UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended ~~June~~ September 30, 2011

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

Commission file number 333-109686

Rockwood Specialties Group, Inc.

(Exact name of Registrant as specified in its charter)

Delaware		52-2277390
(State or other jurisdiction of		(I.R.S. Employer
incorporation or organization)		Identification No.)

7101 Muirkirk Road, Beltsville, Maryland 20705

(Address of principal executive offices) (Zip Code)

(301) 470-3366

(Registrant’s telephone number, including area code)

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. x Yes o No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). x Yes o No

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer o		Accelerated filer o

Non-accelerated filer x		Smaller reporting company o
(Do not check if a smaller reporting company)

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

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

The Registrant’s common stock, par value $0.01 per share, is not publically traded. As of ~~August 8~~October 24, 2011, there were 1,910 outstanding shares of common stock of the Registrant, all of which are held by its parent company, Rockwood Specialties International, Inc.

TABLE OF CONTENTS

FORM 10-Q

	PART I- FINANCIAL INFORMATION
Item 1	Financial Statements (Unaudited)
	Condensed Consolidated Statements of Operations for the three and six months ended June 30, 2011 and 2010
	Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2011 and 2010
	Condensed Consolidated Balance Sheets as of June 30, 2011 and December 31, 2010
	Condensed Consolidated Balance Sheets as of September 30, 2011 and December 31, 2010
	Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2011 and 2010
	Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2011 and 2010
	Condensed Consolidated Statements of Equity for the six months ended June 30, 2011 and 2010
	Condensed Consolidated Statements of Equity for the nine months ended September 30, 2011 and 2010
	Notes to Condensed Consolidated Financial Statements
Item 2	Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 3	Quantitative and Qualitative Disclosures about Market Risk
Item 4	Controls and Procedures
	PART II- OTHER INFORMATION
Item 1	Legal Proceedings
Item 1A	Risk Factors
Item 2	Unregistered Sales of Equity Securities and Use of Proceeds
Item 3	Defaults Upon Senior Securities
Item 4	(Removed and Reserved)
Item 5	Other Information
Item 6	Exhibits
	Signatures

PART I — FINANCIAL INFORMATION

Item 1. Financial Statements (Unaudited).

ROCKWOOD SPECIALTIES GROUP, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Dollars in millions)

(Unaudited)

	Three months ended						~~Six~~Nine months ended
	June 30,						June 30,
	September 30,						September 30,
	2011			2010			2011			2010
Net sales	$	~~1,000~~940.09		$	~~813~~801.72		$	12,~~914~~854.09		$	12,~~592~~393.13
Cost of products sold	~~654~~609.4			~~543~~535.82			1,~~247~~856.37			1,~~066~~601.35
Gross profit	~~345~~331.65			~~269~~266.90			~~666~~998.72			~~525~~791.8
Selling, general and administrative expenses	~~181~~176.20			~~169~~167.27			~~361~~537.8			~~334~~501.18
Restructuring and other severance costs	4.05			01.95			59.05			12.38
Asset write-downs and other	~~0.2~~—			0.51			0.3			2.34
Operating income	~~160~~151.20			9996.37			~~299~~450.6			~~188~~284.18
Other expenses, net:
Interest expense, net (a)	(2426.73		)	(3638.36		)	(4774.70		)	(78116.17		)
Loss on early extinguishment/modification of debt	(0.31		)	—(1.6		)	(16.56		)	—(1.6		)
Foreign exchange gain (loss) on financing activities, net	2.2			(0.4		)	4.2			(0.1		)
Foreign exchange (loss) gain on financing activities, net	(2.4		)	0.9			1.8			0.8
Other, net	~~(0.1~~—		)	—			(0.1		)	0.5
Other expenses, net	(2228.98		)	(3639.73		)	(6088.19		)	(77117.70		)
Income from continuing operations before taxes	~~137~~122.32			6257.64			~~239~~361.57			~~110~~167.48
Income tax provision	3734.84			1416.34			66101.60			3046.04
Income from continuing operations	9987.58			4841.30			~~172~~260.97			80121.4
Income from discontinued operations, net of tax	~~0.7~~—			62.5			0.9			1113.16
Gain on sale of discontinued operations, net of tax	~~4.9~~—			—			119.4			—
Net income	~~105~~87.18			5443.85			~~293~~381.20			91135.50
Net income attributable to noncontrolling interest	(1011.69		)	(23.40		)	(2032.76		)	(25.2		)
Net income attributable to Rockwood Specialties Group, Inc.	$	9475.59		$	5240.45		$	~~272~~348.54		$	89129.38
Amounts attributable to Rockwood Specialties Group, Inc.:
Income from continuing operations	$	8875.9		$	4538.90		$	~~152~~228.21		$	78116.2
Income from discontinued operations	~~5.6~~—			62.5			120.3			1113.16
Net income	$	9475.59		$	5240.45		$	~~272~~348.54		$	89129.38
(a) Interest expense, net includes:
Interest expense on debt, net	$	(22.1	)	$	(40.4	)	$	(50.1	)	$	(82.7	)
Mark-to-market (losses) gains on interest rate swaps	(1.4		)	5.6			4.9			7.7
Deferred financing costs	(1.2		)	(1.5		)	(2.5		)	(3.1		)
Total	$	(24.7	)	$	(36.3	)	$	(47.7	)	$	(78.1	)

(a) Interest expense, net includes:
Interest expense on debt, net	$	(21.2	)	$	(38.4	)	$	(71.3	)	$	(121.1	)
Mark-to-market (losses) gains on interest rate swaps	(3.9		)	1.2			1.0			8.9
Deferred financing costs	(1.2		)	(1.4		)	(3.7		)	(4.5		)
Total	$	(26.3	)	$	(38.6	)	$	(74.0	)	$	(116.7	)

See accompanying notes to condensed consolidated financial statements.

ROCKWOOD SPECIALTIES GROUP, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Dollars in millions, except per share amounts)

(Unaudited)

	June 30,		December 31,
	September 30,		December 31,
	2011		2010
ASSETS
Current assets:
Cash and cash equivalents	$	~~222~~330.4	$	303.2
Accounts receivable, net	~~570~~512.95		436.8
Inventories	~~610~~608.97		541.8
Deferred income taxes	22.13		82.7
Prepaid expenses and other current assets	8160.1		79.1
Assets of discontinued operations	—		154.1
Total current assets	1,~~507~~534.40		1,597.7
Property, plant and equipment, net	1,~~658~~588.1		1,566.9
Goodwill	~~950~~877.03		877.1
Other intangible assets, net	~~587~~536.8		587.6
Deferred debt issuance costs, net of accumulated amortization of $17.8 and $15.7, respectively	17.9		17.2
Deferred financing costs, net	15.7		17.2
Deferred income taxes	17.8		18.3
Other assets	4542.62		38.5
Total assets	$	4,~~784~~611.69	$	4,703.3
LIABILITIES
Current liabilities:
Accounts payable	$	~~243~~223.47	$	249.6
Income taxes payable	4446.43		20.2
Accrued compensation	~~140~~157.04		165.2
Accrued expenses and other current liabilities	~~236~~217.68		208.1
Deferred income taxes	2.86		2.6
Long-term debt, current portion	6864.68		465.7
Liabilities of discontinued operations	—		27.6
Total current liabilities	~~735~~712.86		1,139.0
Long-term debt	1,~~721~~664.94		1,695.3
Pension and related liabilities	~~434~~403.47		399.6
Deferred income taxes	~~108~~110.51		77.9
Other liabilities	~~104~~100.68		102.5
Total liabilities	32,~~105~~991.26		3,414.3
EQUITY
Rockwood Specialties Group, Inc. stockholder’s equity:
Rockwood Specialties Group, Inc. stockholders’ equity:
Common stock ($0.01 par value, 5,000 shares authorized, 1,910 shares issued and outstanding)	—		—
Common stock ($0.01 par value, 5,000 shares authorized, 1,910 shares issued and oustanding)	—		—
Paid-in capital	1,044.0		1,044.0
Accumulated other comprehensive income	~~230~~96.09		135.7
Accumulated deficit	92.4		(180.1		)
Retained earnings (deficit)	168.3		(180.1		)
Total Rockwood Specialties Group, Inc. stockholder’s equity	1,366.4		999.6
Total Rockwood Specialties Group, Inc. stockholders’ equity	1,309.2		999.6
Noncontrolling interest	~~313~~311.01		289.4
Total equity	1,~~679~~620.43		1,289.0
Total liabilities and equity	$	4,~~784~~611.69	$	4,703.3

See accompanying notes to condensed consolidated financial statements.

ROCKWOOD SPECIALTIES GROUP, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Dollars in millions)

(Unaudited)

	Six months ended
	Nine months ended
	June 30,
	September 30,
	2011			2010
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	~~293~~381.20		$	91135.50
Adjustments to reconcile net income to net cash provided by operating activities:
Income from discontinued operations, net of tax	(0.9		)	(1113.16		)
Gain on sale of discontinued operations, net of tax	(119.4		)	—
Depreciation and amortization	~~133~~200.2			~~126~~188.64
Deferred financing costs amortization	23.57			34.15
Loss on early extinguishment/modification of debt	16.56			—1.6
Foreign exchange (gain) loss on financing activities, net	(4.2		)	0.1
Foreign exchange gain on financing activities, net	(1.8		)	(0.8		)
Fair value adjustment of derivatives	(41.90		)	(78.79		)
Bad debt provision	~~0.5~~—			(0.76		)
Stock-based compensation	69.48			59.86
Deferred income taxes	1421.83			1623.89
Asset write-downs and other	0.3			2.34
Changes in assets and liabilities, net of the effect of foreign currency translation and acquisitions:
Accounts receivable	(~~106~~79.16		)	(9168.19		)
Inventories	(3871.4		)	(420.64		)
Prepaid expenses and other assets	(03.85		)	(83.65		)
Accounts payable	(518.28		)	8(12.51		)
Income taxes payable	2434.76			(70.64		)
Accrued expenses and other liabilities	(303.18		)	51127.12
Net cash provided by operating activities of continuing operations	~~182~~374.13			~~174~~364.42
Net cash (used in) provided by operating activities of discontinued operations	(1.8		)	23.13
Net cash provided by operating activities	~~180~~372.35			~~176~~367.5
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures	(~~116~~191.94		)	(71116.1		)
Government grants received	69.38			01.45
Acquisitions, including transaction fees and payments for prior acquisitions, net of cash acquired	(0.8		)	(0.9		)
Acquisitions, including payments for prior acquisitions	(0.8		)	(0.9		)
Proceeds on sale of assets	0.37			12.80
Net cash used in investing activities of continuing operations	(~~111~~181.17		)	(69113.85		)
Net cash provided by (used in) investing activities of discontinued operations, representing net sale proceeds in 2011	300.87			(1.26		)
Net cash provided by (used in) investing activities	~~189~~119.70			(71115.01		)
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of Titanium Dioxide Pigments revolving credit facility	—			(14.3		)
Prepayment of senior secured debt	(408.9		)	—(200.2		)
Repayment of senior secured debt	(2125.47		)	(2530.13		)
Payments on other long-term debt	(1.8		)	(2.5		)
Proceeds from borrowings	—			19.3
Payments on other long-term debt	(2.9		)	(45.2		)
Loan repayments to noncontrolling shareholders	(5.0		)	—
Deferred financing costs	(5.3		)	(0.3		)
Fees related to early extinguishment/modification of debt	(1213.94		)	—
Distribution to noncontrolling shareholder	(0.5		)	—
Distributions to noncontrolling shareholders	(9.8		)	—
Net cash used in financing activities	(~~455~~471.80		)	(42271.20		)
Effect of exchange rate changes on cash and cash equivalents	(119.69		)	(01.21		)
Net (decrease) increase in cash and cash equivalents	(97.4		)	63.1
Net increase (decrease) in cash and cash equivalents	10.6			(19.7		)
Less net (decrease) increase in cash and cash equivalents from discontinued operations	(16.6		)	01.97
(Decrease) increase in cash and cash equivalents from continuing operations	(80.8		)	62.2
Increase (decrease) in cash and cash equivalents from continuing operations	27.2			(21.4		)
Cash and cash equivalents of continuing operations, beginning of period	303.2			286.2
Cash and cash equivalents of continuing operations, end of period	$	~~222~~330.4		$	~~348~~264.48
Supplemental disclosures of cash flow information:
Interest paid	$	6273.01		$	82112.28
Income taxes paid, net of refunds	2745.1			2026.73
Non-cash investing activities:
Acquisition of capital equipment	1521.19			812.31
Fees related to early extinguishment of debt	0.5			—

See accompanying notes to condensed consolidated financial statements.

ROCKWOOD SPECIALTIES GROUP, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF EQUITY

(Dollars in millions)

(Unaudited)

	2011									2010
	Rockwood									Rockwood
	Specialties									Specialties
	Group, Inc.									Group, Inc.
	Stockholder’s			Noncontrolling			Total			Stockholder’s			Noncontrolling			Total
	Equity			Interest			Equity			Equity			Interest			Equity
Balance at January 1	$	999.6		$	289.4		$	1,289.0		$	832.0		$	290.0		$	1,122.0
Net income (loss)	272.5			20.7			293.2			89.3			2.2			91.5
Net income	348.4			32.6			381.0			129.8			5.2			135.0
Other comprehensive income (loss), net of tax	94.3			0.5			94.8			(173.6		)	—			(173.6		)
Other comprehensive (loss) income, net of tax	(38.8		)	0.1			(38.7		)	(48.2		)	0.6			(47.6		)
Comprehensive income (loss)	366.8			21.2			388.0			(84.3		)	2.2			(82.1		)
Comprehensive income	309.6			32.7			342.3			81.6			5.8			87.4
Dividend declared to noncontrolling shareholder	—			(8.4		)	(8.4		)	—			—			—
Distributions to noncontrolling shareholders	—			(9.9		)	(9.9		)	—			—			—
Distribution to noncontrolling shareholder	—			(0.5		)	(0.5		)	—			—			—
Foreign currency translation	—			(1.1		)	(1.1		)	—			(5.8		)	(5.8		)
Foreign currency translation	—			11.3			11.3			—			(18.7		)	(18.7		)
Balance at September 30	$	1,309.2		$	311.1		$	1,620.3		$	913.6		$	290.0		$	1,203.6
Balance at June 30	$	1,366.4		$	313.0		$	1,679.4		$	747.7		$	273.5		$	1,021.2

See accompanying notes to condensed consolidated financial statements.

ROCKWOOD SPECIALTIES GROUP, INC. AND SUBSIDIARIES

Notes To Condensed Consolidated Financial Statements (Unaudited)

1. ~~DESCRIPTION~~BASIS OF ~~BUSINESS~~PRESENTATION AND ~~SUMMARY~~NEW ~~OF SIGNIFICANT~~ ACCOUNTING ~~POLICIES~~STANDARDS:

~~Business~~Basis ~~Description,~~of ~~Background~~Presentation— Rockwood Specialties Group, Inc., which may be referred to as “Rockwood” or the “Company” prepared these unaudited condensed consolidated financial statements following the requirements of the Securities Exchange Commission and ~~Subsidiaries~~United States generally accepted accounting principles (“U.S. GAAP’) for interim reporting. The Company is aan ~~global~~indirect ~~developer~~wholly-owned subsidiary of Rockwood Holdings, Inc. ~~manufacturer~~(“Holdings”). Under those rules, certain footnotes and ~~marketer~~other offinancial ~~high~~information ~~value-added~~that ~~specialty~~are ~~chemicals~~normally ~~and~~required ~~advanced~~for ~~materials~~annual ~~used~~financial statements can be condensed or omitted. The Company is responsible for ~~industrial~~the ~~and~~condensed ~~commercial~~consolidated ~~purposes~~financial statements included in this Form 10-Q. ~~Unless~~These ~~otherwise~~condensed ~~indicated,~~consolidated ~~any~~financial ~~references~~statements toinclude ~~“we~~all normal and recurring adjustments necessary for a fair presentation of the financial position as of September 30,” ~~“our~~2011 and December 31,” ~~“us~~2010,” the ~~“Company”~~results orof ~~“Rockwood”~~operations ~~refer~~for tothe ~~Rockwood~~three ~~Specialties~~and ~~Group~~nine months ended September 30, 2011 and 2010 and cash flows for the nine months ended September ~~Inc~~30, 2011 and 2010. All intercompany balances and ~~its~~transactions ~~consolidated~~have ~~subsidiaries~~been eliminated. ~~The~~Material ~~Company~~subsequent isevents anare ~~indirect~~evaluated ~~wholly-owned~~through ~~subsidiary~~the ofreport ~~Rockwood~~issuance ~~Holdings~~date and disclosed where applicable. These unaudited condensed consolidated financial statements and the related notes should be read in conjunction with the audited consolidated financial statements for the year ended December 31, 2010 included in the Annual Report on Form ~~Inc~~10-K. Revenues, ~~(“Holdings”)~~expenses, assets and liabilities can vary during each quarter of the year. Accordingly, the results and trends in these unaudited condensed consolidated financial statements may not be indicative of the full year results.

~~Basis~~The preparation of ~~Presentation—~~financial ~~The~~statements ~~accompanying~~and ~~condensed~~related disclosures in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, ofand ~~Rockwood~~revenue ~~are~~and ~~presented~~expenses onduring athe ~~consolidated~~periods ~~basis~~reported. ~~All~~These ~~intercompany~~estimates include, among other things, assessing the collectability of accounts receivable, the use and ~~transactions~~recoverability ~~have~~of ~~been~~inventory, ~~eliminated~~the invaluation ~~consolidation~~of deferred tax assets, the measurement of the accrual for uncertain tax benefits, impairment of goodwill as well as property, plant and equipment and other intangible assets, the accrual of environmental and legal reserves and the useful lives of tangible and intangible assets, among others. Actual results could differ from those estimates. Such estimates also include the fair value of assets acquired and liabilities assumed allocated to the purchase price of business combinations consummated.

The interim condensed consolidated financial statements included herein are unaudited. The results of operations for the interim periods are not necessarily indicative of the results of operations for the full year. The condensed consolidated financial statements are presented based upon accounting principles generally accepted in the United States of America (“U.S. GAAP”), except that certain information and footnote disclosures, normally included in financial statements prepared in accordance with U.S. GAAP, have been condensed or omitted. The accompanying condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and the notes thereto contained in the Company’s 2010 Form 10-K. In the opinion of management, this information contains all adjustments necessary, consisting of normal and recurring accruals, for a fair presentation of the results for the periods presented.

The Company’s noncontrolling interest represents the total of the noncontrolling party’s interest in certain investments (principally the Titanium Dioxide Pigments venture and the Viance, LLC timber treatment joint venture) that are consolidated but less than 100% owned.

The Company’s condensed consolidated financial statements have been reclassified to reflect discontinued operations for all periods presented as a result of the sale of the plastic compounding business in January 2011. See Note 3, “Discontinued Operations,” for further details. In addition, certain prior ~~period~~year amounts in the ~~Condensed~~condensed ~~Consolidated~~consolidated ~~Statements~~statements of ~~Cash~~cash ~~Flows~~flows have been reclassified to conform to current year presentation in connection with government grants received.

Unless otherwise noted, all balance sheet-related items which are denominated in Euros are translated at the ~~June~~September 30, 2011 exchange rate of €1.00 = $1.~~4502~~3387.

~~Stock-Based~~Recently ~~Compensation—~~Issued ~~Under~~Accounting the 2008 Amended and Restated Stock Purchase and Option Plan of Rockwood Holdings, Inc. and Subsidiaries (the “Plan”), Holdings granted stock options, restricted stock and other stock-based awards to the Company’s employees and directors and allowed employees and directors to purchase shares of its common stock. However, Holdings no longer issues equity awards under this Plan. In April 2009, Holdings adopted the 2009 Stock Incentive Plan (the “New Plan”; together with the Plan, the “Plans”), which has 11,000,000 authorized shares. All equity awards granted after this date will be awarded under the New Plan.Standards:

In ~~December~~May ~~2010~~2011, ~~Holdings~~the ~~approved~~Financial ~~263,055~~Accounting ~~market-based~~Standards ~~restricted~~Board ~~stock~~(“FASB”) ~~unit~~issued ~~awards~~an toAccounting ~~its~~Standards ~~management~~Update ~~and~~(“ASU”) ~~key~~that ~~employees~~substantially ~~which~~converged ~~will~~the ~~vest~~requirements onfor ~~January 1,~~fair ~~2014~~value asmeasurement ~~long~~and asdisclosure ~~the~~between ~~employee continues to be employed by~~ the ~~Company~~FASB ~~on this date~~ and ~~upon~~ the ~~achievement~~International ofAccounting ~~certain~~Standards ~~performance~~Board ~~targets approved by Holdings’ Compensation Committee~~(“IASB”). This InASU ~~January 2011,~~is ~~the~~largely ~~performance~~consistent ~~targets~~with ~~that~~existing ~~formed~~fair ~~the~~value ~~basis~~measurement ~~for~~principles ~~vesting~~under ~~of these restricted stock units were set~~U.S. ~~As a result, the Company recognized compensation cost beginning in January 2011~~GAAP. AThis ~~portion~~ASU ofis ~~the~~effective ~~share~~for ~~units vest based on~~ the ~~percentage~~Company ~~change~~ in ~~the~~its ~~price~~first ofquarter ~~Holdings’~~beginning ~~common stock over the award period~~ January 1, ~~2011~~2012 toand ~~December 31,~~is ~~2013.~~not ~~The~~expected ~~remaining portion vest based upon Holdings’ total shareholder return as compared~~ to ~~the~~have ~~total~~a ~~shareholder~~material ~~return~~impact ~~for~~on the ~~Dow~~Company’s ~~Jones~~financial Ustatements.~~S. Chemical Index for the period January 1, 2011 to December 31, 2013.~~

~~The~~In ~~aggregate~~June 2011, ~~compensation~~the ~~cost~~FASB ~~for~~issued ~~stock~~an ~~options,~~ASU ~~restricted~~that ~~stock~~addressed ~~units~~the ~~and~~presentation ~~Holdings’~~of ~~Board~~comprehensive income in the financial statements. This accounting update allows an entity the option to present the total of ~~Director~~comprehensive ~~stock~~income, ~~grants~~the ~~recorded~~components ~~under~~of net income and the ~~Plans~~components ~~caused~~of other comprehensive income ~~from~~either ~~continuing~~in ~~operations~~a ~~before~~single ~~taxes~~continuous tostatement ~~decrease~~of bycomprehensive ~~$3.5~~income ~~million~~or ~~and~~in $3two separate but consecutive statements.2 ~~million~~In ~~for~~addition, this ASU eliminates the ~~three~~option ~~months~~to ~~ended~~present ~~June 30,~~the ~~2011~~components ~~and~~of ~~2010,~~other ~~respectively,~~comprehensive ~~and~~income ~~$6.4~~as ~~million~~part of the statement of changes in stockholders’ equity and ~~$5.8~~does ~~million~~not ~~for~~change the ~~six~~items ~~months~~that ~~ended~~must ~~June 30,~~be ~~2011~~reported ~~and~~in ~~2010,~~other ~~respectively.~~comprehensive ~~The~~income ~~total~~or ~~tax~~when ~~benefit~~an ~~recognized~~item ~~related~~of toother ~~stock~~comprehensive ~~options~~income ~~was~~must ~~$0.3~~be ~~million~~reclassified ~~and~~to $0net income.3 ~~million~~This ASU is effective for the ~~three~~Company ~~months~~in ~~ended~~its ~~June~~first quarter beginning January 301, ~~2011~~2012 and ~~2010,~~is ~~respectively,~~not ~~and~~expected ~~$0.5~~to ~~million~~have ~~and~~a ~~$0.5~~material ~~million~~impact ~~for~~on the ~~six~~Company’s ~~months~~financial ~~ended~~statements ~~June 30,~~other ~~2011~~than ~~and~~modifying ~~2010,~~the ~~respectively~~presentation of comprehensive income.

Recent Accounting Standards—The following represents the impact of recently issued accounting standards:

In ~~October~~September ~~2009~~2011, the ~~Financial Accounting Standards Board (“~~FASB”) issued an ~~accounting~~ASU ~~standards update~~ that ~~addressed~~requires ~~the~~additional ~~accounting~~disclosures ~~for~~about ~~multiple-deliverable~~an ~~arrangements~~employer’s toparticipation ~~enable~~in ~~vendors~~a tomultiemployer ~~account~~pension ~~for~~plan. Previously, ~~products~~disclosures orwere ~~services~~limited ~~separately~~to ~~rather~~the ~~than~~historical ascontributions amade ~~combined~~to ~~unit. In addition,~~ the ~~amendments~~multiemployer inpension ~~this~~plans. ~~update~~The ~~significantly~~Company ~~expand~~will ~~the~~begin ~~disclosures related~~ to aprovide ~~vendor’s~~the ~~multiple-deliverable~~required ~~arrangements.~~additional ~~This~~disclosures ~~update was effective~~ for ~~the Company in~~ its ~~first~~multiemployer ~~quarter~~pension plans beginning ~~January 1,~~with its 2011. ~~This~~Annual ~~update~~Report ~~did not have a material impact~~ on ~~the Company’s financial statements~~Form 10-K.

In ~~May~~September 2011, the FASB issued an ~~accounting~~ASU ~~standards~~that ~~update~~allows ~~that~~an ~~substantially~~entity ~~converged~~to first assess qualitative factors to determine whether it is necessary to perform the ~~requirements~~two-step ~~for~~quantitative goodwill impairment test. Under this new ASU, if a Company chooses the qualitative method, an entity would not be required to calculate the fair value ~~measurement~~of ~~and~~a ~~disclosure~~reporting ~~between~~unit unless the ~~FASB~~entity ~~and~~determines, ~~the~~based ~~International~~on ~~Accounting~~a ~~Standards~~qualitative ~~Board~~assessment, ~~(“IASB”). This~~that ~~standard~~it is ~~largely~~more ~~consistent~~likely ~~with~~than ~~existing~~not that its fair value ~~measurement~~is ~~principles~~less ~~under~~than ~~U.S.~~its ~~GAAP~~carrying amount. This ~~update~~ASU is effective for ~~the~~annual ~~Company~~and ininterim ~~its~~impairment ~~first~~tests ~~quarter~~performed for fiscal years beginning ~~January~~after December 115, ~~2012~~2011. ~~and~~Early adoption is permitted. The Company does not ~~expected~~expect this ASU to have a material impact on ~~the~~its ~~Company’s~~ financial statements.

In June 2011, the FASB issued an accounting standards update that addressed the presentation of comprehensive income in the financial statements. This accounting update allows an entity the option to present the total of comprehensive income, the components of net income and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. In addition, this update eliminates the option to present the components of other comprehensive income as part of the statement of changes in stockholders’ equity and does not change the items that must be reported in other comprehensive income or when an item of other comprehensive income must be reclassified to net income. This update is effective for the Company in its first quarter beginning January 1, 2012 and is not expected to have a material impact on the Company’s financial statements other than modifying the presentation of comprehensive income.

2. COMPREHENSIVE INCOME:

Comprehensive income includes net income and the other comprehensive income components which include unrealized gains and losses from foreign currency translation and from certain intercompany transactions that are of a long-term investment nature, pension-related adjustments that are recorded directly into a separate section of equity in the balance sheets and net investment and foreign exchange cash flow hedges. Foreign currency translation amounts and intercompany foreign currency loans are not adjusted for income taxes since they relate to indefinite length investments in non-U.S. subsidiaries.

Comprehensive ~~income~~ (loss) income is summarized as follows:

	Three months ended						~~Six~~Nine months ended
	June 30,						June 30,
	September 30,						September 30,
($ in millions)	2011			2010			2011			2010
Net income	$	~~105~~87.18		$	5443.85		$	~~293~~381.20		$	91135.50
Pension related adjustments, net of tax	(02.74		)	1(2.84		)	~~(2.4~~—		)	31.84
Foreign currency translation (a)	18(71.72		)	~~(49~~65.37		)	42(29.20		)	(7711.69		)
Intercompany foreign currency loans	20(64.08		)	~~(74~~81.15		)	650.24			(~~121~~39.05		)
Net investment hedges, net of tax	(21.25		)	13(20.17		)	(1210.16		)	210.58
Foreign exchange contracts, net of tax	(01.4		)	(01.39		)	10.95			(01.36		)
Comprehensive income (loss)	140.5			(54.0		)	388.0			(82.1		)
Comprehensive (loss) income	(45.7		)	169.5			342.3			87.4
Comprehensive income attributable to noncontrolling interest	(1011.5		)	(23.46		)	(2132.27		)	(25.28		)
Comprehensive income (loss) attributable to Rockwood Specialties Group, Inc.	$	130.0		$	(56.4	)	$	366.8		$	(84.3	)
Comprehensive (loss) income attributable to Rockwood Specialties Group, Inc.	$	(57.2	)	$	165.9		$	309.6		$	81.6

(a) Includes $10.1 million reclassified to net income in the ~~six~~nine months ended ~~June~~September 30, 2011 related to the sale of the plastic compounding business in January 2011.

3. DISCONTINUED OPERATIONS:

OnAs ~~January 7,~~discussed ~~2011,~~in the Company’s ~~completed~~2010 ~~the~~Annual ~~sale~~Report ofon ~~its plastic compounding business. As of December~~Form 3110-K, ~~2010,~~the ~~this~~Company ~~business~~completed ~~met~~ the ~~criteria~~sale ~~for~~of ~~being~~its ~~reported as a discontinued operation. The~~ plastic compounding business, ~~which~~on ~~manufactured specialty plastic compounds for the wire and cable industry~~January 7, ~~medical applications and other uses, comprised substantially all of the assets of the Company’s former Specialty Compounds segment~~2011. The Company’s financial statements have been reclassified to reflect the plastic compounding business as discontinued operations for all periods presented.

~~Operating~~The results of the ~~discontinued~~plastic ~~operations~~compounding ofbusiness ~~the~~are ~~plastic~~included ~~compounding~~in ~~business~~income from discontinued operations for the ~~six~~nine months ended ~~June~~September 30, 2011. ~~includes~~The ~~the~~sale ~~net~~of ~~gain~~this onbusiness ~~the~~resulted ~~sale~~in ofa ~~the~~net ~~plastic~~gain ~~compounding business~~ of $119.4 million (net of taxes of $77.8 million, a portion of which will be offset through the utilization of net operating losses of $76.5 million). The valuation allowance related to these net operating losses was reversed in the fourth quarter of 2010 as a benefit to income taxes in continuing operations. Included in the gain is a tax benefit of $4.0 million associated with a re-filing of the Company’s Alternative Minimum Tax position made in connection with the ~~second~~sale of the plastic compounding business.

~~quarter~~Operating ofresults ~~2011 is a tax benefit~~ of ~~$4.0 million associated with a re-filing of~~ the ~~Company’s~~discontinued ~~Alternative~~operations ~~Minimum~~are ~~Tax~~as ~~position made in connection with the sale of the plastic compounding business.~~follows:

Income from discontinued operations, net of tax, of $0.9 million for the six months ended June 30, 2011 includes $0.7 million related to the reversal of certain reserves in connection with the sale of the Electronics business in December 2007 and $0.2 million from operating the plastic compounding business that was sold on January 7, 2011.

	Three Months Ended		Nine Months Ended
	September 30,		September 30,
($ in millions)	2010		2011			2010
Net sales	$	59.7	$	3.9		$	176.0
Cost of products sold	49.0		3.4			142.9
Gross profit	10.7		0.5			33.1
Selling, general and administrative expenses	3.9		0.3			12.5
Income before taxes	6.8		0.2			20.6
Income tax provision (benefit)	4.3		(0.7		)	7.0
Net income	$	2.5	$	0.9		$	13.6

~~Operating~~Income ~~results~~from ~~of the~~ discontinued operations, net of ~~the~~tax, ~~plastic~~of ~~compounding~~$0.9 ~~business~~million for the ~~three~~nine ~~and six~~ months ended ~~June~~September 30, ~~2010~~2011 ~~are~~includes as$0.7 ~~follows:~~million related to the reversal of certain tax reserves in connection with the sale of the Electronics business in December 2007 and $0.2 million from operating the plastic compounding business that was sold on January 7, 2011.

	Three Months		Six Months
	Ended		Ended
($ in millions)	June 30, 2010		June 30, 2010
Net sales	$	60.8	$	116.3
Cost of products sold	49.2		93.9
Gross profit	11.6		22.4
Selling, general and administrative expenses	4.2		8.6
Gain on sale of business	—		—
Income before taxes	7.4		13.8
Income tax provision	0.9		2.7
Net income	$	6.5	$	11.1

The carrying value of the assets and liabilities of the plastic compounding business included as discontinued operations in the condensed consolidated balance sheets as of December 31, 2010 are as follows:

The carrying value of the assets and liabilities of the plastic compounding business included as discontinued operations in the Condensed Consolidated Balance Sheets as of December 31, 2010 are as follows:

($ in millions)
ASSETS
Cash and cash equivalents	$	16.6
Accounts receivable, net	32.9
Inventories	18.0
Property, plant and equipment, net	63.0
Other intangible assets, net	16.2
Other assets	7.4
Total assets	$	154.1
LIABILITIES
Accounts payable	$	25.1
Accrued compensation	1.8
Accrued expenses and other current liabilities	0.7
Total liabilities	$	27.6

4. SEGMENT INFORMATION:

Rockwood operates in four reportable segments according to the nature and economic characteristics of its products and services as well as the manner in which the information is used internally by the Company’s key decision maker, who is the Company’s Chief Executive Officer. The four segments are: (1) Specialty Chemicals, which consists of the surface treatment and fine chemicals business lines; (2) Performance Additives, which consists of color pigments and services, timber treatment chemicals and clay-based additives; (3) Titanium Dioxide Pigments; and (4) Advanced Ceramics.

Items that cannot be readily attributed to individual segments have been classified as “Corporate and other.” Corporate and other operating loss primarily represents payroll, professional fees and other operating expenses of centralized functions such as treasury, tax, legal, internal audit and consolidation accounting as well as the cost of operating the Company’s central offices (including some costs maintained based on legal or tax considerations). The primary components of Corporate and other, in addition to operating loss, are interest expense on external debt (including the amortization of deferred financing costs), foreign exchange losses or gains, and mark-to-market gains or losses on derivatives. ~~Major~~The ~~components~~Corporate ~~within~~and other classification also includes the ~~reconciliation~~results of ~~income~~operations, assets (~~loss~~primarily real estate) ~~from~~and ~~continuing~~liabilities ~~operations~~(including ~~before~~pension ~~taxes~~and toenvironmental) ~~Adjusted~~of ~~EBITDA~~legacy ~~(described~~businesses ~~more~~formerly ~~fully~~belonging ~~below)~~to ~~include~~the ~~systems/organization~~Dynamit ~~establishment~~Nobel ~~expenses~~businesses that were acquired in 2004, the wafer reclaim business and the rubber/thermoplastics compounding business.

~~interest~~Summarized ~~expense~~financial oninformation ~~external~~for ~~debt,~~each foreign exchange losses or gains, and refinancing expenses related to external debt. Corporate and other identifiable assets primarily represent deferred financing costs that have been capitalized in connection with corporate external debt financing, deferred income tax assets and cash balances maintained in accordance with centralized cash management techniques. The Corporate and other classification also includes the results of ~~operations, assets (primarily real estate) and liabilities (including pension and environmental) of legacy businesses formerly belonging to~~ the ~~Dynamit~~reportable ~~Nobel~~segments businesses that were acquired in 2004, the wafer reclaim business and the rubber/thermoplastics compounding business. The wafer reclaim business works with semiconductor manufacturers to refurbish used test wafers and return them to the manufacturer for reuse in test and process monitor applications. The rubber/thermoplastics compounding business is ~~active~~provided in the ~~automotive~~following ~~market, with products made of rubber, thermoplastic and polyurethane materials.~~tables:

Summarized financial information for each of the reportable segments is provided in the following table:

	Three months ended				Nine months ended
	September 30,				September 30,
($ in millions)	2011		2010		2011		2010
Net Sales:
Specialty Chemicals	$	333.0	$	283.6	$	1,025.0	$	860.5
Performance Additives	200.7		187.8		614.7		564.4
Titanium Dioxide Pigments	252.6		192.7		735.4		564.1
Advanced Ceramics	146.2		131.0		455.3		385.3
Corporate and other	8.4		6.1		24.5		19.0
Total	$	940.9	$	801.2	$	2,854.9	$	2,393.3

					Titanium
	Specialty		Performance		Dioxide		Advanced		Corporate
($ in millions)	Chemicals		Additives		Pigments		Ceramics		and other			Consolidated
Three months ended June 30, 2011
Net sales	$	358.7	$	221.2	$	256.2	$	155.0	$	8.9		$	1,000.0
Total Adjusted EBITDA	92.4		46.0		63.5		50.6		(18.9		)	233.6
Three months ended June 30, 2010
Net sales	$	287.3	$	199.4	$	190.3	$	129.6	$	7.1		$	813.7
Total Adjusted EBITDA	73.4		37.0		29.6		40.6		(17.4		)	163.2		(a)
Six months ended June 30, 2011
Net sales	$	692.0	$	414.0	$	482.8	$	309.1	$	16.1		$	1,914.0
Total Adjusted EBITDA	179.3		80.9		118.2		98.9		(37.1		)	440.2		(a)
Six months ended June 30, 2010
Net sales	$	576.9	$	376.6	$	371.4	$	254.3	$	12.9		$	1,592.1
Total Adjusted EBITDA	147.2		66.5		60.3		77.6		(31.5		)	320.1		(a)

The Company uses Adjusted EBITDA on a segment basis to assess the ongoing performance of the Company’s business segments and reporting units. Because the Company views Adjusted EBITDA on a segment basis as an operating performance measure, the Company uses income (loss) from continuing operations before taxes as the most comparable U.S. GAAP measure. The summary of segment information below includes “Adjusted EBITDA,” a financial measure used by the Company’s chief decision maker and senior management to evaluate the operating performance of each segment. See Note 3, “Segment Information,” in the Company’s 2010 Annual Report on Form 10-K for a discussion of the use of Adjusted EBITDA as a non-GAAP financial measure.

							Titanium
	Three months ended						Nine months ended
	Specialty			Performance			Dioxide			Advanced			Corporate
	September 30,						September 30,
($ in millions)	~~Chemicals~~2011			~~Additives~~2010			~~Pigments~~2011			~~Ceramics~~2010			~~and other~~		~~Eliminations (b)~~			~~Consolidated (c)~~
Identifiable assets as of:
Adjusted EBITDA:
June 30, 2011	$	2,312.9		$	789.4		$	1,005.0		$	916.5		$	224.4	$	(463.6	)	$	4,784.6
Specialty Chemicals	$	86.5		$	70.8		$	265.8		$	218.0
December 31, 2010	2,107.7			759.4			897.4			828.8			376.2		(420.3		)	4,549.2
Performance Additives	36.5			34.1			117.4			100.6
Titanium Dioxide Pigments	74.9			34.2			193.1			94.5
Advanced Ceramics	47.5			40.3			146.4			117.9
Corporate and other	(18.5		)	(18.8		)	(55.6		)	(50.3		)
Total (a)	$	226.9		$	160.6		$	667.1		$	480.7

(a) This amount does not include $98.05 million for the three months ended ~~June~~September 30, 2010, ~~respectively,~~ and $0.2 million and $1725.16 million for the ~~six~~nine months ended ~~June~~September 30, 2011 and 2010, respectively, of Adjusted EBITDA from the former plastic compounding business which was sold on January 7, 2011.

(b) Amounts contained in the “Eliminations” column represent the individual subsidiaries’ retained interest in their cumulative net cash balance (deposits less withdrawals) included in the corporate centralized cash system and within the identifiable assets of the respective segment. These amounts are eliminated as the corporate centralized cash system is included in the Corporate and other segment’s identifiable assets.

	Identifiable Assets as of
	September 30,			December 31,
($ in millions)	2011			2010
Specialty Chemicals	$	2,228.0		$	2,107.7
Performance Additives	753.9			759.4
Titanium Dioxide Pigments	962.6			897.4
Advanced Ceramics	842.5			828.8
Corporate and other (a)	305.8			376.2
Eliminations (b)	(480.9		)	(420.3		)
Total (c)	$	4,611.9		$	4,549.2

(ca) ~~This~~ Corporate ~~amount~~and ~~does~~other ~~not~~identifiable ~~include~~assets ~~$154.1~~primarily ~~million~~represent ofdeferred ~~identifiable~~financing ~~assets~~costs asthat ofhave ~~December 31,~~been ~~2010~~capitalized ~~from~~in ~~the~~connection ~~plastic~~with ~~compounding~~corporate ~~business~~external ~~sold~~debt ~~on January 7~~financing, ~~2011.~~deferred ~~Total~~income ~~identifiable~~tax assets ~~including~~and ~~these~~cash ~~amounts~~balances ~~were~~maintained ~~$4,703.3~~in ~~million~~accordance aswith ofcentralized ~~December 31,~~cash ~~2010~~management techniques.

~~Geographic~~(b) Amounts ~~information~~contained ~~regarding~~in ~~net~~the ~~sales~~“Eliminations” ~~based~~line onrepresent ~~seller~~the individual subsidiaries’s ~~location~~retained interest in their cumulative net cash balance (deposits less withdrawals) included in the corporate centralized cash system and ~~long-lived~~within the identifiable assets of the respective segment. These amounts are ~~described~~eliminated inas ~~Note~~the 3,corporate ~~“Segment~~centralized ~~Information,”~~cash system is included in the ~~Company~~Corporate and other segment’s ~~2010~~identifiable ~~Form 10-K~~assets.

On a segment basis, the Company defines Adjusted EBITDA as operating income excluding depreciation and amortization, certain non-cash gains and charges, certain other special gains and charges deemed by senior management to be non-recurring gains and charges and certain items deemed by senior management to have little or no bearing on the day-to-day operating performance of its business segments and reporting units. The adjustments made to operating income directly correlate with the adjustments to net income in calculating Adjusted EBITDA on a consolidated basis pursuant to the senior secured credit agreement, which reflects management’s interpretations thereof. The indenture governing the senior subordinated notes, due in 2014 (“2014 Notes”) and the facility agreement related to the Titanium Dioxide Pigments venture excludes certain adjustments permitted under the senior credit agreement. Senior management uses Adjusted EBITDA on a segment basis as the primary measure to evaluate the ongoing

~~performance~~(c) This ofamount ~~the~~does ~~Company’s~~not ~~business~~include ~~segments~~$154.1 ~~and~~million ~~reporting~~of ~~units. Because~~identifiable ~~the~~assets ~~Company~~as ~~views~~of ~~Adjusted~~December 31, ~~EBITDA~~2010 onfrom athe ~~segment~~plastic ~~basis~~compounding asbusiness ansold ~~operating~~on ~~performance measure~~January 7, ~~the~~2011. ~~Company~~Total ~~uses~~identifiable ~~income~~assets ~~(loss)~~including ~~from~~these ~~continuing~~amounts ~~operations~~were ~~before~~$4,703.3 ~~taxes~~million as ~~the~~of ~~most~~December 31, ~~comparable U~~2010.~~S. GAAP measure.~~

						Titanium
	Specialty			Performance		Dioxide		Advanced			Corporate
($ in millions)	Chemicals			Additives		Pigments		Ceramics			and other			Consolidated
Three months ended June 30, 2011
Income (loss) from continuing operations before taxes	$	61.3		$	28.4	$	40.7	$	31.4		$	(24.5	)	$	137.3
Interest expense, net (a)	8.4			2.2		4.2		5.4			4.5			24.7
Depreciation and amortization	19.8			14.5		18.3		13.7			1.5			67.8
Restructuring and other severance costs	3.2			0.7		—		0.1			—			4.0
Systems/organization establishment expenses	0.2			0.2		0.3		—			—			0.7
Acquisition and disposal costs	—			—		—		—			0.1			0.1
Loss on early extinguishment/modification of debt	—			—		—		—			0.3			0.3
Asset write-downs and other	0.1			—		—		0.1			—			0.2
Foreign exchange gain on financing activities, net	(0.9		)	—		—		(0.1		)	(1.2		)	(2.2		)
Other	0.3			—		—		—			0.4			0.7
Total Adjusted EBITDA (b)	$	92.4		$	46.0	$	63.5	$	50.6		$	(18.9	)	$	233.6
Three months ended June 30, 2010
Income (loss) from continuing operations before taxes	$	38.4		$	14.2	$	10.1	$	20.9		$	(21.0	)	$	62.6
Interest expense, net (a)	14.9			7.6		3.3		7.2			3.3			36.3
Depreciation and amortization	17.9			14.2		16.1		11.9			1.3			61.4
Restructuring and other severance costs	0.5			0.3		—		0.1			—			0.9
Systems/organization establishment expenses	0.3			0.1		0.1		—			—			0.5
Acquisition and disposal costs	0.4			—		—		—			—			0.4
Asset write-downs and other	0.1			0.3		—		—			0.1			0.5
Foreign exchange loss (gain) on financing activities, net	0.9			—		—		0.5			(1.0		)	0.4
Other	—			0.3		—		—			(0.1		)	0.2
Total Adjusted EBITDA (b)	$	73.4		$	37.0	$	29.6	$	40.6		$	(17.4	)	$	163.2
Six months ended June 30, 2011
Income (loss) from continuing operations before taxes	$	110.3		$	43.5	$	79.4	$	56.2		$	(49.9	)	$	239.5
Interest expense, net (a)	18.0			4.7		3.1		11.6			10.3			47.7
Depreciation and amortization	39.2			28.7		35.4		27.1			2.8			133.2
Restructuring and other severance costs	4.1			0.8		—		0.1			—			5.0
Systems/organization establishment expenses	0.3			0.4		0.3		—			—			1.0
Acquisition and disposal costs	0.1			—		—		—			0.1			0.2
Loss on early extinguishment/modification of debt	7.7			1.7		—		4.0			3.1			16.5
Asset write-downs and other	0.2			—		—		0.1			—			0.3
Foreign exchange (gain) loss on financing activities, net	(1.0		)	1.0		—		(0.2		)	(4.0		)	(4.2		)
Other	0.4			0.1		—		—			0.5			1.0
Total Adjusted EBITDA (b)	$	179.3		$	80.9	$	118.2	$	98.9		$	(37.1	)	$	440.2
Six months ended June 30, 2010
Income (loss) from continuing operations before taxes	$	78.2		$	18.8	$	18.3	$	37.6		$	(42.5	)	$	110.4
Interest expense, net (a)	31.3			15.3		7.9		15.4			8.2			78.1
Depreciation and amortization	36.5			28.9		33.8		24.5			2.9			126.6
Restructuring and other severance costs	0.6			0.5		—		0.1			0.1			1.3
Systems/organization establishment expenses	0.7			0.3		0.3		0.1			—			1.4
Acquisition and disposal costs	0.5			—		—		—			0.1			0.6
Asset write-downs and other	0.1			2.1		—		—			0.1			2.3
Foreign exchange (gain) loss on financing activities, net	(0.1		)	0.1		—		(0.1		)	0.2			0.1
Other	(0.6		)	0.5		—		—			(0.6		)	(0.7		)
Total Adjusted EBITDA (b)	$	147.2		$	66.5	$	60.3	$	77.6		$	(31.5	)	$	320.1

Geographic information regarding net sales based on seller’s location and long-lived assets are described in Note 3, “Segment Information,” in the Company’s 2010 Annual Report on Form 10-K.

~~(a) Includes~~Major ~~losses~~components ofwithin ~~$1.4~~the ~~million~~reconciliation ~~for~~of ~~the~~income ~~three~~(loss) ~~months~~from ~~ended~~continuing ~~June 30,~~operations ~~2011~~before ~~and~~taxes ~~gains~~to ofAdjusted ~~$5.6~~EBITDA ~~million~~(described ~~for~~more ~~the~~fully ~~three~~below) ~~months~~include ~~ended~~systems/organization ~~June 30,~~establishment ~~2010~~expenses, ~~and~~interest ~~gains~~expense ofon ~~$4.9~~external ~~million~~debt, ~~and~~foreign ~~$7.7~~exchange ~~million~~losses ~~for~~or ~~the six months ended June 30~~gains, ~~2011~~ and ~~2010,~~refinancing ~~respectively~~expenses ~~representing~~related ~~the movement in the mark-~~to~~-market~~ ~~valuation~~external ~~of the Company’s interest rate and cross-currency swaps~~debt.

(b) This amount does not include $9.0 million for the three months ended June 30, 2010, respectively, and $0.2 million and $17.1 million for the six months ended June 30, 2011 and 2010, respectively, of Adjusted EBITDA from the former plastic compounding business which was sold on January 7, 2011.

							Titanium
	Specialty			Performance			Dioxide			Advanced			Corporate
($ in millions)	Chemicals			Additives			Pigments			Ceramics			and other			Consolidated
Three months ended September 30, 2011
Income (loss) from continuing operations before taxes	$	54.7		$	18.3		$	47.2		$	27.4		$	(25.4	)	$	122.2
Interest expense, net (a)	8.5			2.2			6.1			5.2			4.3			26.3
Depreciation and amortization	19.6			14.6			18.2			13.3			1.3			67.0
Restructuring and other severance costs (b)	2.9			1.1			—			0.4			0.1			4.5
Systems/organization establishment expenses (c)	0.1			0.2			—			—			—			0.3
Acquisition and disposal costs	—			—			—			0.1			0.1			0.2
Loss on early extinguishment/modification of debt	0.1			—			—			—			—			0.1
Asset write-downs and other	(0.1		)	—			—			0.1			—			—
Foreign exchange loss on financing activities, net	0.5			0.2			—			1.0			0.7			2.4
Other (d)	0.2			(0.1		)	3.4			—			0.4			3.9
Total Adjusted EBITDA	$	86.5		$	36.5		$	74.9		$	47.5		$	(18.5	)	$	226.9
Three months ended September 30, 2010
Income (loss) from continuing operations before taxes	$	37.6		$	11.8		$	14.0		$	20.8		$	(26.8	)	$	57.4
Interest expense, net (a)	15.1			7.6			4.2			6.8			4.9			38.6
Depreciation and amortization	18.4			14.0			16.2			12.0			1.2			61.8
Restructuring and other severance costs (b)	0.1			0.3			—			0.7			0.4			1.5
Systems/organization establishment expenses (c)	0.1			—			—			—			—			0.1
Acquisition and disposal costs	(0.1		)	0.1			—			—			0.4			0.4
Loss on early extinguishment/modification of debt (e)	0.7			0.3			—			0.4			0.2			1.6
Asset write-downs and other	0.1			—			—			—			—			0.1
Foreign exchange (gain) loss on financing activities, net	(1.2		)	(0.1		)	—			(0.4		)	0.8			(0.9		)
Other	—			0.1			(0.2		)	—			0.1			—
Total Adjusted EBITDA (f)	$	70.8		$	34.1		$	34.2		$	40.3		$	(18.8	)	$	160.6
Nine months ended September 30, 2011
Income (loss) from continuing operations before taxes	$	165.0		$	61.8		$	126.6		$	83.6		$	(75.3	)	$	361.7
Interest expense, net (a)	26.5			6.9			9.2			16.8			14.6			74.0
Depreciation and amortization	58.8			43.3			53.6			40.4			4.1			200.2
Restructuring and other severance costs (b)	7.0			1.9			—			0.5			0.1			9.5
Systems/organization establishment expenses (c)	0.4			0.6			0.3			—			—			1.3
Acquisition and disposal costs	0.1			—			—			0.1			0.2			0.4
Loss on early extinguishment/modification of debt (g)	7.8			1.7			—			4.0			3.1			16.6
Asset write-downs and other	0.1			—			—			0.2			—			0.3
Foreign exchange (gain) loss on financing activities, net	(0.5		)	1.2			—			0.8			(3.3		)	(1.8		)
Other (d)	0.6			—			3.4			—			0.9			4.9
Total Adjusted EBITDA (f)	$	265.8		$	117.4		$	193.1		$	146.4		$	(55.6	)	$	667.1
Nine months ended September 30, 2010
Income (loss) from continuing operations before taxes	$	115.8		$	30.6		$	32.3		$	58.4		$	(69.3	)	$	167.8
Interest expense, net (a)	46.4			22.9			12.1			22.2			13.1			116.7
Depreciation and amortization	54.9			42.9			50.0			36.5			4.1			188.4
Restructuring and other severance costs (b)	0.7			0.8			—			0.8			0.5			2.8
Systems/organization establishment expenses (h)	0.8			0.3			0.3			0.1			—			1.5
Acquisition and disposal costs	0.4			0.1			—			—			0.5			1.0
Loss on early extinguishment/modification of debt (e)	0.7			0.3			—			0.4			0.2			1.6
Asset write-downs and other (i)	0.2			2.1			—			—			0.1			2.4
Foreign exchange (gain) loss on financing activities, net	(1.3		)	—			—			(0.5		)	1.0			(0.8		)
Other (j)	(0.6		)	0.6			(0.2		)	—			(0.5		)	(0.7		)
Total Adjusted EBITDA (f)	$	218.0		$	100.6		$	94.5		$	117.9		$	(50.3	)	$	480.7

~~The~~(a) Includes ~~summary~~losses of ~~segment~~$3.9 ~~information~~million ~~above~~for ~~includes~~the ~~“Adjusted~~three ~~EBITDA~~months ended September 30,” a2011 ~~financial~~and ~~measure~~gains ~~used~~of by$1.2 million for the ~~Company’s~~three ~~chief~~months ~~decision~~ended ~~maker~~September 30, 2010, and ~~senior~~gains ~~management~~of to$1.0 ~~evaluate~~million and $8.9 million for the ~~operating~~nine ~~performance~~months ended September 30, 2011 and 2010, respectively, representing the movement in the mark-to-market valuation of ~~each~~the ~~segment~~Company’s interest rate and cross-currency swaps.

~~Items~~(b) See ~~excluded~~Note ~~from~~14, ~~Adjusted~~“Restructuring ~~EBITDA~~and Other Severance Costs,” for further details.

~~Certain items are added to or subtracted from income~~ (~~loss~~c) Primarily ~~from~~relates ~~continuing operations before taxes~~ to ~~derive~~costs ~~Adjusted~~incurred ~~EBITDA,~~in asconjunction ~~defined~~with ~~below.~~the ~~These~~integration ~~items~~of ~~include~~businesses ~~the following:~~acquired.

~~· Restructuring~~(d) Primarily ~~and~~relates ~~other~~to ~~severance~~professional ~~costs: Restructuring~~fees ~~and~~incurred ~~other severance costs of $4.0 million and $0.9 million were recorded~~ in ~~the~~connection ~~three~~with ~~months~~exploring ~~ended~~strategic ~~June 30, 2011 and 2010, respectively, and $5~~options.~~0 million and $1.3 million were recorded in the six months ended June 30, 2011 and 2010, respectively. See Note 14, “Restructuring and Other Severance Costs,” for further details.~~

~~· Systems/organization~~(e) Represents ~~establishment expenses: For~~ the ~~three~~write-off ~~and six months ended June 30, 2011, expenses~~ of ~~$0.7~~deferred ~~million~~financing ~~and $1.0 million, respectively, were recorded primarily related to~~ costs ~~incurred~~associated ~~in conjunction~~ with the ~~integration~~voluntary ofprepayment ~~the Titanium Dioxide Pigments venture and businesses acquired in the Specialty Chemicals and Performance Additives segments. For the three and six months ended June 30, 2010, expenses~~ of $0200.52 million ~~and~~of ~~$1.4~~senior ~~million,~~secured ~~respectively,~~term ~~were~~loans ~~recorded primarily related to costs incurred~~ in ~~conjunction with reorganizing certain business functions within the Specialty Chemicals segment and the integration of the Titanium Dioxide Pigments venture~~July 2010.

·(f) ~~Loss~~This onamount ~~early~~does ~~extinguishment/modification~~not ofinclude ~~debt: For~~$8.5 million for the three months ended ~~June~~September 30, ~~2011~~2010, ~~the~~respectively, ~~Company~~and ~~recorded a charge of~~ $0.32 million ~~related to fees incurred in conjunction with the refinancing of the senior secured credit facility~~ and ~~the~~$25.6 ~~repayment~~million offor the ~~senior~~nine ~~secured term loans in February 2011. For the six~~ months ended ~~June~~September 30, 2011, ~~the~~and ~~Company~~2010, ~~recorded~~respectively, ~~a charge~~ of ~~$16.5~~Adjusted ~~million~~EBITDA ~~comprised~~from ~~of related fees of $13.4 million and~~ the ~~write-off~~former ofplastic ~~deferred~~compounding ~~financing~~business ~~costs~~which ofwas ~~$3.1~~sold ~~million~~on inJanuary 7, ~~connection with this refinancing and repayment~~2011.

~~· Asset~~(g) Represents ~~write-downs~~fees ~~and~~of ~~other: The Company recorded~~ $013.25 million and ~~$0.5 million in~~ the ~~three~~write-off ~~months~~of ~~ended~~deferred ~~June 30,~~financing ~~2011~~costs ~~and~~of ~~2010, respectively, and~~ $0.3 ~~million and $2~~.31 million in ~~the~~connection ~~six~~with ~~months~~the ~~ended~~refinancing ~~June 30, 2011 and 2010, respectively, related to asset write-downs and other. The asset write-downs and other~~ of ~~$2.3 million recorded for~~ the ~~six~~senior ~~months~~secured ~~ended~~credit ~~June 30,~~facility ~~2010~~and ~~primarily related to~~ the ~~elimination~~repayment of athe ~~duplicate~~senior ~~manufacturing~~secured ~~facility~~term loans in ~~the Performance Additives segment~~February 2011.

~~· Foreign exchange~~ (~~gain~~h) Primarily ~~loss,~~related ~~net: For~~to ~~the~~costs ~~three~~incurred ~~and~~in ~~six~~conjunction ~~months~~with ~~ended~~reorganizing ~~June 30,~~certain ~~2011,~~business ~~foreign~~functions ~~exchange~~within ~~gains~~the ofSpecialty ~~$2.2~~Chemicals ~~million~~segment and ~~$4.2 million, were recorded due to~~ the ~~impact~~integration of the ~~stronger~~Titanium ~~Euro~~Dioxide asPigments ~~of June 30, 2011 versus March 31, 2011 and December 31, 2010, respectively, in connection with non-operating Euro-denominated transactions~~venture.

~~· Other: For~~(i) Primarily ~~the~~relates ~~three and six months ended June 30, 2011, the Company recorded expenses of $0.7 million and $1.0 million primarily related~~ to ~~fees incurred in connection with~~ the ~~secondary~~elimination ~~offering~~ of ~~the Company’s stock in May 2011. For the six months ended June 30, 2010, the Company recorded income of $0.7 million primarily related to~~ a ~~gain~~duplicate ~~recorded~~manufacturing onfacility ~~the sale of an investment previously accounted for under the equity method~~ in the ~~Specialty~~Performance ~~Chemicals~~Additives segment ~~and the reversal of a reserve covering legacy obligations assumed in connection with the acquisition of the Dynamit Nobel businesses in 2004~~.

(j) The Company recorded income of $0.7 million primarily related to a gain recorded on the sale of an investment previously accounted for under the equity method in the Specialty Chemicals segment and the reversal of a reserve covering legacy obligations assumed in connection with the acquisition of the Dynamit Nobel businesses in 2004.

5. VARIABLE INTEREST ENTITIES:

See Note 4, “Variable Interest Entities,” in the Company’s 2010 Annual Report on Form 10-K for a detailed discussion of each of the following entities:

Viance LLC Joint Venture

InAt ~~January~~September ~~2007~~30, ~~Chemical~~2011 ~~Specialties,~~and December ~~Inc.~~31, ~~(“CSI”)~~2010, ano ~~wholly-owned~~consolidated ~~subsidiary~~assets of the Company ~~within~~were ~~the~~pledged ~~Timber~~as ~~Treatment~~collateral ~~Chemicals~~for ~~business~~any ofobligations ~~the Performance Additives segment, and Rohm and Haas Company (a subsidiary~~ of ~~The Dow Chemical Company) completed the formation of~~ Viance, ~~LLC (“Viance”), a joint venture that provides an extensive range of advanced wood treatment technologies~~ and ~~services to~~ the ~~global~~general ~~wood~~creditors ~~treatment industry. The Company has concluded that Rockwood is the primary beneficiary~~ of Viance ~~and~~had asno ~~such~~recourse ~~has~~against ~~consolidated~~ the ~~joint~~Company. All ~~venture~~intercompany ~~and~~accounts, ~~reported~~balances ~~Rohm~~ and ~~Haas’~~transactions ~~interest~~have asbeen ~~noncontrolling interest~~eliminated. ~~This conclusion was made as Rockwood has the obligation to absorb losses of~~ Viance’s ~~that~~assets ~~could~~can ~~potentially~~only be ~~significant~~used to ~~Viance~~settle ~~and/or the right to receive benefits from Viance that could potentially be significant to Viance. In addition, CSI has the power to~~ direct ~~the~~obligations ~~activities~~ of Viance ~~that most significantly impact Viance’s performance, as Viance does not own manufacturing facilities~~. ~~As a result, Viance primarily relies on CSI to provide product and distribution requirements through a supply agreement.~~

At June 30, 2011 and December 31, 2010, no consolidated assets of the Company were pledged as collateral for any obligations of Viance and the general creditors of Viance had no recourse against the Company. All intercompany accounts, balances and

~~transactions~~The ~~have~~carrying ~~been~~values ~~eliminated. Viance’s~~of the assets ~~can~~and ~~only~~liabilities beof ~~used~~the toViance ~~settle~~joint ~~direct~~venture ~~obligations~~included ofin ~~Viance.~~the condensed consolidated balance sheets are as follows:

The carrying values of the assets and liabilities of the Viance joint venture included in the Condensed Consolidated Balance Sheets are as follows:

	September 30,		December 31,
	2011		2010
ASSETS
Current assets:
Cash and cash equivalents	$	8.6	$	6.6
Accounts receivable, net	8.4		7.1
Inventories	1.8		0.8
Prepaid expenses and other current assets	0.5		9.8
Total current assets	19.3		24.3
Property, plant and equipment, net	1.6		1.9
Other intangible assets, net	66.7		71.6
Other assets	1.6		1.7
Total assets	$	89.2	$	99.5
LIABILITIES
Current liabilities:
Accounts payable	$	1.0	$	0.9
Income taxes payable	0.1		0.1
Accrued compensation	1.0		1.1
Accrued expenses and other current liabilities	2.4		6.1
Long-term debt, current portion	—		2.0
Total current liabilities	4.5		10.2
Deferred income taxes	0.1		0.1
Other liabilities	0.9		0.9
Total liabilities	$	5.5	$	11.2

	June 30,		December 31,
	2011		2010
ASSETS
Current assets:
Cash and cash equivalents	$	13.7	$	6.6
Accounts receivable, net	9.9		7.1
Inventories	0.9		0.8
Prepaid expenses and other current assets	1.2		9.8
Total current assets	25.7		24.3
Property, plant and equipment, net	1.7		1.9
Other intangible assets, net	68.4		71.6
Other assets	1.6		1.7
Total assets	$	97.4	$	99.5
LIABILITIES
Current liabilities:
Accounts payable	$	0.8	$	0.9
Income taxes payable	0.2		0.1
Accrued compensation	1.4		1.1
Accrued expenses and other current liabilities	3.0		6.1
Long-term debt, current portion	—		2.0
Total current liabilities	5.4		10.2
Deferred income taxes	0.1		0.1
Other liabilities	0.9		0.9
Total liabilities	$	6.4	$	11.2

Titanium Dioxide Pigments Venture

In ~~September 2008~~conjunction with this venture, ~~the~~there ~~Company~~is ~~completed~~a power plant that is legally owned and operated by a Finnish power cooperative. Kemira is a cooperative participant and has an interest in the ~~formation~~power plant via ownership of a ~~Titanium~~special ~~Dioxide~~share ~~Pigments~~class. The venture ~~with~~purchased $11.3 million and $8.6 million of energy from Kemira Oyj (“Kemira”) ~~that~~in ~~focuses~~the onthree ~~specialty~~months ~~titanium~~ended ~~dioxide~~September 30, ~~pigments.~~2011 ~~The~~and ~~venture~~2010, ~~includes~~respectively, ~~the~~and ~~combination~~$32.8 million and $26.9 million of ~~the~~energy ~~Company’s~~from ~~titanium~~Kemira ~~dioxide~~in ~~pigments~~the ~~and~~nine ~~functional~~months ~~additives~~ended ~~businesses~~September 30, ~~including~~2011 ~~its~~and ~~production~~2010, ~~facility~~respectively. inMinimum ~~Duisburg,~~annual ~~Germany,~~payments ~~and~~under ~~Kemira’s~~the ~~titanium~~energy ~~dioxide~~agreement ~~business,~~are ~~including~~approximately ~~Kemira’s~~$16.1 ~~titanium~~million. ~~dioxide~~In ~~plant~~connection inwith ~~Pori~~this energy arrangement, ~~Finland. The~~the ~~Company~~venture has ~~not~~approximately ~~identified~~$28.7 ~~significant~~million ~~variable~~(including ~~interests~~a contractual advance of $16.0 million made in ~~this~~2009) ~~venture~~of ~~and~~non-interest ~~accordingly~~bearing ~~has~~notes ~~concluded~~receivable from Kemira that ~~this~~are ~~venture~~due ~~does~~in ~~not~~August 2028. ~~meet~~The ~~the~~carrying ~~definition~~value of athe ~~variable~~notes ~~interest~~receivable ~~entity~~were ~~(“VIE”)~~$5.9 ~~The~~million ~~Company~~at ~~owns~~September 30, 612011. Interest is imputed at an effective rate of 8.96%. The fair value of the ~~venture~~note ~~and~~receivable ~~consolidates~~is itapproximately ~~based~~$9.9 onmillion ~~the~~at ~~“voting~~September 30, ~~interest”~~2011. ~~model~~Apart ~~given~~from ~~its~~routine ~~majority~~payables ~~ownership~~to ~~and~~Kemira ~~ability~~or toPVO ~~control~~in ~~decision~~connection ~~making.~~with ~~Kemira~~this ~~only~~agreement, ~~has~~no ~~certain~~results ~~“protective~~or ~~rights”~~balances toof ~~limit~~the ~~Rockwood~~power plant are reflected in the Company’s ~~control~~condensed consolidated financial statements.

In conjunction with this venture, there is a power plant that is legally owned and operated by a Finnish power cooperative (“PVO”). Kemira is a cooperative participant and has an indirect interest in the power plant via ownership of a special share class. The venture utilizes the majority of power supplied. This power plant was determined to be a VIE as the equity holders of the power plant as a group (including Kemira) lack the ability to influence decision making since PVO effectively controls the power plant. It was determined that Rockwood and Kemira jointly form the primary beneficiary of the power plant. The venture has a long-term agreement expiring in August 2018 to purchase steam and electricity (“energy”) from Kemira. Due to the terms of this agreement under which Kemira has the risks and benefits of the majority of the expected life of the power plant, the Company concluded that Kemira is the party most closely associated with the venture and therefore is the primary beneficiary within the related party group. Accordingly, the Company does not consolidate the power plant. The venture purchased $10.6 million and $8.4 million of energy from Kemira in the three months ended June 30, 2011 and 2010, respectively, and $21.5 million and $18.3 million of energy from Kemira in the six months ended June 30, 2011 and 2010, respectively. Minimum annual payments under the energy agreement are approximately $17.4 million. In connection with this energy arrangement, the venture has approximately $31.1 million (including a contractual advance of $16.0 million made in 2009) of non-interest bearing notes receivable from Kemira that are due in August 2028. The carrying value of the notes receivable were $6.2 million at June 30, 2011. Interest is imputed at an effective rate of 8.96%. The fair value of the note receivable is approximately $10.5 million at June 30, 2011. Apart from routine payables to Kemira or PVO in connection with this agreement, no results or balances of the power plant are reflected in the Company’s Condensed Consolidated

Financial Statements.

Other

Rockwood’s Specialty Chemicals segment has several unconsolidated ventures. Two of these ventures do not fit the criteria for classification as a VIE as they are financially self-sustaining, “50/50” ventures both as to control and economics. Other ventures manufacture and market products in China and an additional venture is a service provider at a key manufacturing facility. As the parties share risks and benefits disproportionate to their voting interests, the Company has concluded that these ventures are VIEs. However, the Company has also concluded that it should not consolidate these VIEs as it is not the primary beneficiary. The Company does not have the power and/or ability to direct the activities most affecting venture performance due to governance structure and significant expertise provided and/or functions performed by its venture partners. As of ~~June~~September 30, 2011 and December 31, 2010, Rockwood’s aggregate net investment in ~~these~~ ventures that are considered variable interest entities but are not consolidated as Rockwood is not the primary beneficiary was $18.29 million and $14.1 million, respectively. ~~This~~These ~~investment~~investments isare classified as “Other assets” in the ~~Condensed~~condensed ~~Consolidated~~consolidated ~~Balance~~balance ~~Sheet~~sheet and represents Rockwood’s approximate exposure to losses on these investments. Rockwood does not guarantee debt for or have other financial support obligations to these ventures.

~~6. DERIVATIVES:~~13

~~The Company is exposed to market risk from changes in interest rates and foreign currency exchange rates~~6. FINANCIAL The Company manages its exposure to these market risks through regular operating and financing activities and, from time to time, through the use of derivatives. When used, derivatives are employed as risk management tools and not for trading purposes.INSTRUMENTS:

~~Interest~~Financial ~~Rate~~instruments ~~Risk~~include cash and cash equivalents, accounts receivable, accounts payable, debt instruments and derivatives. Due to their short term maturity, the carrying amount of receivables and payables approximate carrying value. Cash equivalents primarily consist of highly liquid investments with original maturities of three months or less at the time of purchase and are recorded at cost, which approximates fair value. The Company has exposure to market risk from changes in interest rates and foreign currency exchange rates. As a result, certain derivative financial instruments may be used when available on a cost-effective basis to hedge the underlying economic exposure. These instruments qualify as cash flow and net investment hedges upon meeting certain criteria, including effectiveness of offsetting hedged exposures. Changes in the fair value of derivatives that do not qualify for hedge accounting are recognized in earnings as they occur. Derivative financial instruments are not used for trading purposes.

~~After~~All ~~hedging,~~financial ~~the~~instruments ~~Company~~including, ~~had~~derivatives, ~~$859.0~~are ~~million (the majority of which was~~ subject to acounterparty ~~Libor~~credit ~~floor~~risk ofwhich ~~1.00%)~~is ~~and~~considered ~~$908.9~~as ~~million~~part of ~~variable~~the ~~rate~~overall ~~debt~~fair ~~outstanding~~value ~~as of June 30, 2011 and December 31, 2010, respectively~~measurement. Counterparty ~~Any borrowings under the senior secured revolving~~ credit ~~facility~~risk ~~and~~is ~~the~~mitigated ~~Titanium~~by ~~Dioxide~~entering ~~Pigments~~into ~~venture~~derivative ~~revolving~~contracts ~~credit~~with ~~facility~~only ~~are~~major atfinancial ainstitutions ~~variable rate. As~~ of ~~June 30,~~investment ~~2011,~~grade ~~there~~quality ~~were~~and noby ~~outstanding~~limiting ~~borrowings under~~ the ~~senior~~amount ~~secured~~of ~~revolving~~exposure ~~credit~~to ~~facility~~each orfinancial ~~the~~institution. ~~Titanium~~The ~~Dioxide~~Company ~~Pigments~~has ~~venture~~considered ~~revolving~~ credit ~~facility.~~adjustments ~~Although~~in weits ~~are~~determination ~~not~~of ~~required under~~ the ~~terms~~fair ofvalue ~~any~~ of ~~our~~its ~~long-term~~derivative ~~debt~~assets ~~facilities~~and toliabilities ~~hedge,~~as or otherwise protect against interest rate fluctuation in our variable rate debt, we have entered into interest rate swaps to manage our exposure to changes in interest rates related to variable-rate debt. As of ~~June~~September 30, 2011, ~~these contracts cover notional amounts of €210.0 million (at interest rates of 1.40%)~~ and were originally entered into to effectively convert all of the obligations under the Titanium Dioxide Pigments term loan facility to fixed rate obligations. These contracts will mature in June 2013. As of December 31, 2010, ~~these~~based ~~contracts~~on ~~covered~~market ~~notional~~participant ~~amounts of €488~~assumptions.8 ~~million~~In ~~(at~~addition, ~~interest~~based ~~rates~~on ~~ranging from 1.40% to 4.416%) and were originally entered into to effectively convert a portion of~~ the ~~senior secured~~ credit ~~obligations~~evaluation ~~and all~~ of ~~the~~each ~~obligations under the Titanium Dioxide Pigments term loan facility to fixed rate obligations. The Company has not applied hedge accounting for these interest rate swaps and has recorded the mark~~counter-~~to-market~~party ofinstitution ~~these derivatives~~ as ~~a component~~ of ~~interest~~September 30, ~~expense~~2011 inand ~~its~~December 31, ~~Condensed~~2010, ~~Consolidated~~the ~~Statements of Operations. The~~ Company ~~may~~believes in the ~~future~~carrying ~~consider~~values ~~adjusting the amounts covered by these derivative contracts~~ to ~~better~~be ~~suit~~fully ~~its capital structure~~realizable. No ~~The~~counterparty ~~Company~~has ~~may~~experienced ~~allow all or~~ a ~~portion~~significant ofdowngrade ~~these~~since ~~swaps to lapse~~January 1, ~~enter~~2011 ~~into~~and ~~replacement~~the ~~swaps~~condensed orconsolidated ~~settle~~financial ~~these~~statements ~~swaps~~would ~~prior~~not tobe ~~expiration.~~materially Inimpacted ~~February 2011,~~if anany ~~interest~~counterparties ~~rate~~failed ~~swap~~to ~~with~~perform aaccording ~~notional~~to ~~amount~~the terms of ~~€262.9~~its ~~million ($354~~agreement.6 ~~million~~Under ~~based on~~ the ~~exchange~~terms ~~rate in effect on the date~~ of the ~~payment)~~agreements, ~~was~~posting ~~terminated resulting in a payment~~ of ~~€10.8~~collateral ~~million~~is ~~($14.6~~not ~~million~~required ~~based~~by onany ~~the~~party ~~exchange~~whether ~~rate~~derivatives are in ~~effect~~an onasset ~~the~~or ~~date~~liability ~~of the payment)~~position.

~~Foreign~~Interest ~~Currency~~Rate ~~Risk~~Swaps Not Designated as Hedging Instruments

InBorrowings ~~October 2010,~~under the ~~Company~~senior ~~entered~~secured ~~into~~revolving ~~foreign~~credit ~~currency~~facility ~~forward~~and ~~contracts~~the toTitanium ~~manage~~Dioxide ~~its~~Pigments ~~exposure~~venture torevolving ~~fluctuations~~credit infacility ~~currency~~are ~~rates~~at ona ~~cash~~variable ~~flows~~rate. onAs ~~certain~~of ~~forecasted~~September 30, ~~sales~~2011, ~~denominated~~there inwere ano ~~currency~~outstanding ~~other~~borrowings ~~than~~under the ~~functional~~senior ~~currency~~secured ofrevolving acredit ~~legal~~facility ~~entity~~or inthe ~~its~~Titanium ~~Specialty~~Dioxide ~~Chemicals~~Pigments ~~segment~~venture revolving credit facility. ~~These~~ ~~foreign~~Although ~~currency~~we ~~forward~~are ~~contracts~~not ~~hedge~~required under the ~~exposure~~terms of any of our long-term debt facilities to ~~movements~~hedge, inor ~~foreign~~otherwise ~~exchange~~protect ~~rates~~against ~~for~~interest ~~forecasted~~rate ~~transactions~~fluctuations ~~for~~in ~~six~~our ~~months~~variable-rate debt, ~~and~~we ~~expire~~have entered into interest rate swaps to manage our exposure to changes in ~~December 2011~~interest rates related to certain variable-rate debt. As of ~~June~~September 30, 2011, these contracts cover notional amounts of €210.0 million (at interest rates of 1.40%) and were originally entered into to effectively convert all of the obligations under the Titanium Dioxide Pigments term loan facility to fixed rate obligations. These contracts will mature in June 2013. As of December 31, 2010, ~~the~~these ~~Company~~contracts ~~had~~covered notional amounts ~~outstanding~~of ~~for~~€488.8 ~~these~~million ~~foreign~~(at ~~currency~~interest ~~forward~~rates ~~contracts~~ranging offrom $61.340% ~~million~~to 4.416%) and ~~$12.5~~were ~~million,~~originally ~~respectively~~entered into to effectively convert a portion of the senior secured credit obligations and all of the obligations under the Titanium Dioxide Pigments term loan facility to fixed rate obligations. The ~~instruments~~Company ~~are~~has ~~designated~~not asapplied ~~foreign~~hedge ~~exchange~~accounting ~~cash~~for ~~flow~~these ~~hedges~~interest rate swaps and ~~are~~has ~~effective~~recorded atthe ~~generating~~mark-to-market ~~offsetting~~of ~~changes~~these derivatives as a component of interest expense in ~~the~~its ~~cash~~condensed ~~flows~~consolidated statements of operations. The Company may in the ~~hedged~~future ~~item~~consider adjusting the amounts covered by these derivative contracts to better suit its capital structure. The Company may allow all or ~~transaction~~a portion of these swaps to lapse, enter into replacement swaps or settle these swaps prior to expiration. After entering into interest rates swaps, the Company had $854.8 million (the majority of which was subject to a Libor floor of 1.00%) and $908.9 million of variable rate debt outstanding as of September 30, 2011 and December 31, 2010, respectively.

In ~~January~~February 2011, ~~the~~in ~~Company~~connection ~~entered~~with ~~into~~the ~~foreign~~refinancing ~~currency~~of ~~forward~~the ~~contracts~~senior tosecured ~~manage~~credit ~~its~~facility, ~~exposure~~an tointerest ~~fluctuations~~rate inswap ~~currency~~with ~~rates on cash flows on certain forecasted sales denominated in~~ a ~~currency~~notional ~~other~~amount ~~than the functional currency~~ of ~~the~~€262.9 ~~Titanium~~million ~~Dioxide Pigments segment~~($354. ~~These~~6 ~~foreign~~million ~~currency~~based ~~forward~~on ~~contracts hedge~~ the ~~exposure~~exchange torate ~~movements~~ in ~~foreign~~effect ~~exchange~~on ~~rates~~the ~~for~~date ~~forecasted transactions for six months and expire in December 2011. As~~ of ~~June 30, 2011,~~ the ~~Company~~payment) ~~had~~was ~~notional~~terminated ~~amounts~~resulting ~~outstanding~~in ~~for~~a ~~these~~payment ~~foreign~~of ~~currency~~€10.8 ~~forward~~million ~~contracts of~~ ($1814.06 million. ~~The~~based ~~instruments~~on ~~are~~the ~~designated as foreign~~ exchange ~~cash~~rate ~~flow~~in ~~hedges~~effect ~~and~~on ~~are effective at generating offsetting changes in~~ the ~~cash~~date ~~flows~~ of the ~~hedged item or transaction~~payment).

Cash Flow Hedges

In October 2010 and January 2011, the Company entered into foreign currency forward contracts to manage its exposure to fluctuations in currency rates on cash flows on certain forecasted sales denominated in currencies other than the functional currency of legal entities in its Specialty Chemicals segment and Titanium Dioxide Pigments segment, respectively. These foreign currency forward contracts hedge the exposure to movements in foreign exchange rates for forecasted transactions that expire in December 2011. As of September 30, 2011 and December 31, 2010, the Company had notional amounts outstanding for foreign currency forward contracts of $3.2 million and $12.5 million, respectively, for its Specialty Chemicals segment. As of September 30, 2011, the Company had notional amounts outstanding for foreign currency forward contracts of $9.0 million for its Titanium Dioxide Pigments segment. The instruments are designated as foreign exchange cash flow hedges and are effective at generating offsetting changes in the cash flows of the hedged item or transaction.

Net Investment Hedges

The Company designated a portion of its Euro-denominated debt that is recorded on its U.S. books as a net investment hedge of its Euro-denominated investments (Euro debt of €14.1 million at June 30, 2011; $20.4 million). As a result, any foreign currency gains and losses resulting from the Euro-denominated debt discussed above are accounted for as a component of accumulated other comprehensive income.

The following table provides the fair value and balance sheet location of the Company’s derivative instruments as of ~~June~~September 30, 2011 and December 31, 2010:

		Asset Derivatives				Liability Derivatives
		Fair Value as of				Fair Value as of
		June 30,		December 31,		June 30,		December 31,
		September 30,		December 31,		September 30,		December 31,
($ in millions)	Balance Sheet Location	2011		2010		2011		2010
Derivatives Designated as Hedging Instruments:
Foreign exchange contracts	Prepaid expenses and other current assets	$	20.3	$	—	$	—	$	—
	Accrued expenses and other current liabilities	—		—		—0.1		0.5
Total derivatives designated as hedging instruments		$	20.3	$	—	$	—0.1	$	0.5
Derivatives Not Designated as Hedging Instruments:
Interest rate swaps	~~Prepaid~~Accrued expenses and other current ~~assets~~liabilities	$	~~0.6~~—	$	—	$	—1.0	$	—18.6
	Other assets	1.4		—		—		—
	Other liabilities	—		—		0.7		0.9
	Accrued expenses and other current liabilities	—		—		—		18.6
Total derivatives not designated as hedging instruments		$	—	$	—	$	1.7	$	19.5
	Other liabilities	—		—		—		0.9
Total derivatives		$	0.3	$	—	$	1.8	$	20.0
Total derivatives not designated as hedging instruments		$	2.0	$	—	$	—	$	19.5
Total derivatives		$	4.3	$	—	$	—	$	20.0

The following table provides the gains and losses reported in “Accumulated Other Comprehensive Income” (“AOCI”) within Equity for the three and ~~six~~nine months ended ~~June~~September 30, 2011 and 2010:

	Amount of Gain or (Loss) Recognized in OCI on Derivatives
	and Other Financial Instruments (Effective Portion)
	Three months ended June 30,						Six months ended June 30,
	Three months ended September 30,						Nine months ended September 30,
($ in millions)	2011			2010			2011			2010
Derivatives in Cash Flow Hedging Relationships:
Foreign exchange contracts	$	(1.04	)	$	(02.49	)	$	2.0.6		$	(02.45	)
Net Investment Hedging Relationships:
Euro-denominated debt	$	(21.26	)	$	13(20.17	)	$	(1210.15	)	$	210.58

For the three and ~~six~~nine months ended ~~June~~September 30, 2011, gains of $10.19 million and $12.43 million, respectively, were reclassified from accumulated other comprehensive income into income. There were no gains or losses reclassified from accumulated other comprehensive income into income for the three and ~~six~~nine months ended ~~June~~September 30, 2010.

The following table provides the (losses) gains reported in the condensed consolidated statements of operations for the three and nine months ended September 30, 2011 and 2010:

	Amount of Gain or (Loss) Recognized in Income on Derivatives										Location of Gain or (Loss)
	Three months ended September 30,						Nine months ended September 30,				Recognized in Income on
($ in millions)	2011			2010			2011		2010		Derivatives
Derivatives Not Designated as Hedging Instruments:
Interest rate swaps	$	(3.9	)	$	1.2		$	1.0	$	7.3	Interest expense
Cross-currency interest rate swaps	—			—			—		1.6		Interest expense
Foreign exchange contracts	—			(0.1		)	—		1.0		Selling, general and administrative expenses
Total derivatives	$	(3.9	)	$	1.1		$	1.0	$	9.9

The ~~following~~Company ~~table~~follows ~~provides~~a fair value measurement hierarchy to measure assets and liabilities. As of September 30, 2011 and December 31, 2010, the ~~gains~~assets ~~reported~~and liabilities measured at fair value on a recurring basis are derivatives and money market funds. In addition, the Company measures its pension plan assets at fair value (see Note 15, “Employee Benefit Plans” in the ~~Condensed~~Company’s ~~Consolidated~~2010 ~~Statements~~Annual ofReport ~~Operations~~on Form 10-K for further details). The Company’s financial assets and liabilities are measured using inputs from the three ~~and~~levels ~~six~~of ~~months~~the ~~ended~~fair ~~June 30,~~value ~~2011~~hierarchy ~~and~~as ~~2010~~follows:

		Amount of Gain or (Loss) Recognized in Income on Derivatives									Location of Gain or (Loss)
Level 1 —	Inputs are unadjusted quoted market prices in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date. The fair values of money market funds are based on unadjusted quoted market prices from various financial information service providers and securities exchanges.
		Three months ended June 30,					Six months ended June 30,				Recognized in Income on
Level 2 —	Inputs are directly or indirectly observable, which include quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability and inputs that are derived principally from or corroborated by observable market data by correlation or other means. The fair values of derivatives are based on quoted market prices from various banks for similar instruments. The valuation of these instruments reflects the contractual terms of the derivatives, including the period to maturity, and uses observable market-based inputs, including forward curves.
($ in millions)		2011			2010		2011		2010		Derivatives
Level 3 —	Inputs are unobservable inputs that are used to measure fair value to the extent observable inputs are not available. The Company does not have any financial assets or liabilities that are classified as Level 3 inputs as of September 30, 2011 and December 31, 2010.
Derivatives Not Designated as Hedging
Instruments:
Interest rate contracts		$	(1.4	)	$	5.1	$	4.9	$	6.1	Interest expense
Cross-currency interest rate swaps		—			0.5		—		1.6		Interest expense
Total derivatives		$	(1.4	)	$	5.6	$	4.9	$	7.7

~~7. FAIR~~In ~~VALUE~~accordance ~~MEASUREMENTS~~with the fair value hierarchy, the following table provides the fair value of the Company’s financial assets and liabilities that are required to be measured at fair value as of September 30, 2011 and December 31, 2010:

The Company follows a fair value measurement hierarchy to measure assets and liabilities. As of June 30, 2011 and December 31, 2010, the assets and liabilities measured at fair value on a recurring basis are derivatives and marketable securities. In addition, the Company measures its pension plan assets at fair value (see Note 15, “Employee Benefit Plans” in the Company’s 2010 Form 10-K for further details). The Company’s financial assets and liabilities are measured using inputs from the three levels of the fair value hierarchy. The three levels are as follows:

	As of		Fair Value Measurements
($ in millions)	September 30, 2011		Level 1		Level 2		Level 3
Assets
Money market funds	$	8.1	$	8.1	$	—	$	—
Foreign exchange contracts	0.3		—		0.3		—
Total assets at fair value	$	8.4	$	8.1	$	0.3	$	—

Liabilities
Interest rate swaps	$	1.7	$	—	$	1.7	$	—
Foreign exchange contracts	0.1		—		0.1		—
Total liabilities at fair value	$	1.8	$	—	$	1.8	$	—

Level 1 — Inputs are unadjusted quoted market prices in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date.

	As of		Fair Value Measurements
($ in millions)	December 31, 2010		Level 1		Level 2		Level 3
Assets
Money market funds	$	154.5	$	154.5	$	—	$	—
Total assets at fair value	$	154.5	$	154.5	$	—	$	—

Liabilities
Interest rate swaps	$	19.5	$	—	$	19.5	$	—
Foreign exchange contracts	0.5		—		0.5		—
Total liabilities at fair value	$	20.0	$	—	$	20.0	$	—

Level 2 — Inputs are directly or indirectly observable, which include quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability and inputs that are derived principally from or corroborated by observable market data by correlation or other means.Debt

~~Level~~The 3Company ~~— Inputs~~estimates ~~are~~the ~~unobservable~~fair ~~inputs~~value ~~that~~of ~~are~~its ~~used~~debt tounder ~~measure~~the ~~fair~~senior ~~value~~secured tocredit ~~the~~facilities ~~extent~~and ~~observable~~Titanium ~~inputs~~Dioxide ~~are~~Pigments ~~not~~venture ~~available~~facility agreement, based on current interest rates and terms, approximates carrying value. Based on quoted market values at September ~~The~~30, ~~Company~~2011 ~~does~~and ~~not~~December 31, ~~have~~2010, ~~any~~the ~~financial~~Company ~~assets~~estimates orthe ~~liabilities~~fair ~~that~~value ~~are~~of ~~classified~~its as2014 ~~Level~~Notes 3approximated ~~inputs~~$534.7 asmillion and $547.6 million, respectively. As of ~~June~~September 30, 2011 and December 31, 2010, the principal carrying amount of the 2014 Notes was $534.8 million and $534.7 million, respectively.

In accordance with the fair value hierarchy, the following table provides the fair value of the Company’s financial assets and liabilities that are required to be measured at fair value as of June 30, 2011 and December 31, 2010:

	As of		Fair Value Measurements
($ in millions)	June 30, 2011		Level 1		Level 2		Level 3
Assets
Marketable securities (a)	$	12.8	$	12.8	$	—	$	—
Interest rate swaps (b)	2.0		—		2.0		—
Foreign exchange contracts (b)	2.3		—		2.3		—
Total assets at fair value	$	17.1	$	12.8	$	4.3	$	—

	As of		Fair Value Measurements
($ in millions)	December 31, 2010		Level 1		Level 2		Level 3
Assets
Marketable securities (a)	$	154.5	$	154.5	$	—	$	—
Total assets at fair value	$	154.5	$	154.5	$	—	$	—
Liabilities
Interest rate swaps (b)	$	19.5	$	—	$	19.5	$	—
Foreign exchange contracts (b)	0.5		—		0.5		—
Total liabilities at fair value	$	20.0	$	—	$	20.0	$	—

(a) These primarily represent money market funds.

~~(b) See Note 6, “Derivatives,” for further details of the Company’s derivative instruments~~7. INVENTORIES:

The fair values of marketable securities are based on unadjusted quoted market prices from various financial information service providers and securities exchanges. The fair values of derivatives are based on quoted market prices from various banks for similar instruments. The valuation of these instruments reflects the contractual terms of the derivatives, including the period to maturity, and uses observable market-based inputs, including forward curves.

Counter-party risk—The Company manages counter-party risk by entering into derivative contracts with only major financial institutions of investment grade quality and by limiting the amount of exposure to each financial institution. The Company has considered credit adjustments in its determination of the fair value of its derivative assets and liabilities as of June 30, 2011 and December 31, 2010 based on market participant assumptions. In addition, based on the credit evaluation of each counter-party institution to its derivative assets as of June 30, 2011 and December 31, 2010, the Company believes the carrying values to be fully realizable.

Debt—The Company estimates that its debt under the senior secured credit facilities and Titanium Dioxide Pigments venture facility agreement, based on current interest rates and terms, approximates fair value. Based on quoted market values at June 30, 2011 and December 31, 2010, the Company estimates the fair value of its 2014 Notes approximated $574.0 million and $547.6 million, respectively. As of June 30, 2011 and December 31, 2010, the principal carrying amount of the 2014 Notes was $562.7 million and $534.7 million, respectively.

Cash and Cash Equivalents—All highly liquid instruments with an original maturity of three months or less and money market funds are considered to be cash equivalents. The carrying amount approximates fair value because of the short maturities of these instruments.

8. INVENTORIES:

Inventories are comprised of the following:

	June 30,		December 31,
	September 30,		December 31,
($ in millions)	2011		2010
Raw materials	$	~~200~~198.67	$	181.6
Work-in-process	8887.50		79.9
Finished goods	~~314~~315.13		272.6
Packaging materials	7.7		7.7
Total	$	~~610~~608.97	$	541.8

98. GOODWILL:

Below are goodwill balances and activity by segment:

	Specialty		Advanced
($ in millions)	Chemicals		Ceramics			Total
Balance, December 31, 2010	$	618.5	$	258.6		$	877.1
Foreign exchange	500.59		22(0.47		)	720.92
Balance, June 30, 2011	$	669.0	$	281.0		$	950.0
Balance, September 30, 2011	$	619.4	$	257.9		$	877.3

179. OTHER INTANGIBLE ASSETS, NET:

10. OTHER INTANGIBLE ASSETS, NET:

Other intangible assets, net consist of:

	As of June 30, 2011							As of December 31, 2010
	As of September 30, 2011							As of December 31, 2010
	Gross							Gross
	Carrying		Accumulated					Carrying		Accumulated
($ in millions)	Amount		Amortization			Net		Amount		Amortization			Net
Patents and other intellectual property	$	~~394~~371.30	$	(~~179~~175.85	)	$	~~214~~195.5	$	369.5	$	(154.2	)	$	215.3
Trade names and trademarks	~~141~~131.24		(4241.98		)	9889.36		131.4		(37.2		)	94.2
Customer relationships	~~380~~344.23		(~~163~~146.74		)	~~216~~197.59		360.4		(140.4		)	220.0
Supply agreements	6360.34		(21.49		)	4138.95		60.4		(17.6		)	42.8
Other	5251.80		(3635.27		)	1615.63		45.8		(30.5		)	15.3
Total	$	~~1,031~~958.81	$	(~~444~~421.03	)	$	~~587~~536.8	$	967.5	$	(379.9	)	$	587.6

Amortization of other intangible assets was $2019.15 million and $1819.51 million for the three months ended ~~June~~September 30, 2011 and 2010, respectively, and $3958.49 million and $3857.29 million for the ~~six~~nine months ended ~~June~~September 30, 2011 and 2010, respectively.

Estimated amortization expense for each of the five succeeding fiscal years is as follows:

($ in millions)	Amortization
Year ending	Expense
2011	$	7977.81
2012	7672.95
2013	7368.87
2014	6560.53
2015	5954.39

~~11. LONG-TERM DEBT:~~17

10. LONG-TERM DEBT:

Long-term debt and loans payable are summarized as follows:

	June 30,			December 31,
	September 30,			December 31,
($ and € in millions)	2011			2010
Senior secured credit facilities - term loans	$	~~850~~845.08		$	1,260.0
2014 Notes (€250.1 and $200.0)	~~562~~534.78			534.7
Titanium Dioxide Pigments venture term loans (€210.0 and €220.0, respectively)	~~304~~281.51			294.4
Capitalized lease obligations	4137.12			39.4
Other loans	3230.23			32.5
	1,790.5			2,161.0
	1,729.2			2,161.0
Less current maturities	(6864.68		)	(465.7		)
	$	1,~~721~~664.94		$	1,695.3

On February 10, 2011, the Company completed a refinancing of its senior secured credit facility and entered into a new senior secured credit agreement comprised of an $850.0 million term loan and a $180.0 million revolving credit facility, and repaid $408.9 million of existing term loans. In connection with this transaction, the Company recorded a charge of $16.56 million in the ~~six~~nine months ended ~~June~~ September 30, 2011 comprised of related fees of $13.45 million and the write-off of deferred financing costs of $3.1 million.

1211. INCOME TAXES:

The effective tax rate for the ~~six~~nine months ended ~~June~~ September 30, 2011 and 2010 was 27.89% and 27.27%, respectively. The income tax rate for the ~~six~~nine months ended ~~June~~ September 30, 2011 was favorably impacted by a beneficial foreign earnings mix and certain domestic income that was not tax effected due to a valuation allowance ~~and a beneficial foreign earnings mix~~. For the ~~six~~nine months ended ~~June~~ September 30, 2010, the income tax provision was favorably impacted by a beneficial foreign earnings mix and the favorable settlement of certain tax positions.

For the nine months ended September 30, 2011, the Company decreased its worldwide valuation allowances by $2.7 million. The following table reflects the activity in the valuation allowance for worldwide net operating losses and other deferred income tax assets:

	Valuation
($ in millions)	Allowance
Balance as of December 31, 2010	$	81.4
Decrease as reflected in income tax expense	(1.7		)
Other	(1.0		)
Balance as of September 30, 2011	$	78.7

In the nine months ended September 30, 2011, based on the Company’s policy and review of available information, including the Company’s steady-state analysis, it was determined that there was not sufficient positive evidence of future taxable income to release the U.S. federal valuation allowance that has been recorded. During the nine months ended September 30, 2011, the Company’s net U.S. federal deferred tax assets and liabilities were maintained at a zero level, other than a noncurrent deferred tax liability relating to goodwill with an indefinite reversal period.

Unrecognized tax benefits at September 30, 2011 were $27.2 million, all of which if recognized, would impact the effective tax rate. The Company had accrued $8.3 million for interest and penalties as of September 30, 2011. The Company recognizes interest and penalties related to unrecognized tax benefits in its income tax provision.

The Company is currently under audit in certain jurisdictions and during the next twelve months it is reasonably possible that resolution of these audits could result in a benefit of up to $2.6 million or a cost of up to $3.2 million. Audit outcomes and the timing of audit settlements are subject to significant uncertainty.

12. STOCK-BASED COMPENSATION:

Under the 2008 Amended and Restated Stock Purchase and Option Plan of Rockwood Holdings, Inc. and Subsidiaries (the “Plan”), Holdings granted stock options, restricted stock and other stock-based awards to the Company’s employees and directors and allowed employees and directors to purchase shares of its common stock. However, Holdings no longer issues equity awards under this

~~For~~Plan. In April 2009, Holdings adopted the ~~six~~2009 ~~months~~Stock ~~ended~~Incentive ~~June 30,~~Plan ~~2011,~~(the “New Plan”; together with the ~~Company~~Plan, ~~decreased~~the ~~its~~“Plans”), ~~worldwide~~which ~~valuation~~has ~~allowances~~11,000,000 byauthorized $5shares.9 ~~million.~~All ~~The~~equity ~~following~~awards ~~table~~granted ~~reflects~~after this date have been or will be awarded under the ~~activity~~New Plan. See Note 14, “Stock-Based Compensation,” in the ~~valuation~~Company’s ~~allowance~~2010 ~~for~~Annual ~~worldwide~~Report ~~net~~on ~~operating~~Form ~~losses~~10-K ~~and~~for ~~other~~further ~~deferred~~details ~~income~~of ~~tax~~the ~~assets:~~Company’s Plans.

	Valuation
($ in millions)	Allowance
Balance as of December 31, 2010	$	81.4
Decrease as reflected in income tax expense	(1.2		)
Other (a)	(4.7		)
Balance as of June 30, 2011	$	75.5

In December 2010, Holdings approved 263,055 market-based restricted stock unit awards to its management and key employees which will vest on January 1, 2014 as long as the employee continues to be employed by the Company on this date and upon the achievement of certain performance targets approved by Holdings’ Compensation Committee. In January 2011, the performance targets that formed the basis for vesting of these restricted stock units were set. As a result, the Company recognized compensation cost beginning in January 2011. A portion of the share units vest based on the percentage change in the price of Holdings’ common stock over the award period January 1, 2011 to December 31, 2013. The remaining portion vest based upon Holdings’ total shareholder return as compared to the total shareholder return for the Dow Jones U.S. Chemical Index for the period January 1, 2011 to December 31, 2013.

~~(a) Primarily~~The ~~related~~aggregate tocompensation ~~discontinued~~cost for stock options, restricted stock units and Holdings’ Board of Director stock grants recorded under the Plans caused income from continuing operations before taxes to decrease by $3.4 million and $3.8 million for the ~~mark-~~three months ended September 30, 2011 and 2010, respectively, and $9.8 million and $9.6 million for the nine months ended September 30, 2011 and 2010, respectively. The total tax benefit recognized related to~~-market~~ ofstock options was $0.4 million and $0.4 million for the ~~Company’s~~three ~~Euro-denominated~~months ~~debt~~ended September 30, 2011 and 2010, respectively, and $0.9 million and $0.9 million for the nine months ended September 30, 2011 and 2010, respectively.

In the six months ended June 30, 2011, based on the Company’s policy and review of available information, including the Company’s steady-state analysis, it was determined that there was not sufficient positive evidence of future taxable income to release the U.S. federal valuation allowance that has been recorded. During the six months ended June 30, 2011, the Company’s net U.S. federal deferred tax assets and liabilities were maintained at a zero level, other than a noncurrent deferred tax liability relating to goodwill with an indefinite reversal period.

Unrecognized tax benefits at June 30, 2011 were $27.0 million, all of which if recognized, would impact the effective tax rate. The Company had accrued $9.4 million for interest and penalties as of June 30, 2011. The Company recognizes interest and penalties related to unrecognized tax benefits in its income tax provision.

The Company is currently under audit in certain jurisdictions and during the next twelve months, it is reasonably possible that resolution of these audits could result in a benefit of up to $3.5 million or a cost of up to $5.1 million. Audit outcomes and the timing of audit settlements are subject to significant uncertainty.

13. EMPLOYEE BENEFIT PLANS:

The Company’s overall unfunded position in its defined benefit plans as of ~~June~~ September 30, 2011 is $~~452~~420.63 million and the funded status of ~~its~~our plans is 38%. However, 82% of the Company’s unfunded position is concentrated in plans mostly in Germany, where funding is neither legally required nor customary. When only the plans that have funding requirements are considered, the unfunded portion is $8076.2 million, and the funded status is 76%. The funding of the Company’s pension plans was in compliance with local requirements as of ~~June~~ September 30, 2011. Almost all of the Company’s pension obligations are long-term in nature. The Company’s annual cash outflows to meet funding requirements and benefit obligations historically have not significantly exceeded its pension expense. Such cash outflows were less than pension expense in 2010 and the ~~six~~nine months ended ~~June~~ September 30, 2011. The measurement of our pension obligations and plan assets is dependent on a variety of actuarial assumptions and is performed annually. Therefore, the funded status as of December 31, 2011 could differ significantly.

The following table represents the net periodic benefit costs and related components:

	Three months ended						~~Six~~Nine months ended
	June 30,						June 30,
	September 30,						September 30,
($ in millions)	2011			2010			2011			2010
Service cost	$	2.3		$	1.89		$	46.58		$	35.87
Interest cost	8.75			8.12			1725.05			1624.79
Expected return on assets	(4.3		)	(3.57		)	(812.58		)	(711.30		)
Amortization of actuarial losses	0.7			0.56			12.30			1.17
Amortization of prior service cost	0.12			0.12			0.35			0.35
Other	—			~~0.3~~—			—			0.3
Total pension cost	$	7.54		$	7.32		$	1422.60		$	1422.91

14. RESTRUCTURING AND OTHER SEVERANCE COSTS:

The Company records restructuring liabilities that represent charges incurred in connection with consolidations and cessations of certain of its operations, including operations from acquisitions, as well as headcount reduction programs. These charges consist primarily of severance and facility closure costs. Severance charges are based on various factors including the employee’s length of service, contract provisions, salary levels and local governmental legislation. At the time a related charge is recorded, the Company calculates its best estimate based upon detailed analysis. Although significant changes are not expected, actual costs may differ from these estimates.

~~service,~~The ~~contract~~following ~~provisions,~~table ~~salary~~provides ~~levels and local governmental legislation. At~~ the ~~time~~restructuring aand ~~related~~other ~~charge~~severance iscosts ~~recorded,~~for the ~~Company~~three ~~calculates~~and ~~its~~nine ~~best~~months ~~estimate~~ended ~~based~~September ~~upon detailed analysis. Although significant changes are not expected~~30, ~~actual~~2011 ~~costs~~and ~~may differ from these estimates.~~2010:

For the three and six months ended June 30, 2011, the Company recorded $3.3 million and $4.3 million of restructuring charges primarily related to severance and other related costs in connection with organizational changes in the Specialty Chemicals segment.

	Three months ended				Nine months ended
	September 30,				September 30,
($ in millions)	2011		2010		2011		2010
Severance/Relocation	$	1.9	$	0.1	$	5.0	$	0.5
Facility closure and other	1.3		1.0		2.5		1.4
Restructuring charge	3.2		1.1		7.5		1.9
Other severance costs	1.3		0.4		2.0		0.9
Total	$	4.5	$	1.5	$	9.5	$	2.8

For the three and ~~six~~nine months ended ~~June~~ September 30, ~~2010~~2011, the ~~Company~~restructuring ~~recorded~~charges ~~$0.7~~primarily ~~million~~relate to severance and ~~$0.8~~facility ~~million~~closure ofcosts ~~restructuring~~in ~~charges~~connection ~~primarily~~with organizational changes in the Specialty Chemicals ~~segment for facility closures~~ and ~~severance~~Performance ~~costs~~Additives segments.

~~“Restructuring~~All ~~and~~restructuring ~~other~~actions ~~severance~~still ~~costs”~~ in ~~the~~progress ~~Condensed~~as ~~Consolidated~~of ~~Statements~~September of30, ~~Operations~~2011 ~~also~~are ~~included~~expected ~~other~~to be substantially complete within the next twelve months, except for severance~~-related~~ and facility closure costs ofin ~~$0.7~~connection ~~million~~with ~~and~~the ~~$0.7~~future ~~million~~consolidation ~~for~~of the ~~three~~North ~~and~~American ~~six~~Surface ~~months~~Treatment ~~ended~~business. ~~June 30~~However, ~~2011~~payouts ~~and~~of ~~$0.2~~certain ~~million~~liabilities ~~and~~resulting $0from these actions will take place over several years.5 ~~million~~The ~~for~~majority of the ~~three~~liability ~~and~~balance ~~six~~at ~~months~~September ~~ended June~~ 30, ~~2010,~~2011 ~~respectively,~~will ~~related~~be toutilized ~~headcount~~within ~~reductions~~the ~~undertaken~~next ~~throughout~~twelve ~~the Company~~months. Selected information for outstanding liabilities from recent restructuring actions is as follows:

All restructuring actions still in progress as of June 30, 2011 are expected to be substantially complete within the next twelve months, except for severance and facility closure costs in connection with the future consolidation of the North American Surface Treatment business. However, payouts of certain liabilities resulting from these actions will take place over several years. In particular, as of June 30, 2011, restructuring liabilities of $7.9 million include $1.7 million in the Corporate and other segment related to an unexpired lease in connection with the 2006 restructuring of the Wafer Reclaim business. Management believes that the majority of the remaining $6.2 million obligation will be utilized within the next twelve months. Selected information for outstanding liabilities from recent restructuring actions is as follows:

				Facility
	Severance/			Closure
($ in millions)	Relocation			and Other			Total
Liability balance, December 31, 2010	$	2.7		$	2.1		$	4.8
Restructuring charge in 2011	5.0			2.5			7.5
Restructuring charge in 2011 - Discontinued operations	0.6			—			0.6
Utilized	(2.5		)	(1.7		)	(4.2		)
Foreign exchange and other	0.2			—			0.2
Liability balance, September 30, 2011	$	6.0		$	2.9		$	8.9

	Severance/			Facility
($ in millions)	Relocation			Closure			Total
Liability balance, December 31, 2010	$	2.7		$	2.1		$	4.8
Restructuring charge in 2011	3.1			1.2			4.3
Restructuring charge in 2011 - Discontinued operations	0.6			—			0.6
Utilized	(1.7		)	(0.6		)	(2.3		)
Foreign exchange and other	0.4			0.1			0.5
Liability balance, June 30, 2011	$	5.1		$	2.8		$	7.9

Restructuring reserves by segment are as follows:

	June 30,		December 31,
	September 30,		December 31,
($ in millions)	2011		2010
Specialty Chemicals	$	5.05	$	2.2
Performance Additives	01.20		0.2
Advanced Ceramics	0.43		0.5
Corporate and other	2.31		1.9
	$	78.9	$	4.8

15. COMMITMENTS AND CONTINGENCIES:

Legal Proceedings—The Company is involved in various legal proceedings, including commercial, intellectual property, product liability, regulatory and environmental matters of a nature considered normal to its business. The Company accrues for amounts related to these matters if it is probable that a liability has been incurred and an amount can be reasonably estimated. The Company discloses such matters when there is at least a reasonable possibility that a material loss may have been incurred.

Advertising Matter

As discussed in previous filings, on March 3, 2009, Osmose, Inc. (“OI”) filed an action against Viance, the joint venture in the Timber Treatment Chemicals business, Rockwood Holdings, Inc., and certain individuals, in the U.S. District Court, Northern District of Georgia, claiming that recent advertisements by Viance comparing its ACQ product and OI’s MCQ product were false and misleading in violation of the Lanham Act, constituted unfair competition, violated the Georgia Deceptive Trade Practices Act, were defamatory and that Viance tortiously interfered with OI’s business relationships. OI sought damages, including their attorney’s fees and costs and punitive damages. OI also sought a temporary restraining order (“TRO”) and a preliminary injunction prohibiting Viance from

continuing to make certain claims in advertisements related to their MCQ product. In April 2011, the parties executed a settlement agreement and the resolution of this matter did not have a material effect on the Company’s business or financial condition.

Lanxess Matter

On January 18, 2010, Lanxess Deutschland GmbH filed suit in the District Court of Satakunta, Finland against Sachtleben Pigments Oy (“Sachtleben”), a subsidiary of the Company’s Titanium Dioxide Pigments venture, claiming breach of contract in connection with Sachtleben’s termination of a supply agreement with plaintiff. In October 2010, the Court held a hearing to determine the proper jurisdiction for this matter and later issued its decision in favor of the plaintiff ruling that the case will be heard in the District Court of Satakunta and not in arbitration. In January 2011, Lanxess filed its statement specifying its claims for damages in the amount of €3.2 million ($4.3 million) plus accrued interest and legal fees. In late September 2011, the Court held a hearing on the merits of the case and is expected to render its decision in the fourth quarter of 2011. The Company will continue to vigorously defend this matter. The Company believes Sachtleben has meritorious defenses against the plaintiff’s claims. Although the Company does not believe that resolution of this matter will have a material effect on its business or financial condition, the Company cannot predict the ultimate outcome of this litigation, and the resolution of this matter may have a material effect on its results of operations or cash flows in any quarterly or annual reporting period.

Former Glass Sealants Business

A subsidiary in the Specialty Chemicals segment formerly manufactured sealants for insulating glass. This subsidiary has been named as a defendant in several lawsuits relating to alleged defective sealants that were raised prior to and after the sale of this business in 2003. This subsidiary may be required to pay damage claims asserted by the various plaintiffs. Although the Company expects its subsidiary to have coverage under its product liability insurance policies should damages ultimately be awarded or agreed to, in such an event, its insurance may not cover such claims and, if not, its subsidiary may not have sufficient cash flow to pay these claims. The Company estimates that the possible range of loss from these claims as of September 30, 2011 is from €1.0 million ($1.3 million) to €4.0 million ($5.4 million). Although the Company does not believe that resolution of these matters will have a material effect on its business or financial condition, the Company cannot predict the ultimate outcome of these claims ~~or possible range of loss, if any,~~ and the resolution of one or more of these claims may have a material effect on its results of operations or cash flows in any quarterly or annual reporting period.

Inspector General Subpoena

In February 2010, a subsidiary of the Company received a subpoena from the Inspector General of the Department of Defense (“DOD”) seeking information related to a product in the Timber Treatment Chemicals business in the Performance Additives segment. This subsidiary has and will continue to comply with the requests of the DOD to provide the relevant information. The Company cannot predict the likelihood of further legal action or estimate the loss or possible range of loss, if any, in connection with this matter.

Other Matters

Although the Company expects to continue to pay legal fees in connection with the above matters and other legal actions such as chromated copper arsenate and other product liability matters, based on currently available facts, the Company does not believe that any other individual action will have a material effect on the financial condition, results of operations or liquidity of the Company.

Reserves in connection with product liability matters do not individually exceed $21.09 million and in the aggregate $4.71 million, ~~net of insurance recoveries,~~ as of ~~June~~ September 30, 2011. The Company’s reserve estimates are based on available facts, including damage claims and input from its internal and external legal counsel, past experience, and, in some instances where defense costs are being paid by its insurer, known insurance recoveries. The Company is unable to estimate the amount or range of any potential incremental charges should facts and circumstances change and may in the future revise its estimates based on new information becoming available. Further, the Company cannot predict the outcome of any litigation or the potential for future litigation.

Indemnity Matters—The Company is indemnified by third parties in connection with certain matters related to acquired businesses. Although the Company has no reason to believe that the financial condition of those parties who may have indemnification obligations to the Company is other than sound, in the event the Company seeks indemnity under any of these agreements or through other means, there can be no assurance that any party who may have obligations to indemnify the Company will adhere to their obligations and the Company may have to resort to legal action to enforce its rights under the indemnities. In cases where the Company’s indemnification claims to such third parties are uncontested, the Company expects to realize recoveries within the short term.

The Company may be subject to indemnity claims relating to properties or businesses it divested. For example, the Company has agreed to indemnify the buyer of its former plastic compounding business for certain known and unknown environmental actions ~~which may arise in the future that relate to the period prior to the closing.~~

~~Rockwood’s pension liability includes defined benefit obligations to employees of a previously divested company~~ which ~~cannot~~may ~~legally~~arise bein ~~transferred to~~ the ~~owners~~future ~~under~~that ~~local~~relate ~~law.~~to ~~The owner of~~ the ~~business~~period ~~had~~prior ~~agreed~~ to ~~indemnify~~ the ~~Company for these obligations, however, such company has filed for bankruptcy~~closing. Accordingly, the Company has recorded a reserve of €4.9 million ($7.1 million) against our related receivable of €5.4 million ($7.8 million) due from the current owner. The Company cannot predict the ultimate outcome of this matter. The Company does not believe this matter will have a material effect on its results of operations or cash flows in any quarterly or annual reporting period.

InRockwood’s ~~the~~pension ~~opinion~~liability includes defined benefit obligations to employees of ~~management,~~a ~~and~~previously ~~based~~divested ~~upon~~company ~~information~~which ~~currently~~cannot ~~available,~~legally be transferred to the ~~ultimate~~owners ~~resolution~~under local law. The owner of ~~any~~the ~~indemnification~~business ~~obligations~~had ~~owed~~agreed to indemnify the Company orfor bythese obligations, however, such company has filed for bankruptcy. Accordingly, as of September 30, 2011, the Company ishas ~~not~~recorded ~~expected~~a toreserve ~~have~~of a€4.9 ~~material~~million ~~effect~~($6.6 onmillion) against our related receivable of €5.4 million ($7.2 million) due from the current owner. The Company’s ~~financial~~cannot ~~condition,~~predict ~~results~~the ultimate outcome of ~~operations~~this ormatter. ~~cash~~The ~~flows,~~Company ~~but~~does ~~may~~not believe this matter will have a material effect on ~~the~~its ~~Company’s~~ results of operations or cash ~~flow~~flows in any quarterly or annual reporting period.

In the opinion of management, and based upon information currently available, the ultimate resolution of any indemnification obligations owed to the Company or by the Company is not expected to have a material effect on the Company’s financial condition, results of operations or cash flows, but may have a material effect on the Company’s results of operations or cash flows in any quarterly or annual reporting period.

Safety, Health and Environmental Matters

General

The Company is subject to extensive environmental, health and safety laws in the United States, the European Union (“EU”) and elsewhere at the international, national, state, and local levels. Many of these laws impose requirements relating to clean up of contamination, and impose liability in the event of damage to human beings, natural resources or property, and provide for substantial fines, injunctions and potential criminal sanctions for violations. Other laws require post-closure reclamation of landfills and surface mining sites for damage resulting from normal operation of these facilities. The products, including the raw materials handled, are also subject to rigorous industrial hygiene regulations and investigation. The nature of the Company’s operations exposes it to risks of liability for breaches of these laws and regulations as a result of the production, storage, transportation and sale of materials that can cause contamination or personal injury when released into the environment. Environmental laws are subject to change and have tended to become stricter over time. Such changes in environmental laws, or the enactment of new environmental laws, could result in materially increased capital, operating and compliance costs.

Safety, Health and Environmental Management Systems

The Company is committed to achieving and maintaining compliance with all applicable safety, health and environmental (“SHE”) legal requirements. The Company’s subsidiaries have developed policies and management systems that are intended to identify the SHE legal requirements applicable to their operations, enhance compliance with such requirements, ensure the safety of the Company’s employees, contractors, community neighbors and customers and minimize the production and emission of wastes and other pollutants. Although SHE legal requirements are constantly changing, these SHE management systems are designed to assist the Company in meeting its compliance goals and minimizing overall risk.

SHE Capital Expenditures

The Company will incur future costs for capital improvements and general compliance under SHE laws. For the year ended December 31, 2010, the capital expenditures for SHE matters totaled $19.2 million, excluding costs to maintain and repair pollution control equipment. For 2011, the Company estimates capital expenditures for compliance with SHE laws to be at similar levels; however, because capital expenditures for these matters are subject to changes in existing and new SHE laws, the Company cannot provide assurance that its recent expenditures will be indicative of future amounts required to comply with these laws.

Regulatory Developments

Greenhouse gases have increasingly become the subject of international, national, state and local attention. On September 22, 2009, the Environmental Protection Agency (“EPA”) passed its final greenhouse gas monitoring and reporting rule that required certain facilities in the U.S. to record their greenhouse gases beginning January 1, 2010 and begin reporting these measurements on September 30, 2011. Currently, no facilities are required to report under this program; however, two facilities may be subject to these rules as production demand increases. The Company does not believe, based upon currently available information, that this rule will have a material impact on its results of operations. However, further legislation of greenhouse gases and carbon dioxide has been proposed in the U.S. and other jurisdictions. Certain European facilities are subject to different carbon emission trading schemes imposed by local governments, e.g. U.K. and Germany. Any such laws may directly and indirectly have a material impact on our results of operations, such as through higher costs for energy and certain raw materials and additional capital expenditures to comply with such laws.

The Company is also subject to the Homeland Security Agency’s regulations, which address chemical plant safety, the Kyoto

The Company is also subject to the Homeland Security Agency’s regulations, which address chemical plant safety, the Kyoto Protocol, which relates to the emission of greenhouse gases and the European Union Integrated Pollution Prevention and Control Directive, which relates to environmental permitting programs for individual facilities. In addition, legislation was recently introduced in Congress seeking to reform the Toxic Control Substances Act, which among other things, would require manufacturers to develop and submit additional safety data for each chemical it produces, similar to REACH. The Company does not believe, based upon currently available information, that these regulations will have a material impact on its results of operations, financial position or liquidity.

Environmental Liabilities

Environmental laws have a significant effect on the nature and scope of any clean-up of contamination at current and former operating facilities, the costs of transportation and storage of chemicals and finished products and the costs of the storage and disposal of wastes.

In addition, “Superfund” statutes in the United States as well as statutes in other jurisdictions impose strict, joint and several liability for clean-up costs on the entities that generated waste and/or arranged for its disposal at contaminated third party sites, as well as the past and present owners and operators of contaminated sites. All responsible parties may be required to bear some or all clean-up costs regardless of fault, legality of the original disposal or ownership of the disposal site.

The following table provides a list of the Company’s present and former facilities with environmental contamination or reclamation obligations for which the Company has reserved for at ~~June~~ September 30, 2011:

Country

Location

(a)

(b)

(c)

(d)

(e)

Brazil

Diadema

Chile

Salar de Atacama

China

Shenzhen

Finland

Kipsikorpi

Pori

France

Clichy

Sens

Germany

Duisburg

Empelde

Hainhausen

Liebenau

Schwarzheide

Marktredwitz

Plochingen

Stadeln

Troisdorf

Italy

Turin

The Netherlands

Oss

United Kingdom

Barrow-in Furness

Birtley

Kidsgrove

United States

Beltsville, MD

East St. Louis, IL

Easton, PA

Harrisburg, NC

Kings Mountain, NC

Laurens, SC

Middletown, NY

New Johnsonville, TN

Pineville, NC

Silver Peak, NV

Sunbright, VA

Valdosta, GA

(a) The Company is currently operating groundwater monitoring and/or remediation systems at these locations.

(b) The Company is currently operating groundwater monitoring and/or remediation systems at these locations for which prior owners or insurers have assumed responsibility.

(c) The Company is currently conducting investigations into additional possible soil and/or groundwater contamination at these locations.

(d) The Company has land restoration obligations relating to manufacturing, landfill activities or surface mining at these locations.

(e) The Company is responsible for liabilities related to environmental matters at these closed, currently planned for closure, or formerly-owned facilities.

The Company is also responsible for environmental matters at some of its former off-site disposal locations owned by third parties. These sites are considered Superfund sites as defined by the EPA or state regulatory authority. The Company is a potentially responsible party or de minimis participant at the following Superfund locations: Augusta, GA, Niagara Falls, NY and South Gate, CA and has reserves for these matters totaling $0.1 million at ~~June~~ September 30, 2011.

Although the Company cannot provide assurances in this regard, the Company does not believe that these issues will have a material effect on its business or financial condition, but may have a material effect on the results of operations or cash flows in any given quarterly or annual reporting period. Nonetheless, the discovery of contamination arising from present or historical industrial operations at some of the Company’s or its predecessor’s former and present properties and/or at sites where the Company and its predecessor disposed wastes could expose the Company to cleanup obligations and other damages in the future.

Environmental Reserves

The Company has established financial reserves relating to anticipated environmental cleanup obligations, site reclamation and remediation and closure costs, which are reviewed at least quarterly based on currently available information. Liabilities are recorded when potential liabilities are either known or believed to be probable and can be reasonably estimated. In the event that the Company establishes a financial reserve in connection with site remediation costs, the Company records a reserve for the estimated cost of the remediation, even though the costs of the remediation will likely be spread out over many years. The Company does not include unasserted claims in its reserves.

The Company’s liability estimates are based upon available facts, existing technology, indemnities from third parties, past experience and, in some instances, insurance recoveries where the remediation costs are being paid by its insurers, and are generated by several means, including State-mandated schedules, environmental consultants and internal experts, depending on the circumstances. On a consolidated basis, the Company has accrued $5148.89 million and $49.8 million for environmental liabilities as of ~~June~~ September 30, 2011 and December 31, 2010, respectively, most of which were classified as other non-current liabilities in the ~~Condensed~~condensed ~~Consolidated~~consolidated ~~Balance~~balance ~~Sheets~~sheets. Of these accruals, $28.82 million and $27.5 million as of ~~June~~ September 30, 2011 and December 31, 2010, respectively, represent liabilities discounted using discount rates ranging from 4.2% to 7.5%.

Included in the environmental liabilities are reclamation obligations of $20.8 million and $21.7 million as of ~~June~~ September 30, 2011 and December 31, 2010, respectively. These obligations primarily relate to post-closure reclamation of landfills in the Titanium Dioxide Pigments segment and surface mining sites within the Fine Chemicals business in the Specialty Chemicals segment.

The Company’s remediation liabilities are payable over periods of up to 30 years. At a number of the sites described above, the extent of contamination has not yet been fully investigated or the final scope of remediation is not yet determinable and could potentially affect the range. The Company estimates that the potential range for such environmental matters as of ~~June~~ September 30, 2011 is from $5148.89 million to $7976.6 million. For the ~~six~~nine months ended ~~June~~ September 30, 2011, the Company recorded charges of $12.53 million to increase its environmental liabilities and made payments of $23.21 million for reclamation and remediation costs, which reduced its environmental liabilities. For the ~~six~~nine months ended ~~June~~ September 30, 2011, the recurring cost of managing hazardous substances for ongoing operations is $2738.09 million.

The Company believes these accruals are adequate based on currently available information. The Company may incur losses in excess of the amounts accrued; however, based on currently available information, it does not believe the additional amount of potential losses would have a material effect on its business or financial condition, but may have a material effect on the results of operations or cash flows in any given quarterly or annual reporting period. The Company does not believe that any known individual environmental matter would have a material effect on its results of operations or financial condition. The Company is unable to estimate the amount or range of any potential incremental charges should facts and circumstances change and may in the future revise its estimates based ~~on new information becoming available.~~

on new information becoming available.

The Company is obligated to undertake soil remediation at two facilities in Europe in the event manufacturing operations are discontinued there at some future date. In addition, in the event that manufacturing operations are discontinued at any of the Company’s other facilities with known contamination, regulatory authorities may impose more stringent requirements on the Company including soil remediation. The Company does not contemplate any such action occurring in the foreseeable future, as these facilities’ remaining lives are indefinite. Given the indeterminate useful life of these facilities and the corresponding indeterminate settlement date of any soil remediation obligations, the Company does not have sufficient information to estimate a range of potential settlement dates for its obligations. Consequently, the Company cannot employ a present value technique to estimate fair value and, accordingly, has not accrued for any environmental-related costs to remediate soil at these facilities.

16. CONSOLIDATING FINANCIAL INFORMATION:

As described in Note 1110, “Long-Term Debt,” the Company issued the 2014 Notes in November 2004. The following consolidating financial statements present the results of operations, financial condition and cash flows in separate columns of the parent company (Rockwood Specialties Group, Inc.), which is the issuer of the 2014 Notes, guarantor subsidiaries, elimination adjustments and consolidated totals.

ROCKWOOD SPECIALTIES GROUP, INC. AND SUBSIDIARIES

CONSOLIDATING STATEMENT OF OPERATIONS

THREE MONTHS ENDED ~~JUNE~~SEPTEMBER 30, 2011

(Dollars in millions)

	Parent			Guarantor			Non-Guarantor
	Company			Subsidiaries			Subsidiaries			Consolidated
Net sales	$	—		$	~~162~~164.63		$	~~837~~776.46		$	~~1,000~~940.09
Cost of products sold	—			~~108~~112.34			~~546~~497.10			~~654~~609.4
Gross profit	—			5451.39			~~291~~279.36			~~345~~331.65
Selling, general and administrative expenses	~~0.1~~—			4542.1			~~136~~133.09			~~181~~176.20
Restructuring and other severance costs	—			0.1.2			3.93			4.05
Asset write-downs and other	—			—			0.2			0.2
Operating income	—			8.6			142.4			151.0
Operating (loss) income	(0.1		)	9.1			151.2			160.2
Other income (expenses), net:
Intergroup interest, net	20.81			(43.29		)	(16.62		)	—
Interest expense, net	(18.78		)	(0.43		)	(57.62		)	(2426.73		)
Loss on early extinguishment/modification of debt	~~(0.3~~—		)	—			—(0.1		)	(0.31		)
Intergroup other, net	—			124.17			(124.17		)	—
Foreign exchange gain on financing activities, net	01.93			~~0.1~~—			1(3.27		)	(2.24		)
Other, net	—			—			(0.1		)	(0.1		)
Other income (expenses), net	2.6			0.5			(31.9		)	(28.8		)
Other income (expenses), net	2.7			7.6			(33.2		)	(22.9		)
Income from continuing operations before taxes	2.6			9.1			110.5			122.2
Income from continuing operations before taxes	2.6			16.7			118.0			137.3
Income tax provision	—			0.9			33.5			34.4
Income tax provision	1.1			1.7			35.0			37.8
Net income	2.6			8.2			77.0			87.8
Income from continuing operations	1.5			15.0			83.0			99.5
Net income attributable to the noncontrolling interest	—			—			(11.9		)	(11.9		)
Income (loss) from discontinued operations, net of tax	0.7			—			—			0.7
Net income attributable to Rockwood Specialties Group, Inc.	$	2.6		$	8.2		$	65.1		$	75.9
Gain (loss) on sale of discontinued operations, net of tax	4.9			—			—			4.9
Net income	7.1			15.0			83.0			105.1
Net income attributable to the noncontrolling interest	—			—			(10.6		)	(10.6		)
Net income attributable to Rockwood Specialties Group, Inc.	$	7.1		$	15.0		$	72.4		$	94.5

ROCKWOOD SPECIALTIES GROUP, INC. AND SUBSIDIARIES

CONSOLIDATING STATEMENT OF OPERATIONS

THREE MONTHS ENDED ~~JUNE~~SEPTEMBER 30, 2010

(Dollars in millions)

	Parent			Guarantor			Non-Guarantor
	Company			Subsidiaries			Subsidiaries			Consolidated
Net sales	$	—		$	~~152~~148.82		$	~~660~~653.90		$	~~813~~801.72
Cost of products sold	—			~~104~~101.05			~~439~~433.87			~~543~~535.82
Gross profit	—			4846.87			~~221~~219.13			~~269~~266.90
Selling, general and administrative expenses	~~0.1~~—			4342.29			~~125~~124.98			~~169~~167.27
Restructuring and other severance costs	—			0.13			01.82			01.95
Asset write-downs and other	—			—			0.51			0.51
Operating (loss) income	(0.1		)	5.5			93.9			99.3
Operating income	—			3.5			93.2			96.7
Other income (expenses), net:
Intergroup interest, net	3735.56			(13.87		)	(2321.79		)	—
Interest expense, net	(3031.6		)	(0.76		)	(56.04		)	(3638.36		)
Intergroup other, net	—			2.9			(2.9		)	—
Loss on early extinguishment/modification of debt	(0.1		)	(0.7		)	(0.8		)	(1.6		)
Foreign exchange gain (loss) on financing activities, net	3.1			0.1			(3.6		)	(0.4		)
Intergroup other, net	—			3.4			(3.4		)	—
Other income (expenses), net	10.0			(11.5		)	(35.2		)	(36.7		)
Foreign exchange gain (loss) on financing activities, net	(3.3		)	(0.4		)	4.6			0.9
Income (loss) from continuing operations before taxes	9.9			(6.0		)	58.7			62.6
Other income (expenses), net	0.6			(12.0		)	(27.9		)	(39.3		)
Income tax provision	0.2			0.6			13.5			14.3
Income (loss) from continuing operations before taxes	0.6			(8.5		)	65.3			57.4
Net income (loss) from continuing operations	9.7			(6.6		)	45.2			48.3
Income tax provision (benefit)	0.1			(2.3		)	18.6			16.4
Income from discontinued operations, net of tax	—			5.3			1.2			6.5
Net income (loss) from continuing operations	0.5			(6.2		)	46.7			41.0
Net income (loss)	9.7			(1.3		)	46.4			54.8
Income from discontinued operations, net of tax	—			1.9			0.6			2.5
Net income attributable to the noncontrolling interest	—			—			(2.4		)	(2.4		)
Net income (loss)	0.5			(4.3		)	47.3			43.5
Net income (loss) attributable to Rockwood Specialties Group, Inc.	$	9.7		$	(1.3	)	$	44.0		$	52.4
Net income attributable to the noncontrolling interest	—			—			(3.0		)	(3.0		)
Net income (loss) attributable to Rockwood Specialties Group, Inc.	$	0.5		$	(4.3	)	$	44.3		$	40.5

ROCKWOOD SPECIALTIES GROUP, INC. AND SUBSIDIARIES

CONSOLIDATING STATEMENT OF OPERATIONS

~~SIX~~NINE MONTHS ENDED ~~JUNE~~SEPTEMBER 30, 2011

(Dollars in millions)

	Parent			Guarantor			Non-Guarantor
	Company			Subsidiaries			Subsidiaries			Consolidated
Net sales	$	—		$	~~316~~480.14		$	12,~~597~~374.95		$	12,~~914~~854.09
Cost of products sold	—			~~214~~327.93			1,~~032~~529.4			1,~~247~~856.37
Gross profit	—			~~101~~153.21			~~565~~845.51			~~666~~998.72
Selling, general and administrative expenses	0.1			89131.12			~~272~~406.65			~~361~~537.8
Restructuring and other severance costs	—			01.68			47.47			59.05
Asset write-downs and other	—			—			0.3			0.3
Operating (loss) income	(0.1		)	1120.51			~~288~~430.26			~~299~~450.6
Other income (expenses), net:
Intergroup interest, net	4666.45			(913.32		)	(3753.13		)	—
Interest expense, net	(4159.08		)	(01.70		)	(613.02		)	(4774.70		)
Loss on early extinguishment/modification of debt	(1.3		)	(4.9		)	(10.34		)	(16.56		)
Intergroup other, net	113.0			(9692.81		)	(1620.29		)	—
Foreign exchange gain (loss) on financing activities, net	45.69			—			(0.4.1		)	41.28
Other, net	—			—			(0.1		)	(0.1		)
Other income (expenses), net	~~121~~124.73			(111.72		)	(70102.10		)	(6088.19		)
Income (loss) from continuing operations before taxes	~~121~~124.62			(~~100~~91.21		)	~~218~~328.16			~~239~~361.57
Income tax provision	0.4			23.76			6397.50			66101.60
Income (loss) from continuing operations	~~121~~123.28			(~~102~~94.97		)	~~154~~231.6			~~172~~260.97
Income from discontinued operations, net of tax	0.7			0.2			—			0.9
Gain (loss) on sale of discontinued operations, net of tax	45.8			103.2			(29.6		)	119.4
Net income	~~167~~170.73			08.57			~~125~~202.0			~~293~~381.20
Net income attributable to the noncontrolling interest	—			—			(2032.76		)	(2032.76		)
Net income attributable to Rockwood Specialties Group, Inc.	$	~~167~~170.73		$	08.57		$	~~104~~169.34		$	~~272~~348.54

ROCKWOOD SPECIALTIES GROUP, INC. AND SUBSIDIARIES

CONSOLIDATING STATEMENT OF OPERATIONS

~~SIX~~NINE MONTHS ENDED ~~JUNE~~SEPTEMBER 30, 2010

(Dollars in millions)

	Parent			Guarantor			Non-Guarantor
	Company			Subsidiaries			Subsidiaries			Consolidated
Net sales	$	—		$	~~293~~441.35		$	1,~~298~~951.8		$	12,~~592~~393.13
Cost of products sold	—			~~202~~303.38			~~864~~1,297.07			1,~~066~~601.35
Gross profit	—			91137.07			~~434~~654.81			~~525~~791.8
Selling, general and administrative expenses	0.1			83126.43			~~250~~375.64			~~334~~501.18
Restructuring and other severance costs	—			0.14			1.2.4			12.38
Asset write-downs and other	—			—			2.34			2.34
Operating (loss) income	(0.1		)	711.50			~~180~~273.79			~~188~~284.18
Other income (expenses), net:
Intergroup interest, net	77112.28			(2741.96		)	(4971.32		)	—
Interest expense, net	(6597.95		)	(1.28		)	(1117.04		)	(78116.17		)
Intergroup other, net	—			7.3			(7.3		)	—
Loss on early extinguishment/modification of debt	(0.1		)	(0.7		)	(0.8		)	(1.6		)
Foreign exchange gain (loss) on financing activities, net	4.5			(0.2		)	(4.4		)	(0.1		)
Intergroup other, net	—			10.7			(10.7		)	—
Foreign exchange gain (loss) on financing activities, net	1.2			(0.6		)	0.2			0.8
Other, net	—			—			0.5			0.5
Other income (expenses), net	1516.84			(2234.0		)	(7199.54		)	(77117.70		)
Income (loss) from continuing operations before taxes	1516.73			(1423.50		)	~~109~~174.25			~~110~~167.48
Income tax provision	0.4			1.2			28.4			30.0
Income tax provision (benefit)	0.5			(1.1		)	47.0			46.4
Net income (loss) from continuing operations	15.38			(1521.79		)	80127.85			80121.4
Income from discontinued operations, net of tax	—			810.98			2.28			1113.16
Net income (loss)	15.38			(611.81		)	83130.03			91135.50
Net income attributable to the noncontrolling interest	—			—			(25.2		)	(25.2		)
Net income (loss) attributable to Rockwood Specialties Group, Inc.	$	15.38		$	(611.81	)	$	80125.81		$	89129.38

ROCKWOOD SPECIALTIES GROUP, INC. AND SUBSIDIARIES

CONSOLIDATING BALANCE SHEET

~~JUNE~~SEPTEMBER 30, 2011

(Dollars in millions)

	Parent		Guarantor			Non-Guarantor
	Company		Subsidiaries			Subsidiaries		Eliminations			Consolidated
ASSETS
Current assets:
Cash and cash equivalents	$	—	$	97187.39		$	~~125~~142.15	$	—		$	~~222~~330.4
Accounts receivable, net	—		8889.41			~~482~~423.54		—			~~570~~512.95
Inventories	—		~~119~~122.59			~~491~~485.48		—			~~610~~608.97
Deferred income taxes	6.4		67.41			98.38		—			22.13
Prepaid expenses and other current assets	0.31		84.98			7155.92		—			8160.1
Total current assets	6.75		~~320~~411.58			1,~~180~~115.27		—			1,~~507~~534.40
Property, plant and equipment, net	—		~~228~~240.86			1,~~429~~347.35		—			1,~~658~~588.1
Investment in subsidiary	1,348.5		9190.0			—		(1,~~439~~438.5		)	—
Goodwill	—		17.1			~~932~~860.92		—			~~950~~877.03
Intergroup receivable	1,~~789~~701.14		~~147~~55.96			3,~~811~~576.10		(5,~~748~~333.10		)	—
Other intangible assets, net	—		7369.18			~~514~~467.70		—			~~587~~536.8
Deferred debt issuance costs, net	1.1		3.6			13.2		—			17.9
Deferred financing costs, net	1.0		3.5			11.2		—			15.7
Deferred income taxes	—		—			17.8		—			17.8
Other assets	—		1.0.9			4441.63		—			4542.62
Total assets	$	3,~~145~~057.4	$	~~883~~889.03		$	7,~~943~~436.87	$	(76,~~187~~771.65	)	$	4,~~784~~611.69
LIABILITIES
Current liabilities:
Accounts payable	$	—	$	3941.9		$	~~203~~181.58	$	—		$	~~243~~223.47
Income taxes payable	—		—0.6			4445.47		—			4446.43
Accrued compensation	—		2231.64			~~117~~126.40		—			~~140~~157.04
Accrued expenses and other current liabilities	16.43		~~104~~96.9			~~130~~114.36		—			~~236~~217.68
Deferred income taxes	—		—			2.86		—			2.86
Long-term debt, current portion	8.5		—			6056.13		—			6864.68
Total current liabilities	914.98		~~167~~170.48			~~558~~527.50		—			~~735~~712.86
Long-term debt	1,~~404~~372.20		—			~~317~~292.74		—			1,~~721~~664.94
Pension and related liabilities	—		1312.49			~~421~~390.08		—			~~434~~403.47
Intergroup payable	2.53		~~824~~816.96			4,~~920~~514.71		(5,~~748~~333.10		)	—
Deferred income taxes	18.3		(21.52		)	9293.70		—			~~108~~110.51
Other liabilities	10.8		2527.70			6863.10		—			~~104~~100.68
Total liabilities	1,~~445~~418.72		1,~~028~~026.91			65,~~378~~880.73		(5,~~748~~333.10		)	32,~~105~~991.26
EQUITY
Rockwood Specialties Group, Inc. stockholder’s equity:
Common stock	—		190.6			164.7		(355.3		)	—
Paid-in capital	1,044.0		~~499~~500.65			~~584~~582.67		(1,~~084~~083.2		)	1,044.0
Accumulated other comprehensive income	8421.32		8.9			~~136~~66.8		—			~~230~~96.09
Retained earnings (deficit)	~~571~~574.40		(~~845~~836.08		)	~~366~~431.01		—			92168.43
Total Rockwood Specialties Group, Inc. stockholder’s equity	1,~~699~~639.72		(~~145~~136.98		)	1,~~252~~245.13		(1,~~439~~438.5		)	1,~~366~~309.42
Noncontrolling interest	—		—			~~313~~311.01		—			~~313~~311.01
Total equity	1,~~699~~639.72		(~~145~~136.98		)	1,~~565~~556.14		(1,~~439~~438.5		)	1,~~679~~620.43
Total liabilities and equity	$	3,~~145~~057.4	$	~~883~~889.03		$	7,~~943~~436.87	$	(76,~~187~~771.65	)	$	4,~~784~~611.69

ROCKWOOD SPECIALTIES GROUP, INC. AND SUBSIDIARIES

CONSOLIDATING BALANCE SHEET

DECEMBER 31, 2010

(Dollars in millions)

	Parent		Guarantor			Non-Guarantor
	Company		Subsidiaries			Subsidiaries		Eliminations			Consolidated
ASSETS
Current assets:
Cash and cash equivalents	$	1.5	$	50.0		$	251.7	$	—		$	303.2
Accounts receivable, net	—		72.2			364.6		—			436.8
Inventories	—		106.3			435.5		—			541.8
Deferred income taxes	68.5		5.7			8.5		—			82.7
Prepaid expenses and other current assets	3.2		14.4			61.5		—			79.1
Assets of discontinued operations	—		65.6			88.5		—			154.1
Total current assets	73.2		314.2			1,210.3		—			1,597.7
Property, plant and equipment, net	—		228.6			1,338.3		—			1,566.9
Investment in subsidiary	1,355.8		91.0			—		(1,446.8		)	—
Goodwill	—		17.9			859.2		—			877.1
Intergroup receivable	1,855.6		183.7			3,812.3		(5,851.6		)	—
Other intangible assets, net	—		79.7			507.9		—			587.6
Deferred debt issuance costs, net	1.5		3.4			12.3		—			17.2
Deferred financing costs, net	1.5		3.4			12.3		—			17.2
Deferred income taxes	6.8		(0.9		)	12.4		—			18.3
Other assets	—		1.0			37.5		—			38.5
Total assets	$	3,292.9	$	918.6		$	7,790.2	$	(7,298.4	)	$	4,703.3
LIABILITIES
Current liabilities:
Accounts payable	$	—	$	35.0		$	214.6	$	—		$	249.6
Income taxes payable	—		—			20.2		—			20.2
Accrued compensation	—		56.4			108.8		—			165.2
Accrued expenses and other current liabilities	31.9		66.4			109.8		—			208.1
Deferred income taxes	—		—			2.6		—			2.6
Long-term debt, current portion	375.1		—			90.6		—			465.7
Liabilities of discontinued operations	—		15.9			11.7		—			27.6
Total current liabilities	407.0		173.7			558.3		—			1,139.0
Long-term debt	1,380.4		—			314.9		—			1,695.3
Pension and related liabilities	—		13.6			386.0		—			399.6
Intergroup payable	2.3		867.3			4,982.0		(5,851.6		)	—
Deferred income taxes	13.5		(4.4		)	68.8		—			77.9
Other liabilities	10.6		19.7			72.2		—			102.5
Total liabilities	1,813.8		1,069.9			6,382.2		(5,851.6		)	3,414.3
EQUITY
Rockwood Specialties Group, Inc. stockholder’s equity:
Common stock	—		190.6			164.7		(355.3		)	—
Paid-in capital	1,044.0		492.7			598.8		(1,091.5		)	1,044.0
Accumulated other comprehensive income	31.4		10.9			93.4		—			135.7
Retained earnings (deficit)	403.7		(845.5		)	261.7		—			(180.1		)
Total Rockwood Specialties Group, Inc. stockholder’s equity	1,479.1		(151.3		)	1,118.6		(1,446.8		)	999.6
Noncontrolling interest	—		—			289.4		—			289.4
Total equity	1,479.1		(151.3		)	1,408.0		(1,446.8		)	1,289.0
Total liabilities and equity	$	3,292.9	$	918.6		$	7,790.2	$	(7,298.4	)	$	4,703.3

ROCKWOOD SPECIALTIES GROUP, INC. AND SUBSIDIARIES

CONSOLIDATING STATEMENT OF CASH FLOWS

~~SIX~~NINE MONTHS ENDED ~~JUNE~~SEPTEMBER 30, 2011

(Dollars in millions)

	Parent			Guarantor			Non-Guarantor
	Company			Subsidiaries			Subsidiaries			Consolidated
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	~~167~~170.73		$	08.57		$	~~125~~202.0		$	~~293~~381.20
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Income from discontinued operations, net of tax	(0.7		)	(0.2		)	—			(0.9		)
(Gain) loss on sale of discontinued operations, net of tax	(45.8		)	(103.2		)	29.6			(119.4		)
Depreciation and amortization	—			2334.34			~~109~~165.98			~~133~~200.2
Deferred financing costs amortization	—0.2			0.45			23.10			23.57
Loss on early extinguishment/modification of debt	1.3			4.9			10.34			16.56
Foreign exchange (gain) loss on financing activities, net	(45.69		)	—			0.4.1			(41.28		)
Fair value adjustment of derivatives	(2.1		)	—			(21.81		)	(41.90		)
Bad debt provision	—			—(0.2		)	0.52			~~0.5~~—
Stock-based compensation	—			4.6.7			13.81			69.48
Deferred income taxes	—			1.39			1319.54			1421.83
Asset write-downs and other	—			—			0.3			0.3
Changes in assets and liabilities, net of the effect of foreign currency translation and acquisitions:
Accounts receivable	—			(16.16		)	(9063.0		)	(~~106~~79.16		)
Inventories	—			(1316.15		)	(2554.39		)	(3871.4		)
Prepaid expenses and other assets	(0.41		)	6.0			(62.4		)	(03.85		)
Accounts payable	—			64.69			(1123.87		)	(518.28		)
Income taxes payable	3.65			0.6			2030.5			2434.76
Accrued expenses and other liabilities	(206.10		)	(510.03		)	(512.05		)	(303.18		)
Intercompany operating activities, net	(525.72		)	(513.57		)	11.25			—
Net cash provided by (used in) operating activities of continuing operations	9389.25			(9464.97		)	~~183~~349.85			~~182~~374.13
Net cash (used in) provided by operating activities of discontinued operations	—			(3.0		)	1.2			(1.8		)
Net cash provided by (used in) operating activities	9389.25			(9767.97		)	~~185~~350.07			~~180~~372.35
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures	—			(2239.59		)	(94151.45		)	(~~116~~191.94		)
Government grants received	—			47.20			2.18			69.38
Acquisitions, including transaction fees and payments for prior acquisitions, net of cash acquired	—			—			(0.8		)	(0.8		)
Acquisitions, including payments for prior acquisitions	—			—			(0.8		)	(0.8		)
Proceeds on sale of assets	—			—			0.37			0.37
Net cash used in investing activities of continuing operations	—			(1832.39		)	(92148.8		)	(~~111~~181.17		)
Net cash provided by investing activities of discontinued operations, representing net sale proceeds	65.1			221.10			14.6			300.87
Net cash provided by (used in) investing activities	65.1			~~202~~188.81			(78134.2		)	~~189~~119.70
CASH FLOWS FROM FINANCING ACTIVITIES:
Prepayment of senior secured debt	(375.4		)	—			(33.5		)	(408.9		)
Repayment of senior secured debt	(05.70		)	—			(20.7		)	(2125.47		)
Payments on other long-term debt	—			—			(12.89		)	(12.89		)
Loan repayments to noncontrolling shareholders	—			—			(5.0		)	(5.0		)
Deferred financing costs	(5.3		)	—			—			(5.3		)
Fees related to early extinguishment/modification of debt	(1213.93		)	—			—(0.1		)	(1213.94		)
Distribution to noncontrolling shareholder	—			—			(0.5		)	(0.5		)
Distributions to noncontrolling shareholders	—			—			(9.8		)	(9.8		)
Intercompany financing related activity	~~236~~244.67			~~(60~~15.1		)	(~~176~~259.58		)	—
Net cash used in financing activities	(157.7		)	(60.1		)	(238.0		)	(455.8		)
Net cash (used in) provided by financing activities	(154.3		)	15.1			(331.8		)	(471.0		)
Effect of exchange rate changes on cash and cash equivalents	(2.1.8		)	—(0.1		)	(98.50		)	(119.69		)
Net (decrease) increase in cash and cash equivalents	(1.5		)	44135.84			(~~140~~123.73		)	~~(97~~10.46		)
Less net decrease in cash and cash equivalents from discontinued operations	—			(2.5		)	(14.1		)	(16.6		)
(Decrease) increase in cash and cash equivalents from continuing operations	(1.5		)	47137.39			(~~126~~109.62		)	~~(80~~27.82		)
Cash and cash equivalents of continuing operations, beginning of period	1.5			50.0			251.7			303.2
Cash and cash equivalents of continuing operations, end of period	$	—		$	97187.39		$	~~125~~142.15		$	~~222~~330.4

ROCKWOOD SPECIALTIES GROUP, INC. AND SUBSIDIARIES

CONSOLIDATING STATEMENT OF CASH FLOWS

~~SIX~~NINE MONTHS ENDED ~~JUNE~~SEPTEMBER 30, 2010

(Dollars in millions)

	Parent			Guarantor			Non-Guarantor
	Company			Subsidiaries			Subsidiaries			Consolidated
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)	$	15.38		$	(611.81	)	$	83130.03		$	91135.50
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Adjustments to reconcile net income (loss) to net cash (used in) provided by operating activities:
Income from discontinued operations, net of tax	—			(810.98		)	(2.28		)	(1113.16		)
Depreciation and amortization	—			2436.86			~~101~~151.8			~~126~~188.64
Deferred financing costs amortization	0.12			01.70			23.3			34.15
Foreign exchange (gain) loss on financing activities, net	(4.5		)	0.2			4.4			0.1
Loss on early extinguishment/modification of debt	0.1			0.7			0.8			1.6
Fair value adjustment of derivatives	(3.5		)	—			(4.2		)	(7.7		)
Foreign exchange (gain) loss on financing activities, net	(1.2		)	0.6			(0.2		)	(0.8		)
Bad debt provision	—			(0.4		)	(0.3		)	(0.7		)
Fair value adjustment of derivatives	(4.2		)	—			(4.7		)	(8.9		)
Stock-based compensation	—			4.0			1.8			5.8
Bad debt provision	—			(0.6		)	—			(0.6		)
Deferred income taxes	—			0.7			16.1			16.8
Stock-based compensation	—			6.3			3.3			9.6
Asset write-downs and other	—			—			2.3			2.3
Deferred income taxes	4.4			(2.4		)	21.9			23.9
Asset write-downs and other	—			—			2.4			2.4
Changes in assets and liabilities, net of the effect of foreign currency translation and acquisitions:
Accounts receivable	—			(2115.29		)	(6953.90		)	(9168.19		)
Inventories	—			(45.15		)	(014.59		)	(420.64		)
Prepaid expenses and other assets	(04.14		)	813.72			(1712.23		)	(83.65		)
Accounts payable	—			41.93			3(13.64		)	8(12.51		)
Income taxes payable	0.43			0.3.1			(8.3.0		)	(70.64		)
Accrued expenses and other liabilities	(28.0		)	1750.27			3568.95			51127.12
Intercompany operating activities, net	(328.48		)	(422.14		)	76.54			—
Net cash provided by operating activities of continuing operations	2.3			16.0			156.1			174.4
Net cash (used in) provided by operating activities of continuing operations	(9.8		)	89.6			284.4			364.2
Net cash provided by operating activities of discontinued operations	—			—1.1			2.12			23.13
Net cash provided by operating activities	2.3			16.0			158.2			176.5
Net cash (used in) provided by operating activities	(9.8		)	90.7			286.6			367.5
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures	—			(713.40		)	(63103.71		)	(71116.1		)
Government grants received	—			—			01.45			01.45
Acquisitions, including transaction fees and payments for prior acquisitions, net of cash acquired	—			—			(0.9		)	(0.9		)
Acquisitions, including payments for prior acquisitions	—			—			(0.9		)	(0.9		)
Proceeds on sale of assets	—			—			12.80			12.80
Net cash used in investing activities of continuing operations	—			(713.40		)	(62100.45		)	(69113.85		)
Net cash used in investing activities of discontinued operations	—			—(1.1		)	(10.25		)	(1.26		)
Net cash used in investing activities	—			(714.41		)	(63101.60		)	(71115.01		)
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of Titanium Dioxide Pigments revolving credit facility	—			—			(14.3		)	(14.3		)
Repayment of senior secured debt	(7.8		)	—			(17.3		)	(25.1		)
Prepayment of senior secured debt	(200.2		)	—			—			(200.2		)
Payments on other long-term debt	—			—			(2.5		)	(2.5		)
Repayment of senior secured debt	(8.3		)	—			(22.0		)	(30.3		)
Proceeds from other borrowings	—			—			19.3			19.3
Payments on other long-term debt	—			—			(45.2		)	(45.2		)
Deferred financing costs	(0.3		)	—			—			(0.3		)
Intercompany financing related activity	1204.95			3056.9			(32261.84		)	—
Net cash (used in) provided by financing activities	(64.23		)	3056.9			(66323.96		)	(42271.20		)
Effect of exchange rate changes on cash and cash equivalents	0.68			(0.6		)	(01.23		)	(01.21		)
Net (decrease) increase in cash and cash equivalents	(313.3		)	38132.9			27(139.53		)	63(19.17		)
Less net increase in cash and cash equivalents from discontinued operations	—			—			01.97			01.97
(Decrease) increase in cash and cash equivalents from continuing operations	(313.3		)	38132.9			26(141.60		)	62(21.24		)
Cash and cash equivalents of continuing operations, beginning of period	19.8			37.8			228.6			286.2
Cash and cash equivalents of continuing operations, end of period	$	166.5		$	76170.7		$	~~255~~87.26		$	~~348~~264.48

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

In January 2011, we completed the sale of our plastic compounding business. As a result, our consolidated financial statements have been reclassified to reflect these businesses as discontinued operations for all periods presented. See Note 3, “Discontinued Operations,” for further details.

The following discussion contains forward-looking statements that involve numerous risks and uncertainties. Our actual results could differ materially from those discussed in the forward-looking statements as a result of these risks and uncertainties, including those set forth in “Forward-Looking Statements” at the end of this Management Discussion and Analysis (“MD&A”) section and the risk factors section of the Company’s 2010 Annual Report on Form 10-K. You should read the following discussion and analysis together with our condensed consolidated financial statements and the notes to those statements that appear elsewhere in this Quarterly Report.

Unless otherwise noted, all balance sheet items as of ~~June~~ September 30, 2011 which are denominated in Euros are translated at the ~~June~~ September 30, 2011 exchange rate of €1.00 = $1.~~4502~~3387.

General

We are a global developer, manufacturer and marketer of technologically advanced, high value-added specialty chemicals and advanced materials. We serve more than 60,000 customers across a wide variety of industries and geographic areas. We operate through four business segments: (1) Specialty Chemicals; (2) Performance Additives; (3) Titanium Dioxide Pigments; and (4) Advanced Ceramics.

Our net sales consist of sales of our products, net of sales discounts, product returns and allowances. In addition, net sales include shipping and handling costs billed to customers. Sales are primarily made on a purchase order basis.

Our cost of products sold consists of variable and fixed components. Our variable costs are proportional to volume and consist principally of raw materials, packaging and related supplies, certain energy costs, and certain distribution costs including inbound, outbound, and internal shipping and transfer costs. Our fixed costs are not significantly impacted by production volume and consist principally of certain fixed manufacturing costs and other distribution network costs, including warehousing. Fixed manufacturing costs comprise headcount-related costs and overhead, including depreciation, periodic maintenance costs, purchasing and receiving costs, inspection costs and certain energy costs.

Our selling, general and administrative expenses include research and development costs, sales and marketing, divisional management expenses and corporate services including cash management, legal, benefit plan administration and other administrative and professional services.

We are focused on growth, productivity, cost reduction, margin expansion, divestment of non-core businesses, debt reduction and bolt-on acquisitions. In connection with this focus, among other things:

· In January 2011, we completed the sale of our plastic compounding business; and

· In February 2011, we refinanced $850.0 million and repaid $408.9 million of our senior secured term loans.

Factors Which Affect Our Results of Operations

Our Markets

Because the businesses in our segments generally serve many unrelated end-use markets, we discuss the principal market conditions on a segment basis rather than a consolidated basis. The principal market conditions in our segments and regions in which we operate that impacted our results of operations during the periods presented include the following:

Specialty Chemicals

· Demand for Surface Treatment products in our Specialty Chemicals segment generally follows the activity levels of metal processing manufacturers, including the automotive supply, steel and aerospace industries. In 2010, net sales were up from higher volumes in all markets. In the first ~~six~~nine months of 2011, net sales were up from higher volumes in all markets, particularly automotive and general industrial, as well as increased selling prices. Net sales growth is expected to continue throughout the remainder of the year primarily from higher volumes across most markets, as well as higher selling prices.

· Demand for our lithium carbonate products in the Fine Chemicals business line of our Specialty Chemicals segment is generally driven by demand in industrial applications, the aluminum business, the battery industry, glass ceramics, cement and the general demand in China. Sales of lithium products specifically used in life science applications depend on the trends in drug development and growth in pharmaceuticals and agrochemicals markets, as well as generic competition. Results in 2010 were higher primarily from increased volumes of lithium products and metal sulfide applications, partially offset by lower selling prices of potash and lithium carbonate. In the first ~~six~~nine months of 2011, results were up primarily from increased volumes of lithium products, as well as higher selling prices ~~of metal sulfide applications~~, partially offset by higher raw material costs of metal sulfides. Net sales growth is expected to continue throughout the remainder of the year primarily from higher volumes in lithium and ~~metal~~special ~~sulfide~~metals applications, as well as higher selling prices.

Performance Additives

· Generally, a trend towards the increased use of colored concrete products in the construction market has historically had a positive effect on our Color Pigments and Services business line. However, a general slowdown in the construction market has negatively impacted construction sales. North American construction volumes were lower in 2010 and continued to be lower in the first ~~six~~nine months of 2011. A ~~continued~~further slowdown in the North American construction industry could continue to have a negative impact on our results throughout the remainder of the year. European construction volumes in 2010 ~~were~~and ~~comparable to~~ the ~~same~~first ~~period~~nine inmonths ~~the~~of ~~prior~~2011 ~~year and~~ were upcomparable into the ~~first~~same ~~six~~periods ~~months~~in ofthe ~~2011~~prior years. Volumes of coatings and specialties products were up in 2010, but were down in the first ~~six~~nine months of 2011.

· Demand for our wood protection products, in particular alkaline copper quaternary, or ACQ, is generally driven by both repair and remodeling, as well as new construction. The market position of ACQ was negatively impacted in 2010 by a general slowdown in the construction ~~markets~~market. In the first ~~six~~nine months of 2011, results were up due to slightly higher volumes of ACQ, as well as higher selling prices, partially offset by higher copper and monoethanolamine (“MEA”) costs. Higher copper and MEA raw material costs are expected to have a negative impact on our results throughout the remainder of the year.

· In the Clay-based Additives business, higher volumes in most markets, particularly oilfield, had a favorable impact on results in 2010. In the first ~~six~~nine months of 2011, higher volumes continued in most markets, particularly oilfield, ~~composites~~ and ~~coatings and inks~~composites. We expect net sales growth to continue throughout the remainder of the year ~~primarily from higher volumes in most market segments~~.

Titanium Dioxide Pigments

· Demand for our titanium dioxide products in anatase grade is driven mainly by demand in the synthetic fiber industry, while demand for titanium dioxide products in rutile grade and our functional additives business are driven by demand in the coatings, printing inks, construction, cosmetics, pharmaceutical, food, paper and plastics industries. Market conditions, including pricing pressure and industry overcapacity, have negatively impacted this segment in the past. However, this trend has changed as prices are increasing as a result of current undercapacity in this industry. In 2010, higher volumes, as well as selling price increases, of both rutile and anatase applications had a favorable impact on results. Higher selling prices, as well as a favorable product mix, had a favorable impact on results in the first ~~six~~nine months of 2011. We expect sales to continue to be higher throughout the remainder of the year primarily from higher selling prices.

· Our functional additives sales were up in 2010 and the first ~~six~~nine months of 2011 as higher selling prices had a favorable impact on results. Net sales of functional additives applications are expected to continue to be higher throughout the remainder of the year from higher selling prices.

Advanced Ceramics

· Demand for our ceramic medical devices is mainly tied to the aging population in Europe and the United States. Sales of our medical device applications increased in 2010 and the first ~~six~~nine months of 2011 on higher volumes. We expect this growth to continue throughout the remainder of the year.

· Sales of most product applications, including cutting tools, mechanical applications and electronic applications were up in 2010 and the first ~~six~~nine months of 2011 on higher volumes. We expect sales for cutting tools, ~~mechanical applications~~ and ~~electronic~~mechanical applications to be higher throughout the remainder of the year on higher volumes. We expect a slow down in demand for ceramics for electronic applications for the remainder of the year.

Global Exposure

We operate a geographically diverse business, with 54% of our net sales in 2010 generated from shipments to customers in Europe, 24% to North America (predominantly the United States) and 22% to the rest of the world. For a geographic description of the origin of our net sales and location of our long-lived assets, see Note 3, “Segment Information” in our 2010 Annual Report on Form 10-K.

We have sold to customers in more than 60 countries during this period. Currently, we serve our diverse and extensive customer base with 81 manufacturing facilities in 23 countries. Consequently, we are exposed to global economic and political changes, particularly currency fluctuations that could impact our profitability and demand for our products.

Our sales and production costs are mainly denominated in U.S. dollars or Euros. Our results of operations and financial condition have been historically impacted by the fluctuation of the Euro against our reporting currency, the U.S. dollar. For the three and ~~six~~nine months ended ~~June~~ September 30, 2011, the average exchange rate of the Euro against the U.S. dollar was higher compared to the same period in 2010. As a result, our net sales, gross profit and operating income were favorably impacted. Historically, however, our operating margins have not been significantly impacted by currency fluctuations because, in general, sales and costs of products sold are generated or incurred in the same currency, subject to certain exceptions.

Raw Materials

Raw materials constituted approximately 46% of our 2010 cost of products sold. We have a broad raw material base, with the cost of no single raw material representing more than 3% of our cost of products sold in 2010. Nonetheless, the significant price fluctuations our raw materials have experienced in the past during periods of high demand have had an adverse impact on our results of operations. In 2010 and the first ~~six~~nine months of 2011, higher raw material costs were reported in a number of businesses. For example, in ~~2010 and~~ the first ~~six~~nine months of 2011, we experienced higher prices for tin used in the Metal Sulfides business of our Specialty Chemicals segment, ilmenite used in our Titanium Dioxide Pigments segment and copper used in the Timber Treatment Chemicals business ~~of our Performance Additives segment~~. We cannot accurately predict the impact of any future price increases for raw materials or any raw material shortages on our business as a whole or in specific geographic regions. In addition, we may not be able to pass on raw material price increases to our customers. See details of our ten most significant raw materials (in terms of dollars) in Item 1, “Business — Raw Materials” in our 2010 Annual Report on Form 10-K.

Energy Costs

In 2010, energy purchases represented approximately 9% of our cost of products sold. However, within certain business lines, such as our Titanium Dioxide Pigments segment and the Color Pigments and Services and Clay-based Additives businesses of our Performance Additives segment, energy costs are more significant. Energy costs in 2010 were basically flat versus the prior year, but were up in the first ~~six~~nine months of 2011. The cost of products sold for certain of our businesses, including Color Pigments and Services and Clay-based Additives, increases when the price of natural gas in North America rises. However, natural gas prices in North America declined in 2010 and the first ~~six~~nine months of 2011. Natural gas prices in Europe, where our Titanium Dioxide Pigments segment is located, were up in 2010 and in the first ~~half~~nine months of 2011.

Income Taxes

We recorded an income tax provision of $3734.84 million in the ~~second~~third quarter of 2011 on income from continuing operations before taxes of $~~137~~122.32 million. The income tax provision in the ~~second~~third quarter of 2011 was favorably impacted by a beneficial foreign earnings mix and certain domestic income that was not tax effected due to a valuation allowance ~~and a beneficial foreign earnings mix~~.

In the ~~second~~third quarter of 2011, the worldwide valuation allowance ~~decreased~~increased by $3.12 million to $7578.57 million. This was due to aan increase of $3.7 million ~~decrease~~primarily ~~that impacted the tax provision and a $4.1 million decrease~~ related to ~~discontinued~~other ~~operations~~deferred ~~resulting~~tax ~~from the sale of the plastic compounding business~~assets, ~~partially~~ offset by ana ~~increase of~~ $40.75 million ~~related~~decrease tothat ~~other~~impacted ~~deferred~~the tax ~~assets (primarily in other comprehensive income)~~provision.

Special Charges and Credits

During the periods presented, we incurred certain special charges and credits that included systems/organization establishment expenses, restructuring and other severance costs, foreign exchange gains and losses, asset write-downs and other and a loss on early extinguishment/modification of debt. See “Items excluded from Adjusted EBITDA” section in Note 4, “Segment Information,” for a discussion of special charges and credits recorded in the three and ~~six~~nine months ended ~~June~~ September 30, 2011 and 2010.

Special Note Regarding Non-GAAP Financial Measures

A non-GAAP financial measure is generally defined by the SEC as one that purports to measure historical or future financial performance, financial position or cash flows but excludes or includes amounts that would not be so adjusted in the most comparable U.S. GAAP measure. From time to time in this management’s discussion and analysis, we disclose non-GAAP financial measures, primarily Adjusted EBITDA, as defined below.

~~Definition of Adjusted EBITDA~~35

~~The~~performance, ~~presentation~~financial ofposition ~~consolidated~~or ~~Adjusted~~cash ~~EBITDA~~flows ~~contained~~but inexcludes ~~this~~or ~~report~~includes isamounts ~~calculated~~that ~~using~~would ~~the~~not ~~definition~~be ~~set~~so ~~forth~~adjusted in the ~~senior~~most ~~secured~~comparable ~~credit~~U.S. ~~agreement~~GAAP asmeasure. aFrom ~~basis~~time ~~and~~to ~~reflects~~time in this management’s ~~interpretations~~discussion ~~thereof.~~and ~~Adjusted EBITDA~~analysis, ~~which~~we isdisclose ~~referred~~non-GAAP tofinancial ~~under~~measures, ~~the~~primarily ~~senior~~Adjusted ~~secured~~EBITDA. See ~~credit~~Item ~~agreement~~7, as “~~Consolidated~~Management’s ~~EBITDA,”~~Discussion isand ~~defined~~Analysis inof ~~the~~Financial ~~senior~~Condition ~~secured~~and ~~credit~~Results ~~agreement~~of ~~as consolidated earnings (which~~Operations,” ~~as defined~~ in ~~the~~our ~~senior~~2010 ~~secured~~Annual ~~credit~~Report ~~agreement,~~on ~~equals~~Form ~~income~~10-K ~~(loss)~~for ~~before~~a ~~the~~definition ~~deduction~~ of ~~income~~Adjusted ~~taxes of Rockwood Specialties Group~~EBITDA, ~~Inc.~~ ~~and~~management’s ~~the~~uses ~~Restricted~~of ~~Subsidiaries~~Adjusted ~~(as~~EBITDA ~~such~~and ~~term~~its ~~is defined in the senior secured credit agreement), excluding extraordinary items) plus:~~limitations.

· interest expense;

· depreciation expense;

· amortization expense, including amortization of deferred financing fees;

· extraordinary losses and non-recurring charges;

· non-cash charges;

· losses on asset sales;

· restructuring charges or reserves (including severance, relocation costs and one-time compensation charges and costs relating to the closure of facilities);

· expenses paid by us or any of our subsidiaries in connection with the Dynamit Nobel Acquisition, the senior secured credit agreement, the granting of liens under the security documents (as such term is defined in the senior secured credit agreement), the indenture governing the 2014 Notes and the offering of the 2014 Notes and any other related transactions;

· any expenses or charges incurred in connection with any issuance of debt or equity securities;

· any fees and expenses related to permitted acquisitions;

· any deduction for noncontrolling interest expense; and

· items arising in connection with CCA litigation related to our Timber Treatment Chemicals business of our Performance Additives segment;

less:

· extraordinary gains and non-recurring gains;

· non-cash gains; and

· gains on asset sales,

in all cases, subject to certain exclusions.

For presentation purposes within this report, we use the computation set forth in our senior secured credit agreement as a basis which reflects management’s interpretations thereof. Management has determined that stock-based compensation costs, which are non-cash charges, will not be an adjustment in calculating Adjusted EBITDA as these costs will be an ongoing recurring cost to the Company. These costs are recorded in selling, general and administrative expenses in the Consolidated Statements of Operations. Specifically, the calculation of Adjusted EBITDA according to the indenture underlying our 2014 Notes and the facility agreement governing our Titanium Dioxide Pigments venture excludes certain adjustments prescribed within the senior secured credit agreement. Given that borrowings under the senior secured credit agreement are secured by most of our assets and given that the calculation does not materially differ from the calculation of Adjusted EBITDA for performance measurement purposes, we believe this is the most appropriate computation of Adjusted EBITDA to present.

Management’s Uses

We use Adjusted EBITDA on a consolidated basis to assess our operating performance. We believe this financial measure on a consolidated basis is helpful in highlighting trends in our overall business because the items excluded in calculating Adjusted EBITDA have been deemed by management to have little or no bearing on our day-to-day operating performance. It is also the most significant criterion in our calculation of performance-based cash bonuses and our determination of whether certain performance-based stock options and restricted stock units vest, all of which are tied to Adjusted EBITDA targets.

We also use Adjusted EBITDA on a consolidated basis as a liquidity measure. We believe this financial measure on a consolidated basis is important in analyzing our liquidity because our senior secured credit agreement and indenture governing the 2014 Notes contain financial covenants that are determined based on Adjusted EBITDA. These covenants are material terms of these agreements, because they govern substantially all of our long-term debt, which in turn represents a substantial portion of our capitalization.

Non-compliance with these financial covenants under our senior secured credit facilities—our maximum total leverage ratio and our minimum interest coverage ratio, in particular—could result in the lenders requiring us to immediately repay all amounts borrowed. Any such acceleration could also lead to the noteholders accelerating the maturity of the 2014 Notes. In addition, if we cannot satisfy these financial covenants in the indenture governing the 2014 Notes, we cannot engage in certain activities, such as incurring additional indebtedness or making certain payments. Consequently, Adjusted EBITDA is critical to our assessment of our liquidity.

We also use Adjusted EBITDA on a segment basis as the primary measure used by our chief operating decision maker, our Chief Executive Officer, to evaluate the ongoing performance of our business segments and reporting units. On a segment basis, we define Adjusted EBITDA as operating income excluding depreciation and amortization, certain non-cash gains and charges, certain other special gains and charges determined by our senior management to be non-recurring gains and charges and certain items deemed by our senior management to have little or no bearing on the day-to-day operating performance of our business segments and reporting units. The adjustments made to operating income directly correlate with the adjustments to net income in calculating Adjusted EBITDA on a consolidated basis pursuant to the senior secured credit agreement, which reflects management’s interpretations thereof.

Limitations

Adjusted EBITDA has limitations as an analytical tool, and should not be viewed in isolation and is not a substitute for U.S. GAAP measures of earnings and cash flows. Material limitations associated with making the adjustments to our earnings and cash flows to calculate Adjusted EBITDA, and using this non-GAAP financial measure as compared to the most directly comparable U.S. GAAP financial measures, include:

· the cash portion of interest expense, net, income tax provision (benefit), and restructuring as well as non-recurring charges related to securities issuance, acquisition activities, and systems/organization establishment, generally represent charges (gains) which may significantly affect funds available for use in our operating, investing and financing activities;

· non-operating foreign exchange gains (losses), although not immediately affecting cash used in investing activities, may affect the amount of funds needed to service our debt if those currency impacts remain in place as we meet our future principal repayment obligations; and

· depreciation, amortization, non-cash (gains) charges and impairment charges, though not directly affecting our current cash position, represent the wear and tear and/or reduction in value of the plant, equipment and intangible assets which permit us to manufacture and/or market our products; these items may be indicative of future needs for capital expenditures, for development or acquisition of intangible assets or relevant trends causing asset value changes.

An investor or potential investor may find any one or all of these items important in evaluating our performance, results of operations, financial position and liquidity. Management compensates for the limitations of using non-GAAP financial measures by using them only to supplement our U.S. GAAP results to provide a more complete understanding of the factors and trends affecting our business. Adjusted EBITDA is not an alternative to net income or income from continuing operations before taxes or operating income or cash flows from operating activities as calculated and presented in accordance with U.S. GAAP. You should not rely on Adjusted EBITDA as a substitute for any such U.S. GAAP financial measures. We strongly urge you to review the reconciliations of Adjusted EBITDA to U.S. GAAP financial measures and other financial information, in each case included elsewhere in this Quarterly Report. We also strongly urge you not to rely on any single financial measure to evaluate our business. Our measure of Adjusted EBITDA may not be comparable to those of other companies.

Results of Operations

Actual Results of Operations

The following table presents the major components of our operations on an actual basis and Adjusted EBITDA (the reconciliation to net income is set forth in—Reconciliation of Net Income Attributable to Rockwood Specialties Group, Inc. to Adjusted EBITDA for the three and ~~six~~nine months ended ~~June~~ September 30, 2011 and 2010 within this MD&A section), including as a percentage of net sales, for the periods presented. See Note 4, “Segment Information,” for segment information and a reconciliation from income (loss) from continuing operations before taxes to Adjusted EBITDA on a segment basis.

	Three months ended						Nine months ended
	September 30,						September 30,
($ in millions)	2011			2010			2011			2010
Statement of operations data:
Net sales:
Specialty Chemicals	$	333.0		$	283.6		$	1,025.0		$	860.5
Performance Additives	200.7			187.8			614.7			564.4
Titanium Dioxide Pigments	252.6			192.7			735.4			564.1
Advanced Ceramics	146.2			131.0			455.3			385.3
Corporate and other	8.4			6.1			24.5			19.0
Total net sales	940.9			801.2			2,854.9			2,393.3

Gross profit	331.5			266.0			998.2			791.8
	35.2		%	33.2		%	35.0		%	33.1		%
Selling, general and administrative expenses	176.0			167.7			537.8			501.8
	18.7		%	20.9		%	18.8		%	21.0		%
Restructuring and other severance costs	4.5			1.5			9.5			2.8
Asset write-downs and other	—			0.1			0.3			2.4
Operating income (loss):
Specialty Chemicals	63.8			52.2			198.9			161.6
	19.2		%	18.4		%	19.4		%	18.8		%
Performance Additives	20.8			19.7			71.6			53.8
	10.4		%	10.5		%	11.6		%	9.5		%
Titanium Dioxide Pigments	53.2			18.2			135.7			44.5
	21.1		%	9.4		%	18.5		%	7.9		%
Advanced Ceramics	33.5			27.6			105.2			80.5
	22.9		%	21.1		%	23.1		%	20.9		%
Corporate and other	(20.3		)	(21.0		)	(60.8		)	(55.6		)
Total operating income	151.0			96.7			450.6			284.8
Other expenses, net:
Interest expense, net	(26.3		)	(38.6		)	(74.0		)	(116.7		)
Loss on early extinguishment/modification of debt	(0.1		)	(1.6		)	(16.6		)	(1.6		)
Foreign exchange (loss) gain on financing activities, net	(2.4		)	0.9			1.8			0.8
Other, net	—			—			(0.1		)	0.5
Other expenses, net	(28.8		)	(39.3		)	(88.9		)	(117.0		)
Income from continuing operations before taxes	122.2			57.4			361.7			167.8
Income tax provision	34.4			16.4			101.0			46.4
Income from continuing operations	87.8			41.0			260.7			121.4
Income from discontinued operations, net of tax	—			2.5			0.9			13.6
Gain on sale of discontinued operations, net of tax	—			—			119.4			—
Net income	87.8			43.5			381.0			135.0
Net income attributable to noncontrolling interest	(11.9		)	(3.0		)	(32.6		)	(5.2		)
Net income attributable to Rockwood Specialties Group, Inc.	$	75.9		$	40.5		$	348.4		$	129.8
Adjusted EBITDA:
Specialty Chemicals	$	86.5		$	70.8		$	265.8		$	218.0
	26.0		%	25.0		%	25.9		%	25.3		%
Performance Additives	36.5			34.1			117.4			100.6
	18.2		%	18.2		%	19.1		%	17.8		%
Titanium Dioxide Pigments	74.9			34.2			193.1			94.5
	29.7		%	17.7		%	26.3		%	16.8		%
Advanced Ceramics	47.5			40.3			146.4			117.9
	32.5		%	30.8		%	32.2		%	30.6		%
Corporate and other	(18.5		)	(18.8		)	(55.6		)	(50.3		)
Total Adjusted EBITDA	$	226.9		$	160.6		$	667.1		$	480.7

	Three months ended						Six months ended
	June 30,						June 30,
($ in millions)	2011			2010			2011			2010
Statement of operations data:
Net sales:
Specialty Chemicals	$	358.7		$	287.3		$	692.0		$	576.9
Performance Additives	221.2			199.4			414.0			376.6
Titanium Dioxide Pigments	256.2			190.3			482.8			371.4
Advanced Ceramics	155.0			129.6			309.1			254.3
Corporate and other	8.9			7.1			16.1			12.9
Total net sales	1,000.0			813.7			1,914.0			1,592.1
Gross profit	345.6			269.9			666.7			525.8
	34.6		%	33.2		%	34.8		%	33.0		%
Selling, general and administrative expenses	181.2			169.2			361.8			334.1
	18.1		%	20.8		%	18.9		%	21.0		%
Restructuring and other severance costs	4.0			0.9			5.0			1.3
Asset write-downs and other	0.2			0.5			0.3			2.3
Operating income (loss):
Specialty Chemicals	71.6			54.3			137.8			109.4
	20.0		%	18.9		%	19.9		%	19.0		%
Performance Additives	30.5			21.8			50.8			34.1
	13.8		%	10.9		%	12.3		%	9.1		%
Titanium Dioxide Pigments	44.9			13.5			82.5			26.3
	17.5		%	7.1		%	17.1		%	7.1		%
Advanced Ceramics	36.8			28.6			71.7			52.9
	23.7		%	22.1		%	23.2		%	20.8		%
Corporate and other	(23.6		)	(18.9		)	(43.2		)	(34.6		)
Total operating income	160.2			99.3			299.6			188.1
Other expenses, net:
Interest expense, net	(24.7		)	(36.3		)	(47.7		)	(78.1		)
Loss on early extinguishment/modification of debt	(0.3		)	—			(16.5		)	—
Foreign exchange gain (loss) on financing activities, net	2.2			(0.4		)	4.2			(0.1		)
Other, net	(0.1		)	—			(0.1		)	0.5
Other expenses, net	(22.9		)	(36.7		)	(60.1		)	(77.7		)
Income from continuing operations before taxes	137.3			62.6			239.5			110.4
Income tax provision	37.8			14.3			66.6			30.0
Income from continuing operations	99.5			48.3			172.9			80.4
Income from discontinued operations, net of tax	0.7			6.5			0.9			11.1
Gain on sale of discontinued operations, net of tax	4.9			—			119.4			—
Net income	105.1			54.8			293.2			91.5
Net income attributable to noncontrolling interest	(10.6		)	(2.4		)	(20.7		)	(2.2		)
Net income attributable to Rockwood Specialties Group, Inc.	$	94.5		$	52.4		$	272.5		$	89.3
Adjusted EBITDA:
Specialty Chemicals	$	92.4		$	73.4		$	179.3		$	147.2
	25.8		%	25.5		%	25.9		%	25.5		%
Performance Additives	46.0			37.0			80.9			66.5
	20.8		%	18.6		%	19.5		%	17.7		%
Titanium Dioxide Pigments	63.5			29.6			118.2			60.3
	24.8		%	15.6		%	24.5		%	16.2		%
Advanced Ceramics	50.6			40.6			98.9			77.6
	32.6		%	31.3		%	32.0		%	30.5		%
Corporate and other	(18.9		)	(17.4		)	(37.1		)	(31.5		)
Total Adjusted EBITDA	$	233.6		$	163.2		$	440.2		$	320.1

The following table presents the changes in the major components of our operations on a historical basis in dollars and percentages:

	Change: Three months ended June 30, 2011 versus 2010											Change: Six months ended June 30, 2011 versus 2010
	Change: Three months ended September 30, 2011 versus 2010											Change: Nine months ended September 30, 2011 versus 2010
						Constant			Constant								Constant			Constant
				%		Currency			Currency						%		Currency			Currency
($ in millions)	Total			Change		Effect (a)			Basis			Total			Change		Effect (a)			Basis
Statement of operations data:
Net sales:
Specialty Chemicals	$	7149.4		2417.94	%	$	2917.53		$	4132.91		$	~~115~~164.15		2019.01	%	$	3249.25		$	82115.90
Performance Additives	2112.89			106.9		~~10.~~5.9			117.30			3750.43			98.9		1117.54			2532.9
Titanium Dioxide Pigments	6559.9			3431.61		2921.94			3638.05			~~111~~171.43			30.04		2748.59			83122.94
Advanced Ceramics	2515.42			1911.6		1611.41			94.01			5470.80			2118.52		1526.67			3943.23
Corporate and other	12.83			2537.47		10.17			01.76			35.25			2428.89		1.07			23.28
Total net sales	~~186~~139.37			2217.94		8756.4			9883.93			~~321~~461.96			2019.23		87144.82			~~234~~317.14
Gross profit	7565.75			2824.06		2920.93			45.82			~~140~~206.94			26.81		3050.14			~~110~~156.80
Selling, general and administrative expenses	128.03			74.19		149.47			(21.4		)	2736.70			87.32		1423.18			1312.62
Restructuring and other severance costs	3.10								3.10			36.7								36.7
Asset write-downs and other	(0.31		)						(0.31		)	(2.01		)						(2.01		)
Total operating expenses	1411.82			86.76		149.47			01.45			2940.46			8.70		1423.18			1516.38
Operating income (loss):
Specialty Chemicals	1711.36			3122.92		52.07			128.39			2837.43			2623.01		58.74			2228.79
Performance Additives	81.71			395.96		10.57			70.24			1617.78			4933.01		12.74			15.04
Titanium Dioxide Pigments	3135.40			~~232~~192.63		54.28			2630.2			5691.2			~~213~~204.79		59.08			5181.24
Advanced Ceramics	85.29			2821.74		42.17			43.12			1824.87			3530.57		36.96			1418.91
Corporate and other	(40.7		)	~~(24~~3.93	)	(0.3		)	(41.40		)	(85.62		)	(~~24.~~9.4	)	(0.36		)	(84.36		)
Total	6054.93			6156.32		1510.56			4543.47			~~111~~165.58			5958.32		1626.06			95139.52
Other expenses, net:
Interest expense, net	1112.63			(3231.09	)	1.13			1011.50			3042.47			(3836.96	)	1.2.5			2940.2
Loss on early extinguishment/modification of debt	(01.35		)									(1615.50		)
Foreign exchange gain (loss) on financing activities, net	2.6											4.3
Foreign exchange (loss) gain on financing activities, net	(3.3		)									1.0
Other, net	~~(0.1~~—		)									(0.6		)
Other expenses, net	1310.85											1728.61
Income from continuing operations before taxes
Specialty Chemicals	2517.61											3449.82
Performance Additives	146.25											2431.72
Titanium Dioxide Pigments	3033.62											6194.13
Advanced Ceramics	106.56											1825.62
Corporate and other	(61.24		)									(106.10		)
Total	7464.78											~~129~~193.19
Income tax provision	2318.50											3654.6
Income from continuing operations	5146.28											92139.53
Income from discontinued operations, net of tax	(52.85		)									(1012.27		)
Gain on sale of discontinued operations, net of tax	~~4.9~~—											119.4
Net income	5044.3											~~201~~246.70
Net income attributable to noncontrolling interest	(8.29		)									(1827.54		)
Net income attributable to Rockwood Specialties Group, Inc.	$	4235.14										$	~~183~~218.26

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