged against earnings in the period in which theamount has been determined.

 

The Company’s cash flow projections, used to estimate the fair value ofits reporting units, are based on subjective estimates.  Although the Company believes that itsprojections reflect its best estimates of the future performance of itsreporting units, changes in estimated revenues or operating margins could havean impact on the estimated fair values. Any increases in estimated reporting unit cash flows would have had no impacton the carrying value of that reporting unit. However, a decrease in future estimated reporting unit cash flows couldrequire the Company to determine whether recognition of a goodwill impairmentcharge was required.  Based on theestimated fair values used to test goodwill for impairment in accordance withFASB Statement No. 142, the Company concluded that no impairment existedin any of its reporting units at July 31, 2007.

 

If the operating margin used in estimating the fair value of theConsumer Products reporting unit were assumed to be 100 basis points lower, thecarrying value of the reporting unit would exceed the estimated fair value byapproximately $40 million and the Company would then determine whetherrecognition of a goodwill impairment charge would be required.   As of July 31, 2007, the Company hasnot factored in any improvements to future

 

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cash flow projections that might be made to the reporting unit as aresult of acquisitions or expansion of product lines into target regions.

 

If the Company had been required to recognize a goodwill impairmentcharge, there would not have been a direct impact on the Company’s liquidityand capital resources because impairment charges are non-cash losses that donot impact the leverage or interest coverage ratios under the Company’sdomestic credit facility.  The Companycontinually monitors and evaluates business and competitive conditions thataffect its operations and reflects the impact of these factors in its financialprojections. If permanent or sustained changes in business and competitiveconditions occur, they can lead to revised projections that could potentiallygive rise to impairment charges.

 

# **Environmental Matters**

 

The Company is involved in claims, litigation,administrative proceedings 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 Company and some of itssubsidiaries have been identified by federal, state or local governmentalagencies, and by other potentially responsible parties (each a “PRP”) under theComprehensive Environmental Response, Compensation and Liability Act of 1980,as amended, or comparable state statutes, as a PRP with respect to costsassociated with waste disposal sites at various locations in the United States.  In addition, the Company is involved withenvironmental remediation and compliance activities at some of its current andformer sites in the United States and abroad.

 

Each quarter, the Company evaluates and reviews estimates for futureremediation, and operation and management costs directly related toremediation, to determine appropriate environmental reserve amounts. For eachsite where the cost of remediation is probable and estimable, a determinationis made of the specific measures that are believed to be required to remediatethe site, the estimated total cost to carry out the remediation plan, theportion 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, which is generally 10 years, where it believes that such costs areestimable.  As of December 31, 2007,the Company’s reserves for environmental remediation activities totaled $118million.  The Company estimates theenvironmental liability could range up to $160 million at December 31,2007.  The Company’s reserves includeestimates for determinable clean-up costs.  At a number of these sites, the extent ofcontamination has not yet been fully investigated or the final scope ofremediation is not yet determinable.

 

In addition, it is possible that 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.

 

The Company intends to assert all meritorious legal defenses and willpursue other equitable factors that are available with respect to thesematters.  The resolution of theenvironmental matters now pending or hereafter asserted against the Company or anyof its subsidiaries could require the Company to pay remedial costs or damages,which are not currently determinable, could exceed the Company’s presentestimates, and as a result could have, either individually or in the aggregate,a material adverse effect on its financial condition, results of operations orcash flows.

 

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

 

The Company’s calculation of pension and other post-retirement benefits expense is dependent on a number of assumptions. These assumptions include discount rates, health care cost trend rates, expected long-term rates of return on plan assets, mortality rates, expected salary and wage increases, and other factors.  Components of pension and other post-retirement benefits expense include interest and service cost on the pension and other post-retirement benefit plans, expected return on plan assets and amortization of certain unrecognized costs and obligations.  Actual results that differ from the assumptions utilized are accumulated and amortized over future periods and, therefore, generally affect recognized expense and the recorded obligation in future periods.  While the Company believes that the assumptions used are appropriate, differences in actual experience or significant changes in assumptions would affect its pension and other post-retirement benefits costs and obligations.

 

45

 

*Pension Plans*

 

Pension liabilities are measured on a discounted basis and the assumed discount rate is a significant assumption. At each measurement date, the discount rate is based on interest rates for high-quality, long-term corporate debt securities with maturities comparable to our liabilities. At November 30, 2007, the Company utilized a weighted average discount rate of 6% for domestic pension plans, compared to 5.63% used at November 30, 2006.   For the international and non-qualified plans, a weighted average discount rate of 5.54% was used at November 30, 2007, compared to 4.74% used at November 30, 2006. As a sensitivity measure, a 25 basis point reduction in the discount rate for all plans would result in approximately a $3 million decrease in pre-tax earnings for 2008.

 

The domestic discount rate adopted at November 30, 2007 utilizes an interest rate yield curve to determine the discount rate pursuant to Emerging Issues Task Force (EITF) Topic No. D-36, “Selection of Discount Rates Used for Measuring Defined Benefit Pension Obligations and Obligations of Post Retirement Benefit Plans Other Than Pensions.”  The yield curve is comprised of AAA/AA bonds with maturities between zero and thirty years.  The Company discounts the annual cash flows of its domestic pension plans using this yield curve and develops a single-point discount rate matching the plan’s payout structure. A similar approach is used to determine the appropriate discount rates for the international plans. The actual method used varies from country to country depending on the amount of available information on bond yields to be able to estimate a single-point discount rate to match the plans’ benefit disbursements.

 

The Company’s weighted average estimated rate of compensation increase was 3.79% for all domestic and international pension plans combined at November 30, 2007.  As a sensitivity measure, an increase of 25 basis points in the estimated rate of compensation increase would decrease pre-tax earnings for 2008 by an immaterial amount.

 

The expected return on pension plan assets is based on our investment strategy, historical experience, and expectations for long-term rates of return. The Company determines the expected rate of return on plan assets for the domestic and international pension plans by applying the expected returns on various asset classes to the Company’s target asset allocation.

 

The Company utilized a weighted average expected long-term rate of return of 8.5% on all domestic plan assets and a weighted average rate of 7.36% for the international plan assets at November 30, 2007.

 

Historical returns are evaluated based on an arithmetic average of annual returns derived from recognized passive indices, such as the S&P 500, for the major asset classes. The Company looked at the arithmetic averages of annual investment returns from passive indices, assuming a portfolio of investments that follow the current target asset allocation for the domestic plans over several business cycles, to obtain an indication of the long-term historical market performance. The arithmetic average return over the past 20 years was 10.5%, and over the past 30 years it was 12.3%. These values are not significantly higher than the geometric averages for the same periods and exceed the 8.5% domestic expected return on assets.

 

The actual annualized return on plan assets for the domestic plans for the 12 months ending November 30, 2007 was approximately 6.35%, which was less than the expected return on asset assumption for the year, resulting in a loss for the plans. Similarly, the international plans earned a weighted average return of approximately 6.24% (in local currency terms, before allowing for depreciation of the US dollar against major currencies in 2007) and 10.73% in US dollar terms.

 

The Company’s targetasset allocation for the domestic pension plans is based on investing 58% ofplan assets in equity instruments, 35% of plan assets in fixed incomeinvestments and 7% in real estate.  At November 30,2007, 57% of the portfolio was invested in equities, 36% in fixed incomeinvestments and the remainder in real estate and other. There were nosignificant changes to the asset allocation during 2007.

 

The Company has unrecognized actuarial losses relating to its pension plans which have been included in its consolidated balance sheet but not in the consolidated statements of operations. The extent to which these unrecognized actuarial losses will impact future pre-tax earnings depends on whether the unrecognized actuarial losses are deferred through the asset-smoothing mechanism (the market related value as defined by FASB Statement No. 87, “Employers’ Accounting for Pensions”), or though amortization in pre-tax earnings to the extent that they exceed a 10% amortization corridor, as defined by FASB Statement No. 87, which provides for amortization over the average remaining participant career. The amortization of unrecognized net losses existing as of November 30, 2007 will result in a $6 million decrease to pre-tax earnings for 2008 ($5 million for the

 

46

 

qualified domestic plans and $1 million for the international and non-qualified plans). Since future gains and losses beyond 2007 are a result of various factors described herein, it is not possible to predict with certainty to what extent the combination of current and future losses may exceed the 10 percent amortization corridor and thereby be subject to further amortization.

 

Pension (income) expenseis calculated based upon certain assumptions including discount rate, expectedlong-term rate of return on plan assets, mortality rates and expected salaryand wage increases.  Actual results thatdiffer from the current assumptions utilized are accumulated and amortized overfuture periods and will affect pension expense in future periods.  The following table estimates the futurepension expense, based upon current assumptions:

 
| ** **                                     | ** ** | **Pension (Income) Expense By Period** | ** ** |
|------------------------------------------------|------------|------------------------------------------------------------|------------|
| **(In millions)**                         | ** ** | **2008**                                                   | ** ** | **2009** | ** ** | **2010** | ** ** | **2011** | ** ** | **2012** | ** ** |
| ** **                                     | ** ** | ** **                                                 | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Qualified  domestic pension plans              |       | $                                                          | (9         | ) | $ | (11 | ) | $ | (13 | ) | $ | (16 | ) | $ | (18 | ) |
| International  and non-qualified pension plans |       | 12                                                         |       | 11 |   | 10 |   | 9 |   | 7 |   |
| Total  pension plans                           |       | $                                                          | 3          |   | $ | — |   | $ | (3 | )  | $ | (7 | ) | $ | (11 | ) |

 

The following tables showthe impact of a 100 basis point change in the actual return on assets on thepension (income) expense.

 

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| ** **                                     | ** ** | **Change in Pension (Income) Expense By Period**   | ** ** |
|------------------------------------------------|------------|----------------------------------------------------------------------------------|------------|
| ** **                                     | ** ** | **2008**                                                                         | ** ** | **2009** | ** ** | **2010** | ** ** | **2011** | ** ** | **2012** | ** ** |
| **Increase (decrease)**                   | ** ** | **100 Basis Point Increase in Investment Returns** | ** ** |
|                                           |       |                                                                             |       |   |   |   |   |   |   |   |   |
| Qualified  domestic pension plans              |       | $                                                                                | —     |   | $ | — |   | $ | (1 | ) | $ | (1 | ) | $ | (1 | ) |
| International  and non-qualified pension plans |       | —                                                                           |       | — |   | — |   | (1 | ) | (1 | ) |
| Total pension  plans                           |       | $                                                                                | —     |   | $ | — |   | $ | (1 | ) | $ | (2 | ) | $ | (2 | ) |

 
| **Increase (decrease)**                   | ** ** | **100 Basis Point Decrease in Investment Returns** | ** ** |
|------------------------------------------------|------------|----------------------------------------------------------------------------------|------------|
|                                           |       |                                                                             |       |   |   |   |   |   |   |   |   |
| Qualified  domestic pension plans              |       | $                                                                                | —     |   | $ | — |   | $ | 1 |   | $ | 1 |   | $ | 1 |   |
| International  and non-qualified pension plans |       | —                                                                           |       | — |   | — |   | — |   | 1 |   |
| Total pension  plans                           |       | $                                                                                | —     |   | $ | — |   | $ | 1 |   | $ | 1 |   | $ | 2 |   |

 

# ***OtherPost-Retirement Benefits***

 

The Company provides post-retirement health and lifeinsurance benefits for current retired and active employees and theirbeneficiaries and covered dependents for certain domestic and internationalemployee groups.

 

The discount rates adopted by the Company for the valuation of the post-retirement health care plans were determined using the same methodology as for the pension plans. An analysis of the duration of the liabilities and future cash flows showed that it was appropriate to use the same discount rates for the post-retirement health care plans as were used for the domestic pension plans at November 30, 2007, namely 6% for the domestic plans and a weighted average rate of 5.29% for the international plans. As a sensitivity measure, a 25 basis point reduction in the discount rate would result in an immaterial decrease in pre-tax earnings for 2008.

 

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.  TheCompany uses health care trend cost rates, which vary by plan, starting withinitial levels of 8% for the domestic arrangements and grading down to anultimate level of 5%. For the international arrangement, the weighted averageinitial rate is 9.9%, grading down to 4.9%.

 

The pre-taxpost-retirement healthcare expense was $9 million in 2007.  The following table summarizes projectedpost-retirement benefit expense based upon the various assumptions discussedabove.

 
| ** **                                                | ** ** | **Pre-Tax Expense by Period** | ** ** |
|-----------------------------------------------------------|------------|----------------------------------------------|------------|
| **(In millions)**                                    | ** ** | **2008**                                     | ** ** | **2009** | ** ** | **2010** | ** ** | **2011** | ** ** | **2012** | ** ** |
| Domestic and  international post-retirement benefit plans |       | $                                            | 9          |   | $ | 9 |   | $ | 9 |   | $ | 9 |   | $ | 9 |   |
|                                                           |            |                                              |            |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

### **Income Taxes**

 

Income taxes payablereflects the Company’s current tax provision and management’s best estimate ofthe tax liability relating to the outcome of uncertain tax positions. If theactual outcome of uncertain tax positions differs from the Company’s best estimates,an adjustment to income taxes payable could be required, which may result inadditional income tax expense or benefit.

 

The Company recordsdeferred tax assets and liabilities based on differences between the financialstatement 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. The Company alsorecords deferred tax assets for the expected future tax benefits of netoperating losses and income tax credit carryforwards.  Valuation allowances are established when theCompany determines that it is more likely than not that the results of futureoperations may not generate sufficient taxable income to realize its deferredtax assets during the carryforward period. The Company considers the scheduled reversal of deferred tax assets andliabilities, projected future taxable income, and tax planning strategies inmaking this assessment.  Thus, changes infuture results of operations could result in adjustments to the Company’svaluation allowances.

 

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Tax expense for 2006 includes a charge of $156million relating to earnings of certain foreign subsidiaries where the Companyhas recorded a deferred income tax liability associated with the intent torepatriate those earnings in a subsequent period.  The Company had historicallyconsidered substantially all of the earnings of its foreign subsidiaries to bepermanently reinvested in their operations. If this deferred tax liability had not been recognized, a valuationallowance for domestic net deferred tax assets would have been required.  The Company also has earnings of certainforeign subsidiaries where the Company considers these earnings to bepermanently reinvested in their operations. As such, no U.S. tax cost has been provided on approximately $675million of earnings at December 31, 2007. If the Company changes its intent related to these earnings additionaltax would be required.

 

The Company adopted theprovisions of FASB Interpretation No. 48, “Accounting for Uncertainty inIncome Taxes,” or FIN 48, on January 1, 2007. FIN 48 prescribes arecognition threshold and measurement attributes for the financial statementrecognition and measurement of tax positions taken, or expected to be taken, intax returns.  Under FIN No. 48, theeconomic benefit associated with a tax position will only be recognized if itis more likely than not that a tax position ultimately will be sustained.  After this threshold is met, a tax positionis reported at the largest amount of benefit that is more likely than not to beultimately sustained.  FIN 48 alsoprovides guidance on derecognition, classification, interest and penalties,accounting in interim periods, disclosure and transition.

 

As a result of theimplementation of FIN 48, the Company recognized a $2 million decrease in theliability for unrecognized tax benefits. The liability for unrecognized taxbenefits at adoption was $56 million. Included in the balance of unrecognized tax benefits at January 1,2007 was $44 million of tax benefits that, if recognized, would affect theeffective tax rate.  Also included in thebalance of unrecognized tax benefits at January 1, 2007 was $16 million oftax benefits that, if recognized, would result in a decrease to goodwillrecorded in purchase business combinations.

 

At December 31, 2007, theCompany has a liability for unrecognized tax benefits of $66 million.

 

**Contingencies**

 

On an ongoing basis, theCompany assesses potential liabilities related to any lawsuits or claimsbrought against it, including antitrust related matters.  The Company accrues for such liabilities whenit determines that it is probable that a loss has been incurred and areasonable estimate of the loss can be made. Determining the outcome of claims and litigation and estimating relatedcosts and expense involves substantial uncertainties that could cause actualcosts to vary materially from estimates. In making the determination of likely outcomes of litigation matters,management considers many factors.  Thesefactors include, but are not limited to, the nature of specific claimsincluding unasserted claims, the Company’s experience with similar types ofclaims, the jurisdiction in which the matter is filed, the existence of otherdefendants, input from outside legal counsel and the current status of thematter.  The Company also assesses thelikelihood of recovery from insurance, and, in those cases in which realizationof an insurance recovery is deemed probable; the Company records acorresponding asset.  The Company intendsto assert all meritorious legal defenses and will pursue all other equitablefactors that are available to it with respect to such matters; however, theresolution of these matters could have a material adverse effect on itsconsolidated results of operations and cash flows.  For further information see Note 21 – LegalMatters in the Notes to Consolidated Financial Statements, and Item 3 “LegalProceedings” under Part I of this document.

 

**Share-Based Compensation**

 

The Company providesshare-based compensation to a number of its employees.  Effective January 1, 2006 the Companyadopted the provisions of FASB Statement 123 (R) “Share-Based Payment” (“Statement123(R)”) and Staff Accounting Bulletin No. 107 “Share-Based Payment” (“SAB107”) using the modified prospective method. Under the modified prospective method, the compensation cost for all newawards and awards modified, repurchased or cancelled after the date of adoptionof Statement 123(R), as well as the unrecognized compensation cost of unvestedawards as of the date of adoption are recognized in earnings based on thegrant-date fair value of those awards. The Company’s assessment of the estimated compensation expense isaffected by its stock price as well as assumptions regarding a number ofcomplex and subjective variables and the related tax impact.  These variables include, but are not limitedto, the grant-date fair value of any new awards, the volatility of the Company’sstock price and employee stock option exercise behavior.  The Company has recognized compensation costfor stock-based awards issued after January 1, 2006 on a straight-linebasis over the requisite service period for each separately vesting tranche asif multiple awards were granted.

 

# **ACCOUNTING DEVELOPMENTS**

 

Implemented in 2007

In March 2006, the FASB issued Statement No. 156, “Accountingfor Servicing of Financial Assets - an amendment of FASB Statement No. 140.”Statement No. 156 provides additional guidance for initially recognizingservicing assets and liabilities at fair value, if practical, and is effectivefor fiscal years beginning after September 15, 2006. The adoption ofStatement No. 156 did not have a material impact on the Company’sconsolidated results of operations for the year ended December 31, 2007and financial position as of December 31, 2007.

 

Effective January 1, 2007, the Company adopted FASB InterpretationNo. 48, “Accounting for Uncertainty in Income Taxes” (“FIN 48”), whichclarifies the accounting for uncertainty in income taxes recognized inaccordance

 

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with FASB Statement No. 109, “Accounting for Income Taxes.” UnderFIN 48, the Company may recognize a tax benefit from an uncertain tax positiononly if it is more likely than not that the tax position will be sustained onexamination by the taxing authorities, based on the technical merits of theposition. FIN 48 also provides guidance on derecognition, classification,interest and penalties on income taxes, accounting in interim periods andrequires increased disclosures. See Note 12 - Income Taxes for informationrelating to implementation of this interpretation.

 

Future Implementations

In September 2006,the FASB issued Statement No. 157, “Fair Value Measurements,” whichdefines fair value, establishes a framework for measuring fair value, andexpands disclosures about fair value measurements. The provisions of Statement No. 157are effective as of the beginning of the Company’s 2008 fiscal year. However,the FASB deferred the effective date of Statement No. 157 until the beginningof the Company’s 2009 fiscal year, as it relates to fair value measurementrequirements for non-financial assets and liabilities that are not remeasuredat fair value on a recurring basis. The Company is assessing the impact ofadopting Statement No. 157 on its financial position and results ofoperations.

 

In February 2007, the FASB issuedStatement No. 159, “The Fair Value Option for Financial Assets andFinancial Liabilities,” which provides companies with an option to reportselected financial assets and liabilities at fair value in an attempt to reduceboth complexity in accounting for financial instruments and the volatility inearnings caused by measuring related assets and liabilities differently. Theprovisions of Statement No. 159 are effective as of the beginning of theCompany’s 2008 fiscal year. The Company believes this will not have a significantimpact on its financial position or results of operations.

 

In December 2007, the FASB issuedStatement No. 160, “Noncontrolling Interests in Consolidated FinancialStatements – an amendment of ARB No. 51,” which will require companies totreat noncontrolling interests (commonly referred to as minority interest) as aseparate component of shareholders’ equity and not as a liability.  The provisions of Statement No. 160 areeffective as of the beginning of the Company’s 2009 fiscal year.  The Company is assessing the impact ofadopting Statement No. 160 on its financial position and results ofoperations.

 

In December 2007, the FASB issuedStatement No. 141 (revised 2007), “Business Combinations” (“Statement No. 141(R)”),requires that identifiable assets, liabilities, noncontrolling interests andgoodwill, acquired in a business combination, be recorded at full fairvalue.  The provisions of Statement No. 141(R) areeffective as of the beginning of the Company’s 2009 fiscal year. The Company isassessing the impact of adopting Statement No. 141(R) on itsfinancial position and results of operations.

 

**OUTLOOK**

 

The Company’s focus in2008 will remain on improving its core businesses, rationalizing itsmanufacturing footprint and right-sizing its cost structure, while developingproducts and applications that generate profitable organic revenue growth.  The Company continues to work to improve theproductivity of its manufacturing plants and the efficiency of its businessprocesses.  These actions remain focusedon improving the operating profitability of its business and increasing the netcash provided by operations.

 

The Company’s businessesbenefit from a number of trends that provide continued growth opportunitiesincluding:

 

·                  Consumer demand for improved flameretardancy in household goods supported by increasing regulation in manycountries worldwide benefits the Company’s broad range of flame retardantproducts within the Company’s Polymer Additives business segment.

 

·                  The increasing requirements forcleaner emissions from motor vehicles, greater service life for engines and thereduction in “greenhouse gas” emissions benefits the Company’s additive andlubricant product lines within its Performance Specialties business segment.

 

·                  The demand for higher yields fromspecialty high value agricultural crops worldwide benefits the Company’s CropProtection business segment.

 

·                  Consumer demand for ever moreeffective pool and spa sanitation benefits the Company’s Consumer Productsbusiness segment.

 

The Company will alsoface challenges in 2008 which may include:

 

·                  Changes in industrial demand that mayresult from a slowing in global economic growth as a result of the liquiditydifficulties faced by the financial markets in recent months.  A portion of the Company’s sales are derivedfrom industries such as building and construction, electronics and consumerdurables that could be affected by changes in GDP growth.  The Company will seek to adjust its costreduction and manufacturing capacity management to respond to such changes ifand when they occur.

 

·                  Continuing increases to raw materialand energy costs are anticipated due, in large part, to volatility in theworldwide pricing of precious metal raw materials and natural gas together withthe impact of the higher price of oil on hydrocarbon-based materials.  The Company purchases these materials tomanufacture its products.  The Companywill continue to seek to set prices that reflect the value in use of theCompany’s products and offset as much as possible increases in raw material andenergy costs.  However, there can be noassurance that such price increases will be accepted at a level that doesoffset in full the impact of higher raw material and energy costs.

 

Based upon the knownactions the Company anticipates it will take in 2008, it provides the followingobservations:

 

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·                  The sale of the oleochemicalsbusiness will reduce the Company’s sales in 2008 compared to 2007.  The oleochemicals sales representedapproximately 5% of the Company’s 2007 revenues.

 

·                  The Company’s focus remains onimproving the performance of its Polymer Additives business and obtainingcontinued growth in revenues and profitability from its PerformanceSpecialties, Consumer Products and Crop Protection businesses.

 

·                  Expense remaining to be recognized in2008 related to the Company’s announced restructuring programs is estimated tobe approximately $3 million and cash expenditures related to these programs isestimated to be approximately $40 million.

 

·                  The Company expects that the benefitsof its cost reduction actions in 2007 should generate savings in the order of$50 million in 2008.  These savings willbe reflected in SG&A and R&D, as well as cost of goods sold.

 

·                  Depreciation and amortization ofapproximately $240 million, which includes approximately $42 million ofadditional depreciation due to announced actions that have resulted in a changein the estimated useful life of assets related to certain of the Company’smanufacturing facilities and ERP systems.

 

·                  Capital spending is anticipated to beapproximately $165 million reflecting maintenance, health and safety andenvironmental expenditures, the cost of migrating to a single ERP system and anumber of growth projects.

 

·                  Dividends paid at the historic rate wouldbe approximately $48 million, reflecting an annual dividend of twenty cents pershare.

 

# **TheCompany continues to evaluate its manufacturing footprint and businessprocesses seeking further opportunities to reduce cost and increase itsoperating effectiveness.  Theseactivities may result in the announcement and implementation of furtherimprovement actions in 2008.**

# ** **

# **FORWARD-LOOKING STATEMENTS**

 

This document includes forward-looking statements.  These forward-looking statements areidentified 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 assumptions and relate to ourfuture prospects, developments and business strategies.

 

Factors that could cause our actual results to differmaterially from those expressed or implied in such forward-looking statementsinclude, but are not limited to:

 

·                  Generaleconomic conditions;

·                  Significantinternational operations and interests;

·                  Theability to obtain increases in selling prices to offset increases in rawmaterial and energy costs;

·                  Theability to retain sales volumes in the event of increasing selling prices;

·                  Theability to absorb fixed cost overhead in the event of lower volumes;

·                  Pensionand other post-retirement benefit plan assumptions;

·                  Theability to successfully complete the restructuring and turnaround of ourPolymer Additives segment;

·                  Theability to obtain growth from demand for flame retardant, petroleum additiveand lubricant, agricultural and pool and spa product applications;

·                  Theability to obtain the synergies anticipated from the integration of the Kaufmanbusiness and gain sales from new refrigeration lubricant applications;

·                  Theability to sustain profitability in our Crop Protection business due to newgeneric competition and the failure to secure new products and technology.  Additionally, the Crop Protection business isdependent on disease and pest conditions, as well as, local and regionaleconomic conditions;

·                  Theability to sell methyl bromide due to regulatory restrictions;

·                  Changesin weather conditions which could adversely affect the seasonal selling cyclesin both our Consumer Products and Crop Protection segments;

·                  Changesin the availability and/or quality of our energy and raw materials;

·                  Theability to collect our outstanding receivables;

·                  Changesin interest rates and foreign currency exchange rates;

 

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·                  Changesin technology, market demand and customer requirements;

·                  Theenactment of more stringent domestic and international environmental laws andregulations;

·                  Theability to realize expected cost savings under our restructuring plans, SixSigma and Lean manufacturing initiatives;

·                  Theability to successfully complete the execution of our portfolio transformationplan;

·                  Theability to reduce our indebtedness levels;

·                  Theability to recover our deferred tax assets;

·                  Theability to successfully complete the Company’s new SAP platform initiative;

·                  Theability to support the goodwill in our business segments;

·                  Theability to remain compliant with our debt covenants or obtain necessarywaivers; and

·                  Otherrisks and uncertainties detailed in Item 1A. Risk Factors or in our filings with the Securities and ExchangeCommission.

 

These statements are based on the Company’s estimates andassumptions and on currently available information.  The forward-looking statements includeinformation concerning the Company’s possible or assumed future results ofoperations, and the Company’s actual results may differ significantly from theresults discussed.  Forward-lookinginformation is intended to reflect opinions as of the date this report wasfiled and such information will not necessarily be updated by the Company.

# ** **

# **ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK**

 

TheCompany’s activities expose its earnings, cash flows and financial position toa variety of market risks, including the effects of changes in foreign currencyexchange rates, interest rates and energy prices.  The Company maintains a risk-managementstrategy that uses derivative instruments as needed to mitigate risk againstforeign currency movements and to manage interest rate and energy pricevolatility.  The Company does not enterinto derivative financial instruments for trading or speculative purposes.

 

The Company has short-term exposureto changes in foreign currency exchange rates resulting from transactionsentered into by the Company and its foreign subsidiaries in currencies otherthan their local currency (primarily trade payables and receivables).  The Company is also exposed to currency riskon inter-company transactions (including inter-company loans).  The Company manages these transactionalcurrency risks on a consolidated basis, which allows it to net itsexposure.  The Company purchases foreigncurrency forward contracts, primarily denominated in Euros, British PoundsSterling, Canadian dollars, Australian dollars and Mexican Pesos to hedge itstransaction exposure.  These contractsare generally settled on a monthly basis. Realized and unrealized gains and losses on foreign currency forwardcontracts are recognized in other expense, net, to offset the impact of valuingrecorded foreign currency trade payables, receivables and inter-companytransactions.  The Company has notdesignated these derivatives as hedges under FASB Statement No. 133, “Accountingfor Derivative Instruments and Hedging Activities,” FASB Statement No. 138,“Accounting for Certain Derivative Instruments and Certain Hedging Activities,”and FASB Statement No. 149, “Amendment of Statement No. 133 onDerivative Instruments and Hedging Activities,” although it believes theseinstruments help reduce the Company’s exposure to foreign currency risk. Thenet effect of the realized and unrealized gains and losses on these derivativesand the underlying transactions is not significant at December 31, 2007and 2006.

 

Thefollowing table provides information about the Company’s financial instrumentsthat are sensitive to changes in interest rates.  The table presents principal cash flows andrelated weighted-average interest rates by expected maturity date for theCompany’s long-term debt. Weighted-average variable interest rates are based on the applicablefloating rate index as of December 31, 2007.

 

# **Interest RateSensitivity**

** **
| ** **             | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | **2013 and** | ** ** | ** ** | ** ** | **Fair Value**  | ** ** |
|------------------------|------------|------------|------------|------------|------------|------------|------------|------------|------------|------------|------------|-------------------|------------|------------|------------|----------------------|------------|
| **(In millions)** | ** ** | **2008**   | ** ** | **2009**   | ** ** | **2010**   | ** ** | **2011**   | ** ** | **2012**   | ** ** | **Thereafter**    | ** ** | **Total**  | ** ** | **at 12/31/07** | ** ** |
| **Long-term  debt:**   |       |       |       |       |       |       |       |       |       |       |       |              |       |       |       |                 |       |
| Fixed rate debt        |       | $          | —     |       | $          | 400        |       | $          | —     |       | $          | —            |       | $          | —     |                 | $          | 650 |   | $ | 1,050 |   | $ | 993 |   |
| Average rate  debt     |       | 6.92       | %          | 6.92       | %          | 6.88       | %          | 6.88       | %          | 6.88       | %          | 6.88              | %          |       |       |                 |       |
|                   |       |       |       |       |       |       |       |       |       |       |       |              |       |       |       |                 |       |
| Variable rate  debt    |       | $          | —     |       | $          | 1          |       | $          | 1          |       | $          | —            |       | $          | —     |                 | $          | 18 |   | $ | 20 |   | $ | 20 |   |
| Average rate  debt (a) |       | 3.54       | %          | 3.54       | %          | 3.52       | %          | 3.55       | %          | 3.53       | %          | 3.51              | %          |       |       |                 |       |

** **

----

**(a)**          Average interest rate is based on rates in effect at December 31,2007.

** **

**52**

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** **

**The Company used price swap contracts as cash flow hedgesto convert a portion of its forecasted natural gas purchases from variableprice to fixed price purchases.  Thesecontracts are designated as hedges of a portion of the Company’s forecastednatural gas purchases for a rolling two-year period.  These contracts involve the exchange ofpayments over the life of the contracts without an exchange of the notionalamount upon which the payments are based. The differential paid or received as natural gas prices change isrecognized as an adjustment to cost of products sold when the related inventorylayer is sold.  The fair value of thecontracts at December 31, 2007 resulted in an unrealized loss of less than$1 million, which was recorded as a component of accumulated othercomprehensive loss.  Sensitivity analysisis a technique used to evaluate the impact of hypothetical market valuechanges.  A hypothetical ten percentincrease in the cost of natural gas at December 31, 2007 would result inan increase in the fair market value of the outstanding derivatives by $2million to an unrealized gain of $2 million; conversely, a hypothetical tenpercent decrease in the cost of natural gas would result in a decrease in thefair market value of the outstanding derivatives by $2 million to an unrealizedloss of $2 million.**

** **

**In the fourth quarter of 2007, the Company ceased thepurchase of additional price swap contracts as cash flow hedges of forecastednatural gas purchases and established fixed price contracts with physicaldelivery with its natural gas vendor. The existing price swap contracts mature through 2009.**

** **

**The Company has accounts receivable programs to sellaccounts receivable to agent banks.  Thefees charged for the programs are sensitive to changes in interest rates.  At December 31, 2007, $119 million ofdomestic accounts receivable have been sold at an average cost of approximately5.77% and $120 million of international accounts receivable have been sold atan average cost of approximately 7.46%. At December 31, 2006, $140 million of domestic accounts receivablehave been sold at an average cost of approximately 5.76% and $139 million ofinternational accounts receivable have been sold at an average cost ofapproximately 7.14% (for further information see Note 6 - Accounts ReceivablePrograms included in the Notes to the Consolidated Financial Statements).**

 

53

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**ITEM 8.  FINANCIAL STATEMENTS ANDSUPPLEMENTARY DATA**

 

**CONSOLIDATED STATEMENTS OF OPERATIONS**

Years ended December 31, 2007,2006 and 2005

*(In millions, except per share data)*

 
| ** **                                                                                       | ** ** | **2007**   | ** ** | **2006**    | ** ** | **2005** | ** ** |
|--------------------------------------------------------------------------------------------------|------------|------------|------------|-------------|------------|----------|------------|
|                                                                                             |       |       |       |        |       |     |       |
| **NET  SALES**                                                                                   | ** ** | **$**      | **3,747**  |        | $          | 3,458    |       | $ | 2,739 |   |
|                                                                                             |       |       |       |        |       |     |       |
| **COSTS  AND EXPENSES**                                                                          |       |       |       |        |       |     |       |
| Cost of products  sold                                                                           | ** ** | **2,862**  |       | 2,602       |       | 2,019    |       |
| Selling, general  and administrative                                                             | ** ** | **393**    |       | 387         |       | 326      |       |
| Depreciation and  amortization                                                                   | ** ** | **269**    |       | 204         |       | 150      |       |
| Research and  development                                                                        | ** ** | **62**     |       | 61          |       | 50       |       |
| Facility  closures, severance and related costs                                                  | ** ** | **36**     |       | 5           |       | 23       |       |
| Antitrust costs                                                                                  | ** ** | **35**     |       | 90          |       | 49       |       |
| Merger costs                                                                                     | ** ** | **—** |       | 17          |       | 45       |       |
| In-process  research and development                                                             | ** ** | **—** |       | —      |       | 73       |       |
| Loss (gain) on  sale of businesses                                                               | ** ** | **15**     |       | 11          |       | (3       | )          |
| Impairment of  long-lived assets                                                                 | ** ** | **19**     |       | 80          |       | —   |       |
| Equity income                                                                                    | ** ** | **(3**     | **)**      | (4          | )          | (2       | )          |
|                                                                                             |       |       |       |        |       |     |       |
| **OPERATING  PROFIT**                                                                            | ** ** | **59**     |       | 5           |       | 9        |       |
| Interest expense                                                                                 | ** ** | **87**     |       | 102         |       | 108      |       |
| Loss on early  extinguishment of debt                                                            | ** ** | **—** |       | 44          |       | 55       |       |
| Other expense,  net                                                                              | ** ** | **13**     |       | 6           |       | 12       |       |
|                                                                                             |       |       |       |        |       |     |       |
| Loss from  continuing operations before income taxes  and cumulative effect of accounting change | ** ** | **(41**    | **)**      | (147        | )          | (166     | )          |
| Income tax  provision                                                                            | ** ** | **4**      | ** ** | 126         |       | 49       |       |
| Loss from  continuing operations before cumulative effect of accounting change                   |       | **(45**    | **)**      | (273        | )          | (215     | )          |
| Earnings from  discontinued operations                                                           | ** ** | **18**     |       | 20          |       | 33       |       |
| Gain (loss) on  sale of discontinued operations                                                  | ** ** | **24**     |       | 47          |       | (4       | )          |
| Cumulative  effect of accounting change                                                          | ** ** | **—** |       | —      |       | (1       | )          |
|                                                                                             |       |       |       |        |       |     |       |
| Net Loss                                                                                         | ** ** | **$**      | **(3**     | **) ** | $          | (206     | )          | $ | (187 | ) |
|                                                                                             |       |       |       |        |       |     |       |
| **BASIC  AND DILUTED EARNINGS (LOSS) PER COMMON SHARE**                                          |       |       |       |        |       |     |       |
| Loss from  continuing operations before cumulative effect of accounting change                   |       | **$**      | **(0.18**  | **)**       | $          | (1.13    | )          | $ | (1.21 | ) |
| Earnings from  discontinued operations                                                           | ** ** | **0.07**   |       | 0.08        |       | 0.18     |       |
| Gain (loss) on  sale of discontinued operations                                                  | ** ** | **0.10**   |       | 0.20        |       | (0.02    | )          |
| Cumulative  effect of accounting change                                                          | ** ** | **—** |       | —      |       | —   |       |
| Net Loss                                                                                         | ** ** | **$**      | **(0.01**  | **) ** | $          | (0.85    | )          | $ | (1.05 | ) |
|                                                                                             |       |       |       |        |       |     |       |
| Basic and  Diluted Weighted-average shares outstanding                                           | ** ** | **241.6**  |       | 240.5       |       | 178.4    |       |

 

Seeaccompanying Notes to Consolidated Financial Statements.

 

54

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**CONSOLIDATEDBALANCE SHEETS**

Years ended December 31, 2007and 2006

*(In millions, except per share data)*

 
| ** **                                              | ** ** | **2007**   | ** ** | **2006**   | ** ** |
|---------------------------------------------------------|------------|------------|------------|------------|------------|
| **ASSETS**                                              |       | ** ** | ** ** |       |       |
|                                                    |       | ** ** | ** ** |       |       |
| CURRENT ASSETS                                          |       | ** ** | ** ** |       |       |
| Cash and cash  equivalents                              | ** ** | **$**      | **77**     | ** ** | $          | 95 |   |
| Accounts  receivable                                    | ** ** | **389**    | ** ** | 342        |       |
| Inventories                                             | ** ** | **676**    | ** ** | 660        |       |
| Other current  assets                                   | ** ** | **239**    | ** ** | 288        |       |
| Total current  assets                                   | ** ** | **1,381**  | ** ** | 1,385      |       |
|                                                    |       | ** ** | ** ** |       |       |
| NON-CURRENT  ASSETS                                     |       | ** ** | ** ** |       |       |
| Property, plant  and equipment                          | ** ** | **1,032**  | ** ** | 1,147      |       |
| Goodwill                                                | ** ** | **1,309**  | ** ** | 1,177      |       |
| Intangible assets,  net                                 | ** ** | **585**    | ** ** | 551        |       |
| Other assets                                            | ** ** | **109**    | ** ** | 139        |       |
|                                                    |       | ** ** | ** ** |       |       |
| ** **                                              |       | **$**      | **4,416**  | ** ** | $          | 4,399 |   |
|                                                    |       | ** ** | ** ** |       |       |
| **LIABILITIES  AND STOCKHOLDERS’ EQUITY**          |       | ** ** | ** ** |       |       |
|                                                    |       | ** ** | ** ** |       |       |
| CURRENT  LIABILITIES                                    |       | ** ** | ** ** |       |       |
| Short-term  borrowings                                  | ** ** | **$**      | **5**      | ** ** | $          | 48 |   |
| Accounts payable                                        | ** ** | **285**    | ** ** | 285        |       |
| Accrued expenses                                        | ** ** | **353**    | ** ** | 461        |       |
| Income taxes  payable                                   | ** ** | **38**     | ** ** | 94         |       |
| Total current  liabilities                              | ** ** | **681**    | ** ** | 888        |       |
|                                                    |       | ** ** | ** ** |       |       |
| NON-CURRENT  LIABILITIES                                |       | ** ** | ** ** |       |       |
| Long-term debt                                          | ** ** | **1,058**  | ** ** | 1,063      |       |
| Pension and  post-retirement health care liabilities    | ** ** | **361**    | ** ** | 440        |       |
| Other  liabilities                                      | ** ** | **463**    | ** ** | 329        |       |
|                                                    |       | ** ** | ** ** |       |       |
| STOCKHOLDERS’  EQUITY                              |       | ** ** | ** ** |       |       |
| Common stock -  $.01 par value                          |       | ** ** | ** ** |       |       |
| Authorized -  500.0 shares                              |       | ** ** | ** ** |       |       |
| Issued - 253.6  shares in 2007 and 252.3 shares in 2006 | ** ** | **3**      | ** ** | 3          |       |
| Additional  paid-in capital                             | ** ** | **3,028**  | ** ** | 3,005      |       |
| Accumulated  deficit                                    | ** ** | **(1,179** | **)**      | (1,128     | )          |
| Accumulated  other comprehensive income (loss)          | ** ** | **168**    | ** ** | (34        | )          |
| Treasury stock  at cost - 11.5 shares                   | ** ** | **(167**   | **)**      | (167       | )          |
| Total  stockholders’ equity                        | ** ** | **1,853**  | ** ** | 1,679      |       |
|                                                    |       | ** ** | ** ** |       |       |
| ** **                                              |       | **$**      | **4,416**  | ** ** | $          | 4,399 |   |

 

Seeaccompanying Notes to Consolidated Financial Statements.

 

55

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**CONSOLIDATEDSTATEMENTS OF CASH FLOWS**

Years ended December 31, 2007,2006 and 2005

*(In millions of dollars)*

 
| **Increase (decrease) in cash**         | ** ** | **2007**   | ** **  | **2006**    | ** ** | **2005** | ** ** |
|--------------------------------------------------------|------------|------------|-------------|-------------|------------|----------|------------|
| **CASH  FLOWS FROM OPERATING ACTIVITIES**              |       |       | ** **  |        |       |     |       |
| Net loss                                               | ** ** | **$**      | **(3**      | **) ** | $          | (206     | )          | $ | (187 | ) |
| Adjustments to  reconcile net loss to net              |       |       | ** **  |        |       |     |       |
| cash provided by  (used in) operations:                |       |       | ** **  |        |       |     |       |
| Loss (gain) on  sale of businesses                     | ** ** | **15**     | ** **  | 11          |       | (3       | )          |
| (Gain) loss on  sale of discontinued operations        | ** ** | **(24**    | **)**       | (47         | )          | 4        |       |
| Gain on sale of  equity interest in venture            | ** ** | **—** | ** **  | (6          | )          | —   |       |
| Impairment of  long-lived assets                       | ** ** | **19**     | ** **  | 80          |       | —   |       |
| Loss on early  extinguishment of debt                  | ** ** | **—** | ** **  | 44          |       | 55       |       |
| Depreciation and  amortization                         | ** ** | **275**    | ** **  | 214         |       | 161      |       |
| Stock-based  compensation expense                      | ** ** | **10**     | ** **  | 14          |       | 5        |       |
| Provision for  doubtful accounts                       | ** ** | **—** | ** **  | 20          |       | 11       |       |
| Equity (loss)  income, net of cash distributions       | ** ** | **(3**     | **)**       | 3           |       | (2       | )          |
| In-process  research and development                   |       | —     | ** **  | —      |       | 73       |       |
| Cumulative  effect of accounting change                |       | —     | ** **  | —      |       | 1        |       |
| Deferred taxes                                         | ** ** | **(24**    | **)**       | 97          |       | —   |       |
| Changes in  assets and liabilities, net:               |       |       | ** **  |        |       |     |       |
| Accounts  receivable                                   | ** ** | **26**     | ** **  | 23          |       | 73       |       |
| Accounts  receivable - securitization                  | ** ** | **(41**    | **)**       | 194         |       | (105     | )          |
| Inventories                                            | ** ** | **10**     | ** **  | 18          |       | 33       |       |
| Other current  assets                                  | ** ** | **(1**     | **) ** | 6           |       | (8       | )          |
| Other assets                                           | ** ** | **21**     | ** **  | 42          |       | (24      | )          |
| Accounts payable                                       | ** ** | **(20**    | **)**       | (33         | )          | (60      | )          |
| Accrued expenses                                       | ** ** | **(113**   | **)**       | (56         | )          | (74      | )          |
| Income taxes  payable                                  | ** ** | **(11**    | **)**       | (53         | )          | 25       |       |
| Deposit for  civil antitrust settlements in escrow     | ** ** | **36**     | ** **  | (51         | )          | —   |       |
| Pension and  post-retirement health care liabilities   | ** ** | **(22**    | **)**       | (68         | )          | (50      | )          |
| Other liabilities                                      | ** ** | **3**      | ** **  | 10          |       | (1       | )          |
| Other                                                  | ** ** | **(4**     | **)**       | (5          | )          | (6       | )          |
| Net cash  provided by (used in) operations             | ** ** | **149**    | ** **  | 251         |       | (79      | )          |
|                                                   |       |       | ** **  |        |       |     |       |
| **CASH  FLOWS FROM INVESTING ACTIVITIES**              |       |       | ** **  |        |       |     |       |
| Net proceeds  from sale of businesses                  | ** ** | **186**    | ** **  | 196         |       | 109      |       |
| Payments for  acquisitions, net of cash acquired       | ** ** | **(165**   | **)**       | (9          | )          | 57       |       |
| Merger  transaction costs paid                         | ** ** | **—** | ** **  | (8          | )          | (16      | )          |
| Capital  expenditures                                  | ** ** | **(117**   | **)**       | (128        | )          | (104     | )          |
| Other investing  activities                            | ** ** | **13**     | ** **  | —      |       | 5        |       |
| Net cash (used  in) provided by investing activities   | ** ** | **(83**    | **)**       | 51          |       | 51       |       |
|                                                   |       |       | ** **  |        |       |     |       |
| **CASH  FLOWS FROM FINANCING ACTIVITIES**              |       |       | ** **  |        |       |     |       |
| (Payments on)  proceeds from credit facility           | ** ** | **—** | ** **  | (414        | )          | 383      |       |
| Payments on  long-term notes                           | ** ** | **—** | ** **  | (324        | )          | (406     | )          |
| Proceeds from  long-term notes                         | ** ** | **—** | ** **  | 497         |       | 9        |       |
| (Payments on)  proceeds from short-term borrowings     | ** ** | **(48**    | **)**       | (16         | )          | 36       |       |
| Premium paid on  early extinguishment of debt          | ** ** | **—** | ** **  | (36         | )          | (41      | )          |
| Payments for  debt issuance costs                      | ** ** | **—** | ** **  | (6          | )          | (2       | )          |
| Dividends paid                                         | ** ** | **(48**    | **)**       | (48         | )          | (36      | )          |
| Repayment of  insurance policy loan                    | ** ** | **—** | ** **  | (10         | )          | —   |       |
| Proceeds from  exercise of stock options               | ** ** | **7**      | ** **  | 3           |       | 75       |       |
| Other financing  activities                            | ** ** | **(1**     | **)**       | (1          | )          | (1       | )          |
| Net cash (used  in) provided by financing activities   | ** ** | **(90**    | **)**       | (355        | )          | 17       |       |
|                                                   |       |       | ** **  |        |       |     |       |
| **CASH  AND CASH EQUIVALENTS**                         |       |       | ** **  |        |       |     |       |
| Effect of  exchange rates on cash and cash equivalents | ** ** | **6**      | ** **  | 9           |       | (9       | )          |
| Change in cash  and cash equivalents                   | ** ** | **(18**    | **)**       | (44         | )          | (20      | )          |
| Cash and cash  equivalents at beginning of year        | ** ** | **95**     | ** **  | 139         |       | 159      |       |
| Cash and cash  equivalents at end of year              | ** ** | **$**      | **77**      | ** **  | $          | 95       |       | $ | 139 |   |

 

Seeaccompanying Notes to Consolidated Financial Statements.

 

56

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**CONSOLIDATEDSTATEMENTS OF STOCKHOLDERS’ EQUITY**

Yearsended December 31, 2007, 2006 and 2005

*(In millions, except per share data)*

 
| ** **                                                                                                     | ** ** | ** ** | ** ** | ** **   | ** ** | ** ** | ** ** | ** **     | ** ** | ** **      | ** ** | **Accumulated**   | ** ** | ** **   | ** ** | ** ** | ** ** |
|----------------------------------------------------------------------------------------------------------------|------------|------------|------------|--------------|------------|------------|------------|----------------|------------|-----------------|------------|-------------------|------------|--------------|------------|------------|------------|
| ** **                                                                                                     | ** ** | **Common** | ** ** | ** **   | ** ** | ** ** | ** ** | **Additional** | ** ** | ** **      | ** ** | **Other**         | ** ** | ** **   | ** ** | ** ** | ** ** |
| ** **                                                                                                     | ** ** | **Shares** | ** ** | **Treasury** | ** ** | **Common** | ** ** | **Paid-in**    | ** ** | **Accumulated** | ** ** | **Comprehensive** | ** ** | **Treasury** | ** ** | ** ** | ** ** |
| ** **                                                                                                     | ** ** | **Issued** | ** ** | **Shares**   | ** ** | **Stock**  | ** ** | **Capital**    | ** ** | **Deficit**     | ** ** | **Income (Loss)** | ** ** | **Stock**    | ** ** | **Total**  | ** ** |
| **Balance,  December 31, 2004**                                                                                |       | 119.2      |       | 3.5          |       | $          | 1          |           | $          | 1,032           |       | $                 | (648       | )            | $          | (22        | )          | $ | (34 | ) | $ | 329 |   |
| Comprehensive  loss:                                                                                           |       |       |       |         |       |       |       |           |       |            |       |              |       |         |       |       |       |
| Net loss                                                                                                       |       |       |       |         |       |       |       |           |       | (187            | )          |              |       |         |       | (187       | )          |
| Equity adjustment  for translation of foreign currencies                                                       |       |       |       |         |       |       |       |           |       |            |       | (97               | )          |         |       | (97        | )          |
| Cumulative  currency translation gain on liquidation of foreign subsidiary related to  discontinued operations |       |       |       |         |       |       |       |           |       |            |       | (28               | )          |         |       | (28        | )          |
| Minimum pension  liability adjustment (net of deferred tax expense of $2)                                      |       |       |       |         |       |       |       |           |       |            |       | 3                 |       |         |       | 3          |       |
| Other (net of  deferred tax benefit of $3)                                                                     |       |       |       |         |       |       |       |           |       |            |       | 3                 |       |         |       | 3          |       |
| Total  comprehensive loss                                                                                      |       |       |       |         |       |       |       |           |       |            |       |              |       |         |       | (306       | )          |
| Cash dividends  ($0.20 per share)                                                                              |       |       |       |         |       |       |       |           |       | (36             | )          |              |       |         |       | (36        | )          |
| Acquisition of  Great Lakes                                                                                    |       | 127.6      |       | 11.5         |       | 1          |       | 1,851          |       |            |       |              |       | (167         | )          | 1,685      |       |
| Stock options  exercised                                                                                       |       | 3.7        |       | (3.3         | )          |       |       | 43             |       |            |       |              |       | 32           |       | 75         |       |
| Other issuances                                                                                                |       | 1.0        |       | (0.2         | )          | 1          |       | 25             |       | 1               |       |              |       | 2            |       | 29         |       |
| **Balance,  December 31, 2005**                                                                                |       | 251.5      |       | 11.5         |       | 3          |       | 2,951          |       | (870            | )          | (141              | )          | (167         | )          | 1,776      |       |
| Cumulative effect  of adoption of SAB 108                                                                      |       |       |       |         |       |       |       |           |       | (4              | )          |              |       |         |       | (4         | )          |
| **Balance,  January 1, 2006**                                                                                  |       | 251.5      |       | 11.5         |       | 3          |       | 2,951          |       | (874            | )          | (141              | )          | (167         | )          | 1,772      |       |
| Comprehensive  loss:                                                                                           |       |       |       |         |       |       |       |           |       |            |       |              |       |         |       |       |       |
| Net loss                                                                                                       |       |       |       |         |       |       |       |           |       | (206            | )          |              |       |         |       | (206       | )          |
| Equity adjustment  for translation of foreign currencies, net of deferred tax expense of $9                    |       |       |       |         |       |       |       |           |       |            |       | 107               |       |         |       | 107        |       |
| Minimum pension  liability adjustment, net of deferred tax expense of $35                                      |       |       |       |         |       |       |       |           |       |            |       | 52                |       |         |       | 52         |       |
| Changes in fair  value of derivatives                                                                          |       |       |       |         |       |       |       |           |       |            |       | (12               | )          |         |       | (12        | )          |
| Total  comprehensive loss                                                                                      |       |       |       |         |       |       |       |           |       |            |       |              |       |         |       | (59        | )          |
| Unrecognized  pension and post-retirement plan costs, net of deferred tax benefit of $20                       |       |       |       |         |       |       |       |           |       |            |       | (40               | )          |         |       | (40        | )          |
| Cash dividends  ($0.20 per share)                                                                              |       |       |       |         |       |       |       |           |       | (48             | )          |              |       |         |       | (48        | )          |
| Stock-based  compensation                                                                                      |       |       |       |         |       |       |       | 12             |       |            |       |              |       |         |       | 12         |       |
| Fair Value of  stock options converted (Great Lakes merger)                                                    |       |       |       |         |       |       |       | 36             |       |            |       |              |       |         |       | 36         |       |
| Stock options  exercised                                                                                       |       | 0.5        |       |         |       |       |       | 3              |       |            |       |              |       |         |       | 3          |       |
| Other issuances                                                                                                |       | 0.3        |       |         |       |       |       | 3              |       |            |       |              |       |         |       | 3          |       |
| **Balance,  December 31, 2006**                                                                                |       | 252.3      |       | 11.5         |       | 3          |       | 3,005          |       | (1,128          | )          | (34               | )          | (167         | )          | 1,679      |       |
| Comprehensive income:                                                                                          |       |       |       |         |       |       |       |           |       |            |       |              |       |         |       |       |       |
| Net loss                                                                                                       |       |       |       |         |       |       |       |           |       | (3              | )     |              |       |         |       | (3         | )          |
| Equity adjustment  for translation of foreign currencies, net of deferred tax expense of $44                   |       |       |       |         |       |       |       |           |       |            |       | 145               |       |         |       | 145        |       |
| Unrecognized  pension and post-retirement plan costs, net of deferred tax expense of $18                       |       |       |       |         |       |       |       |           |       |            |       | 50                |       |         |       | 50         |       |
| Changes in fair  value of derivatives                                                                          |       |       |       |         |       |       |       |           |       |            |       | 7                 |       |         |       | 7          |       |
| Total  comprehensive income                                                                                    |       |       |       |         |       |       |       |           |       |            |       |              |       |         |       | 199        |       |
| Cash dividends  ($0.20 per share)                                                                              |       |       |       |         |       |       |       |           |       | (48             | )          |              |       |         |       | (48        | )          |
| 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 | ) | $ | 1,853 |   |

 

Seeaccompanying Notes to Consolidated Financial Statements.

** **

**57**

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** **

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

 

**1) SUMMARY OF SIGNIFICANTACCOUNTING POLICIES**

 

**Strategic Initiatives**

The Company’s strategy is to focus on its core businesses,rationalizing its manufacturing footprint and cost structure while developingproducts and applications that generate profitable organic revenue growth.  To implement this strategy, the Company isrationalizing its business portfolio by divesting non-core and underperformingbusinesses and assets and has implemented a number of restructuring programs toreduce manufacturing and functional costs. The Company continues to focus its resources on generating growth fromnew product and application development and geographic expansion.  We may supplement these organic growthinitiatives by acquiring businesses and assets that will facilitategrowth.  The Company announced threestrategic cost saving restructuring initiatives in the second quarter of 2007and launched an initiative in the fourth quarter of 2007 to consolidate itsmultiple ERP systems onto a single SAP platform. 

 

On December 10, 2007, the Company announced the formation of the Officeof the Chairman, designed to increase organizational focus, speed decisionmaking and improve execution.

 

On December 18, 2007, the Company announced that its Board of Directorshas authorized management to consider a wide range of strategic alternativesavailable to the Company to enhance shareholder value.

 

**Basis of Presentation**

The accompanying consolidated financialstatements include the accounts of Chemtura Corporation and its wholly-ownedand majority-owned subsidiaries, which are collectively referred to as “theCompany.”  Other affiliates in which theCompany has a 20% to 50% ownership interest or a non-controlling majorityinterest are accounted for in accordance with the equity method. Otherinvestments in which the Company has less than 20 percent ownership arerecorded at cost.  In addition, theCompany evaluates its relationships with other entities to identify whetherthey are variable interest entities as defined by FASB Interpretation No. 46(R) *Consolidation of Variable Interest Entities*(FIN46R) and to assess whether it is the primary beneficiary of such entities.  If the determination is made that the Companyis the primary beneficiary, then that entity is included in the consolidatedfinancial statements in accordance with FIN 46(R).  Allsignificant intercompany balances and transactions have been eliminated inconsolidation.

 

The consolidated financial statements have beenprepared in conformity with accounting principles generally accepted in theUnited States, which require the Company to make estimates and assumptions thataffect the reported amounts of assets and liabilities and disclosures ofcontingent assets and liabilities at the date of the financial statements andthe reported amounts of revenues and expenses during the reporting period.  Actual results could differ from theseestimates.

 

**Discontinued Operations**

The Company sold certain assets and assignedcertain liabilities of its refined products business on June 24, 2005, itsEPDM business on June 29, 2007 and its optical monomers business on October 31,2007. The Company sold its fluorine chemical business on January 31, 2008.

 

As a result, the operations of these businesseshave been classified as earnings from discontinued operations (net of tax) inthe consolidated 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. Refer to Note 3 –Divestitures - Discontinued Operations for further information.

 

**Accounting Policies**

Revenue Recognition

Substantiallyall of the Company’s revenues are derived from the sale of products. Revenue isrecognized when risk of loss of, and title to, the product is transferred tothe customer.  Revenue is recorded net oftaxes collected from customers that are remitted to governmental authoritieswith the collected taxes recorded as current liabilities until remitted to therespective governmental authorities.  TheCompany’s products are sold subject to various shipping terms. The Company’sterms of delivery are included on its sales invoices and order confirmationdocuments.

 

Customer Rebates

The Companyaccrues for the estimated cost of customer rebates as a reduction ofsales.  Customer rebates are primarilybased on customers achieving defined sales targets over a specified period oftime.  The Company estimates the cost ofthese rebates based on the likelihood of the rebate being achieved andrecognizes the cost as a deduction from sales when such sales arerecognized.  Rebate programs aremonitored on a regular basis and adjusted as required.  The Company’s accruals for customer rebateswere $27 million and $29 million at December 31, 2007 and 2006,respectively.

 

**Operating Costsand Expenses**

Cost of productssold includes all costs incurred in manufacturing products, including rawmaterials, direct manufacturing costs and manufacturing overhead.  Cost of products sold also includeswarehousing, distribution, engineering, purchasing, customer service,environmental, health and safety functions, and shipping and handling costs foroutbound product shipments.  Selling,general and administrative expenses (“SG&A”) include costs and expensesrelated to the following functions and activities: selling, advertising, legal,provision for doubtful accounts, corporate facilities and corporateadministration.  SG&A also includesaccounting, information technology,

 

58

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finance and humanresources, excluding direct support in manufacturing operations, which isincluded as cost of products sold. Research and development expenses (“R&D”) include basic and appliedresearch and development activities of a technical and non-routine nature.  R&D costs are expensed as incurred.  Costs of products sold, SG&A and R&Dexpenses exclude depreciation and amortization expenses, which are presented ona separate line in the consolidated statements of operations.

 

Also, included in cost of products sold for 2005 is $37 million relatedto the fair value impact of purchase accounting on inventory resulting from themerger with Great Lakes.

 

Other Expenses, Net

The following table is a summary of items included on the otherexpense, net line in the consolidated statements of operations.

 
| **(In millions)**                                                                | ** ** | **2007**   | ** ** | **2006**   | ** ** | **2005** | ** ** |
|---------------------------------------------------------------------------------------|------------|------------|------------|------------|------------|----------|------------|
|                                                                                  |       |       | ** ** |       |       |     |       |
| Costs of  securitization programs                                                     | ** ** | **$**      | **21**     | ** ** | $          | 15       |       | $ | 11 |   |
| Equity (income)  loss - Davis Standard LLC                                            | ** ** | **—** | ** ** | (6         | )          | —   |       |
| Gain on sale of  equity investment - Davis Standard LLC                               | ** ** | **—** | ** ** | (6         | )          | —   |       |
| Foreign exchange  (gain) loss                                                         | ** ** | **(11**    | **)**      | 9          |       | 3        |       |
| Interest income                                                                       | ** ** | **(7**     | **)**      | (9         | )          | (12      | )          |
| Minority  interest                                                                    | ** ** | **8**      | ** ** | 1          |       | 3        |       |
| Other accounts  receivable financing                                                  | ** ** | **1**      | ** ** | 1          |       | 2        |       |
| Pension and  other post-retirement benefits of legacy businesses - interest component |       | **1**      | ** ** | 1          |       | 3        |       |
| Other items,  individually less than $1                                               | ** ** | **—** | ** ** | —     |       | 2        |       |
| ** **                                                                            |       | **$**      | **13**     | ** ** | $          | 6        |       | $ | 12 |   |

 

The interest income for 2006 and 2005 include interest income resultingfrom tax settlements of $4 million and $2 million, respectively.

 

Pension and other post-retirement benefits of legacy plans representsthe accretion of interest on obligations assumed in connection with thepurchase of Witco in 1999 relating to businesses for which the Company and theplan participants did not have any continuing involvement either prior orsubsequent to the acquisition.

 

Allowance for Doubtful Accounts

Included in accounts receivable are allowancesfor doubtful accounts in the amount of $32 million in 2007 and 2006.  The allowance for doubtful accountsreflects a reserve representing the Company’s estimate of the amounts that maynot be collectible.  In addition toreviewing delinquent accounts receivable, the Company considers many factors inestimating its reserve, including historical data, experience, customer types,credit worthiness, and economic trends. From time to time, the Company mayadjust its assumptions for anticipated changes in any of these or other factorsexpected to affect collectability.

 

# **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 atcost, less accumulated depreciation. Depreciation expense from continuing operations ($229 million in 2007,$163 million in 2006 and $122 million in 2005) is computed on the straight-linemethod using the following ranges of asset lives: land improvements - 3 to 20years; buildings and improvements - 2 to 40 years; machinery and equipment - 2to 25 years; information systems equipment - 2 to 7 years; and furniture,fixtures and other - 1 to 15 years.

 

Renewals and improvements that extend the usefullives of the assets are capitalized. Capitalized leased assets and leasehold improvements are depreciatedover the shorter of their useful lives or the remaining lease term.  Expenditures for maintenance and repairs arecharged to expense as incurred.

 

59

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# ** **

# **IntangibleAssets**

Patents,trademarks and other intangibles are being amortized principally on astraight-line basis using the following ranges for their estimated usefullives: patents 7 to 20 years; trademarks 7 to 40 years; customer relationships5 to 25 years; production rights 10.5 years; and other intangibles 5 to 20years.  Further information is providedin Note 9 – Goodwill and Intangible Assets.

# ** **

# **Recoverabilityof Long-Lived Assets and Goodwill**

The Company evaluates the recoverabilityof the carrying value of its long-lived assets, excluding goodwill, wheneverevents or changes in circumstances indicate that the carrying value may not berecoverable. Under such circumstances, the Company assesses whether theprojected undiscounted cash flows of its businesses are sufficient to recoverthe existing unamortized cost of its long-lived assets.  If the undiscounted projected cash flows arenot sufficient, the Company calculates the impairment amount by discounting theprojected cash flows using its weighted-average cost of capital.  The amount of the impairment is written offagainst earnings in the period in which the impairment is determined inaccordance with FASB Statement No. 144 “Accounting for the Impairment orDisposal of Long-Lived Assets.”

 

The Company evaluates therecoverability of the carrying value of goodwill on an annual basis as of July 31,or sooner if events occur or circumstances change, in accordance with FASBStatement No. 142, “Goodwill and Other Intangible Assets.”  See Note 9 - Goodwill and Intangible Assetsfor further details.

 

Environmental Liabilities

Each quarter, the Company evaluates and reviews estimates for futureremediation and related costs to determine appropriate environmental reserveamounts.  For each site where thecost of remediation is probable and estimable, a determination is made of thespecific measures that are believed to be required to remediate the site, theestimated total cost to carry out the remediation plan, the portion of the totalremediation costs to be borne by the Company and the anticipated time frameover which payments toward the remediation plan will occur. At sites where theCompany expects to incur ongoing operations and maintenance expenditures, theCompany accrues on an undiscounted basis for a period, which is generally 10years, where it believes that such costs are estimable.

 

Litigation and Contingencies

In accordance with FASB Statement No. 5, Accounting forContingencies, the Company records in its consolidated financial statementsamounts representing the Company’s estimated liability for claims, guaranteesand litigation.  As information aboutcurrent or future litigation or other contingencies becomes available,management assesses whether such information warrants the recording ofadditional expenses relating to those contingencies.  See Note 21 - Legal Matters and Note 22 -Contingencies for further details.

 

Stock-Based Compensation

In December 2004, the FASB issued Statement No. 123 (revised2004), “Share-Based Payment” (“FASB 123”(R)), which replaced Statement No. 123,“Accounting for Stock-Based Compensation” (“FASB 123”) and supersedesAccounting Principles Board Opinion No. 25, “Accounting for Stock Issuedto Employees” (“APB 25”).  FASB 123(R) requiresall share-based payments to employees, including grants of employee stockoptions, to be recognized in the financial statements based on their fairvalue, beginning with the first annual period after June 15, 2005.  Effective January 1, 2006, the Companyadopted FASB 123(R) using the modified prospective method. Under themodified prospective method, the compensation cost for all new awards andawards modified, repurchased or cancelled after the date of adoption of FASB123(R), as well as the unrecognized compensation cost of unvested awards as ofthe date of adoption, are recognized in earnings based on the grant-date fairvalue of those awards.

 

The Company recognizes compensation cost for stock-based awards issuedafter January 1, 2006 over the requisite service period for eachseparately vesting tranche, as if multiple awards were granted.  Stock-based compensation expense recognizedwas $10 million and $14 million for the years ended December 31, 2007 and2006, respectively, primarily attributable to the Company’s stock optionprogram.

 

Through December 31, 2005, the Company elected to continue itshistorical method of accounting for stock-based compensation in accordance withAPB 25, as permitted under FASB 123 and FASB Statement No. 148, “Accountingfor Stock-Based Compensation – Transition and Disclosure” (“FASB 148”). UnderAPB 25, compensation expense for fixed plans was recognized based on thedifference between the exercise price and the stock price on the date of grant.Since the Company’s fixed plan awards were granted with an exercise price equalto the stock price on the date of grant, no compensation expense was recognizedin the consolidated statement of operations for

 

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these awards.  However, compensationexpense was recognized for the restricted stock awards under the Company’slong-term incentive programs in accordance with the provisions of APB 25.  The following table illustrates the effect onnet loss and related per share amounts for the year ended December 31,2005, as if the Company had applied the fair value recognition provisions ofFASB 123 and FASB 148 to all stock-based employee compensation awards.

 
| **(In millions, except per share data)**                                                        | ** ** | **2005** | ** ** |
|--------------------------------------------------------------------------------------------------------------------------|------------|----------|------------|
| Net loss, as  reported                                                                                                   |       | $        | (187       | ) |
| Stock-based  employee compensation expense (income) included in net loss, net of tax                                     |       | 3        |       |
| Total  stock-based employee compensation determined under fair value based  accounting method for all awards, net of tax |       | (8       | )          |
| Pro forma net  loss                                                                                                      |       | $        | (192       | ) |
|                                                                                                                     |       |     |       |
| Net loss per share:                                                                                                      |       |     |       |
| Basic and  diluted - as reported                                                                                         |       | $        | (1.05      | ) |
| Basic and  diluted - pro forma                                                                                           |       | $        | (1.07      | ) |

 

# **DerivativeInstruments**

Derivative instruments are presented in theaccompanying consolidated financial statements at fair value as required byaccounting principles generally accepted in the United States.  Further information is provided in Note 18 -Derivative Instruments and Hedging Activities.

# ** **

# **Translationof Foreign Currencies**

Balance sheet accounts denominated in foreigncurrencies are translated at the current rate of exchange as of the balancesheet date, while revenues and expenses are translated at average rates ofexchange during the periods presented. The cumulative foreign currency adjustments resulting from suchtranslation are included in accumulated other comprehensive income (loss).

 

**Cash Flows**

Cash and cash equivalents include bank termdeposits with original maturities of three months or less. Included inthe Company’s cash balance at December 31, 2007 and 2006, is approximately$2 million of restricted cash that is required to be on deposit to supportcertain letters of credit and performance guarantees, the majority of whichwill be settled within one year.

 

Cash payments included interest payments of $85million in 2007, $104 million in 2006 and $106 million in 2005. Cash paymentsalso included net income tax payments of $52 million in 2007, $68 million in2006 and $42 million in 2005.

 

Below is the supplemental schedule of investingand financing activities for the year ended December 31, 2005 related tothe merger with Great Lakes.

 
| **(In millions)**                                              | ** ** | **2005** | ** ** |
|---------------------------------------------------------------------|------------|----------|------------|
| Fair value of  non-cash assets acquired in acquisition              |       | $        | 2,859      |   |
| Cash acquired in  acquisition                                       |       | 126      |       |
| In-process  research and development                                |       | 73       |       |
| Issuance of  common stock in acquisition, net of registration costs |       | (1,853   | )          |
| Treasury stock  acquired                                            |       | 167      |       |
| Liabilities  assumed in acquisition                                 |       | $        | 1,372      |   |

 

# **Accounting Developments**

 

Implemented in 2007

In March 2006, the FASB issuedStatement No. 156, “Accounting for Servicing of Financial Assets - anamendment of FASB Statement No. 140.” Statement No. 156 providesadditional guidance for initially recognizing servicing assets and liabilitiesat fair value, if practical, and is effective for fiscal years beginning afterSeptember

 

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15, 2006. The adoption of Statement No. 156did not have a material impact on the Company’s consolidated results ofoperations for the year ended December 31, 2007 and financial position asof December 31, 2007.

 

Effective January 1, 2007, theCompany adopted FASB Interpretation No. 48, “Accounting for Uncertainty inIncome Taxes” (“FIN 48”), which clarifies the accounting for uncertainty inincome taxes recognized in accordance with FASB Statement No. 109, “Accountingfor Income Taxes.” Under FIN 48, the Company may recognize a tax benefit froman uncertain tax position only if it is more likely than not that the taxposition will be sustained on examination by the taxing authorities, based onthe technical merits of the position. FIN 48 also provides guidance onderecognition, classification, interest and penalties on income taxes,accounting in interim periods and requires increased disclosures. See Note 12 -Income Taxes for information relating to implementation of this interpretation.

 

Future Implementations

In September 2006,the FASB issued Statement No. 157, “Fair Value Measurements,” whichdefines fair value, establishes a framework for measuring fair value, andexpands disclosures about fair value measurements. The provisions of Statement No. 157are effective as of the beginning of the Company’s 2008 fiscal year. However,the FASB deferred the effective date of Statement No. 157 until the beginningof the Company’s 2009 fiscal year, as it relates to fair value measurementrequirements for non-financial assets and liabilities that are not remeasuredat fair value on a recurring basis. The Company is assessing the impact ofadopting Statement No. 157 on its financial position and results ofoperations.

 

In February 2007,the FASB issued Statement No. 159, “The Fair Value Option for FinancialAssets and Financial Liabilities,” which provides companies with an option toreport selected financial assets and liabilities at fair value in an attempt toreduce both complexity in accounting for financial instruments and thevolatility in earnings caused by measuring related assets and liabilitiesdifferently. The provisions of Statement No. 159 are effective as of thebeginning of the Company’s 2008 fiscal year. The Company believes this will nothave a significant impact on its financial position or results of operations.

 

In December 2007,the FASB issued Statement No. 160, “Noncontrolling Interests inConsolidated Financial Statements – an amendment of ARB No. 51,” which willrequire companies to treat noncontrolling interests (commonly referred to asminority interest) as a separate component of shareholders’ equity and not as aliability.  The provisions of Statement No. 160are effective as of the beginning of the Company’s 2009 fiscal year.  The Company is assessing the impact ofadopting Statement No. 160 on its financial position and results ofoperations.

 

In December 2007,the FASB issued Statement No. 141 (revised 2007), “Business Combinations”(“Statement No. 141(R)”), which requires that identifiable assets,liabilities, noncontrolling interests and goodwill, acquired in a businesscombination, be recorded at full fair value. The provisions of Statement No. 141(R) are effective as of thebeginning of the Company’s 2009 fiscal year. The Company is assessing theimpact of adopting Statement No. 141(R) on its financial position andresults of operations.

 

 

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**2) MERGERS AND ACQUISITIONS**

 

**Merger**

Effective July 1, 2005, the Company and Great Lakes completed anall-stock merger transaction (the “Merger”). In accordance with the terms of the agreement, Great Lakes shareholdersreceived 2.2 shares of the Company’s common stock for each share of Great Lakescommon stock resulting in the issuance of approximately 116.1 million shares,which is net of 11.5 million treasury shares, of the Company’s common stockwith a fair value of approximately $1.9 billion. The fair value is based on afair value per common share of $14.52, which represents the average of theclosing prices on March 9, 2005, the date the terms of the agreement wereagreed to and announced, and the two days before and after that date.  The Company has also exchanged all of theoutstanding vested and unvested Great Lakes stock options for 8.1 million offully vested stock options of the Company, valued at $36 million.  The total purchase price, including the valueof the common stock and stock options issued, was $1.9 billion. In addition,vesting was accelerated for substantially all of the outstanding unvestedrestricted share units of Great Lakes. As a result of the Merger, the Company obtained a 100% equity interestin Great Lakes.

 

The acquired assets and assumed liabilities have been recorded at theirfair value and the excess cost of the acquired net assets over their fair valuehas been recorded as goodwill.  TheCompany believes that this goodwill is attributable to an enhanced competitiveposition, greater stability through geographic and end-market diversification,a significantly strengthened balance sheet and credit profile, and a broaderplatform for future growth.  The totalpurchase price has been allocated to the acquired net tangible and intangibleassets and assumed liabilities based upon valuations and estimates of fairvalue.  The purchase price at July 1,2005 has been allocated as follows:

 

| **(In millions)**                                | ** ** | ** ** | ** ** |
|--------------------------------------------------|------------|------------|------------|
| Cash and cash equivalents                        |       | $          | 126        |   |
| Accounts receivable                              |       | 347        |       |
| Inventories                                      |       | 372        |       |
| Other current assets                             |       | 86         |       |
| Property, plant and equipment                    |       | 573        |       |
| Cost in excess of acquired net assets (goodwill) |       | 922        |       |
| In-process research and development              |       | 73         |       |
| Other intangible assets                          |       | 518        |       |
| Other assets                                     |       | 103        |       |
| Short-term borrowings                            |       | (30        | )          |
| Accounts payable                                 |       | (170       | )          |
| Accrued expenses                                 |       | (275       | )          |
| Income taxes payable                             |       | (69        | )          |
| Long-term debt                                   |       | (454       | )          |
| Pension and post-retirement health care benefits |       | (129       | )          |
| Other liabilities                                |       | (271       | )          |
| Treasury stock                                   |       | 167        |       |
| Total purchase price                             |       | $          | 1,889      |   |

 

 

In-process research and development of $73 million had no futurealternate use and was written off to operations during 2005.

 

The following pro forma unaudited results of operations for 2005 giveeffect to the Merger as if it had been consummated as of the beginning of theperiod. The pro forma unaudited results of operations combine the historicalresults of operations of the Company and Great Lakes with the pro formaadjustments described below.

 

The pro forma unaudited results of operations do not give effect tocertain synergies and cost savings expected to result from the Merger.  The pro forma unaudited results of operationsdo not purport to be indicative of what the actual results of operations wouldhave been had the Merger been completed on the dates assumed, or the results ofoperations that may be achieved in the future.

 

The pro forma unaudited results of operations for the year ended December 31,2005 are as follows:

 
| **(In millions, except per share data)** | ** ** | **2005** | ** ** |
|-------------------------------------------------------------------|------------|----------|------------|
| Net sales                                                         |       | $        | 3,898      |   |
|                                                              |       |     |       |
| Loss from  continuing operations (a)                              |       | $        | (148       | ) |
|                                                              |       |     |       |
| Net loss (a)                                                      |       | $        | (153       | ) |
|                                                              |       |     |       |
| Basic and  diluted earnings (loss) per share:                     |       |     |       |
| Loss from  continuing operations                                  |       | $        | (0.63      | ) |
|                                                              |       |     |       |
| Net loss                                                          |       | $        | (0.65      | ) |
|                                                              |       |     |       |
| Weighted average  shares outstanding – basic and diluted     |       | 235.9    |       |

 

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(a)          The 2005 pro forma loss from continuingoperations includes a charge for the write-off of in-process research anddevelopment expenses of $73 ($73 net of tax), and a charge for the impact oncost of products sold of the fair value adjustment to inventory of $37 ($27 netof tax).

 

 

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The pro forma adjustments included in the loss from continuingoperations and in net earnings (loss) above are summarized as follows:

* *
| **(In  millions)**                 | ** ** | ** ** | **2005**  |
|------------------------------------|------------|------------|-----------|
| Reduction in pension expense (1)   |       | $          | 2         |
| Reduction in interest expense (2)  |       | 4          |
| Depreciation (3)                   |       | 5          |
| Amortization (4)                   |       | (9)        |
| Reversal merger costs (5)          |       | 138        |
| Pro forma adjustments - gross      |       | $          |  140 |
|                               |       |       |
| Pro forma adjustments - net of tax |       | $          | 113       |

 
| (1) | Pension - represents a reduction in pension expense,  principally due to the elimination of the impact of amortization of  historical gains and losses from Great Lakes’ historical net periodic benefit  cost. |
|-----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (2) | Interest - represents that impact on interest  expense of amortization of the fair value adjustment to Great Lakes’ long  term debt.                                                                            |
| (3) | Depreciation - represents the impact on depreciation  expense of the fair value adjustment and change in the remaining useful lives  of Great Lakes’ property, plant and equipment.                             |
| (4) | Amortization - represents the impact on amortization  expense of the fair value adjustment and change in remaining useful life of  Great Lakes’ intangible assets.                                              |
| (5) | Merger Costs - represents the reversal of  merger-related expenses incurred by Great Lakes and recognized in their  pre-merger operating results.                                                                    |

* *

Asa result of the Merger, the Company recorded charges for costs directly relatedto the Merger as a component of operating profit (loss).  The related reserve activity is summarized asfollows:

 
| **(In millions)**            | ** ** | **Severance  and Related  Costs (a)** | ** ** | **Merger  Integration  Costs (b)** | ** ** | **Total**  | ** ** |
|-----------------------------------|------------|-------------------------------------------------|------------|-----------------------------------------|------------|------------|------------|
| 2005 merger  costs                |       | $                                               | 9          |                                    | $          | 36         |       | $ | 45 |   |
| Cash payments                     |       | (5                                              | )          | (23                                     | )          | (28        | )          |
| Balance at  December 31, 2005     |       | 4                                               |       | 13                                      |       | 17         |       |
| 2006 merger  costs                |       | —                                          |       | 17                                      |       | 17         |       |
| Cash payments                     |       | (3                                              | )          | (30                                     | )          | (33        | )          |
| Balance at  December 31, 2006     |       | 1                                               |       | —                                  |       | 1          |       |
| Cash payments                     |       | (1                                              | )          | —                                  |       | (1         | )          |
| **Balance  at December 31, 2007** | ** ** | **$**                                           | **—** | ** **                              | **$**      | **—** | ** ** | **$** | **—** | ** ** |

 

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(a) Includesseverance relating to former Crompton personnel only.

(b) Includesprimarily consulting costs related to the integration of Crompton and GreatLakes.

 

The above merger related reserves are included inaccrued expenses on the Company’s consolidated balance sheet at 2006.

 

**Acquisitions**

 

GLCC Laurel, LLC

On March 12, 2008, the Company purchased the remaining 50%outstanding shares of GLCC Laurel, LLC.

 

Baxenden

On February 29, 2008, the Company purchased the remaining 46.5%outstanding shares of Baxenden Chemicals Limited.

 

Kaufman

On January 31, 2007, the Company completed the acquisition of thestock of Kaufman Holdings Corporation (“Kaufman”) for $160 million plus anadditional $5 million for working capital adjustments and transactioncosts.  Additionally, a deferred paymentof $5 million will be paid to the sellers on the second anniversary of theclosing date, subject to any indemnification claims.

 

The acquired assets and assumed liabilities have been recorded at theirfair value and the excess cost of the acquired net assets over their fair valuehas been recorded as goodwill.  The totalpurchase price has been allocated to the acquired net tangible and intangibleassets and assumed liabilities based upon valuations and

 

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estimates of fair value.  Thevaluations and estimates utilized to determine the purchase price allocationare preliminary and subject to change.

 

The total Kaufman purchase price of $170 million includes $61 millionof goodwill, $58 million of intangible assets, $45 million of net workingcapital, $42 million of property, plant and equipment, $2 million of otherassets offset by $38 million of other long-term liabilities.

 

Kaufman reported net sales of $205 million in 2006.  The Kaufman acquisition compliments theCompany’s existing Performance Specialties segment offering related products inkey customer areas, providing the opportunity to strengthen alliances withmajor suppliers, and offering potential distribution synergies.

 

Trace Chemicals

On March 24, 2006, the Company acquiredthe Trace Chemicals business from Bayer CropScience LP.  Trace Chemicals is a leader in farmer-appliedseed treatments in markets serving the United States.  The acquisition will serve to enhance theCompany’s offerings in the Crop Protection business.  The cash paid for this acquisition was $7million and the assets acquired included inventory, property, plant andequipment and intangible assets.

 

**3) DIVESTITURES**

 

##### **Discontinued Operations**

 

The Company has classified the following transactions as discontinuedoperations in the consolidated statements of operations for all periodspresented in accordance with FASB Statement No. 144, “Accounting for theImpairment or Disposal of Long-Lived Assets”.  In accordance with EITF03-13, the Company determined the cash flows associated with the continuationof activities are deemed indirect and the Company evaluated whether it had significantcontinued involvement in the operations of the disposed businesses.  Accordingly, the Company did not deem itsinvolvement with the disposed businesses subsequent to sale to be significant.

 

Discontinued operations activity is as follows:

 
| ** **             | ** ** | **2007**       | ** ** | **2006**                                              | ** ** | **2005**                 | ** ** |
|------------------------|------------|----------------|------------|-------------------------------------------------------|------------|--------------------------|------------|
| **(In millions)** | ** ** | **Net  Sales** | ** ** | **Pre-tax  Earnings  from  Discontinued  Operations** | ** ** | **Income  Tax  Expense** | ** ** | **Earnings from  Discontinued  Operations** | ** ** | **Net  Sales** | ** ** | **Pre-tax  Earning  from  Discontinued  Operations** | ** ** | **Income  Tax  Expense** | ** ** | **Earnings  from  Discontinued  Operations** | ** ** | **Net  Sales** | ** ** | **Pre-tax  Earnings  from  Discontinued  Operations** | ** ** | **Income  Tax  Expense** | ** ** | **Earnings from  Discontinued  Operations** | ** ** |
| Fluorine               |       | $              | 49         |                                                  | $          | 14                       |       | $ | (5 | ) | $ | 9 |   | $ | 56 |   | $ | 8 |   | $ | (3 | ) | $ | 5 |   | $ | 27 |   | $ | 1 |   | $ | (1 | ) | $ | — |   |
| Optical Monomers       |       | 31             |       | 3                                                     |       | —                   |       | 3 |   | 35 |   | 4 |   | (1 | ) | 3 |   | 16 |   | 2 |   | (1 | ) | 1 |   |
| EPDM                   |       | 99             |       | 8                                                     |       | (3                       | )          | 5 |   | 174 |   | 18 |   | (6 | ) | 12 |   | 205 |   | 44 |   | (15 | ) | 29 |   |
| OrganoSilicones        |       | —         |       | 2                                                     |       | (1                       | )          | 1 |   | — |   | — |   | — |   | — |   | — |   | — |   | — |   | — |   |
| Refined Products       |       | —         |       | —                                                |       | —                   |       | — |   | — |   | — |   | — |   | — |   | 136 |   | 4 |   | (1 | ) | 3 |   |
| Total                  |       | $              | 179        |                                                  | $          | 27                       |       | $ | (9 | ) | $ | 18 |   | $ | 265 |   | $ | 30 |   | $ | (10 | ) | $ | 20 |   | $ | 384 |   | $ | 51 |   | $ | (18 | ) | $ | 33 |   |

 

Fluorine Divestiture

On December 14, 2007, the Company signed an Asset PurchaseAgreement for the sale of its fluorine business located at its El Dorado,Arkansas site. The transaction closed on January 31, 2008. At December 31,2007 the fluorine business assets principally consist of inventory($7 million), property, plant and equipment ($9 million), and patents andintangibles ($12 million).

 

Optical Monomers Divestiture

On October 31, 2007, the Company completed the sale of its opticalmonomers business, which includes its Ravenna, Italy manufacturing facility,for cash proceeds of $24 million.  TheCompany reported a net of tax loss of $1 million (a loss of $2 million relatedto the sale of its optical monomers business in discontinued operations and again of $1 million related to the sale of certain antioxidants assets in costof goods sold).  The net assets soldinclude $8 million of accounts receivable, $9 million of inventories, $5million of intangible assets, $5 million of assets at the Company’smanufacturing facilities and $2 million of current liabilities.

 

EPDM Divestiture

On June 29, 2007, the Company completed the sale of its EPDMbusiness, the Celogen® foaming agents product line related to rubber chemicals,and its Geismar, Louisiana facilities for cash proceeds of $137 million, plus$16 million in 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 ofbusinesses). The assets sold include $23 million of

 

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accounts receivable, $36 million of inventories and $63 million ofassets at the Company’s manufacturing facilities.  In connection with this sale, the Company andLion entered into certain transitional service and supply agreements for periodsinitially ranging from 90 days to six months which may be extended at themutual consent of both parties. Since June 30, 2007, the Company does nothave any continuing involvement in the EPDM business. The Company continues tomanufacture and market its remaining rubber chemicals product lines.

 

Refined Products

On June 24,2005, the Company sold certain assets and assigned certain liabilities of itsRefined Products business to Sun Capital Partners Group, Inc. (“Sun”) for$80 million.  The consideration that theCompany received was subject to adjustment based on the change in certaintransferred assets and liabilities of the Refined Products business through theclosing date and for retained accounts receivable and accounts payable, whichresulted in a reduction to the proceeds received by $30 million.  The Company also prepaid approximately $7million of the manufacturing costs for certain petroleum additives productsthat will be manufactured for the Company by Sun. During the second quarter of2005, the Company recognized a loss on the transaction of $28 million (net ofan income tax benefit of $14 million). During the fourth quarter of 2005, the Company recognized a gain of $28million primarily due to the elimination of the cumulative currency translationadjustment resulting from the liquidation of a foreign subsidiary engaged inthe Refined Products business.  Overall,the transaction did not have a material impact on the Company’s earnings forthe year ended December 31, 2005.

 

Prior to the divestiture of the Refined Products business, the Company’sRefined Products business and Petroleum Additives business shared amanufacturing facility. Contemporaneous with the sale of the Refined Productsbusiness, the Company entered into toll manufacturing arrangements with Sun,whereby Sun will continue to manufacture certain products for the PetroleumAdditives business. These arrangements extend for up to ten years.  For the year ended December 31, 2006, theCompany purchased approximately $50 million from Sun and from the date of salethrough December 31, 2005, the Company purchased approximately $16 million fromSun.

 

The Company has classified the following transactions as discontinuedoperations in the consolidated statements of operations for all periodspresented in accordance with FASB Statement No. 144, “Accounting for theImpairment or Disposal of Long-Lived Assets”. Under Statement No. 144, the cash flows associated with the continuationof activities are deemed indirect; and therefore, the Company evaluatedsignificant continued involvement in the operations of the disposed businesses.The Company determined that (a) the Company does not have the ability tosignificantly influence the operating and financial policies of Sun, nor doesit have any authority or interest in any of the components of the revenue orprofit generating aspects of the refined products business; (b) under theterms of the sale agreement, the Company is prohibited from competing with Sunin the refined products business; (c) the Company’s rights are limited tooversight rights related to monitoring the manufacture of products to protectthe interests of its petroleum additives business, a right that is not uncommonin similar arm’s-length arrangements; and (d) the Company can migrate itssupply requirements to other manufacturers. Accordingly, the Company did not deem its involvement with Sunsubsequent to sale to be significant.

 

OrganoSilicones

On July 31, 2003, the Company sold certainassets and assigned certain liabilities of its OrganoSilicones business unit tothe Specialty Materials division of General Electric Company (“GE”) andacquired GE’s Specialty Chemicals business. As a result of this transaction, the Company was to receive quarterlyearn-out payments through December of 2006 based on the minimum requiredpayments and additional payments contingent on the combined performance of GE’sexisting Silicones business and the OrganoSilicones business that GE acquiredfrom the Company through September of 2006. The total of suchearn-out proceeds was for a minimum of $105 million and a maximum of $250million, of which the Company received a total of $175 million over the term ofthe agreement ($9 million in 2007, $54million in 2006, $63 million in 2005, $40 million in 2004 and $9 million in2003).  The minimum earn-out of $105 million was accrued as part of the gain onthe sale of the business in 2003.

 

As a result of the expiration of the performance contingency on September 30,2006 and the expiration of the earn-out period, the total cumulative additionalexpected contingent earn-out of $67 million ($46 million, net of taxes) wasrecognized as 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, which wasrecorded in other current assets in theconsolidated balance sheet at December 31, 2006.  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 of operations.During 2007, the Company also recorded earnings from discontinued operations of$2 million ($1 million, net of taxes) for adjustments related to the sale ofthe OrganoSilicones business.

 

# **Other Dispositions**

 

Oleochemicals

On February 29, 2008, the Company completed the sale of itsoleochemicals business.  Theoleochemicals business had revenue of approximately $175 million in 2007.

 

Marshall

On July 31, 2007,the Company 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 position or cash flows.

 

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WestLafayette

On June 23, 2006,the Company sold a significant portion of the real estate of the former GreatLakes offices in West Lafayette, Indiana for net proceeds of $6 million,representing gross proceeds of $7 million less costs incurred to complete thistransaction of $1 million.  Upon signinga definitive agreement in March 2006, the Company classified the net bookvalue of these assets of $7 million as assets held for sale and at that timeceased depreciating these assets.  Duringthe second quarter of 2006, the assets were revalued to $6 million reflectingthe adjusted fair value under purchase accounting for the Merger. Thus, therewas no gain or loss on this transaction.

 

Industrial Water Additives

On May 12, 2006, the Company sold its Industrial Water Additives (“IWA”)business, which was acquired in the Merger, to BWA Water Additives (“BWA”), asubsidiary of Close Brothers Private Equity located in the United Kingdom.  The Company received cash proceeds of $85million, less a $10 million adjustment for retained accounts receivable andaccounts payable.  The pre-tax loss onthe sale of $12 million was recorded during the second quarter of 2006 and isincluded within (gain) loss on sale of businesses, net in the accompanyingconsolidated statement of operations for the year ended December 31,2006.  The assets sold of $81 millionconsisted primarily of the dedicated intellectual property rights used toproduce IWA products at the Company’s Trafford Park, United Kingdom and Adrian,Michigan facilities, inventories, office and lab equipment, and the Company’sshares in Biolab Gulf GmbH, which is a holding company that owns a 49% interestin the Company’s Biolab Arabia joint venture, located in Saudi Arabia, apreviously consolidated entity. The Company retained the Liquibrom product linewhich was previously included within the IWA business unit.  Transaction costs and other charges amountedto approximately $6 million.

 

Included in the net assets sold are $34 million of allocatedgoodwill related to the portion of the IWA business unit that was sold, $33million related to net intangible assets, primarily technology, brands andcustomer relationships, and finished goods inventory of $12 million.

 

In connection with this sale, the Company entered into severalancillary agreements, including two supply agreements, a distribution agreement,and a transitional service agreement.

 

The fully-dedicated manufacturing assets of the IWA business located inTrafford Park, United Kingdom and Adrian, Michigan that the Company continuesto own will be utilized by the Company solely to supply certain finishedproduct to BWA for a period of no less than two years. Based upon the Company’scurrent operations, these assets will have limited use or salvage value, ifany, after such transition period. As a result, based upon an undiscountedcash-flow analysis including an estimate of salvage value, these assets weredetermined to be impaired (not recoverable) as the carrying value of the assetswas greater than the expected cash flows from the assets. Therefore, during thesecond quarter of 2006, the Company recorded an impairment charge of$6 million to write-down such assets to fair value. Fair value wasdetermined based upon estimated discounted cash flows directly related to theassets, including an estimate of salvage value.

 

The Company considered whether or not the sale of the IWA businessconstituted a discontinued operation, as defined by FASB Statement No. 144,“Accounting for the Impairment or Disposal of Long-Lived Assets” (FASB144).  Under FASB 144, the involvement ofthe Company under the supply agreements and the distribution agreement isconsidered significant and therefore, the requirements for presentation as adiscontinued operation have not been met. 

 

Davis Standard

On March 31, 2005, the Company entered into an agreement withHamilton Robinson LLC, a private equity firm, to form a venture (Davis-StandardLLC), which would combine the Company’s Polymer Processing Equipment businessand Hamilton Robinson’s Black Clawson Converting Machinery Company.  The transaction closed on April 29, 2005and resulted in the Company acquiring a 61.24% non-controlling interest inDavis-Standard LLC.  In accordance withEITF 96-16, “Investor’s Accounting for an Investee When the Investor Has aMajority of the Voting Interest but the Minority Shareholder or ShareholdersHave Certain Approval or Veto Rights”, the Company is not consolidating thefinancial statements of Davis-Standard LLC because the holder of the minorityinterest in Davis-Standard LLC effectively exercises control over theoperations of the business through its majority voting rights. As of theclosing date, the Company deconsolidated approximately $137 million of assetsand $63 million of liabilities of the Polymer Processing Equipment business.The investment is recorded in other assets with no significant gain or lossrecognized on the transaction. The Company accounted for its investment inDavis-Standard LLC under the equity method and recorded its proportionate shareof the venture’s results of operations. The Company recorded $6 million ofincome in 2006 in other expense, net in its consolidated statements ofoperations for its share of the venture’s earnings.  The carrying amount of the Company’sinvestment in Davis-Standard LLC was $75 million at December 31, 2005.

 

On October 30, 2006, the Company sold its interest inDavis-Standard LLC for aggregate proceeds of $69 million, of which $60 millionof cash was received as of December 31, 2006.  The remaining amounts were set up asreceivables, of which $4 million is included in other current assets and $4million is included in other assets in the consolidated balance sheet at December 31,2006.  During 2007, the Company received$6 million of proceeds related to these receivables and had a remainingreceivable balance of $2 million in other current assets on its

 

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consolidated balance sheet at December 31, 2007.

 

Subsequent to September 30, 2006 and prior to the sale, theCompany received approximately $13 million in cash distributions.  The Company recognized a pretax gain of $6million on the transaction, which is included in other expense, net in itsconsolidated statement of operations for the year ended December 31, 2006.

 

**4) RESTRUCTURING ACTIVITIES**

 

During 2007, the Company commenced a world-wide restructuring programto improve performance and growth, which is comprised of several components:

 

·                  On April 4,2007, the Company announced the realignment of its business segments,streamlining of the organization, reevaluation of its manufacturing footprintand the redirection of efforts to focus on end-use markets.  In June 2007, the Company identifiedmore than 600 position reductions and approved several locations for closure.  As a result of these actions, the Companyrecorded pre-tax charges primarily for severance totaling $28 million in 2007to facility closures, severance and related costs in the consolidated statementof operations, of which $3 million was recorded in the fourth quarter, $3million in the third quarter, $20 million in the second quarter and $2 millionin the first quarter of 2007.  The Companyis continuing to evaluate its workforce and operating facilities and additionalrestructuring charges may result in 2008.

 

·                  On June 4,2007, the Company formally announced its plan to close the antioxidantfacilities at Pedrengo and Ravenna, Italy, and two intermediate chemicalproduct lines at Catenoy, France.  Theactions, which are in addition to the restructuring plan announced on April 4,2007, impact approximately 190 employees. The Company recorded pre-tax charges of $49 million during 2007 ($33million of accelerated depreciation was recorded to depreciation andamortization expense; $11 million primarily for severance was recorded tofacility closures, severance and related costs; $4 million asset impairmentcharge was recorded to impairment of long-lived assets and $1 million ofaccelerated asset retirement obligations were recognized in cost of productssold).  Of these charges, $1 million wasrecorded in the fourth quarter, $5 million in the third quarter, $32 million inthe second quarter and $11 million in the first quarter of 2007.

 

In 2006, the Company implemented a cost savings initiative to supportits continuing efforts to become more efficient and reduce costs.  As a result, the Company recorded pre-taxcharges primarily for severance totaling $11 million in 2006, to facilityclosures, severance and related costs in the consolidated statement ofoperations.  Additionally, the Companyrecorded pre-tax charges of $7 million for accelerated depreciation todepreciation and amortization expense and $4 million for accelerated assetimpairment obligations to cost of products sold in 2006 related to itsrestructuring initiatives.  In 2007, theCompany recorded an additional $1 million of pre-tax charges for severancerelated to its 2006 program.

 

**Asresult of the activity based restructuring initiative implemented in 2004, theCompany recorded pre-tax charges totaling $24 million in 2005, of which $20million related to unrecoverable future lease costs and asset write-offsrelated to the closure of the Company’s former research and developmentfacility in Tarrytown, NY.  During both2007 and 2006, the Company recorded pre-tax credits of $4 million, primarily toadjust the reserve for unrecoverable future lease costs at the Tarrytown, NYfacility and for other reserves no longer deemed necessary.**

** **

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** **

**Asummary of the charges and adjustments related to these restructuring programsis as follows:**

 
| **(In millions)**               | ** ** | **Severance  and  Related  Costs** | ** ** | **Asset  Write—offs** | ** ** | **Other  Facility  Closure  Costs** | ** ** | **Total** | ** ** |
|--------------------------------------|------------|------------------------------------|------------|----------------------------|------------|-------------------------------------|------------|-----------|------------|
| Balance at  January 1, 2005          |       | $                                  | 43         |                       | $          | —                              |       | $         | 3          |   | $ | 46 |   |
| 2005 charge                          |       | 3                                  |       | 4                          |       | 17                                  |       | 24        |       |
| Cash payments                        |       | —                             |       | —                     |       | (4                                  | )          | (4        | )          |
| Non—cash charges  and accretion |       | (37                                | )          | $                          | (4         | )                                   | —     |      | (41        | ) |
| Balance at  December 31, 2005        |       | 9                                  |       | —                     |       | 16                                  |       | 25        |       |
| 2006 charge  (credit)                |       | 10                                 |       |                       |       | (3                                  | )          | 7         |       |
| Cash payments                        |       | (10                                | )          |                       |       | (4                                  | )          | (14       | )          |
| Non—cash charges  and accretion |       | —                             |       |                       |       | 1                                   |       | 1         |       |
| Balance at  December 31, 2006        |       | 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** | ** ** |

 

Additionally, during the first quarter of 2006, the Company recorded apre-tax credit of $1 million to adjust certain reserves related to the 1998closure of its Painesville, Ohio facility.

 

During the first quarter of 2005, the Company acquired the remaining 50percent interest from its joint venture partner and as a result accounts forEnenco as a wholly-owned subsidiary of the Company.  This transaction resulted in a pre-tax creditto facility closures, severance and related costs during of 2005 of $2 milliondue to recoveries from the joint venture partner, adjustments to third partyaccruals and adjustments to decommissioning and demolition reserves.

 

At December 31, 2007, $27 million of the above reserves wasincluded in accrued expenses and $2 million was included in other liabilitieson the consolidated balance sheet.  At December 31,2006, $13 million was included in accrued expenses and $6 million was includedin other liabilities.

 

# **5) ASSET IMPAIRMENTS**

 

During 2007, in accordance with FASB Statement No. 144, “Accountingfor the Impairment or Disposal of Long-Lived Assets,” the Company recorded pre-taxcharges totaling $19 million as an impairment of long-lived assets in theconsolidated statement of operations, which includes the following items:

 

·                  In the second quarter, 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 3 - Divestitures for further details).

·                  In the second quarter, the Companyrecorded an impairment charge of $4 million related to the write-off ofconstruction in progress at certain facilities affected by the restructuringprogram announced on June 4, 2007 (see Note 4 – Restructuring Activitiesfor further details).

·                  In the third quarter, 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 is 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 announced in October 2007.

·                  In the fourth quarter, 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 as a result of the Company’s plan to consolidate its multiple ERPsystems onto a single SAP platform.

 

During 2006, the Company recorded pre-tax charges totaling $80 millionas an impairment of long-lived assets in the consolidated statement ofoperations, which includes the following components:

 

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·                  In the third quarter, the Companydetermined that a significant customer would not renew its contract with theFluorine business effective December 31, 2006.  As a result of the projected loss of revenueresulting from the loss of this customer, the Company reviewed therecoverability of the long-lived assets of the Fluorine business in accordancewith FASB Statement No. 144 based on the revised cash flow projections ofthe business.  As a result, the Companyrecorded an impairment charge of $23 million to write-down the value ofproperty, plant and equipment, net by $8 million and intangible assets, net by$15 million.

·                  In the third quarter, the Company alsorecorded an impairment charge of $52 million related to the Fluorine business,which resulted from the Company’s annual goodwill impairment review (see Note 9- Goodwill and Intangible Assets for further details).

·                  In the second quarter, the Companyrecorded an impairment charge of $5 million to write-down the value of theretained long-lived assets of the IWA business (see Note 3 - Divestitures forfurther details).

# ** **

# **6) ACCOUNTS RECEIVABLE PROGRAMS**

 

In March 2006, the Company amended its domestic accountsreceivable securitization program to provide three years of funding for up to$275 million of domestic receivables to agent banks.  In September 2006, the Company expandedits domestic accounts receivable program to provide that up to $100 million ofthe consideration payable to the Company may be in the form of letters ofcredit issued to the Company or its designees. At December 31, 2007, $119million of domestic accounts receivable had been sold under this program at anaverage cost of approximately 5.77%.  At December 31,2006, $140 million of domestic accounts receivable had been sold under thisprogram at an average cost of approximately 5.76%.  In addition, the Company’s Europeansubsidiaries have a separate program to sell up to approximately $225 millionof their eligible accounts receivable to agent banks.  At December 31, 2007, $120 million ofinternational accounts receivable have been sold at an average cost ofapproximately 7.46%.  At December 31,2006, $139 million of international accounts receivable had been sold at an averagecost of approximately 7.14%.  The totalcosts associated with these programs of $21 million, $15 million and $11million for the three years ended December 31, 2007, 2006 and 2005,respectively, are included in other expense, net in the consolidated statementsof operations.

 

Under the domestic program, certain subsidiaries of the Company selltheir accounts receivable to a special purpose entity (“SPE”) that has beencreated as a separate legal entity for the purpose of acquiring suchreceivables and selling an undivided interest therein to agent banks. Inaccordance with the domestic sale agreement, the agent banks purchase anundivided ownership interest in the accounts receivable owned by the SPE. Theamount of such undivided ownership interest will vary based on the level ofeligible accounts receivable as defined in the agreement. In addition, theagent banks retain a security interest in all of the receivables owned by theSPE, which was $163 million and $143 million as of December 31, 2007 and 2006,respectively. The balance of the unsold receivables owned by the SPE isincluded in accounts receivable on the consolidated balance sheet. Under theinternational program, certain foreign subsidiaries of the Company selleligible accounts receivable directly to agent banks. During the period, theCompany had an obligation to service the accounts receivable sold under itsdomestic and international programs.  TheCompany has treated the transfer of receivables under its domestic andinternational receivable programs as a sale of accounts receivable.

 

# **7) INVENTORIES**

 
| **(In millions)**      | ** ** | **2007** | ** ** | **2006** | ** ** |
|-----------------------------|------------|----------|------------|----------|------------|
| Finished goods              | ** ** | **$**    | **437**    |     | $          | 457 |   |
| Work in process             | ** ** | **48**   |       | 37       |       |
| Raw materials  and supplies | ** ** | **191**  |       | 166      |       |
| ** **                  |       | **$**    | **676**    |     | $          | 660 |   |

 

Included in the above net inventory balances areinventory obsolescence reserves of approximately $40 million and $53 million atDecember 31, 2007 and 2006, respectively.

# ** **

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# ** **

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

 
| **(In millions)**         | ** ** | **2007**  | ** ** | **2006** | ** ** |
|--------------------------------|------------|-----------|------------|----------|------------|
| Land and improvements          | ** ** | **$**     | **97**     |     | $          | 76 |   |
| Buildings and  improvements    | ** ** | **307**   |       | 308      |       |
| Machinery and  equipment       | ** ** | **1,299** |       | 1,528    |       |
| Information  systems equipment | ** ** | **181**   |       | 164      |       |
| Furniture,  fixtures and other | ** ** | **68**    |       | 47       |       |
| Construction in  progress      | ** ** | **87**    |       | 84       |       |
| ** **                     |       | **2,039** |       | 2,207    |       |
| Less accumulated  depreciation | ** ** | **1,007** |       | 1,060    |       |
| ** **                     |       | **$**     | **1,032**  |     | $          | 1,147 |   |

 

Depreciation expense from continuing operationsamounted to $229 million, $163 million and $122 million for 2007, 2006 and2005, respectively.  Depreciation expensefrom continuing operations includes accelerated depreciation of certain fixedassets associated with the Company’s restructuring programs and divestmentactivities of $70 million and $18 million for 2007 and 2006, respectively.

 

# **9) GOODWILL AND INTANGIBLE ASSETS**

 

The Company values its intangible assets in accordance withFASB Statement No. 141, “Business Combinations” and FASB Statement No. 142,“Goodwill and Other Intangible Assets.” Statement No. 141 requires that all business combinations initiatedafter June 30, 2001 be accounted for using the purchase method ofaccounting.  It also specifies criteriathat must be met for intangible assets acquired in a purchase combination to berecognized apart from goodwill. Statement No. 142 requires that the useful lives of all existing intangibleassets be reviewed and adjusted if necessary. It also requires that goodwill and intangible assets with indefinitelives no longer be amortized, but rather be tested for impairment at leastannually.  Other intangible assets willcontinue to be amortized over their useful lives and reviewed for impairment inaccordance with FASB Statement No. 144, “Accounting for the Impairment orDisposal of Long-Lived Assets.”

 

Goodwill by reportable segment is as follows:

 
| **(In millions)**             | ** ** | **December 31,**

**2006** | ** ** | **Kaufman**

**Acquisition** | ** ** | **Adoption of**

**FIN 48** | ** ** | **Tax Adjustments** | ** ** | **Sale of EPDM** | ** ** | **Foreign Currency Translation/ Other** | ** ** | **December 31, 2007** | ** ** |
|-------------------------------|------------|----------------------------|------------|------------------------------|------------|-----------------------------|------------|---------------------|------------|------------------|------------|-----------------------------------------|------------|-----------------------|------------|
| Polymer Additives             | ** ** | **$**                      | **460**    | ** **                   | **$**      | **—**                  | ** ** | **$**               | **(3)**    | ** **       | **$**      | **(21)**                                | ** ** | **$**                 | **—** | ** ** | **$** | **51** | ** ** | **$** | **487** | ** ** |
| Performance  Specialties | ** ** | **104**                    | ** ** | **61**                       | ** ** | **—**                  | ** ** | **2**               | ** ** | **—**       | ** ** | **13**                                  | ** ** | **180**               | ** ** |
| Consumer Products             | ** ** | **554**                    | ** ** | **—**                   | ** ** | **(5)**                     | ** ** | **—**          | ** ** | **—**       | ** ** | **35**                                  | ** ** | **584**               | ** ** |
| Crop Protection               | ** ** | **57**                     | ** ** | **—**                   | ** ** | **—**                  | ** ** | **—**          | ** ** | **—**       | ** ** | **—**                              | ** ** | **57**                | ** ** |
| Other                         | ** ** | **2**                      | ** ** | **—**                   | ** ** | **—**                  | ** ** | **—**          | ** ** | **(2)**          | ** ** | **1**                                   | ** ** | **1**                 | ** ** |
|                          | ** ** | **$**                      | **1,177**  | ** **                   | ** ** | **$**                       | **61**     | ** **          | ** ** | **$**            | **(8)**    | ** **                              | ** ** | **$**                 | **(19)**   | ** ** | ** ** | **$** | **(2)** | ** ** | ** ** | **$** | **100** | ** ** | ** ** | **$** | **1,309** | ** ** |
|                          | ** ** | ** **                 | ** ** | ** **                   | ** ** | ** **                  | ** ** | ** **          | ** ** | ** **       | ** ** | ** **                              | ** ** | ** **            | ** ** |
|                               |            |                            |            |                              |            |                             |            |                     |            |                  |            |                                         |            |                       |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 
| **(In millions)**             | ** ** | **January 1, 2006** | ** ** | **Great Lakes  Merger** | ** ** | **IWA Sale** | ** ** | **Tax Adjustments** | ** ** | **Fluorine  Impairment** | ** ** | **Foreign  Currency  Translation/  Other** | ** ** | **December 31,  2006** | ** ** |
|-------------------------------|------------|---------------------|------------|-------------------------|------------|--------------|------------|---------------------|------------|--------------------------|------------|--------------------------------------------|------------|------------------------|------------|
| Polymer Additives             | ** ** | **$**               | **427**    | ** **              | **$**      | **45**       | ** ** | **$**               | **–** | ** **               | **$**      | **(23)**                                   | ** ** | **$**                  | **–** | ** ** | **$** | **11** | ** ** | **$** | **460** | ** ** |
| Performance  Specialties | ** ** | **97**              | ** ** | **15**                  | ** ** | **–**   | ** ** | **(9)**             | ** ** | **–**               | ** ** | **1**                                      | ** ** | **104**                | ** ** |
| Consumer Products             | ** ** | **557**             | ** ** | **(8)**                 | ** ** | **–**   | ** ** | **–**          | ** ** | **–**               | ** ** | **5**                                      | ** ** | **554**                | ** ** |
| Crop Protection               | ** ** | **56**              | ** ** | **–**              | ** ** | **–**   | ** ** | **–**          | ** ** | **–**               | ** ** | **1**                                      | ** ** | **57**                 | ** ** |
| Other                         | ** ** | **74**              | ** ** | **20**                  | ** ** | **(34)**     | ** ** | **–**          | ** ** | **(52)**                 | ** ** | **(6)**                                    | ** ** | **2**                  | ** ** |
|                          | ** ** | **$**               | **1,211**  | ** **              | **$**      | **72**       | ** ** | **$**               | **(34)**   | ** **               | **$**      | **(32)**                                   | ** ** | **$**                  | **(52)**   | ** ** | **$** | **12** | ** ** | **$** | **1,177** | ** ** |

 

During 2007, goodwill increased $132 million due primarily to theKaufman acquisition on January 31, 2007 and foreign currencytranslation.  During 2006, goodwilldecreased $34 million due primarily to a goodwill impairment charge in thefluorine business, a write-off resulting from the sale of IWA and taxadjustments related to the Witco acquisition, partially offset by purchaseaccounting adjustments related to the Great Lakes merger and favorable foreigncurrency.  The amount of the goodwillimpairment charge was determined based on an estimate of the fair value of thefluorine business.  The projected loss ofrevenue of the fluorine business, resulting from the loss of a customer, was asignificant consideration in the determination that the carrying value offluorine goodwill was impaired.

 

The Company has elected to perform its annual goodwill impairmentprocedures for all of its reporting units in accordance with FASB Statement No. 142,“Goodwill and Other Intangible Assets” as of July 31, or sooner, if eventsoccur or circumstances change that could reduce the value of a reporting unitbelow its carrying value.  The Companycompleted its annual goodwill impairment test for 2007 and concluded that nogoodwill impairment exists for any of its reporting units as of July 31,2007.  In 2006 the Company recorded agoodwill impairment charge of $52 million related to the fluorine business (SeeNote 5 – Asset Impairments).

 

The Company’s intangible assets (excluding goodwill) are comprised ofthe following:

 
| ** **              | ** ** | **2007**        | ** ** | **2006**                      | ** ** |
|-------------------------|------------|-----------------|------------|-------------------------------|------------|
| **(In millions)**  | ** ** | **Gross  Cost** | ** ** | **Accumulated  Amortization** | ** ** | **Net  Intangibles** | ** ** | **Gross  Cost** | ** ** | **Accumulated  Amortization** | ** ** | **Net  Intangibles** | ** ** |
| Patents                 | ** ** | **$**           | **143**    | ** **                    | **$**      | **(44** | **)** | **$** | **99** |   | $ | 141 |   | $ | (37 | ) | $ | 104 |   |
| Trademarks              | ** ** | **330**         | ** ** | **(65**                       | **)**      | **265** |   | 311 |   | (50 | ) | 261 |   |
| Customer  relationships | ** ** | **164**         | ** ** | **(29**                       | **)**      | **135** |   | 140 |   | (20 | ) | 120 |   |
| Production  rights      | ** ** | **45**          | ** ** | **(11**                       | **)**      | **34** |   | 45 |   | (6 | ) | 39 |   |
| Other                   | ** ** | **91**          | ** ** | **(39**                       | **)**      | **52** |   | 60 |   | (33 | ) | 27 |   |
| ** **              | ** ** | **$**           | **773**    | ** **                    | **$**      | **(188** | **)** | **$** | **585** |   | $ | 697 |   | $ | (146 | ) | $ | 551 |   |

 

71

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The increase in gross intangible assets since December 31, 2006 isprimarily due to the acquisition of Kaufman on January 31, 2007.

 

Purchase accounting fair value adjustments of equity investmentsresulting from the merger with Great Lakes are included in other assets in theconsolidated balance sheets. Amortization expense related to these equity investments is included inamortization expense from continuing operations.  Amortization of equity investments amountedto $2 million and $3 million for fiscal year 2007 and 2006, respectively. Thereis no amortization related to these items in 2005.

 

Amortization expense from continuing operations related to intangibleassets including equity investments amounted to $40 million in 2007, $42million in 2006 and $28 million in 2005. The increase in amortization expense in 2007 and 2006 was primarily dueto the addition of intangibles resulting from the merger with Great Lakes.  Estimated amortization expense of intangibleassets including equity investments for the next five fiscal years is asfollows: $40 million (2008), $39 million (2009), $38 million (2010), $36million (2011) and $32 million (2012).

 

# **10) LEASES**

 

At December 31, 2007, minimumrental commitments, primarily for buildings, land and equipment, under non-cancelableoperating leases, net of sublease income, amounted to $30 million (2008), $24million (2009), $20 million (2010), $15 million (2011), $13 million(2012), $53 million (2013 and thereafter) and $155 million in theaggregate.  Sublease income is notsignificant in future periods.  Rentalexpenses under operating leases were $34 million (2007), $38 million(2006) and $26 million (2005), net of sublease income of $10 million (2007), $7million (2006) and $6 million (2005).

 

Future minimum lease payments undercapital leases at December 31, 2007 were not significant.

 

Real estate taxes, insurance and maintenanceexpenses generally are obligations of the Company, and accordingly, are notincluded as part of rental payments.  Itis expected that in the normal course of business, leases that expire will berenewed or replaced by similar leases.

 

**11) DEBT**

# ** **

The Company’s long-term debt instruments arerecorded at face value, net of unamortized discounts or premiums.  Such discounts or premiums will be amortizedto interest expense over the life of the related debt instruments.  The Company’s long-term debt is summarized asfollows:

 

**Long-Term Debt**

 
| **(In millions)**                                                                                                                                                | ** ** | **2007** | ** ** | **2006** | ** ** |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|----------|------------|----------|------------|
| 6.875% Notes due  2016, net of unamortized discount of $2 million in 2007 and $3 million in  2006, with an effective interest rate of 6.93% in 2007 and 6.92% in 2006 | ** ** | **$**    | **498**    |     | $          | 497 |   |
| 7% Notes due  2009, net of unamortized premium of $12 million in 2007 and $20 million in  2006, with an effective interest rate of 5.13% in 2007 and 5.22% in 2006    | ** ** | **412**  |       | 420      |       |
| 6.875%  Debentures due 2026, net of unamortized discount of $25 million in 2007 and  $24 million in 2006, with an effective interest rate of 7.23% in 2007 and  2006  | ** ** | **125**  |       | 126      |       |
| Other                                                                                                                                                                 | ** ** | **23**   |       | 20       |       |
| ** **                                                                                                                                                            |       | **$**    | **1,058**  |     | $          | 1,063 |   |

 

In July 2006, the Company completed the redemption of theremaining $159 million of its outstanding 9.875% Senior Notes due 2012 (“2012Notes”), which was funded through borrowings under the Company’s CreditFacility, the uncommitted working capital facilities and available cash.  The purchase price to tender the 2012 Noteswas $1,123.87 per $1,000 principal amount. As a result of the tender, the Company recorded a pre-tax loss on early

 

72

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extinguishment of debt of $24 million during 2006.  The loss includes a premium of $20 millionand the write-off of unamortized deferred costs of $4 million.

 

**On May 24,2006, the Company completed a tender offer to repurchase the remaining $165million of its outstanding Senior Floating Rate Notes due 2010 (“2010 Notes”).  The purchase price to tender the 2010 Noteswas $1,095.83 per $1,000 in principal amount. As a result of the tender, the Company recorded a pre-tax loss on earlyextinguishment of debt of $20 million during 2006.  The loss included a premium of $16 millionand the write-off of unamortized deferred costs of $4 million.**

 

**On April 19,2006, the Company and certain of its consolidated subsidiaries entered into anunderwriting agreement with several financial institutions for the sale by theCompany of $500 million aggregate principal amount of 6.875% Senior Notes due2016 (“2016 Notes”). The offering was made under the Company’s shelfregistration statement on Form S-3 filed with the Securities and ExchangeCommission on April 19, 2006 and by a prospectus supplement dated April 19,2006. The underwriters purchased the 2016 Notes from the Company at 98.452% (a6.95% effective rate) of their principal amount, plus accrued interest from April 24,2006. The offering closed on April 24, 2006 and the Company received netproceeds from the offering of $492 million after expenses. The proceeds wereutilized to repay the outstanding balance on the Company’s revolving creditfacility of $364 million, the outstanding balance on uncommitted lines ofcredit of $50 million and to reduce receivables sold under the domesticreceivable securitization programs of $60 million, with the remaining proceedsused for general corporate purposes.  Atany time prior to the maturity date of the notes, the Company may, at itsoption, redeem all or any portion of the notes at the make-whole redemptionprice required by the individual Indenture agreements.  If the Company experiences specific kinds ofchanges in control, the Company must offer to repurchase all or part of thenotes.**

** **

**On December 29,2005, the Company completed a tender offer to repurchase $216 million of itsoutstanding $375 million aggregate principal amount of 9.875% Senior Notes due2012 and $60 million of its outstanding $225 million aggregate principal amountof Senior Floating Rate Notes due 2010 (collectively the “Senior Notes”).  The purchase price to tender $216 million ofthe 9.875% Senior Notes was $1,142.59 per $1,000 principal amount and thepurchase price to tender $60 million of the Senior Floating Rate Notes was$1,107.94 per $1,000 principal amount. Both of the foregoing purchase prices include an early tender payment of$20 per $1,000 principal amount of Senior Notes tendered.  As a result of the tendering of the SeniorNotes, the Company recorded a loss on early extinguishment of debt of $47million during the fourth quarter of 2005. The loss includes the premiums to repurchase the Senior Notes of $37million, the write-off of the unamortized discount and deferred costs relatedto the Senior Notes of $8 million and fees related to the tendering of theSenior Notes of $2 million.  In addition,the Company paid $11 million of accrued and unpaid interest on validly tenderedSenior Notes.**

 

On September 6, 2005, the Company retiredits outstanding $110 million aggregate principal amount of 7.75% bonds due in2023.  As a result of the retirement ofthe $110 million 7.75% bonds, the Company recorded a loss on earlyextinguishment of debt of $5 million. The loss included premiums to redeem bonds of $3 million, the write-offof debt issuance costs of $1 million and the write-off of unamortized discountof $1 million.

 

On July 1, 2005, in connection with the Merger, the Company assumed thedebt of Great Lakes with an estimated fair value of $484 million.  This included the outstanding balance of $21million on the Great Lakes revolving credit agreement and $400 million of 7%notes due July 15, 2009 with an estimated fair value of $430 million on July 1,2005.  As a result of the Merger, theCompany was required to repay the outstanding balance on the former Great Lakesrevolving credit agreement of $21 million and $9 million of Great LakesIndustrial Development Bonds.  OnSeptember 30, 2005, the Company reissued $9 million of Industrial DevelopmentBonds and supplied security on the bonds in the form of a letter of credit. 

 

On June 24, 2005, as a result of the sale of the Refined Productsbusiness, the Company was required to redeem the $10 million 5.85% PollutionControl Revenue Refunding Bonds due December 2023.

 

**TheIndenture agreements for the 2016 Notes, the 7% notes due July 15, 2009and the 6.875% debentures due**

**2026are unsecured obligations and rank equally in right of payment with all otherunsecured, unsubordinated indebtedness. The Company’s obligations under the notes will be fully andunconditionally guaranteed, jointly and severally, by certain existing andfuture wholly-owned domestic subsidiaries.**

** **

# **Credit Facilities**

 

The Company has an available credit facility of$750 million.  There were no borrowingsunder the credit facility at December 31, 2007 and 2006.  Borrowings under the credit facility bearinterest at the EURIBO Rate (as defined in the credit agreement governing thecredit facility) plus a margin ranging from 0% to 1.6%.  A facility fee is payable on unusedcommitments at a rate ranging from 0.125% to 0.4%.  The credit facility is guaranteed by certaindomestic subsidiaries of the Company (the “Subsidiary Guarantors”).  As a result of the May 2007 ratingagency downgrade of the long-term senior unsecured debt to Ba2 by Moody’sInvestors Services, the Company and the domestic Subsidiary Guarantors wererequired to provide security interest in the stock of their first tiersubsidiaries and other equity interests (limited to 66% of the voting stock offirst-tier foreign subsidiaries) pursuant to a covenant in the Company’s creditfacility.  Additionally, under the termsof the indentures for the 7% Notes due 2009, 6.875% Notes due 2016 and the6.875% Debentures (the “Notes”), the Company would be required to grantsecurity interest in assets on an equal and ratable basis if certain secured debtthresholds are exceeded.  The Companyamended its Pledge Agreement, dated July 31, 2007, such that no borrowingsunder the Credit Facility

 

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would require that these Notes becomesecured.  The Company’s credit rating at December 31,2007 is BB+ (Stable) by Standard and Poors and Ba2 (Stable) by Moody’sInvestors Services, Inc.

 

In July 2006, the Company obtained a $50 million uncommittedworking capital facility due on July 31, 2007. The borrowings were repaidunder these agreements prior to maturity. In May 2006, the Company obtained a $25 million uncommitted workingcapital facility due on August 31, 2008. There were no borrowings under this agreement at December 31, 2007.

 

The Company also has arrangementswith various banks for lines of credit for its international subsidiariesaggregating to $34 million in 2007 and $36 million in 2006, of which $4 million(at 5.6%) and $6 million (at 5.0%) were outstanding at December 31, 2007and 2006, respectively.

 

# **Debt Covenants**

 

The Company’s various debt agreements contain covenants that limit theCompany’s ability to enter into certain transactions, such as incurringadditional indebtedness, increasing the Company’s dividends, and entering intoacquisitions, dispositions and joint ventures. The Company is required to report compliance with certain financialcovenants to its lenders on a quarterly basis. Under these covenants, the Company is required to maintain a leverageratio (adjusted total debt to adjusted earnings before interest, taxes,depreciation and amortization (“Bank EBITDA”), with adjustments to both debtand earnings being made in accordance with the terms of the Credit Facilityagreement) and an interest coverage ratio (Bank EBITDA to interest expense asdefined in the credit facility agreement). Certain of the covenants under the new credit facility become lessrestrictive or cease to be effective upon the Company receiving a Public DebtRating of at least BBB- by S&P and Baa3 by Moody’s and such rating shallnot be accompanied by, in the case of S&P, a negative outlook, creditwatchnegative or the equivalent thereof or in the case of Moody’s, a review forpossible downgrade or the equivalent thereof.

 

In February 2007, amendments were made to the interest coverageratio and leverage ratio for the quarterly periods March 31, 2007 through September 30,2007, subject to being reset following the sale of the EPDM business.  In May 2007, further amendments weremade to the Credit Agreement, after the rating agency downgrade, to permit thesale of certain non-core businesses.  On July 31,2007, the Company entered into an amendment to its Credit Agreement thatgenerally increased covenant levels for a series of events including: accountsreceivable securitization; liens; investments; asset sales and the debt ceilingbefore security is required to be granted. On November 5, 2007 the Company entered into a further amendment ofits Credit Facility that reduced the interest coverage ratio for the periodsending September 30, 2007 and December 31, 2007.  The amendment provides the Company theflexibility to complete its restructuring actions in these periods given lowerthan expected earnings in the third quarter of 2007.  The Company was in compliance with thecovenants of its various debt agreements at December 31, 2007. On March 7,2008, the Company received a waiver by its Credit Facility lender extending theperiod in which it is required to deliver its annual audit report for the yearof 2007 from 10 to 15 days after the date by which it was initially required tofile its Form 10-K with the Securities and Exchange Commission.

 

As a result of the May 2007 rating agencydowngrade of the long-term senior unsecured debt to Ba2 by Moody’s InvestorsServices, the Company and the Domestic Subsidiary Guarantors were required toprovide security interest in the stock of their first tier subsidiaries andother equity interests (limited to 66% of the voting stock of first-tierforeign subsidiaries) pursuant to a covenant in the Company’s creditfacility.  Additionally, under the termsof the indentures for the 7% Notes due 2009, 6.875% Notes due 2016 and the6.875% Debentures (the “Notes”), the Company would be required to grantsecurity interest in assets on an equal and ratable basis if certain secureddebt thresholds are exceeded.  TheCompany amended its Pledge Agreement, dated July 31, 2007, such that noborrowings under the Credit Facility would require that these Notes becomesecured.  The Company’s credit rating at September 30,2007 is BB+ (Stable) by Standard and Poors and Ba2 (Stable) by Moody’sInvestors Services, Inc.

# ** **

# **Maturities**

 

At December 31, 2007, the scheduledmaturities of long-term debt during the next five fiscal years are: 2008 - $0million; 2009 - $402 million; 2010 - $1 million; 2011 - $0 million and 2012 -$0 million.

 

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# **12) Income Taxes**

 

Thecomponents of earnings (loss) from continuing operations before income taxesand cumulative effect of accounting change, and the income tax provision(benefit) are as follows:

 
| **(In millions)**                                                       | ** ** | **2007**   | ** **  | **2006**    | ** ** | **2005**   | ** ** |
|------------------------------------------------------------------------------|------------|------------|-------------|-------------|------------|------------|------------|
| Pre-tax Earnings (Loss) from Continuing Operations: | ** ** | ** ** | ** **  | ** **  | ** ** | ** ** | ** ** |
| Domestic                                                                     | ** ** | **$**      | **(82**     | **) ** | $          | (279       | )     | **$** | (260 | ) |
| Foreign                                                                      |       | **41**     |        | 132         |       | 94         |       |
| ** **                                                                   |       | **$**      | **(41**     | **)**       | $          | (147       | )          | $ | (166 | ) |
|                                                                         |       |       | ** **  |        |       |       |       |
| Income Tax  Provision (Benefit):                                             |       |       | ** **  |        |       |       |       |
| Domestic                                                                     |       |       | ** **  |        |       |       |       |
| Current                                                                      | ** ** | **$**      | **(6**      | **) ** | $          | (5         | )     | $ | 15 |   |
| Deferred                                                                     | ** ** | **(7**     | **) ** | 88          |       | (1         | )          |
| ** **                                                                   |       | **(13**    | **) ** | 83          |       | 14         |       |
| Foreign                                                                      |       |       | ** **  |        |       |       |       |
| Current                                                                      | ** ** | **33**     | ** **  | 39          |       | 34         |       |
| Deferred                                                                     | ** ** | **(16**    | **)**       | 4           |       | 1          |       |
| ** **                                                                   |       | **17**     | ** **  | 43          |       | 35         |       |
| Total                                                                        |       |       | ** **  |        |       |       |       |
| Current                                                                      | ** ** | **27**     | ** **  | 34          |       | 49         |       |
| Deferred                                                                     | ** ** | **(23**    | **)**       | 92          |       | —     |       |
| ** **                                                                   |       | **$**      | **4**       | ** **  | $          | 126        |       | $ | 49 |   |

 

The(provision) benefit for income taxes from continuing operations differs fromthe Federal statutory rate for the following reasons:
| ** **                                                | ** ** | **2007**   | ** ** | **2006**   | ** ** | **2005** | ** ** |
|-----------------------------------------------------------|------------|------------|------------|------------|------------|----------|------------|
| Income tax benefit  at statutory rate                     | ** ** | **$**      | **14**     | ** ** | $          | 51       |       | $ | 58 |   |
| Antitrust legal  settlements                              | ** ** | **(4**     | **)**      | (15        | )          | (5       | )          |
| Foreign income  tax rate differential                     | ** ** | **(1**     | **)**      | (4         | )          | (3       | )          |
| State income  taxes, net of federal benefit               | ** ** | **(7**     | **)**      | 1          |       | 3        |       |
| Tax audit  settlements                                    | ** ** | **(12**    | **)**      | —     |       | 5        |       |
| Benefit (provision)  associated with valuation allowances | ** ** | **1**      | ** ** | 4          |       | (28      | )          |
| Exclusions and  foreign income subject to U.S. taxation   | ** ** | **(48**    | **)**      | (102       | )          | (53      | )          |
| U.S. tax on  foreign earnings                             | ** ** | **1**      | ** ** | (156       | )          | —   |       |
| Nondeductible  expenses                                   | ** ** | **(1**     | **)**      | —     |       | (5       | )     |
| In-process  research and development write-off            | ** ** | **—** | ** ** | —     |       | (25      | )          |
| Goodwill                                                  | ** ** | **—** | ** ** | (21        | )          | —   |       |
| Income tax  credits                                       | ** ** | **23**     | ** ** | 119        |       | —   |       |
| Tax law changes                                           | ** ** | **10**     | ** ** | —     |       | —   |       |
| Surrender of  insurance policies                          | ** ** | **(7)**    | ** ** | —     |       | —   |       |
| Taxes  attributable to prior periods                      | ** ** | **26**     | ** ** | —     |       | —   |       |
| Other, net                                                | ** ** | **1**      | ** ** | (3         | )          | 4        |       |
| Actual income  tax expense                                | ** ** | **$**      | **(4**     | **)**      | $          | (126     | )          | $ | (49 | ) |

 

Provisions havebeen made for deferred taxes based on differences between the financialstatement and the tax basis of assets and liabilities using currently enactedtax rates and regulations. The components of the deferred tax assets andliabilities are as follows:

 

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| **(In millions)**                                | ** ** | **2007**   | ** **  | **2006**   | ** ** |
|-------------------------------------------------------|------------|------------|-------------|------------|------------|
| Deferred tax  assets:                                 |       |       | ** **  |       |       |
| Pension and  other post-retirement liabilities        | ** ** | **$**      | **137**     | ** ** | $          | 168 |   |
| Net operating  loss carryforwards                     | ** ** | **115**    | ** **  | 179        |       |
| Tax credit  carryforwards                             | ** ** | **88**     | ** **  | 110        |       |
| Accruals for  environmental remediation               | ** ** | **31**     | ** **  | 38         |       |
| Other accruals                                        | ** ** | **63**     | ** **  | 59         |       |
| Inventories and  other                                | ** ** | **22**     | ** **  | 26         |       |
| Total deferred  tax assets                            | ** ** | **456**    | ** **  | 580        |       |
| Valuation  allowance                                  | ** ** | **(69**    | **)**       | (103       | )          |
| Net deferred tax  assets after valuation allowance    | ** ** | **387**    | ** **  | 477        |       |
| Deferred tax  liabilities:                            |       |       | ** **  |       |       |
| Intangibles                                           | ** ** | **(121**   | **)**       | (135       | )          |
| Property, plant  and equipment                        | ** ** | **(106**   | **)**       | (136       | )          |
| Earn-out  receivable                                  | ** ** | **—** | ** **  | (2         | )          |
| Foreign earnings  of subsidiaries                     | ** ** | **(188**   | **)**       | (192       | )          |
| Financial  instruments                                | ** ** | **(2**     | **) ** | (2         | )          |
| Other                                                 | ** ** | **(75**    | **)**       | (11        | )          |
| Total deferred  tax liabilities                       | ** ** | **(492**   | **)**       | (478       | )          |
| Net deferred tax  liability after valuation allowance | ** ** | **$**      | **(105**    | **)**      | $          | (1 | ) |

 

Net current andnon-current deferred taxes from each tax jurisdiction are included in thefollowing accounts:

 
| **(In millions)**          | ** ** | **2007**   | ** ** | **2006**   | ** ** |
|---------------------------------|------------|------------|------------|------------|------------|
| Net current  deferred taxes     | ** ** | ** ** | ** ** | ** ** | ** ** |
| Other current  assets           | ** ** | **$**      | **97**     | ** ** | $          | 101 |   |
| Other current  liabilities      | ** ** | **(4**     | **)**      | (37        | )          |
| Net non-current  deferred taxes |       |       | ** ** |       |       |
| Other assets                    | ** ** | **19**     | ** ** | 43         |       |
| Other  liabilities              | ** ** | **(217**   | **)**      | (108       | )          |
|                                 |            |            |            |            |            |  |  |

 

A valuation allowance has been provided for deferred tax assets whereit is more likely than not these assets will expire before the Company is ableto realize their benefit.  Valuationallowances have been provided for state income taxes, state and foreign netoperating loss carryforwards (“NOL”), federal and state income tax credits andother items that may expire before realization. While realization is not assured, management believes that it is morelikely than not that the deferred tax assets, net of valuation allowance, willbe realized. State and foreign NOL’s andcredits expire 2008-2027, federal credits expire 2008-2027 and federal NOL’sexpire 2022-2027. 

 

The Company had valuation allowances, which were primarily related tothe realization of recorded tax benefits on tax loss carryforwards and taxcredit carryforwards from operations in the United States of $69 million and$103 million at December 31, 2007 and 2006, respectively.  The change in the valuation allowance of $34million during 2007 was primarily due to realization of changes in netoperating loss and tax credit carry forwards of which $33 million related topreacqusition deferred taxes and was released to goodwill.

 

At December 31, 2007, the Company had total federal, state, and foreignNOL carryforwards of $141 million, $709 million and $184 million,respectively.  The tax benefits of theseNOL’s have been offset by state and foreign valuation allowances of $32 millionand $13 million, respectively. Approximately $3 million and $5 million of certain state and foreign NOLtax benefits would be a reduction to goodwill if subsequently utilized.  The Company also has federal and state taxcredits carryforwards of $83 million and $5 million, respectively,partially offset by valuation allowances of $23 million.  Approximately $5 million of certainfederal and foreign tax credit carryforward benefits would be a reduction togoodwill if subsequently realized.

 

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At December 31, 2006, the Company had total federal, state, and foreignnet operating losses (“NOL”) carryforwards of $245 million, $1,067 million and$258 million, respectively.  The taxbenefits of these NOL’s have been offset by state and foreign valuationallowances of $44 million and $23 million, respectively.  Approximately $11 million and $17 million ofcertain state and foreign NOL tax benefits would be a reduction to goodwill ifsubsequently utilized.  The Company alsohas federal and state tax credits of $108 million and $2 million, respectively,partially offset by valuation allowances of $30 million and $1 million,respectively.  Approximately $18 millionof certain federal and foreign tax credit benefits would be a reduction togoodwill if subsequently realized.

 

Tax expense for 2006 includes a charge of $156million relating to earnings of certain foreign subsidiaries where the Companyhas recorded a deferred income tax liability associated with the intent torepatriate those earnings in a subsequent period.  The Company had historically considered substantiallyall of the earnings of its foreign subsidiaries to be permanently reinvested intheir operations.  If this deferred taxliability had not been recognized, a valuation allowance for domestic netdeferred tax assets would have been required. 

 

In October 2004, Congress enacted the AmericanJobs Creation Act of 2004 (the “Act”) which allowed the Company to exclude 85%of certain qualifying foreign dividends repatriated to the United States during2004 and 2005.  The maximum amount offoreign earnings that the Company could repatriate under the Act was $732million.  During 2005, the Companyrepatriated a total of $459 million of foreign earnings, of which $365 millionwere qualified dividends under the Act. The Company recorded additional income tax expense of $19 million and$34 million during the third and fourth quarters of 2005, respectivelyattributable to the amounts repatriated during 2005.

 

TheCompany also has earnings of certain foreign subsidiaries where the Companyconsiders these earnings to be indefinitely invested in their operations.  Undistributed earnings of foreignsubsidiaries and related companies that are deemed to be indefinitely investedamounted to $676 million at December 31, 2007. The Company also has not recognized a deferred tax liability for thedifference between the book basis and tax basis of investments in the commonstock of foreign subsidiaries.  Suchdifferences relate primarily to the unremitted earnings of both Witco’s andGreat Lakes’ foreign subsidiaries prior to their mergers with the Company.  The basis difference in subsidiaries ofWitco, acquired on September 1, 1999, is approximately $235 million and thebasis difference in subsidiaries of Great Lakes, acquired on July 1, 2005, isapproximately $322 million.  Estimatingthe tax liability that would arise if these earnings were repatriated is notpracticable at this time.

 

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In January 2006, the Internal Revenue Service completed an examinationof the Company’s corporate income tax returns for tax years 2002 and 2003.  The Company challenged two adjustments fromthe final Revenue Agent’s Report and requested a review at the Internal RevenueService Appellate level.  Accordingly,the US federal statute of limitations remains open for the year 2002onward.  Examinations are currently inprocess with the Internal Revenue Service for tax years 2004 and 2005.  

 

In June 2006, the FASB issued FASB Interpretation No. 48, “Accountingfor Uncertainty in Income Taxes - an Interpretation of FASB Statement No. 109”(the “Interpretation” or “FIN 48”).  TheInterpretation clarifies the accounting for uncertainty in income taxesrecognized in an enterprise’s financial statements in accordance with SFAS109.  The Interpretation prescribes arecognition threshold and measurement attribute for the financial statementrecognition and measurement of a tax position taken or expected to be taken ina tax return.  The Interpretation alsoprovides guidance on derecognition, classification, interest and penalties,accounting in interim periods, disclosure, and transition.  The Interpretation is effective for fiscalyears beginning after December 15, 2006.

 

The Company applied the provisions of the Interpretation effectiveJanuary 1, 2007.  During the twelve monthperiod ended December 31, 2007, the Company recorded an increase to itsliability for unrecognized tax benefits of approximately $10 million, whichrelates to positions taken during the current period after adoption of FIN 48.

 

In accordance with FIN 48, the Company recognizes interest andpenalties related to unrecognized tax benefits as income tax expense.  Accrued interest and penalties are includedwithin the related liability lines in the consolidated balance sheet.

 

The beginning and ending amount of unrecognized tax benefits reconcilesas follows: 

 
| (In millions)                                                |   |   |   |
|--------------------------------------------------------------|--------|--------|--------|
| Balance,  January 1, 2007                               |   | $56    |   |
|                                                         |   |   |   |
| Increases for  tax positions taken during a prior period     |   | 21     |   |
| Decreases for  tax positions taken during a prior period     |   | (10    | )      |
| Decreases from  the expiration of the statute of limitations |   | (1     | )      |
|                                                         |   |   |   |
| Balance,  December 31, 2007                             |   | $66    |   |

 

Included in the balance of unrecognized tax benefits at January 1, 2007and December 31, 2007 are $16 million and $17 million of tax benefits,respectively, that if recognized, would result in a decrease to goodwillrecorded in purchase business combinations.

 

The Company recognized $4 million of interest related to unrecognizedtax benefits in tax expense in its statement of operations.  The Company also recognized in its statementof financial position at January 1, 2007 and December 31, 2007 a total amountof $4 million and $8 million of interest, respectively, related to unrecognizedtax benefits.

 

The Company and its subsidiaries file income tax returns in the U.S.,various U.S. states and certain foreign jurisdictions.  With only some exceptions, the Company is nolonger subject to U.S. federal, state and local, or non-U.S. income taxexaminations by tax authorities for years before 2004.  The tax years 2004-2006 remain open toexamination by major taxing jurisdictions. 

 

In June 2007, the Company agreed to the Revenue Agent’s Reportresulting from the completed Internal Revenue Service examination of thecorporate income tax returns for Great Lakes Chemical Company for tax years2003 and 2004.   The Company had adequatereserves to cover the examination results.

 

Foreign and United States jurisdictions have statutes of limitationsgenerally ranging from 3 to 5 years.  TheCompany has a number of state, local and foreign examinations currently inprocess.  Major foreign examinations inprocess include Italy, Germany, Japan, Belgium (2004 onward), Canada (2001onward) and the United Kingdom (2004 onward). The Company considered theuncertain positions associated with the examinations in process during theimplementation of FIN 48.

 

The Company believes it is reasonably possible that its unrecognizedtax benefits may decrease approximately $17 million within the next year.  This reduction may occur due to theconclusion of examinations by tax authorities. The Company further expects that the amount of unrecognized tax benefitswill continue to change as the result of ongoing operations, the outcomes ofaudits, and the passing of statutes of limitations.  This change is not expected to have asignificant impact on the results of operations or the financial position ofthe Company.

 

The Company adopted the provisions of FIN 48 on January 1, 2007.  The total amount of unrecognized tax benefitsas of the date of adoption was $56 million. As a result of the implementation of FIN 48, the Company recognized a $2million decrease in the income tax payable liability for unrecognized taxbenefits which was accounted for as a $6 million increase in non-currentdeferred tax assets and a $8 million decrease in goodwill.

 

# **13) EARNINGS (LOSS) PER COMMON SHARE**

 

The computation of basic earnings (loss) percommon share is based on the weighted-average number of common sharesoutstanding.  Diluted earnings (loss) pershare is based on the weighted-average number of common and common shareequivalents outstanding.  The computationof diluted earnings (loss) per share equals the basic calculation since commonstock equivalents were antidilutive due to losses from continuing operations ineach year presented.  Common stockequivalents amounted to 0.5 million in 2007, 0.8 million in 2006 and 3.4million in 2005.  The weighted averagecommon shares outstanding are 241.6 million, 240.5 million,

 

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and 178.4 million for the years ended December 31,2007, 2006 and 2005, respectively.  Therewas no impact during these periods for dilutive stock options or otherequivalents.

 

The Company’s outstanding stock options of 6.3million in 2007, 9.0 million in 2006, and 7.0 million in 2005, were excludedfrom the calculation of diluted earnings per share because the exercise pricesof the stock options were greater than or equal to the average price of thecommon shares, and therefore the inclusion would have been antidilutive.  These options could be dilutive if theaverage share price increases and is greater than the exercise price of theseoptions.  Company performance-basedrestricted shares of 1.5 million in 2007, 1.4 million in 2006 and 0.4 millionin 2005 were also excluded from the calculation of diluted earnings per share,because the specified performance criteria for the vesting of these shares hasnot yet been met.  These restricted sharescould be dilutive in the future if the specified performance criteria are met.

 

# **14) CAPITAL STOCK**

 

The Company is authorized to issue500 million shares of $0.01 par value common stock.  There were 253.6 million and 252.3 millionshares issued at December 31, 2007 and 2006, respectively, of which 11.5million were held as treasury stock at December 31, 2007 and 2006.

 

The Company is authorized to issue 0.3 millionshares of preferred stock without par value, none of which areoutstanding.  On September 3, 1999,the Company declared a dividend distribution of one Preferred Share PurchaseRight (Rights) on each outstanding share of common stock.  These Rights entitle stockholders to purchaseone one-hundredth of a share of a new series of junior participating preferredstock at an exercise price of $100.  TheRights are only exercisable if a person or group acquires 15% or more of theCompany’s common stock or announces a tender offer which, if successful, wouldresult in ownership of 15% or more of the Company’s common stock.

 

On July 1, 2005, in connection with themerger with Great Lakes, the Company issued 127.6 million common shares andacquired 11.5 million shares of the Company’s stock owned by a former GreatLakes subsidiary, which are accounted for by the Company as treasury shares.

 

**15) ACCUMULATED OTHER COMPREHENSIVEINCOME (LOSS)**

 

Components of accumulated other comprehensive income(loss) is as follows:

 
| **(In millions)**                                                     | ** ** | **2007**   | ** ** | **2006** | ** ** |
|----------------------------------------------------------------------------|------------|------------|------------|----------|------------|
| Foreign currency  translation adjustment (net of tax)                      | ** ** | **$**      | **252**    |     | $          | 107 |   |
| Unrecognized  pension and other post retirement benefit costs (net of tax) | ** ** | **(84**    | **)**      | (134     | )          |
| Change in fair  value of derivatives (net of tax)                          | ** ** | **—** |       | (7       | )          |
| Accumulated  other comprehensive income (loss)                             | ** ** | **$**      | **168**    |     | $          | (34 | ) |

 

Reclassifications from other comprehensive income(loss) to cost of products sold related to the Company’s natural gas price swapcontracts aggregated to $10 million pre-tax loss, $9 million pre-tax gain and$2 million pre-tax gain during 2007, 2006 and 2005, respectively.

 

# **16) STOCK INCENTIVE PLANS**

 

The Company uses 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 andrestricted stock.  The Company plans toissue any shares related to the exercise of stock options or vested restrictedstock under these plans by issuing additional shares of common stock.

 

*Description of the Plans*

 

The Company has five plans that provide for thegranting of stock awards to officers and key employees.  The 1988 Long-Term Incentive Plan (1988Plan), the 1993 Stock Option Plan for Non-Employee Directors (1993 Stock OptionPlan), the 1998 Long-Term Incentive Plan (1998 Plan) and the 2001 EmployeeStock Option Plan (2001 Plan) were closed to all future new grants.  The 2006 Chemtura Corporation Long-Term Incentive Plan (2006Plan) permits the grant of various forms of stock-based compensation awards,including stock options, restricted

 

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stock, stock appreciation rights and performance awards. The 2006 Planprovides for the issuance of a maximum of 10.5 million shares, of which 2.4million have been granted.  Sharesgranted under the 2006 Plan pursuant to awards other than stock options andstock appreciation rights are limited to one-third of the total maximum numberof 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 options will expire not morethan ten years from the date of the grant.

 

In accordance with the terms of the merger with Great Lakes, allunvested Great Lakes options as of the merger date were immediately vested andall of the outstanding options were converted into options to purchase theCompany’s common stock.

 

*Adoption of FASB 123(R)*

 

Effective January 1, 2006, the Company adopted FASB 123(R) usingthe modified prospective method. Under the modified prospective method, thecompensation cost for all new awards and awards modified, repurchased orcancelled after the date of adoption of this Statement, 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.

 

Total stock-based compensation expense, including amounts forrestricted stock and options, was $10 million and $14 million for the yearsended December 31, 2007 and 2006, respectively.  In 2007, stock-based compensation ispresented 83% in SG&A, 14% in cost of products sold and 3% in R&D.  In 2006, stock-based compensation ispresented within SG&A.

 

Approximately 10% and 50% of the compensation expense related to stockoptions was allocated to the operating segments in 2007 and 2006,respectively.  All other stock-basedcompensation expense has been allocated to Corporate.

 

*Stock Option Plans*

 

In February 2005, the Board of Directors also approved the grantof options covering 1.3 million shares with an exercise price equal to the fairmarket value of the underlying common stock at the date of grant.  These options will vest ratably over a three-yearperiod.

 

In January 2006 and March 2006, the Board of Directorsapproved the grant of options covering 0.2 million and 1.9 million shares,respectively, with an exercise price equal to the fair market value of theunderlying common stock at the date of grant. These options will vest ratably over a three-year period.

 

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

 

The Company uses the Black-Scholes option-pricing model to determinethe compensation expense related to stock options.  The Company has elected to recognizecompensation cost for option awards granted equally over the requisite serviceperiod 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 31,2007, 2006 and 2005 was $5.40, $4.85 and $6.32, respectively.  The Black-Scholes option-pricing modelrequires the use of various assumptions. The following table presents the weighted average assumptions used:

 
| ** **                    | ** ** | **Year Ended December 31,** | ** ** |
|-------------------------------|------------|--------------------------------------------|------------|
| ** **                    | ** ** | **2007**                                   | ** ** | **2006** | ** ** | **2005** | ** ** |
| Dividend yield                | ** ** | **1.7**                                    | **%**      | 1.8 | % | 1.2 | % |
| Expected  volatility          | ** ** | **48**                                     | **%**      | 49 | % | 49 | % |
| Risk—free  interest rate | ** ** | **4.6**                                    | **%**      | 4.8 | % | 4.1 | % |
| Expected life  (in years)     | ** ** | **6**                                      | ** ** | 6 |   | 7 |   |

 

The weighted average expected life of six years for the 2007 and 2006 grantsreflects the alternative simplified method permitted by SAB 107, which definesthe expected life as the average of the contractual term of the options and theweighted average vesting period for all option tranches.  An analysis of historical expense patternssupports the expected life assumption using the simplified method of SAB107.  Expected volatility for the 2007and 2006 option grants is based primarily on historical volatility over the sixyears prior to the option grant date. Currently the Company has no expectation that the expected volatility islikely to differ from its historical volatility.

 

Changes during 2007, 2006 and 2005 in shares underoption are summarized as follows:

 

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| ** **                   | ** ** | ** **                    | ** **          | ** **  | ** ** | ** **             | ** ** | **Weighted**  | ** ** | ** **             | ** ** |
|------------------------------|------------|-------------------------------|---------------------|-------------|------------|------------------------|------------|---------------|------------|------------------------|------------|
| ** **                   | ** ** | ** **                    | ** **          | ** **  | ** ** | ** **             | ** ** | **Average**   | ** ** | **Aggregate**          | ** ** |
| ** **                   | ** ** | ** **                    | ** **          | ** **  | ** ** | ** **             | ** ** | **Remaining** | ** ** | **Intrinsic**          | ** ** |
| ** **                   | ** ** | **Price Per Share** | ** **          | **Shares**  | ** ** | **Contractual**        | ** ** | **Value**     | ** ** |
| ** **                   | ** ** | **Range**                     | ** **          | **Average** | ** ** | **(in millions)** | ** ** | **Life**      | ** ** | **(in millions)** | ** ** |
| Outstanding at  1/1/05       |       | $                             | 5.85—26.41     |        | $          | 10.05                  |       | 13.2          |       |                   |       |   |   |
| Granted                      |       | 12.92—17.80              |                | 12.95       |       | 1.3                    |       |          |       |                   |       |
| Converted                    |       | 9.29—29.94               |                | 14.41       |       | 8.1                    |       |          |       |                   |       |
| Exercised                    |       | 5.85—16.69               |                | 10.74       |       | (7.1                   | )          |          |       | $                      | 29         |   |
| Lapsed                       |       | 5.85—29.94               |                | 14.00       |       | (0.2                   | )          |          |       |                   |       |
| Outstanding at  12/31/05     |       | 5.85—29.94               |                | 12.22       |       | 15.3                   |       | 5.4           |       | 37                     |       |
| Granted                      |       | 8.65—12.46               |                | 10.90       |       | 2.2                    |       |          |       |                   |       |
| Exercised                    |       | 5.85—12.43               |                | 8.05        |       | (0.5                   | )          |          |       | 2                      |       |
| Lapsed                       |       | 5.85—29.94               |                | 15.50       |       | (1.8                   | )          |          |       |                   |       |
| Outstanding at  12/31/06     |       | 5.85—26.41               |                | 11.77       |       | 15.2                   |       | 5.1           |       | 12                     |       |
| 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** | ** ** |
|                         |       |                          |                |        |       |                   |       |          |       |                   |       |
| Exercisable at  12/31/05     |       | $                             | 5.85—29.94     |        | $          | 12.35                  |       | 13.1          |       |                   |       |   |   |
| Exercisable at  12/31/06     |       | $                             | 5.85—26.41     |        | $          | 11.86                  |       | 12.3          |       |                   |       |   |   |
| **Exercisable  at 12/31/07** | ** ** | **$**                         | **5.85—21.74** | ** **  | **$**      | **9.71**               | ** ** | **8.7**       | ** ** | **4.3**                | ** ** | **$** | **2** | ** ** |

 

Shares available for grant at year-end 2007 and 2006 were 8.1 millionand 10.5 million, respectively.

 

Total remaining unrecognized compensation cost associated with unvestedstock options at December 31, 2007 was $6 million, which will berecognized over the weighted average period of approximately one year.

 

*Restricted Stock Plans*

 

In January 2004, the Board ofDirectors granted long-term incentive awards in the amount of 0.6 millionshares of restricted stock, which will vest ratably over a three-year period(which includes 0.2 million shares approved in connection with the employmentof the Company’s new President and Chief Executive Officer).

 

In November 2004, the Board of Directorsgranted long-term incentive awards in the amount of 0.3 million shares ofrestricted stock.  The shares will vest 60percent in three and a half years from the date of grant, 20 percent in fouryears from the date of grant and 20 percent in five years from the date of grant.

 

In February 2005, the Board of Directors granted long-termincentive awards in the amount of 0.2 million shares of restricted stock, whichwill vest three and a half years from the date of grant. Also in February 2005,the Board approved a grant of long-term incentive awards of restricted stockwhich carries a market condition requirement. These shares will vest based on the achievement of specified stock priceappreciation milestones, which represents a market condition, over a three-yearperiod commencing December 31, 2004. This grant was for 0.3 million shares of restricted stock.  The plan also includes a provision for thegrant of an additional 0.2 million shares, for a maximum payout of 0.5 millionshares of restricted stock, to be issued if the maximum level of specifiedstock appreciation is attained.  Sharesare scheduled to vest when a particular milestone (based on the closing priceof the Company’s common stock on the New York Stock Exchange) is reached andmaintained for ten consecutive trading days. Share awards for milestones achieved during 2005 and 2006 vested andwere paid out on February 1, 2007.

 

In January 2006, the Board granted merger integration awardsconsisting of long-term incentive awards in the amount of 0.1 million shares ofrestricted stock which will vest ratably on the first and second anniversary ofthe grants.

 

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In March 2006, theBoard approved a grant of long-term incentive awards of restricted stock whichcarries a market condition requirement. These shares will vest based on the achievement of specified stock priceappreciation milestones, which represents a market condition, over a three-yearperiod commencing on December 31, 2005. This grant was for 0.6 million shares of restricted stock.  The plan also includes a provision for thegrant of an additional 0.5 million shares, for a maximum payout of 1.1 millionshares of restricted stock, to be issued if the maximum level of specifiedstock appreciation is attained.  Sharesare scheduled to vest when a particular milestone (based on the closing priceof the Company’s common stock on the New York Stock Exchange) is reached andmaintained for fifteen consecutive trading days. Share awards for milestonesachieved during 2008 will become vested and be paid out on February 1,2009.

 

Additionally, in January 2006,a grant of 0.1 million of restricted stock that do not contain market conditionrequirements were approved to non-employee directors which are paid out uponretirement from the Chemtura Board of Directors.

 

In February 2007,the Board of Directors granted long-term incentive awards in the amount of 0.1million shares of restricted stock.  Thegrant of 0.1 million shares will vest three and a half years from the date ofgrant.

 

In February 2007,the Board of Directors approved a grant of long-term incentive awards ofrestricted stock, which carries a performance condition requirement.  The performance award will be based onaccomplishment against goal for 2007, 2008 and 2009 cumulative earnings beforeinterest, taxes, depreciation and amortization (EBITDA).  Results of EBITDA will be adjusted fornon-GAAP factors as defined.  The awardsare for a maximum of 0.5 million shares. Share awards based upon the achievement of the performance milestoneswill become vested and distributed on February 1, 2010.  In April 2007, an additional grant for amaximum of 0.1 million shares of restricted stock was granted under thisprogram.

 

In December 2007, theBoard of Directors granted long-term incentive awards in the amount of 0.1million shares of restricted stock, which vest ratably on the first, second andthird anniversary of the grant.

 

Additionally, in February 2007,grants of 0.1 million shares of restricted stock to non-employee directors ofthe Chemtura Board of Directors were approved. These grants do not contain market condition requirements and are paidout upon retirement from the Board.

 

The fair value ofrestricted stock awards without market conditions is determined based on thenumber of shares granted and the quoted closing price of the Company’s stock atthe date of grant. To determine the fair value of restricted stock with marketconditions, the Company uses the Monte Carlo simulation method.  The Company’s determination of the fair valueof restricted stock awards with market conditions on the date of grant isaffected by its stock price as well as assumptions regarding a number of highlycomplex and subjective variables, including expected volatility and risk-freeinterest rate.  If other reasonableassumptions are used, the results may differ.

 

The fair value of allrestricted stock awards 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.

 

Restricted stock awardactivity for the years ended December 31, 2007, 2006 and 2005 is asfollows:

 

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| ** **                                                    | ** ** | ** **             | ** ** | **Weighted**        | ** ** | ** **             | ** ** |
|---------------------------------------------------------------|------------|------------------------|------------|---------------------|------------|------------------------|------------|
| ** **                                                    | ** ** | ** **             | ** ** | **Average**         | ** ** | **Aggregate**          | ** ** |
| ** **                                                    | ** ** | **Shares**             | ** ** | **Grant Date** | ** ** | **Fair Value**    | ** ** |
| ** **                                                    | ** ** | **(in millions)** | ** ** | **Fair Value** | ** ** | **(in millions)** | ** ** |
| Restricted  unvested stock awards, January 1, 2005       |       | 1.0                    |       | $                   | 8.99       |                   |       |   |
| Granted                                                       |       | 0.8                    |       | 12.93               |       |                   |       |
| Vested                                                        |       | (0.3                   | )          | 8.44                |       | $                      | 2          |   |
| Restricted  unvested stock awards, December 31, 2005     |       | 1.5                    |       | 11.20               |       | 19                     |       |
| Granted                                                       |       | 1.3                    |       | 5.99                |       |                   |       |
| Vested                                                        |       | (0.3                   | )          | 9.00                |       | 2                      |       |
| Canceled  or expired                                          |       | (0.2                   | )          | 9.85                |       |                   |       |
| Restricted  unvested stock awards, December 31, 2006     |       | 2.3                    |       | 8.70                |       | 22                     |       |
| Granted                                                       |       | 1.0                    |       | 11.25               |       |                   |       |
| Vested                                                        |       | (0.4                   | )          | 9.69                |       | 3                      |       |
| Canceled  or expired                                          |       | (0.7                   | )          | 10.21               |       |                   |       |
| **Restricted unvested stock awards, December 31,  2007** | ** ** | **2.2**                | ** ** | **$**               | **9.24**   | ** **             | **$**      | **17** | ** ** |

 

Total remainingunrecognized compensation cost associated with unvested restricted stock awardsat December 31, 2007 was $6 million, which will be recognized over theweighted average period of approximately one year.

 

*Tax Benefits of Stock-BasedCompensation Plans*

 

Prior to the adoption ofFASB 123(R), any benefit the Company received from tax deductions resultingfrom the exercise of stock options and restricted stock awards was presented inthe cash flow from operations section of the consolidated statements of cashflows. FASB 123(R) requires the benefits of tax deductions in excess ofgrant-date fair value be presented in the cash flow from financing section ofthe consolidated statements of cash flows. The Company did not obtain any cash tax benefit associated with sharesexercised during the year ended December 31, 2007 and 2006 as the Company’staxable income has been offset by net operating loss carry forwards and foreigntax credits. Cash proceeds received from option exercises during the yearsended December 31, 2007, 2006 and 2005 were $7 million, $3 million and $75million, respectively.

 

TheCompany has an Employee Stock Purchase Plan. This plan permits eligible employees to annually elect to have up to 10%of their compensation withheld for the purchase of shares of the Company’scommon stock at 85% of the average of the high and low sale prices on the dateof purchase, up to a maximum of twenty five thousand dollars.  As of December 31, 2007, 1.1 millionshares of common stock are available for future issuance under this plan.

 

# **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.

 

Employeesof international locations are covered by various pension benefit arrangements,some of which are considered to be defined benefit plans for financialreporting purposes.  Assets of theseplans are comprised primarily of publicly traded securities, 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.

 

83

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TheCompany also provides health and life insurance benefits for certain retiredand active employees, their beneficiaries, and covered dependents forsubstantially all of its domestic employees and certain internationalemployees.  These plans are generally notprefunded and are paid by the Company as incurred, except for certain inactivegovernment-related plans.

 

In2005, the Company changed the measurement date for its defined benefit pensionplans and other post-retirement benefit plans from December 31 to November 30.  The Company believes the change is preferablebecause it provides management additional time to review and reflect theactuarial information in the Company’s consolidated financial statements underthe Securities and Exchange Commission’s accelerated filing deadlines.  As a result, year-end values for 2007 and2006 included in this footnote are presented as of November 30.  The effect of the change in measurement dateon the retirement and post-retirement benefit plan expense or accrued/prepaidbenefit cost was not material to the consolidated financial statements.

 

The Company adopted the balance sheet recognition provisions of Statement No. 158 as of December 31, 2006. The adoption of Statement No. 158 reduces stockholders’ equity at December 31, 2006 by $59 million, before tax ($40 million, net of taxes). The Company will adopt the change to the December 31 measurement date in 2008 and will adjust beginning retained earnings as of January 1, 2008 accordingly.

 

The following table illustrates the incremental increase (decrease) of applying SFAS 158 on individual items on the Company’s Consolidated Balance Sheet at December 31, 2006:

 
| **(In millions)**                | ** ** | **Prior to  Statement No.  158  Adoption** | ** ** | **Impact of  Statement No.  158  Adoption** | ** ** | **Balance after  Statement No.  158  Adoption** | ** ** |
|---------------------------------------|------------|------------------------------------------------------|------------|-------------------------------------------------------|------------|-----------------------------------------------------------|------------|
| ** **                            | ** ** | ** **                                           | ** ** | ** **                                            | ** ** | ** **                                                | ** ** |
| Intangible  assets                    | ** ** | $                                                    | 4          |                                                  | $          | (4                                                        | )          | $ | — | ** ** |
| Noncurrent  assets                    | ** ** | 7                                                    |       | 3                                                     |       | 10                                                        | ** ** |
| Pension  liabilities                  | ** ** | 242                                                  |       | 51                                                    |       | 293                                                       | ** ** |
| Post-retirement  benefit liabilities  | ** ** | 164                                                  |       | 7                                                     |       | 171                                                       | ** ** |
| Accumulated  other comprehensive loss | ** ** | (153                                                 | )          | (59                                                   | )          | (212                                                      | **)**      |
|                                       |            |                                                      |            |                                                       |            |                                                           |            |  |  |  |

 

As a result of a review undertaken during 2006 of pension and post-retirement arrangements offered by the Company to employees around the world, a number of arrangements covering former Great Lakes employees were included in the year-end disclosures. These arrangements were included for the first time in the pension and post-retirement expense for the year ended December 31, 2006.

 

During 2006, the Company came to an agreement with the union representing the collectively bargained employees at the Perth Amboy, NJ location to eliminate defined benefit accruals as of November 1, 2006 for certain employees. For these employees future benefits will be earned under a defined contribution plan.

 

84

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**Benefit Obligations**

 
| ** **                                                                    | ** ** | **Defined Benefit Plans** | ** ** | ** **                                            | ** ** | ** **                                        | ** ** |
|-------------------------------------------------------------------------------|------------|-------------------------------------|------------|-------------------------------------------------------|------------|---------------------------------------------------|------------|
| ** **                                                                    | ** ** | **Qualified Domestic Plans**   | ** ** | **International and   Non-Qualified Plans** | ** ** | **Post-Retirement   Health Care Plans** | ** ** |
| ** **                                                                    | ** ** | ** **                          | ** ** | ** **                                            |
| **(In millions)**                                                        | ** ** | **2007**                            | ** ** | **2006**                                              | ** ** | **2007**                                          | ** ** | **2006** | ** ** | **2007** | ** ** | **2006** | ** ** |
| Change in  projected benefit obligation:                                      |       |                                |       |                                                  |       |                                              |       |   |   |   |   |   |   |
| Projected  benefit obligation at beginning of year                            | ** ** | **$**                               | **832**    |                                                  | $          | 850                                               | ** ** | **$** | **524** |   | $ | 410 | ** ** | **$** | **172** |   | $ | 162 |   |
| Service cost                                                                  | ** ** | **1**                               |       | 1                                                     | ** ** | **7**                                             |       | 6 | ** ** | **1** |   | 1 |   |
| Interest cost                                                                 | ** ** | **46**                              |       | 46                                                    | ** ** | **25**                                            |       | 22 | ** ** | **9** |   | 11 |   |
| Plan  participants’ contributions                                        | ** ** | **—**                          |       | **—**                                            | ** ** | **2**                                             |       | 2 | ** ** | **—** |   | 2 |   |
| Plan amendments                                                               | ** ** | **—**                          |       | 2                                                     | (a)        | **—**                                        | ** ** | — |   | **—** | ** ** | — |   |
| Actuarial  (gains) losses                                                     | ** ** | **—**                          |       | (12                                                   | )          | **(73**                                           | **)**      | 40 | ** ** | **(9** | **)** | 18 |   |
| Foreign currency  exchange rate                                               | ** ** | **—**                          |       | —                                                | ** ** | **28**                                            |       | 48 | ** ** | **3** |   | — |   |
| Acquisitions                                                                  | ** ** | **—**                          |       | —                                                | ** ** | **(1**                                            | **)**      | 7 | ** ** | **—** |   | 1 |   |
| Benefits paid                                                                 | ** ** | **(62**                             | **)**      | (55                                                   | )          | **(21**                                           | **)**      | (16 | ) | **(19** | **)** | (22 | ) |
| Curtailments                                                                  | ** ** | **—**                          |       | —                                                | ** ** | **(1**                                            | **)**(b)   | — |   | **—** | ** ** | (1 | )  |
| Settlements                                                                   | ** ** | **—**                          |       | —                                                | ** ** | **(2**                                            | **)**(c)   | (3 | )(d) | **—** |   | — |   |
| Newly disclosed                                                               | ** ** | **—**                          |       | —                                                | ** ** | **—**                                        |       | 8 |  (e) | **—** | ** ** | — |   |
| Projected  benefit obligation at end of year                                  | ** ** | **$**                               | **817**    |                                                  | $          | 832                                               | ** ** | **$** | **488** |   | $ | 524 | ** ** | **$** | **157** |   | $ | 172 |   |
|                                                                          |       |                                |       |                                                  |       |                                              |       |   |   |   |   |   |   |
| Accumulated  benefit obligation at end of year                                | ** ** | **$**                               | **815**    |                                                  | $          | 828                                               | ** ** | **$** | **450** |   | $ | 474 |   |   |   |   |   |
|                                                                          |       |                                |       |                                                  |       |                                              |       |   |   |   |   |   |   |
| Weighted-average  year-end assumptions used to determine benefit obligations: |       |                                |       |                                                  |       |                                              |       |   |   |   |   |   |   |
| Discount rate                                                                 | ** ** | **6.00**                            | **%**      | 5.63                                                  | %          | **5.54**                                          | **%**      | 4.74 | % | **5.91** | **%** | 5.54 | % |
| Rate of  compensation increase                                                | ** ** | **4.00**                            | **%**      | 4.00                                                  | %          | **3.44**                                          | **%**      | 3.50 | % | **—** |   | — |   |
| Rate of increase  in the per capita cost of covered health care benefits      | ** ** | **—**                          |       | —                                                | ** ** | **—**                                        |       | — | ** ** | **8.24** | **%** | 9.09 | % |

 

----

| (a)     |       | During 2006, the Company agreed to  change the nature of the early retirement provisions for certain former  employees of OSI Specialties, Inc. who became employed by General  Electric company as a result of the sale of the OSI Specialties business to  General Electric. |
|---------|------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (b)     |       | A  curtailment for the International Non-Qualified plans was incurred due to the  elimination of benefits for certain employees of the Italian and Mexican  plans.                                                                                                                  |
| **(c)** | ** ** | **Settlements are related to the Company’s  restructuring program in Italy, the sale of the Ravenna, Italy facility,  payments to terminated members in Mexico and the departure of a high earner  from the plan in Canada.**                                                  |
| (d)     |       | Represents  lump sum payments made under the supplemental executive retirement programs.                                                                                                                                                                                            |
| (e)     |       | Disclosed obligations include $4 million for Chemtura  Italy, which was previously accounted for under local statutory GAAP, and $4  million for Chemtura Switzerland, which was previously accounted for as a  defined contribution plan.                                          |

 

An8.24% weighted-average rate of increase in the per capita cost of coveredhealth care benefits was assumed for the accumulated post-retirement benefitobligation as of December 31, 2007. The rate was assumed to decrease gradually to a weighted average rate of4.99% over approximately the next 4 years. Assumed health care cost trend rates have a significant effect on thepost-retirement benefit obligation reported for the health care plans.  A one percentage point increase in assumedhealth care cost trend rates would increase the accumulated post-retirementbenefit obligation by $10 million for health care benefits as of December 31,2007.  A one percentage point decrease inassumed health care cost trend rates would decrease the accumulatedpost-retirement benefit obligation by $8 million for health care benefits as ofDecember 31, 2007.

** **

**85**

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** **

**Plan Assets**

** **
| ** **                                      | ** ** | **Defined Benefit Plans** | ** ** | ** **                                            | ** ** | ** **                                        | ** ** |
|-------------------------------------------------|------------|-------------------------------------|------------|-------------------------------------------------------|------------|---------------------------------------------------|------------|
| ** **                                      | ** ** | **Qualified   Domestic Plans** | ** ** | **International and   Non-Qualified Plans** | ** ** | **Post-Retirement   Health Care Plans** | ** ** |
| ** **                                      | ** ** | ** **                          | ** ** | ** **                                            |
| **(In millions)**                          | ** ** | **2007**                            | ** ** | **2006**                                              | ** ** | **2007**                                          | ** ** | **2006** | ** ** | **2007** | ** ** | **2006** | ** ** |
| Change in plan  assets:                         | ** ** | ** **                          | ** ** | ** **                                            | ** ** | ** **                                        | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Fair value of  plan assets at beginning of year | ** ** | **$**                               | **785**    |                                                  | $          | 710                                               | ** ** | **$** | **276** |   | $ | 216 | ** ** | **$** | **—** |   | $ | **—** |   |
| Actual return on  plan assets                   | ** ** | **48**                              |       | 90                                                    |       | **17**                                            |       | 25 | ** ** | **—** |   | **—** |   |
| Foreign currency  exchange rate changes         | ** ** | **—**                          |       | —                                                |       | **12**                                            |       | 26 | ** ** | **—** |   | — |   |
| Employer  contributions                         | ** ** | **2**                               |       | 40                                                    |       | **15**                                            |       | 23 | ** ** | **19** |   | 20 |   |
| Plan  participants’ contributions          | ** ** | **—**                          |       | —                                                |       | **2**                                             |       | 2 | ** ** | **—** |   | 1 |   |
| Acquisitions                                    | ** ** | **—**                          |       | —                                                |       | **(1**                                            | **)**      | — | ** ** | **—** |   | — |   |
| Newly disclosed                                 | ** ** | **—**                          |       | —                                                |       | **—**                                        |       | 3 | (b) | **—** | ** ** | **—** |   |
| Benefits paid                                   | ** ** | **(62**                             | **)**      | (55                                                   | )          | **(21**                                           | **)**      | (16 | ) | **(19** | ) | (21 | ) |
| Settlements                                     | ** ** | **—**                          |       | —                                                | ** ** | **(2**                                            | **)**(a)   | (3 | )(c) | **—** |   | — | ** ** |
| Administrative  Expenses                        | ** ** | **—**                          |       | —                                                | ** ** | **(1**                                            | **)**      | ** ** |   | **—** |   | — |   |
| Fair value of  plan assets at end of year       | ** ** | **$**                               | **773**    |                                                  | $          | 785                                               | ** ** | **$** | **297** |   | $ | 276 | ** ** | **$** | **—** |   | $ | — |   |

** **

----

| (a) | Settlements are related to the  Company’s restructuring program in Italy, the sale of the Ravenna Italy  facility, payments to terminated members in Mexico and the departure of a  high earner from the plan in Canada. |
|-----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (b) | Disclosed plan assets  represent assets for Chemtura Switzerland plan which was previously accounted  for as a defined contribution plan.                                                                                     |
| (c) | Represents lump sum payments made under the  supplemental executive retirement programs.                                                                                                                                      |

** **

**The asset allocation for the Company’spension plans at the end of 2007 and 2006 and the target allocation for 2008 byasset category are as follows:**

** **
| ** **               | ** ** | **Target Allocation - 2008** | ** ** | **Percentage of Plan Assets at November 30,** | ** ** |
|--------------------------|------------|---------------------------------------------|------------|-----------------------------------------------------------------------------|------------|
| ** **               | ** ** | **Qualified   Domestic   Plans**  | ** ** | **and   Non-  Qualified Plans**                                   | ** ** | **Qualified Domestic Plans** | ** ** | **International and Non-  Qualified Plans** | ** ** |
|                     | ** ** |                                        | **2007**   | ** **                                                                  | **2006**   |   | **2007** |   | **2006** |   |
| Asset Category:          | ** ** | ** **                                  |       | ** **                                                                  | ** ** | ** ** | ** ** | ** ** |   | ** ** |   | ** ** |   |
| Equity  securities       |       | 58                                          | %          | 64                                                                          | %          | **57** | **%** | 59 | % | **63** | **%** | 65 | % |
| Fixed income  securities |       | 35                                          | %          | 35                                                                          | %          | **36** | **%** | 32 | % | **35** | **%** | 25 | % |
| Real estate              | ** ** | 7                                           | %          | —                                                                      |       | **6** | **%** | 8 | % | — | ** ** | — |   |
| Other                    | ** ** | —                                      |       | 1                                                                           | %          | **1** | **%** | 1 | % | **2** | **%** | 10 | % |
| Total                    |       | 100                                         | %          | 100                                                                         | %          | **100** | **%** | 100 | % | **100** | **%** | 100 | % |

** **

**Equity securities include Chemtura’s commonstock in the amounts of $30 million and $39 million as of December 31,2007 and 2006, respectively.**

** **

**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.**

** **

** **

**86**

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** **

**Funded Status**

** **

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

** **
| ** **                                                                                 | ** ** | **Defined Benefit Plans** | ** ** | ** **                                            | ** ** | ** **                                        | ** ** |
|--------------------------------------------------------------------------------------------|------------|-------------------------------------|------------|-------------------------------------------------------|------------|---------------------------------------------------|------------|
| ** **                                                                                 | ** ** | **Qualified   Domestic Plans** | ** ** | **International and   Non-Qualified Plans** | ** ** | **Post-Retirement   Health Care Plans** | ** ** |
| ** **                                                                                 | ** ** | ** **                          | ** ** | ** **                                            |
| **(In millions)**                                                                     | ** ** | **2007**                            | ** ** | **2006**                                              | ** ** | **2007**                                          | ** ** | **2006** | ** ** | **2007** | ** ** | **2006** | ** ** |
| Funded status,  end of year:                                                               |       |                                |       |                                                  |       |                                              |       |   |   |   |   |   |   |
| Fair value of  plan assets                                                                 | ** ** | **$**                               | **773**    |                                                  | $          | 785                                               | ** ** | **$** | **297** |   | $ | 276 | ** ** | **$** | **—** |   | $ | — |   |
| Benefit  obligations                                                                       | ** ** | **817**                             |       | 832                                                   | ** ** | **488**                                           |       | 523 | ** ** | **157** |   | 172 |   |
| Funded status                                                                              | ** ** | **(44**                             | **)**      | (47                                                   | )          | **(191**                                          | **)**      | (247 | ) | **(157** | **)** | (172 | ) |
| Employer  contributions after measurement date                                             | ** ** | **—**                          | ** ** | —                                                | ** ** | **9**                                             | ** ** | 1 |   | **1** | ** ** | 2 |   |
| Net amount  recognized                                                                     | ** ** | **$**                               | **(44**    | **)**                                                 | $          | (47                                               | )          | **$** | **(182** | **)** | $ | (246 | ) | **$** | **(156** | **)** | $ | (170 | ) |
|                                                                                       |       |                                | ** ** |                                                  |       |                                              | ** ** |   |   |   | ** ** |   |   |
| Amounts  recognized in the statement of financial  position at the end of year consist of: |       |                                | ** ** |                                                  |       |                                              | ** ** |   |   |   | ** ** |   |   |
| Noncurrent  assets                                                                         | ** ** | **$**                               | **—** | ** **                                            | —     | ** **                                        | **1**      | ** ** | — | ** ** | **—** | ** ** | — |   |
| Current  liability                                                                         | ** ** | **—**                          | ** ** | —                                                | ** ** | **(9**                                            | **)**      | (7 | ) | **(13** | **)** | (16 | ) |
| Noncurrent  liability                                                                      | ** ** | **(44**                             | **)**      | (47                                                   | )          | **(174**                                          | **)**      | (239 | ) | **(143** | **)** | (154 | ) |
| Net amount  recognized                                                                     | ** ** | **$**                               | **(44**    | **)**                                                 | $          | (47                                               | )          | **$** | **(182** | **)** | $ | (246 | ) | **$** | **(156** | **)** | $ | (170 | ) |
|                                                                                       |       |                                |       |                                                  |       |                                              | ** ** |   |   |   | ** ** |   |   |
|                                                                                       |       |                                |       |                                                  |       |                                              |       |   |   |   | ** ** |   |   |
| Amounts  recognized in accumulated  other comprehensive loss consist of:                   |       |                                |       |                                                  |       |                                              |       |   |   |   | ** ** |   |   |
| Net actuarial  loss/(gain)                                                                 | ** ** | **$**                               | **121**    |                                                  | $          | 117                                               | ** ** | **$** | **17** |   | $ | 91 | ** ** | **$** | **40** | ** ** | $ | 52 |   |
| Prior service  cost/(credit)                                                               | ** ** | **1**                               |       | 2                                                     | ** ** | **1**                                             |       | 1 | ** ** | **(42** | **)** | (45 | ) |
| Transition  obligation/(asset)                                                             | ** ** | **—**                          |       | —                                                | ** ** | **1**                                             |       | — |   | **—** |   | — |   |
| Other                                                                                      | ** ** | **(1**                              | **)(a)**   | —                                                |       | **—**                                        |       | — |   | **—** |   | — |   |
| ** **                                                                                 |       | **$**                               | **121**    |                                                  | $          | 119                                               | ** ** | **$** | **19** |   | $ | 92 | ** ** | **$** | **(2** | ) | $ | 7 |   |

** **

----

**(a)  Amounts disclosed in other consistprimarily of the Company’s minority interest in Baxenden Chemicals UK and theRubicon**       joint venture.

** **

The estimated amounts thatwill be amortized from accumulated other comprehensive loss into net periodbenefit cost in 2008 are as follows:

 
| ** **                   | ** ** | **Qualified   Domestic   Plans** | ** ** | **International   and Non-   Qualified   Plans** | ** ** | **Other  Post-  Retirement   Health Care   Plans** | ** ** |
|------------------------------|------------|--------------------------------------------|------------|----------------------------------------------------------------------|------------|-------------------------------------------------------------------|------------|
| **(In millions)**       | ** ** | ** **                                 | ** ** | ** **                                                           | ** ** | ** **                                                        | ** ** |
| Actuarial  (gain)/loss       | ** ** | **$**                                      | **5**      | ** **                                                           | **$**      | **1**                                                             | ** ** | **$** | **2** | ** ** |
| Prior service  (credit)/cost | ** ** | **—**                                 | ** ** | **—**                                                           | ** ** | **(3**                                                            | **)**      |
| Total                        | ** ** | **$**                                      | **5**      | ** **                                                           | **$**      | **1**                                                             | ** ** | **$** | **(1** | **)** |

 

The Company’s non-currentassets, prepaid benefit costs and intangible assets are included in otherassets in the consolidated balance sheets. SFAS 158 requires the recognition of both current and non-currentliability positions. The currentpositions are included in accrued expenses on the Company’s consolidatedbalance sheets and the non-current positions are shown as pension andpost-retirement health care liabilities.

 

The projected benefitobligation and fair value of plan assets for pension and post-retirement planswith a projected benefit obligation in excess of plan assets at December 31,2007 and 2006 were as follows:

 
| **(In millions)**                                                 | ** ** | **2007**  | ** ** | **2006** | ** ** |
|------------------------------------------------------------------------|------------|-----------|------------|----------|------------|
| Projected  benefit obligation in excess of plan assets at end of year: |       |      |       |     |       |
| Projected  benefit obligation                                          | ** ** | **$**     | **1,444**  |     | $          | 1,313 |   |
| Fair value of  plan assets                                             | ** ** | **1,052** |       | 1,030    |       |
|                                                                        |            |           |            |          |            |  |  |

 

87

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The projected benefitobligation, accumulated benefit obligation and fair value of plan assets forpension and post-retirement plans with an accumulated benefit obligation inexcess of plan assets at December 31, 2007 and 2006 were as follows:

 
| **(In millions)**                                                   | ** ** | **2007**   | ** ** | **2006**   | ** ** |
|--------------------------------------------------------------------------|------------|------------|------------|------------|------------|
| ** **                                                               | ** ** | ** ** | ** ** | ** ** | ** ** |
| Accumulated  benefit obligation in excess of plan assets at end of year: |       |       |       |       |       |
| Projected  benefit obligation                                            | ** ** | **$**      | **1,285**  |       | $          | 1,310 |   |
| Accumulated  benefit obligation                                          | ** ** | **1,245**  |       | 1,260      |       |
| Fair value of  plan assets                                               | ** ** | **1,049**  |       | 1,027      |       |
|                                                                          |            |            |            |            |            |  |  |

 

# **Expected Cash 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 follows:

 
| ** **                        | ** ** | **Defined Benefit Plans**      | ** ** | ** **                                             | ** ** |
|-----------------------------------|------------|------------------------------------------|------------|--------------------------------------------------------|------------|
| **(in millions)**            | ** ** | **Qualified   Domestic Plans** | ** ** | **International and  Non-Qualified   Plans** | ** ** | **Post-Retirement   Health Care   Plans** | ** ** |
| Expected  Employer Contributions: |       |                                     |       |                                                   |       |   |   |
| 2008                              |       | $                                        | —     |                                                   | $          | 25 |   | $ | 13 |   |
|                              |       |                                     |       |                                                   |       |   |   |
| Expected Benefit  Payments (a):   |       |                                     |       |                                                   |       |   |   |
| 2008                              |       | 56                                       |       | 22                                                     |       | 13 |   |
| 2009                              |       | 56                                       |       | 24                                                     |       | 12 |   |
| 2010                              |       | 56                                       |       | 22                                                     |       | 12 |   |
| 2011                              |       | 56                                       |       | 23                                                     |       | 11 |   |
| 2012                              |       | 57                                       |       | 26                                                     |       | 11 |   |
| 2013-2017                         |       | 286                                      |       | 161                                                    |       | 47 |   |
|                                   |            |                                          |            |                                                        |            |  |  |  |  |  |

 

----

(a)         The expected benefit payments are based on the same assumptions used tomeasure the Company’s benefit obligation at the end of the year and includebenefits attributable to estimated future employee service.

** **

**88**

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** **

**Net Periodic Cost**

** **
| ** **                                         | ** ** | **Defined Benefit Plans** | ** ** | **Post-Retirement Health Care Plans**  | ** ** |
|----------------------------------------------------|------------|-------------------------------------|------------|--------------------------------------------------|------------|
| ** **                                         | ** ** | **Qualified   Domestic Plans** | ** ** | **International and  Non-Qualified  Plans** | ** ** | ** ** |
| ** **                                         | ** ** | ** **                          | ** ** | ** **                                       |
| **(In millions)**                             | ** ** | **2007**                            | ** ** | **2006**                                         | ** ** | **2005** | ** ** | **2007** | ** ** | **2006** | ** ** | **2005** | ** ** | **2007** | ** ** | **2006** | ** ** | **2005** | ** ** |
| Components of  net periodic benefit cost (credit): |       | ** **                          |       |                                             |       |   |   | ** ** | ** ** |   |   |   |   | ** ** | ** ** |   |   |   |   |
|                                               |       | ** **                          |       |                                             |       |   |   | ** ** | ** ** |   |   |   |   | ** ** | ** ** |   |   |   |   |
| Service cost                                       | ** ** | **$**                               | **1**      | ** **                                       | $          | 1 |   | $ | 8 |   | **$** | **7** | ** ** | $ | 6 |   | $ | 7 |   | **$** | **1** | ** ** | $ | 1 |   | $ | 1 |   |
| Interest cost                                      | ** ** | **46**                              | ** ** | 46                                               |       | 44 |   | **25** | ** ** | 22 |   | 17 |   | **9** | ** ** | 9 |   | 10 |   |
| Expected return  on plan assets                    | ** ** | **(62**                             | **)**      | (58                                              | )          | (55 | ) | **(20** | **)** | (15 | ) | (10 | ) | **—** | ** ** | **—** |   | — |   |
| Amortization of  prior service cost                | ** ** | **—**                          | ** ** | —                                           |       | — |   | **—** | ** ** | — |   | — |   | **—** | ** ** | (3 | ) | 1 |   |
| Recognized  actuarial (gains) losses               | ** ** | **7**                               | ** ** | 4                                                |       | 10 |   | **4** | ** ** | 3 |   | 2 |   | **2** | ** ** | 2 |   | 1 |   |
| Curtailment  (gain) loss recognized                | ** ** | **—**                          | ** ** | —                                           |       | — |   | **(1** | **)** | — |   | (19 | ) | **(3** | **)** | (1 | ) | — |   |
| Settlement  (gain) loss recognized                 | ** ** | **—**                          | ** ** | —                                           |       | — |   | **—** | ** ** | (1 | ) | 6 |   | **—** | ** ** | — |   | — |   |
| Other                                              | ** ** | **—**                          | ** ** | —                                           |       | — | ** ** | **1** | ** ** | — |   | — |   | **—** | ** ** | — |   | — |   |
| Net periodic  benefit cost (credit)                | ** ** | **$**                               | **(8**     | **)**                                            | $          | (7 | ) | $ | 7 | ** ** | **$** | **16** | ** ** | $ | 15 |   | $ | 3 |   | **$** | **9** | ** ** | $ | 8 |   | $ | 13 |   |

** **
| ** **                                                | ** ** | **Defined Benefit Plans** | ** ** | ** **                                            | ** ** | ** **                                        | ** ** | ** ** | ** ** |
|-----------------------------------------------------------|------------|-------------------------------------|------------|-------------------------------------------------------|------------|---------------------------------------------------|------------|------------|------------|
| ** **                                                | ** ** | **Qualified   Domestic Plans** | ** ** | **International and   Non-Qualified Plans** | ** ** | **Post-Retirement   Health Care Plans** | ** ** |
| ** **                                                | ** ** | ** **                          | ** ** | ** **                                            |
| ** **                                                | ** ** | **2007**                            | ** ** | **2006**                                              | ** ** | **2005**                                          | ** ** | **2007**   | ** ** | **2006** | ** ** | **2005** | ** ** | **2007** | ** ** | **2006** | ** ** | **2005** | ** ** |
| Weighted-average  assumptions used to determine net cost: |       |                                |       |                                                  |       |                                              |       |       |       |   |   |   |   |   |   |   |   |   |   |
| Discount rate                                             | ** ** | **5.63**                            | **%**      | 5.75                                                  | %          | 5.75                                              | %          | **4.68**   | **%**      | 4.92 | % | 4.97 | % | **5.46** | **%** | 5.84 | % | 5.75 | % |
| Expected return  on plan assets                           | ** ** | **8.50**                            | **%**      | 8.50                                                  | %          | 8.75                                              | %          | **7.36**   | **%**      | 6.70 | % | 6.78 | % | **—** | ** ** | **—** |   | **—** |   |
| Rate of  compensation increase                            | ** ** | **4.00**                            | **%**      | 4.00                                                  | %          | 4.00                                              | %          | **3.08**   | **%**      | 3.32 | % | 2.81 | % | **—** | ** ** | — |   | — | ** ** |

 

The expected return on pension plan assets is based on our investmentstrategy, historical experience, and our expectations for long term rates ofreturn.  The Company determines thelong-term rate of return assumptions for the domestic and international pensionplans based on its investment allocation between various asset classes.  The expected rate of return on plan assets isderived by applying the expected returns on various asset classes to theCompany’s target asset allocation.  Theexpected returns are based on the expected performance of the various assetclasses and are further supported by historical investment returns. The Companyutilized a weighted average expected long-term rate of 8.5% on all domesticassets and a weighted average rate of 7.36% for the international plan assetsfor the year ended November 30, 2007.

 

Assumedhealth care cost trend rates have a significant effect on the service andinterest cost components reported for the health care plans. A one percentagepoint increase in assumed health care cost trend rates increases the serviceand interest cost components of net periodic post-retirement health carebenefit cost by $1 million for 2007.  A onepercentage point decrease in assumed health care cost trend rates decreases theservice and interest cost components of net periodic post-retirement healthcare benefit cost by $1 million for 2007.

 

The Company made lump sumpayments under the provisions of its pension plans of approximately $2 millionduring 2007.  There was an immaterialsettlement loss recorded on the transactions. The Company made lump sum payments under the provisions of itssupplemental executive retirement programs of approximately $3 million during2006.  As a result of the 2006 payments,the Company recorded a settlement gain of approximately $1 million.

 

The Company made adiscretionary contribution of $2 million to its domestic qualified pensionplans in 2007. The Company’s funding assumptions for its domestic pension plansassume no significant change with regards to demographics, legislation, planprovisions, or actuarial assumptions or methods to determine the estimatedfunding requirements. The Pension Protection Act, which was passed in 2006,extends interest rate relief for qualified domestic pension plans until 2008,at which time a new methodology for determining required funding amounts willbe phased in.  The Company contributedapproximately $13 million to its international pension plans in 2007.  There were no discretionary payments for theinternational plans during 2007.

 

TheCompany’s cost of its defined contribution plans was $18 million, $18 millionand $10 million in 2007, 2006 and 2005, respectively.  The increase in 2006 is primarily due to theinclusion of Great Lakes employees for a full year and the elimination offuture earnings benefits to participants of the domestic defined benefit plansfor non-bargained employees on January 1, 2006.

 

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** **

**18)DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES**

 

The Company’s activitiesexpose its earnings, cash flows and financial position to a variety of marketrisks, including the effects of changes in foreign currency exchange rates,interest rates and energy prices.  TheCompany maintains a risk management strategy that uses derivative instrumentsto mitigate risk against foreign currency movements and to manage energy pricevolatility.  In accordance with FASBStatement No. 133, “Accounting for Derivative Instruments and HedgingActivities,” FASB Statement No. 138, “Accounting for Certain DerivativeInstruments and Certain Hedging Activities,” and FASB Statement No. 149, “Amendmentof Statement No. 133 on Derivative Instruments and Hedging Activities,”the Company recognizes in earnings changes in the fair value of all derivativesdesignated as fair value hedging instruments that are highly effective andrecognizes in accumulated other comprehensive income (loss) (“AOCL”) any changes in the fair value of all derivativesdesignated as cash flow hedging instruments that are highly effective.  The Company does not enter into derivativeinstruments for trading or speculative purposes.

 

The Company uses priceswap contracts as cash flow hedges to convert a portion of its forecastednatural gas purchases from variable price to fixed price purchases.  These contracts were designated as hedges ofa portion of the Company’s forecasted natural gas purchases. The Company’shedge contracts cover a gradually decreasing percentage of its forecastedpurchase requirements over a rolling two-year period.  These contracts involve the exchange ofpayments over the life of the contracts without an exchange of the notionalamount upon which the payments are based. The differential paid or received as natural gas prices change isreported in AOCI.  These amounts aresubsequently reclassified into cost of products sold when the related inventorylayer is sold.  At December 31, 2007, the Company had outstanding price swaps withan aggregate notional amount of approximately $21 million, based on thecontract price and outstanding quantities of 3,420 million BTU’s (BritishThermal Units) at December 31, 2007. At December 31, 2006, the Company had outstanding price swaps withan aggregate notional amount of approximately $67 million, based on thecontract price and outstanding quantities of 10,150 million BTU’s at December 31,2006.  Based on the December 31,2007 market prices of these natural gas contracts, the Company expects torecognize a loss of approximately $1 million in 2008.  During 2005, a portion of the hedge contractswere determined to be ineffective due to lower actual natural gas purchasesresulting primarily from the impact of hurricanes Katrina and Rita.  The ineffective portion recognized inoperations was not significant.

 

**All contracts have been entered into with major financialinstitutions.  The risk associated withthese transactions is the cost of replacing these agreements at current marketrates in the event of default by the counterparties.  Management believes the risk of incurringsuch losses is remote.  In the fourthquarter of 2007, the Company ceased the purchase of additional price swapcontracts as a cash flow hedge of forecasted natural gas purchases and establishedfixed price contracts with physical delivery with its natural gas vendor.  The existing price swap contracts maturethrough 2009.**

 

TheCompany has exposure to changes in foreign currency exchange rates resultingfrom transactions entered into by the Company and its foreign subsidiaries incurrencies other than their local currency (primarily trade payables andreceivables).  The Company is alsoexposed to currency risk on intercompany transactions (including intercompanyloans).  The Company manages thesetransactional currency risks on a consolidated basis, which allows it to netits exposure.  The Company purchasesforeign currency forward contracts, primarily denominated in Euros, BritishPound Sterling, Canadian dollars, Australian dollars, and Mexican Pesos tohedge its transaction exposure.  Theaggregate notional amount of these contracts at December 31, 2007 and 2006was approximately $548 million and $411 million, respectively. These contractsare generally recognized in other expense, net to offset the impact of valuingrecorded foreign currency trade payables, receivables and intercompanytransactions.  The Company has notdesignated these derivatives as hedges, although it believes these instrumentsreduce the Company’s exposure to foreign currency risk. The net effect of therealized and unrealized gains and losses on these derivatives and theunderlying transactions was not significant as of and for the years ended December 31,2007, 2006 and 2005.

 

The following tablesummarizes the gains/losses resulting from changes in the market value of theCompany’s fair value and cash flow hedging instruments during the years ended December 31,2007 and 2006:

 

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| **(In millions)**                                                | ** ** | **2007** | ** ** | **2006** | ** ** |
|-----------------------------------------------------------------------|------------|----------|------------|----------|------------|
| Cash flow hedges  (in accumulated other comprehensive income (loss)): |       |     |       |     |       |
| Balance at  beginning of year                                         |       | $        | 7          |     | $          | (5 | ) |
| Natural gas -  net change in fair value, net of tax                   |       | (1       | )          | 7        |       |
| Natural gas -  (loss) gain reclassified to earnings, net of tax       |       | (6       | )          | 5        |       |
| Balance at end  of year, net of tax                                   |       | $        | —     |     | $          | 7 |   |

 

# **19) FINANCIAL INSTRUMENTS**

 

The carrying amounts for cash andcash equivalents, accounts receivable, other current assets, accounts payableand other current liabilities and short-term borrowings approximate their fairvalue because of the short-term maturities of these instruments.  The fair value of long-term debt is basedprimarily on quoted market values.  Forlong-term 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.

 
| ** **                              | ** ** | **2007**             | ** ** | **2006**        | ** ** |
|-----------------------------------------|------------|----------------------|------------|-----------------|------------|
| **(In millions)**                  | ** ** | **Carrying  Amount** | ** ** | **Fair  Value** | ** ** | **Carrying  Amount** | ** ** | **Fair  Value** | ** ** |
| Long-term debt                          | ** ** | **$**                | **(1,058** | **)**           | **$**      | **(1,014** | **)** | $ | (1,063 | ) | $ | (1,076 | ) |
| Foreign currency  forward contracts (a) | ** ** | **$**                | **—** | ** **      | **$**      | **—** | ** ** | $ | (2 | ) | $ | (2 | ) |
| Price swap  contracts (b)               | ** ** | **$**                | **—** | ** **      | **$**      | **—** | ** ** | $ | (11 | ) | $ | (11 | ) |

# ** **

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(a)         $3 million and $1 million included in other currentassets and $3 million and $3 million included in accrued expenses at December 31,2007 and December 31, 2006, respectively.

(b)         $1 million included in accrued expenses and $1 millionincluded in other assets at December 31, 2007 and $10 million included inaccrued expenses and $1 million included in other liabilities at December 31,2006.

 

# **20) ASSET RETIREMENT OBLIGATIONS**

 

TheCompany applies the provisions of FASB Statement No. 143,“Accounting for Asset Retirement Obligations,” and FASB Interpretation No. 47, “Accounting forConditional Asset Retirement Obligations,” (“FIN 47”), 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.

 

The Company’s assetretirement obligations include estimates for all asset retirement obligationsidentified for its worldwide facilities. The Company’s asset retirementobligations are primarily the result of legal obligations for the removal ofleasehold improvements and restoration of premises to their original conditionupon termination of leases at approximately 31 facilities, legal obligations toclose approximately 96 brine supply, brine disposal, waste disposal, andhazardous waste injection wells and the related pipelines at the end of theiruseful lives, and decommissioning and decontamination obligations that arelegally required to be fulfilled upon closure of approximately 38 of the Company’smanufacturing facilities.

 

The Company adopted FIN47 in the fourth quarter of 2005, effective January 1, 2005.  The effect of this adoption resulted in acumulative effect of accounting change of $1 million, net of taxes as of December 31,2005.

 

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The following is a summary of the change in the carryingamount of the asset retirement obligations during 2007 and 2006, the net bookvalue of assets related to the asset retirement obligations at December 31,2007 and 2006 and the related depreciation expense recorded in 2007 and 2006.

 
| **(In millions)**                                               | ** ** | **2007**   | ** ** | **2006**   | ** ** |
|----------------------------------------------------------------------|------------|------------|------------|------------|------------|
| Asset retirement  obligation balance at beginning of year            | ** ** | **$**      | **24**     | ** ** | $          | 11 |   |
| Liabilities  assumed (includes purchase accounting adjustments)      | ** ** | **1**      | ** ** | 2          |       |
| Accretion  expense – cost of products sold                      |       | (a)        | **10**     | ** ** | 11         |   |
| Payments                                                             | ** ** | **(10**    | **)**      | —     |       |
| Foreign currency  translation                                        | ** ** | **1**      | ** ** | —     |       |
| Asset retirement  obligation balance at end of year                  | ** ** | **$**      | **26**     | ** ** | $          | 24 |   |
|                                                                 |       | ** ** | ** ** |       |       |
| Net book value  of asset retirement obligation assets at end of year | ** ** | **$**      | **1**      | ** ** | $          | 2 |   |
|                                                                 |       | ** ** | ** ** |       |       |
| Depreciation  expense                                                | ** ** | **$**      | **—** | ** ** | $          | 1 |   |
|                                                                      |            |            |            |            |            |  |  |  |

 

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(a) The 2007 and 2006 accretion expense includes$7 million and $9 million, respectively, due to the acceleration of therecognition of the asset retirement obligations for several of the Company’smanufacturing facilities resulting from revisions to the estimated closuredates.

 

At December 31, 2007and 2006, $13 million and $11 million, respectively, of the asset retirementobligation balance was included in accrued expenses and $13 million and $13million, respectively, was included in other liabilities on the consolidatedbalance sheets.

 

### **21)LEGAL MATTERS**

 

**Antitrust Investigations and Related Matters**

 

*RubberChemicals*

 

On May 27, 2004, theCompany pled guilty to a one-count information charging the Company withparticipating 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 from July 1995 toDecember 2001. The U.S. federal court imposed a fine of $50 million,payable in six annual installments, without interest, beginning in 2004. Inlight of the Company’s cooperation with the U.S. Department of Justice (the “DOJ”),the court did not impose any period of corporate probation.  On May 28,2004, the Company pled guilty to one count of conspiring to lessen competitionunduly in the sale and marketing of certain rubber chemicals in Canada. TheCanadian federal court imposed a sentence requiring the Company to pay a fineof CDN $9 million (approximately U.S. $7 million), payable in six annualinstallments, without interest, beginning in 2004. The Company paid (in U.S.dollars) $2 million in 2005, $7 million in 2006 and $12 million in 2007.Remaining cash payments for the U.S. and Canadian fines are expected to equal(in U.S. dollars) approximately $17 million in 2008; and $19 million in2009.  At December 31, 2007,reserves of $17 million and $17 million related to these settlements have beenincluded in accrued expenses and other liabilities, respectively, on theCompany’s consolidated balance sheet.  AtDecember 31, 2006, reserves of $12 million and $31 million were includedin accrued expenses and other liabilities, respectively.

 

The Company and certainof its subsidiaries were previously the subject of a coordinated civilinvestigation by the European Commission (the “EC”) with respect to the saleand marketing of rubber chemicals.  OnDecember 21, 2005, the Company announced that the EC imposed a fine of Euro 14million (approximately U.S. $16 million) on the Company in connection with theEC’s rubber chemicals investigation.  Theamount of the fine reflects the EC’s maximum leniency of a 50 percent reductionin the fine, resulting from the Company’s continual cooperation with the ECthroughout its investigation.  InDecember 2005, the Company recorded a pre-tax charge of $16 million for the ECfine.  The Company paid this fine inApril 2006.  At December 31, 2006, there wereno remaining EC investigations of the Company with respect to its sale andmarketing of rubber chemicals.

 

European Union (“EU”)Investigations

 

The Company and certainof its subsidiaries are subjects of, and continue to cooperate in, coordinatedcriminal and civil investigations being conducted by the European Commission(the “EC”) with respect to possible antitrust violations relating to the saleand marketing of various classes of heat stabilizers and nitrile rubber. Suchinvestigations concern anticompetitive practices, including price fixing andcustomer or market allocations, undertaken by the Company and such subsidiariesand certain of their officers and employees. The Company and its subsidiaries that are subject to the investigationshave received from each of the EC and the EU verbal or written assurances ofconditional amnesty from prosecution and fines with respect to nitrile rubberand conditional

 

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amnesty with respect tocertain classes of heat stabilizers. The assurances of amnesty are conditionedupon several factors, including continued cooperation with the EU. The Companyis actively cooperating with the EU regarding such investigations.

 

Civil Lawsuits

 

The actions describedbelow under “U.S. Civil Antitrust Actions” are in various procedural stages oflitigation.  Although the actions described below have not had a materialadverse impact on the Company, we cannot predict the outcome of any of thoseactions. The Company will seek cost-effective resolutions of the variouspending and threatened legal proceedings against the Company; however, theresolution of any civil claims now pending or hereafter asserted against theCompany or any of its subsidiaries could have a material adverse effect on theCompany’s financial condition, results of operations or cash flows.  TheCompany has established reserves for all direct and indirect purchaser claimsas of December 31, 2007.

 

The Company reviews itsreserves for civil lawsuits on a quarterly basis.  The Company alsoadjusts its reserves quarterly to reflect its current best estimates.

* *

*U.S. Civil Antitrust Actions*

* *

*Directand Indirect Purchaser Lawsuits*. The Company, individually or together with itssubsidiary Uniroyal Chemical Company, Inc., now known as Chemtura USACorporation (referred to as “Uniroyal” for the purposes of the description ofthe Company’s lawsuits), and other companies, are defendants in variousproceedings filed in state and federal courts, described below.

* *

*Federal Lawsuits. *The Company and certain of its subsidiaries continuesto be a defendant in two lawsuits pending in the federal courts.  One of these suits is a Massachusettsindirect purchaser claim premised upon violations of state law.  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 or the improper conduct alleged in thecomplaint.  As described above, one suchfederal suit was originally filed in Massachusetts state court in May 2005as an indirect purchaser claim, and was subsequently removed to the UnitedStates District Court, District of Massachusetts.  This complaint initially related to purchasesof any product containing rubber and urethane products, defined to includeEPDM, nitrile rubber, urethanes, but is now limited to urethanes only.  The Company has reached a settlementagreement in principle with the plaintiffs, which has not yet been finalized.  The other suit, described separately belowunder the sub-heading “Bandag” was originally filed as a direct purchaser suiton June 29, 2006 in the United States District Court, Middle District ofTennessee and was subsequently transferred to the United States District Court,Northern District of California. Neither of these federal suits is expected tohave a material adverse effect on the Company.

* *

*Bandag. *This suit was originally brought by BridgestoneAmericas Holding, Inc, Bridgestone Firestone North American Tire, LLC, andPirelli Tire, LLC (all of whom have since settled) along with the remainingplaintiff, Bandag Incorporated, with respect to purchases of rubber chemicalsfrom the Company, Uniroyal and several of the world-wide leading suppliers ofrubber chemicals.  This suit alleges thatthe Company and Uniroyal, along with other rubber chemical manufacturersconspired to fix the prices of the rubber chemicals, and to divide the rubberchemicals markets in 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.  Discovery in thissuit is currently on-going, with an expected trial date of early 2009.

* *

*State Lawsuits*The Company, individually or togetherwith Uniroyal, also continues to be a defendant in certain indirect purchaserantitrust class action lawsuits filed in state courts involving the sale ofurethanes and urethane chemicals.  Thecomplaints in these actions principally allege that the defendants conspired tofix, raise, maintain or stabilize prices for urethanes and urethane chemicals,as applicable, sold in the United States in violation of certain antitruststatutes and consumer protection and unfair or deceptive practices laws of therelevant jurisdictions and that this caused injury to the plaintiffs who paidartificially inflated prices for such products as a result of such allegedanticompetitive activities.  There are currently 22 separate state actionspending.  The Company has reached asettlement agreement in principle with the plaintiffs in 2 of these actions, andhas received preliminary court approval of a settlement agreement in 7 of theseactions.  The Company has settled 12indirect purchaser antitrust class action lawsuits that were pending on January1, 2007.

 

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None of these statelawsuits individually or in the aggregate are expected to have a materialadverse effect on the Company.

 

At December 31,2007, the Company had a remaining reserve of $43 million included in accruedexpenses on its consolidated balance sheets relating to the remaining U.S.direct and indirect purchaser lawsuits, the federal securities class actionlawsuit described under “Federal Securities Class Action” below and theshareholder derivative lawsuit described under “Shareholder Derivative Lawsuit”below.  These reserves cover all directand indirect purchaser antitrust claims. The Company periodically reviews its accruals as additional informationbecomes available, and may adjust its accruals based on actual settlementoffers and other later occurring events. The Company is unable to estimate the reasonably possible loss, if any,in excess of the accrual as none of these claims have been reduced to judgment.

* *

*Australian Civil AntitrustMatters*

 

On September 27,2007, the Company was sued in the Federal Court of Australia for alleged pricefixing violations with respect to the sale of rubber chemicals inAustralia.  The Company has not yetresponded to the complaint, nor at this early stage assessed it merits.  The Company does not expect this matter willbe material.

 

The reserve activity forantitrust related litigation is summarized as follows:

 
| Governmental Reserves:                 |       |                     |       |                       |       |                                       |       |                     |       |
|---------------------------------------------|------------|--------------------------|------------|----------------------------|------------|--------------------------------------------|------------|--------------------------|------------|
| **(In millions)**                      | ** ** | **U.S. DOJ  Fines** | ** ** | **Canada  Federal  Fines** | ** ** | **Total U.S  and Canada  Fines** | ** ** | **European  Commission** | ** ** |
| Balance January  1, 2005                    |       | $                        | 40         |                       | $          | 6                                          |       | $                        | 46         |   | $ | — |   |
| 2005 Antitrust  costs, excluding legal fees |       |                     | —     |                       |       | —                                     |       |                     | —     |   |   | 16 |   |
| Payments                                    |       |                     | (2         | )                          |       | —                                     |       |                     | (2         | ) |   | — |   |
| Accretion -  Interest                       |       | 3                        |       | —                     |       | 3                                          |       | —                   |       |
| Balance December  31, 2005                  |       | $                        | 41         |                       | $          | 6                                          |       | $                        | 47         |   | $ | 16 |   |
| Payments                                    |       | (6                       | )          | (1                         | )          | (7                                         | )          | (17                      | )          |
| Accretion -  Interest                       |       | 2                        |       | 1                          |       | 3                                          |       | —                   |       |
| Foreign currency  translation               |       | —                   |       | —                     |       | —                                     |       | 1                        |       |
| Balance December  31, 2006                  |       | 37                       |       | 6                          |       | 43                                         |       | $                        | —     |   |
| Payments                                    |       | (10                      | )          | (2                         | )          | (12                                        | )          |                     |       |
| Accretion -  Interest                       |       | 2                        |       | —                     |       | 2                                          |       |                     |       |
| Foreign currency  translation               |       | —                   |       | 1                          |       | 1                                          |       |                     |       |
| **Balance  December 31, 2007**              | ** ** | **$**                    | **29**     | ** **                 | **$**      | **5**                                      | ** ** | **$**                    | **34**     |   |   |   |

 

Civil Reserves:
| **(In millions)**                      | ** ** | **U.S. Civil  and  Securities  Matters** | ** ** | **Canada Civil  Matters** | ** ** | **Total Civil  and   Securities  Matters** | ** ** |
|---------------------------------------------|------------|-----------------------------------------------|------------|--------------------------------|------------|-------------------------------------------------|------------|
| Balance January  1, 2005                    |       | $                                             | 93         |                           | $          | —                                          |       | $ | 93 |   |
| 2005 Antitrust  costs, excluding legal fees |       |                                          | 9          |                           |       | 10                                              |       |   | 19 |   |
| Payments                                    |       |                                          | (53        | )                              |       | (4                                              | )          |   | (57 | ) |
| Accretion                                   |       | 2                                             |       | —                         |       | 2                                               |       |
| Balance December  31, 2005                  |       | $                                             | 51         |                           | $          | 6                                               |       | $ | 57 |   |
| 2006 Antitrust  costs, excluding legal fees |       | 81                                            |       | (2                             | )          | 79                                              |       |
| Payments                                    |       | (30                                           | )          | (4                             | )          | (34                                             | )          |
| Balance December  31, 2006                  |       | 102                                           |       | $                              | —     |                                            | 102        |   |
| 2007 Antitrust  costs, excluding legal fees |       | 24                                            |       |                           |       | 24                                              |       |
| Payments                                    |       | (83                                           | )          |                           |       | (83                                             | )          |
| **Balance  December 31, 2007**              | ** ** | **$**                                         | **43**     | ** **                     | ** ** | ** **                                      | **$**      | **43** | ** ** |

 

Federal Securities Class Action

 

The Company, certain of its former officers anddirectors (the “Crompton Individual Defendants”), and certain former directorsof the Company’s predecessor Witco Corp. are defendants in a consolidated classaction lawsuit, filed on July 20, 2004, in the United States DistrictCourt, District of Connecticut, brought by plaintiffs on behalf of themselvesand a class consisting of all purchasers or acquirers of the Company’s stockbetween October 1998 and October 2002. The consolidated amendedcomplaint principally alleges that the Company and the Crompton IndividualDefendants caused the Company to issue false and misleading statements thatviolated the federal securities laws by reporting inflated financial resultsresulting from an alleged illegal, undisclosed price-fixing conspiracy. Theputative class includes former Witco Corp. shareholders who acquired theirsecurities in the Crompton-Witco merger pursuant to a registration statementthat allegedly contained misstated financial results.

 

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The complaint asserts claims against the Companyand the Crompton Individual Defendants under Section 11 of the SecuritiesAct of 1933, Section 10(b) of the Securities Exchange Act of 1934,and Rule 10b-5 promulgated thereunder. Plaintiffs also assert claims forcontrol person liability under Section 15 of the Securities Act of 1933and Section 20 of the Securities Exchange Act of 1934 against the CromptonIndividual Defendants. The complaint also asserts claims for breach of fiduciaryduty against certain former directors of Witco Corp. for actions they allegedlytook as 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 on September 17, 2004, which is now fullybriefed and pending. The former directors of Witco Corp. filed a motion todismiss in February 2005, which is pending. On July 22, 2005, thecourt granted a motion by the Company and the Crompton Individual Defendants tostay discovery in the related Connecticut shareholder derivative lawsuit(described below under “Shareholder Derivative Lawsuit”), pending resolution ofthe motion to dismiss by the Company and Crompton Individual Defendants.

 

Shareholder Derivative Lawsuit

 

Certain current directors and one formerdirector and officer of the Company (the “Individual Defendants”) aredefendants in a shareholder derivative lawsuit filed on August 25, 2003 inConnecticut state court, nominally brought on behalf of the Company. TheCompany is a nominal defendant in the lawsuit. The plaintiff filed an amendedcomplaint on November 19, 2004. The amended complaint principally allegesthat the Individual Defendants breached their fiduciary duties by causing orallowing the Company to issue false and misleading financial statements byinflating financial results resulting from an alleged illegal, undisclosedprice-fixing conspiracy. The plaintiff contends that this wrongful conductcaused the Company’s financial results to be inflated, cost the Company itscredibility in the marketplace and market share, and has and will continue tocost the Company millions of dollars in investigative and legal fees. Theplaintiff seeks, among other things, compensatory and punitive damages againstthe director defendants in unspecified amounts, prejudgment interest, andattorneys’ fees and costs. The Company filed a motion to strike all counts ofthe complaint on January 12, 2005 for failure to allege adequately that apre-lawsuit demand on the Company’s Board of Directors by the plaintiff wouldhave been futile and was thus excused. This motion was subsequently denied by the court.  Discovery in this lawsuit has been stayed bythe United States District Court, District of Connecticut, pending resolutionof the motion to dismiss filed by Company’s and the Crompton IndividualDefendants in the related consolidated securities class action lawsuitdescribed above under “Federal Securities Class Action.”

 

Other

 

The Company is routinely subject to other civil claims,litigation and arbitration, and regulatory investigations, arising in theordinary course of its present business as well as in respect of its divestedbusinesses. Some of these claims and litigations relate to product liabilityclaims, including claims related to the Company’s current products andasbestos-related claims concerning premises and historic products of itscorporate affiliates and predecessors. The Company believes that it has strongdefenses to these claims. These claims have not had a material impact on theCompany to date and the Company believes the likelihood that a future materialadverse outcome will result from these claims is remote. However, the Companycannot be certain that an adverse outcome of one or more of these claims wouldnot have a material adverse effect on its financial condition, results ofoperations, or cash flows.

 

# **22) CONTINGENCIES**

 

**Environmental Matters**

 

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 estimable, a determinationis made of the specific measures that are believed to be required to remediatethe site, the estimated total cost to carry out the remediation plan, theportion 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, which is generally 10 years, where it believes that such costs areestimable.  The total amount accrued forsuch environmental liabilities at December 31, 2007 and 2006, were $118million and $124 million, respectively.  AtDecember 31, 2007 and 2006, environmental liabilities of $27 million and$30 million, respectively, have been included in accrued expenses and $91million and $94 million, respectively, have been included in other liabilitieson the consolidated balance sheets.  The Company estimates the environmentalliability could range up to $160 million at December 31, 2007.  The Company’s reserves include estimates for

 

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determinable clean-up costs.  The Company recorded a pre-tax charge of $4million in 2007, $7 million in 2006 and $3 million in 2005 to increase its environmentalliabilities. The Company made payments of $30 million in 2007 and $25 millionin 2006 for clean-up costs, which reduced its environmental liabilities.  At certain sites, the Company has contractualagreements with certain other parties to share remediation costs.  The Company has a receivable of $13 millionat December 31, 2007 to reflect probable recoveries.  At a number of these sites, the extent ofcontamination has not yet been fully investigated or the final scope ofremediation is not yet determinable. The Company intends to assert allmeritorious legal defenses and will pursue other equitable factors that areavailable with respect to these matters. However, the final cost of clean-up atthese sites could exceed the Company’s present estimates, and could have,individually or in the aggregate, a material adverse effect on the Company’sfinancial condition, results of operations and cash flows. It is reasonablypossible that the Company’s estimates for environmental remediation liabilitiesmay change in the future should additional sites be identified, furtherremediation measures be required or undertaken, current laws and regulations bemodified or additional environmental laws and regulations be enacted.

 

The Company and some of its subsidiaries havebeen identified by federal, state or local governmental agencies, and by otherpotentially responsible parties (a “PRP”) under the Comprehensive EnvironmentalResponse, Compensation and Liability Act of 1980, as amended, or comparablestate statutes, as a PRP with respect to costs associated with waste disposalsites at various locations in the United States.  Because in certain circumstances these lawshave been construed to authorize joint and several liability, the EPA couldseek to recover all costs involving a waste disposal site from any one of thePRP’s for such site, including the Company, despite the involvement of otherPRP’s.  In many cases, the Company is oneof several hundred PRP’s so identified. In a few instances, the Company is the sole or one of only a handful ofparties performing investigation and remediation.  Where other financially responsible PRP’s areinvolved, the Company expects that any ultimate liability resulting from suchmatters will be apportioned between the Company and such other parties.  In addition, the Company is involved withenvironmental remediation and compliance activities at some of its current andformer sites in the United States and abroad.

 

*Vertac* – On April 22, 2007, the SupremeCourt denied the petitions for writs of certiorari.  This decision lets stand prior rulings underwhich Uniroyal Chemical Co./Cie has liability to the United States forapproximately $3 million and liability to Hercules Incorporated for approximately$1 million.  Adding accrued interest,Chemtura paid a total of approximately $4 million in 2007 to satisfy itsobligation to the United States and Hercules under the judgment.

 

*Conyers – Clean Air ActInvestigation* – 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 the Comprehensive Environmental Response, Compensation andLiability Act and/or the Emergency Planning and Community Right to Know Act, andthe Clean Water Act and is seeking a penalty and other relief in excess of onehundred thousand dollars. The Company intends to assert all meritorious legaldefenses and will continue to assess relevant facts and attempt to negotiate anacceptable settlement with the EPA. The Company does not believe that theresolution of this matter will have a material adverse effect on the Company’sfinancial condition.

 

*Petrolia* - In April 2004, the Company andother owners of property near our former Petrolia, Pennsylvania facility werenamed as defendants in a toxic tort class action lawsuit alleging contaminationin and around the named areas that gave rise to certain property damage andpersonal injuries.  The plaintiffs alsosought clean-up by the defendants of the alleged contamination.  On October 18, 2005, the Court issuedits Memorandum Opinion and Order denying the plaintiffs’ motion for classcertification, and on August 2, 2006, the Pennsylvania Superior Courtaffirmed the lower court’s opinion. Multiple lawsuits have been filedagainst the Company by individuals who were a part of the putative class.  The matter has proceeded to the discoveryphase.  The Company believes that it hasmeritorious defenses and will be filing dispositive motions.

 

*Scarborough  —* In 2006, the Ontario Ministry of the Environment brought an actionagainst Chemtura Co./Cie in connection with a 2004 release of naphtha sulfonicacid at Chemtura Co./Cie’s Scarborough, Ontario, Canada facility.  In2007, Chemtura Co./Cie paid a penalty in the amount of approximately onehundred thousand CDN dollars (approximately one hundred thousand U.S. dollars)to settle this matter.

 

**Legal Proceedings**

 

*Tricor* – This case involves two related properties in Bakersfield, California;the Oildale Refinery (“the Refinery”) and the Mt. Poso Tank Farm (“Mt. Poso”).The Refinery and Mt. Poso were previously owned and operated by a division ofWitco Corp., a predecessor of the Company. In 1997, the Refinery and portionsof Mt. Poso was sold to Golden Bear Acquisition Corp. Under the terms of sale,Witco retained certain environmental obligations with

 

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respect to the Refinery and Mt. Poso. GoldenBear operated the refinery for several years before filing bankruptcy in 2001.Tricor Refining LLC (“Tricor”) purchased the Refinery and related assets out ofbankruptcy. In 2004, Tricor commenced an action against the Company allegingthat the Company failed to comply with its environmental obligations.

 

In July 2007, the Court entered anorder finding liability against Chemtura. A second phase of the trial, whichwill determine the damages to which Tricor may be entitled, is scheduled totake place in July 2008. The Company will continue to defend this casevigorously. The Company does not believe that the resolution of this matterwill have a material adverse effect on the Company’s financial condition.

 

*Conyers* - The Company andcertain of its former officers and employees were named as defendants in fiveputative state class action lawsuits filed in three counties in Georgia and oneputative class action lawsuit filed in the United States District Court for theNorthern District of Georgia pertaining to the fire at the Company’s Conyers,Georgia warehouse on May 25, 2004. Of the five putative state class actions, two were voluntarily dismissedby the plaintiffs, leaving three such lawsuits, all of which are now pending inthe Superior Court of Rockdale County, Georgia. These remaining putative state class actions, as well as the putativeclass action pending in federal district court, seek recovery for economic andnon-economic damages allegedly arising from the fire.  Punitive damages are sought in the Davis casein Rockdale County, Georgia and in the Martin case in the United StatesDistrict Court for the Northern District of Georgia.  The Martin case alsoseeks a declaratory judgment to reform certain settlements, as well as medicalmonitoring and injunctive relief.  The Companyintends to vigorously defend against these lawsuits.

 

TheCompany was also named as a defendant in fifteen lawsuits filed by individualor multi-party plaintiffs in the Georgia and Federal courts pertaining to the May 25,2004 fire at its Conyers, Georgia warehouse.  Eight of these lawsuits remain. The plaintiffs in these remaining lawsuits seek recovery for economic andnon-economic damages, including punitive damages in five of the eight remaininglawsuits.  One of the lawsuits, the Diana Smith case, was filed in theUnited States District Court for the Northern District of Georgia against theCompany, as well as the City of Conyers and Rockdale County, and includedallegations similar to those in the other lawsuits noted above, but addingclaims for alleged civil rights violations, federal Occupational Safety andHealth Administration violations, Georgia Racketeer Influenced and CorruptOrganizations Act violations, criminal negligence, reckless endangerment, falseimprisonment, 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 subsequently refiled and is pending in theSuperior Court of Rockdale County, Georgia. The Company intends to vigorously defend against these lawsuits.

 

Onor about January 8, 2007, the Company was named as a defendant in alawsuit filed by an individual, George J. Collins, in the Superior Court ofGwinnett County, Georgia.  The lawsuitincludes allegations pertaining to the May 25, 2004 fire at its Conyers,Georgia warehouse, and seeks recovery for economic and non-economic damages,including punitive damages.  The actionhas been transferred to the State Court for Gwinnett County, Georgia.  The Company intends to vigorously defendagainst this lawsuit.

 

Withinone day of the fire, the Company established a claims office to resolve alllegitimate economic and personal injury claims in the Rockdale County, Georgiaarea.  The Company still maintains a claims office in Conyers, andcontinues to negotiate the settlement of claims whether submitted through theclaims office or otherwise.

 

Atthe time of the fire, the Company maintained, and continues to maintain,property and general liability insurance.  The Company believes that itsgeneral liability policies will adequately cover any third party claims andlegal and processing fees in excess of the amounts that were recorded through December 31,2007.

* *

*Albemarle Corporation -*In May 2002, Albemarle Corporationfiled two complaints against the Company in the United States District Courtfor the Middle District of Louisiana, one alleging that the Company infringedthree process patents held by Albemarle Corporation relating to bromine vacuumtower technology, and the other alleging that the Company infringed orcontributed to or 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. Inaddition, the Company filed a counterclaim with the District Court in the flameretardant cases, alleging, among other things, that the Albemarle patent isinvalid or was obtained as a result of inequitable conduct from the UnitedStates Patent and Trademark Office. In March 2004, Albemarle amended itsconsolidated complaint to add additional counts of patent infringement andtrade secret

 

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violations. The Company believes that the allegationsof Albemarle in the consolidated complaint, as well as the allegations in theadditional counts, are without basis, factually or legally, and intends todefend the case vigorously.  On October 25,2005, Albemarle filed a complaint against Chemtura Corporation and Great LakesChemical Corporation in the United States District Court for the MiddleDistrict of Louisiana alleging that Chemtura and Great Lakes infringed a recentlygranted U.S. patent held by Albemarle relating to a decabromodiphenyl ethane “wetcake” intermediate product.  The Company believes that the allegations ofthe complaint are without basis, factually or legally, and intends to defendthe case vigorously.

 

*OSCA –*Great Lakes previously held interests inOSCA, Inc., which interests were divested to BJ Services Company in May 2002.  OSCA is a party to certain pending litigationregarding a blowout of a well in the Gulf of Mexico operated by Newfield ExplorationCompany. In the lawsuit, the plaintiffs claimed that OSCA and the otherdefendants breached their contracts to perform work-over operations on the welland were negligent in performing those operations. Pursuant to anindemnification agreement between Great Lakes and BJ Services entered into atthe time of the sale of OSCA, Great Lakes agreed to remain responsible for 75%of any uninsured liability and costs in excess of $3 million incurred by OSCAupon settlement or final determination of this pending litigation. In April 2002,a jury found OSCA and the other defendants responsible for those claims anddetermined OSCA’s share of the damages. In connection with the lawsuit, OSCAasserted claims against its insurers and insurance brokers in support ofinsurance coverage for this incident. Following a related trial on theseinsurance coverage claims, the court issued its final judgments on theunderlying liability claims and the insurance coverage claims, enteringjudgment against OSCA for a net amount of approximately $13 million plusinterest and finding that such amount was not covered by insurance.  The Company and BJ Services appealed certainof the liability and insurance coverage decisions.  In April 2006, the United States FifthCircuit Court of Appeals affirmed the jury’s verdict on liability against OSCA,but reversed in part the District Court’s decision regarding insurance coverageavailable to OSCA and remanded the matter to the District Court.   After the case was remanded, OSCA’s insurer agreedto provide coverage for about half of the outstanding judgment against OSCA,leaving approximately $6 million at issue for the District Court to address onremand.  Thereafter, the parties filedcross motions for summary judgment with the District Court on the remainingcoverage issues.  On September 30, 2007,the District Court granted summary judgment in OSCA’s favor on two out of thethree remaining categories of costs in dispute. This ruling requires AISLIC, OSCA’s insurer to cover an additional $4million (plus interest) of OSCA liability to Newfield, leaving approximately $2million still at issue.  On or aboutFebruary 25, 2008, AISLIC agreed to cover virtually all of the $2 millionremaining at issue.  The only remaining matteris AISLIC’s obligation to pay OSCA’s attorney’s fees and costs associated withthe underlying liability action (approximately $2 million).  This matter will be mediated in the secondquarter of 2008.

 

Each quarter the Company evaluates and reviews pendingclaims and litigation to determine appropriate reserve amounts.  As of December 31, 2007 and December 31,2006 the Company’s accruals for probable loss in the aforementioned legalproceeding cases is immaterial.  Inaddition, the related receivable to reflect probable insurance recoveries isalso immaterial.

 

The Company intends to assert all meritorious legaldefenses 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 Companyor any of its subsidiaries could require the Company to pay costs or damages inexcess of its present estimates, and as a result could, either individually orin the aggregate, have a material adverse effect on the Company’s financialcondition, results of operations and 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 thislitigation, individually or in the aggregate, to have a material adverse effecton its business or its financial condition in the future, but it can give noassurance that such will be the case.**

** **

**Guarantees**

** **

TheCompany has standby letters of credit and guarantees with various financialinstitutions.  At December 31, 2007and December 31, 2006, the Company had $101 million and $127 million, respectively,of outstanding letters of credit and guarantees primarily related to itsliabilities for environmental remediation, insurance obligations, Europeanvalue added tax (VAT) obligations and a pending legal matter.

 

The letter of credit forthe pending legal matter relates to the indemnification liability that GreatLakes may be obligated to pay relating to the OSCA matter described above.  There was no letter of credit at December 31,2007.  The amount of the letter of creditwas $16 million at December 31, 2006. During the second quarter of 2006, the Company completed its review ofthis matter and reversed the $10 million accrual as part of the purchaseaccounting adjustments to goodwill related to the Merger.

 

The Company has appliedthe disclosure provisions of FASB Interpretation No. 45 “Guarantor’sAccounting and Disclosure Requirements for Guarantees, Including IndirectGuarantees of Indebtedness of Others” (FIN 45) to its agreements that containguarantee or indemnification clauses. The Company is a party to severalagreements pursuant to which it may be obligated to indemnify a third partywith respect to certain loan obligations of joint venture companies in whichthe Company has an equity interest.  Theseobligations arose to provide initial financing for a joint venture start-up,fund an acquisition and provide project capital.  Such obligations range in duration with termsfrom origination to maturity between five and nine years.  In the event that any of the joint venturecompanies were to default on these loan obligations, the Company wouldindemnify the other party up to

 

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its proportionate shareof the obligation based upon its ownership interest in the joint venture.  At December 31, 2007, the maximumpotential future principal and interest payments due under these guarantees was$16 million and $1 million, respectively. In accordance with FIN 45, the Company has accrued $2 million inreserves, which represents the probability weighted fair value of theseguarantees at December 31, 2007. The reserve has been included inlong-term liabilities on the consolidated balance sheet at December 31,2007 with an offset to the investment included in other assets.

 

TheCompany also has a customer guarantee, in which the Company has contingentlyguaranteed certain debt obligations of one of its customers.  At December 31, 2007 and December 31,2006, the amount of this guarantee was $3 and $2 million, respectively.  Based on past experience and on the underlyingcircumstances, the Company does not expect to have to perform under thisguarantee.

 

At December 31,2007, unconditional purchase obligations, primarily for commitments to purchaseraw materials and tolling arrangements with outside vendors, amounted to $5million (2008), $4 million (2009), $7 million (2010), $7 million (2011), $7million (2012), $62 million (2013 and thereafter) and $92 million in theaggregate.

 

Inthe ordinary course of business, the Company enters into contractualarrangements under which the Company may agree to indemnify a third party tosuch arrangement from any losses incurred relating to the services they performon behalf of the Company or for losses arising from certain events as definedwithin the particular contract, which may include, for example, litigation,claims or environmental matters relating to the Company’s pastperformance.  For any losses that theCompany believes are probable and which are estimable, the Company has accruedfor such amounts in its consolidated balance sheets.

 

**23) BUSINESS SEGMENT DATA**

 

The Company changed itssegments concurrent with the restructuring program announced on April 4,2007.  A description of the new segmentsfollows below.  This filing reflects thechanged segment presentation.  

 

Polymer Additives arechemical additives designed to improve the performance of polymers in theirend-use applications.  Polymer additivesproducts include antioxidants, flame retardants, heat stabilizers, impact modifiers,polymerization catalysts and inhibitors, surfactants, processing aids and UVstabilizers.  The products are solddirectly to polymer manufacturers and compounders or through plastic industrydistributors.  Also included within thissegment are other products produced from bromine and brine such as fumigantsand clear brine fluids.

 

Performance Specialtiesare engineered chemical solutions. Performance Specialties include petroleum additives that providedetergency, friction modification and corrosion protection in motor oils,greases, refrigeration and turbine lubricants; castable urethane prepolymersengineered to provide superior abrasion resistance and durability in manyindustrial and recreational applications; and polyurethane dispersions used invarious types of coatings such as clear floor finishes, high-gloss paints andtextiles treatments.  These products aresold directly to manufacturers and through distribution channels.

 

Consumer Products areperformance chemicals that are sold to consumers for in-home and outdooruse.  Consumer Products includerecreational water purification products sold under a variety of branded labelsthrough local dealers and large retailers to assist consumers in themaintenance of their pools and spas; and branded cleaners and degreasers soldprimarily through mass merchants to consumers for home cleaning.

 

Crop Protection 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 worldwide niche markets such as seed treatments, fungicides, insecticides(including miticides), growth regulators and herbicides.  These products are sold directly to growersand to major distributors in the agricultural sector.

 

Other consists of theCompany’s non-core businesses that are in the process of being sold or areundergoing strategic assessment.  Thiscategory includes certain rubber chemicals and industrial water additives.  The Company’s industrial water additivesbusiness was sold in the second quarter of 2006, but the Company continues toreceive revenues under supply agreements with the purchaser. 

 

The Company evaluates asegment’s performance based on several factors, of which the primary factor isoperating profit (loss).  In computingoperating profit (loss) by segment, the following items are not included:  (1)

 

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general corporateexpense; (2) amortization; (3) facility closures, severance andrelated costs; (4) antitrust costs; (5) merger costs; (6) certainaccelerated depreciation; (7) the fair value impact of purchase accountingon inventory; (8) in-process research and development; (9) gain onsale of assets and businesses; and (10) impairment of long-livedassets.  Pursuant to FASB Statement No. 131,“Disclosures about Segments of an Enterprise and Related Information,” theseitems have been excluded from the Company’s presentation of segment operatingprofit because they are not reported to the chief operating decision maker forpurposes of allocating resources among reporting segments or assessing segmentperformance.  The accounting policies of the reporting segments are the same as thosedescribed in Note 1 - Accounting Policies included herein.

 

General corporate expenseincludes costs and expenses that are of a general corporate nature or managedon a corporate basis, including amortization expense.  These costs are primarily for corporateadministration services, costs related to corporate headquarters and managementcompensation plan expenses for executives and corporate managers.  Facility closures, severance and relatedcosts are primarily for severance costs related to the Company’s 2007 and 2006cost savings initiatives and the 2004 activity-based restructuringinitiative.  The antitrust costs areprimarily for settlement offers and legal costs associated with antitrustinvestigations and related civil lawsuits. Merger costs are non-capitalizable costs associated with the merger ofthe Company and Great Lakes.  Theaccelerated depreciation is primarily due to the change in useful life ofcertain fixed assets associated with the Company’s restructuring programs anddivestitures. The fair value impact of purchase accounting on inventory and thewrite-off of in-process research and development are the direct result of theMerger.  The loss on sale of businessesin 2007 is related primarily to the sale of the Celogen® product line and the loss in 2006 is related primarily to thesale of the Company’s Industrial Water Additives (“IWA”) business.  The impairment of long-lived assets includesimpairments in 2007 associated with the sale of the Company’s Marshall, Texasfacility, the write-off of construction in progress associated with certainfacilities affected by the 2007 restructuring programs, the reduction in thevalue of certain assets at the Company’s Ravenna, Italy facility and thewrite-off of construction in progress software costs that no longer will beutilized.  The impairment of long-livedassets in 2006 includes impairments to goodwill, certain tangible andintangible assets of the fluorine business and long-lived assets of the IWAbusiness.  Corporate assets are principally cash and cash equivalents, intangibleassets (including goodwill) and other assets (including deferred tax assets)maintained for general corporate purposes.

 

Certainprior year business segment amounts have been reclassified to conform to thecurrent year presentation.

 

Asummary of business data for the Company’s reportable segments for the years2007, 2006 and 2005 is as follows:

 

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# **Information by Business Segment**

*(Inmillions)*

 
| ** **               | ** ** | **2007** | ** ** | **2006** | ** ** | **2005** | ** ** |
|--------------------------|------------|----------|------------|----------|------------|----------|------------|
| **Net Sales**       |       |     |       |     |       |     |       |
| Polymer  Additives       | ** ** | **$**    | **1,806**  |     | $          | 1,712    |       | $ | 1,249 |   |
| Performance  Specialties | ** ** | **911**  |       | 670      |       | 619      |       |
| Consumer  Products       | ** ** | **567**  |       | 566      |       | 261      |       |
| Crop Protection          | ** ** | **352**  |       | 311      |       | 330      |       |
| Other                    | ** ** | **111**  |       | 199      |       | 280      |       |
| **Net  Sales**           | ** ** | **$**    | **3,747**  |     | $          | 3,458    |       | $ | 2,739 |   |

 
| ** **                                                                                       | ** ** | **2007**   | ** ** | **2006** | ** ** | **2005** | ** ** |
|--------------------------------------------------------------------------------------------------|------------|------------|------------|----------|------------|----------|------------|
| **Operating Profit**                                                                        |       |       |       |     |       |     |       |
| Polymer  Additives                                                                               | ** ** | **$**      | **77**     |     | $          | 130      |       | $ | 99 |   |
| Performance  Specialties                                                                         | ** ** | **140**    |       | 115      |       | 115      |       |
| Consumer  Products                                                                               | ** ** | **72**     |       | 70       |       | 23       |       |
| Crop Protection                                                                                  | ** ** | **79**     |       | 48       |       | 74       |       |
| Other                                                                                            | ** ** | **(6**     | **)**      | (4       | )          | 24       |       |
| **Segment  Operating Profit**                                                                    | ** ** | **362**    |       | 359      |       | 335      |       |
|                                                                                             |       |       |       |     |       |     |       |
| General  corporate expense                                                                       | ** ** | **(118**   | **)**      | (92      | )          | (74      | )          |
| Amortization                                                                                     | ** ** | **(40**    | **)**      | (41      | )          | (28      | )          |
| Change in useful  life of property, plant and equipment                                          | ** ** | **(40**    | **)**      | (18      | )          | —   |       |
| Facility closures,  severance and related costs                                                  | ** ** | **(36**    | **)**      | (5       | )          | (23      | )          |
| Antitrust costs                                                                                  | ** ** | **(35**    | **)**      | (90      | )          | (49      | )          |
| Merger costs                                                                                     | ** ** | **—** | ** ** | (17      | )          | (45      | )          |
| In-process  research and development                                                             | ** ** | **—** | ** ** | —   |       | (73      | )          |
| (Loss) gain on  sale of businesses                                                               | ** ** | **(15**    | **)**      | (11      | )          | 3        |       |
| Impairment of  long-lived assets                                                                 | ** ** | **(19**    | **)**      | (80      | )          | —   |       |
| Purchase  accounting inventory fair value impact                                                 | ** ** | **—** | ** ** | —   |       | (37      | )          |
| **Total  Operating Profit**                                                                      | ** ** | **59**     | ** ** | 5        |       | 9        |       |
|                                                                                             |       |       | ** ** |     |       |     |       |
| Interest expense                                                                                 | ** ** | **(87**    | **)**      | (102     | )          | (108     | )          |
| Loss on early  extinguishment of debt                                                            | ** ** | **—** | ** ** | (44      | )          | (55      | )          |
| Other expense,  net                                                                              | ** ** | **(13**    | **)**      | (6       | )          | (12      | )          |
| Loss from  continuing operations before income taxes and cumulative effect of accounting  change |       | **$**      | **(41**    | **)**    | $          | (147     | )          | $ | (166 | ) |

** **
| ** **                                  | ** ** | **2007** | ** ** | **2006** | ** ** | **2005** | ** ** |
|---------------------------------------------|------------|----------|------------|----------|------------|----------|------------|
| **Depreciation and Amortization** |       |     |       |     |       |     |       |
| Polymer  Additives                          | ** ** | **$**    | **123**    |     | $          | 85       |       | $ | 65 |   |
| Performance Specialties                     | ** ** | **23**   |       | 17       |       | 18       |       |
| Consumer  Products                          | ** ** | **13**   |       | 11       |       | 5        |       |
| Crop Protection                             | ** ** | **4**    |       | 7        |       | 6        |       |
| Other                                       | ** ** | **4**    |       | 5        |       | 7        |       |
| ** **                                  |       | **167**  |       | 125      |       | 101      |       |
| Corporate                                   | ** ** | **102**  |       | 79       |       | 49       |       |
| Total continuing  operations                | ** ** | **269**  |       | 204      |       | 150      |       |
| Discontinued  operations                    | ** ** | **6**    |       | 10       |       | 11       |       |
| ** **                                  |       | **$**    | **275**    |     | $          | 214      |       | $ | 161 |   |

 

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| ** **               | ** ** | **2007**   | ** ** | **2006**   | ** ** | **2005** | ** ** |
|--------------------------|------------|------------|------------|------------|------------|----------|------------|
| **Equity Income**        |       |       |       |       |       |     |       |
| Polymer  Additives       | ** ** | **$**      | **3**      |       | $          | 2        |       | $ | 1 |   |
| Performance  Specialties | ** ** | **—** |       | 1          |       | —   |       |
| Other                    | ** ** | **—** |       | 1          |       | 1        |       |
| ** **               | ** ** | **$**      | **3**      | ** ** | $          | 4        | ** ** | $ | 2 | ** ** |

 
| ** **               | ** ** | **2007**  | ** ** | **2006** | ** ** | **2005** | ** ** |
|--------------------------|------------|-----------|------------|----------|------------|----------|------------|
| **Segment Assets**       |       |      |       |     |       |     |       |
| Polymer  Additives       | ** ** | **$**     | **1,123**  |     | $          | 1,257    |       | $ | 1,400 |   |
| Performance  Specialties | ** ** | **464**   |       | 310      |       | 314      |       |
| Consumer  Products       | ** ** | **292**   |       | 303      |       | 299      |       |
| Crop Protection          | ** ** | **189**   |       | 188      |       | 186      |       |
| Other                    | ** ** | **50**    |       | 42       |       | 80       |       |
| ** **               |       | **2,118** |       | 2,100    |       | 2,279    |       |
| Discontinued  operations | ** ** | **22**    |       | 126      |       | 153      |       |
| Corporate                | ** ** | **2,276** |       | 2,173    |       | 2,554    |       |
| ** **               |       | **$**     | **4,416**  |     | $          | 4,399    |       | $ | 4,986 |   |

** **
| ** **                   | ** ** | **2007** | ** ** | **2006** | ** ** | **2005** | ** ** |
|------------------------------|------------|----------|------------|----------|------------|----------|------------|
| **Capital Expenditures**     |       |     |       |     |       |     |       |
| Polymer  Additives           | ** ** | **$**    | **72**     |     | $          | 58       |       | $ | 40 |   |
| Performance  Specialties     | ** ** | **16**   |       | 12       |       | 12       |       |
| Consumer  Products           | ** ** | **7**    |       | 10       |       | 4        |       |
| Crop Protection              | ** ** | **4**    |       | 7        |       | 6        |       |
| Other                        | ** ** | **3**    |       | 7        |       | 6        |       |
| ** **                   |       | **102**  |       | 94       |       | 68       |       |
| Corporate                    | ** ** | **13**   |       | 28       |       | 29       |       |
| Total continuing  operations | ** ** | **115**  |       | 122      |       | 97       |       |
| Discontinued  operations     | ** ** | **2**    |       | 6        |       | 7        |       |
| ** **                   |       | **$**    | **117**    |     | $          | 128      |       | $ | 104 |   |

 
| ** **                    | ** ** | **2007**   | ** ** | **2006** | ** ** | **2005** | ** ** |
|-------------------------------|------------|------------|------------|----------|------------|----------|------------|
| **Equity Method Investments** |       |       |       |     |       |     |       |
| Polymer  Additives            | ** ** | **$**      | **17**     |     | $          | 18       |       | $ | 37 |   |
| Performance  Specialties      | ** ** | **10**     |       | 21       |       | 8        |       |
| Crop Protection               | ** ** | **2**      |       | —   |       | —   |       |
| Consumer  Products            | ** ** | **—** |       | —   |       | 2        |       |
| Other                         | ** ** | **—** |       | 1        |       | 1        |       |
| ** **                    |       | **29**     |       | 40       |       | 48       |       |
| Corporate                     | ** ** | **4**      |       | 15       |       | 81       |       |
| ** **                    |       | **$**      | **33**     |     | $          | 55       |       | $ | 129 |   |

 

# **Information by Geographic Segment**

*(Inmillions)*

Salesare based on location of customer

 
| ** **    | ** ** | **2007**   | ** ** | **2006** | ** ** | **2005** | ** ** |
|---------------|------------|------------|------------|----------|------------|----------|------------|
| **Sales**     | ** ** | ** ** | ** ** |     |       |     |       |   |   |   |
| United States | ** ** | **$**      | **1,878**  |     | $          | 1,718    |       | $ | 1,398 |   |
| Canada        | ** ** | **103**    |       | 95       |       | 85       |       |
| Latin America | ** ** | **158**    |       | 167      |       | 154      |       |
| Europe/Africa | ** ** | **1,103**  |       | 956      |       | 731      |       |
| Asia/Pacific  | ** ** | **505**    |       | 522      |       | 371      |       |
| ** **    |       | **$**      | **3,747**  |     | $          | 3,458    |       | $ | 2,739 |   |

 

102

----

 
| ** **                                       | ** ** | **2007**   | ** ** | **2006** | ** ** | **2005** | ** ** |
|--------------------------------------------------|------------|------------|------------|----------|------------|----------|------------|
| **Property, Plant and Equipment** | ** ** | ** ** | ** ** |     |       |     |       |   |   |   |
| United States                                    | ** ** | **$**      | **603**    |     | $          | 683      |       | $ | 753 |   |
| Canada                                           | ** ** | **63**     |       | 55       |       | 56       |       |
| Latin America                                    | ** ** | **28**     |       | 11       |       | 10       |       |
| Europe/Africa                                    | ** ** | **300**    |       | 356      |       | 334      |       |
| Asia/Pacific                                     | ** ** | **38**     |       | 42       |       | 40       |       |
| ** **                                       |       | **$**      | **1,032**  |     | $          | 1,147    |       | $ | 1,193 |   |

 

**24)ADOPTION OF STAFF ACCOUNTING BULLETIN 108**

 

TheCompany adopted the provisions of Staff Accounting Bulletin No. 108, “Consideringthe Effects of Prior Year Misstatements in Current Year Financial Statements”,(SAB 108) in the quarter ended December 31, 2006.  As a result of adopting SAB 108 and electingto use the one-time transitional adjustment, the Company made an adjustment tothe opening balance of retained earnings for $12 million ($4 million net oftax).  This change in opening retainedearnings relates to the items noted below which represented an insignificantadjustment in each period on the Company’s Statement of Operations utilizingthe *rollover method*.

 

Patentand Trademark Costs

 

TheCompany previously capitalized and amortized patent and trademark costsassociated with maintenance fees ($6 million) and did not reduce capitalizedcosts for patent or trademarks that were abandoned ($8 million). These costsaccumulated from the mid-1990’s through 2005 and totaled approximately $14million ($9 million, net of tax) at December 31, 2005.  The effect of these misstatements on theamount of depreciation and amortization and SG&A reported by the Companyfor each period is noted in the chart below.

 

BondDiscount

 

TheCompany previously amortized bond discounts under the straight-linemethod.  However, in accordance withgenerally accepted accounting principles, these costs should have beenamortized based on the effective-interest rate method.  The difference in the two amortizationmethods yields only small differences in results under the *rollovermethod* each year.  However,the accumulation of these small amounts over time can result in a moresignificant charge under the *iron curtain*method.  From 1999 through 2005 theCompany over expensed $5 million ($3 million after tax) of interest under thestraight-line method of amortization. The effect of these misstatements on theamount of interest expense reported by the Company for each period is noted inthe chart below.

 

TaxCredit

 

Duringthe fourth quarter of 2006, the Company determined that a deferred taxliability for a subsidiary in Brazil which had been appropriately created in2004, had not been correctly reversed during 2005 causing the deferred taxbalance to become overstated at the end of 2005 by $3 million. The effect ofthis misstatement on the amount of tax expense reported by the Company for 2005is noted in the chart below.

 

PriorYear Inventory Adjustments

 

Duringthe Company’s review of balance sheet accounts in 2006 the Company identifiedcertain items related to the capitalization of inventory costs related to yearsending in 2001, 2004 and 2005.

 

*IntercompanyProfit Elimination Inventory*

 

TheCompany identified $2 million ($1 million net of tax) of costs related tointercompany profit in 2001 that had not been properly eliminated frominventory.

 

*Inventoryin-Transit Adjustment*

 

TheCompany identified $2 million ($2 million net of tax) of costs associated within-transit inventory that were not properly deducted from inventory during 2004and 2005.  This item related to theprevious Great Lakes entity for the quarters in 2004 and the first half of 2005and, therefore, had no impact on the statement of operations of the Company forthose periods as this was prior to the Great Lakes merger date.  The effect of these misstatements on cost ofproducts sold reported by the Company for the second half of 2005 represented$1 million ($1 million net of tax) with the remaining $2 million ($1 millionnet of tax) increasing the goodwill associated with the purchase of GreatLakes.

 

103

----

 

Summary

 

Thefollowing chart represents the effect of these changes on line itemclassifications in the statement of operations for each year the misstatementrelated to as well as the total effect to opening retained earnings at January 1,2006:

 

| **(In millions)  Increase/(decrease)** | ** ** | **Cost of  Products  Sold** | ** ** | **Depreciation  and  Amortization/  SG&A** | ** ** | **Interest  Expense** | ** ** | **Tax  Expense** | ** ** | **Net Effect to  Retained  Earnings at  1/1/2006** | ** ** |
|---------------------------------------------|------------|----------------------------------|------------|------------------------------------------------|------------|-----------------------|------------|------------------|------------|-------------------------------------------------------------------|------------|
| Years prior to  2004                        |       | $                                | 2          |                                           | $          | 11                    |       | $                | (3         | )                                                                 | $          | (4 | ) | $ | 6 |   |
| 2004                                        |       | —                           |       | 2                                              |       | (1                    | )          | —           |       | 1                                                                 |       |
| 2005                                        |       | 1                                |       | 1                                              |       | (1                    | )          | (4               | )          | (3                                                                | )          |
| Total                                       |       | $                                | 3          |                                           | $          | 14                    |       | $                | (5         | )                                                                 | $          | (8 | ) | $ | 4 |   |

 

**25) GUARANTOR CONDENSEDCONSOLIDATING FINANCIAL DATA**

 

The Company’sobligations under its 7% Notes due 2009, 6.875% Notes due 2016 and 6.875%Debentures due 2026 are jointly and severally, fully and unconditionallyguaranteed by certain wholly-owned domestic subsidiaries of the Company thatguarantee the Company’s $750 million credit facility.  The Company’s subsidiaries that do notguarantee the Notes are referred to as the “Non-Guarantor Subsidiaries”. TheGuarantor Condensed Consolidating Financial Data presented below presents thestatements of operations, balance sheets and statements of cash flow data: (i) forChemtura Corporation (the “Parent Company”), the Guarantor Subsidiaries and theNon-Guarantor Subsidiaries on a consolidated basis (which is derived fromChemtura Corporation’s historical reported financial information); (ii) forthe Parent Company, alone (accounting for its Guarantor Subsidiaries and theNon-Guarantor Subsidiaries on an equity basis under which the investments arerecorded by each entity owning a portion of another entity at cost, adjustedfor the applicable share of the subsidiary’s cumulative results of operations,capital contributions and distributions, and other equity changes); (iii) forthe Guarantor Subsidiaries alone; and (iv) for the Non-GuarantorSubsidiaries alone.

 

Prior toacquiring the 7% Notes as part of the Merger, the Company had similarconditions under the 9.875% Senior Notes due 2012 and the Senior Floating RateNotes due 2010, which were repurchased in May and July of 2006.

 

104

----

 

**Condensed Consolidating Statement of Operations**

**Year ended December 31, 2007**

(*In millions*)

 
| ** **                                                                                                  | ** ** | ** **       | ** ** | ** **       | ** ** | ** **  | ** ** | ** **       | ** ** | **Non-**         | ** ** |
|-------------------------------------------------------------------------------------------------------------|------------|------------------|------------|------------------|------------|-------------|------------|------------------|------------|------------------|------------|
| ** **                                                                                                  | ** ** | ** **       | ** ** | ** **       | ** ** | **Parent**  | ** ** | **Guarantor**    | ** ** | **Guarantor**    | ** ** |
| ** **                                                                                                  | ** ** | **Consolidated** | ** ** | **Eliminations** | ** ** | **Company** | ** ** | **Subsidiaries** | ** ** | **Subsidiaries** | ** ** |
|                                                                                                        |       |             |       |             |       |        |       |             |       |             |       |
| Net sales                                                                                                   |       | $                | 3,747      |             | $          | (1,410      | )          | $                | 1,385      |             | $          | 1,134 |   | $ | 2,638 |   |
|                                                                                                        |       |             |       |             |       |        |       |             |       |             |       |
| Cost of products  sold                                                                                      |       | 2,862            |       | (1,410           | )          | 1,119       |       | 841              |       | 2,312            |       |
| Selling, general  and administrative                                                                        |       | 393              |       | —           |       | 139         |       | 95               |       | 159              |       |
| Depreciation and  amortization                                                                              |       | 269              |       | —           |       | 94          |       | 57               |       | 118              |       |
| Research and development                                                                                    |       | 62               |       | —           |       | 23          |       | 13               |       | 26               |       |
| Facility  closures, severance and related costs                                                             |       | 36               |       | —           |       | 1           |       | 2                |       | 33               |       |
| Antitrust costs                                                                                             |       | 35               |       | —           |       | 35          |       | —           |       | —           |       |
| Loss on sale of  businesses                                                                                 |       | 15               |       | —           |       | 15          |       | —           |       | —           |       |
| Impairment of long-lived  assets                                                                            |       | 19               |       | —           |       | 3           |       | 3                |       | 13               |       |
| Equity income                                                                                               |       | (3               | )          | —           |       | —      |       | —           |       | (3               | )          |
|                                                                                                        |       |             |       |             |       |        |       |             |       |             |       |
| Operating profit  (loss)                                                                                    |       | 59               |       | —           |       | (44         | )          | 123              |       | (20              | )          |
|                                                                                                        |       |             |       |             |       |        |       |             |       |             |       |
| Interest expense                                                                                            |       | 87               |       | —           |       | 82          |       | 19               |       | (14              | )          |
| Other (income)  expense, net                                                                                |       | 13               |       | —           |       | 11          |       | 17               |       | (15              | )          |
| Equity in net  (earnings) loss of subsidiaries from continuing operations                                   |       | —           |       | 10               |       | (39         | )          | 29               |       | —           |       |
|                                                                                                        |       |             |       |             |       |        |       |             |       |             |       |
| Earnings (loss)  from continuing operations before income taxes and cumulative effect of  accounting change |       | (41              | )          | (10              | )          | (98         | )          | 58               |       | 9                |       |
| Income tax  expense (benefit)                                                                               |       | 4                |       | —           |       | (92         | )          | 75               |       | 21               |       |
|                                                                                                        |       |             |       |             |       |        |       |             |       |             |       |
| Earnings (loss)  from continuing operations                                                                 |       | (45              | )          | (10              | )          | (6          | )          | (17              | )          | (12              | )          |
| Earnings from  discontinued operations                                                                      |       | 18               |       | —           |       | 3           |       | 9                |       | 6                |       |
| Gain on sale of  discontinued operations                                                                    |       | 24               |       | —           |       | —      |       | 17               |       | 7                |       |
|                                                                                                        |       |             |       |             |       |        |       |             |       |             |       |
| Net earnings  (loss)                                                                                        |       | $                | (3         | )                | $          | (10         | )          | $                | (3         | )                | $          | 9 |   | $ | 1 |   |

 

105

----

 

**Condensed Consolidating Balance Sheet**

**as of December 31, 2007**

(*In millions*)

 
| ** **                                  | ** ** | ** **       | ** ** | ** **       | ** ** | ** **  | ** ** | ** **       | ** ** | **Non-**         | ** ** |
|---------------------------------------------|------------|------------------|------------|------------------|------------|-------------|------------|------------------|------------|------------------|------------|
| ** **                                  | ** ** | ** **       | ** ** | ** **       | ** ** | **Parent**  | ** ** | **Guarantor**    | ** ** | **Guarantor**    | ** ** |
| ** **                                  | ** ** | **Consolidated** | ** ** | **Eliminations** | ** ** | **Company** | ** ** | **Subsidiaries** | ** ** | **Subsidiaries** | ** ** |
| ASSETS                                      | ** ** | ** **       | ** ** | ** **       | ** ** | ** **  | ** ** | ** **       | ** ** | ** **       | ** ** |
| Current assets                              |       | $                | 1,381      |             | $          | —      |       | $                | 302        |             | $          | 261 |   | $ | 818 |   |
| Intercompany  receivables                   |       | —           |       | (13,886          | )          | 9,012       |       | 902              |       | 3,972            |       |
| Investment in  subsidiaries                 |       | —           |       | (13,797          | )          | 4,085       |       | 1,402            |       | 8,310            |       |
| Property, plant  and equipment              |       | 1,032            |       | —           |       | 247         |       | 361              |       | 424              |       |
| Cost in excess  of acquired net assets      |       | 1,309            |       | —           |       | 148         |       | 512              |       | 649              |       |
| Other assets                                |       | 694              |       | —           |       | 100         |       | 314              |       | 280              |       |
| Total assets                                |       | $                | 4,416      |             | $          | (27,683     | )          | $                | 13,894     |             | $          | 3,752 |   | $ | 14,453 |   |
|                                        |       |             |       |             |       |        |       |             |       |             |       |
| LIABILITIES AND  STOCKHOLDERS’ EQUITY  |       |             |       |             |       |        |       |             |       |             |       |
| Current  liabilities                        |       | $                | 681        |             | $          | —      |       | $                | 197        |             | $          | 216 |   | $ | 268 |   |
| Intercompany  payables                      |       | —           |       | (13,967          | )          | 10,737      |       | 46               |       | 3,184            |       |
| Long-term debt                              |       | 1,058            |       | —           |       | 635         |       | 420              |       | 3                |       |
| Other long-term  liabilities                |       | 824              |       | —           |       | 249         |       | 260              |       | 315              |       |
| Total  liabilities                          |       | 2,563            |       | (13,967          | )          | 11,818      |       | 942              |       | 3,770            |       |
| Stockholders’  equity                  |       | 1,853            |       | (13,716          | )          | 2,076       |       | 2,810            |       | 10,683           |       |
| Total  liabilities and stockholders' equity |       | $                | 4,416      |             | $          | (27,683     | )          | $                | 13,894     |             | $          | 3,752 |   | $ | 14,453 |   |

 

106

----

 

**Condensed Consolidating Statement of Cash Flows**

**Year ended December 31, 2007**

(*In millions*)

 
| ** **                                                              | ** ** | ** **       | ** ** | ** **       | ** ** | ** **  | ** ** | ** **       | ** ** | **Non-**         | ** ** |
|-------------------------------------------------------------------------|------------|------------------|------------|------------------|------------|-------------|------------|------------------|------------|------------------|------------|
| ** **                                                              | ** ** | ** **       | ** ** | ** **       | ** ** | **Parent**  | ** ** | **Guarantor**    | ** ** | **Guarantor**    | ** ** |
| **Increase (decrease) to cash**                                         | ** ** | **Consolidated** | ** ** | **Eliminations** | ** ** | **Company** | ** ** | **Subsidiaries** | ** ** | **Subsidiaries** | ** ** |
| CASH FLOWS FROM  OPERATING ACTIVITIES                                   | ** ** | ** **       | ** ** | ** **       | ** ** | ** **  | ** ** | ** **       | ** ** | ** **       | ** ** |
| Net loss                                                                |       | $                | (3         | )           | $          | (10         | )          | $                | (3         | )           | $          | 9 |   | $ | 1 |   |
| Adjustments to  reconcile net loss  to net cash provided by operations: |       |             |       |             |       |        |       |             |       |             |       |
| Loss on sale of  businesses                                             |       | 15               |       | —           |       | 15          |       | —           |       | —           |       |
| Loss (gain) on  sale of discontinued operations                         |       | (24              | )          | —           |       | —      |       | (17              | )     | (7               | )     |
| Impairment of long-lived  assets                                        |       | 19               |       | —           |       | 3           |       | 3                |       | 13               |       |
| Depreciation and  amortization                                          |       | 275              |       | —           |       | 100         |       | 57               |       | 118              |       |
| Stock-based  compensation expense                                       |       | 10               |       | —           |       | 10          |       | —           |       | —           |       |
| Equity income                                                           |       | (3               | )     | —           |       | —      |       | —           |       | (3               | )     |
| Changes in  assets and liabilities, net                                 |       | (140             | )     | 10               |       | (137        | )     | (39              | )     | 26               |       |
| Net cash  provided by operations                                        |       | 149              |       | —           |       | (12         | )          | 13               |       | 148              |       |
|                                                                    |       |             |       |             |       |        |       |             |       |             |       |
| CASH FLOWS FROM  INVESTING ACTIVITIES                                   | ** ** |             | ** ** | ** **       | ** ** |        |       |             |       |             |       |
| Net proceeds  from divestments                                          |       | 186              | ** ** | —           | ** ** | 114         |       | 41               |       | 31               |       |
| Cash acquired in  acquisitions, net of transaction costs paid           |       | (165             | )     | —           |       | —      |       | —           |       | (165             | )          |
| Capital  expenditures                                                   |       | (117             | )     | —           |       | (29         | )     | (53              | )     | (35              | )     |
| Other investing  activities                                             |       | 13               |       | —           |       | 13          |       | —           |       | —           |       |
| Net cash  provided by (used in) investing activities                    |       | (83              | )     | —           |       | 98          |       | (12              | )     | (169             | )     |
|                                                                    |       |             |       |             |       |        |       |             |       |             |       |
| CASH FLOWS FROM  FINANCING ACTIVITIES                                   | ** ** | ** **       | ** ** | ** **       | ** ** | ** **  | ** ** | ** **       | ** ** | ** **       | ** ** |
| Proceeds from  (payments on) short-term borrowings                      |       | (48              | )     | —           |       | (40         | )     | (1               | )     | (7               | )     |
| Dividends paid                                                          |       | (48              | )     | —           |       | (48         | )     | —           |       | —           |       |
| Proceeds from  exercise of stock options                                |       | 7                |       | —           |       | 7           |       | —           |       | —           |       |
| Other financing  activities                                             |       | (1               | )     | —           |       | (1          | )     | —           |       | —           |       |
| Net cash used in  financing activities                                  |       | (90              | )     | —           |       | (82         | )     | (1               | )     | (7               | )     |
|                                                                    |       |             |       |             |       |        |       |             |       |             |       |
| CASH                                                                    | ** ** | ** **       | ** ** | ** **       | ** ** | ** **  | ** ** | ** **       | ** ** | ** **       | ** ** |
| Effect of  exchange rates on cash and cash equivalents                  |       | 6                |       | —           |       | —      |       | —           |       | 6                |       |
| Change in cash  and cash equivalents                                    |       | (18              | )     | —           |       | 4           |       | —           |       | (22              | )     |
| Cash and cash  equivalents at beginning of period                       |       | 95               |       | —           |       | 2           |       | 2                |       | 91               |       |
| Cash and cash  equivalents at end of period                             |       | $                | 77         |             | $          | —      |       | $                | 6          |             | $          | 2 |   | $ | 69 |   |

 

107

----

 

**Condensed Consolidating Statement of Operations**

**Year ended December 31, 2006**

(*In millions*)

 
| ** **                                                                                                  | ** ** | ** **       | ** ** | ** **       | ** ** | ** **  | ** ** | ** **       | ** ** | **Non-**         | ** ** |
|-------------------------------------------------------------------------------------------------------------|------------|------------------|------------|------------------|------------|-------------|------------|------------------|------------|------------------|------------|
| ** **                                                                                                  | ** ** | ** **       | ** ** | ** **       | ** ** | **Parent**  | ** ** | **Guarantor**    | ** ** | **Guarantor**    | ** ** |
| ** **                                                                                                  | ** ** | **Consolidated** | ** ** | **Eliminations** | ** ** | **Company** | ** ** | **Subsidiaries** | ** ** | **Subsidiaries** | ** ** |
|                                                                                                        |       |             |       |             |       |        |       |             |       |             |       |
| Net sales                                                                                                   |       | $                | 3,458      |             | $          | (1,365      | )          | $                | 386        |             | $          | 2,015 |   | $ | 2,422 |   |
|                                                                                                        |       |             |       |             |       |        |       |             |       |             |       |
| Cost of products  sold                                                                                      |       | 2,602            |       | (1,365           | )          | 386         |       | 1,517            |       | 2,064            |       |
| Selling, general  and administrative                                                                        |       | 387              |       | —           |       | 33          |       | 165              |       | 189              |       |
| Depreciation and  amortization                                                                              |       | 204              |       | —           |       | 36          |       | 106              |       | 62               |       |
| Research and  development                                                                                   |       | 61               |       | —           |       | (1          | )          | 37               |       | 25               |       |
| Facility  closures, severance and related costs                                                             |       | 5                |       | —           |       | (4          | )          | —           |       | 9                |       |
| Antitrust costs                                                                                             |       | 90               |       | —           |       | 1           |       | 92               |       | (3               | )          |
| Merger costs                                                                                                |       | 17               |       | —           |       | 1           |       | 15               |       | 1                |       |
| Loss on sale of  businesses                                                                                 |       | 11               |       | —           |       | —      |       | 8                |       | 3                |       |
| Impairment of  long-lived assets                                                                            |       | 80               |       | —           |       | —      |       | 75               |       | 5                |       |
| Equity income                                                                                               |       | (4               | )          | —           |       | —      |       | (2               | )          | (2               | )          |
|                                                                                                        |       |             |       |             |       |        |       |             |       |             |       |
| Operating profit  (loss)                                                                                    |       | 5                |       | —           |       | (66         | )          | 2                |       | 69               |       |
|                                                                                                        |       |             |       |             |       |        |       |             |       |             |       |
| Interest expense                                                                                            |       | 102              |       | —           |       | 66          |       | 28               |       | 8                |       |
| Loss on early  extinguishment of debt                                                                       |       | 44               |       | —           |       | 44          |       | —           |       | —           |       |
| Other expense  (income), net                                                                                |       | 6                |       | —           |       | (16         | )          | 22               |       | —           |       |
| Equity in net  (earnings) loss of subsidiaries from continuing operations                                   |       | —           |       | (2               | )          | 11          |       | (8               | )          | (1               | )          |
|                                                                                                        |       |             |       |             |       |        |       |             |       |             |       |
| (Loss) earnings  from continuing operations before income taxes and cumulative effect of  accounting change |       | (147             | )          | 2                |       | (171        | )          | (40              | )          | 62               |       |
| Income tax  expense (benefit)                                                                               |       | 126              |       | —           |       | 82          |       | (20              | )          | 64               |       |
|                                                                                                        |       |             |       |             |       |        |       |             |       |             |       |
| (Loss) earnings  from continuing operations                                                                 |       | (273             | )          | 2                |       | (253        | )          | (20              | )          | (2               | )          |
| Earnings (loss)  from discontinued operations                                                               |       | 20               |       | —           |       | —      |       | 8                |       | 12               |       |
| Gain on sale of  discontinued operations                                                                    |       | 47               |       | —           |       | 38          |       | —           |       | 9                |       |
|                                                                                                        |       |             |       |             |       |        |       |             |       |             |       |
| Net (loss)  earnings                                                                                        |       | $                | (206       | )                | $          | 2           |       | $                | (215       | )                | $          | (12 | ) | $ | 19 |   |

 

108

----

 

**Condensed Consolidating Balance Sheet**

**as of December 31, 2006**

(*In millions*)

 
| ** **                                       | ** ** | ** **       | ** ** | ** **       | ** ** | ** **  | ** ** | ** **       | ** ** | **Non-**         | ** ** |
|--------------------------------------------------|------------|------------------|------------|------------------|------------|-------------|------------|------------------|------------|------------------|------------|
| ** **                                       | ** ** | ** **       | ** ** | ** **       | ** ** | **Parent**  | ** ** | **Guarantor**    | ** ** | **Guarantor**    | ** ** |
| ** **                                       | ** ** | **Consolidated** | ** ** | **Eliminations** | ** ** | **Company** | ** ** | **Subsidiaries** | ** ** | **Subsidiaries** | ** ** |
| ASSETS                                           | ** ** | ** **       | ** ** | ** **       | ** ** | ** **  | ** ** | ** **       | ** ** | ** **       | ** ** |
| Current assets                                   |       | $                | 1,385      |             | $          | —      |       | $                | 413        |             | $          | 216 |   | $ | 756 |   |
| Intercompany  receivables                        |       | —           |       | (11,382          | )          | 7,627       |       | 747              |       | 3,008            |       |
| Investment in  subsidiaries                      |       | —           |       | (8,167           | )          | 3,873       |       | 170              |       | 4,124            |       |
| Property, plant  and equipment                   |       | 1,147            |       | —           |       | 366         |       | 314              |       | 467              |       |
| Cost in excess  of acquired net assets           |       | 1,177            |       | —           |       | 139         |       | 566              |       | 472              |       |
| Other assets                                     |       | 690              |       | —           |       | 163         |       | 276              |       | 251              |       |
| Total assets                                     |       | $                | 4,399      |             | $          | (19,549     | )          | $                | 12,581     |             | $          | 2,289 |   | $ | 9,078 |   |
|                                             |       |             |       |             |       |        |       |             |       |             |       |
| LIABILITIES AND  STOCKHOLDERS’ EQUITY       |       |             |       |             |       |        |       |             |       |             |       |
| Current  liabilities                             |       | $                | 888        |             | $          | —      |       | $                | 405        |             | $          | 202 |   | $ | 281 |   |
| Intercompany  payables                           |       | —           |       | (11,382          | )          | 9,010       |       | 64               |       | 2,308            |       |
| Long-term debt                                   |       | 1,063            |       | —           |       | 632         |       | 426              |       | 5                |       |
| Other long-term  liabilities                     |       | 769              |       | —           |       | 445         |       | 119              |       | 205              |       |
| Total  liabilities                               |       | 2,720            |       | (11,382          | )          | 10,492      |       | 811              |       | 2,799            |       |
| Stockholders’  equity                       |       | 1,679            |       | (8,167           | )          | 2,089       |       | 1,478            |       | 6,279            |       |
| Total  liabilities and stockholders’ equity |       | $                | 4,399      |             | $          | (19,549     | )          | $                | 12,581     |             | $          | 2,289 |   | $ | 9,078 |   |

 

109

----

 

**CondensedConsolidating Statement of Cash Flows**

**Yearended December 31, 2006**

(*In millions*)

 
| ** **                                                                                  | ** ** | ** **       | ** ** | ** **       | ** ** | ** **  | ** ** | ** **       | ** ** | **Non-**         | ** ** |
|---------------------------------------------------------------------------------------------|------------|------------------|------------|------------------|------------|-------------|------------|------------------|------------|------------------|------------|
| ** **                                                                                  | ** ** | ** **       | ** ** | ** **       | ** ** | **Parent**  | ** ** | **Guarantor**    | ** ** | **Guarantor**    | ** ** |
| **Increase (decrease) to cash**                                                             | ** ** | **Consolidated** | ** ** | **Eliminations** | ** ** | **Company** | ** ** | **Subsidiaries** | ** ** | **Subsidiaries** | ** ** |
| CASH FLOWS FROM  OPERATING ACTIVITIES                                                       | ** ** | ** **       | ** ** | ** **       | ** ** | ** **  | ** ** | ** **       | ** ** | ** **       | ** ** |
| Net (loss)  earnings                                                                        |       | $                | (206       | )                | $          | 2           |       | $                | (215       | )                | $          | (12 | ) | $ | 19 |   |
| Adjustments to  reconcile net (loss) earnings to net cash (used in) provided by operations: |       |             |       |             |       |        |       |             |       |             |       |
| Loss on sale of  businesses                                                                 |       | 11               |       | —           |       | —      |       | 8                |       | 3                |       |
| Gain on sale of  discontinued operations                                                    |       | (47              | )          | —           |       | (38         | )          | —           |       | (9               | )          |
| Gain on sale of  equity interest in venture                                                 |       | (6               | )          | —           |       | —      |       | (6               | )          | —           |       |
| Impairment of  long-lived assets                                                            |       | 80               |       | —           |       | —      |       | 75               |       | 5                |       |
| Loss on early  extinguishment of debt                                                       |       | 44               |       | —           |       | 44          |       | —           |       | —           |       |
| Depreciation and  amortization                                                              |       | 214              |       | —           |       | 36          |       | 116              |       | 62               |       |
| Stock-based  compensation expense                                                           |       | 14               |       | —           |       | 14          |       | —           |       | —           |       |
| Equity income                                                                               |       | 3                |       | —           |       | —      |       | 5                |       | (2               | )          |
| Changes in  assets and liabilities, net                                                     |       | 144              |       | (2               | )          | 176         |       | (157             | )          | 127              |       |
| Net cash  provided by operations                                                            |       | 251              |       | —           |       | 17          |       | 29               |       | 205              |       |
|                                                                                        |       |             |       |             |       |        |       |             |       |             |       |
| CASH FLOWS FROM  INVESTING ACTIVITIES                                                       | ** ** | ** **       | ** ** | ** **       | ** ** | ** **  | ** ** | ** **       | ** ** | ** **       | ** ** |
| Net proceeds  from divestments                                                              |       | 196              |       | —           |       | 115         |       | 28               |       | 53               |       |
| Cash acquired in  acquisitions, net of transaction costs paid                               |       | (9               | )          | —           |       | —      |       | (9               | )          | —           |       |
| Merger  transaction costs paid                                                              |       | (8               | )          | —           |       | —      |       | (3               | )          | (5               | )          |
| Capital  expenditures                                                                       |       | (128             | )          | —           |       | (16         | )          | (69              | )          | (43              | )          |
| Net cash  provided by (used in) investing activities                                        |       | 51               |       | —           |       | 99          |       | (53              | )          | 5                |       |
|                                                                                        |       |             |       |             |       |        |       |             |       |             |       |
| CASH FLOWS FROM  FINANCING ACTIVITIES                                                       | ** ** | ** **       | ** ** | ** **       | ** ** | ** **  | ** ** | ** **       | ** ** | ** **       | ** ** |
| Payments on  credit facility                                                                |       | (414             | )          | —           |       | (225        | )          | —           |       | (189             | )          |
| Payments on  long-term borrowings                                                           |       | (324             | )          | —           |       | (324        | )          | —           |       | —           |       |
| Proceeds from  long-term borrowings                                                         |       | 497              |       | —           |       | 497         |       | —           |       | —           |       |
| Proceeds from  (payments on) short-term borrowings                                          |       | (16              | )          | —           |       | 30          |       | (1               | )          | (45              | )          |
| Premium paid on  early extinguishment of debt                                               |       | (36              | )          | —           |       | (36         | )          | —           |       | —           |       |
| Payments for  debt issuance costs                                                           |       | (6               | )          | —           |       | (6          | )          | —           |       | —           |       |
| Dividends paid                                                                              |       | (48              | )          | —           |       | (48         | )          | —           |       | —           |       |
| Repayment of  insurance policy loan                                                         |       | (10              | )          | —           |       | (10         | )          | —           |       | —           |       |
| Proceeds from  exercise of stock options                                                    |       | 3                |       | —           |       | 3           |       | —           |       | —           |       |
| Other financing  activities                                                                 |       | (1               | )          | —           |       | 1           |       | (2               | )          | —           |       |
| Net cash (used  in) provided by financing activities                                        |       | (355             | )          | —           |       | (118        | )          | (3               | )          | (234             | )          |
|                                                                                        |       |             |       |             |       |        |       |             |       |             |       |
| CASH                                                                                        | ** ** | ** **       | ** ** | ** **       | ** ** | ** **  | ** ** | ** **       | ** ** | ** **       | ** ** |
| Effect of  exchange rates on cash and cash equivalents                                      |       | 9                |       | —           |       | —      |       | —           |       | 9                |       |
| Change in cash  and cash equivalents                                                        |       | (44              | )          | —           |       | (2          | )          | (27              | )          | (15              | )          |
| Cash and cash  equivalents at beginning of period                                           |       | 139              |       | —           |       | 4           |       | 29               |       | 106              |       |
| Cash and cash  equivalents at end of period                                                 |       | $                | 95         |             | $          | —      |       | $                | 2          |             | $          | 2 |   | $ | 91 |   |

 

110

----

 

**Condensed Consolidating Statement of Operations**

**Year ended December 31, 2005**

(*In millions*)

 
| ** **                                                                                                  | ** ** | ** **       | ** ** | ** **       | ** ** | ** **  | ** ** | ** **       | ** ** | **Non-**         | ** ** |
|-------------------------------------------------------------------------------------------------------------|------------|------------------|------------|------------------|------------|-------------|------------|------------------|------------|------------------|------------|
| ** **                                                                                                  | ** ** | ** **       | ** ** | ** **       | ** ** | **Parent**  | ** ** | **Guarantor**    | ** ** | **Guarantor**    | ** ** |
| ** **                                                                                                  | ** ** | **Consolidated** | ** ** | **Eliminations** | ** ** | **Company** | ** ** | **Subsidiaries** | ** ** | **Subsidiaries** | ** ** |
|                                                                                                        |       |             |       |             |       |        |       |             |       |             |       |
| Net sales                                                                                                   |       | $                | 2,739      |             | $          | (608        | )          | $                | 492        |             | $          | 1,410 |   | $ | 1,445 |   |
|                                                                                                        |       |             |       |             |       |        |       |             |       |             |       |
| Cost of products  sold                                                                                      |       | 2,019            |       | (608             | )          | 413         |       | 1,033            |       | 1,181            |       |
| Selling, general  and administrative                                                                        |       | 326              |       | —           |       | 70          |       | 128              |       | 128              |       |
| Depreciation and  amortization                                                                              |       | 150              |       | —           |       | 41          |       | 56               |       | 53               |       |
| Research and  development                                                                                   |       | 50               |       | —           |       | 2           |       | 25               |       | 23               |       |
| Facility  closures, severance and related costs                                                             |       | 23               |       | —           |       | 13          |       | 10               |       | —           |       |
| Antitrust costs                                                                                             |       | 49               |       | —           |       | —      |       | 27               |       | 22               |       |
| Merger costs                                                                                                |       | 45               |       | —           |       | 6           |       | 35               |       | 4                |       |
| In-process  research and development                                                                        |       | 73               |       | —           |       | —      |       | 49               |       | 24               |       |
| Gain on sale of  businesses                                                                                 |       | (3               | )          | —           |       | —      |       | (3               | )          | —           |       |
| Equity income                                                                                               |       | (2               | )          | —           |       | —      |       | (1               | )          | (1               | )          |
|                                                                                                        |       |             |       |             |       |        |       |             |       |             |       |
| Operating profit  (loss)                                                                                    |       | 9                |       | —           |       | (53         | )          | 51               |       | 11               |       |
|                                                                                                        |       |             |       |             |       |        |       |             |       |             |       |
| Interest expense                                                                                            |       | 108              |       | —           |       | 91          |       | 16               |       | 1                |       |
| Loss on early  extinguishment of debt                                                                       |       | 55               |       | —           |       | 55          |       | —           |       | —           |       |
| Other expense  (income), net                                                                                |       | 12               |       | —           |       | —      |       | 46               |       | (34              | )          |
| Equity in net  (earnings) loss of subsidiaries from continuing operations                                   |       | —           |       | (36              | )          | 47          |       | (3               | )          | (8               | )          |
|                                                                                                        |       |             |       |             |       |        |       |             |       |             |       |
| (Loss) earnings  from continuing operations before income taxes and cumulative effect of  accounting change |       | (166             | )          | 36               |       | (246        | )          | (8               | )          | 52               |       |
| Income tax  expense (benefit)                                                                               |       | 49               |       | —           |       | (61         | )          | 58               |       | 52               |       |
|                                                                                                        |       |             |       |             |       |        |       |             |       |             |       |
| (Loss) earnings  from continuing operations                                                                 |       | (215             | )          | 36               |       | (185        | )          | (66              | )          | —           |       |
| Earnings from  discontinued operations                                                                      |       | 33               |       | —           |       | 2           |       | 18               |       | 13               |       |
| (Loss) gain on  sale of discontinued operations                                                             |       | (4               | )          | —           |       | (34         | )          | —           |       | 30               |       |
| Cumulative  effect of accounting change                                                                     |       | (1               | )          | —           |       | —      |       | —           |       | (1               | )          |
| Net (loss)  earnings                                                                                        |       | $                | (187       | )                | $          | 36          |       | $                | (217       | )                | $          | (48 | ) | $ | 42 |   |

 

111

----

 

**CondensedConsolidating Statement of Cash Flows**

**Yearended December 31, 2005**

(*In millions*)

 
| ** **                                                                                  | ** ** | ** **       | ** ** | ** **       | ** ** | **Parent**  | ** ** | **Guarantor**    | ** ** | **Non-Guarantor** | ** ** |
|---------------------------------------------------------------------------------------------|------------|------------------|------------|------------------|------------|-------------|------------|------------------|------------|-------------------|------------|
| **Increase (decrease) to cash**                                              | ** ** | **Consolidated** | ** ** | **Eliminations** | ** ** | **Company** | ** ** | **Subsidiaries** | ** ** | **Subsidiaries**  | ** ** |
| CASH FLOWS FROM  OPERATING ACTIVITIES                                                       | ** ** | ** **       | ** ** | ** **       | ** ** | ** **  | ** ** | ** **       | ** ** | ** **        | ** ** |
| Net (loss)  earnings                                                                        |       | $                | (187       | )                | $          | 36          |       | $                | (217       | )                 | $          | (48 | ) | $ | 42 |   |
| Adjustments to  reconcile net (loss) earnings to net cash (used in) provided by operations: |       |             |       |             |       |        |       |             |       |              |       |
| Gain on sale of  businesses                                                                 |       | (3               | )          | —           |       | —      |       | (3               | )          | —            |       |
| Loss (gain) on  sale of discontinued operations                                             |       | 4                |       | —           |       | 34          |       | —           |       | (30               | )          |
| Loss on early  extinguishment of debt                                                       |       | 55               |       | —           |       | 55          |       | —           |       | —            |       |
| Depreciation and  amortization                                                              |       | 161              |       | —           |       | 43          |       | 64               |       | 54                |       |
| Stock-based  compensation expense                                                           |       | 5                |       | —           |       | 5           |       | —           |       | —            |       |
| Equity income                                                                               |       | (2               | )          | —           |       | —      |       | (1               | )          | (1                | )          |
| In-process  research and development                                                        |       | 73               |       | —           |       | —      |       | 49               |       | 24                |       |
| Cumulative  effect of accounting change                                                     |       | 1                |       | —           |       | —      |       | —           |       | 1                 |       |
| Changes in  assets and liabilities, net                                                     |       | (186             | )          | (36              | )          | 172         |       | (2               | )          | (320              | )          |
| Net cash (used  in) provided by operations                                                  |       | (79              | )          | —           |       | 92          |       | 59               |       | (230              | )          |
|                                                                                        |       |             |       |             |       |        |       |             |       |              |       |
| CASH FLOWS FROM  INVESTING ACTIVITIES                                                       | ** ** | ** **       | ** ** | ** **       | ** ** | ** **  | ** ** | ** **       | ** ** | ** **        | ** ** |
| Net proceeds  from divestments                                                              |       | 109              |       | —           |       | 91          |       | —           |       | 18                |       |
| Cash acquired in  acquisitions, net of transaction costs paid                               |       | 41               |       | —           |       | (12         | )          | 47               |       | 6                 |       |
| Capital  expenditures                                                                       |       | (104             | )          | —           |       | (13         | )          | (57              | )          | (34               | )          |
| Other investing  activities                                                                 |       | 5                |       | —           |       | (1          | )          | —           |       | 6                 |       |
| Net cash  provided by (used in) investing activities                                        |       | 51               |       | —           |       | 65          |       | (10              | )          | (4                | )          |
|                                                                                        |       |             |       |             |       |        |       |             |       |              |       |
| CASH FLOWS FROM  FINANCING ACTIVITIES                                                       | ** ** | ** **       | ** ** | ** **       | ** ** | ** **  | ** ** | ** **       | ** ** | ** **        | ** ** |
| Proceeds from  (payments on) credit facility                                                |       | 383              |       | —           |       | 225         |       | (21              | )          | 179               |       |
| Payments on  long-term borrowings                                                           |       | (406             | )          | —           |       | (396        | )          | (10              | )          | —            |       |
| Proceeds from  long-term borrowings                                                         |       | 9                |       | —           |       | —      |       | 9                |       | —            |       |
| Proceeds from  short-term borrowings                                                        |       | 36               |       | —           |       | —      |       | —           |       | 36                |       |
| Premium paid on  early extinguishment of debt                                               |       | (41              | )          | —           |       | (41         | )          | —           |       | —            |       |
| Payments for  debt issuance costs                                                           |       | (2               | )          | —           |       | (2          | )          | —           |       | —            |       |
| Dividends paid                                                                              |       | (36              | )          | —           |       | (36         | )          | —           |       | —            |       |
| Proceeds from  exercise of stock options                                                    |       | 75               |       | —           |       | 75          |       | —           |       | —            |       |
| Other financing  activities                                                                 |       | (1               | )          | —           |       | (1          | )          | —           |       | —            |       |
| Net cash  provided by (used in) financing activities                                        |       | 17               |       | —           |       | (176        | )          | (22              | )          | 215               |       |
|                                                                                        |       |             |       |             |       |        |       |             |       |              |       |
| CASH                                                                                        | ** ** | ** **       | ** ** | ** **       | ** ** | ** **  | ** ** | ** **       | ** ** | ** **        | ** ** |
| Effect of  exchange rates on cash and cash equivalents                                      |       | (9               | )          | —           |       | —      |       | —           |       | (9                | )          |
| Change in cash  and cash equivalents                                                        |       | (20              | )          | —           |       | (19         | )          | 27               |       | (28               | )          |
| Cash and cash  equivalents at beginning of period                                           |       | 159              |       | —           |       | 23          |       | 2                |       | 134               |       |
| Cash and cash  equivalents at end of period                                                 |       | $                | 139        |             | $          | —      |       | $                | 4          |              | $          | 29 |   | $ | 106 |   |

 

112

----

 

**26) SUMMARIZED UNAUDITED QUARTERLY FINANCIAL DATA**

 
| **(In millions, except per share data)** | ** ** | **2007**   | ** ** |
|-------------------------------------------------------------------|------------|------------|------------|
| ** **                                                        | ** ** | **First**  | ** ** | **Second** | ** ** | **Third** | ** ** | **Fourth** | ** ** |
| Net sales                                                         | ** ** | **$**      | **889**    | ** ** | **$** | **1,038** | ** ** | **$** | **929** | ** ** | **$** | **891** | ** ** |
| Gross profit                                                      | ** ** | **$**      | **207**    | ** ** | **$** | **260** | ** ** | **$** | **208** | ** ** | **$** | **210** | ** ** |
| ** **                                                        | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| (Loss) earnings  from continuing operations                       | ** ** | **$**      | **(20**    | **)(a)** | **$** | **(23** | **)(b)** | **$** | **1** | **(c)** | **$** | **(3** | **)(d)** |
| Earnings from  discontinued operations                            | ** ** | **5**      | ** ** | **6** | ** ** | **3** | ** ** | **4** | ** ** |
| Gain (loss) on  sale of discontinued operations                   | ** ** | **2**      | ** ** | **25** | ** ** | **(2** | **)** | **(1** | **)** |
| Net (loss)  earnings                                              | ** ** | **$**      | **(13**    | **)** | **$** | **8** | ** ** | **$** | **2** | ** ** | **$** | **—** | ** ** |
| ** **                                                        | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Basic and  diluted per share data (e):                            | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| (Loss) earnings  from continuing operations                       | ** ** | **$**      | **(0.08**  | **)** | **$** | **(0.09** | **)** | **$** | **0.01** | ** ** | **$** | **(0.02** | **) ** |
| Earnings from  discontinued operations                            | ** ** | **0.02**   | ** ** | **0.02** | ** ** | **0.01** | ** ** | **0.02** | ** ** |
| Gain (loss) on  sale of discontinued operations                   | ** ** | **0.01**   | ** ** | **0.10** | ** ** | **(0.01** | **)** | **—** | ** ** |
| Net (loss)  earnings                                              | ** ** | **$**      | **(0.05**  | **)** | **$** | **0.03** | ** ** | **$** | **0.01** | ** ** | **$** | **—** | ** ** |

 
| ** **                                  | ** ** | **2006**  | ** ** |
|---------------------------------------------|------------|-----------|------------|
| ** **                                  | ** ** | **First** | ** ** | **Second** | ** ** | **Third** | ** ** | **Fourth** | ** ** |
| Net sales                                   |       | $         | 848        |   | $ | 949 |   | $ | 852 |   | $ | 809 |   |
| Gross profit                                |       | $         | 230        |   | $ | 251 |   | $ | 207 |   | $ | 168 |   |
|                                        |       |      |       |   |   |   |   |   |   |
| Earnings (loss)  from continuing operations |       | $         | 9          | (f) | $ | (5 | )(g) | $ | (91 | )(h) | $ | (186 | )(i) |
| Earnings from  discontinued operations      |       | 4         |       | 6 |   | 5 |   | 5 |   |
| Gain on sale of  discontinued operations    |       | —    |       | — |   | 46 |   | 1 |   |
| Net earnings  (loss)                        |       | $         | 13         |   | $ | 1 |   | $ | (40 | ) | $ | (180 | ) |
|                                        |       |      |       |   |   |   |   |   |   |
| Basic and  diluted per share data (e):      |       |      |       |   |   |   |   |   |   |
| Earnings (loss)  from continuing operations |       | $         | 0.03       |   | $ | (0.02 | ) | $ | (0.38 | ) | $ | (0.77 | ) |
| Earnings from  discontinued operations      |       | 0.02      |       | 0.02 |   | 0.02 |   | 0.02 |   |
| Gain on sale of  discontinued operations    |       | —    |       | — |   | 0.19 |   | 0.01 |   |
| Net earnings  (loss)                        |       | $         | 0.05       |   | $ | — |   | $ | (0.17 | ) | $ | (0.74 | ) |

** **

----

**(a)**          Loss from continuing operations for the first quarter of 2007 includespre-tax charges for facility closures of $3 million and antitrust costs of $12million.

**(b)**         Lossfrom continuing operations for the second quarter of 2007 includes pre-taxcharges for facility closures of $22 million, antitrust costs of $18 million,loss on sale of business relating to Celogen® of $15 million and assetimpairment charges of $7 million related to the Marshall, Texas facility andthe 2007 restructuring programs.

**(c)**          Earnings from continuing operations for the third quarter of 2007includes pre-tax charges for facility closures of $9 million, antitrust costsof $2 million, gain on sale of business relating to Celogen® of $1 million andasset impairment charges of $8 million related to the Ravenna, Italy facility.

**(d)**         Earningsfrom continuing operations for the fourth quarter of 2007 includes pre-taxcharges for antitrust costs of $3 million, asset impairment charges of $3million, facility closures of $2 million, a $4 million benefit from the salesof a product line in the Crop Protection segment and a gain on sale of businessrelating to the sale of certain antioxidants assets to the buyer of the opticalmonomers business of $1 million.

**(e)**          The sum of the earnings per common share for the four quarters may notequal the total earnings per common share for the full year due to quarterlychanges in the average number of shares outstanding.

(f)            Earningsfrom continuing operations for the first quarter of 2006 includes pre-taxcharges for facility closures of $1 million, antitrust costs of $13 million andmerger costs of $10 million.

(g)         Lossfrom continuing operations for the second quarter of 2006 includes a credit forfacility closures of $4 million and pre-tax charges for antitrust costs of $32million, merger costs of $5 million, loss on sale of business relating to IWAof $12 million, asset impairment costs of $5 million related to IWA and loss onearly extinguishment of debt of $20 million.

(h)         Lossfrom continuing operations for the third quarter of 2006 includes pre-taxcharges for facility closures of $1 million, antitrust costs of $26 million,merger costs of $1 million, gain on sale of business relating to IWA of $1million, asset impairment charges of $75 million related to fluorine goodwill,tangible and intangible assets and loss on early extinguishment of debt of $24million.

(i)             Lossfrom continuing operations for the fourth quarter of 2006 includes pre-taxcharges for facility closures of $7 million, antitrust costs of $19 million andmerger costs of $1 million.

** **

**113**

----

 

**Report ofIndependent Registered Public Accounting Firm**

 

The Board of Directors and Stockholders

Chemtura Corporation:

 

We haveaudited the accompanying consolidated balance sheets of Chemtura Corporationand subsidiaries (the “Company”) as of December 31, 2007 and 2006, and therelated consolidated statements of operations, stockholders’ equity, and cashflows for each of the years in the three-year period ended December 31,2007.  In connection with our audits of the consolidated financial statements,we also have audited the financial statement Schedule II, Valuation andQualifying Accounts.  We also have audited the Company’s internal controlover financial reporting as of December 31, 2007, based on criteria establishedin*Internal Control ­ Integrated Framework*issued by the Committee of Sponsoring Organizations of the Treadway Commission(COSO). The Company’s management is responsible for these consolidatedfinancial statements, the financial statement schedule, for maintainingeffective internal control over financial reporting, and for its assessment ofthe effectiveness of internal control over financial reporting, included in theaccompanying Management’s Annual Report on Internal Control over FinancialReporting (Item 9A.(b)).  Our responsibility is to express an opinion onthese consolidated financial statements and financial statement schedule and anopinion on the Company's internal control over financial reporting based on ouraudits.

 

We conductedour audits in accordance with the standards of the Public Company AccountingOversight Board (United States). Those standards require that we plan andperform the audits to obtain reasonable assurance about whether the financialstatements are free of material misstatement and whether effective internalcontrol over financial reporting was maintained in all material respects. Ouraudits of the consolidated financial statements included examining, on a testbasis, evidence supporting the amounts and disclosures in the financialstatements, assessing the accounting principles used and significant estimatesmade by management, and evaluating the overall financial statementpresentation. Our audit of internal control over financial reporting includedobtaining an understanding of internal control over financial reporting,assessing the risk that a material weakness exists, and testing and evaluatingthe design and operating effectiveness of internal control based on theassessed risk.  Our audits also included performing such other proceduresas we considered necessary in the circumstances. We believe that our auditsprovide a reasonable basis for our opinions.

 

A company'sinternal control over financial reporting is a process designed to providereasonable assurance regarding the reliability of financial reporting and thepreparation of financial statements for external purposes in accordance withgenerally accepted accounting principles. A company's internal control overfinancial reporting includes those policies and procedures that (1) pertain tothe maintenance of records that, in reasonable detail, accurately and fairlyreflect the transactions and dispositions of the assets of the company; (2)provide reasonable assurance that transactions are recorded as necessary topermit preparation of financial statements in accordance with generallyaccepted accounting principles, and that receipts and expenditures of thecompany are being made only in accordance with authorizations of management anddirectors of the company; and (3) provide reasonable assurance regardingprevention or timely detection of unauthorized acquisition, use, or dispositionof the company's assets that could have a material effect on the financialstatements.

 

Because ofits 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.

 

A material weakness is a deficiency, or acombination of deficiencies, in internal control over financial reporting, suchthat there is a reasonable possibility that a material misstatement of thecompany’s annual or interim financial statements will not be prevented ordetected on a timely basis. A material weakness related to the Company’s reviewof its income tax accounts has been identified and included in management'sassessment as of December 31, 2007.  This material weakness was consideredin determining the nature, timing, and extent of audit tests applied in ouraudit of the 2007 consolidated financial statements.

** **

In ouropinion, the consolidated financial statements referred to above presentfairly, in all material respects, the financial position of ChemturaCorporation and subsidiaries as of December 31, 2007 and 2006, and the resultsof their operations and their cash flows for each of the years in thethree-year period ended December 31, 2007, in conformity with accountingprinciples generally accepted in the United States of America.  Also, inour opinion, the related financial statement schedule, when considered inrelation to the basic consolidated financial statements taken as a whole,presents fairly, in all material respects, the information set forth therein.

 

Also, in ouropinion, because of the effect of the aforementioned material weakness on theachievement of the objectives of the control criteria, Chemtura Corporation andsubsidiaries has not maintained effective internal control over financialreporting as of December 31, 2007, based on criteria established in*Internal Control—Integrated Framework*issued by COSO.  Our opinion on the effectiveness of internal control overfinancial reporting does not affect our opinion on the consolidated financialstatements.

 

As discussedin Note 1 to Notes to Consolidated Financial Statements, the Company adoptedthe provisions of Statement of Financial Accounting Standards No. 123(R), “*Share-Based Payment*” and Staff AccountingBulletin No. 108,*Considering the Effects ofPrior Year Misstatements in Current Year Financial Statements* as ofJanuary 1, 2006, and Statement of Financial Accounting Standards No. 158,*Employers’ Accounting for Defined Benefit Pensionand Other Postretirement Plans*, as of December 31, 2006, andFinancial Accounting Standards Board Interpretation No. 48,*Accounting for Uncertainty in Income Taxes*,as of January 1, 2007.

 

/s/  KPMG LLP

 

Stamford, Connecticut

**March 17, 2008**

** **

** **

**114**

----

** **

** **

**ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTSON ACCOUNTING AND FINANCIAL DISCLOSURE**

** **

**Not applicable.**

 

**ITEM9A.  CONTROLS AND PROCEDURES**

* *

*(a) Disclosure Controls and Procedures*

* *

As of December 31, 2007, our management,including our Chief Executive Officer (CEO) and Chief Financial Officer (CFO),has conducted an evaluation of the effectiveness of our disclosure controls andprocedures (as defined in Securities Exchange Act Rule 13a-15(e) and15d-15(e)).  Based on that evaluation,our CEO and CFO concluded that our disclosure controls and procedures as ofDecember 31, 2007 were not effective because of a material weakness in internalcontrol over financial reporting described below. 

 

*(b) Management’s Annual Report on InternalControl Over Financial Reporting*

 

Our management is responsible forestablishing and maintaining adequate internal control over financialreporting, as such term is defined in Rule 13a-15(f) under the SecuritiesExchange Act of 1934, as amended.  Underthe supervision of management and with the participation of our management,including our principal executive officer and principal financial officer, weconducted an evaluation of the effectiveness of our internal control overfinancial reporting as of December 31, 2007 based on the framework in *Internal Control-Integrated Framework*issued by theCommittee of Sponsoring Organizations of the Treadway Commission.  Based on our evaluation of internal controlover financial reporting, management identified the following material weaknessas of December 31, 2007.

 

The Company did not provide adequateoversight to ensure timely and effective review of its income tax accounts.  This deficiency resulted in a materialmisstatement of the Company’s deferred income tax accounts in its preliminaryfinancial statements as of December 31, 2007.

 

As a result of the material weaknessdescribed above, management concluded that Chemtura’s internal control overfinancial reporting was not effective as of December 31, 2007, based on thecriteria identified above.

 

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 included elsewherewithin this Form 10-K, on the effectiveness of Chemtura’s internal control overfinancial reporting.

 

*(c) Remediation Activities*

 

In the fourth quarter of 2007, the Companyengaged in the following remediation activities:

**·****     **Additionalreview procedures at September 30, 2007 to ensure early identification of yearend issues

**·****     **Implementationof tax accounting software to improve the Company’s record keeping related totax matters and to automate certain tax calculations

**·****     **Accountingand tax resources added, including additional tax consultants

**·****     **Accountingand tax training for US and international team

 

The Company is currently evaluating the impactof these activities as it relates to the material weakness in internal control overfinancial reporting described above and evaluating what further actions arenecessary to remediate the material weakness.

 

*(d) Changes in Internal Control overFinancial Reporting*

 

There was no change in the Company’s internalcontrol over financial reporting that occurred in fourth quarter ended December31,2007, that has materially affected, or is reasonably likely to materiallyaffect, the Company’s internal control over financial reporting.

 

**ITEM9B.  OTHER INFORMATION**

 

None.

 

115

----

 

**PART III.**

 

**ITEM 10. DIRECTORS, EXECUTIVE OFFICERS OF THE REGISTRANT AND CORPORATE GOVERNANCE**

 

Information called for by this item concerningdirectors of the Corporation and committees of the Board of Directors isincluded in the definitive proxy statement for the Corporation’s Annual Meetingof Stockholders to be held on May 14, 2008, under the captions “Electionof Six Directors,” “Board of Directors” and “Section 16(a) BeneficialOwnership Reporting Compliance,” which is to be filed with the Commission pursuantto Regulation 14A of the Securities Exchange Act of 1934, and such informationis incorporated herein by reference.

 

There is no family relationship between any of suchdirectors, and there is no arrangement or understanding between any of them andany other person pursuant to which any such director was selected as a directoror nominee, except that director Edward P. Garden, a principal of Trian FundManagement L.P. (“Trian”), was appointed a director effective January 26,2007, with the understanding that Trian would not nominate a slate of directorsat the Corporation’s 2007 Annual Meeting of Stockholders.

 

Information called for by this item concerningExecutive Officers is included in Part I pursuant to General Instruction GtoForm 10-K.

 

The Corporation has adopted a written code of ethics, “Codeof Business Conduct,” which is applicable to all Chemtura directors, officersand employees, including the Corporation’s Chief Executive Officer, ChiefFinancial Officer, and principal accounting officer and controller and otherexecutive officers performing similar functions (collectively, the “SelectedOfficers”).  In accordance with the rules andregulations of the Securities and Exchange Commission, a copy of the Code ofBusiness Conduct is publicly available on the Corporation’s website atwww.chemtura.com.  The Corporationintends to disclose any amendments to or waivers from its code of ethicsapplicable to any Selected Officer or director on its website atwww.chemtura.com.  The Code of BusinessConduct may also be requested in print by writing to the Corporation’sCorporate Secretary at Chemtura Corporation, 199 Benson Road, Middlebury,CT  06749 USA.

 

**ITEM 11. EXECUTIVE COMPENSATION**

 

Information called for by this item is included in thedefinitive proxy statement for the Corporation’s Annual Meeting of Stockholdersto be held on May 14, 2008, under the caption “Officers’ and Directors’Compensation,” which is to be filed with the Commission pursuant to Regulation14A and such information is incorporated herein by reference.

** **

**116**

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** **

**ITEM12.  SECURITY OWNERSHIP OF CERTAINBENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS**

 

Except as set forth herein, informationcalled for by this item is included in the definitive proxy statement for theCorporation’s Annual Meeting of Stockholders to be held on May 14, 2008,under the captions “Principal Holders of Voting Securities” and “SecurityOwnership of Management,” which is to be filed with the Commission pursuant toRegulation 14A, and such information is incorporated herein by reference.

 

The following table provides informationabout shares of the Corporation’s common stock that may be issued upon theexercise of options, warrants and rights under the Corporation’s equitycompensation plans as of December 31, 2007:

 

**EquityCompensation Plan Information**

 
| ** **                                                      | ** ** | **Number of  securities to be  issued upon  exercise of  outstanding  options,  warrants, and  rights  (a)** | ** ** | **Weighted-  average  exercise  price of  outstanding  options,**

**warrants and  rights  (b)** | ** ** | **Number of securities  remaining available  for future issuance  under equity  compensation plans  (excluding securities  reflected in column  (a)  (c))** | ** ** |
|-----------------------------------------------------------------|------------|--------------------------------------------------------------------------------------------------------------------------------------------|------------|------------------------------------------------------------------------------------------------------------|------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|
| ** **                                                      | ** ** | **(in  millions)**                                                                                                                         | ** ** | ** **                                                                                                 | ** ** | **(in  millions)**                                                                                                                                                                                            | ** ** |
| ** **                                                      | ** ** | ** **                                                                                                                                 | ** ** | ** **                                                                                                 | ** ** | ** **                                                                                                                                                                                                    | ** ** |
| **Plan Category**                                               | ** ** | ** **                                                                                                                                 | ** ** | ** **                                                                                                 | ** ** | ** **                                                                                                                                                                                                    | ** ** |
| Equity  compensation plans approved by security holders (1)     | ** ** | 11.2                                                                                                                                       | ** ** | $                                                                                                          | 10.30      | ** **                                                                                                                                                                                                    | 9.1        | (2) |
| Equity  compensation plans not approved by security holders (3) |       | 0.4                                                                                                                                        |       | $                                                                                                          | 7.44       |                                                                                                                                                                                                          | —     |   |
|                                                            |       |                                                                                                                                       |       |                                                                                                       |       |                                                                                                                                                                                                          |       |
| Total                                                           |       | 11.6                                                                                                                                       |       | $                                                                                                          | 10.19      |                                                                                                                                                                                                          | 9.1        |   |

 

----

(1)   Includes2006 Chemtura Corporation Long-Term Incentive Plan; Crompton Corporation 2001Employee Stock Purchase Plan; Crompton Corporation 1998 Long-Term IncentivePlan; Crompton Corporation 1988 Long-Term Incentive Plan; 1993 Stock OptionPlan for Non-Employee Directors; Great Lakes Chemical Corporation 1993 EmployeeStock Compensation Plan; Great Lakes Chemical Corporation 1998 StockCompensation Plan; and Great Lakes Chemical Corporation 2002 Stock Option andIncentive Plan.

(2)   Includes1.1 million of common stock available for future issuance as of December 31,2007 for the Crompton Corporation 2001 Employee Stock Purchase Plan.

(3)          IncludesCrompton Corporation 2001 Employee Stock Option Plan.

 

**ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTORINDEPENDENCE**

 

None.

 

**ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES**

 

Information called for by this item is included in thedefinitive proxy statement for the Corporation’s Annual Meeting of Stockholdersto be held on May 14, 2008, under the caption “Principal Accountant Feesand Services,” which is to be filed with the Commission pursuant to Regulation14A, and such information is incorporated herein by reference.

 

117

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**PART IV.**

 

**ITEM 15.  EXHIBITS AND FINANCIAL STATEMENT SCHEDULES**

 

(a)  The following documents arefiled as part of this report:

 

1.               Financialstatements and Report of Independent Registered Public Accounting Firm, asrequired by Item 8 of this form.

         (i)     ConsolidatedStatements of Operations for the years ended December 31, 2007, 2006, and2005;          (ii)    ConsolidatedBalance Sheets as of December 31, 2007 and 2006;

        (iii)   Consolidated Statements of Cash Flows forthe years ended December 31, 2007, 2006, and 2005;          (iv)   ConsolidatedStatements of Stockholders’ Equity for the years ended December 31, 2007,2006 and

                 2005;          (v)    Notesto Consolidated Financial Statements; and          (vi)   Reportof Independent Registered Public Accounting Firm.

2.               FinancialStatement Schedule II, Valuation and Qualifying Accounts, required byRegulation S-X is included herein.

3.               Thefollowing exhibits are either filed herewith or incorporated herein by referenceto the respective reports and registration statements identified in theparenthetical clause following the description of the exhibit:

 
| **Exhibit No.** | ** ** | **Description**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
|----------------------|------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 2.0                  |       | Agreement and Plan of Reorganization dated  as of May 31, 1999, by and among Crompton & Knowles  Corporation, Park Merger Co. and Witco Corporation (incorporated by reference  to Appendix A to the Joint Proxy Statement-Prospectus dated July 28,  1999, as part of the Registrant’s Registration Statement on Form S-4,  Registration No.  333-83901, dated July 28, 1999 (“Joint Proxy  Statement-Prospectus S-4 Registration Statement”)). |
|                 |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
| 2.1                  |       | Amendment No. 1 to Agreement and Plan  of Reorganization dated as of July 27, 1999, by and among  Crompton & Knowles Corporation, CK Witco Corporation (formerly known  as Park Merger Co.) and Witco Corporation (incorporated by reference to  Appendix A-1 to the Joint Proxy Statement-Prospectus S-4 Registration  Statement).                                                                                                                                            |
|                 |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
| 2.2                  |       | Agreement and Plan of Merger dated  April 30, 1996, by and among Crompton & Knowles, Tiger Merger  Corp. and Uniroyal Chemical Corporation (“UCC”) (incorporated by reference to  Exhibit 2 to the Crompton & Knowles Form 10-Q for the  period ended March 30, 1996).                                                                                                                                                                            |
|                 |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
| 2.3                  |       | Purchase and Exchange Agreement by and  between the Registrant and General Electric Company dated April 24, 2003  (incorporated by reference to Exhibit 99.2 to the Registrant’s  Form 8-K dated April 25, 2003).                                                                                                                                                                                                                                                        |
|                 |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
| 2.4                  |       | Purchase Agreement by and among Crompton  Corporation, as Crompton and Uniroyal Chemical Company, Inc. and GT Seed  Treatment, Inc., as Sellers, and Bayer CropScience LP, as Purchaser and  Gustafson LLC, as the Company, dated as of March 22, 2004 (incorporated  by reference to Exhibit 99.2 to the Registrant’s Form 8-K dated  March 31, 2004 (“March 31, 2004 8-K”).                                                                   |
|                 |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
| 2.5                  |       | Purchase Agreement by and between Crompton  Co./Cie, as Seller, and Bayer CropScience Inc., as Purchaser, dated as of  March 22, 2004 (incorporated by reference to Exhibit 99.3 to the  March 31, 2004 8-K).                                                                                                                                                                                                                                                                      |
|                 |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
|  2.6            |       | Agreement and Plan of Merger, dated as of  March 8, 2005, among Crompton Corporation, Copernicus Merger Corporation  and Great Lakes Chemical Corporation (incorporated by reference to  Exhibit 99.2 to the Registrant’s Form 8-K dated March 10,  2005).                                                                                                                                                                                                               |
|                 |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
| 2.7                  |       | Asset Purchase Agreement by and between  Crompton Corporation and RP Products, LLC, dated as of March 17, 2005  (incorporated by reference to Exhibit 99.2 to the Registrant’s  Form 8-K dated March 22, 2005).                                                                                                                                                                                                                                                          |
|                 |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
| 2.8                  |       | Contribution Agreement among Crompton  Holding Corporation, Davis-Standard Corporation, BCCM Holdings, Inc.,  BCCM, LLC and Davis-Standard, LLC, dated as of March 31, 2005  (incorporated by reference to Exhibit 99.2 to the Registrant’s  Form 8-K dated April 4, 2005).                                                                                                                                                                                         |

 

118

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| 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     |   | 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).                                                                                                                                                                                                                                                                                                                                                                                              |
|    |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
| 4.2     |   | Form of $400 Million Five-Year Credit  Agreement dated as of October 28, 1999, by and among the Registrant,  certain subsidiaries of the Registrant, various banks, The Chase Manhattan  Bank, as Syndication Agent, Citibank, N.A., as Administrative Agent and Bank  of America, N.A. and Deutsche Bank Securities Inc., as Co-Documentation Agents  (incorporated by reference to Exhibit 4.2 to the September 30, 1999  10-Q).                                                                                                                                                                                                                  |
|    |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
| 4.3     |   | First Amendment dated as of  September 24, 2001, to the Five- Year Credit Agreement dated as of  October 28, 1999, by and among the Registrant, certain subsidiaries of  the Registrant, various banks, The Chase Manhattan Bank, as Syndication  Agent, Citibank, N.A., as Administrative Agent, Bank of America, N.A. and  Deutsche Bank Alex Brown Inc., as Co-Documentation Agents, and J.P. Morgan  Securities Inc., as Lead Arranger and Sole Bookrunner (incorporated by  reference to Exhibit 4.2 to the September 30, 2001 10-Q).                                                                                                          |
|    |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
| 4.4     |   | Second Amendment dated as of  December 21, 2001, to the Five-Year Credit Agreement dated as of  October 28, 1999, by and among the Registrant, certain subsidiaries of  the Registrant, various banks, JPMorgan Chase Bank (formerly known as The  Chase Manhattan Bank), as Syndication Agent, Citicorp USA, Inc. (as  successor to Citibank, N.A.), as Administrative Agent and Bank of America,  N.A. and Deutsche Bank Alex Brown Inc., as Co-Documentation Agents  (incorporated by reference to Exhibit 4.11 to the Registrant’s 2001  Form 10-K).                                                                                  |
|    |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
| 4.5     |   | Third Amendment dated as of May 8,  2002, to the Five-Year Credit Agreement dated as of October 28, 1999, by  and among the Registrant, certain subsidiaries of the Registrant, various  banks, JPMorgan Chase (formerly known as The Chase Manhattan Bank), as  Syndication Agent, Citicorp USA, Inc. (as successor to Citibank, N.A.),  as Administrative Agent and Bank of America, N.A. and Deutsche Bank  Securities Inc. (formerly known as Deutsche Bank Alex Brown Inc.), as  Co-Documentation Agents (incorporated by reference to Exhibit 4.1 to the  Registrant’s June 30, 2002 10-Q).                                         |
|    |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
| 4.6     |   | Fourth Amendment dated as of June 20,  2003, to the Five-Year Credit Agreement dated as of October 28, 1999, by  and among the Registrant, certain subsidiaries of the Registrant, various  banks, JPMorgan Chase Bank (formerly known as The Chase Manhattan Bank), as  Syndication Agent, Citicorp, USA, Inc. (as successor to Citibank, N.A.  in its capacity as Administrative Agent, and Bank of America, N.A. and  Deutsche Bank Securities Inc. (formerly known as Deutsche Bank Alex Brown  Inc.) as Co-Documentation Agents (incorporated by reference to  Exhibit 99.2 to the Registrant’s Form 8-K dated June 26,  2003). |

 

119

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| 4.7    |   | Fifth Amendment and Waiver dated as of  October 17, 2003, to the Five-Year Credit Agreement dated as of  October 28, 1999, by and among the Registrant, certain subsidiaries of  the Registrant, various banks, JPMorgan Chase Bank (formerly known as The  Chase Manhattan Bank), as Syndication Agent, Citicorp USA, Inc. (as  successor to Citibank, N.A. in its capacity as Administrative Agent), as  Administrative Agent, and Bank of America, N.A. and Deutsche Bank Securities  Inc. (formerly known as Deutsche Bank Alex Brown Inc.) as Co-Documentation  Agents (incorporated by reference to Exhibit 10.1 to the Registrant’s  Form 10-Q for the quarter ended September 30, 2003 (“September 30,  2003 10-Q”)). |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
| 4.8    |   | Sixth Amendment and Waiver dated as of  November 10, 2003, to the Five-Year Credit Agreement dated as of  October 28, 1999, by and among the Registrant, certain subsidiaries of  the Registrant, various banks, JPMorgan Chase Bank (formerly known as The  Chase Manhattan Bank), as Syndication Agent, Citicorp USA, Inc. (as  successor to Citibank, N.A. in its capacity as Administrative Agent), as  Administrative Agent, and Bank of America, N.A. and Deutsche Bank Securities  Inc. (formerly known as Deutsche Bank Alex Brown Inc.) as Co-Documentation  Agents (incorporated by reference to Exhibit 10.2 to the  September 30, 2003 10-Q).                                                                                              |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
| 4.9    |   | Waiver No. 1 dated as of June 30,  2001, to the Five-Year Credit Agreement dated as of October 28, 1999, by  and among the Registrant, certain subsidiaries of the Registrant, various  banks, The Chase Manhattan Bank, as Syndication Agent, Citibank, N.A., as  Administrative Agent and Bank of America, N.A. and Deutsche Bank Securities  Inc., as Co-Documentation Agents (incorporated by reference to  Exhibit 4.2 to the June 30, 2001 10-Q).                                                                                                                                                                                                                                                                                                |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
| 4.10   |   | Waiver No. 2 dated as of  March 26, 2004, to the Five-Year Credit Agreement dated as of  October 28, 1999, by and among the Registrant, certain subsidiaries of  the Registrant, various banks, JPMorgan Chase Bank, as syndication Agent;  CitiCorp USA, Inc. (as successor to Citibank, N.A. in its capacity as  Administrative Agent), as Administrative Agent; and Bank of America, N.A. and  Deutsche Bank Securities Inc. (formerly known as Deutsche Bank Alex Brown  Inc.), as Co-Documentation Agents (incorporated by reference to  Exhibit 10.1 to the Registrant’s Form 10-Q for the quarter ended  March 31, 2004 (“March 31, 2004 10-Q”)).                                                                 |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
| 4.11   |   | Amendment pursuant to Waiver No. 3  dated as of July 1, 2004, to the Five-Year Credit Agreement dated as of  October 28, 1999, by and among the Registrant, certain subsidiaries of  the Registrant, various banks, JPMorgan Chase Bank, as Syndication Agent;  CitiCorp USA, Inc. (as successor to Citibank, N.A. in its capacity as  Administrative Agent), as Administrative Agent; and Bank of America, N.A. and  Deutsche Bank Securities Inc. (formerly known as Deutsche BanK Alex Brown  Inc.) as Co-Documentation Agents (incorporated by reference to  Exhibit 10.1 to the Registrant’s Form 10-Q for the quarter ended  June 30, 2004 (“June 30, 2004 10-Q)).                                                      |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
| 4.12   |   | Form of Indenture, dated as of  March 1, 2000, by and between the Registrant and Citibank, N.A.,  relating to $600 Million of 8 1/2% Senior Notes due 2005, including as Annex  A thereto, Form of Senior Note Pledge Agreement by and among the  Registrant, certain foreign subsidiaries of the Registrant, and Citibank,  N.A., as Collateral Agent (incorporated by reference to Exhibit 4.13 of  the 1999 Form 10-K).                                                                                                                                                                                                                                                                                                                             |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
| 4.13   |   | Form of Purchase Agreement, dated as  of March 2, 2000, by and among the Registrant, as Seller, and Merrill  Lynch, ABN AMRO Incorporated, Bank of America Securities LLC, Chase  Securities Inc., Deutsche Bank Securities Inc., Goldman, Sachs & Co.  and Salomon Smith Barney Inc. (together, the “Initial Purchasers”), relating  to $600 Million of 8 1/2% Senior Notes due 2005 (incorporated by reference to  Exhibit 4.14 of the 1999 Form 10-K).                                                                                                                                                                                                                                                                                |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
| 4.14   |   | Form of Indenture, dated as of  February 1, 1993, by and between Witco and the Chase Manhattan Bank,  N.A., as Trustee, relating to Witco’s 6.60% Notes due 2003, 7.75% Debentures  due 2023, 6 1/8% Notes due 2006 and 6 7/8% Debentures due 2026, including  form of securities (incorporated by reference to Post-Effective Amendment  No.  2 to the Registration Statement on Form S-3, Registration  No.  33-58066, filed March 19, 1993).                                                                                                                                                                                                                                                                                              |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
| 4.15   |   | Form of First Supplemental Indenture,  dated February 1, 1996, by and among Witco, Chase Manhattan Bank, N.A.,  the Initial Trustee, and Fleet National Bank of Connecticut, the Note  Trustee, relating to Witco’s 6 1/8% Notes due 2006 and 6 7/8% Notes due 2026  (incorporated by reference to Registration Statement on Form S-3,  Registration Number 33-065203, filed January 25, 1996).                                                                                                                                                                                                                                                                                                                                                        |

 

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| 4.16   |   | Form of $600 Million of 8.50% Senior  Notes due 2005, dated June 9, 2000, registered for public trading with  the Securities and Exchange Commission and issued in exchange for identical  securities sold in March 2000, which were not registered for public  trading (incorporated by reference to Exhibit 4 of the Registrant’s  Form 10-Q for the quarter ended June 30, 2000).                                                                                                                                                                                 |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
| 4.17   |   | 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”)).                                                                                                                                                                                                                              |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
| 4.18   |   | 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).                                                                                                                                                                                                   |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
| 4.19   |   | 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).                                                                                                                                                                                            |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
| 4.20   |   | 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”).                                                                                                                                                                                                                          |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
| 4.21   |   | 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).                                                                                                                                                                                                                                                                                                       |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
| 4.22   |   | Master Trust Agreement, effective January  2, 2007, between Chemtura Corporation and The Northern Trust Company covering  three tax-qualified employee benefit plans of the Company (incorporated by  reference to Exhibit 10.1 to the Registrant’s Form 8-K dated January 5, 2007  (“January 5, 2007 8-K”)).                                                                                                                                                                                                                                                                            |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
| 4.23   |   | Amendment No. 7 dated as of May 25, 2007,  to the Credit Agreement dated as of July 1, 2005, by and among Chemtura Corporation,  as Borrower, various lenders and Citibank, N.A. as Agent, as amended, with  its lenders that amended Section 5.02(f)(ix) to approve the sale of certain  Company businesses so long as, to the extent there are borrowings  outstanding, the net cash proceeds from the sale of these businesses are used  to prepay such borrowings (incorporated by reference to Exhibit 10.1 to the  Registrant’s Form 8-K dated May 29, 2007 (“May 29, 2007 8-K”)). |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
| 4.24   |   | Amendment No. 8 dated as of July 31, 2007,  to the Credit Agreement, dated as of July 1, 2005, by and among Chemtura  Corporation, as Borrower, various lenders and Citibank, N.A., as Agent.  Pursuant to the Amendment, the Company amended and restated the 2005 Credit  Agreement (incorporated by reference to Exhibit 10.1 to the Registrant’s Form  8-K dated August 6, 2007 (“August 6, 2007 8-K”)).                                                                                                                                                                             |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
| 4.25   |   | Pledge Agreement dated as of July 14, 2007,  in order to comply with Section 5.01(j) of the Credit Agreement dated as of  July 1, 2005, among Chemtura Corporation, Citibank, N.A., as agent, and the  lenders and agents party thereto (incorporated by reference to Exhibit 10.1  to the Registrant’s Form 8-K dated June 21, 2007 (“June 21, 2007 8-K”)).                                                                                                                                                                                                                             |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
| 4.26   |   | 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”)).                                                                                                                                                                                                                                                                                                                             |

 

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| 4.27   |   | 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”)).                                                                                                                                                                                                                                          |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
| 10.1+  |   | Form of Supplemental Retirement  Agreement dated as of August 21, 1996, between a subsidiary of the  Registrant and two executive officers of the Registrant (incorporated by  reference to Exhibit 10.29 to the 1996 Form 10-K).                                                                                                                                                                                                                                                                        |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
| 10.2+  |   | Amended Crompton Corporation 1988 Long Term  Incentive Plan (incorporated by reference to Exhibit 10.10 to the  Registrant’s 2001 Form 10-K).                                                                                                                                                                                                                                                                                                                                                                 |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
| 10.3   |   | Trust Agreement dated as of May 15,  1989, between Crompton & Knowles and Shawmut Worcester County Bank,  N.A. and First Amendment thereto dated as of February 8, 1990  (incorporated by reference to Exhibit 10(w) to the  Crompton & Knowles Form 10-K for the fiscal year ended  December 30, 1989).                                                                                                                                                                     |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
| 10.4+  |   | Restricted Stock Plan for Directors of  Crompton & Knowles approved by the stockholders on April 9,  1991 (incorporated by reference to Exhibit 10(z) to the  Crompton & Knowles Form 10-K for the fiscal year ended  December 28, 1991).                                                                                                                                                                                                                                         |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
| 10.5+  |   | Amended 1993 Stock Option Plan for  Non-Employee Directors (incorporated by reference to Exhibit 10.21 to  the Crompton & Knowles Form 10-K for the fiscal year ended  December 26, 1998).                                                                                                                                                                                                                                                                                                           |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
| 10.6   |   | Second Amended and Restated Lease Agreement  between the Middlebury Partnership, as Lessor, and Uniroyal, as Lessee, dated  as of August 28, 1997 (incorporated by reference to Exhibit 10 to  the UCC/Uniroyal 10-Q for the quarter ended September 27, 1997).                                                                                                                                                                                                                                               |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
| 10.7   |   | Form of Receivables Sale Agreement,  dated as of December 11, 1998, by and among Crompton & Knowles,  as Initial Collection Agent, Crompton & Knowles Receivables  Corporation, as Seller, ABN AMRO Bank N.V., as Agent, the Enhancer, and the  Liquidity Provider, and Windmill Funding Corporation (incorporated by  reference to Exhibit 10.291 to the Crompton & Knowles  Form 10-K for the fiscal year ended December 26, 1998 (“1998  Form 10-K”)). |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
| 10.8   |   | Amended and Restated Receivables Sale  Agreement, dated as of January 18, 2002, among Crompton &  Knowles Receivables Corporation, as the Seller, the Registrant, as the  Initial Collection Agent, ABN AMRO Bank N.V., as the Agent, certain liquidity  providers, ABN AMRO Bank, N.V., as the Enhancer, and Amsterdam Funding  Corporation (incorporated by reference to Exhibit 10.201 to the  Registrant’s 2001 Form 10-K).                                                                 |

 

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| 10.9   |   | First Amendment dated as of  January 17, 2003, to the Amended and Restated Receivables Sale  Agreement, dated as of January 18, 2002, among Crompton &  Knowles Receivables Corporation, as the Seller, the Registrant, as the  Initial Collection Agent, ABN AMRO Bank N.V., as the Agent, certain liquidity  providers, ABN AMRO Bank, N.V., as the Enhancer, and Amsterdam Funding  Corporation (incorporated by reference to Exhibit 10.202 to the  Registrant’s Form 10-K for the fiscal year ended December 31,  2002).  |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
| 10.10  |   | Form of Receivables Purchase  Agreement, dated as of December 11, 1998, by and among  Crompton & Knowles, as Initial Collection Agent, and certain of its  subsidiaries, as Sellers, Crompton & Knowles Receivables  Corporation, as Buyer, and ABN AMRO Bank N.V., as Agent (incorporated by  reference to Exhibit 10.292 to the 1998 Form 10-K).                                                                                                                                                                              |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
| 10.11  |   | Amendment Number 1 dated as of  December 9, 1999, to the Receivables Purchase Agreement, dated as of  December 11, 1998, by and among CK Witco Corporation (as successor by  merger to Crompton & Knowles), as Initial Collection Agent, and  certain of its subsidiaries, as Sellers, Crompton & Knowles  Receivables Corporation, as Buyer, and ABN AMRO Bank N.V., as Agent  (incorporated by reference to Exhibit 10.265 to Form 10-K for the  fiscal year ended December 31, 2000 (“2000 Form 10-K”)). |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
| 10.12  |   | Amendment Number 2 dated as of  November 20, 2000, to the Receivables Purchase Agreement, dated as of  December 11, 1998, by and among the Registrant (as successor to Crompton &  Knowles), as Initial Collection Agent, and certain of its subsidiaries, as  Sellers, Crompton & Knowles Receivables Corporation, as Buyer, and  ABN AMRO Bank N.V., as Agent (incorporated by reference to  Exhibit 10.266 to the 2000 Form 10-K).                                                                                           |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
| 10.13  |   | Amendment Number 3 dated as of  February 1, 2001, to the Receivables Purchase Agreement dated as of  December 11, 1998, by and among the Registrant (as successor to  Crompton & Knowles), as Initial Collection Agent, and certain of its  subsidiaries, as Sellers, Crompton & Knowles Receivables  Corporation, as Buyer, and ABN AMRO Bank N.V., as Agent (incorporated by  reference to Exhibit 10.267 to the 2000 Form 10-K).                                                                                             |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
| 10.14  |   | Amendment Number 4 dated as of  April 15, 2003, to the Receivables Purchase Agreement dated as of  December 11, 1998, by and among the Registrant (as successor to  Crompton & Knowles), as initial Collection Agent, and certain of its  subsidiaries, as Sellers, Crompton & Knowles Receivables  Corporation, as Buyer, and ABN AMRO Bank N.V., as Agent (incorporated by  reference to Exhibit 10.2 to the 10-Q for the quarter ended  March 31, 2003 (“March 31, 2003 10-Q”).                               |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
| 10.15  |   | Letter Agreement dated as of  January 18, 2002, to the Receivables Purchase Agreement dated as of  December 11, 1998, by an among the Registrant (as successor to  Crompton & Knowles), as Initial Collection Agent, and certain of its  subsidiaries, as Sellers, Crompton & Knowles Receivables  Corporation, as Buyer, and Crompton Sales Company, Inc. and ABN AMRO Bank  N.V., as Agent (incorporated by reference to Exhibit 10.206 to the  Registrant’s 2001 Form 10-K).                                       |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
| 10.16  |   | Letter Agreement dated as of April 15,  2003, to the Receivables Purchase Agreement dated as of December 11,  1998, by and among the Registrant (as successor to Crompton &  Knowles), as Initial Collection Agent, and certain of its subsidiaries, as  Sellers, Crompton & Knowles Receivables Corporation, as Buyer, and  Crompton Europe B.V., Crompton B.V. and ABN AMRO Bank N.V. as Agent  (incorporated by reference to Exhibit 10.3 of the March 31, 2003  10-Q).                                                      |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
| 10.17  |   | Sixth Amendment dated as of April 15,  2004, to the Amended and Restated Receivables Sales Agreement dated as of  January 18, 2002, by and among Crompton & Knowles Receivables  Corporation, as Seller, the Registrant, as the Initial Collection Agent, and  ABN AMRO Bank, N.V., as Enhancer and Agent (incorporated by reference to  Exhibit 10.2 to the March 31, 2004 10-Q).                                                                                                                                                       |

 

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| 10.18  |   | 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 March 31, 2004 10-Q).                                                                                                                                                    |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
| 10.19  |   | Settlement Agreement dated August 11,  2004, between Crompton Corporation and plaintiff class representatives  (incorporated by reference to Exhibit 10.1 to the Registrant’s  Form 8-K filed on August 11, 2004).                                                                                                                                                                                                                                  |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
| 10.20+ |   | Change in Control Agreements dated as of  September 13, 2004, between Crompton Corporation and each of Karen R.  Osar, Myles S. Odaniell, Lynn A. Schefsky, and Gregory E. McDaniel  (incorporated by reference to Exhibit 10.1 to the Registrant’s  Form 8-K filed on September 15, 2004).                                                                                                                                                         |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
| 10.21  |   | 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).                                                                                                                                         |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
| 10.22  |   | Second Amended and Restated Receivables  Sale Agreement, dated as of August 16, 2004, among Crompton &  Knowles Receivables Corporation, as Seller, Crompton Corporation, as the  Initial Collection Agent, ABN AMRO Bank N.V., as the Agent, the Liquidity  Providers from time to time party thereto, and Amsterdam Funding Corporation  (incorporated by reference to Exhibit 10.44 to the 2004 Form S-4).                                        |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
| 10.23  |   | Amendment Number 5 dated as of  August 16, 2004, to the Receivables Purchase Agreement dated as of  December 11, 1998, by and among Crompton Corporation (as successor to  Crompton & Knowles), as initial Collection Agent, and certain of its  subsidiaries, as Sellers, Crompton & Knowles Receivables  Corporation, as Buyer, and ABN AMRO Bank N.W., as Agent (incorporated by  reference to Exhibit 10.45 to the 2004 Form S-4). |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
| 10.24  |   | Registration Rights Agreement, dated as of  August 16, 2004, among Crompton Corporation, and the subsidiaries of  Crompton Corporation listed on Schedule I attached thereto, Deutsche Bank  Securities Inc., Bank of America Securities LLC, Citigroup Global Markets  Inc. and Credit Suisse First Boston LLC as initial purchasers (incorporated  by reference to Exhibit 10.46 to the 2004 Form S-4).                                                     |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
| 10.25  |   | 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).                                                                                                                                                                                      |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
| 10.26  |   | 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).                                                                                                                                                                                                |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
| 10.27  |   | 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).                                                                                                                                                                                                                         |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
| 10.28+ |   | Amended Crompton Corporation 1998 Long Term  Incentive Plan (incorporated by reference to Exhibit 10.21 to the  Registrant’s 2001 Form 10-K).                                                                                                                                                                                                                                                                                                                 |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
| 10.29+ |   | Form of Supplemental Retirement  Agreement, dated as of October 21, 1999, by and between the Registrant  and various of its executive officers (incorporated by reference to  Exhibit 10.35 of the 1999 Form 10-K).                                                                                                                                                                                                                                      |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
| 10.30+ |   | Form of Amendment 2003-1 to the  Supplemental Retirement Agreement dated various dates in December 2003  by and between the Registrant and various of its executive officers  (incorporated by reference to Exhibit 10.27 to the 2003 Form 10-K).                                                                                                                                                                                                        |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
| 10.31+ |   | Employment Agreement by and between the  Registrant and Robert L. Wood dated January 7, 2004 (incorporated by  reference to Exhibit 10.28 to the 2003 Form 10-K).                                                                                                                                                                                                                                                                                             |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
| 10.32+ |   | Description of Amendment to the Employment  Agreement by and between the Registrant and Robert L. Wood dated  January 7, 2004 (incorporated by reference to Item 1.01 to the  Registrant’s Form 8-K dated October 20, 2005).                                                                                                                                                                                                                             |

 

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| 10.33+ |   | Form of 2004-2006 Long Term Incentive  Award Agreement dated February 3, 2004 by and between the Registrant and  various of its executive officers (incorporated by reference to Exhibit 10.30  to the 2003 Form 10-K).                                                                                                                                                          |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                 |
| 10.34+ |   | Separation Agreement dated April 27,  2004 by and between the Registrant and Vincent A. Calarco (incorporated by  reference to Exhibit 10.2 to the Registrant’s June 30, 2004  Form 10-Q).                                                                                                                                                                                  |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                 |
| 10.35+ |   | Separation Agreement dated June 22,  2004 by and between the Registrant and Peter Barna (incorporated by reference  to Exhibit 10.3 to the Registrant’s June 30, 2004 Form 10-Q).                                                                                                                                                                                           |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                 |
| 10.36+ |   | Consulting Agreement dated June 7,  2004 by and between the Registrant and Vincent A. Calarco (incorporated by  reference to Exhibit 10.4 to the Registrant’s June 30, 2004  Form 10-Q).                                                                                                                                                                                    |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                 |
| 10.37+ |   | Form of Stock Option Agreement  (undated) by and between the Registrant and various of its executive officers  (incorporated by reference to Exhibit 10.1 to the Registrant’s  Form 8-K dated November 29, 2004 (“November 29, 2004  Form 8-K”)).                                                                                                       |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                 |
| 10.38+ |   | Form of Restricted Stock Agreement  (undated) by and between the Registrant and various of its executive officers  (incorporated by reference to Exhibit 10.2 to the November 29, 2004  Form 8-K).                                                                                                                                                                               |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                 |
| 10.39+ |   | Form of Crompton Corporation Summary  of Compensation and Benefits for Non-Employee Directors, dated  March 2005 (incorporated by reference to Exhibit 10.47 to the  Registrant’s 2004 10-K).                                                                                                                                                                                    |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                 |
| 10.40+ |   | Separation Agreement dated  December 31, 2004, by and between the Registrant and Alfred F. Ingulli  (incorporated by reference to Exhibit 10.1 to the Registrant’s  Form 8-K dated January 4, 2005).                                                                                                                                                                        |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                 |
| 10.41  |   | Form of Global Settlement Agreement  dated January 11, 2005, by and between the Registrant and Uniroyal and  the Class Plaintiffs, both individually and on behalf of the  Class Members, pertaining to the class action lawsuits in rubber  chemicals, EPDM and nitrile rubber (incorporated by reference to Exhibit 10.49  to the Registrant’s 2004 Form 10-K). |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                 |
| 10.42+ |   | Form of 2005 Management Incentive  Program, effective February 23, 2005, by and between the Registrant and  various key management personnel (incorporated by reference to  Exhibit 10.2 to the Registrant’s Form 8-K dated February 28,  2005 (“February 28, 2005 8-K”)).                                                                              |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                 |
| 10.43+ |   | Form of 2005-2007 Long-Term Incentive  Award Agreement, effective February 23, 2005, by and between the  Registrant and various key management personnel (incorporated by reference to  Exhibit 10.3 to the February 28, 2005 8-K).                                                                                                                                              |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                 |
| 10.44+ |   | 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).                                                                                                                                                                    |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                 |
| 10.45+ |   | 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).                                                                                                                                                                                            |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                 |
| 10.46+ |   | Separation Agreement and General Release dated  as of April 29, 2005, by and between the Registrant and Robert W. Ackley  (incorporated by reference to Exhibit 10.1 to the Registrant’s  Form 8-K dated May 2, 2005).                                                                                                                                                      |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                 |
| 10.47  |   | 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”)).                                                                |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                 |
| 10.48  |   | Second Supplemental Indenture, dated as of  July 1, 2005, to the Indenture dated as of August 16, 2004, among  the Registrant, Great Lakes Chemical Corporation and certain of its  subsidiaries and Wells Fargo Bank, National Association, as Trustee (9 7/8%  Senior Notes due 2012) (incorporated by reference to Exhibit 10.2 to the  July 1, 2005 8-K).                    |

 

125

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| 10.49  |   | Second Supplemental Indenture, dated as of  July 1, 2005, to the Indenture, dated as of August 16, 2004, among  the Registrant, Great Lakes Chemical Corporation and certain of its  subsidiaries and Wells Fargo Bank, National Association, as Trustee (Senior  Floating Rate Notes due 2010) (incorporated by reference to Exhibit 10.3  to the July 1, 2005 8-K).                          |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                               |
| 10.50  |   | 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 July 1, 2005  8-K).                                                  |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                               |
| 10.51  |   | 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).                                                               |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                               |
| 10.52+ |   | Description of directors’ fees to be paid  to former directors of Great Lakes Chemical Corporation upon their joining  the Registrant’s Board of Directors (incorporated by reference to item 1.01  of the Registrant’s Form 8-K dated July 21, 2005).                                                                                                                                    |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                               |
| 10.53  |   | 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 (incorporated by reference to  Exhibit 10.1 to the Registrant’s Form 8-K dated December 15,  2005 (“December 15, 2005 8-K”)).                                                                                      |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                               |
| 10.54  |   | 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).                                                                                                                                                                         |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                               |
| 10.55+ |   | Description of directors’ fees to be paid  to the directors of the Registrant for 2006 (incorporated by reference to  Item 1.01(i) to the Registrant’s Form 8-K dated January 26,  2006 (“January 26, 2006 8-K”)).                                                                                                                                                         |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                               |
| 10.56+ |   | Form of 2006-2008 Chemtura Corporation  Long-Term Incentive Plan (incorporated by reference to Exhibit 10.1 to  the January 26, 2006 8-K).                                                                                                                                                                                                                                                          |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                               |
| 10.57+ |   | Description of merger integration awards  made to ten officers of the Registrant (Incorporated by reference to Item  1.01 of the Registrant’s Form 8-K dated February 2, 2006).                                                                                                                                                                                                                     |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                               |
| 10.58  |   | Amendment No. 2, 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 February 15, 2006).           |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                               |
| 10.59  |   | Third Amended and Restated Receivables Sale  Agreement, dated as of March 2, 2006, among Crompton & Knowles  Receivables Corporation, as Seller, Chemtura Corporation, as the Initial  Collection Agent, ABN AMRO Bank N.V., as Agent, and various banks and  liquidity providers (incorporated by reference to Exhibit 10.1 to the  Registrant’s Form 8-K dated March 7, 2006). |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                               |
| 10.60+ |   | Description of Merger Integration Award  made to an officer of the Registrant (incorporated by reference to Item  1.01(i) of the Registrant’s Form 8-K dated March 9, 2006  (“March 9, 2006 Form 8-K)).                                                                                                                                                                         |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                               |
| 10.61+ |   | Form of 2006 Chemtura Corporation  Management Incentive Plan (incorporated by reference to Exhibit 10.1 to  the March 9, 2006 Form 8-K).                                                                                                                                                                                                                                                       |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                               |
| 10.62+ |   | Form of Chemtura Corporation Executive  and Key Employee Severance Plan (incorporated by reference to  Exhibit 10.2 to the March 9, 2006 Form 8-K).                                                                                                                                                                                                                                            |

 

126

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| 10.63  |   | 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.)                     |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                      |
| 10.64  |   | 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).                                                                                           |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                      |
| 10.65+ |   | 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).                                                                                                                                                                                                                          |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                      |
| 10.66  |   | Underwriting Agreement and Terms Agreement  , dated April 19, 2006, by and between the Registrant, the subsidiary  guarantors named therein, and Credit Suisse Securities (USA) LLC, for itself  and on behalf of various others (incorporated by reference to Exhibit 1.1  to the Registrant’s April 20, 2006 Form 8-K).                                                                        |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                      |
| 10.67+ |   | Separation Agreement and General Release  dated April 6, 2006, by and between Myles S. Odaniell and the Registrant  (incorporated by reference to Exhibit 10.1 to the Registrant’s  April 7, 2006 Form 8-K).                                                                                                                                                                                     |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                      |
| 10.68  |   | Sale and Purchase Agreement dated as of  May 12, 2006, by and among the Registrant, various subsidiaries of the  Registrant and MCAW Group Limited (incorporated by reference to  Exhibit 10.1 to the Registrant’s May 18, 2006 Form 8-K).                                                                                                                                                       |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                      |
| 10.69  |   | 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).                                                                                                                                           |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                      |
| 10.70+ |   | 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).                                                                                                                                                                                                      |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                      |
| 10.71  |   | Fourth Amended and Restated Receivables  Sale Agreement dated as of September 28, 2006, by and among  Crompton & Knowles Receivables Corporation, as Seller, the  Registrant, as Initial Collection Agent, 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 September 29, 2006 Form 8-K). |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                      |
| 10.72  |   | Merger and Unit Purchase Agreement by and  among Crompton Holding Corporation and various other sellers, as Sellers, and  D-S Acquisition Co., as Purchaser, dated as of October 30, 2006 (incorporated  by reference to Exhibit 10.1 to the Registrant’s October 31, 2006  Form 8-K.)(“October 31, 2006 Form 8-K”).                                                         |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                      |
| 10.73+ |   | “Flexperq” Program adopted on  October 26, 2006, effective January 1, 2007 (incorporated by  reference to Exhibit 10.2 to the October 31, 2006 Form 8-K).                                                                                                                                                                                                                              |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                      |
| 10.74  |   | 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).                                                                                                                               |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                      |
| 10.75  |   | Stock Purchase Agreement by and among the  stockholders of Kaufman Holdings Corporation, Alex Kaufman and the  Registrant, dated as of January 31, 2007 (incorporated by reference to  Exhibit 10.1 to the Registrant’s January 31, 2007 Form 8-K).                                                                                                                                              |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                      |
| 10.76  |   | Asset Purchase and Sale Agreement by and  among the Registrant, various subsidiaries of the Registrant and Lion  Copolymer, LLC, dated as of February 3, 2007 (incorporated by reference  to Exhibit 10.1 to the Registrant’s February 5, 2007  Form 8-K).                                                                                                                                       |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                      |
| 10.77  |   | 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).                                                                                                                               |

 

127

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| 10.78  |   | Separation Agreement and General Release  dated April 1, 2007, by and between Marcus Meadows-Smith and the Registrant  (incorporated by reference to Exhibit 10.1 to the Registrant’s June 5, 2007  Form 8-K (“June 5, 2007 8-K”)).                                                                                                                                                                               |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                             |
| 10.79  |   | Separation Agreement and General Release  dated April 1, 2007, by and between Karen R. Osar and the Registrant  (Incorporated by reference to Exhibit 10.1 to the Registrant’s May 9, 2007  Form 8-K (“May 9, 2007 8-K”)).                                                                                                                                                                                        |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                             |
| 10.80  |   | 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”)). |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                             |
| 10.81  |   | 2007 Chemtura Corporation Management  Incentive Plan, effective March 28, 2007 (incorporated by reference to  Exhibit 10.1 to the Registrant’s March 29, 2006 Form 8-K (“March 29, 2006  8-K”)).                                                                                                                                                                                                                  |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                             |
| 10.82  |   | 2007-2009 Chemtura Corporation Long-Term  Incentive Plan, effective March 28, 2007 (incorporated by reference to  Exhibit 10.2 to the Registrant’s March 29, 2006 Form 8-K (“March 29, 2006  8-K”)).                                                                                                                                                                                                              |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                             |
| 10.83  |   | Chemtura Corporation Executive and Key  Employee Severance Plan, effective April 15, 2007 (incorporated by reference  to Exhibit 10.1 to the Registrant’s April 26, 2006 Form 8-K (“April 26, 2006  8-K”)).                                                                                                                                                                                                       |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                             |
| 10.84  |   | Agreement dated November 28, 2007 by and  between the Registrant and David G. Dickey.                                                                                                                                                                                                                                                                                                                                            |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                             |
| 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).*                                                                                                                                                                                                                                                                                                               |

 

----

  *   Copies of theseExhibits are filed with this annual report on Form 10-K provided to theSecurities and Exchange Commission and the New York Stock Exchange.

 

  +  This Exhibit isa compensatory plan, contract or arrangement in which one or more directors orexecutive officers of the Registrant participate.

 

128

----

 

**SIGNATURES**

 

Pursuant to the requirements of Section 13 or 15(d) ofthe Securities Exchange Act of 1934, the Registrant has duly caused this reportto be signed on its behalf by the undersigned, thereunto duly authorized.

 

 

CHEMTURA CORPORATION

(Registrant)

 
| Date: March 17, 2008 | By:                                               | /s/ Stephen C. Forsyth |
|---------------------------|---------------------------------------------------|------------------------|
|                      | Stephen C. Forsyth                                |
|                      | Executive Vice President, Chief Financial Officer |
|                      | and Treasurer                                     |

 

 

Pursuant to the requirements of the SecuritiesExchange Act of 1934, this report has been signed below by the followingpersons on behalf of the Registrant and in the capacities and on the dateindicated.

 
| **Name**             | ** ** | **Title**                                                                                             |
|----------------------|------------|-------------------------------------------------------------------------------------------------------|
| ** **           | ** ** | ** **                                                                                            |
| Robert L. Wood       |       | Chairman of the Board, President, Chief Executive  Officer and Director (Principal Executive Officer) |
|                 |       |                                                                                                  |
| Stephen C. Forsyth   |       | Executive Vice President, Chief Financial Officer  and Treasurer (Principal Financial Officer)        |
|                 |       |                                                                                                  |
| Kevin V. Mahoney     |       | Senior Vice President and Corporate Controller  (Principal Accounting Officer)                        |
|                 |       |                                                                                                  |
| Nigel D. T. Andrews* |       | Director                                                                                              |
|                 |       |                                                                                                  |
| James W. Crownover*  |       | Director                                                                                              |
|                 |       |                                                                                                  |
| Robert A. Fox*       |       | Director                                                                                              |
|                 |       |                                                                                                  |
| Edward P. Garden*    |       | Director                                                                                              |
|                 |       |                                                                                                  |
| Martin M. Hale*      |       | Director                                                                                              |
|                 |       |                                                                                                  |
| Roger L. Headrick*   |       | Co-lead Director                                                                                      |
|                 |       |                                                                                                  |
| Mack G. Nichols*     |       | Director                                                                                              |
|                 |       |                                                                                                  |
| C. A. Piccolo*       |       | Co-lead Director                                                                                      |
|                 |       |                                                                                                  |
| Bruce F. Wesson*     |       | Director                                                                                              |

 

----

| Date:  March 17, 2008 | *By:                             | /s/ Stephen C. Forsyth |
|--------------------------------------|----------------------------------|------------------------|
|                                 |    Stephen  C. Forsyth |
|                                 |    as attorney-in-fact |

 

129

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**ScheduleII**

 

**Valuationand Qualifying Accounts**

(In millions ofdollars)

 
| ** **                                 | ** ** | ** **          | ** ** | **Additions**       | ** ** | ** **     | ** ** | ** **      | ** ** | ** ** | ** ** | ** **       | ** ** |
|--------------------------------------------|------------|---------------------|------------|---------------------|------------|----------------|------------|-----------------|------------|------------|------------|------------------|------------|
| ** **                                 | ** ** | **Balance at** | ** ** | **charged to** | ** ** | ** **     | ** ** | ** **      | ** ** | ** ** | ** ** | **Balance**      | ** ** |
| ** **                                 | ** ** | **beginning**       | ** ** | **costs and**  | ** ** | ** **     | ** ** | ** **      | ** ** | ** ** | ** ** | **at end**  | ** ** |
| ** **                                 | ** ** | **of year**    | ** ** | **expenses**        | ** ** | **Deductions** | ** ** | **Acquisition** | ** ** | **Other**  | ** ** | **of year** | ** ** |
| Fiscal Year  ended December 31, 2007: |       |                |       |                |       |           |       |            |       |       |       |             |       |
| Allowance for  doubtful accounts           |       | $                   | 32         |                | 4          |           | (7         | )(a)            | —     |       | 3          | (d)              | 32         |   |
| Reserve for  customer rebates              |       | 29                  |       | 45                  |       | (48            | )(b)       | —          |       | 1          | (d)        | 27               |       |
|                                       |       |                |       |                |       |           |       |            |       |       |       |             |       |
| Fiscal Year  ended December 31, 2006: |       |                |       |                |       |           |       |            |       |       |       |             |       |
| Allowance for  doubtful accounts           |       | $                   | 31         |                | 20         |           | (20        | )(a)            | —     |       | 1          | (d)              | 32         |   |
| Reserve for  customer rebates              |       | 33                  |       | 51                  |       | (56            | )(b)       | —          |       | 1          | (d)        | 29               |       |
|                                       |       |                |       |                |       |           |       |            |       |       |       |             |       |
| Fiscal Year  ended December 31, 2005: |       |                |       |                |       |           |       |            |       |       |       |             |       |
| Allowance for  doubtful accounts           |       | $                   | 22         |                | 11         |           | (10        | )(a)            | 8          | (c)        | —     |             | 31         |   |
| Reserve for  customer rebates              |       | 30                  |       | 74                  |       | (85            | )(b)       | 15              | (c)        | (1)        | (d)        | 33               |       |

 

----

(a)          Represents primarily accounts written off as uncollectible (net ofrecoveries).

(b)         Represents primarily payment to the customers.

(c)          Represents balances acquired as a result of the merger with Great LakesChemical Corporation.

(d)         Represents primarily the translation effect of balances denominated inforeign currencies.

 

130

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