SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

For the transition period from                     to                    

(Commission File Number) 1-15339

CHEMTURA CORPORATION

(Exact name of registrant as specified in its charter)

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

(Former name, former address and former fiscal year, if changed from last report)

CHEMTURA CORPORATION AND SUBSIDIARIES
FORM 10-Q
FOR THE QUARTER AND SIX MONTHS ENDED JUNE 30, 2006

1

PART I.      FINANCIAL INFORMATION

ITEM 1.     Financial Statements and Accompanying Notes

CHEMTURA CORPORATION AND SUBSIDIARIES

Condensed Consolidated Statements of Earnings (Unaudited)

Quarter and six months ended June 30, 2006 and 2005

(In thousands of dollars, except per share data)

See accompanying notes to condensed consolidated financial statements.

2

CHEMTURA CORPORATION AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
June 30, 2006 (Unaudited) and December 31, 2005
(In thousands of dollars)

See accompanying notes to condensed consolidated financial statements.

3

CHEMTURA CORPORATION AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows (Unaudited)

Six months ended June 30, 2006 and 2005
(In thousands of dollars)

See accompanying notes to condensed consolidated financial statements.

4

CHEMTURA CORPORATION AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Unaudited)

On July 1, 2005, Crompton Corporation (Crompton) and Great Lakes Chemical Corporation (Great Lakes) combined their businesses by merging a wholly-owned subsidiary of Crompton with and into Great Lakes (the Merger).  Under the terms of the merger agreement, Great Lakes shareholders received 2.2232 shares of the Company’s common stock for each share of Great Lakes common stock and Great Lakes became a wholly-owned subsidiary of Crompton.  The Company also changed its name to Chemtura Corporation.

ACCOUNTING POLICIES

Presentation of Condensed Consolidated Financial Statements

The information in the foregoing condensed consolidated financial statements for the quarter and six months ended June 30, 2006 and June 30, 2005 are unaudited, but reflect all adjustments which, in the opinion of management, are necessary for a fair presentation of the results of operations for the interim periods presented.  All such adjustments are of a normal recurring nature, except as otherwise disclosed in the accompanying notes to the condensed consolidated financial statements.

The foregoing condensed consolidated financial statements include the accounts of Chemtura Corporation and the wholly-owned and majority-owned subsidiaries that it controls, including the results of operations of Great Lakes commencing July 1, 2005, which are collectively referred to as “the Company.”  Other affiliates in which the Company has a 20% to 50% ownership interest or a non-controlling majority interest are accounted for in accordance with the equity method.  All significant intercompany balances and transactions have been eliminated in consolidation.

On June 24, 2005, the Refined Products business was sold to Sun Capital Partners Group, Inc.  Accordingly, the accompanying condensed consolidated financial statements for the quarter and six months ended June 30, 2005 reflect the results of the Refined Products business as earnings from discontinued operations (net of tax).  The condensed consolidated statements of cash flows have not been adjusted to separately reflect the discontinued operation and thus include the cash flows of the Refined Products business through the sale date.  Refer to the discontinued operations footnote for further information.

Certain financial information and footnote disclosures included in the annual financial statements have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission for reporting on Form 10-Q.  The interim condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes included in the Company’s 2005 Annual Report on Form 10-K.  The consolidated results of operations for the six months ended June 30, 2006 are not necessarily indicative of the results expected for the full year.

Operating Costs and Expenses

Cost of products sold includes all costs incurred in manufacturing products, including raw materials, direct manufacturing costs and manufacturing overhead.  Cost of products sold also includes warehousing; distribution; engineering (other than polymer processing equipment design engineering); purchasing; customer service and environmental, health and safety functions, and shipping and handling costs for outbound product shipments.  Selling, general and administrative expenses (SG&A) includes costs and expenses related to the following functions and activities: selling, advertising, polymer processing equipment design engineering, information technology, legal, provision for doubtful accounts, corporate facilities and corporate administration.  SG&A also includes accounting, finance and human resources, excluding direct support in manufacturing operations, which is included as cost of products sold.  Research and development expenses (R&D) include basic and applied research 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&D expenses exclude depreciation and amortization expenses, which are presented on a separate line in the condensed consolidated statements of earnings.

Other

Included in cash and cash equivalents in the Company’s condensed consolidated balance sheets at June 30, 2006 and December 31, 2005, is $0.5 million of restricted cash that is required to be on deposit to support certain letters of credit and performance guarantees, the majority of which will be settled within one year.  There are no legal restrictions on these cash balances.  In addition, at June 30, 2006, the Company had approximately $6.5 million in an escrow account that is restricted to pay an existing antitrust settlement liability, which has been recorded in other current assets in the condensed consolidated balance sheet.

Included in accounts receivable are allowances for doubtful accounts of $28.9 million at June 30, 2006 and $30.5 million at December 31, 2005.

Accumulated depreciation amounted to $965.4 million at June 30, 2006 and $861.7 million at December 31, 2005.

5

During the first six months of 2006 and 2005, the Company made interest payments of approximately $52.4 million and $39.0 million, respectively.  The increase was primarily due to the inclusion of Great Lakes.  During the first six months of 2006 and 2005, the Company made payments for income taxes (net of refunds) of $39.6 million and $17.8 million, respectively.

Included in other expense, net is interest income of $5.1 million and $3.4 million for the quarter ended June 30, 2006 and 2005, respectively, and $6.8 million and $4.9 million for the six months ended June 30, 2006 and 2005, respectively.  The interest income for the quarter and six months ended June 2006 and the quarter and six months ended 2005 include interest income resulting from tax settlements of $4.0 million and $2.2 million, respectively.

RECLASSIFICATIONS

During 2005, the Company reclassified certain immaterial amounts relating to operations from other expense, net to cost of products sold and SG&A in the 2005 condensed consolidated statement of earnings.  For the quarter ended June 30, 2005, the Company reclassified other income, net of $0.7 million from other expense, net, which resulted in a reduction in cost of products sold of $2.6 million and an increase in SG&A of $1.9 million.  For the six months ended June 30, 2005, the Company reclassified other expense, net of $3.8 million from other expense, net, which resulted in a reduction in cost of products sold of $0.8 million and an increase in SG&A of $4.7 million.

ACCOUNTING DEVELOPMENTS

In November 2004, the Financial Accounting Standards Board (“FASB”) issued Statement No. 151, “Inventory Costs — an Amendment of ARB No. 43, Chapter 4.”  Statement No. 151 clarifies the accounting for abnormal amounts of idle facility expense, freight, handling costs and spoilage, requiring these items be recognized as current-period charges.  In addition, this statement requires that allocation of fixed production overheads to the costs of conversion be based on the normal capacity of the production facilities.  The Company prospectively adopted the provisions of Statement No. 151 on January 1, 2006.  The adoption of Statement No. 151 changed the timing of when certain manufacturing variances will be recognized in consolidated earnings.  The adoption of Statement No. 151 did not have a material impact on the Company’s consolidated earnings and financial position during the first six months of 2006.

In December 2004, the FASB issued Statement No. 123 (revised 2004), “Share-Based Payment” (FASB 123(R)), which replaced Statement No. 123, “Accounting for Stock-Based Compensation” (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 payments to employees, including grants of employee stock options, to be recognized in the financial statements based on their fair value, beginning with the first annual period after June 15, 2005.  The pro forma disclosures previously permitted under FASB 123 are no longer an alternative to financial statement recognition.   In March 2005, the SEC Staff issued Staff Accounting Bulletin 107, “Share-Based Payment” (SAB 107), which expresses views of the SEC Staff about the application of FASB 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 awards and awards modified, repurchased or cancelled after the date of adoption of FASB 123(R), as well as the unrecognized 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 recognizes compensation cost for stock-based awards issued after January 1, 2006 over the requisite service period for each separately vesting tranche, as if multiple awards were granted.  As a result of adopting FASB 123(R), on January 1, 2006, incremental stock-based compensation expense recognized was $2.6 million ($1.7 million after-tax and less than $0.01 per basic and diluted earnings per share) for the three months ended June 30, 2006 and was $4.2 million ($2.6 million after-tax and $0.01 per basic and diluted earnings per share) for the six months ended June 30, 2006, primarily for the Company’s stock option program.

In March 2006, the FASB issued Statement No. 156, “Accounting for Servicing of Financial Assets - an amendment of FASB Statement No. 140.”  Statement No. 156 provides additional guidance for recognizing servicing assets and liabilities, and is effective for fiscal year’s beginning after September 15, 2006.  Statement No. 156 amends Statement No. 140 to require that all separately recognized servicing assets and liabilities in accordance with Statement No. 140 be initially measured at fair value, if practicable.  Furthermore, Statement No. 156 permits, but does not require, fair value measurement for separately recognized servicing assets and liabilities in subsequent reporting periods.  Statement No. 156 is not expected to have any impact on the Company’s financial position, results of operation or cash flows.

In June 2006, the FASB issued Interpretation No. 48, “Accounting for Uncertainty in Income Taxes – an interpretation of FASB Statement No. 109, (FIN 48).  FIN 48 clarifies the accounting for uncertainty in tax positions and requires that a Company recognize in its financial statements, the impact of a tax position, if that position is more likely than not to be sustained on audit, based on the technical merits of the position.  The provisions of FIN 48 are effective for fiscal years

6

beginning after December 15, 2006.  The Company is currently in the process of evaluating the impact of adopting FIN 48 on its results of operations.

STOCK-BASED COMPENSATION

The Company uses various employee stock-based compensation plans.  Awards under these plans are granted to eligible officers, management employees and non-management directors.  Awards may be made in the form of incentive stock options, non-qualified stock options, stock appreciation rights and restricted stock.  The Company plans to issue any shares related to the exercise of stock options or vested restricted stock under these plans by issuing additional shares of common stock.

Description of the Plans

The 1988 Long-Term Incentive Plan (1988 Plan), as amended, authorized the Board of Directors (Board) to grant stock options, stock appreciation rights, restricted stock and long-term performance awards covering up to 10 million shares to the officers and other key employees of the Company over a period of ten years through October 1998.  Non-qualified and incentive stock options were granted under the 1988 plan at prices not less than 100% of the fair market value of the underlying common shares on the date of the grant.  All outstanding options will expire not more than ten years and one month from the date of grant.

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

The 1998 Long-Term Incentive Plan (1998 Plan) was approved by the Company’s shareholders in 1999.  This plan authorizes the Board to grant stock options, stock appreciation rights, restricted stock and long-term performance awards to eligible employees and non-qualified stock options to non-employee directors over a ten-year period.  During 2006 and 2005, non-qualified and incentive stock options were granted under the 1998 Plan at prices not less than 100% of the fair market value of the underlying common shares on the date of grant.  All outstanding options will expire not more than ten years and one month from the date of grant.  The 1998 Plan authorizes the Company to grant shares and options for shares of common stock equal to the sum of (i) the shares available for award under the 1988 Plan and the 1993 Stock Option Plan For Non-Employee Directors as of October 18, 1998 and (ii) the shares awarded under prior plans of the Company which were forfeited, expired, lapsed, not earned or tendered to pay the exercise price of options or withholding taxes.  In 1999, the number of common shares reserved for issuance under the 1998 plan was increased by 2.8 million shares and, pursuant to the merger with Witco, increased by an additional 5 million shares.  Under the terms of the merger with Witco, the shareholders also approved the conversion of all outstanding Witco options into options to purchase the Company’s common stock.  These 4.7 million converted options expired 30 days after the merger with Witco and became available for grant under the 1998 Plan.

In October 2001, the Board approved the 2001 Employee Stock Option Plan (2001 Plan).  The 2001 Plan authorizes the Board to grant up to 1 million non-qualified stock options to key non-officer employees.  Options under the 2001 plan will be granted at prices not less than 100% of the fair market value of the underlying common shares on the date of grant and will expire not more than 10 years and one month from the date of grant. During 2005, non-qualified stock options were granted under the 2001 Plan at prices not less than 100% of the fair market value of the underlying common shares on the date of grant.

In April 2006, the Company’s shareholders approved the 2006 Chemtura Corporation Long-Term Incentive Plan. The plan permits the grant of various forms of stock-based compensation awards, including stock options, restricted stock, stock appreciation rights and performance awards. The plan provides for the issuance of a maximum of 10.5 million shares, with shares granted under the plan pursuant to awards other than stock options and stock appreciation rights limited to one-third of the total maximum number of shares available for award under the plan.

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

Adoption of FASB Statement No. 123 (R), “Share-Based Payment”

In December 2004, the FASB issued Statement No. 123 (revised 2004), “Share-Based Payment” (FASB 123(R)), which replaced Statement No. 123, “Accounting for Stock-Based Compensation” (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 payments to employees, including grants of employee stock options, to be

7

recognized in the financial statements based on their fair value, beginning with the first annual period after June 15, 2005.  The pro forma disclosures previously permitted under FASB 123 are no longer an alternative to financial statement recognition.   In March 2005, the SEC Staff issued Staff Accounting Bulletin 107, “Share-Based Payment” (SAB 107), which expresses views of the SEC Staff about the application of FASB 123(R).

Through January 1, 2006, the Company elected to continue its historical method of accounting for stock-based compensation in accordance with APB 25, as permitted under FASB 123 and FASB Statement No. 148, “Accounting for Stock-Based Compensation – Transition and Disclosure” (FASB 148). Under APB 25, compensation expense for fixed plans was recognized based on the difference between the exercise price and the stock price on the date of grant. Since the Company’s fixed plan awards were granted with an exercise price equal to the stock price on the date of grant, no compensation expense was recognized in the statement of earnings for these awards.  However, compensation expense was recognized for the restricted stock awards under the Company’s long-term incentive programs in accordance with the provisions of APB 25.  The following table illustrates the effect on net earnings (loss) and related per share amounts for the quarter and six month periods ended June 30, 2005, as if the Company had applied the fair value recognition provisions of FASB 123 and FASB 148 to all stock-based employee compensation awards.

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 awards and awards modified, repurchased or cancelled after the date of adoption of FASB 123(R), as well as the unrecognized compensation cost of unvested awards as of the date of adoption are recognized in earnings based on the grant-date fair value of those awards.

Total stock-based compensation expense, including amounts for restricted stock and options, was $3.4 million and $7.0 million for the quarter and six month periods ended June 30, 2006, respectively, and is presented within SG&A.  Included within the total stock-based compensation is $2.6 million ($1.7 million after tax and less than $0.01 per basic and diluted earnings per share) for the quarter ended June 30, 2006 and $4.2 million ($2.6 million after tax and $0.01 per basic and diluted earnings per share) for the six months ended June 30, 2006 of incremental compensation expense that represents the effect of the Company’s January 1, 2006 adoption of FASB 123 (R), primarily for the Company’s stock option program.  Compensation expense related to stock options has been allocated 50% to the Corporate segment and 50% to the Company’s operating segments.  All other stock-based compensation expense is recorded in the Corporate segment.

Stock Option Plans

In January 2006, the Board granted merger integration awards consisting of long-term incentive awards of stock options covering 211,800 shares with an exercise price equal to the fair market value of the underlying common stock at the date of grant.  These options will vest ratably over a three-year period.

In March 2006, the Board of Directors also approved the grant of options covering 1,926,800 shares with an exercise price equal to the 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 a three-year period.

8

The Company uses the Black-Scholes option-pricing model to determine the compensation expense related to stock options.  The Company has elected to recognize compensation cost for option awards granted equally over the requisite service period for each separately vesting tranche, as if multiple awards were granted.  Using this method, the weighted average fair value of stock options granted during the six month periods ended June 30, 2006 and 2005 was $4.85 and $6.30, respectively.  There were no stock options granted during the quarters ended June 30, 2006 and 2005. The Black-Scholes option-pricing model requires the use of various assumptions.  The following table presents the weighted average assumptions used:

During 2006, the Company took into consideration guidance contained in FASB 123(R) and SAB 107 when reviewing and developing assumptions for the 2006 grants. The weighted average expected life for the 2006 grants of 6 years reflects the alternative simplified method permitted by SAB 107, which defines the expected life as the average of the contractual term of the options and the weighted average vesting period for all option tranches. Expected volatility for the 2006 option grants is based on historical volatility over the six years prior to the option grant date.  Currently the Company has no expectation that the expected volatility is likely to differ from its historical volatility.

Stock option plan activity for the quarter and six month periods ended June 30, 2006 is as follows:

Total remaining unrecognized compensation cost associated with unvested stock options at June 30, 2006 was $10.8 million, which will be recognized over the weighted average period of approximately one year.

The total intrinsic value of stock options exercised during the quarter and six month periods ended June 30, 2005 was $3.7 million and $11.0 million, respectively.  The total intrinsic value of stock options outstanding and exercisable at June 30, 2005 was $49.0 million and $39.9 million, respectively.

Restricted Stock Plans

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

In March 2006, the Board approved a grant of long-term incentive awards of restricted stock which carries a market condition requirement.  These shares will vest based on the achievement of specified stock price appreciation milestones, which represents a market condition, over a three-year period.  This grant was for 572,400 shares of restricted stock.  The plan also includes a provision for the grant of an additional 572,400 shares, for a maximum payout of 1,144,800 shares of restricted stock, to be issued if the maximum level of specified stock appreciation is attained.  Shares are scheduled to vest when a particular milestone is reached and maintained (based on closing price on the New York Stock Exchange) for fifteen consecutive trading days.  Share awards for milestones achieved during 2006 and 2007 will become vested and paid out on February 1, 2008.  Share awards for milestones achieved during 2008 will become vested and paid out on February 1, 2009.

9

Additionally, in February and March 2006, grants of 61,400 and 7,500 shares, respectively, of restricted stock that do not contain market condition requirements were approved.  The grant of 61,400 shares vests immediately, 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 not contain market condition requirements were approved.  The grants vest in 2009 and 2008, respectively.

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

The fair value of all restricted stock awards with market conditions is amortized on a straight-line vesting basis over the derived service periods.  In the case of accelerated vesting based on the market performance of the Company’s common stock, the compensation costs related to the vested awards that have not previously been amortized are recognized upon vesting.

Restricted stock award activity for the quarter and six month periods ended June 30, 2006 is as follows:

Total remaining unrecognized compensation cost associated with unvested restricted stock awards at June 30, 2006 was $7.8 million, which will be recognized over the weighted average period of approximately one year.

The total fair value of shares vested during the quarter ended June 30, 2005 was $0.3 million and granted and vested during the six months ended June 30, 2005 was $5.9 million and $2.7 million, respectively.  There were no restricted sharess that vested during the quarter ended June 30, 2005.  The total fair value of unvested restricted stock at June 30, 2005 was $18.1 million.  The weighted average grant-date fair value of restricted shares granted during the six months ended June 30, 2005 was $12.71.

Tax Benefits of Stock-Based Compensation Plans

Prior to the adoption of FASB 123(R), any benefit the Company received from tax deductions resulting from the exercise of stock options and restricted stock awards was presented in the cash flow from operations section of the condensed consolidated statements of cash flows. FASB 123(R) requires the benefits of tax deductions in excess of grant-date fair value be presented in the cash flow from financing section of the condensed consolidated statements of cash flows.  The Company did not obtain any significant cash tax benefit associated with shares exercised during the six months ended June 30, 2006 as the Company has offset its taxable income with net operating loss carryforwards. Cash proceeds received from option exercises for the six months ended June 30, 2006 and 2005 were $3.0 million and $17.1 million, respectively.

In November 2005, the FASB issued FASB Staff Position No. (“FSP”) FASB 123(R)-3, “Transition Election Related to Accounting for the Tax Effects of Share-Based Award Payments” (“FSP 123(R)-3”).  The provisions of FSP 123(R)-3 set forth an alternative method of calculating the excess tax benefits available to absorb tax deficiencies recognized subsequent to the adoption of FASB 123(R).  The Company, which is currently evaluating its available transition alternatives, has until January 1, 2007 to make its one-time election.

10

MERGER

On March 9, 2005, the Company and Great Lakes announced the signing of a definitive merger agreement (the Agreement) for an all-stock merger transaction. The transaction closed on July 1, 2005, and in accordance with the terms of the Agreement, Great Lakes shareholders received 2.2232 shares of the Company’s common stock for each share of Great Lakes common stock resulting in the issuance of approximately 116.1 million shares, which is net of 11.5 million treasury shares, of the Company’s common stock with a fair value of approximately $1.85 billion. The fair value of the portion of the purchase price paid in common stock is based on a fair value per common share 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 the two days before and after that date.  The Company also exchanged all of the outstanding vested and unvested Great Lakes stock options for 8.1 million of fully vested stock options of the Company, valued at $35.8 million.  The total purchase price, including the value of the common stock and stock options issued, was $1.89 billion.  In addition, vesting was accelerated for substantially all of the outstanding unvested restricted share units of Great Lakes.  As a result of the Merger, the Company obtained a 100% equity interest in Great Lakes.

The acquired assets and assumed liabilities have been recorded at their fair value and the excess cost of the acquired net assets over their fair value has been recorded as goodwill. The Company believes that this goodwill is attributable to an enhanced competitive position, greater stability through geographic and end-market diversification, 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 tangible and intangible assets and assumed liabilities based upon valuations and estimates of fair value.  The purchase price at July 1, 2005 has been allocated as follows:

In-process research and development had no future alternate use and was written off to operations during 2005.

The following pro forma unaudited results of operations for 2005 give effect to the Merger as if it had been consummated as of the beginning of the period. The pro forma unaudited results of operations combine the historical results of operations of the Company and Great Lakes with the pro forma adjustments described below.

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

11

The pro forma unaudited results of operations for the quarter and six months ended June 30, 2005 are as follows:

(a)          The 2005 pro forma loss from continuing operations includes a charge for the write-off of in-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 value adjustment to inventory of $37,100 ($27,329 net of tax).

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

The pro forma adjustments are as follows:

(a)                Pension – represents a reduction in pension expense, principally due to the elimination of the impact of amortization of historical gains and losses from Great Lakes’ historical net periodic benefit cost.

(b)               Interest – represents the impact on interest expense of amortization of the fair value adjustment to Great Lakes’ long-term debt.

(c)                Depreciation – represents the impact on depreciation expense of the fair value adjustment and change in the remaining useful lives of Great Lakes’ property, plant and equipment.

(d)               Amortization – represents the impact on amortization expense of the fair value adjustment and change in remaining useful life of Great Lakes’ intangible assets.

(e)                Inventory accounting – represents the impact of conforming Great Lakes’ inventory variance capitalization policy to a consistently applied method utilized by the Company.

(f)                  Merger expenses – represents the reversal of merger-related expenses incurred by Great Lakes.

12

As a result of the Merger, the Company assumed the merger-related liabilities of Great Lakes, which primarily related to the change in control provisions in employment contracts that were triggered by the Merger.  A reconciliation of this reserve balance from July 1, 2005 is as follows:

(a)                      Includes severance relating to former Great Lakes personnel only, including severance recorded for employees identified as redundancies subsequent to the date of the Merger.

(b)                     Includes primarily investment banking fees, legal fees and audit fees incurred by the Company directly related to the closing of the Merger.

As a result of the Merger, the Company recorded charges for certain costs directly related to the Merger as a component of operating profit.  The related reserve activity is summarized as follows:

(c)                Includes severance relating to former Crompton personnel only.

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

The above merger related reserves are included in accrued expenses on the Company’s condensed consolidated balance sheets at June 30, 2006 and December 31, 2005.

As of June 30, 2006, the Company had terminated approximately 590 employees worldwide, as a direct result of the Merger.  The Company expects to substantially pay its remaining merger integration costs by the end of 2006.

FACILITY CLOSURES, SEVERANCE AND RELATED COSTS

The Company is in the process of implementing a new cost savings initiative to support its continuing efforts to become more efficient and reduce costs.  As of June 30, 2006, the Company is still finalizing the specific plans that will be implemented in 2006, and the projected cost savings impact and one-time costs that it expects to incur.  During the first six months of 2006, the Company recorded a pre-tax charge of $1.9 million, primarily for severance costs resulting from specific plans that have been approved and implemented as of June 30, 2006.  A summary of this charge and the related activity is as follows:

13

In 2004, the Company completed an activity-based restructuring initiative intended to structure the Company’s operations in a more efficient and cost effective manner, including a voluntary severance program.  During 2005, the Company recorded pre-tax charges totaling $24.0 million, of which $19.5 million related to unrecoverable future lease costs and asset write-offs related to the closure of the Company’s former research and development facility in Tarrytown, NY.  During the first six months of 2006, the Company recorded a pre-tax credit of $3.4 million, primarily to adjust the reserve for unrecoverable future lease costs at the Tarrytown, NY facility.  Charges and adjustments related to these programs are summarized as follows:

(a)          Includes domestic and international severance, benefits and related pension curtailments.

(b)         Includes asset write-offs related to sites closed as a result of the activity-based initiative, including assets related to the Tarrytown, NY closure.

(c)          Includes consulting costs that have been incurred which were directly related to developing and implementing the activity-based restructuring initiative, unrecoverable future lease costs related to the closure of the Tarrytown, NY site and other contractual obligations related to closed sites.

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

At June 30, 2006, the Company also had remaining reserves of $0.2 million, $0.6 million and $0.8 million relating to its 2004 executive reorganization, 2003 cost reduction program and 2001 cost reduction initiative and corporate headquarter relocation, respectively.  The reserve balances for these programs were $0.5 million, $0.8 million and $1.0 million, respectively, at December 31, 2005.  The decrease to these reserves during the first six months of 2006 were primarily due to payments.

During the fourth quarter of 2004, the Enenco joint venture, in which the Company owned a 50 percent interest, closed its manufacturing facility in Memphis, TN.  During the first quarter of 2005, the Company acquired the remaining 50 percent interest from its joint venture partner and as a result accounts for Enenco as a wholly-owned subsidiary of the Company.  This transaction resulted in a pre-tax credit to facility closures, severance and related costs during the first six months of 2005 of $1.9 million due to recoveries from the joint venture partner of $1.2 million, adjustments to third party accruals of $0.5 million and adjustments to decommissioning and demolition reserves of $0.2 million.  During the second quarter of 2006, the Company recorded a pre-tax credit to facility closures, severance and related costs of $0.4 million to adjust for reserves no longer deemed necessary.

14

The Company has included $6.4 million and $11.4 million of its facility closures, severance and related cost reserves in other liabilities at June 30, 2006 and December 31, 2005, respectively, and $7.7 million and $14.0 million, respectively, in accrued expenses in its condensed consolidated balance sheets.

DIVESTITURES AND ACQUISITIONS

On June 23, 2006, the Company sold a significant portion of the real estate of the former Great Lakes offices in West Lafayette, Indiana for net proceeds of $6.1 million, representing gross proceeds of $6.5 million less costs incurred to complete this transaction of $0.4 million.  Upon signing a definitive agreement in March 2006, the Company classified the net book value of these assets of $6.5 million as assets held for sale and at that time ceased depreciating these assets.  During the second quarter of 2006, the assets were revalued to $6.1 million reflecting certain purchase accounting fair value adjustments for purchase accounting related to the Merger.

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

The Company received cash proceeds of $85.0 million exclusive of a $10.2 million adjustment for retained accounts receivable and accounts payable.  The pre-tax loss on the sale is included within other expense, net in the accompanying condensed consolidated statement of earnings for the quarter and six month periods ended June 30, 2006.

The assets sold consisted primarily of the dedicated intellectual property rights used to produce IWA products at the Company’s Trafford Park, United Kingdom and Adrian, Michigan facilities; inventories; office and lab equipment, and the Company’s shares in Biolab Gulf GmbH, which is a holding company that owns a 49% interest in the Company’s Biolab Arabia joint venture, located in Saudi Arabia, a previously consolidated entity. The Company retained the Liquibrom product line which was previously included within the IWA business unit.

Included in the net assets sold are $33.6 million of allocated goodwill related to the portion of the IWA business unit that was sold; $32.5 million related to net intangible assets, primarily technology, brands and customer relationships; and finished goods inventory of $12.2 million.

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

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

The Company may also receive earn-out proceeds from BWA relating to the sale of belclene phosphonates products.  The Company has not recognized the earn-out potential in current earnings, as the recognition of this additional gain is contingent upon the future sales of these products though May 12, 2007.

The fully-dedicated manufacturing assets that the Company continues to own of the IWA business located in Trafford Park, United Kingdom and Adrian, Michigan will be utilized by the Company solely to supply certain finished product to BWA for a period of no less than two years. Based upon the Company’s current operations, these assets will have limited use or salvage value, if any, after such transition period. As a result, based upon an undiscounted cash-flow analysis including an estimate of salvage value, these assets were determined to be impaired (not recoverable) as the carrying value of the assets was greater than the expected cash flows. Therefore, during the second quarter of 2006, the Company recorded an impairment charge of $5.6 million to write-down such assets to fair value. Fair value was determined based upon estimated discounted cash flows directly related to the assets, including an estimate of salvage value.

15

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

On March 24, 2006, the Company acquired the Trace Chemicals business from Bayer CropScience LP.  Trace Chemicals is a leader in farmer-applied seed treatments in markets serving the United States.  The acquisition will serve to enhance the Company’s offerings in the Crop Protection business.  The cash paid for this acquisition was $6.7 million and included inventory, property, plant and equipment and intangible assets.

On March 31, 2005, the Company entered into an agreement with Hamilton Robinson LLC, a private equity firm, to form a venture (Davis-Standard LLC), which would combine the Company’s Polymer Processing Equipment business and Hamilton Robinson’s Black Clawson Converting Machinery Company.  The transaction closed on April 29, 2005 and resulted in the Company acquiring a 61.24% non-controlling interest in Davis-Standard LLC.  In accordance with EITF 96-16, “Investor’s Accounting for an Investee When the Investor Has a Majority of the Voting Interest but the Minority Shareholder or Shareholders Have Certain Approval or Veto Rights”, the Company is not consolidating the financial statements of Davis-Standard LLC because the holder of the minority interest in Davis-Standard LLC effectively exercises control over the operations of the business through its majority voting rights. As of the closing date, the Company deconsolidated approximately $136.6 million of assets and $62.8 million of liabilities of the Polymer Processing Equipment business. The investment is recorded in other assets with no significant gain or loss recognized on the transaction. The Company accounts for its investment in Davis-Standard LLC under the equity method and records its proportionate share of the venture’s results of operations in other expense, net in the Company’s condensed consolidated statements of earnings. The carrying amount of the Company’s investment in Davis-Standard LLC was $76.6 million at June 30, 2006 and $75.2 million at December 31, 2005. The excess cost over the Company’s share of net assets of the venture was $41 million at June 30, 2006 and $41.5 million at December 31, 2005.  The Company recorded $2.9 million and $3.0 million of other income for the quarter and six months ended June 30, 2006.

DISCONTINUED OPERATIONS

Refined Products

On June 24, 2005, the Company sold certain assets and assigned certain liabilities of its Refined Products business to Sun Capital Partners Group, Inc. (Sun) for $80.0 million.   The consideration that the Company received was subject to adjustment based on the change in certain transferred assets and liabilities of the Refined Products business through the closing date and for retained accounts receivable and accounts payable, which resulted in a $30.3 million reduction to the proceeds received.   The Company also pre-paid approximately $6.8 million of the manufacturing costs for certain petroleum additives products that will be manufactured for the Company by Sun.  During the second quarter of 2005, the Company recognized a loss on the transaction of $28.2 million (net of an income tax benefit of $14.3 million).

The agreement provided for the sale of assets and assignment of liabilities with carrying amounts as follows: