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SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

For the quarterly period ended March 31, 2005

OR

For the transition period from                  to                 

Commission file number: 1-14601

Arch Chemicals, Inc.

(Exact name of registrant as specified in its charter)

(203) 229-2900

(Registrant’s telephone number, including area code)

N/A

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

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 (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES x NO ¨

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). YES x NO ¨

As of April 30, 2005, there were 23,634,363 outstanding shares of the registrant’s common stock.

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ARCH CHEMICALS, INC.

INDEX

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PART I. FINANCIAL INFORMATION

ARCH CHEMICALS, INC.

Condensed Consolidated Balance Sheets

(In millions, except per share amounts)

The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of the condensed consolidated financial statements.

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ARCH CHEMICALS, INC.

Condensed Consolidated Statements of Income

(Unaudited)

(In millions, except per share amounts)

The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of the condensed consolidated financial statements.

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ARCH CHEMICALS, INC.

Condensed Consolidated Statements of Cash Flows

(Unaudited)

(In millions)

The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of the condensed consolidated financial statements.

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ARCH CHEMICALS, INC.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

These condensed consolidated financial statements have been prepared by Arch Chemicals, Inc. (with its consolidated subsidiaries, the “Company”), without audit, pursuant to the rules and regulations of the Securities and Exchange Commission and, in the opinion of the Company, reflect all adjustments (consisting of normal accruals) which are necessary to present fairly the results for interim periods. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to such rules and regulations; however, the Company believes that the disclosures are adequate to make the information presented not misleading. It is suggested that these condensed consolidated financial statements be read in conjunction with the consolidated financial statements, accounting policies and the notes thereto and management’s discussion and analysis of financial condition and results of operations included in the Company’s Form 10-K for the year ended December 31, 2004. The Company’s Treatment segment is seasonal in nature, in particular its HTH water products business as its products are primarily used in the U.S. residential pool market. Therefore, the results of operations for the Company and in particular the HTH water products business for the three months ended March 31, 2005, are not necessarily indicative of the results to be expected for the entire fiscal year.

Basic earnings per share are computed by dividing net income by the weighted average number of common shares outstanding. Diluted earnings per share reflect the dilutive effect of stock options. Stock options of 1.0 million with exercise prices greater than the average market price of the Company’s common stock are not included in the computation of diluted earnings per share for the three months ended March 31, 2005 and 2004.

On March 30, 2005, the Company’s accounts receivable securitization program expired. Under this program certain accounts receivable were sold, without recourse, through its wholly-owned subsidiary, Arch Chemicals Receivables Corp., a special-purpose corporation. The Company had not sold any participation interests in such accounts receivable at December 31, 2004. The fair value of the retained undivided interest of $53.3 million at December 31, 2004 was classified as a held-to-maturity debt security and was reflected as Short-term Investment on the accompanying Condensed Consolidated Balance Sheets. The costs of the program for the three months ended March 31, 2005 and 2004 of $0.1 million are included in Selling and Administration expenses in the accompanying Condensed Consolidated Statements of Income. Fair value of the retained undivided interest included a reserve for credit losses ($2.3 million at December 31, 2004) and had not been discounted due to the short-term nature of the underlying financial assets. The Company had not recorded an asset or liability related to the servicing responsibility retained as the fees earned for servicing were estimated to approximate fair value. The Company is in the process of establishing a new accounts receivable securitization program.

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ARCH CHEMICALS, INC.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Approximately 45 percent of the Company’s inventories are valued by the dollar value last-in, first-out (“LIFO”) method of inventory accounting. Costs of other inventories are determined principally by the first-in, first-out method. Elements of costs in inventories include raw materials, direct labor and manufacturing overhead. Inventories under the LIFO method are based on an annual determination of quantities and costs as of the year-end; therefore, the condensed consolidated financial statements at March 31, 2005 reflect certain estimates relating to projected inventory quantities and costs at December 31, 2005.

Assets held for sale consists of the Company’s chemical management services business (“CMS”), which was retained after the sale of the microelectronic materials business to Fuji Photo Film Co., Ltd. (“Fuji”). The Company will pursue all strategic options for its CMS business, including its sale.

The CMS business, which essentially services the customers of the sold business, no longer has any connections to any of the retained Arch businesses and the Company began an active program to dispose of the business. As a result and in accordance with the accounting requirements of SFAS 144, the results of operations of the CMS business have been reported as an asset held for sale and a discontinued operation in the condensed consolidated financial statements. The amounts actually realized (including future operating results) by the Company could differ materially from the amounts estimated in the condensed consolidated financial statements. Factors that could influence the ultimate outcome include, but are not limited to, general economic conditions, the Company’s ability to dispose of the business within the time, price and manner originally estimated and the retention of key customers during the divestiture period.

Balance Sheet

The major classes of assets and liabilities classified as assets held for sale are as follows:

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ARCH CHEMICALS, INC.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Income From Discontinued Operations

Income from Discontinued Operations for the period ended March 31, 2005 include the results of the CMS business and for the period ended 2004 include the results of the microelectronic materials business as follows:

The changes in the carrying amount of goodwill for the three months ended March 31, 2005 are as follows:

The Company has obtained a final third party valuation of tangible assets which resulted in adjustments to the fixed assets and goodwill balances for the applicable Avecia pool & spa and protection & hygiene businesses of approximately $0.3 million.

The gross carrying amount and accumulated amortization for other intangible assets as of March 31, 2005 and December 31, 2004 are as follows:

Amortization expense for the three months ended March 31, 2005 and 2004 was $1.9 million and $0.5 million, respectively. Estimated amortization expense is $7.3 million for the year ended December 31, 2005, $8.3 million for each of the years ending December 31, 2006 through 2008, and $7.3 million for the year ended December 31, 2009.

In accordance with FASB Statement No. 142, “Goodwill and Other Intangibles,” the Company has elected to perform its annual goodwill and other intangibles impairment procedures for all reporting units as of January 1 of each year, or after, if events or circumstances change that could reduce the fair value of a reporting unit below its

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ARCH CHEMICALS, INC.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

carrying value. During the quarter, the Company completed these procedures and concluded that no impairment exists as of January 1, 2005.

The Company’s revolving credit facility contains a quarterly leverage ratio of 3.50 and an interest coverage ratio (EBITDA/total interest expense) covenant not to be less than 3.0. Additionally, the credit facility restricts the payment of dividends and repurchase of stock to $65.0 million plus 50% of cumulative net income (loss) subject to certain limitations beginning June 20, 2003. This limitation was $45.5 million at March 31, 2005. As of March 31, 2005, facility fees payable on the credit facility are 0.3%. The facility fees can range from 0.2% to 0.4% depending on the Company’s quarterly leverage ratios. The Company may select various floating rate borrowing options, including, but not limited to, LIBOR plus a spread that can range from 0.55% to 1.35% depending on the Company’s quarterly leverage ratios. There were $16.0 million of outstanding borrowings under the credit facility at March 31, 2005.

The Company’s senior notes contain a quarterly leverage ratio of 3.50 and a debt to total capitalization ratio of 55%. In addition, the notes contain a covenant that restricts the payment of dividends and repurchases of stock to $65.0 million less cumulative dividends and repurchases of stock plus 50% of cumulative net income (loss) under certain circumstances beginning January 1, 2002. This limitation was $34.7 million at March 31, 2005.

At March 31, 2005, the Company had $27.0 million of outstanding letters of credit. In addition, the Company had a $6.7 million letter of guarantee outstanding for its Planar Solutions joint venture. As of March 31, 2005, the Company has agreed to guarantee 50% or up to $8.5 million of Planar Solution’s line of credit, which is provided by the Company’s joint venture partner. The guarantee expires in May 2005. The Company would be required to perform under the above guarantee in the case of nonpayment by Planar Solutions. On April 28, 2005, the Board of Directors of the Company approved an extension of this Planar Solutions guarantee through January 2007.

Foreign Currency

The Company uses foreign currency forward contracts as a means of hedging exposure to foreign currency risk. It is the Company’s policy to hedge up to 80% of its anticipated purchase and sales commitments denominated or expected to be denominated in a foreign currency. Accordingly, the Company has purchased forward contracts to hedge its exposure to the variability of future foreign currency cash flows through December 2005. During the three months ended March 31, 2005 and 2004, the majority of the Company’s foreign currency forward contracts qualified as effective cash flow hedges; the remainder of the foreign currency contracts did not meet the criteria of SFAS 133 to qualify for effective hedge accounting. During the three months ended March 31, 2005 and 2004, the Company recorded a gain (loss) of $0.1 million and $(0.2) million, respectively, in Other Comprehensive Income (Loss) related to the change in the fair market value of the derivatives designated as effective cash flow hedges.

At March 31, 2005, the Company had forward contracts to sell foreign currencies with a U.S. dollar equivalent value of $32.5 million and forward contracts to buy foreign currencies with a U.S. dollar equivalent value of $21.1 million. The fair value of these forward contracts is included in Other Current Assets and Accrued Liabilities, respectively, on the accompanying Condensed Consolidated Balance Sheets.

Debt and Interest

In May 2003, the Company entered into interest rate swap agreements under which the Company swapped the 7.94% fixed interest rate on $80.0 million principal amount of unsecured senior notes for floating rate interest based on six-month LIBOR plus 5.4539%. The counter parties to these agreements are major financial institutions. The agreements expire in March 2007. The Company has designated the swap agreements as fair value hedges of the risk of changes in the value of fixed rate debt due to changes in interest rates for a portion of its fixed rate borrowings under SFAS 133. Accordingly, the swap agreements have been recorded at their fair market value of $2.7 million and $1.6 million as of March 31, 2005 and December 31, 2004, respectively, are included in Other Liabilities on the accompanying Condensed Consolidated Balance Sheets, with a corresponding decrease in the carrying amount of the related debt. No gain or loss has been

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ARCH CHEMICALS, INC.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

recorded as the contracts meet the criteria of SFAS 133 to qualify for hedge accounting treatment with no ineffectiveness.

Arch U.S. Pension and Retirement Plans

As of March 31, 2005 and 2004, the components of net periodic benefit costs for the Arch U.S. Pension and Retirement Plans were as follows:

Hickson U.K Pension Plans

As of March 31, 2005 and 2004, the components of net periodic benefit costs for the Hickson U.K. and the Hickson U.K. Senior Executive retirement plans were as follows:

The Company’s minimum pension funding requirements as set forth by ERISA for its U.S. pension plans are expected to be $6.0 million in 2005 and $32.0 million in 2006. The Company also has minimum funding requirements for its U.K. pension plan, which are expected to be approximately $10.0 million in 2005 and 2006. The company may make a voluntary contribution to its U.S. pension plan of up to $30 million in 2005. As of March 31, 2005, $1.5 million had been contributed for the Arch U.S. pension plans and approximately $0.5 million for its Hickson U.K. and Hickson U.K. Senior Executive retirement plans.

Deferred Compensation Plans

In 2004, the Company established rabbi trusts (collectively, the “Rabbi Trust”) for its three deferred compensation plans, namely, the 1999 Stock Plan for Non-employee Directors, the Supplemental Contributing Employee Ownership Plan and the Employee Deferral Plan. At March 31, 2005, the Company had $3.2 million in Other assets in the Condensed Consolidated Balance Sheets, a deferred compensation liability of $6.5 million in Other liabilities and $2.4 million recorded as a reduction to equity for the Company’s stock held in the Rabbi Trust.

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ARCH CHEMICALS, INC.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Comprehensive income (loss) includes the change in the cumulative translation adjustment, minimum pension liability and the change in the fair value of derivative financial instruments, which qualify for hedge accounting. Comprehensive income (loss) for the three months ended March 31, 2005 and 2004 was as follows:

The Company does not provide for U.S. income taxes on foreign currency translation adjustments since it does not provide for such taxes on undistributed earnings of foreign subsidiaries.

Changes in the accumulated net unrealized gain (loss) on derivative instruments for the three months ended March 31, 2005 and 2004 are as follows:

The unrealized losses on derivative instruments included in Accumulated Other Comprehensive Loss are expected to be reclassified into earnings within the next 12 months.

The Company has organized its business portfolio into two operating segments to reflect the Company’s business strategy. The two segments are treatment products and performance products. The treatment products segment includes three reportable business units: the HTH water products business, the personal care and industrial biocides business, and the wood protection and industrial coatings business.

As a result of the sale of the majority of the microelectronic materials businesses on November 30, 2004, the Company has restated its prior year condensed consolidated financial statements to include the results of the microelectronic materials businesses sold as a component of discontinued operations in accordance with SFAS 144. The Company has retained its 50 percent interest in Planar Solutions, LLC, its joint venture with Wacker Chemical Corporation, which is included in Corporate Unallocated. In addition, as a result of the sale, the Company has reallocated certain centralized service costs to the Company’s segments that were previously allocated to the microelectronic materials segment for 2004.

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ARCH CHEMICALS, INC.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Segment operating income includes the equity in earnings of affiliated companies and excludes restructuring (income) expense, impairment expense and certain unallocated expenses of the corporate headquarters. The Company includes the equity income (loss) of affiliates in its segment operating results as it believes it to be relevant and useful information for investors as these affiliates are the means by which certain segments participate in certain geographic regions. Furthermore, the Company includes equity income (loss) as a component of segment operating results because the Company includes it to measure the performance of the segment. Other gains and (losses) that are directly related to the segments are included in segment operating results. The Company believes the exclusion of restructuring and impairment expenses from segment operating income provides additional perspective on the Company’s underlying business trends and provides useful information to investors by excluding amounts from the Company’s results that the Company believes are not indicative of ongoing operating results.

Amounts related to the Company’s previous restructuring programs were essentially complete as of December 31, 2004, except for the 2004 program and the restructuring associated with the acquisition of the Avecia pool & spa and protection & hygiene businesses. The following table summarizes activity related to the 2004 restructuring program for severance related headcount costs in the hydrazine business due to the expiration of the government contract:

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ARCH CHEMICALS, INC.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

As a result of the acquisition of the Avecia pool and spa and protection and hygiene businesses, the Company incurred $4.6 million for headcount reductions at the U.S. and U.K. locations and office closure costs in the U.S which has been included as a component of goodwill. The following table summarizes activity related to this plan:

As of March 31, 2005, all employees have been severed; some of the employees are still receiving benefits and fewer than 10 employees have not reached their severance date. At March 31, 2005, $1.5 million of restructuring reserves was included in Accrued Liabilities in the accompanying Condensed Consolidated Balance Sheets.

In connection with the acquisition of Hickson, the Company assumed certain legal obligations, including a trial court judgment, in favor of a railroad, of approximately $8.5 million plus interest in a lawsuit associated with a wood preservative spillage in 1994. In 2002, a new trial resulted in a judgment of $2.6 million plus interest. The judgment was affirmed on appeal in February 2005 and is now final. The judgment and related interest is included in Accrued Liabilities in the accompanying Condensed Consolidated Balance Sheets.

The Company is a co-defendant in consolidated litigation arising from a fire in August 2000, which destroyed a warehouse in which the Company’s water treatment products were stored. The parties have reached an agreement to settle a portion of the litigation that involves claims by plaintiffs who are individuals. This agreement has received court approval and the settlement amount has been paid by the Company. The balance of the litigation primarily involves claims by a number of businesses for property damage. The Company has provided for its exposure in this litigation, $3.0 million, including the amount of its participation in the settlement, and does not expect any final resolution of these cases, net of an expected insurance recovery, to have a material adverse effect on results of operations or financial position of the Company. Given that the Company’s applicable insurance policies provide coverage on a reimbursement basis, there may be a lag between any payment ultimately paid to the remaining plaintiffs by the Company and reimbursement of such payment from the Company’s insurers.

There are no longer any putative class action lawsuits pending against the Company or its subsidiaries, and there are fewer than ten other CCA-related lawsuits in which the Company and/or one or more of the Company’s subsidiaries is involved. These additional cases are not putative class actions. They are actions by individual claimants alleging various personal injuries allegedly due to exposure to CCA-treated wood.

The Company and its subsidiaries deny the material allegations of all the various CCA-related claims and have vigorously defended and will continue to vigorously defend them. As a result, legal defense and related costs associated with these cases were significant in 2004, and may be significant in the future.

All CCA-related cases are subject to a number of uncertainties. As a result, their impact, if any, is difficult to assess. Based on the information currently available to the Company, however, the Company does not believe the

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ARCH CHEMICALS, INC.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

resolution of these cases is likely to have a material adverse effect on its consolidated financial condition, cash flow or results of operations.

In April 2004, the Company was served with a complaint by two parents, their minor child and the parents acting as personal representatives of the estates of their two other children. In the complaint, which was initially filed in Oregon state court against the Company, two of its subsidiaries, and others, plaintiffs allege that a fire caused by a spontaneous exothermic chemical reaction of the Company’s pool chlorination products with other common household products erupted in the parents’ vehicle while occupied by the family. Plaintiffs ask for damages, including non-economic damages of $40.0 million per plaintiff. The Company is effectively self-insured for the first $3.0 million in this case, regardless of the number of plaintiffs. The case was removed to the U.S. district court in Oregon by the Company but the U.S. district court ultimately returned the case to state court. The Company has provided $3.0 million of self-insurance reserves related to its potential exposure in this case and does not expect any final resolution of these cases, net of an expected insurance recovery, to have a material adverse effect on results of operations or financial position of the Company. Given that the Company’s applicable insurance policies provide coverage on a reimbursement basis, there may be a lag between any payment ultimately paid to the remaining plaintiffs by the Company and reimbursement of such payment from the Company’s insurers.

In Brazil, the Company uses a third-party agent to process and pay certain state import duties. In July 2004, the Company was notified of a claim for unpaid state import duties, including interest and potential penalties. The Company has accrued for the estimated taxes and the related interest for this claim, approximately $2.9 million. As of March 31, 2005, the Company had estimated contingent liabilities related to this claim up to $1.8 million.

In May 2004, the U.S. Department of Commerce and the U.S. International Trade Commission initiated antidumping duty investigations of Chinese and Spanish suppliers of chlorinated isocyanurates and related chemicals as a result of petitions filed by domestic producers who asserted that these products were being imported and sold in the U.S.A. at prices below normal value. One of the suppliers being investigated is a major supplier of chlorinated isocyanurates to the Company. In May 2005, the Department of Commerce issued its final determination and found margins ranging from approximately 76% to 286% for Chinese producers and approximately 25% for Spanish producers, with a margin of approximately 76% applicable to the Company’s primary Chinese supplier. The U.S. International Trade Commission continues with its own investigation into whether the imports caused injury to the domestic industry and is expected to issue its final decision in mid-June 2005. A final antidumping order incorporating the decisions of both agencies is expected to be issued in June. If the final finding is that those imports did not injure the domestic industry, the duties will terminate and any import duties imposed will be refunded if previously paid. Currently, the Company has posted import bonds to cover the duties. If there is a finding of injury following the final order, the Company will be required to pay future antidumping duties in cash. The producers and importers, such as the Company, may annually request a review of the final order which may result in a further adjustment of the duties.

In April 2005 and following an investigation, Koppers Arch Wood Protection (NZ) Limited (“KANZ”), a New Zealand joint venture company in which the Company owns indirectly a 49% interest, was named as a defendant in a civil suit filed by the New Zealand Commerce Commission (“NZCC”) regarding industry competitive practices. A number of other companies and individuals, including Koppers Arch Investments Pty Limited (“KAIP”), an Australian entity in which the Company owns indirectly a 49% interest, and a current KANZ Board member, and certain unrelated entities, were also named as defendants. KANZ manufactures and markets wood preservative products throughout New Zealand and KAIP is a holding company for related joint venture companies. The NZCC seeks unspecified fines, injunctive relief, and legal costs, among other things. The NZCC has the authority to assess fines from each corporate defendant equal to the higher of (i) NZ$10 million (approximately US$7 million), (ii) three times the commercial gain from any contravention or (iii) 10% of the sales of the defendant (which in the case of KANZ, 10% of sales is approximately US$2 million). Penalties, if assessed, could have a material adverse effect on KANZ’s and KAIP’s business, financial condition, cash flows and results of operations.

Similarly, Koppers Arch Wood Protection (Aust) Pty Ltd (“KAWP”), an Australian joint venture company in which the Company owns indirectly a 49% interest and the majority shareholder of KANZ, has made an application for leniency under the Australian Competition and Consumer Commission’s (“ACCC”) policy for cartel conduct. The ACCC has granted immunity to KAWP, subject to fulfillment of certain conditions. If conditions are not fulfilled, the ACCC may penalize KAWP for any violations of the competition laws of Australia. Such penalties, if

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ARCH CHEMICALS, INC.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

assessed against KAWP, could have a material adverse effect on KAWP’s business, financial condition, cash flows and results of operations.

As a result of the Company’s ownership in such Australian and New Zealand entities, an unfavorable resolution could have a material adverse effect on equity in earnings of affiliated companies and dividends received.

In 1999, Olin and the Company entered into an agreement, which specifies that the Company is only responsible for certain environmental liabilities at the Company’s current operating plant sites and certain offsite locations. Olin retained the liability for all former Olin plant sites and former waste disposal sites. In connection with the acquisition of Hickson, the Company acquired certain environmental exposures and potential liabilities of current and past operating sites all of which have been accrued for in the accompanying condensed consolidated financial statements.

Environmental exposures are difficult to assess for numerous reasons, including the identification of new sites, developments at sites resulting from investigatory studies and remedial activities, advances in technology, changes in environmental laws and regulations and their application, the scarcity of reliable data pertaining to identified sites, the difficulty in assessing the involvement and financial capability of other potentially responsible parties and the Company’s ability to obtain contributions from other parties and the length of time over which site remediation occurs. It is possible that some of these matters (the outcomes of which are subject to various uncertainties) may be resolved unfavorably against the Company.

There are a variety of non-environmental legal proceedings pending or threatened against the Company. There have been no significant changes in status of such items, other than those described above, during the three months ended March 31, 2005.

Currently, there is certain draft U.K. tax legislation that, if enacted, will affect a wide range of financing structures that U.S. groups have commonly used to invest in the U.K. The proposed rules are complex and many areas of uncertainty exist at this time. This legislation, if enacted, could increase the Company’s effective tax rate by limiting its ability to obtain a U.K. tax deduction for certain of its U.K. interest expense. The Company currently has a deferred tax asset for this accrued interest of approximately $6.0 million. If the legislation is passed retroactively, this deferred tax asset may not be recoverable and therefore, would increase the Company’s effective tax rate.

On April 2, 2004, the Company completed the acquisition of Avecia’s pool and spa and protection and hygiene businesses for $230.8 million. The purchase price was further subject to a contingent payment of up to $5.0 million in cash based upon earnings attributable to North American sales of certain acquired products. An interim payment is to be made based on 2004 results, and the Company has accrued $2.5 million. In addition, since the unfunded pension liability in the U.K. pension plan was less than $10.0 million, the purchase price was adjusted upwards by the difference between $10.0 million and the unfunded liability, with the consideration to be split equally between a contingent cash payment and up to 223,250 additional shares of the Company’s common stock. The share consideration component of this adjustment was 74,788 shares of common stock, which were issued in January 2005 with a value of $1.7 million. The contingent cash payment will be a maximum of $1.7 million and earned based upon cumulative global net sales of certain products through 2005. An interim payment will be made in 2005 based on 2004 results and the Company has accrued $0.5 million. For additional information concerning the acquisition see the Company’s Form 10-K for the year ended December 31, 2004 as well as the Form 8-K/A filed by the Company on June 16, 2004.

Supplemental Pro Forma Information

The table below presents unaudited pro forma financial information in connection with the Avecia acquisition as if it had occurred on January 1, 2004.

The unaudited pro forma information below reflects pro forma adjustments which are based upon currently available information and certain estimates and assumptions, and therefore the actual results may have differed from the pro forma results. However, management believes that the assumptions provide a reasonable basis for presenting the significant effects of the transaction, and that the pro forma adjustments give appropriate effect to those

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ARCH CHEMICALS, INC.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

assumptions and are properly applied in the pro forma financial information. This information should be read in conjunction with the Form 8-K/A, filed by the Company on June 16, 2004, in connection with the Avecia acquisition, which contains unaudited pro forma combined condensed financial statements.

The unaudited pro forma financial information is presented for illustrative purposes only and is not necessarily indicative of the operating results that would have occurred if the acquisition had been completed at the dates indicated. The information does not necessarily indicate the future operating results or financial position of “the Company”. The Avecia pool & spa business is seasonal in nature as its products are primarily used in the U.S. residential pool market.

On March 29, 2005, the Company was notified by the U.S. Defense Energy Support Center (DESC) that it had been awarded a 20-year contract for approximately $149 million for the production, storage, distribution and handling of hydrazine propellants for the U.S. government. Subsequent to the awarding of the contract, the Company was notified by the DESC that a competing bidder had filed a protest with the DESC regarding the award and consequently, contract performance was suspended pending final resolution of the protest. On April 21, 2005, the Company was notified that the DESC denied the protest filed by a competing bidder. Consequently, the suspension of the contract has been lifted, and the Company has been instructed to re-initiate contract performance.

Under this new, long-term contract, full-scale production is not scheduled to begin until 2007. Since there are no revenues and only minimal incremental costs associated with the awarding of this contract in the current year, the Company does not expect this action to have a significant impact on Arch’s financial performance in 2005.

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Overview

In analyzing the results of operations for the Company and its segments, the following matters should be considered. The Company’s Treatment segment is seasonal in nature, in particular the HTH water products business. Historically, approximately 40 – 50% of the sales in the HTH water products business occur in the second quarter of the fiscal year, as retail sales in the U.S. residential pool market are concentrated between Memorial Day and the Fourth of July. Accordingly, results of operations for the periods presented are not necessarily indicative of the results to be expected for an entire fiscal year. Segment operating income includes the equity in earnings of affiliated companies and excludes certain unallocated expenses of the corporate headquarters. The Company includes the equity income (loss) of affiliates in its segment operating results as it believes it to be relevant and useful information for investors as these affiliates are the means by which certain segments participate in certain geographic regions. Furthermore equity income (loss) is included as a component of segment operating results because the Company includes it to measure the performance of the segment. Other gains and (losses) that are directly related to the segments are included in segment operating results.

As a result of the sale of the majority of the microelectronic materials businesses as of November 30, 2004, the Company has restated its prior year condensed consolidated financial statements to include the results of the microelectronic materials businesses sold and the loss on the disposition as a component of discontinued operations in accordance with the Statement of Financial Accounting Standard No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets” (“SFAS 144”). The Company has retained its 50 percent interest in Planar Solutions, LLC, its joint venture with Wacker Chemical Corporation for the production and sale of chemical mechanical polarization (CMP) slurries and its chemical management services (CMS) business. The Company will pursue all strategic options for the CMS business, including its sale. As a result, and in accordance with the accounting requirements of SFAS 144, the CMS business is reported as an asset held for sale and the results of operations are included in discontinued operations in the condensed consolidated financial statements.

The term “Company” as used in Item 2 of this Report means Arch Chemicals, Inc. and its consolidated subsidiaries unless the context indicates otherwise.

Results of Operations

Consolidated