UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

þ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2007

or

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

For the transition period from          to

Commission file number 1-3507

ROHM AND HAAS COMPANY

(Exact name of registrant as specified in its charter)

DELAWARE
(State or other jurisdiction of
incorporation or organization) 23-1028370
(I.R.S. Employer
Identification No.)

100 INDEPENDENCE MALL WEST, PHILADELPHIA, PA          19106
(Address of principal executive offices)                     (Zip Code)
Registrant’s telephone number, including area code: (215) 592-3000

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

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

Large accelerated filer þ          Accelerated filer o          Non-accelerated filer o

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

Common stock outstanding at April 23, 2007: 216,746,419 shares

ROHM AND HAAS COMPANY AND SUBSIDIARIES
FORM 10-Q

INDEX

PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited)
Consolidated Statements of Operations for the three months ended March 31, 2007 and 2006	2
Consolidated Statements of Cash Flows for the three months ended March 31, 2007 and 2006	3
Consolidated Balance Sheets as of March 31, 2007 and December 31, 2006	4
Consolidated Statement of Stockholders’ Equity for the three months ended March 31, 2007	5
Notes to Consolidated Financial Statements	6
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	23
Item 3. Quantitative and Qualitative Disclosures about Market Risk	54
Management’s discussion of market risk is incorporated herein by reference to Item 7a of its Form 10-K for the year ended December 31, 2006, filed with the Securities and Exchange Commission on February 28, 2007.
Item 4. Controls and Procedures	54
PART II. OTHER INFORMATION	56
Item 1. Legal Proceedings	56
Item 1A. Risk Factors
Management’s discussion of risk factors is incorporated herein by reference to Item 1a of its Form 10-K for the year ended December 31, 2006, filed with the Securities and Exchange Commission on February 28, 2007.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	56
Item 6. Exhibits	57
Certification Pursuant to Rule 13a-14(a)/15d-14(a)
Certification Pursuant to Rule 13a-14(a)/15d-14(a)
Certification Furnished Pursuant to 18 U.S.C. Section 1350

1

Rohm and Haas Company and Subsidiaries

Consolidated Statements of Operations

For the three months ended March 31,	2007			2006
(in millions, except per share amounts)
(unaudited)
Net sales	$	2,160		$	2,058
Cost of goods sold		1,551			1,413
Gross profit		609			645
Selling and administrative expense		260			248
Research and development expense		68			69
Interest expense		24			25
Amortization of intangibles		14			13
Restructuring and asset impairments		(1	)		4
Share of affiliate earnings, net		5			1
Other (income), net		(19	)		(14	)
Earnings from continuing operations before income taxes, and minority interest		268			301
Income taxes		75			90
Minority interest		3			4
Earnings from continuing operations		190			207
Discontinued operations:
Net earnings of discontinued lines of business, net of income tax expense of $0 in 2007		2			—
Net earnings		192			207
Basic earnings per share (in dollars):
From continuing operations	$	0.87		$	0.94
Income from discontinued operations		0.01			—
Net earnings per share	$	0.88		$	0.94
Diluted earnings per share (in dollars):
From continuing operations	$	0.86		$	0.93
Income from discontinued operations		0.01			—
Net earnings per share	$	0.87		$	0.93
Weighted average common shares outstanding — basic		216.6			220.9
Weighted average common shares outstanding — diluted		219.7			223.2

See Notes to Consolidated Financial Statements

2

Rohm and Haas Company and Subsidiaries

Consolidated Statements of Cash Flows

For the three months ended March 31,	2007			2006
(in millions)
(unaudited)
Cash Flows from Operating Activities
Net earnings	$	192		$	207
Adjustments to reconcile net earnings to net cash provided by operating activities:
(Gain) loss on sale of assets		(2	)		1
Provision for allowance for doubtful accounts		4			1
Provision for deferred taxes		(15	)		(10	)
Restructuring and asset impairments		(1	)		4
Depreciation		102			102
Amortization of finite-lived intangibles		14			14
Share-based compensation		18			18
Changes in assets and liabilities
Accounts receivable		(75	)		11
Inventories		38			(27	)
Prepaid expenses and other current assets		4			9
Accounts payable and accrued liabilities		(203	)		(229	)
Federal, foreign and other income taxes payable		27			46
Other, net		18			36
Net cash provided by operating activities		121			183
Cash Flows from Investing Activities
Acquisitions of businesses, affiliates and intangibles		(86	)		(3	)
(Payments) proceeds from disposal of business, net		(9	)		—
Decrease in restricted cash		—			1
Proceeds from the sale of land, buildings and equipment		13			4
Capital expenditures for land, buildings and equipment		(77	)		(53	)
(Payments) proceeds to settle hedge of net investment in foreign subsidiaries		(19	)		3
Net cash used by investing activities		(178	)		(48	)
Cash Flows from Financing Activities
Proceeds from issuance of long-term debt		230			—
Repayments of long-term debt		(231	)		(1	)
Purchase of common stock		(98	)		—
Tax benefit on stock options		3			3
Proceeds from exercise of stock options		16			38
Net change in short-term borrowings		(34	)		(9	)
Payment of dividends		(72	)		(65	)
Net cash used by financing activities		(186	)		(34	)
Net (decrease) increase in cash and cash equivalents		(243	)		101
Effect of exchange rate changes on cash and cash equivalents		3			8
Cash and cash equivalents at the beginning of the period		593			566
Cash and cash equivalents at the end of the period	$	353		$	675

See Notes to Consolidated Financial Statements

3

Rohm and Haas Company and Subsidiaries

Consolidated Balance Sheets

	March 31,			December 31,
	2007			2006
(in millions, except share data)
(unaudited)
Assets
Cash and cash equivalents	$	353		$	593
Restricted cash		3			3
Receivables, net		1,652			1,570
Inventories		949			984
Prepaid expenses and other current assets		241			254
Current assets of discontinued operations		8			7
Total current assets		3,206			3,411
Land, buildings and equipment, net of accumulated depreciation		2,650			2,669
Investments in and advances to affiliates		182			112
Goodwill, net of accumulated amortization		1,548			1,541
Other intangible assets, net of accumulated amortization		1,476			1,487
Other assets		321			324
Other assets of discontinued operations		8			9
Total Assets	$	9,391		$	9,553
Liabilities and Stockholders’ Equity
Liabilities:
Short-term obligations	$	155		$	393
Trade and other payables		652			684
Accrued liabilities		651			816
Income taxes payable		43			93
Current liabilities of discontinued operations		2			2
Total current liabilities		1,503			1,988
Long-term debt		1,914			1,688
Employee benefits		742			735
Deferred income taxes		733			754
Other liabilities		295			230
Other liabilities of discontinued operations		5			5
Total Liabilities		5,192			5,400
Minority Interest		123			122
Commitments and contingencies
Stockholders’ Equity:
Preferred stock; par value — $1.00; authorized - 25,000,000 shares; issued — no shares		—			—
Common stock; par value — $2.50; authorized - 400,000,000 shares; issued - 242,078,349 shares		605			605
Additional paid-in capital		2,217			2,214
Retained earnings		2,328			2,218
		5,150			5,037
Treasury stock at cost (2007 - 24,284,531 shares; 2006 - 23,239,920 shares)		(682	)		(608	)
ESOP shares (2007 - 8,452,590 shares; 2006 - 8,585,684 shares)		(80	)		(82	)
Accumulated other comprehensive loss		(312	)		(316	)
Total Stockholders’ Equity		4,076			4,031
Total Liabilities and Stockholders’ Equity	$	9,391		$	9,553

See Notes to Consolidated Financial Statements

4

Rohm and Haas Company and Subsidiaries

Consolidated Statements of Stockholders’ Equity

(unaudited)
For the period ended March 31, 2007

	Number of										Number of
	Shares of										Shares of									Accumulated
	Common					Additional					Treasury									Other			Total			Total
	Stock			Common		Paid-in		Retained			Stock			Treasury						Comprehensive			Stockholders’			Comprehensive
(in millions, except share amounts in thousands)	Outstanding			Stock		Capital		Earnings			Outstanding			Stock			ESOP			Income (Loss)			Equity			Income
Balance January 1, 2007		218,839		$	605	$	2,214	$	2,218			23,240		$	(608	)	$	(82	)	$	(316	)	$	4,031
2006
Net earnings									192															192		$	192
Current period changes in fair value, net of taxes of ($2)																					3			3			3
Reclassification to earnings, net of taxes of $1																					(2	)		(2	)		(2	)
Cumulative translation adjustment, net of taxes of ($7)																					(6	)		(6	)		(6	)
Pension and postretirement benefit adjustments, net of taxes of ($3)																					9			9			9
Total comprehensive income																										$	196
Cumulative Transition Adjustment for FIN 48									(9	)														(9	)
Repurchase of common stock		(1,860	)									1,860			(98	)								(98	)
Common stock issued:
Stock-based compensation		815					3					(815	)		24									27
ESOP																		2						2
Tax benefit on ESOP									(1	)														(1	)
Common dividends ($0.33 per share)									(72	)														(72	)
Balance March 31, 2007		217,794		$	605	$	2,217	$	2,328			24,285		$	(682	)	$	(80	)	$	(312	)	$	4,076

See Notes to Consolidated Financial Statements

5

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1: Basis of Presentation

The accompanying unaudited consolidated financial statements of Rohm and Haas Company and its subsidiaries (the “Company”) have been prepared on a basis consistent with accounting principles generally accepted in the United States of America and are in accordance with the Securities and Exchange Commission (“SEC”) regulations for interim financial reporting. In the opinion of management, the financial statements reflect all adjustments, which are of a normal and recurring nature, which are necessary to present fairly the financial position, results of operations, and cash flows for the interim periods.

These financial statements should be read in conjunction with the financial statements, accounting policies and the notes included in our annual report filed on Form 10-K with the SEC on February 28, 2007, for the year ended December 31, 2006. The interim results are not necessarily indicative of results for a full year.

In the second quarter of 2006, our Board of Directors approved a plan to sell our Automotive Coatings business. The held-for-sale and discontinued operations criteria set forth in Statement of Financial Accounting Standards No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets” (“SFAS No. 144”) were met. Therefore, the results of our Automotive Coatings business are presented as a discontinued operation in our Consolidated Financial Statements for all periods presented herein. On October 1, 2006, we completed the sale of our Automotive Coatings business, excluding the business’ European operations. See Note 3 to the Consolidated Financial Statements.

On October 9, 2006 we announced plans to reorganize our business to create a more market-focused structure beginning in January of 2007, as previously disclosed. See Note 4 for further discussion.

Reclassifications

Certain reclassifications have been made to prior year amounts to conform to the current year presentation.

Variable Interest Entities

We are the primary beneficiary of a joint venture deemed to be a variable interest entity. Each joint venture partner holds several equivalent variable interests, with the exception of a royalty agreement held exclusively between the joint venture and our Company. In addition, the entire output of the joint venture is sold to our Company for resale to third party customers. As the primary beneficiary, we have consolidated the joint venture’s assets, liabilities and results of operations in our Consolidated Financial Statements. Creditors and other beneficial holders of the joint venture have no recourse to the general credit of our Company.

We also hold a variable interest in another joint venture, accounted for under the equity method of accounting. The variable interest relates to a cost-plus arrangement between the joint venture and each joint venture partner. We have determined that we are not the primary beneficiary and therefore have not consolidated the entity’s assets, liabilities and results of operations in our Consolidated Financial Statements. The entity provides manufacturing services to us and the other joint venture partner, and has been in existence since 1999. As of March 31, 2007, our investment in the joint venture totals approximately $30 million, representing our maximum exposure to loss.

NOTE 2: New Accounting Pronouncements

Fair Value Option For Financial Assets and Financial Liabilities In February 2007, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities,” which provides companies with an option to report selected financial assets and liabilities at fair value in an attempt to reduce both complexity in accounting for financial instruments and the volatility in earnings caused by measuring related assets and liabilities differently. This Statement is effective as of the beginning of an entity’s first fiscal year beginning after November 15, 2007. We are currently assessing the impact to our Consolidated Financial Statements.

6

Accounting for Planned Major Maintenance Activities

In September 2006, the FASB issued Staff Position (FSP) AUG AIR-1, which addresses the accounting for planned major maintenance activities. The FASB believes that the accrue-in-advance method of accounting for planned major maintenance activities results in the recognition of liabilities that do not meet the definition of a liability in FASB Concepts Statement No. 6, “Elements of Financial Statements,” because it causes the recognition of a liability in a period prior to the occurrence of the transaction or event obligating the entity. This FSP prohibits the use of the accrue-in-advance method of accounting for planned major maintenance activities in annual and interim financial reporting periods beginning January 1, 2007. We have adopted this FSP as of January 1, 2007 and it did not have a material impact to our Consolidated Financial Statements.

Fair Value Measurements

In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements,” which defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles (GAAP), and expands disclosures about fair value measurements. This Statement is effective for financial statements issued in 2008. We are currently assessing the impact to our Consolidated Financial Statements.

Accounting for Uncertainty in Income Taxes

In July 2006, the FASB issued Financial Accounting Standards Board Interpretation (“FIN”) No. 48, “Accounting for Uncertainty in Income Taxes.” FIN No. 48 is an interpretation of SFAS No. 109, “Accounting for Income Taxes.” FIN No. 48 prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in an enterprise’s tax return. This interpretation also provides guidance on the derecognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition of tax positions. The recognition threshold and measurement attribute is part of a two step tax position evaluation process prescribed in FIN No. 48. FIN No. 48 is effective after the beginning of an entity’s first fiscal year that begins after December 15, 2006. We have adopted FIN No. 48 as of January 1, 2007. The adoption resulted in a charge of $9 million recorded directly to retained earnings as a cumulative effect of an accounting change. See Note 6 for further discussion.

NOTE 3: Acquisitions and Dispositions of Assets

Acquisitions

On January 4, 2007, we completed the formation of Viance, LLC, a joint venture owned 50% by Rohm and Haas and 50% by Chemical Specialties, Inc. (CSI), a wholly owned subsidiary of Rockwood Holdings, Inc. Rohm and Haas paid CSI $77 million to create the new company, which combines the wood biocides business of Rohm and Haas and the wood protection chemicals business of CSI. The results of this joint venture are included in our Performance Materials Group segment as an equity method investment.

Dispositions

In the second quarter of 2006, we determined that the global Automotive Coatings business became an Asset Held for Sale and qualified for treatment as a discontinued operation. We have reflected this business as such in our financial statements for all periods presented. On October 1, 2006, we completed the sale of our global Automotive Coatings business, excluding that business’ European operations. Proceeds included $230 million in cash, plus working capital adjustments as defined in the sale agreement. In January of 2007, we paid $9 million in closing working capital adjustments.

We expect to sell the European Automotive Coatings operations during 2007, dependent upon market conditions.

7

The following table presents the results of operations of our Automotive Coatings discontinued operation:

	Three Months Ended
	March 31,
(in millions)	2007		2006
Net sales from discontinued operation	$	7	$	25
Earnings from discontinued operation		2		—
Income tax (provision) benefit		—		—
Net earnings from discontinued operation	$	2	$	—

The following table presents the major classes of assets and liabilities of our discontinued operation:

	March 31,		December 31,
(in millions)	2007		2006
Current assets of discontinued operation	$	8	$	7
Land, buildings and equipment, net		2		3
Goodwill and intangible assets		5		5
Other		1		1
Other assets of discontinued operation		8		9
Total assets of discontinued operation	$	16	$	16
Current liabilities of discontinued operation	$	2	$	2
Deferred income based taxes		2		2
Other long-term liabilities		3		3
Other liabilities of discontinued operation		5		5
Total liabilities of discontinued operation	$	7	$	7

In the second quarter of 2006, we acquired the net assets of Floralife^®, Inc. (“Floralife”), a top global provider of post-harvest care products for the floral industry based in South Carolina, for approximately $22 million. In January of 2007, we sold Floralife with the exception of certain patented technologies (1 MCP) to enhance the growth of the AgroFresh business in the Performance Materials Group segment. This sale resulted in a pre-tax gain of approximately $3 million.

8

NOTE 4: Segment Information

On October 9, 2006, we announced plans to reorganize our business to create a more market-focused structure beginning in January of 2007, as previously disclosed. The following segment profiles reflect the new structure.

We operate six reportable segments: Primary Materials, Paint and Coatings Materials, Packaging and Building Materials, Electronic Materials Group, Performance Materials Group, and Salt. Paint and Coatings Materials, Packaging and Building Materials and Primary Materials are managed under one executive as the Specialty Materials Group. The Electronic Materials Group and Performance Materials Group reportable segments aggregate businesses. The reportable operating segments and the types of products from which their revenues are derived are discussed below.

Ø	Paint and Coatings Materials
	This business produces acrylic emulsions and additives that are used primarily to make decorative and industrial coatings. Its products are critical components used in the manufacture of architectural paints used by do-it-yourself consumers and professional contractors. Paint and Coatings Materials products are also used in the production of industrial coatings (for use on wood, metal, and in traffic paint); in construction applications (for use in roofing materials, insulation, and cement modification); and floor care products.
Ø	Packaging and Building Materials
	This business offers a broad range of polymers; additives; and formulated value-added products (which utilize a broad range of chemistries and technologies, including our world-class acrylic technology). Its products are used in a wide range of markets, including: packaging and paper, building and construction, durables and transportation, and other industrial markets. Product lines include: additives for the manufacture of plastic and vinyl products, packaging, pressure sensitive, construction, and transportation adhesives, as well as polymers and additives used in textile, graphic arts, nonwoven, paper and leather applications.
Ø	Primary Materials
	This business produces methyl methacrylate, acrylic acid and associated esters as well as specialty monomer products which are building blocks used in our downstream polymer businesses and which are also sold externally. Internal consumption of Primary Materials products is principally in the Paint and Coatings Materials and Packaging and Building Materials businesses. Primary Materials also provides polyacrylic acid (PAA) dispersants, opacifiers and rheology modifiers/thickeners to the global household and industrial markets.
Ø	Electronic Materials Group
	The Electronic Materials Segment provides cutting-edge technology for use in telecommunications, consumer electronics and household appliances. It is comprised of three aggregated businesses: Circuit Board Technologies, Packaging and Finishing Technologies, and Semiconductor Technologies. The Circuit Board Technologies business develops and delivers the technology, materials and fabrication services for increasingly powerful, high-density circuit boards in computers, cell phones, automobiles and many other electronic devices. Our Packaging and Finishing Technologies business develops and delivers innovative materials and processes that boost the performance of a diverse range of electronic, optoelectronic and industrial packaging and finishing applications. The Semiconductor Technologies business develops and supplies integrated products and technologies on a global basis enabling our customers to drive leading-edge semiconductor design to boost performance of semiconductor devices powered by smaller and faster chips. This business also develops and delivers materials used for chemical mechanical planarization, the process used to create the flawless surfaces required to allow manufacturers to make faster and more powerful integrated circuits and electronic substrates.
Ø	Performance Materials Group
	This business group represents our expertise in enabling technologies that meet growing societal needs in the areas of water, food, health care and energy. It is comprised of the operating results of Process Chemicals and Biocides, Powder Coatings, and other smaller business units. Its products include: ion exchange resins; sodium borohydride, biocides, polymers and additives used in personal care applications and other niche technologies.

9

Ø

Salt

The Salt business houses the Morton Salt name including the well known image of the Morton Salt Umbrella Girl and the familiar slogan, “when it rains it pours.” This business also encompasses the leading table salt brand in Canada, Windsor Salt. Salt’s product offerings extend well beyond the consumer market to include salts used for food processing, agriculture, water conditioning, highway ice control and industrial processing applications.

The table below presents net sales by reportable segment. Segment eliminations are presented for intercompany sales between reportable segments.

Net Sales by Business Segment and Region

	Three Months Ended
(in millions)	March 31,
	2007			2006
Business Segment
Paint and Coatings Materials	$	478		$	485
Packaging and Building Materials		449			454
Primary Materials		482			481
Elimination of Intersegment Sales		(251	)		(272	)
Specialty Materials Group	$	1,158		$	1,148
Electronic Materials Group		385			374
Performance Materials Group		290			273
Salt		327			263
Total net sales	$	2,160		$	2,058
Customer Location
North America	$	1,094		$	1,103
Europe		560			492
Asia-Pacific		422			387
Latin America		84			76
Total net sales	$	2,160		$	2,058

Net Earnings (Loss) from Continuing Operations by Business Segment^(1,2)

	Three Months Ended
(in millions)	March 31,
	2007			2006
Business Segment
Paint and Coatings Materials	$	53		$	60
Packaging and Building Materials		28			37
Primary Materials		30			54
Specialty Materials Group	$	111		$	151
Electronic Materials Group		60			53
Performance Materials Group		21			18
Salt		33			18
Corporate (3)		(35	)		(33	)
Total net earnings from continuing operations	$	190		$	207

(1)	Earnings (loss) for all segments except Corporate are tax effected using our overall consolidated effective tax rate excluding certain discrete items.
(2)	In the first quarter of 2007, we changed the methodology for allocating shared service costs across all business units to a simpler methodology we believe will provide improved management reporting. Also in the first quarter of 2007, we moved to a simpler transfer pricing methodology which is intended to reduce volatility in earnings on internal sales and more accurately represent where value is created in our integrated acrylic chain businesses. We have reclassified our 2006 results to conform to these changes.
(3)	Corporate includes certain corporate governance costs, interest income and expense, environmental remediation expense, insurance recoveries, exploratory research and development expense, currency gains and losses, any unallocated portion of shared services and certain discrete period tax items.

10

NOTE 5: Restructuring and Asset Impairments

Severance and employee benefit costs associated with restructuring initiatives are primarily accounted for in accordance with SFAS No. 112, “Employers’ Accounting for Postemployment Benefits.” Asset impairment charges are accounted for in accordance with SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets.” The following net restructuring and asset impairment charges were recorded for the three months ended March 31, 2007 and 2006, respectively as detailed below:

Pre-Tax	Three Months Ended
(in millions)	March 31,
	2007			2006
Severance and employee benefits	$	(1	)	$	1
Other, including contract lease termination penalties		—			—
Asset impairments, net of gains		—			3
Total (income) expense	$	(1	)	$	4

Restructuring and Asset Impairment by Business Segment

Pre-Tax	Three Months Ended
(in millions)	March 31,
	2007			2006
Business Segment
Paint and Coatings Materials	$	—		$	—
Packaging and Building Materials		—			6
Primary Materials		—			—
Speciality Materials Group	$	—		$	6
Electronic Materials Group		(1	)		(1	)
Performance Chemicals Group		—			—
Salt		—			—
Corporate		—			(1	)
Total (income) expense	$	(1	)	$	4

				Contract and Lease
Restructuring by Initiative	Severance and			Termination and
(in millions)	Employee Benefits			Other Costs			Total
2006 Initiatives:
Initial charge	$	26		$	—		$	26
Payments		(3	)		—			(3	)
Changes in estimate		(1	)		—			(1	)
December 31, 2006 ending balance		22			—			22
Payments		(7	)		—			(7	)
Changes in estimate		—			—			—
March 31, 2007 ending balance		15			—			15
2005 Initiatives:
Initial charge	$	36		$	1		$	37
Payments		(3	)		(1	)		(4	)
Changes in estimate		—			—			—
December 31, 2005 ending balance		33			—			33
Payments		(19	)		—			(19	)
Changes in estimate		(1	)		2			1
December 31, 2006 ending balance		13			2			15
Payments		(4	)		—			(4	)
Changes in estimate		(1	)		—			(1	)
March 31, 2007 ending balance		8			2			10
Balance at March 31, 2007	$	23		$	2		$	25

11

The balance at March 31, 2007, recorded for severance and employee benefits, is included in accrued liabilities in our Consolidated Balance Sheet. The restructuring reserve balances presented are considered adequate to cover committed restructuring actions. Our restructuring initiatives are generally completed in 12 to 18 months.

Restructuring Initiatives

2007 Initiatives

For the three months ended March 31, 2007, there were no new restructuring charges recorded.

2006 Initiatives

For the three months ended March 31, 2006, we recorded approximately $3 million of expense for severance and associated employee benefits primarily related to the restructuring of our global Graphic Arts business within our Packaging and Building Materials segment that affected 27 positions.

Of the 329 positions identified under total 2006 restructuring initiatives, 109 positions have been eliminated as of March 31, 2007.

2005 Initiatives

For the three months ended March 31, 2005, we recorded approximately $1 million of expense for severance and associated employee benefits related to a restructuring initiative within our Electronic Materials segment that affected 27 positions. In the first quarter of both 2006 and 2007, we reversed $1 million of severance and employee benefit charges related to total 2005 initiatives.

Of the initial 590 positions identified under total 2005 restructuring initiatives, we reduced the total number of positions to be affected by 35 to 555 positions in total. As of March 31, 2007, 491 positions have been eliminated.

Prior Year Initiatives

In the first quarter of 2006, we recorded changes in estimates to reduce our reserve by $1 million for severance and employee benefit charges relating to total 2004 restructuring initiatives. All severance payments contemplated by these initiatives are materially complete. Of the initial 500 positions identified, we reduced the total number of positions to be affected by these initiatives by 123 to 377 positions in total. As of March 31, 2007, all positions have been eliminated.

Asset Impairments

2007 Impairments

For the three months ended March 31, 2007, there were no asset impairment charges recorded.

2006 Impairments

For the three months ended March 31, 2006, we recognized $3 million of fixed asset impairment charges associated with the restructuring of our global Graphic Arts business within our Packaging and Building Materials segment.

NOTE 6: Accounting for Uncertainty in Income Taxes

Effective January 1, 2007, we adopted Financial Accounting Standards Board Interpretation (“FIN”) FIN 48, “Accounting for Uncertainty in Income Taxes,” which provides a comprehensive model for the recognition, measurement and disclosure in financial statements of uncertain income tax positions that a company has taken or expects to take on a tax return. Under FIN 48, a company can recognize the benefit of an income tax position only if it is more likely than not (greater than 50%) that the tax position will be sustained upon tax examination, based solely on the technical merits of the tax position. Otherwise, no benefit can be recognized. Additionally, companies are required to accrue interest and related penalties, if applicable, on all tax exposures for which reserves have been established consistent with jurisdictional tax laws.

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Under FIN 48 we determined that certain income tax positions did not meet the more-likely-than-not recognition threshold and, therefore, required a 100% reserve while other previously unrecognized income tax positions met the recognition threshold and did not require any reserve. Accordingly, as of January 1, 2007, we recorded a non-cash cumulative transition charge of approximately $9 million, recorded as a reduction to beginning retained earnings (see Consolidated Statement of Shareholders’ Equity). Additional interest and penalty charges associated with tax positions are classified as income tax expense in the Consolidated Financial Statements.

As of January 1, 2007, we have unrecognized income tax benefits totaling $70 million and related accrued interest and penalties of $18 million (net of any tax benefit) that if recognized $74 million would be recorded as a benefit to income taxes on the Statement of Operations and, therefore, would impact the reported effective tax rate. We are currently under audit in many jurisdictions. Although it is not possible to predict the timing of the conclusion of all these pending audits with accuracy, we do anticipate that the IRS audit of the 2002 through 2004 year will be complete by the end of 2007. Given the various stages of completion of our audits we can not currently estimate significant changes in the amount of unrecognized income tax benefits over the next year.

As of January 1, 2007, the following tax years remained subject to examination by the major tax jurisdictions indicated:

Major
Jurisdictions	Open Years
Canada	1999 through 2001, 2003 through 2006
China	1997 through 2006
France	2004 through 2006
Germany	1999 through 2006
Italy	2003 through 2006
Japan	2000 through 2006
Korea	2001 through 2006
Netherlands	2003 through 2006
South Africa	2001 through 2006
Switzerland	2005 and 2006
Taiwan	2005 and 2006
United Kingdom	2003 through 2006
United States	2002 through 2006

We are also subject to income taxes in many hundreds of state and local taxing jurisdictions in the U.S. and around the world, many of which are still open to tax examinations. Management does not believe these represent a significant financial exposure for the Company.

NOTE 7: Borrowings

On March 9, 2007, we issued €175 million of 4.50% Private Placement Senior Notes due March 9, 2014. Interest is payable semi-annually in March and September at a rate of 4.50% annually.

In March of 2007, we also retired our €160 million of 6.0% notes upon maturity and early retired, at par, $19 million of 8.74% notes.

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NOTE 8: Comprehensive Income

The components of comprehensive income are as follows:

	Three Months Ended
	March 31,
(in millions)	2007			2006
Net earnings	$	192		$	207
Other comprehensive income from continuing operations:
Current period changes in fair value of derivative instruments qualifying as hedges, net of $(2) and $1, of income taxes, respectively		3			(2	)
Reclassification to earnings of derivative instruments qualifying as hedges, net of $1 and $1 of income taxes, respectively		(2	)		(2	)
Cumulative translation adjustment, net of $(7) and $(1) of income taxes, respectively		(6	)		8
Pension and postretirement benefit adjustments, net of $(3) and $0 of income taxes, respectively		9			1
Total comprehensive income	$	196		$	212

NOTE 9: Earnings from Continuing Operations per Share

The difference in common shares outstanding used in the calculation of basic and diluted earnings from continuing operations per common share is primarily due to the effect of stock options and non-vested restricted stock as reflected in the reconciliations that follow:

	Three Months Ended March 31,
	Earnings
	from
	continuing
	operations		Shares		Per Share
(in millions, except per share amount)	(Numerator)		(Denominator)		Amount
2007
Net earnings from continuing operations available to stockholders (Basic)	$	192		216.6	$	0.87
Dilutive effect of options and non-vested restricted stock (1)		—		3.1
Diluted earnings from continuing operations per share	$	192		219.7	$	0.86
2006
Net earnings from continuing operations available to stockholders (Basic)	$	207		220.9	$	0.94
Dilutive effect of options and non-vested restricted stock (1)		—		2.3
Diluted earnings from continuing operations per share	$	207		223.2	$	0.93

(1) For the three months ended March 31, 2007 and 2006, 0.4 million shares and 0.8 million shares, respectively, were excluded from the calculation of diluted earnings per share as the exercise price of the stock options was greater than the average market price.

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NOTE 10: Pensions and Other Post-Retirement Benefits

We sponsor and contribute to pension plans that provide defined benefits to U.S. and non-U.S. employees. Pension benefits earned are generally based on years of service and compensation during active employment. We provide health care and life insurance benefits (“Other Postretirement Benefits”) under numerous plans for substantially all of our domestic retired employees, for which we are self-insured. Most retirees are required to contribute toward the cost of such coverage. We also provide health care and life insurance benefits to some non-U.S. retirees, primarily in France and Canada.

The following disclosures include amounts for both the U.S. and significant foreign pension plans (primarily Canada, Germany, Japan, and the United Kingdom) and other postretirement benefits.

Estimated Components of Net Periodic Cost

							Other Postretirement
	Pension Benefits						Benefits
	Three Months Ended						Three Months Ended
	March 31,						March 31,
(in millions)	2007			2006			2007			2006
Service cost	$	20		$	20		$	1		$	2
Interest cost		36			34			7			7
Expected return on plan assets		(46	)		(39	)		—			—
Amortization of prior service cost		—			1			(1	)		(1	)
Amortization of net loss		6			11			—			—
Net periodic benefit cost	$	16		$	27		$	7		$	8

Employer Contributions

During the three months ended March 31, 2007, we contributed approximately $28 million to our qualified and non-qualified pension and postretirement benefit plans. We anticipate making full-year contributions of approximately $90 million this year, which consist of $40 million to our foreign qualified pension plans, $10 million to our non-qualified pension plans, and $40 million to our postretirement benefit plans.

NOTE 11: Inventories

Inventories consist of the following:

(in millions)	March 31, 2007		December 31, 2006
Finished products	$	468	$	517
Work in process		304		301
Raw materials		132		121
Supplies		45		45
Total	$	949	$	984

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NOTE 12: Goodwill and Other Intangible Assets

Goodwill

The changes in the carrying amount of goodwill for the three months ended March 31, 2007, by business segment, are as follows:

	Paint		Packaging
	and		and				Electronic		Performance
	Coatings		Building		Primary		Materials		Materials
(in millions)	Materials		Materials		Materials		Group		Group			Salt		Total
Balance as of January 1, 2007	$	63	$	517	$	29	$	368	$	241		$	323	$	1,541
Goodwill related to acquisitions (1)		—		—		—		3		—			—		3
Goodwill related to divestitures (2)		—		—		—		—		(4	)		—		(4	)
Currency effects (3)		—		2		—		—		2			4		8
Balance as of March 31, 2007	$	63	$	519	$	29	$	371	$	239		$	327	$	1,548

(1)	Goodwill related to acquisitions is due to the following: $3 million- Electronic Materials Group – buyback of additional shares of Rodel.
(2)	Goodwill related to divestitures is due to the following: $4 million- Performance Materials- related to the sale of Floralife® in 2007.
(3)	Certain goodwill amounts are denominated in foreign currencies and are translated using the appropriate U.S. dollar exchange rate.

Intangible Assets

The following table provides information regarding changes to our finite-lived intangible assets, which are subjected to amortization and indefinite-lived intangible assets, which are not subject to amortization.

Gross Asset Value

	Finite Lived										Indefinite Lived
								Patents,
	Developed		Customer					Licenses &
(in millions)	Technology		Lists			Tradename		Other			Strategic		Tradename			Total
Balance as of January 1, 2007	$	398	$	881		$	141	$	172		$	75	$	329		$	1,996
Currency effects (1)		1		4			—		(1	)		1		—			5
Divestitures(2)		—		(3	)		—		(1	)		—		(1	)		(5	)
Balance as of March 31, 2007	$	399	$	882		$	141	$	170		$	76	$	328		$	1,996

Accumulated Amortization

	Finite Lived												Indefinite Lived
										Patents,
	Developed			Customer						Licenses &
(in millions)	Technology			Lists			Tradename			Other			Strategic			Tradename			Total
Balance as of January 1, 2007	$	(176	)	$	(170	)	$	(33	)	$	(104	)	$	(5	)	$	(21	)	$	(509	)
Additions		(6	)		(7	)		—			(1	)		—			—			(14	)
Currency effects (1)		—			(1	)		—			—			—			—			(1	)
Divestitures		—			1			3			—			—			—			4
Balance as of March 31, 2007	$	(182	)	$	(177	)	$	(30	)	$	(105	)	$	(5	)	$	(21	)	$	(520	)
Net Book Value	$	217		$	705		$	111		$	65		$	71		$	307		$	1,476

(1)	Certain intangible assets are denominated in foreign currencies and are translated using the appropriate U.S. dollar exchange rate.
(2)	Divestiture relates to the sale of Floralife® assets.

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Amortization expense for finite-lived intangible assets was $14 million and $13 million for the three months ended March 31, 2007 and 2006, respectively. Amortization expense is estimated to be $56 million for the full 2007 year and $55 million for each of the subsequent four years.

Annual SFAS No. 142 Impairment Review

In accordance with the provisions of SFAS No. 142, “Goodwill and Other Intangible Assets,” we are required to perform, at a reporting unit level, an annual impairment review of goodwill and indefinite-lived intangible assets, or more frequently if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount. For purposes of this review, we primarily utilize discounted cash flow analyses for estimating the fair value of the reporting units. We completed our annual recoverability review as of May 31, 2006, and determined that goodwill and indefinite-lived intangible assets were fully recoverable as of this date.

SFAS No. 144 Impairment Review

Finite-lived intangible assets are amortized over their estimated useful lives and are reviewed for impairment whenever changes in circumstances indicate the carrying value may not be recoverable in accordance with SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets.”

NOTE 13: Contingent Liabilities, Guarantees and Commitments

We are a party in various government enforcement and private actions associated with former waste disposal sites, many of which are on the U.S. Environmental Protection Agency’s (“EPA”) National Priority List, where remediation costs have been or may be incurred under the Federal Comprehensive Environmental Response, Compensation and Liability Act (“CERCLA”) and similar state statutes. In some of these matters we may also be held responsible for alleged property damage. We have provided for future costs, on an undiscounted basis, at certain of these sites. We are also involved in corrective actions at some of our manufacturing facilities.

We consider a broad range of information when we determine the amount necessary for remediation accruals, including available facts about the waste site, existing and proposed remediation technology and the range of costs of applying those technologies, prior experience, government proposals for this or similar sites, the liability of other parties, the ability of other potentially responsible parties (“PRPs”) to pay costs apportioned to them and current laws and regulations. We assess the accruals quarterly and update these as additional technical and legal information becomes available. However, at certain sites, we are unable, due to a variety of factors, to assess and quantify the ultimate extent of our responsibility for study and remediation costs.

Ø Remediation Reserves and Reasonably Possible Amounts

Reserves for environmental remediation that we believe to be probable and estimable are recorded appropriately as current and long-term liabilities in the Consolidated Balance Sheets. The reserves for remediation were $140 million at March 31, 2007 and $141 million at December 31, 2006. The amounts charged to pre-tax earnings for environmental remediation and related charges were $5 million and $4 million at March 31, 2007 and March 31, 2006, respectively, and are primarily recorded as cost of goods sold in the Consolidated Statements of Operations.

In addition to accrued environmental liabilities, there are costs which have not met the definition of probable, and accordingly, are not recorded in the Consolidated Balance Sheets. We have identified reasonably possible loss contingencies related to environmental matters of approximately $120 million at both March 31, 2007 and December 31, 2006.

Further, we have identified other sites where future environmental remediation may be required, but these loss contingencies cannot be reasonably estimated at this time. These matters involve significant unresolved issues, including the number of parties found liable at each site and their ability to pay, the interpretation of applicable laws and regulations, the outcome of negotiations with regulatory authorities, and alternative methods of remediation.

Except as noted below, we believe that these matters, when ultimately resolved, which may be over an extended period of time, will not have a material adverse effect on our consolidated financial position, but could have a material adverse effect on consolidated results of operations or cash flows in any given period.

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Our significant sites are described in more detail below.

Ø Wood-Ridge/Berry’s Creek

The Wood-Ridge, New Jersey site (“Site”), and Berry’s Creek, which runs past this Site, are areas of environmental significance to the Company. The Site is the location of a former mercury processing plant acquired many years ago by a company later acquired by Morton International, Inc. (“Morton”). Morton and Velsicol Chemical Corporation (“Velsicol”) have been held jointly and severally liable for the cost of remediation of the Site. The New Jersey Department of Environmental Protection (“NJDEP”) issued the Record of Decision documenting the clean-up requirements for the manufacturing site in October 2006. The Company has submitted a work plan to implement the remediation, and will enter into an agreement or order to perform the work in 2007. In April, 2007, NJDEP issued remediation directives to approximately a dozen parties who were major customers or neighbors of the plant, directing them to participate in the remediation. The Company will negotiate with these parties to assist in the funding of the work at the former processing plant. If any of the parties refuses to participate or cannot reach agreement with us, the directive gives parties performing the remediation the right to treble recovery from those parties who fail to comply with the directive. Our ultimate exposure at the Site will depend on clean-up costs and on the level of contribution from these other parties. Velsicol’s liabilities for Site response costs will be addressed through a bankruptcy trust fund established under a court-approved settlement with Velsicol, and other parties, including the government.

With regard to Berry’s Creek, and the surrounding wetlands, EPA has issued letters to over 150 PRPs for performance of a broad scope investigation of risks posed by contamination in Berry’s Creek. Performance of this study is expected to take at least six years to complete. The PRPs are in the process of forming a representative group, and have hired common counsel and a consultant to negotiate with the EPA. Today, there is much uncertainty as to what will be required to address Berry’s Creek, but investigation and clean-up costs, as well as potential resource damage assessments, could be very high and our share of these costs could possibly be material to the results of our operations, cash flows and consolidated financial position.

Ø Moss Point

During 1996, the EPA notified Morton of possible irregularities in water discharge monitoring reports filed by its Moss Point, Mississippi plant in early 1995. Morton investigated and identified other environmental issues at the plant. An agreement with the EPA, the Department of Justice and the State of Mississippi resolving these historical environmental issues received court approval in early 2001. The accruals established for this matter were sufficient to cover the costs of the settlement. All operations at this Moss Point facility have now been terminated. Environmental investigation and interim remedial measures are proceeding pursuant to the court approved agreement.

In December 2002, a complaint was filed in Mississippi on behalf of over 700 plaintiffs against Morton, Rohm and Haas, Joseph Magazzu, a former Morton employee, and the Mississippi Department of Environmental Quality alleging personal injury and property damage caused by environmental contamination. In April 2005, this complaint was dismissed, without prejudice, with respect to all the plaintiffs. Similar complaints were filed in Mississippi on behalf of approximately 1,800 other plaintiffs; however, all but about 40 of these plaintiffs failed to comply with a court ruling that required plaintiffs to provide basic information on their claims to avoid dismissal. The remaining plaintiffs are individual plaintiffs since Mississippi procedural rules do not permit class actions. At this time, we see no basis for the claims of any of the plaintiffs. On April 4, 2007, Judge Barlow issued several rulings in the Company’s favor including a ruling on a motion for partial summary judgment regarding chemicals in the wells of certain plaintiffs which he found resulted from the chlorination of the Moss Point Water System. In addition, he granted partial summary judgment regarding certain chemicals not found on the property of another plaintiff. He also granted the Company’s motion for sanctions against plaintiffs’ attorneys because there was no legal proof for 98 percent of the cases they had filed which were dismissed.

Ø Paterson

We closed the former Morton plant at Paterson, New Jersey in December 2001, and are currently undertaking remediation of the site under New Jersey’s Industrial Site Recovery Act. We removed contaminated soil from the site and constructed an on-site remediation system for residual soil and groundwater contamination. Off-site investigation of contamination is ongoing.

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Ø Martin Aaron Superfund Site

Rohm and Haas is a PRP at this Camden, New Jersey former drum recycling site. We are participating in a PRP group to address cost allocation and technical issues. U.S. EPA Region 2 has issued a Record of Decision (“ROD”) specifying a remedy for the site. The New Jersey Department of Environmental Protection (“NJDEP”) presented a past cost and Natural Resource Damages claim to the PRP Group. The PRP Group is negotiating a Consent Decree with EPA and NJDEP to conduct a remediation at the site.

Ø Groundwater Treatment and Monitoring

Major remediation for certain sites, such as Kramer, Whitmoyer, Woodlands and Goose Farm has been completed. We are continuing groundwater remediation and monitoring programs. Reserves for these costs have been established.

Ø Manufacturing Sites

We also have accruals for enforcement and corrective action programs under governmental environmental laws at several of our manufacturing sites. The more significant of these accruals for corrective action, in addition to those presented above, have been recorded for the following sites: Bristol, Pennsylvania; Philadelphia, Pennsylvania; Houston, Texas; Louisville, Kentucky; Ringwood, Illinois; Apizaco, Mexico; Jacarei, Brazil; Jarrow, U.K.; Lauterbourg, France; and Mozzanica, Italy.

Insurance Litigation

We have actively pursued lawsuits over insurance coverage for certain environmental liabilities. It is our practice to reflect environmental insurance recoveries in the results of operations for the quarter in which the litigation is resolved through settlement or other appropriate legal processes. These resolutions typically resolve coverage for both past and future environmental spending and involve the “buy back” of the policies and have been included in cost of goods sold. In addition, litigation is pending regarding insurance coverage for certain Ringwood plant environmental lawsuits and certain premises asbestos cases regarding the Weeks Island facility.

Self-Insurance

We maintain deductibles for general liability, business interruption and property damage to owned, leased and rented property. These deductibles could be material to our earnings, but they should not be material to our overall financial position. We carry substantial excess general liability, property and business interruption insurance above our deductibles. In addition, we meet all statutory requirements for automobile liability and workers’ compensation.

Other Litigation

In December 2006, the federal government sued Waste Management of Illinois, Morton and Rohm and Haas for $1 million in un-reimbursed costs and interest for the H.O.D. landfill, a closed waste disposal site, owned and operated by Waste Management and a predecessor company, located in Antioch, Lake County, Illinois.

In November 2006, a complaint was filed in the United States District Court for the Western District of Kentucky by individuals alleging that their persons or properties were invaded by particulate and air contaminants from the Louisville plant. The complaint seeks class action certification alleging that there are hundreds of potential plaintiffs residing in neighborhoods within two miles of the plant. We believe that this lawsuit is without merit.

In April 2006 and thereafter, lawsuits were filed against Rohm and Haas claiming that the Company’s Ringwood, Illinois plant contaminated groundwater and air that allegedly reached properties a mile south of the plant site. Also sued were the owner of a plant site neighboring our facility and a company which leases a portion of our facility. An action brought in federal court in Philadelphia, Pennsylvania, seeks certification of a class comprised of the owners and residents of about 500 homes in McCullom Lake Village, seeking medical monitoring and compensation for alleged property value diminution, among other things. In addition, lawsuits were filed in the Philadelphia Court of Common Pleas by seventeen individuals who claim that contamination from the plants has resulted in tumors (primarily of the brain). We believe that these lawsuits are without merit.

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Rohm and Haas, Minnesota Mining and Manufacturing Company (3M) and Hercules, Inc. have been engaged in remediation of the Woodland Sites (“Sites”), two waste disposal locations in the New Jersey Pinelands, under various NJDEP orders since the early 1990s. Remediation is complete at one site and substantially complete at the other. In February 2006, a lawsuit was filed in state court in Burlington County, New Jersey by the NJDEP and the Administrator of the New Jersey Spill Compensation Fund against these three companies and others for alleged natural resource damages relating to the Sites. In June 2006, after the lawsuit was served, the defendants filed a notice of removal of the action to the federal court in Camden, New Jersey. This lawsuit presents significant legal and public policy issues, including the fundamental issue of whether there are any “damages,” and the Company intends to defend it vigorously.

In January 2006 and thereafter, civil lawsuits were filed against Rohm and Haas and other chemical companies in U.S. federal court, alleging violation of antitrust laws in the production and sale of methyl methacrylate (“MMA”) and polymethylmethacrylates (“PMMA”). The various plaintiffs sought to represent a class of direct or indirect purchasers of MMA or PMMA in the United States from January 1, 1995 through December 31, 2003. The lawsuits referred to an investigation of certain chemical producers by the European Commission in which Rohm and Haas was not involved in any way. However, in September 2006, both the direct purchasers and the indirect purchasers filed amended complaints in which Rohm and Haas was not named as a defendant, and therefore the Company is no longer a party to these lawsuits. In addition, another United States complaint brought in late 2006 has been dismissed. Although Rohm and Haas remains a defendant in a similar lawsuit filed in Canada, we believe the Canadian lawsuit is without merit as to Rohm and Haas, and if the Company is not dropped from the lawsuit, we intend to defend it vigorously.

In late January 2006, Morton Salt was served with a Grand Jury subpoena in connection with an investigation by the Department of Justice into possible antitrust law violations in the “industrial salt” business. Neither Morton Salt, nor any Morton Salt employee has been charged with any wrongdoing. We are cooperating fully with the governmental investigation.

On December 22, 2005, a federal judge in Indiana issued a decision purporting to grant a class of participants in the Rohm and Haas pension plan the right to a cost-of-living adjustment (“COLA”) as part of the retirement benefit for those who elect a lump sum benefit. The decision contravenes the plain language of the plan, which clearly and expressly excludes a discretionary COLA for participants who elect a lump sum benefit. Were the decision to stand, the pension trust could be required to pay a COLA benefit to those plan participants who elected a lump sum benefit during the class period. We feel strongly that our plan fully complies with applicable law and therefore the judge’s decision is contrary to law. The judge certified the question for an immediate appeal to the Seventh Circuit Court of Appeals, which appeal is now pending.

In August 2005, three actions were filed in the Philadelphia Court of Common Pleas relating to brain cancer incidence among employees who worked at our Spring House, Pennsylvania research facility. Two actions, which are now stayed pending the outcome of parallel workers’ compensation proceedings, were filed on behalf of individuals; the third is a class-action complaint which seeks a medical monitoring program for about 6,000 current and former Spring House employees. The complaint alleges that the number of brain cancer cases exceeds normal occurrence rates and allege that the cancers were caused by workplace chemical exposure. Our ongoing epidemiological studies have not found an association between anything in the Spring House workplace and brain cancer. The Company believes that these actions have no merit and is actively defending against them. In April 2006, the court dismissed the medical monitoring case as barred by Pennsylvania Workers’ Compensation Law and later stayed the case. The dismissal is now on appeal, and the plaintiff filed a Workers’ Compensation Petition seeking medical monitoring on his behalf and on behalf of others similarly situated. The Company is seeking dismissal of an additional action filed by the plaintiff in the Pennsylvania Commonwealth Court relating to his Workers’ Compensation Petition.

In February 2003, the United States Department of Justice and antitrust enforcement agencies in the European Union, Canada and Japan initiated investigations into possible antitrust violations in the plastics additives industry. In April 2006, we were notified that the grand jury investigation in the United States had been terminated and no further actions would be taken against any parties. In August of 2006, Rohm and Haas was informed by the Canadian Competition Bureau that it was terminating its investigation having found insufficient evidence to warrant a referral to the Attorney General of Canada. In January 2007, we were advised that the European Commission has

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closed its impact modifier investigation. We previously reported that the Japanese Fair Trade Commission brought proceedings against named Japanese plastics additives producers but did not initiate action against Rohm and Haas and no further action is expected.

In civil litigation on plastics additives matters, we are a party to nine private federal court civil antitrust actions that have been consolidated in the U.S. District Court for the Eastern District of Pennsylvania, including one that originally had been filed in State Court in Ohio and another involving an individual direct purchaser claim that was filed in federal court in Ohio. These actions have been brought against Rohm and Haas and other producers of plastics additives products by direct purchasers of these products and seek civil damages as a result of alleged violations of the antitrust laws. The named plaintiffs in all but one of these actions are seeking to sue on behalf of all similarly situated purchasers of plastics additives products. Federal law provides that persons who have been injured by violations of Federal antitrust law may recover three times their actual damages plus attorneys’ fees. In the fall of 2006, the court issued an order certifying six subclasses of direct purchasers premised on the types of plastics additives products that have been identified in the litigation. On April 9, 2007, the Third Circuit Court of Appeals agreed to hear an appeal from the court’s certification order. In addition, in August 2005, a new indirect purchaser class action antitrust complaint was filed in the U.S. District Court for the Eastern District of Pennsylvania, consolidating all but one of the indirect purchaser cases that previously had been filed in various state courts, including Tennessee, Vermont, Nebraska, Arizona, Kansas and Ohio. The court has dismissed from the consolidated action the claims arising from the states of Nebraska, Kansas and Ohio, and allowed the claims from Arizona, Tennessee and Vermont to continue. The only remaining state court indirect action is the one filed in California. Our internal investigation has revealed no wrongdoing. We believe these cases are without merit as to Rohm and Haas.

As a result of the bankruptcy of asbestos producers, plaintiffs’ attorneys have focused on peripheral defendants, including our company, which had asbestos on its premises. Historically, these premises cases have been dismissed or settled for minimal amounts because of the minimal likelihood of exposure at our facilities. We have reserved amounts for premises asbestos cases that we currently believe are probable and estimable.

There are also pending lawsuits filed against Morton related to employee exposure to asbestos at a manufacturing facility in Weeks Island, Louisiana with additional lawsuits expected. We expect that most of these cases will be dismissed because they are barred under workers’ compensation laws. However, cases involving asbestos-caused malignancies may not be barred under Louisiana law. Subsequent to the Morton acquisition, we commissioned medical studies to estimate possible future claims and recorded accruals based on the results.

Morton has also been sued in connection with asbestos-related matters in the former Friction Division of the former Thiokol Corporation, which merged with Morton in 1982. Settlement amounts to date have been minimal and many cases have closed with no payment. We estimate that all costs associated with future Friction Division claims, including defense costs, will be well below our insurance limits.

We are also parties to litigation arising out of the ordinary conduct of our business. Recognizing the amounts reserved for such items and the uncertainty of the ultimate outcomes, it is our opinion that the resolution of all these pending lawsuits, investigations and claims will not have a material adverse effect, individually or in the aggregate, upon our results of operations, cash flows or consolidated financial position.

Indemnifications

In connection with the divestiture of several of our operating businesses, we have agreed to retain, and/or indemnify the purchaser against, certain liabilities of the divested business, including liabilities relating to defective products sold by the business or environmental contamination arising or taxes accrued prior to the date of the sale. Our indemnification obligations with respect to these liabilities may be indefinite as to duration and may or may not be subject to a deductible, minimum claim amount or cap. As such, it is not possible for us to predict the likelihood that a claim will be made or to make a reasonable estimate of the maximum potential loss or range of loss. No company assets are held as collateral for these indemnifications and no specific liabilities have been established for such guarantees.

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NOTE 14: Subsequent Events

On April 18, 2007, we entered into an agreement to purchase Eastman Kodak’s light management film business. We are purchasing the manufacturing assets and intellectual property including patent and trademarks, know-how, trade secrets, the businesses portfolio of current and future products, and a license to additional intellectual property associated with the light management film business.

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ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following commentary should be read in conjunction with the Consolidated Financial Statements and the accompanying Notes to Consolidated Financial Statements for the year ended December 31, 2006, and Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) included in our 2006 annual report filed on Form 10-K with the Securities and Exchange Commission (“SEC”) on February 28, 2007.

Within the following discussion, unless otherwise stated, “three month period” refers to the three months ended March 31, 2007, and “prior period” refers to comparisons with the corresponding period in the previous year.

Forward-Looking Information

This document contains forward-looking information so that investors will have a better understanding of our future prospects and make informed investment decisions. Forward-looking statements within the context of the Private Securities Litigation Reform Act of 1995 include statements anticipating future growth in sales, cost of sales, earnings, selling and administrative expense, research and development expense and cash flows. Words such as “anticipates,” “estimates,” “expects,” “projects,” “intends,” “plans,” “believes,” and similar language to describe prospects for future operations or financial condition identify such forward-looking statements. Forward-looking statements are based on management’s assessment of current trends and circumstances, which may be susceptible to uncertainty, change or any other unforeseen development. Results could differ materially depending on such factors as changes in business climate, economic and competitive uncertainties, the cost of raw materials, natural gas, and other energy sources and the ability to achieve price increases to offset such cost increases, foreign exchange rates, interest rates, acquisitions or divestitures, risks in developing new products and technologies, risks of doing business in emerging markets, the impact of new accounting standards, assessments for asset impairments, the impact of tax and other legislation and regulation in the jurisdictions in which we operate, changes in business strategies, manufacturing outages or the unanticipated costs of complying with environmental and safety regulations. As appropriate, additional factors are described in our 2006 annual report filed on Form 10-K with the SEC on February 28, 2007. We are under no obligation to update or alter our forward-looking statements, as a result of new information, future events or otherwise.

Company Overview

Rohm and Haas Company was incorporated in 1917 under the laws of the State of Delaware. Our shares are traded on the New York Stock Exchange under the symbol “ROH”.

We are a global specialty materials company that began almost 100 years ago when a chemist, Otto Rohm, and a businessman, Otto Haas, decided to form a partnership to make a unique chemical product for the leather industry. That once tiny firm, now known as Rohm and Haas Company, reported sales of approximately $8.2 billion in 2006 on a portfolio of global businesses including specialty chemicals, electronic materials and salt. Today, we leverage science and technology to design materials and processes that enable our customers’ products to work. We serve a broad segment of dynamic markets, the largest of which include: building and construction, electronics, food and retail, household and personal care, industrial processes, packaging, transportation and water. To serve these markets, we have significant operations with approximately 100 manufacturing and 35 research facilities in 27 countries with approximately 15,800 employees.

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Annual Net Sales (in millions)

Annual Net Sales by Region (in millions)

Industry Dynamics

Over the past decade, the global chemical industry has grown faster than the overall Gross Domestic Product. Projections for the next several years suggest this will likely continue. We expect the highest growth rates over the next ten years will be in the Asia-Pacific region.

The specialty materials industry is highly competitive. In some sectors, global value chain dynamics have placed specialty materials producers between the large global petrochemical producers and the large down stream retailers. In addition, the varying regional growth rates, the instant access to vast amounts of information, and highly efficient commercial transactions enabled by the internet are testing the historical industry business models. We believe growth opportunities exist for companies with the right business portfolio of value-added products, a global presence, and the flexibility to cope with the changing macro-industry trends.

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Our Strategic Focus

Our focus is to grow both revenues and earnings through organic growth, as well as highly selective bolt-on acquisitions and to deploy our strong cash position in a balanced approach to add value for our stockholders, while managing the company within the highest ethical standards. We are tuned to the changing global dynamics that impact the environment in which we operate; the trends in consumer demand and preferences; the shifting global demand and demographics; the greater emphasis on environmentally compatible products and renewable resources; and the increasing global competition.

In October 2006, we announced an evolution in our strategy, which we refer to as Vision 2010. The primary goal of Vision 2010 is to accelerate value creation. The key elements of this strategy are:

• Position Our Portfolio For Accelerated Growth – by leveraging our integrated acrylic monomer and polymer chain; accelerating investment in the Electronic Materials Group; creating or expanding platforms that address the growing needs in food, health, water, energy, and other areas in the developed and developing worlds; and supplementing our organic growth with highly selective bolt-on acquisitions which bring a growth platform technology or geographic supplement to our core businesses.

• Build Value-Creating Business Models in Emerging Markets – through customizing closer to customers; finding solutions that are affordable and meet local requirements; organizing in a manner that enables rapid decision-making; investing in local talent; and building plant facilities that can compete effectively with local and regional players as well as multinational players.

• Innovate with a Market / Customer Focus – by increasingly shifting the focus and delivery of technology programs closer to the customer, driving to faster and more tailored output.

• Operational Excellence / Continuous Improvement – by maintaining flat conversion costs over the next three years; building more capital-efficient plants in emerging markets; continuing to optimize our global footprint; and increasing global sourcing, especially from low-cost countries.

• Deploy Right Talent in Right Places – by ensuring that leadership talent with the right depth and breadth is in place to drive the profitable growth of our businesses through shifting deployment of more key leaders to locations outside the U.S. and continuing to drive the nurturing and development of our global workforce.

Cash Generation

We generated $840 million and $947 million in cash from operating activities during 2006 and 2005, respectively, and we expect to generate in excess of $1 billion during 2007. We plan to deploy this cash to enhance stockholder value through higher dividends, strategic investments in our core businesses and technologies, selective bolt-on acquisitions and share repurchases, as appropriate.

Corporate Governance

Our company was built upon a strong foundation of core values, which continue today. These values are the bedrock of our success. We strive to operate at the highest levels of integrity and ethics and, in support of this, require that all employees, as well as the members of our Board of Directors, receive compliance training and annually certify their compliance with our internal Code of Business Conduct and Ethics. Our core values are best summarized as:

• Ethical and legal behavior at all times;

• Integrity in all business interactions; and

• Trust by doing what we promise.

Our Board of Directors devotes substantial time in reviewing our business practices with regard to the norms of institutional integrity. Our Board is comprised of 13 directors, of whom 12 are non-employees. The Audit, Nominating and Governance, and Executive Compensation committees of the Board are all entirely composed of independent directors.

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Our Businesses

Our portfolio of businesses is strong, seasonally diverse and well positioned for future growth. Effective January 1, 2007, we realigned our reporting segments and managerial organization as a part of the implementation of our Vision 2010 strategic plan. The chart below summarizes sales recorded by our six new reportable segments in 2006, 2005, and 2004.

Net Sales by Business Segment (in millions)

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SPECIALTY MATERIALS BUSINESS GROUP

With the implementation of our Vision 2010 Strategic Plan, we created a new business group – the Specialty Materials Business Group – which encompasses three reportable segments: Paint and Coatings Materials, Packaging and Building Materials, and Primary Materials.

The key driver underlying the creation of this business group was a desire to more clearly align our core Acrylic monomer-polymer chain. By placing all of our Acrylic-based businesses under one Executive and in three reportable segments, we have simplified management of this highly integrated set of businesses. Further, we believe that the true economic power of these businesses is better understood by looking at the integrated business as one unit.

We believe we are the largest and most broadly based supplier of acrylic polymers in the markets we serve, and also the largest combined supplier of the key raw materials to make these acrylic polymers, namely methacrylate and acrylate monomers. The largest consumers of the acrylic monomers we produce are our downstream polymer businesses – Paint and Coatings Materials and Packaging and Building Materials. We also have a strong third party monomer business in Europe and the Americas.

We have critical mass with the combination of our upstream monomer capacity combined with the breadth of our acrylic polymer product offerings. We believe this gives us a unique competitive advantage in the many markets that we serve globally. Our monomer and polymer supply chains are integrated globally, and we have a strong track record of manufacturing excellence in our many facilities around the world. This integration gives us the reliability, scale, and low cost position that drive our sustainable competitive advantage.

Finally, our integration benefits extend to the technical arena where our expertise in monomers complements our acknowledged leadership in acrylic polymer development for value-added applications.

PAINT AND COATINGS MATERIALS

Net Sales (in millions)

Our Paint and Coatings Materials products are sold globally, with approximately 65% of sales in North America, 17% in Europe, 12% in Asia-Pacific and 6% in Latin America. As the building and construction markets are a core focus of this business (in particular the architectural coatings markets), sales for this segment have seasonal fluctuations.

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Paint and Coatings Materials is the continuation of our 1953 pioneering acrylic waterborne chemistry. This initial innovation has evolved into our current high quality, technologically advanced product offerings of binders and additives for paint and coatings. Our technology improves the durability, tint retention, adhesion, stain resistance and opacity of paint. Our customer base includes well-known, high-quality paint suppliers. In addition to offering products for the architectural and decorative coatings markets, this business also offers products used in the manufacture of industrial coatings (for use on wood, metal, and in traffic paint); construction materials (for use in roofing materials, insulation, and cement modification); and floor care products.

Our track record of emulsions innovation is fueled by a world-class supply chain with 29 plants around the world and direct sales into 93 countries. This breadth of coverage and the associated market understanding sets us apart from all other suppliers and allows the Paint and Coatings Materials business to map the next generation of advances in a wide array of end use segments, centered in the building and construction markets. The business continues to be the leader in the conversion of solvent to water-based technologies which enables our customers to offer more environmentally friendly products including low-VOC paints, formaldehyde-free insulation and energy efficient reflective roof coatings.

Over the last several years, advances in back office systems, asset utilization and process improvements have also allowed the Paint and Coatings Materials business to reap two-fold increases in employee productivity. The benefits of these improvements are often found in our close customer relationships, which allow us to invest in advanced technical service programs, pursue targeted research and development in select markets, and establish long-term investments in emerging markets such as China, India and Eastern Europe.

Business	Markets		Products		End Uses
Paint and Coatings Materials	•	Building and construction	•	An array of versatile acrylic	•	House paints
	•	Home improvement		emulsion polymers and other	•	Traffic paints
				technologies	•	Metal coatings
			•	A range of additives, such as	•	Concrete
				thickeners, extenders and	•	Roof coatings
				pacifiers	•	Insulation

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PACKAGING AND BUILDING MATERIALS

Net Sales (in millions)

Our Packaging and Building Materials business offers a range of polymers; additives, and formulated value-added products (which utilize a broad range of chemistries and technologies, including our world-class acrylic technology). Packaging and Building Materials’ products are supported with market recognized best-in-class technical support and end-use applications knowledge. Products from this business are sold globally, with approximately 41% in North America, 37% in Europe, 16% in Asia-Pacific and 6% in Latin America.

Packaging and Building Materials has a very broad product line, which includes:

o Formulated adhesives and adhesive polymers used in flexible packaging, tape and label, transportation, and other applications

o Performance enhancing additives for plastics used in a broad array of applications, especially construction materials (e.g. vinyl siding, vinyl windows, vinyl fencing) and packaging

o Processing aids for plastic production

o Specialty polymers and coatings for use in leather, textile, graphic arts, paper, and packaging applications

Business	Markets		Products		End Uses
Packaging and Building	•	Packaging	•	Packaging adhesives	•	Flexible and rigid
Materials	•	Paper	•	Plastic additives		packaging
	•	Construction	•	Pressure sensitive adhesives	•	Vinyl construction materials
	•	Durables	•	Specialty polymers		(siding, windows, fencing,
	•	Transportation	•	Specialty coatings		decks)
	•	Graphic arts	•	Rubber-to-metal bonding	•	Paper and film labels and
	•	Leather		adhesives		decals
	•	Textiles	•	Flocking agents	•	Consumer, industrial and
						specialty tapes
					•	Anti-vibration components
					•	PVC pipe
					•	Appliances and business machines

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PRIMARY MATERIALS

Net Sales (in millions)

Internal and External Net Sales (in millions)

Our Primary Materials business produces methyl methacrylate, acrylic acid and associated esters as well as specialty monomer products which are building blocks used in our downstream polymer businesses and which are also sold externally. Internal consumption of Primary Materials products is principally in the Paint and Coatings Materials and Packaging and Building Materials businesses. Primary Materials also provides polyacrylic acid (PAA) dispersants, opacifiers and rheology modifiers/thickeners to the global household and industrial markets. Our Primary Materials products are sold globally, with approximately 52% of external sales in North America, 37% in Europe, 6% in Latin America and approximately 5% in Asia-Pacific.

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Business	Markets		Products		End Uses
Primary Materials	•	Building and construction	•	Methyl methacrylate	•	Adhesives
	•	Personal care	•	Acrylic acid	•	Paints and coatings
	•	Packaging	•	Associated esters	•	Floor polishes
	•	Household products	•	Specialty monomers	•	Hair sprays
	•	Chemicals	•	Polyacrylic acid dispersants	•	Laundry and dishwater detergents
					•	Super absorbent products

ELECTRONIC MATERIALS GROUP

This reportable operating segment is comprised of three business units: Semiconductor Technologies, Circuit Board Technologies and Packaging and Finishing Technologies.

Net Sales (in millions)

Net Sales by Business Unit (in millions)

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Our Electronic Materials Group businesses are focused on inventing new materials that make electronic devices faster, smaller, more powerful and less expensive for the consumer. We offer fully compatible, leading-edge chemistry used to make the semiconductor chips and printed circuit boards found in today’s most sophisticated electronic devices. Our products are sold globally, with approximately 58% of sales in Asia-Pacific, 28% in North America and 14% in Europe.

Circuit Board Technologies develops and delivers the technology, materials and fabrication services for increasingly powerful, high-density printed circuit boards in computers, cell phones, automobiles and many other electronic devices. We are a leading global supplier of specialty chemicals and materials used in the fabrication of printed circuit boards, and are focused on the development of metallization and imaging technologies.

Business	Markets		Products		End Uses
Circuit Board Technologies	•	Electronic devices	•	Enabling technology for all	•	Cellular phones
	•	Communication		aspects of the manufacture	•	Personal computers
	•	Computers		of printed circuit boards	•	Cars and trucks
	•	Transportation	•	Products such as:	•	LCD and plasma displays
	•	Recreation		photoresists, solder mask, electroless and electrolytic copper	•	Electronic games

Packaging and Finishing Technologies develops and delivers innovative materials and processes that boost the performance of a diverse range of electronic, optoelectronic and industrial finishing applications. We supply integrated metallization processes critical for interconnection, corrosion resistance, metal finishing, and decorative applications.

Business	Markets		Products		End Uses
Packaging and Finishing	•	Electronic devices	•	Materials and technology for	•	Cellular phones
Technologies	•	Connector finishing		integrated circuit packaging,	•	Personal computers
	•	Semiconductor		connectors and industrial	•	Cars and trucks
		packaging		finishing	•	Home appliances
	•	Surface finishing			•	Office equipment
					•	Electronic games

Semiconductor Technologies develops and supplies integrated products and technologies on a global basis. We enable our customers to drive leading edge semiconductor design, and to boost performance of semiconductor devices powered by smaller and faster chips. This business also develops and delivers materials used for chemical mechanical planarization (CMP), a process that creates the flawless surfaces required to make faster and more powerful integrated circuits and electronic substrates.

Business	Markets		Products		End Uses
Semiconductor Technologies	•	Electronics and	•	Essential technology for	•	Cellular phones
		communication		creating state-of-the-art	•	Personal computers
		devices		integrated circuits:	•	Cars and trucks
	•	Transportation		photoresists, developers,	•	Home appliances
	•	Home and office goods		removers, anti-reflective	•	Office equipment
	•	Recreation		coatings, chemical	•	Electronic games
				mechanical planarization
				(CMP) pads and slurries

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Our pad and slurry technology platforms for CMP are based on strong fundamentals, critical raw materials, top talent and state-of-the-art laboratories and tools. As one of the pioneers in polishing technology, our industry experience has tuned our problem-solving capability so that we can respond quickly and effectively to customer needs. Furthermore, our microelectronics platforms continue to push the envelope of product innovation from advanced lithography materials and copper chemistries to new Atomic Layer Deposition technology. These and many other products from this business are meeting the increasingly complex needs of leading semiconductor manufacturers.

PERFORMANCE MATERIALS GROUP

This reportable segment includes the sales and operating results of Process Chemicals and Biocides, Powder Coatings, and other smaller business units.

Net Sales (in millions)

Net Sales by Business Unit (in millions)

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Regionally, about 42% of our Performance Materials Group products are sold in Europe, 37% in North America, 16% in Asia-Pacific and about 5% in Latin America.

Process Chemicals and Biocides includes our technology platforms in ion exchange resins and biocides. These technologies continue to be adapted to more advanced applications, such as bio-processing, advanced water treatment (e.g. ultra-pure water for the electronics industry), and microbial protection for both building materials and personal care. In addition to this strong technology capability, this business has global reach and adaptable business models, such as our Viance joint venture for wood preservation.

Business	Markets		Products		End Uses
Process Chemicals and	•	Paper	•	Anion and cation ion exchange	•	Newspaper
Biocides	•	Industrial and chemical		resins	•	Corrosion inhibitors
		processing	•	Sodium borohydride and related	•	Pharmaceutical
	•	Lubricants and fuels		technologies		processes
	•	Water processing	•	Salt-forming bases	•	Dyes
	•	Food processing	•	Adsorbents	•	Soft drinks and juices
	•	Electronics	•	Antimicrobials	•	Ultra pure water
	•	Bioprocessing			•	Catalysis
	•	Household products			•	Electricity production
	•	Personal care			•	Paints
	•	Building and construction			•	Wood preservation

Powder Coatings produces a comprehensive line of powder coatings that are sprayed onto consumer and industrial products in a solid form. During the powder coating process, tiny particles receive an electrostatic charge as they pass through a sprayer, which causes them to adhere to the product. The product is later cured at a high temperature, where the particles melt onto the product to form the final coating. Powder coatings are often more cost-effective than liquid coatings, while providing similar or enhanced benefits, including increased durability such as temperature and wear resistance. Our powder coatings are used on a wide variety of products, ranging from door handles to patio and deck furniture, to windshield wipers, televisions and industrial shelving.

Business	Markets		Products		End Uses
Powder Coatings	•	Home and office goods	•	Epoxy, polyester, silicone and	•	Architectural aluminum
	•	Recreation		acrylic powder coatings	•	Shelving
	•	Lawn and garden	•	Lamineer – a low temperature	•	Tables and chairs
	•	Transportation		curing coating	•	Office furniture
	•	Building and construction			•	Cabinetry
					•	Machinery
					•	Gas grills

Also included in the results of our Performance Materials Segment are several small businesses that are building positions based on technology areas outside of the core of the company’s operations. For example, our Agrofresh subsidiary is expanding on and commercializing 1-MCP ethylene-blocking technology for use in the agriculture industry. Our Advanced Materials business leverages chemical vapor deposition technology with silicon and zinc chemistry to produce materials for use in electronics, military, and other technology-intensive areas.

Consistent with the company’s Vision 2010 Strategic Plan, we intend to continue to develop businesses focused on technology-driven, fast-growing market segments in new-to-the-company areas. These efforts will be included in the results of the Performance Materials Segment.

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SALT

With the acquisition of Morton International, Inc. in 1999, we obtained the rights to some of the most recognized consumer brand names and product symbols in the United States and in Canada. Our well-recognized “little Salt Girl” is the trademark of Morton International, Inc. and one of our most valuable intangible assets. We also acquired the leading brand in Canada, Windsor Salt ^TM.

Net Sales (in millions)

Salt is produced through vacuum pan production, solar evaporation or mining. Even though the consumer salt business is best known, this segment extends well beyond table and specialty salts and includes salt used for water conditioning, ice control, food processing and chemical/industrial use. Highway ice control sales are driven by the effects of winter weather. This seasonality has balanced our total portfolio of businesses, complementing stronger sales in the spring and summer from many of our Coatings businesses.

Business	Markets	Product	End Uses
Salt	• Consumer	• Salt	• Table salt
	• Food processing		• Home and industrial water conditioning salt
	• Industrial processing		• Ice control salt (highway de-icing and consumer)
	• Chemical processing		• Chemical/industrial processing salt
	• Water conditioning		• Industrial food processing
	• Agricultural

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Summary of Financial Results

In the first quarter of 2007, we reported sales of $2,160 million, a 5% increase over $2,058 million reported in the first quarter of 2006, reflecting higher demand, favorable currencies, and higher selling prices. Gross profit of $609 million in the quarter was 6% lower than the same period in 2006, the result of increased operating and raw material costs and demand shift from regions with higher profit margins (primarily the U.S.) to regions with lower margins (primarily emerging markets). Gross profit margin in the quarter was 28.2%, compared to 31.3% in the prior year period. Selling and administrative expenses increased 5% versus the first quarter of 2006, largely reflecting increased spending to support growth initiatives. Research and development expense for the quarter was $68 million, relatively flat from the prior year period. While research and development spending has not increased, we have refocused our efforts to key strategic growth areas such as Electronic Materials, Paint and Coatings Materials, and Performance Materials. Income tax expense for the quarter was $75 million reflecting an effective tax rate of 28.0% versus 29.9% in the prior period. In the first quarter of 2007, we reported earnings from continuing operations of $190 million, or $0.86 per share, as compared to $207 million, or $0.93 per share in the first quarter of 2006.

Critical Accounting Estimates

Our Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States of America (GAAP). The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of revenues and expenses, assets and liabilities and the disclosure of contingent assets and liabilities. Management considers an accounting estimate to be critical to the preparation of our financial statements when:

• the estimate is complex in nature or requires a high degree of judgment, and

• the use of different estimates and assumptions could have a material impact on the Consolidated Financial Statements.

Management has discussed the development and selection of our critical accounting estimates and related disclosures with the Audit Committee of our Board of Directors. Those estimates critical to the preparation of our Consolidated Financial Statements are listed below.

Ø Litigation and Environmental Reserves

We are involved in litigation in the ordinary course of business involving employee, personal injury, property damage and environmental matters. Additionally, we are involved in environmental remediation and spend significant amounts for both company-owned and third-party locations. In accordance with GAAP, we are required to assess these matters to: 1) determine if a liability is probable; and 2) record such a liability when the financial exposure can be reasonably estimated. The determination and estimation of these liabilities are critical to the preparation of our financial statements.

In reviewing such matters, we consider a broad range of information, including the claims, demands, settlement offers received from governmental authorities or private parties, estimates performed by independent third parties, identification of other responsible parties and an assessment of their ability to contribute as well as our prior experience, to determine if a liability is probable and if the value is estimable. If both of these conditions are met, we record a liability. If we believe that no best estimate exists, we accrue the minimum in a range of possible losses, and disclose any material, reasonably possible, additional losses. If we determine a liability to be only reasonably possible, we consider the same information to estimate the possible exposure and disclose any material potential liability.

Our most significant reserves are those that have been established for remediation and restoration costs associated with environmental issues. As of March 31, 2007, we have $140 million reserved for environmental-related costs. We conduct studies and site surveys to determine the extent of environmental contamination and necessary remediation. With the expertise of our environmental engineers and legal counsel, we determine our best estimates for remediation and restoration costs. These estimates are based on forecasts of future costs for remediation and change periodically as additional and better information becomes available. Changes to assumptions and considerations used to calculate remediation reserves could materially affect our results of operations or financial position. If we determine that the scope of remediation is broader than originally planned, discover new contamination, discover previously unknown sites or become subject to related personal injury or property damage claims, our estimates and assumptions could materially change.

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We believe the current assumptions and other considerations used to estimate reserves for both our environmental and other legal liabilities are appropriate. These estimates are based in large part on information currently available and the current laws and regulations governing these matters. If additional information becomes available or there are changes to the laws or regulations or actual experience differs from the assumptions and considerations used in estimating our reserves, the resulting change could have a material impact on the results of our operations, financial position or cash flows.

Ø Income Taxes

The objective of accounting for income taxes is to recognize the amount of taxes payable or refundable for the current year and deferred tax liabilities and assets for the future tax consequences of events that have been recognized in our financial statements or tax returns.

In the determination of our current year tax provision, we have provided deferred income taxes on income from foreign subsidiaries which have not been reinvested abroad permanently because such earnings are taxable upon remittance to the United States. For foreign subsidiaries where earnings are permanently reinvested outside the United States, no accrual of United States income taxes has been provided. In addition, we operate within multiple taxing jurisdictions and are subject to audit within these jurisdictions. We record accruals for the estimated outcomes of these audits. We adjust these accruals, if necessary, upon the completion of tax audits or changes in tax law. Since significant judgment is required to assess the future tax consequences of events that have been recognized in our financial statements or tax returns, the ultimate resolution of these events could result in adjustments to our financial statements and such adjustments could be material. Therefore, we consider such estimates to be critical to the preparation of our financial statements.

We believe that the current assumptions and other considerations used to estimate the current year accrued and deferred tax positions are appropriate. However, if the actual outcome of future tax consequences differs from our estimates and assumptions, the resulting change to the provision for income taxes could have a material impact on our results of operations, financial position or cash flows.

Ø Restructuring

When appropriate, we record charges relating to efforts to strategically reposition our manufacturing footprint and support service functions. To the extent that exact amounts are not determinable, we have established reserves for such initiatives by calculating our best estimate of employee termination costs utilizing detailed restructuring plans approved by management. Reserve calculations are based upon various factors including an employee’s length of service, contract provisions, salary level and health care benefit choices. We believe the estimates and assumptions used to calculate these restructuring provisions are appropriate, and although significant changes are not anticipated, actual costs could differ from the assumptions and considerations used in estimating reserves should changes be made in the nature or timing of our restructuring plans. The resulting change could have a material impact on our results of operations or financial position.

Ø Long-Lived Assets

Our long-lived assets include land, buildings and equipment, long-term investments, goodwill, indefinite-lived intangible assets and other intangible assets. Long-lived assets, other than investments, goodwill and indefinite-lived intangible assets, are depreciated over their estimated useful lives, and are reviewed for impairment whenever changes in circumstances indicate the carrying value may not be recoverable. Such circumstances would include a significant decrease in the market price of a long-lived asset, a significant adverse change in the manner in which the asset is being used or in its physical condition, or a history of operating or cash flow losses associated with the use of the asset. In addition, changes in the expected useful life of these long-lived assets may also be an impairment indicator. As a result, future decisions to change our manufacturing footprint or exit certain businesses could result in material impairment charges.

When such events or changes occur, we estimate the future cash flows expected to result from the assets’ use and, if applicable, the eventual disposition of the assets. The key variables that we must estimate include assumptions regarding sales volume, selling prices, raw material prices, labor and other employee benefit costs, capital additions and other economic factors. These variables require significant management judgment and include inherent

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uncertainties since they are forecasting future events. If such assets are considered impaired, they are written down to fair value, as appropriate.

Goodwill and indefinite-lived intangible assets are reviewed annually, or more frequently if changes in circumstances indicate the carrying value may not be recoverable. To test for recoverability, we typically utilize discounted estimated future cash flows to measure fair value for each reporting unit. This calculation is highly sensitive to both the estimated future cash flows of each reporting unit and the discount rate assumed in these calculations. These components are discussed below:

•	Estimated future cash flows
	The key variables that we must estimate to determine future cash flows include assumptions for sales volume, selling prices, raw material prices, labor and other employee benefit costs, capital additions and other economic or market-related factors. Significant management judgment is involved in estimating these variables, and they include inherent uncertainties since they are forecasting future events. For example, unanticipated changes in competition, customer sourcing requirements and product maturity would all have a significant impact on these estimates.
•	Discount rate
	We employ a Weighted Average Cost of Capital (“WACC”) approach to determine our discount rate for goodwill recoverability testing. Our WACC calculation includes factors such as the risk free rate of return, cost of debt and expected equity premiums. The factors in this calculation are largely external to our company, and therefore are beyond our control. The average WACC utilized in our annual test of goodwill recoverability in May 2006 was 10.14%, which was based upon average business enterprise value. A 1% increase in the WACC will result in an approximate 12% decrease in the computed fair value of our reporting units. A 1% decrease in the WACC will result in an approximate 16% increase in the computed fair value of our reporting units. The following table summarizes the major factors that influenced the rate:

	2006			2005
Risk free rate of return		5.3	%		4.5	%
Cost of debt		7.0	%		5.9	%
Market risk premium		4.0	%		4.0	%

The increase in risk free rate of return and cost of debt is due to the overall increase in U.S. long-term interest rates between the dates of our annual impairment testing in May 2005 and May 2006.

In the second quarter of 2006, we completed our 2006 annual FAS 142 impairment review and determined that goodwill and indefinite-lived intangible assets were not impaired as of May 31, 2006. We believe the current assumptions and other considerations used in the above estimates are reasonable and appropriate. A material adverse change in the estimated future cash flows of our business or significant increases in the WACC rate could result in the fair value falling below the book value of its net assets. This could result in a material impairment charge.

The fair values of our long-term investments are dependent on the financial performance and solvency of the entities in which we invest, as well as the volatility inherent in their external markets. In assessing potential impairment for these investments, we will consider these factors as well as the forecasted financial performance of these investment entities. If these forecasts are not met, we may have to record impairment charges.

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Ø Pension and Other Employee Benefits

Certain assumptions are used to measure plan obligations and related assets of company-sponsored defined benefit pension plans, post-retirement benefits, post-employment benefits (e.g., medical, disability) and other employee liabilities. Plan obligations and annual expense calculations are based on a number of key assumptions. These assumptions include the weighted-average discount rate at which obligations can be effectively settled, the anticipated rate of future increases in compensation levels, the expected long-term rate of return on assets, increases or trends in health care costs and estimated mortality. We use independent actuaries to assist us in preparing these calculations and determining these assumptions. We believe that the current assumptions used to estimate plan obligations and annual expense are appropriate in the current economic environment. However, if economic conditions change, we may be inclined to change some of our assumptions, and the resulting change could have a material impact on the consolidated statements of operations and on the balance sheets. The weighted-average discount rate and the estimated return on plan assets used in our determination of pension expense is as follows:

	2007						2006
	U.S.			Non-U.S.			U.S.			Non-U.S.
Discount rate		5.90	%		5.09	%		5.70	%		4.77	%
Estimated return on plan assets		8.50	%		6.74	%		8.50	%		6.97	%

The following illustrates the annual impact on pension expense of a 100 basis point increase or decrease from the assumptions used to determine the net cost for the year ending December 31, 2006:

													Combined
	Weighted-Average Discount						Estimated Return on						Increase/(Decrease)
	Rate						Plan Assets						Pension Expense
(in millions)	U.S.			Non-U.S.			U.S.			Non-U.S.			U.S.			Non-U.S.
100 basis point increase	$	(28	)	$	(10	)	$	(14	)	$	(6	)	$	(42	)	$	(16	)
100 basis point decrease		30			10			14			6			44			16

The following illustrates the annual impact on postretirement benefit expense of a 100 basis point increase or decrease from the discount rate used to determine the net cost for the year ending December 31, 2006.

	Weighted-Average Discount
	Rate
(in millions)	U.S.			Non-U.S.
100 basis point increase	$	1		$	(1	)
100 basis point decrease		(1	)		1

Ø Share-Based Compensation

We account for share-based compensation in accordance with the fair value recognition provisions of SFAS No. 123R, “Share-Based Payment.” Prior to January 1, 2006, we accounted for share-based compensation in accordance with SFAS No. 123, “Accounting for Stock-Based Compensation.” Under the fair value recognition provisions of SFAS No. 123R, share-based compensation cost is measured at the grant date based on the value of the award and is recognized as expense over the vesting period. Determining the fair value of share-based awards at the grant date requires judgment, including estimation of the expected term of stock options, the expected volatility of our stock, expected dividends, and risk-free interest rates. If actual results differ significantly from these estimates, share-based compensation expense and our results of operations could be materially impacted.

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March 31, 2007 VERSUS March 31, 2006 — CONSOLIDATED

Net Sales and Gross Profit

In the three months ended March 31, 2007, we reported consolidated net sales of $2,160 million, an increase of 5% or $102 million from prior period net sales of $2,058 million. These increases are primarily driven by higher demand, favorable currencies and higher selling prices.

The primary drivers of the sales change between March 31, 2007 and 2006 are presented below:

	Three months ended
Sales Change March 31, 2007 and 2006	%
Demand		2
Price		1
Currency		2
Total change		5

Our gross profit for the first quarter of 2007 was $609 million, a decrease of 6% or $36 million from $645 million in the first quarter of 2006. This decrease was due largely to increased operating and raw material costs and demand shift from regions with higher profit margins (primarily the U.S.) to regions with lower margins (primarily emerging markets). Gross profit margin decreased to 28.2% from 31.3% in the first quarter of 2006.

Selling and Administrative Expense

In the first quarter of 2007, selling and administrative expenses were $260 million, an increase of 5% or $12 million from $248 million in the prior year period. The increase in the quarter largely reflects increased spending to support growth initiatives, as well as the establishment of a European Headquarters business model, with an office in Switzerland that will be opening in the second quarter of 2007. Selling and administrative expenses were 12% of sales, consistent with the prior year period.

Research and Development Expense

Research and development expense for the first quarter of 2007 was $68 million, consistent with the $69 million in the first quarter of 2006. The focus of our research and development spending continues to be in the Electronic Materials, Paint and Coatings Materials and Performance Materials Groups to foster growth initiatives.

Interest Expense

Interest expense for the first quarter of 2007 was $24 million, down slightly from the prior year period. The decrease is due to a lower overall effective interest rate in comparison to the prior year period and slightly lower debt levels.

Amortization of Finite-lived Intangible Assets

Amortization of finite-lived assets was $14 million for the current quarter and $13 million for the prior year period. The slight increase is primarily due to underlying currency movements.

Restructuring and Asset Impairments

In the first quarter of 2007, we recorded approximately $1 million of benefit for severance and associated employee benefit charges, primarily in our Electronic Materials Group due to fewer employee separations than originally planned.

For the three months ended March 31, 2006, we recorded approximately $3 million of expense for severance and associated employee benefits and $3 million of fixed asset impairment charges, primarily related to the restructuring of our global Graphic Arts business within our Packaging and Building Materials segment that affected 27 positions. These charges were offset by a change in estimate to prior period restructuring reserves of $2 million, due to lower than expected separation costs.

Share of Affiliate Earnings, net

Affiliate net earnings for the three months ended March 31, 2007 and 2006 were $5 million and $1 million, respectively. The increase was primarily due to increased earnings from equity affiliates in our Electronic

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Materials Group reporting segment and from Viance, the new joint venture in our Performance Materials Group. The Viance joint venture is 50% owned by Rohm and Haas Company and 50% owned by Chemical Specialties, Inc., a wholly owned subsidiary of Rockwood Holdings, Inc. Annual sales for Viance are expected to be greater than $200 million.

Other (Income), net

Other income for the three months ended March 31, 2007 was $19 million, in comparison to $14 million in the prior year period. The increase was primarily due to an increase in currency gains of $4 million and a $3 million gain related to the sale of certain assets previously acquired from Floralife ^® , offset by $2 million lower interest and investment income.

Effective Tax Rate

We recorded a provision for income tax expense of $75 million for the first quarter of 2007, reflecting an effective tax rate from continuing operations of 28.0% compared to a 29.9% effective rate for earnings in 2006. The decrease in the rate is mainly due to the re-enactment of the research tax credit in December of 2006 and lower taxes on foreign earnings permanently reinvested abroad.

Minority Interest

In the first quarter of 2007, we reported minority interest of $3 million, as compared to $4 million in 2006. The majority of our minority interest relates to a consolidated joint venture recorded in our Electronic Materials Group reporting segment.

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MARCH 31, 2007 VERSUS MARCH 31, 2006 – BY BUSINESS SEGMENT

Net Sales by Business Segment and Region

	Three Months Ended
(in millions)	March 31,
	2007			2006
Business Segment
Paint and Coatings Materials	$	478		$	485
Packaging and Building Materials		449			454
Primary Materials		482			481
Elimination of Intersegment Sales		(251	)		(272	)
Specialty Materials Group	$	1,158		$	1,148
Electronic Materials Group		385			374
Performance Materials Group		290			273
Salt		327			263
Total net sales	$	2,160		$	2,058
Customer Location
North America	$	1,094		$	1,103
Europe		560			492
Asia-Pacific		422			387
Latin America		84			76
Total net sales	$	2,160		$	2,058

Net Earnings (Loss) from Continuing Operations by Business Segment ^(1,2)

	Three Months Ended
(in millions)	March 31
	2007			2006
Business Segment
Paint and Coatings Materials	$	53		$	60
Packaging and Building Materials		28			37
Primary Materials		30			54
Specialty Materials Group	$	111		$	151
Electronic Materials Group		60			53
Performance Materials Group		21			18
Salt		33			18
Corporate (3)		(35	)		(33	)
Total net earnings from continuing operations	$	190		$	207

1.	Earnings (loss) for all segments except Corporate were tax effected using our overall consolidated effective tax rate excluding certain discrete items.
2.	In the first quarter of 2007, we changed the methodology for allocating shared service costs across all business units to a simpler methodology we believe will provide improved management reporting. Also in the first quarter of 2007, we moved to a simpler transfer pricing methodology which is intended to reduce volatility in earnings on internal sales and more accurately represent where value is created in our integrated acrylic chain businesses. We have reclassified our 2006 results to conform to these changes.
3.	Corporate includes certain corporate governance costs, interest income and expense, environmental remediation expense, insurance recoveries, exploratory research and development expense, currency gains and losses, any unallocated portion of shared services and certain discrete tax items.

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Provision for Restructuring and Asset Impairment by Business Segment

	Three Months Ended
Pre-Tax	March 31,
(in millions)	2007			2006
Business Segment
Paint and Coatings Materials	$	—		$	—
Packaging and Building Materials		—			6
Primary Materials		—			—
Specialty Materials Group	$	—		$	6
Electronic Materials Group		(1	)		(1	)
Performance Materials Group		—			—
Salt		—			—
Corporate		—			(1	)
Total	$	(1	)	$	4

Specialty Materials Group

The Specialty Materials Group comprises three units that represent our core acrylic businesses, that serve a broad range of end-use markets. Overall sales for this Group (after intersegment elimination) were up a modest 1%. Earnings for this group declined 26% over the same period in 2006, due in part to higher unplanned operating costs, lower third-party monomer selling prices, and significantly lower demand in the U.S. The results for the Specialty Materials Group are reported under three separate reportable segments as follows:

Paint and Coating Materials

First Quarter Net Sales (in millions)

Net sales for the Paint and Coatings Materials business were $478 million, a decrease of 1%, or $7 million, from first quarter 2006 sales of $485 million, due to substantially lower demand in North America where weakness in the architectural paint market reflects the pronounced slowdown in home improvements as well as lower existing and new home sales. Strong demand was sustained across all other regions, with stable selling, raw material and energy prices.

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First quarter earnings of $53 million in 2007 were down from $60 million in 2006 as a result of the lower North America demand, partially offset by demand growth in other regions and favorable currencies.

Packaging and Building Materials

First Quarter Net Sales (in millions)

In the first quarter of 2007, net sales for Packaging and Building Materials were $449 million, a decrease of 1%, or $5 million, from net sales of $454 million in 2006. The decrease reflects the impacts of lower demand in the U.S. Building and Construction markets, partially offset by favorable currencies. The overall lower demand is mainly the result of softness in the vinyl siding and windows profile markets in North America that use our plastics additives products. Overall demand across all regions is down from last year’s exceptionally strong first quarter.

Earnings of $28 million were down versus earnings of $37 million in the first quarter of 2006. First quarter 2006 results included a $4 million, after-tax, charge primarily for restructuring and other one-time costs related to our Graphic Arts business. The earnings decline reflects sharply increased raw material costs and lower demand, partially offset by favorable currencies and increased selling prices.

Primary Materials

First Quarter Net Sales (in millions)

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First quarter 2007 net sales for Primary Materials were $482 million, essentially flat in comparison to prior period net sales of $481 million. The net sales results for Primary Materials include sales to our internal downstream monomer-consuming businesses, primarily Paint and Coatings Materials and Packaging and Building Materials, along with sales of monomers, dispersants and other polymers to third party customers who participate in various downstream markets. Sales to third party customers increased 11% to $231 million in the first quarter of 2007 from $209 million in the prior period, primarily due to higher demand, offset slightly by lower pricing for monomers, as anticipated. Sales to downstream Rohm and Haas specialty businesses were 8% lower, due primarily to lower volumes reflecting the weak market conditions in the U.S.

	Three Months Ended
(in millions)	March 31,
	2007			2006
Total Sales	$	482		$	481
Elimination of Intersegment Sales		(251	)		(272	)
Third Party Sales	$	231		$	209

Earnings of $30 million for the first quarter of 2007 decreased from $54 million in the prior period due to higher unplanned plant costs, lower production in line with reduced captive demand, and lower selling prices to third party customers.

We continue to see the effects of an increase in the global monomer supply during the early part of 2007 as a result of new production facilities that have come on line. We expect this additional supply to continue to apply downward pressure on Primary Material’s pricing through the remainder of 2007.

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Electronic Materials Group

First Quarter Net Sales (in millions)

Net sales for the Electronic Materials Group reached $385 million in the first quarter 2007, up 3%, or $11 million, versus sales of $374 million in the prior year. All businesses reported stronger demand, with most of the growth centered in Asia. Sales in advanced technology product lines were up 5% versus the first quarter of 2006.

Circuit Board Technologies sales grew 1% in the first quarter, as solid gains in Asia more than offset weaker demand in the U.S. Packaging and Finishing Technologies sales were essentially flat versus last year, however, process sales were up 5%, and precious metal pass-through sales were down 2%. Sales from Semiconductor Technologies grew 4% over the prior year quarter, reflecting continued strength in sales of Chemical Mechanical Planarization pads and slurries as well as advanced photoresists and related products. Solid growth in Asia and Europe more than offset weaker demand in North America for semiconductor products. The pace of increase has slackened somewhat versus previous quarters, following general trends in the semiconductor industry.

Earnings of $60 million were up 13% from the $53 million earned in the first quarter of 2006, reflecting both increased demand as well as good operational performance.

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Performance Materials Group

First Quarter Net Sales (in millions)

Net sales for the Performance Materials Group reached $290 million in the first quarter 2007, an increase of 6%, or $17 million, versus sales of $273 million in 2006. Stronger demand in the Asia Pacific and Latin American regions, coupled with the impact of favorable currencies in Europe, more than offset overall weakness in North America. In addition, the business experienced rapid growth of the patented 1-MCP technology of the AgroFresh business unit.

Net sales for Process Chemicals and Biocides were $181 million, an increase of 6%, or $10 million over first quarter 2006 sales. Increases in demand for ion exchange resins was strong across all regions and segments were partially offset by weakness in the North America bleaching market for sodium borohydride. In the emerging markets, particularly China and Central Eastern Europe and Turkey, demand for ion exchange resins increased in both the nutrition and industrial process markets. The business also realized solid growth in new markets segments, such as polymeric media for the emerging biodiesel market. Net sales for Powder Coatings were $88 million, an increase of 3%, or $3 million over first quarter 2006 sales. The sales increase was driven by pricing gains and the impact of favorable currencies partially offset by weaker demand in construction markets. Net sales for the other businesses, including AgroFresh, Advanced Materials and Digital Imaging, increased 23%, or $4 million, mainly driven by growth in AgroFresh.

Earnings of $21 million are $3 million, or 17%, ahead of the first quarter of 2006. The earnings increase is due to higher selling prices necessary to offset increased raw material costs, the favorable impact of currencies, and stong improvement over the prior year period in the Powder Coatings business. The 2007 results include additional investment in more advanced applications in ion exchange and biocides (such as bio-processing, advanced water treatment and microbial protection) and expansion of the ethylene management technology from our AgroFresh subsidiary (for additional high value applications in both horticultural and agronomic markets).

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Salt

First Quarter Net Sales (in millions)

In the first quarter of 2007, net sales from Salt were $327 million, an increase of 24%, or $64 million, versus the first quarter of 2006 sales of $263 million. The sales revenue increase is the result of improved ice control sales volumes as well as improved product line management and pricing in the industrial and consumer markets. Though still below historical averages, ice-control demand in 2007 improved significantly compared to last year, when sales were adversely impacted by extremely mild weather conditions.

Earnings for the quarter were $33 million, an increase of 83% over the $18 million earned in 2006, in line with improved sales performance across all product lines.

Corporate

First Quarter After-Tax Expenses (in millions)

Corporate expense of $35 million, after-tax, for the quarter was up from $33 million, after-tax, in the first quarter of 2006. The main drivers for the slight increase were one-time costs related to the establishment of a European Headquarters structure and a legal claim settlement from a business divested several years ago, partially offset by currency gains.

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LIQUIDITY AND CAPITAL RESOURCES

Overview

One of our key financial policies is to maintain a strong balance sheet with debt levels well-covered by our cash flows. As of March 31, 2007, our company’s debt ratio (total debt in proportion to total debt plus stockholders’ equity) was 34%, consistent with the debt ratio as of December 31, 2006, and cash from operating activities for the rolling twelve months ended March 31, 2007, was approximately 38% of our quarter-end debt (cash from operating activities in proportion to total debt). Over the next several years, we expect to pursue growth strategies and provide cash returns to our stockholders without unduly stressing these ratios. We intend to employ a balanced approach to cash deployment that will enhance stockholder value through:

• Reinvesting in core businesses to drive profitable growth through our capital expenditure program;

• Investing in new platforms that address the growing needs in health, water, energy, and other areas in the developed and developing worlds;

• Supplementing our organic growth with highly selective bolt-on acquisitions which bring a growth platform technology or geographic supplement to our core businesses;

• Continuing to pay higher cash dividends to our stockholders (dividend payouts have increased at an average 10.5% compound annual growth rate since 1978); and

• Repurchasing shares to improve overall returns to our stockholders.

In the three months ended March 31, 2007, our primary source of cash was from operating activities. Our principal uses of cash were share repurchases, capital expenditures, dividends and debt reduction. These are summarized in the table below:

	Three Months ended
	March 31,
(in millions)	2007			2006
Cash provided by operations	$	121		$	183
Share repurchases		(98	)		—
Capital expenditures		(77	)		(53	)
Dividends		(72	)		(65	)
Net debt reduction		(35	)		(10	)
Stock option exercise proceeds		16			38

Our consolidated statement of cash flows includes the combined results of our continuing and discontinued operations for all periods presented.

Cash Provided by Operations

For the three months ended March 31, 2007, cash from operating activities trailed the prior-year period by $62 million. The decrease in operating cash flows is primarily due to lower net cash earnings and an increase in working capital needs.

The cash flow we generate from operating activities is typically concentrated in the second half of the year due to working capital patterns in some of our core businesses, as well as the timing of certain annual payments such as employee bonuses, interest on debt and property taxes, which are concentrated in the first half of the year. We expect 2007 cash from operating activities to exceed $1 billion. Maintaining strong operating cash flow through earnings and working capital management continues to be an important objective.

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Pension Plan and Postretirement Benefit Plan Funding and Liability

During 2006, we voluntarily increased U.S. pension and other postretirement employee benefit plan funding to the maximum tax-deductible amounts, $137 million and $12 million, respectively. Additional contributions made during 2006 were $108 million, consisting of $57 million for our foreign qualified pension plans, $40 million for our postretirement benefit plans, and $11 million for our non-qualified pension plans. Over half of the $57 million used to fund our foreign qualified pension trusts was used to fund shortfalls in our Canadian pension trust. In 2007 we expect to contribute approximately $90 million to our foreign qualified pension plans, non-qualified pension plan and other postretirement plans as required. As of March 31, 2007, we have contributed $28 million to these plans. Funding requirements for subsequent years are uncertain and will significantly depend on changes in assumptions used to calculate plan funding levels, the actual return on plan assets, changes in the employee groups covered by the plan, and any legislative or regulatory changes affecting plan funding requirements. For tax planning, financial planning, cash flow management or cost reduction purposes, we may increase, accelerate, decrease or delay contributions to the plan to the extent permitted by law.

Capital Expenditures

We intend to manage our capital expenditures to take advantage of growth and productivity improvement opportunities as well as to fund ongoing environmental protection and plant infrastructure requirements. We have a well-defined review procedure for the authorization of capital projects. Capital expenditures of $77 million through the first three months of 2007 are above the prior year period expenditures primarily due to a higher overall budget versus 2006, and spending for a greater number of large projects. These large projects include several environmental and end-of-life projects at our monomers plant in Houston, Texas, new emulsion production facilities in Mexico and India, purchase of a defect analysis tool for the Electronic Materials Group, and an environmental compliance project at our salt plant in Rittman, Ohio. Projected capital expenditures for fiscal year 2007 of approximately $450 million, compared to $404 million in fiscal year 2006, are expected to be slightly higher than depreciation expense due to the higher percentage of spending on growth projects.

Dividends

Common stock dividends have been paid each year since 1927. The payout has increased at an average 10.5% compound annual growth rate since 1978.

2007						2006
	Amount						Amount
	(Per		Amount				(Per		Amount
Date of dividend	common		(In			Date of dividend	common		(In
payment	share)		millions)		Record Date	payment	share)		millions)		Record Date
March 1, 2007	$	0.33	$	72	February 16, 2007	March 1, 2006	$	0.29	$	65	February 17, 2006
						June 1, 2006		0.33		73	May 12, 2006
						September 1, 2006		0.33		73	August 11, 2006
						December 1, 2006		0.33		72	November 3, 2006

Share Repurchase Program

In December 2004, our Board of Directors authorized the repurchase of up to $1 billion of our common stock through 2008, with the timing of the purchases depending on market conditions and other priorities for cash. As of March 31, 2007, we had repurchased $635 million of our stock or 13.6 million shares under the current authorization. During the first quarter, we used $98 million of available cash to repurchase 1.9 million of our outstanding shares and we intend to repurchase the remaining $365 million during 2007.

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Liquidity and Debt

As of March 31, 2007, we had $356 million in cash, including restricted cash, and $2,069 million in debt compared with $596 million and $2,081 million, respectively, at December 31, 2006. A summary of our cash and debt balances is provided below:

	March 31,		December 31,
(in millions)	2007		2006
Short-term obligations	$	155	$	393
Long-term debt		1,914		1,688
Total debt	$	2,069	$	2,081
Cash and cash equivalents	$	353	$	593
Restricted cash		3		3
Total cash	$	356	$	596

Debt

During the first quarter of 2007, we issued €175 million of 4.50% Private Placement Senior Notes due March 9, 2014. We also retired our 6.0% notes for €160 million upon maturity and early retired at par $19 million of our 8.74% notes. At the current debt level, we expect interest expense to be approximately $24 million per quarter resulting in an effective rate of approximately 4.7 percent on total debt.

At March 31, 2007, we had no commercial paper outstanding. Our short-term debt was primarily composed of local bank borrowings. During 2007, our primary source of short-term liquidity has been cash from operating activities. We expect this to continue with commercial paper and bank borrowings needed to support local working capital needs from time to time. In December 2006, we extended the term of our $500 million revolving credit facility with a syndicated group of banks. This facility is committed until December 2011 and is not contingent upon our credit rating. As of March 31, 2007, we have not drawn down any funds against this facility.

Moody’s and Standard and Poor’s currently rate our senior unsecured long-term debt A-3 and A minus, respectively, with stable outlooks; and our short-term commercial paper, P2 and A2, respectively. In general, we believe these ratings are consistent with the objectives of our long-term financial policies.

Use of Derivative Instruments to Manage Market Risk

We use derivative instruments to reduce uncertainties arising from conducting our business in a variety of currencies, financing at long- and short-term interest rates and pricing our raw materials at market prices. The policies and procedures applicable to our use of these derivative instruments are disclosed in Items 7a and 8 (Notes 1 and 5) of our 2006 Form 10-K.

During the three months ended March 31, 2007, $5 million net cash was paid for derivative instruments and the market value of our derivative instruments depreciated $4 million after-tax. During the same period, derivative instruments lowered interest expense, generated currency gains, but increased our effective cost of natural gas above spot prices. Overall derivatives had no effect on earnings per share for the three months ended March 31, 2007.

During the remainder of this year, we expect to finance and manage financial prices under business and economic conditions characterized by sufficient cash reserves; a weak dollar; a flat U.S. yield curve; and U.S. natural gas prices held in check by sufficient inventories. Our objectives are to preserve our earnings from potentially weaker local currencies, maintain or reduce our effective interest rate, and capture opportunities to increase protection against further natural gas price spikes.

Trading Activities

We do not have any trading activity that involves non-exchange traded contracts accounted for at fair value.

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Unconsolidated Entities

All significant entities are consolidated. Any unconsolidated entities are de minimis in nature and there are no significant contractual requirements to fund losses of unconsolidated entities. See Note 1 to the Consolidated Financial Statements for our treatment of Variable Interest Entities.

Environmental Matters and Litigation

Our chemical operations, as those of other chemical manufacturers, involve the use and disposal of substances regulated under environmental protection laws. Our environmental policies and practices are designed to ensure compliance with existing laws and regulations and to minimize the risk of harm to the environment.

The company has participated in the remediation of waste disposal and manufacturing sites as required under the Superfund and related laws. Remediation is well underway or has been completed at many sites. Nevertheless, the company continues to face government enforcement actions, as well as private actions, related to past manufacturing and disposal and continues to focus on achieving cost-effective remediation where required.

Accruals

We have provided for costs to remediate former manufacturing and waste disposal sites, including Superfund sites, as well as our company facilities. We consider a broad range of information when we determine the amount necessary for remediation accruals, including available facts about the waste site, existing and proposed remediation technology and the range of costs of applying those technologies, prior experience, government proposals for these or similar sites, the liability of other parties, the ability of other Potentially Responsible Parties (“PRPs”) to pay costs apportioned to them and current laws and regulations. Reserves for environmental remediation that we believe to be probable and estimable are recorded appropriately as current and long-term liabilities in the Consolidated Balance Sheets. We assess the accruals quarterly and update them as additional technical and legal information becomes available. However, at certain sites, we are unable, due to a variety of factors, to assess and quantify the ultimate extent of our responsibility for study and remediation costs. The reserves for remediation were $140 million at March 31, 2007 and $141 million at December 31, 2006. The amounts charged to pre-tax earnings for environmental remediation and related charges were $5 million for the three months ended March 31, 2007, and $4 million for the three months ended March 31, 2006, respectively, and are primarily recorded as cost of goods sold in the Consolidated Statements of Operations.

Wood-Ridge/Berry’s Creek

The Wood-Ridge, New Jersey site (“Site”), and Berry’s Creek, which runs past this Site, are areas of environmental significance to the Company. The Site is the location of a former mercury processing plant acquired many years ago by a company later acquired by Morton International, Inc. (“Morton”). Morton and Velsicol Chemical Corporation (“Velsicol”) have been held jointly and severally liable for the cost of remediation of the Site. The New Jersey Department of Environmental Protection (“NJDEP”) issued the Record of Decision documenting the clean-up requirements for the manufacturing site in October 2006. The Company has submitted a work plan to implement the remediation, and will enter into an agreement or order to perform the work in 2007. In April, 2007, NJDEP issued remediation directives to approximately a dozen parties who were major customers or neighbors of the plant, directing them to participate in the remediation. The Company will negotiate with these parties to assist in the funding of the work at the former processing plant. If any of the parties refuses to participate or cannot reach agreement with us, the directive gives parties performing the remediation the right to treble recovery from those parties who fail to comply with the directive. Our ultimate exposure at the Site will depend on clean-up costs and on the level of contribution from other parties. Velsicol’s liabilities for Site response costs will be addressed through a bankruptcy trust fund established under a court-approved settlement with Velsicol, and other parties, including the government.

With regard to Berry’s Creek, and the surrounding wetlands, the EPA has issued letters to over 150 PRPs for performance of a broad scope investigation of risks posed by contamination in Berry’s Creek. Performance of this study is expected to take at least six years to complete. The PRPs are in the process of forming a representative group, and have hired common counsel and a consultant to negotiate with the EPA. Today, there is much uncertainty as to what will be required to address Berry’s Creek, but investigation and cleanup costs, as well as potential resource damage assessments, could be very high and our share of these costs could possibly be material to the results of our operations, cash flows and consolidated financial position.

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Other Environmental Expenditures

The laws and regulations under which we operate require significant expenditures for capital improvements, operation of environmental protection equipment, environmental compliance and remediation. Our major competitors are confronted by substantially similar environmental risks and regulations. Future developments and even more stringent environmental regulations may require us to make unforeseen additional environmental expenditures.

Climate Change

There is an increasing global focus on issues related to climate change and particularly on ways to limit and control the emission of greenhouse gases, which are believed to be associated with climate change. Some initiatives on these topics are already well along in Europe, Canada and other countries, and related legislation has passed or is being introduced in some U.S. States. In addition, the recent Supreme Court decision in Massachusetts v. EPA, holding that greenhouse gases, including carbon dioxide (CO₂), are “air pollutants” subject to regulation by EPA has increased the likelihood of federal regulatory or legislative action.

The Kyoto Protocol to the United Nations Framework Convention on Climate Change was adopted in 2005 in many countries. For instance, the European Union has a mandatory Emissions Trading Scheme to implement its objectives under the Kyoto Protocol. Four of our European locations currently exceed the threshold for participation in the EU Emissions Trading Scheme pursuant to the Kyoto Protocol and are currently implementing the requirements established by their respective countries. We are very much aware of the importance of these issues and the importance of addressing greenhouse gas emissions.

Due to the nature of our business, we have emissions of carbon dioxide (CO₂) primarily from combustion sources, although we also have some minor process by-product CO₂ emissions. Our emissions of other greenhouse gases are infrequent and minimal as compared to CO₂ emissions. We have therefore focused on ways to increase energy efficiency and curb increases in greenhouse gas emissions resulting from growth in production in addition to lowering the energy usage of existing operations. Although the general lack of specific legislation prevents any accurate estimates of the long-term impact on the Company, any legislation that limits CO₂ emissions may create a potential restriction to business growth by capping consumption of traditional energy sources available to all consumers of energy, including Rohm and Haas. Capping consumption could result in: increased energy cost, additional capital investment to lower energy intensity and rationed usage with the need to purchase greenhouse gas emission credits. Our Manufacturing Council has a global effort underway to improve our energy efficiency at all of our locations through energy audits, sharing best practices and in some cases installation of more efficient equipment. We will continue to follow these climate change issues, work to improve the energy efficiencies of our operations, work to minimize any negative impacts on company operations and seek technological breakthroughs in energy supply and efficiency.

Litigation

We are involved in various kinds of litigation, principally in the United States. We strive to resolve litigation where we can through negotiation and other alternative dispute resolution methods such as mediation. Otherwise, we vigorously defend lawsuits in the Courts.

Significant litigation is described in Note 13 to the Consolidated Financial Statements, but we will comment here on several recent legal matters.

In November 2006, a complaint was filed in the United States District Court for the Western District of Kentucky by individuals alleging that their persons or properties were invaded by particulate and air contaminants from our

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Louisville plant. The complaint seeks class action certification alleging that there are hundreds of potential plaintiffs residing in neighborhoods within two miles of the plant. We believe that this lawsuit is without merit.

In April 2006 and thereafter, lawsuits were filed against Rohm and Haas claiming that the Company’s Ringwood, Illinois plant contaminated groundwater and air that allegedly reached properties a mile south of the plant site. Also sued were the owner of a plant site neighboring our facility and a company which leases a portion of our facility. An action brought in federal court in Philadelphia, Pennsylvania seeks certification of a class comprised of the owners and residents of about 500 homes in McCullom Lake Village, seeking medical monitoring and compensation for alleged property value diminution, among other things. In addition, lawsuits were filed in the Philadelphia Court of Common Pleas by sixteen individuals who claim that contamination from the plants has resulted in tumors (primarily of the brain). We believe that these lawsuits are without merit.

Rohm and Haas, Minnesota Mining and Manufacturing Company (3M) and Hercules, Inc. have been engaged in remediation of the Woodland Sites (“Sites”), two waste disposal locations in the New Jersey Pinelands, under various NJDEP orders since the early 1990s. Remediation is complete at one site and substantially complete at the other. In February 2006, a lawsuit was filed in state court in Burlington County, New Jersey by NJDEP and the Administrator of the New Jersey Spill Compensation Fund against these three companies and others for alleged natural resource damages relating to the Sites. In June 2006, after the lawsuit was served, the defendants filed a notice of removal of the action to the federal court in Camden, New Jersey. This lawsuit presents significant legal and public policy issues, including the fundamental issue of whether there are any “damages”, and we believe it is without merit.

In late January 2006, Morton Salt was served with a Grand Jury subpoena in connection with an investigation by the Department of Justice into possible antitrust law violations in the “industrial salt” business. Neither Morton Salt, nor any Morton Salt employee has been charged with any wrongdoing. We are cooperating fully with the governmental investigation.

ACCOUNTING PRONOUNCEMENTS ISSUED BUT NOT YET ADOPTED

Fair Value Option For Financial Assets and Financial Liabilities

In February 2007, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities,” which provides companies with an option to report selected financial assets and liabilities at fair value in an attempt to reduce both complexity in accounting for financial instruments and the volatility in earnings caused by measuring related assets and liabilities differently. This Statement is effective as of the beginning of an entity’s first fiscal year beginning after November 15, 2007. We are currently assessing the impact to our Consolidated Financial Statements.

Fair Value Measurements

In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements,” which defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles (GAAP), and expands disclosures about fair value measurements. This Statement is effective for financial statements issued in 2008. We are currently assessing the impact to our consolidated financial statements.

ITEM 3. Quantitative and Qualitative Disclosures about Market Risk

Management’s discussion of market risk is incorporated herein by reference to Item 7a of the Form 10-K for the year ended December 31, 2006, filed with the Securities and Exchange Commission on February 28, 2007.

ITEM 4. Controls and Procedures

a)	Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures
	Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of our disclosure controls and procedures, as such term is defined under Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934, as amended (the

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	Exchange Act). Based on this evaluation, our principal executive officer and our principal financial officer concluded that our disclosure controls and procedures were effective as of the end of the period covered by this quarterly report. Our principal executive officer and our principal financial officer have signed their certifications as required by the Sarbanes-Oxley Act of 2002.
b)	Changes in Internal Controls over Financial Reporting
	There have been no changes in our internal control over financial reporting that occurred during the quarter ended March 31, 2007 that have materially affected, or are likely to materially effect, our internal control over financial reporting.

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PART II — OTHER INFORMATION

ITEM 1. Legal Proceedings

For information related to Legal Proceedings, see Note 13: Contingent Liabilities, Guarantees and Commitments in the accompanying Notes to Consolidated Financial Statements.

ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds

The following table provides information relating to our purchases of our common stock during the quarter ended March 31, 2007:

					Total Number of Shares		Approximate Dollar Value
	Total Number		Average Price		Purchased as Part of		of Shares that May Yet Be
	of Shares		Paid per		Publicly Announced		Purchased Under the Plans or
Period	Purchased (1)		Share (1)		Plans or Programs (2)		Programs (2)
January 1, 2007 – January 31, 2007		4,745		52.22		—	$	462,961,817
February 1, 2007 – February 28, 2007		452,985		53.96		443,000	$	439,057,214
March 1, 2007 – March 31, 2007		1,422,537		51.93		1,417,206	$	365,466,349
Total		1,880,267		52.42		1,860,206	$	365,466,349

Notes:
(1)	20,061 shares were purchased as a result of employee stock option exercises (stock swaps).
(2)	In December 2004, our Board of Directors authorized the repurchase of up to $1 billion of our common stock through 2008, with the timing of the purchases depending on market conditions and other priorities for cash. As of March 31, 2007, $635 million of the $1 billion has been used to repurchase 13.6 million shares of our stock.

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ITEM 6. Exhibits

(31.1)	Certification Pursuant to Rule 13a-14(a)/15d-14(a).
(31.2)	Certification Pursuant to Rule 13a-14(a)/15d-14(a).
(32)	Certification Furnished Pursuant to 18 U.S.C. Section 1350 Adopted Pursuant to Section 906 Sarbanes-Oxley Act of 2002. The exhibit attached to this Form 10-Q shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934 (the “Exchange Act”) or otherwise subject to liability under that section, nor shall it be deemed incorporated by reference in any filing under the Securities Act of 1933, as amended, or the Exchange Act, except as expressly set forth by specific reference in such filing.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	/s/ Jacques M. Croisetiere
	Jacques M. Croisetiere
	Executive Vice President and Chief Financial Officer
DATE: April 26, 2007	ROHM AND HAAS COMPANY
	(Registrant)

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