**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, 2006** |
| ** **     | ** ** | ** ** |
| ** **     | ** ** | **or** |
| ** **     | ** ** | ** ** |
| **o**          | ** ** | **TRANSITION REPORT PURSUANT TO SECTION 13 OR  15(d) OF THE SECURITIES EXCHANGE ACT OF 1934** |
| ** **     | ** ** | ** ** |
| ** **     | ** ** | **For the  transition period from                        to** |

 

**Commission File No. 1-15339**

**Chemtura Corporation**

(Exact name of registrant as specified in itscharter)

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

 

Securities registeredpursuant to Section 12(b) of the Act:

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

 

Securities registered pursuant to Section12(g) of the Act: NONE

Indicate by checkmark whether the registrant is a well-known seasoned issuer, as defined in Rule405 of the Securities ActYes x   Noo

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

Indicate by checkmark whether the registrant (1) has filed all reports required to be filed bySection 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding12 months (or for such shorter period that the registrant was required to filesuch reports), and (2) has been subject to such filing requirements for thepast 90 days.Yes x   Noo

Indicate by checkmark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-Kis not contained herein, and will not be contained, to the best of registrant’sknowledge, in definitive proxy or information statements incorporated byreference in Part III of this Form 10-K or any amendment to this Form 10-K. o

Indicate by checkmark whether the registrant is a large accelerated filer, an accelerated filer,or a non-accelerated filer. See definition of “accelerated filer and largeaccelerated file” in Rule 12b-2 of the Exchange Act. (Check one):

Large acceleratedfiler x Acceleratedfiler o Non-accelerated filer o

Indicate by checkmark whether the registrant is a shell company (as defined in Rule 12b-2 of theExchange Act). Yes o   Nox

The aggregate market value of the voting andnon-voting common equity held by non-affiliates of the registrant, computed asof June 30, 2006 was $2,232,946,791.

The number ofvoting shares of Common Stock of the registrant outstanding as of February 6,2007 was 241,093,784.

**DOCUMENTSINCORPORATED BY REFERENCE**

Proxy Statementfor Annual Meeting of Stockholders on April 25, 2007            ........            PartIII

 

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| PART I       | ** ** | ** **                                                                                                         | ** ** | **Page**   |
|--------------|------------|--------------------------------------------------------------------------------------------------------------------|------------|------------|
| ** **   | ** ** | ** **                                                                                                         | ** ** | ** ** |
| Item 1.      |       | Business                                                                                                           |       | 2          |
|         |       |                                                                                                               |       |       |
| Item 1A.     |       | Risk Factors                                                                                                       |       | 11         |
|         |       |                                                                                                               |       |       |
| Item 1B.     |       | Unresolved Staff Comments                                                                                          |       | 17         |
|         |       |                                                                                                               |       |       |
| Item 2.      |       | Properties                                                                                                         |       | 18         |
|         |       |                                                                                                               |       |       |
| Item 3.      |       | Legal Proceedings                                                                                                  |       | 20         |
|         |       |                                                                                                               |       |       |
| Item 4.      |       | Submission of Matters to a Vote of Security  Holders                                                          |       | 30         |
|         |       | Executive Officers of the Registrant                                                                               |       |       |
|         |       |                                                                                                               |       |       |
| **PART II**  |       |                                                                                                               |       |       |
| ** **   |       |                                                                                                               |       |       |
| Item 5.      |       | Market for Registrant’s Common Equity, Related  Stockholder Matters and Issuer Purchases of Equity Securities |       | 31         |
|         |       |                                                                                                               |       |       |
| Item 6.      |       | Selected Financial Data                                                                                            |       | 33         |
|         |       |                                                                                                               |       |       |
| Item 7.      |       | Management’s Discussion and Analysis of Financial  Condition and Results of Operations                        |       | 35         |
|         |       |                                                                                                               |       |       |
| Item 7A.     |       | Quantitative and Qualitative Disclosures about  Market Risk                                                   |       | 63         |
|         |       |                                                                                                               |       |       |
| Item 8.      |       | Financial Statements and Supplementary Data                                                                        |       | 65         |
|         |       |                                                                                                               |       |       |
| Item 9.      |       | Changes in and Disagreements with Accountants on  Accounting and Financial Disclosure                              |       | 134        |
|         |       |                                                                                                               |       |       |
| Item 9A.     |       | Controls and Procedures                                                                                            |       | 134        |
|         |       |                                                                                                               |       |       |
| Item 9B.     |       | Other Information                                                                                                  |       | 134        |
|         |       |                                                                                                               |       |       |
| **PART III** |       |                                                                                                               |       |       |
| ** **   |       |                                                                                                               |       |       |
| Item 10.     |       | Directors, Executive Officers of the Registrant and  Corporate Governance                                          |       | 135        |
|         |       |                                                                                                               |       |       |
| Item 11.     |       | Executive Compensation                                                                                             |       | 135        |
|         |       |                                                                                                               |       |       |
| Item 12.     |       | Security Ownership of Certain Beneficial  Owners and Management and Related Stockholder Matters               |       | 136        |
|         |       |                                                                                                               |       |       |
| Item 13.     |       | Certain Relationships and Related Transactions, and  Director Independence                                         |       | 136        |
|         |       |                                                                                                               |       |       |
| Item 14.     |       | Principal Accountant Fees and Services                                                                             |       | 136        |
|         |       |                                                                                                               |       |       |
| **PART IV**  |       |                                                                                                               |       |       |
| ** **   |       |                                                                                                               |       |       |
| Item 15.     |       | Exhibits and Financial Statement Schedules                                                                         |       | 137        |
|         |       |                                                                                                               |       |       |
|         |       | Signatures                                                                                                         |       | 147        |
|         |       |                                                                                                               |       |       |
|              |            |                                                                                                                    |            |            |  |

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**PARTI.**

**ITEM1.  BUSINESS**

**(a) Overview**

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

When we use the terms the “Corporation,” “Company,”“Registrant,” “we,” “us” and “our,” unless otherwise indicated or the contextotherwise requires, we are referring to Crompton Corporation and itsconsolidated subsidiaries (“Crompton”) prior to the Merger (as defined below)and Chemtura Corporation and its consolidated subsidiaries (“Chemtura”) afterthe Merger.

We have approximately 6,200 employees atDecember 31, 2006.

Certain disclosures included in this AnnualReport on Form 10-K constitute forward-looking statements that are subject torisk and uncertainty.  See “Item 7.Management’s Discussion and Analysis of Financial Condition and Results ofOperations - Forward-Looking Statements.”

**(b)**    General Developmentof Business

Chemtura was establishedby the merger of Crompton and Great Lakes Chemical Corporation (“Great Lakes”)on July 1, 2005 (the “Merger”).

Crompton was thesuccessor to 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., andthe 1999 merger with Witco Corporation (“Witco”).

GreatLakes was a Delaware corporation incorporated in 1933 and was based inIndiana.  Great Lakes primarily producedand distributed a wide variety of specialty chemicals.  Among the main applications of such chemicalswere: the stabilization of various polymer systems, fire retardancy and firesuppression, purification of industrial and recreational water uses andmiscellaneous cleaning, agricultural and drilling uses.

Effective July 1, 2005,the Company and Great Lakes completed an all-stock merger transaction. Under the terms of the agreement, Great Lakesshareholders received 2.2232 shares of our common stock for each share of GreatLakes common stock they held. The Company achieved approximately $94 million ofpre-tax merger-related synergy cost savings from July 1, 2005 through December31, 2006.  Merger cost savings in 2006were offset primarily by lower volume and absorption at the manufacturingplants and other one time charges recorded during the year.

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 including electronics, industrial rubber and homepool and spa chemical markets. Most of our chemical products are sold toindustrial manufacturing customers for use as additives, ingredients, orintermediates that add value to their end products.  Our pool and spa chemicals are sold todealers, distributors and major retailers. We are a market leader in many of our key product lines.  We manufacture and sell more than 3,500products and formulations in more than 100 countries. Of our $3.7 billion netsales in 2006, approximately 53% were to customers in the United States andCanada, 27% to Europe and Africa, 15% to Asia/Pacific, and 5% to Latin America.

The Company’s strategy isto strengthen its business portfolio and continue to reduce operatingcosts.  To achieve these goals, theCompany is focusing its resources on its core businesses by divesting non-corebusinesses and assets, and acquiringbusinesses and assets that will enhance its business portfolio.

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Divestituresand Acquisitions

On February 3, 2007, theCompany signed an asset purchase agreement to sell its EPDM business andportions of its Rubber Chemical business to an affiliate of Lion ChemicalCapital, LLC.  The transaction isexpected to close in the first half of 2007 and is subject to certain conditions,including regulatory approvals, financing and a financial audit.

On January 31, 2007, theCompany announced that it had completed the acquisition of the stock of KaufmanHoldings Corporation “Kaufman” in an all-cash transaction. The Kaufmanacquisition complements the Company’s existing Petroleum Additives segment inthat it offers related products in key customer areas, providing theopportunity to strengthen alliances with major suppliers and may offerpotential distribution synergies.

OnOctober 30, 2006, the Company sold its interest in Davis-Standard LLC foraggregate proceeds of $68.8 million, of which $60.4 million was received as ofDecember 31, 2006.  The Companyrecognized a pretax gain of $5.7 million on the transaction, which is includedin other expense, net in its consolidated statement of operations for the yearended December 31, 2006.  Davis-StandardLLC was established on April 29, 2005 when the Company combined ourPolymer Processing Equipment business with Hamilton Robinson’s Black ClawsonConverting Machinery Company which resulted in our acquisition of a 61.24percent non-controlling interest in the combined equity of the entity.

On May 12, 2006, theCompany sold its Industrial Water Additives (“IWA”) business, which wasacquired in the Merger, to BWA Water Additives (“BWA”), a subsidiary of CloseBrothers Private Equity located in the United Kingdom.  The Company received adjusted cash proceedsof $74.8 million.  The Company recognizeda pre-tax loss of $12.4 million on the transaction, which is included in (gain)loss on sale of businesses, net in the accompanying consolidated statement ofoperations for the year ended December 31, 2006.

Strategic Initiatives

In addition to focusingon its core businesses, the Company is investigating strategic cost savingsinitiatives that could result in cost reductions at some manufacturingfacilities.

As a result of planneddivestitures of its non-core businesses and strategic cost saving initiatives,the Company has accelerated the depreciation and the recognition of the assetretirement obligations related to certain assets at several of its globalfacilities for which it is probable that there will be a change in theestimated useful lives of those facilities. In addition, the Company has estimatedthat it will incur severance and related costs due to employee reductions.  As a result of these initiatives, the Companyrecorded pre-tax charges for accelerated depreciation of $17.8 million,accretion of asset retirement obligations of $8.8 million, and severance andrelated costs of $6.0 million in operating profit on its consolidated statementof operations for the year ended December 31, 2006.  These costs represent the estimated costsbased on the facts and circumstances that existed as of December 31, 2006.  As divestiture agreements and cost savingsplans are formalized, such costs will be revised as necessary to reflect finalplans.

**(c)Financial Information About Industry Segments**

Information as to the sales, operating profit, depreciation and amortization,assets, capital expenditures and earnings on investments carried on the equitymethod attributable to each of our business segments during each of our lastthree fiscal years is set forth in Note - 23 the Business Segment Data footnoteincluded in the Notes to Consolidated Financial Statements.

 

Our businesses aregrouped into six reporting segments: Plastic Additives (non-flame retardantplastic additives and flame retardant plastic additives), Polymers (EPDM andurethanes), Specialty Additives (petroleum additives and rubber chemicals),Crop Protection, Consumer Products, and Other (Optical Monomers, IndustrialWater Additives, Fluorine Chemicals and Polymer Processing Equipment).  Details on the various types of products andservices provided by each segment are summarized in the Narrative Descriptionof the Business section below.

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**(d)Narrative Description of Business**

**Productsand Services**

We manufacture and marketa wide variety of polymer and specialty chemical products.  Most of our products are sold to industrialcustomers for use as additives, ingredients or intermediates that impartparticular characteristics to the customers’ end products.  Our consumer products are sold to dealers,distributors and to major national retailers. We manufacture and sell more than 3,500 products and formulations inmore than 100 countries and serve a wide variety of end-use markets including automotive, transportation, construction,packaging, agriculture, lubricants, plastics for durable and non-durable goods,including electronics, industrial rubber, and home pool and spa chemicalmarkets.

Our principal productsand services offered are described below.

# **PlasticAdditives**

We are a global leader insupplying a broad line of additives to the plastics industry.  Ourplastic additives allow our customers to achieve stability, flexibility,durability, and fire prevention in their formulated polymer systems.  Our products contribute to improved customermanufacturing productivity and superior end-use product performance.  We believe the functionality and relativelysmall component cost of many of our additives give them a very highvalue-in-use. Many of our products are especially developed and formulated incollaboration with customers to meet their specific manufacturing processes andwe target applications and customers that have particularly demanding end-useperformance requirements.  Our productsare sold to formulators, compounders and fabricators of vinyl, olefins andstyrenics and are ultimately used in the transportation, packaging,construction, durable and non-durable goods, and telecom industries.  The Plastic Additives segment had net salesof $1,604.1 million for 2006 compared with $1,156.6 million for 2005 and $856.5million for 2004.  The increase in 2006net sales is primarily due to the inclusion of a full year of sales from theGreat Lakes polymer stabilizers and flame retardants businesses as comparedwith six months of such sales in 2005, and no such sales in 2004.

Plastic Additives aresold through a specialized sales force, including technical serviceprofessionals who address customer inquiries and issues.  The technical service professionals generallyhave degrees in chemistry and/or chemical engineering and are knowledgeable inspecific product application fields.  Thesales and technical service professionals identify and focus on customers’growth opportunities, working not only with the customers’ headquarters staff,but also with their research and development and manufacturing personnel on aworldwide basis.

Non-Flame Retardant PlasticAdditives

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 wire and cable coatings.  Asthe trend to reduce the use of traditional heavy metal stabilizers (lead andcadmium) continues, Chemtura is well positioned with a family of commerciallyproven organic heat stabilizers.

Our antioxidant businessconsists of a wide range of additives that inhibit the degradation of polymerscaused by oxidation and light. Incorporating such additives into resin systems improves the durabilityand longevity of plastics used in food packaging, consumer durables, automotivecomponents and electrical components.  Weare proficient in blending a variety of these materials into specializedformulations uniquely tailored to customer specific end-use requirements.

Our other plasticadditives include various surfactants and polymerization additives.  Surfactants help to homogenizemulti-component resin systems and to facilitate lubricity in the processing andfabrication of such resins.  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.

Net sales of non-flameretardant plastic additives during 2006, 2005 and 2004 were 27.6%, 30.2% and37.5% of the Company’s net sales, respectively.

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Flame Retardant PlasticAdditives

Our flame retardant businessholds a leading global position with a comprehensive offering of bromine,phosphorus and antimony-based flame retardants. With increasing regulatory and performance demands, the use of theseproducts continues to grow in electrical components, construction materials,automotive and furniture / furnishing applications.  We are back integrated to a primary source ofbromine and have a well developed business in supplying other types ofbrominated performance products to a variety of industries including agricultural,fine chemicals, pharma, electronics and oil well drilling.   On December 18, 2006, the Company enteredinto several long-term supply and purchase agreements with TETRA Technologies,Inc., primarily to sell bromine to TETRA on an exclusive basis over a 23 yearperiod and to purchase sodium chloride over a period of 20 years.

Net sales of flameretardants during 2006 were 15.5% of the Company’s net sales.  The flame retardants business was acquired asa result of the Merger in July of 2005**.**

**Polymers**

The Polymers reportingsegment had net sales of $492.0 million for 2006, $517.5 million for 2005 and$469.5 million for 2004, relating to two operating segments: EPDM andurethanes.

EPDM

Ethylene propylene dienemonomer rubber (EPDM), commonly known as “crackless rubber,” is a material thatis able to retain elasticity despite exposure to elements such as sunlight andozone.  Over 40% of our Royalene® EPDMrubber is used in new and replacement automotive parts, including tires, hoses,belts, weather stripping, brake components, and seals and gaskets.  Other applications range from high density,long-lasting commercial roofing membranes to low density, liquefied viscositymodifiers for better performing lubricants.

Consistent with the Company’sstrategy to divest non-core businesses in order to focus its resources on corebusinesses, the Company signed an asset purchase agreement on February 3, 2007for the sale of its EPDM business to an affiliate of Lion Chemical Capital,LLC.  The transaction is expected toclose in the first half of 2007.  TheEPDM business had sales of $174.2 million in 2006.

Net sales of EPDM during2006, 2005 and 2004 were 4.7%, 6.8% and 7.6% of the Company’s total net sales,respectively.

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 operate very cost effectively. Our development capabilities allow usto differentiate ourselves in these markets by tailoring our products to thespecialized needs of each customer application, which sets us apart from ourcompetitors.

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 industrialapplications such as flexible foam for seating. Our polyurethane dispersionsare sold to a larger and more diverse customer base primarily for coatingapplications such as flooring, fiberglass sizing, and textiles. The majormarkets served by our urethane additives business are automotive, construction, leather/textilefinishing, and furniture. Sub-markets include coatings, adhesives, sealants,elastomers and insulation.

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Baxenden ChemicalsLimited, our 53.5% owned consolidated subsidiary, is engaged in the manufactureand marketing of isocyanate derivatives, polyester polyols and specialtypolymer systems used in a wide range of applications.  The major markets served by Baxenden aretransportation, construction, surface coatings, leather and textilefinishing.  Baxenden is focused onspecialty polymer and resin chemistry and novel curing mechanisms for suchpolymers.  The core technology isurethane and acrylic chemistry and also includes novel polyesters andesterification processes.

Net sales of urethanesduring 2006, 2005 and 2004 were 8.5%, 10.5% and 13.0% of the Company’s netsales, respectively.

**SpecialtyAdditives**

The Specialty Additivesreporting segment, which had net sales of $555.6 million for 2006, $561.1million for 2005 and $458.7 million for 2004, has two operating segments:  petroleum additives and rubber chemicals.

Petroleum Additives

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 marketed asNaugalubes® 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 propertiesinclude detergency and corrosion protection to help lubricants keep car, truck,and ship engines clean with minimal wear. Additionally, we manufacture barium and sodium sulfonates, which providecorrosion protection and emulsification in metalworking fluids andantioxidants, which are widely used by our customers 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®, areused in the production of synthetic lubricants for automotive, 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.

Net sales of petroleumadditives during 2006, 2005 and 2004 were 9.5%, 10.2% and 10.2% of the Company’stotal net sales, respectively.

Rubber Chemicals

Our rubber chemicalsbusiness includes approximately 85 products for use in processing rubber. Theseproducts include accelerators, antioxidants, antiozonants, chemical foamingagents, and specialty waxes. Accelerators are used for curing natural andsynthetic rubber, have a wide range of activation temperatures and curingranges, and use forms that give our customers the flexibility to make manydifferent products. Antiozonants protect rubber compounds from flex crackingand ozone, oxygen and heat degradation. Antioxidants provide rubber compounds with protection against oxygen,light, and heat.  Foaming agents producegas by thermal decomposition or via a chemical reaction with other componentsof a polymer system and are mixed with rubber to produce sponge rubberproducts. Waxes inhibit static atmospheric ozone cracking in rubber.

We are a global supplierof rubber chemicals, and we believe our customers value our ability to providehigh quality, consistent products world-wide to complement their internationalexpansion. Tire manufacturers accounted for approximately 70% of our rubberadditives sales in 2006, with the balance consisting of manufacturers of industrialrubber goods, including hoses, belting, sponges, and a wide variety of otherengineered rubber products.

On February 3, 2007, theCompany signed an asset purchase agreement to sell its EPDM business and allrubber chemicals businesses associated with products produced at our Geismar,Louisiana facility as well as Flexzone antiozonants produced worldwide to anaffiliate of Lion Chemical Capital, LLC. The transaction is expected to close in the first half of 2007 and issubject to certain conditions, including regulatory approvals, financing and afinancial audit.

Netsales of rubber chemicals during 2006, 2005 and 2004 were 5.5%, 8.5%, and 9.8%of the Company’s total net sales, respectively.

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**Crop Protection**

TheCrop Protection segment had net sales for 2006 of $360.1 million compared to$353.6 million for 2005 and $320.6 million for 2004.  Increased sales in 2006 included 8.1% ofgains primarily related to the Merger and other acquisitions.  Our Crop Protection business focuses onspecific niches in five major product lines: fungicides, miticides and otherinsecticides, growth regulants, herbicides and fumigants. We have primarilydeveloped our products for use on high-value cash crops, such as tree and vinefruits, ornamentals, nuts and turf, and secondarily for commodity crops, suchas soybeans and corn. Our dedicated sales force works with growers anddistributors to coordinate the use of our products throughout a crop’s growthcycle and to address selective regional, climate, and growth challenges. CropProtection products typically are sold pursuant to contracts with extendedpayment terms in Latin America and Europe. Customary, extended payment periods, which are tied to particular cropgrowing cycles, make our Crop Protection business susceptible to losses fromreceivables during economic downturns and may adversely affect our operatingresults and our cash flows.  We expand our presence in worldwide nichemarkets by developing new crop protection products and obtaining registrationsfor new uses and geographies, where demand for our products and services haspotential for growth. We develop and sell our own products, and we also selland register products manufactured by others on a licensed 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 treatmentresulting from the expanded use of higher value genetically modified seed.  On March 24, 2006, the Company acquired theTrace 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 $6.7million and the assets acquired included inventory, property, plant andequipment and intangible assets.

TheCrop Protection business works closely with our customers, both distributorsand individual growers, as part of an on-the-ground coordinated effort. Wedevelop products in response to ongoing customer demands, drawing upon existingtechnologies and tailoring them to match immediate needs. For example, a grower’scrops may require varying levels of treatment depending on weather conditionsand the degree of infestation. Our research and technology is therefore gearedtowards responding to threats to crops around the world as they emerge under avariety 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 market niches that are less sensitive tocompetitive pricing pressures than broad commodity segments of the market.

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

Part of our expertise inbromine-based material is the production and distribution of methyl bromide, afumigant used to improve crop yields, and protect grain in storage from pestinfestation.  Such materials areregularly used to treat food processing plants, breweries, warehouses and grainelevators, as well as rail cars, truck trailers and intermodal containers.  While the use of methyl bromide has beenrestricted by regulations, it continues to play an important role in protectingthe food chain.  Where safe and effectivealternatives are not available, our products continue to be employed at cargoports where agricultural commodities need to be treated quickly and comprehensivelyto prevent transmission of infestation across international borders and as apreplant treatment to control weeds, diseases, insects and nematodes in highvalue food crops leading to increased yields and higher fresh produce quality.

Net sales of CropProtection during 2006, 2005 and 2004 were 9.7%, 11.8% and 14.0% of the Company’stotal net sales, respectively.

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**ConsumerProducts**

The Consumer Productsreporting segment includes two principal product lines (pool and spa andhousehold cleaners), which were acquired from Great Lakes as a result of theMerger.  Net sales of the ConsumerProducts business in 2006 were $565.7 million and $261.3 million in 2005,representing six months of ownership following the Merger.

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.  We believe that we hold theleading position in the North American pool and spa chemical business and weplan to strengthen our position by expanding our dealer channels and ourpresence with leading mass market retailers.

Through Great Lakes’acquisition of Lime-O-Sol and A & M Cleaning Products in 2003, the ConsumerProducts business entered 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 anddiscount sectors.

Net sales of ConsumerProducts during 2006 and 2005 were 15.2% and 8.7% of the Company’s total netsales, respectively.

**Other**

The Other reportingsegment, with net sales for 2006, 2005 and 2004 of $145.1 million, $136.6million and $180.0 million, respectively, consists of four operating segments:  OpticalMonomers, Industrial Water Additives, and Fluorine Chemicals, which wereacquired from Great Lakes as a result of the Merger, and Polymer ProcessingEquipment.

OpticalMonomers producesspecialized monomers used in eyewear and for such applications as protectionsheets for welding masks, safety shields, photographic filters and labequipment.

IndustrialWater Additives areused in the desalination processes and include antiscalents, corrosioninhibitors, dispersants, antifoams and superior bromine-based non-oxidizing andoxidizing microbiological control products.  The IWA business was divested in the second quarter of 2006.  The Company continues to manufacture and sellthese products to the purchaser of this business under supply agreements.

Fluorine Chemicalsare essential to the performance of silicone-based materials under demandingconditions where aggressive solvents or high temperatures may be present.  Other fluorine chemicals are used aspropellants in medical inhalers and as refrigerants.  Fluorine fire suppression systems offerwaterless solutions for mission-critical and high-value assets, preventingextensive fire damage and eliminating collateral damage and downtime.

In August 2006, theCompany received notification that a significant customer of the Fluorinebusiness was not going to renew their contract after December 31, 2006.  As a result of the projected loss of thiscustomer’s revenue from future cash flow projections, the Company reviewed therecoverability of the long-lived assets and goodwill of the Fluorinebusiness.  Based on this review theCompany recorded impairment charges of $51.9 million related to goodwill and$22.7 million related to other long-lived assets, principally intangibles andproperty, plant and equipment.

PolymerProcessing Equipmentbusiness was a global leader in the manufacture of integrated polymerprocessing equipment.  Effective in April2005, the Company contributed its Polymer Processing Equipment business toHamilton Robinson, LLC to form a venture that was accounted for as an equityinvestment.  On October 30, 2006,the Company sold its majority interest in the Davis Standard LLC venture toHamilton Robinson LLC, for approximately $60.4 million in cash, plus anadditional $8.4 million that is payable upon finalizing certain post-closingdeterminations.

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**Sources ofRaw 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, tin, soybean oil, and tallowin many of our chemical manufacturing processes. Large increases in thecost of such key raw materials, as well as natural gas which powers some keyproduction facilities, particularly for sustained periods of time, couldadversely affect our operating margins if we are not able to pass the highercosts on to our customers through higher selling prices. While temporaryshortages of raw materials we use may occur occasionally, key raw materials aregenerally available.  However, theircontinuing availability and price are subject to domestic and world market andpolitical conditions and regulations. Major requirements for key raw materials are typically purchasedpursuant to multi-year contracts.  We arenot dependent on any one supplier for a significant amount of our raw materialrequirements, except for one hydrocarbon supplier which provides us with approximately10% to 15% of our requirements for diverse raw materials sourced from thesupplier’s multiple manufacturing and processing locations.  However, we have alternative sources ofsupply for substantially all of the raw materials sourced from this hydrocarbonsupplier.

We hold a 50% unconsolidated interest inRubicon Inc. (“Rubicon”), a manufacturing joint venture with HuntsmanCorporation, located in Geismar, Louisiana, which supplies both Huntsman and uswith aniline, and us with diphenylamine (“DPA”).  We believe that our aniline and DPA needs inthe foreseeable future will be met by production from Rubicon.

**SeasonalBusiness**

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. Sales are weakest in the fourth quarter. In 2007, the Company expects that some sales that in prior years wouldhave been booked in the first quarter will instead occur in the second andthird quarters owing to changing buying patterns in the industry. Similarly,the largest portion (80%) of our pool chemicals business serves the U.S.recreational water market and generally accelerates in the first half of anycalendar year and declines thereafter.

**Customers**

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

**CompetitiveConditions**

We produce a broad range ofproducts for a wide variety of end-use markets, including automotive,transportation, construction, packaging, agriculture, lubricants, plastics fordurable and non-durable goods, including electronics, industrial rubber, andpool, spa and home care products. The breadth of our product offering providesmultiple channels for growth and lessens our dependence on any one market. Wesell our products in more than 100 countries, and this worldwide presencefurther reduces our exposure to any one country’s or region’s economy.

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, technical and customer service, and price 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.

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**Researchand Development**

Our research anddevelopment expenditures totaled $65.5 million in 2006, $51.8 million in 2005and $47.9 million in 2004.  Higherspending in 2006 was primarily due to the inclusion of a full year of activityfrom the Great Lakes businesses as compared with only six-months of spendingincluded 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 4,000 United States and foreignpatents and pending applications and have trademark protection forapproximately 1,000 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.

**Environmental Matters**

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 the generation,handling, storage, transportation, treatment and disposal of waste and othermaterials.  Chemical companies are alsosubject to other federal, state and local laws and regulations regarding healthand safety matters.

*Environmental Health and Safety Regulation*.  We believe that our business, operations andfacilities have been and are being operated in substantial compliance in allmaterial respects with applicable environmental and health and safety laws andregulations, many of which provide for substantial fines and criminal sanctionsfor violations.  The ongoing operationsof chemical manufacturing plants, however, entail risks in these areas andthere can be no assurance that material costs or liabilities will not beincurred.  In addition, futuredevelopments, such as increasingly strict requirements of environmental andhealth and safety laws and regulations and enforcement policies thereunder,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 $32.0 million ofcosts for capital projects and $70.8 million for operating and maintenance costsrelated to environmental health and safety programs at our facilities during2006.  In 2007, we expect to incurapproximately $32.6 million of costs for capital projects and $70.0 million foroperating and maintenance costs related to environmental health and safetyprograms at our facilities.  During 2006,we paid $25 million to clean up previously utilized waste disposal sites and toremediate current and past facilities. We expect to spend approximately $30 million during 2007 to clean upsuch waste disposal sites and to remediate current and former facilities.

*Pesticide Regulation*.  Our Crop Protection business is subject toregulation under various federal, state, and foreign laws and regulationsrelating to the manufacture, sale and use of pesticide products.

In August 1996, Congress enacted the Food QualityProtection Act of 1996 (“FQPA”), which made significant changes to the FederalInsecticide, Fungicide, and Rodenticide Act (“FIFRA”), governing U.S. sale anduse of pesticide products, and the Federal Food, Drug, and Cosmetic Act (“FFDCA”),which limits pesticide residues on food. FQPA facilitated registrations and re-registrations of pesticides forspecial (so called “minor”) uses under FIFRA and authorized collection ofmaintenance fees to support pesticide re-registrations. Coordination ofregulations implementing FIFRA and FFDCA is now required.  Food safety provisions of FQPA establish asingle 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.

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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 reviewall tolerances for all pesticide products. Some of our products have successfully completed review, others arecurrently under review and other products will be reviewed under this standardin the future.

The European Commission (“EC”) has establishedprocedures whereby all existing active ingredient pesticides will bereviewed.  This EC regulation becameeffective in 1993 and will result in a review of all commercial products.  The initial round of reviews covered ninetyproducts, four of which are our products. Evaluation was successful for three of the products, support for thefourth product was withdrawn by the company for commercial reasons.  The remainder of our products will bereviewed in future years with the process expected to be completed by the endof 2008.  The process may lead to fullregistration in member states of the EC or may lead to some restrictions orcancellation of registrations if it is determined that a product poses anunacceptable risk.

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 is June 1, 2007 and it will require all coveredsubstances to be pre-registered within 18 months of the effective date.  There are other provisions of the legislationthat phase in over a 3 year period.  TheCompany does not anticipate any impact to its financial position or results ofoperations in 2007; however, the impact of this legislation in 2008 and beyondis unknown at this time.  It is possiblethat REACH may affect our ability to sell and manufacture some products.

**GeographicInformation**

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 Note 23 —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.

**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, Quarterly Reportson Form 10-Q, Current Reports on Form 8-K, and amendments to those reportsfiled or furnished pursuant to Section 13(a) or 15(d) of the SecuritiesExchange Act of 1934, as soon as reasonably practicable after we electronicallyfile such material with, or furnish it to, the Securities and ExchangeCommission (“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  06749 USA. The information contained on our website is not incorporated byreference in this Annual Report on Form 10-K and should not be considered apart of this Annual Report.

**ITEM1A.  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.

#  

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**A decline in general economic conditions and otherexternal factors may adversely impact 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 andthat our worldwide presence further reduces our exposure to economic conditionsor political instability in any one country or region.

**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 demandbalance of the chemicals industry.  Thechemicals industry has experienced alternating periods of inadequate capacityand tight supply, allowing prices and profit margins to increase, followed byperiods when substantial capacity is added, resulting in oversupply,over-capacity and corresponding declining utilization rates, causing decliningprices and profit margins.  Thecyclicality of the markets in which we operate may result in volatile operatingresults and cash flow over the business cycle. Future growth in product demand may not be sufficient to utilize currentor future capacity.  Excess industrycapacity may continue 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 used by us vary withmarket conditions 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

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our price increases couldcause us to reevaluate and possibly reverse such price increases, which mayincrease our operating expenses and negatively affect our operating results.

**The results of our CropProtection business are dependent on weather, disease, and pest conditions andcan be affected 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 regulatory authoritiesparticularly in developing countries in regions where we do business, such asin Asia and Latin America.  Changes ingovernmental policies or product registration requirements could have anadverse 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 andEurope.  Customary, extended paymentperiods, which are tied to particular crop growing cycles, make our CropProtection business susceptible to losses from receivables during economicdownturns and may adversely 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.  That number could increase in thefuture.  Further, we have incurred andcould incur significant additional expense in the future in connection withantitrust-related matters, including expenses related to our cooperation withgovernmental authorities and defense related civil lawsuits.

We are also involved inseveral significant lawsuits and claims relating to environmental matters.  In addition, we are routinely subject toother civil 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 and disposalof hazardous waste and other materials. Our operations entail the risk of violations of those laws and sanctionsfor violations, such as clean-up costs, costs of waste disposal, and paymentsfor property damage and personal injury. Although it is our policy to comply with such laws and regulations, itis possible that we have not been or may not be at all times in compliance withall 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.

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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 2006 netsales, 53% were to customers in the U.S. and Canada, 27% to Europe and Africa,15% to Asia/Pacific and 5% to Latin America. Our net property, plant and equipment at December 31, 2006 was located64% in the U.S. and Canada, 31% in Europe and Africa, 4% in Asia/Pacific and 1%in Latin America.  The economies ofcountries in these areas are in different stages of socioeconomic development.  Consequently, we 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 the Registration,Evaluation and Authorization of Chemicals (REACH) legislation.  This legislation will require chemicalmanufacturers and importers in the European Union to prove the safety of theirproducts.  The effective date of thelegislation is June 1, 2007 and it will require all covered substances to bepre-registered within 18 months of the effective date.  There are other provisions of the legislationthat phase in over a 3 year period.  TheCompany does not anticipate any impact to its financial position or results ofoperations in 2007; however, the impact of this legislation in 2008 and beyondis unknown at this time.  It is possiblethat REACH may affect our ability to sell and manufacture some products.

**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 2006, 2005 and 2004:

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| ** **                                                                                                             | ** **   | **Year Ended December 31** | ** ** |
|------------------------------------------------------------------------------------------------------------------------|--------------|-------------------------------------------|------------|
| ***(In millions)***                                                                                               | *** *** | *** ***                              | ** ** | **2006** | ** ** | **2005** | ** ** | **2004** | ** ** |
| Pre-tax loss  from continuing operations                                                                               |         | $                                         | (117.4     | ) | $ | (119.7 | ) | $ | (91.7 | ) |
| Impact of  favorable (unfavorable) foreign currency translation on pre-tax earnings  (loss) from continuing operations |         | $                                         | (4.0       | ) | $ | 6.2 |   | $ | (2.8 | ) |
| Net sales                                                                                                              |         | $                                         | 3,722.7    |   | $ | 2,986.6 |   | $ | 2,285.2 |   |
| Impact of favorable  foreign currency translation on net sales                                                         |         | $                                         | 5.0        |   | $ | 20.4 |   | $ | 54.7 |   |
|                                                                                                                        |              |                                           |            |  |  |  |  |  |  |  |  |  |

 

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.

**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 $46.8 million on a projected benefit obligation basis asof December 31, 2006.  A significantdecline in the value of the plan investments in the future or unfavorablechanges in laws or regulations that govern pension plan funding could materiallychange the timing and amount of required pension funding.  We also sponsor foreign and non-qualifiedpension plans under which there are substantial unfunded liabilities, totalingapproximately $246.3 million on a projected benefit obligation basis as ofDecember 31, 2006.  In addition, wesponsor post-retirement health care plans under which there are substantialunfunded liabilities, totaling approximately $161.0 million on a projectedbenefit obligation basis as of December 31, 2006.  Mandatory funding contributions with respectto our tax-qualified pension plans and potential unfunded benefit liabilityclaims could have a material adverse effect on our financial condition, resultsof operations or cash flow.

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

We recently began toutilize third-party distributors for sales and service to some customers thatpurchase small annual quantities of our products.  We believe that this action will lower ourcosts associated with serving smaller customers, thus enhancing profitabilityand reducing our investment in inventory. However, it is possible that changing our sales strategy with respect tothese customers could result in the loss of volume to some customers or somedisruption in selling and in inventory management 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,

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mechanical failure,unscheduled downtime, labor difficulties, transportation interruptions,remediation complications, chemical spills, discharges or releases of toxic orhazardous gases, storage tank leaks, and other environmental risks.  These hazards can cause personal injury andloss of life, severe damage to, or destruction of, property and equipment andenvironmental damage, fines, and liabilities and could have a material adverseeffect on our business, financial condition, results of operations or cashflows.

**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 4,000 UnitedStates and foreign patents and pending applications and have trademarkprotection for approximately 1,000 product names.  Patents, trademarks, trade secrets in thenature of know-how, formulations, and manufacturing techniques assist us inmaintaining the competitive position of certain of our products.  Our intellectual property is of particularimportance to a number of specialty chemicals we manufacture and sell.  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 our employees and third parties to restrict theuse and disclosure of our trade secrets and proprietary know-how, thoseconfidentiality agreements may be breached. In addition, adequate remedies may not be available in the event of anunauthorized use or disclosure of such trade secrets and know-how, and otherscould obtain knowledge of such trade secrets through independent development orother access by legal means.  The failureof our patents, trademarks or confidentiality agreements to protect ourprocesses, apparatuses, technology, trade secrets, or proprietary know-howcould have a material adverse effect on our 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 themarkets where we sell our products, the products are subject to a traditionalproduct life cycle.  We devotesignificant human and financial resources to develop new technologicallyadvanced products and services and we may not be successful in our research anddevelopment efforts.

**Convergenceof our information systems could have an adverse effect on our internalcontrols over financial reporting or our results of operations.**

We continue tointegrate the former Great Lakes enterprise-wide information system and certaininternational systems into our existing SAP system in order to standardize ourdata and create efficiencies in processing

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information.  The transition from these systems or theinability to transition to one standard system could adversely affect ourbusiness and operations and the timeliness with which we report our internaland 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 divestiture plan could adversely affect ourfinancial 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.  While we estimate thepotential proceeds from these divestitures could be significant, there can beno assurance that any of these transactions can be successfully completed orthat we will realize the proceeds or cost savings we anticipate receiving.

**ITEM 1B.  UNRESOLVEDSTAFF COMMENTS**

None.

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**ITEM2.  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, 2007.  All properties are owned in fee except whereotherwise indicated:
| **Location**       | **Facility**                             | **Reporting Segment**                                              |
|--------------------|------------------------------------------|--------------------------------------------------------------------|
|               |                                     |                                                               |
| **UNITED  STATES** | ** **                               | ** **                                                         |
| Alabama            |                                     |                                                               |
| Bay Minette        | Plant                                    | Plastic Additives                                                  |
|               |                                     |                                                               |
| Arkansas           |                                     |                                                               |
| El Dorado          | Plant                                    | Plastic Additives, Crop Protection, Other                          |
|               |                                     |                                                               |
| Connecticut        |                                     |                                                               |
| Bethany            | Research Center                          | Crop Protection                                                    |
| Middlebury         | Corporate Offices, Research Center* | Corporate Headquarters                                             |
| Naugatuck          | Research Center                          | Plastic Additives, Polymers                                   |
|               |                                     |                                                               |
| Georgia            |                                     |                                                               |
| Conyers            | Plant                                    | Consumer Products                                                  |
| Lawrenceville      | Office, Laboratory*                      | Consumer Products                                                  |
|               |                                     |                                                               |
| Illinois           |                                     |                                                               |
| Mapleton           | Plant                                    | Plastic Additives                                                  |
| Pekin              | Plant, Warehouse*                        | Crop Protection                                                    |
|               |                                     |                                                               |
| Indiana            |                                     |                                                               |
| Ashley             | Plant                                    | Consumer Products                                                  |
| West Lafayette     | Office, Laboratory                       | Plastic Additives, Other                                           |
|               |                                     |                                                               |
| Louisiana          |                                     |                                                               |
| Geismar            | Plant                                    | Plastic Additives, Polymers, Specialty Additives,  Crop Protection |
| Taft               | Plant                                    | Plastic Additives                                                  |
| Lake Charles       | Plant                                    | Consumer Products                                                  |
|               |                                     |                                                               |
| Michigan           |                                     |                                                               |
| Adrian             | Plant                                    | Consumer Products, Other                                           |
|               |                                     |                                                               |
| New Jersey         |                                     |                                                               |
| East Handover      | Plant                                    | Specialty Additives                                                |
| Fords              | Plant                                    | Specialty Additives                                                |
| Perth Amboy        | Plant                                    | Plastic Additives, Polymers                                        |
|               |                                     |                                                               |
| North Carolina     |                                     |                                                               |
| Gastonia           | Plant                                    | Plastic Additives, Polymers, Specialty Additives,  Crop Protection |
|               |                                     |                                                               |
| Tennessee          |                                     |                                                               |
| Memphis            | Plant                                    | Plastic Additives                                                  |
|               |                                     |                                                               |
| Texas              |                                     |                                                               |
| Marshall           | Plant                                    | Plastic Additives                                                  |
|               |                                     |                                                               |
| West Virginia      |                                     |                                                               |
| Morgantown         | Plant, Research Center                   | Plastic Additives, Specialty Additives                             |
|               |                                     |                                                               |
| ** **         |                                     |                                                               |
| **INTERNATIONAL**  | ** **                               | ** **                                                         |
| Argentina          |                                     |                                                               |
| Buenos Aires       | Office*                                  | Crop Protection                                                    |
|               |                                     |                                                               |
| Australia          |                                     |                                                               |
|  Adelaide     | Office*                                  | Crop Protection                                                    |
|  Mulgrave     | Office*                                  | Consumer Products                                                  |
|  Seven  Hills | Office, Laboratory*                      | Polymers                                                           |
|               |                                     |                                                               |
| Belgium            |                                     |                                                               |
| Antwerp            | Office*                                  | Plastic Additives, Polymers, Specialty Additives,  Other           |
| Herentals          | Laboratory*                              | Plastic Additives                                                  |

 

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| Location           | **Facility**                  | **Reporting  Segment**                                              |
|--------------------|-------------------------------|---------------------------------------------------------------------|
|               |                          |                                                                |
| Brazil             |                          |                                                                |
| Rio Claro          | Plant                         | Plastic Additives, Polymers, Specialty Additives,  Crop Protection  |
| Sao Paulo          | Office*                       | Plastic Additives, Polymers, Specialty Additives,  Crop Protection  |
|               |                          |                                                                |
| Canada             |                          |                                                                |
| Elmira             | Plant                         | Specialty Additives, Crop Protection, Plastic  Additives, Polymers  |
| Guelph             | Research Center               | Crop Protection                                                     |
| Oakville           | Plant*                        | Specialty Additives                                                 |
| Scarborough        | Plant*                        | Specialty Additives                                                 |
| West Hill          | Plant                         | Specialty Additives                                                 |
|               |                          |                                                                |
| France             |                          |                                                                |
| Catenoy            | Plant                         | Plastic Additives                                                   |
| Dardilly           | Office*                       | Consumer Products                                                   |
|               |                          |                                                                |
|               |                          |                                                                |
| Germany            |                          |                                                                |
| Bergkamen          | Plant*, Research Center       | Plastic Additives                                                   |
| Lampertheim        | Plant, Research Center        | Plastic Additives                                                   |
| Waldkraiburg       | Plant                         | Plastic Additives                                                   |
| Planegg            | Office*                       | Consumer Products                                                   |
|               |                          |                                                                |
| Italy              |                          |                                                                |
| Latina             | Plant                         | Plastic Additives, Polymers, Crop Protection,  Specialty Additives  |
| Ravenna            | Plant                         | Plastic Additives, Other                                            |
| Pedrengo           | Plant                         | Plastic Additives                                                   |
|               |                          |                                                                |
| Mexico             |                          |                                                                |
| Altamira           | Plant                         | Plastic Additives, Specialty Additives                              |
| Reynosa            | Plant                         | Plastic Additives                                                   |
|               |                          |                                                                |
| The Netherlands    |                          |                                                                |
| Amsterdam          | Plant                         | Crop Protection                                                     |
|               |                          |                                                                |
| Republic of  China |                          |                                                                |
| Nanjing            | Plant                         | Polymers                                                            |
| Shanghai           | Office*                       | Corporate                                                           |
|               |                          |                                                                |
| Russia             |                          |                                                                |
| Kazan City         | Office*                       | Crop Protection                                                     |
| Moscow             | Office*                       | Crop Protection                                                     |
|               |                          |                                                                |
| Singapore          | Administrative, Sales Office* | Plastic Additives, Polymers, Specialty Additives,  Other, Corporate |
|               |                          |                                                                |
| South Korea        |                          |                                                                |
| Pyeongtack         | Plant**                       | Plastic Additives                                                   |
|               |                          |                                                                |
| Switzerland        |                          |                                                                |
| Frauenfeld         | Office*                       | Plastic Additives, Corporate                                        |
|               |                          |                                                                |
| Taiwan             |                          |                                                                |
| Kaohsiung          | Plant***                      | Plastic Additives, Specialty Additives                              |
|               |                          |                                                                |
| United Kingdom     |                          |                                                                |
| Accrington         | Plant****                     | Polymers                                                            |
| Droitwich          | Plant****                     | Polymers                                                            |
| Evesham            | Research Center               | Crop Protection                                                     |
| Langley            | Office*                       | Specialty Additives, Crop Protection                                |
| Cheltenham         | Plant*                        | Consumer Products                                                   |
| Trafford Park      | Plant                         | Plastic Additives, Other                                            |

----

*     Facility leased by the Corporation.

**     Facility owned by Asia Stabilizers Co.Ltd., which is 65% owned by the Corporation.

***     Facility owned by Uniroyal ChemicalTaiwan Ltd., which is 80% owned by the Corporation.

****     Facilityowned by Baxenden Chemicals Limited, which is 53.5% owned by theCorporation.

Allfacilities are considered to be in good operating condition, well maintained,and suitable for the Corporation’s requirements.

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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, 2006, was $124.4 million.  The Company estimates the reasonably possibleand estimable environmental liability to range from $112 million to $162million at December 31, 2006.  TheCompany’s reserves include estimates for determinable clean-up costs.  During 2006, the Company recorded a pre-taxcharge of $7.3 million to increase its environmental liabilities and madepayments of $25 million for clean-up costs, which reduced its environmentalliabilities.  At a number of these sites,the extent of contamination has not yet been fully investigated or the finalscope of remediation 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 these regulations have been construedto authorize joint and several liability, the EPA could seek to recover allcosts involving a waste disposal site from any one of the PRP’s for such site,including the Company, despite the involvement of other PRP’s.  In many cases, the Company is one of severalhundred PRP’s so identified.  In a fewinstances, the Company is one of only a handful of PRP’s, and at one site, theCompany is the only PRP 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*- Uniroyal Chemical Company, Inc. (“Uniroyal”) (a wholly owned subsidiary ofthe Company) and its Canadian subsidiary, Uniroyal Chemical Co./Cie (formerlyknown as Uniroyal Chemical Ltd./Ltee and now known as Chemtura Canada Co./Cie)were joined with others as defendants in consolidated civil actions brought inthe United States District Court, Eastern District of Arkansas, WesternDivision (“Court”) by the United States, the State of Arkansas and HerculesIncorporated (“Hercules”), relating to a Vertac Chemical Company site inJacksonville, Arkansas.  Uniroyal has been dismissed from the litigation. However, on May 21, 1997, the Court entered an order finding that UniroyalChemical Co./Cie is jointly and severally liable to the United States, andfinding that Hercules and Uniroyal Chemical Co./Cie are liable to each other incontribution. On October 23, 1998, the Court entered an order granting theUnited States’ motion for summary judgment against Uniroyal Chemical Co./Cieand Hercules as to the amount of its claimed removal and remediation costs of$102.9 million at the Vertac site.  Trial on the allocation of these costsas between Uniroyal Chemical Co./Cie and Hercules was concluded on November 6,1998, and on February 3, 2000, the Court entered an Order finding UniroyalChemical Co./Cie liable to the United States for approximately $2.3 million andliable to Hercules in contribution for approximately $0.7 million.  OnApril 10, 2001, the United States Court of Appeals for the Eighth Circuit (“AppealsCourt”) (i) reversed a decision in favor of the United States and againstHercules with regard to the issue of divisibility of harm and remanded the caseback to the Court for a trial on the issue; (ii) affirmed the finding of

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arranger liabilityagainst Uniroyal Chemical Co./Cie; and (iii) set aside the findings ofcontribution between Hercules and Uniroyal Chemical Co./Cie by the Courtpending a decision upon remand.  The Appeals Court also deferred ruling onall constitutional issues raised by Hercules and Uniroyal Chemical Co./Ciepending subsequent findings by the Court.  On June 6, 2001, the AppealsCourt denied Uniroyal Chemical Co./Cie’s petition for rehearing by the fullAppeals Court on the Appeals Court’s finding of arranger liability againstUniroyal Chemical Co./Cie and on December 10, 2001, Uniroyal Chemical Co./Cie’sPetition for a Writ of Certiorari to the United States Supreme Court withregard to the issue of its arranger liability was denied.  On December 12,2001, the Court concluded hearings pursuant to the April 10, 2001 remand by theAppeals Court and briefing on the issue of divisibility was completed inJanuary 2003.  On March 30, 2005, the Court entered a memorandumopinion and order finding no basis for Hercules’ claim of divisibility of harmfor the damages arising from the remediation for which Hercules and UniroyalChemical Co./Cie had previously been found jointly and severally liable. TheCourt also rejected challenges to the constitutionality of the ComprehensiveEnvironmental Response, Compensation, and Liability Act (CERCLA) and itsapplication in this case. Further, the Court affirmed its earlier findingsregarding allocation. The net result of the memorandum opinion and order is theallocation of liability upon Uniroyal Chemical Co./Cie of 2.6 percent ofthe damages imposed jointly and severally upon Uniroyal Chemical Co./Cie andHercules. This finding returns the parties to the positions held following theCourt’s February 3, 2000 order, which resulted in liability upon UniroyalChemical Co./Cie to the United States for approximately $2.9 million andliability to Hercules for contribution for approximately$0.7 million.  The Appeals Court affirmed the judgment on July 13,2006, and later denied petitions for rehearing.  Both Uniroyal ChemicalCo,/Cie and Hercules have filed petitions for writs of certiorari in the SupremeCourt of the United States.

*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 lower court’sopinion. Multiple lawsuits have been filed against the Company byindividuals who were a part of the putative class.

*Scarborough* -The Ontario Ministry of the Environment has brought an action against ChemturaCo./Cie in connection with a 2004 release of naphtha sulfonic acid at ChemturaCo./Cie’s Scarborough, Ontario, Canada facility.  Although Chemtura Co./Cie is currentlycontesting liability for this release, potential monetary sanctions could reach$100,000 or more.

**Legal Proceedings**

*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 stateclass actions, as well as the putative class action pending in federal districtcourt, seek recovery for economic and non-economic damages allegedly arisingfrom the fire.  Punitive damages aresought in the Davis case in Rockdale County, Georgia and in the Martin case inthe United States District Court for the Northern District of Georgia. The Martin case also seeks a declaratory judgment to reform certainsettlements, as well as medical monitoring and injunctive relief.  The Company intends to vigorously defend againstthese lawsuits.

The Company was also namedas a defendant in fifteen lawsuits filed by individual or multi-partyplaintiffs in the Georgia and Federal courts pertaining to the May 25, 2004fire at its Conyers, Georgia warehouse.  Two of these lawsuits have beenvoluntarily dismissed without prejudice by the plaintiffs, and three have beendismissed with prejudice.  The plaintiffs in the remaining lawsuits seekrecovery for economic and non-economic damages, including punitive damages insix of the ten remaining lawsuits.  One of the lawsuits, the Diana Smithcase, was filed in the United States District Court for the Northern Districtof Georgia against the Company, as well as the City of Conyers and RockdaleCounty, and included allegations similar to those in the other lawsuits notedabove, but adding claims for alleged civil rights violations, federalOccupational Safety and Health Administration violations, Georgia RacketeerInfluenced and Corrupt Organizations Act violations, criminal negligence,reckless endangerment, false imprisonment, and kidnapping, among otherclaims.  The federal law claims have been

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dismissed with prejudice and the state law claims have been dismissedwithout prejudice. The Court has also dismissed without prejudice theplaintiffs’ claims against the City of Conyers and Rockdale County. The Companyintends to vigorously defend against these lawsuits.

 

On or 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 defend againstthis lawsuit.

 

Within one day of thefire, the Company established a claims office to resolve all legitimateeconomic and personal injury claims in the Rockdale County, Georgia area. The Company still maintains a claims office in Conyers, and continues tonegotiate the settlement of claims whether submitted through the claims officeor otherwise. At the time of the fire, the Company maintained, and continues tomaintain, property and general liability insurance.  The Company believesthat its general liability policies will adequately cover any third partyclaims and legal and processing fees in excess of the amounts that wererecorded through December 31, 2006.

*AlbemarleCorporation -* In May 2002,Albemarle Corporation filed two complaints against the Company in the UnitedStates District Court for the Middle District of Louisiana, one alleging thatthe Company infringed three process patents held by Albemarle Corporationrelating to bromine vacuum tower technology, and the other alleging that theCompany infringed or contributed to or induced the infringement of a patentrelating to the use of decabromodiphenyl ethane as a flame retardant inthermoplastics. On a motion by the Company and over Albemarle’s objection, thecases were consolidated.  In addition, the Company filed a counterclaimwith the District Court in the flame retardant cases, alleging, among otherthings, that the Albemarle patent is invalid or was obtained as a result ofinequitable conduct from the United States Patent and Trademark Office. InMarch 2004, Albemarle amended its consolidated complaint to add additionalcounts of patent infringement and trade secret violations.  The Companybelieves that the allegations of Albemarle in the consolidated complaint, aswell as the allegations in the additional counts, are without basis, factuallyor legally, and intends to defend 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 arecently granted U.S. patent held by Albemarle relating to a decabromodiphenylethane “wet cake” intermediate product.  The Company believes that theallegations of the complaint are without basis, factually or legally, andintends to defend the case vigorously.  The parties are currentlycompleting the discovery phase of the cases and, in the first case describedabove, are preparing for a hearing on claim construction scheduled for thefirst quarter of 2007.

*OSCA —*Great Lakes previously held interests in OSCA, Inc., which interests weredivested to BJ Services Company in May 2002.  OSCA is a party to certainpending litigation regarding a blowout of a well in the Gulf of Mexico operatedby Newfield Exploration Company.  In the lawsuit, the plaintiffs claimedthat 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 $13.3 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 Circuit Courtof Appeals affirmed the jury’s verdict on liability against OSCA, but reversedin part the District Court’s decision regarding insurance coverage available toOSCA and remanded the matter to the District Court.  The District Courtwill now determine what portion of the judgment against OSCA is covered byinsurance after applying a policy exclusion that the Fifth Circuit found to bevalid and applicable.

Each quarter the Companyevaluates and reviews pending claims and litigation to determine appropriatereserve amounts.  As of December 31, 2006, 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

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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 1995 toDecember 2001. The U.S. federal court imposed a fine of $50.0 million, payablein six annual installments, without interest, beginning in 2004. In light ofthe Company’s cooperation with the U.S. Department of Justice (the “DOJ”), thecourt did not impose any period of corporate probation.  On May 28, 2004,the Company pled guilty to one count of conspiring to lessen competition undulyin the sale and marketing of certain rubber chemicals in Canada. The Canadianfederal court imposed a sentence requiring the Company to pay a fine of CDN$9.0 million (approximately U.S. $7 million), payable in six annualinstallments, without interest, beginning in 2004. The Company paid (in U.S.dollars) $2.3 million in 2004, $2.3 million in 2005, and $7.0 million in 2006 incash, for the U.S. and Canadian fines. Remaining cash payments for the U.S. andCanadian fines are expected to equal (in U.S. dollars) approximately $11.6million in 2007; $16.2 million in 2008; and $18.5 million in 2009.  At December 31, 2006, the company hadreserves of $42.5 million related to these settlements.

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.  On December 21, 2005, the Companyannounced that the EC imposed a fine of Euro 13.6 million (approximately U.S.$16 million) on the Company in connection with the EC’s rubber chemicalsinvestigation.  The amount of the fine reflects the EC’s maximum leniencyof a 50 percent reduction in the fine, resulting from the Company’s continualcooperation with the EC throughout its investigation.  In December 2005,the Company recorded a pre-tax charge of $16.1 million for the EC fine, whichis included in accrued expenses on the Company’s consolidated balance sheet atDecember 31, 2005.  The Company paid this fine in April 2006.  AtDecember 31, 2006, there are no remaining EC investigations of the Company withrespect to its sale and marketing of rubber chemicals.

*OtherProduct Areas*

The Company and certainof its subsidiaries are subjects of, and continue to cooperate in, coordinatedcriminal and civil investigations being conducted by the DOJ, the CanadianCompetition Bureau and the EC (collectively, the “Governmental Authorities”)with respect to possible antitrust violations relating to the sale andmarketing of certain other products.  The Governmental Authorities areeach conducting investigations with respect to various classes of heatstabilizers; nitrile rubber; and, in the case of the DOJ and the CanadianCompetition Bureau, urethanes and urethane chemicals.  Such investigationsconcern anticompetitive practices, including price fixing and customer ormarket allocations, undertaken by the Company and such subsidiaries and certainof their officers and employees. The Company and its subsidiaries that aresubject to the investigations have received from each of the GovernmentalAuthorities verbal or written assurances of conditional amnesty from prosecutionand fines. The EC has granted conditional amnesty with respect to certainclasses of heat stabilizers.  The assurances of amnesty are conditionedupon several factors, including continued cooperation with the GovernmentalAuthorities. The Company is actively cooperating with the GovernmentalAuthorities regarding such investigations.

*InternalInvestigation*

The Company has completedits internal investigation of the Company’s business and products to determine

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compliance withapplicable antitrust law and with the Company’s antitrust guidelines andpolicies. During the course of its internal investigation, the Companystrengthened its training and compliance programs and took certain actions withrespect to certain employees, including termination of employment and otherdisciplinary actions.

*Impactupon the Company*

The Company does notexpect the previously described resolution of the rubber chemicalsinvestigations by the United States, Canada and the EC to have a materialadverse effect on its cash flows.  However, the resolution of any otherpossible antitrust violations against the Company and certain of itssubsidiaries and the resolution of any civil claims now pending or hereafterasserted against them may have a material adverse effect on the Company’sfinancial condition, results of operations, cash flows or prospects. Noassurances can be given regarding the outcome or timing of these matters.

Civil Lawsuits

Except for those actionsindicated as being subject to a settlement agreement, dismissed by theapplicable court or as otherwise provided, the actions described below under “U.S.Civil Antitrust Actions” and “Canadian Civil Antitrust Actions” are in variousprocedural stages of litigation.  Although the actions described belowhave not had a material adverse impact on the Company, we cannot predict theoutcome of any of those actions. The Company will seek cost-effectiveresolutions of the various pending and threatened legal proceedings against theCompany; however, the resolution of any civil claims now pending or hereafterasserted against the Company or any of its subsidiaries could have a materialadverse effect on the Company’s financial condition, results of operations orcash flows.  The Company has established reserves for all direct andindirect purchaser claims as of December 31, 2006.

The Company reviews itsreserves for civil lawsuits on a quarterly basis.  The Company alsoadjusts its reserves quarterly to reflect its current best estimates.  TheCompany increased its reserves during 2006 to reflect the increase in actualsettlement offers and settlements in the direct and indirect purchaser lawsuitsdescribed below.

*U.S. Civil Antitrust Actions*

*PartiallyTerminated Global Settlement Agreement*. On January 11, 2005,the Company and plaintiff class representatives entered into a SettlementAgreement (the “Global Settlement Agreement”) that was intended to resolve,with respect to the Company, three consolidated direct purchaser class actionlawsuits filed against the Company, its subsidiary Uniroyal Chemical Company,Inc., now known as Chemtura USA Corporation (referred to as “Uniroyal” forpurposes of the description of the Company’s civil lawsuits), and othercompanies, by plaintiffs on behalf of themselves and classes consisting of allpersons or entities who purchased EPDM, nitrile rubber and rubber chemicals,respectively, in the United States directly from one or more of the defendantsor any predecessor, parent, subsidiary or affiliates thereof, at any timeduring various periods, with the earliest commencing on January 1, 1995. Thecomplaints in the consolidated actions principally alleged that the defendantsconspired to fix, raise, maintain or stabilize prices for EPDM, nitrile rubberand rubber chemicals, as applicable, sold in the United States in violation ofSection 1 of the Sherman Act and that this caused injury to the plaintiffs whopaid artificially inflated prices for such products as a result of such allegedanticompetitive activities.  The Global Settlement Agreement provided thatthe Company would pay a total of $97.0 million, consisting of $62.0 millionwith respect to rubber chemicals, $30.0 million with respect to EPDM and $5.0million with respect to nitrile rubber, in exchange for the final dismissalwith prejudice of the foregoing three lawsuits as to the Company and a completerelease of all claims against the Company set forth in the lawsuits.

In accordance with itsrights under the Global Settlement Agreement, the Company terminated thoseparts of the settlement covering rubber chemicals and EPDM following theexercise of opt out rights by certain potential members of the applicableclasses.  With respect to the EPDM portion of the claims a settlement wasreached on January 22, 2007, which settlement is subject to court approval andpermits potential class members to opt out of the class.  With respect to the rubber chemical portionof the claims a settlement was reached on October 2, 2006.  Several plaintiffs have opted out of theterms of this settlement which is described below under “Rubber Chemicals.” The nitrile rubber portion of the Global Settlement Agreement has been approvedby the United States District Court for the Western District of Pennsylvania.

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*ParaTecElastomers Cross-Claims*.** **A defendant in the class action lawsuit relating to nitrile rubber, ParaTecElastomers LLC, a former joint venture in which the Company previously owned amajority interest but now has no interest, asserted cross claims against theCompany and its subsidiary Uniroyal in this class action, seekingindemnification for settlements that ParaTec Elastomers LLC has entered intoand damages that ParaTec Elastomers LLC has allegedly suffered or may suffer asa result of the Company’s actions, including the Company’s alleged failure toobtain immunity for ParaTec Elastomers with respect to the EC’s investigationof the sale and marketing of nitrile rubber.  The ParaTec Elastomerscomplaint seeks damages of unspecified amounts, including attorneys’ fees andpunitive damages with respect to certain of the alleged causes of action,injunctive relief, pre- and post-judgment interest, costs and disbursements andsuch other relief as the court deems just and proper.  On August 6, 2004,the Company filed a motion to dismiss the cross claims, or in the alternativeto compel arbitration.  On September 29, 2005, the motion to dismiss wasgranted with respect to the plaintiff’s claims of violation of the ConnecticutUnfair Trade Practices Act, breach of contract, fraud and promissory estoppel. The motion to dismiss was denied with respect to the plaintiff’s claims forcontractual indemnification pursuant to the ParaTec Elastomers LLC Agreement,breach of fiduciary duty and breach of covenant of good faith and fairdealing.  In addition, the court denied the Company’s motion to compelarbitration.  The Company has appealed the denial of its motion to compelarbitration. The Company’s appeal was successful and on November 30, 2006the court granted the Company’s motion to compel arbitration.  The Company believes these claims are withoutmerit, as they relate to conduct occurring exclusively after ParaTec Elastomerswas sold.

*RemainingDirect and Indirect Purchaser Lawsuits*. The Company,individually or together with its subsidiary Uniroyal, and other companies,continues to be or has become a defendant in certain direct and indirectpurchaser lawsuits filed in federal courts during the period from May 2004through January 2006 and in certain state court antitrust class action lawsuitsfiled in state courts during the period from October 2002 to January 2006involving the sale of rubber chemicals, EPDM, polychloroprene, nitrile rubber,plastic additives, and urethanes and urethane chemicals.

The complaints in theseactions (as further described below) principally allege that the defendantsconspired to fix, raise, maintain or stabilize prices for rubber chemicals,EPDM, polychloroprene, nitrile rubber, plastic additives, or urethanes andurethane chemicals, as applicable, sold in the United States in violation ofSection 1 of the Sherman Act or in violation of certain antitrust statutes andconsumer protection and unfair or deceptive practices laws of the relevantjurisdictions and that this caused injury to the plaintiffs who paidartificially inflated prices for such products as a result of such allegedanticompetitive activities. With respect to the complaints relating to thesale of polychloroprene (as further described below), although the Company doesnot sell or market polychloroprene, the complaints allege that the Company andproducers of polychloroprene conspired to raise prices with respect topolychloroprene and the other products included in the complaint collectivelyin one conspiracy.  In each of the foregoing actions, the plaintiffs seek,among other things, treble damages of unspecified amounts, costs (includingattorneys’ fees) and injunctive relief preventing further violations or theimproper conduct alleged in the complaint.

*RubberChemicals.* The Company has entered into a settlementagreement in the direct federal rubber chemical cases previously subject to theGlobal Settlement Agreement.  The Company has also entered into asettlement agreement with respect to a direct federal purchaser lawsuit filedin the United States District Court, Middle District of Tennessee andsubsequently transferred to the United States District Court, Northern Districtof California.

In October 2006, the$51.0 million was paid into an escrow account and recorded as a depositincluded in other current assets on the Company’s consolidated balance sheet atDecember 31, 2006.  The $51.0 millionsettlement was paid to the claimant in the first quarter of 2007.  Inanticipation of this settlement, $36.7 million was added to already existingrubber chemicals reserves in 2006.  Thisagreement, when combined with settlements with other entities, means thatChemtura has now resolved over 95 percent of its exposure for United Statesdirect purchaser rubber chemicals claims.

The remaining directfederal lawsuit was filed on June 29, 2006, in the United States DistrictCourt, Middle District of Tennessee by Bridgestone Americas Holding, Inc,Bridgestone Firestone North American Tire, LLC, Bandag, Incorporated, andPirelli Tire, LLC with respect to purchases of rubber chemicals from one orboth of the defendants.  This action was transferred to the United StatesDistrict Court, Northern District of California.  The Company has entered into a settlementagreement resolving the claims with respect to this lawsuit, except for thoseclaims related to Bandag, Incorporated.

25

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The Company and certainof its subsidiaries also remain defendants in seven pending indirect putativeclass action lawsuits for alleged violations of state law filed in state courtsin California, Florida, Massachusetts, Pennsylvania, Tennessee and WestVirginia between October 2002 and March 2004.  Plaintiffs in theCalifornia lawsuit were denied class certification on January 30, 2006 and areappealing that decision. Two of these lawsuits are multi-product lawsuitsand are described under the heading “Multi-Product Lawsuits” below. The Companyand its defendant subsidiaries have filed motions to dismiss with respect tosix of these seven pending lawsuits. Certain motions to dismiss remain pending,and other motions to dismiss have been denied by the applicable court, whichare being, or will be, appealed by the Company and its defendant subsidiaries.

*EPDM*.With respect to EPDM, the Company has entered into settlement agreements withrespect to the consolidated EPDM direct purchaser lawsuit previously subject tothe Global Settlement Agreement as described above, and a second directpurchaser lawsuit previously pending in the United States District Court,District of Connecticut.  The remaining two pending direct federalpurchaser lawsuits are multi-product lawsuits and are described separatelyunder the heading “Multi-Product Lawsuits” below.

The Company and certainof its subsidiaries also remain defendants in twelve pending indirect putativeclass action lawsuits for alleged violations of state law with respect to EPDMfiled in state courts in California, Florida, Iowa, Kansas, Nebraska, NewMexico, New York, North Carolina, Pennsylvania and Vermont between April 2004and February 2005.  Four of these lawsuits are multi-product lawsuits andare described under the heading “Multi-Product Lawsuits” below.  The Company has entered into a settlementagreement resolving claims with respect to one lawsuit filed inCalifornia.  The Company’s motion todismiss was granted with respect to a lawsuit previously pending in Florida.

*NitrileRubber.* With respect to nitrile rubber, the Company, Uniroyaland other companies are defendants in two multi-product direct purchaserlawsuits involving nitrile rubber, which are described separately below. The Company and certain of its subsidiaries also remain defendants in fourpending indirect putative class action multi-product lawsuits for allegedviolations of state law filed in state courts in California, Florida, New Yorkand Pennsylvania.  These lawsuits aredescribed under the heading “Multi-Product Lawsuits” below.  The Companyhas entered into a settlement agreement which is intended to resolve claimswith respect to three indirect putative class action lawsuits previouslypending in Nebraska, Tennessee and Vermont.

*PlasticsAdditives.* With respect to plastic additives, the Company hasentered into a settlement agreement which is intended to resolve claims withrespect to one federal indirect purchaser lawsuit filed in the United StatesDistrict Court, Eastern District of Pennsylvania in August 2005, and onepending indirect putative class action lawsuit for alleged violations of statelaw filed in state court in Nebraska in February 2005.  The Company has also settled claims withrespect to one pending indirect putative class action lawsuit for allegedviolations of state law filed in the California state court in May 2004.

*Urethanes*.With respect to urethanes, the Company, Uniroyal and other companies aredefendants in a consolidated federal direct purchaser class action lawsuitfiled in November 2004 in the United States District Court, District of Kansas.This action consolidates twenty-six direct purchaser class action lawsuitspreviously described in the Company’s prior periodic reports filed with theSecurities and Exchange Commission.  The Company, Uniroyal and othercompanies are also defendants in one direct multi-product lawsuit involvingurethanes described separately under the heading “Multi-Product Lawsuits” below.

With respect toUrethanes, the Company remains a defendant in seventeen pending indirectputative class action lawsuits for alleged violations of state law filed inCalifornia, Florida, Massachusetts, New York, Pennsylvania and Tennessee,between March 2004 and October 2005.  Four of these lawsuits aremulti-product lawsuits and are described under the heading “Multi-ProductLawsuits” below.

*Multi-ProductLawsuits*. The Company, Uniroyal and other companies aredefendants in two federal direct purchaser lawsuits which are multi-productlawsuits for alleged violations of state law.  The first lawsuit was filedon November 16, 2004, in the United States District Court, Northern District ofOhio, by Parker Hannifin Corporation and PolyOne Corporation with respect topurchases of EPDM, nitrile rubber and polychloroprene from one or more of thedefendants.  This action has been transferred to the District ofConnecticut. Parker Hannifin Corporation’s claims with respect to thenitrile rubber portion of this suit have been settled.  All of PolyOne’sclaims with respect to this lawsuit have been settled.

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The second lawsuit wasfiled on February 10, 2005 in Massachusetts state court. This lawsuit wassubsequently removed to the United States District Court, District ofMassachusetts.  The claims in this lawsuit relate to purchases of anyproduct containing rubber and urethane products, defined to include EPDM,nitrile rubber, urethanes.

The Company, itssubsidiary Uniroyal, and other companies are defendants in four pendingindirect putative purchaser class action lawsuits in four states that eachinvolve multiple products. Two of the outstanding multi-product lawsuits relateto purchases of any product containing rubber and urethane products, defined toinclude rubber chemicals, EPDM, nitrile rubber and urethanes.  Theremaining two outstanding multi-product lawsuits relate to purchases of anyproduct containing rubber and urethane products, defined to include EPDM,nitrile rubber, urethanes.  An indirect purchaser class action previouslypending in Massachusetts state court has been removed to the United StatesDistrict Court, District of Massachusetts and is described above.

At December 31, 2006, theCompany had a remaining reserve of $102.5 million included in accrued expenseson its consolidated balance sheets relating to the remaining U.S. direct andindirect purchaser lawsuits, the federal securities class action lawsuitdescribed under “Federal Securities Class Action” below and the shareholderderivative lawsuit described under “Shareholder Derivative Lawsuit” below.  These reserves cover all direct and indirectpurchaser antitrust claims in the rubber, EPDM, plastic additives, urethanesand nitrile rubber civil cases.  TheCompany periodically reviews its accruals as additional information becomesavailable, and may adjust its accruals based on later occurring events.

*Canadian Civil Antitrust Actions*

*EPDM*. TheCompany and the plaintiffs in three previously disclosed Canadian class actionlawsuits relating to EPDM have entered into a settlement agreement, dated as ofSeptember 19, 2005 (the “EPDM Settlement Agreement”), that is intended toresolve, with respect to the Company and its defendant subsidiaries, the threelawsuits filed in Canada.

The EPDM Settlement Agreementrequired that the Company pay CDN $4.5 million (approximately U.S. $3.9million) to the class claimants in Canada covering all direct and indirectpurchasers of EPDM during the class period of January 1, 1997 toDecember 31, 2001 in exchange for the final dismissal with prejudice ofthe lawsuit as to the Company and its subsidiary defendants and a completerelease of all claims against the Company and its subsidiary defendants setforth in the lawsuits.  This settlement amount was paid in the fourthquarter of 2005. The EPDM Settlement Agreement, which has been approved by theapplicable courts, permitted potential class members to opt out of the classand the Company to recover a portion of the settlement funds with respect tothose potential class members that chose to opt out of the settlement. Theopt-out period expired on March 6, 2006 and one class member opted out. In April of 2006, the Company recovered CDN $0.3 million (approximatelyU.S. $0.3 million) in previously paid settlement funds related to this opt-out.

*RubberChemicals*. The Company has entered into a settlementagreement, dated as of December 1, 2005 (the “Rubber Chemicals SettlementAgreement”), that is intended to resolve, with respect to the Company and itsdefendant subsidiaries, four Canadian class action lawsuits.

The Rubber ChemicalsSettlement Agreement proposes the certification of the lawsuits as classactions for purposes of the settlement and provides that the Company pay CDN$7.2 million (approximately U.S. $6.4 million) to the class claimants in Canadacovering all persons who purchased rubber chemicals products in Canada duringthe class period of July 1, 1995 to December 31, 2001, in exchangefor the final dismissal with prejudice of the lawsuits as to the Company and itsdefendant subsidiaries and a complete release of all claims against the Companyand its defendant subsidiaries set forth in the lawsuits. The Rubber ChemicalsSettlement Agreement has been approved by the applicable courts.  The optout period expired on or about September 18, 2006.  In December 2006, theCompany recovered CDN $2.9 million (approximately U.S. $2.6) of settlementfunds that were related to four potential class members that chose to, or weredeemed to, opt out of the settlement. Additionally in December 2006, the Company made a final payment of CDN$4.3 million (approximately U.S. $3.8 million) to settle this matter.

*PolyesterPolyols* (previously described as Urethanes and UrethaneChemicals). The Company and the plaintiffs in two Canadian class actionlawsuits relating to polyester polyols (which is a chemical used in themanufacture of polyurethanes) or products that directly or indirectly containor are derived from polyester polyols (collectively,

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“Polyester Polyols”) haveentered into a settlement agreement, dated November 8, 2005 (the “PolyesterPolyols Settlement Agreement”), that is intended to resolve, with respect tothe Company and its defendant subsidiaries, the Canadian lawsuits.

The Polyester PolyolsSettlement Agreement proposes the certification of the lawsuits as classactions for purposes of the settlement and provides that the Company payCDN $69,000 (approximately U.S. $60,000) to the class claimants inCanada who purchased Polyester Polyols in Canada during the class period ofFebruary 1, 1998 to December 31, 2002, in exchange for the finaldismissal with prejudice of the lawsuits as to the Company and its defendantsubsidiaries and a complete release of all claims against the Company and itsdefendant subsidiaries set forth in the lawsuits. The Polyester PolyolsSettlement Agreement, which is subject to the approval of the courts in Ontarioand Quebec identified above and notice to class members, permits potentialclass members to opt out of the class and the Company to recover a portion ofthe settlement funds with respect to certain potential class members thatchoose to opt out of the settlement.  The amount of the recovery is notestimable at this time.

At December 31, 2006, theCompany had no remaining reserves relating to the direct and indirect purchaserlawsuits for Canadian matters.

The reserveactivity for antitrust related litigation is summarized as follows:

Governmental Reserves:
| ***(In thousands)***                   | *** *** | *** *** | ** ** | **U.S. DOJ  Fines** | ** ** | **Canada  Federal  Fines** | ** ** | **Total U.S  and Canada  Fines** | ** ** | **European  Commission** | ** ** |
|---------------------------------------------|--------------|--------------|------------|--------------------------|------------|----------------------------|------------|--------------------------------------------|------------|--------------------------|------------|
| Balance December  31, 2004                  |         | $            | 40,226     |                     | $          | 5,985                      |       | $                                          | 46,211     |                     | $          | — |   |
| 2005 Antitrust  costs, excluding legal fees |         | —       |       | —                   |       | —                     |       | 16,051                                     |       |
| Payments                                    |         | (2,000       | )          | (286                     | )          | (2,286                     | )          | —                                     |       |
| Accretion -  Interest                       |         | 2,419        |       | 357                      |       | 2,776                      |       | —                                     |       |
| Foreign currency  translation               |         | —       |       | 94                       |       | 94                         |       | —                                     |       |
| Balance December  31, 2005                  |         | 40,645       |       | 6,150                    |       | 46,795                     |       | 16,051                                     |       |
| 2006 Antitrust  costs, excluding legal fees |         | —       |       | 72                       |       | 72                         |       | —                                     |       |
| Payments                                    |         | (6,000       | )          | (961                     | )          | (6,961                     | )          | (16,548                                    | )          |
| Accretion -  Interest                       |         | 2,184        |       | 352                      |       | 2,536                      |       | —                                     |       |
| Foreign currency  translation               |         | —       |       | 62                       |       | 62                         |       | 497                                        |       |
| **Balance December 31, 2006**               | ** **   | **$**        | **36,829** | ** **               | **$**      | **5,675**                  | ** ** | **$**                                      | **42,504** | ** **               | **$**      | **—** | ** ** |

 

Civil Reserves:
| ***(In thousands)***                   | *** *** | *** *** | ** **  | **U.S. Civil   and   Securities  Matters** | ** ** | **Canada Civil  Matters** | ** ** | **Total Civil  Matters** | ** **  |
|---------------------------------------------|--------------|--------------|-------------|-----------------------------------------------------------|------------|--------------------------------|------------|-------------------------------|-------------|
| Balance December  31, 2004                  |         | $            | 93,113      |                                                      | $          | —                         |       | $                             | 93,113      |   |
| 2005 Antitrust  costs, excluding legal fees |         | 9,335        |        | 10,036                                                    |       | 19,371                         |       |
| Payments                                    |         | (53,358      | )           | (3,845                                                    | )          | (57,203                        | )          |
| Accretion -  Interest                       |         | 2,321        |        | —                                                    |       | 2,321                          |       |
| Foreign currency  translation               |         | —       |        | (37                                                       | )          | (37                            | )          |
| Balance December  31, 2005                  |         | 51,411       |        | 6,154                                                     |       | 57,565                         |       |
| 2006 Antitrust  costs, excluding legal fees |         | 81,065       |        | (2,578                                                    | )          | 78,487                         |       |
| Payments                                    |         | (30,000      | )           | (3,792                                                    | )          | (33,792                        | )          |
| Foreign currency  translation               |         | —       |        | 216                                                       |       | 216                            |       |
| **Balance  December 31, 2006**              | ** **   | **$**        | **102,476** | ** **                                                | **$**      | **—**                     | ** ** | **$**                         | **102,476** | ** ** |

 

Federal Securities Class Action

The Company, certain of its former officersand directors (the “Crompton Individual Defendants”), and certain formerdirectors of the Company’s predecessor Witco Corp. are defendants in aconsolidated class action lawsuit, filed on July 20, 2004, in the United StatesDistrict Court, District of Connecticut, brought by plaintiffs on behalf ofthemselves and a class consisting of all purchasers or acquirers of the Company’sstock between October 1998 and October 2002. The consolidated amended complaintprincipally alleges that the Company and the Crompton

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Individual Defendants caused the Company toissue false and misleading statements that violated the federal securities lawsby reporting inflated financial results resulting from an alleged illegal,undisclosed price-fixing conspiracy. The putative class includes former WitcoCorp. shareholders who acquired their securities in the Crompton-Witco mergerpursuant to a registration statement that allegedly contained misstatedfinancial results. The complaint asserts claims against the Company and theCrompton Individual Defendants under Section 11 of the Securities Act of 1933,Section 10(b) of the Securities Exchange Act of 1934, and Rule 10b-5promulgated thereunder. Plaintiffs also assert claims for control personliability under Section 15 of the Securities Act of 1933 and Section 20 of theSecurities Exchange Act of 1934 against the Crompton Individual Defendants. Thecomplaint also asserts claims for breach of fiduciary duty against certainformer directors of Witco Corp. for actions they allegedly took as Witco Corp.directors in connection with the Crompton-Witco merger. The plaintiffs seek,among other things, unspecified damages, interest, and attorneys’ fees andcosts. The Company and the Crompton Individual Defendants filed a motion todismiss on September 17, 2004, which is now fully briefed and pending. Theformer directors of Witco Corp. filed a motion to dismiss in February 2005,which is pending. On July 22, 2005, the court granted a motion by the Companyand the Crompton Individual Defendants to stay discovery in the relatedConnecticut shareholder derivative lawsuit (described below under “ShareholderDerivative Lawsuit”), pending resolution of the motion to dismiss by theCompany 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 alleges thatthe Individual 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 ofConnecticut, pending resolution of the motion to dismiss filed by Company’s andthe Crompton Individual Defendants in the related consolidated securities classaction lawsuit 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.

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**ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS**

No matters were submitted to a vote ofsecurity holders during the fourth quarter of the fiscal year covered by thisreport.

**EXECUTIVE OFFICERS OF THE REGISTRANT**

The executive officers of the Corporation areas follows:

**Robert L. Wood,**age 52, has served as President and Chief Executive Officer of theCompany since January 2004 and Chairman since April 2004.  Previously, Mr. Wood served for 27 years withThe Dow Chemical Company in a variety of executive capacities, most recently asbusiness group President for Thermosets and Dow Automotive.

**Karen R. Osar,**age 57, hasserved as Executive Vice President and Chief Financial Officer since 2004.  Previously, Ms. Osar served as Senior VicePresident and Chief Financial Officer of MeadWestvaco Corporation and ofWestvaco Corporation, and as Treasurer of Tenneco, Inc.  Ms. Osar also spent 19 years in banking at J.P. Morgan and Company.  On December 14,2006, Ms. Osar announced her intention to retire on or about March 31, 2007.

**Kevin V. Mahoney**, age 52, has served as Senior Vice President and Corporate Controllersince October 2006.  Previously, Mr.Mahoney spent 18 years with American Express Company, where he most recentlywas Senior Vice President of Corporate Reporting, responsible for financialreporting globally.

**Gregory E. McDaniel**, age 55,has served as Executive Vice President, Strategy, New Business Development andTechnology since 2006 and as Senior Vice President, Strategy & New BusinessDevelopment from 2004 to 2006. Previously, Mr. McDaniel served for 28 years with The Dow ChemicalCompany in a variety of executive capacities, most recently as Vice Presidentand Director of New Business Development and Mergers and Acquisitions withinthe Polyurethane and Thermosets groups.

**Marcus Meadows-Smith**, age 45,has served as Executive Vice President, Plastic Additives and Crop Protectionsince 2006; Executive Vice President, Crop Protection and Consumer Productsfrom 2005 to 2006; and Business Director, Crop Protection, Europe, the MiddleEast and Africa, from 2000 to 2004.

**Lynn A. Schefsky**, age 58,has served as Senior Vice President and General Counsel since 2004.  Previously, Mr. Schefsky served for 19 yearswith The Dow Chemical Company in a variety of legal positions, most recently asGlobal Managing Counsel for Thermosets and Dow Automotive.

**Barry J. Shainman**, age 63, has served as Vice Presidentsince 2005, Secretary since 2000, and Assistant General Counsel since 1999.

**Eric C. Wisnefsky**, age 36,has served as Vice President and Treasurer since 2006; and served as VicePresident, Corporate Finance and Treasurer from 2004 to 2006; and Director ofFinancial Planning and Analysis from 2002 to 2004.  Mr. Wisnefsky served as Manager, FinancialPlanning and Analysis from 2000 to 2002, and as Manager of External Reportingfrom 1998 to 2000.

**Gary P. Yeaw**, age 49,has served as Executive Vice President, Human Resources and Communicationssince 2006 and as Senior Vice President, Human Resources from 2005 to2006.  Previously, Mr. Yeaw spent fouryears at American Standard Companies where he served as a Vice President, HumanResources and three years at Honeywell International in Human Resources-relatedpositions.

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 anyof such officers, and there is no arrangement or understanding between any ofthem and any other person pursuant to which any such officer was selected as anofficer.

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**ITEM5.  MARKET FOR REGISTRANT’S COMMONEQUITY, 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:**

** **
| ** **                          | ** ** | **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** | ** ** |

 
| ** **                      | ** ** | **2005**  | ** ** |
|---------------------------------|------------|-----------|------------|
| ** **                      | ** ** | **First** | ** ** | **Second** | ** ** | **Third** | ** ** | **Fourth** | ** ** |
| Dividends per  common share     |       | $         | 0.05       |   | 0.05 |   | 0.05 |   | 0.05 |   |
| Market price per  common share: |       |      |       |   |   |   |   |   |   |
| High                            |       | $         | 16.24      |   | 16.03 |   | 17.95 |   | 13.03 |   |
| Low                             |       | $         | 10.41      |   | 12.61 |   | 11.00 |   | 9.89 |   |

** **

**The number of registered holders ofcommon stock of the Company on February 6, 2007 was 5,744.**

**Performance Graph**

**The following graph compares thecumulative total return on the common stock of the Company for the last five fiscalyears with the returns on the Standard & Poor’s 500 Stock Index and theChemicals (Specialty)—500 Index, assuming the investment of $100 in the Company’scommon stock, the S&P 500 Index and the Chemicals (Specialty)—500 Index onDecember 31, 2001, and the reinvestment of all dividends.**

**COMPARISON OF FIVE-YEAR**

**CUMULATIVE TOTAL RETURN AMONGCHEMTURA CORPORATION,**

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

****
| ** **                          | ** ** | **12/31/01** | ** ** | **12/31/02** | ** ** | **12/31/03** | ** ** | **12/31/04** | ** ** | **12/31/05** | ** ** | **12/31/06** | ** ** |
|-------------------------------------|------------|--------------|------------|--------------|------------|--------------|------------|--------------|------------|--------------|------------|--------------|------------|
| **CHEMTURA  CORPORATION**           |       | $            | 100.0      |         | $          | 67.6         |       | $            | 84.4       |         | $          | 142.7        |       | $ | 155.9 |   | $ | 120.6 |   |
| **S&P  500**                    |       | $            | 100.0      |         | $          | 77.9         |       | $            | 100.2      |         | $          | 111.1        |       | $ | 116.6 |   | $ | 135.0 |   |
| **S&P 500 SPECIALTY CHEMICALS** |       | $            | 100.0      |         | $          | 112.6        |       | $            | 134.2      |         | $          | 154.7        |       | $ | 160.8 |   | $ | 197.2 |   |

** **

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**The above graph assumes an initialinvestment of $100 on December 31, 2001. Total return includes reinvestments of dividends.**

**The Chemicals (Specialty)-500 Indexcompanies are as follows:  Ecolab Inc.,Great Lakes Chemical Corporation, International Flavors & Fragrances Inc.,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.**

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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)*** | ** ** | **2006 (a)** | ** **  | **2005 (a)** | ** ** | **2004**   | ** ** | **2003**   | ** ** | **2002**   | ** ** |
|------------------------------------------------------------------------------------------|------------|-------------------|-------------|-------------------|------------|------------|------------|------------|------------|------------|------------|
| **Summary of Operations**                                                      | ** ** | ** **        | ** **  | ** **        | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Net sales                                                                                | ** ** | **$**             | **3,722.7** | ** **        | 2,986.6    |       | 2,285.2    |       | 1,941.8    |       | 1,861.4    |   |
| Gross profit (b)                                                                         | ** ** | **$**             | **908.5**   |              | 783.5      |       | 525.3      |       | 461.4      |       | 527.8      |   |
| Selling, general and  administrative (b)                                                 | ** ** | **$**             | **394.7**   |              | 333.1      |       | 273.2      |       | 262.8      |       | 275.9      |   |
| Depreciation and  amortization                                                           | ** ** | **$**             | **214.2**   |              | 157.8      |       | 118.2      |       | 107.8      |       | 103.2      |   |
| Research and  development                                                                | ** ** | **$**             | **65.5**    |              | 51.8       |       | 47.9       |       | 49.7       |       | 52.7       |   |
| Facility closures,  severance and related costs                                          | ** ** | **$**             | **5.5**     |              | 22.7       |       | 62.8       |       | 17.0       |       | 18.0       |   |
| Antitrust costs                                                                          | ** ** | **$**             | **89.5**    |              | 49.1       |       | 113.7      |       | 77.7       |       | 6.3        |   |
| Merger costs (d)                                                                         | ** ** | **$**             | **17.0**    |              | 45.2       |       | —     |       | —     |       | —     |   |
| In-process research and  development (d)                                                 | ** ** | **$**             | **—**  |              | 73.3       |       | —     |       | —     |       | —     |   |
| (Gain) loss on sale of  businesses, net (b)                                              | ** ** | **$**             | **12.3**    |              | (3.2       | )          | (1.3       | )          | (3.6       | )          | 35.2       |   |
| Income related to sale  of Gustafson joint venture (b)                                   | ** ** | **$**             | **(1.5**    | **)**             | —     |       | (93.4      | )          | —     |       | —     |   |
| Impairment of  long-lived assets (c)                                                     | ** ** | **$**             | **80.3**    |              | —     |       | —     |       | —     |       | —     |   |
| Equity income                                                                            | ** ** | **$**             | **(4.4**    | **)**             | (1.8       | )          | (14.1      | )          | (13.2      | )          | (7.9       | ) |
| Operating profit (loss)                                                                  | ** ** | **$**             | **35.6**    |              | 55.4       |       | 18.3       |       | (36.9      | )          | 44.5       |   |
| Interest expense                                                                         | ** ** | **$**             | **102.5**   |              | 107.7      |       | 78.4       |       | 89.7       |       | 101.7      |   |
| Loss on early  extinguishment of debt                                                    | ** ** | **$**             | **44.0**    |              | 55.1       |       | 20.1       |       | 24.7       |       | —     |   |
| Other expense, net (b)                                                                   | ** ** | **$**             | **6.4**     |              | 12.2       |       | 11.6       |       | 1.7        |       | 3.7        |   |
| Loss from continuing  operations before income                                           | ** ** | ** **        |        |              |       |       |       |       |       |       |       |
| taxes and  cumulative effect of accounting change                                        | ** ** | **$**             | **(117.4**  | **)**             | (119.7     | )          | (91.7      | )          | (152.9     | )          | (61.0      | ) |
| Income tax provision  (benefit)                                                          | ** ** | **$**             | **135.6**   |              | 65.2       |       | (49.8      | )          | (35.3      | )          | (21.4      | ) |
| Loss from continuing  operations before                                                  | ** ** | ** **        |        |              |       |       |       |       |       |       |       |
| cumulative  effect of accounting change                                                  | ** ** | **$**             | **(253.0**  | **)**             | (184.9     | )          | (42.0      | )          | (117.6     | )          | (39.7      | ) |
| Earnings from  discontinued operations                                                   | ** ** | **$**             | **—**  |              | 2.6        |       | 5.2        |       | 25.3       |       | 55.1       |   |
| Gain (loss) on sale of  discontinued operations                                          | ** ** | **$**             | **47.5**    |              | (3.9       | )          | 2.1        |       | 111.7      |       | —     |   |
| Cumulative effect of  accounting change (e)                                              | ** ** | **$**             | **—**  |              | (0.5       | )          | —     |       | (0.4       | )          | (299.0     | ) |
| Net earnings (loss)                                                                      | ** ** | **$**             | **(205.5**  | **)**             | (186.6     | )          | (34.6      | )          | 19.0       |       | (283.6     | ) |
| ** **                                                                               | ** ** | ** **        |        |              |       |       |       |       |       |       |       |
| **Per Share Statistics**                                                                 | ** ** | ** **        |        |              |       |       |       |       |       |       |       |
| Basic and Diluted                                                                        | ** ** | ** **        |        |              |       |       |       |       |       |       |       |
| Loss from  continuing operations before                                                  | ** ** | ** **        |        |              |       |       |       |       |       |       |       |
| cumulative  effect of accounting change                                                  | ** ** | **$**             | **(1.05**   | **)**             | (1.04      | )          | (0.37      | )          | (1.05      | )          | (0.35      | ) |
| Earnings from  discontinued operations                                                   | ** ** | **$**             | **—**  |              | 0.01       |       | 0.05       |       | 0.23       |       | 0.48       |   |
| Gain (loss) on  sale of discontinued operations                                          | ** ** | **$**             | **0.20**    |              | (0.02      | )          | 0.02       |       | 0.99       |       | —     |   |
| Cumulative  effect of accounting change                                                  | ** ** | **$**             | **—**  |              | —     |       | —     |       | —     |       | (2.63      | ) |
| Net earnings  (loss)                                                                     | ** ** | **$**             | **(0.85**   | **)**             | (1.05      | )          | (0.30      | )          | 0.17       |       | (2.50      | ) |
| Dividends                                                                                | ** ** | **$**             | **0.20**    |              | 0.20       |       | 0.20       |       | 0.20       |       | 0.20       |   |
| Book value                                                                               | ** ** | **$**             | **6.97**    |              | 7.40       |       | 2.84       |       | 2.64       |       | 1.76       |   |
| Common stock trading  range:                                                             | High       | ** **        | **$**       | **13.53**         |       | 17.95      |       | 11.80      |       | 7.75       |       | 13.00 |   |
|                                                                                     | Low        | ** **        | **$**       | **7.75**          |       | 9.89       |       | 5.02       |       | 3.63       |       | 5.44 |   |
| Average shares  outstanding (in thousands)-Basic                                         | ** ** | **240,486**       | ** **  | 178,404           |       | 114,736    |       | 112,531    |       | 113,568    |       |
| Average shares  outstanding (in thousands)-Diluted                                       | ** ** | **240,486**       | ** **  | 178,404           |       | 114,736    |       | 112,531    |       | 113,568    |       |
|                                                                                     | ** ** | ** **        |        |              |       |       |       |       |       |       |       |
| **Financial Position**                                                                   | ** ** | ** **        |        |              |       |       |       |       |       |       |       |
| Working capital                                                                          | ** ** | **$**             | **497.8**   |              | 565.9      |       | 338.4      |       | 163.8      |       | 418.6      |   |
| Current ratio                                                                            | ** ** | **1.6**           |        | 1.6               |       | 1.5        |       | 1.2        |       | 1.6        |       |
| Total assets                                                                             | ** ** | **$**             | **4,399.4** |              | 4,986.0    |       | 2,678.7    |       | 2,529.2    |       | 2,840.8    |   |
| Total debt, including  short-term borrowings                                             | ** ** | **$**             | **1,111.5** |              | 1,369.8    |       | 866.5      |       | 814.7      |       | 1,256.8    |   |
| Stockholders’ equity  (f)                                                           | ** ** | **$**             | **1,678.9** |              | 1,775.4    |       | 329.0      |       | 302.7      |       | 199.9      |   |
| Total capital employed                                                                   | ** ** | **$**             | **2,790.4** |              | 3,145.2    |       | 1,195.5    |       | 1,117.4    |       | 1,456.7    |   |
| Debt to total capital %                                                                  | ** ** | **39.8**          |        | 43.6              |       | 72.5       |       | 72.9       |       | 86.3       |       |

 

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| ***(In millions of dollars, except for number  of employees)*** | ** ** | **2006**   | ** ** | **2005**   | ** ** | **2004**   | ** ** | **2003**   | ** ** | **2002**   | ** ** |
|-----------------------------------------------------------------|------------|------------|------------|------------|------------|------------|------------|------------|------------|------------|------------|
| **Other  Statistics**                                           | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Net cash provided by (used in) operations                       | ** ** | $          | 250.8      |       | (79.2      | )          | 36.3       |       | (14.8      | )          | 201.8      |   |
| Capital spending from continuing operations                     | ** ** | $          | 128.0      |       | 102.0      |       | 60.0       |       | 76.6       |       | 79.3       |   |
| Depreciation from continuing operations                         | ** ** | $          | 172.3      |       | 129.5      |       | 101.3      |       | 94.5       |       | 92.8       |   |
| Amortization from continuing operations                         | ** ** | $          | 41.8       |       | 28.3       |       | 16.9       |       | 13.3       |       | 10.4       |   |
| Number of employees at end of year                              | ** ** | 6,187      |       | 6,578      |       | 4,773      |       | 5,521      |       | 6,777      |       |

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**(a)**                Dueto the inclusion of the operating results of Great Lakes subsequent to theMerger on July 1, 2005, the 2006 and 2005 results are not directly comparableto the results of all prior periods.

**(b)**               TheCompany reclassified certain amounts relating to operations from other expense,net to cost of products sold and selling, general and administrative expensefor all periods presented.  Additionally,gains and losses from the sale of businesses and income related to the sale ofthe Company’s 50% interest in the Gustafson joint venture have beenreclassified from other expense, net and reflected as a component of operatingprofit for all periods presented.  (Gain) loss on sale of businesses,net includes primarily a $12.4 million loss on the sale of the IWA business in2006, a $3.2 million gain on the reversal of a reserve related to the 2001 saleof the Industrial Colors business in 2005, a $3.6 million gain on the reversalof a reserve related to the 2002 sale of the Industrial Specialties business in2003 and a loss of $34.7 million on the sale of the industrial specialtiesbusiness unit in 2002.

**(c)**                The 2006 charge includes a $51.9 million impairment ofthe Fluorine business as a result of the Company’s annual impairment review, a$22.7 million impairment of non-current assets of the Fluorine business due toa loss of a significant customer and a $5.6 million impairment due to thewrite-down of assets retained subsequent to the sale of the IWA business.

**(d)**               Mergercosts are non-capitalizable costs associated with the merger of the Company andGreat Lakes.  The write-off of $73.3million of in-process research and development is also the direct result of theMerger.

**(e)**                2005 results include a cumulative effect of accounting change of $0.5million, related to the implementation of Financial Accounting Standards Board (FASB) Interpretation No. 47, “Accountingfor Conditional Asset Retirement Obligations;” 2003 results include acumulative effect of accounting change of $0.4 million, related to theimplementation of FASB Statement No. 143, “Accounting for Asset Retirement Obligations;” and 2002 resultsinclude a cumulative effect of accounting change of $299 million, or $2.63 percommon share, related to the implementation of FASB Statement No. 142, “Goodwilland Other Intangible Assets.”

**(f)**                  The Company adopted the provisions of Staff AccountingBulletin No. 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 $12.2 million ($4.4 million net of tax).

#  

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** **

**ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTSOF 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 including electronics, industrial rubber and home pool andspa chemicals. Most of our chemical products are sold to industrialmanufacturing customers for use as additives, ingredients, or intermediatesthat add value to their end products. Our pool and spa chemicals are sold to dealers, distributors and majorretailers.  We are a market leader inmany of our key product lines.  Wemanufacture and sell more than 3,500 products and formulations in more than 100countries.

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 pursueselling prices that reflect the value of our products and to pass on highercosts for raw material and energy so as to preserve our profitmargins. Our target is to achieve a 15% average operating profit marginacross our business portfolio.

Annual sales for 2006increased $736.1 million or 25%, of which $856 million was the result ofacquisitions, primarily from the merger. The Company was successful inincreasing selling prices most notably in its petroleum additives and flameretardants product lines but was required to offer price concessions to regainmarket share in the non-flame plastic additives business ending the year with anet increase related to prices of $62.8 million.  This was more than offset by a $108.3 millionreduction in sales volume primarily in the rubber chemicals, consumer productsand EPDM product lines  These volumereductions were primarily due to aggressive competition from China, a slow downin the lubricant market, market erosion due to technological change and lessthan expected sales from new product launches and target customers.

The non-flame retardantplastic additives product line, included within the Plastic Additives segment,showed volume improvement in 2006 compared with the the same period in2005.  However, volumes did not improveto the level expected due to market share losses, which resulted from theselling price increases implemented in 2005. As noted above, price concessions were required to regain marketshare.  Although the Company saw a returnin volume, the products sold as compared to the prior year had lower overallgross profit margins, which negatively impacted operating profit.  The Company will continue to focus onrebuilding the profitability of these products during 2007.

Profits for the flameretardant plastic additives product line, included within the Plastic Additivessegment, improved significantly during 2006, as increases in selling pricesmore than offset declines in volume. Flame retardant products continue to benefit from selling priceincreases that the Company implemented to recover cost increases experienced inthe prior year.  Volume declines wereprimarily the result of a decrease in the domestic polyurethane foam market.  The flame retardant product line alsobenefited from $5.6 million of savings derived from manufacturing costinitiatives.

The Polymers segment wasless profitable compared with the prior year, primarily due to weak demand inthe roofing and automotive markets. Selling price increases were insufficient to offset lower plantutilization and higher raw material and energy costs.

Sales from the SpecialtyAdditives segment were one percent lower compared with the prior year.  The rubber chemicals business saw a 17.8%drop in volume resulting from Thiazole and Sulfenamides volumes losses due toaggressive competition from China and Flexzone volume losses due to priceerosion and increased competition.

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The Company’s petroleumadditive products experienced continued improvement in selling prices ascompared with the prior year, which more than offset volume losses that werethe result of a decrease in demand related to slower automotive production.

Crop Protection saleswere up 1.8% compared with the prior year. Volume decreased 4.1% in 2006 from 2005 due primarily to competition inthe miticides business and drought conditions in Australia.  Sales were also unfavorably impacted by priceerosion due to economic weakness in Brazil, the influx of generic products andincreased competition.  The lower volumesand selling prices were offset by the acquisition of Trace Chemicals in thefirst half of 2006 and a full year of the fumigants business as a result of theMerger.

Sales for ConsumerProducts increased $304.4 million from the prior year, of which $318.0 million wasthe result of acquisitions, primarily from the merger.  The Company was able to implement sellingprice increases at several of its significant customers but this was more thanoffset by volume losses due to less than expected sales from new productlaunches and existing target customers.

TheCompany has undertaken various cost reduction initiatives over the past severalyears and continues to aggressively pursue cost reductions.

To assess cost reductionopportunities the Company is working to improve the profitability of the non-flameretardant plastic additives business.  Anew management team was formed in late 2006 and has placed an increased focuson specific areas for improvement.  Thefocus includes a review of the business’s global manufacturing footprint,revisions to distribution sites and channels and opportunities for new productofferings.  The Company is anticipating agradual recovery in that business beginning in late 2007.

The Company is assessingopportunities on a global basis for cost reductions to realize the goal ofachieving selling, general and administrative and research and developmentexpenditures that are 10% of total sales, as well as other cost improvementinitiatives to move the Company’s gross margins closer to the goal of 30%.

Strategic Initiatives

The Company’s strategy isto strengthen its business portfolio and continue to reduce operatingcosts.  To achieve these goals, theCompany is focusing its resources on its core businesses by divesting non-corebusinesses and assets, and acquiringbusinesses and assets that will enhance its business portfolio.  In addition, the Company isinvestigating strategic cost savings initiatives that could result in costreductions at some manufacturing facilities.

As a result of theseplanned divestitures and strategic cost saving initiatives, the Company hasaccelerated the depreciation and the recognition of the asset retirementobligations related to certain assets at several of its global facilities forwhich it is probable that there will be a change in the estimated useful livesof those assets. In addition, the Company has estimated that it will incurseverance and related costs due to employee reductions.  As a result of these initiatives, the Companyrecorded pre-tax charges for accelerated depreciation of $17.8 million,accretion of asset retirement obligations of $8.8 million, and severance andrelated costs of $6.0 million in operating profit on its consolidatedstatement of operations for the year ended December 31, 2006.  These costs represent the estimated costsbased on the facts and circumstances that existed as of December 31, 2006.  As divestiture agreements and cost savingsplans are formalized, such costs will be revised as necessary to reflect finalplans.

# Significant Transactions and Events 

During the year endedDecember 31, 2006 and through the date of this filing, the followingsignificant transactions occurred:

·                  On February 3,2007, the Company signed an asset purchase agreement to sell its EPDM businessand portions of its Rubber Chemical business to an affiliate of Lion ChemicalCapital, LLC.  The transaction is expectedto close in the first half of 2007 and is subject to certain conditions,including regulatory approvals, financing and a financial audit.

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·                  On January 31,2007, the Company announced that it had completed the acquisition of the stockof Kaufman Holdings Corporation (“Kaufman”) in an all-cash transaction. TheKaufman acquisition complements the Company’s existing Petroleum Additivessegment in that it offers related products in key customer areas, providing theopportunity to strengthen alliances with major suppliers and may offerpotential distribution synergies.

·                  On December 18,2006, the Company entered into several long-term supply and purchase agreementswith TETRA 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.

·                  On October 30,2006, the Company sold its majority interest in the Davis Standard LLC ventureto its partner, Hamilton Robinson LLC for approximately $60.4 million in cash,plus an additional $8.4 million that is payable upon finalizing certainpost-closing determinations.

·                  On October 18,2006, the Company announced that it had rescinded those parts of a GlobalSettlement Agreement covering Rubber Chemicals and EPDM that were intended toresolve direct purchaser class action lawsuits pending in United Statesdistrict courts.  On January 22, 2007,the Company entered into an agreement with class council in the federal EPDMcase where it agreed to pay $21 million to resolve the federal class actionlitigation.  The Company’s existingreserves as of December 31, 2006 were sufficient to cover this liability.  This settlement is subject to court approval.

·                  During the thirdquarter of 2006, the Company recognized the cumulative additional earn-outproceeds received related to the sale of its OrganoSilicones business toGeneral Electric Company in 2003 of $45.9 million, net of taxes, as a gain onthe sale of discontinued operations in the consolidated statement ofoperations.

·                  During the thirdquarter of 2006, the Company completed its annual impairment testing ofgoodwill as required under Statement of Financial Accounting Standards (“Statement”)No. 142, “Goodwill and Other Intangible Assets” “Statement 142”.  The results of this analysis required theCompany to reduce goodwill by $51.9 million related to the Fluorine business.

·                  Contemporaneouswith the loss of revenue in the Fluorine business, the Company was required totest the recoverability of long-lived assets under Statement No. 144, “Accountingfor the Impairment of Disposal of Long-Lived Assets” “Statement 144”.  The Company incurred a charge of $22.7million related to this impairment.

·                  During 2006, theCompany recorded an increase to goodwill of $35.5 million to adjust currentand deferred tax assets for tax periods prior to the Merger for the impactof an examination by the Internal Revenue Service and the filing of thecorporation’s pre-merger income tax return, as well as a refund ofpre-merger related income taxes received during the third quarter.

·                  In July 2006,the Company completed the redemption of the remaining $158.9 million of theCompany’s outstanding 9.875% Senior Notes due 2012 (“2012 Notes”), which wasfunded through borrowings under the Company’s Credit Facility, uncommittedworking capital facilities and available cash. The purchase price to tender the 2012 Notes was $1,123.87 per $1,000 inprincipal amount.  The premium and othercosts associated with the redemption were $24.4 million and were recorded as aloss on early extinguishment of debt in the third quarter of 2006.

·                  On May 24, 2006,the Company completed a tender offer to repurchase the remaining $164.8 millionof 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 loss on earlyextinguishment of debt of $19.6 million during the second quarter of 2006.  The loss includes a premium of $15.8 millionand the write-off of unamortized deferred costs of $3.7 million.

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·                  On May 12, 2006,the Company sold its Industrial Water Additives (“IWA”) business to BWA WaterAdditives (“BWA”) for adjusted cash proceeds of $74.8 million.  A loss of $12.4 million has been included in(gain) loss on sale of businesses, net on the consolidated statements ofoperations.  No facilities ormanufacturing assets were included in this transaction and Chemtura willcontinue to manufacture and sell products to BWA pursuant to supply agreementsentered into in connection with the sale of the IWA business. These assets werereviewed for recoverability under the requirements of Statement 144, and acharge of $5.6 million related to the impairment of the fully-dedicated manufacturingassets retained was recorded in operating profit.  Contemporaneous with the sale, the Companyentered into an exclusive distribution agreement with BWA related to theLiquibrom product line, which was previously included within the IWA businessunit but which the Company retained subsequent to the IWA sale.

·                  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 Notesdue 2016 (“2016 Notes”). The offering closed on April 24, 2006 and theCompany received net proceeds from the offering of $492.3 million afterexpenses. The proceeds were utilized to repay the outstanding balance on theCompany’s revolving credit facility of $364 million, the outstanding balance onuncommitted lines of credit of $50 million and to reduce receivables sold underthe domestic receivable securitization programs of $60 million, with theremaining proceeds used for general corporate purposes.

·                  On March 24, 2006, the Company acquired theTrace Chemicals business from Bayer CropScience LP for net cash of $6.7million.  Trace Chemicals is a leader infarmer-applied seed treatments in markets serving the United States.  The acquisition has enhanced the Company’sofferings in the Crop Protection business.

**ANTITRUST INVESTIGATIONS AND RELATED MATTERS**

The Company is party tovarious governmental and civil antitrust proceedings.  For information on these proceedings(including information on reserves created by the Company with respect to theseproceedings), see**Note 21 — LegalMatters in the Notes to Consolidated Financial Statements, and Item 3 “LegalProceedings” under Part I of this document.

**LIQUIDITY AND CAPITAL RESOURCES**

**Refinancing**

In July 2006, the Companycompleted the redemption of the remaining $158.9 million of the Company’soutstanding 2012 Notes, which was funded through the Company’s revolving CreditFacility, 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 earlyextinguishment of debt of $24.4 million during 2006.  The loss includes a premium of $19.7 millionand the write-off of unamortized deferred costs of $3.8 million.

On May 24, 2006, theCompany completed a tender offer to repurchase the remaining $164.8 million ofits outstanding 2010 Notes.  The purchaseprice to tender the 2010 Notes was $1,095.83 per $1,000 principal amount.  As a result of the tender, the Companyrecorded a loss on early extinguishment of debt of $19.6 million during2006.  The loss includes the premium of$15.8 million and the write-off of unamortized deferred costs of $3.7 million.

On April 19, 2006, theCompany 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 the 2016 Notes. Theoffering was made under the Company’s shelf registration statement on Form S-3filed with the Securities and Exchange Commission on April 19, 2006 and by aprospectus supplement dated April 19, 2006. The underwriters purchased the 2016Notes from the Company at 98.452% (a 6.95% effective rate) of their principalamount, plus accrued interest from April 24, 2006. The offering closed on April24, 2006 and the Company received net proceeds from the offering of $492.3million after expenses. The proceeds were utilized to repay the outstandingbalance on the Company’s revolving credit facility of $364 million, theoutstanding balance on uncommitted lines of credit of $50 million and to reducereceivables sold under the domestic receivable securitization programs of $60million, with the remaining proceeds used for general corporate purposes.

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**Acquisition**

OnMarch 24, 2006, the Company acquired the Trace Chemicals business from BayerCropScience LP.  Trace Chemicals is aleader in farmer-applied seed treatments in markets serving the UnitedStates.  The acquisition enhanced theCompany’s offerings in the Crop Protection business.  The net cash paid for this acquisition was$6.7 million.

**Divestitures**

On February 5, 2007, theCompany signed an asset purchase agreement to sell its EPDM business andportions of its Rubber Chemical business to an affiliate of Lion ChemicalCapital, LLC.  The transaction isexpected to close in the first half of 2007 and is subject to certainconditions, including regulatory approvals, financing and a financial audit.

On October 30, 2006, theCompany sold its majority interest in the Davis Standard LLC venture to itspartner, Hamilton Robinson LLC for approximately $60.4 million in cash, plus anadditional $8.4 million that is payable upon finalizing certain post-closingdeterminations.  Subsequent to September30, 2006 and prior to the sale, the Company received approximately $13.3million in cash distributions.

On May 12, 2006, theCompany sold its IWA business to BWA for $85 million, exclusive of a $10.2million adjustment for retained accounts receivable and payable, receivingadjusted proceeds of $74.8 million. Contemporaneously with the sale, the Company entered into supplyagreements for manufactured product with BWA. The Company accrued $2.3 million related to anticipated lossesassociated with these supply agreements. Effective with the sale, the Company recorded an impairment charge of$5.6 million related to the fully dedicated retained manufacturing assets ofthe IWA business, to properly reflect the fair value of the assetsretained.  The Company recorded a pre-taxloss on the sale of $12.4 million during the second quarter of 2006.  The Company does not anticipate that theabsence of the IWA business will have a significant impact on its cash flowsfrom operations or its capital resources.

The Company will continueto use the proceeds from these transactions for further debt reductions and toinvest in its core specialty chemical businesses.

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

Net cash provided byoperations was $250.8 million in 2006 compared to $79.2 million of net cashused in operations in 2005.   Changes inkey working capital accounts are summarized below:
| **Favorable (unfavorable)  (***In millions)* | ** ** | ** ** | **2006** | ** ** | **2005** | ** ** | **Change** | ** ** |
|--------------------------------------------------------|------------|------------|----------|------------|----------|------------|------------|------------|
| Accounts  receivable                                   |       | $          | 23.5     |       | $        | 73.4       |       | $          | (49.9 | ) |
| Accounts  receivable — securitization             |       | 194.3      |     | (104.8     | )        | 299.1      |       |
| Inventories                                            |       | 18.4       |     | 32.6       |     | (14.2      | )          |
| Accounts payable                                       |       | (33.5      | )        | (60.3      | )        | 26.8       |       |
|                                                        |            |            |          |            |          |            |            |            |  |  |  |

 

The 2006 decrease in accounts receivable was primarily theresult of increased securitization of receivables as compared with the decreaseof $104.8 million in 2005. Improved collections and divestitures were also afactor.  The increase in securitizationis mainly due to the expansion of the domestic and international securitizationprograms in 2006 to include Great Lakes accounts receivables. Inventorydecreased $18.4 million in 2006 primarily due to planned reductions throughlower volume production and write-offs of obsolete inventory.  Accounts payable decreased by $33.5 millionin 2006 primarily as a result of lower purchases, timing of vendor payments andadditional utilization of early payment discounts offered by vendors.

In addition, during 2006, the Company’s pension andpost-retirement healthcare liabilities decreased by $68.3 million as comparedto a decrease of $49.8 million in 2005. The 2006 decrease includes adiscretionary contribution of $44.0 million, which includes $40.0 million fordomestic plans and $4.0 million for the U.K. plan.  Also during 2006, the Company made a depositof $51.0 million into an escrow account related to the rubber chemicals classaction antitrust settlement offer.

Net cash provided byoperations in 2006 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:

39

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| ***(In millions)***                      | *** *** | ** ** | **Net Change   per   Consolidated   Cash Flow   Statement** | ** ** | **2006  Expense** | ** ** | **2006  Cash Payments** | ** ** |
|-----------------------------------------------|--------------|------------|-------------------------------------------------------------------------------------------|------------|-------------------|------------|------------------------------|------------|
| Merger costs                                  | ** **   | $          | (16.3                                                                                     | )          | $                 | 17.0       | ** **                   | $          | (33.3 | ) |
| Antitrust settlement costs                    |         | $          | 12.7                                                                                      |       | $                 | 70.0       |                         | $          | (57.3 | ) |
| Facility closure, severance and related costs |         | $          | (7.3                                                                                      | )          | $                 | 5.5        |                         | $          | (12.8 | ) |
| Interest expense                              |         | $          | (1.1                                                                                      | )          | $                 | 102.5      | ** **                   | $          | (103.6 | ) |
| Environmental liabilities                     |         | $          | (17.7                                                                                     | )          | $                 | 7.3        |                         | $          | (25.0 | ) |
| Management incentive plans                    |         | $          | (9.8                                                                                      | )          | $                 | 0.3        |                         | $          | (10.1 | ) |
| Income taxes                                  |         | $          | 67.5                                                                                      |       | $                 | 135.6      |                         | $          | (68.1 | ) |

 

Net cash provided byoperations in 2006 also reflects the impact of certain non-cash charges,including $214.2 million of depreciation and amortization, an impairment chargerelated to goodwill of $51.9 million, a $5.6 million asset impairment chargerelated to the retained assets of the IWA business that was sold in May 2006and a $22.7 million pre-tax non-cash asset impairment charge related to certaintangible and intangible assets of the Fluorine business. Cash used inoperations in 2006 also includes a loss on early extinguishment of debt of$44.0 million, a loss on sale of businesses, net of $12.3 million, a gain onsale of discontinued operations of $47.5 million and a gain on sale of anequity interest in a venture of $5.7 million, for which offsetting payments orreceipts of cash are reflected in net cash provided by investing activities andcash used in financing activities.

##### **Cash Flows fromInvesting and Financing Activities**

Net cash provided byinvesting activities was $51.1 million for 2006, which includes proceeds fromthe sale of the IWA business of $74.8 million, proceeds from sale of theCompany’s investment in Davis-Standard LLC of $60.4 million, earn-out proceedsfrom the sale of the OrganoSilicones business of $54.4 million and proceedsfrom the sale of the former Great Lakes office building in West Lafayette,Indiana of $6.5 million. These proceeds were partially offset by $128.0 millionof capital expenditures, $8.5 million of merger transaction costs paid and $6.7million of net cash paid for the acquisition of Trace Chemicals.

Capital expenditures for2006 amounted to $128.0 million as compared with $104.4 million for 2005.  The increase is primarily due to the inclusionof the Great Lakes businesses for a full year. Expenditures were primarily for the maintenance of domestic and foreignfacilities and environmental and other compliance requirements.

Net cash used infinancing activities was $354.7 million for 2006, which included payments onthe credit facility of  $414.1 million,payments on long-term borrowings of $323.7 million related to the retirement ofthe Company’s 2010 Notes and 2012 Notes, payments on short-term borrowings of$16.1 million, dividend payments of $48.1 million, premiums paid of $35.7million for the early extinguishment of the 2010 Notes and 2012 Notes, paymentfor debt issuance costs of $5.8 million related to issuance of the Company’s2016 Notes, and the repayment of a loan borrowed against the cash surrendervalue of life insurance policies of $9.9 million.  These payments were partially offset byproceeds from long-term borrowings of $497.3 million related to the 2016 Notesissued in April 2006 and proceeds from the exercise of stock options of $3.4million.

**Contractual Obligations andOther Cash Requirement**The Company has obligations to make future cash payments under contractsand commitments, including long-term debt agreements, lease obligations,environmental liabilities, antitrust settlements, post-retirement health careliabilities, facility closures, severance and related cost liabilities, andother long-term liabilities.

Thefollowing table summarizes the Company’s significant contractual obligationsand other cash requirements as of December 31, 2006:

40

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| ***(In millions)***                                     | ** ** | ** ** | ** ** | **Payments Due by Period** | ** ** |
|--------------------------------------------------------------|------------|------------|------------|-------------------------------------------|------------|
| ** **                                                   | ** ** | ** ** | ** ** | ** **                                | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | **2012 and** | ** ** |
| **Contractual Obligations***                            | ** ** | ** ** | ** ** | **Total**                                 | ** ** | **2007** | ** ** | **2008** | ** ** | **2009** | ** ** | **2010** | ** ** | **2011** | ** ** | **Thereafter** | ** ** |
| Total debt  (including capital leases)                       | ** ** | **(a)**    | ** ** | $                                         | 1,122.3    |   | $ | 48.1 |   | $ | 3.0 |   | $ | 402.3 |   | $ | 0.8 |   | $ | 0.3 | ** ** | $ | 667.8 | ** ** |
| Operating leases                                             | ** ** | **(b)**    |       | 131.8                                     |       | 26.1 |   | 20.0 |   | 15.5 |   | 11.2 |   | 7.6 |   | 51.4 |   |
| Contractual  antitrust settlements                           | ** ** | **(c)**    |       | 67.8                                      |       | 33.1 |   | 16.2 |   | 18.5 |   | — |   | — |   | — |   |
| Facility  closures, severance                                |       |       |       |                                      |       |   |   |   |   |   |   |   |   |   |   |   |   |
| and related cost liabilities                                 | ** ** | **(d)**    |       | 18.8                                      |       | 9.1 |   | 5.8 |   | 3.9 |   | — |   | — |   | — |   |
| Capital  expenditures                                        | ** ** | **(e)**    |       | 12.0                                      |       | 12.0 |   | — |   | — |   | — |   | — |   | — |   |
| Interest payments                                            | ** ** | **(f)**    |       | 623.0                                     |       | 75.3 |   | 73.8 |   | 73.6 |   | 45.4 |   | 45.4 |   | 309.5 |   |
| Unconditional  purchase obligations                          | ** ** | **(g)**    |       | 87.9                                      |       | 8.0 |   | 3.6 |   | 2.3 |   | 5.7 |   | 5.5 |   | 62.8 |   |
| Subtotal - Contractual Obligations                           |       |       |       | 2,063.6                                   |       | 211.7 |   | 122.4 |   | 516.1 |   | 63.1 |   | 58.8 |   | 1,091.5 |   |
| Environmental  liabilities                                   | ** ** | **(h)**    |       | 137.4                                     |       | 29.9 |   | 29.0 |   | 15.8 |   | 16.2 |   | 11.5 |   | 35.0 |   |
| Other antitrust  settlements                                 | ** ** | **(i)**    |       | 21.8                                      |       | 21.8 |   | — |   | — |   | — |   | — |   | — |   |
| Post-retirement  health care liabilities                     | ** ** | **(j)**    |       | 170.2                                     |       | 16.2 |   | 14.0 |   | 13.3 |   | 12.6 |   | 11.9 |   | 102.2 |   |
| Other long-term  liabilities (excluding pension liabilities) | ** ** | **(k)**    |       | 35.4                                      |       | 1.9 |   | 8.4 |   | 2.3 |   | 2.6 |   | 2.7 |   | 17.5 |   |
| Total cash  requirements                                     | ** ** | ** ** | ** ** | $                                         | 2,428.4    |   | $ | 281.5 |   | $ | 173.8 |   | $ | 547.5 |   | $ | 94.5 |   | $ | 84.9 |   | $ | 1,246.2 | ** ** |

----

* Additional information is provided in the Debt,Leases, Contingencies, Antitrust Investigations and Related Matters, Pensionand Other Post-Retirement Benefit Plans and Facility Closures, Severance andRelated Costs in the Notes to Consolidated Financial Statements.

(a)          TheCompany’s debt agreements include various notes, debentures, bank loans andfuture minimum payments under capital leases for which payments will be payablethrough 2026.  The future minimum leasepayments under capital leases at December 31, 2006 were not significant.

(b)         Representsoperating lease obligations primarily related to the lease of officespace.  Such obligations are net offuture sublease income and will be expensed over the life of the related leasecontracts.

(c)          Includes$46.3 million related to the settlement of U.S. and Canadian fines, payable ininstallments through 2009, $21.0 million related to the settlement of a federalclass action lawsuit involving synthetic rubber material and $16.1 millionrelated to the settlement of European Commission fines.

(d)         Representsestimated payments from accruals related to the Company’s cost reductionprograms, including $9.2 million of unrecoverable future lease costs related tothe closure of the Tarrytown, NY site.

(e)          Representscapital commitments for various open projects.

(f)            Representsinterest payments related to the Company’s various debt agreements.

(g)         Primarilyrepresents unconditional purchase commitments to purchase raw materials andtolling arrangements with outside vendors.

(h)         TheCompany has environmental liabilities for future remediation and operating andmaintenance costs directly related to remediation. The Company estimates thereasonably possible and determinable environmental liability to range from $112million to $162 million.  The Company hasrecorded a liability for environmental remediation of $124.4 million atDecember 31, 2006, which is net of purchase accounting fair value adjustmentsresulting from the Merger of $13.0 million.

(i)             Includes$15 million related to the expected settlement of direct and indirect purchaserclass action lawsuits and $6.8 million (net of estimated insurance recovery of$8.2 million) related to securities case.

(j)             TheCompany has post-retirement health care plans that provide health and lifeinsurance benefits to certain retired and active employees and theirbeneficiaries.  These plans are generallynot pre-funded and expenses are paid by the Company as incurred, with theexception of certain inactive government related plans that are paid from planassets.

(k)          TheCompany also has other miscellaneous long-term liabilities, excluding pensionliabilities.

During 2006, the Companymade payments of $37.8 million and $8.6 million for operating leases andunconditional purchase obligations, respectively.

The Company funds itsdefined benefit pension plans based on the minimum amounts required by law plusadditional voluntary contribution amounts the Company deems appropriate.  Estimated future funding requirements arehighly dependent on factors that are not readily determinable.  These include changes in legislation, returnsearned on pension investment and other factors related to assumptions regardingfuture liabilities.  The Company made adiscretionary contribution of $44.0 million in 2006.  See “Critical Accounting Estimates” below fordetails regarding current pension assumptions.** **To the extent that currentassumptions are not realized, actual funding requirements may be significantlydifferent from those set out below.   TheCompany may make additional voluntary contributions in 2007 using proceeds frompossible divestitures to reduce its future

41

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fundingrequirements.  The following tablesummarizes the estimated future funding requirements for the pension plansunder current assumptions:
| ** **                                     | ** ** | **Funding Requirements by Period** | ** ** |
|------------------------------------------------|------------|---------------------------------------------------|------------|
| **(***In millions)*                       | ** ** | **2007**                                          | ** ** | **2008** | ** ** | **2009** | ** ** | **2010** | ** ** | **2011** | ** ** |
| Qualified  domestic pension plans              |       | $                                                 | 0.0        |   | $ | 0.0 |   | $ | 0.0 |   | $ | 0.0 |   | $ | 0.0 |   |
| International  and non-qualified pension plans |       | 24.5                                              |       | 27.4 |   | 27.8 |   | 26.2 |   | 23.7 |   |
| Total pension plans                            |       | $                                                 | 24.5       |   | $ | 27.4 |   | $ | 27.8 |   | $ | 26.2 |   | $ | 23.7 |   |

##### ** **

##### **Other Sources andUses of Cash**

The Company expects tofinance its continuing operations and capital spending requirements for 2007with cash flows provided by operations, proceeds from sales of businesses,available cash and cash equivalents, additional sales of accounts receivableunder its securitization programs, borrowings under its revolving credit orother sources, including the debt capital markets, and repatriation ofavailable earnings from its overseas operations.

AtDecember 31, 2006, the Company had a five-year credit facility availablethrough July 2010 (the Credit Facility) of $740million, with the ability to expand up to $750 million.  There were no borrowings under the Credit Facility at December 31,2006.  The Company also hadworking capital facilities in the amount of $25 million due in May 2007 and $50million due in July 2007, of which $20 million was outstanding under each ofthese facilities at December 31, 2006.

In addition, as ofDecember 31, 2006, the Company had an accounts receivable securitizationprogram to sell up to $275 million of domestic receivables to agent banks.  The domestic accounts receivable programprovides that up to $100 million of the consideration payable to the Companymay be in the form of letters of credit issued to the Company or itsdesignees.  As of December 31, 2006,$140.5 million of domestic accounts receivable had been sold under thisprogram.  In addition, the Company’sEuropean subsidiaries had a separate program to sell up to approximately $195million of their eligible accounts receivable to agent banks.  As of December 31, 2006, $139.0 million ofinternational accounts receivable had been sold under this program.

Included in cash and cash equivalents in the Company’sconsolidated balance sheets at December 31, 2006 and December 31, 2005, are$0.8 million and $2.4 million, respectively, of restricted cash that isrequired to be on deposit to support certain letters of credit and performanceguarantees, the majority of which will be settled within one year.  There are no additional legal restrictions onthese cash balances.

The Company paid $160 million toward the acquisitionof stock of Kaufman Holdings Corporation on January 31, 2007.  This acquisition was funded by borrowingsunder the Company’s revolving credit facility.

##### **Bank Covenants andGuarantees**

TheCompany’s debt agreements contain covenants that may limit the Company’sability to enter into certain transactions, such as incurring additionalindebtedness, increasing the Company’s dividends, and entering intoacquisitions, dispositions and joint ventures. The Company is required to report compliance with certainfinancial covenants to its lenders on a quarterly basis.  Under these covenants, the Company is requiredto maintain a leverage ratio (adjusted total debt to adjusted earnings beforeinterest, taxes, depreciation and amortization (“Bank EBITDA”), withadjustments to both debt and earnings being made in accordance with the termsof the domestic credit facility agreement) and an interest coverage ratio (BankEBITDA to interest expense as defined in the domestic credit facilityagreement).  Certain of the covenantsunder the new credit facility become less restrictive or cease to be effectiveupon the Company receiving a public debt rating of at least BBB- by S&P andBaa3 by Moody’s and such rating shall not be accompanied by, in the case ofS&P, a negative outlook, creditwatch negative or the equivalent thereof orin the case of Moody’s, a review for possible downgrade or the equivalentthereof.  In May 2006 and December 2006,amendments were made to the required interest coverage ratio for the quarterlyperiods June 30, 2006 through June 30, 2007, in response to higher than plannedMerger related expenses, higher anti-trust legal fees and weaker earnings. In February2007, further amendments were made to the interest coverage ratio and leverageratio for the quarterly periods March 31, 2007 through September 30, 2007.  The Company was in compliance with thecovenants of its various debt agreements at December 31, 2006 and anticipatescompliance throughout 2007.

TheCompany has standby letters of credit and guarantees with various financialinstitutions.  At December 31, 2006, theCompany had $127.3 million of outstanding letters of credit and guaranteesprimarily related to liabilities

42

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forenvironmental remediation and insurance obligations.  The Company also had $19.0 million of thirdparty guarantees at December 31, 2006 for which it has reserved for $2.2million at December 31, 2006, which represents the probability weighted fairvalue of these guarantees.

# **MergerCosts**

The Company’s one-timecosts incurred in 2006 and 2005, resulting from the Merger, inclusive of costsincurred by Great Lakes prior to the Merger, are summarized as follows:
| ***(In millions)***                                                  | *** *** | ** ** | **Costs  Incurred in  2006** | ** ** | **Costs  Incurred in  2005** | ** ** |
|---------------------------------------------------------------------------|--------------|------------|-----------------------------------|------------|-----------------------------------|------------|
| Transaction costs                                                         |         | $          | 0.2                               |       | $                                 | 48.6       |   |
| Cash change-in-control expenditures                                       |         | —     |                              | 101.4      |                              |
| Non-cash  change-in-control expenditures                                  |         | —     |                              | 15.6       |                              |
| Post-merger  severance payments due to employee reductions at Great Lakes |         | 1.1        |                              | 6.8        |                              |
| Total capitalized Merger costs (a)                                        |         | $          | 1.3                               |       | $                                 | 172.4      |   |
|                                                                      |         |       |                              |       |                              |
| Merger integration costs                                                  |         | $          | 16.3                              |       | $                                 | 35.7       |   |
| Post-merger employee reductions - Crompton                                |         | 0.7        |                              | 9.5        |                              |
| Total Merger  Costs Expensed (b)                                          |         | $          | 17.0                              |       | $                                 | 45.2       |   |
|                                                                      |         |       |                              |       |                              |

----

(a)          Represents costs incurred by Great Lakes prior to the Merger andadditional costs incurred by the Company subsequent to the Merger that havebeen recorded under purchase accounting as a purchase price adjustment.  Includes one-time expenditures directlyrelated to the closing of the transaction, such as investment banking, legal,audit and other fees.  Also includesone-time severance and related costs due to the change in control of GreatLakes, as well as additional severance for the termination of former GreatLakes employees.

(b)         Represents costs incurred by the Company that are related to the Mergerand recorded as an operating expense. These include one-time expenditures to support the integration of thetwo companies, including costs associated with the use of consultants andadvisors, employee relocation and retention costs and severance and relatedcosts for the termination of former Crompton employees.

Asof December 31, 2006, the Company terminated approximately 600 employeesworldwide, as a direct result of the Merger. The Company has substantially completed its merger integration effortsas of December 31, 2006.  TheCompany expects any future merger costs to be minimal, primarily for consultingcosts and employee relocation costs to complete the integration of the twocompanies.

##### **Cost ReductionPrograms**

As a result of theMerger, the Company is continuing to identify savings opportunities.  Actual pre-tax merger related savings, basedon the pro forma combined operations of the Company and Great Lakes for theyear ended December 31, 2005 versus the pro forma combined results for the yearended December 31, 2004, totaled approximately $19.3 million, of which $15.5million was in selling, general and administrative expenses (SG&A), $2.3million was in cost of products sold, and $1.5 million in research anddevelopment (R&D). Actual pre-tax merger related savings, based on thecombined operations of the Company and Great Lakes for the year ended December31, 2006 versus the pro forma combined results for the year ended December 31,2005, totaled approximately $74.3 million, of which $34.8 million was in SG&A,$35.2 million was in cost of products sold, and $4.3 million in R&D.

In 2004, the Companycompleted an activity-based restructuring initiative, including a voluntaryseverance program, intended to structure the Company’s operations in a moreefficient and cost-effective manner. Through December 31, 2005, the Company had realized $53.4 million inannualized pre-tax savings. Approximately $17.2 million of these savings was in cost of productssold, $25.1 million in SG&A and $11.1 million in R&D.  These savings are reported net of anyincreased expenses or the impact of reduced revenues.

As a result of the Company’s other manufacturing costsavings programs, including Six Sigma and Lean Manufacturing, the Companyrealized approximately $28.0 million of additional pre-tax cost savings during2005, primarily in cost of products sold.

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| ** **                                                                                       | ** **   | ** **   | ** **    | ** ** | ** ** | ** ** | ** ** |
|--------------------------------------------------------------------------------------------------|--------------|--------------|---------------|------------|------------|------------|------------|
| **RESULTS OF OPERATIONS**                                                              | ** **   | ** **   | ** **    | ** ** | ** ** | ** ** | ** ** |
| ***(In thousands, except per share data)***                             | ** **   | ** **   | ** **    | ** ** | ** ** | ** ** | ** ** |
| * *                                                                                         | *** *** | **2006**     | ** **    | 2005       | ** ** | 2004       |       |
| **Net  Sales**                                                                                   | *** *** | *** *** | ** **    | ** ** |       |       | * *   |
| Plastic Additives                                                                                | ** **   | **$**        | **1,604,142** | ** ** | $          | 1,156,627  | ** ** | $ | 856,509 | ** ** |
| Polymers                                                                                         | ** **   | **492,021**  | ** **    | 517,471    | ** ** | 469,455    |       |
| Specialty Additives                                                                              | ** **   | **555,585**  | ** **    | 561,090    | ** ** | 458,664    |       |
| Crop Protection                                                                                  | ** **   | **360,134**  | ** **    | 353,610    | ** ** | 320,594    |       |
| Consumer Products                                                                                | ** **   | **565,699**  | ** **    | 261,258    | ** ** | —     |       |
| Other                                                                                            | ** **   | **145,126**  | ** **    | 136,552    | ** ** | 180,009    |       |
| **Net Sales**                                                                                    | ** **   | **$**        | **3,722,707** | ** ** | $          | 2,986,608  | ** ** | $ | 2,285,231 | ** ** |
|                                                                                             | ** **   | ** **   | ** **    | ** ** |       |       |       |
| **Operating  Profit**                                                                            | ** **   | ** **   | ** **    | ** ** |       |       | ** ** |
| Plastic Additives                                                                                | ** **   | **$**        | **102,435**   | ** ** | $          | 73,466     |       | $ | 17,353 |   |
| Polymers                                                                                         | ** **   | **66,259**   | ** **    | 94,355     | ** ** | 62,477     |       |
| Specialty Additives                                                                              | ** **   | **57,520**   | ** **    | 95,978     | ** ** | 21,666     |       |
| Crop Protection                                                                                  | ** **   | **64,559**   | ** **    | 82,106     | ** ** | 85,695     |       |
| Consumer Products                                                                                | ** **   | **70,483**   | ** **    | 23,215     | ** ** | —     |       |
| Other                                                                                            | ** **   | **15,454**   | ** **    | 5,208      | ** ** | 3,360      |       |
| **Segment Operating Profit**                                                                     | ** **   | **376,710**  | ** **    | 374,328    | ** ** | 190,551    |       |
| ** **                                                                                       | ** **   | ** **   |          | ** ** | ** ** | ** ** | ** ** |
| General  corporate expense including amortization                                                | ** **   | **(138,078** | **)**         | (94,698    | )          | (80,929    | )          |
| Unabsorbed  overhead expense from discontinued  operations                                       | ** **   | **—**   |          | **—** |       | (9,483     | )          |
| Facility  closures, severance and related costs                                                  | ** **   | **(5,482**   | **)**         | (22,713    | )          | (62,808    | )          |
| Antitrust costs                                                                                  | ** **   | **(89,534**  | **)**         | (49,109    | )          | (113,736   | )          |
| Merger costs                                                                                     | ** **   | **(17,010**  | **)**         | (45,230    | )          | —     |       |
| Gain related to  sale of Gustafson joint venture                                                 | ** **   | **1,500**    | ** **    | —     |       | 93,448     |       |
| Gain (loss) on  sale of businesses, net                                                          | ** **   | **(12,283**  | **)**         | 3,199      |       | 1,302      |       |
| Purchase  accounting inventory fair value impact                                                 | ** **   | **—**   | ** **    | (37,100    | )          | —     |       |
| In-process  research and development                                                             | ** **   | **—**   | ** **    | (73,300    | )          | —     |       |
| Impairment of  non-current assets                                                                | ** **   | **(80,263**  | **)**         | —     |       | —     |       |
| **Total Operating Profit**                                                                       | ** **   | **35,560**   | ** **    | 55,377     |       | 18,345     |       |
|                                                                                             | ** **   | ** **   |          |       |       |       |       |
| Interest expense                                                                                 | ** **   | **(102,485** | **)**         | (107,701   | )          | (78,441    | )          |
| Loss on early  extinguishment of debt                                                            | ** **   | **(44,030**  | **)**         | (55,091    | )          | (20,063    | )          |
| Other expense,  net                                                                              | ** **   | **(6,428**   | **)**         | (12,237    | )          | (11,588    | )          |
| Loss from  continuing operations before income

taxes and cumulative effect of accounting change | ** **   | **(117,383** | **)**         | (119,652   | )          | (91,747    | )          |
| Income tax  expense (benefit)                                                                    | ** **   | **135,625**  | ** **    | 65,198     |       | (49,788    | )          |
| Loss from  continuing operations before

cumulative effect of accounting change                  | ** **   | **(253,008** | **)**         | (184,850   | )          | (41,959    | )          |
| Earnings from  discontinued operations                                                           | ** **   | **—**   | ** **    | 2,645      |       | 5,227      |       |
| Gain (loss) on  sale of discontinued operations                                                  | ** **   | **47,491**   | ** **    | (3,889     | )          | 2,142      |       |
| Cumulative  effect of accounting change                                                          | ** **   | **—**   | ** **    | (546       | )          | —     |       |
| **Net Loss**                                                                                     | ** **   | **$**        | **(205,517**  | **)**      | $          | (186,640   | )          | $ | (34,590 | ) |
|                                                                                             | ** **   | ** **   | ** **    | ** ** |       |       |       |
| **Basic  and Diluted Earnings (Loss) Per Common Share**                                          | ** **   | ** **   |          |       | ** ** | ** ** | ** ** |
| Loss from  continuing operations before

cumulative effect of accounting change                  | ** **   | **$**        | **(1.05**     | **)**      | $          | (1.04      | )          | $ | (0.37 | ) |
| Earnings from  discontinued operations                                                           | ** **   | **—**   | ** **    | 0.01       | ** ** | 0.05       |       |
| Gain (loss) on  sale of discontinued operations                                                  | ** **   | **0.20**     | ** **    | (0.02      | )          | 0.02       |       |
| Cumulative effect  of accounting change                                                          | ** **   | **—**   | ** **    | —     | ** ** | —     |       |
| **Net Loss**                                                                                     | ** **   | **$**        | **(0.85**     | **)**      | $          | (1.05      | )          | $ | (0.30 | ) |
|                                                                                             | ** **   | ** **   |          |       |       |       |       |
|                                                                                             | ** **   | ** **   |          |       |       |       |       |

#  

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**2006 COMPARED TO 2005**

**Overview**

Net sales for the yearended December 31, 2006 of $3.72 billion were $736.1 million above net salesfor the comparable period of 2005 of $2.99 billion. The increase was primarilydue to $855.6 million in additional sales resulting from the Merger, a $62.8million increase in selling prices and $5 million due to favorable foreigncurrency translation, partially offset by a $108.3 million decrease in salesvolume, the exclusion of $48.3 million of sales due to the deconsolidation ofthe Company’s Polymer Processing Equipment business in April 2005, $21.5million associated with a change in the character of sales now made undercontinuing supply agreements entered into in connection with the divestiture ofthe Industrial Water Additives business in May 2006 and $9.1 million due to thenet effect of other acquisitions and divestitures.

Gross profit was $908.5million or 24.4% of sales for 2006 as compared with $783.5 million or 26.2% ofsales for 2005.  Gross profit increasedby $125.0 million primarily as a result of profits attributable to the Mergerthrough the first six months of 2006 of $253.6 million and a $37.1 millionpurchase accounting inventory write-off during the third quarter of 2005. Inaddition, the Company’s business units increased selling prices by $62.8million and achieved $23.0 million of savings attributable to cost reductioninitiatives, which were substantially offset by higher raw material and energycosts of $90.4 million, reductions in volume of $55.3 million, $34.4 million ofunfavorable manufacturing variances primarily related to lower productionvolume, the impact of the sale of IWA of $14.4 million, the deconsolidation ofthe Polymer Processing Equipment business in 2005 of $9.3 million, higher freightcosts of $14.9 million related to fuel surcharges, charges to reserve obsoleteand slow moving inventory of $8.6 million, and unfavorable currency translationof $1.3 million.

During 2006, the Companyreclassified certain amounts relating to operations from other expense, net toSG&A and (gain) loss on sale of businesses, net in the consolidatedstatement of operations.  For the yearended 2005, the Company reclassified income of $0.5 million from other expense,net, which resulted in an increase in SG&A of $2.7 million and a gain onsale of businesses, net of $3.2 million. The items reclassified include (a) legacy Witco pension and otherpost-retirement benefit obligations related to businesses for which the Companyhas continuing involvement and (b) gain on the sales of businesses which didnot meet the criteria to be considered discontinued operations.  Although the Company properly classifiedthese items within earnings (loss) from continuing operations, the Company didnot properly include these items as a component of operating profit (loss) inprior periods.  These reclassificationshad no impact on the Company’s previously reported income (loss) fromcontinuing operations, income (loss) from discontinued operations, net income(loss) or basic or diluted earnings per share amounts. Additionally, the effectof these changes did not affect the Company’s calculations under any debtcovenant arrangements.

Selling, general andadministrative expenses were $394.7 million for 2006 as compared with$333.1 million for 2005, an increase of $61.6 million over prior year. Theincrease was primarily attributable to $97.3 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, $8.8 millionrelated to the incremental effect of stock option expense partially offset bysavings of $25.6 million from Merger synergy programs, a decrease of$11.1 million due to the deconsolidation of the Polymer ProcessingEquipment business in early 2005, a decrease of $5.5 million due to the sale ofIWA and $1.8 million due to the sale of a urethane product line in 2006. Allsegments benefited from the Company’s cost savings programs, with PlasticAdditives deriving the most significant benefit. Depreciation and amortizationof $214.2 million increased by $56.3 million over 2005 primarily dueto the Merger and $15.9 million of additional depreciation expense due to thechange in useful life of assets at several of the Company’s manufacturingfacilities.  Research and developmentcosts of $65.5 million increased by $13.6 million over the prioryear, primarily as a result of $11.3 million in additional costs resultingfrom the Merger through the first six months of 2006.

Facilityclosures, severance and related costs were $5.5 million in 2006 as comparedwith $22.7 million in 2005.  The 2006costs are primarily severance costs related to the Company’s 2006 cost savingsinitiatives, offset in part by the reversal of reserves related to the Company’s2004 activity-based restructuring initiative that were no longer deemednecessary. The 2005 costs included $19.5 million for unrecoverable future leasecosts and asset write-offs related to the closure of the Company’s formerresearch and development facility in Tarrytown, New York.

TheCompany recorded antitrust costs of $89.5 million for 2006 as compared with$49.1 million for 2005.  The 2006 costsincluded $70.0 million primarily for settlement offers made to certain rubberchemicals, EPDM, plastic additives, urethanes, indirect case, and securitiesclass action claimants and $19.5 million for legal costs

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associatedwith the antitrust investigations and civil lawsuits.  The 2005 costs included a $16.1 millionsettlement payment to the European Commission, $19.4 million related to civilsettlements in the United States and $13.6 million for legal costs associatedwith antitrust investigations and related civil lawsuits.

TheCompany incurred $17.0 million of merger costs in 2006 compared to $45.2million in 2005.  These non-capitalizablecosts primarily consist of consulting expenses and relocation related costsdirectly attributable to the integration of the two companies and severance forCrompton employees.

The$80.3 million charge for impairment of non-current assets in 2006 includes$51.9 million for the impairment of goodwill related to the Fluorine business,$22.7 million related to the impairment of certain tangible and intangibleassets of the Fluorine business and $5.6 million related to the retainedlong-lived assets of the IWA business, which was sold in May 2006.

The losson sale of businesses in 2006 primarily relates to the sale of the IWA businessin May 2006.  The 2005 gain on sale ofbusiness is the result of the reversal of certain reserves related to the saleof the Industrial Colors business sold in 2001.

Operating profit was$35.6 million for 2006 as compared with $55.4 million for 2005.  In addition to the items noted below,operating profit was also affected by a reduction of $7.7 million due to thesale of IWA in May 2006,  a net increasein the provision for doubtful accounts of $8.5 million primarily resulting fromthe current economic situation of the agricultural markets in Brazil, $4.0million in unfavorable foreign currency translation, $51.3 million in costreduction program savings, the absence of the write-off of in-process researchand development of $73.3 million and the purchase accounting inventoryadjustments of $37.1 million in 2005 related to the Merger.

The loss from continuingoperations for the year ended December 31, 2006 was $253.0 million, or $1.05per diluted share, compared with the loss from continuing operations of $184.9million, or $1.04 per diluted share, for the year ended December 31, 2005.  The decrease primarily reflects the declinein operating profit discussed above and an increase in tax expense of $70.4million.  Additionally, these declineswere partly offset by a reduction in costs associated with the loss on earlyextinguishment of debt of $11.1 million, a decrease in interest expense of $5.2million, a $5.7 million gain on the sale of the Company’s equity interest inthe Davis Standard venture as well as $6.3 million of additional equity incomegenerated by this venture in 2006 prior to the sale.

For the year endedDecember 31, 2006, the Company recorded a gain on sale of discontinuedoperations of $47.5 million (net of taxes of $21.3 million), or $0.20 perdiluted share, related to the sale of the OrganoSilicones business to GeneralElectric Company (“GE”) in July of 2003. This gain primarily represents the recognition of the additionalcontingent earn-out proceeds related to the combined performance of GE’sexisting Silicones business and the OrganoSilicones business from the date ofthe sale through September 30, 2006.

**Plastic Additives**

Plastic Additives salesof $1.6 billion for 2006 increased by $447.5 million or 38.7% compared with2005 primarily due to a 36% increase in sales resulting from the Merger throughthe first six months of 2006.  Sales volume increased slightly in thenon-flame retardant plastic additives business as a result of market regainprograms instituted after unfavorable customer reactions to late 2005 priceincreases.   Non-flame retardant plasticadditives sales began to rebound in the third quarter of 2006 continuingthrough the fourth quarter of 2006.  Lower sales prices of 1.0% in the non-flame retardant plastic additivesbusiness was offset by selling price increases of 12.8% in the flame retardantbusiness.  2006 operating profit of$102.4 million increased by $29.0 million over 2005, primarily due toadditional operating profit resulting from the Merger of $61.6 million, costreduction program savings of $25.5 million, increased selling prices mainly inthe flame retardants business of $23.2 million and $2.0 million for directcosts resulting from Hurricanes Katrina and Rita in 2005, partially offset bylower volume of $8.4 million primarily in the non-flame retardants plasticadditives business, higher raw material and energy costs of $31.1 million,higher freight costs of $8.5 million, additional charges related to inventoryreserves of $7.3 million and unfavorable manufacturing variances of $15.4million.

**Polymers**

Polymer sales of $492.0million for 2006 decreased by 4.9% from prior year due to lower sales volume of3.7% and a 2.4% decline resulting from a decrease in sales due to thedivestiture of a Urethanes product line, partially offset by higher sellingprices of 1.2%. EPDM sales were 14.8% below 2005 due to lower sales volume of15.6% resulting from lost volume in the roofing market and lower demand in theweatherseal and automotive markets.  Additionally, overcapacity in the market caused persistent competitivepressures coupled with the absence of one-

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time sales to Asia in2005.  The annual impact of higherselling prices in EPDM of 0.7% was the result of price increases taken in 2005that have since been rolled back.  Urethanes sales were 1.6% higher than 2005 due to increased volume of4.0% primarily resulting from increased demand from existing North Americancustomers, geographic penetration into emerging Eastern European markets whilehigher selling prices, related to the successful pass-through of highermaterial costs, accounted for an additional 1.5% increase.  Gains werepartially offset by a 4.0% decrease resulting from a divested, break-evenproduct line.  2006 operating profit of$66.3 million decreased by $28.1 million from 2005, principally due to higherenergy and material costs of $25.9 million, lower volume of $6.5 millionsubstantially in EPDM and $8.5 million in unfavorable manufacturing variancesprimarily related to lower EPDM production volume.  Reductions were partially offset by higherEPDM and Urethanes pricing of $6.1 million, cost reduction program savings inEPDM and Urethanes of $5.7 million and the net impact of divesting a Urethanesproduct line of $0.7 million.

**Specialty Additives**

Specialty Additives salesof $555.6 million for 2006 were 1.0% lower than prior year.  Overall, sales volume related reductions of9.7% were substantially offset by higher selling prices of 5.6% to help offsetthe impact of higher raw material costs coupled with acquisition related salesgains of 3.0% related to the Merger through the first six months of 2006.   Petroleum Additives sales increased by 15.2%from the prior year due to Merger related sales of 5.5% through the first sixmonths of 2006 and higher selling prices of 12.6%, which offset higher rawmaterial and energy costs, partially offset by lower overall sales volume of3.0%.  Rubber Chemicals sales decreased by 20.4% from the prior yeardue to lower sales volume of 17.8% related to manufacturing capacity reductionsimplemented in the prior year and volume losses in 2006 due to pricecompetition, industry capacity, and customer shutdowns.  Rubber Chemicals also experienced lowerpricing of 2.6% due to excess industry supply and competitive pressure.  2006 operating profit of $57.5 milliondecreased by $38.5 million from the prior year, principally due to higher rawmaterial and energy costs of $30.1 million, the impact of lower sales volume of$19.2 million, unfavorable manufacturing variances of $11.6 million primarilyrelated to lower production volume and unfavorable currency translation of $2.1million. These declines were partially offset by $31.6 million of higherselling prices primarily in Petroleum Additives, $4.7 million from costreduction program savings and $3.6 million in operating profit from businessesacquired in the Merger through the first six months of 2006.

**Crop Protection**

Crop Protection net salesof $360.1 million in 2006 increased by 1.8% from 2005 primarily due to Mergerand acquisition related gains of 8.1% partially offset by lower sales volume of4.1% and lower selling prices of 2.3%. 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 $64.6 milliondecreased by $17.5 million from the prior year mainly due to lower sales volumeof $8.9 million related to North American weather, competition in the miticidesmarkets, economic pressures in Brazilian agricultural markets and unfavorablemanufacturing variances of $2.7 million related to volume.  In response to the market conditionsmentioned above, the segment has reduced certain selling prices by $8.0 millionin order to retain business.  Inaddition, the Company increased its provision for doubtful accounts by $8.5million to cover diminished liquidity in Brazilian agricultural markets.  Reductions were partially offset by gains dueto the inclusion of $9.3 million in operating profit from product linesacquired in the Merger through the first six months of 2006, $2.0 million dueto the acquisition of the Trace Chemicals business, cost savings programs of$4.1 million and lower raw material and energy costs of $1.0 million.

**Consumer Products**

Consumer Products salesin 2006 of $565.7 million increased by $304.4 million compared to 2005.  The $304.4 million increase was due to theMerger through the first six months of 2006. During the second half of 2006, consumer products sales declined by$13.2 million primarily due to lower sales volume of 9.9% partially offset byhigher selling prices of 4.1%.  Operatingprofit in 2006 of $70.5 million increased by $47.3 million compared to 2005primarily due to additional operating profit resulting from the Merger of $46.7million through the first six months of 2006, increased selling prices of $10.7million, cost reduction program savings of $3.6 million and favorablemanufacturing variances of $3.4 million. These factors were offset by lower sales volume of $13.5 million andhigher raw material costs of $3.8 million.

**Other**

Other sales were $145.1million and $136.6 million for the years ended 2006 and 2005,respectively.  The increase in sales wasprimarily due to $80.1 million additional sales in 2006 resulting from themerger partially offset by a decrease of $48.3 million resulting from thedeconsolidation of the Polymer Processing Equipment business on April 29, 2005and $21.5 million resulting from the sale of IWA.

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Operating profit was$15.5 million and $5.2 million for the years ended 2006 and 2005,respectively.  The increase was primarilydue to an increase in operating profit resulting from the Merger through thefirst six months of 2006 and an increase of $3.0 million resulting from thedeconsolidation of the Polymer Processing Equipment business, which reported aloss in 2005.

In 2005, PolymerProcessing Equipment represents four months of consolidated results prior tothe formation of the Davis-Standard LLC venture and the deconsolidation of thebusiness on April 29, 2005.

**General Corporate**

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. General corporateexpense also includes all amortization expense. General corporate expense of$138.1 million for 2006 increased by $43.4 million compared to the same periodin 2005 primarily due to $12.1 million of amortization expense attributable tothe Merger, $8.8 million of additional depreciation expense due to a change inthe useful life of certain fixed assets, $14.4 million of higher spending onstrategic and corporate development activities and other Merger relatedexpenses.

**OtherExpenses**

Interest expensedecreased $5.2 million, or 4.8%, from 2005.  The decrease was dueprimarily to a reduction of $48.7 million resulting from the early retirementof the 2012 Notes in 2006, the 2010 Notes in 2006 and 2005 and the 7.75%debentures in 2005, a $3.7 million benefit resulting from the amortization of apurchase accounting fair value adjustments relating to debt assumed in theMerger and a $2.3 million decrease due to the elimination of accretion of thediscount on antitrust civil liabilities, partially offset by $23.6 millionexpense incurred in connection with the April 2006 issuance of the 2016 Notes,$14.0 million additional expense associated with 7% notes assumed in the Merger,a $5.3 million expense for amortization of fair value adjustments relating toenvironmental liabilities assumed in the Merger, $4.9 million expense resultingfrom higher average borrowings on the Credit Facility at higher market interestrates and $1.9 million additional expense from working capital facilityagreements.

Other expense, net, was$6.4 million for 2006 as compared with other expense, net, of $12.2 million for2005. The decrease is primarily attributable to a $6.3 million increase toequity income from the Company’s Davis Standard venture, a gain on sale of theDavis Standard venture of $5.7 million, a $2.3 million decrease in minorityinterest expense, a $2.1 million reduction in post-retirement benefits expenserelated to the capping of benefits for certain plans acquired as part of themerger with Witco in 1999 related to businesses for which the Company does nothave any continuing involvement and a $1.8 million increase in interest incomefrom tax settlements, partially offset by $6.6 million of unfavorable currencytranslation, an increase of $2.8 million in costs associated withsecuritization and other accounts receivable financing programs due primarilyto the inclusion of former Great Lakes entities in the securitization program.

During 2006, the Companyrecorded a loss on early extinguishment of debt of $44.0 million, whichincludes a $19.6 million loss from the May 2006 retirement of the 2010 Notesand a $24.4 million loss from the July 2006 retirement of the 2012 Notes. The $19.6 million loss associated with the retirement of the 2010 Notesincludes a premium of $15.8 million and write-off of unamortized deferred costsof $3.7 million. The $24.4 million loss associated with the 2012 Notes includesa premium of $19.7 million, a write-off of unamortized deferred costs of $3.8million and the write-off of unamortized original issue discount of $0.8million.

**As a result of the tender of$60.3 million of the Company’s Senior Floating Rate Notes due 2010 and $216.0million of its 9.875% Senior Notes due 2012, the retirement of its outstanding$110.0 million aggregate principal amount of 7.75% bonds due in 2023, and thereplacement of its existing $220.0 million domestic credit facility with a$600.0 million five-year credit facility available through July 2010, theCompany recorded a loss on early extinguishment of debt of $55.1 million in2005.  The 2005 loss primarily includesthe premiums paid to tender the Senior Notes and the 7.75% bonds and the write-offof unamortized debt issuance costs related to the Senior Notes, 7.75% bonds and$220.0 million credit facility.**

**IncomeTaxes**

**The income tax expense from continuing operations for 2006was $135.6 million and the income tax expense for 2005 was $65.2 million.**

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** **

**The tax expense was negatively affected by a number ofitems for 2006 including the impact of the write-off of non-deductible goodwillassociated with the IWA divestiture and goodwill impairment related to theFluorine business, and non-deductible antitrust costs, offset by favorable taxexamination settlements and tax legislative changes.   Further, tax expense for 2006 includes acharge of $156.0 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 considered substantiallyall of the earnings of its foreign subsidiaries to be permanently reinvested intheir operations. If this deferred tax liability had not been recognized, avaluation allowance for domestic net deferred tax assets would have beenrequired.**

**DiscontinuedOperations**

For 2006, the Companyrecorded a gain on sale of discontinued operations of $47.5 million (net oftaxes of $21.3 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 through September 30, 2006.

# Discontinued operations for 2005 included a loss onthe sale of discontinued operations of $3.9 million (net of an income taxbenefit of $3.4 million), or $0.02 per common share, which was primarily due toa purchase price adjustment for the settlement of certain matters related tothe July 2003 sale of the Company’s OrganoSilicones business to GE. Earnings from discontinued operations for 2005 of $2.6 million (net of incometax expense of $1.4 million), or $0.01 per common share, related to the Company’sRefined Products business unit, which was sold on June 24, 2005.  Overall,the sale of the Refined Products business did not have a material impact on theCompany’s earnings for the year ended December 31, 2005.

# **2005 COMPARED TO 2004**

# **Overview**

Consolidated net sales of $2.99billion in 2005 were 31% above consolidated net sales of $2.29 billion in2004.  The increase was primarily due to$781 million of additional sales resulting from the merger with Great Lakes,partially offset by a reduction of $131.7 million of sales due to the April2005 deconsolidation of the Company’s Polymer Processing Equipmentbusiness.  In addition, the Companyexperienced improved selling prices of 11.4% and favorable foreign currencytranslation of 1%, offset by lower unit volume of 10%.  International sales, including U.S. exports,were 48% of total sales in 2005, down slightly from 52% in 2004.  For further information about sales, see thediscussion of segment results below.

Gross profit as apercentage of sales was 26.2% for 2005 as compared to 23.0% for 2004.  The increase in gross profit of $258.2million was primarily due to increased selling prices of $261.4 million, theacquisition of Great Lakes businesses of $165.0 million, which includes a $37.1million charge to write-off the fair value impact of purchase accounting oninventory, and savings attributable to cost reduction programs of $41.1million.  Partially offsetting thesefavorable items were increases in raw material and energy costs of $125.0million, lower unit volume of $56.5 million, the deconsolidation of the PolymerProcessing Equipment business of $29.8 million and lower manufacturingproductivity of $15.0 million.  Theimproved selling prices, cost savings, increased raw material and energy costsand manufacturing productivity were primarily attributable to the Company’splastic additives, specialty additives, and polymers segments, with the plasticadditives segment being the largest contributor.   The lower unit volume was primarily in theplastic additives segment.

For the year ended 2005,the Company reclassified income of $0.5 million from other expense, net, whichresulted in a increase in SG&A of $2.7 million and a gain on sale ofbusinesses, net of $3.2 million.  For theyear ended 2004, the Company reclassified income of $92.1 million from otherexpense, net, which resulted in an increase in SG&A of $2.6 million, a gainon sale of businesses, net of $1.3 million and income related to sale ofGustafson joint venture of $93.4 million. The items reclassified include (a) legacy Witco pension and otherpost-retirement benefit obligations related to businesses for which the Companyhas continuing involvement, (b) gain on the sales of businesses which did notmeet the criteria to be considered discontinued operations and (c) gains on thesale of equity method investments for which income had previously been reportedwithin operating profit (loss).  Althoughthe Company properly classified these items within earnings (loss) fromcontinuing operations, the Company improperly did not include these items as acomponent of operating profit (loss) in prior periods.  These reclassifications had no impact on theCompany’s previously reported income (loss) from continuing operations,

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income (loss) fromdiscontinued operations, net income (loss) or basic or diluted earnings pershare amounts. Additionally, the effect of these changes did not affect theCompany’s calculations under any debt.

SG&A of $333.1million increased $59.8 million compared to 2004.  The increase was primarily attributable to$84.0 million of expenses due to the inclusion of Great Lakes, partially offsetby savings attributable to cost reduction initiatives related to the 2004activity-based restructuring initiative of $22.2 million, a decrease of $20.9million due to the deconsolidation of the Polymer Processing Equipment businessunit and 2004 non-recurring supplemental executive retirement costs related tothe retirement of certain executives of $8.1 million.  The cost reduction initiatives were mainlyachieved in the plastic additives segment and general corporate expenses.  Depreciation and amortization of $157.8million increased $39.6 million mainly due to additional depreciation andamortization expenses of $43.0 million resulting from the acquisition the GreatLakes businesses.  Research anddevelopment costs of $51.8 million increased $3.9 million.  The merger with Great Lakes added $11.6million of research and development costs in 2005, partially offset by adecrease of $9.8 million resulting from the 2004 activity-based restructuringinitiative.  The cost savings are mainlyattributable to the plastic additives, specialty additives and polymerssegments.  Equity income of $1.8 milliondecreased $12.3 million from 2004 to 2005 principally due to the absence of$9.6 million in earnings from Crop Protection’s Gustafson seed joint venture,which was sold on March 31, 2004, and higher equity income of $4.3 millionresulting from an income tax adjustment for the Company’s Rubicon joint venturein 2004.

Facility closures,severance and related costs were $22.7 million for 2005 as compared to $62.8million for 2004.  The 2005 costsincluded $19.5 million for unrecoverable future lease costs and assetwrite-offs related to the closure of the Company’s former research anddevelopment facility in Tarrytown, NY, and $5.6 million primarily for severanceand related costs resulting from the 2004 activity-based restructuringinitiative, partially offset by a $2.4 million credit resulting primarily fromthe settlement of certain issues with the Company’s partner in the Enenco jointventure.  The 2004 costs were primarilyfor severance costs related to the 2004 activity-based restructuringinitiative.

The Company incurredantitrust costs of $49.1 million for the year ended 2005 as compared to $113.7million for the comparable period in 2004. The 2005 costs included a $16.1 million settlement with the European Commission,a $6.2 million settlement with claimants in Canada relating to rubberchemicals, a $3.9 million settlement with class claimants in Canada coveringdirect and indirect purchasers of EPDM, a $9.3 million revision to the Company’sclass action settlement reserves and the remainder for legal costs associatedwith antitrust investigations and related civil lawsuits.  The 2004 costs included a $5.0 million U.S.civil antitrust settlement, $93.1 million for the expected settlement of threedirect purchaser class action lawsuits and the remainder for legal costsassociated with antitrust investigations and related civil lawsuits.

The Company incurred merger costs of $45.2 million during2005.  These costs are non-capitalizablecosts associated with the Merger.  Thesecosts primarily include consulting costs related to the integration of the twocompanies and severance for former Crompton employees.

The 2005 gain on sale of business relates to the reversalof certain reserves of the Industrial Colors business that was sold in2001.  The 2004 gain on sale of businessrelates to the reversal of reserves related to the Industrial Specialtiesbusiness that was sold in 2002.

The Company recorded a $73.3 million charge in 2005 towrite-off in-process research and development resulting from the Merger.

The 2005 operating profitof $55.4 million improved by $37.0 million compared to the 2004 operatingprofit of $18.3 million. The improvement was primarily attributed to highergross profit of $258.2 million, lower facility closures, severance and relatedcosts of $40.1 million, decreased antitrust legal and related costs of $64.6million, offset in part by income related to sale of Gustafson joint venture of$93.4 million, in-process research and development charge of $73.3 million andmerger costs of $45.2 million, higher selling, general and administrativeexpenses of $59.8 million, additional depreciation and amortization expenses of$39.6 million, and less equity income of $12.3 million.

Thenet loss for 2005 of $186.6 million, or $1.05 per common share, compared to anet loss of $34.6 million, or $0.30 per common share in 2004. The net loss for2005 included an after-tax loss on the sale of discontinued operations for $3.9million, or $0.02 per common share, which was primarily due to purchase priceadjustments for the settlement of certain matters related to the July 31, 2003sale of the Company’s OrganoSilicones business unit.  The 2005 net loss also includes after-taxearnings from discontinued operations of $2.6 million, or $0.01 per

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commonshare, related to the Company’s Refined Products business, and an after-taxcharge for a cumulative effect of accounting change of $0.5 million, related tothe implementation of FASB Interpretation No. 47, “Accounting forConditional Asset Retirement Obligations”.  The impact of the sale of the Company’sRefined Products business did not materially impact the Company’s earnings forthe year ended December 31, 2005.

The loss from continuingoperations for the year ended December 31, 2005 was $184.9 million, or $1.04per share, included pre-tax charges of $45.2 million for merger costs resultingfrom the Merger, a $73.3 million charge to write off in-process research anddevelopment resulting from the Merger, a $37.1 million charge to write off thefair value impact of purchase accounting on inventory, a $55.1 million loss onthe early extinguishment of debt, antitrust costs of $49.1 million, facilityclosures, severance and related costs of $22.7 million, direct expenses due toHurricanes Katrina and Rita of $4.6 million, $1.9 million of additionaldepreciation due to the change in useful life of certain assets at one theCompany’s manufacturing facilities, and an offsetting pre-tax gain of $3.2million from a previously divested business.

Thenet loss for 2004 of $34.6 million, or $0.30 per common share included anafter-tax gain on the sale of discontinued operations for $2.1 million, or$0.02 per common share, resulting from the purchase price adjustment settlementand other matters related to the July 31, 2003 sale of the Company’sOrganoSilicones business unit, and after-tax earnings from discontinuedoperations of $5.2 million, or $0.05 per common share, related to the Company’sRefined Products business.  The net lossfrom continuing operations for 2004 of $42 million, or $0.37 per common share,included pre-tax divestment gains of $94.7 million primarily from the sale ofthe Company’s 50 percent interest in the Gustafson seed treatment jointventure, and pre-tax charges for antitrust costs of $113.7 million, facilityclosures, severance and related costs of $62.8 million, a loss on the earlyextinguishment of debt of $20.1 million incurred in connection with therefinancing completed in August 2004 and supplemental executive retirement costsof $8.1 million.  The loss fromcontinuing operations for 2004 also included pre-tax overhead expensespreviously absorbed by the Refined Products business unit of $9.5 million.

**Plastic Additives**

Plastic additives salesof $1.16 billion rose 35% from 2004, which consisted of a 46% increase due tothe inclusion of the Great Lakes polymer stabilizers and flame retardantsbusinesses as a result of the Merger and improved pricing of 10%, partiallyoffset by a 21% decrease from lower sales volume.  Operating profit of $73.5 million was up$56.1 million from 2004 mainly due to the acquisition of the Great Lakespolymer stabilizers and flame retardants businesses of $40.4 million, higherselling prices of $82.0 million and savings from cost reduction programs of$42.1 million, offset in part by higher raw material and energy costs of $36.2million, lower sales volume of $56.5 million and lower manufacturingproductivity of $8.1 million.

Although plasticadditives showed significant improvement in operating profit versus 2004, salesvolumes declined in the second half of 2005 primarily due to customer reactionto price increases and a related loss of market share in certain product lines.The Company believed these sales volumes reached their lowest point in the fourthquarter. The decline was primarily in the non-flame retardant business. TheCompany believes it underestimated customer and competitive reactions to itspricing initiatives and it did not expect competitors to so aggressively pursuesales volume. As a result of the sales volume decline experienced during thesecond half of 2005, the Company has refined its pricing tactics to usecustomer and product profitability analysis to more selectively implementpricing changes based on customer and product level dynamics, rather thanutilize more broadly based pricing tactics. The Company expects these actionswill prevent a further loss in market share and result in replacement orrecovery of a portion of the sales volumes lost during the second half of 2005.

**Polymers**

Polymers sales of $517.5million were up 10% from 2004 due primarily to improved pricing of 15% andfavorable foreign currency translation of 1%, partially offset by a decrease of6% from lower unit volume.  EPDM salesrose 18% primarily due to a 30% increase from higher selling prices, partiallyoffset by a 12% decrease from lower sales volume.  Urethanes sales were up 6% substantially dueto increases in selling prices. Operating profit of $94.4 million rose 51% from 2004 due primarily tofavorable pricing of $71.2 million, cost savings of $12.1 million, partiallyoffset by higher raw material and energy costs of $34.4 million and lowermanufacturing productivity of $7.1 million.

**Specialty Additives**

Specialty additives salesof $561.1 million rose 22% from 2004 due primarily to a 25% improvement inpricing and a 4% increase due to the acquisition of the Great Lakes phosphorousfluids business, partially offset by a 7% decrease from lower salesvolume.  Rubber additives sales rose 14%due to higher selling prices of 34%, partially

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offset by a 21% decreasefrom lower unit volume, primarily resulting from our capacity rationalizationactions initiated in 2004.  Results forrubber additives were very favorable in 2005 largely due to the Company’s valuepricing strategy. The Company expects somewhat weaker results for 2006 due toexpected softness in automotive end markets. Petroleum additives salesincreased by 31%, primarily due to the acquisition of the Great Lakesphosphorous fluids business of 7%, higher selling prices of 17% and highersales volume of 7%. The petroleum additives business unit continues to deliverfavorable results due to the continued increase in engine performancestandards, which is driving higher sales and profits. Operating profit of $96.0million was up $74.3 million from 2004 due primarily to favorable pricing of$114.8 million and cost savings of $13.6 million and the acquisition of theGreat Lakes phosphorous fluids business of $3.0 million, partially offset byhigher raw material and energy costs of $49.9 million.

**Crop Protection**

Crop Protection sales of$353.6 million were up 10% from 2004 due primarily to the acquisition of theGreat Lakes methyl bromide business of 7%, favorable foreign currencytranslation of 4% and higher unit volume of 1%, partially offset by lowerselling prices of 2%.  Operating profitof $82.1 million was down $3.6 million from 2004 mainly as a result ofdecreased joint venture equity income of $9.6 million due to the sale of theGustafson joint venture, partially offset by the inclusion of the Great Lakesmethyl bromide business of $7.9 million. Overall profits for Crop Protection were below last year primarily as aresult of a drought and related economic downturn in Brazil.

**Consumer Products**

Consumer Products salesof $261.3 million and operating profit of $23.2 million for 2005 are entirelythe result of the Merger**. **In the third quarter of 2005, theCompany raised prices in the pool and spa product lines and launched a seriesof operational efficiencies.  Theseactions led to higher earnings in the fourth quarter of 2005.  Stronger pricing and operational efficienciesare expected to drive improved profitability in 2006.

**Other**

Other sales were $136.6million for 2005, which included $88.2 million as a result of the Merger and$48.3 million from Polymer Processing Equipment sales.  Other sales were $180.0 million for 2004 andwere entirely due to Polymer Processing Equipment.

Operating profit of $5.2 million for the year ended 2005included earnings of $8.2 million as a result of the Merger and a loss of $3.0million from Polymer Processing Equipment. Operating profit of $3.4 million for the year ended 2004 was entirelydue to Polymer Processing Equipment.

In 2005, Polymer Processing Equipment represents fourmonths of consolidated results in 2005 prior to the formation of theDavis-Standard LLC venture and the deconsolidation of the business on April 29,2005.

**General Corporate**

General corporate expenseincludes costs and expenses that are of a general corporate nature or managedon a corporate basis. These costs are primarily for corporate administrationservices, costs related to corporate headquarters, and management compensationplan expenses related to executives and corporate managers. General corporateexpense also includes all amortization expense. These expenses increased $13.8million from 2004 to 2005.  Contributingto this increase was $12.5 million of amortization expense attributed to theGreat Lakes acquisition, $5.4 million of general corporate expense from GreatLakes, and additional depreciation of $1.9 million due to a change in theuseful life of assets, partially offset by non-recurring supplemental executiveretirement costs of $8.1 million recorded in 2004.

Unabsorbedoverhead expense from discontinued operations of $9.5 million in 2004represents general overhead costs that were previously absorbed by the RefinedProducts business. There was no unabsorbed overhead expense from discontinuedoperations in 2005.

**OtherExpenses**

Interest expenseincreased 37% primarily due to $14 million of interest related to the $400million of 7% notes assumed from Great Lakes on July 1, 2005 and approximately$12.5 million of increased interest resulting from the impact of the 2004issuance of the 9.875% and floating rate Senior Notes, partially offset by therepurchase of the Company’s $350 million 8.5% Senior Notes and $140 million ofits 6.125% Senior Notes.

As a result of the tenderof $60.3 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

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7.75%bonds due in 2023, and the replacement of its existing $220 million domesticcredit facility with a $600 million five-year credit facility available throughJuly 2010, the Company recorded a loss on early extinguishment of debt of $55.1million in 2005.  The 2005 loss primarilyincludes the premiums paid to tender the Senior Notes and the 7.75% bonds andthe write-off of unamortized debt issuance costs related to the Senior Notes,7.75% bonds and $220 million credit facility. As a result of the repurchase of the Company’s $350 million 8.5%Senior Notes and $140 million of its 6.125% Senior Notes, the Company recordeda loss on early extinguishment of debt of $20.1 million in 2004.  The 2004 loss primarily includes the premiumspaid to repurchase the Notes, the consent payments and the write-off of theunamortized discount and deferred costs related to the Notes.

Other expense, net, was$12.2 million for 2005 as compared to other expense, net, of $11.6 million for2004.  The increase is primarily due toincreased costs associated with accounts receivable discounting and the Company’ssecuritization program, partially offset primarily by increased interestincome.

**Income Taxes**

In 2005 and 2004, theCompany reported a loss from continuing operations before income taxes andcumulative effect of accounting change of $119.7 million and $91.7 million,respectively.  The effective tax rate forthe year ended December 31, 2005 was an expense of 54% compared to a benefit of54% for the year ended December 31, 2004. The 2005 effective rate was unfavorably impacted by a number of discreteitems which included $53.1 million attributable to the Company’s election torepatriate foreign earnings under the American Jobs Creation Act of 2004, $28.2million for deferred tax asset valuation reserves related to certain income taxcredits, net operating losses, and other deferred tax assets, and thenon-recognition of any tax benefit for the $73.3 million pre-tax charge for thein-process research and development write-off. The 2004 effective tax rate wasfavorably impacted by reserve adjustments largely due to the resolution ofprior years’ tax audits, offset in part by $65.4 million of antitrustsettlements which were not deductible.

# **DiscontinuedOperations**

Discontinued operations for 2005 included a loss on thesale of discontinued operations of $3.9 million (net of an income tax benefitof $3.4 million), or $0.02 per common share, which was primarily due to apurchase price adjustment for the settlement of certain matters related to theJuly 2003 sale of the Company’s OrganoSilicones business unit.  Earnings from discontinued operations for2005 of $2.6 million (net of income tax expense of $1.4 million) or $0.01 percommon share, related to the Company’s Refined Products business unit, whichwas sold on June 24, 2005.  The sale ofthe Refined Products business did not have a material impact on the Company’searnings for the year ended December 31, 2005.

Discontinued operations for 2004 included earnings fromdiscontinued operations of $5.2 million (net of income tax expense of $3.1million), or $0.05 per common share and a gain on sale of discontinuedoperations of $2.1 million (net of income tax expense of $0.3 million), or$0.02 million per common share.  The $5.2million in earnings from discontinued operations related to the Company’sRefined Products business unit.  The $2.1million gain on the sale of discontinued operations related to the settlementof certain contingencies from the July 2003 sale of the Company’sOrganoSilicones business unit.

# **CRITICAL ACCOUNTING ESTIMATES**

The Company’sconsolidated financial statements have been prepared in conformity withaccounting principles generally accepted in the United States, which requirethe Company to make estimates and assumptions that affect the amounts anddisclosures reported in the consolidated financial statements and accompanyingnotes. Accounting estimates and assumptions in this section are those theCompany considers to be the most critical to understanding of our financialstatements 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 ofLong-Lived Assets and Goodwill**

The Company evaluates therecoverability of the carrying value of its long-lived assets, excludinggoodwill, whenever events or changes in circumstances indicate that thecarrying value may not be recoverable. Under such circumstances, the Companyassesses whether the projected undiscounted cash flows of its businesses aresufficient to recover the existing unamortized cost of its long-lived assets.If the undiscounted projected cash flows are not sufficient, the Companycalculates the impairment amount by discounting the projected cash flows using

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its weighted average costof capital. The amount of the impairment is written-off against earnings in theperiod in which the impairment has been determined in accordance with StatementNo. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets.”

The Company tests therecoverability of goodwill of each of its reporting units on an annual basis asof July 31, or sooner if events occur or circumstances change, by comparing thenet book value to the estimated fair value of each of its reporting units todetermine if there is a potential impairment issue. The fair value is estimatedbased on discounted projected cash flows. In estimating the discountedprojected cash flows, the Company utilizes estimated long-term revenue and cashflow forecasts developed as part of its planning process, as well asassumptions of terminal value, together with its weighted average cost ofcapital, to determine fair value. If the fair value is not sufficient to coverthe carrying value of the reporting unit, the Company calculates the goodwillimpairment amount related to that reporting unit in accordance with Statement142, “Goodwill and Other Intangible Assets.” Any impairment is charged againstearnings in the period in which the amount has been determined.

The Company’s cash flowprojections used to estimate the fair value of its reporting units are based onsubjective estimates, the most significant of which are selling prices andtheir relationship to raw material costs, sales volumes and cost reduction orsavings benefits. Deviations of actual results from the Company’s estimates, aswell as a change in the discount rate utilized, could impact the fair valueestimates used to determine whether an impairment exists. Based on the fairvalue estimates used in July 2006 to test goodwill for impairment in accordancewith Statement 142, the Company concluded that an impairment of $51.9 millionexisted for its Fluorine business at July 31, 2006.  The Company concluded that no impairmentexisted in any of its other reporting units at July 31, 2006.

Although the Companybelieves that its projections reflect its best estimates of the futureperformance of its reporting units, changes in estimates of sales volume, sellingprices, raw material costs, and cost reduction or savings benefits used toproject the cash flows for its reporting units could have an impact on the fairvalue used to test goodwill of the reporting unit for impairment. Any increasesin the estimated future cash flows of its reporting units would have had noimpact on the carrying value of that reporting unit. However, a decrease inestimated future cash flows could require the Company to allocate the fairvalue of the reporting unit among the assets and liabilities of that reportingunit for the purpose of determining whether a goodwill impairment exists.

The effect of cost savinginitiatives, process improvements and new technology achievements are currentlythe most sensitive factors affecting the projected cash flows for the non-flameretardant plastic additives reporting unit. If, when conducting its annualgoodwill impairment test as of July 31, 2006, the Company assumed that thebenefits of these initiatives were 50% lower than forecasted, the carryingvalue of the reporting unit would have exceeded the fair value estimate byapproximately $80 million.  Had theCompany assumed no benefit from these initiatives, the carrying value of thereporting unit would exceed the fair value estimate by approximately $200million. In either case, the Company would have been required to allocate thefair value among the assets and liabilities of the reporting unit for purposesof determining whether a goodwill impairment existed at July 31, 2006.

Additionally, therelationship of raw material price increases to selling price increases coupledwith the Company’s ability to regain market share could cause actual results todiffer significantly from the projected amounts. The Company has factored intotheir forecasts a terminal value which accounts for this sensitivity.  If the terminal value growth factor used inthe non-flame retardant plastic additives projections were assumed to be 100basis points lower, the carrying value of the reporting unit would have exceededthe fair value estimate by approximately $50 million at July 31, 2006, and theCompany would have been required to determine whether recognition of a goodwillimpairment charge was required.   As ofJuly 31, 2006, the Company did not factor in any improvements to future cashflow projections that might be made to the reporting unit as a result ofacquisitions or expansion of product lines into target regions.

# **EnvironmentalMatters**

TheCompany is involved in claims, litigation, administrative proceedings andinvestigations of various types in a number of jurisdictions.  A number of such matters involve claims for amaterial amount of damages and relate to or allege environmental liabilities,including clean-up costs associated with hazardous waste disposal sites,natural resource damages, property damage and personal injury.  The Company and some of its subsidiaries havebeen identified by federal, state or local governmental agencies, and by otherpotentially responsible parties (each a “PRP”) under the ComprehensiveEnvironmental Response, Compensation and Liability Act of 1980, as amended, orcomparable state statutes, as a PRP with respect to costs associated with wastedisposal sites at various

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locationsin the United States.  In addition, theCompany is involved with environmental remediation and compliance activities atsome of its current and former sites in the United States and abroad.

Each quarter, the Companyevaluates and reviews estimates for future remediation, and operation andmanagement costs directly related to remediation, to determine appropriateenvironmental reserve amounts. For each site where the cost of remediation isprobable and estimable, a determination is made of the specific measures thatare believed to be required to remediate the site, the estimated total cost tocarry out the remediation plan, the portion of the total remediation costs tobe borne by the Company and the anticipated time frame over which payments towardthe remediation plan will occur. At sites where the Company expects to incurongoing operation and maintenance expenditures, the Company accrues on anundiscounted basis for a period, which is generally 10 years, where it believesthat such costs are estimable.  As ofDecember 31, 2006, the Company’s reserves for environmental remediationactivities totaled $124.4 million.  TheCompany estimates the reasonably possible and estimable environmental liabilityto range from $112 million to $162 million at December 31, 2006.  The Company’s reserves include estimates fordeterminable clean-up costs.  At a numberof these sites, the extent of contamination has not yet been fully investigatedor the final scope of remediation is not yet determinable. The Company intendsto assert all meritorious legal defenses and will pursue other equitablefactors that are available with respect to these matters.  However, the final cost of clean-up at thesesites could exceed the Company’s present estimates, and could have, individuallyor in the aggregate, a material adverse effect on its financial condition,results of operations or cash flows.

In addition, it ispossible 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 intends toassert all meritorious legal defenses and will pursue other equitable factorsthat are available with respect to these matters.  The resolution of the environmental mattersnow pending or hereafter asserted against the Company or any of itssubsidiaries could require the Company to pay remedial costs or damages, whichare not currently determinable, could exceed the Company’s present estimates,and as a result could have, either individually or in the aggregate, a materialadverse effect on its financial condition, results of operations or cash 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.

*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, 2006, the Company utilized a weighted average discount rate of 5.63 percent for domestic pension plans, which was 12 basis points lower than the rate used at November 30, 2005.   For the international and non-qualified plans, a weighted average discount rate of 4.74 percent was used at November 30, 2006, 18 basis points lower than the weighted rate used at the same time last year. As a sensitivity measure, a 25 basis point reduction in the discount rate for all plans would result in approximately a $3.0 million decrease in pre-tax earnings for 2007.

The domestic discount rate adopted at November 30, 2006 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

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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 3.81 percent for all domestic and international pension plans combined at November 30, 2006.  As a sensitivity measure, an increase of 25 basis points in the estimated rate of compensation increase would decrease pre-tax earnings for 2007 by approximately $1.0 million.

The expected return on pension plan assets is based on our investment strategy, historical experience, and our 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 percent on all domestic plan assets and a weighted average rate of 6.7 percent for the international plan assets at November 30, 2006.

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 10.6 percent and over the past 30 years was 12.3 percent. These values are not significantly higher than the geometric averages for the same periods and exceed the 8.5 percent domestic expected return on assets.

The actual annualized return on plan assets for the domestic plans for the 12 months ending November 30, 2006 was approximately 12.9 percent, which exceeded the expected return on asset assumption for the year, resulting in a gain for the plans. Similarly, the international plans earned a weighted average return of approximately 11.4 percent (in local currency terms, before allowing for depreciation of the US dollar against major currencies in 2006) and 23.5 percent in US dollar terms.

The Company’s targetasset allocation for the domestic pension plans is based on investing 58% ofplan assets in equity instruments and 42% of plan assets in fixed incomeinvestments (including real estate).  AtNovember 30, 2006, 58.9% of the portfolio was invested in equities and theremainder in fixed income investments. During 2006, the Company increased theduration of the fixed income portfolio for the domestic plans to approximately25 years, so that the overall duration of the assets better matches theduration of the plan liabilities. The objective of this duration matching is toreduce the volatility of the funded status caused by fluctuations in interestrates, so when interest rates rise, any reduction in the value of the fixedincome portfolio will be offset by a reduction in the value of the planobligations. Similarly, when interest rates fall, any increase in the value ofthe plan obligations will be offset by an increase in value of the fixed incomeportfolio. Similarly the investment strategies for international plans giveconsideration to the different plan liabilities, market conditions andtolerance to risk.

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, 2006 will result in an $8.9 million decrease to pre-tax earnings for 2007 ($5.4 million for the qualified domestic plans and $3.5 million for the international and non-qualified plans). Since future gains and losses beyond 2006 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.

The estimated requiredfunding amounts for 2007 through 2011 discussed below are based on actualNovember 30, 2006 asset values and assume that the minimum legislatedcontributions will be made in the future. The funding estimates also assumethat interest rates will remain at or near current levels and no othersignificant changes will occur with regard to demographics, legislation, planprovisions or actuarial assumptions and methods used to determine the estimatedfunding requirements. It is assumed that the expected return on assets, as

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discussed above, will beearned each year on invested assets. Based on these assumptions, there are nofunding requirements for the qualified domestic pension plans for 2007 through2011.  For the international andnon-qualified pension plans the cash requirements for funding and the paymentof unfunded benefits are estimated to be $24.5 million in 2007, $27.4 millionin 2008, $27.8 million in 2009, $26.2 million in 2010 and $23.7 million in2011.  To the extent that currentassumptions are not borne out, actual cash requirements may be significantlydifferent from these estimates.

The above projectionstake into account the effect of the implementation of the Pension ProtectionAct (the “PPA”).  The PPA extends interestrate relief for qualified domestic pension plans until 2008, at which time anew methodology for determining required funding amounts will bephased-in.  These provisions have beentaken into account in the above figures, which reflect the Company’s currentunderstanding of the PPA requirements. To the extent that further regulations are issued with respect to thePPA, the above amounts may change.

In the United Kingdom,changes to legislation impacting funding requirements mean that it is not possibleto estimate future contributions with any certainty at this time, as valuationsunder the new requirements have not yet been prepared. However, for thepurposes of the amounts estimated above, we have assumed that the fundingrequirements of the plans sponsored by the Company in the United Kingdom willtarget a 70% to 80% funding level over a period of 10 years. It is assumed thatthe funding level will be examined during 2007 and 2010 impacting thecontribution requirements in 2008 and 2011, taking into account contributionsand investment returns to the date of examination. Discussions between theCompany and the trustees of these plans may lead to differing fundingrequirements than those given.

Based on currentassumptions, a 100 basis point change in the actual return on assets would notimpact the estimated future funding requirements for the qualified domesticpension plans for 2007 through 2011.  Theimpact of a 100 basis point increase or decrease in the actual return on assetson the estimated funding requirements for the international and non-qualifiedplans would be zero in 2007 and 2008, a $0.1 million increase or decrease in2009 and 2010 and a $2.4 million increase or $2.2 million decrease in 2011.

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)***                       | ** ** | **2007**                                                   | ** ** | **2008** | ** ** | **2009** | ** ** | **2010** | ** ** | **2011** | ** ** |
| Qualified domestic  pension plans              |       | $                                                          | (9.6       | ) | $ | (13.6 | ) | $ | (16.3 | ) | $ | (18.7 | ) | $ | (21.6 | ) |
| International  and non-qualified pension plans |       | 16.9                                                       |       | 14.3 |   | 12.2 |     | 10.0 |     | 8.0 |   |
| Total pension plans                            |       | $                                                          | 7.3        |   | $ | 0.7 |   | $ | (4.1 | ) | $ | (8.7 | ) | $ | (13.6 | ) |

 

The following tables showthe impact of a 100 basis point change in the actual return on assets.

 
| ** **                                     | ** ** | **Change in Pension (Income) Expense By Period**     | ** ** |
|------------------------------------------------|------------|------------------------------------------------------------------------------------|------------|
| ** **                                     | ** ** | **2007**                                                                           | ** ** | **2008** | ** ** | **2009** | ** ** | **2010** | ** ** | **2011** | ** ** |
| ***Increase (decrease)***                 | ** ** | **100 Basis Point *Increase* in Investment Returns** | ** ** |
| Qualified  domestic pension plans              |       | $                                                                                  | 0.0        |   | $ | (0.2 | ) | $ | (0.8 | ) | $ | (1.8 | ) | $ | (2.8 | ) |
| International  and non-qualified pension plans |       | 0.0                                                                                |       | (0.1 | ) | (0.3 | ) | (0.5 | ) | (0.9 | ) |
| Total pension plans                            |       | $                                                                                  | 0.0        |   | $ | (0.3 | ) | $ | (1.1 | ) | $ | (2.3 | ) | $ | (3.7 | ) |

 
| ***Increase (decrease)***                 | ** ** | **100 Basis Point *Decrease* in Investment Returns** | ** ** |
|------------------------------------------------|------------|------------------------------------------------------------------------------------|------------|
| Qualified  domestic pension plans              |       | $                                                                                  | 0.0        |   | $ | 0.2 |   | $ | 0.8 |   | $ | 1.7 |   | $ | 3.1 |   |
| International  and non-qualified pension plans |       | 0.0                                                                                |       | 0.1 |   | 0.3 |   | 0.6 |   | 1.0 |   |
| Total pension plans                            |       | $                                                                                  | 0.0        |   | $ | 0.3 |   | $ | 1.1 |   | $ | 2.3 |   | $ | 4.1 |   |

 

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*Other Post-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. Due to a change in legislation in the Netherlands, the reservefor the arrangement offering post-retirement medical benefits for retireesbefore age 65 for Dutch employees was no longer required at the end of theyear.

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, 2006, namely 5.63 percent for the domestic plans and a weighted average rate of 4.7 percent for the international plans. As a sensitivity measure, a 25 basis point reduction in the discount rate would result in approximately a $0.1 million decrease in pre-tax earnings for 2007.

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 9 percent for the domestic arrangements, grading down to anultimate level of 5 percent. For the international arrangement, the weightedaverage initial rate is 9.85 percent, grading down to 4.93 percent.

The pre-taxpost-retirement healthcare expense was $6.3 million in 2006.  The following table summarizes projectedpost-retirement benefit expense based upon the various assumptions discussedabove.
| ***(In millions)***                                  | *** *** | *** *** | ** ** | **Pre-Tax Expense by Period** | ** ** |
|-----------------------------------------------------------|--------------|--------------|------------|----------------------------------------------|------------|
| ** **                                                | ** **   | **2007**     | ** ** | **2008**                                     | ** ** | **2009** | ** ** | **2010** | ** ** | **2011** | ** ** |
| Domestic and  international post-retirement benefit plans |         | $            | 7.8        |                                         | $          | 7.0 |   | $ | 6.5 |   | $ | 6.1 |   | $ | 5.8 |   |
|                                                           |              |              |            |                                              |            |  |  |  |  |  |  |  |  |  |  |  |  |  |

### ** **

### **Income Taxes**

Income taxes payablereflects the Company’s current tax provision and management’s best estimate ofthe tax liability relating to the outcome of current and future tax audits. Ifthe actual outcome of audits differs from the Company’s best estimates, anadjustment 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 scheduledreversal of deferred tax assets and liabilities, projected future taxableincome, and tax planning strategies in making this assessment.  Thus, changes in future results of operationscould result in adjustments to the Company’s valuation allowances. In 2006, theCompany has recorded tax expense and a deferred income tax liability of $156 millionassociated with the intent to repatriate earnings of certain foreign subsidiariesin subsequent periods.  The Company hadhistorically considered substantially all of the earnings of its foreignsubsidiaries to be permanently reinvested in their operations.  If this deferred tax liability had not beenrecognized, a valuation allowance for domestic net deferred tax assets wouldhave been required. The Company also has earnings of certain foreignsubsidiaries where the Company considers these earnings to be permanentlyreinvested in their operations. As such, no U.S. tax cost has been provided onapproximately $261 million of earnings at December 31, 2006. If theCompany changes its intent related to these earnings additional tax would berequired.

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**Contingencies**

On an ongoing basis, theCompany assesses potential liabilities related to any lawsuits or claimsbrought against it, including antitrust related matters. The Company accruesfor such liabilities when it determines that it is probable that a loss hasbeen incurred and a reasonable estimate of the loss can be made. Determiningthe outcome of claims and litigation and estimating related costs and expenseinvolves substantial uncertainties that could cause actual costs to varymaterially from estimates. In making the determination of likely outcomes oflitigation matters, management considers many factors. These factors include,but are not limited to, the nature of specific claims including unassertedclaims, the Company’s experience with similar types of claims, the jurisdictionin which the matter is filed, the existence of other defendants, input fromoutside legal counsel and the current status of the matter. The Company alsoassesses the likelihood of recovery from insurance, and, in those cases inwhich realization of an insurance recovery is deemed probable, the Companyrecords a corresponding asset. The Company intends to assert all meritoriouslegal defenses and will pursue all other equitable factors that are availableto it with respect to such matters; however, the resolution of these matters couldhave a material adverse effect on its consolidated results of operations andcash flows. For further information see Note 21—Legal Matters in the Notesto Consolidated Financial Statements, and Item 3 “Legal Proceedings” underPart 1 of this document.

**Share-Based Compensation**

The Company providesshare-based compensation to a number of its employees. EffectiveJanuary 1, 2006 the Company adopted the provisions ofStatement 123(R) “Share-Based Payment” (“Statement 123(R)”) and StaffAccounting Bulletin No. 107 “Share-Based Payment” (“SAB 107”) 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 Statement 123(R), as well as theunrecognized compensation cost of unvested awards as of the date of adoptionare recognized in earnings based on the grant-date fair value of those awards.The Company’s assessment of the estimated compensation expense is affected byits stock price as well as assumptions regarding a number of complex andsubjective variables and the related tax impact. These variables include, butare not limited to, the grant-date fair value of any new awards, the volatilityof the Company’s stock price and employee stock option exercise behavior. TheCompany will recognize compensation cost for stock-based awards issued afterJanuary 1, 2006 on a straight-line basis over the requisite service periodfor each separately vesting tranche as if multiple awards were granted.

# **ACCOUNTING DEVELOPMENTS**

Implemented in 2006

In November 2004, theFinancial Accounting Standards Board (FASB) issued Statement No. 151, “InventoryCosts — an Amendment of ARB No. 43, Chapter 4.” Statement No. 151 clarifies the accounting for abnormal amounts of idlefacility expense, freight, handling costs and spoilage, requiring these itemsbe recognized as current-period charges. In addition, this statement requires that allocation of fixed productionoverheads to the costs of conversion be based on the normal capacity of theproduction facilities.  The Companyprospectively adopted the provisions of Statement No. 151 on January 1,2006.  The adoption of Statement No. 151changed the timing of when certain manufacturing variances will be recognizedin consolidated earnings.  The adoptionof Statement No. 151 did not have a material impact on the Company’sconsolidated earnings and financial position for the year ended December 31,2006.

In December 2004, theFASB issued Statement No. 123 (revised 2004), “Share-Based Payment” (FASB123(R)), which replaced Statement No. 123, “Accounting for Stock-BasedCompensation” (FASB 123) and supersedes

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Accounting PrinciplesBoard Opinion No. 25, “Accounting for Stock Issued to Employees” (APB 25).  FASB 123(R) requires all share-based paymentsto employees, including grants of employee stock options, to be recognized inthe financial statements based on their fair value, beginning with the firstannual period after June 15, 2005.  EffectiveJanuary 1, 2006, the Company adopted FASB 123(R) using the modified prospectivemethod. Under the modified prospective method, the compensation cost for allnew awards and awards modified, repurchased or cancelled after the date ofadoption of FASB 123(R), as well as the unrecognized compensation cost ofunvested awards as of the date of adoption, are recognized in earnings based onthe grant-date fair value of those awards. As a result of adopting FASB 123(R), on January 1, 2006, incrementalstock-based compensation expense recognized was $8.8 million ($5.6 millionafter-tax and $0.02 per basic and diluted earnings per share) for the yearended December 31, 2006, primarily attributable to the Company’s stock optionprogram.

In September 2006, the FASB issued Statement No. 158, “Employers’Accounting for Defined Benefit Pension and Other Postretirement Plans,” whichamends Statement No. 87, “Employers’ Accounting for Pensions” and Statement No.106, “Employers’ Accounting for Postretirement Benefits Other Than Pensions” torequire recognition of the overfunded or underfunded status of pension andother postretirement benefit plans on the balance sheet.  Under Statement No. 158, gains and losses,prior service costs and credits, and any remaining transition amounts underStatement No. 87 and Statement No. 106 that have not yet been recognizedthrough net periodic benefit cost will be recognized in accumulated othercomprehensive loss, net of tax effects, until they are amortized as a componentof net periodic cost.  The Companyadopted the balance sheet recognition provisions of Statement No. 158 as ofDecember 31, 2006, which resulted in a reduction to stockholders’ equity atDecember 31, 2006 of $59.1 million, before tax (39.8 million, net oftaxes).  The Company will adopt thechange to the December 31 measurement date in 2008.  See Note 17 - Pension and OtherPost-Retirement Benefit Plans for further details.

In September 2006, theSecurities and Exchange Commission (SEC) issued Staff Accounting Bulletin No.108, (SAB 108) “Considering the Effects of Prior Year Misstatements whenQuantifying Misstatements in Current Year Financial Statements”. SAB 108provides guidance on the consideration of effects of the prior yearmisstatements in quantifying current year misstatements for the purpose of amateriality assessment. The SEC staff believes registrants must quantify errorsusing both a balance sheet (the *iron curtain method*)and income statement (the *rollover method*)approach and evaluate whether either approach results in quantifying amisstatement that, when all relevant quantitative and qualitative factors areconsidered, is material.  The Companyadopted the provisions of 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 $12.2 million ($4.4 million net oftax).  See the Note 24 - Adoption ofStaff Accounting Bulletin 108 for further details.

Future Implementations

In March 2006, the FASB issued Statement No.156, “Accounting for Servicing of Financial Assets - an amendment of FASBStatement No. 140.”  Statement No. 156 provides additional guidance forrecognizing servicing assets and liabilities, and is effective for fiscal yearsbeginning after September 15, 2006.  Statement No. 156 amends StatementNo. 140 to require that all separately recognized servicing assets andliabilities in accordance with Statement No. 140 be initially measured at fairvalue, if practicable.  Furthermore, Statement No. 156 permits, but doesnot require, fair value measurement for separately recognized servicing assetsand liabilities in subsequent reporting periods.  Statement No. 156 is notexpected to have any impact on the Company’s financial position, results ofoperation or cash flows.

In July 2006, the FASBissued FIN 48, “Accounting for Uncertainty in Income Taxes,” or FIN 48, whichis effective for the Company as of the interim reporting period beginning January1, 2007.  The validity of any taxposition is a matter of tax law, and generally there is no controversy aboutrecognizing the benefit of a tax position in a company’s financial statementswhen the degree of confidence is high that the tax position will be sustainedupon examination by a taxing authority. The tax law is subject to varied interpretation, and whether a taxposition will ultimately be sustained may be uncertain.  Under FIN 48, the impact of an uncertainincome tax position on the income tax provision must be recognized as thelargest amount that is more-likely-than-not to be sustained upon audit by therelevant taxing authority.  An uncertainincome tax position will not be recognized if it has less than a 50% likelihoodof being sustained.  FIN 48 also requiresadditional disclosures about unrecognized tax benefits associated withuncertain income tax positions and a reconciliation of the change in theunrecognized benefit.  In addition, FIN48 requires interest to be recognized on the full amount of deferred benefitsfor uncertain tax positions.  An incometax penalty is recognized as expense when the tax position does not meet theminimum

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statutory threshold toavoid the imposition of a penalty.  TheCompany is currently in the process of determining the impact of FIN 48 on itsfinancial position and its results of operations.

In September 2006, theFASB issued Statement No. 157 “Fair Value Measurements,” which defines fairvalue, establishes a framework for measuring fair value, and expandsdisclosures about fair value measurements. The provisions of Statement No. 157 are effective as of the beginning ofthe Company’s 2008 fiscal year.  TheCompany is currently in the process of determining the impact of adoptingStatement No. 157 on its financial position or its results of operations.

**OUTLOOK**

The Company will continueits strategy of setting prices that reflect the value in use of the Company’sproducts and offset as much as possible increases in raw material and energycosts. In doing so, the Company is committed to working with customers toachieve its targeted operating profit margin and, in the case of non-flameretardant plastic additives, to recapture profitable volume lost in the secondhalf of 2005. This will be critical to maintaining and improving operatingprofit margins as increases in raw material and energy costs are expected tocontinue.  Increases to raw material andenergy costs are anticipated due, in large part, to volatility in the worldwidepricing of hydrocarbon based and precious metal raw materials and natural gas,which the Company requires to manufacture its products.  It is generally accepted that pricing ofthese resources has increased mainly due to procurement competition fromemerging economies which the Company expects to continue during 2007.

The Company anticipatesthat 2007 will reflect continued strength in the flame retardant, urethanes andpetroleum additive product lines, and in the Consumer Products segment.

The Company is activelyworking to reduce costs within its control.  The Company will assess howdemand fluctuations have affected manufacturing overhead costs and evaluateways to control those costs, including the evaluation of manufacturing operationsto identify any potential opportunities to optimize those operations andcontinue to work closely with its customers to maximize profitable volume.

Based on results through2006, the Company anticipates the following in 2007:

·                  On February 3, 2007, an assetpurchase agreement was signed by the Company to sell its EPDM business andcertain assets of its Rubber Chemicals business for $162.5 million.  The transaction is subject to certainconditions, including regulatory approvals, financing and a comprehensivefinancial audit.  The Company expects thetransaction to close in the first half of 2007.

·                  The Company expects that the CropProtection segment will stabilize in 2007 after recording lower sales volume in2006 due to North American weather, competition in the miticides markets,economic pressures in Brazilian agricultural markets and unfavorablemanufacturing variances related to production volume. The Company also expectsthat Crop Protection revenues will be lower than normal in the first quarter,due to a shift in timing to the second and third quarters owing to changes incustomer order timing.

·                  The Company continues to drive costsavings opportunities with at least $20 to $30 million net savings expected tocost of products sold in 2007.  TheCompany has also approved additional 2007 savings programs designed to achieveat least $10 million in reductions in SG&A and research costs.

·                  The Company has budgeted raw materialand energy costs increases of approximately $44 million over 2006.

·                  Depreciation and amortization ofapproximately $220 million, which includes approximately $47 million ofadditional depreciation due to a change in the estimated useful life of assetsrelated to several of the Company’s manufacturing facilities.

·                  Dividends of approximately $48million, which reflects the annual dividend of twenty cents per share.

·                  Continuedfocus on the divesture of non-core businesses and assets, which may cause a reductionin revenues, cost of products sold, depreciation and SG&A expenses.Negotiations for the divesture of non-core businesses requires concessions ofboth the buyer and seller on certain terms; therefore, the impact of thesedivestures can not be completely assessed until the actual terms of thenegotiations are final.

The Company continues tofocus on cost reduction, pricing, and portfolio realignment initiatives toimprove the Company’s gross profit and operating income margins. The Company isutilizing Six Sigma, Lean Manufacturing initiatives and outside consultants toassist in identifying and implementing process improvements and costreductions.

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# **FORWARD-LOOKING STATEMENTS**

Certain statements made in this Annual Report on Form 10-Kare forward-looking statements that involve risks and uncertainties, including,but not limited to:

·                  General economic conditions.

·                  Significant international operationsand interests.

·                  The ability to obtain increases inselling prices to offset increases in raw material and energy costs.

·                  The ability to retain sales volumesin the event of increasing selling prices.

·                  The ability to absorb fixed costoverhead in the event of lower volumes.

·                  Pension and other post-retirementbenefit plan assumptions.

·                  The ability to recover lost volume inour non-flame retardant Plastic Additives business or execute other portions ofthe recovery plan for this business.

·                  The ability to sustain profitabilityin our Crop Protection business due to new generic competition, or the failureto secure new products and technology.

·                  The ability to sell methyl bromidedue to regulatory restrictions.

·                  Energy and raw material prices,availability and quality.

·                  Production capacity.

·                  Changes in interest rates and foreigncurrency exchange rates.

·                  Changes in technology, market demandand customer requirements.

·                  The enactment of more stringentenvironmental laws and regulations.

·                  The ability to realize expected costsavings under our cost-reduction initiatives, including Six Sigma and Leanmanufacturing.

·                  The ability to successfully executeour portfolio divestiture plan.

·                  The ability to reduce ourindebtedness levels.

·                  The ability to recover our deferredtax assets.

·                  The ability to remain compliant withour debt covenants or obtain necessary waivers.

·                  Otherrisks and uncertainties detailed in Item 1A.Risk Factors or in our filings withthe Securities and Exchange Commission.

These statements arebased on our estimates and assumptions and on currently available information.The forward-looking statements include information concerning our possible orassumed future results of operations, and our actual results may differsignificantly from the results discussed. Forward-looking information isintended to reflect opinions as of the date this report was produced and wewill not necessarily be updating such information.

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#  

# **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 intercompany transactions (including intercompany 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, Canadian dollars,British Pounds Sterling, Mexican Pesos, Australian dollars and Swiss Francs tohedge its transaction exposure.  Thesecontracts are generally settled on a monthly basis.  Realized and unrealized gains and losses onforeign currency forward contracts are recognized in other expense, net, tooffset the impact of valuing recorded foreign currency trade payables,receivables and intercompany transactions. The Company has not designated these derivatives as hedges under 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,”although it believes these instruments help reduce the Company’s exposure toforeign currency risk. The net effect of the realized and unrealized gains andlosses on these derivatives and the underlying transactions is not significantat December 31, 2006 and 2005.

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, 2006.

**Interest Rate Sensitivity**
| ***(In thousands)*** | ** ** | **2007** | ** ** | **2008** | ** ** | **2009** | ** ** | **2010** | ** ** | **2011** | ** ** | **2012 and  Thereafter** | ** ** | **Total** | ** ** | **Fair Value  at 12/31/06** | ** ** |
|---------------------------|------------|----------|------------|----------|------------|----------|------------|----------|------------|----------|------------|-------------------------------|------------|-----------|------------|---------------------------------------|------------|
| **Long-term debt:**       |       |     |       |     |       |     |       |     |       |     |       |                          |       |      |       |                                  |       |
| Fixed rate debt           |       | $        | —     |     | $          | 1,000    |       | $        | 401,000    |     | $          | —                        |       | $         | —     |                                  | $          | 650,000 |   | $ | 1,052,000 |   | $ | 1,053,737 |   |
| Average rate debt         |       | 6.92     | %          | 6.92     | %          | 6.92     | %          | 6.88     | %          | $        | 6.88       | %                             | 6.88       | %         |       |                                  |       |   |
|                      |       |     |       |     |       |     |       |     |       |     |       |                          |       |      |       |                                  |       |
| Variable rate debt        |       | $        | —     |     | $          | 1,559    |       | $        | 919        |     | $          | 275                           |       | $         | 275        |                                  | $          | 17,776 |   | $ | 20,804 |   | $ | 20,804 |   |
| Average rate debt (a)     |       | 4.11     | %          | 4.17     | %          | 4.04     | %          | 4.02     | %          | 4.02     | %          | 4.01                          | %          |      |       |                                  |       |

(a)             Averageinterest rate is based on rates in effect at December 31, 2006.

**The Company uses price swap contracts as cash flow hedgesto convert approximately 75 percent of its forecasted natural gas purchasesfrom variable price to fixed price purchases. These contracts are designated as hedges of a portion of the Company’sforecasted natural gas purchases for a rolling three-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 accumulated other comprehensive loss.  These amounts are subsequently reclassifiedinto costs of products sold when the related inventory layer isliquidated.  The fair value of thecontracts at December 31, 2006 was a loss $10.7 million, which was recorded asa component of accumulated other comprehensive loss.  Sensitivity analysis is a technique used toevaluate the impact of hypothetical market value changes.  A hypothetical ten percent increase in thecost of natural gas at December 31, 2006 would result in an increase in thefair market value of the outstanding derivatives by $5.5 million to a fairmarket value loss of $5.3 million; conversely, a hypothetical ten percentdecrease in the cost of natural gas would result in a decrease in the fairmarket value of the outstanding derivatives by $5.5 million to a fair marketvalue loss of $16.2 million.**

**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, 2006, $140.5 million ofdomestic accounts receivable have been sold at an average cost of approximately5.76% and $139.0 million of international accounts receivable have been sold atan average cost of approximately 7.14%. At December 31, 2005, $28.9**

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** **

**million of domestic accounts receivable have been sold atan average cost of approximately 4.47% and $56.3 million of internationalaccounts receivable have been sold at an average cost of approximately 7.77%(for further information see Note 6 - Accounts Receivable Programs included inthe Notes to the Consolidated Financial Statements).**

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** **

**ITEM 8.  FINANCIAL STATEMENTS ANDSUPPLEMENTARY DATA**

**CONSOLIDATED STATEMENTS OF OPERATIONS**

Years ended December 31, 2006, 2005 and 2004

*(In thousands, except per sharedata)*
| ** **                                                                                       | ** ** | **2006**      | ** **    | **2005**  | ** ** | **2004**  | ** ** |
|--------------------------------------------------------------------------------------------------|------------|---------------|---------------|-----------|------------|-----------|------------|
|                                                                                             | ** ** | ** **    |          |      |       |      |       |
| **NET  SALES**                                                                                   | ** ** | **$**         | **3,722,707** |      | $          | 2,986,608 |       | $ | 2,285,231 |   |
|                                                                                             | ** ** | ** **    |          |      |       |      |       |
| **COSTS  AND EXPENSES**                                                                          | ** ** | ** **    |          |      |       |      |       |
| Cost of products  sold                                                                           | ** ** | **2,814,214** |          | 2,203,115 |       | 1,759,900 |       |
| Selling, general  and administrative                                                             | ** ** | **394,673**   |          | 333,080   |       | 273,240   |       |
| Depreciation and  amortization                                                                   | ** ** | **214,151**   |          | 157,822   |       | 118,181   |       |
| Research and  development                                                                        | ** ** | **65,453**    |          | 51,826    |       | 47,880    |       |
| Facility  closures, severance and related costs                                                  | ** ** | **5,482**     |          | 22,713    |       | 62,808    |       |
| Antitrust costs                                                                                  | ** ** | **89,534**    |          | 49,109    |       | 113,736   |       |
| Merger costs                                                                                     | ** ** | **17,010**    |          | 45,230    |       | —    |       |
| In-process  research and development                                                             | ** ** | **—**    |          | 73,300    |       | —    |       |
| (Gain) loss on  sale of businesses, net                                                          | ** ** | **12,283**    |          | (3,199    | )          | (1,302    | )          |
| Income related  to sale of Gustafson joint venture                                               | ** ** | **(1,500**    | **)**         | —    |       | (93,448   | )          |
| Impairment of  non-current assets                                                                | ** ** | **80,263**    |          | —    |       | —    |       |
| Equity income                                                                                    | ** ** | **(4,416**    | **)**         | (1,765    | )          | (14,109   | )          |
|                                                                                             | ** ** | ** **    |          |      |       |      |       |
| **OPERATING  PROFIT**                                                                            | ** ** | **35,560**    |          | 55,377    |       | 18,345    |       |
| Interest expense                                                                                 | ** ** | **102,485**   |          | 107,701   |       | 78,441    |       |
| Loss on early  extinguishment of debt                                                            | ** ** | **44,030**    |          | 55,091    |       | 20,063    |       |
| Other expense,  net                                                                              | ** ** | **6,428**     |          | 12,237    |       | 11,588    |       |
|                                                                                             | ** ** | ** **    |          |      |       |      |       |
| Loss from  continuing operations before income taxes and cumulative effect of accounting  change | ** ** | **(117,383**  | **)**         | (119,652  | )          | (91,747   | )          |
| Income tax  provision (benefit)                                                                  | ** ** | **135,625**   |          | 65,198    |       | (49,788   | )          |
| Loss from  continuing operations before cumulative effect of accounting change                   | ** ** | **(253,008**  | **)**         | (184,850  | )          | (41,959   | )          |
| Earnings from  discontinued operations                                                           | ** ** | **—**    |          | 2,645     |       | 5,227     |       |
| Gain (loss) on  sale of discontinued operations                                                  | ** ** | **47,491**    |          | (3,889    | )          | 2,142     |       |
| Cumulative  effect of accounting change                                                          | ** ** | **—**    |          | (546      | )          | —    |       |
|                                                                                             |       |          |          |      |       |      |       |
| Net Loss                                                                                         | ** ** | **$**         | **(205,517**  | **)**     | $          | (186,640  | )          | $ | (34,590 | ) |
|                                                                                             |       |          |          |      |       |      |       |
| **BASIC  AND DILUTED EARNINGS (LOSS) PER COMMON SHARE**                                          | ** ** | ** **    |          |      |       |      |       |
| Loss from  continuing operations before                                                          | ** ** | ** **    |          |      |       |      |       |
| cumulative effect of accounting change                                                           | ** ** | **$**         | **(1.05**     | **)**     | $          | (1.04     | )          | $ | (0.37 | ) |
| Earnings from  discontinued operations                                                           | ** ** | **—**    |          | 0.01      |       | 0.05      |       |
| Gain (loss) on  sale of discontinued operations                                                  | ** ** | **0.20**      |          | (0.02     | )          | 0.02      |       |
| Cumulative  effect of accounting change                                                          | ** ** | **—**    |          | —    |       | —    |       |
| Net Loss                                                                                         | ** ** | **$**         | **(0.85**     | **)**     | $          | (1.05     | )          | $ | (0.30 | ) |
|                                                                                             |       |          |          |      |       |      |       |
| Basic and Diluted  Weighted—average shares outstanding                                      | ** ** | **240,486**   |          | $         | 178,404    |      | $          | 114,736 |   |

 

See accompanying Notes toConsolidated Financial Statements.

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** **

**CONSOLIDATED BALANCE SHEETS**

Years ended December 31, 2006 and 2005

*(Inthousands, except per share data)*
| ** **                                                                                                                 | ** ** | **2006**       | ** **    | **2005**  | ** ** |
|----------------------------------------------------------------------------------------------------------------------------|------------|----------------|---------------|-----------|------------|
| **ASSETS**                                                                                                                 | ** ** | ** **     |          |      |       |
| ** **                                                                                                                 | ** ** | ** **     |          |      |       |
| CURRENT ASSETS                                                                                                             | ** ** | ** **     |          |      |       |
| Cash and cash  equivalents                                                                                                 | ** ** | **$**          | **95,113**    |      | $          | 138,556 |   |
| Accounts  receivable                                                                                                       | ** ** | **342,141**    |          | 547,857   |       |
| Inventories                                                                                                                | ** ** | **660,408**    |          | 661,617   |       |
| Other current  assets                                                                                                      | ** ** | **288,128**    |          | 193,570   |       |
| Total current  assets                                                                                                      | ** ** | **1,385,790**  |          | 1,541,600 |       |
|                                                                                                                       | ** ** | ** **     |          |      |       |
| NON-CURRENT  ASSETS                                                                                                        | ** ** | ** **     |          |      |       |
| Property, plant  and equipment                                                                                             | ** ** | **1,147,233**  |          | 1,192,335 |       |
| Cost in excess  of acquired net assets                                                                                     | ** ** | **1,176,809**  |          | 1,211,459 |       |
| Intangible  assets, net                                                                                                    | ** ** | **550,705**    |          | 620,677   |       |
| Other assets                                                                                                               | ** ** | **138,869**    |          | 419,932   |       |
|                                                                                                                       | ** ** | ** **     |          |      |       |
|                                                                                                                       | ** ** | **$**          | **4,399,406** |      | $          | 4,986,003 |   |
|                                                                                                                       | ** ** | ** **     |          |      |       |
| **LIABILITIES AND STOCKHOLDERS’  EQUITY**                                                                             | ** ** | ** **     |          |      |       |
|                                                                                                                       | ** ** | ** **     |          |      |       |
| CURRENT  LIABILITIES                                                                                                       | ** ** | ** **     |          |      |       |
| Short-term  borrowings                                                                                                     | ** ** | **$**          | **48,118**    |      | $          | 60,168 |   |
| Accounts payable                                                                                                           | ** ** | **284,637**    |          | 310,485   |       |
| Accrued expenses                                                                                                           | ** ** | **460,996**    |          | 444,336   |       |
| Income taxes  payable                                                                                                      | ** ** | **94,225**     |          | 160,700   |       |
| Total current  liabilities                                                                                                 | ** ** | **887,976**    |          | 975,689   |       |
|                                                                                                                       | ** ** | ** **     |          |      |       |
| NON-CURRENT  LIABILITIES                                                                                                   | ** ** | ** **     |          |      |       |
| Long-term debt                                                                                                             | ** ** | **1,063,360**  |          | 1,309,603 |       |
| Pension and  post-retirement health care liabilities                                                                       | ** ** | **439,924**    |          | 618,539   |       |
| Other  liabilities                                                                                                         | ** ** | **329,242**    |          | 306,775   |       |
|                                                                                                                       | ** ** | ** **     |          |      |       |
| STOCKHOLDERS’  EQUITY                                                                                                 | ** ** | ** **     |          |      |       |
| Common stock —  $.01 par value  Authorized- 500,000 shares  Issued- 252,280 shares in 2006 and 251,481 shares in 2005 | ** ** | **2,522**      |          | 2,515     |       |
| Additional paid-in  capital                                                                                                | ** ** | **3,005,101**  |          | 2,950,649 |       |
| Accumulated  deficit                                                                                                       | ** ** | **(1,127,870** | **)**         | (869,873  | )          |
| Accumulated  other comprehensive loss                                                                                      | ** ** | **(34,007**    | **)**         | (141,052  | )          |
| Treasury stock  at cost- 11,490 shares                                                                                     | ** ** | **(166,842**   | **)**         | (166,842  | )          |
| Total  stockholders’ equity                                                                                           | ** ** | **1,678,904**  |          | 1,775,397 |       |
|                                                                                                                       | ** ** | ** **     |          |      |       |
|                                                                                                                       | ** ** | **$**          | **4,399,406** |      | $          | 4,986,003 |   |

 

See accompanying Notes toConsolidated Financial Statements.

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** **

**CONSOLIDATED STATEMENTS OF CASHFLOWS**

Years ended December 31, 2006, 2005and 2004

*(In thousands of dollars)*
| **Increase (decrease) in cash**                | ** ** | **2006**     | ** **   | **2005**   | ** ** | **2004** | ** ** |
|---------------------------------------------------------------|------------|--------------|--------------|------------|------------|----------|------------|
| **CASH  FLOWS FROM OPERATING ACTIVITIES**                     | ** ** | ** **   |         |       |       |     |       |
| Net loss                                                      | ** ** | **$**        | **(205,517** | **)**      | $          | (186,640 | )          | $ | (34,590 | ) |
| Adjustments to reconcile net loss to net                      | ** ** | ** **   |         |       |       |     |       |
| cash provided by (used in) operations:                        | ** ** | ** **   |         |       |       |     |       |
| Gain on sale of Gustafson joint venture                       | ** ** | **(1,500**   | **)**        | —     |       | (92,938  | )          |
| Loss on sale of businesses, net                               | ** ** | **12,283**   |         | (3,199     | )          | (1,302   | )          |
| Gain (loss) on sale of discontinued operations                | ** ** | **(47,491**  | **)**        | 3,889      |       | (2,142   | )          |
| Gain on sale of equity interest in venture                    | ** ** | **(5,729**   | **)**        | —     |       | —   |       |
| Impairment of non-current assets                              | ** ** | **80,263**   |         | —     |       | —   |       |
| Loss on early extinguishment of debt                          | ** ** | **44,030**   |         | 55,091     |       | 20,063   |       |
| Depreciation and amortization                                 | ** ** | **214,151**  |         | 160,602    |       | 126,086  |       |
| Stock-based compensation expense                              | ** ** | **13,703**   |         | 5,001      |       | 5,283    |       |
| Provision for doubtful accounts                               | ** ** | **19,793**   |         | 11,253     |       | 9,328    |       |
| Equity income, net of cash distributions                      | ** ** | **2,790**    |         | (1,528     | )          | (14,109  | )          |
| In-process research and development                           | ** ** | **—**   |         | 73,300     |       | —   |       |
| Cumulative effect of accounting change                        | ** ** | **—**   |         | 546        |       | —   |       |
| Deferred taxes                                                | ** ** | **97,446**   |         | (483       | )          | (45,279  | )          |
| Changes in assets and liabilities, net:                       | ** ** | ** **   |         |       |       |     |       |
| Accounts receivable                                           | ** ** | **23,462**   |         | 73,439     |       | (4,238   | )          |
| Accounts receivable - securitization                          | ** ** | **194,307**  |         | (104,771   | )          | (9,530   | )          |
| Inventories                                                   | ** ** | **18,443**   |         | 32,561     |       | (17,127  | )          |
| Other current assets                                          | ** ** | **5,682**    |         | (8,213     | )          | 7,313    |       |
| Other assets                                                  | ** ** | **41,660**   |         | (24,069    | )          | 34,005   |       |
| Accounts payable                                              | ** ** | **(33,496**  | **)**        | (60,276    | )          | (7,040   | )          |
| Accrued expenses                                              | ** ** | **(56,110**  | **)**        | (73,669    | )          | 64,077   |       |
| Income taxes payable                                          | ** ** | **(52,775**  | **)**        | 25,087     |       | (29,619  | )          |
| Other current liabilities                                     | ** ** | **—**   |         | —     |       | 11,798   |       |
| Deposit for civil antitrust settlement                        | ** ** | **(51,000**  | **)**        | —     |       | —   |       |
| Pension and post-retirement health care liabilities           | ** ** | **(68,317**  | **)**        | (49,772    | )          | (21,326  | )          |
| Other liabilities                                             | ** ** | **9,796**    |         | (765       | )          | 37,952   |       |
| Other                                                         | ** ** | **(5,079**   | **)**        | (6,596     | )          | (389     | )          |
| Net cash provided by (used in) operations                     | ** ** | **250,795**  |         | (79,212    | )          | 36,276   |       |
|                                                          |       |         | ** **   | ** ** |       |     |       |
| **CASH  FLOWS FROM INVESTING ACTIVITIES**                     | ** ** | ** **   |         |       |       |     |       |
| Net proceeds from sale of businesses                          | ** ** | **196,141**  |         | 108,809    |       | 151,219  |       |
| Cash acquired in acquisitions, net of transaction  costs paid | ** ** | **(8,842**   | **)**        | 57,397     |       | —   |       |
| Merger transaction costs paid                                 | ** ** | **(8,540**   | **)**        | (16,259    | )          | —   |       |
| Capital expenditures                                          | ** ** | **(127,999** | **)**        | (104,365   | )          | (65,231  | )          |
| Other investing activities                                    | ** ** | **331**      |         | 5,563      |       | 253      |       |
| Net cash provided by investing activities                     | ** ** | **51,091**   |         | 51,145     |       | 86,241   |       |
|                                                          |       |         | ** **   | ** ** |       |     |       |
| **CASH  FLOWS FROM FINANCING ACTIVITIES**                     | ** ** | ** **   |         |       |       |     |       |
| Proceeds from (payments on) credit facility                   | ** ** | **(414,095** | **)**        | 383,000    |       | (57,000  | )          |
| Payments on long-term notes                                   | ** ** | **(323,689** | **)**        | (406,498   | )          | (490,006 | )          |
| Proceeds from long-term notes                                 | ** ** | **497,262**  |         | 9,000      |       | 597,499  |       |
| Proceeds from (payments on) short-term borrowings             | ** ** | **(16,125**  | **)**        | 35,667     |       | 44       |       |
| Premium paid on early extinguishment of debt                  | ** ** | **(35,703**  | **)**        | (40,657    | )          | (19,044  | )          |
| Payments for debt issuance costs                              | ** ** | **(5,775**   | **)**        | (2,547     | )          | (23,113  | )          |
| Dividends paid                                                | ** ** | **(48,099**  | **)**        | (35,555    | )          | (22,931  | )          |
| Repayment of insurance policy loan                            | ** ** | **(9,854**   | **)**        | —     |       | —   |       |
| Proceeds from exercise of stock options                       | ** ** | **3,359**    |         | 75,275     |       | 6,529    |       |
| Other financing activities                                    | ** ** | **(2,017**   | **)**        | (856       | )          | 2,077    |       |
| Net cash (used in) provided by financing activities           | ** ** | **(354,736** | **)**        | 16,829     |       | (5,945   | )          |
|                                                          | ** ** | ** **   |         |       |       |     |       |
| **CASH  AND CASH EQUIVALENTS**                                | ** ** | ** **   |         |       |       |     |       |
| Effect of exchange rates on cash and cash  equivalents        | ** ** | **9,407**    |         | (8,906     | )          | 2,915    |       |
| Change in cash and cash equivalents                           | ** ** | **(43,443**  | **)**        | (20,144    | )          | 119,487  |       |
| Cash and cash equivalents at beginning of period              | ** ** | **138,556**  |         | 158,700    |       | 39,213   |       |
| Cash and cash  equivalents at end of period                   | ** ** | **$**        | **95,113**   |       | $          | 138,556  |       | $ | 158,700 |   |

 

See accompanying Notes toConsolidated Financial Statements.

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** **

**CONSOLIDATED STATEMENTS OFSTOCKHOLDERS’ EQUITY**

Years ended December 31, 2006, 2005 and 2004

*(In thousands, except per sharedata)*
| ** **                                                                                                    | ** ** | **Common  Shares  Issued** | ** ** | **Treasury  Shares** | ** ** | **Common  Stock** | ** ** | **Additional  Paid-in  Capital** | ** ** | **Accumulated  Deficit** | ** ** | **Accumulated  Other  Comprehensive  Loss** | ** **     | **Treasury  Stock** | ** ** | **Total**   | ** ** |
|---------------------------------------------------------------------------------------------------------------|------------|----------------------------|------------|----------------------|------------|-------------------|------------|----------------------------------|------------|--------------------------|------------|---------------------------------------------|----------------|---------------------|------------|-------------|------------|
| BALANCE, DECEMBER  31, 2003                                                                                   |       | 119,152                    |       | 4,660                |       | $                 | 1,192      |                             | $          | 1,034,027                |       | $                                           | (590,157       | )                   | $          | (96,463     | )          | $ | (45,890 | ) | $ | 302,709 |   |
| Comprehensive  income:                                                                                        |       |                       |       |                 |       |              |       |                             |       |                     |       |                                        |           |                |       |        |       |
| Net loss                                                                                                      |       |                       |       |                 |       |              |       |                             |       | (34,590                  | )          |                                        |           |                |       | (34,590     | )          |
| Equity adjustment for translation of foreign  currencies                                                      |       |                       |       |                 |       |              |       |                             |       |                     |       | 74,746                                      |           |                |       | 74,746      |       |
| Minimum pension liability adjustment (net of deferred  tax benefit of $2,739)                                 |       |                            |       |                      |       |                   |       |                                  |       |                          |       | (6,271                                      | )              |                     |       | (6,271      | )          |
| Other                                                                                                         |       |                       |       |                 |       |              |       |                             |       |                     |       | 5,616                                       |           |                |       | 5,616       |       |
| Total  comprehensive income                                                                                   |       |                       |       |                 |       |              |       |                             |       |                     |       |                                        |           |                |       | 39,501      |       |
| Cash dividends  ($0.20 per share)                                                                             |       |                       |       |                 |       |              |       |                             |       | (22,931                  | )          |                                        |           |                |       | (22,931     | )          |
| Stock options and  other issuances                                                                            |       |                       |       | (1,162               | )          |              |       | (1,745                           | )          |                     |       |                                        |           | 11,446              |       | 9,701       |       |
| BALANCE, DECEMBER  31, 2004                                                                                   |       | 119,152                    |       | 3,498                |       | 1,192             |       | 1,032,282                        |       | (647,678                 | )          | (22,372                                     | )              | (34,444             | )          | 328,980     |       |
| Comprehensive  loss:                                                                                          |       |                       |       |                 |       |              |       |                             |       |                     |       |                                        |           |                |       |        |       |
| Net loss                                                                                                      |       |                       |       |                 |       |              |       |                             |       | (186,640                 | )          |                                        |           |                |       | (186,640    | )          |
| Equity adjustment for translation of foreign  currencies                                                      |       |                       |       |                 |       |              |       |                             |       |                     |       | (97,063                                     | )              |                |       | (97,063     | )          |
| Cumulative currency translation gain on liquidation  of foreign subsidiary related to discontinued operations |       |                       |       |                 |       |              |       |                             |       |                     |       | (27,954                                     | )              |                |       | (27,954     | )          |
| Minimum pension liability adjustment (net of deferred  tax expense of $1,911)                                 |       |                       |       |                 |       |              |       |                             |       |                     |       | 3,221                                       |           |                |       | 3,221       |       |
| Other (net of deferred tax benefit of $3,405)                                                                 |       |                       |       |                 |       |              |       |                             |       |                     |       | 3,116                                       |           |                |       | 3,116       |       |
| Total  comprehensive loss                                                                                     |       |                       |       |                 |       |              |       |                             |       |                     |       |                                        |           |                |       | (305,320    | )          |
| Cash dividends  ($0.20 per share)                                                                             |       |                       |       |                 |       |              |       |                             |       | (35,555                  | )          |                                        |           |                |       | (35,555     | )          |
| Acquisition of  Great Lakes                                                                                   |       | 127,625                    |       | 11,490               |       | 1,276             |       | 1,851,452                        |       |                     |       |                                        |           | (166,842            | )          | 1,685,886   |       |
| Stock options  exercised                                                                                      |       | 3,729                      |       | (3,322               | )          | 37                |       | 42,935                           |       |                     |       |                                        |           | 32,303              |       | 75,275      |       |
| Other issuances                                                                                               |       | 975                        |       | (176                 | )          | 10                |       | 23,980                           |       | —                   |       |                                        |           | 2,141               |       | 26,131      |       |
| BALANCE, DECEMBER  31, 2005                                                                                   |       | 251,481                    |       | 11,490               |       | 2,515             |       | 2,950,649                        |       | (869,873                 | )          | (141,052                                    | )              | (166,842            | )          | 1,775,397   |       |
| Cumulative effect  of adoption of SAB 108                                                                     |       |                       |       |                 |       |              |       |                             |       | (4,386                   | )          |                                        |           |                |       | (4,386      | )          |
| BALANCE, JANUARY  1, 2006                                                                                     |       | 251,481                    |       | 11,490               |       | 2,515             |       | 2,950,649                        |       | (874,259                 | )          | (141,052                                    | )              | (166,842            | )          | 1,771,011   |       |
| Comprehensive  loss:                                                                                          |       |                       |       |                 |       |              |       |                             |       |                     |       |                                        |           |                |       |        |       |
| Net loss                                                                                                      |       |                       |       |                 |       |              |       |                             |       | (205,517                 | )          |                                        |           |                |       | (205,517    | )          |
| Equity adjustment for translation of foreign  currencies, net of deferred tax expense of $9,349               |       |                       |       |                 |       |              |       |                             |       |                     |       | 107,265                                     |           |                |       | 107,265     |       |
| Minimum pension liability adjustment, net of deferred  tax expense of $34,980                                 |       |                       |       |                 |       |              |       |                             |       |                     |       | 51,748                                      |           |                |       | 51,748      |       |
| Other                                                                                                         |       |                       |       |                 |       |              |       |                             |       |                     |       | 70                                          |           |                |       | 70          |       |
| Changes in fair value of derivatives                                                                          |       |                       |       |                 |       |              |       |                             |       |                     |       | (12,220                                     | )              |                |       | (12,220     | )          |
| Total  comprehensive loss                                                                                     |       |                       |       |                 |       |              |       |                             |       |                     |       |                                        |           |                |       | (58,654     | )          |
|   Unrecognized  pension and post-retirement plan costs, net of deferred tax benefit of  $20,146     |       |                       |       |                 |       |              |       |                             |       |                     |       | (39,818                                     | )              |                |       | (39,818     | )          |
| Cash dividends  ($0.20 per share)                                                                             |       |                       |       |                 |       |              |       |                             |       | (48,099                  | )          |                                        |           |                |       | (48,099     | )          |
| Stock-based  compensation                                                                                     |       |                       |       |                 |       |              |       | 11,839                           |       |                     |       |                                        |           |                |       | 11,839      |       |
| Fair Value of  stock options converted (Great Lakes merger)                                                   |       |                       |       |                 |       |              |       | 35,813                           |       |                     |       |                                        |           |                |       | 35,813      |       |
| Stock options  exercised                                                                                      |       | 460                        |       |                 |       | 4                 |       | 3,355                            |       |                     |       |                                        |           |                |       | 3,359       |       |
| Other issuances                                                                                               |       | 339                        |       |                 |       | 3                 |       | 3,445                            |       | 5                        |       |                                        |           |                |       | 3,453       |       |
| **BALANCE, DECEMBER 31, 2006**                                                                                | ** ** | **252,280**                | ** ** | **11,490**           | ** ** | **$**             | **2,522**  | ** **                       | **$**      | **3,005,101**            | ** ** | **$**                                       | **(1,127,870** | **)**               | **$**      | **(34,007** | **)**      | **$** | **(166,842** | **)** | **$** | **1,678,904** | ** ** |

 

See accompanying Notes to Consolidated FinancialStatements.

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** **

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

**1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES**

**Basis ofPresentation**

Theaccompanying consolidated financial statements include the accounts of ChemturaCorporation and its wholly-owned and majority-owned subsidiaries,including the results of operations of Great Lakes Chemical Corporation (GreatLakes) commencing on July 1, 2005, 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.

Theconsolidated financial statements have been prepared in conformity withaccounting principles generally accepted in the United States, which requirethe Company to make estimates and assumptions that affect the reported amountsof assets and liabilities and disclosures of contingent assets and liabilitiesat the date of the financial statements and the reported amounts of revenuesand expenses during the reporting period. Actual results could differ from these estimates.

**Discontinued Operations**

OnJune 24, 2005, the Company sold certain assets and assigned certain liabilitiesof its Refined Products business to Sun Capital Partners Group, Inc. As aresult, the operations of the Refined Products business have been classified asearnings from discontinued operations (net of tax) in the consolidatedstatements of operations for all prior periods presented.  The consolidated statements of cash flowshave not been adjusted to reflect the discontinued operations and, thus,include the cash flows of the Refined Products business through June 24,2005.  Refer to Note 3 — Divestitures -Discontinued Operations for further information.

# **Reclassifications**

In the third quarter of2006, the Company reclassified certain amounts relating to operations fromother expense, net to SG&A, (gain) loss on sale of businesses, net andincome related to the sale of Gustafson joint venture in the consolidatedstatements of operations.  The itemsreclassified include (a) legacy Witco pension and other post-retirement benefitobligations related to businesses for which the Company has continuinginvolvement, (b) gain on the settlement of a contractual matter, (c) gains andlosses on the sales of businesses which did not meet the criteria to beconsidered discontinued operations and (d) gains on the sale of equity methodinvestments for which equity income had previously been reported withinoperating profit.  Additionally, in thefourth quarter of 2006, the Company reclassified a gain relating to agovernment grant, which was reported in the first quarter of 2006, from otherexpense, net to SG&A.  Although theCompany properly classified these items within loss from continuing operations,the Company did not properly include these items as a component of operatingprofit in prior periods.

The following tablesrepresent the effect of these reclassifications on prior period interimfinancial statements in 2006 and 2005. Additionally, the Company has provided the effect of all suchreclassifications on previously reported financial statements for the yearsended December 31, 2005 and 2004.  Theeffect of the 2006 reclassification on the consolidated statements ofoperations for three, six and nine month periods of 2006 is as follows:

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| ** **                                       | ** ** | **Periods ended in 2006** | ** ** |
|--------------------------------------------------|------------|------------------------------------------|------------|
| ***(increase/(decrease))  (In thousands)*** | ** ** | **Three  Months  March 31,**        | ** ** | **Six  Months  June 30,** | ** ** | **Nine  Months  September 30,** | ** ** |
| SG&A                                         |       | $                                        | (4,170     | ) | $ | (4,042 | ) | $ | (4,300 | ) |
| (Gain) loss on  sale of business, net            |       | —                                   |       | 12,475 |   | — |   |
| Operating profit  (loss)                         |       | $                                        | 4,170      |   | $ | (8,433 | ) | $ | 4,300 |   |
|                                             |       |                                     |       |   |   |   |   |
| Other expense, net                               |       | $                                        | 4,170      |   | $ | (8,433 | ) | $ | 4,300 |   |

 

The effect of the 2006reclassification on prior year annual consolidated statements of earnings is asfollows:
| ***(increase/(decrease))***                        | ** ** | **Years ended December 31,** | ** ** |
|----------------------------------------------------|------------|---------------------------------------------|------------|
| ***(In thousands)***                          | ** ** | **2005**                                    | ** ** | **2004** | ** ** |
| SG&A                                           |       | $                                           | 2,726      |   | $ | 2,625 |   |
| (Gain) loss on  sale of businesses, net            |       | (3,199                                      | )          | (1,302 | ) |
| Income related  to sale of Gustafson joint venture |       | —                                      |       | (93,448 | ) |
| Operating profit                                   |       | $                                           | 473        |   | $ | 92,125 |   |
|                                               |       |                                        |       |   |   |
| Other expense, net                                 |       | $                                           | 473        |   | $ | 92,125 |   |

 

These reclassificationshad no impact on the Company’s previously reported loss from continuingoperations, earnings from discontinued operations, net loss or basic or dilutedloss per share amounts.  Additionally,the effect of these changes did not affect the Company’s calculations under anydebt covenants or for executive compensation plans.

**Accounting Policies**

Revenue Recognition

Substantially all of theCompany’s revenues are derived from the sale of products.  Revenue is recognized when risk of loss of,and title to, the product is transferred to the customer, which usually occursat the time shipment is made. Substantially all of the Company’s products are sold FOB (“free on board”)shipping point or on an equivalent basis based upon when risk of loss of, andtitle to, the product is transferred to the customer. The Company’s standardterms of delivery are included on its sales invoices and order confirmationdocuments.

Customer Rebates

The Company accrues forthe estimated cost of customer rebates as a reduction of sales.  Customer rebates are primarily based on customersachieving defined sales targets over a specified period of time.  The Company estimates the cost of theserebates based on the likelihood of the rebate being achieved and recognizes thecost as a deduction from sales when such sales are recognized.  Rebate programs are monitored on a regularbasis and adjusted as required.  TheCompany’s accruals for customer rebates were $29.2 million and $32.8 million atDecember 31, 2006 and 2005, respectively.

Operating Costs and Expenses

Cost of products soldincludes all costs incurred in manufacturing products, including raw materials,direct manufacturing costs and manufacturing overhead.  Cost of products sold also includeswarehousing, distribution, engineering (other than polymer processing equipmentdesign engineering), purchasing, customer service and environmental, health andsafety functions, and shipping and handling costs for outbound productshipments.  Selling, general andadministrative expenses (SG&A) include costs and expenses related to thefollowing functions and activities: selling, advertising, polymer processingequipment design engineering, information technology, legal, provision fordoubtful accounts, corporate facilities and corporate administration.  SG&A also includes accounting, finance andhuman resources, 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.

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Also,included in cost of products sold for 2005 is $37.1 million related to the fairvalue impact of purchase accounting on inventory resulting from the merger withGreat Lakes.

Other Expenses, Net

The following table is asummary of the (income) and expense items included on the other expense, netline in the consolidated statements of operations.
| ***(In thousands)***                                                                    | ** ** | **2006** | ** ** | **2005** | ** ** | **2004** | ** ** |
|----------------------------------------------------------------------------------------------|------------|----------|------------|----------|------------|----------|------------|
| Costs of  securitization programs and other accounts receivable financing                    |       | $   | 16,573     |     | $     | 13,700   |       | $  | 10,829 |   |
| Equity (income)  loss - Davis Standard LLC                                                   |       | (6,084   | )          | 237      |       | —   |       |
| Gain on sale of  equity investment - Davis Standard LLC                                      |       | (5,729   | )          | —   |       | —   |       |
| Foreign exchange  loss                                                                       |       | 9,550    |       | 2,936    |       | 1,385    |       |
| Interest income                                                                              |       | (9,446   | )          | (11,690  | )          | (6,255   | )          |
| Minority  interest                                                                           |       | 1,094    |       | 3,389    |       | 2,992    |       |
| Pension and  other post-retirement benefits of legacy Witco businesses - interest  component |       | 748      |       | 2,848    |       | 2,637    |       |
| Other items,  individually less than $1,000                                                  |       | (278     | )          | 817      |       | —   |       |
|                                                                                         |       | $        | 6,428      |     | $          | 12,237   |       | $ | 11,588 |   |

 

The interest income for2006 and 2005 include interest income resulting from tax settlements of $4.0million and $2.2 million, respectively.

Pension and otherpost-retirement benefits of legacy Witco plans represents the accretion ofinterest on obligations assumed in connection with the purchase of Witco in1999 relating to businesses for which the Company and the plan participants didnot have any continuing involvement either prior or subsequent to theacquisition.

Allowance for Doubtful Accounts

Includedin accounts receivable are allowances for doubtful accounts in the amount of $32.1million in 2006 and $30.5 million in 2005. The allowance for doubtful accounts reflects a reserverepresenting the Company’s estimate of the amounts that may not be collectible.  In addition to reviewing delinquent accountsreceivable, the Company considers many factors in estimating its reserve,including historical data, experience, customer types, credit worthiness, andeconomic trends. From time to time, the Company may adjust its assumptions foranticipated changes in any of these or other factors expected to affectcollectability.

Inventory Valuation

Inventoriesare valued at the lower of cost or market. Cost is determined using thefirst-in, first-out (FIFO) method.

Property, Plant and Equipment

Property,plant and equipment are carried at cost, less accumulated depreciation.  Depreciation expense ($172.3 million in 2006,$129.5 million in 2005 and $101.3 million in 2004) is computed on thestraight-line method using the following ranges of asset lives: landimprovements - 3 to 20 years; buildings and improvements - 2 to 40 years;machinery and equipment - 2 to 25 years; information systems equipment - 2 to 7years; and furniture, fixtures and other - 1 to 15 years.

Renewalsand improvements that extend the useful lives of the assets are capitalized.  Capitalized leased assets and leaseholdimprovements are depreciated over the shorter of their useful lives or theremaining lease term.  Expenditures formaintenance and repairs are charged to expense as incurred.

Intangible Assets

Patents, trademarks andother intangibles are being amortized principally on a straight-line basisusing the following ranges for their estimated useful lives: patents 10 to 20years; trademarks 10 to 40 years; customer relationships 5 to 25 years;production rights 10.5 years; and other intangibles primarily 5 to 19years.  Further information is providedin Note 9 — The Goodwill and Intangible Assets included herein.

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Recoverability of Long-Lived Assets and Goodwill

TheCompany evaluates the recoverability of the carrying value of its long-livedassets, excluding goodwill, whenever events or changes in circumstancesindicate that the carrying value may not be recoverable. Under suchcircumstances, the Company assesses whether the projected undiscounted cashflows of its businesses are sufficient to recover the existing unamortized costof its long-lived assets.  If theundiscounted projected cash flows are not sufficient, the Company calculatesthe impairment amount by discounting the projected cash flows using its weighted-averagecost of capital.  The amount of theimpairment is written off against earnings in the period in which theimpairment is determined in accordance with FASB Statement No. 144 “Accountingfor the Impairment or Disposal of Long-Lived Assets.”

TheCompany evaluates the recoverability of the carrying value of goodwill on anannual basis as of July 31, or sooner if events occur or circumstances change,in accordance with FASB Statement No. 142, “Goodwill and Other IntangibleAssets.”  See Note 9 - Goodwill andIntangible Assets for further details.

Environmental Liabilities

Eachquarter, the Company evaluates and reviews estimates for future remediation andrelated costs to determine appropriate environmental reserve amounts.  For each site where the cost ofremediation is probable and estimable, a determination is made of the specificmeasures that are believed to be required to remediate the site, the estimatedtotal 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 FAS 5,Accounting for Contingencies, the Company records in its consolidated financialstatements amounts representing the Company’s estimated liability for claims,guarantees and litigation.  Asinformation about current or future litigation or other contingencies becomesavailable, management assesses whether such information warrants the recordingof additional expenses relating to those contingencies.  See Note 21 - Legal Matters and Note 22 -Contingencies for further details.

Stock-Based Compensation

In December 2004, theFASB issued Statement No. 123 (revised 2004), “Share-Based Payment” (FASB123(R)), which replaced Statement No. 123, “Accounting for Stock-BasedCompensation” (FASB 123) and supersedes Accounting Principles Board Opinion No.25, “Accounting for Stock Issued to Employees” (APB 25).  FASB 123(R) requires all share-based paymentsto employees, including grants of employee stock options, to be recognized inthe financial statements based on their fair value, beginning with the firstannual period after June 15, 2005. Effective January 1, 2006, the Company adopted FASB 123(R) using themodified prospective method. Under the modified prospective method, thecompensation cost for all new awards and awards modified, repurchased orcancelled after the date of adoption of FASB 123(R), 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.

The Company recognizescompensation cost for stock-based awards issued after January 1, 2006 over therequisite service period for each separately vesting tranche, as if multipleawards were granted.  As a result ofadopting FASB 123(R), on January 1, 2006, incremental stock-based compensationexpense recognized was $8.8 million ($5.6 million after-tax and $0.02 per basicand diluted earnings per share) for the year ended December 31, 2006, primarilyattributable to the Company’s stock option program.

Through December 31,2005, the Company elected to continue its historical method of accounting forstock-based compensation in accordance with APB 25, as permitted under FASB 123and FASB Statement No. 148, “Accounting for Stock-Based Compensation —Transition and Disclosure” (FASB 148). Under APB 25, compensation expense forfixed plans was recognized based on the difference between the exercise priceand the stock price on the date of grant. Since the Company’s fixed plan awardswere granted with an exercise price equal to the stock price on the date ofgrant, no compensation expense was recognized in the statement of earnings forthese awards.  However, compensation expensewas recognized for the restricted stock awards under the Company’s long-termincentive programs in accordance with the provisions of APB 25.  The following table illustrates the effect onnet loss and related per share amounts for the years ended December 31, 2005and 2004, as if the Company had applied the fair value recognition provisionsof FASB 123 and FASB 148 to all stock-based employee compensation awards.

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| ***(In thousands, except per share data)***                                                      | ** ** | **2005** | ** ** | **2004** | ** ** |
|---------------------------------------------------------------------------------------------------------------------------|------------|----------|------------|----------|------------|
| Net loss, as  reported                                                                                                    |       | $        | (186,640   | )        | $          | (34,590 | ) |
| Stock-based  employee compensation expense (income)                                                                       |       |     |       |     |       |
| included in net loss, net of tax                                                                                          |       | 3,200    |       | 3,223    |       |
| Total  stock-based employee compensation determined  under fair value based accounting method for all  awards, net of tax |       | (8,008   | )          | (6,302   | )          |
| Pro forma net  earnings loss                                                                                              |       | $        | (191,448   | )        | $          | (37,669 | ) |
|                                                                                                                      |       |     |       |     |       |
| Net loss per  share:                                                                                                      |       |     |       |     |       |
| Basic and diluted – as reported                                                                                      |       | $        | (1.05      | )        | $          | (0.30 | ) |
| Basic and  diluted – pro forma                                                                                       |       | $        | (1.07      | )        | $          | (0.33 | ) |

 

Derivative Instruments

Derivativeinstruments are presented in the accompanying consolidated financial statementsat fair value as required by accounting principles generally accepted in theUnited States.  Further information isprovided in Note 18 - Derivative Instruments and Hedging Activities.

Translation of Foreign Currencies

Balancesheet accounts denominated in foreign currencies are translated at the currentrate of exchange as of the balance sheet date, while revenues and expenses aretranslated at average rates of exchange during the periods presented.  The cumulative foreign currency adjustmentsresulting from such translation are included in accumulated other comprehensiveloss.

Cash Flows

Cashand cash equivalents include bank term deposits with original maturities ofthree months or less. Included in the Company’s cash balance at December31, 2006 and 2005, is approximately $0.8 million and $2.4 million,respectively, 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.

Cashpayments included interest payments of $103.6 million in 2006, $105.7 millionin 2005 and $62.4 million in 2004. Cash payments also included net income taxpayments of $68.1 million in 2006, $41.9 million in 2005 and $26.8 million in2004.

Belowis the supplemental schedule of investing and financing activities for the yearended December 31, 2005 related to the Merger.
| ***(In thousands)***                                           | ** ** | **2005**   | ** ** |
|---------------------------------------------------------------------|------------|------------|------------|
| Fair value of  non-cash assets acquired in acquisition              |       | $          | 2,858,880  |   |
| Cash acquired in  acquisition                                       |       | 125,747    |       |
| In-process  research and development                                |       | 73,300     |       |
| Issuance of  common stock in acquisition, net of registration costs |       | (1,852,728 | )          |
| Treasury stock  acquired                                            |       | 166,842    |       |
| Liabilities assumed in  acquisition                                 |       | $          | 1,372,041  |   |

 

**Accounting Developments**

Implemented in 2006

In November 2004, theFinancial Accounting Standards Board (FASB) issued Statement No. 151, “InventoryCosts — an Amendment of ARB No. 43, Chapter 4.” Statement No. 151 clarifies the accounting for abnormal amounts of idlefacility expense, freight, handling costs and spoilage, requiring these itemsbe recognized as current-period charges. In addition, this statement requires that allocation of fixed productionoverheads to the costs of conversion be based on the normal capacity of theproduction facilities.  The Companyprospectively adopted the provisions of Statement No. 151 on January 1,2006.  The adoption of Statement No. 151changed the timing of when certain manufacturing variances will be recognizedin consolidated earnings.  The adoptionof Statement No.

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151 did not have amaterial impact on the Company’s consolidated results of operations andfinancial position for the year ended December 31, 2006.

In September 2006, theFASB issued Statement No. 158, “Employers’ Accounting for Defined BenefitPension and Other Postretirement Plans,” which amends Statement No. 87, “Employers’Accounting for Pensions” and Statement No. 106, “Employers’ Accounting forPostretirement Benefits Other Than Pensions” to require recognition of theoverfunded or underfunded status of pension and other postretirement benefitplans on the balance sheet.  UnderStatement No. 158, gains and losses, prior service costs and credits, and anyremaining transition amounts under Statement No. 87 and Statement No. 106 thathave not yet been recognized through net periodic benefit cost will berecognized in accumulated other comprehensive loss, net of tax effects, untilthey are amortized as a component of net periodic cost.  The Company adopted the balance sheetrecognition provisions of Statement No. 158 as of December 31, 2006, whichresulted in a reduction to stockholders’ equity at December 31, 2006 of $59.1million, before tax ($39.8 million, net of taxes).  The Company will adopt the change to theDecember 31 measurement date in 2008. See Note 17 - Pension and Other Post-Retirement Benefit Plans forfurther details.

In September 2006, theSecurities and Exchange Commission (SEC) issued Staff Accounting Bulletin No.108, (SAB 108) “Considering the Effects of Prior Year Misstatements whenQuantifying Misstatements in Current Year Financial Statements”. SAB 108provides guidance on the consideration of effects of the prior yearmisstatements in quantifying current year misstatements for the purpose of amateriality assessment. The SEC staff believes registrants must quantify errorsusing both a balance sheet (the *iron curtain method*)and income statement (the *rollover method*)approach and evaluate whether either approach results in quantifying amisstatement that, when all relevant quantitative and qualitative factors areconsidered, is material.  The Companyadopted the provisions of 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 $12.2 million ($4.4 million net oftax).  See the Note 24 - Adoption ofStaff Accounting Bulletin 108 for further details.

Future Implementations

In March 2006, the FASB issued Statement No.156, “Accounting for Servicing of Financial Assets - an amendment of FASBStatement No. 140.”  Statement No. 156 provides additional guidance forrecognizing servicing assets and liabilities, and is effective for fiscal yearsbeginning after September 15, 2006.  Statement No. 156 amends StatementNo. 140 to require that all separately recognized servicing assets andliabilities in accordance with Statement No. 140 be initially measured at fairvalue, if practicable.  Furthermore, Statement No. 156 permits, but doesnot require, fair value measurement for separately recognized servicing assetsand liabilities in subsequent reporting periods.  Statement No. 156 is notexpected to have any impact on the Company’s financial position, results ofoperation or cash flows.

In July 2006, the FASBissued FIN 48, “Accounting for Uncertainty in Income Taxes,” or FIN 48, whichis effective for the Company as of the interim reporting period beginningJanuary 1, 2007.  The validity of any taxposition is a matter of tax law, and generally there is no controversy aboutrecognizing the benefit of a tax position in a company’s financial statementswhen the degree of confidence is high that the tax position will be sustainedupon examination by a taxing authority. The tax law is subject to varied interpretation, and whether a taxposition will ultimately be sustained may be uncertain.  Under FIN 48, the impact of an uncertainincome tax position on the income tax provision must be recognized as thelargest amount that is more-likely-than-not to be sustained upon audit by therelevant taxing authority.  An uncertainincome tax position will not be recognized if it has less than a 50% likelihoodof being sustained.  FIN 48 also requiresadditional disclosures about unrecognized tax benefits associated withuncertain income tax positions and a reconciliation of the change in theunrecognized benefit.  In addition, FIN48 requires interest to be recognized on the full amount of deferred benefitsfor uncertain tax positions.  An incometax penalty is recognized as expense when the tax position does not meet theminimum statutory threshold to avoid the imposition of a penalty.  The Company is currently in the process ofdetermining the impact of FIN 48 on its financial position and its results ofoperations.

In September 2006, theFASB issued Statement No. 157 “Fair Value Measurements,” which defines fairvalue, establishes a framework for measuring fair value, and expandsdisclosures about fair value measurements. The provisions of Statement No. 157 are effective as of the beginning ofthe Company’s 2008 fiscal year.  TheCompany is currently in the process of determining the impact of adoptingStatement No. 157 on its financial position or its results of operations.

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**2) MERGERS AND ACQUISITIONS**

**Merger**

Effective July 1, 2005,the Company and Great Lakes completed an all-stock merger transaction (the “Merger”).  In accordance with the terms of theagreement, Great Lakes shareholders received 2.2232 shares of the Company’scommon stock for each share of Great Lakes common stock resulting in theissuance of approximately 116.1 million shares, which is net of 11.5 milliontreasury shares, of the Company’s common stock with a fair value ofapproximately $1.85 billion. The fair value is based on a fair value per commonshare of $14.52, which represents the average of the closing prices on March 9,2005, the date the terms of the agreement were agreed to and announced, and thetwo days before and after that date.  TheCompany has also exchanged all of the outstanding vested and unvested GreatLakes stock options for 8.1 million of fully vested stock options of theCompany, valued at $35.8 million.  Thetotal purchase price, including the value of the common stock and stock optionsissued, was $1.89 billion. In addition, vesting was accelerated forsubstantially all of the outstanding unvested restricted share units of GreatLakes.  As a result of the Merger, theCompany obtained a 100% equity interest in Great Lakes.

The acquired assets andassumed liabilities have been recorded at their fair value and the excess costof the acquired net assets over their fair value has been recorded as goodwill.The Company believes that this goodwill is attributable to an enhancedcompetitive position, greater stability through geographic and end-marketdiversification, a significantly strengthened balance sheet and credit profile,and a broader platform for future growth. The total purchase price has been allocated to the acquired net tangibleand intangible assets and assumed liabilities based upon valuations andestimates of fair value.  The purchaseprice at July 1, 2005 has been allocated as follows:
| ***(In thousands)***                         | ** ** | ** ** | ** ** |
|---------------------------------------------------|------------|------------|------------|
| Cash and cash  equivalents                        |       | $          | 125,747    |   |
| Accounts receivable                               |       | 347,154    |       |
| Inventories                                       |       | 371,689    |       |
| Other current  assets                             |       | 86,075     |       |
| Property, plant  and equipment                    |       | 573,024    |       |
| Cost in excess  of acquired net assets (goodwill) |       | 921,955    |       |
| In-process  research and development              |       | 73,300     |       |
| Other intangible  assets                          |       | 518,000    |       |
| Other assets                                      |       | 103,250    |       |
| Short-term  borrowings                            |       | (29,816    | )          |
| Accounts payable                                  |       | (170,120   | )          |
| Accrued expenses                                  |       | (274,792   | )          |
| Income taxes  payable                             |       | (69,415    | )          |
| Long-term debt                                    |       | (454,475   | )          |
| Pension and  post-retirement health care benefits |       | (128,642   | )          |
| Other liabilities                                 |       | (271,233   | )          |
| Treasury stock                                    |       | 166,842    |       |
| Total purchase  price                             |       | $          | 1,888,543  |   |

 

In-process research anddevelopment of $73.3 million had no future alternate use and was written off tooperations during 2005.

The following pro formaunaudited results of operations for 2005 and 2004 give effect to the Merger asif it had been consummated as of the beginning of each respective period. Thepro forma unaudited results of operations combine the historical results ofoperations of the Company and Great Lakes with the pro forma adjustmentsdescribed below.  The pro forma unauditedresults of operations do not give effect to certain synergies and cost savingsexpected to result from the Merger.  Thepro forma unaudited results of operations do not purport to be indicative ofwhat the actual results of operations would have been had the Merger beencompleted on the dates assumed, or the results of operations that may beachieved in the future.  The pro formaunaudited results of operations for the years ended December 31, 2005 and 2004are as follows:

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| ***(In thousands, except per share data)***           | ** ** | **2005** | ** ** | **2004** | ** ** |
|--------------------------------------------------------------------------------|------------|----------|------------|----------|------------|
| Net sales                                                                      |       | $        | 3,898,442  |     | $          | 3,888,930 |   |
|                                                                           |       |     |       |     |       |
| Loss from  continuing operations (a)                                           |       | $        | (147,840   | )        | $          | (20,044 | ) |
|                                                                           |       |     |       |     |       |
| Net earnings  (loss) (a) (b)                                                   |       | $        | (152,852   | )        | $          | 30,280 |   |
|                                                                           |       |     |       |     |       |
| Basic and  diluted earnings (loss) per share:  Loss from continuing operations |       | $   | (0.63      | )        | $     | (0.09 | ) |
|                                                                           |       |     |       |     |       |
| Net earnings  (loss)                                                           |       | $        | (0.65      | )        | $          | 0.13 |   |
|                                                                           |       |     |       |     |       |
| Weighted average shares  outstanding — basic and diluted                  |       | 235,925  |       | 228,180  |       |

 

(a)             The 2005 pro formaloss from continuing operations includes a charge for the write-off ofin-process research and development expenses of $73,300 ($73,300 net of tax),and a charge for the impact on cost of products sold of the fair valueadjustment to inventory of $37,100 ($27,329 net of tax).

(b)            The2004 pro forma net earnings (loss) includes the sale of WIL ResearchLaboratories by Great Lakes for a gain of $53.7 million, net of tax expense of$30.4 million.

The pro forma adjustmentsincluded in the loss from continuing operations and in net earnings (loss)above are summarized as follows:
| ***(In thousands)***                | ** ** | **2005** | ** ** | **2004** | ** ** |
|------------------------------------------|------------|----------|------------|----------|------------|
| Reduction in  pension expense (1)        |       | $        | 1,950      |     | $          | 5,308 |   |
| Reduction in interest expense (2)        |       | 4,404    |       | 7,220    |       |
| Depreciation (3)                         |       | 5,274    |       | 10,548   |       |
| Amortization (4)                         |       | (9,154   | )          | (18,109  | )          |
| Inventory accounting (5)                 |       | (903     | )          | (427     | )          |
| Reversal of merger costs (6)             |       | 138,429  |       | —   |       |
| Pro forma adjustments — gross       |       | $        | 140,000    |     | $          | 4,540 |   |
|                                     |       |     |       |     |       |
| Pro forma adjustments —  net of tax |       | $        | 112,539    |     | $          | 2,004 |   |

 

(1)          Pension — represents a reduction in pensionexpense, principally due to the elimination of the impact of amortization ofhistorical gains and losses from Great Lakes’ historical net periodic benefitcost.

(2)          Interest — represents the impact on interestexpense of amortization of the fair value adjustment to Great Lakes’ long-termdebt.

(3)          Depreciation — represents the impact ondepreciation expense of the fair value adjustment and change in the remaininguseful lives of Great Lakes’ property, plant and equipment.

(4)          Amortization — represents the impact onamortization expense of the fair value adjustment and change in remaininguseful life of Great Lakes’ intangible assets.

(5)          Inventory accounting — represents the impactof conforming Great Lakes’ inventory variance capitalization policy to aconsistently applied method utilized by the Company.

(6)          MergerCosts — represents the reversal of merger-related expenses incurred by GreatLakes and recognized in their pre-merger operating results.

As a result of the Merger, theCompany assumed the merger-related liabilities of Great Lakes, which primarilyrelated to the change in control provisions in employment contracts that weretriggered by the Merger.  Areconciliation of this reserve balance from July 1, 2005 is as follows:

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| ***(In thousands)***                      | ** ** | **Severance   and Related   Costs (a)** | ** ** | **Merger  Integration  Costs (b)** | ** ** | **Total**  | ** ** |
|------------------------------------------------|------------|-------------------------------------------------------------|------------|-----------------------------------------|------------|------------|------------|
| Great Lakes  liability assumed at July 1, 2005 |       | $                                                           | 41,569     |                                    | $          | 27,345     |       | 68,914 |   |
| 2005 purchase  price adjustments               |       | 2,851                                                       |       | 20,788                                  |       | 23,639     |       |
| Cash payments                                  |       | (37,783                                                     | )          | (46,826                                 | )          | (84,609    | )          |
| Non-cash  utilization                          |       | (302                                                        | )          | (201                                    | )          | (503       | )          |
| Balance at  December 31, 2005                  |       | 6,335                                                       |       | 1,106                                   |       | 7,441      |       |
| 2006 merger  costs through June 30, 2006       |       | 1,163                                                       |       | 175                                     |       | 1,338      |       |
| Cash payments                                  |       | (7,259                                                      | )          | (1,281                                  | )          | (8,540     | )          |
| Non-cash  utilization                          |       | 121                                                         |       | —                                  |       | 121        |       |
| **Balance at December 31, 2006**               | ** ** | **$**                                                       | **360**    | ** **                              | **—** | ** ** | **$**      | **360** | ** ** |
|                                                |            |                                                             |            |                                         |            |            |            |  |  |  |

 

(a)             Includes severance relating to former Great Lakespersonnel only, including severance recorded for employees identified asredundancies subsequent to the date of the Merger.

(b)            Includes primarily investment banking fees, legalfees and audit fees directly related to the closing of the merger transactionincurred by the Company.

As a result of the Merger, theCompany recorded charges for costs directly related to the Merger as acomponent of operating profit (loss).  Therelated reserve activity is summarized as follows:
| ***(In thousands)***        | ** ** | **Severance  and Related  Costs (c)** | ** ** | **Merger  Integration  Costs (d)** | ** ** | **Total** | ** ** |
|----------------------------------|------------|-------------------------------------------------|------------|-----------------------------------------|------------|-----------|------------|
| 2005 merger  costs               |       | $                                               | 9,477      |                                    | $          | 35,753    |       | $ | 45,230 |   |
| Cash payments                    |       | (4,813                                          | )          | (22,725                                 | )          | (27,538   | )          |
| Non-cash  utilization            |       | (403                                            | )          | —                                  |       | (403      | )          |
| Balance at  December 31, 2005    |       | 4,261                                           |       | 13,028                                  |       | 17,289    |       |
| 2006 merger  costs               |       | 93                                              |       | 16,917                                  |       | 17,010    |       |
| Cash payments                    |       | (3,464                                          | )          | (29,858                                 | )          | (33,322   | )          |
| Non-cash  utilization            |       | 19                                              |       | (22                                     | )          | (3        | )          |
| **Balance at December 31, 2006** | ** ** | **$**                                           | **909**    | ** **                              | **$**      | **65**    | ** ** | **$** | **974** | ** ** |

 

(c) Includes severancerelating to former Crompton personnel only.

(d) Includes primarily consulting costs related to theintegration of Crompton and Great Lakes.

Theabove merger related reserves are included in accrued expenses on the Company’sconsolidated balance sheets at December 31, 2006 and 2005.

Asof December 31, 2006, the Company terminated approximately 600 employeesworldwide, as a direct result of the Merger.

**Acquisition**

OnMarch 24, 2006, the Company acquired the Trace Chemicals business from Bayer CropScienceLP.  Trace Chemicals is a leader infarmer-applied seed 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 $6.7million and the assets acquired included inventory, property, plant andequipment and intangible assets.

**3) DIVESTITURES**

**Discontinued Operations**

Refined Products

On June 24, 2005, the Company sold certain assets andassigned certain liabilities of its Refined Products business to Sun CapitalPartners Group, Inc. (Sun) for $80 million. The consideration that the Company received was subject to adjustmentbased on the change in certain transferred assets and liabilities of theRefined Products

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business through the closing date and for retainedaccounts receivable and accounts payable, which resulted in a reduction to theproceeds received by $30.3 million.  TheCompany also prepaid approximately $6.8 million of the manufacturing costs forcertain petroleum additives products that will be manufactured for the Companyby Sun. During the second quarter of 2005, the Company recognized a loss on thetransaction of $28.2 million (net of an income tax benefit of $14.3million).  During the fourth quarter of2005, the Company recognized a gain of $28.3 million primarily due to theelimination of the cumulative currency translation adjustment resulting fromthe liquidation of a foreign subsidiary engaged in the Refined Productsbusiness.  Overall, the transaction didnot have a material impact on the Company’s earnings for the year endedDecember 31, 2005.

The agreement providedfor the sale of assets and assignment of liabilities with carrying amounts asfollows:
| ***(In thousands)***            | ** ** | **June 24,  2005** | ** ** |
|--------------------------------------|------------|-------------------------|------------|
| Inventory                            |       | $                       | 40,928     |   |
| Other current assets                 |       | 1,066                   |       |
| Property, plant and equipment, net   |       | 42,540                  |       |
| Other assets                         |       | 11,573                  |       |
| Total  assets held for sale          |       | $                       | 96,107     |   |
|                                 |       |                    |       |
| Accounts payable                     |       | $                       | 4,331      |   |
| Accrued expenses                     |       | 3,800                   |       |
| **Total  liabilities held for sale** |       | $                       | 8,131      |   |

 

The revenues, operatingprofit and pre-tax earnings from discontinued operations for 2005 and 2004 areas follows:
| ***(In thousands)***                      | ** ** | **2005** | ** ** | **2004** | ** ** |
|------------------------------------------------|------------|----------|------------|----------|------------|
| Net sales                                      |       | $        | 136,419    |     | $          | 264,532 |   |
|                                           |       |     |       |     |       |
| Pre-tax earnings  from discontinued operations |       | $        | 4,013      |     | $          | 8,348 |   |
| Income tax  expense                            |       | (1,368   | )          | (3,121   | )          |
| Earnings from  discontinued operations         |       | $        | 2,645      |     | $          | 5,227 |   |

 

Prior to the divestitureof the Refined Products business, the Company’s Refined Products business andPetroleum Additives business shared a manufacturing facility. Contemporaneouswith the sale of the Refined Products business, the Company entered into tollmanufacturing arrangements with Sun, whereby Sun will continue to manufacturecertain products for the Petroleum Additives business. These arrangementsextend for up to ten years.  For the yearended December 31, 2006, the Company purchased approximately $50 million fromSun and from the date of sale through December 31, 2005, the Company purchasedapproximately $16 million from Sun.

The Company hasclassified the transactions as a discontinued operation in the consolidatedstatements of operations in accordance with FASB Statement No. 144, “Accountingfor the Impairment or Disposal of Long-Lived Assets” (“FASB 144”).  Underthat Statement the cash flows associated with the continuation of activitiesare deemed indirect; and therefore, the Company evaluated significant continuedinvolvement in the operations of the Refined Products business.  The Company determined that (a) the Companydoes not have the ability to significantly influence the operating andfinancial policies of Sun, nor does it have any authority or interest in any ofthe components of the revenue or profit generating aspects of the RefinedProducts business; (b) under the terms of the sale agreement, the Company isprohibited from competing with Sun in the Refined Products business; (c) theCompany’s rights are limited to oversight rights related to monitoring themanufacture of products to protect the interests of its Petroleum Additivesbusiness, a right that is not uncommon in similar arm’s-length arrangements;and (d) the Company can migrate its supply requirements to othermanufacturers.  Accordingly, the Companydid not deem its involvement with Sun subsequent to sale to be significant.

OrganoSilicones

OnJuly 31, 2003, the Company sold certain assets and assigned certain liabilitiesof its OrganoSilicones business unit to the Specialty Materials division of GEand acquired 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

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Silicones business and the OrganoSilicones business thatGE acquired from the Company through September of 2006. The total ofsuch earn-out proceeds was for a minimum of $105 million and a maximum of $250million.  The minimum earn-out of $105 million was accrued as part of the gain onthe sale of the business.  During 2006and 2005, the Company received a total of $54.4 million and $62.7 million ofearn-out proceeds, respectively, of which $28.2 million and $27.7 millionrepresented additional contingent earn-out proceeds received in 2006 and 2005,respectively, related to the combined performance of the GE and OrganoSiliconesbusinesses.  To date throughDecember 31, 2006, the Company received the $105 million minimum earn-out and acumulative total of $61.2 million of additional contingent earn-out proceeds inexcess of the minimum payments.  TheCompany expects to receive its final additional contingent earn-out payment of$5.8 million during the first quarter of 2007, which represents the performanceof GE’s Silicones business during the third quarter of 2006.  This expected payment of $5.8 million has been recorded as a receivable at December 31,2006, and is included in other current assets in the consolidated balance sheet.

Asa result of the expiration of the performance contingency on September 30, 2006and the expiration of the earn-out period, the total cumulative additionalcontingent earn-out of $67.0 million ($45.9 million, net of taxes) has beenrecognized as a gain on the sale of discontinued operations for the year endedDecember 31, 2006 in the consolidated statement of operations.   Additionally, the Company reversed $1.6million, net of taxes, of excess reserves related to the OrganoSiliconesbusiness as an additional gain on the sale of discontinued operations for theyear ended December 31, 2006.

The cumulative additional contingent earn-out proceedsat December 31, 2005 of $33.0 million had not been recognized in earnings, asthe recognition of this additional gain was contingent upon the continuedfavorable future performance of GE’s Silicones business through September2006.  At December 31, 2005, the balanceof additional earn-out proceeds received in excess of the minimum earn-out wasincluded in accrued expenses in the consolidated balance sheet.

# **OtherDispositions**

Gustafson

OnMarch 22, 2004, the Company entered into an agreement with Bayer CropScience LPin the U.S. and Bayer CropScience Inc. in Canada to sell its 50 percentinterest in the Gustafson seed treatment joint venture for $128.9 million, ofwhich $126.9 million was received in 2004 and $2 million was contingent upon alicensing consent and the execution of a related supply agreement.  The transaction closed on March 31, 2004 andresulted in a pre-tax gain of $90.9 million in the first quarter of 2004.  The licensing consent and related supplyagreement were finalized in December 2004 and resulted in the recognition of anadditional pre-tax gain of $2 million in the fourth quarter of 2004.  During the third quarter of 2006, the Companyrecorded income of $1.5 million representing an adjustment for a contingencyrelated to the 2004 sale of the Gustafson joint venture.

West Lafayette

On June 23, 2006, the Companysold a significant portion of the real estate of the former Great Lakes officesin West Lafayette, Indiana for net proceeds of $6.1 million, representing grossproceeds of $6.5 million less costs incurred to complete this transaction of$0.4 million.  Upon signing a definitiveagreement in March 2006, the Company classified the net book value of theseassets of $6.5 million as assets held for sale and at that time ceaseddepreciating these assets.  During thesecond quarter of 2006, the assets were revalued to $6.1 million reflecting theadjusted fair value under purchase accounting for the Merger. Thus, there wasno gain or loss on this transaction.

Industrial WaterAdditives

OnMay 12, 2006, the Company sold its Industrial Water Additives (“IWA”) business,which was acquired in the Merger, to BWA Water Additives (“BWA”), a subsidiaryof Close Brothers Private Equity located in the United Kingdom.

TheCompany received cash proceeds of $85.0 million, less a $10.2 millionadjustment for retained accounts receivable and accounts payable.  The pre-tax loss on the sale of $12.4 millionwas recorded during the second quarter of 2006 and is included within (gain)loss on sale of businesses, net in the accompanying consolidated statement ofoperations for the year ended December 31, 2006.  The following table reconciles the cash proceedsto the pre-tax loss on the sale.

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| ** **                                                        | *** *** | ***(In thousands)*** | *** *** |
|-------------------------------------------------------------------|--------------|---------------------------|--------------|
| Cash proceeds                                                     |         | $                         | 85,000       |   |
| Adjustment for retained  accounts receivable and accounts payable |         | (10,185                   | )            |
| Adjusted proceeds                                                 |         | 74,815                    |         |
| Less:                                                             |         |                      |         |
| Net assets sold                                                   |         | 80,960                    |         |
| Transaction costs  incurred                                       |         | 3,278                     |         |
| Retention agreements                                              |         | 374                       |         |
| Loss related to supply  agreements                                |         | 2,323                     |         |
| Other                                                             |         | 276                       |         |
| Pre-tax loss                                                      |         | $                         | (12,396      | ) |

 

Theassets sold consisted primarily of the dedicated intellectual property rightsused to produce IWA products at the Company’s Trafford Park, United Kingdom andAdrian, Michigan facilities, inventories, office and lab equipment, and theCompany’s shares in Biolab Gulf GmbH, which is a holding company that owns a49% interest in the Company’s Biolab Arabia joint venture, located in Saudi Arabia,a previously consolidated entity. The Company retained the Liquibrom productline which was previously included within the IWA business unit.

Includedin the net assets sold are $33.6 million of allocated goodwill related to theportion of the IWA business unit that was sold; $32.5 million related to netintangible assets, primarily technology, brands and customer relationships, andfinished goods inventory of $12.2 million.

Transactioncosts include legal fees, investment bank advisory fees, tax consulting feesand other direct costs incurred to sell the business.

Inconnection with this sale, the Company entered into several ancillaryagreements, including two supply agreements, a distribution agreement, and atransitional service agreement.

TheCompany may also receive earn-out proceeds from BWA relating to the sale ofbelclene phosphonates products.  TheCompany has not recognized the earn-out potential in current earnings, as therecognition of this additional gain is contingent upon the future sales ofthese products through May 12, 2007.

Thefully-dedicated manufacturing assets of the IWA business located in TraffordPark, United Kingdom and Adrian, Michigan that the Company continues to ownwill be utilized by the Company solely to supply certain finished product toBWA for a period of no less than two years. Based upon the Company’s currentoperations, these assets will have limited use or salvage value, if any, aftersuch transition period. As a result, based upon an undiscounted cash-flow analysisincluding an estimate of salvage value, these assets were determined to beimpaired (not recoverable) as the carrying value of the assets was greater thanthe expected cash flows from the assets. Therefore, during the second quarterof 2006, the Company recorded an impairment charge of $5.6 million towrite-down such assets to fair value. Fair value was determined based uponestimated discounted cash flows directly related to the assets, including anestimate of salvage value.

TheCompany considered whether or not the sale of the IWA business constituted adiscontinued operation, as defined by FASB Statement No. 144, “Accounting forthe Impairment or Disposal of Long-Lived Assets” (FASB 144).  Under FASB 144, the involvement of theCompany under the supply agreements and the distribution agreement isconsidered significant and therefore, the requirements for presentation as adiscontinued operation have not been met. The Company will continue to assess the level of involvement andcontinuing cash flows related to these agreements and, if circumstances change,the Company may be required to reclassify the results as discontinuedoperations in the consolidated statement of operations.

Davis Standard

OnMarch 31, 2005, the Company entered into an agreement with Hamilton RobinsonLLC, a private equity firm, to form a venture (Davis-Standard LLC), which wouldcombine the Company’s Polymer Processing Equipment business and HamiltonRobinson’s Black Clawson Converting Machinery Company.  The transaction closed on April 29, 2005 andresulted 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

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Davis-StandardLLC effectively exercises control over the operations of the business throughits majority voting rights. As of the closing date, the Company deconsolidatedapproximately $136.6 million of assets and $62.8 million of liabilities of thePolymer Processing Equipment business. The investment is recorded in otherassets with no significant gain or loss recognized on the transaction. TheCompany accounted for its investment in Davis-Standard LLC under the equitymethod and recorded its proportionate share of the venture’s results ofoperations. The Company recorded $6.1 million of income in 2006 and $0.2million of expense in 2005 in other expense, net in its consolidated statementsof operations for its share of the venture’s earnings.  The carrying amount of the Company’sinvestment in Davis-Standard LLC was $75.2 million at December 31, 2005.

OnOctober 30, 2006, the Company sold its interest in Davis-Standard LLC foraggregate proceeds of $68.8 million, of which $60.4 million of cash wasreceived as of December 31, 2006.  Theremaining amounts were set up as receivables, of which $4.2 million is includedin other current assets and $4.2 million is included in other assets in theconsolidated balance sheet at December 31, 2006.  Subsequent to September 30, 2006 and prior tothe sale, the Company received approximately $13.3 million in cashdistributions.  The Company recognized apretax gain of $5.7 million on the transaction, which is included in otherexpense, net in its consolidated statement of operations for the year endedDecember 31, 2006.

**4) FACILITY CLOSURES, SEVERANCE AND RELATED COSTS**

TheCompany is in the process of implementing new cost savings initiatives tosupport its continuing efforts to become more efficient and reduce costs.  As of December 31, 2006, as a result of thisinitiative, the Company recorded a pre-tax charge of $10.7 million in 2006,primarily for severance costs for approximately 280 employees related tofacility closures and employee reductions at several of its manufacturing andresearch and development facilities around the world.   As a result of this initiative, the Companyhas terminated approximately 60 employees as of December 31, 2006.   A summary of the charges related to the 2006program activity are as follows:

 
| ***(In thousands)***        | ** ** | **Severance  and  Related  Costs** | ** ** | **Asset  Write-offs** | ** ** | **Other  Facility  Closure  Costs** | ** ** | **Total** | ** ** |
|----------------------------------|------------|------------------------------------|------------|-----------------------|------------|-------------------------------------|------------|-----------|------------|
| 2006 charge                      |       | $                                  | 10,238     |                  | $          | 447                                 |       | $         | 47         |   | $ | 10,732 |   |
| Cash payments                    |       | (2,870                             | )          | —                |       | (47                                 | )          | (2,917    | )          |
| Non-cash utilization             |       | (22                                | )          | (447                  | )          | —                              |       | (469      | )          |
| **Balance at December 31, 2006** | ** ** | **$**                              | **7,346**  | ** **            | **$**      | **—**                          | ** ** | **$**     | **—** | ** ** | **$** | **7,346** | ** ** |

** **

**In 2004, the Company completed an activity-basedrestructuring initiative intended to structure the Company’s operations in amore efficient and cost effective manner, including a voluntary severanceprogram.  As a result of this initiative,the Company terminated approximately 780 employees.  During 2004, the Company recorded a pre-taxcharge of $54.0 million, primarily for severance costs and related pensioncurtailments.  During 2005, the Companyrecorded pre-tax charges totaling $24.0 million, of which $19.5 million relatedto unrecoverable future lease costs and asset write-offs related to the closureof the Company’s former research and development facility in Tarrytown,NY.  During 2006, the Company recorded apre-tax credit of $4.0 million, primarily to adjust the reserve forunrecoverable future lease costs at the Tarrytown, NY facility and for otherreserves no longer deemed necessary. Charges and adjustments related to these programs are summarized asfollows:**

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** **
| ***(In thousands)*** | ** ** | **Severance  and  Related  Costs** | ** ** | **Asset  Write-offs** | ** ** | **Other  Facility  Closure  Costs** | ** ** | **Total**  | ** ** |
|---------------------------|------------|------------------------------------|------------|-----------------------|------------|-------------------------------------|------------|------------|------------|
| **2004 charge:**     | ** ** | ** **                         | ** ** | ** **            | ** ** | ** **                          | ** ** | ** ** | ** ** |
| Continuing  operations    |       | $                                  | 50,556     |                  | $          | 138                                 |       | $          | 3,030      |   | $ | 53,724 |   |
| Discontinued  operations  |       | 306                                |       | —                |       | —                              |       | 306        |       |
| Cash payments             |       | (9,061                             | )          | —                |       | (1,439                              | )          | (10,500    | )          |
| Non-cash utilization      |       | (1,748                             | )          | (138                  | )          | —                              |       | (1,886     | )          |
|                           |            |                                    |            |                       |            |                                     |            |            |            |  |  |  |  |

 
| Balance at December 31, 2004     |       |          40,053 |      |                 — |       |            1,591 |   |          41,644 |       |
|----------------------------------|------------|---------------------------------------------------------|-----------|---------------------------------------------------------------------------------------------------|------------|--------------------------------------------------------------------|--------|---------------------------------------------------------|------------|
| 2005 charge                      |       | 2,898                                                   |      | 3,970                                                                                             |       | 17,102                                                             |   | 23,970                                                  |       |
| Cash payments                    |       | (34,483                                                 | )         | —                                                                                            |       | (4,066                                                             | )      | (38,549                                                 | )          |
| Non-cash charges  and accretion  |       | (442                                                    | )         | (3,970                                                                                            | )          | 334                                                                |   | (4,078                                                  | )          |
| Balance at  December 31, 2005    |       | 8,026                                                   |      | —                                                                                            |       | 14,961                                                             |   | 22,987                                                  |       |
| 2006 credit                      |       | (818                                                    | )         | —                                                                                            |       | (3,139                                                             | )      | (3,957                                                  | )          |
| Cash payments                    |       | (5,772                                                  | )         | —                                                                                            |       | (3,579                                                             | )      | (9,351                                                  | )          |
| Non-cash charges  and accretion  |       | 44                                                      |      | —                                                                                            |       | 962                                                                |   | 1,006                                                   |       |
| **Balance at December 31, 2006** | ** ** | **$**                                                   | **1,480** | ** **                                                                                        | **—** | ** **                                                         | **$**  | **9,205**                                               | ** ** | **$** | **10,685** | ** ** |
|                                  |            |                                                         |           |                                                                                                   |            |                                                                    |        |                                                         |            |  |  |  |

 

During the first quarterof 2006, the Company recorded a pre-tax credit of $0.8 million to adjustcertain reserves related to the 1998 closure of its Painesville, Ohio facility.

During the fourth quarterof 2004, the Enenco joint venture, in which the Company owned a 50 percentinterest, closed its manufacturing facility in Memphis, TN.  As a result of the closure, the Companyrecorded a pre-tax charge of $4.6 million, which included $2.3 million relatedto the write-off of the Company’s investment in affiliate, $1.8 million forenvironmental decommissioning and demolition and $0.5 million for other closurerelated costs.  During the first quarterof 2005, the Company acquired the remaining 50 percent interest from its jointventure partner and as a result accounts for Enenco as a wholly-ownedsubsidiary of the Company.  Thistransaction resulted in a pre-tax credit to facility closures, severance andrelated costs during of 2005 of $2.4 million due to recoveries from the jointventure partner of $1.2 million, adjustments to third party accruals of $1.0million and adjustments to decommissioning and demolition reserves of $0.2million.  During 2006, the Companyrecorded a pre-tax credit adjustment of $0.4 million to facility closures,severance and related costs for reserves related to Enenco.

In addition, during the first quarterof 2004, the Company completed the sale of its manufacturing facility inFreeport, Grand Bahama Island and recorded a $2.1 million pre-tax facilityclosure charge primarily for asset write-offs.

At December 31, 2006, theCompany also had remaining reserves of $0.3 million and $0.5 million relatingto its 2003 cost reduction program and its 2001 cost reduction initiative andcorporate headquarters relocation, respectively.  The reserve balances for these programs were$0.8 million and $1.0 million, respectively, at December 31, 2005.  At December 31, 2005, the Company also had areserve of $0.5 million related to its 2004 executive reorganization, which wasfully utilized in 2006.  The activity inthese reserves during 2006 and 2005 were primarily due to payments andimmaterial reserve revisions.

The Company has included$12.6 million and $14.0 million of its facility closures, severance and relatedcost reserves in accrued expenses at December 31, 2006 and December 31, 2005,respectively, and $6.2 million and $11.4 million, respectively, in otherliabilities in its consolidated balance sheets.

# **5) ASSET IMPAIRMENTS**

In August 2006, theCompany determined that a significant customer would not renew its contractwith the Fluorine 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 accordance withFASB Statement No. 144, “Accounting for the Impairment or Disposal ofLong-Lived Assets,” based on the revised cash flow projections of thebusiness.  As a result, the Companyrecorded an impairment

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charge of $22.7 millionto write-down the value of property, plant and equipment, net by $7.5 millionand intangible assets, net by $15.2 million as of September 30, 2006.  The $22.7 million charge is included withinimpairment of non-current assets in the consolidated statement of operations.

Additionally, the Companyrecorded an impairment charge of $5.6 million to write-down the value ofthe retained assets of the IWA business (see Note 3 - Divestitures for furtherdetails).  The Company also recorded animpairment charge of $51.9 million related to the Fluorine business, whichresulted from the Company’s annual goodwill impairment review (see Note 9 -Goodwill and Intangible Assets for further details).

# **6) ACCOUNTS RECEIVABLE PROGRAMS**

In March 2006, theCompany amended its domestic accounts receivable securitization program toprovide three years of funding for up to $275 million of domestic receivablesto agent banks.  In September 2006, theCompany expanded its domestic accounts receivable program to provide that up to$100 million of the consideration payable to the Company may be in the form ofletters of credit issued to the Company or its designees. At December 31, 2006,$140.5 million of domestic accounts receivable had been sold under this programat an average cost of approximately 5.76%. At December 31, 2005, $28.9 millionof domestic accounts receivable had been sold under this program at an averagecost of approximately 4.47%.  Inaddition, the Company’s European subsidiaries have a separate program to sellup to approximately $195 million of their eligible accounts receivable to agentbanks.  At December 31, 2006, $139.0million of international accounts receivable have been sold at an average costof approximately 7.14%.  At December 31, 2005, $56.3 million ofinternational accounts receivable had been sold at an average cost ofapproximately 7.77%.  The totalcosts associated with these programs of $15.5 million, $11.4 million and $9.9million for the three years ended December 31, 2006, 2005 and 2004,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 $143.0 million and $143.8 million as of December 31, 2006 and2005, 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 sell eligibleaccounts receivable directly to agent banks. During the period, the Company hadan obligation to service the accounts receivable sold under its domestic andinternational programs.  The Company hastreated the transfer of receivables under its domestic and internationalreceivable programs as a sale of accounts receivable.

# **7) INVENTORIES**

| ***(In thousands)***   | ** ** | **2006**    | ** **  | **2005**   | ** ** |
|-----------------------------|------------|-------------|-------------|------------|------------|
| Finished goods              | ** ** | **$**       | **457,254** | ** ** | **$**      | 466,365 | ** ** |
| Work in process             | ** ** | **36,510**  |        | 31,406     |       |
| Raw materials  and supplies | ** ** | **166,644** |        | 163,846    |       |
|                        | ** ** | **$**       | **660,408** | ** ** | **$**      | 661,617 | ** ** |

Included in the above netinventory balances are inventory obsolescence reserves of approximately $53million and $43 million at December 31, 2006 and 2005, respectively.

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

| ***(In thousands)***          | ** ** | **2006**      | ** **    | **2005**   | ** ** |
|------------------------------------|------------|---------------|---------------|------------|------------|
| Land and improvements              | ** ** | **$**         | **99,176**    | ** ** | **$**      | 87,819 | ** ** |
| Buildings and  improvements        | ** ** | **293,174**   |          | 284,293    |       |
| Machinery and  equipment           | ** ** | **1,493,548** |          | 1,396,068  |       |
| Information  systems equipment     | ** ** | **184,721**   |          | 174,445    |       |
| Furniture,  fixtures and other     | ** ** | **52,967**    |          | 49,053     |       |
| Construction in  progress          | ** ** | **83,727**    |          | 62,397     |       |
|                               | ** ** | **2,207,313** |          | 2,054,075  |       |
| Less accumulated  depreciation (a) | ** ** | **1,060,080** |          | 861,740    |       |
|                               | ** ** | **$**         | **1,147,233** | ** ** | **$**      | 1,192,335 | ** ** |

 

 

(a)          Includedin accumulated depreciation for 2006 is a charge of $17.8 million for theacceleration of deprecation at several of the Company’s global manufacturingfacilities due to a change in the estimated useful life of the related assets.

 

# **9) GOODWILL AND INTANGIBLE ASSETS**

The Company values its intangible assets in accordance withFASB Statement No. 141, “Business Combinations” and FASB Statement No. 142, “Goodwilland Other Intangible Assets.”  StatementNo. 141 requires that all business combinations initiated after June 30, 2001be accounted for using the purchase method of accounting.  It also specifies criteria that must be metfor intangible assets acquired in a purchase combination to be recognized apartfrom goodwill.  Statement No. 142requires that the useful lives of all existing intangible assets be reviewedand adjusted if necessary.  It alsorequires that goodwill and intangible assets with indefinite lives no longer beamortized, but rather be tested for impairment at least annually.  Other intangible assets will continue to beamortized over their useful lives and reviewed for impairment in accordancewith FASB Statement No. 144, “Accounting for the Impairment or Disposal ofLong-Lived Assets.”

The Company’s intangibleassets (excluding goodwill) are comprised of the following:
| ***(In thousands)***   | ** ** | **December 31, 2006** | ** **  | **December 31, 2005** | ** ** |
|-----------------------------|------------|---------------------------------|-------------|---------------------------------|------------|
| ** **                  | ** ** | **Gross  Cost**                 | ** **  | **Accumulated  Amortization**   | ** ** | **Gross  Cost** | ** ** | **Accumulated  Amortization** | ** ** |
| Patents (a)                 | ** ** | **$**                           | **141,092** | ** **                      | **$**      | **(36,673** | **)** | **$** | 156,089 |   | $ | (33,279 | ) |
| Trademarks (b)              | ** ** | **311,144**                     | ** **  | **(49,724**                     | **)**      | 331,633 |   | (40,079 | ) |
| Customer  relationships (c) | ** ** | **140,286**                     | ** **  | **(19,979**                     | **)**      | 140,143 |   | (11,309 | ) |
| Production  rights (d)      | ** ** | **45,000**                      | ** **  | **(6,429**                      | **)**      | 50,000 |   | (2,381 | ) |
| Other (e)                   | ** ** | **59,121**                      | ** **  | **(33,133**                     | **)**      | 57,578 |   | (27,718 | ) |
|                        | ** ** | **$**                           | **696,643** | ** **                      | **$**      | **(145,938** | **)** | $ | 735,443 |   | $ | (114,766 | ) |

 

(a)          Patentsgross cost decreased $15.0 million due primarily to a $18.7 million decrease toreverse previously misstated capitalized costs through the adoption of SAB 108,a $6.0 million decrease related to the sale of IWA and a $2.8 million decreasedue to the asset impairment in the Fluorine business, partially offset by a$2.3 million increase related to a purchase accounting fair value adjustment,increases in capitalized patent reregistration costs of $2.3 million,capitalized legal costs of $3.0 million and favorable currency translation of$5.0 million.

(b)         Trademarksgross cost decreased $20.5 million due primarily to a $10.8 million decreaserelated to the sale of IWA, a $10.7 million decrease due to the assetimpairment in the Fluorine business, a $9.9 million decrease related to apurchase accounting fair value adjustment and a $1.7 million decrease toreverse improperly capitalized costs, partially offset by an increase of $3.9million related to the acquisition of Trace Chemicals and favorable currencytranslation of $8.1 million.

(c)          Customerrelationships gross cost increased $0.1 million due to a $14.0 million increaserelated to a purchase accounting fair value adjustment, a $2.0 million increaseresulting from an acquisition and favorable currency translation of $3.4million, partially offset by a decrease of $17.1 million related to the sale ofIWA and a $2.2 million decrease due to the asset impairment in the Fluorinebusiness.

(d)         Productionrights gross cost decreased $5.0 million due to a purchase accounting fairvalue adjustment.

(e)          Other intangible assets gross cost increased $1.5 million due primarilyto $2.7 million of favorable currency translation offset by a $1.2 milliondecrease to reverse previously misstated capitalized costs through the adoptionof SAB 108.

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As a result of the mergerwith Great Lakes on July 1, 2005, the Company recorded $518 million ofintangible assets with estimated useful lives ranging from 5 to 35 years(weighted average of 26 years) consisting of the following: $83.6 million ofpatents with estimated useful lives ranging from 10 to 20 years (weightedaverage of 14 years), $241 million of trademarks with an estimated useful lifeof 35 years, $131 million of customer relationships with estimated useful livesranging from 20 to 25 years (weighted average of 23 years), $45 million ofproduction rights with an estimated useful life of 10.5 years and miscellaneousother intangibles of $17.3 million with estimated useful lives ranging from 5to 10 years (weighted average of 9 years).

Amortization expense fromcontinuing operations related to intangible assets (excluding goodwill andequity investments) amounted to $38.6 million in 2006, $28.3 million in 2005and $16.9 million in 2004.  The increasein amortization expense in 2006 and 2005 was primarily due to the addition ofintangibles resulting from the Merger. Estimated amortization expense of intangible assets (excluding goodwilland equity investments) for the next five fiscal years is as follows: $38.7million (2007); $38.4 million (2008); $36.3 million (2009); $32.4 million(2010) and $31.8 million (2011).

Also, included inamortization expense is the amortization of purchase accounting fair valueadjustments of equity investments resulting from the Merger, which are includedin other assets in the condensed consolidated balance sheets.  Amortization of equity investments amountedto $3.3 million for fiscal year 2006. There was no amortization related to these items in 2005.  Estimated amortization of equity investmentsas of December 31, 2006 for the next five fiscal years is as follows: $1.6million (2007), $1.6 million (2008), $0.4 million (2009), $0.4 million (2010)and $0.4 million (2011).

Goodwill by reportablesegment is as follows:
| ***(In thousands)*** | ** ** | **December 31,  2005** | ** ** | **Great  Lakes  Merger** | ** ** | **IWA Sale** | ** ** | **Witco  Acquisition  Tax  Adjustment** | ** ** | **Fluorine  Impairment** | ** ** | **Foreign  Currency  Translation  & Other** | ** ** | **December 31,  2006** | ** ** |
|---------------------------|------------|-----------------------------|------------|--------------------------|------------|-------------------|------------|-----------------------------------------|------------|--------------------------|------------|------------------------------------------------------|------------|-----------------------------|------------|
| Plastic  Additives        |       | $                           | 318,194    |                     | $          | 113,455           |       | $                                       | —     |                     | $          | (23,528                                              | )          | —                      |       | $ | 10,893 | ** ** | **$** | **419,014** | ** ** |
| Polymers                  |       | 51,730                      |       | —                   |       | —            |       | (4,715                                  | )          | —                   |       | 40                                                   |       | **47,055**                  | ** ** |
| Specialty  Additives      |       | 49,462                      |       | 15,494                   |       | —            |       | (4,067                                  | )          | —                   |       | 654                                                  |       | **61,543**                  | ** ** |
| Crop Protection           |       | 162,896                     |       | (68,647                  | )          | —            |       | —                                  |       | —                   |       | 1,062                                                |       | **95,311**                  | ** ** |
| Consumer  Products        |       | 556,523                     |       | (7,720                   | )          | —            |       | —                                  |       | —                   |       | 5,083                                                | ** ** | **553,886**                 | ** ** |
| Other                     |       | 72,654                      |       | 19,353                   |       | (33,636           | )          | —                                  |       | (51,945                  | )          | (6,426                                               | )          | **—**                  | ** ** |
|                      |       | $                           | 1,211,459  |                     | $          | 71,935            |       | $                                       | (33,636    | )                        | $          | (32,310                                              | )          | $                           | (51,945    | ) | $ | 11,306 | ** ** | **$** | **1,176,809** | ** ** |
|                           |            |                             |            |                          |            |                   |            |                                         |            |                          |            |                                                      |            |                             |            |  |  |  |  |  |  |  |

 

During 2006, goodwilldecreased $34.7 million due primarily to a goodwill impairment charge in theFluorine business of $51.9 million, a $33.6 million write-off resulting fromthe sale of IWA and a $32.3 million decrease from a tax adjustment related tothe 1999 Witco acquisition, partially offset by a $71.9 million increase frompurchase accounting adjustments related to the Merger and a favorable foreigncurrency translation of $10.9 million. The goodwill of the Liquibrom business, which was excluded from the saleof IWA, was reallocated to the Plastic Additives business at the asset value of$6.7 million.

The $71.9 million ofpurchase accounting adjustments related to the Merger include an increase togoodwill of $35.5 million to record adjustments to current and deferred taxassets for tax periods prior to the Merger resulting from an examination by theInternal Revenue Service and the filing of the corporation’s pre-Merger incometax return, as well as a refund of pre-merger related income taxes receivedduring the third quarter of 2006.  Thepurchase accounting adjustments also include a reallocation of goodwill,primarily between the Plastic Additives, Crop Protection and Consumer Productssegments based upon final valuation information received from the independent appraisalcompany used to value the Great Lakes assets acquired through the Merger.

The Company has electedto perform its annual goodwill impairment procedures for all of its reportingunits in accordance with Statement No. 142, “Goodwill and Other IntangibleAssets” as of July 31, or sooner, if events occur or circumstances change thatcould reduce the value of a reporting unit below its carrying value.

During the third quarterof 2006, in accordance with the goodwill impairment provisions of Statement No.142, the Company performed its annual impairment test on the recoverability ofgoodwill.  The Company tested goodwillfor impairment and recorded an impairment charge of $51.9 million related tothe Fluorine business, which is included in the Other segment.  The amount of the charge was determined basedon an estimate of the fair value of the

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Fluorine business.  The projected loss of revenue of the Fluorinebusiness, resulting from the loss of a customer, was a significantconsideration in the determination that the carrying value of Fluorine goodwillwas impaired.  The Company concluded thatno impairment existed in any of its other reporting units at July 31, 2006.

# **10) LEASES**

At December 31, 2006, minimum rentalcommitments, primarily for buildings, land and equipment, under non-cancelableoperating leases, net of sublease income, amounted to $26.1 million (2007),$20.0 million (2008), $15.5 million (2009), $11.2 million (2010), $7.6 million(2011), $51.4 million (2012 and thereafter) and $131.8 million in theaggregate. Included in the minimum rental commitments is sublease incomeamounting to $5.3 million (2007), $5.6 million (2008), $5.7 million (2009),$5.7 million (2010), $5.6 million (2011) and $15.8 million (2012 andthereafter).  Rental expenses underoperating leases were $37.8 million (2006) $26.2 million (2005) and $18.7million (2004), net of sublease income of $7.3 million (2006), $6.4 million(2005) and $7.6 million (2004).

Future minimum lease payments undercapital leases at December 31, 2006 were not significant.

Realestate taxes, insurance and maintenance expenses generally are obligations ofthe Company, and accordingly, are not included as part of rental payments.  It is expected that in the normal course ofbusiness, leases that expire will be renewed or replaced by similar leases.

**11) DEBT**

TheCompany’s long-term debt instruments are recorded at face value, net ofunamortized discounts or premiums.  Suchdiscounts or premiums will be amortized to interest expense over the life ofthe related debt instruments.  TheCompany’s long-term debt is summarized as follows:
| **Long-Term Debt**                                                                                                                                              | ** ** | ** **  | ** **    | ** ** | ** **  |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-------------|---------------|------------|-------------|
| ** **                                                                                                                                                           | ** ** | **2006**    | ** **    | **2005**   | ** **  |
| *(In thousands)*                                                                                                                                                     |       |        | ** **    | ** ** |        |
| 6.875% Notes due 2016,  net of unamortized discount of $2,535  in 2006, with an effective interest rate of  6.92% in 2006.                                      |       | **$ ** | **497,465**   | ** ** | **$ ** | **—** |   |
| 7% Notes due 2009, net  of unamortized premium of $19,790 in 2006 and $26,923 in 2005, with an  effective interest rate of 5.22% in 2006 and 5.28% in 2005           |       | **419,790** | ** **    | 426,923    |        |
| Revolving credit  facility                                                                                                                                           |       | —      |          | 404,000    |        |
| Senior Floating Rate  Notes due 2010                                                                                                                                 |       | —      |          | 164,750    |        |
| 9.875% Senior Notes due  2012, net of unamortized discount of $878 in 2005, with an effective interest  rate of 9.96%                                                |       | —      | ** **    | 158,060    |        |
| 6.875% Debentures due  2026, net of unamortized discount of $24,426 in 2006 and $21,160 in 2005,  with an effective interest rate of 7.23% in 2006 and 7.58% in 2005 |       | **125,574** | ** **    | 128,840    |        |
| Other                                                                                                                                                                |       | **20,531**  | ** **    | 27,030     |        |
|                                                                                                                                                                 | ** ** | **$**       | **1,063,360** |       | $           | 1,309,603 | ** ** |

In July 2006, the Company completed the redemption ofthe remaining $158.9 million of the Company’s outstanding 9.875% Senior Notesdue 2012 (“2012 Notes”), which was funded through borrowings under the Company’sCredit Facility, the uncommitted working capital facilities and availablecash.  The purchase price to tender the2012 Notes was $1,123.87 per $1,000 principal amount.  As a result of the tender, the Companyrecorded a pre-tax loss on early extinguishment of debt of $24.4 million during2006.  The loss includes a premium of$19.7 million, the write-off of unamortized deferred costs of $3.8 million, thewrite-off of unamortized original issue discount of $0.8 million and legalcosts of $0.1 million.

**On May 24, 2006, the Company completed a tender offer torepurchase the remaining $164.8 million of its outstanding Senior Floating RateNotes due 2010 (“2010 Notes”).  Thepurchase price to tender the 2010 Notes was $1,095.83 per $1,000 in principalamount.  As a result of the tender, theCompany recorded a pre-tax loss on early extinguishment of debt of $19.6million during 2006.  The loss included apremium of $15.8 million, the write-off of unamortized deferred costs of $3.7million and legal costs of $0.1 million.**

**On April 19, 2006, the Company and certain of itsconsolidated subsidiaries entered into an underwriting agreement with severalfinancial institutions for the sale by the Company of $500 million aggregateprincipal**

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** **

**amount of 6.875% Senior Notes due 2016 (“2016 Notes”). Theoffering was made under the Company’s shelf registration statement on Form S-3filed with the Securities and Exchange Commission on April 19, 2006 and by aprospectus supplement dated April 19, 2006. The underwriters purchased the 2016Notes from the Company at 98.452% (a 6.95% effective rate) of their principalamount, plus accrued interest from April 24, 2006. The offering closed on April24, 2006 and the Company received net proceeds from the offering of $492.3million after expenses. The proceeds were utilized to repay the outstandingbalance on the Company’s revolving credit facility of $364 million, theoutstanding balance on uncommitted lines of credit of $50 million and to reducereceivables sold under the domestic receivable securitization programs of $60million, with the remaining proceeds used 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 Companyexperiences specific kinds of changes in control, the Company must offer torepurchase all or part of the notes.**

**On December 29, 2005, the Company completed a tender offerto repurchase $216 million of its outstanding $375 million aggregate principalamount of 9.875% Senior Notes due 2012 and $60.3 million of its outstanding$225 million aggregate principal amount of Senior Floating Rate Notes due 2010(collectively the “Senior Notes”).  Thepurchase price to tender $216 million of the 9.875% Senior Notes was $1,142.59per $1,000 principal amount and the purchase price to tender $60.3 million ofthe Senior Floating Rate Notes was $1,107.94 per $1,000 principal amount.  Both of the foregoing purchase prices includean early tender payment of $20 per $1,000 principal amount of Senior Notestendered.  As a result of the tenderingof the Senior Notes, the Company recorded a loss on early extinguishment ofdebt of $47.4 million during the fourth quarter of 2005.  The loss includes the premiums to repurchasethe Senior Notes of $37.3 million, the write-off of the unamortized discountand deferred costs related to the Senior Notes of $8.3 million and fees relatedto the tendering of the Senior Notes of $1.8 million.  In addition, the Company paid $11.2 millionof accrued and unpaid interest on validly tendered Senior Notes.**

OnSeptember 6, 2005, the Company retired its outstanding $110 million aggregateprincipal amount of 7.75% bonds due in 2023. As a result of the retirement of the $110 million 7.75% bonds, theCompany recorded a loss on early extinguishment of debt of $5.3 million.  The loss included premiums to redeem bonds of$3.3 million, the write-off of debt issuance costs of $0.7 million and thewrite-off of unamortized discount of $1.3 million.

OnJuly 1, 2005, in connection with the Merger, the Company assumed the debt ofGreat 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 $430.4 million on July1, 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 aresult of the sale of the Refined Products business, the Company was requiredto redeem the $10 million 5.85% Pollution Control Revenue Refunding Bonds dueDecember 2023.

On August 16, 2004, theCompany issued $600 million aggregate principal amount of privately offeredSenior Notes.  The Senior Notes were acombination of $375 million aggregate principal amount of 9.875% Senior Notesdue 2012 (with a yield to maturity of 9.96%), and $225 million aggregateprincipal amount of Libor plus 5.75% Senior Floating Rate Notes due 2010 (withthe interest rate resetting quarterly). The Company used a portion of the proceeds from the issuance of theSenior Notes to retire all of its outstanding $350 million aggregate principalamount of 8.5% Senior Notes due 2005 and $140 million of its $150 millionaggregate principal amount of 6.125% Senior Notes due 2006 (collectively the “Notes”).  The purchase price to tender $261.3 millionof the 8.5% Senior Notes was $1,025.88 per $1,000 principal amount, thepurchase price to call the remaining $88.7 million of the 8.5% Senior Notes was$1,032.07 per $1,000 principal amount, and the purchase price to tender $140million of the 6.125% Senior Notes was $1,038.35 per $1,000 principal amount.The Company also paid a consent payment of $10.00 per $1,000 principal amountof each series of Notes to certain tendering holders of the Notes, which amountedto $4 million.  As a result of thetendering of the Notes, the Company recorded a loss on early extinguishment ofdebt of $20.1 million during the third quarter of 2004.  The loss primarily includes the premiums paidto repurchase the Notes of $15.1 million, the consent payments of $4 millionand the write-off of the unamortized discount and deferred costs related to theNotes of $1 million.  In addition, theCompany paid $14 million of accrued and unpaid interest on validly tenderedNotes and approximately $23.1 million of issuance costs related to the NewSenior Notes and new credit facility.

The Indenture agreementsfor the 2016 Notes, the 7% notes due July 15, 2009 and the 6.875% debenturesdue 2026 are unsecured obligations and rank equally in right of payment withall other unsecured, unsubordinated indebtedness.  The Company’s obligations under the noteswill be fully and unconditionally guaranteed, jointly and severally, by certainexisting and future wholly-owned domestic subsidiaries.

# **CreditFacilities**

In July 2006, the Companyobtained a $50 million uncommitted working capital facility due on July 31,2007.  At December 31, 2006, borrowingsunder this facility amounted to $20 million with an interest rate of 6.19%.

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In May 2006, the Companyobtained a $25 million uncommitted working capital facility due on May 12,2007.  At December 31, 2006, borrowingsunder this facility amounted to $20 million with an interest rate of 6.15%.

During the first quarterof 2006, the Company obtained a $50 million uncommitted working capitalfacility due on September 1, 2006.  Theborrowings of $50 million were repaid on September 1, 2006.

At June 30, 2005, theCompany had a $220 million five-year domestic credit facility available throughAugust 2009, which consisted of a $120 million revolving credit facility and a$100 million pre-funded letter of credit facility.  On July1, 2005, concurrent with the consummation of the Merger, the Company replacedits existing $220 million domestic credit facility with a $600 millionfive-year credit facility available through July 2010, which includes a $300million letter of credit facility (the “Credit facility”).  As a result, the Company recorded a loss onearly extinguishment of debt in 2005 of $2.4 million to write off unamortizedfees relating to the $220 million five-year credit facility.

OnDecember 12, 2005, the Company exercised its option to expand its borrowingcapacity under the Credit Facility by $125 million, thereby increasing theavailability under the Credit Facility to $725 million.  There was no cost associated with theexercise of this option.  In July 2006,the Company expanded availability under the Credit Facility to $740 million andhas the ability to expand up to $750 million. Borrowings under the Credit Facility bear interest at the EURIBO Rate(as defined in the credit agreement governing the Credit Facility) plus amargin ranging from 0% to 1.6%.  Afacility fee is payable on unused commitments at a rate ranging from 0.125% to0.4%.  The Credit Facility is guaranteedby certain domestic subsidiaries of the Company (the “Subsidiary Guarantors”).  Although it is currently unsecured, duringany time in which the Company’s non-credit enhanced long-term senior unsecureddebt is rated BB or lower by Standard & Poors or Ba2 or lower by Moody’sInvestors Service, Inc., the Company and the Subsidiary Guarantors are requiredto pledge all owned stock and other equity interests (limited to 66% of thevoting stock of first-tier foreign subsidiaries).  At December 31, 2006, there were noborrowings under the Credit Facility. The Company’s credit rating at December 31, 2006 is BB+ (Stable) byStandard and Poors and Ba1 (Negative) by Moody’s Investors Services, Inc. If apledge of stock is granted due to a lowering of our current rating, this couldtrigger security interest in our publicly traded debt.

The Company also has arrangementswith various banks for lines of credit for its international subsidiariesaggregating $35.9 million in 2006 and $48.9 million in 2005, of which $5.8million (at 5.0%) and $46.9 million (at 4.3%) were outstanding at December 31,2006 and 2005, respectively.

# **DebtCovenants**

The Company’s variousdebt agreements contain covenants that limit its 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 a quarterlybasis.  Under these covenants, theCompany 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 domestic credit facilityagreement).  Certain of the covenantsunder the new credit facility become less restrictive or cease to be effectiveupon the Company receiving a Public Debt Rating of at least BBB- by S&P andBaa3 by Moody’s and such rating shall not be accompanied by, in the case ofS&P, a negative outlook, creditwatch negative or the equivalent thereof orin the case of Moody’s, a review for possible downgrade or the equivalentthereof.  In May 2006 and December 2006,amendments were made to the required interest coverage ratio for the quarterlyperiods June 30, 2006 through June 30, 2007, in response to higher than plannedMerger related expenses, higher anti-trust legal fees and weaker earnings.  In February 2007,further amendments were madeto the interest coverage ratio and leverage ratio for the quarterly periodsMarch 31, 2007 through September 30, 2007. The Company was in compliance with the covenants of its various debtagreements at December 31, 2006 and anticipates compliance throughout 2007.

# **Maturities**

AtDecember 31, 2006, the scheduled maturities of long-term debt during the nextfive fiscal years are: 2007 - $0; 2008 - $3.0 million; 2009 - $402.3 million;2010 - $0.8 million and 2011 - $0.3 million.

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#  

# **12) INCOME TAXES**

The components of earnings (loss)from continuing operations before income taxes and cumulative effect ofaccounting change, and the income tax provision (benefit) are as follows:
| ***(In thousands)***                            | ** ** | **2006**    | ** **   | **2005** | ** ** | **2004** | ** ** |
|------------------------------------------------------|------------|-------------|--------------|----------|------------|----------|------------|
| Pre-tax Earnings (Loss)  from Continuing Operations: | ** ** | ** **  |         |     |       |     |       |
| Domestic                                             | ** ** | **$**       | **(266,309** | **)**    | $          | (232,447 | )          | $ | (197,962 | ) |
| Foreign                                              | ** ** | **148,926** |         | 112,795  |       | 106,215  |       |
|                                                 | ** ** | **$**       | **(117,383** | **)**    | $          | (119,652 | )          | $ | (91,747 | ) |
|                                                 | ** ** | ** **  |         |     |       |     |       |
| Income Tax Provision  (Benefit):                     | ** ** | ** **  |         |     |       |     |       |
| Domestic                                             | ** ** | ** **  |         |     |       |     |       |
| Current                                              | ** ** | **$**       | **(5,026**   | **)**    | $          | 25,033   |       | $ | (35,332 | ) |
| Deferred                                             | ** ** | **93,202**  |         | (1,402   | )          | (36,514  | )          |
|                                                 | ** ** | **88,176**  |         | 23,631   |       | (71,846  | )          |
| Foreign                                              | ** ** | ** **  |         |     |       |     |       |
| Current                                              | ** ** | **43,205**  |         | 40,648   |       | 32,782   |       |
| Deferred                                             | ** ** | **4,244**   |         | 919      |       | (10,724  | )          |
|                                                 | ** ** | **47,449**  |         | 41,567   |       | 22,058   |       |
| Total                                                | ** ** | ** **  |         |     |       |     |       |
| Current                                              | ** ** | **38,179**  |         | 65,681   |       | (2,550   | )          |
| Deferred                                             | ** ** | **97,446**  |         | (483     | )          | (47,238  | )          |
|                                                 | ** ** | **$**       | **135,625**  |     | $          | 65,198   |       | $ | (49,788 | ) |

The (provision) benefit for incometaxes from continuing operations differs from the Federal statutory rate forthe following reasons:
| **(***In thousands)*                               | ** ** | **2006**   | ** ** | **2005** | ** ** | **2004** | ** ** |
|---------------------------------------------------------|------------|------------|------------|----------|------------|----------|------------|
| Income tax benefit at  statutory rate                   | ** ** | **35.0**   | **%**      | 35.0     | %          | 35.0     | %          |
| Antitrust legal  settlements                            | ** ** | **(12.6**  | **)%**     | (4.0     | )%         | (25.0    | )%         |
| Foreign income tax rate  differential                   | ** ** | **(3.6**   | **)%**     | (2.4     | )%         | 7.6      | %          |
| State income taxes, net  of federal benefit             | ** ** | **0.7**    | **%**      | 2.9      | %          | 8.8      | %          |
| Tax audit settlements                                   | ** ** | **—** |       | —   |       | 40.9     | %          |
| Impact of valuation  allowance                          | ** ** | **3.3**    | **%**      | (23.6    | )%         | (9.6     | )%         |
| Exclusions and foreign  income subject to U.S. taxation | ** ** | **(86.5**  | **)%**     | (44.2    | )%         | (9.0     | )%         |
| U.S. tax on foreign  earnings                           | ** ** | **(132.9** | **)%**     | —   |       | —   |       |
| In-process research and  development write-off          |       | —     |       | (21.4    | )%         | —   |       |
| Goodwill                                                | ** ** | **(18.9**  | **)%**     | —   |       | —   |       |
| Income tax credits                                      | ** ** | **101.5**  | **%**      | —   |       | —   |       |
| Other, net                                              | ** ** | **(1.5**   | **)%**     | 3.2      | %          | 5.6      | %          |
| Actual income tax (expense) benefit rate                | ** ** | **(115.5** | **)%**     | (54.5    | )%         | 54.3     | %          |

Provisions have been made for deferredtaxes based on differences between the financial statement and the tax basis ofassets and liabilities using currently enacted tax rates and regulations. Thecomponents of the deferred tax assets and liabilities are as follows:

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| ***(In thousands)***                                     | ** ** | **2006**     | ** **  | **2005** | ** ** |
|---------------------------------------------------------------|------------|--------------|-------------|----------|------------|
| Deferred tax  assets:                                         | ** ** | ** **   |        |     |       |
| Pension and other post-retirement liabilities                 | ** ** | **$**        | **168,145** |     | $          | 169,523 |   |
| Net operating loss carryforwards                              | ** ** | **179,472**  |        | 319,487  |       |
| Tax credit carryforwards                                      | ** ** | **109,687**  |        | 26,208   |       |
| Accruals for environmental remediation                        | ** ** | **37,791**   |        | 49,068   |       |
| Other accruals                                                | ** ** | **59,044**   |        | 57,752   |       |
| Inventories and other                                         | ** ** | **25,950**   |        | 34,288   |       |
| Deferred tax  liabilities:                                    | ** ** | ** **   |        |     |       |
| Intangibles                                                   | ** ** | **(135,122** | **)**       | (159,732 | )          |
| Property, plant and equipment                                 | ** ** | **(135,955** | **)**       | (146,438 | )          |
| Earn-out receivable                                           | ** ** | **(2,090**   | **)**       | (9,804   | )          |
| Foreign earnings of subsidiaries                              | ** ** | **(192,222** | **)**       | (35,167  | )          |
| Financial instruments                                         | ** ** | **(1,888**   | **)**       | (1,024   | )          |
| Other                                                         | ** ** | **(10,698**  | **)**       | (18,956  | )          |
| Net deferred tax  asset before valuation allowance            | ** ** | **102,114**  |        | 285,205  |       |
| Valuation  allowance                                          | ** ** | **(103,377** | **)**       | (105,685 | )          |
| Net deferred tax asset  (liability) after valuation allowance | ** ** | **$**        | **(1,263**  | **)**    | $          | 179,520 |   |

Net current and non-current deferredtaxes from each tax jurisdiction are included in the following accounts:
| ***(In thousands)***       | ** ** | **2006**     | ** **  | **2005** | ** ** |
|---------------------------------|------------|--------------|-------------|----------|------------|
| Net current  deferred taxes     | ** ** | ** **   |        |     |       |
| Other current assets            | ** ** | **$**        | **101,032** |     | $          | 61,893 |   |
| Other current liabilities       | ** ** | **(36,915**  | **)**       | (6,469   | )          |
| Net non-current  deferred taxes | ** ** | ** **   |        |     |       |
| Other assets                    | ** ** | **42,812**   |        | 156,082  |       |
| Other  liabilities              | ** ** | **(108,192** | **)**       | (31,986  | )          |
|                                 |            |              |             |          |            |  |  |

 

At December 31, 2006, theCompany had total federal, state, and foreign net operating losses (“NOL”)carryforwards of $245.3 million, $1,066.5 million, and $257.7 million,respectively.  The tax benefits of theseNOL’s have been offset by state and foreign valuation allowances of $43.5million and $22.9 million, respectively. Approximately $11.2 million and $17.2 million of certain state andforeign NOL tax benefits would be a reduction to goodwill if subsequently utilized.  The Company also has federal and state taxcredits of $107.7 million and $1.9 million, respectively, partially offset byvaluation allowances of $30.0 million and $0.7 million, respectively.  Approximately $18.0 million of certainfederal and foreign tax credit benefits would be a reduction to goodwill ifsubsequently realized.

The change in the valuation allowance of$2.3 million during 2006 was primarily due to realization of charitablecontributions carryforward and changes in net operating loss and tax creditcarryforwards.

AtDecember 31, 2005, the Company had total federal, state, and foreign netoperating losses (“NOL”) carryforwards of $510.8 million, $1,130.5 million, and$434.6 million, respectively.  The taxbenefits of these NOL’s have been offset by state and foreign valuationallowances of $46.0 million and $21.7 million, respectively.  Approximately $15.0 million and $16.9 millionof certain state and foreign NOL tax benefits would be a reduction to goodwillif subsequently utilized.  The Companyalso has federal and state tax credits of $25.3 million and $0.9 million,respectively, partially offset by valuation allowances of $22.2 million and$0.7 million, respectively. Approximately $14.4 million of certain federal and foreign tax creditbenefits would be a reduction to goodwill if subsequently realized.

The increase in the valuationallowance of $71.1 million during 2005 was primarily due to purchase accountingadjustments of $41.9 million, increases to domestic and foreign valuationallowances allocated to continuing operations of $25.6 million and $2.6million, respectively, and increases to domestic valuation allowances allocatedto discontinued operations of $1.0 million.

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Avaluation allowance has been provided for deferred tax assets where it is morelikely than not these assets will expire before the Company is able to realizetheir benefit.  Valuation allowances havebeen provided for state income taxes, state and foreign NOL’s, federal andstate income tax credits and other items that may expire beforerealization.  While realization is not assured, management believesthat it is more likely than not that the deferred tax assets, net of valuationallowance, will be realized.  State andforeign NOL’s and credits expire 2007-2026, federal credits expire 2008-2026,and federal NOL’s expire 2022-2026.

Although the Company is subject to NOLutilization limitations under Internal Revenue Code Section 382, suchlimitation did not result in the recording of any valuation allowance relatedto federal NOL carryovers as of December 31, 2006.

InJanuary of 2006, the Internal Revenue Service completed an examination of theCompany’s corporate income tax return for tax years 2002 and 2003.  The Internal Revenue Service is currentlyexamining the Company’s federal income tax return for the periods 2004 and2005.  Additionally, a federalexamination for Great Lakes Chemical Corporation is currently in process fortax years 2003 and 2004, as well as other numerous state and foreignexaminations for various subsidiaries of the Company for various taxyears.  Management believes that an adequateprovision has been made for any potential adjustments that might arise fromthese examinations.

Duringthe fourth quarter of 2004, the Company settled the examination of its federalincome tax returns for the tax years 1998 through 2001 with the InternalRevenue Service.   The Company recorded a$37.5 million tax benefit, primarily associated with that favorable settlement.

On October 22, 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 $458.9 million of foreign earnings, of which $364.9million were qualified dividends under the Act. The Company recorded additional income tax expense of $19.3 million and$33.8 million during the third and fourth quarters of 2005, respectivelyattributable to the amounts repatriated during 2005.

Tax expense for 2006includes a charge of $156 million relating to earnings of certain foreignsubsidiaries where the Company has recorded a deferred income tax liabilityassociated with the intent to repatriate 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 net deferredtax assets would have been required.

The Company also hasearnings of certain foreign subsidiaries where the Company considers theseearnings to be permanently reinvested in their operations.  As such, no US tax cost has been provided onapproximately $261 million of earnings at December 31, 2006.  Estimating the tax liability that would ariseif these earnings were repatriated is not practicable at this time.

In addition, the Companyhas not recognized a deferred tax liability for the difference between the bookbasis and the tax basis of the investments in the common stock of its foreignsubsidiaries.  Such differences relateprimarily to the unremitted earnings of both Witco’s and Great Lakes’ foreignsubsidiaries prior to their mergers with the Company.  The basis difference in subsidiaries ofWitco, acquired on September 1, 1999, is approximately $234.5 million and thebasis difference in subsidiaries of Great Lakes, acquired on July 1, 2005, isapproximately $322.3 million.  TheCompany does not expect these basis differences to be subject to tax in theUnited States as it is the Company’s present intention to permanently reinvestsuch foreign earnings.

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

Thecomputation of basic earnings (loss) per common share is based on theweighted-average number of common shares outstanding.  Diluted earnings (loss) per share is based onthe weighted-average number of common and common share equivalents outstanding.  The computation of diluted earnings (loss)per share equals the basic calculation since common stock equivalents wereantidilutive due to losses from continuing operations in each yearpresented.  Common stock equivalents (inthousands) amounted to 789 in 2006, 3,448 in 2005 and 442 in 2004.  The weighted average common sharesoutstanding are 240,486, 178,404 and 114,736 for the years ended December 31,2006, 2005 and 2004, respectively.  Therewas no impact during these periods for dilutive stock options or other equivalents.

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TheCompany’s outstanding stock options (in thousands) of 9,044 in 2006, 7,018 in2005 and 3,258 in 2004, were excluded from the calculation of diluted earningsper share because the exercise prices of the stock options were greater than orequal to the average price of the common shares, and therefore the inclusionwould have been antidilutive.  Theseoptions could be dilutive if the average share price increases and is greaterthan the exercise price of these options. Company performance-based restricted shares (in thousands) of 1,449 in2006, 419 in 2005 and none in 2004 were also excluded from the calculation ofdiluted earnings per share, because the specified performance criteria for thevesting of these shares has not yet been met. These restricted shares could be dilutive in the future if the specifiedperformance criteria are met.

# **14) CAPITAL STOCK**

The Company is authorized to issue500 million shares of $0.01 par value common stock.  There were 252,279,891 and 251,480,684 sharesissued at December 31, 2006 and 2005, respectively, of which 11,490,491 wereheld as treasury stock at December 31, 2006 and 2005.

TheCompany is authorized to issue 250,000 shares of preferred stock without parvalue, none of which are outstanding.  OnSeptember 3, 1999, the Company declared a dividend distribution of onePreferred Share Purchase Right (Rights) on each outstanding share of commonstock.  These Rights entitle stockholdersto purchase one one-hundredth of a share of a new series of junior participatingpreferred stock at an exercise price of $100. The Rights are only exercisable if a person or group acquires 15% ormore of the Company’s common stock or announces a tender offer which, ifsuccessful, would result in ownership of 15% or more of the Company’s commonstock.

OnJuly 1, 2005, in connection with the Merger, the Company issued 127,624,964common shares and acquired 11,490,491 shares of the Company’s stock owned by aformer Great Lakes subsidiary, which are accounted for by the Company astreasury shares.

**15)ACCUMULATED OTHER COMPREHENSIVE LOSS**

Componentsof accumulated other comprehensive loss is as follows:
| **(***In thousands)*                                                  | ** ** | **2006**     | ** **  | **2005** | ** ** |
|----------------------------------------------------------------------------|------------|--------------|-------------|----------|------------|
| Foreign currency  translation adjustment (net of tax)                      | ** ** | **$**        | **106,599** |     | $          | (666 | ) |
| Unrecognized  pension and other post retirement benefit costs (net of tax) | ** ** | **(133,873** | **)**       | (145,803 | )          |
| Change in fair  value of derivatives (net of tax)                          | ** ** | **(6,756**   | **)**       | 5,464    |       |
| Other                                                                      | ** ** | **23**       |        | (47      | )          |
| Accumulated other  comprehensive loss                                      | ** ** | **$**        | **(34,007** | **)**    | $          | (141,052 | ) |

The Company reclassified $8.7million, $1.8 million and $0.4 million from other comprehensive loss toearnings related to its natural gas price swap contracts during 2006, 2005 and2004, respectively.  In addition, duringthe fourth quarter of 2005, the Company reclassified $28 million fromcomprehensive loss to gain on sale of discontinued operations due to theelimination of the cumulative currency translation adjustment resulting fromthe liquidation of a foreign subsidiary engaged in the Refined Productsbusiness.

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# **16) STOCK INCENTIVE PLANS**

The Company uses variousemployee stock-based compensation plans. Awards under these plans are granted to eligible officers, managementemployees and non-employee directors. Awards may be made in the form of incentive stock options, non-qualifiedstock options, stock appreciation rights and restricted stock.  The Company plans to issue any shares relatedto the exercise of stock options or vested restricted stock under these plansby issuing additional shares of common stock.

*Descriptionof the Plans*

The1988 Long-Term Incentive Plan (1988 Plan), as amended, authorized the Board ofDirectors (Board) to grant stock options, stock appreciation rights, restrictedstock and long-term performance awards covering up to 10 million shares to theofficers and other key employees of the Company****overa period of ten years through October 1998. Non-qualified and incentive stock options were granted under the 1988plan at prices equal to the fair market value of the underlying common shareson the date of the grant.  Alloutstanding options will expire not more than ten years and one month from thedate of grant.

The1993 Stock Option Plan for Non-Employee Directors, as amended in 1996 (1993Stock Option Plan), authorized 200,000 options to be granted to non-employeedirectors.  The options vest over a two-yearperiod and are exercisable over a ten-year period from the date of grant, at aprice equal to the fair market value of the underlying common shares on thedate of grant.

The1998 Long-Term Incentive Plan (1998 Plan) was approved by the Company’s shareholdersin 1999.  This plan authorizes the Boardto grant stock options, stock appreciation rights, restricted stock andlong-term performance awards to eligible employees and non-qualified stockoptions to non-employee directors over a ten-year period.  During 2006, 2005 and 2004, non-qualified andincentive stock options were granted under the 1998 Plan at prices equal to thefair market value of the underlying common shares on the date of grant.  All outstanding options will expire not morethan ten years and one month from the date of grant.  The 1998 Plan authorizes the Company to grantshares and options for shares of common stock equal to the sum of (i) theshares available for award under the 1988 Plan and the 1993 Stock Option PlanFor Non-Employee Directors as of October 18, 1998 and (ii) the shares awardedunder prior plans of the Company which were forfeited, expired, lapsed, notearned or tendered to pay the exercise price of options or withholdingtaxes.  In 1999, the number of commonshares reserved for issuance under the 1998 plan was increased by 2.8 millionshares and, pursuant to the merger with Witco, increased by an additional 5million shares.  Under the terms of themerger with Witco, the shareholders also approved the conversion of all outstandingWitco options into options to purchase the Company’s common stock.  These 4.7 million converted options expired30 days after the merger with Witco and became available for grant under the1998 Plan.

InOctober 2001, the Board of Directors approved the 2001 Employee Stock OptionPlan (2001 Plan).  The 2001 Planauthorizes the Board to grant up to one million non-qualified stock options tokey non-officer employees.  Options underthe 2001 plan will be granted at prices equal to the fair market value of theunderlying common shares on the date of grant and will expire not more than 10years and one month from the date of grant. During 2005 and 2004, non-qualifiedstock options were granted under the 2001 Plan at prices equal to thefair market value of the underlying common shares on the date of grant.

In April 2006, theCompany’s shareholders approved the 2006 Chemtura Corporation Long-TermIncentive Plan (2006 Plan). The 2006 Plan permits the grant of various forms ofstock-based compensation awards, including stock options, restricted stock,stock appreciation rights and performance awards. The 2006 Plan provides forthe issuance of a maximum of 10.5 million shares, with shares granted under the2006 Plan pursuant to awards other than stock options and stock appreciationrights limited to one-third of the total maximum number of shares available foraward under the 2006 Plan.  Non-qualifiedand incentive stock options may be granted under the 2006 plan at prices equalto the fair market value of the underlying common shares on the date of thegrant.  All outstanding options willexpire not more than ten years from the date of the grant.  With the approval of the 2006 Plan, all otherChemtura stock plans that authorized employees or Non-Employee Directors toreceive stock grants were closed to all future new grants.

In accordance with theterms of the Merger, all unvested Great Lakes options as of the merger datewere immediately vested and all of the outstanding options were converted intooptions to purchase the Company’s common stock.

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*Adoption ofFASB 123(R)*

Effective January 1,2006, the Company adopted FASB 123(R) using the modified prospective method.Under the modified prospective method, the compensation cost for all new awardsand awards modified, repurchased or cancelled after the date of adoption ofthis Statement, 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.

Total stock-basedcompensation expense, including amounts for restricted stock and options, was$13.7 million for the year ended December 31, 2006, and is presented withinSG&A.  Included within the totalstock-based compensation is $8.8 million ($5.6 million after tax and $0.02 perbasic and diluted earnings per share) for the year ended December 31, 2006 ofincremental compensation expense that represents the effect of the Company’sJanuary 1, 2006 adoption of FASB 123(R), primarily for the Company’s stock optionprogram.

Compensation expenserelated to stock options has been allocated 50% to the corporate segment and50% to the Company’s operating segments. All other stock-based compensation expense is recorded in the corporatesegment.

*Stock Option Plans*

In January2003, the Board of Directors approved the grant of options covering 1,270,458shares at the fair market value of the underlying common stock at the date ofgrant.  In October 2003, the Board ofDirectors approved the grant of options covering 898,000 shares at the fairmarket value of the underlying common stock at the date of grant.  These options will vest over a three-yearperiod.

Inconnection with the employment of the Company’s new President and ChiefExecutive Officer in January 2004, the Board of Directors approved anemployment contract authorizing the grant of options covering 500,000 shares,at the fair market value of the underlying common stock at the date ofgrant.  The options will vest ratably overa two-year period.

InNovember 2004, the Board of Directors approved the grant of options covering868,700 shares at the fair market value of the underlying common stock at thedate of grant.  These options will vestratably over a three-year period.

In February 2005, theBoard of Directors also approved the grant of options covering 1,272,000 sharesat the fair market value of the underlying common stock at the date ofgrant.  These options will vest ratablyover a three-year period.

In January 2006, theBoard of Directors granted merger integration awards consisting of optionscovering 211,800 shares of common stock. The stock options will vest ratablyover a three-year period.

In March 2006, the Boardof Directors also approved the grant of options covering 1,926,800 shares atthe fair market value of the underlying common stock at the date of grant,including options covering 220,000 shares related to Merger integration.  These options will vest ratably over athree-year period.

The Company uses theBlack-Scholes option-pricing model to determine the compensation expenserelated to stock options.  The Companyhas elected to recognize compensation cost for option awards granted equallyover the requisite service period for each separately vesting tranche, as ifmultiple awards were granted.  Using thismethod, the weighted average fair value of stock options granted during theyears ended December 31, 2006, 2005 and 2004 was $4.85, $6.32 and $5.03,respectively.  The Black-Scholesoption-pricing model requires the use of various assumptions.  The following table presents the weightedaverage assumptions used:

 
| ** **               | ** ** | **Year Ended December 31,** | ** ** |
|--------------------------|------------|--------------------------------------------|------------|
| ** **               | ** ** | **2006**                                   | ** ** | **2005** | ** ** | **2004** | ** ** |
| Dividend yield           | ** ** | **1.8**                                    | **%**      | 1.2 | % | 2.0 | % |
| Expected  volatility     | ** ** | **49**                                     | **%**      | 49 | % | 55 | % |
| Risk-free  interest rate | ** ** | **4.8**                                    | **%**      | 4.1 | % | 4.1 | % |
| Expected life (in years) | ** ** | **6**                                      |       | 7 |   | 8 |   |

 

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The weighted averageexpected life for the 2006 grants of six years reflects the alternativesimplified method permitted by SAB 107, which defines the expected life as theaverage of the contractual term of the options and the weighted average vestingperiod for all option tranches. Expected volatility for the 2006 option grantsis based primarily on historical volatility over the six years prior to theoption grant date.  Currently the Companyhas no expectation that the expected volatility is likely to differ from itshistorical volatility.

Changes during 2006, 2005 and 2004 inshares under option are summarized as follows:
| ** **                   | ** ** | ** **                    | ** **     | ** **  | ** ** | ** **      | ** ** | **Weighted**   | ** **   | ** **               | ** **   |
|------------------------------|------------|-------------------------------|----------------|-------------|------------|-----------------|------------|----------------|--------------|--------------------------|--------------|
| ** **                   | ** ** | ** **                    | ** **     | ** **  | ** ** | ** **      | ** ** | **Average**    | ** **   | **Aggregate**            | ** **   |
| ** **                   | ** ** | ** **                    | ** **     | ** **  | ** ** | ** **      | ** ** | **Remaining**  | ** **   | **Intrinsic**            | ** **   |
| ** **                   | ** ** | **Price Per Share** | ** **     | ** **  | ** ** | **Contractual** | ** ** | **Value**      | ** **   |
| ** **                   | ** ** | **Range**                     | ** **     | **Average** | ** ** | **Shares**      | ** ** | **Life**       | *** *** | ***(in millions)*** | *** *** |
| Outstanding at  01/01/04     |       | 5.85-26.41                    |           | 10.07       |       | 13,788,092      |       |           |         |                     |         |
| Granted                      |       | 7.64-11.24                    |           | 9.91        |       | 1,375,571       |       |           |         |                     |         |
| Exercised                    |       | 5.85-8.34                     |           | 7.53        |       | (867,007        | )          |           |         | $                        | 2.8          |   |
| Lapsed                       |       | 5.85-26.41                    |           | 12.21       |       | (1,064,758      | )          |           |         |                     |         |
| Outstanding at  12/31/04     |       | 5.85-26.41                    |           | 10.05       |       | 13,231,898      |       | 6.3            |         | 38.0                     |         |
| Granted                      |       | 12.92-17.80                   |           | 12.95       |       | 1,279,500       |       |           |         |                     |         |
| Converted                    |       | 9.29-29.94                    |           | 14.41       |       | 8,130,159       |       |           |         |                     |         |
| Exercised                    |       | 5.85-16.69                    |           | 10.74       |       | (7,050,765      | )          |           |         | 29.1                     |         |
| Lapsed                       |       | 5.85-29.94                    |           | 14.00       |       | (260,836        | )          |           |         |                     |         |
| Outstanding at  12/31/05     |       | 5.85-29.94                    |           | 12.22       |       | 15,329,956      |       | 5.4            |         | 36.8                     |         |
| Granted                      |       | 8.65-12.46                    |           | 10.90       |       | 2,154,600       |       |           |         |                     |         |
| Exercised                    |       | 5.85-12.43                    |           | 8.05        |       | (459,669        | )          |           |         | 1.5                      |         |
| Lapsed                       |       | 5.85-29.94                    |           | 15.50       |       | (1,790,099      | )          |           |         |                     |         |
| **Outstanding  at 12/31/06** | ** ** | **$**                         | **5.85-26.41** | ** **  | **$**      | **11.77**       | ** ** | **15,234,788** | ** **   | **5.1**                  |         | **$** | **12.4** | ** ** |
|                         |       |                          |           |        |       |            |       |           |         |                     |         |
|                         |       |                          |           |        |       |            |       |           |         |                     |         |
| Exercisable at  12/31/04     |       | $                             | 5.85-26.41     |        | $          | 10.31           |       | 11,143,051     |         |                     |         |   |   |
| Exercisable at  12/31/05     |       | $                             | 5.85-29.94     |        | $          | 12.35           |       | 13,144,213     |         |                     |         |   |   |
| **Exercisable at 12/31/06**  | ** ** | **$**                         | **5.85-26.41** | ** **  | **$**      | **11.86**       | ** ** | **12,323,920** | ** **   | **4.2**                  |         | **$** | **12.3** | ** ** |

 

Shares available for grant at year-end 2006 and 2005 were 10,480,500 and4,571,837, respectively.

Total remainingunrecognized compensation cost associated with unvested stock options atDecember 31, 2006 was $6.3 million, which will be recognized over the weightedaverage period of approximately one year.

The following table summarizes information concerning currentlyoutstanding and exercisable options:
| **Range of  Exercise  Prices** | ** ** | **Number  Outstanding  at End of  2006** | ** ** | **Weighted  Average  Remaining  Contractual  Life** | ** ** | **Weighted  Average  Exercise  Price** | ** ** | **Number  Exercisable  at End of  2006** | ** ** | **Weighted  Average  Exercise Price** | ** ** |
|-------------------------------------|------------|----------------------------------------------------|------------|-----------------------------------------------------|------------|----------------------------------------|------------|----------------------------------------------------|------------|--------------------------------------------|------------|
| $5.85-7.25                          |       | 1,998,717                                          |       | 6.2                                                 |       | 6.55                                   |       | 1,998,717                                          |       | 6.55                                       |       |
| $7.64-8.34                          |       | 4,174,580                                          |       | 4.1                                                 |       | 8.12                                   |       | 4,174,580                                          |       | 8.12                                       |       |
| $8.65-11.58                         |       | 3,387,767                                          |       | 8.4                                                 |       | 10.79                                  |       | 1,349,190                                          |       | 10.81                                      |       |
| $11.91-14.91                        |       | 2,643,409                                          |       | 5.7                                                 |       | 13.63                                  |       | 1,776,118                                          |       | 14.02                                      |       |
| $15.12-19.91                        |       | 2,348,692                                          |       | 1.5                                                 |       | 18.20                                  |       | 2,343,692                                          |       | 18.20                                      |       |
| $21.74-26.41                        |       | 681,623                                            |       | 1.4                                                 |       | 24.89                                  |       | 681,623                                            |       | 24.89                                      |       |
|                                |       | 15,234,788                                         |       | 5.1                                                 |       | $                                      | 11.77      |                                               | 12,323,920 |                                       | $          | 11.86 |   |
|                                     |            |                                                    |            |                                                     |            |                                        |            |                                                    |            |                                            |            |  |  |

 

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*RestrictedStock Plans*

In January 2004, the Board ofDirectors granted long-term incentive awards in the amount of 630,000 shares ofrestricted stock, which will vest ratably over a three-year period (whichincludes 200,000 shares approved in connection with the employment of theCompany’s new President and Chief Executive Officer). In May 2004, the Board ofDirectors granted a long-term incentive award in amount of 25,000 shares ofrestricted stock, which will vest over a three-year period.

In November 2004, the Board of Directors granted long-term incentiveawards in the amount of 280,800 shares of restricted stock.  Of this grant, 171,800 will vest three and ahalf years from the date of grant, 54,500 shares will vest four years from thegrant date and 54,500 shares will vest five years from the grant date.

In February 2005, theBoard of Directors granted long-term incentive awards in the amount of 162,500shares of restricted stock, which will vest three and a half years from thedate of grant. Also in February 2005, the Board approved a grant of long-termincentive awards of restricted stock which carries a market conditionrequirement.  These shares will vestbased on the achievement of specified stock price appreciation milestones,which represents a market condition, over a three-year period commencingDecember 31, 2004.  This grant was for262,400 shares of restricted stock.  Theplan also includes a provision for the grant of an additional 262,400 shares,for a maximum payout of 524,800 shares of restricted stock, to be issued if themaximum level of specified stock appreciation is attained.  Shares are scheduled to vest when aparticular milestone (based on the closing price of the Company’s common stockon the New York Stock Exchange) is reached and maintained for ten consecutivetrading days.  Share awards formilestones achieved during 2005 and 2006 vested and were paid out on February1, 2007.  Share awards for milestonesachieved during 2007 will become vested and be paid out on February 1, 2008.

In January and July of2005, the Board granted 36,312 and 11,025 shares, respectively, to newlyappointed members of the Board.  Theseshares will vest in full upon retirement from the Chemtura Board ofDirectors.  Additionally, in September2005, the Board granted 20,000 shares of restricted stock which will vest infull two years from the date of grant.

In January 2006, theBoard granted merger integration awards consisting of long-term incentiveawards in the amount of 70,600 shares of restricted stock which will vestratably on the first and second anniversary of the grants.

In March 2006, the Boardapproved 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 572,400 shares of restricted stock.  The plan also includes a provision for thegrant of an additional 572,400 shares, for a maximum payout of 1,144,800 sharesof restricted stock, to be issued if the maximum level of specified stockappreciation is attained.  Shares arescheduled to vest when a particular milestone (based on the closing price ofthe Company’s common stock on the New York Stock Exchange) is reached andmaintained for fifteen consecutive trading days.  Share awards for milestones achieved during2006 and 2007 will vest and be paid out on February 1, 2008.  Share awards for milestones achieved during2008 will become vested and be paid out on February 1, 2009.

Additionally, in Januaryand February 2006, grants of 61,400 and 7,500 shares, respectively, ofrestricted stock that do not contain market condition requirements wereapproved.  The grant of 61,400 shares tonon-employee directors vests upon retirement from the Chemtura Board ofDirectors, while the grant of 7,500 shares vests half in 2008 and half in 2010.

In May and June 2006,grants of 1,000 and 2,500 shares, respectively, of restricted stock that do notcontain market condition requirements were approved.  The grants vest in 2009 and 2008,respectively.

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.

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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, 2006, 2005 and 2004 is as follows:

 
| ** **                                               | ** ** | ** **    | ** ** | **Weighted**        | ** ** | ** **             | ** ** |
|----------------------------------------------------------|------------|---------------|------------|---------------------|------------|------------------------|------------|
| ** **                                               | ** ** | ** **    | ** ** | **Average**         | ** ** | **Aggregate**          | ** ** |
| ** **                                               | ** ** | ** **    | ** ** | **Grant Date** | ** ** | **Fair Value**    | ** ** |
| ** **                                               | ** ** | **Shares**    | ** ** | **Fair Value** | ** ** | **(in millions)** | ** ** |
| Restricted  unvested stock awards, January 1, 2004       |       | 557,358       |       | 12.15               |       |                   |       |
| Granted                                                  |       | 935,800       |       | 8.80                |       |                   |       |
| Dividends                                                |       | 20,388        |       |                |       |                   |       |
| Vested                                                   |       | (138,390      | )          | 13.13               |       | $                      | 1.8        |   |
| Canceled or  expired                                     |       | (401,000      | )          | 11.50               |       |                   |       |
| Restricted  unvested stock awards, December 31, 2004     |       | 974,156       |       | 8.99                |       | 11.5                   |       |
| Granted                                                  |       | 799,651       |       | 12.93               |       |                   |       |
| Dividends                                                |       | 12,718        |       |                |       |                   |       |
| Vested                                                   |       | (280,231      | )          | 8.44                |       | 2.4                    |       |
| Canceled or  expired                                     |       | (43,834       | )          | 12.06               |       |                   |       |
| Restricted  unvested stock awards, December 31, 2005     |       | 1,462,460     |       | 11.20               |       | 18.6                   |       |
| Granted                                                  |       | 1,287,800     |       | 5.99                |       |                   |       |
| Dividends                                                |       | 17,534        |       |                |       |                   |       |
| Vested                                                   |       | (262,566      | )          | 9.00                |       | 2.4                    |       |
| Canceled or  expired                                     |       | (173,815      | )          | 9.85                |       |                   |       |
| **Restricted unvested stock  awards, December 31, 2006** | ** ** | **2,331,413** | ** ** | **$**               | **8.70**   | ** **             | **$**      | **22.5** | ** ** |
|                                                          |            |               |            |                     |            |                        |            |  |  |

 

Total remainingunrecognized compensation cost associated with unvested restricted stock awardsat December 31, 2006 was $5.1 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, 2006 as the Company’s taxableincome has been offset by net operating loss carry forwards and foreign taxcredits. Cash proceeds received from option exercises during the years endedDecember 31, 2006, 2005 and 2004 were $3.4 million, $75.3 million and $6.5million, respectively.

UntilDecember 31, 2005, the Company had an Employee Stock Ownership Plan, offered toeligible employees of the Company and certain of its subsidiaries.  The Company made contributions equivalent toa stated percentage of employee contributions. The Company’s contributions were $1.7 million in 2005 and $2.6 millionin 2004.

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 $25,000. As of December 31, 2006, 1,215,280 shares of common stock are availablefor future issuance under this plan.

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

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

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.

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 inactive government-relatedplans.

In2005, the Company changed the measurement date for its defined benefit pensionplans and other post-retirement benefit plans from December 31 to November30.  The Company believes the change ispreferable because it provides management additional time to review and reflectthe actuarial information in the Company’s consolidated financial statementsunder the Securities and Exchange Commission’s accelerated filingdeadlines.  As a result, year-end valuesfor 2006 and 2005 included in this footnote are presented as of November30.  The effect of the change inmeasurement date on the retirement and post-retirement benefit plan expense oraccrued/prepaid benefit cost was not material to the consolidated financialstatements.

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 $59.1 million, before tax ($39.8 million, net of taxes). The Company will adopt the change to the December 31 measurement date in 2008.

 

The following table illustrates the incremental increase (decrease) ofapplying SFAS 158 on individual items on

the Company’s Consolidated Balance Sheet at December 31, 2006:

 
| ** **                            | ** ** | **Prior to  Statement  No. 158   Adoption** | ** ** | **Impact of  Statement  No. 158  Adoption** | ** ** | **Balance  Statement   No. 158  Adoption** | ** ** |
|---------------------------------------|------------|------------------------------------------------------------|------------|-------------------------------------------------------|------------|------------------------------------------------------|------------|
| *(In  thousands)*                     | ** ** | ** **                                                 |       |                                                  | ** ** | ** **                                           | ** ** |
| Intangible  assets                    | ** ** | **$**                                                      | **4,461**  | ** **                                            | **$**      | (4,461                                               | )          | **$** | **—** | ** ** |
| Noncurrent  assets                    | ** ** | **6,504**                                                  |       | 3,176                                                 | ** ** | **9,680**                                            | ** ** |
| Pension  liabilities                  | ** ** | **242,205**                                                |       | 51,374                                                | ** ** | **293,579**                                          | ** ** |
| Post-retirement  benefit liabilities  | ** ** | **163,523**                                                |       | 6,649                                                 | ** ** | **170,172**                                          | ** ** |
| Accumulated other  comprehensive loss | ** ** | **(152,940**                                               | **)**      | (59,141                                               | )          | **(212,081**                                         | **)**      |
|                                       |            |                                                            |            |                                                       |            |                                                      |            |  |  |  |

 

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 have been included for the first time in the pension and post-retirement expense for the year ended December 31, 2006.

98

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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.

**Benefit Obligations**
| ** **                                                                     | ** ** | **Defined Benefit Plans** | ** **  | ** **                   | ** ** | ** **                      | ** ** |
|--------------------------------------------------------------------------------|------------|-------------------------------------|-------------|------------------------------|------------|---------------------------------|------------|
| ** **                                                                     | ** ** | **Qualified**                       | ** **  | **International and**   | ** ** | **Post-Retirement**             | ** ** |
| ** **                                                                     | ** ** | **Domestic Plans**             | ** **  | **Non-Qualified Plans** | ** ** | **Health Care Plans** | ** ** |
| **(In thousands)**                                                        | ** ** | ** **                          | ** **  | **2006**                     | ** ** | **2005**                        | ** ** | **2006** | ** ** | **2005** | ** ** | **2006** | ** ** | **2005** | ** ** |
| Change in projected  benefit obligation:                                       | ** ** | ** **                          |        |                         | ** ** | ** **                      |       |   | ** ** | ** ** |   |   |   |
| Projected benefit  obligation at beginning of year                             | ** ** | **$**                               | **850,512** |                         | $          | 685,476                         | ** ** | **$** | **409,780** |   | $ | 308,332 | ** ** | **$** | **184,413** |   | $ | 228,081 |   |
| Adjustment for  measurement date change                                        | ** ** | **—**                          |        | (5,097                       | )          | **—**                      |       | (2,367 | ) | **—** |   | (1,141 | ) |
| Service cost                                                                   | ** ** | **1,398**                           |        | 8,157                        | ** ** | **6,331**                       |       | 6,534 | ** ** | **1,131** |   | 1,222 |   |
| Interest cost                                                                  | ** ** | **46,072**                          |        | 43,997                       | ** ** | **21,536**                      |       | 16,821 | ** ** | **10,657** |   | 12,453 |   |
| Plan participants’  contributions                                         | ** ** | **—**                          |        | —                       | ** ** | **1,608**                       |       | 1,238 | ** ** | **1,503** |   | 2,259 |   |
| Plan amendments                                                                | ** ** | **1,749**                           | (a)         | —                       |       | **—**                      | ** ** | (4,907 | ) | **—** | ** ** | (53,648 | ) |
| Actuarial (gains)  losses                                                      | ** ** | **(12,200**                         | **)**       | (2,697                       | )          | **40,496**                      |       | 12,547 | ** ** | **18,271** |   | 23,281 |   |
| Foreign currency  exchange rate changes                                        | ** ** | **—**                          |        | —                       | ** ** | **47,982**                      |       | (34,106 | ) | **188** |   | 224 |   |
| Acquisitions                                                                   | ** ** | **—**                          |        | 203,186                      | ** ** | **7,179**                       |       | 193,097 | ** ** | **1,337** |   | — |   |
| Benefits paid                                                                  | ** ** | **(55,441**                         | **)**       | (47,558                      | )          | **(16,333**                     | **)**      | (11,560 | ) | **(24,047** | **)** | (23,877 | ) |
| Reclassification of  liabilities                                               | ** ** | **—**                          |        | —                       | ** ** | **—**                      |       | (3,014 | ) | **—** |   | (4,441 | ) |
| Curtailments                                                                   | ** ** | **(274**                            | **)**(b)    | —                       |       | **(82**                         | **)**      | (13,048 | )(c) | **(1,481** | ) | — | ** ** |
| Curtailment of plan  freeze                                                    | ** ** | **—**                          |        | (34,952                      | )(g)       | —                          | ** ** | **—** |   | — | ** ** | **—** |   |
| Settlements                                                                    | ** ** | **—**                          |        | —                       | ** ** | **(2,928**                      | )(d)       | (60,371 | )(e) | **—** |   | **—** | ** ** |
| Newly disclosed                                                                | ** ** | **—**                          |        | —                       | ** ** | **7,938**                       | (f)        | — |   | — | ** ** | **—** |   |
| Special termination  benefits                                                  | ** ** | **—**                          |        | —                       | ** ** | **—**                      |       | 584 |   | — |   | — |   |
| Projected benefit  obligation at end of year                                   | ** ** | **$**                               | **831,816** |                         | $          | 850,512                         | ** ** | **$** | **523,507** |   | $ | 409,780 | ** ** | **$** | **191,972** |   | $ | 184,413 |   |
|                                                                           | ** ** | ** **                          |        |                         |       |                            |       |   |   |   |   |   |   |
| Accumulated benefit  obligation at end of year                                 | ** ** | **$**                               | **828,256** |                         | $          | 848,013                         | ** ** | **$** | **473,572** |   | $ | 380,964 | ** ** | ** ** |   |   |   |
|                                                                           | ** ** | ** **                          |        |                         |       |                            |       |   |   |   |   |   |   |
| Weighted-average  year-end assumptions used to determine benefit obligations:  | ** ** | ** **                          |        |                         |       |                            |       |   |   |   |   |   |   |
|  Discount rate                                                            | ** ** | **5.63**                            | **%**       | 5.75                         | %          | **4.74**                        | **%**      | 4.92 | % | **5.54** | **%** | 5.68 | % |
|  Rate of compensation increase                                            | ** ** | **4.00**                            | **%**       | 4.00                         | %          | **3.50**                        | **%**      | 3.35 | % | **—** |   | — |   |
|  Rate of increase in the per  capita cost of covered health care benefits | ** ** | **—**                          |        | —                       | ** ** | **—**                      |       | — | ** ** | **9.08** | **%** | 9.43 | % |
|                                                                                |            |                                     |             |                              |            |                                 |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

----

 

(a)   During 2006,the Company agreed to change the nature of the early retirement provisions forcertain former employees of OSI Specialties, Inc. who became employed byGeneral Electric company as a result of the sale of the OSI Specialtiesbusiness to General Electric.

(b)   A curtailment for the Qualified plans wasincurred due to the elimination of benefits for certain unionized employees ofthe Perth Amboy plans.

(c)   A curtailment for the International planswas incurred primarily due to the elimination of retirement benefits for activeemployees as a result of the sale of the Company’s Refined products business inthe Netherlands.

(d)   Represents lump sum payments made under thesupplemental executive retirement programs.

(e)   2005 settlements of the Non-Qualified andInternational plans included $9.7 million related to lump sum payments madeunder the supplemental executive retirement programs and $50.6 millionresulting form the sale of the Refined Products business in the Netherlands.

(f)    Disclosedobligations include $4.0 million for Chemtura Italy, which was previouslyaccounted for under local statutory GAAP, and $3.9 million for ChemturaSwitzerland, which was previously accounted for as a defined contribution plan.

(g)   The 2005 curtailment was the result of thedecision to eliminate future earnings benefit to participants of the domesticdefined benefit plans for non-bargained employees as of January 1, 2006.

A9.08% 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, 2006.  Therate was assumed to decrease gradually to a weighted average rate of 4.99% overapproximately the next 5 years.  Assumedhealth care cost trend rates have a significant effect on the post-retirementbenefit 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 $12.1 million for health care benefits as of December 31,2006.  A one percentage point decrease inassumed health care cost trend rates would decrease the accumulatedpost-retirement benefit obligation by $10.1 million for health care benefits asof December 31, 2006.

99

----

 

**Plan Assets**
| ** **                                     | ** ** | **Defined Benefit Plans** | ** **  | ** **                   | ** ** | ** **                      | ** ** |
|------------------------------------------------|------------|-------------------------------------|-------------|------------------------------|------------|---------------------------------|------------|
| ** **                                     | ** ** | **Qualified**                       | ** **  | **International and**   | ** ** | **Post-Retirement**             | ** ** |
| ** **                                     | ** ** | **Domestic Plans**             | ** **  | **Non-Qualified Plans** | ** ** | **Health Care Plans** | ** ** |
| **(In thousands)**                        | ** ** | ** **                          | ** **  | **2006**                     | ** ** | **2005**                        | ** ** | **2006** | ** ** | **2005** | ** ** | **2006** | ** ** | **2005** | ** ** |
| Change in plan assets:                         | ** ** | ** **                          | ** **  | ** **                   | ** ** | ** **                      | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Fair value of plan assets at beginning of year | ** ** | **$**                               | **710,550** |                         | $          | 536,732                         | ** ** | **$** | **215,791** |   | $ | 113,440 | ** ** | **$** | **28,951** |   | $ | 30,238 |   |
| Adjustment for measurement date change         | ** ** | **—**                          |        | (5,139                       | )          | **—**                      |       | (1,211 | ) | **—** |   | (198 | ) |
| Actual return on plan assets                   | ** ** | **90,468**                          |        | 46,125                       | ** ** | **25,021**                      |       | 24,088 | ** ** | **2,884** |   | 1,544 |   |
| Foreign currency exchange rate changes         | ** ** | **—**                          |        | —                       | ** ** | **26,442**                      |       | (14,568 | ) | **—** |   | — |   |
| Employer contributions                         | ** ** | **40,000**                          |        | 31,531                       | ** ** | **23,122**                      |       | 21,280 | ** ** | **20,067** |   | 18,985 |   |
| Plan participants’ contributions          | ** ** | **—**                          |        | —                       | ** ** | **1,608**                       |       | 1,238 | ** ** | **1,503** |   | 2,259 |   |
| Acquisitions                                   | ** ** | **—**                          |        | 148,859                      | ** ** | **—**                      |       | 143,455 | ** ** | **—** |   | — |   |
| Asset transfer                                 | ** ** | **(600**                            | **)**(d)    | —                       |       | —                          | ** ** | **—** |   | — | ** ** | **—** |   |
| Newly disclosed                                | ** ** | **—**                          |        | —                       | ** ** | **3,475**                       | (a)        | — |   | — | ** ** | **—** |   |
| Benefits paid                                  | ** ** | **(55,441**                         | **)**       | (47,558                      | )          | **(16,333**                     | **)**      | (11,560 | ) | **(24,047** | **)** | (23,877 | ) |
| Settlements                                    | ** ** | **—**                          |        | —                       | ** ** | **(2,928**                      | **)**(b)   | (60,371 | )(c) | **—** |   | — | ** ** |
| Fair value of plan  assets at end of year      | ** ** | **$**                               | **784,977** |                         | $          | 710,550                         | ** ** | **$** | **276,198** |   | $ | 215,791 | ** ** | **$** | **29,358** |   | $ | 28,951 |   |
|                                                |            |                                     |             |                              |            |                                 |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

 

**(a)**  Disclosed plan assets represent assets for ChemturaSwitzerland plan which was previously accounted for as a defined contributionplan.

**(b)  Represents lump sum payments made under thesupplemental executive retirement programs.**

(c)  2005Settlements of the Non-Qualified and International plans included $9.7 millionrelated to lump sum payments made under the supplemental executive retirementprograms and $50.6 million resulting from the sale of the Refined Productsbusiness in the Netherlands.

(d)  Following a transaction between Great LakesChemicals Corporation and FMC Corporation in 1999, benefit payments in respectof certain retirees were paid by the FMC pension trust after the transactiondate, should have been paid by the Great Lakes pension trust.  Adjustment was made to the year-end assets toreflect the approximate value of a reimbursement of these payments.

**The assetallocation for the Company’s pension plans at the end of 2006 and 2005 and thetarget allocation for 2007 by asset category are as follows:**
| ** **               | ** ** | **Target Allocation - 2007** | ** ** | **Percentage of Plan Assets at November 30,** | ** ** |
|--------------------------|------------|---------------------------------------------|------------|-----------------------------------------------------------------------------|------------|
| ** **               | ** ** | **Qualified  Domestic **               | ** ** | **International  and Non-  Qualified **                           | ** ** | **Qualified  Domestic Plans** | ** ** | **International and  Non-Qualified Plans** | ** ** |
| **Asset Category:** | ** ** | ** **                                  | ** ** | **Plans**                                                                   | ** ** | **Plans** | ** ** | **2006** | ** ** | **2005** | ** ** | **2006** | ** ** | **2005** | ** ** |
| Equity securities        |       | 58                                          | %          | 64                                                                          | %          | **59** | **%** | 67 | % | **65** | **%** | 68 | % |
| Fixed income  securities |       | 42                                          | %          | 27                                                                          | %          | **40** | **%** | 33 | % | **25** | **%** | 24 | % |
| Other                    | ** ** | **—**                                  |       | 9                                                                           | %          | **1** | **%** | — | ** ** | **10** | **%** | 8 | % |
| Total                    |       | 100                                         | %          | 100                                                                         | %          | **100** | **%** | 100 | % | **100** | **%** | 100 | % |
|                          |            |                                             |            |                                                                             |            |  |  |  |  |  |  |  |  |  |  |

**Equitysecurities include Chemtura’s common stock in the amounts of $38.9 million and$57.2 million as of December 31, 2006 and 2005, respectively.**

**The Company’spension plan assets are managed by outside investment managers.  Assets are monitored monthly to ensure theyare within the range of parameters as set forth by the Company.  The Company’s investment strategy withrespect to pension assets is to achieve the expected rate of return within anacceptable or appropriate level of risk. The Company’s investment strategy is designed to promote diversificationto moderate volatility and attempt to balance the expected return with risklevels.**

**The assetallocation for the post-retirement health care plans as of November 30, 2006and 2005 and target allocation for 2007 by asset category are as follows:**

100

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** **
| ** **               | ** ** | **Target Allocation** | ** ** | **Percentage of Plan Assets at  November 30,** | ** ** |
|--------------------------|------------|----------------------------|------------|-------------------------------------------------------------------------|------------|
| **Asset Category:** | ** ** | **2007**                   | ** ** | **2006**                                                                | ** ** | **2005** | ** ** |
| Equity  securities       |       | 58                         | %          | **59**                                                                  | **%**      | 55 | % |
| Fixed income  securities |       | 42                         | %          | **40**                                                                  | **%**      | 45 | % |
| Other                    | ** ** | **—**                 |       | **1**                                                                   | **%**      | **—** | ** ** |
| Total                    |       | 100                        | %          | **100**                                                                 | **%**      | 100 | % |

 

The Company’s post-retirementhealth care plan assets relating to certain inactive government plans aremanaged by outside investment managers. Assets are monitored monthly to ensure they are within the range ofparameters as set forth by the Company. The Company’s investment strategy with respect to these assets is toachieve the expected rate of return within an acceptable or appropriate levelof risk.  The Company’s investmentstrategy is designed to promote diversification to moderate volatility andattempt to balance the expected return with risk levels.

**Funded Status**

**The fundedstatus at the end of the year, and the related amounts recognized on thestatement of financial position, are as follows:**

** **
| ** **                                                                                 | ** ** | **Defined Benefit Plans** | ** **  | ** **                   | ** ** | ** **                      | ** ** |
|--------------------------------------------------------------------------------------------|------------|-------------------------------------|-------------|------------------------------|------------|---------------------------------|------------|
| ** **                                                                                 | ** ** | **Qualified**                       | ** **  | **International and**   | ** ** | **Post-Retirement**             | ** ** |
| ** **                                                                                 | ** ** | **Domestic Plans**             | ** **  | **Non-Qualified Plans** | ** ** | **Health Care Plans** | ** ** |
| ***(In thousands)***                                                                  | ** ** | ** **                          | ** **  | **2006**                     | ** ** | **2005**                        | ** ** | **2006** | ** ** | **2005** | ** ** | **2006** | ** ** | **2005** | ** ** |
| Funded status,  end of year:                                                               | ** ** | ** **                          |        |                         | ** ** | ** **                      |       |   | ** ** | ** ** |   |   |   |
| Fair value of  plan assets                                                                 | ** ** | **$**                               | **784,977** |                         | $          | 710,550                         | ** ** | **$** | **276,198** |   | $ | 215,791 | ** ** | **$** | **29,358** |   | $ | 28,951 |   |
| Benefit  obligations                                                                       | ** ** | **831,816**                         |        | 850,512                      | ** ** | **523,507**                     |       | 409,780 | ** ** | **191,972** |   | 184,413 |   |
| Funded status                                                                              | ** ** | **(46,839**                         | **)**       | (139,962                     | )          | **(247,309**                    | **)**      | (193,989 | ) | **(162,614** | **)** | (155,462 | ) |
| Unrecognized  transition (asset) obligation                                                | ** ** | **—**                          |        | —                       | ** ** | **—**                      |       | 721 | ** ** | **—** |   | — |   |
| Unrecognized  actuarial loss                                                               | ** ** | **—**                          |        | 163,316                      | ** ** | **—**                      |       | 54,227 | ** ** | **—** |   | 35,818 |   |
| Unrecognized  prior service costs                                                          | ** ** | **—**                          |        | —                       | ** ** | **—**                      |       | 1,646 | ** ** | **—** |   | (52,442 | ) |
| Employer  contributions after measurement date                                             | ** ** | **—**                          |        | —                       | ** ** | **1,037**                       |       | 1,629 | ** ** | **1,654** |   | 1,805 |   |
| Net amount  recognized                                                                     | ** ** | **$**                               | **(46,839** | **)**                        | $          | 23,354                          | ** ** | **$** | **(246,272** | **)** | $ | (135,766 | ) | **$** | **(160,960** | **)** | $ | (170,281 | ) |
|                                                                                       | ** ** | ** **                          |        |                         | ** ** | ** **                      |       |   | ** ** | ** ** |   |   |   |
| Amounts  recognized in the statement of financial position at the end of year consist  of: | ** ** | ** **                          |        |                         | ** ** | ** **                      |       |   | ** ** | ** ** |   |   |   |
| Prepaid benefit  costs                                                                     | ** ** | **$**                               | **—**  |                         | $          | 86,775                          | ** ** | **$** | **—** |   | $ | 3,449 | ** ** | **$** | **—** |   | $ | 1,951 |   |
| Noncurrent  assets                                                                         | ** ** | **331**                             | ** **  | **—**                   | ** ** | **137**                         | ** ** | **—** | ** ** | **9,212** |   | — |   |
| Current  liability                                                                         | ** ** | **—**                          | ** **  | **—**                   | ** ** | **(7,676**                      | **)**      | **—** | ** ** | **(16,151** | **)** | — |   |
| Noncurrent  liability                                                                      | ** ** | **(47,170**                         | **)**       | **—**                   | ** ** | **(238,733**                    | **)**      | **—** | ** ** | **(154,021** | **)** | — |   |
| Accrued benefit  liabilities                                                               | ** ** | **—**                          |        | (261,039                     | )          | **—**                      |       | (185,268 | ) | **—** |   | (172,232 | ) |
| Intangible  assets                                                                         | ** ** | **—**                          |        | —                       | ** ** | **—**                      |       | 2,628 | ** ** | **—** |   | — |   |
| Accumulated  other comprehensive loss                                                      | ** ** | **—**                          |        | 197,618                      | ** ** | **—**                      |       | 43,425 | ** ** | **—** |   | — |   |
| Net amount  recognized                                                                     | ** ** | **$**                               | **(46,839** | **)**                        | $          | 23,354                          | ** ** | **$** | **(246,272** | **)** | $ | (135,766 | ) | **$** | **(160,960** | **)** | $ | (170,281 | ) |
|                                                                                       | ** ** | ** **                          |        |                         |       |                            |       |   |   |   |   |   |   |
| Amounts  recognized in accumulated                                                         | ** ** | ** **                          |        |                         |       |                            |       |   |   |   |   |   |   |
|  other comprehensive loss consist of:                                                 | ** ** | ** **                          |        |                         |       |                            |       |   |   |   |   |   |   |
| Net actuarial  loss/(gain)                                                                 | ** ** | **$**                               | **116,811** |                         | $          | —                          | ** ** | **$** | **90,605** |   | $ | — | ** ** | **$** | **50,152** |   | $ | — |   |
| Prior service  cost/(credit)                                                               | ** ** | **1,749**                           |        | —                       | ** ** | **1,298**                       |       | — | ** ** | **(49,111** | **)** | — |   |
| Transition  obligation/(asset)                                                             | ** ** | **—**                          |        | —                       | ** ** | **577**                         |       | — | ** ** | **—** |   | — |   |
|                                                                                       | ** ** | **$**                               | **118,560** |                         | $          | —                          | ** ** | **$** | **92,480** |   | $ | — | ** ** | **$** | **1,041** |   | $ | — |   |
|                                                                                            |            |                                     |             |                              |            |                                 |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

** **

101

----

** **

The estimated amountsthat will be amortized from accumulated other comprehensive loss into netperiod benefit cost in 2007 are as follows:
| ***(In thousands)***     | ** ** | ** ** | ** ** | **Qualified  Domestic  Plans** | ** ** | **International  and Non-  Qualified  Plans** | ** ** | **Other  Post-Retirement  Health Care  Plans** | ** ** |
|-------------------------------|------------|------------|------------|--------------------------------|------------|----------------------------------------------------|------------|-----------------------------------------------------|------------|
| Actuarial (gain)/loss         | ** ** | **$**      | **5,362**  | ** **                     | **$**      | **3,539**                                          | ** ** | **$**                                               | **2,430**  | ** ** |
| Prior service (credit)/cost   |       | **149**    | ** ** | **93**                         | ** ** | **(3,660**                                         | **)**      |
| Transition (asset)/obligation |       | —     | ** ** | **112**                        | ** ** | —                                             | ** ** |
| Total                         | ** ** | **$**      | **5,511**  | ** **                     | **$**      | **3,744**                                          | ** ** | **$**                                               | **(1,230** | **)** |

 

The Company’s non-currentassets, prepaid benefit costs and intangible assets are included in otherassets in the consolidated balance sheets. In 2005, all accrued benefit liabilities were classified asnon-current.  SFAS 158 requires therecognition of both current and non-current liability positions.

The projected benefitobligation and fair value of plan assets for pension plans with a projectedbenefit obligation in excess of plan assets at December 31, 2006 and 2005 wereas follows:

 
| ***(In thousands)***                                                   | ** ** | ** **     | ** ** | **2006**   | ** ** | **2005** | ** ** |
|------------------------------------------------------------------------|------------|----------------|------------|------------|------------|----------|------------|
| Projected benefit  obligation in excess of plan assets at end of year: | ** ** | ** **     |       |       |       |
| Projected benefit  obligation                                          | ** ** | **$1,313,248** |       | $1,260,290 |       |
| Fair value of plan assets                                              | ** ** | **1,030,145**  |       | 926,251    |       |

 

The projected benefitobligation, accumulated benefit obligation and fair value of plan assets forpension plans with an accumulated benefit obligation in excess of plan assetsat December 31, 2006 and 2005 were as follows:

** **
| ***(In thousands)***                                                     | ** ** | ** **     | ** ** | **2006**   | ** ** | **2005** | ** ** |
|--------------------------------------------------------------------------|------------|----------------|------------|------------|------------|----------|------------|
| Accumulated benefit  obligation in excess of plan assets at end of year: | ** ** | ** **     |       |       |       |
| Projected benefit  obligation                                            | ** ** | **$1,310,432** |       | $1,260,290 |       |
| Accumulated benefit  obligation                                          | ** ** | **1,260,464**  |       | 1,228,977  |       |
| Fair value of plan assets                                                | ** ** | **1,027,410**  |       | 926,251    |       |

 

# **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 thousands)***         | ** ** | ** **                          | ** ** | **Qualified  Domestic Plans** | ** ** | **International and  Non-Qualified  Plans** | ** ** | **Post-Retirement  Health Care  Plans** | ** ** |
| Expected  Employer Contributions: |       |                                |       |                               |       |   |   |
| 2007                              |       | $                                   | —     |                               | $          | 24,513 |   | $ | 14,594 |   |
|                              |       |                                |       |                               |       |   |   |
| Expected Benefit  Payments (a):   |       |                                |       |                               |       |   |   |
| 2007                              |       | 54,960                              |       | 17,124                             |       | 18,198 |   |
| 2008                              |       | 54,834                              |       | 19,395                             |       | 15,913 |   |
| 2009                              |       | 54,790                              |       | 20,987                             |       | 15,223 |   |
| 2010                              |       | 54,758                              |       | 20,736                             |       | 14,479 |   |
| 2011                              |       | 55,013                              |       | 22,717                             |       | 13,727 |   |
| 2012–2016                    |       | 281,640                             |       | 147,983                            |       | 56,985 |   |
|                                   |            |                                     |            |                                    |            |  |  |  |  |  |  |  |

 

(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.

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**Net Periodic Cost**
| ** **                                         | ** ** | **Defined Benefit Plans** | ** ** | ** **                   | ** ** | ** **                      | ** ** | ** **  | ** ** |
|----------------------------------------------------|------------|-------------------------------------|------------|------------------------------|------------|---------------------------------|------------|-------------|------------|
| ** **                                         | ** ** | **Qualified**                       | ** ** | **International and**   | ** ** | **Post-Retirement**             | ** ** |
| ** **                                         | ** ** | **Domestic Plans**             | ** ** | **Non-Qualified Plans** | ** ** | **Health Care Plans** | ** ** |
| *(In  thousands)*                                  | ** ** | **2006**                            |       | 2005                         |       | 2004                            | ** ** | **2006**    |       | 2005 |   | 2004 | ** ** | **2006** |   | 2005 |   | 2004 |   |
| Components of net  periodic benefit cost (credit): |       |                                |       |                         | ** ** | ** **                      |       |        |       |   | ** ** | ** ** |   |   |   |   |   |   |   |
|                                               | ** ** | ** **                          |       |                         |       |                            | ** ** | ** **  |       |   |   |   | ** ** | ** ** |   |   |   |   |   |
| Service cost                                       | ** ** | **$**                               | **1,398**  |                         | $          | 8,157                           |       | $           | 5,279      | ** ** | **$** | **6,331** |   | $ | 6,534 |   | $ | 7,261 | ** ** | **$** | **1,131** |   | $ | 1,222 |   | $ | 1,180 |   |
| Interest cost                                      | ** ** | **46,072**                          |       | 43,997                       |       | 39,160                          | ** ** | **21,536**  |       | 16,821 |   | 14,996 | ** ** | **10,657** |   | 12,453 |   | 12,627 |   |
| Expected return  on plan assets                    | ** ** | **(58,881**                         | **)**      | (55,233                      | )          | (51,607                         | )          | **(15,063** | **)**      | (10,496 | ) | (7,305 | ) | **(2,381** | **)** | (2,382 | ) | (2,485 | ) |
| Amortization of  prior service cost                | ** ** | **—**                          |       | 25                           |       | 63                              | ** ** | **599**     |       | 368 |   | 622 | ** ** | **(3,606** | **)** | 775 |   | (2,721 | ) |
| Amortization of  unrecognized                      | ** ** | ** **                          |       |                         |       |                            |       |        |       |   |   |   |   |   |   |   |   |   |   |
| transition  (asset) obligation                     | ** ** | **—**                          |       | (2                           | )          | (7                              | )          | **112**     |       | 112 |   | 158 | ** ** | **—** |   | — |   | — |   |
| Recognized  actuarial (gains) losses               | ** ** | **4,338**                           |       | 10,405                       |       | 5,523                           | ** ** | **2,571**   |       | 2,351 |   | 1,600 | ** ** | **2,079** |   | 610 |   | (397 | ) |
| Curtailment  (gain) loss recognized                | ** ** | **—**                          |       | 59                           |       | 812                             | ** ** | **(2**      | **)**      | (18,684 | ) | 5,037 | ** ** | **(1,184** | **)** | — |   | 766 |   |
| Settlement (gain)  loss recognized                 | ** ** | **—**                          |       | —                       |       | —                          | ** ** | **(1,096**  | **)**      | 5,750 |   | 2,923 | ** ** | **(365** | **)** | — |   | — |   |
| Special termination  benefits                      | ** ** | **—**                          |       | —                       |       | —                          |       | —      |       | 584 | ** ** | 303 | ** ** | — |   | — |   | **—** |   |
| Net periodic  benefit cost (credit)                | ** ** | **$**                               | **(7,073** | **)**                        | $          | 7,408                           |       | $           | (777       | ) | **$** | **14,988** |   | $ | 3,340 |   | $ | 25,595 | ** ** | **$** | **6,331** |   | $ | 12,678 |   | $ | 8,970 |   |
|                                               | ** ** | ** **                          |       |                         |       |                            | ** ** | ** **  |       |   |   |   | ** ** | ** ** |   |   |   |   |   |

** **
| ** **                                                | ** ** | **Defined Benefit Plans** | ** ** | ** **                   | ** ** | ** **                      | ** ** | ** ** | ** ** |
|-----------------------------------------------------------|------------|-------------------------------------|------------|------------------------------|------------|---------------------------------|------------|------------|------------|
| ** **                                                | ** ** | **Qualified**                       | ** ** | **International and**   | ** ** | **Post-Retirement**             | ** ** |
| ** **                                                | ** ** | **Domestic Plans**             | ** ** | **Non-Qualified Plans** | ** ** | **Health Care Plans** | ** ** |
| ** **                                                | ** ** | **2006**                            | ** ** | **2005**                     | ** ** | **2004**                        | ** ** | **2006**   | ** ** | **2005** | ** ** | **2004** | ** ** | **2006** | ** ** | **2005** | ** ** | **2004** | ** ** |
| Weighted-average  assumptions used to determine net cost: |       |                                |       |                         | ** ** | ** **                      |       |       |       |   | ** ** | ** ** |   |   |   |   |   |   |   |
| Discount rate                                             | ** ** | **5.75**                            | **%**      | 5.75                         | %          | 6.00                            | %          | **4.92**   | **%**      | 4.97 | % | 5.54 | % | **5.68** | **%** | 5.75 | % | 6.00 | % |
| Expected return  on plan assets                           | ** ** | **8.50**                            | **%**      | 8.75                         | %          | 9.00                            | %          | **6.70**   | **%**      | 6.78 | % | 6.95 | % | **8.50** | **%** | 8.20 | % | 8.20 | % |
| Rate of compensation  increase                            | ** ** | **4.00**                            | **%**      | 4.00                         | %          | 4.00                            | %          | **3.32**   | **%**      | 2.81 | % | 3.17 | % | **—** | ** ** | **—** | ** ** | **—** | ** ** |

 

The expected return onpension plan assets is based on our investment strategy, historical experience,and our expectations for long term rates of return.  The Company determines the long-term rate ofreturn assumptions for the domestic and international pension plans based onits 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 percent on alldomestic assets and a weighted average rate of 6.7 percent for the internationalplan assets for the year ended November 30, 2006.

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 $1.2 million for 2006.  Aone percentage point decrease in assumed health care cost trend rates decreasesthe service and interest cost components of net periodic post-retirement healthcare benefit cost by $1.0 million for 2006.

The Company made lump sumpayments under the provisions of its supplemental executive retirement programsof approximately $2.9 million and $9.8 million during 2006 and 2005,respectively.  As a result of the 2006payments, a settlement gain of approximately $1.1 million was recorded.   As a result of the 2005 payments, theCompany recorded a settlement loss of approximately $1.7 million.

The Company made adiscretionary contribution of $40 million to its domestic qualified pensionplans in 2006. 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 $17.2 million to its international pension plans in 2006, ofwhich $4.0 million was discretionary.

TheCompany’s cost of its defined contribution plans was $17.9 million, $10.0 millionand $9.4 million in 2006, 2005 and 2004, 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 instrumentsas needed to mitigate risk against foreign currency movements and to manageenergy price volatility.  In accordancewith FASB Statement 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,” theCompany 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 loss (AOCL) any changes in thefair value of all derivatives designated as cash flow hedging instruments thatare highly effective.  The Company doesnot enter into derivative instruments 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’s hedgecontracts cover a gradually decreasing percentage of its forecasted purchaserequirements over a rolling three-year period. These contracts involve the exchange of payments over the life of thecontracts without an exchange of the notional amount upon which the paymentsare based.  The differential paid orreceived as natural gas prices change is reported in accumulated othercomprehensive loss.  These amounts aresubsequently reclassified into cost of products sold when the related inventorylayer is liquidated.  At December 31, 2006, the Company had outstandingprice swaps with an aggregate notional amount of approximately $67.4 million,based on the contract price and outstanding quantities of 10,150 million BTU’s(British Thermal Units) at December 31, 2006. At December 31, 2005, the Company had outstanding price swaps with anaggregate notional amount of approximately $44.4 million, based on the contractprice and outstanding quantities of 4,920 million BTU’s at December 31,2005.  These contracts cover a graduallydecreasing percentage of the Company’s forecasted purchase requirements over arolling three-year period.  Basedon the December 31, 2006 market prices of these natural gas contracts, theCompany expects to recognize a loss of approximately $10.0 million in2007.  During 2005, a portion of thehedge contracts were determined to be ineffective due to lower actual naturalgas purchases resulting primarily from the impact of hurricanes Katrina andRita.  The ineffective portion recognizedin operations was not significant.

Allcontracts have been entered into with major financial institutions.  The risk associated with these transactionsis the cost of replacing these agreements at current market rates, in the eventof default by the counterparties. Management believes the risk of incurring such losses is remote.

**The Company used interest rate swap contracts as fair valuehedges to convert a portion of the $400 million 7% fixed rate debt to variablerate debt.  The swap contracts wereacquired and the debt assumed in connection with the Merger.  During the fourth quarter of 2005, swapcontracts with a notional amount of $75 million were terminated reducing thenotional amount of the swap contracts to $125 million resulting in a deferredloss of $1.2 million. During the second quarter of 2006, the Company terminatedthe remaining interest rate swap contracts with a notional amount of $125million resulting in a deferred loss of $2.8 million.  The deferred losses were recorded as anadjustment to the carrying amount of debt upon termination of the swaps and arebeing amortized to interest expense over the remaining life of the $400 millionfixed rate debt.  The unamortized balanceof the deferred loss was $2.9 million and $1.1 million at December 31, 2006 and2005, respectively.**

TheCompany also has exposure to changes in foreign currency exchange ratesresulting from transactions entered into by the Company and its foreignsubsidiaries in currencies other than their local currency (primarily trade payablesand receivables).  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, Canadiandollars, British Pound Sterling, Mexican Pesos, Australian dollars and SwissFrancs to hedge its transaction exposure. The aggregate notional amount of these contracts at December 31, 2006and 2005 was approximately $411 million and $572 million, respectively. Thesecontracts are generally settled on a monthly basis.  Realized and unrealized gains and losses onforeign currency forward contracts are recognized in other expense, net tooffset the impact of valuing recorded foreign currency trade payables,receivables and intercompany transactions. The Company has not designated these derivatives as hedges, although itbelieves these instruments reduce the Company’s exposure to foreign currencyrisk. The net effect of

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therealized and unrealized gains and losses on these derivatives and theunderlying transactions is not significant at December 31, 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 endedDecember 31, 2006 and 2005:

 
| ***(In thousands)***                                    | ** ** | ** ** | ** ** | **2006** | ** ** | **2005** | ** ** |
|--------------------------------------------------------------|------------|------------|------------|----------|------------|----------|------------|
| Fair value hedges (in interest expense)                      | ** ** | ** ** |       |     |       |
| Interest  rate swap contracts                                | ** ** | **$**      | **—** |     | $          | (246     | )          |
|                                                         | ** ** | ** ** |       |     |       |
| Cash flow hedges  (in accumulated other comprehensive loss): | ** ** | ** ** |       |     |       |
| Balance at  beginning of year                                | ** ** | **$**      | **(5,464** | **)**    | $          | (2,769   | )          |
| Price swap contracts — natural gas                      | ** ** | **12,220** |       | (2,695   | )          |
| Balance at end of year,  net of tax                          | ** ** | **$**      | **6,756**  |     | $          | (5,464   | )          |

#  

# **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 fair value of interest rate swapcontracts is the amount at which the contracts could be settled based on quotesprovided by the current security holders.

The following table presents thecarrying amounts and estimated fair values of material financial instrumentsused by the Company in the normal course of its business.

 
| ** **                              | ** ** | **2006**   | ** **     | **2005**             | ** ** |
|-----------------------------------------|------------|------------|----------------|----------------------|------------|
| ***(In thousands)***               | ** ** | ** ** | ** **     | **Carrying  Amount** | ** ** | **Fair  Value** | ** ** | **Carrying  Amount** | ** ** | **Fair  Value** | ** ** |
| Long-term debt                          | ** ** | **$**      | **(1,063,360** | **)**                | **$**      | **(1,075,577** | **)** | $ | (1,309,603 | ) | $ | (1,363,689 | ) |
| Foreign currency  forward contracts (a) | ** ** | **$**      | **(2,313**     | **)**                | **$**      | **(2,313** | **)** | $ | (9,415 | ) | $ | (9,415 | ) |
| Price swap  contracts (b)               | ** ** | **$**      | **(10,726**    | **)**                | **$**      | **(10,726** | **)** | $ | 8,869 |   | $ | 8,869 |   |
| Interest rate swap  contracts (c)       | ** ** | **$**      | **—**     | ** **           | **$**      | **—** |   | $ | (14 | ) | $ | (14 | ) |
|                                         |            |            |                |                      |            |  |  |  |  |  |  |  |  |  |  |

----

(a)   $0.9 million and $2.8 million included inother assets and $3.2 million and $12.2 million included in accrued expenses atDecember 31, 2006 and December 31, 2005, respectively.

(b)   $10.0 million included in accrued expensesand $0.7 million included in other liabilities at December 31, 2006 and $8.7million included in other current assets and $0.2 million included in otherassets at December 31, 2005.

(c)   Includedin other assets at December 31, 2005.

# **20) ASSET RETIREMENT OBLIGATIONS**

TheCompany applies the provisions of FASB Statement No. 143, “Accounting for Asset Retirement Obligations,” and FASB Interpretation No. 47, “Accountingfor Conditional Asset Retirement Obligations,” (FIN 47), which require companies to make estimatesregarding future events in order to record a liability for asset retirementobligations in the period in which a legal obligation is created.  Suchliabilities are recorded at fair value, with an offsetting increase to thecarrying value of the related long-lived assets.  The fair value is estimated by discountingprojected cash flows over the estimated life of the assets using the Company’scredit adjusted risk-free rate applicable at the time the obligation isinitially recorded.  In future periods,the liability is accreted to its present value and the capitalized cost isdepreciated over the useful life of the related asset.  The Company also adjusts the liability forchanges resulting from revisions to the timing or the amount of the originalestimate.  Upon retirement of thelong-lived asset, the Company either settles the obligation for its recordedamount or incurs a gain or loss.

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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 33 facilities, legal obligations toclose approximately 102 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 36 of theCompany’s manufacturing 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 $0.5 million (net of taxes of $0.3million) as of December 31, 2005.

The following is a summary of the change in the carryingamount of the asset retirement obligations during 2006 and 2005, the net bookvalue of assets related to the asset retirement obligations at December 31,2006 and 2005 and the related depreciation expense recorded in 2006 and 2005.

 
| ***(In thousands)***                                            | ** ** | ** ** | ** ** | **2006** | ** ** | **2005** | ** ** |
|----------------------------------------------------------------------|------------|------------|------------|----------|------------|----------|------------|
| Asset retirement  obligation balance at beginning of year            |       | $          | 10,560     |     | $          | 717      |       |
| Liabilities assumed from Great Lakes (includes  purchase             |       |       |       |     |       |
| accounting adjustments)                                              |       | 1,685      |       | 6,261    |       |
| Cumulative effect of accounting change                               |       | —     |       | 844      |       |
| Accretion expense — cost of products sold                       | (a)        | 11,268     |       | 870      |       |
| Accretion expense — selling, general and  administrative        |       | 41         |       | 416      |       |
| Accretion expense — discontinued operations                     |       | —     |       | 364      |       |
| Revisions to accruals                                                |       | 686        |       | 1,193    |       |
| Payments                                                             |       | (249       | )          | (105     | )          |
| Foreign currency translation                                         |       | 109        |       | —   |       |
| Asset retirement  obligation balance at end of year                  |       | $          | 24,100     |     | $          | 10,560   |       |
|                                                                 |       |       |       |     |       |
| Net book value  of asset retirement obligation assets at end of year |       | $          | 1,700      |     | $          | 1,584    |       |
|                                                                 |       |       |       |     |       |
| Depreciation  expense                                                |       | $          | 592        |     | $          | 362      |       |

 

(a)          The 2006 accretion expense includes $8.8million due to the acceleration of the recognition of the asset retirementobligations for several of the Company’s manufacturing facilities resultingfrom revisions to the estimated closure dates.

At December 31, 2006 and2005, $11.3 million and $0.5 million, respectively, of the asset retirementobligation balance was included in accrued expenses and $12.8 million and $10.1million, respectively, was included in other liabilities on the consolidatedbalance sheets.

### **21) LEGAL MATTERS**

**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 1995 to December2001. The U.S. federal court imposed a fine of $50.0 million, payable in sixannual installments, without interest, beginning in 2004. In light of theCompany’s cooperation with the U.S. Department of Justice (the “DOJ”), thecourt

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did not impose any periodof corporate probation.  On May 28, 2004, the Company pled guilty to onecount of conspiring to lessen competition unduly in the sale and marketing ofcertain rubber chemicals in Canada. The Canadian federal court imposed asentence requiring the Company to pay a fine of CDN $9.0 million (approximatelyU.S. $7 million), payable in six annual installments, without interest,beginning in 2004. The Company paid (in U.S. dollars) $2.3 million in 2004,$2.3 million in 2005, and $7.0 million in 2006 in cash, for the U.S. andCanadian fines. Remaining cash payments for the U.S. and Canadian fines areexpected to equal (in U.S. dollars) approximately $11.6 million in 2007; $16.2million in 2008; and $18.5 million in 2009. At December 31, 2006, reserves of $11.6million and $30.9 million related to these settlements have been included inaccrued expenses and other liabilities, respectively, on the Company’sconsolidated balance sheet.  At December31, 2005, reserves of $6.5 million and $40.3 million were included in accruedexpenses 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.  On December 21, 2005, the Companyannounced that the EC imposed a fine of Euro 13.6 million (approximately U.S.$16 million) on the Company in connection with the EC’s rubber chemicalsinvestigation.  The amount of the fine reflects the EC’s maximum leniencyof a 50 percent reduction in the fine, resulting from the Company’s continualcooperation with the EC throughout its investigation.  In December 2005,the Company recorded a pre-tax charge of $16.1 million for the EC fine, whichis included in accrued expenses on the Company’s consolidated balance sheets atDecember 31, 2005.  The Company paid this fine in April 2006.  At December 31, 2006, there are no remainingEC investigations of the Company with respect to its sale and marketing of rubberchemicals.

*OtherProduct Areas*

The Company and certainof its subsidiaries are subjects of, and continue to cooperate in, coordinatedcriminal and civil investigations being conducted by the DOJ, the CanadianCompetition Bureau and the EC (collectively, the “Governmental Authorities”)with respect to possible antitrust violations relating to the sale andmarketing of certain other products.  The Governmental Authorities areeach conducting investigations with respect to various classes of heatstabilizers; nitrile rubber; and, in the case of the DOJ and the CanadianCompetition Bureau, urethanes and urethane chemicals.  Such investigationsconcern anticompetitive practices, including price fixing and customer ormarket allocations, undertaken by the Company and such subsidiaries and certainof their officers and employees. The Company and its subsidiaries that aresubject to the investigations have received from each of the GovernmentalAuthorities verbal or written assurances of conditional amnesty from prosecutionand fines. The EC has granted conditional amnesty with respect to certainclasses of heat stabilizers.  The assurances of amnesty are conditionedupon several factors, including continued cooperation with the GovernmentalAuthorities. The Company is actively cooperating with the GovernmentalAuthorities regarding such investigations.

*InternalInvestigation*

The Company has completedits internal investigation of the Company’s business and products to determinecompliance with applicable antitrust law and with the Company’s antitrustguidelines and policies. During the course of its internal investigation, theCompany strengthened its training and compliance programs and took certainactions with respect to certain employees, including termination of employmentand other disciplinary actions.

*Impactupon the Company*

The Company does notexpect the previously described resolution of the rubber chemicalsinvestigations by the United States, Canada and the EC to have a materialadverse effect on its future results of operations.  However, theresolution of any other possible antitrust violations against the Company andcertain of its subsidiaries and the resolution of any civil claims now pendingor hereafter asserted against them may have a material adverse effect on theCompany’s financial condition, results of operations, cash flows or prospects.No assurances can be given regarding the outcome or timing of these matters.

Civil Lawsuits

Except for those actionsindicated as being subject to a settlement agreement, dismissed by the applicablecourt

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or as otherwise provided,the actions described below under “U.S. Civil Antitrust Actions” and “CanadianCivil Antitrust Actions” are in various procedural stages of litigation. Although the actions described below have not had a material adverseimpact on the Company, we cannot predict the outcome of any of those actions.The Company will seek cost-effective resolutions of the various pending andthreatened legal proceedings against the Company; however, the resolution ofany civil claims now pending or hereafter asserted against the Company or anyof its subsidiaries could have a material adverse effect on the Company’sfinancial condition, results of operations or cash flows.  The Company hasestablished reserves for all direct and indirect claims as of December 31,2006.

The Company reviews itsreserves for civil lawsuits on a quarterly basis.  The Company alsoadjusts its reserves quarterly to reflect its current best estimates.  TheCompany increased its reserves during 2006 to reflect the increase in actualsettlement offers and settlements in the direct and indirect purchaser lawsuitsdescribed below.

*U.S. Civil Antitrust Actions*

*PartiallyTerminated Global Settlement Agreement*. On January 11, 2005,the Company and plaintiff class representatives entered into a SettlementAgreement (the “Global Settlement Agreement”) that was intended to resolve,with respect to the Company, three consolidated direct purchaser class actionlawsuits filed against the Company, its subsidiary Uniroyal Chemical Company,Inc., now known as Chemtura USA Corporation (referred to as “Uniroyal” forpurposes of the description of the Company’s civil lawsuits), and othercompanies, by plaintiffs on behalf of themselves and classes consisting of allpersons or entities who purchased EPDM, nitrile rubber and rubber chemicals,respectively, in the United States directly from one or more of the defendantsor any predecessor, parent, subsidiary or affiliates thereof, at any timeduring various periods, with the earliest commencing on January 1, 1995. Thecomplaints in the consolidated actions principally alleged that the defendantsconspired to fix, raise, maintain or stabilize prices for EPDM, nitrile rubberand rubber chemicals, as applicable, sold in the United States in violation of Section1 of the Sherman Act and that this caused injury to the plaintiffs who paidartificially inflated prices for such products as a result of such allegedanticompetitive activities.  The Global Settlement Agreement provided thatthe Company would pay a total of $97.0 million, consisting of $62.0 millionwith respect to rubber chemicals, $30.0 million with respect to EPDM and $5.0million with respect to nitrile rubber, in exchange for the final dismissalwith prejudice of the foregoing three lawsuits as to the Company and a completerelease of all claims against the Company set forth in the lawsuits. InDecember 2004, the Company recorded a pre-tax antitrust cost charge of $93.1million to reserve for the payment of the expected settlement of the three directpurchaser class action lawsuits.

In accordance with itsrights under the Global Settlement Agreement, the Company terminated thoseparts of the settlement covering rubber chemicals and EPDM following theexercise of opt out rights by certain potential members of the applicableclasses.  With respect to the EPDM portion of the claims a settlement wasreached on January 22, 2007, which settlement is subject to court approval andpermits potential class members to opt out of the class.  With respect to the rubber chemical portionof the claims a settlement was reached on October 2, 2006.  Several plaintiffs have opted out of theterms of this settlement which is described below under “Rubber Chemicals.” The nitrile rubber portion of the Global Settlement Agreement has been approvedby the United States District Court for the Western District of Pennsylvania.

*ParaTecElastomers Cross-Claims*.** **A defendant in the class action lawsuit relating to nitrile rubber, ParaTecElastomers LLC, a former joint venture in which the Company previously owned amajority interest but now has no interest, asserted cross claims against theCompany and its subsidiary Uniroyal in this class action, seekingindemnification for settlements that ParaTec Elastomers LLC has entered intoand damages that ParaTec Elastomers LLC has allegedly suffered or may suffer asa result of the Company’s actions, including the Company’s alleged failure toobtain immunity for ParaTec Elastomers with respect to the EC’s investigationof the sale and marketing of nitrile rubber.  The ParaTec Elastomerscomplaint seeks damages of unspecified amounts, including attorneys’ fees andpunitive damages with respect to certain of the alleged causes of action,injunctive relief, pre- and post-judgment interest, costs and disbursements andsuch other relief as the court deems just and proper.  On August 6, 2004,the Company filed a motion to dismiss the cross claims, or in the alternativeto compel arbitration.  On September 29, 2005, the motion to dismiss was grantedwith respect to the plaintiff’s claims of violation of the Connecticut UnfairTrade Practices Act, breach of contract, fraud and promissory estoppel. The motion to dismiss was denied with respect to the plaintiff’s claims forcontractual indemnification pursuant to the ParaTec Elastomers LLC Agreement,breach of fiduciary duty and breach of covenant of good faith and fairdealing.  In addition, the court denied the Company’s motion to compelarbitration.  The Company has appealed the denial of its motion to compelarbitration. The Company’s appeal was successful and on November 30, 2006the court granted the Company’s motion to compel arbitration.  The Company believes these claims are withoutmerit, as they relate to conduct occurring exclusively after ParaTec Elastomerswas sold.

 

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*RemainingDirect and Indirect Purchaser Lawsuits*. The Company,individually or together with its subsidiary Uniroyal, and other companies,continues to be or has become a defendant in certain direct and indirectpurchaser lawsuits filed in federal courts during the period from May 2004through January 2006 and in certain state court antitrust class action lawsuitsfiled in state courts during the period from October 2002 to January 2006involving the sale of rubber chemicals, EPDM, polychloroprene, nitrile rubber,plastic additives, and urethanes and urethane chemicals.

The complaints in theseactions (as further described below) principally allege that the defendantsconspired to fix, raise, maintain or stabilize prices for rubber chemicals,EPDM, polychloroprene, nitrile rubber, plastic additives, or urethanes andurethane chemicals, as applicable, sold in the United States in violation ofSection 1 of the Sherman Act or in violation of certain antitrust statutes andconsumer protection and unfair or deceptive practices laws of the relevantjurisdictions and that this caused injury to the plaintiffs who paidartificially inflated prices for such products as a result of such allegedanticompetitive activities. With respect to the complaints relating to thesale of polychloroprene (as further described below), although the Company doesnot sell or market polychloroprene, the complaints allege that the Company andproducers of polychloroprene conspired to raise prices with respect topolychloroprene and the other products included in the complaint collectivelyin one conspiracy.  In each of the foregoing actions, the plaintiffs seek,among other things, treble damages of unspecified amounts, costs (includingattorneys’ fees) and injunctive relief preventing further violations or theimproper conduct alleged in the complaint.

*RubberChemicals.* The Company has entered into a settlementagreement in the direct federal rubber chemical cases previously subject to theGlobal Settlement Agreement.  The Company has also entered into asettlement agreement with respect to a direct federal purchaser lawsuit filedin the United States District Court, Middle District of Tennessee andsubsequently transferred to the United States District Court, Northern Districtof California.

The Agreement with classcounsel in the direct federal rubber chemical case provides that the Companypay $51 million to resolve the class claims.  In October 2006, the $51.0million was paid into an escrow account and recorded as a deposit included inother current assets on the Company’s consolidated balance sheet at December31, 2006.  The $51.0 million settlementwas paid to the claimant in the first quarter of 2007.  In anticipation ofthis settlement, $36.7 million was added to already existing rubber chemicalsreserves in 2006.  This agreement, whencombined with settlements with other entities and taking into account the threeclass members who chose to opt out of the settlement, means that Chemtura hasnow resolved over 95 percent of its exposure for United States direct purchaserrubber chemicals claims.

The remaining directfederal lawsuit was filed on June 29, 2006, in the United States DistrictCourt, Middle District of Tennessee by Bridgestone Americas Holding, Inc,Bridgestone Firestone North American Tire, LLC, Bandag, Incorporated, andPirelli Tire, LLC with respect to purchases of rubber chemicals from one orboth of the defendants.  This action was transferred to the United StatesDistrict Court, Northern District of California.  The Company has entered into a settlementagreement resolving the claims with respect to this lawsuit, except for thoseclaims related to Bangad, Incorporated.

The Company and certainof its subsidiaries also remain defendants in seven pending indirect putativeclass action lawsuits for alleged violations of state law filed in state courtsin California, Florida, Massachusetts, Pennsylvania, Tennessee and WestVirginia between October 2002 and March 2004.  Plaintiffs in the Californialawsuit were denied class certification on January 30, 2006 and are appealingthat decision. Two of these lawsuits are multi-product lawsuits and aredescribed under the heading “Multi-Product Lawsuits” below. The Company and itsdefendant subsidiaries have filed motions to dismiss with respect to six ofthese seven pending lawsuits. Certain motions to dismiss remain pending, andother motions to dismiss have been denied by the applicable court, which arebeing, or will be, appealed by the Company and its defendant subsidiaries.

*EPDM*.With respect to EPDM, the Company has entered into settlement agreements withrespect to the consolidated EPDM direct purchaser lawsuit previously subject tothe Global Settlement Agreement as described above, and a second directpurchaser lawsuit previously pending in the United States District Court,District of Connecticut.  The remaining two pending direct federalpurchaser lawsuits are multi-product lawsuits and are described separatelyunder the heading “Multi-Product Lawsuits” below.

The Company and certainof its subsidiaries also remain defendants in twelve pending indirect putativeclass action lawsuits for alleged violations of state law with respect to EPDMfiled in state courts in California, Florida,

 

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Iowa, Kansas, Nebraska,New Mexico, New York, North Carolina, Pennsylvania and Vermont between April2004 and February 2005.  Four of these lawsuits are multi-product lawsuitsand are described under the heading “Multi-Product Lawsuits” below.  The Company has entered into a settlementagreement resolving claims with respect to one lawsuit filed inCalifornia.  The Company’s motion todismiss was granted with respect to a lawsuit previously pending in Florida.

*NitrileRubber.* With respect to nitrile rubber, the Company, Uniroyaland other companies are defendants in two multi-product direct purchaserlawsuits involving nitrile rubber, which are described separately below. The Company and certain of its subsidiaries also remain defendants in fourpending indirect putative class action multi-product lawsuits for allegedviolations of state law filed in state courts in California, Florida, New Yorkand Pennsylvania.  These lawsuits aredescribed under the heading “Multi-Product Lawsuits” below.  The Companyhas entered into a settlement agreement which is intended to resolve claimswith respect to three indirect putative class action lawsuits previouslypending in Nebraska, Tennessee and Vermont.

*PlasticsAdditives.* With respect to plastic additives, the Company hasentered into a settlement agreement which is intended to resolve claims withrespect to one federal indirect purchaser lawsuit filed in the United StatesDistrict Court, Eastern District of Pennsylvania in August 2005, and onepending indirect putative class action lawsuit for alleged violations of statelaw filed in state court in Nebraska in February 2005.  The Company has also settled claims withrespect to one pending indirect putative class action lawsuit for allegedviolations of state law filed in the California state court in May 2004.

*Urethanes*.With respect to urethanes, the Company, Uniroyal and other companies aredefendants in a consolidated federal direct purchaser class action lawsuitfiled in November 2004 in the United States District Court, District of Kansas.This action consolidates twenty-six direct purchaser class action lawsuitspreviously described in the Company’s prior periodic reports filed with theSecurities and Exchange Commission.  The Company, Uniroyal and othercompanies are also defendants in one direct multi-product lawsuit involvingurethanes described separately under the heading “Multi-Product Lawsuits”below.

With respect toUrethanes, the Company remains a defendant in seventeen pending indirectputative class action lawsuits for alleged violations of state law filed inCalifornia, Florida, Massachusetts, New York, Pennsylvania and Tennessee,between March 2004 and October 2005.  Four of these lawsuits aremulti-product lawsuits and are described under the heading “Multi-ProductLawsuits” below.

*Multi-ProductLawsuits*. The Company, Uniroyal and other companies aredefendants in two federal direct purchaser lawsuits which are multi-productlawsuits for alleged violations of state law.  The first lawsuit was filedon November 16, 2004, in the United States District Court, Northern District ofOhio, by Parker Hannifin Corporation and PolyOne Corporation with respect topurchases of EPDM, nitrile rubber and polychloroprene from one or more of thedefendants.  This action has been transferred to the District ofConnecticut. Parker Hannifin Corporation’s claims with respect to thenitrile rubber portion of this suit have been settled.  All of PolyOne’sclaims with respect to this lawsuit have been settled.

The second lawsuit wasfiled on February 10, 2005 in Massachusetts state court. This lawsuit wassubsequently removed to the United States District Court, District ofMassachusetts.  The claims in this lawsuit relate to purchases of anyproduct containing rubber and urethane products, defined to include EPDM,nitrile rubber, and urethanes.

The Company, itssubsidiary Uniroyal, and other companies are defendants in four pendingindirect putative purchaser class action lawsuits in four states that eachinvolve multiple products. Two of the outstanding multi-product lawsuits relateto purchases of any product containing rubber and urethane products, defined toinclude rubber chemicals, EPDM, nitrile rubber and urethanes.  Theremaining two outstanding multi-product lawsuits relate to purchases of anyproduct containing rubber and urethane products, defined to include EPDM,nitrile rubber, and urethanes.  An indirect purchaser class actionpreviously pending in Massachusetts state court has been removed to the UnitedStates District Court, District of Massachusetts and is described above.

At December 31,2006 and December 31, 2005, the Company had remaining reserves of $102.5million and $51.4 million, respectively, included in accrued expenses on itsconsolidated balance sheets relating to the remaining U.S. direct and indirectpurchaser lawsuits, the federal securities class action lawsuit described under“Federal Securities Class Action lawsuit” below, and the shareholder derivativelawsuit described under “Shareholder Derivative Lawsuit” below.  Thesereserves cover all direct and indirect purchaser antitrust claims in therubber, EPDM, plastics additives,

 

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urethanes and nitrilerubber civil cases.  The Company periodically reviews its accruals asadditional information becomes available, and may adjust its accruals based onlater occurring events.

*Canadian Civil Antitrust Actions*

*EPDM*. TheCompany and the plaintiffs in three previously disclosed Canadian class actionlawsuits relating to EPDM have entered into a settlement agreement, dated as ofSeptember 19, 2005 (the “EPDM Settlement Agreement”), that is intended toresolve, with respect to the Company and its defendant subsidiaries, the threelawsuits filed in Canada.

The EPDM SettlementAgreement required that the Company pay CDN $4.5 million (approximately U.S.$3.9 million) to the class claimants in Canada covering all direct and indirectpurchasers of EPDM during the class period of January 1, 1997 toDecember 31, 2001 in exchange for the final dismissal with prejudice ofthe lawsuit as to the Company and its subsidiary defendants and a completerelease of all claims against the Company and its subsidiary defendants setforth in the lawsuits.  This settlement amount was paid in the fourthquarter of 2005. The EPDM Settlement Agreement, which has been approved by theapplicable courts, permitted potential class members to opt out of the classand the Company to recover a portion of the settlement funds with respect tothose potential class members that chose to opt out of the settlement. Theopt-out period expired on March 6, 2006 and one class member opted out. In April of 2006, the Company recovered CDN $0.3 million (approximatelyU.S. $0.3 million) in previously paid settlement funds related to this opt-out.

*RubberChemicals*. The Company has entered into a settlementagreement, dated as of December 1, 2005 (the “Rubber Chemicals SettlementAgreement”), that is intended to resolve, with respect to the Company and itsdefendant subsidiaries, four Canadian class action lawsuits.

The Rubber ChemicalsSettlement Agreement proposes the certification of the lawsuits as classactions for purposes of the settlement and provides that the Company pay CDN$7.2 million (approximately U.S. $6.4 million) to the class claimants in Canadacovering all persons who purchased rubber chemicals products in Canada duringthe class period of July 1, 1995 to December 31, 2001, in exchangefor the final dismissal with prejudice of the lawsuits as to the Company andits defendant subsidiaries and a complete release of all claims against theCompany and its defendant subsidiaries set forth in the lawsuits. The RubberChemicals Settlement Agreement has been approved by the applicablecourts.  The opt out period expired on or about September 18, 2006.  InDecember 2006, the Company recovered CDN $2.9 million (approximately U.S. $2.6million) of settlement funds that were related to four potential class membersthat chose to, or were deemed to, opt out of the settlement.  Additionally in December 2006, the Company madea final payment of CDN $4.3 million (approximately U.S. $3.8 million).

*PolyesterPolyols* (previously described as Urethanes and UrethaneChemicals). The Company and the plaintiffs in two Canadian class actionlawsuits relating to polyester polyols (which is a chemical used in themanufacture of polyurethanes) or products that directly or indirectly containor are derived from polyester polyols (collectively, “Polyester Polyols”) haveentered into a settlement agreement, dated November 8, 2005 (the “PolyesterPolyols Settlement Agreement”), that is intended to resolve, with respect tothe Company and its defendant subsidiaries, the Canadian lawsuits.

The Polyester PolyolsSettlement Agreement proposes the certification of the lawsuits as classactions for purposes of the settlement and provides that the Company payCDN $69,000 (approximately U.S. $60,000) to the class claimants inCanada who purchased Polyester Polyols in Canada during the class period ofFebruary 1, 1998 to December 31, 2002, in exchange for the finaldismissal with prejudice of the lawsuits as to the Company and its defendantsubsidiaries and a complete release of all claims against the Company and itsdefendant subsidiaries set forth in the lawsuits. The Polyester PolyolsSettlement Agreement, which is subject to the approval of the courts in Ontarioand Quebec identified above and notice to class members, permits potentialclass members to opt out of the class and the Company to recover a portion ofthe settlement funds with respect to certain potential class members thatchoose to opt out of the settlement.  The amount of the recovery is notestimable at this time.

At December 31, 2006, theCompany had no remaining reserves relating to the direct and indirect purchaserlawsuits for Canadian matters.  Thereserve balance for these matters at December 31, 2005 was $6.2 million.

 

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The reserveactivity for antitrust related litigation is summarized as follows:

Governmental Reserves:
| ***(In thousands)***                   | ** ** | ** ** | ** ** | **U.S. DOJ  Fines** | ** ** | **Canada  Federal  Fines** | ** ** | **Total U.S  and Canada  Fines** | ** ** | **European  Commission** | ** ** |
|---------------------------------------------|------------|------------|------------|--------------------------|------------|----------------------------|------------|--------------------------------------------|------------|--------------------------|------------|
| Balance December  31, 2004                  |       | $          | 40,226     |                     | $          | 5,985                      |       | $                                          | 46,211     |                     | $          | — |   |
| 2005 Antitrust  costs, excluding legal fees |       | —     |       | —                   |       | —                     |       | 16,051                                     |       |
| Payments                                    |       | (2,000     | )          | (286                     | )          | (2,286                     | )          | —                                     |       |
| Accretion -  Interest                       |       | 2,419      |       | 357                      |       | 2,776                      |       | —                                     |       |
| Foreign currency  translation               |       | —     |       | 94                       |       | 94                         |       | —                                     |       |
| Balance December  31, 2005                  |       | 40,645     |       | 6,150                    |       | 46,795                     |       | 16,051                                     |       |
| 2006 Antitrust  costs, excluding legal fees |       | —     |       | 72                       |       | 72                         |       | —                                     |       |
| Payments                                    |       | (6,000     | )          | (961                     | )          | (6,961                     | )          | (16,548                                    | )          |
| Accretion -  Interest                       |       | 2,184      |       | 352                      |       | 2,536                      |       | —                                     |       |
| Foreign currency  translation               |       | —     |       | 62                       |       | 62                         |       | 497                                        |       |
| **Balance December 31, 2006**               | ** ** | **$**      | **36,829** | ** **               | **$**      | **5,675**                  | ** ** | **$**                                      | **42,504** | ** **               | **$**      | **—** | ** ** |

 

Civil Reserves:
| ***(In thousands)***                   | ** ** | ** ** | ** **  | **U.S. Civil and  Securities  Matters** | ** ** | **Canada  Civil  Matters** | ** ** | **Total  Civil  Matters** | ** **  |
|---------------------------------------------|------------|------------|-------------|---------------------------------------------------|------------|----------------------------|------------|---------------------------|-------------|
| Balance December  31, 2004                  |       | $          | 93,113      |                                              | $          | —                     |       | $                         | 93,113      |   |
| 2005 Antitrust  costs, excluding legal fees |       | 9,335      |        | 10,036                                            |       | 19,371                     |       |
| Payments                                    |       | (53,358    | )           | (3,845                                            | )          | (57,203                    | )          |
| Accretion -  Interest                       |       | 2,321      |        | —                                            |       | 2,321                      |       |
| Foreign currency  translation               |       | —     |        | (37                                               | )          | (37                        | )          |
| Balance December  31, 2005                  |       | 51,411     |        | 6,154                                             |       | 57,565                     |       |
| 2006 Antitrust  costs, excluding legal fees |       | 81,065     |        | (2,578                                            | )          | 78,487                     |       |
| Payments                                    |       | (30,000    | )           | (3,792                                            | )          | (33,792                    | )          |
| Foreign currency  translation               |       | —     |        | 216                                               |       | 216                        |       |
| **Balance December 31, 2006**               | ** ** | **$**      | **102,476** | ** **                                        | **$**      | **—**                 | ** ** | **$**                     | **102,476** | ** ** |

 

Federal Securities Class Action

The Company, certain of its former officersand directors (the “Crompton Individual Defendants”), and certain formerdirectors of the Company’s predecessor Witco Corp. are defendants in aconsolidated class action lawsuit, filed on July 20, 2004, in the United StatesDistrict Court, District of Connecticut, brought by plaintiffs on behalf ofthemselves and a class consisting of all purchasers or acquirers of the Company’sstock between October 1998 and October 2002. The consolidated amended complaintprincipally alleges that the Company and the Crompton Individual Defendantscaused the Company to issue false and misleading statements that violated thefederal securities laws by reporting inflated financial results resulting froman alleged illegal, undisclosed price-fixing conspiracy. The putative classincludes former Witco Corp. shareholders who acquired their securities in theCrompton-Witco merger pursuant to a registration statement that allegedlycontained misstated financial results. The complaint asserts claims against theCompany and the Crompton Individual Defendants under Section 11 of theSecurities Act 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 1933 andSection 20 of the Securities Exchange Act of 1934 against the CromptonIndividual Defendants. The complaint also asserts claims for breach offiduciary duty against certain former directors of Witco Corp. for actions theyallegedly took as Witco Corp. directors in connection with the Crompton-Witcomerger. The plaintiffs seek, among other things, unspecified damages, interest,and attorneys’ fees and costs. The Company and the Crompton Individual Defendantsfiled a motion to dismiss on September 17, 2004, which is now fully briefed andpending. The former directors of Witco Corp. filed a motion to dismiss inFebruary 2005, which is pending. On July

 

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22, 2005, the court granted a motion by theCompany and the Crompton Individual Defendants to stay discovery in the relatedConnecticut shareholder derivative lawsuit (described below under “ShareholderDerivative Lawsuit”), pending resolution of the motion to dismiss by theCompany 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 alleges thatthe 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 othercivil claims, litigation and arbitration, and regulatory investigations,arising in the ordinary course of its present business as well as in respect ofits divested businesses. Some of these claims and litigations relate to productliability claims, including claims related to the Company’s current productsand asbestos-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 business or results of operations,cash flow or financial condition.

**22) CONTINGENCIES**

**Environmental Matters**

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 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, 2006 and 2005, were $124.4million and $147.9 million, respectively. At December 31, 2006 and 2005,environmental liabilities of $29.9 million and $28.2 million, respectively,have been included in accrued expenses and $94.5 million and $119.7 million,respectively, have been included in other liabilities on the consolidatedbalance sheets. The Company estimates the determinable environmental liabilityto range from $112 million to $162 million at December 31, 2006.  The Company’s reserves include estimates fordeterminable clean-up costs. During 2006, the Company recorded a pre-tax chargeof $7.3 million to increase its environmental liabilities and made payments of$25.0 million for clean-up costs, which reduced its environmentalliabilities.  At a number of these sites,the extent of contamination has not yet been fully investigated or the finalscope of remediation 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’s financialcondition, results of operations and cash flows. It is reasonably possible thatthe Company’s estimates for environmental remediation liabilities may change inthe future should additional sites be identified, further remediation measuresbe required or undertaken, current laws and regulations be modified oradditional environmental laws and regulations be enacted.

 

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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 these regulations have been construedto authorize joint and several liability, the EPA could seek to recover allcosts involving a waste disposal site from any one of the PRP’s for such site,including the Company, despite the involvement of other PRP’s.  In many cases, the Company is one of severalhundred PRP’s so identified.  In a fewinstances, the Company is one of only a handful of PRP’s, and at one site theCompany is the only PRP 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* -Uniroyal (a wholly owned subsidiary of the Company) and its Canadiansubsidiary, Uniroyal Chemical Co./Cie (formerly known as Uniroyal ChemicalLtd./Ltee and now known as Chemtura Canada Co./Cie) were joined with others asdefendants in consolidated civil actions brought in the United States DistrictCourt, Eastern District of Arkansas, Western Division (“Court”) by the UnitedStates, the State of Arkansas and Hercules Incorporated (“Hercules”), relatingto a Vertac Chemical Company site in Jacksonville, Arkansas.  Uniroyal has been dismissed from thelitigation.  However, on May 21, 1997,the Court entered an order finding that Uniroyal Chemical Co./Cie is jointlyand severally liable to the United States, and finding that Hercules andUniroyal Chemical Co./Cie are liable to each other in contribution. On October23, 1998, the Court entered an order granting the United States’ motion for summaryjudgment against Uniroyal Chemical Co./Cie and Hercules as to the amount of itsclaimed removal and remediation costs of $102.9 million at the Vertacsite.  Trial on the allocation of thesecosts as between Uniroyal Chemical Co./Cie and Hercules was concluded onNovember 6, 1998, and on February 3, 2000, the Court entered an Order findingUniroyal Chemical Co./Cie liable to the United States for approximately $2.3million and liable to Hercules in contribution for approximately $0.7 million.  On April 10, 2001, the United States Court ofAppeals for the Eighth Circuit (“Appeals Court”) (i) reversed a decision infavor of the United States and against Hercules with regard to the issue ofdivisibility of harm and remanded the case back to the Court for a trial on theissue; (ii) affirmed the finding of arranger liability against UniroyalChemical Co./Cie; and (iii) set aside the findings of contribution betweenHercules and Uniroyal Chemical Co./Cie by the Court pending a decision uponremand.  The Appeals Court also deferredruling on all constitutional issues raised by Hercules and Uniroyal ChemicalCo./Cie pending subsequent findings by the Court.  On June 6, 2001, the Appeals Court deniedUniroyal Chemical Co./Cie’s petition for rehearing by the full Appeals Court onthe Appeals Court’s finding of arranger liability against Uniroyal ChemicalCo./Cie and on December 10, 2001, Uniroyal Chemical Co./Cie’s Petition for aWrit of Certiorari to the United States Supreme Court with regard to the issueof its arranger liability was denied.  OnDecember 12, 2001, the Court concluded hearings pursuant to the April 10, 2001remand by the Appeals Court and briefing on the issue of divisibility wascompleted in January 2003.  OnMarch 30, 2005, the Court entered a memorandum opinion and order findingno basis for Hercules’ claim of divisibility of harm for the damages arisingfrom the remediation for which Hercules and Uniroyal Chemical Co./Cie hadpreviously been found jointly and severally liable. The Court also rejectedchallenges to the constitutionality of CERCLA and its application in this case.Further, the Court affirmed its earlier findings regarding allocation. The netresult of the memorandum opinion and order is the allocation of liability uponUniroyal Chemical Co./Cie of 2.6 percent of the damages imposed jointlyand severally upon Uniroyal Chemical Co./Cie and Hercules. This finding returnsthe parties to the positions held following the Court’s February 3, 2002order, which resulted in liability upon Uniroyal Chemical Co./Cie to the UnitedStates for approximately $2.9 million and liability to Hercules forcontribution for approximately $0.7 million. The Appeals Court affirmedthe judgment on July 13, 2006, and later denied petitions for rehearing.Both Uniroyal Chemical Co./Cie and Hercules have filed petitions for writs ofcertiorari in the Supreme Court of the United States.

*Petrolia* - InApril 2004, the Company and other owners of property near our former Petrolia,Pennsylvania facility were named as defendants in a toxic tort class actionlawsuit alleging contamination in and around the named areas that gave rise tocertain property damage and personal injuries. The plaintiffs also sought clean-up by the defendants of the allegedcontamination.  On October 18, 2005, theCourt issued its Memorandum Opinion and Order denying the plaintiffs’ motionfor class certification, 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.

*Scarborough* -The Ontario Ministry of the Environment has brought an action against ChemturaCo./Cie in connection with a 2004 release of naphtha sulfonic acid at ChemturaCo./Cie’s Scarborough, Ontario, Canada facility. Although Chemtura Co./Cie iscurrently contesting liability for this release, potential monetary sanctionscould reach $100,000 or more.

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**LegalProceedings**

*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 stateclass actions, as well as the putative class action pending in federal districtcourt, seek recovery for economic and non-economic damages allegedly arisingfrom the fire.  Punitive damages aresought in the Davis case in Rockdale County, Georgia and in the Martin case inthe United States District Court for the Northern District of Georgia. The Martin case also seeks a declaratory judgment to reform certain settlements,as well as medical monitoring and injunctive relief.  The Company intends to vigorously defendagainst these lawsuits.

The Company was alsonamed as a defendant in fifteen lawsuits filed by individual or multi-partyplaintiffs in the Georgia and Federal courts pertaining to the May 25, 2004fire at its Conyers, Georgia warehouse.  Two of these lawsuits have beenvoluntarily dismissed without prejudice by the plaintiffs, and three have beendismissed with prejudice.  The plaintiffs in the remaining lawsuits seekrecovery for economic and non-economic damages, including punitive damages insix of the ten remaining lawsuits.  One of the lawsuits, the Diana Smithcase, was filed in the United States District Court for the Northern Districtof Georgia against the Company, as well as the City of Conyers and RockdaleCounty, and included allegations similar to those in the other lawsuits notedabove, but adding claims for alleged civil rights violations, federalOccupational Safety and Health Administration violations, Georgia RacketeerInfluenced and Corrupt Organizations Act violations, criminal negligence,reckless endangerment, false imprisonment, and kidnapping, among otherclaims.  The federal law claims have beendismissed with prejudice and the state law claims have been dismissed withoutprejudice. The Court has also dismissed without prejudice the plaintiffs’claims against the City of Conyers and Rockdale County. The Company intends tovigorously defend against these lawsuits.

On or about January 8,2007, the Company was named as a defendant in a lawsuit filed by an individual,George J. Collins, in the Superior Court of Gwinnett County, Georgia. Thelawsuit includes allegations pertaining to the May 25, 2004 fire at itsConyers, Georgia warehouse, and seeks recovery for economic and non-economicdamages, including punitive damages. The action has been transferred to theState Court for Gwinnett County, Georgia. The Company intends to vigorouslydefend against this lawsuit.

Within one day of thefire, the Company established a claims office to resolve all legitimateeconomic and personal injury claims in the Rockdale County, Georgia area. The Company still maintains a claims office in Conyers, and continues tonegotiate the settlement of claims whether submitted through the claims officeor otherwise.

At the time of thefire, the Company maintained, and continues to maintain, property and generalliability insurance.  The Company believes that its general liabilitypolicies will adequately cover any third party claims and legal and processingfees in excess of the amounts that were recorded through December 31, 2006.

*Albemarle Corporation -*In May2002, Albemarle Corporation filed two complaints against the Company in theUnited States District Court for the Middle District of Louisiana, one allegingthat the Company infringed three process patents held by Albemarle Corporationrelating to bromine vacuum tower technology, and the other alleging that theCompany infringed or contributed to or induced the infringement of a patentrelating to the use of decabromodiphenyl ethane as a flame retardant inthermoplastics. On a motion by the Company and over Albemarle’s objection, thecases were consolidated. In addition, the Company filed a counterclaim with theDistrict Court in the flame retardant cases, alleging, among other things, thatthe Albemarle patent is invalid or was obtained as a result of inequitableconduct from the United States Patent and Trademark Office. In March 2004,Albemarle amended its consolidated complaint to add additional counts of patentinfringement and trade secret violations. The Company believes that theallegations of Albemarle in the consolidated complaint, as well as theallegations in the additional counts, are without basis, factually or legally,and intends to defend the case vigorously. On October 25, 2005, Albemarle filed a complaint against ChemturaCorporation and Great Lakes Chemical Corporation in the United States DistrictCourt for the Middle District of Louisiana alleging that Chemtura and GreatLakes infringed a recently granted U.S. patent held by Albemarle relating to adecabromodiphenyl ethane “wet cake” intermediate product.  The Companybelieves that the allegations of the complaint are without basis, factually orlegally, and intends to defend the case vigorously. The parties are currentlycompleting the discovery phase of the cases and, in the first case describedabove, are preparing for a hearing on claim construction scheduled for thefirst quarter of 2007.

*OSCA —*GreatLakes previously held interests in OSCA, Inc., which interests were divested toBJ Services Company in May 2002.  OSCA isa party to certain pending litigation regarding a blowout of a well in the Gulfof Mexico operated by Newfield Exploration Company. In the lawsuit, theplaintiffs claimed that OSCA and the other defendants breached their contractsto perform work-over operations on the well and were negligent in performingthose operations. Pursuant to an indemnification agreement between Great Lakesand BJ Services entered into at the time of the sale of OSCA, Great Lakesagreed to remain responsible for 75% of any uninsured liability and costs inexcess of $3 million incurred by OSCA upon settlement or final determination ofthis pending litigation. In

 

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April 2002, a jury foundOSCA and the other defendants responsible for those claims and determined OSCA’sshare of the damages. In connection with the lawsuit, OSCA asserted claimsagainst its insurers and insurance brokers in support of insurance coverage forthis incident. Following a related trial on these insurance coverage claims,the court issued its final judgments on the underlying liability claims and theinsurance coverage claims, entering judgment against OSCA for a net amount ofapproximately $13.3 million plus interest and finding that such amount was not coveredby insurance. The Company and BJ Services appealed certain of the liability andinsurance coverage decisions.  In April2006, the United States Fifth Circuit Court of Appeals affirmed the jury’sverdict on liability against OSCA, but reversed in part the District Court’sdecision regarding insurance coverage available to OSCA and remanded the matterto the District Court.  The District Court will now determine what portionof the judgment against OSCA is covered by insurance after applying a policyexclusion that the Fifth Circuit found to be valid and applicable.

Each quarter the Companyevaluates and reviews pending claims and litigation to determine appropriatereserve amounts. As of December 31, 2006, the Company’s accrual for probableloss in the aforementioned legal proceeding cases is immaterial. In addition,the related receivable to reflect probable insurance recoveries is alsoimmaterial.

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 Companyis subject to routine litigation in connection with the ordinary course of itsbusiness. These routine matters have not had a material adverse effect on theCompany, its business or financial condition in the past, and the Company doesnot expect this litigation, individually or in the aggregate, to have amaterial adverse effect on its business or its financial condition in the future,but it can give no assurance that such will be the case.

**Guarantees**

TheCompany has standby letters of credit and guarantees with various financialinstitutions.  At December 31, 2006 andDecember 31, 2005, the Company had $127.3 million and $127.1 million,respectively, of outstanding letters of credit and guarantees primarily relatedto its liabilities for environmental remediation, insurance obligations,European value added tax (VAT) obligations, a pending legal matter and apotential tax exposure.

Theletter of credit for the potential tax exposure relating to a government auditwas released in 2006 on the basis that the claims were without merit, thusthere was no letter of credit or accrual remaining at December 31, 2006.  At December 31, 2005, the Company had a $20.4million letter of credit and a $10.6 million accrual, which was subsequentlyreversed in the fourth quarter of 2006.

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.  The amount of the letter of credit was $16.1million at December 31, 2006 and 2005. At December 31, 2005, the Company had $9.7 million accrued for thisexposure.  During the second quarter of2006, the Company completed its review of this matter and reversed the $9.7million accrual as part of the purchase accounting adjustments to goodwillrelated to the Merger.

The Company has appliedthe disclosure provisions of FASB Interpretation No. 45 “Guarantor’s Accountingand Disclosure Requirements for Guarantees, Including Indirect Guarantees ofIndebtedness of Others” (FIN 45) to its agreements that contain guarantee orindemnification clauses. The Company is a party to several agreements pursuantto which it may be obligated to indemnify a third party with respect to certainloan obligations of joint venture companies in which the Company has an equityinterest.  These obligations arose toprovide initial financing for a joint venture start-up, fund an acquisition andprovide project capital.  Suchobligations range in duration with terms from origination to maturity betweenfive and nine years.  In the event thatany of the joint venture companies were to default on these loan obligations,the Company would indemnify the other party up to its proportionate share ofthe obligation based upon its ownership interest in the joint venture.  At December 31, 2006, the maximum potentialfuture principal and interest payments due under these guarantees was $19.0 and$1.4 million, respectively.  Inaccordance with FIN 45, the Company has accrued $2.2 million in reserves, whichrepresents the probability weighted fair value of these guarantees at December31, 2006 as estimated by an independent appraisal firm.  The reserve has been included in long-termliabilities on the consolidated balance sheet at December 31, 2006 with anoffset 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, 2006 and December 31, 2005,the amount of this guarantee was $2.0 and $2.8 million, respectively.  Based on past experience and on theunderlying circumstances, the Company does not expect to have to perform underthis guarantee.

At December 31, 2006,unconditional purchase obligations, primarily for commitments to purchase rawmaterials and tolling arrangements with outside venders, amounted to $8.0million (2007), $3.6 million (2008), $2.3 million (2009), $5.7 million (2010),$5.5 million (2011), $62.8 million (2012 and thereafter) and $87.9 million inthe aggregate.

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

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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 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 have not beendeducted:  (1) general corporate expense;(2) amortization; (3) unabsorbed overhead expense from discontinued operations;(4) facility closures, severance and related costs; (5) antitrust costs;  (6) merger costs; (7) the fair value impactof purchase accounting on inventory; (8) in-process research and development;(9) gain (loss) on sale of businesses; (10) income related to Gustafson jointventure; and (11) impairment of non-current assets.  Pursuantto Financial Accounting Standards Board Statement No. 131, “Disclosures aboutSegments of an Enterprise and Related Information,” these items have beenexcluded from the Company’s presentation of segment operating profit (loss)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.

The Company has organized its segments around thenature of its products.  As a result ofthe Merger, the reportable segments of the Company have been realigned andprior periods have been revised to reflect the Company’s new management andreporting structure. The Plastic Additives reporting segment includes theCompany’s former plastic additives business unit and the Great Lakes polymer stabilizersbusiness unit (collectively the non-flame retardants plastic additivesoperating segment) and flame retardants operating segment (excluding theagricultural, fluorine chemicals, performance fluids, Industrial WaterAdditives and optical monomer components of the Great Lakes businessunits).  The Polymers reporting segmentincludes the EPDM operating segment and the urethane additive and urethanebusiness units (collectively the urethanes operating segment).  The Specialty Additives reporting segmentincludes the Company’s rubber additives and petroleum additives operatingsegments.  The petroleum additivesbusiness unit includes the performance fluids component of the Great Lakesflame retardants operating segment. The Crop Protection reporting segmentincludes the Company’s former crop protection operating segment and theagricultural component of the Great Lakes flame retardants operatingsegment.  The Consumer Products reportingsegment includes the former Great Lakes consumer products reportingsegment.  The Other reporting segmentincludes the Polymer Processing Equipment business and the Great Lakes fluorinechemicals, Industrial Water Additives and optical monomers business units.

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 related to executives and corporate managers.  Unabsorbed overhead expense from discontinuedoperations in 2004 represents general overhead costs that were previouslyabsorbed by the Refined Products business unit. Facility closures, severance and related costs are costs related to theCompany’s 2006 cost savings initiatives, the 2004 activity-based restructuringinitiative, the cost reduction initiatives that began in 2001 and 2003 and therelocation of the corporate headquarters that began in 2002.  The antitrust costs are primarily for legalcosts associated with antitrust investigations and related civil lawsuits.  Merger costs are non-capitalizable costsassociated with the Merger of the Company and Great Lakes.  The loss on sale of business in 2006 isrelated primarily to the sale of the Company’s Industrial Water Additives (“IWA”)business.  The fair value impact ofpurchase accounting on inventory and the write-off of in-process research anddevelopment are also the direct result of the Merger.  The impairment of non-current assets includesimpairments to goodwill, certain tangible and intangible assets of the Fluorinebusiness and long lived assets of the IWA business.  Corporateassets are principally cash and cash equivalents, intangible assets (includinggoodwill) and other assets, (including deferred tax assets) maintained forgeneral 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 years2006, 2005 and 2004 is as follows:

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# **Information by Business Segment*(In thousands)***

| **Sales**            | ** ** | **2006**    | ** **    | **2005** | ** ** | **2004**  | ** ** |
|----------------------|------------|-------------|---------------|----------|------------|-----------|------------|
| Plastic  Additives   | ** ** | **$**       | **1,604,142** |     | $          | 1,156,627 |       | $ | 856,509 |   |
| Polymers             | ** ** | **492,021** |          | 517,471  |       | 469,455   |       |
| Specialty  Additives | ** ** | **555,585** |          | 561,090  |       | 458,664   |       |
| Crop Protection      | ** ** | **360,134** |          | 353,610  |       | 320,594   |       |
| Consumer  Products   | ** ** | **565,699** |          | 261,258  |       | —    |       |
| Other                | ** ** | **145,126** |          | 136,552  |       | 180,009   |       |
|                 | ** ** | **$**       | **3,722,707** |     | $          | 2,986,608 |       | $ | 2,285,231 |   |

** **
| **Operating Profit**                                                                       | ** ** | **2006**     | ** **   | **2005** | ** ** | **2004** | ** ** |
|-------------------------------------------------------------------------------------------------|------------|--------------|--------------|----------|------------|----------|------------|
| Plastic  Additives                                                                              | ** ** | **$**        | **102,435**  |     | $          | 73,466   |       | $ | 17,353 |   |
| Polymers                                                                                        | ** ** | **66,259**   |         | 94,355   |       | 62,477   |       |
| Specialty  Additives                                                                            | ** ** | **57,520**   |         | 95,978   |       | 21,666   |       |
| Crop Protection                                                                                 | ** ** | **64,559**   |         | 82,106   |       | 85,695   |       |
| Consumer  Products                                                                              | ** ** | **70,483**   |         | 23,215   |       | —   |       |
| Other                                                                                           | ** ** | **15,454**   |         | 5,208    |       | 3,360    |       |
|                                                                                            | ** ** | **376,710**  |         | 374,328  |       | 190,551  |       |
|                                                                                            | ** ** | ** **   |         |     |       |     |       |
| General corporate  expense                                                                      | ** ** | **(96,234**  | **)**        | (66,416  | )          | (64,040  | )          |
| Amortization                                                                                    | ** ** | **(41,844**  | **)**        | (28,282  | )          | (16,889  | )          |
| Unabsorbed overhead  expense from discontinued                                                  | ** ** | ** **   |         |     |       |     |       |
| operations                                                                                      | ** ** | **—**   |         | —   |       | (9,483   | )          |
| Facility closures,  severance and related costs                                                 | ** ** | **(5,482**   | **)**        | (22,713  | )          | (62,808  | )          |
| Antitrust costs                                                                                 | ** ** | **(89,534**  | **)**        | (49,109  | )          | (113,736 | )          |
| Merger costs                                                                                    | ** ** | **(17,010**  | **)**        | (45,230  | )          | —   |       |
| In-process research and  development                                                            | ** ** | **—**   |         | (73,300  | )          | —   |       |
| Gain (loss) on sale of  businesses, net                                                         | ** ** | **(12,283**  | **)**        | 3,199    |       | 1,302    |       |
| Income related to  Gustafson joint venture                                                      | ** ** | **1,500**    |         | —   |       | 93,448   |       |
| Impairment of  non-current assets                                                               | ** ** | **(80,263**  | **)**        | —   |       | —   |       |
| Purchase accounting  inventory fair value impact                                                | ** ** | **—**   |         | (37,100  | )          | —   |       |
| **Operating Profit (Loss)**                                                                     | ** ** | **35,560**   |         | 55,377   |       | 18,345   |       |
| ** **                                                                                      | ** ** | ** **   |         |     |       |     |       |
| Interest expense                                                                                | ** ** | **(102,485** | **)**        | (107,701 | )          | (78,441  | )          |
| Loss on early  extinguishment of debt                                                           | ** ** | **(44,030**  | **)**        | (55,091  | )          | (20,063  | )          |
| Other expense, net                                                                              | ** ** | **(6,428**   | **)**        | (12,237  | )          | (11,588  | )          |
| Loss from continuing  operations before income taxes and cumulative effect of accounting change |       | **$ **  | **(117,383** | **)**    | $     | (119,652 | )          | $  | (91,747 | ) |

 

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** **
| **Depreciation and Amortization** | ** ** | **2006**    | ** **  | **2005** | ** ** | **2004** | ** ** |
|---------------------------------------------|------------|-------------|-------------|----------|------------|----------|------------|
| Plastic Additives                           | ** ** | **$**       | **84,031**  |     | $          | 64,667   |       | $ | 45,410 |   |
| Polymers                                    | ** ** | **15,910**  |        | 15,273   |       | 15,667   |       |
| Specialty Additives                         | ** ** | **12,780**  |        | 14,858   |       | 14,926   |       |
| Crop Protection                             | ** ** | **7,230**   |        | 6,145    |       | 7,224    |       |
| Consumer Products                           | ** ** | **11,352**  |        | 5,114    |       | —   |       |
| Other                                       | ** ** | **2,977**   |        | 2,869    |       | 2,458    |       |
|                                        | ** ** | **134,280** |        | 108,926  |       | 85,685   |       |
| Corporate                                   | ** ** | **79,871**  |        | 48,896   |       | 32,496   |       |
|                                        | ** ** | **$**       | **214,151** |     | $          | 157,822  |       | $ | 118,181 |   |

 
| **Equity Income (Loss)** | ** ** | **2006**   | ** ** | **2005** | ** ** | **2004** | ** ** |
|------------------------------------|------------|------------|------------|----------|------------|----------|------------|
| Plastic Additives                  | ** ** | **$**      | **3,417**  |     | $          | 1,172    |       | $ | 1,132 |   |
| Specialty Additives                | ** ** | **689**    |       | 480      |       | 3,566    |       |
| Crop Protection                    | ** ** | **—** |       | —   |       | 9,602    |       |
|                               | ** ** | **4,106**  |       | 1,652    |       | 14,300   |       |
| Corporate                          | ** ** | **(5,774** | **)**      | (124     | )          | (191     | )          |
|                               | ** ** | **$**      | **(1,668** | **)**    | $          | 1,528    |       | $ | 14,109 |   |

** **
| **Segment Assets** | ** ** | **2006**      | ** **    | **2005**  | ** ** | **2004**  | ** ** |
|-------------------------|------------|---------------|---------------|-----------|------------|-----------|------------|
| Plastic Additives       | ** ** | **$**         | **1,114,768** |      | $          | 1,236,283 |       | $ | 548,305 |   |
| Polymers                | ** ** | **228,110**   |          | 244,147   |       | 233,153   |       |
| Specialty Additives     | ** ** | **295,875**   |          | 307,080   |       | 243,545   |       |
| Crop Protection         | ** ** | **210,257**   |          | 210,508   |       | 176,943   |       |
| Consumer Products       | ** ** | **303,060**   |          | 299,237   |       | —    |       |
| Other                   | ** ** | **74,970**    |          | 134,455   |       | 96,419    |       |
|                    | ** ** | **2,227,040** |          | 2,431,710 |       | 1,298,365 |       |
| Assets held for  sale   | ** ** | **—**    |          | —    |       | 97,252    |       |
| Corporate               | ** ** | **2,172,366** |          | 2,554,293 |       | 1,283,092 |       |
|                    | ** ** | **$**         | **4,399,406** |      | $          | 4,986,003 |       | $ | 2,678,709 |   |

** **
| **Capital Expenditures** | ** ** | **2006**    | ** **  | **2005** | ** ** | **2004** | ** ** |
|-------------------------------|------------|-------------|-------------|----------|------------|----------|------------|
| Plastic Additives             | ** ** | **$**       | **56,455**  |     | $          | 39,248   |       | $ | 23,470 |   |
| Polymers                      | ** ** | **11,588**  |        | 8,548    |       | 10,561   |       |
| Specialty Additives           | ** ** | **10,910**  |        | 12,126   |       | 12,491   |       |
| Crop Protection               | ** ** | **7,896**   |        | 5,906    |       | 5,299    |       |
| Consumer Products             | ** ** | **9,829**   |        | 3,577    |       | —   |       |
| Other                         | ** ** | **2,310**   |        | 2,584    |       | 1,226    |       |
|                          | ** ** | **98,988**  |        | 71,989   |       | 53,047   |       |
| Corporate                     | ** ** | **29,011**  |        | 30,051   |       | 6,906    |       |
| Total continuing operations   | ** ** | **127,999** |        | 102,040  |       | 59,953   |       |
| Discontinued operations       | ** ** | **—**  |        | 2,325    |       | 5,278    |       |
|                          | ** ** | **$**       | **127,999** |     | $          | 104,365  |       | $ | 65,231 |   |

 

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** **
| **Equity Method Investments** | ** ** | **2006**   | ** ** | **2005** | ** ** | **2004** | ** ** |
|-----------------------------------------|------------|------------|------------|----------|------------|----------|------------|
| Plastic Additives                       | ** ** | **6,515**  |       | 20,393   |       | 8,116    |       |
| Specialty Additives                     | ** ** | **33,144** |       | 25,882   |       | 27,560   |       |
| Crop Protection                         | ** ** | **294**    |       | —   |       | 172      |       |
| Consumer Products                       | ** ** | **300**    |       | 1,535    |       | —   |       |
|                                    | ** ** | **40,253** |       | 47,810   |       | 35,848   |       |
| Corporate                               | ** ** | **14,810** |       | 81,448   |       | —   |       |
|                                    | ** ** | **$**      | **55,063** |     | $          | 129,258  |       | $ | 35,848 |   |
|                                         |            |            |            |          |            |          |            |  |  |  |

** **

**Information by Geographic Area**

*(In thousands)*

Sales are based onlocation of customer.
| **Sales**     | ** ** | **2006**      | ** **    | **2005** | ** ** | **2004**  | ** ** |
|---------------|------------|---------------|---------------|----------|------------|-----------|------------|
| United States | ** ** | **$**         | **1,868,675** |     | $          | 1,548,833 |       | $ | 1,096,846 |   |
| Canada        | ** ** | **108,720**   |          | 105,309  |       | 85,630    |       |
| Latin America | ** ** | **183,724**   |          | 171,512  |       | 176,779   |       |
| Europe/Africa | ** ** | **998,493**   |          | 761,569  |       | 656,255   |       |
| Asia/Pacific  | ** ** | **563,095**   |          | 399,385  |       | 269,721   |       |
|          | ** ** | **3,722,707** |          | $        | 2,986,608  |      | $          | 2,285,231 |   |
|               |            |               |               |          |            |           |            |  |  |  |

** **
| **Property, Plant and Equipment** | ** ** | **2006**    | ** **    | **2005** | ** ** | **2004**  | ** ** |
|--------------------------------------------------|------------|-------------|---------------|----------|------------|-----------|------------|
| United States                                    | ** ** | **$**       | **683,461**   |     | $          | 752,855   |       | $ | 410,408 |   |
| Canada                                           | ** ** | **55,024**  |          | 55,977   |       | 56,797    |       |
| Latin America                                    | ** ** | **10,667**  |          | 9,666    |       | 6,146     |       |
| Europe/Africa                                    | ** ** | **356,447** |          | 333,594  |       | 204,060   |       |
| Asia/Pacific                                     | ** ** | **41,634**  |          | 40,243   |       | 17,514    |       |
|                                             | ** ** | **$**       | **1,147,233** |     | $          | 1,192,335 |       | $ | 694,925 |   |

 

**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 $12.2 million ($4.4 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*; however, under the *iron curtain method*, correction for these misstatements isconsidered material as of December 31, 2005.

Patent and Trademark Costs

TheCompany previously capitalized and amortized patent and trademark costsassociated with maintenance fees ($5.7 million) and did not reducecapitalized costs for patent or trademarks that were abandoned($8.3 million). These costs accumulated from the mid-1990’s through 2005 andtotaled approximately $14.0 million ($9.1 million, net of tax) atDecember 31, 2005.  The effect ofthese misstatements on the amount of depreciation and amortization, andSG&A reported by the Company for each period is noted in the chart below.

Additionally,the Company recorded $1.2 million of costs as part of SG&A during 2006 toproperly reflect similar changes in this policy during 2006.

Bond Discount

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

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*rollovermethod* eachyear.  However, the accumulation of thesesmall amounts over time can result in a more significant charge under the *iron curtain* method. From 1999 through 2005 the Company over expensed $4.3 million ($2.7million after tax) of interest under the straight-line method of amortization.The effect of these misstatements on the amount of interest expense reported bythe Company for each period is noted in the chart below.

Tax Credit

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 end of 2005 by $3.5 million. The effect of thismisstatement on the amount of tax expense reported by the Company for 2005 isnoted in the chart below.

Prior Year InventoryAdjustments

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.  

*Intercompany Profit EliminationInventory*

TheCompany identified $1.7 million ($1.1 million net of tax) of costs related tointercompany profit in 2001 had not been properly eliminated from inventory.

*Inventory in-Transit Adjustment*

TheCompany identified $2.3 million ($1.5 million net of tax) of costs associatedwith in-transit inventory 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 Merger date.  The effect of these misstatements on cost ofproducts sold reported by the Company for the second half of 2005 represented$0.8 million ($0.5 million net of tax) with the remaining $1.5 million ($1.0million net of tax) increasing the goodwill associated with the purchase ofGreat Lakes.

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 January1, 2006:

 
| ***(In thousands)  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                            |       | $                                | 1,739      |                                           | $          | 11,019                |       | $                | (3,075     | )                                                                 | $          | (3,336 | ) | $ | 6,347 |   |
| 2004                                           |       | —                           |       | 1,691                                          |       | (641                  | )          | (378             | )          | 672                                                               |       |
| 2005                                           |       | 764                              |       | 1,316                                          |       | (604                  | )          | (4,109           | )          | (2,633                                                            | )          |
| Total                                          |       | $                                | 2,503      |                                           | $          | 14,026                |       | $                | (4,320     | )                                                                 | $          | (7,823 | ) | $ | 4,386 |   |

 

**25)SUBSEQUENT EVENT**

On February 3, 2007,the Company signed an asset purchase agreement to sell its EPDM business andportions of its Rubber Chemical business to an affiliate of Lion ChemicalCapital, LLC. The transaction is expected to close in the first half of 2007and is subject to certain conditions, including regulatory approvals, financingand a financial audit.

On January 31, 2007, theCompany announced that it had completed the acquisition of the stock of KaufmanHoldings Corporation (Kaufman) for $160.0 million, with a potential maximumdeferred payment of $5.0 million to be paid to the sellers on the secondanniversary of the closing date subject to any indemnification claims.

Kaufman’s registeredtrademarks include Royco, ANDEROL, and Hatcol and serve the hydro fluorocarbonrefrigeration and high-performance synthetic lubricants markets.  The Kaufman acquisition complements theCompany’s existing Petroleum Additives segment in that it offers relatedproducts in key customer areas, provides the opportunity to strengthenalliances with major suppliers and may offer potential distributionsynergies.  Kaufman has approximately 300employees and 2006 revenues in excess of $200 million.

121

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This transaction will beaccounted for in accordance with the purchase method of accounting for businesscombinations.  The Company is currentlyin the process of valuing the acquired assets and assumed liabilities ofKaufman.

**26)GUARANTOR CONDENSED CONSOLIDATING FINANCIAL DATA**

The Company’sobligations under its 7% Notes due 2009, 6.875% Notes due 2016 and 6.875% Debenturesdue 2026 (collectively, “the Notes”), are jointly and severally, fully andunconditionally guaranteed by certain wholly-owned domestic subsidiaries of theCompany that guarantee the Company’s $740 million credit facility (the “GuarantorSubsidiaries”).  The Company’ssubsidiaries that do not guarantee the Notes are referred to as the “Non-GuarantorSubsidiaries”. The Guarantor Condensed Consolidating Financial Data presentedbelow presents the statements of operations, balance sheets and statements ofcash flow data (i) for Chemtura Corporation (the “Parent Company”), the GuarantorSubsidiaries and the Non-Guarantor Subsidiaries on a consolidated basis (whichis derived from Chemtura Corporation’s historical reported financialinformation); (ii) for the Parent Company, alone (accounting for its GuarantorSubsidiaries and the Non-Guarantor Subsidiaries on an equity basis under whichthe investments are recorded by each entity owning a portion of another entityat cost, adjusted for the applicable share of the subsidiary’s cumulativeresults of operations, capital contributions and distributions, and otherequity changes); (iii) for the Guarantor Subsidiaries alone; and (iv) for theNon-Guarantor Subsidiaries 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.

122

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**CondensedConsolidating Statement of Operations**

**Yearended December 31, 2006**

(*In thousands*)
| ** **                                                                                                  | ** ** | ** **       | ** ** | ** **       | ** ** | ** **  | ** ** | ** **       | ** ** | **Non-**         | ** ** |
|-------------------------------------------------------------------------------------------------------------|------------|------------------|------------|------------------|------------|-------------|------------|------------------|------------|------------------|------------|
| ** **                                                                                                  | ** ** | ** **       | ** ** | ** **       | ** ** | **Parent**  | ** ** | **Guarantor**    | ** ** | **Guarantor**    | ** ** |
| ** **                                                                                                  | ** ** | **Consolidated** | ** ** | **Eliminations** | ** ** | **Company** | ** ** | **Subsidiaries** | ** ** | **Subsidiaries** | ** ** |
|                                                                                                        |       |             |       |             |       |        |       |             |       |             |       |
| Net sales                                                                                                   |       | $                | 3,722,707  |             | $          | (1,399,373  | )          | $                | 387,592    |             | $          | 2,184,243 |   | $ | 2,550,245 |   |
|                                                                                                        |       |             |       |             |       |        |       |             |       |             |       |
| Cost of products sold                                                                                       |       | 2,814,214        |       | (1,399,373       | )          | 387,642     |       | 1,654,365        |       | 2,171,580        |       |
| Selling, general and  administrative                                                                        |       | 394,673          |       | —           |       | 32,729      |       | 169,379          |       | 192,565          |       |
| Depreciation and  amortization                                                                              |       | 214,151          |       | —           |       | 36,241      |       | 116,232          |       | 61,678           |       |
| Research and  development                                                                                   |       | 65,453           |       | —           |       | (543        | )          | 40,141           |       | 25,855           |       |
| Facility closures,  severance and related costs                                                             |       | 5,482            |       | —           |       | (3,796      | )          | 432              |       | 8,846            |       |
| Antitrust costs                                                                                             |       | 89,534           |       | —           |       | —      |       | 92,112           |       | (2,578           | )          |
| Merger costs                                                                                                |       | 17,010           |       | —           |       | 396         |       | 15,190           |       | 1,424            |       |
| (Gain) loss on sale of  businesses, net                                                                     |       | 12,283           |       | —           |       | (113        | )          | 9,529            |       | 2,867            |       |
| Income related to  Gustafson, joint venture                                                                 |       | (1,500           | )          | —           |       | —      |       | (1,500           | )          | —           |       |
| Impairment of  non-current assets                                                                           |       | 80,263           |       | —           |       | —      |       | 74,728           |       | 5,535            |       |
| Equity income                                                                                               |       | (4,416           | )          | —           |       | —      |       | (2,118           | )          | (2,298           | )          |
|                                                                                                        |       |             |       |             |       |        |       |             |       |             |       |
| Operating profit (loss)                                                                                     |       | 35,560           |       | —           |       | (64,964     | )          | 15,753           |       | 84,771           |       |
|                                                                                                        |       |             |       |             |       |        |       |             |       |             |       |
| Interest expense                                                                                            |       | 102,485          |       | —           |       | 66,801      |       | 28,010           |       | 7,674            |       |
| Loss on early  extinguishment of debt                                                                       |       | 44,030           |       | —           |       | 44,030      |       | —           |       | —           |       |
| Other (income) expense,  net                                                                                |       | 6,428            |       | —           |       | (16,156     | )          | 21,709           |       | 875              |       |
| Equity in net  (earnings) loss of subsidiaries from continuing operations                                   |       | —           |       | (1,949           | )          | 11,394      |       | (8,102           | )          | (1,343           | )          |
|                                                                                                        |       |             |       |             |       |        |       |             |       |             |       |
| Earnings (loss) from  continuing operations before income taxes and cumulative effect of accounting  change |       | (117,383         | )          | 1,949            |       | (171,033    | )          | (25,864          | )          | 77,565           |       |
| Income tax expense  (benefit)                                                                               |       | 135,625          |       | —           |       | 81,975      |       | (14,167          | )          | 67,817           |       |
|                                                                                                        |       |             |       |             |       |        |       |             |       |             |       |
| Earnings (loss) from  continuing operations                                                                 |       | (253,008         | )          | 1,949            |       | (253,008    | )          | (11,697          | )          | 9,748            |       |
| Earnings from  discontinued operations                                                                      |       | —           |       | —           |       | —      |       | —           |       | —           |       |
| Gain on sale of  discontinued operations                                                                    |       | 47,491           |       | —           |       | 38,292      |       | —           |       | 9,199            |       |
| Cumulative effect of  accounting change                                                                     |       | —           |       | —           |       | —      |       | —           |       | —           |       |
|                                                                                                        |       |             |       |             |       |        |       |             |       |             |       |
| Net earnings (loss)                                                                                         |       | $                | (205,517   | )                | $          | 1,949       |       | $                | (214,716   | )                | $          | (11,697 | ) | $ | 18,947 |   |

 

123

----

 

**CondensedConsolidating Balance Sheet**

**as ofDecember 31, 2006**

(*In thousands*)
| ** **                                       | ** ** | ** **       | ** ** | ** **       | ** ** | ** **  | ** ** | ** **       | ** ** | **Non-**         | ** ** |
|--------------------------------------------------|------------|------------------|------------|------------------|------------|-------------|------------|------------------|------------|------------------|------------|
| ** **                                       | ** ** | ** **       | ** ** | ** **       | ** ** | **Parent**  | ** ** | **Guarantor**    | ** ** | **Guarantor**    | ** ** |
| ** **                                       | ** ** | **Consolidated** | ** ** | **Eliminations** | ** ** | **Company** | ** ** | **Subsidiaries** | ** ** | **Subsidiaries** | ** ** |
| ASSETS                                           | ** ** | ** **       | ** ** | ** **       | ** ** | ** **  | ** ** | ** **       | ** ** | ** **       | ** ** |
| Current assets                                   |       | $                | 1,385,790  |             | $          | —      |       | $                | 413,152    |             | $          | 216,202 |   | $ | 756,436 |   |
| Intercompany  receivables                        |       | —           |       | (11,381,954      | )          | 7,626,538   |       | 747,118          |       | 3,008,298        |       |
| Investment in  subsidiaries                      |       | —           |       | (8,167,028       | )          | 3,872,598   |       | 170,244          |       | 4,124,186        |       |
| Property, plant  and equipment                   |       | 1,147,233        |       | —           |       | 366,493     |       | 313,434          |       | 467,306          |       |
| Cost in excess  of acquired net assets           |       | 1,176,809        |       | —           |       | 138,475     |       | 566,321          |       | 472,013          |       |
| Other assets                                     |       | 689,574          |       | —           |       | 163,358     |       | 275,530          |       | 250,686          |       |
| Total assets                                     |       | $                | 4,399,406  |             | $          | (19,548,982 | )          | $                | 12,580,614 |             | $          | 2,288,849 |   | $ | 9,078,925 |   |
|                                             |       |             |       |             |       |        |       |             |       |             |       |
| LIABILITIES AND  STOCKHOLDERS’ EQUITY       |       |             |       |             |       |        |       |             |       |             |       |
| Current  liabilities                             |       | $                | 887,976    |             | $          | —      |       | $                | 405,171    |             | $          | 201,642 |   | $ | 281,163 |   |
| Intercompany  payables                           |       | —           |       | (11,381,954      | )          | 9,009,516   |       | 64,119           |       | 2,308,319        |       |
| Long-term debt                                   |       | 1,063,360        |       | —           |       | 632,552     |       | 425,894          |       | 4,914            |       |
| Other long-term  liabilities                     |       | 769,166          |       | —           |       | 445,100     |       | 119,033          |       | 205,033          |       |
| Total liabilities                                |       | 2,720,502        |       | (11,381,954      | )          | 10,492,339  |       | 810,688          |       | 2,799,429        |       |
| Stockholders’  equity                       |       | 1,678,904        |       | (8,167,028       | )          | 2,088,275   |       | 1,478,161        |       | 6,279,496        |       |
| Total  liabilities and stockholders’ equity |       | $                | 4,399,406  |             | $          | (19,548,982 | )          | $                | 12,580,614 |             | $          | 2,288,849 |   | $ | 9,078,925 |   |

 

 

124

----

**Condensed Consolidating Statementof Cash Flows**

**Year ended December 31, 2006**

(*In thousands*)
| ** **                                                                                  | ** ** | ** **       | ** ** | ** **       | ** ** | ** **  | ** ** | ** **       | ** ** | **Non-**         | ** ** |
|---------------------------------------------------------------------------------------------|------------|------------------|------------|------------------|------------|-------------|------------|------------------|------------|------------------|------------|
| ** **                                                                                  | ** ** | ** **       | ** ** | ** **       | ** ** | **Parent**  | ** ** | **Guarantor**    | ** ** | **Guarantor**    | ** ** |
| ** **                                                                                  | ** ** | **Consolidated** | ** ** | **Eliminations** | ** ** | **Company** | ** ** | **Subsidiaries** | ** ** | **Subsidiaries** | ** ** |
| Increase (decrease) to  cash                                                                |       |             |       |             |       |        |       |             |       |             |       |
| CASH FLOWS FROM  OPERATING ACTIVITIES                                                       | ** ** | ** **       | ** ** | ** **       | ** ** | ** **  | ** ** | ** **       | ** ** | ** **       | ** ** |
| Net earnings (loss)                                                                         |       | $                | (205,517   | )                | $          | 1,949       |       | $                | (214,716   | )                | $          | (11,697 | ) | $ | 18,947 |   |
| Adjustments to  reconcile net earnings (loss) to net cash (used in) provided by operations: |       |             |       |             |       |        |       |             |       |             |       |
| Gain on sale of  Gustafson joint venture                                                    |       | (1,500           | )          | —           |       | —      |       | (1,500           | )          | —           |       |
| Loss on sale of  businesses, net                                                            |       | 12,283           |       | —           |       | (113        | )          | 9,529            |       | 2,867            |       |
| Loss (gain) on  sale of discontinued operations                                             |       | (47,491          | )          | —           |       | (38,292     | )          | —           |       | (9,199           | )          |
| Gain on sale of  equity interest in venture                                                 |       | (5,729           | )          | —           |       | —      |       | (5,729           | )          | —           |       |
| Impairment of  non-current assets                                                           |       | 80,263           |       | —           |       | —      |       | 74,728           |       | 5,535            |       |
| Loss on early  extinguishment of debt                                                       |       | 44,030           |       | —           |       | 44,030      |       | —           |       | —           |       |
| Depreciation and  amortization                                                              |       | 214,151          |       | —           |       | 36,241      |       | 116,232          |       | 61,678           |       |
| Stock-based  compensation expense                                                           |       | 13,703           |       | —           |       | 13,703      |       | —           |       | —           |       |
| Equity income                                                                               |       | 2,790            |       | —           |       | —      |       | 5,088            |       | (2,298           | )          |
| Changes in  assets and liabilities, net                                                     |       | 143,812          |       | (1,949           | )          | 175,881     |       | (156,666         | )          | 126,546          |       |
| Net cash (used in)  provided by operations                                                  |       | 250,795          |       | —           |       | 16,734      |       | 29,985           |       | 204,076          |       |
|                                                                                        |       |             |       |             |       |        |       |             |       |             |       |
| CASH FLOWS FROM  INVESTING ACTIVITIES                                                       |       |             | ** ** | ** **       | ** ** | ** **  | ** ** | ** **       | ** ** | ** **       | ** ** |
| Net proceeds from  divestments                                                              |       | 196,141          |       | —           |       | 114,826     |       | 27,933           |       | 53,382           |       |
| Cash acquired in  acquisitions, net of transaction costs paid                               |       | (8,842           | )          | —           |       | —      |       | (8,842           | )          | —           |       |
| Merger transaction  costs paid                                                              |       | (8,540           | )          | —           |       | (1,175      | )          | (2,663           | )          | (4,702           | )          |
| Capital expenditures                                                                        |       | (127,999         | )          | —           |       | (15,658     | )          | (69,288          | )          | (43,053          | )          |
| Other investing  activities                                                                 |       | 331              |       | —           |       | 331         |       | —           |       | —           |       |
| Net cash provided by  (used in) investing activities                                        |       | 51,091           |       | —           |       | 98,324      |       | (52,860          | )          | 5,627            |       |
|                                                                                        |       |             |       |             |       |        |       |             |       |             |       |
| CASH FLOWS FROM  FINANCING ACTIVITIES                                                       |       |             | ** ** | ** **       | ** ** | ** **  | ** ** | ** **       | ** ** | ** **       | ** ** |
| Proceeds from (payments  on) credit facility                                                |       | (414,095         | )          | —           |       | (225,000    | )          | —           |       | (189,095         | )          |
| Payments on long-term  borrowings                                                           |       | (323,689         | )          | —           |       | (323,689    | )          | —           |       | —           |       |
| Proceeds from long-term  borrowings                                                         |       | 497,262          |       | —           |       | 497,262     |       | —           |       | —           |       |
| Proceeds from (payments  on) short-term borrowings                                          |       | (16,125          | )          | —           |       | 29,745      |       | (881             | )          | (44,989          | )          |
| Premium paid on early  extinguishment of debt                                               |       | (35,703          | )          | —           |       | (35,703     | )          | —           |       | —           |       |
| Payments for debt  issuance costs                                                           |       | (5,775           | )          | —           |       | (5,775      | )          | —           |       | —           |       |
| Dividends paid                                                                              |       | (48,099          | )          | —           |       | (48,099     | )          | —           |       | —           |       |
| Repayment of insurance  policy loan                                                         |       | (9,854           | )          | —           |       | (9,854      | )          | —           |       | —           |       |
| Proceeds from exercise  of stock options                                                    |       | 3,359            |       | —           |       | 3,359       |       | —           |       | —           |       |
| Other financing  activities                                                                 |       | (2,017           | )          | —           |       | 597         |       | (2,614           | )          | —           |       |
| Net cash provided by  (used in) financing activities                                        |       | (354,736         | )          | —           |       | (117,157    | )          | (3,495           | )          | (234,084         | )          |
|                                                                                        |       |             |       |             |       |        |       |             |       |             |       |
| CASH                                                                                        |       |             | ** ** | ** **       | ** ** | ** **  | ** ** | ** **       | ** ** | ** **       | ** ** |
| Effect of exchange  rates on cash and cash equivalents                                      |       | 9,407            |       | —           |       | —      |       | —           |       | 9,407            |       |
| Change in cash and cash  equivalents                                                        |       | (43,443          | )          | —           |       | (2,099      | )          | (26,370          | )          | (14,974          | )          |
| Cash and cash equivalents  at beginning of period                                           |       | 138,556          |       | —           |       | 4,381       |       | 28,612           |       | 105,563          |       |
| Cash and cash equivalents at end of period                                                  |       | $                | 95,113     |             | $          | —      |       | $                | 2,282      |             | $          | 2,242 |   | $ | 90,589 |   |

 

 

125

----

**Condensed Consolidating Statement of OperationsYear ended December 31, 2005**(*In thousands*)
| ** **                                                                                                  | ** ** | ** **       | ** ** | ** **       | ** ** | ** **  | ** ** | ** **       | ** ** | **Non-**         | ** ** |
|-------------------------------------------------------------------------------------------------------------|------------|------------------|------------|------------------|------------|-------------|------------|------------------|------------|------------------|------------|
| ** **                                                                                                  | ** ** | ** **       | ** ** | ** **       | ** ** | **Parent**  | ** ** | **Guarantor**    | ** ** | **Guarantor**    | ** ** |
| ** **                                                                                                  | ** ** | **Consolidated** | ** ** | **Eliminations** | ** ** | **Company** | ** ** | **Subsidiaries** | ** ** | **Subsidiaries** | ** ** |
|                                                                                                        |       |             |       |             |       |        |       |             |       |             |       |
| Net sales                                                                                                   |       | $                | 2,986,608  |             | $          | (623,071    | )          | $                | 491,482    |             | $          | 1,575,898 |   | $ | 1,542,299 |   |
|                                                                                                        |       |             |       |             |       |        |       |             |       |             |       |
| Cost of products sold                                                                                       |       | 2,203,115        |       | (623,071         | )          | 412,624     |       | 1,156,813        |       | 1,256,749        |       |
| Selling, general and  administrative                                                                        |       | 333,080          |       | —           |       | 70,401      |       | 133,028          |       | 129,651          |       |
| Depreciation and  amortization                                                                              |       | 157,822          |       | —           |       | 40,855      |       | 63,531           |       | 53,436           |       |
| Research and  development                                                                                   |       | 51,826           |       | —           |       | 2,094       |       | 26,717           |       | 23,015           |       |
| Facility closures,  severance and related costs                                                             |       | 22,713           |       | —           |       | 12,252      |       | 10,328           |       | 133              |       |
| Antitrust costs                                                                                             |       | 49,109           |       | —           |       | —      |       | 26,904           |       | 22,205           |       |
| Merger costs                                                                                                |       | 45,230           |       | —           |       | 5,912       |       | 35,183           |       | 4,135            |       |
| In-process research and  development                                                                        |       | 73,300           |       | —           |       | —      |       | 49,500           |       | 23,800           |       |
| (Gain) loss on sale of  businesses, net                                                                     |       | (3,199           | )          | —           |       | —      |       | (3,199           | )          | —           |       |
| Equity income                                                                                               |       | (1,765           | )          | —           |       | —      |       | (551             | )          | (1,214           | )          |
|                                                                                                        |       |             |       |             |       |        |       |             |       |             |       |
| Operating profit (loss)                                                                                     |       | 55,377           |       | —           |       | (52,656     | )          | 77,644           |       | 30,389           |       |
|                                                                                                        |       |             |       |             |       |        |       |             |       |             |       |
| Interest expense                                                                                            |       | 107,701          |       | —           |       | 90,120      |       | 16,455           |       | 1,126            |       |
| Loss on early  extinguishment of debt                                                                       |       | 55,091           |       | —           |       | 55,091      |       | —           |       | —           |       |
| Other (income) expense,  net                                                                                |       | 12,237           |       | —           |       | 654         |       | 44,842           |       | (33,259          | )          |
| Equity in net  (earnings) loss of subsidiaries from continuing operations                                   |       | —           |       | (35,992          | )          | 47,583      |       | (3,252           | )          | (8,339           | )          |
|                                                                                                        |       |             |       |             |       |        |       |             |       |             |       |
| Earnings (loss) from  continuing operations before income taxes and cumulative effect of accounting  change |       | (119,652         | )          | 35,992           |       | (246,104    | )          | 19,599           |       | 70,861           |       |
| Income tax expense  (benefit)                                                                               |       | 65,198           |       | —           |       | (61,254     | )          | 67,177           |       | 59,275           |       |
|                                                                                                        |       |             |       |             |       |        |       |             |       |             |       |
| Earnings (loss) from  continuing operations                                                                 |       | (184,850         | )          | 35,992           |       | (184,850    | )          | (47,578          | )          | 11,586           |       |
| Earnings (loss) from  discontinued operations                                                               |       | 2,645            |       | —           |       | 1,486       |       | (10              | )          | 1,169            |       |
| Gain (loss) on sale of  discontinued operations                                                             |       | (3,889           | )          | —           |       | (33,400     | )          | —           |       | 29,511           |       |
| Cumulative effect of  accounting change                                                                     |       | (546             | )          | —           |       | (38         | )          | —           |       | (508             | )          |
| Net earnings (loss)                                                                                         |       | $                | (186,640   | )                | $          | 35,992      |       | $                | (216,802   | )                | $          | (47,588 | ) | $ | 41,758 |   |

 

**Condensed Consolidating Balance Sheetas of December 31, 2005**(*In thousands*)
| ** **                                       | ** ** | ** **       | ** ** | ** **       | ** ** | ** **  | ** ** | ** **       | ** ** | **Non-**         | ** ** |
|--------------------------------------------------|------------|------------------|------------|------------------|------------|-------------|------------|------------------|------------|------------------|------------|
| ** **                                       | ** ** | ** **       | ** ** | ** **       | ** ** | **Parent**  | ** ** | **Guarantor**    | ** ** | **Guarantor**    | ** ** |
| ** **                                       | ** ** | **Consolidated** | ** ** | **Eliminations** | ** ** | **Company** | ** ** | **Subsidiaries** | ** ** | **Subsidiaries** | ** ** |
| ASSETS                                           |       |             |       |             |       |        |       |             |       |             |       |
| Current assets                                   |       | $                | 1,541,600  |             | $          | —      |       | $                | 112,041    |             | $          | 589,739 |   | $ | 839,820 |   |
| Intercompany  receivables                        |       | —           |       | (9,567,154       | )          | 3,422,949   |       | 2,654,945        |       | 3,489,260        |       |
| Investment in  subsidiaries                      |       | —           |       | (5,429,263       | )          | 2,548,432   |       | 1,008,041        |       | 1,872,790        |       |
| Property, plant  and equipment                   |       | 1,192,335        |       | —           |       | 168,610     |       | 581,518          |       | 442,207          |       |
| Cost in excess  of acquired net assets           |       | 1,211,459        |       | —           |       | 102,797     |       | 622,798          |       | 485,864          |       |
| Other assets                                     |       | 1,040,609        |       | —           |       | 307,602     |       | 511,439          |       | 221,568          |       |
| Total assets                                     |       | $                | 4,986,003  |             | $          | (14,996,417 | )          | $                | 6,662,431  |             | $          | 5,968,480 |   | $ | 7,351,509 |   |
|                                             |       |             |       |             |       |        |       |             |       |             |       |
| LIABILITIES AND  STOCKHOLDERS’ EQUITY       |       |             |       |             |       |        |       |             |       |             |       |
| Current  liabilities                             |       | $                | 975,689    |             | $          | —      |       | $                | 231,784    |             | $          | 377,672 |   | $ | 366,233 |   |
| Intercompany  payables                           |       | —           |       | (9,603,757       | )          | 4,496,917   |       | 2,379,879        |       | 2,726,961        |       |
| Long-term debt                                   |       | 1,309,603        |       | —           |       | 685,258     |       | 435,557          |       | 188,788          |       |
| Other long-term  liabilities                     |       | 925,314          |       | —           |       | 306,004     |       | 248,875          |       | 370,435          |       |
| Total liabilities                                |       | 3,210,606        |       | (9,603,757       | )          | 5,719,963   |       | 3,441,983        |       | 3,652,417        |       |
| Stockholders’  equity                       |       | 1,775,397        |       | (5,392,660       | )          | 942,468     |       | 2,526,497        |       | 3,699,092        |       |
| Total  liabilities and stockholders’ equity |       | $                | 4,986,003  |             | $          | (14,996,417 | )          | $                | 6,662,431  |             | $          | 5,968,480 |   | $ | 7,351,509 |   |

 

126

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**CondensedConsolidating Statement of Cash FlowsYear ended December 31, 2005**(*In thousands*)
| ** **                                                                                  | ** ** | ** ** | ** ** | ** **       | ** ** | ** **       | ** ** | ** **    | ** ** | **Non-**         | ** ** |
|---------------------------------------------------------------------------------------------|------------|------------|------------|------------------|------------|------------------|------------|---------------|------------|------------------|------------|
| ** **                                                                                  | ** ** | ** ** | ** ** | ** **       | ** ** | **Parent**       | ** ** | **Guarantor** | ** ** | **Guarantor**    | ** ** |
| **Increase  (decrease) to cash**                                                            | ** ** | ** ** | ** ** | **Consolidated** | ** ** | **Eliminations** | ** ** | **Company**   | ** ** | **Subsidiaries** | ** ** | **Subsidiaries** | ** ** |
| CASH FLOWS FROM  OPERATING ACTIVITIES                                                       |       |       |       |             |       |             |       |          |       |             |       |
| Net earnings (loss)                                                                         |       | $          | (186,640   | )                | $          | 35,992           |       | $             | (216,802   | )                | $          | (47,588 | ) | $ | 41,758 |   |
| Adjustments to  reconcile net earnings (loss) to net cash (used in) provided by operations: |       |       |       |             |       |             |       |          |       |             |       |
| Loss (gain) on  sale of discontinued operations                                             |       | 3,889      |       | —           |       | 33,400           |       | —        |       | (29,511          | )          |
| Loss on early  extinguishment of debt                                                       |       | 55,091     |       | —           |       | 55,091           |       | —        |       | —           |       |
| Depreciation and  amortization                                                              |       | 160,602    |       | —           |       | 42,780           |       | 63,531        |       | 54,291           |       |
| Stock-based  compensation expense                                                           |       | 5,001      |       | —           |       | 5,001            |       | —        |       | —           |       |
| Equity income                                                                               |       | (1,528     | )          | —           |       | —           |       | (314          | )          | (1,214           | )          |
| In-process  research and development                                                        |       | 73,300     |       | —           |       | —           |       | 49,500        |       | 23,800           |       |
| Cumulative  effect of accounting change                                                     |       | 546        |       | —           |       | 38               |       | —        |       | 508              |       |
| Changes in  assets and liabilities, net                                                     |       | (189,473   | )          | (35,992          | )          | 171,966          |       | (5,078        | )          | (320,369         | )          |
| Net cash (used in)  provided by operations                                                  |       | (79,212    | )          | —           |       | 91,474           |       | 60,051        |       | (230,737         | )          |
|                                                                                        |       |       |       |             |       |             |       |          |       |             |       |
| CASH FLOWS FROM  INVESTING ACTIVITIES                                                       |       |       |       |             |       |             |       |          |       |             |       |
| Net proceeds from  divestments                                                              |       | 108,809    |       | —           |       | 90,666           |       | —        |       | 18,143           |       |
| Cash acquired in  acquisitions, net of transaction costs paid                               |       | 41,138     |       | —           |       | (12,396          | )          | 47,101        |       | 6,433            |       |
| Capital expenditures                                                                        |       | (104,365   | )          | —           |       | (12,472          | )          | (57,577       | )          | (34,316          | )          |
| Other investing  activities                                                                 |       | 5,563      |       | —           |       | (112             | )          | 28            |       | 5,647            |       |
| Net cash provided by  (used in) investing activities                                        |       | 51,145     |       | —           |       | 65,686           |       | (10,448       | )          | (4,093           | )          |
|                                                                                        |       |       |       |             |       |             |       |          |       |             |       |
| CASH FLOWS FROM  FINANCING ACTIVITIES                                                       |       |       |       |             |       |             |       |          |       |             |       |
| Proceeds from (payments  on) credit facility                                                |       | 383,000    |       | —           |       | 225,000          |       | (21,000       | )          | 179,000          |       |
| Payments on long-term  borrowings                                                           |       | (406,498   | )          | —           |       | (396,312         | )          | (10,186       | )          | —           |       |
| Proceeds from long-term  borrowings                                                         |       | 9,000      |       | —           |       | —           |       | 9,000         |       | —           |       |
| Proceeds from (payments  on) short-term borrowings                                          |       | 35,667     |       | —           |       | (99              | )          | (53           | )          | 35,819           |       |
| Premium paid on early  extinguishment of debt                                               |       | (40,657    | )          | —           |       | (40,657          | )          | —        |       | —           |       |
| Payments for debt  issuance costs                                                           |       | (2,547     | )          | —           |       | (2,547           | )          | —        |       | —           |       |
| Dividends paid                                                                              |       | (35,555    | )          | —           |       | (35,555          | )          | —        |       | —           |       |
| Proceeds from exercise  of stock options                                                    |       | 75,275     |       | —           |       | 75,275           |       | —        |       | —           |       |
| Other financing  activities                                                                 |       | (856       | )          | —           |       | (856             | )          | —        |       | —           |       |
| Net cash provided by  (used in) financing activities                                        |       | 16,829     |       | —           |       | (175,751         | )          | (22,239       | )          | 214,819          |       |
|                                                                                        |       |       |       |             |       |             |       |          |       |             |       |
| CASH                                                                                        |       |       |       |             |       |             |       |          |       |             |       |
| Effect of exchange  rates on cash and cash equivalents                                      |       | (8,906     | )          | —           |       | —           |       | —        |       | (8,906           | )          |
| Change in cash and cash  equivalents                                                        |       | (20,144    | )          | —           |       | (18,591          | )          | 27,364        |       | (28,917          | )          |
| Cash and cash  equivalents at beginning of period                                           |       | 158,700    |       | —           |       | 22,972           |       | 1,248         |       | 134,480          |       |
| Cash and cash equivalents at end of period                                                  |       | $          | 138,556    |             | $          | —           |       | $             | 4,381      |             | $          | 28,612 |   | $ | 105,563 |   |
|                                                                                             |            |            |            |                  |            |                  |            |               |            |                  |            |  |  |  |  |  |  |  |

 

127

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**Condensed Consolidating Statement of OperationsYear ended December 31, 2004**(*In thousands*)
| ** **                                                                                                  | ** ** | ** **       | ** ** | ** **       | ** ** | ** **  | ** ** | ** **       | ** ** | **Non-**         | ** ** |
|-------------------------------------------------------------------------------------------------------------|------------|------------------|------------|------------------|------------|-------------|------------|------------------|------------|------------------|------------|
| ** **                                                                                                  | ** ** | ** **       | ** ** | ** **       | ** ** | **Parent**  | ** ** | **Guarantor**    | ** ** | **Guarantor**    | ** ** |
| ** **                                                                                                  | ** ** | **Consolidated** | ** ** | **Eliminations** | ** ** | **Company** | ** ** | **Subsidiaries** | ** ** | **Subsidiaries** | ** ** |
|                                                                                                        |       |             |       |             |       |        |       |             |       |             |       |
| Net sales                                                                                                   |       | $                | 2,285,231  |             | $          | (565,801    | )          | $                | 601,362    |             | $          | 937,034 |   | $ | 1,312,636 |   |
|                                                                                                        |       |             |       |             |       |        |       |             |       |             |       |
| Cost of products  sold                                                                                      |       | 1,759,900        |       | (565,801         | )          | 557,805     |       | 704,298          |       | 1,063,598        |       |
| Selling, general  and administrative                                                                        |       | 273,240          |       | —           |       | 69,664      |       | 87,731           |       | 115,845          |       |
| Depreciation and  amortization                                                                              |       | 118,181          |       | —           |       | 46,558      |       | 28,278           |       | 43,345           |       |
| Research and  development                                                                                   |       | 47,880           |       | —           |       | 8,178       |       | 19,064           |       | 20,638           |       |
| Facility  closures, severance and related costs                                                             |       | 62,808           |       | —           |       | 29,089      |       | 11,737           |       | 21,982           |       |
| Antitrust costs                                                                                             |       | 113,736          |       | —           |       | —      |       | 113,736          |       | —           |       |
| (Gain) loss on  sale of businesses, net                                                                     |       | (1,302           | )          | —           |       | (1,302      | )          | —           |       | —           |       |
| Income related  to Gustafson joint venture                                                                  |       | (93,448          | )          | —           |       | —      |       | (75,217          | )          | (18,231          | )          |
| Equity income                                                                                               |       | (14,109          | )          | —           |       | (94         | )          | (12,049          | )          | (1,966           | )          |
|                                                                                                        |       |             |       |             |       |        |       |             |       |             |       |
| Operating profit  (loss)                                                                                    |       | 18,345           |       | —           |       | (108,536    | )          | 59,456           |       | 67,425           |       |
|                                                                                                        |       |             |       |             |       |        |       |             |       |             |       |
| Interest expense                                                                                            |       | 78,441           |       | —           |       | 74,877      |       | 2,138            |       | 1,426            |       |
| Loss on early  extinguishment of debt                                                                       |       | 20,063           |       | —           |       | 20,063      |       | —           |       | —           |       |
| Other (income)  expense, net                                                                                |       | 11,588           |       | —           |       | (1,564      | )          | 30,798           |       | (17,646          | )          |
| Equity in net  (earnings) loss of subsidiaries from continuing operations                                   |       | —           |       | 153,555          |       | (82,376     | )          | (56,943          | )          | (14,236          | )          |
|                                                                                                        |       |             |       |             |       |        |       |             |       |             |       |
| Earnings (loss)  from continuing operations before income taxes and cumulative effect of  accounting change |       | (91,747          | )          | (153,555         | )          | (119,536    | )          | 83,463           |       | 97,881           |       |
| Income tax  expense (benefit)                                                                               |       | (49,788          | )          |             |       | (79,048     | )          | 4,638            |       | 24,622           |       |
|                                                                                                        |       |             |       |             |       |        |       |             |       |             |       |
| Earnings (loss)  from continuing operations                                                                 |       | (41,959          | )          | (153,555         | )          | (40,488     | )          | 78,825           |       | 73,259           |       |
| Earnings (loss)  from discontinued operations                                                               |       | 5,227            |       | —           |       | 3,756       |       | (157             | )          | 1,628            |       |
| Gain (loss) on  sale of discontinued operations                                                             |       | 2,142            |       | —           |       | (3,358      | )          | —           |       | 5,500            |       |
| Net earnings (loss)                                                                                         |       | $                | (34,590    | )                | $          | (153,555    | )          | $                | (40,090    | )                | $          | 78,668 |   | $ | 80,387 |   |

 

128

----

 

**CondensedConsolidating Statement of Cash FlowsYear ended December 31, 2004**(*In thousands*)
| ** **                                                                                  | ** ** | ** ** | ** ** | ** **       | ** ** | **Parent**       | ** ** | **Guarantor** | ** ** | **Non-Guarantor** | ** ** |
|---------------------------------------------------------------------------------------------|------------|------------|------------|------------------|------------|------------------|------------|---------------|------------|-------------------|------------|
| **Increase (decrease) to cash**                                              | ** ** | ** ** | ** ** | **Consolidated** | ** ** | **Eliminations** | ** ** | **Company**   | ** ** | **Subsidiaries**  | ** ** | **Subsidiaries** | ** ** |
| CASH FLOWS FROM  OPERATING ACTIVITIES                                                       |       |       |       |             |       |             |       |          |       |              |       |
| Net earnings  (loss)                                                                        |       | $          | (34,590    | )                | $          | (153,555         | )          | $             | (40,090    | )                 | $          | 78,668 |   | $ | 80,387 |   |
| Adjustments to  reconcile net earnings (loss) to net cash (used in) provided by operations: |       |       |       |             |       |             |       |          |       |              |       |
| Gain on sale of Gustafson joint venture                                                     |       | (92,938    | )          | —           |       | —           |       | (74,707       | )          | (18,231           | )          |
| Loss (gain) on sale of discontinued operations                                              |       | (2,142     | )          | —           |       | 3,358            |       | —        |       | (5,500            | )          |
| Loss on early extinguishment of debt                                                        |       | 20,063     |       | —           |       | 20,063           |       | —        |       | —            |       |
| Depreciation and amortization                                                               |       | 126,086    |       | —           |       | 51,721           |       | 28,278        |       | 46,087            |       |
| Stock-based compensation expense                                                            |       | 5,283      |       | —           |       | 5,283            |       | —        |       | —            |       |
| Equity income                                                                               |       | (14,109    | )          | —           |       | (94              | )          | (12,049       | )          | (1,966            | )          |
| Changes in assets and liabilities, net                                                      |       | 28,623     |       | 153,555          |       | (19,692          | )          | (106,887      | )          | 1,647             |       |
| Net cash (used  in) provided by operations                                                  |       | 36,276     |       | —           |       | 20,549           |       | (86,697       | )          | 102,424           |       |
|                                                                                        |       |       |       |             |       |             |       |          |       |              |       |
| CASH FLOWS FROM  INVESTING ACTIVITIES                                                       |       |       |       |             |       |             |       |          |       |              |       |
| Net proceeds  from divestments                                                              |       | 151,219    |       | —           |       | 24,867           |       | 105,272       |       | 21,080            |       |
| Capital  expenditures                                                                       |       | (65,231    | )          | —           |       | (16,730          | )          | (19,994       | )          | (28,507           | )          |
| Other investing  activities                                                                 |       | 253        |       | —           |       | 307              |       | —        |       | (54               | )          |
| Net cash  provided by (used in) investing activities                                        |       | 86,241     |       | —           |       | 8,444            |       | 85,278        |       | (7,481            | )          |
|                                                                                        |       |       |       |             |       |             |       |          |       |              |       |
| CASH FLOWS FROM  FINANCING ACTIVITIES                                                       |       |       |       |             |       |             |       |          |       |              |       |
| Proceeds from  (payments on) credit facility                                                |       | (57,000    | )          | —           |       | (57,000          | )          | —        |       | —            |       |
| Payments on  long-term borrowings                                                           |       | (490,006   | )          | —           |       | (490,006         | )          | —        |       | —            |       |
| Proceeds from  long-term borrowings                                                         |       | 597,499    |       | —           |       | 597,499          |       | —        |       | —            |       |
| Proceeds from  (payments on) short-term borrowings                                          |       | 44         |       | —           |       | —           |       | (90           | )          | 134               |       |
| Premium paid on  early extinguishment of debt                                               |       | (19,044    | )          | —           |       | (19,044          | )          | —        |       | —            |       |
| Payments for  debt issuance costs                                                           |       | (23,113    | )          | —           |       | (23,113          | )          | —        |       | —            |       |
| Dividends paid                                                                              |       | (22,931    | )          | —           |       | (22,931          | )          | —        |       | —            |       |
| Proceeds from  exercise of stock options                                                    |       | 6,529      |       | —           |       | 6,529            |       | —        |       | —            |       |
| Other financing  activities                                                                 |       | 2,077      |       | —           |       | 1,173            |       | 700           |       | 204               |       |
| Net cash  provided by (used in) financing activities                                        |       | (5,945     | )          | —           |       | (6,893           | )          | 610           |       | 338               |       |
|                                                                                        |       |       |       |             |       |             |       |          |       |              |       |
| CASH                                                                                        |       |       |       |             |       |             |       |          |       |              |       |
| Effect of  exchange rates on cash and cash equivalents                                      |       | 2,915      |       | —           |       | —           |       | —        |       | 2,915             |       |
| Change in cash  and cash equivalents                                                        |       | 119,487    |       | —           |       | 22,100           |       | (809          | )          | 98,196            |       |
| Cash and cash  equivalents at beginning of period                                           |       | 39,213     |       | —           |       | 872              |       | 2,057         |       | 36,284            |       |
| Cash and cash  equivalents at end of period                                                 |       | $          | 158,700    |             | $          | —           |       | $             | 22,972     |              | $          | 1,248 |   | $ | 134,480 |   |
|                                                                                             |            |            |            |                  |            |                  |            |               |            |                   |            |  |  |  |  |  |  |  |

 

129

----

 

**SUMMARIZEDUNAUDITED QUARTERLY FINANCIAL DATA**

 
| ** **                                                           | ** ** | **2006**   | ** **  |
|----------------------------------------------------------------------|------------|------------|-------------|
| ***(In thousands, except per share data)*** | ** ** | ** ** | ** **  | **First** | ** ** | **Second** | ** ** | **Third** | ** ** | **Fourth** | ** ** |
| Net sales                                                            | ** ** | **$**      | **915,761** | ** ** | **$** | **1,016,323** | ** ** | **$** | **917,011** | ** ** | **$** | **873,612** | ** ** |
| Gross profit                                                         | ** ** | **$**      | **240,924** | ** ** | **$** | **266,113** | ** ** | **$** | **218,810** | ** ** | **$** | **182,646** | ** ** |
|                                                                 |       |       |        |   |   |   |   |   |   |
| Earnings (loss)  from continuing operations                          | ** ** | **$**      | **13,205**  | **(a)** | **$** | **420** | **(b)** | **$** | **(85,817** | **)(c)** | **$** | **(180,816** | **)(d)** |
| Gain on sale  from discontinued operations                           | ** ** | **—** | ** **  | **—** | ** ** | **45,925** | ** ** | **1,566** | ** ** |
| Net earnings  (loss)                                                 | ** ** | **$**      | **13,205**  | ** ** | **$** | **420** | ** ** | **$** | **(39,892** | **)** | **$** | **(179,250** | **)** |
|                                                                 | ** ** | ** ** | ** **  | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Basic and diluted  per share data (e):                               |       |       |        |   |   |   |   |   |   |
| Earnings (loss) from continuing operations                           | ** ** | **$**      | **0.05**    | ** ** | **$** | **—** | ** ** | **$** | **(0.36** | **)** | **$** | **(0.75** | **)** |
| Gain on sale of discontinued operations                              | ** ** | **—** | ** **  | **—** | ** ** | **0.19** | ** ** | **0.01** | ** ** |
| Net earnings  (loss)                                                 | ** ** | **$**      | **0.05**    | ** ** | **$** | **—** | ** ** | **$** | **(0.17** | **)** | **$** | **(0.74** | **)** |
|                                                                      |            |            |             |  |  |  |  |  |  |  |  |  |  |  |  |

 
| ** **                                                                     | ** ** | **2005**  | ** ** |
|--------------------------------------------------------------------------------|------------|-----------|------------|
| ** **                                                                     | ** ** | **First** | ** ** | **Second** | ** ** | **Third** | ** ** | **Fourth** | ** ** |
| Net sales                                                                      |       | $         | 589,730    |   | $ | 602,329 |   | $ | 918,416 |   | $ | 876,133 |   |
| Gross profit                                                                   |       | $         | 169,256    |   | $ | 180,071 |   | $ | 215,063 |   | $ | 219,103 |   |
|                                                                           |       |      |       |   |   |   |   |   |   |
| Earnings (loss)  from continuing operations                                    |       | $         | 18,229     | (f) | $ | 10,174 | (g) | $ | (120,285 | )(h) | $ | (92,968 | )(i) |
| Earnings from  discontinued operations                                         |       | 2,206     |       | 450 |   | (25 | ) | 14 |   |
| Gain on sale  from discontinued operations                                     |       | —    |       | (27,622 | ) | 1,388 |   | 22,345 |   |
| Cumulative  effect of accounting change                                        |       | —    |       | — |   | — |   | (546 | ) |
| Net earnings  (loss)                                                           |       | $         | 20,435     |   | $ | (16,998 | ) | $ | (118,922 | ) | $ | (71,155 | ) |
|                                                                           |       |      |       |   |   |   |   |   |   |
| Basic per share  data (e):                                                     |       |      |       |   |   |   |   |   |   |
| Earnings (loss) from continuing operations                                     |       | $         | 0.16       |   | $ | 0.09 |   | $ | (0.51 | ) | $ | (0.39 | ) |
| Earnings from discontinued operations                                          |       | 0.02      |       | — |   | — |   | — |   |
| Gain on sale of discontinued operations                                        |       | —    |       | (0.23 | ) | 0.01 |   | 0.09 |   |
| Cumulative effect of accounting change                                         |       | —    |       | — |   | — |   | — |   |
| Net earnings (loss)                                                            |       | $         | 0.18       |   | $ | (0.14 | ) | $ | (0.50 | ) | $ | (0.30 | ) |
|                                                                           |       |      |       |   |   |   |   |   |   |
| Diluted per  share data (e):                                                   |       |      |       |   |   |   |   |   |   |
| Loss from continuing operations before cumulative  effect of accounting change |       | $    | 0.15       |   | $  | 0.09 |   | $  | (0.51 | ) | $  | (0.39 | ) |
| Earnings from discontinued operations                                          |       | 0.02      |       | — |   | — |   | — |   |
| Gain on sale of discontinued operations                                        |       | —    |       | (0.23 | ) | 0.01 |   | 0.09 |   |
| Cumulative effect of accounting change                                         |       | —    |       | — |   | — |   | — |   |
| Net earnings  (loss)                                                           |       | $         | 0.17       |   | $ | (0.14 | ) | $ | (0.50 | ) | $ | (0.30 | ) |

----

**(a)**          Earnings from continuing operations for the first quarter of 2006 includepre-tax charges for antitrust costs of $12.8 million and merger costs of $10.0million.

**(b)**         Earningsfrom continuing operations for the second quarter of 2006 includes pre-taxcharges for antitrust costs of $32.3 million, loss on early extinguishment ofdebt of $19.5 million, loss on sale of IWA business of $12.5 million, mergercosts of $4.7 million, asset impairment of $5.6 million and a credit forfacility closures of $3.3 million.

**(c)**          Loss from continuing operations for the third quarter of 2006 includespre-tax charges for asset impairment costs of $74.7 million, antitrust costs of$25.7 million and a loss on early extinguishment of debt of $24.3 million.

**(d)**         Lossfrom continuing operations for the fourth quarter of 2006 includes pre-taxcharges for facility closures of $7.4 million and antitrust costs of $18.8million.

**(e)**          The sum of the earnings per common share for the four quarters does notequal the total earnings per common share due to quarterly changes in theaverage number of shares outstanding.

(f)            Earnings fromcontinuing operations for the first quarter of 2005 include a pre-tax chargefor antitrust costs of $3.2 million.

(g)         Earnings from continuingoperations for the second quarter of 2005 includes pre-tax charges for facilityclosures, severance and related costs of $23.9 million, merger costs of $8.7million and antitrust costs of $3.3 million.

(h)         Loss from continuingoperations for the third quarter of 2005 includes pre-tax costs related to theMerger, consisting of the write-off of in-process research and development of$75.4 million, the impact of purchase accounting related to inventory of $37.1million and merger costs of $19.4 million, a loss on the early extinguishmentof debt of $10.9 million and antitrust costs of $6.7 million.

(i)             Loss from continuingoperations for the fourth quarter of 2005 includes pre-tax charges for loss onearly extinguishment of debt of $44.2 million, antitrust costs of $35.9 millionand merger costs of $17.2 million, partially offset by adjustments toin-process research and development of $2.1 million and a credit for facilityclosures, severance and related costs of $1.6 million.

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** **

**Report of Independent Registered PublicAccounting Firm**

** **

 

TheBoard of Directors and Stockholders

Chemtura Corporation:

 

We haveaudited the accompanying consolidated balance sheets of Chemtura Corporationand subsidiaries (“the Company”) as of December 31, 2006 and 2005, and therelated consolidated statements of operations, stockholders’ equity, and cashflows for each of the years in the three-year period ended December 31, 2006.In connection with our audits of the consolidated financial statements, we alsohave audited financial statement schedule II, Valuation and QualifyingAccounts. These consolidated financial statements and the financial statementschedule are the responsibility of the Company’s management. Our responsibilityis to express an opinion on these consolidated financial statements and thefinancial statement schedule based on our audits. 

 

We conductedour audits in accordance with the standards of the Public Company AccountingOversight Board (United States). Those standards require that we plan andperform the audit to obtain reasonable assurance about whether the financialstatements are free of material misstatement. An audit includes examining, on atest basis, evidence supporting the amounts and disclosures in the financialstatements. An audit also includes assessing the accounting principles used andsignificant estimates made by management, as well as evaluating the overallfinancial statement presentation. We believe that our audits provide a reasonablebasis for our opinion. 

 

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, 2006 and 2005, and the resultsof their operations and their cash flows for each of the years in thethree-year period ended December 31, 2006, in conformity with U.S. generallyaccepted accounting principles. Also in our opinion, the related financialstatement schedule, when considered in relation to the consolidated financialstatements taken as a whole, presents fairly, in all material respects, theinformation set forth therein.

 

As discussedin Note 1 to the consolidated financial statements, the Company adopted theprovisions of Statement of Financial Accounting Standards No. 123(R), “*Share-Based Payment*” and Staff Accounting Bulletin No. 108,“*Considering the Effects of Prior Year Misstatementsin Current Year Financial Statements*” as of January 1, 2006 andStatement of Financial Accounting Standards No. 158, “*Employers’Accounting for Defined Benefit Pension and Other Postretirement Plans*”as of December 31, 2006.  

 

We also haveaudited, in accordance with the standards of the Public Company AccountingOversight Board (United States), the effectiveness of Chemtura Corporation’sinternal control over financial reporting as of December 31, 2006, based oncriteria established in *InternalControl—Integrated Framework* issued by the Committee of SponsoringOrganizations of the Treadway Commission (COSO), and our report dated March 8,2007 expressed an unqualified opinion on management’s assessment of, and anadverse opinion on the effective operation of, internal control over financialreporting. 

 

/s/  KPMG LLP

 

Stamford,Connecticut

**March 8,2007**

131

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**Report of IndependentRegistered Public Accounting Firm**

 

 

TheBoard of Directors and Stockholders

Chemtura Corporation:

 

We have auditedmanagement's assessment, included in the accompanying Management’s AnnualReport on Internal Control over Financial Reporting (appearing under Item9A.(b)), that Chemtura Corporation and subsidiaries (“the Company”) did notmaintain effective internal control over financial reporting as of December 31,2006, because of the effect of the material weakness identified in management’sassessment, based on criteria established in *InternalControl—Integrated Framework* issued by the Committee of SponsoringOrganizations of the Treadway Commission (COSO). The Company's management isresponsible for maintaining effective internal control over financial reportingand for its assessment of the effectiveness of internal control over financialreporting. Our responsibility is to express an opinion on management'sassessment and an opinion on the effectiveness of the Company’s internal controlover financial reporting based on our audit. 

 

We conducted ouraudit in accordance with the standards of the Public Company AccountingOversight Board (United States). Those standards require that we plan andperform the audit to obtain reasonable assurance about whether effectiveinternal control over financial reporting was maintained in all materialrespects. Our audit included obtaining an understanding of internal controlover financial reporting, evaluating management's assessment, testing andevaluating the design and operating effectiveness of internal control, andperforming such other procedures as we considered necessary in thecircumstances. We believe that our audit provides a reasonable basis for ouropinion. 

 

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 of itsinherent limitations, internal control over financial reporting may not preventor detect misstatements. Also, projections of any evaluation of effectivenessto future periods are subject to the risk that controls may become inadequatebecause of changes in conditions, or that the degree of compliance with thepolicies or procedures may deteriorate. 

 

A material weakness is a control deficiency, or combination of controldeficiencies, that results in more than a remote likelihood that a materialmisstatement of the annual or interim financial statements will not beprevented or detected. The following material weakness has been identified andincluded in management's assessment as of December 31, 2006: The Company didnot maintain adequate resources in its accounting and tax functions; therefore,management’s oversight and review related to certain accounts and analyses wasnot timely or effective.  This deficiencyresulted in material misstatements in the Company’s preliminary 2006 income taxand patent and trademark accounts. We also have audited, in accordance with thestandards of the Public Company Accounting Oversight Board (United States), theconsolidated balance sheets of Chemtura Corporation and subsidiaries as ofDecember 31, 2006 and 2005, and the related consolidated statements ofoperations, stockholders’ equity, and cash flows for each of the years in thethree-year period ended December 31, 2006. This material weakness wasconsidered in determining the nature, 

132

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timing, and extent of audit tests applied in our audit of the 2006 consolidated financial statements,and this report does not affect our report dated March 8, 2007, which expressedan unqualified opinion on those consolidated financial statements.

 

In our opinion,management's assessment that Chemtura Corporation and subsidiaries did notmaintain effective internal control over financial reporting as of December 31,2006, is fairly stated, in all material respects, based on criteria establishedin *Internal Controls–Integrated Framework*issued by the Committee of Sponsoring Organizations of the Treadway Commission(COSO)*.*Also, in our opinion,because of the effect of the material weakness described above on theachievement of the objectives of the control criteria, Chemtura Corporation andsubsidiaries has not maintained effective internal control over financialreporting as of December 31, 2006, based on criteria established in *Internal Control–Integrated Framework* issued by the Committeeof Sponsoring Organizations of the Treadway Commission (COSO).

* *

/s/  KPMG LLP

 

Stamford,Connecticut

March 8, 2007

 

133

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**ITEM9.  CHANGES IN AND DISAGREEMENTS WITHACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE**

**Not applicable.**

**ITEM9A.  CONTROLS AND PROCEDURES**

*(a) Disclosure Controls andProcedures*

As of December 31, 2006, 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), asamended). Based on that evaluation, our CEO and CFO concluded that ourdisclosure controls and procedures as of December 31, 2006 were noteffective because of a material weakness in internal control over financialreporting described below.

*(b)**Management’s Annual Report on Internal Control Over Financial Reporting*

Our management isresponsible for establishing and maintaining adequate internal control overfinancial reporting, as such term is defined in Rule 13a-15(f) under theSecurities Exchange Act of 1934, as amended. Under the supervision of management and with the participation of ourmanagement, including our principal executive officer and principal financialofficer, we conducted an evaluation of the effectiveness of our internalcontrol over financial reporting as of December 31, 2006 based on theframework in Internal Control—Integrated Framework issued by the Committee ofSponsoring Organizations of the Treadway Commission.  Based on our evaluation of internal controlover financial reporting, management identified the following material weaknessas of December 31, 2006:

The Company did notmaintain adequate resources in its accounting and tax functions; therefore,management’s oversight and review related to certain accounts and analyses wasnot timely or effective. This deficiency resulted in material misstatements inthe Company’s preliminary 2006 income tax and patent and trademark accounts.

As a result of thematerial weakness described above, management concluded that Chemtura’sinternal control over financial reporting was not effective as ofDecember 31, 2006, based on the criteria identified above.

Our management’sassessment of the effectiveness of our internal control over financialreporting as of December 31, 2006 has been audited by KPMG LLP, anindependent registered public accounting firm, as stated in their report whichis included elsewhere in this Form 10-K.

*(c)  Remediation Activities*

The Company is currentlyevaluating its resource requirements to ensure the timely and effective reviewand management oversight over income tax accounts and the capitalization,amortization, and impairment of certain intangible assets.  In addition, the Company is implementing newsoftware to assist in the timely preparation and review of its tax accounts.

*(d) Changes in Internal ControlOver Financial Reporting*

There was no change inthe Company’s internal control over financial reporting that occurred duringthe fourth fiscal quarter ended December 31, 2006, that has materiallyaffected, or is reasonably likely to materially affect, the Company’s internalcontrol over financial reporting.

**ITEM9B.  OTHER INFORMATION**

None.

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**PART III.**

**ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT**

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 April 25, 2007, under the captions “Election ofThree Directors,” “Board of Directors” and “Section 16(a) Beneficial Ownership ReportingCompliance,” which is to be filed with the Commission pursuant to Regulation14A of the Securities Exchange Act of 1934, and such information isincorporated 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 directors atthe Corporation’s 2007 Annual Meeting of Stockholders.

Information called for by this item concerningExecutive Officers is included in Part I pursuant to General Instruction G toForm 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 rulesand regulations of the Securities and Exchange Commission, a copy of the Codeof Business 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 April 25, 2007, 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.

135

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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 April 25, 2007,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, 2006:

**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)** | ** ** | ** ** |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|------------------------------------------------------------------------------------------------------------------------------------------|------------|-----------------------------------------------------------------------------------------------------------------------------|---------------------------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|------------|
| **Plan Category**                                                                                                                                                                                       |       | ** **                                                                                                                               |       |                                                                                                                        | ** **                            |                                                                                                                                                                                       |       | ** ** |   | ** ** |
| Equity compensation  plans approved by security holders (1)                                                                                                                                             |       | 13,156,678                                                                                                                               |       |                                                                                                                        | $ 11.10098                       |                                                                                                                                                                                       |       | 11,695,780 |   | (2) |
| Equity  compensation plans not approved by security holders (3)                                                                                                                                         |       | 521,870                                                                                                                                  |       |                                                                                                                        | $     7.4169 |                                                                                                                                                                                       |       | —     |   |   |
| Equity  compensation not approved by security holders. Options granted to Mark P.  Bulriss, Great Lakes Chemical Corporation former CEO. Reported in May 2004  Great Lakes Chemical Proxy Statement (4) |       | 1,556,240                                                                                                                                |       |                                                                                                                        | $   18.9000            |                                                                                                                                                                                       |       | —     |   |   |
| Total                                                                                                                                                                                                   |       | 15,234,788                                                                                                                               |       |                                                                                                                        | $   11.7714            |                                                                                                                                                                                       |       | 11,695,780 |   |   |
|                                                                                                                                                                                                         |            |                                                                                                                                          |            |                                                                                                                             |                                       |                                                                                                                                                                                            |            |            |  |  |  |

 

(1)             Includes 2006Chemtura 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)             Includes 1,215,280 ofcommon stock available for future issuance as of December 31, 2006 for theCrompton Corporation 2001 Employee Stock Purchase Plan.

(3)             Includes CromptonCorporation 2001 Employee Stock Option Plan.

(4)             StockOptions granted to Mr. Bulriss, Great Lakes Chemical Corporation former CEO,pursuant to his employee agreement. Shareholder approval of this grant was not required under rules of theNYSE.  It was reported in the 2004 GreatLakes Chemical Corporation Proxy Statement.

**ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS**

None.

**ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES**

Information called for bythis item is included in the definitive proxy statement for the Corporation’sAnnual Meeting of Stockholders to be held on April 25, 2007, under the caption “PrincipalAccountant Fees and Services,” which is to be filed with the Commissionpursuant to Regulation 14A, and such information is incorporated herein byreference.

 

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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)   |   | Consolidated  Statements of Operations for the years ended December 31, 2006, 2005,  and 2004;               |
|-------|--------|-------------------------------------------------------------------------------------------------------------------|
| (ii)  |   | Consolidated  Balance Sheets as of December 31, 2006 and 2005;                                               |
| (iii) |   | Consolidated  Statements of Cash Flows for the years ended December 31, 2006, 2005,  and 2004;               |
| (iv)  |   | Consolidated  Statements of Stockholders’ Equity for the years ended December 31,  2006, 2005 and 2004; |
| (v)   |   | Notes to  Consolidated Financial Statements; and                                                                  |
| (vi)  |   | Reports of  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 byreference to the respective reports and registration statements identified inthe parenthetical 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).                                                                                                                                                                        |

 

 

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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).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
|    |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
| 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). |

 

 

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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’s9 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 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”).                                                                                                                                      |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
| 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).                                                                                                                                                           |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
| 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).                                                                                                                                                                                                                                                                                                                                |

 

 

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| 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).                   |

 

 

143

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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,  20068-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).                                                                                                                                                                                                                                             |

 

 

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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).                                                                                                                                       |

 

 

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| 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).*                                                                                                                                                                                                                                |

----

*                    Copiesof these Exhibits are filed with this annual report on Form 10-K providedto the Securities and Exchange Commission and the New York Stock Exchange.

+                    ThisExhibit is a compensatory plan, contract or arrangement in which one ormore directors or executive officers of the Registrant participate.

146

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**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 9, 2007 |   | By:                          | /s/ Karen R. Osar |
|                |   | Karen R. Osar                |
|                |   | Executive Vice President and |
|                |   | Chief Financial Officer      |

 

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) |
|                 |       |                                                                                                   |
| Karen R. Osar        |       | Executive Vice President and Chief Financial Officer    (Principal Financial Officer)                  |
|                 |       |                                                                                                   |
| Kevin V. Mahoney     |       | Senior Vice President and Corporate Controller  (Principal Accounting Officer)                         |
|                 |       |                                                                                                   |
| Nigel D. T. Andrews* |       | Director                                                                                               |
|                 |       |                                                                                                   |
| James W. Crownover*  |       | Director                                                                                               |
|                 |       |                                                                                                   |
| 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 9, 2007 |   | *By: /s/ Karen R. Osar |
|--------------------------------|--------|------------------------|
|                           |   | Karen R. Osar          |
|                           |   | as attorney-in-fact    |

 

147

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**ScheduleII**

**Valuationand Qualifying Accounts**

(In thousands 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, 2006: |       |                |       |                |       |           |       | (3              | )          |       |       |             |       |
| Allowance for  doubtful accounts      |       | $                   | 30,500     |                | 19,793     |           | (20,049)   |  (1)       | —     |       | 1,842      |  (4)        | 32,086     |   |
| Reserve for  customer rebates         |       | 32,879              |       | 51,273              |       | (56,209)       |  (2)  | —          |       | 1,227      |  (4)  | 29,170           |       |
|                                  |       |                |       |                |       |           |       |            |       |       |       |             |       |
| Fiscal Year ended  December 31, 2005: |       |                |       |                |       |           |       |            |       |       |       |             |       |
| Allowance for  doubtful accounts      |       | $                   | 22,275     |                | 11,253     |           | (9,894)    |  (1)       | 7,840      |       | (974)      |  (4)        | 30,500     |   |
| Reserve for  customer rebates         |       | 29,837              |       | 73,994              |       | (84,614)       |  (2)  | 14,600          |       | (938)      |  (4)  | 32,879           |       |
|                                  |       |                |       |                |       |           |       |            |       |       |       |             |       |
| Fiscal Year ended  December 31, 2004: |       |                |       |                |       |           |       |            |       |       |       |             |       |
| Allowance for  doubtful accounts      |       | $                   | 17,814     |                | 9,328      |           | (5,296)    |  (1)       | —     |       | 429        |  (4)        | 22,275     |   |
| Reserve for customer  rebates         |       | 27,448              |       | 71,974              |       | (69,515)       |  (2)  | —          |       | (70)       |  (4)  | 29,837           |       |

----

(1)          Represents primarily accounts written off asuncollectible (net of recoveries).

(2)          Represents primarily payment to the customers.

(3)          Represents balances acquired as a result ofthe merger with Great Lakes Chemical Corporation.

(4)          Represents primarily the translation effect of balances denominated inforeign currencies.

148

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