<PAGE>   1
                                                                      EXHIBIT 13

                        GREAT LAKES CHEMICAL CORPORATION
                               2000 ANNUAL REPORT


2000 FINANCIAL HIGHLIGHTS

<TABLE>
<CAPTION>
(millions, except per share data)
                                                                                         2000             1999              1998
---------------------------------------------------------------------------------------------------------------------------------
<S>                                                                                  <C>              <C>               <C>
Results of Operations, Including Special Charges:

   Net sales(1)                                                                      $1,670.5         $1,500.3          $1,435.7

   Gross profit                                                                         459.7            423.1             382.8

   Operating income                                                                     140.2            162.1              73.9

   Net income from continuing operations                                                127.0            139.6              56.4

   Net income                                                                           127.0            139.6              89.0

   Diluted earnings per share from continuing operations                                 2.42             2.41              0.95

   Diluted earnings per share                                                            2.42             2.41              1.50
---------------------------------------------------------------------------------------------------------------------------------

Results of Continuing Operations, Excluding Special Charges:

   Net sales(1)                                                                      $1,670.5         $1,500.3          $1,435.7

   Gross profit                                                                         459.7            423.1             382.8

   Operating income                                                                     203.6            180.3             190.4

   Net income                                                                           174.5            151.4             131.2

   Diluted earnings per share                                                            3.32             2.61              2.21
---------------------------------------------------------------------------------------------------------------------------------
</TABLE>

(1) Net sales amounts have been restated for all periods presented to reflect
the application of Emerging Issues Task Force consensus EITF 00-10, "Accounting
for Shipping and Handling Fees and Costs," effective in the fourth quarter of
2000. See notes to consolidated financial statements.


1    IMAGINE

12   MESSAGE TO SHAREHOLDERS

14   REVIEW OF OPERATIONS

18   FINANCIAL REVIEW

46   CORPORATE OFFICERS AND DIRECTORS


<PAGE>   2

IMAGINE...

 ...a safer world where fire poses less of a threat to property and endangers
fewer lives. A healthier world where new drugs attack viruses and fight
diseases. A cleaner world where sparkling water flows abundantly into clear
pools--and thirsty mouths. A better-fed world where stored food sources are
protected--and crops yield higher volumes. A greener world where manufacturers
reduce waste and support the environment.

Great Lakes. For The World We All Want.(TM)

                                        1


<PAGE>   3


SAFER

(PHOTO)

                                        2


<PAGE>   4

Each year, accidental fires end or severely alter the lives of thousands of
people around the world. Tragically, flame retardant technology could have
either prevented many of these fires or given victims extra minutes to escape.
But as societal concerns lead to stringent new regulations, these fatalities are
falling dramatically. In the United Kingdom, for example, legislation focused on
upholstered furniture has saved an estimated 1,800 lives over a 12-year period.
And in the United States, the number of residential fires caused by television
sets declined by 73% after legislation required all TV backings to contain flame
retardant compounds. Great Lakes is saving lives by developing bromine- and
phosphorus-based compounds that help manufacturers in the electronics, textiles
and furniture, and transportation industries comply with these stricter
regulations. And we're using our patented Fyrebloc(R) technology to create
custom blends that are cleaner, easier and safer to handle.

(PHOTO)

Around the world, organizations are selecting FM-200(R), an effective clean fire
suppression agent, to protect high-value assets. Here, a professional fire
suppression systems dealer completes installation of an FM-200(R) system in an
Internet Service Provider (ISP) center.


                                        3


<PAGE>   5


HEALTHIER

(PHOTO)

                                        4


<PAGE>   6

Great Lakes is involved in a number of different prescription products that
promote better health and enhanced quality of life. At the most basic level, we
supply intermediates for low-cost first- and second-generation antibiotics that
still work effectively in developing countries. Additionally, we leveraged our
expertise in chiral synthesis to develop a key material for a patient-friendly
protease inhibitor that has helped tens of thousands of patients successfully
combat the HIV virus. We also produce a key intermediate for an ACE inhibitor
used to control hypertension and prolong the lives of patients with congestive
heart failure. And before new drugs reach the marketplace, WIL Research, our
toxicological testing subsidiary, subjects them to a variety of toxicological,
metabolic and analytical chemistry programs. WIL Research has tested drugs
designed to treat HIV, herpes, Alzheimer's disease and glaucoma; novel cancer
chemotherapies; and a fluorine-based propellant developed by Great Lakes for
applications in metered dose inhalers.


(PHOTO)

Raymond Ho, Pilot Plant Lead, operates a thermosiphon in the company's new Fine
Chemicals facility. Here, this vacuum distillation column is being used to
isolate and concentrate bioconversion molecules.

                                        5




<PAGE>   7


CLEANER

(PHOTO)

                                        6


<PAGE>   8

Clean, safe, sparkling water provides hours of recreational fun for families and
communities. BioLab, our water treatment subsidiary, has built strong pool
chemical brands that stand for cleanliness, clarity, comfort, convenience and
safety. Chlorinated Granules Plus,TM for example, makes pool maintenance easy by
building in powerful clarifying and algae-protecting agents. But clean water is
also critical to many manufacturing processes--and to the survival of people and
animals in drier regions of the world. As global demand for clean, sparkling
water grows, Great Lakes biocides, antiscalants and corrosion inhibitors are
making water better. They're contributing to environmentally responsible
manufacturing processes, and they're helping supply high-quality, potable
drinking water around the world by improving the operation of desalination
plants.


(PHOTO)

Great Lakes biocides and scale and deposit-control agents help control biofilm
and mineral deposits on equipment used in many industries today. Frank O'Brien,
Applications Specialist, examines effects of industrial water additives using a
process simulation unit.

                                        7



<PAGE>   9


BETTER-FED

(PHOTO)

                                        8


<PAGE>   10

It's easy to take for granted agricultural products such as grapes, strawberries
and tomatoes. But there's a reason why these crops have been so abundant and
affordable. Farmers have relied on Great Lakes fumigants to improve crop yields,
protect grain and other stored food sources from contamination, and eliminate
non-native pests from imported crops. In California, for example, soil fumigants
have helped turn sandy loams into highly productive farmland, increasing the
yields of strawberry crops from 5 tons per acre to 40 tons in some locations.
Though phase-out legislation will virtually eliminate methyl bromide's soil
applications, methyl bromide will continue its important fumigation work in
cargo ports around the world. By controlling a wide variety of food-destroying
pests, these fumigants enable developing nations to prosper by exporting their
grapes, certain fruits and other high-value agricultural products to world
markets.


(PHOTO)

Mary Howland, Agricultural Products Technical Service Manager, works closely
with methyl bromide distributors like ProSource One to ensure that they--and
their customers--understand how to handle and use this product safely.


                                        9


<PAGE>   11


GREENER

(PHOTO)

                                       10


<PAGE>   12

Though waste is an unavoidable part of the manufacturing process, Great Lakes is
working on many fronts to create a greener world. New tools such as Six Sigma
and new processes are helping us reduce raw material and energy consumption,
improve yields and reduce waste. In El Dorado, Arkansas, for example, we
collaborated with Lion Oil to build a one-mile pipeline that preserves two
million gallons of local ground water per day. The pipeline carries
non-contaminated cooling water and condensed steam to Lion Oil for reuse in its
refinery operations. On the product development side, we're introducing a new
line of phosphate-based flame retardants. Our HFA-227ea(TM) technology is also
providing an ozone-friendly alternative to the CFCs used in fire extinguishants,
refrigerants and metered dose inhalers. And to support the chemical industry's
Responsible Care(R) program, we are benchmarking certain bulk manufacturing
activities for inclusion in a new Guidelines Manual that will set uniform
targets for clean, productive manufacturing.

(PHOTO)

Great Lakes' Environmental, Health and Safety Department routinely audits
facilities to meet the company's high standards as part of its commitment to
Responsible Care(R). Here, Donna Majewski, Safety Manager, inspects a mass
spectrometry lab in West Lafayette, Indiana.

                                       11


<PAGE>   13

MESSAGE TO SHAREHOLDERS

Chairman, President and CEO


Mark P. Bulriss


Dear Fellow Shareholder:

I was convinced Great Lakes was back on track when we finished the 4th quarter
of 1999 on a high note, with revenues up 16% and underlying earnings per share
up 26%. In addition, our strong cash flow over the course of the year allowed us
to return value to shareholders in the form of stock buybacks totaling $159
million. Further, new productivity tools such as Six Sigma were boosting
operating profits. New products were fueling organic growth. Two 1999
acquisitions strengthened three of our key businesses. And the announced partial
initial public offering of OSCA, Inc., our energy services and products
subsidiary, would make us more focused going forward, add to our already strong
cash flow and potentially unlock $300 million of value for shareholders.

This belief was well founded in that these factors all made strong contributions
in 2000. But combined, they could not help us overcome three factors that proved
more difficult to control. Costs of a key raw material, chlorine, more than
doubled while rising costs of natural gas and petroleum-based materials such as
phenol and phenol derivatives further boosted our operating costs. In Polymer
Additives, new global capacity and customer consolidation drove selling prices
for non-differentiated bromine-based flame retardants down 25%. Finally, our
Fine Chemicals business did not perform as expected due in part to a dramatic
increase in mergers in the pharmaceuticals industry and their resulting impact
on redundant capacities.

Hitting on 3 Out of 4 Cylinders

In 2000, we set out to achieve 10% sales growth and 15% growth in operating
income. Despite the strong performance of three out of four Great Lakes
businesses, our results were mixed. Revenues for the year improved 11% to $1.7
billion. Operating income grew 13% before special charges, just short of our
target.



                                       12


<PAGE>   14

(PHOTO)


Cash flows remained strong. In addition to cash from operations increasing $20
million in 2000, our successful initial public offering of approximately 40% of
OSCA netted $90 million in cash. We used our free cash to fund the expansion of
WIL Research, support productivity initiatives, commercialize some exciting new
products (twice the number of 1999) and repurchase over $135 million in Great
Lakes stock. We also acquired Aqua Clear Industries, LLC, to fortify the market
leadership position of our Water Treatment business.

Our individual businesses produced some impressive results as well.

- Three out of four businesses met their 2000 Economic Value Added (EVA(R))
targets.

- The Fluorine business generated strong volume growth across all product
groups, resulting in record sales and earnings.

- After a tumultuous 1998 and 1999, OSCA stayed focused and rebounded with a 39%
jump in sales. It also turned operating income from a $9 million loss in 1999
into a $12.5 million gain.

- BioLab achieved operating margins of 18%--a new high point--and continued to
create excitement in the marketplace by introducing new products such as
Chlorinated Granules Plus.(TM) BioLab also made important progress on the safety
front, lowering its OSHA incident rate by 48%.

- Polymer Additives completed a restructuring that will save approximately $20
million in operating costs. In addition, sales of "blended solutions" continued
to grow for the third consecutive year at a 40% rate and now account for 20% of
total polymer stabilizers sales.


2001 Outlook

Many of the same opportunities and challenges Great Lakes faced in 2000 will
persist in 2001. We will apply the lessons we learned to soften the impact of
variables such as the economy that lie largely outside of our control--and
manage even more effectively those we do control.

Entering 2001, we have many exciting opportunities to extend our strong sales
momentum. Each Great Lakes business will leverage new products and technologies
to meet specific customer needs.

In Water Treatment, BioLab has targeted two new markets--above-ground and
commercial pools. It also introduced through its BioGuard(R) division the
Insignia Dealer program, which offers an array of e-business, point of sale,
inventory and training programs to solidify relationships with specialty store
owners.

In Polymer Additives, we introduced Fyrebloc(R) custom-blended formulations,
which bring flame retardant customers the same solutions-based approach that has
revolutionized the way our polymer stabilizers are specified and used. A new
line of phosphorus-based compounds also allows Great Lakes to bring flame
retardancy to an even broader range of resins.

In Performance Chemicals, we expect sales of FM-200(R) to continue growing.
Sales of fine chemicals should improve as we commercialize products such as new
high-value chiral intermediates in the form of second-generation protease
inhibitors used to combat HIV.

With continued margin pressure and an uncertain economic outlook ahead, cost
control, process improvement and cash management will remain the watchwords of
2001. New energy-efficient manufacturing technology will help us reduce the
costs of bromine extraction by nearly 10%. A new joint venture in Saudi Arabia
will extend our global presence in polymer stabilizers while giving us a
valuable foothold in the world's fastest growing polyolefin market. Lean
manufacturing practices will produce measurable savings in high-touch time
manufacturing operations. And by fully utilizing proven practices such as Sales,
Operations and Inventory Planning (SOIP), we could unlock as much as $200
million in additional cash.

Challenging years like fiscal 2000 provide an important barometer of where we
are and where we need to be. We have come a long way in reducing costs, raising
efficiencies, eliminating waste and delivering solutions our customers value. At
the same time, our inability to meet our 15% growth in operating income target
means we need to go farther, faster and with a greater sense of urgency than
ever before.

Though we could not overcome adverse pricing for brominated flame retardants,
our ability to deliver solid results and strong cash flows underscores our
inherent strengths as a specialty chemical company that serves a broad spectrum
of markets and customers.

In 2001 additional challenges will surface. As economic growth slows, and as our
customer base continues to consolidate, we will need to execute better in
everything we do. But I believe we are better equipped than ever to do so,
thanks to a focused business portfolio and our commitment to employ new tools
and processes with increased energy.

The Great Lakes team clearly understands our obligation to our shareholders. We
thank those of you who have stuck with us during the tough times. And with your
continued support, we remain committed to doing everything possible to make this
a company we can all be proud of.

Our vision for Great Lakes extends far beyond profitable growth. Our vision
challenges us to help create the world we all want--a world that is safer,
healthier, cleaner, better-fed and greener. Together with our customers, our
suppliers, our families and our communities, we are creating this world through
innovative products, responsible practices and a strong commitment to education.

Respectfully,



Mark P. Bulriss
Chairman, President and CEO
March 27, 2001

                                       13


<PAGE>   15

(PHOTO)


POLYMER ADDITIVES
Business Profile

Great Lakes is a leading worldwide developer and producer of bromine-,
phosphorus- and antimony-based flame retardants and value-added antioxidants; UV
light stabilizers; performance additives and fluids; and optical monomers. The
Polymer Additives group integrates these compounds into custom solutions that
resist ignition and ensure the stability of products during processing or while
in use. These custom formulations deliver value to customers in the plastics,
consumer electronics, fiber, telecommunications, construction and other
industries by simplifying processing, improving product quality and reducing
health and safety risks.

Market Overview

Globalization and consolidation are transforming the polymer additives industry.
Today's customers are large manufacturers who require a broad product basket and
new performance solutions capable of serving growing markets such as Asia and
the Middle East. The steady growth of the consumer electronics market, and new
electronics products such as Flat Panel Displays and DVDs, are also creating
strong demand for high-performance flame retardants and polymer stabilizers. As
manufacturers balance the risks and rewards of tougher regulatory requirements
and stricter flammability standards, and expand the performance characteristics
of plastics as a suitable substitute for other materials, global demand for
polymer additives will continue to grow.

Performance Highlights

In fiscal 2000, Polymer Additives achieved sales growth of 9% to $690 million.
Sales of patented No Dust Blends (NDB(R)) formulations grew by 40% and now
account for 20% of all polymer stabilizers sales. Similar formulations now
include Fyrebloc(R), which combines bromine- and antimony-based flame retardants
in convenient, no-dust blends. To combat higher energy and raw materials costs
and industry-wide pricing pressures on brominated flame retardants and antimony
synergists, Great Lakes consolidated three antimony production sites into one in
Reynosa, Mexico, and implemented a restructuring plan that promises to produce
savings of approximately $20 million. Through a joint venture, the group also
began construction of a new manufacturing site in Saudi Arabia, the first of its
type in the Middle East, that will begin serving the world's fastest growing
polyolefin market by the end of 2001.

Growth Opportunities

The group will carefully manage the balance between growing its sales volume and
revenue and achieving its cash flow and profitability targets. To this end, it
will work to improve working capital turns by aggressively implementing a Sales,
Operations and Inventory Planning (SOIP) process. In Polymer Stabilizers, it
will broaden its technology platform in high-performance antioxidants, expand
its capabilities in optical monomers and leverage its position as the leading
supplier of polymer additives to polyolefin producers in the Middle East. In
Flame Retardants, it will concentrate capital spending on productivity
improvements and on a few key new products such as Fyrebloc(R) blends and
non-halogen flame retardants. To take advantage of market opportunities, it will
achieve SOIP "Class A" and take advantage of more stringent fire safety
standards for global TV manufacturers and U.S. furniture and mattress
manufacturers.

                                       14


<PAGE>   16


(PHOTO)

PERFORMANCE CHEMICALS
Business Profile

Great Lakes applies its expertise in complex chemical synthesis, process
development, manufacturing and toxicological testing to meet highly specific
requirements for pharmaceutical, agrochemical and a wide range of industrial
chemical applications. From its patented position in fire extinguishants, the
company is rapidly expanding its base in fluorine technologies to new markets
and applications where customers require environmentally suitable alternatives
to traditional products. Its Fine Chemicals business operates at every link of
the value chain--from discovery to commercial production of chemical
intermediates--to deliver single-sourced solutions used by customers in life
sciences industries. The Performance Chemicals group also advances Great Lakes'
leadership position in bromine technology and, through WIL Research, offers
customers world-class toxicological testing capabilities.

Market Overview

A heightened emphasis on safety, asset protection and environmental
responsibility is creating strong demand for an effective fire extinguishant
such as Great Lakes' patented FM-200(R). New fluorine-based technology is also
the platform for other environmentally friendly products that include a critical
component of the refrigerant used in residential HVAC systems, and a medical
propellant used in metered dose inhalers for dispensing asthma and other
medications. The Performance Chemicals group is meeting the requirements of drug
manufacturers by combining a broad product portfolio with the technical strength
and depth to engineer difficult-to-produce intermediates. In toxicological
testing, WIL Research stands to benefit from new regulations and other
initiatives driving the need for more toxicology data on existing high-volume
chemicals as well as new products.

2000 Performance Highlights

In 2000, revenues from the Fluorine business grew by 50%, driven by a wide range
of established and emerging applications for FM-200(R). The company expanded its
Fluorine business, launching a series of initiatives to defend its patent
positions, increase manufacturing capacity and offer new solutions for end
users. The Performance Chemicals group also made several investments to improve
its competitive position in fine chemicals. These include upgrades of its cGMP
capabilities and implementing a disciplined product development system that will
accelerate time to commercialization by more effectively qualifying, managing
and monitoring progress on all new product development opportunities. In bromine
derivatives, productivity improvements at the Amlwch, United Kingdom, facility
resulted in improved bromine economics. And with the expansion of its facility
now complete, WIL Research has the scale and capabilities to meet growing demand
for toxicology testing.

Growth Opportunities

The Fluorine business will capitalize on new manufacturing capacity for its full
range of specialty fluorine derivatives. The Fine Chemicals business will
continue to fill its new product pipeline with products at every phase of the
pharmaceutical new product delivery cycle. Bromine Performance Products will
implement new technologies to drive continued reduction in bromine production
costs, leverage niche products such as anhydrous bromine and alkyl bromide and
lead product stewardship initiatives for methyl bromide customers. WIL Research
will diversify its activities to include juvenile toxicology, safety
pharmacology and neurotoxicology.

                                       15


<PAGE>   17


(PHOTO)

WATER TREATMENT
Business Profile

BioLab is the world's premier formulator of water treatment biocides and related
specialty chemicals that make water better. It features innovative recreational
water treatment products and outstanding service across the value chain to mass
merchants, wholesale distributors, specialty store owners, commercial pool and
water park operators and retail customers. Great Lakes is also strengthening its
position in the industrial water treatment arena. Its bromine-based biocides and
proprietary polymer-based antiscalants and corrosion inhibitors target
industrial customers in the global cooling, process, wastewater, paper and
desalination markets.

Market Overview

Water Treatment is a recession-resistant business that is capable of generating
strong cash flows even as economic cycles fluctuate. Though regional economic
conditions can limit new pool installations, and adverse weather conditions can
reduce sales volume, pools and spas require a consistent supply of chemicals to
keep water clean and clear. The recreational water treatment market presents
multiple sales channels and can support multiple brands. The industrial water
treatment market offers significant growth opportunities. Shortages of potable
water are increasing demand for chemicals used in the desalination process,
while stricter environmental regulations are creating new applications for
industrial water treatment chemicals.

2000 Performance Highlights

BioLab made impressive gains in every key area of its business. Lean
manufacturing techniques helped generate an 18% operating margin in the water
treatment business--a new high point. Improved manufacturing processes also
helped reduce total waste by 28%. The acquisition of Aqua Clear Industries, LLC,
and the launch of the Insignia program for BioGuard(R) dealers contributed to a
13.5% increase in revenues--four times the growth of the recreational water
treatment industry. On the strength of Chlorinating Granules Plus(TM) and other
innovations, new products accounted for 18% of total sales. In the industrial
market, BioLab introduced a new brominated delivery system for industrial water
treatment--Aquate(TM), an innovative gel form of bromine--as well as a new
biocide for reverse osmosis, Flocide(TM) 380.

Growth Opportunities

In 2001, BioLab will focus on improving working capital management to grow free
cash flow. It will also expand its Trichlor manufacturing capabilities, fully
integrate Aqua Clear into its existing operations and leverage products and
brands around the world to expand its basket of value for customers. It will
also target customers in the commercial pool segment and introduce new treatment
solutions that include new "dosage" devices for pools that make water treatment
chemicals more cost effective to use. To meet its growth targets, BioLab will
also look for regional acquisition opportunities to expand its leadership
position in recreational markets and grow its industrial product portfolio to
include a wider range of biocides, antiscalants and corrosion inhibitors.

                                       16


<PAGE>   18


(PHOTO)

ENERGY SERVICES AND PRODUCTS
Business Profile

OSCA, Inc. specializes in high-demand well completion and stimulation treatments
that enhance production. It serves major oil and gas companies in the United
States and selected international markets by supplying bromine-based oil and gas
well completion fluids, marine-based and modular pumping and well intervention
services and downhole completion tools. Its fleet of dynamically positioned,
deepwater-capable vessels serves challenging deepwater environments, while its
customized completion tools provide unique methods of sand control, zonal
isolation and flow management. OSCA offers ISO 9001- certified services that
provide a competitive advantage in markets where quality of execution is a key
component of value.

Market Overview

Today's energy services market is expanding its horizons and becoming more
fragmented. Large multinational companies are shifting their focus from oil to
natural gas to meet growing demand for this cleaner form of energy. They are
also disposing of smaller field operations and are moving offshore to new
markets such as Brazil and West Africa where they are focusing on
cash-intensive, high-volume, deepwater applications. As a result, a number of
smaller entities are emerging that require specialized services. These much
leaner organizations also require a higher level of support with logistics,
operations management, engineering and troubleshooting. This trend gives OSCA a
competitive advantage based on the highly skilled professionals who staff its
consultative technical sales support applications engineering and operations
team.

2000 Performance Highlights

OSCA recovered from a challenging 1999 fiscal year by generating a 39% increase
in revenues for 2000. Equally important, it improved its Economic Value Added
(EVA(R)) performance by $10 million by accelerating inventory turns and lowering
days sales outstanding. OSCA also implemented a Sales Excellence Program that
increased revenues per account manager by 13%. In Completion Fluids, improved
pricing helped push revenues up 9% while a better product mix helped drive
operating income, excluding the effects of special items, up 128% over 1999. The
Services business expanded to Brazil as OSCA won a contract to place one of
three deepwater stimulation boats there for most of the year. In the Completion
Tools business, OSCA leveraged its industry-leading technology position to grow
its market share. In 2000, OSCA participated in the completion of all
"intelligent wells" in the Gulf of Mexico.

Growth Opportunities

In 2001, OSCA will continue to build its capabilities to serve the fast-growing
natural gas market, both through organic growth and through external
acquisitions. It will also leverage customer relationships to enter new markets
such as West Africa. OSCA will also complete phase two of its Research and
Technology Center campus in Houston. This facility has been the key to the
successful development of several new products, which made up over 30% of OSCA's
downhole tool revenues in 2000.

                                       17



<PAGE>   19


FINANCIAL REVIEW
(millions, except per share data)
<TABLE>
<CAPTION>
                                                     2000        1999        1998        1997         1996
-----------------------------------------------------------------------------------------------------------
<S>                                              <C>         <C>         <C>         <C>          <C>
Summary of Earnings
   Net sales                                     $1,670.5    $1,500.3    $1,435.7    $1,350.4     $1,393.6
   Operating income before special charges          203.6       180.3       190.4       191.6        183.9
   Operating income(1)                              140.2       162.1        73.9       141.8        183.9
   Income from continuing operations
     before income taxes                            164.9       175.4        66.2       117.2        184.0
   Income taxes                                      37.9        35.8         9.8        45.4         63.4
     Effective income tax rate                       23.0%       20.4%       14.8%       38.7%        34.5%
   Net income from continuing operations         $  127.0    $  139.6    $   56.4    $   71.8     $  120.6
   Net income (loss) from
     discontinued operations                           --          --        32.6       (14.9)       129.7
-----------------------------------------------------------------------------------------------------------

   Total net income                              $  127.0    $  139.6    $   89.0    $   56.9     $  250.3
     Percent of average stockholders' equity         13.1%       13.6%        7.5%        4.1%        17.2%

Financial Position at Year-End
   Working capital
     (excluding cash and cash equivalents)       $  400.3    $  378.0    $  237.4    $  290.5     $  282.7
   Current ratio                                      2.6         3.8         2.9         2.2          2.5
   Capital expenditures                          $  157.0    $  119.0    $  160.6    $  133.0     $  168.7
   Total assets                                   2,134.4     2,261.0     2,004.6     2,270.4      2,352.7
   Debt (net of cash and cash equivalents)          471.5       411.1       108.3       492.9        360.8
   Debt                                             694.2       889.4       519.9       566.6        502.2
     Percent of total capitalization                 42.2%       46.2%       31.9%       29.1%        24.4%
   Stockholders' equity                          $  949.7    $  994.1    $1,054.3    $1,307.4     $1,486.9
     Per share                                      18.92       18.24       18.05       22.18        24.13

Share Data
   Basic earnings (loss) per share
     Continuing operations                       $   2.42    $   2.42    $   0.96    $   1.20     $   1.90
     Discontinued operations                           --          --        0.55       (0.25)        2.04
-----------------------------------------------------------------------------------------------------------

       Total                                     $   2.42    $   2.42    $   1.51    $   0.95     $   3.94
   Diluted earnings (loss) per share
     Continuing operations                       $   2.42    $   2.41    $   0.95    $   1.19     $   1.89
     Discontinued operations                           --          --        0.55       (0.25)        2.02
-----------------------------------------------------------------------------------------------------------

       Total                                     $   2.42    $   2.41    $   1.50    $   0.94     $   3.91
   Cash dividends per share
     Declared during year                        $   0.32    $   0.32    $   0.40    $   0.63     $   0.57
     Paid during year                                0.32        0.32        0.48        0.62         0.54
     Payout as a percent of net income               13.2%       13.2%       26.5%       66.3%        14.5%
   Shares outstanding (basic)
     Average during year                             52.4        57.8        59.0        60.0         63.5
     At year-end                                     50.2        54.5        58.4        59.0         61.7
   Stock price(2)
     High                                        $  40.44    $  50.00    $  54.19    $  54.88     $  78.63
     Low                                            26.50       33.19       36.69       41.50        44.25
     At year-end                                    37.19       38.19       40.00       44.88        46.75
-----------------------------------------------------------------------------------------------------------
</TABLE>


(1) After special charges of $63.4 million, $18.2 million, $116.5 million and
$49.8 million in 2000, 1999, 1998 and 1997, respectively.

(2) Stock prices prior to May 22, 1999, do not reflect the Octel spin-off.

                                       18
<PAGE>   20
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS

FORWARD-LOOKING STATEMENTS
This annual report, including Management's Discussion and Analysis, contains
both historical information and forward-looking statements. Whenever possible,
the Company has identified these forward-looking statements by such
forward-looking terminology as "believes," "expects," "may," "will likely
result," "estimates," "anticipates," "should" or the negative thereof, or other
variations in comparable terminology. Such forward-looking statements are based
on management's current views and assumptions regarding future events, future
business conditions and the outlook for the Company based on currently available
information. These forward-looking statements involve risks and uncertainties
that could affect the Company's operations, markets, products, services, prices
and other factors as discussed in the Company's Annual Report on Form 10-K filed
with the Securities and Exchange Commission. These risks and uncertainties
include, but are not limited to, economic, competitive, governmental and
technological factors. Accordingly, there can be no assurance that the Company's
expectations will be realized.

CONTINUING OPERATIONS
The following table sets forth the percentage relationship to net sales of
certain income statement items for the Company's continuing operations:

----------------------------------------------------------------
Years Ended December 31         2000          1999          1998
----------------------------------------------------------------
Net sales                      100.0%        100.0%       100.0%
Cost of products sold           72.5          71.8         73.3
----------------------------------------------------------------
Gross profit                    27.5          28.2         26.7
Selling, general and
  administrative expenses       15.3          16.2         13.4
----------------------------------------------------------------
Operating contribution          12.2          12.0         13.3
Special charges                  3.8           1.2          8.1
----------------------------------------------------------------
Operating income                 8.4          10.8          5.2
Gain on sale of subsidiary stock 3.6            --         --
Interest and other income        2.2           3.0          2.5
Interest and other expenses      4.4           2.1          3.1
----------------------------------------------------------------
Income from continuing
  operations before income taxes 9.8          11.7          4.6
Income taxes                     2.2           2.4          0.7
Net income from
  continuing operations          7.6%          9.3%         3.9%
----------------------------------------------------------------

RESULTS OF CONTINUING OPERATIONS -- 2000 COMPARED WITH 1999
Sales increased 11.3% to $1,670.5 million from $1,500.3 million in 1999. This
growth was attributable to strong sales volume gains in all business units,
including double-digit sales growth in the Water Treatment and Energy Services
and Products business units. This volume growth, which includes the effects of
acquisitions, was partially offset by lower selling prices in the Polymer
Additives business unit and an unfavorable foreign exchange impact on all
business units.

Gross profit increased 8.7% to $459.7 million from $423.1 million in the prior
year, while gross margin decreased 0.7% from 28.2% to 27.5%. Volume growth and
improved pricing and product mix in the Performance Chemicals, Water Treatment
and Energy Services and Products business units were offset by lower selling
prices in Polymer Additives and higher energy and raw material costs.

Selling, general and administrative expenses increased $13.3 million to $256.1
million from $242.8 million in the prior year. This increase was a result of
higher selling expenses related to the increased sales volumes and the effect of
acquisitions. As a percent of sales, selling, general and administrative
expenses decreased from 16.2% to 15.3% reflecting several cost containment
efforts undertaken by the Company, including the 1999 and 2000 cost reduction
initiatives.

Special charges of $63.4 million reflect the impact of a second quarter special
charge totaling $66.4 million, adjusted downward by a $1.2 million change in
estimate in the fourth quarter of 2000 to $65.2 million, related to a series of
cost reduction initiatives undertaken in June 2000. Offsetting the 2000 special
charge were certain reversals of the special charges taken in 1998 and 1999
totaling $1.8 million as explained more fully below. The net of the 2000 special
charges and the reversals of prior year charges are reflected in the
consolidated statement of income as a separate component of operating income.

Operating income, excluding the effects of special charges, increased $23.3
million or 12.9% over the prior year. Operating income margins improved
slightly, increasing from 12.0% to 12.2% for the year. Higher sales volumes and
an improved product mix, coupled with the cost containment efforts more than
offset the effects of increased energy and raw material costs and lower selling
prices in Polymer Additives.

Interest and other income decreased $7.2 million to $37.1 million in 2000. This
decrease reflects a reduction in interest income of $1.6 million resulting from
lower levels of invested cash and cash equivalents and a reduction from the
prior year of approximately $10 million in the amount of gains recognized from
the disposition of certain equity investments. These reductions were in part
offset by an increase in earnings from unconsolidated affiliates over the prior
year of $4.6 million.

Interest and other expenses increased by $41.8 million to $72.8 million from
$31.0 million in the prior year. Higher average debt levels and higher interest
rates coupled with increased amortization expense due to acquisitions and an
increase in minority interest expense resulting from the sale of subsidiary
stock contributed to the increase.

Income taxes were $37.9 million or 23.0% compared to $35.8 million or 20.4% in
the prior year. The 2000 effective tax rate is lower than the Company's expected
ongoing effective tax rate of 31% due primarily to the nontaxable gain on the
sale of subsidiary stock recorded in the second and third quarters of 2000. The
lower effective tax rate in 1999 resulted from adjustments for previously
provided taxes and structural changes made in the Company's foreign operations
that resulted in generating a substantially higher percentage of income in lower
tax rate jurisdictions.

Net income for 2000 was $127.0 million or $2.42 per share. This compares to net
income of $139.6 million or $2.41 per share for 1999. Excluding the after-tax
effects of the gain on sale of subsidiary stock in 2000 and the effects of
special charges on both 2000 and 1999, net income was $114.4 million or $2.18
per share and $151.4 million or $2.61 per share for 2000 and 1999, respectively.


                                       19


<PAGE>   21
SEGMENT INFORMATION
Set forth below is a discussion of the operations of the Company's business
segments: Polymer Additives, Performance Chemicals, Water Treatment and Energy
Services and Products. Operating income, which is the income measure the Company
uses to evaluate business segment performance, represents net sales less costs
of products sold and selling, general and administrative expenses. The operating
income data presented below is before the special charges recorded in 2000 and
1999. Each of the Company's segments uses bromine as a raw material in their
production process. Bromine is transferred at cost to all business segments,
except Energy Services and Products. Their cost is based upon a bromine supply
agreement. In addition, assets used in the production of bromine are allocated
to each business unit based on the percentage of production consumed, except for
Energy Services and Products, which does not receive an allocation.

Polymer Additives
The Polymer Additives business unit is a leading provider of plastic additive
solution and service packages. Polymer Additives brings the most comprehensive
product basket of flame retardants, polymer stabilizers and antimony-based
derivatives to the global marketplace. In 1999, the product platform expanded to
include non-halogenated flame retardants with the acquisition of FMC
Corporation's Process Additives Division (PAD). With the acquisition, Polymer
Additives provides its customers an array of integrated polymer additive
solutions, unsurpassed in the market and that meet specific, well-defined
customer needs in a variety of products including computer and business
equipment, consumer appliances, packaging, textile, building and construction,
furniture and transportation.

-------------------------------------------
Polymer Additives           2000      1999
-------------------------------------------
Net sales                 $690.1    $632.1
Operating income            52.4      78.0
-------------------------------------------

Net sales increased $58.0 million or 9.2% in 2000. Continued recognition and
acceptance of the Company's proprietary blends such as the No Dust Blends
(NDB(R)) products, higher flame retardant volumes resulting from increased
market penetration in Asia and the addition of sales related to the PAD
acquisition drove the increase. The volume gains were partially offset by lower
selling prices and unfavorable foreign exchange.

Operating income decreased $25.6 million or 32.8%. This decrease was
attributable to increased raw material costs and significantly higher energy
costs coupled with lower selling prices associated with high-volume brominated
flame retardants. These items more than offset the benefits of the higher sales
volumes and cost savings resulting from productivity initiatives.

Performance Chemicals
The Performance Chemicals business unit is a global supplier of value-added
products and services to broad and diverse markets that include life sciences,
agrochemicals, electronics and telecommunications. Through its expertise in a
wide range of chemical synthesis, process development, manufacturing and
toxicological testing activities, the businesses within Performance Chemicals
have become the leading choice for many companies to outsource their complex
chemical production and service needs. The Performance Chemicals business unit
is a collection of individual businesses providing products and services that
meet highly specific requirements for pharmaceutical, agrochemical and
industrial chemical applications.

--------------------------------------------------
Performance Chemicals            2000       1999
--------------------------------------------------
Net sales                      $369.3      $354.9
Operating income                 90.8        78.7
--------------------------------------------------

Net sales for the year increased $14.4 million or 4.1%. Strong volume gains
across all product lines in the Fluorine group led to a record sales level for
this business unit. WIL Research Laboratories' (WIL Research) expanded role in
reproductive toxicological studies contributed to its 12.4% sales gain during
the year. The gains reported by these businesses were partially offset by lower
sales for Fine Chemicals and Brominated Performance Products.

Operating income increased $12.1 million or 15.4% for the year. In addition,
operating margin for 2000 was 24.6% compared to 22.2% in the prior year. These
record levels reflect the significant volume growth in Fluorine, increased sales
and service mix improvements at WIL Research, improved pricing for methyl
bromide and productivity initiatives throughout the businesses comprising
Performance Chemicals.

Water Treatment
The Company's Water Treatment business unit, through its BioLab subsidiary, is
the world's leading provider of recreational water care products to the
consumer. By deploying a brand/channel segmentation strategy, BioLab is able to
maximize its market share and leverage its resources. During 1999, Water
Treatment more than doubled its Industrial Water Division (renamed BioLab Water
Additives) with the acquisition of FMC's water additives business. Through its
proprietary position in polymaleate chemistry, and as the world's foremost
provider of bromine-based biocides, BioLab Water Additives is a leading supplier
of corrosion inhibitors, scale control and desalination solutions.

Water Treatment                 2000             1999
--------------------------------------------------------
Net sales                     $474.5           $418.1
Operating income                85.0             73.1
--------------------------------------------------------

The Water Treatment business unit completed another record year with net sales
and operating income and margins all reaching record levels. Net sales increased
$56.4 million, or 13.5%, reflecting consumer acceptance of important new
technologies, continued market penetration, the acquisition of Aqua Clear
Industries, LLC (Aqua Clear) in July 2000 and the addition of the BioLab Water
Additives business acquired in August 1999. Operating income increased $11.9
million to $85.0 million from $73.1 million, a 16.3% increase. Operating margins
improved from 17.5% to 17.9%. These improvements reflect the strength of the
product portfolio, focused productivity efforts and the accretive effects of the
BioLab Water Additives acquisition.

Energy Services and Products
The Energy Services and Products business unit (OSCA) is a leading provider of
oil and gas well completion products and services. A pioneer in completion
fluids, OSCA today offers a comprehensive array of products and services
including sand control, well stimulation, coiled tubing and custom downhole tool
packages. These products and services are available separately or as integrated
systems. OSCA's products and services are focused on value enhancing well
completion activities that allow


                                       20



<PAGE>   22
its customers to optimize the recovery of oil and gas. OSCA's singular focus and
technological expertise enables it to compete successfully against its larger
peers.

-------------------------------------------------------------
Energy Services and Products                 2000      1999
-------------------------------------------------------------
Net sales                                  $131.9     $95.2
Operating (loss) income                      12.5      (8.5)
-------------------------------------------------------------

Net sales increased in 2000 by $36.7 million or 38.6% to $131.9 million, a
record year. This performance demonstrates OSCA's ability to grow by leveraging
the investment it has made in capacity, coupled with its increased market
penetration in Brazil and Venezuela and higher levels of exploration and
development activities driven by higher commodity pricing for crude oil and
natural gas.

Operating income improved to $12.5 million compared to an operating loss of
$(8.5) million in the prior year. Volume increases, improved pricing and a
better product mix resulting from OSCA's pull through leverage were the primary
factors driving the significant improvement in operating income.

RESULTS OF CONTINUING OPERATIONS -- 1999 COMPARED WITH 1998
Sales for 1999 increased 4.5% to $1,500.3 million. Volume grew 8% led by
Fluorine, Agricultural Products, and Polymer Additives and the acquisitions of
NSC Technologies and PAD. This growth was partially offset by the effects of
competitive pricing pressure in brominated flame retardants and significantly
lower oil exploration activity in Energy Services and Products.

Gross profit increased 10.5% to $423.1 million in 1999 while gross profit margin
improved to 28.2% in 1999 from 26.7% in 1998. Productivity initiatives, a better
mix of products in Polymer Additives and Water Treatment, selected price
increases in certain businesses and lower raw material costs more than offset
the previously mentioned competitive pricing pressures in flame retardants.
Although gross profit margin increased to its highest level in four years,
operating margin, excluding special charges, declined to 12.0% in 1999 from
13.3% in 1998. This decrease was driven by increased information systems expense
as the Company implemented its new Enterprise Resource Planning (ERP)
information systems and became Y2K compliant. Also, contributing to the decrease
was a one-time charge of approximately $10 million to exit an environmental
remediation business in Mexico and to settle land use litigation. In 1999, the
Company recorded approximately $29 million in information systems expenses as
compared to approximately $4 million in 1998. Excluding special charges and the
aforementioned expenses and charges, operating margin would have been 14.6% in
1999 as compared to 13.5% in 1998.

Operating income margin, including special charges, was 10.8% in 1999 as
compared to 5.1% in 1998. The Company recognized a special charge of $25.4
million during 1999 related primarily to actions to further streamline the
Polymer Additives business unit by providing a more flexible data processing
solution for the Company's manufacturing operations. Offsetting this charge were
certain reversals of the special charges taken in 1998 totaling $7.2 million as
explained more fully below. The net of the 1999 special charges and the
reversals of the prior year charges is reflected in the consolidated statement
of income as a separate component of operating income.

Interest and other income increased approximately $7.3 million to $44.3 million
in 1999 from 1998 due primarily to a gain from the partial disposition of an
equity investment.

Interest and other expense decreased by $13.7 million to $31.0 million for the
year primarily as higher interest expense associated with increased borrowings
to fund the acquisitions of NSC Technologies and PAD was more than offset by
foreign exchange gains and a favorable adjustment to reserves to reflect revised
environmental remediation estimates at certain non-operating sites.

Income taxes for the year were $35.8 million or 20.4% as compared to the 1998
effective tax rate of 14.8%. The lower effective tax rate is due primarily to a
favorable $10 million tax credit in 1998 related to foreign taxes and the
magnitude of the special charges in 1998. The 1999 rate reflects a reduction in
income tax expense in 1999 due to adjustments for previously provided taxes and
structural changes made in the Company's foreign operations that resulted in
generating a substantially higher percentage of income in lower tax rate
jurisdictions. The Company expects its ongoing effective tax rate will be
approximately 31%.

Net income for 1999, excluding the special charges, was $151.4 million, or $2.61
per share. This compares to net income from continuing operations of $131.1
million, or $2.21 per share, excluding special charges, for 1998. Net income
from continuing operations including the special charges was $139.6 million, or
$2.41 per share, for 1999 as compared to $56.4 million, or $0.95 per share, for
1998.

SEGMENT INFORMATION
A review of results of operations by business segment for 1999 compared with
1998 is as follows. The operating income data presented below is before the
special charges recorded in 1999 and 1998.

Polymer Additives
During 1999, the Company completed the acquisition of PAD, a world leader in the
production of phosphate ester flame retardants, flame retardant fluids and
lubricant additives. By extending the product platform, the Company is able to
provide a comprehensive basket of integrated polymer solutions that meet
specific, well-defined customer needs in a variety of products including
computer and business equipment, consumer appliances, packaging, textile,
building and construction, furniture and transportation.

-----------------------------------------------
Polymer Additives           1999       1998
-----------------------------------------------
Net sales                 $632.1       $599.1
Operating income            78.0         78.9
-----------------------------------------------

Polymer Additives' sales increased 5.5% to $632.1 million in 1999. Sales volumes
grew 14%, including 8% from the PAD acquisition. Continued recognition and
acceptance of the Company's proprietary blends and physical forms for Polymer
Stabilizers, such as No Dust Blends (NDB(R)), and the recovery under way in Asia
drove the organic growth. The increase was offset in part by an 8% decline in
selling prices due to competitive price pressure, primarily in brominated flame
retardants, and the effects of unfavorable currency fluctuations.


                                       21



<PAGE>   23
Operating income in 1999 was essentially flat compared to 1998. Savings from
productivity initiatives and restructuring activities, lower raw material costs
and earnings generated by the PAD acquisitions were offset by the aforementioned
competitive price pressure in brominated flame retardants and an approximately
$8 million increase in expense associated with the implementation of the
Company's ERP information systems. Excluding the higher information systems
expense, operating income would have been approximately $86 million and
operating margin would have increased to 13.6% in 1999 from 13.2% in 1998.

Performance Chemicals
The acquisition of NSC Technologies in 1999 was a key element in the Performance
Chemicals group's long-term strategy of increased involvement in the
pharmaceuticals industry. NSC Technologies develops, manufactures and sells
chiral pharmaceutical intermediates and select bulk actives to pharmaceutical
companies. Its competency in natural and unnatural amino acids provides a broad
molecular platform from which it develops novel, high value-added intermediates
and bulk actives for antiviral, cardiovascular and oncology therapeutic drugs.
NSC Technologies is part of the Fine Chemicals group.

----------------------------------------------------
Performance Chemicals            1999        1998
----------------------------------------------------
Net sales                      $354.9      $323.7
Operating income                 78.7        70.2
----------------------------------------------------

Sales in Performance Chemicals grew 9.6% to $354.9 million in 1999. Led by
strong demand for FM-200(R), the Company's halon replacement fire extinguishant,
and its hydrofluorocarbon refrigerant HFC-32, the Fluorine group continued its
pattern of impressive sales growth with an increase of 35% over 1998. Fine
Chemicals' sales increased 4% in 1999 as volume growth from the new product
pipeline acquired with NSC Technologies was partially offset by a shortfall in
demand resulting from customer actions to delay or modify product introduction
schedules. WIL Research's sales increased 21% driven by improved facility
utilization and a richer mix of toxicological services. Brominated Performance
Products' sales were essentially flat year over year. Higher sales of
HyperSolve,(TM) Great Lakes' bromine-based solvent, and increased pricing of
methyl bromide, an agricultural fumigant, were offset by lower demand for some
lower margin bromine and bromine derivative products and regulatory reductions
in the level of methyl bromide sales volumes.

Operating income for Performance Chemicals increased 12.1% to a record level of
$78.7 million for the year. Significant volume growth, product and service mix
improvements in Fluorine and WIL Research, and improved pricing for methyl
bromide more than offset higher systems expense associated with the
implementation of the Company's ERP information systems.

--------------------------------------------------------------------------------
Water Treatment
--------------------------------------------------------------------------------

During 1999, Water Treatment more than doubled its Industrial Water Division
(renamed BioLab Water Additives) with the acquisition of FMC's water additives
business.

-------------------------------------------------
Water Treatment               1999        1998
-------------------------------------------------
Net sales                   $418.1       $396.3
Operating income              73.1         54.5
-------------------------------------------------

The Water Treatment business experienced another outstanding year. Operating
earnings and margins for this business unit were again at record levels. Sales
of new products such as Shock Plus,(R) introduced in 1998, and Banish,(R)
introduced in 1999, continue to improve product mix, provide a sustainable
competitive advantage and fuel growth. New products, better mix, increased
productivity, improved profitability in Europe and lower raw material costs
drove the 34.1% increase in operating earnings. The 5.5% increase in sales was
in part due to the PAD acquisition, which significantly expanded the depth and
breadth of the Company's BioLab Water Additives business. Volume increases in
the U.S. recreational water market, driven by the aforementioned emphasis on new
products, were significantly offset by the Company's decision to exit certain
low-margin business in Europe.

Energy Services and Products
Sales decreased 17.7% in 1999 to $95.2 million primarily as a result of a sharp
decline in oil prices that began in the second half of 1998 and carried into the
first half of 1999. This price softness led to a significant downturn in
drilling activities particularly in the Gulf of Mexico.

-----------------------------------------------------------------
Energy Services and Products               1999            1998
-----------------------------------------------------------------
Net sales                                  $95.2          $115.7
Operating income (loss)                     (8.5)           11.0
-----------------------------------------------------------------

The curtailment of exploration and development activities resulted in increased
pricing pressure. The preceding, coupled with $6.1 million of charges in
connection with exiting an environmental remediation project in Mexico, led to
the operating loss in 1999.

Oil prices substantially recovered in the second half of 1999 and continued
their trend in early 2000. The energy sector shows signs of recovery as rig
count in the Gulf of Mexico is at its highest level in 18 months. OSCA is well
positioned to respond to the increase in exploration and development investment
expected in 2000.

FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
Total assets decreased to $2,134.4 million at December 31, 2000 from $2,261.0
million in the prior year. This decrease was due primarily to decreases in cash
and cash equivalents of $255.6 million and a decrease in investments in and
advances to unconsolidated affiliates of $17.3 million resulting from the sale
of certain equity investments in 2000. These declines were offset by increases
in accounts receivable, inventories, goodwill and other assets of $51.1 million,
$47.6 million, $30.0 million and $21.3 million, respectively. Increased sales
volumes combined with an increase of three days in days sales outstanding drove
the increase in accounts receivable. Increases in inventories resulted from
higher inventory levels in the Water Treatment business unit, which includes the
effect of the Aqua Clear acquisition and increases in the Polymer Additives and
Energy Services and Products business units due to their need to meet current
and anticipated sales commitments. Goodwill increased due to the acquisition of
Aqua Clear by the Water Treatment business unit and the increase in other assets
resulted from increases in other intangible assets.

Current liabilities increased $73.6 million to $384.8 million from $311.2
million at prior year-end. This increase is due primarily to increases in
accounts payable, accrued expenses and income taxes payable of $31.2 million,
$8.5 million and $34.4 million, respectively. These increases were due primarily
to the timing of payments, and also contributing to the accounts payable
increase were the higher ending inventory levels.


                                       22
<PAGE>   24
Long-term debt, less current portion decreased $195.2 million from prior
year-end to $688.2 million. This decrease is due to the repayments of debt made
from the net proceeds from the sale of subsidiary stock and was funded by cash
and cash equivalents.

The increase in the minority interest from prior year is due primarily to the
sale of 43.4% of the Company's ownership in OSCA, Inc., a subsidiary (Energy
Services and Products business unit), through an initial public offering. (See
Dispositions.)

Cash provided by operating activities of $205.8 million for the year ended
December 31, 2000 increased from $186.3 million in 1999 primarily as a result of
the changes in the operating assets and liabilities from 1999 to 2000. These
changes primarily include increases in accounts payable and accrued expenses and
income taxes payable and other current liabilities.

Cash used for investing activities amounted to $107.2 million for the year ended
December 31, 2000. This use of cash reflects the increased capital spending over
the prior year, the acquisition of Aqua Clear, offset by the proceeds from the
sale of a portion of the Company's Energy Services and Products subsidiary.

Cash used for financing activities was $344.8 million for the year ended
December 31, 2000 compared to cash of $202.0 million being provided by financing
activities in the prior year. The 2000 financing activities reflect a net
decrease in long-term borrowings of $198.0 million coupled with common stock
repurchase activity which amounted to $135.1 million for 2000.

Capital spending (excluding acquisitions) through December 31, 2000 was $157.0
million compared to $119.0 million in the prior year. This reflects increases in
capital spending by all business units with over one-half of the total 2000
spending related to new or expanded facilities.

The Company has traditionally utilized commercial paper borrowings as its
primary source of external financing. During 1999, however the Company moved to
lock in historically low long-term interest rates by selling $400 million of 7%
notes due July 15, 2009. Proceeds from the sale of the notes were used to
replace a portion of the commercial paper borrowings and to fund acquisitions.
The notes were sold under a shelf registration process. Under this process, the
Company filed a Registration Statement on Form S-3 with the Securities and
Exchange Commission and may sell various debt securities, common stock or rights
or warrants to purchase common stock individually or in combination up to $750
million. The amount remaining on the registration statement is $350 million. The
registration provides the Company with increased flexibility to finance its
growth. The Company's net debt (debt, net of cash and cash equivalents) was
$471.5 million at December 31, 2000 and was comprised of $694.2 million of debt
offset by $222.7 million of cash and cash equivalents. The Company maintains a
high cash and cash equivalents balance to offset its commercial paper
borrowings, meet working capital needs and for capital expansion, including
potential acquisitions. The Company's investment in marketable securities is
comprised of a mix of highly liquid investment grade securities. At December 31,
2000, the Company's senior debt rating is A/A2 and its commercial paper rating
is A1/P1. Debt to total capitalization at December 31, 2000 was 42.2% as
compared to 46.2% at December 31, 1999.

Total stockholders' equity was $949.7 million, or $18.92 per share, at December
31, 2000, as compared to $18.24 per share at the end of 1999. These changes
reflect the increase in retained earnings from current year operations being
offset by the activity under the common stock share repurchase authorizations
from the Board of Directors. Pursuant to these authorizations, the Company
purchased approximately 4.5 million shares of common stock during 2000 at an
average price of $30 per share and approximately 4.2 million shares of common
stock during 1999 at an average price of $38 per share. The effect of these
stock purchases on earnings per share was $0.03 and $0.00 per share for 2000 and
1999, respectively. At December 31, 2000 a total of 2.9 million shares remain
available for repurchase under existing Board authorizations. Management
continues to analyze share repurchases as cash flow, market conditions and
investment opportunities warrant.

Dividends declared totaled $16.6 million and $18.3 million for 2000 and 1999,
respectively. This decrease reflects the decrease in outstanding shares as
dividends totaled $0.32 per share for both years.

The cumulative translation adjustment component of stockholders' equity
represents the translation of foreign currency-denominated financial statements
into U.S. dollars. The 2000 change in the cumulative translation adjustment
decreased stockholders' equity by $26.4 million. Approximately 60% of the
Company's net assets reside outside of the United States.

OTHER MATTERS
Special Charges
During the second quarter of 2000 the Company announced cost reduction
initiatives to further streamline operations, strengthen the Company's
competitive position and continue to provide a strong platform for future
growth. To accomplish these actions, the Company prepared a formal repositioning
plan, which was approved by the Board of Directors on June 23, 2000. The major
components of this repositioning plan included the consolidation of the
Company's three antimony manufacturing operations, elimination of approximately
375 manufacturing and research and development positions, primarily in the
Polymer Additives business unit, and impairment or disposal of certain
underperforming and nonstrategic assets. The asset impairments related to four
Polymer Additives manufacturing locations, including sites in Europe and the
United States, and six Performance Chemicals locations, including sites in the
United States, United Kingdom and Germany. The special charges related to this
repositioning plan totaled $66.4 million, $49.5 million after income taxes or
$0.95 per share for 2000, and was recorded in the second quarter of 2000. The
$66.4 million special charge consisted of $43.8 million for asset impairments,
$16.4 million for severance costs and $6.2 million for plant closure and
environmental costs. The Company expects to realize approximately $20 million in
annual pre-tax savings as a result of this repositioning. Additional information
regarding the 2000 special charges is provided in Note 2 to the consolidated
financial statements.

Net special charges for the year ended December 31, 2000 totaled $63.4 million.
This reflects the $66.4 million charge recorded in the second quarter of 2000
offset by a reversal of $1.2 million related to a change in estimate in the 2000
special charge and certain reversals of the special charges taken in 1999 and
1998 totaling $1.8 million, as explained below. The net effect of the special
charge reversals after income taxes was $2.0 million or $0.04 per share. The net
of the 2000 special charges and reversals are reflected in the 2000 consolidated
statement of income as a separate component of operating income.

                                       23



<PAGE>   25
In the first quarter of 1998, the Board of Directors appointed a new chief
executive officer, and over the following months a new senior management team
was assembled. Beginning in the third quarter of 1998, the Company began work on
a plan to fundamentally alter how the Company conducts business around the world
and to improve operating income by repositioning the business to enhance
competitiveness and productivity and increase responsiveness to customer needs.
A formal repositioning plan to accomplish these goals was approved by the Board
of Directors in 1998. In addition, in the fourth quarter of 1999, the Board of
Directors took certain additional actions to further streamline the Polymer
Additives business unit, to provide a more flexible data processing solution for
the Company's manufacturing operations, and to write down certain assets
formerly used in the Energy Services and Products' Mexico environmental
business. The plan was developed to increase the Company's focus on its core
specialty chemicals businesses and to position these operations to achieve
higher growth and profitability.

Accordingly, the Company recognized a special charge of $25.4 million, $16.5
million after income taxes or $0.29 per share, during 1999. Offsetting this
charge were certain reversals of the special charges taken in 1998 totaling $7.2
million, $4.7 million after income taxes or $0.08 per share, as explained below.
The net of the 1999 special charges and reversals are reflected in the 1999
consolidated statement of income as a separate component of operating income.
Additional information regarding the 1999 special charges is provided in Note 2
to the consolidated financial statements.

The 1999 special charge consisted of asset impairments in Polymer Additives of
$10.8 million; asset impairments in Corporate and Other of $10.7 million; asset
impairments in Energy Services and Products of $1.8 million; and severance costs
of $2.1 million. Asset impairment losses in Polymer Additives related to the
shutdown of certain unprofitable operating units and the replacement of certain
lines with new technology primarily in the El Dorado, Arkansas, facility. Asset
impairment losses in Corporate and Other related to the write-off of certain
components of the Company's data processing software that have no future use as
a result of the Company's decision to provide a more flexible solution for its
manufacturing operations. The asset impairment charge in Energy Services and
Products related to a write-down of certain fixed assets formerly used in the
Mexico environmental business. Severance costs included the cost of separation
payments to certain Polymer Additives and Corporate employees who were
terminated.

As of December 31, 2000, the 1999 component of the repositioning plan has been
substantially completed with only $0.4 million of the original 1999 special
charge remaining to be spent. The remaining reserve is expected to be fully
utilized in 2001. The 2000 activity related to the 1999 special charges includes
a reversal of $0.7 million due to changes in estimate of the 1999 charge and was
recorded in the fourth quarter of 2000.

The 1998 portion of the repositioning plan affected the Polymer Additives,
Performance Chemicals and Energy Services and Products business units and
included both domestic and international operations primarily in France, Italy
and the United Kingdom. The plan provided for improving manufacturing
productivity; the closing of production units at four sites; and the
consolidation of the U.S. flame retardant production. Additionally, the charge
also included the consolidation of certain sales offices and research and
development facilities. As a result of these actions, approximately 500
positions were eliminated.

In connection with the 1998 portion of the repositioning plan, the Company
recognized a special charge of $116.5 million, $74.7 million after income taxes,
or $1.26 per share during 1998. This special charge is reflected in the 1998
consolidated statement of income as a separate component of operating income.
The principal components of the 1998 charge were asset impairments of $56.5
million; severance of $17.6 million; plant closure costs of $10.1 million;
senior management transition costs of $20.5 million; and other related costs of
$11.8 million. Additional information regarding the 1998 special charges is
provided in Note 2 to the consolidated financial statements.

The repositioning plan has now been substantially completed with only $5.3
million of the original $116.5 million remaining to be spent. The primary
component of this remaining reserve, or $3.1 million, relates to the senior
management transition portion of the 1998 charge that provided for certain
executive's severance and transition costs. The majority of these costs are to
be paid out by the end of 2001. The plan was designed to achieve $35 million to
$40 million in cost savings on an annual basis. These cost savings result
primarily from improved utilization of the manufacturing base, elimination of
underperforming or unprofitable operations, reduced personnel-related costs and
a reduction in the carrying costs of plant and equipment.

The repositioning plan affected all segments of the Company's operations.
Outlined below is an overview of the conditions each of the units encountered
and the actions taken to achieve the expected improvements.

The Polymer Additives business unit was formed in mid-1998 through the
combination of the Flame Retardants business, a historical core business, and
the Polymer Stabilizers business that had been built through acquisitions over
the 1993-1996 period. The Polymer Stabilizers business focused on expansion and
did not effectively integrate the acquisitions, develop internal synergy or
consolidate its manufacturing base. These factors provided a significant
opportunity to improve manufacturing efficiency, reduce cost and increase the
focus on the customer. As a result, the repositioning plan provided for the
downsizing of two operating facilities in France; consolidation of brominated
flame retardant manufacturing in El Dorado, Arkansas; elimination of excess
production capacity; and reduction of the number of sales offices and research
and development facilities. In connection with these activities the workforce
was reduced by approximately 115 employees. At December 31, 2000 substantially
all of the severance activity was complete and the reserves remaining related to
Polymer Additives severance totaled $1.6 million, primarily as a result of
timing of negotiations with the workers' councils in France. These negotiations
are now complete, and the associated severance payments will be completed in
2001. All restructuring activity related to the Polymer Additives plant closures
was completed in 2000, and there were no reserves remaining at December 31,
2000.

                                       24



<PAGE>   26
In the Performance Chemicals business unit, the Company eliminated certain
nonperforming product lines and underutilized assets. As a result, selected
nonstrategic products were discontinued and the workforce was reduced by
approximately 60 employees. Due in part to increased volume requirements
resulting from the NSC Technologies acquisition in 1999, the Company did not
close one of the plants included in the repositioning plan in 1998. As a result,
$4.4 million and $0.4 million of reserves were reversed in 1999 and 2000,
respectively, leaving a total reserve balance of $0.3 million at December 31,
2000, all of which is to be utilized in the first quarter of 2001.

The decline in the world oil market had significantly reduced requirements for
oil well completion fluids and services. As a result, the Company's Energy
Services and Products business unit abandoned a lease on a deepwater service
vessel, decommissioned the related service equipment, planned to close a calcium
chloride production facility and reduced its workforce by approximately 160
employees. In the fourth quarter of 1999, due to changing market conditions and
a recognition of the need to ensure a reliable source of calcium chloride, the
Company made the decision to continue operating the facility for the foreseeable
future and therefore reversed $2.6 million of the related reserves. In the
fourth quarter of 2000, the estimate of remaining costs related to the abandoned
lease on the deepwater service vessel was revised providing for the reversal of
$0.7 million of the remaining reserves. At December 31, 2000 the amount of
reserve remaining to be spent was $0.3 million, all of which is expected to be
utilized in the first quarter of 2001.

The 1997 consolidated statement of income includes pre-tax charges of $50
million related to restructuring the Company's European Water Treatment
business; closing a BCDMH manufacturing facility in Louisiana and a
pharmaceutical intermediates production plant in Arkansas; and withdrawing from
a bromine production joint venture in Europe. The components of the pretax
charges were composed of $2 million for employee severance costs, $2 million for
facility closure costs, $5 million for joint venture withdrawal expenses and $41
million for asset write-offs. The remaining reserve at December 31, 2000, was
$0.9 million, which is expected to be fully utilized in 2001.

Cash outlays for all remaining special charge reserves are expected to be
substantially complete by the end of 2001. Operating cash flows are expected to
be sufficient to finance the remaining repositioning activities.

Acquisitions
On July 14, 2000 the Company finalized its acquisition of Aqua Clear for
approximately $40.7 million. Aqua Clear is a manufacturer and distributor of
specialty pool chemical products and operates a manufacturing site in
Watervliet, New York, and distribution sites in St. Louis, Missouri, and
Waterford, New York, as well as sales and support networks throughout the United
States and Canada.

On August 2, 1999, the Company completed the acquisition of PAD for $162 million
in cash. PAD is a world leader in the production of phosphate ester flame
retardants, flame retardant fluids and lubricant additives, as well as a leading
supplier of specialty water treatment chemicals used in industrial applications
and desalination. The transaction broadens the Polymer Additives business unit
and more than doubles the industrial segment of the Water Treatment business
unit. PAD employs 500 and has manufacturing operations in Nitro, West Virginia,
and Trafford Park (Manchester, England).

On May 3, 1999, the Company completed the acquisition of NSC Technologies from
Monsanto Company for approximately $125 million in cash. NSC Technologies
develops, manufactures and sells chiral pharmaceutical intermediates and select
bulk actives to pharmaceutical companies. The business' core chiral expertise in
unnatural amino acids provides a broad molecular platform from which it develops
novel, high value-added intermediates and bulk actives for antiviral,
cardiovascular and oncology therapeutic drugs. NSC Technologies is part of the
Fine Chemicals group of the Performance Chemicals business unit.

The acquisitions were funded with available cash and borrowing capacity.

Spin-Off of Octel
The Board of Directors declared a stock dividend pursuant to which each Great
Lakes stockholder received one share of Octel common stock for every four shares
of Great Lakes common stock owned on the record date of May 15, 1998. Octel
stock began trading on the New York Stock Exchange on May 22, 1998.

In connection with the spin-off, Great Lakes received a special cash dividend,
net of taxes and transaction costs, of approximately $300 million in 1998. The
dividend was funded by cash reserves and debt retained by Octel.

Dispositions
Effective June 15, 2000, the Company sold 40% of its ownership in OSCA, Inc.
(OSCA), a wholly owned subsidiary (Energy Services and Products business unit)
through an initial public offering. Net proceeds of approximately $79 million
from the initial sale were paid to the Company by OSCA to satisfy indebtedness.
The initial sale resulted in a $51.9 million non-taxable gain to the Company,
which was recognized in the second quarter of 2000. Subsequently, on July 13,
2000 the over-allotment option granted to the underwriters was exercised and
resulted in an additional $12 million of net proceeds. The over-allotment
exercise resulted in an additional non-taxable gain of $8.5 million, which was
recorded in the third quarter of 2000. The initial sale and the over-allotment
option exercise resulted in the Company selling a total of 43.4% of its
ownership interest in this subsidiary. OSCA continues to be included in
consolidated financial position and results of operations due to the Company's
ability to exert significant influence over OSCA as a result of its continuing
majority ownership and voting interest.

In December 1997, the Board of Directors approved a restructuring plan including
exiting the furfural and derivatives, Chemol and environmental services
businesses. A pre-tax charge of $145 million, $96 million after income taxes,
was recorded in connection with these actions. A portion of the Chemol business
was sold during 1998, and essentially all remaining operations have been wound
down. The Company completed the sale of the environmental services business in
January 1999, and the sale of the furfural and derivatives business was
completed in June 1999.


                                       25



<PAGE>   27
MARKET RISKS
The Company's operations are exposed to market risk from changes in foreign
currency exchange rates and interest rates that could impact its results of
operations and financial condition. The Company manages its exposure to these
market risks through its regular operations and financing activities and, when
deemed appropriate by, using derivative financial instruments in accordance with
established policies and procedures. The derivative financial instruments
generally used include swaps, forward contracts and options. The derivative
financial instruments utilized by the Company in its hedging activities are
considered risk management tools and are not used for trading purposes. In
addition, derivative financial instruments are entered into with a diversified
group of major financial institutions in order to monitor the exposure to
nonperformance on such instruments.

International operations, including United States export sales, constitute a
significant portion of revenues and identifiable assets. These operations result
in a large volume of foreign currency commitment and transaction exposures and
foreign currency net asset exposures. At December 31, 2000 and 1999, the
Company's primary net foreign currency market exposures were dispersed through
various countries and primarily included the euro and its legacy currencies, the
British pound and the Japanese yen. Exposure to variability in currency exchange
rates is mitigated, when possible, through the use of natural hedges, whereby
purchases and sales in the same foreign currency and with similar maturity dates
offset one another. The amount of hedging activity and management of commitment
and transaction exposures is coordinated at the corporate level. Hedges are set
to mature concurrently with the estimated timing of settlement of the underlying
transactions.

Considering the Company's operating profile, at December 31, 2000, the result of
a uniform 10% change in the value of the dollar relative to the currencies in
which the Company's sales are denominated would result in a change in operating
income of approximately $0.2 million. A similar change in 1999 would have had
approximately a $1.0 million effect on operating income. This calculation
assumes that each exchange rate would change in the same direction relative to
the U.S. dollar, and does not factor in any potential changes in sales levels or
local currency prices that may result from changes in exchange rates.

The Company uses commercial paper as a source of financing, which exposes the
Company to changes in short-term interest rates. The Company manages its ratio
of fixed to floating rate debt with the objective of achieving a mix that
management believes is appropriate. To manage this mix in a cost effective
manner, the Company, from time to time, enters into interest rate swap
agreements in which it agrees to exchange various combinations of fixed and/or
variable interest rates based on agreed-upon notional amounts that are supported
by the Company's current debt position. At December 31, 2000, the Company had no
interest swap agreements in effect. Based on the Company's debt position at
December 31, 2000, a hypothetical 1 percentage point change in interest rates
for a one-year period would change income before income taxes by $2.9 million.
This analysis does not consider any effect that a change in interest rates would
have on overall economic activity nor management actions to mitigate interest
rate changes.

As of December 31, 2000, the Company had short-term time deposits of $151.6
million representing investment securities with maturities of three months or
less. A hypothetical 1 percentage point change in interest rates earned on these
deposits for a one-year period would change income before income taxes by $1.5
million.

Environmental
The Company's operations, like those of most companies that use or make
chemicals, are subject to various laws and regulations relating to maintaining
or protecting the quality of the environment. Such laws and regulations, along
with the Company's own internal compliance efforts, have required and will
continue to require capital expenditures and associated operating costs.
Spending for environmental compliance, including expenditures associated with
waste minimization and pollution prevention programs, amounted to approximately
$36 million in 2000, $27 million in 1999 and $34 million in 1998. These amounts
include approximately $4 million, $2 million and $2 million for capital
equipment in 2000, 1999 and 1998, respectively. Spending for environmental
compliance is anticipated to be approximately $34 million in 2001.

The Company is a party to several proceedings and lawsuits involving
environmental matters, including being named as defendant, respondent or a
potentially responsible party, together with other companies, under CERCLA, and
similar state laws, in which recovery is sought for the cost of cleanup of
contaminated manufacturing and waste disposal sites. Due to the prevailing
practices of manufacturing facilities, waste haulers and disposal facilities
prior to adoption and implementation of various environmental laws and
regulations, it is difficult to accurately determine the Company's liability
with respect to these sites. In each such matter, the Company anticipates,
although there can be no assurance, that liability, if any, will eventually be
equitably apportioned among the companies found to be responsible. In most of
these matters, the Company believes that its responsibility is small relative to
other parties and that it may have meritorious defenses to liability to, or
claims against, these other parties. Based upon current regulation and the
information available, management believes that adequate provisions have been
made in the financial statements and future costs will not have a material
adverse impact on the Company's consolidated financial position, liquidity or
results of operations.

Other Litigation Matters
The Company has been cooperating with the United States Department of Justice
(DOJ) and the European Commission since the spring of 1998 in their respective
investigations of the bromine and brominated products industry. Both
investigations were initiated after the Company self-reported to those agencies
certain business practices that raised questions under antitrust laws. As a
result of the Company's cooperation, the Company and its current directors and
employees have been accepted into the DOJ's amnesty program. As a result, the
Company will be exempt from United States federal criminal prosecution and fines
relating to the practices in question if the Company complies with certain
conditions, including its full cooperation with the DOJ's investigation and
policy regarding reasonable remedial efforts. Concurrently, the Company is
seeking favorable treatment under a program in the European Union that also
rewards self-reporting and cooperation.

                                       26



<PAGE>   28
The Company believes it has fully complied with all applicable conditions to
date and has continued to cooperate with the DOJ in connection with certain
follow-up matters arising out of the investigation, all of which are covered by
the Company's acceptance into the amnesty program. The Company intends to
continue full compliance with the DOJ and European Union programs.

Participation in the above programs does not provide the Company with immunity
from civil liability, including restitution claims. To date, 10 federal
purported class action lawsuits and five California purported class actions have
been filed against the Company, each claiming treble damages. These suits claim,
among other things, that the Company conspired with others in violation of the
antitrust laws regarding the pricing of bromine and brominated products. The
federal lawsuits have been consolidated in the District Court for the Southern
District of Indiana. The plaintiffs have filed a motion to certify a class of
purchasers of three particular brominated products, and the Company has opposed
the motion. A ruling on the class certification is expected later this year. The
California cases have been stayed pending resolution of the federal cases.

In April 1999, the Company reached agreement with the National Labor Relations
Board to settle a 1986 lawsuit alleging unfair labor practices at the Company's
Newport, Tennessee, facility following its acquisition of the site from Syntex
Corporation. The $9 million settlement covers backpay and interest for certain
former Syntex employees. The settlement amount is consistent with previously
established reserves.

The Company is subject to various lawsuits and claims with respect to matters
such as governmental regulations, income taxes and other actions arising out of
the normal course of business. While it is not possible to predict or determine
the outcome of legal actions brought against the Company, management believes
the costs associated with all such matters will not have a material adverse
effect on the Company's consolidated financial position, liquidity or results of
operations.

Inflation
Inflation has not been a significant factor for the Company over the last
several years. Management believes that the effect of inflation on Company
operations will continue to be moderate over the next several years.

The Euro
Effective January 1, 1999, member states of the European Economic and Monetary
Union converted to a common currency known as the euro. From that date until
January 1, 2002 (the transition period), either the euro or a participating
country's present currency will be accepted as legal tender, with the existing
currency being completely removed from circulation on July 1, 2002.

The Company has been preparing for the introduction of the euro since 1999. The
timing of phasing out all uses of the existing currencies will comply with the
legal requirements and also be scheduled to facilitate optimal coordination with
the plans of the Company's vendors, distributors and customers. The work related
to the introduction of the euro and the phasing out of the other currencies
includes converting information technology systems; recalculating currency risk;
recalibrating derivatives and other financial instruments; evaluating and taking
action, if needed, regarding the continuity of contracts; and modifying
processes for preparing tax, accounting, payroll and customer records.
Implementation is expected to occur in September 2001.

Based on the work completed to date, the Company believes the euro conversion
effort will not have a material impact on the Company's consolidated financial
position, liquidity or results of operations.

Accounting Changes
In June 1998, the Financial Accounting Standards Board issued Statement No. 133,
"Accounting for Derivative Instruments and Hedging Activities," as amended,
which is required to be adopted in years beginning after June 15, 2000. The
Company is required to adopt the new Statement effective January 1, 2001. The
Statement will require the Company to recognize all derivatives on the balance
sheet at fair value. Derivatives that are not hedges must be adjusted to fair
value through income. If the derivative is a hedge, depending on the nature of
the hedge, changes in the fair value of derivatives will either be offset
against the change in fair value of the hedged assets, liabilities or firm
commitments through earnings or recognized in other comprehensive income until
the hedged item is recognized in earnings. The ineffective portion of a
derivative's change in fair value will be immediately recognized in earnings.

Based on the Company's derivative positions at December 31, 2000, the effect of
the adoption of the Statement will be immaterial on the results of operations
and other comprehensive income. Because the Statement allows certain foreign
currency transactions to be accounted for as hedges for financial reporting
purposes that were not previously treated as hedges, the Company may change its
policies toward the management of certain foreign currency exposures. Any
changes that may occur would be to further reduce the Company's exposure to
foreign currency risks.

In the fourth quarter of 2000, the Company applied the Financial Accounting
Standards Board's (FASB) Emerging Issues Task Force (EITF) consensus EITF 00-10,
"Accounting for Shipping and Handling Fees and Costs." As prescribed in EITF
00-10, the Company has reclassified its shipping and handling costs from a
component of net sales to cost of products sold. The effect of these
reclassifications increased net sales and cost of products sold by equal
amounts. The reclassifications had no effect on operating income or net income.
This change required a restatement of net sales and cost of product sold amounts
for all periods presented

In December 1999, the Securities and Exchange Commission (SEC) issued Staff
Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements" (SAB
101) and amended it in March and June 2000 with respect to the effective dates.
The Company evaluated the provisions of SAB 101 and determined it did not have a
material effect on the Company's financial position or results of operations.

Effective January 1, 1999, the Company adopted the American Institute of
Certified Public Accountants (AICPA) Statement of Position (SOP) 98-1,
"Accounting for the Costs of Computer Software Developed or Obtained for
Internal Use." This accounting standard specifically defines the criteria under
which costs incurred in connection with internal-use computer software projects
are to be treated as a current period expense or to be capitalized. Adoption of
SOP 98-1 increased 1999 operating costs by approximately $10 million.


                                       27



<PAGE>   29
MANAGEMENT'S STATEMENT OF RESPONSIBILITY FOR FINANCIAL STATEMENTS
The management of Great Lakes Chemical Corporation is responsible for the
preparation and presentation of the accompanying consolidated financial
statements and all other information in this Annual Report. The financial
statements are prepared in accordance with accounting principles generally
accepted in the United States and include amounts that are based on management's
informed judgments and estimates.

The Company maintains accounting systems and internal accounting controls that
management believes provide reasonable assurance that the Company's financial
reporting is reliable, that assets are safeguarded and that transactions are
executed in accordance with proper authorization. This internal control
structure is supported by the selection and training of qualified personnel and
an organizational structure that permits the delegation of authority and
responsibility. The systems are monitored worldwide by an internal audit
function that reports its findings to management.

The Company's financial statements have been audited by Ernst & Young LLP,
independent auditors, in accordance with auditing standards generally accepted
in the United States. These standards provide for the review of internal
accounting control systems to plan the audit and determine auditing procedures
and tests of transactions to the extent they deem appropriate.

The Audit Committee of the Board of Directors, which consists solely of
non-employee directors, is responsible for overseeing the functioning of the
accounting systems and related internal controls and the preparation of the
Company's financial statements. The Audit Committee periodically meets with
management and the independent auditors to review and evaluate their accounting,
auditing and financial reporting activities and responsibilities. The
independent auditors and internal auditors have full and free access to the
Audit Committee without management's presence to discuss internal accounting
controls, results of their audits and financial reporting matters.





Mark P. Bulriss
Chairman, President and CEO



Kevin J. Mulcrone
Vice President and Controller


REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We have audited the accompanying consolidated balance sheets of Great Lakes
Chemical Corporation and subsidiaries as of December 31, 2000 and 1999, and the
related consolidated statements of income, cash flows and stockholders' equity
for each of the three years in the period ended December 31, 2000. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Great Lakes
Chemical Corporation and subsidiaries at December 31, 2000 and 1999, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 2000, in conformity with accounting
principles generally accepted in the United States.



Indianapolis, Indiana
February 9, 2001


                                       28
<PAGE>   30
CONSOLIDATED STATEMENTS OF INCOME
(millions, except per share data)

<TABLE>
<CAPTION>
Year Ended December 31                                                             2000               1999               1998
-------------------------------------------------------------------------------------------------------------------------------
<S>                                                                         <C>                <C>                <C>
Net Sales                                                                   $   1,670.5        $   1,500.3        $   1,435.7

Operating Expenses
   Cost of products sold                                                        1,210.8            1,077.2            1,052.9
   Selling, general and administrative expenses                                   256.1              242.8              192.4
   Special charges                                                                 63.4               18.2              116.5
                                                                                1,530.3            1,338.2            1,361.8
-------------------------------------------------------------------------------------------------------------------------------
Operating Income                                                                  140.2              162.1               73.9

Gain on Sale of Subsidiary Stock                                                   60.4                 --                 --

Interest and Other Income                                                          37.1               44.3               37.0

Interest and Other Expenses                                                        72.8               31.0               44.7
-------------------------------------------------------------------------------------------------------------------------------

Income from Continuing Operations before Income Taxes                             164.9              175.4               66.2

Income Taxes                                                                       37.9               35.8                9.8
-------------------------------------------------------------------------------------------------------------------------------

Net Income from Continuing Operations                                             127.0              139.6               56.4

Net Income from Discontinued Operations                                              --                 --               32.6
-------------------------------------------------------------------------------------------------------------------------------

Net Income                                                                  $     127.0        $     139.6        $      89.0
-------------------------------------------------------------------------------------------------------------------------------

Earnings per Share:
Basic
   Continuing operations                                                    $       2.42       $       2.42       $       0.96
   Discontinued operations                                                            --                 --               0.55
                                                                            $       2.42       $       2.42       $       1.51
-------------------------------------------------------------------------------------------------------------------------------

Diluted
   Continuing operations                                                    $       2.42       $       2.41       $       0.95
   Discontinued operations                                                            --                 --               0.55
                                                                            $       2.42       $       2.41       $       1.50
-------------------------------------------------------------------------------------------------------------------------------

Cash Dividends Declared Per Share                                           $       0.32       $       0.32       $       0.40
-------------------------------------------------------------------------------------------------------------------------------
</TABLE>


See notes to consolidated financial statements.

                                       29

<PAGE>   31
CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
(millions)
December 31                                                                                            2000              1999
--------------------------------------------------------------------------------------------------------------------------------
<S>                                                                                              <C>               <C>
Assets
Current Assets
   Cash and cash equivalents                                                                     $    222.7        $    478.3
   Accounts and notes receivable, less allowances of $4.8 and $4.7, respectively                      390.7             339.6
   Inventories                                                                                        364.4             316.8
   Prepaid expenses                                                                                    30.0              32.8
   Total current assets                                                                             1,007.8           1,167.5
--------------------------------------------------------------------------------------------------------------------------------

Plant and Equipment, Net                                                                              750.9             751.8

Goodwill                                                                                              276.5             246.5

Investments in and Advances to Unconsolidated Affiliates                                               38.2              55.5

Other Assets                                                                                           61.0              39.7

Total Assets                                                                                     $  2,134.4        $  2,261.0
--------------------------------------------------------------------------------------------------------------------------------

Liabilities and Stockholders' Equity
Current Liabilities
   Accounts payable                                                                              $    167.7        $    136.5
   Accrued expenses                                                                                   132.2             123.7
   Income taxes payable                                                                                74.9              40.5
   Dividends payable                                                                                    4.0               4.5
   Notes payable and current portion of long-term debt                                                  6.0               6.0
   Total current liabilities                                                                          384.8             311.2
--------------------------------------------------------------------------------------------------------------------------------

Long-Term Debt, less Current Portion                                                                  688.2             883.4

Other Noncurrent Liabilities                                                                           29.3              30.0

Deferred Income Taxes                                                                                  47.8              37.9

Minority Interest                                                                                      34.6               4.4

Stockholders' Equity
   Common Stock, $1 par value, authorized 200.0 shares; issued 73.0 shares in 2000 and
     72.9 shares in 1999                                                                               73.0              72.9
   Additional paid-in capital                                                                         132.5             132.0
   Retained earnings                                                                                1,879.6           1,769.2
   Accumulated other comprehensive loss                                                               (83.1)            (56.5)
   Less treasury stock, at cost; 22.7 shares in 2000 and 18.4 shares in 1999                       (1,052.3)           (923.5)

   Total stockholders' equity                                                                         949.7             994.1

Total Liabilities and Stockholders' Equity                                                       $  2,134.4        $  2,261.0
--------------------------------------------------------------------------------------------------------------------------------
</TABLE>

See notes to consolidated financial statements.


                                       30

<PAGE>   32
CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
(millions)
Year Ended December 31                                                                          2000         1999         1998
----------------------------------------------------------------------------------------------------------------------------------
<S>                                                                                         <C>          <C>          <C>
Operating Activities
   Net income from continuing operations                                                    $  127.0     $  139.6     $   56.4
   Adjustments to reconcile net income to net cash provided by operating activities:
     Depreciation and depletion                                                                 87.9         80.8         78.6
     Amortization of intangible assets                                                          12.2          8.7          4.9
     Deferred income taxes                                                                      15.3         19.1        (14.1)
     Net (unremitted) earnings of affiliates                                                    (5.6)        (1.2)         1.7
     (Gain) loss on disposition of assets                                                       (0.9)        (8.3)         0.7
     Special charges                                                                            63.4         18.2        116.5
     Gain on sale of subsidiary stock                                                          (60.4)          --           --
     Other                                                                                       6.8          6.2         (0.4)
     Change in operating assets and liabilities,
       net of effects from business combinations:
         Accounts receivable                                                                   (42.5)       (46.5)        (3.3)
         Inventories                                                                           (46.4)        19.1          9.8
         Other current assets                                                                    4.1         (1.1)        (2.6)
         Accounts payable and accrued expenses                                                  34.7        (51.7)       (32.7)
         Income taxes and other current liabilities                                             35.2          3.6        (76.8)
         Other noncurrent liabilities                                                          (25.0)        (0.2)         1.6
----------------------------------------------------------------------------------------------------------------------------------

Net Cash Provided by Operating Activities from Continuing Operations                           205.8        186.3        140.3

Discontinued Operations (see note below):
   Net income                                                                                     --           --         32.6
   Change in net assets                                                                           --         75.9        433.6
----------------------------------------------------------------------------------------------------------------------------------
Net Cash Provided by Operating Activities                                                      205.8        262.2        606.5

Investing Activities
   Plant and equipment additions                                                              (157.0)      (119.0)      (160.6)
   Business combinations, net of cash acquired                                                 (40.7)      (286.8)         0.6
   Proceeds from sale of assets                                                                  5.6         13.2          1.8
   Proceeds from sale of subsidiary stock                                                       90.2           --           --
   Other                                                                                        (5.3)        (4.3)        (9.2)
----------------------------------------------------------------------------------------------------------------------------------
Net Cash Used for Investing Activities                                                        (107.2)      (396.9)      (167.4)

Financing Activities
   Net borrowings (repayments) under short-term credit lines                                     2.9          1.5         (2.4)
   Net proceeds from long-term borrowings                                                       28.2        393.9          6.7
   Net decrease in commercial paper and other long-term obligations                           (226.2)       (25.5)       (53.0)
   Proceeds from stock options exercised                                                         2.6          5.1          5.3
   Cash dividends paid                                                                         (16.9)       (18.6)       (28.4)
   Repurchase of common stock                                                                 (135.1)      (158.7)       (28.5)
   Other                                                                                        (0.3)         4.3         (1.0)
----------------------------------------------------------------------------------------------------------------------------------
Net Cash (Used for) Provided by Financing Activities                                          (344.8)       202.0       (101.3)

Effect of Exchange Rate Changes on Cash and Cash Equivalents                                    (9.4)        (0.6)         0.1
----------------------------------------------------------------------------------------------------------------------------------
(Decrease) Increase in Cash and Cash Equivalents                                              (255.6)        66.7        337.9

Cash and Cash Equivalents at Beginning of Year                                                 478.3        411.6         73.7
----------------------------------------------------------------------------------------------------------------------------------
Cash and Cash Equivalents at End of Year                                                    $  222.7     $  478.3     $  411.6
</TABLE>


Cash flow from discontinued operations in 1998 was $466.2 million of which
$461.9 million was received from Octel.

See notes to consolidated financial statements.

                                       31

<PAGE>   33
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

<TABLE>
<CAPTION>
(millions)
                                                                       2000                       1999                      1998
                                                          Shares     Amount         Shares      Amount        Shares      Amount
-----------------------------------------------------------------------------------------------------------------------------------
<S>                   <C>                                   <C>       <C>             <C>        <C>            <C>        <C>
Common Stock
   Balance at January 1                                     72.9      $72.9           72.7       $72.7          72.6       $72.6
   Exercise of stock options net of shares exchanged         0.1        0.1            0.2         0.2           0.1         0.1
-----------------------------------------------------------------------------------------------------------------------------------

   Balance at December 31                                   73.0       73.0           72.9        72.9          72.7        72.7

Additional Paid-In Capital
   Balance at January 1                                               132.0                      128.6                     123.4
   Exercise of stock options net of shares exchanged                    1.6                        3.0                       1.1
   Tax benefits of early disposition of stock by optionees              0.2                        0.8                       0.9
   Restricted stock activity                                            1.0                        1.3                       3.2
   Employee stock plan activity                                        (2.3)                      (1.7)                       --
-----------------------------------------------------------------------------------------------------------------------------------

   Balance at December 31                                             132.5                      132.0                     128.6

Retained Earnings
   Balance at January 1                                             1,769.2                    1,657.1                   1,912.5
   Net income                                                         127.0                      139.6                      89.0
   Dividends                                                          (16.6)                     (18.3)                    (23.6)
   Spin-off of Octel                                                     --                         --                    (320.8)
   Other                                                                 --                       (9.2)                        --
   Balance at December 31                                           1,879.6                    1,769.2                   1,657.1
-----------------------------------------------------------------------------------------------------------------------------------

Treasury Stock
   Balance at January 1                                    (18.4)    (923.5)         (14.3)     (771.2)        (13.6)     (745.6)
   Shares repurchased                                       (4.5)    (135.1)          (4.2)     (158.7)         (0.7)      (28.5)
   Employee stock plan activity                              0.2        6.3            0.1         6.4            --         2.9
   Balance at December 31                                  (22.7)  (1,052.3)         (18.4)     (923.5)        (14.3)     (771.2)
-----------------------------------------------------------------------------------------------------------------------------------

Accumulated Other Comprehensive Income (Loss)
   Cumulative Translation Adjustment
     Balance at January 1                                             (55.5)                     (30.1)                    (52.9)
     Translation adjustment                                           (26.4)                     (34.6)                     (6.2)
     Other                                                             (0.1)                       9.2                        --
     Spin-off of Octel                                                   --                         --                      29.0
     Balance at December 31                                           (82.0)                     (55.5)                    (30.1)
-----------------------------------------------------------------------------------------------------------------------------------

   Minimum Pension Liability
     Balance at January 1                                              (1.0)                      (2.8)                     (2.6)
     Minimum pension liability adjustment                              (0.1)                       1.8                      (0.2)
     Balance at December 31                                            (1.1)                      (1.0)                     (2.8)

   Total Balance at December 31                                       (83.1)                     (56.5)                    (32.9)

Total Stockholders' Equity                                  50.3     $949.7           54.5      $994.1          58.4    $1,054.3
-----------------------------------------------------------------------------------------------------------------------------------

Comprehensive Income
   Net income                                                        $127.0                     $139.6                     $89.0
   Translation adjustment                                             (26.4)                     (34.6)                     (6.2)
   Minimum pension liability adjustment                                (0.1)                       1.8                      (0.2)
   Total Comprehensive Income                                        $100.5                     $106.8                     $82.6
-----------------------------------------------------------------------------------------------------------------------------------
</TABLE>


See notes to consolidated financial statements.

                                       32


<PAGE>   34
Notes to Consolidated Financial Statements
(in millions, except as indicated)

Note 1: Summary of Significant Accounting Policies
Basis of Financial Statement Presentation
Continuing operations represent the specialty chemical operations of the
Company. Reported as discontinued operations are the petroleum additives
business (Octel), which was spun off to shareholders in May 1998; the Eastern
European Trading business (Chemol), whose operations were concluded in 1998; the
environmental services business, which was sold in January 1999; and the
furfural and derivatives business, which was sold in June 1999. During 2000, the
Company sold 43.4% of its ownership in OSCA, Inc. (OSCA), a wholly owned
subsidiary (Energy Services and Products business unit) through an initial
public offering. OSCA continues to be included in the consolidated financial
position and results of operations due to the Company's ability to exert
significant influence over OSCA as a result of its continuing ownership and
voting interest.

Nature of Operations
The Company is a diversified specialty chemical company. Primary manufacturing
operations are located in the United States and Europe. The Company manages its
business and reports segmental information based on the nature of its products
and services. The Company's segments are Polymer Additives, Performance
Chemicals, Water Treatment and Energy Services and Products. The Company's
products are sold globally. The principal markets include: computer and business
equipment, consumer electronics, data processing, construction materials,
telecommunications, pharmaceuticals and pool and spa dealers and distributors.
Further information on the Company's segments is included in this annual report
on pages 14 through 17 and in Note 15 to the consolidated financial statements.

Principles of Consolidation
The consolidated financial statements include all significant majority-owned
subsidiaries of the Company. All material intercompany accounts and transactions
are eliminated in consolidation.

Investments
Investments in less than majority-owned companies in which the Company has the
ability to exercise significant influence over operating and financial policies
of the investees are accounted for by the equity method, which is cost, plus
equity in their undistributed earnings since acquisition. All other investments
are carried at their fair values or at cost, as appropriate.

Use of Estimates
The preparation of the consolidated financial statements in conformity with
accounting principles generally accepted in the United States requires
management to make estimates and assumptions that affect the amounts reported in
the consolidated financial statements and accompanying notes. Actual results
could differ from those estimates.

Reclassifications
Certain prior period amounts have been reclassified to conform with the current
year's presentation. As prescribed in EITF 00-10, "Accounting for Shipping and
Handling Fees and Costs," the Company began reclassifying shipping and handling
costs from a component of net sales to cost of products sold in the fourth
quarter of 2000. This change required a restatement of net sales and cost of
products sold amounts for all periods presented.

Revenue Recognition
Revenue from sales of products, which includes amounts billed to customers for
shipping and handling costs, is recognized at the time title passes to the
customer, which is generally upon shipment. Revenue from services is recognized
when the services are provided to the customer.

Shipping and Handling Costs
Shipping and handling costs, including certain warehousing costs, are included
in cost of products sold.

Cash Equivalents
Investment securities with maturities of three months or less when purchased are
considered to be cash equivalents.

Inventories
The Company values its inventories at the lower of cost or market. Cost is
determined using the first-in, first-out (FIFO) method.

Plant and Equipment
Plant and equipment are stated at cost. Depreciation of buildings and equipment
is provided over the estimated useful lives of the assets using the
straight-line method. The estimated useful lives for purposes of computing
depreciation are: buildings, 10-40 years; manufacturing equipment, 7-20 years;
and office equipment, 3-5 years.

Goodwill
Goodwill, the excess of investment over net assets of subsidiaries acquired, is
amortized over periods of 8 to 40 years using the straight-line method. As of
December 31, 2000 and 1999, accumulated amortization was $31.0 million and $22.5
million, respectively.

Impairment of Long-Lived Assets and Intangible Assets
When events or circumstances indicate that the carrying amount of long-lived
assets to be held and used or intangible assets might not be recoverable, the
expected future undiscounted cash flows from the assets is estimated and
compared with the carrying amount of the assets. If the sum of the estimated
undiscounted cash flows is less than the carrying amount of the assets, an
impairment loss is recorded. The impairment loss is measured by comparing the
fair value of the assets with their carrying amounts. Fair value is determined
based on discounted cash flow or appraised values, as appropriate. Long-lived
assets that are held for disposal are reported at the lower of the assets'
carrying amount or fair value less costs related to the assets' disposition.

Income Taxes
Current income taxes are provided on income reported for financial statement
purposes adjusted for transactions that do not enter into the computation of
income taxes payable. Deferred income tax liabilities and assets are recognized
for the expected future tax consequences of temporary differences between the
carrying amounts and the tax bases of assets and liabilities. Income taxes are
provided on the portion of the income of foreign affiliates that is expected to
be remitted to the parent company and be taxable. Unremitted earnings of foreign
affiliates where income taxes have not been provided are immaterial.

Treasury Stock
Shares of common stock repurchased under the Company's stock repurchase plans
are recorded at cost as treasury stock. When the treasury shares are reissued,
the Company uses a weighted-average method for determining cost. The difference
between the cost of the shares and the reissuance price is included in
additional paid-in capital.

Stock-Based Compensation
Statement of Financial Accounting Standards (SFAS) No. 123, "Accounting for
Stock-Based Compensation," established accounting and disclosure requirements
using a fair-value-based

                                       33


<PAGE>   35
method of accounting for stock-based employee compensation plans. As provided
for under SFAS No. 123, the Company accounts for stock-based compensation using
the intrinsic value method prescribed in Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees." Compensation cost for stock
options, if any, is measured as the excess of the quoted market price of the
Company's stock at the date of grant over the amount an employee must pay to
acquire the stock. Compensation cost for restricted stock awards is recorded
over the requisite vesting periods based on the market value on the date of
grant.

Foreign Currency Translation
--------------------------------------------------------------------------------

Assets and liabilities of most foreign operations are translated at exchange
rates in effect at the balance sheet date, and the income statements are
translated at the average monthly exchange rates for the period. Translation
gains and losses are recorded as a component of accumulated other comprehensive
income in stockholders' equity until the foreign entity is sold or liquidated.

Derivative Financial Instruments
The Company uses various derivative instruments including swaps, forward
contracts and options to manage certain foreign currency and interest rate
exposures. These instruments are entered into under the Company's corporate
financial risk management policy to manage market risk exposures and are not
used for trading purposes. Management routinely reviews the effectiveness of the
use of derivative instruments.

Derivatives used for hedging purposes must be designated as, and effective as, a
hedge of the identified risk exposure at the inception of the contract.
Accordingly, changes in the market value of the derivative contract must be
highly correlated with changes in the market value of the underlying hedged item
at inception of the hedge and over the life of the hedge contract. Any
derivative instrument designated but no longer effective as a hedge or initially
not effective as a hedge would be reported at market value and the related gains
and losses would be recognized in earnings.

Derivatives that are designated as, and effective as, a hedge of firm foreign
currency commitments are accounted for using the deferral method. Gains and
losses from instruments that hedge firm commitments are deferred and recognized
as part of the economic basis of the transactions underlying the commitments
when the associated hedged transaction occurs. Gains and losses from instruments
that hedge foreign-currency-denominated receivables, payables and debt
instruments are reported in earnings and offset the effects of foreign exchange
gains and losses from the associated hedged items. Gains or losses from early
termination of derivative financial instruments are deferred and amortized over
the remaining terms of the related item being hedged. If the underlying item
being hedged is extinguished, any related gain or loss is included in earnings.

The Company classifies its derivative financial instruments as held or issued
for purposes other than trading. Prepaid option premiums are recorded in the
balance sheet as other assets. Gains and losses on hedges of existing assets and
liabilities are included in other income or other expenses. Gains and losses
from hedges of anticipated transactions are classified in the income statement
consistent with the accounting treatment of the items being hedged.

New Accounting Standards
In June 1998, the Financial Accounting Standards Board issued Statement No. 133,
"Accounting for Derivative Instruments and Hedging Activities," as amended,
which is required to be adopted in years beginning after June 15, 2000. The
Company adopted the new Statement effective January 1, 2001. The Statement will
require the Company to recognize all derivatives on the balance sheet at fair
value. Derivatives that are not hedges must be adjusted to fair value through
income. If the derivative is a hedge, depending on the nature of the hedge,
changes in the fair value of derivatives will either be offset against the
change in fair value of the hedged assets, liabilities or firm commitments
through earnings or recognized in other comprehensive income until the hedged
item is recognized in earnings. The ineffective portion of a derivative's change
in fair value will be immediately recognized in earnings.

Based on the Company's derivative positions at January 1, 2001, the effect of
the adoption of this Statement had an immaterial impact on the results of
operations and other comprehensive income at January 1, 2001. Because the
Statement allows certain foreign currency transactions to be accounted for as
hedges for financial reporting purposes that were not previously treated as
hedges, the Company may change its policies toward the management of certain
foreign currency exposures. Any changes that may occur would be to further
reduce the Company's exposure to foreign currency risks.

In December 1999, the Securities and Exchange Commission (SEC) issued Staff
Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements" (SAB
101) and amended it in March and June 2000 with respect to the effective dates.
The Company has evaluated the provisions of SAB 101 and determined it did not
have a material effect on the Company's financial position or results of
operations.

Effective January 1, 1999, the Company adopted the American Institute of
Certified Public Accountants (AICPA) Statement of Position (SOP) 98-1,
"Accounting for the Costs of Computer Software Developed or Obtained for
Internal Use." This accounting standard specifically defines the criteria under
which costs incurred in connection with internal-use computer software projects
are to be treated as a current period expense or to be capitalized. Adoption of
SOP 98-1 increased 1999 operating costs by approximately $10 million.

Note 2: Special Charges
During the second quarter of 2000, the Company announced cost reduction
initiatives to further streamline operations, strengthen the Company's
competitive position and continue to provide a strong platform for future
growth. To accomplish these actions, the Company prepared a formal repositioning
plan, which was approved by the Board of Directors on June 23, 2000. The major
components of this repositioning plan included the consolidation of the
Company's three antimony manufacturing operations, elimination of approximately
375 manufacturing and research and development positions, primarily in the
Polymer Additives business unit, and impairment or disposal of certain
underperforming and nonstrategic assets. The asset impairments related to four
Polymer Additives manufacturing locations, including sites in Europe and the
United States, and six Performance Chemicals locations, including sites in the
United States, United Kingdom and Germany. The special charges related to this
repositioning plan totaled $66.4 million, $49.5 million after income taxes or
$0.95 per share for 2000, and was recorded in the second quarter of 2000. The
$66.4 million special charge consisted of $43.8 million for asset impairments,
$16.4 million for severance costs and $6.2 million for plant closure and
environmental costs. The Company expects to realize approximately $20 million in
annual pre-tax savings as a result of this repositioning.

Net special charges for the year ended December 31, 2000 totaled $63.4 million.
This reflects the $66.4 million charge recorded in the second quarter of 2000
offset by a reversal of $1.2 million related to a change in estimate in the 2000
special charge and certain reversals of the special charges taken in 1999 and
1998 totaling $1.8 million, as detailed below. The net effect

                                       34


<PAGE>   36
of the special charge reversals after income taxes was $2.0 million or $0.04 per
share. The net of the 2000 special charges and reversals are reflected in the
2000 consolidated statement of income as a separate component of operating
income.

Details of the 2000 special charge by business unit and a reconciliation to the
reserve balance at December 31, 2000 are as follows:

--------------------------------------------------------------------------------
                                                                       Reserve
                                      Amount                         Balance at
                                    of Charge     2000      2000    December 31,
Description                          in 2000    Activity  Reversals     2000
--------------------------------------------------------------------------------

Asset Impairment (non-cash):
   Polymer Additives                 $  29.4    $ (29.4)   $   --    $    --
   Performance Chemicals                14.4      (14.4)       --         --
--------------------------------------------------------------------------------

                                        43.8      (43.8)       --         --
Severance Costs:
   Polymer Additives                    11.2       (4.0)       --        7.2
   Performance Chemicals                 4.2       (3.3)       --        0.9
   Corporate                             1.0       (1.0)       --         --
                                        16.4       (8.3)       --        8.1
--------------------------------------------------------------------------------
Plant Closure and Environmental:
   Polymer Additives                     6.2       (0.1)     (1.2)       4.9
                                     $  66.4    $ (52.2)   $ (1.2)   $  13.0
--------------------------------------------------------------------------------

Asset impairment losses in Polymer Additives relate to the consolidation of the
Company's three antimony manufacturing operations and the impairment or disposal
of certain underperforming and nonstrategic assets in Europe and the closure of
a brine pond operation in Newell, Arkansas. The asset impairment charge in
Performance Chemicals includes the impairment or disposal of underperforming
assets at six sites, including three sites in the United Kingdom, two sites in
the United States and one site in Germany. These impairment losses adjusted the
carrying value of these assets to fair value. Fair value was determined using
either discounted cash flow or appraised values, as appropriate. Any impaired
assets held for disposal were written down to fair value less costs related to
the assets' disposition. The adjusted carrying value of the assets is being
depreciated over the remaining lives of the assets.

Severance costs include the cost of separation payments to certain employees who
have been or will be terminated. These costs have either been negotiated
individually with the employee or are based upon the provisions of statutory or
contractual severance plans. The Company will be eliminating approximately 375
positions as a result of the 2000 actions. As of December 31, 2000,
substantially all personnel subject to the repositioning plan have been
terminated or have been given specific notice of termination dates. Notification
to European employees has been made through their unions and workers' councils.
The Polymer Additives severance costs relate to approximately 300 positions in
13 various locations, including seven locations in the United States; two
locations in Italy; and one location each in the United Kingdom, Germany and
Switzerland. The Performance Chemicals severance costs include costs to
eliminate approximately 60 positions of which approximately half are in the
United Kingdom with the remaining positions being eliminated in Germany and the
United States. The Corporate component of the severance costs provided for the
elimination of approximately 15 various corporate middle management positions in
the United Kingdom, the United States and Switzerland.

The plant closure and environmental costs associated with the 2000 repositioning
plan relate entirely to the Polymer Additives business unit. These charges
include a $4.3 million charge for the closure of the brine pond in Newell,
Arkansas, and $1.9 million related to dismantling costs incurred as part of the
consolidation of the Company's three antimony manufacturing operations.

In the first quarter of 1998, the Board of Directors appointed a new chief
executive officer, and over the following months a new senior management team
was assembled. Beginning in the third quarter of 1998, the Company began work on
a plan to fundamentally alter how the Company conducts business around the world
and to improve operating income by repositioning the business to enhance
competitiveness and productivity and increase responsiveness to customer needs.
A formal repositioning plan to accomplish these goals was approved by the Board
of Directors in 1998. In addition, in the fourth quarter of 1999, the Board of
Directors took certain additional actions to further streamline the Polymer
Additives business unit, to provide a more flexible data processing solution for
the Company's manufacturing operations and to write down certain assets formerly
used in the Energy Services and Products' Mexico environmental business. The
plan was developed to increase the Company's focus on its core specialty
chemicals businesses and to position these operations to achieve higher growth
and profitability.

Accordingly, the Company recognized a special charge of $25.4 million, $16.5
million after income taxes or $0.29 per share, during 1999. Offsetting this
charge were certain reversals of the special charges taken in 1998 totaling $7.2
million, $4.7 million after income taxes or $0.08 per share, as detailed below.
The net of the 1999 special charges and reversals was reflected in the 1999
consolidated statement of income as a separate component of operating income.

Details of the 1999 special charge by business unit and a reconciliation to the
reserve balance at December 31, 2000 are as follows:

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------
                                                       Reserve                                          Reserve
                                       Amount       Balance at                                       Balance at
                                    of Charge     December 31,          2000             2000      December 31,
Description                           in 1999             1999      Activity        Reversals              2000
------------------------------------------------------------------------------------------------------------------
<S>                                     <C>               <C>         <C>              <C>                 <C>
Asset Impairment (non-cash):
   Polymer Additives                    $10.8             $ --        $  --             $  --              $ --
   Energy Services and Products           1.8               --           --                --                --
   Corporate                             10.7               --           --                --                --
------------------------------------------------------------------------------------------------------------------
                                         23.3               --           --                --                --
Severance Costs:
   Polymer Additives                      1.2              1.0         (0.6)             (0.3)              0.1
   Corporate                              0.9              0.9         (0.2)             (0.4)              0.3
------------------------------------------------------------------------------------------------------------------
                                          2.1              1.9         (0.8)             (0.7)              0.4
------------------------------------------------------------------------------------------------------------------
                                        $25.4             $1.9        $(0.8)            $(0.7)             $0.4
</TABLE>


                                       35



<PAGE>   37

Asset impairment losses in Polymer Additives related to the shutdown of certain
unprofitable operating units and the replacement of certain lines with new
technology primarily in the El Dorado, Arkansas, facility. The asset impairment
charge in Energy Services and Products related to a write-down of certain fixed
assets formerly used in the Mexico environmental business. Asset impairment
losses in Corporate related to the write-off of certain components of the
Company's data processing software that had no future use as a result of the
Company's decision to provide for more flexibility in its manufacturing systems.
The Company recorded an impairment loss to write down the carrying value of
these assets to fair value. Fair value was determined using appraised values.
The adjusted carrying value of the assets is being depreciated over the
remaining lives of the assets.

Severance costs included the cost of separation payments to approximately 65
employees who were terminated. As of December 31, 2000, substantially all
personnel involved have been terminated or have been given specific notice of
termination dates. Notification to European employees was made through their
unions and workers' councils. The Polymer Additives terminations related to a
decision to consolidate research activities in the United States and Europe into
two Technology Centers, one located in West Lafayette, Indiana, and the other in
Bolgiano, Italy. Researchers in West Lafayette are now focused primarily on
halogen and non-halogen-based flame retardant and performance additives and
fluids technology. Those in Bolgiano are concentrated on polymer stabilizers.
All European Technical Service and Applications capabilities were consolidated
into a new Customer Technical Service and Applications Center in Geel, Belgium.
European Polymer Additives customers now receive all the technical service and
analytical support they need from a single location, which is located near 80%
of the Company's European customers. The Corporate severance costs related
primarily to information systems personnel. The reversal of $0.7 million in 2000
reflects a change in estimate of the remaining amount of severance costs for the
1999 actions, all of which are expected to be spent in 2001.

The 1998 portion of the repositioning plan affected the Polymer Additives,
Performance Chemicals and Energy Services and Products business units and
included both domestic and international operations primarily in France, Italy
and the United Kingdom. The plan provided for improving manufacturing
productivity; the closing of production units at four sites; and the
consolidation of the U.S. flame retardant production. Additionally, there was
consolidation of certain sales offices and research and development facilities.
As a result of these actions, approximately 500 positions were eliminated.

Accordingly, the Company recognized a special charge of $116.5 million, $74.7
million after income taxes or $1.26 per share, during 1998. This special charge
was reflected in the 1998 consolidated statement of income as a separate
component of operating income. Of the $116.5 million, $48.3 million was recorded
for actions taken in the third quarter of 1998 and another $52.7 million was
recorded in the fourth quarter of 1998. Additionally, $15.5 million related to
costs associated with the transition of the chief executive officer was recorded
in the first quarter of 1998 and was included in the special charge.

Details of the 1998 special charge by business unit and a reconciliation to the
reserve balance at December 31, 2000 are as follows:

<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------------------------
                                                                    Reserve                                              Reserve
                                                    Amount       Balance at                                           Balance at
                                                 of Charge     December 31,              2000             2000      December 31,
Description                                        in 1998             1999          Activity        Reversals              2000
----------------------------------------------------------------------------------------------------------------------------------
<S>                                              <C>           <C>                   <C>             <C>            <C>
Asset Impairment (non-cash):
   Polymer Additives                                 $25.9            $  --            $   --            $  --              $ --
   Performance Chemicals                              12.7               --                --               --                --
   Energy Services and Products                        7.9               --                --               --                --
   Corporate                                          10.0               --                --               --                --
----------------------------------------------------------------------------------------------------------------------------------

                                                      56.5               --
Severance Costs:
   Polymer Additives                                  10.9              8.6              (7.0)              --               1.6
   Performance Chemicals                               3.3              0.9              (0.8)              --               0.1
   Energy Services and Products                        0.4               --                --               --                --
   Corporate                                           3.0              1.0              (1.0)              --                --
----------------------------------------------------------------------------------------------------------------------------------

                                                      17.6             10.5              (8.8)              --               1.7
Plant Closure and Environmental:
   Polymer Additives                                   3.2              2.9              (2.9)              --                --
   Performance Chemicals                               6.9              2.2              (1.6)            (0.4)              0.2
----------------------------------------------------------------------------------------------------------------------------------

                                                      10.1              5.1              (4.5)            (0.4)              0.2

Senior Management Transition (Corporate)              20.5              6.1              (3.0)              --               3.1
Lease Costs
   (Energy Services and Products)                      4.4              1.8              (0.8)            (0.7)              0.3
Other                                                  7.4               --                --               --                --
----------------------------------------------------------------------------------------------------------------------------------

                                                    $116.5            $23.5            $(17.1)           $(1.1)             $5.3
----------------------------------------------------------------------------------------------------------------------------------
</TABLE>

                                       36



<PAGE>   38

Asset impairment losses related to the consolidation of certain product lines,
primarily in the Polymer Additives business unit, where the Company had
sufficient capacity to meet anticipated requirements, and to shut down certain
unprofitable operating units. Approximately $41.4 million of the asset
impairment loss related to assets that were to be held and used until the
facility closures were completed; these facilities have now been closed. The
balance of the asset impairment loss related primarily to certain components of
the Company's data processing software that had no future use. The Company
recorded an impairment loss to write down the carrying value of these assets to
fair value. Fair value was determined using appraised values. The adjusted
carrying value of the assets is being depreciated over the remaining lives of
the assets. The reversal of $2.6 million in 1999 related to an Energy Services
and Products calcium chloride production facility that was held for sale. In the
fourth quarter of 1999, due to changing market conditions and a recognition of
the need to ensure a reliable source of calcium chloride, the Company made the
decision to continue utilizing the facility for the foreseeable future. This
decision resulted in a change to the 1998 repositioning plan such that the
calcium chloride plant was not sold or abandoned.

Severance costs included the cost of separation payments to certain employees
who were terminated. These costs were negotiated individually with the employee,
or were based upon the provisions of statutory or contractual severance plans.
The Company eliminated approximately 500 positions as a result of the 1998
actions. While all areas of the Company were affected by the workforce
reductions, the majority of the terminations occurred in manufacturing. The
reversal of $0.6 million in 1999 occurred due to the costs associated with the
termination of certain management positions being less than originally expected.
The $1.7 million of remaining severance costs reserves relate primarily to
Polymer Additives and are a result of timing of negotiations with the workers'
councils in France. These negotiations are now complete, and the associated
severance payments are expected to be completed in 2001.

The decision to abandon facilities resulted in closure costs, such as
dismantling, decontamination and remediation. Spending related to these costs
began after the facilities were closed. Due in part to increased volumes
resulting from the NSC Technologies acquisition in 1999, the Company decided not
to close a plant that was included in the repositioning plan in 1998. As a
result, $4.2 million and $0.4 million of plant closure and environmental
reserves were reversed in 1999 and 2000, respectively, primarily in the
Performance Chemicals business unit.

Included in the senior management transition costs was $15.5 million for the
change in chief executive officer. The reversal of $0.1 million in 1999 occurred
due to the costs associated with the terminations of certain senior management
positions being less than originally expected. The majority of the $3.1 million
of remaining senior management transition costs relate to chief executive
officer severance and transition costs, which will be substantially paid out by
the end of 2001.

The lease component of the repositioning plan represents the remaining lease
payments, net of sublease income, on one of the Energy Services and Products
business unit's deepwater oil well service vessels. Payments under the lease
agreement extend through 2001. The reversal of $0.7 million in 2000 was recorded
to reflect a revised amount of remaining lease payments, net of sublease income
on the lease, which terminates in March 2001.

In accordance with a plan approved by the Board of Directors in December 1997,
the Company took a series of actions to restructure its Water Treatment business
and eliminate under-performing assets. Details of the 1997 charge and a
reconciliation to the reserve balance at December 31, 2000 are follows:

--------------------------------------------------------------------------------
                                        Reserve                      Reserve
                            Amount      Balance at                  Balance at
                         of Charge     December 31,     2000       December 31,
Description                in 1997        1999        Activity        2000
--------------------------------------------------------------------------------

Asset impairment
   (non-cash):             $  38.0       $   --        $   --        $   --
Severance costs                1.9          1.0          (0.7)          0.3
Other                          9.9          0.7          (0.1)          0.6
--------------------------------------------------------------------------------
                           $  49.8       $  1.7        $ (0.8)       $  0.9
--------------------------------------------------------------------------------

The asset impairment related primarily to the abandonment of a BCDMH
manufacturing facility in Louisiana, a pharmaceutical intermediates production
plant in South Arkansas, a pool chemicals plant in Germany and certain mineral
leases.

Severance costs are for the involuntary termination of approximately 20 Water
Treatment business unit employees. The original provision for Other included
$5.0 million for the cost of exiting a European bromine joint venture and $2.5
million to terminate a facility lease. The remaining reserve of $0.9 million is
expected to be fully utilized in 2001.

Note 3: Discontinued Operations
During 1997, the Board of Directors approved a plan to spin off Octel to the
stockholders and to exit the furfural and derivatives business, Chemol and
environmental services businesses. These operations are included in discontinued
operations. The 1997 results include a special provision of $137 million net of
income tax benefits of $49 million related to the estimated losses on
divestitures and an income tax provision of $38 million related to the
anticipated repatriation of Octel earnings. Reserves for the discontinued
operations amounted to $2.2 million and $15.4 million at December 31, 2000 and
1999, respectively.

The Octel spin-off was completed on May 22, 1998, through a tax-free
distribution of one share of Octel common stock for every four shares of the
Company's common stock outstanding. Prior to the spin-off, the Company received
a distribution from Octel of approximately $462 million and assumed tax
liabilities of approximately $108 million. Stockholders' equity (retained
earnings and cumulative translation adjustment) was reduced by approximately
$292 million in 1998 representing the net book value of the distribution to the
stockholders.

A portion of the Chemol business was sold during 1998, and essentially all
remaining operations were concluded. The environmental services business was
sold in January 1999. The furfural and derivatives business was sold in June
1999.

                                       37



<PAGE>   39
Summary statements of income and net assets for the discontinued operations are
set forth below:

Summary Statement of Income

--------------------------------------------------------------------------------
Year Ended December 31                                        1998
--------------------------------------------------------------------------------

Net sales                                                   $351.7
Income before income taxes                                    48.6
Income taxes                                                  16.0
Income from operations
   (net of taxes)                                             32.6

Net income from
   discontinued operations                                  $ 32.6
--------------------------------------------------------------------------------

Summary Statement of Net Assets

--------------------------------------------------------------------------------
December 31                                                   1998
--------------------------------------------------------------------------------

Current assets                                              $147.5
Net plant and equipment                                       92.5
Goodwill and other assets                                     40.0
--------------------------------------------------------------------------------

Total assets                                                 280.0
Reserve for losses                                           145.4
Current liabilities                                           15.0
Other liabilities                                             17.1
Net assets                                                  $102.5
--------------------------------------------------------------------------------

Net assets (liabilities) of discontinued operations amounting to $1.1 million
and $(5.2) million have been included in other assets on the consolidated
balance sheets at December 31, 2000 and 1999, respectively.

Note 4: Acquisitions and Sale of Subsidiary Stock
Acquisitions
On July 14, 2000 the Company finalized its acquisition of Aqua Clear for
approximately $40.7 million. Aqua Clear is a manufacturer and distributor of
specialty pool chemical products and operates a manufacturing site in
Watervliet, New York, and distribution sites in St. Louis, Missouri, and
Waterford, New York, as well as sales and support networks throughout the United
States and Canada.

The acquisition of Aqua Clear was accounted for using the purchase method of
accounting with its results of operations included since the date of
acquisition. Goodwill resulting from the acquisition amounted to approximately
$32.5 million which is being amortized over 20 years. The allocation of the
purchase price to the acquired assets and assumed liabilities, including
goodwill, is preliminary since discussions are ongoing with the seller regarding
potential purchase price adjustments.

On May 3, 1999, the Company completed the acquisition of NSC Technologies from
Monsanto Company for approximately $125 million in cash. NSC Technologies
develops, manufactures and sells chiral pharmaceutical intermediates and select
bulk actives to pharmaceutical companies. The business' core chiral expertise in
unnatural amino acids provides a broad molecular platform from which it develops
novel, high value-added intermediates and bulk actives for antiviral,
cardiovascular and oncology therapeutic drugs. NSC Technologies is part of the
Fine Chemicals group of the Performance Chemicals business unit.

The acquisition was accounted for using the purchase method of accounting with
the results of NSC Technologies included since the date of acquisition. Goodwill
resulting from the acquisition amounted to approximately $89 million, which is
being amortized over 30 years.

On August 2, 1999, the Company completed the acquisition of PAD for $162 million
in cash. PAD is a world leader in the production of phosphate ester flame
retardants, flame retardant fluids and lubricant additives, as well as a leading
supplier of specialty water treatment chemicals used in industrial applications
and desalination. The transaction broadens the Polymer Additives business unit
and more than doubles the industrial segment of the Water Treatment business
unit.

The acquisition was accounted for using the purchase method of accounting with
the results of PAD included since the date of acquisition. Goodwill resulting
from the acquisition amounted to approximately $62 million, which is being
amortized over 35 years. The allocation of the purchase price to the acquired
assets and assumed liabilities, including goodwill, is preliminary since
discussions are ongoing with the seller regarding potential purchase price
adjustments.

Sale of Subsidiary Stock
Effective June 15, 2000, the Company sold 40% of its ownership in OSCA, Inc.
(OSCA), a wholly owned subsidiary (Energy Services and Products business unit)
through an initial public offering. Net proceeds of approximately $79 million
from the initial sale were paid to the Company by OSCA to satisfy indebtedness.
The initial sale resulted in a $51.9 million non-taxable gain to the Company,
which was recognized in the second quarter. Subsequently, on July 13, 2000 the
over-allotment option granted to the underwriters was exercised and resulted in
an additional $12 million of net proceeds. The over-allotment exercise resulted
in an additional non-taxable gain to the Company of $8.5 million, which was
recorded in the third quarter. The initial sale and the over-allotment option
exercise resulted in the Company selling a total of 43.4% of its ownership
interest in this subsidiary. OSCA continues to be included in consolidated
financial position and results of operations due to the Company's ability to
exert significant influence over OSCA as a result of its continuing ownership
and voting interest.

Note 5: Cash and Cash Equivalents Cash and cash equivalents consist of the
following:

--------------------------------------------------------------------------------
December 31                                  2000             1999
--------------------------------------------------------------------------------

Cash                                        $71.1            $85.4
Cash equivalents                            151.6            392.9
--------------------------------------------------------------------------------

                                           $222.7           $478.3
--------------------------------------------------------------------------------

Note 6: Inventories
The major components of inventories are as follows:

--------------------------------------------------------------------------------
December 31                                  2000             1999
--------------------------------------------------------------------------------

Finished products                        $  281.7           $227.9
Raw materials                                48.0             60.1
Supplies                                     34.7             28.8
--------------------------------------------------------------------------------

                                         $  364.4           $316.8
--------------------------------------------------------------------------------

Note 7: Plant and Equipment Plant and equipment consist of the following:

--------------------------------------------------------------------------------
December 31                                  2000             1999
--------------------------------------------------------------------------------

Land                                        $19.9            $18.2
Buildings                                   124.3            109.6
Equipment                                 1,253.3          1,150.3
Construction in progress                     79.0             79.3
--------------------------------------------------------------------------------

                                          1,476.5          1,357.4
Less allowances for depreciation,
   depletion and amortization              (725.6)          (605.6)
--------------------------------------------------------------------------------

                                         $  750.9           $751.8
--------------------------------------------------------------------------------


                                       38

<PAGE>   40
NOTE 8: DEBT
Long-term debt is summarized as follows:
-------------------------------------------------------------------------------

-------------------------------------------------------------------------------
December 31                                  2000             1999
-------------------------------------------------------------------------------

Notes payable                              $400.0            $401.0
Commercial paper                            229.7             455.8
Industrial development bonds                 12.3              12.3
Other                                        52.2              20.3
-------------------------------------------------------------------------------
                                            694.2             889.4
Less current portion                         (6.0)             (6.0)
                                           $688.2            $883.4
-------------------------------------------------------------------------------

On July 15, 1999, the Company sold $400 million of 7% notes due July 15, 2009.
Proceeds from the sale of the notes were used to replace a portion of the
commercial paper borrowings. The notes contain restrictive financial covenants,
including an interest coverage ratio. The notes were sold under a shelf
registration process. Under this process, the Company filed a Registration
Statement on Form S-3 with the Securities and Exchange Commission and may sell
various unsecured debt securities, common stock or rights or warrants to
purchase common stock individually or in combination up to $750 million. The
amount remaining on the registration statement is $350 million.

The weighted average rate of interest on commercial paper borrowing was 6.1% at
December 31, 2000. The interest rate on industrial development bonds was 4.3% at
December 31, 2000. The bonds have maturities through 2025.

The Company has a $600 million revolving credit agreement with 12 banks that
serves as a backup for the Company's commercial paper program, which expires in
2001. The agreement provides various interest rate options, including the banks'
prime interest rate, and contains restrictive financial covenants, including an
interest coverage ratio. The Company's commercial paper is rated A-1 by Standard
and Poor's and P-1 by Moody's.

Commercial paper financing has been classified as a component of long-term debt
since the Company intends to refinance these borrowings on a long-term basis
either through continued commercial paper borrowings or utilization of available
long-term credit facilities.

Long-term debt matures as follows: 2001, $6.0 million; 2002, $233.7 million;
2003, $33.9 million; 2004, $2.6 million; 2005, $2.8 million; and thereafter,
$415.2 million.

During 2000, 1999 and 1998, interest costs were $53.8 million, $35.1 million and
$31.2 million, respectively, which included interest capitalized as additional
costs of plant and equipment of $1.7 million in 2000, $3.5 million in 1999 and
$6.4 million in 1998. In these years, interest payments were $54.2 million,
$22.2 million and $32.3 million, respectively.

NOTE 9: INCOME TAXES
The following is a summary of domestic and foreign income before income taxes,
the components of the provisions for income taxes, a reconciliation of the
United States federal income tax rate to the effective income tax rate and the
components of deferred tax assets and liabilities.

Income Before Income Taxes:

-------------------------------------------------------------------------------
Year Ended December 31         2000          1999             1998
-------------------------------------------------------------------------------
Domestic                     $124.4        $112.7             $18.3
Foreign                        40.5          62.7              47.9
                             $164.9        $175.4             $66.2
-------------------------------------------------------------------------------

Provisions for Income Taxes:

-------------------------------------------------------------------------------
Year Ended December 31         2000          1999             1998
-------------------------------------------------------------------------------
Current:
   Federal                    $ 9.1         $(5.2)          $  6.5
   State                        5.0           1.7              4.9
   Foreign                      8.5          20.2             12.5
-------------------------------------------------------------------------------
                               22.6          16.7             23.9
Deferred:
   Domestic                     8.0          20.8            (20.5)
   Foreign                      7.3          (1.7)             6.4
-------------------------------------------------------------------------------
                               15.3          19.1            (14.1)
-------------------------------------------------------------------------------
                              $37.9         $35.8           $  9.8
-------------------------------------------------------------------------------

Effective Income Tax Rate Reconciliation:

-------------------------------------------------------------------------------
Year Ended December 31               2000          1999             1998
-------------------------------------------------------------------------------
U.S. federal income tax rate         35.0%         35.0%             35.0%
Change resulting from:
   State income tax                   2.0           0.6               4.8
   Depletion                         (1.2)         (0.9)             (3.3)
   Foreign sales corporation         (1.5)         (1.8)             (4.8)
   Tax exempt interest               (0.5)         (0.5)             (1.7)
   Dividends received deduction      (0.3)         (1.3)             (3.3)
   Low income housing credit         (1.9)         (1.6)             (3.2)
   International operations          (0.4)         (2.4)             (8.6)
   Gain on sale of
     subsidiary stock               (12.6)           --                --
   Special charge
     rate differential                 --            --               2.7
   Stock redemption -
     Huntsman                        (0.5)         (1.3)               --
   Release of previously
     provided tax provisions           --          (7.2)               --
   Change in
     valuation allowance              2.9           1.3               3.1
   Other                              2.0           0.5              (5.9)
Effective income tax rate            23.0%         20.4%             14.8%
-------------------------------------------------------------------------------

Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes.

Components of Deferred Tax Assets and Liabilities:

-------------------------------------------------------------------------------
December 31                                  2000              1999
-------------------------------------------------------------------------------

Deferred tax assets
   Accrued expenses                          $7.7             $ 7.4
   Special charges                            5.7               9.1
   Tax credit carryforwards                  16.1              11.0
   Net operating loss carryforwards          14.6               7.5
   Other                                     24.3              16.9
-------------------------------------------------------------------------------
Deferred tax assets                          68.4              51.9
   Valuation allowance                      (12.2)             (7.5)
-------------------------------------------------------------------------------
Deferred tax assets, net of
  valuation allowance                       $56.2             $44.4

Deferred tax liabilities
   Depreciation                             $64.4             $47.9
   Other                                     27.1              22.2
-------------------------------------------------------------------------------
Deferred tax liabilities                    $91.5             $70.1

Net deferred tax liabilities                $35.3             $25.7
-------------------------------------------------------------------------------


                                       39



<PAGE>   41
As of December 31, 2000, the Company had tax credit carryforwards of $16.1
million available. Of this amount, $2.2 million expire in 2003; $6.2 million
expire in 2004; $3.2 million expire in 2005; and the remaining $4.5 million have
no expiration dates. At December 31, 2000, certain foreign subsidiaries of the
Company had net operating losses of $36.5 million. These carryforwards will be
available for the reduction of future taxable income of these subsidiaries. A
valuation allowance of $12.2 million has been recorded against the portion of
these net operating loss carryforwards for which utilization is uncertain.

Cash payments for income taxes were $11.2 million, $24.0 million and $109.0
million in 2000, 1999 and 1998, respectively.

NOTE 10: STOCKHOLDERS' EQUITY
The Board of Directors has authorized the Company to purchase shares of the
Company's common stock in the open market or in privately negotiated
transactions. Pursuant to these authorizations, the Company purchased
approximately 4.5 million shares during 2000 at an average price of $30.00. A
total of 2.9 million shares remain available under existing Board
authorizations.

On February 15, 1999, the Company's Board of Directors approved a new
Stockholders Rights Plan, replacing a plan which was scheduled to expire in
September 1999. The outstanding rights under the prior Stockholders Rights Plan
were redeemed at a price of $0.0025 per right for stockholders of record on
April 1, 1999. Under the new Stockholders Rights Plan, the stockholders received
one right (the "Right") for each outstanding share of common stock of the
Company that they owned on the record date. The new Rights have an exercise
price of $170 per right, subject to adjustment. Until the Rights become
exercisable, they are attached to, and will trade with, the common stock.

The Rights become exercisable and transferable apart from the common stock if a
person becomes the beneficial owner of, or offers to acquire, 15% or more of the
Company's outstanding common stock or if the Board declares a 10%-or-more
stockholder an "Adverse Person" based on certain criteria set forth in the Plan.
After a person becomes the beneficial owner of 15% or more of the Company's
outstanding common stock or is declared an Adverse Person (each such event is
referred to as a "triggering event"), each Right would entitle the holder,
except the acquiring person or Adverse Person, to purchase, at the Right's
then-current exercise price, the number of Great Lakes common shares having a
market value equal to twice the Right's exercise price.

If after one of the triggering events described above, the Company is acquired
in a merger or other business combination, and the Rights have not been
previously redeemed, the holder of each Right is entitled to purchase, at the
Right's then-current exercise price, that number of the acquiring company's
common shares having a market value equal to twice the Right's exercise price.

Under certain conditions, the Rights may be redeemed by the Company at a price
of $0.01 per Right (subject to adjustment) prior to their expiration on February
15, 2009.

NOTE 11: EARNINGS PER SHARE
Basic earnings per share is based on the weighted-average number of common
shares outstanding during the period, while diluted earnings per share includes
the effect of options and restricted stock that were dilutive and outstanding
during the period. The computation of basic and diluted earnings per share is
determined using net income or loss as reported as the numerator, and the number
of shares included in the denominator is calculated as follows:

-------------------------------------------------------------------------------
Year Ended December 31         2000          1999             1998
-------------------------------------------------------------------------------

Denominator for basic
   earnings per share
   (weighted-average shares)   52.4          57.8             59.0
Effect of dilutive securities   0.1           0.2              0.2
Denominator for diluted
   earnings per share          52.5          58.0             59.2
-------------------------------------------------------------------------------

Options to purchase shares of common stock of 3.1 million in 2000, 1.6 million
in 1999 and 1.4 million in 1998 were outstanding, but were excluded from the
computation of diluted earnings per share, because the exercise prices were
greater than the average market price of the common shares during those years,
and therefore the effect would have been antidilutive.

NOTE 12: STOCK COMPENSATION PLANS
The Company has three plans that provide for the granting of stock awards to
officers and key employees. The 1998 and the 1993 Stock Compensation Plans have
stock awards available for grant; the third plan has options exercisable as of
December 31, 2000. The Company is authorized to grant options for up to 4.5
million shares under the plans, of which 2.6 million have been granted. Options
under the plans have been granted at the market value at the date of grant,
become exercisable over periods of one to five years and expire 10 years from
the date of grant.

In addition to the options awarded under the plans, the Company on April 6,
1998, granted the chief executive officer an option to acquire 0.7 million
shares of the Company's stock. The options were granted at market value on the
date of grant; 0.2 million of the shares became exercisable upon grant with the
balances becoming exercisable ratably over four years. The options expire 10
years from the grant date.

The status of the Company's stock options is summarized below:

-------------------------------------------------------------------------------
                                                              Weighted
                                     Shares Under             Average
                                           Option             Exercise Price
-------------------------------------------------------------------------------
Outstanding at January 1, 1998                1.9             $52.79
Granted                                       1.3              43.46
Exercised                                    (0.2)             22.05
Terminated                                   (0.6)             57.02
Adjustment for Octel spin-off                 0.3              --
-------------------------------------------------------------------------------
Outstanding at December 31, 1998              2.7              43.57
Granted                                       0.8              40.29
Exercised                                    (0.2)             22.01
Terminated                                   (0.2)             44.99
-------------------------------------------------------------------------------
Outstanding at December 31, 1999              3.1              43.96
Granted                                       0.8              30.15
Exercised                                    (0.1)             23.10
Terminated                                   (0.5)             40.67
-------------------------------------------------------------------------------
Outstanding at December 31, 2000              3.3             $41.72

Currently Exercisable                         1.9             $46.30
-------------------------------------------------------------------------------

                                       40



<PAGE>   42
Concurrent with the May 1998 spin-off of Octel, the number of options
outstanding was increased by 14% or 0.3 million shares and grant prices were
reduced by approximately 14% to maintain the total value of the options at
pre-spin-off levels.

During 2000 and 1999 the Company awarded restricted stock totaling 0.014 million
and 0.1 million shares, respectively, to directors and other key employees.
These awards become exercisable over a period of 1 to 24 years. The Company
recognizes compensation expense consistent with the vesting of each award. The
compensation expense incurred in 2000 and 1999 related to these awards totaled
$1.0 million and $1.3 million, respectively.

The following table summarizes information concerning outstanding and
exercisable options at December 31, 2000:

-------------------------------------------------------------------------------
Range of
   Exercise Prices       $27.00-$35.99       $36.00-$50.99     $51.00-$68.99
-------------------------------------------------------------------------------

Options outstanding:
Weighted-average
   remaining
   contractual life           9.6 yrs.            7.3 yrs.          4.7 yrs.
Weighted-average
   exercise price               $31.97              $41.45            $61.85
Number                             1.0                 1.8               0.5
Options exercisable:
Weighted-average
   exercise price               $35.63              $40.52            $61.85
Number                             0.2                 1.1               0.6
-------------------------------------------------------------------------------
The Company accounts for stock compensation costs in accordance with the
provisions of Accounting Principles Board Opinion No. 25, "Accounting for Stock
Issued to Employees," and related interpretations. Accordingly, no compensation
cost has been recognized for its fixed stock option plans. The following table
sets forth pro forma information as if compensation cost had been determined
based on the fair value at the grant date for awards under the Company's stock
plans consistent with the requirements of SFAS No. 123, "Accounting for
Stock-Based Compensation." For the purposes of the pro forma disclosure, the
estimated compensation costs are amortized to expense over the options' vesting
period, principally three years.

-------------------------------------------------------------------------------
December 31                    2000          1999             1998
-------------------------------------------------------------------------------
Weighted-average fair value
   per share of options
   granted during the year(1)      $11.67        $14.36             $13.96
Net income from
   continuing operations:
   As reported                      127.0         139.6               56.4
   Pro forma                        123.2         132.8               47.6
Diluted earnings per share:
   As reported                       2.42          2.41               0.95
   Pro forma                         2.35          2.30               0.81
Assumptions:
   Expected volatility               28.3%         27.7%              23.9%
   Expected life in years             6.5           6.5                6.5
   Risk free interest rate            6.7%          4.9%               5.5%
   Dividend yield                     1.1%          0.8%               0.9%
-------------------------------------------------------------------------------

(1) On date of grant using the Black-Scholes option pricing model.


NOTE 13: RETIREMENT PLANS
The Company sponsors various defined benefit pension plans. The following table
provides a progression of the plans' benefit obligations and fair value of plan
assets for 2000 and 1999, and reconciles the funded status to the amounts
recognized in the balance sheets for those years.

-------------------------------------------------------------------------------
                                             2000             1999
-------------------------------------------------------------------------------
Change in benefit obligation:
   Benefit obligation at beginning
    of year                                $148.0             $156.8
   Service cost                               8.2                9.2
   Interest cost                             11.0               10.2
   Plan participants' contributions           1.2                0.7
   Amendments and terminations                 --                1.5
   Net actuarial loss/(gain)                 (0.3)             (22.4)
   FAS 88 gain                                 --               (1.7)
   Benefits paid                             (5.6)              (5.1)
   Acquisitions                              37.2             --
   Foreign currency translation
    loss/(gain)                              (2.9)              (1.2)
   Benefit obligation at end of year       $196.8             $148.0
-------------------------------------------------------------------------------
Change in fair value of plan assets:
   Fair value of plan assets at
     beginning of year                     $155.5             $129.3
   Actual return on plan assets              30.1               25.8
   Employer contributions                     3.5                6.2
   Benefits and expenses paid                (5.9)              (5.6)
   Amendments                                  --             --
   Acquisitions                              55.0             --
   Foreign currency translation
    (loss)/gain                              (1.1)              (0.2)
   Fair value of plan assets at
    end of year                            $237.1             $155.5
-------------------------------------------------------------------------------
Reconciliation of funded status to
 amounts recognized in the balance sheets:
   Funded status                           $ 40.3             $  7.5
   Unrecognized prior service cost            0.2                2.1
   Unrecognized transition obligation         0.5                0.7
   Unrecognized net actuarial loss/(gain)   (40.9)             (24.6)
   Prepaid (accrued) benefit cost          $  0.1             $(14.3)
-------------------------------------------------------------------------------
Amounts recognized in the balance
 sheets consist of:
   Prepaid benefit costs                   $  8.6             $  1.8
   Accrued benefit liability                (11.0)             (19.1)
   Intangible asset                           0.9                1.5
   Accumulated other comprehensive income     1.6                1.5
   Prepaid (accrued) benefit cost          $  0.1             $(14.3)
-------------------------------------------------------------------------------
Weighted average assumptions at the end of 2000 and 1999:
Discount rates                               6.5% to 8.0%
Expected return on plan assets               7.0% to 9.0%
Rates of compensation increases              4.0% to 4.5%
-------------------------------------------------------------------------------

The components of net periodic benefit costs are as follows:

-------------------------------------------------------------------------------
                                         2000          1999             1998
-------------------------------------------------------------------------------

Service cost                            $  8.2        $  9.2           $  6.7
Interest cost                             11.0          10.2              9.1
Expected return on plan assets           (13.3)        (11.4)           (11.6)
Amortization of prior service cost         0.1           0.2              0.2
Amortization of transition obligation      0.2           0.2              0.2
Recognized net actuarial loss            --              1.3              0.1
Termination benefits                     --              0.1              1.4
Net periodic benefit cost               $  6.2        $  9.8           $  6.1
-------------------------------------------------------------------------------


                                       41



<PAGE>   43
Amounts applicable to the Company's pension plans with accumulated benefit
obligations in excess of plan assets are as follows:
-------------------------------------------------------------------------------
                                             2000             1999
-------------------------------------------------------------------------------

Projected benefit obligation                $12.5             $11.5
Accumulated benefit obligation               11.1             10.3
Fair value of plan assets                      --            --
-------------------------------------------------------------------------------
The Company provides no significant postretirement benefits other than pensions.

NOTE 14: RESEARCH AND DEVELOPMENT EXPENSES
Research and development expenses were approximately $39.5 million, $45.7
million and $42.3 million in 2000, 1999 and 1998, respectively.

NOTE 15: SEGMENT INFORMATION
The Company is organized in the four global segments: Polymer Additives,
Performance Chemicals, Water Treatment and Energy Services and Products. These
segments are strategic business units that offer products and services that are
intended to satisfy specific customer requirements. The units are organized and
managed to deliver a distinct group of products, technology and services.

The Polymer Additives segment produces brominated, non-halogen, intumescent and
antimony-based flame retardants; UV and antioxidant stabilizers; and impact
modifiers. The segment serves manufacturers in the following industries:
electrical and electronic; construction; automotive; and furnishings.

The Performance Chemicals segment produces chemicals to exact specifications or
to meet specific applications requirements. The product offering is
characterized by technology-based product solutions that benefit specific
customers. The businesses included in the segment are: fine chemicals for
pharmaceutical and life sciences companies; fluorine chemicals for use in fire
suppression systems, refrigerants and medical and pharmaceutical products;
brominated intermediates; and agricultural products and toxicological testing
services for chemical, pharmaceutical and food additive producers.

The Water Treatment segment is a producer of water treatment chemicals for the
recreational swimming pool and spa water treatment industry. These products are
sold to pool and spa dealers, distributors and mass market retailers. The Water
Treatment segment also produces specialty biocides for use in cooling tower
water treatment; wastewater treatment; pulp and paper production; and
desalination products.

The Energy Services and Products segment provides specialized oil and gas well
completion fluids, completion services and downhole completion tools to major
oil companies and independent exploration and production companies, primarily in
the Gulf of Mexico and select international markets.

The Company evaluates business unit performance and allocates resources based on
operating income, which represents net sales less cost of products sold and
selling, general and administrative expenses. Each of the Company's segments
uses bromine as a raw material in their production processes. Bromine is
transferred at cost to all business segments, except Energy Services and
Products. Their cost is based upon a bromine supply agreement. In addition,
assets used in the production of bromine are allocated to each business unit
based on the percentage of production consumed, except for Energy Services and
Products, which does not receive an allocation. The accounting policies of the
reportable segments are the same as those described in the summary of
significant accounting policies.

Corporate includes the corporate offices and the discontinued operations.
Segment assets include primarily accounts receivable, inventory, net plant and
equipment and other miscellaneous assets. Assets included in Corporate
principally are cash and cash equivalents; insurance receivables; deferred
income taxes; certain investments and other assets; and certain unallocated
plant and equipment, including the Company's ERP software systems. Geographic
sales information is reported based on the location that invoices the external
customer. Geographic long-lived assets are grouped by the location of the
reporting country. Inter-segment sales are insignificant and are eliminated in
consolidation.

-------------------------------------------------------------------------------
Year Ended December 31                     2000        1999       1998
-------------------------------------------------------------------------------

Net Sales by Segment
   to External Customers:
   Polymer Additives                   $  690.1    $  632.1    $  599.1
   Performance Chemicals                  369.3       354.9       323.7
   Water Treatment                        474.5       418.1       396.3
   Energy Services
     and Products                         131.9        95.2       115.7
-------------------------------------------------------------------------------
   Total sales of
     reportable segments                1,665.8     1,500.3     1,434.8
   Corporate                                4.7        --           0.9
                                       $1,670.5    $1,500.3    $1,435.7
-------------------------------------------------------------------------------
Segment Profit:
   Polymer Additives                   $   52.4    $   78.0    $   78.9
   Performance Chemicals                   90.8        78.7        70.2
   Water Treatment                         85.0        73.1        54.5
   Energy Services
     and Products                          12.5        (8.5)       11.0
-------------------------------------------------------------------------------
   Total profits of
     reportable segments                  240.7       221.3       214.6
   Corporate                              (37.1)      (41.0)      (24.2)
   Special charges                        (63.4)      (18.2)     (116.5)
   Operating income                       140.2       162.1        73.9
-------------------------------------------------------------------------------
Gain on sale of subsidiary stock           60.4          --          --
Interest and other income                  37.1        44.3        37.0
Interest and other expenses                72.8        31.0        44.7
Income before income taxes             $  164.9    $  175.4    $   66.2
-------------------------------------------------------------------------------
Depreciation Expense:
   Polymer Additives                   $   35.5    $   34.7    $   37.9
   Performance Chemicals                   18.7        19.1        20.8
   Water Treatment                         13.3        10.5         9.1
   Energy Services
     and Products                           7.9         9.7         8.7
   Corporate                               12.5         6.8         2.1
                                       $   87.9    $   80.8    $   78.6
-------------------------------------------------------------------------------
Segment Assets:
   Polymer Additives                   $  813.3    $  782.6    $  664.3
   Performance Chemicals                  439.2       436.1       302.4
   Water Treatment                        396.1       303.3       227.7
   Energy Services
     and Products                         122.1       131.1       147.3
   Corporate                              362.6       613.1       560.4
   Net assets of
     discontinued operations                1.1        (5.2)      102.5
-------------------------------------------------------------------------------
                                       $2,134.4    $2,261.0    $2,004.6




                                       42



<PAGE>   44
-------------------------------------------------------------------------------
Year Ended December 31       2000          1999             1998
-------------------------------------------------------------------------------
Investment in Equity
   Method Investees:
   Polymer Additives       $   19.9      $   18.1        $   10.7
Expenditures for
   Long-lived Assets:
   Polymer Additives       $   62.2      $   40.7        $   52.0
   Performance Chemicals       41.7          29.0            29.4
   Water Treatment             17.4          13.1            11.1
   Energy Services
     and Products               6.2          13.1            28.7
   Corporate                   29.5          23.1            39.4

                           $  157.0      $  119.0        $  160.6
-------------------------------------------------------------------------------
Geographic Information
Net Sales to
   External Customers:
   United States           $1,037.4      $  916.8        $  907.0
   United Kingdom             228.2         152.7           322.4
   Switzerland                152.8         135.1         --
   Other foreign              252.1         295.7           206.3

                           $1,670.5      $1,500.3        $1,435.7
-------------------------------------------------------------------------------
Long-lived Assets:
   United States           $  774.4      $  740.5        $  644.9
   United Kingdom             136.0         123.7            78.0
   Other foreign              174.9         189.6           162.5
-------------------------------------------------------------------------------

                           $1,085.3      $1,053.8        $  885.4
-------------------------------------------------------------------------------

NOTE 16: INVESTMENT IN AND ADVANCES TO UNCONSOLIDATED AFFILIATES
As of December 31, 2000, the Company's investment in unconsolidated affiliates
consists mainly of a 50% interest in Tetrabrom Technologies, Ltd., an Israeli
manufacturer of tetrabromobisphenol-A. At December 31, 1999, the Company also
had a preferred stock interest in Huntsman Chemical Corporation (HCC) consisting
of 14,675 shares of series A cumulative preferred stock with an annual dividend
rate of 14%. During 1999 the Company sold 44,025 shares of the HCC preferred
stock and in 2000 sold its remaining interest. As a result of these sales, the
Company recognized before-tax gains of approximately $3 million and $9 million
in 2000 and 1999, respectively. Preferred stock dividends from HCC amounted to
$0.3 million, $7 million and $8 million in 2000, 1999 and 1998, respectively.
The Company is also a limited partner in certain low-income housing investments
that generate benefits in the form of tax credits.

The Company's equity in earnings (loss) of unconsolidated affiliates was $5.7
million, $1.0 million and $(0.2) million for 2000, 1999 and 1998, respectively.

NOTE 17: FINANCIAL INSTRUMENTS
Foreign Exchange Risk Management
In the normal course of business, operations of the Company are subject to risks
associated with changing financial exchange rates. These fluctuations can vary
the costs of financing, investing and operating. Accordingly, the Company hedges
certain portions of its exposure to foreign currency fluctuations through the
use of options and forward exchange contracts to protect the value of its
existing foreign currency asset and liability commitments and anticipated
foreign currency revenues.

It is the Company's policy to enter into foreign currency hedging transactions
only to the extent considered necessary to achieve the objectives stated above.
The Company does not enter into foreign currency transactions for trading
purposes.

The Company enters into currency option and forward contracts to hedge
anticipated foreign currency transactions during the next 12 months. The
principal currencies hedged are the Japanese yen, British pound and euro.

The Company uses currency swap contracts to hedge a long-term intercompany loan.
These contracts hedge the Italian lira against the British pound. The terms of
the swap contracts match the loan principal repayment terms. Any gains or losses
on these contracts would be offset by losses or gains on the underlying
intercompany loan.

Gains and losses arising from the use of such instruments, except those
considered to be hedges of long-term investments, are recorded in the income
statement concurrently with gains and losses arising from the underlying hedged
transactions. The impact of currency forwards and options used for foreign
exchange risk management on pretax income in 2000, 1999 and 1998 was a net
(loss) gain of approximately $(1.6) million, $(0.7) million and $0.9 million,
respectively.

Interest Rate Risk Management
The Company utilizes a number of methods to provide both long-term and
short-term financing for its operations. The Company has historically relied on
a floating rate commercial paper program for ongoing working capital and, more
recently, issued $400 million of 7% fixed rate notes due July 15, 2009.

The Company employs certain hedging instruments to minimize its exposure to
changes in interest rates. The notional amount of interest swap agreements was
$0 and $200 million at December 31, 2000 and 1999, respectively. In 2000, the
Company terminated its swap arrangement and as a result recognized a $2.9
million gain, which is being amortized over the remaining term of the underlying
7% fixed rate notes that are due July 15, 2009. The Company has also utilized
other interest rate derivative instruments to manage its exposure to interest
rate changes; however, there were no positions outstanding at either December
31, 2000 or 1999 related to these activities.

Gains and losses arising from the use of such interest rate hedging instruments
are recorded in the income statement concurrently with gains and losses arising
from the underlying transactions. The impact on pretax income of interest rate
risk management activities was a net gain of approximately $0.4 million, $4.0
million and $0 for 2000, 1999 and 1998, respectively.

Fair Value of Financial Instruments
For certain of the Company's financial instruments, including cash and cash
equivalents; accounts and notes receivable; accounts payable; and accrued
expenses, the stated values approximate fair value due to their short-term
nature. Consequently, such financial instruments are not included in the
following table that provides information about the stated values and estimated
fair values of other financial instruments, both on and off the balance sheets:





                                       43
<PAGE>   45

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
                                                      2000                                           1999
                               Notional Amount   Carrying Amount   Fair Value   Notional Amount  Carrying Amount      Fair Value
------------------------------------------------------------------------------------------------------------------------------------
<S>                                 <C>          <C>               <C>                <C>        <C>               <C>
Long-term debt
   including current portion       $  --            $694.0           $691.0       $   --             $889.4            $870.9
Interest rate swap agreements         --                --               --        200.0                 --              (8.4)
Foreign currency options and
   forward contracts                92.0               0.4              0.4         23.2               (1.0)             (1.0)
Foreign currency
   swap contracts                   38.9               7.7              7.7         46.8                6.7               6.7
-----------------------------------------------------------------------------------------------------------------------------------
</TABLE>

The estimated fair value of long-term debt is based primarily on quoted market
prices for the same or similar issues. The fair values of option, forward
exchange and swap contracts are based on quoted market prices of comparable
instruments.

Concentrations of Credit Risk
The Company sells a broad range of products to a diverse group of customers
operating throughout the world. These industries generally are not significantly
affected by changes in economic or other factors. Credit limits, ongoing credit
evaluation and account monitoring procedures are utilized to minimize the risk
of loss. Collateral is generally not required. Counterparties to the currency
and interest rate swap agreements are major financial institutions. Credit
losses from counterparty nonperformance are not anticipated.

NOTE 18: COMMITMENTS AND CONTINGENCIES
The Company has various purchase commitments for raw materials, supplies and
plant and equipment incident to the ordinary conduct of business. None of the
raw material and supply commitments represents an unconditional purchase
obligation. In the aggregate, such commitments are not at prices in excess of
current market. At December 31, 2000, the Company had committed approximately
$89.1 million to complete capital projects.

The Company has various operating leases primarily for the use of office space,
computer equipment and services and marine service vessels. Future minimum lease
payments under these non-cancelable operating leases totaled $73.9 million at
December 31, 2000, due as follows: 2001 - $16.2 million; 2002 - $13.0 million;
2003 - $11.0 million; 2004 - $6.5 million; 2005 - $5.5 million; and $21.7
million, thereafter.

Rent expense for all operating leases amounted to $20.1 million, $19.8 million
and $24.1 million for 2000, 1999 and 1998, respectively.

The Company is subject to various lawsuits and claims with respect to matters
such as governmental regulations, income taxes and other actions arising out of
the normal course of business. The Company is also subject to contingencies
pursuant to environmental laws and regulations that in the future may require
the Company to take action to correct the effects on the environment of prior
manufacturing and waste disposal practices.

The Company has been cooperating with the United States Department of Justice
(DOJ) and the European Commission since the spring of 1998 in their respective
investigations of the bromine and brominated products industry. Both
investigations were initiated after the Company self-reported to those agencies
certain business practices that raised questions under antitrust laws. As a
result of the Company's cooperation, the Company and its current directors and
employees have been accepted into the DOJ's amnesty program. As a result, the
Company will be exempt from United States federal criminal prosecution and fines
relating to the practices in question if the Company complies with certain
conditions, including its full cooperation with the DOJ's investigation and
policy regarding reasonable remedial efforts. Concurrently, the Company is
seeking favorable treatment under a program in the European Union that also
rewards self-reporting and cooperation.

The Company believes it has fully complied with all applicable conditions to
date and has continued to cooperate with the DOJ in connection with certain
follow-up matters arising out of the investigation, all of which are covered by
the Company's acceptance into the amnesty program. The Company intends to
continue full compliance with the DOJ and European Union programs.

Participation in the above programs does not provide the Company with immunity
from civil liability, including restitution claims. To date, 10 federal
purported class action lawsuits and five California purported class actions have
been filed against the Company, each claiming treble damages. These suits claim,
among other things, that the Company conspired with others in violation of
antitrust laws regarding the pricing of bromine and brominated products. The
federal lawsuits have been consolidated in the District Court for the Southern
District of Indiana. The plaintiffs have filed a motion to certify a class of
purchasers of three particular brominated products, and the Company has opposed
the motion. A ruling on the class certification is expected later this year. The
California cases have been stayed pending resolution of the federal cases.

In April 1999, the Company reached agreement with the National Labor Relations
Board to settle a 1986 lawsuit alleging unfair labor practices at the Company's
Newport, Tennessee, facility following its acquisition of the site from Syntex
Corporation. The $9 million settlement covers backpay and interest for certain
former Syntex employees. The settlement amount is consistent with previously
established reserves.

Environmental remediation costs that relate to current operations are expensed
or capitalized as appropriate. Costs that relate to an existing condition caused
by past operations, and that do not contribute to current or future revenue
generation, are expensed. Liabilities are recorded when environmental
assessments are made or remedial efforts are probable and the costs can be
reasonably estimated.

Environmental liabilities and litigation accruals of approximately $9.3 million
and $14.0 million have been reflected as accrued expenses in the Company's
consolidated balance sheet at December 31, 2000 and 1999, respectively.

While it is not possible to predict or determine the outcome of actions brought
against the Company or the ultimate cost of environmental matters, the Company
believes that the costs associated with all such matters will not have a
material adverse effect on its consolidated financial position or consolidated
results of operations.



                                       44

<PAGE>   46
QUARTERLY RESULTS OF OPERATIONS (unaudited)

<TABLE>
<CAPTION>
(millions, except per share data)
2000 - Three Months Ended                                          March 31           June 30     September 30       December 31
---------------------------------------------------------------------------------------------------------------------------------
<S>                                                                <C>                <C>         <C>                <C>
Net sales(1)                                                         $404.5            $442.6           $418.2            $405.2
Operating expenses
   Cost of products sold(1)                                           293.2             310.9            308.4             298.3
   Selling, general and administrative expenses                        64.2              66.1             60.6              65.2
   Special charges                                                       --              66.4               --              (3.0)
---------------------------------------------------------------------------------------------------------------------------------
Operating income (loss)                                                47.1              (0.8)            49.2              44.7
Gain on sale of subsidiary stock                                         --              51.9              8.5                --
Interest and other income                                              12.9              12.4              5.0               6.8
Interest and other expenses                                            18.9              15.5             18.0              20.4
---------------------------------------------------------------------------------------------------------------------------------
Income before income taxes                                             41.1              48.0             44.7              31.1
Income taxes                                                           12.7               7.8             10.2               7.2
---------------------------------------------------------------------------------------------------------------------------------
Net income                                                           $ 28.4            $ 40.2           $ 34.5            $ 23.9
Earnings per share:
Basic                                                                $ 0.52            $ 0.75           $ 0.67            $ 0.48
Diluted                                                              $ 0.52            $ 0.75           $ 0.67            $ 0.48
Cash dividends paid per share                                        $ 0.08            $ 0.08           $ 0.08            $ 0.08
---------------------------------------------------------------------------------------------------------------------------------
Stock Price Data
   High                                                              $40.44            $35.81           $33.94            $39.19
   Low                                                                26.75             26.50            26.56             28.13
   Year-end close                                                                                                          37.19
---------------------------------------------------------------------------------------------------------------------------------
</TABLE>

<TABLE>
<CAPTION>
1999 - Three Months Ended                                          March 31           June 30     September 30       December 31
---------------------------------------------------------------------------------------------------------------------------------
<S>                                                                <C>                <C>         <C>                <C>
Net sales(1)                                                         $344.0            $388.4           $386.8            $381.1
Operating expenses
   Cost of products sold(1)                                           246.2             275.6            278.5             276.9
   Selling, general and administrative expenses                        51.5              55.7             62.7              72.9
   Special charges                                                       --                --               --              18.2
---------------------------------------------------------------------------------------------------------------------------------
Operating income                                                       46.3              57.1             45.6              13.1
Interest and other income                                               7.7              10.1             12.7              13.8
Interest and other expense                                              7.0               7.2              8.7               8.1
---------------------------------------------------------------------------------------------------------------------------------
Income before income taxes                                             47.0              60.0             49.6              18.8
Income taxes (benefit)(2)                                              16.0              17.2             15.4             (12.8)
---------------------------------------------------------------------------------------------------------------------------------
Net income                                                           $ 31.0            $ 42.8           $ 34.2            $ 31.6
Earnings per share:
   Basic                                                             $ 0.53            $ 0.73           $ 0.59            $ 0.56
   Diluted                                                           $ 0.53            $ 0.73           $ 0.59            $ 0.56
Cash dividends paid per share                                        $ 0.08            $ 0.08           $ 0.08            $ 0.08
---------------------------------------------------------------------------------------------------------------------------------
Stock Price Data
   High                                                              $44.19            $50.00           $47.56            $38.56
   Low                                                                35.50             36.25            37.25             33.19
   Year-end close                                                                                                          38.19
---------------------------------------------------------------------------------------------------------------------------------
</TABLE>

(1) Net sales and cost of products sold amounts have been restated for all
periods presented to reflect the application of Emerging Issues Task Force
Consensus EITF 00-10, "Accounting for Shipping and Handling Fees and Costs,"
effective in the fourth quarter of 2000. See notes to consolidated financial
statements.

(2) Income taxes (benefit) for 1999 reflects fourth quarter adjustments
amounting to $18.5 million due primarily to the release of previously provided
taxes.

                                       45

<PAGE>   47


CORPORATE OFFICERS

Mark P. Bulriss
Chairman,
President and CEO


Larry J. Bloom
Executive Vice President and
President of Water Treatment


Louis M. Maresca
Executive Vice President and
President of Performance Chemicals


Richard T. Higgons
Senior Vice President,
Business Development


Richard J. Kinsley
Senior Vice President,
Human Resources and Communications


Jeffrey M. Lipshaw
Senior Vice President,
General Counsel and Secretary


Angelo C. Brisimitzakis
Vice President, Global Supply Chain and
Vice President, Flame Retardants


Stephen D. Clark
Vice President


Gregory J. Heinlein
Vice President, Treasurer and
Assistant Secretary


Kevin J. Mulcrone
Vice President and Controller


Henri Steinmetz
Vice President and General Manager,
Polymer Stabilizers


Karen Witte Duros
Assistant Secretary


Mary P. McClanahan
Assistant Secretary


Stephen E. Brewer
Assistant Treasurer



BOARD OF DIRECTORS

Nigel D. T. Andrews 2
Managing Director
Internet Capital Group
Director since 2000


Mark P. Bulriss 3, 4, 5
Chairman,
President and CEO
Great Lakes Chemical Corporation
Director since 1998


James W. Crownover 2, 4
Former Director
McKinsey & Company
Director since 2000


Thomas M. Fulton 2, 3
Former President and
Chief Executive Officer
Landauer, Inc.
Director since 1995


Martin M. Hale 2, 4, 5
Former Nonexecutive Chairman of the Board of
Great Lakes Chemical Corporation
Executive Vice President
Hellman Jordan Management Co., Inc.
Director since 1978


Louis E. Lataif 1
Dean of the School of Management
Boston University
Director since 1995


John C. Lechleiter 1, 3
Executive Vice President,
Pharmaceutical Products and
Corporate Development
Eli Lilly and Company
Director since 1999


Mack G. Nichols 1, 3, 4
Former President and
Chief Operating Officer
Mallinckrodt, Inc.
Director since 1998


Jay D. Proops 1, 4, 5
Former Co-founder/Vice Chairman
The Vigoro Corporation
Director since 1996


1  Audit Committee
2  Compensation and Incentive Committee
3  Corporate Responsibility Committee
4  Executive Committee
5  Finance Committee

                                       46


<PAGE>   48

SHAREHOLDER INFORMATION

Transfer Agent and Registrar
The stock transfer agent and registrar for Great Lakes' stock is Computershare
Investor Services. Stockholders who wish to transfer their stock, or change the
name in which the shares are registered, should contact Computershare Investor
Services:

First Class Mail:
Computershare Investor Services
P.O. Box A3504
Chicago, Illinois 60690-3504

Overnight Deliveries:
Shareholder Communications Department
2 North LaSalle Street, 3rd Floor
Chicago, Illinois 60602
Telephone: (312) 360-5407
Fax: (312) 601-4332
www-us.computershare.com



Independent Auditors
Ernst & Young LLP
Indianapolis, Indiana



Listings
New York Stock Exchange
New York, New York

Pacific Stock Exchange
San Francisco, California



Ticker Symbol: GLK



Number of Stockholders
As of December 31, 2000, there were 2,563 stockholders of record of the
Company's common stock.



Annual Meeting
The Annual Meeting of the Stockholders will be held at 11:00 a.m., Thursday, May
3, 2001, at the Parkwood IV Conference Center, 500 E. 96th Street, Indianapolis,
Indiana.



Form 10-K and Other Information
A complimentary copy of the Company's 2000 Annual Report to the Securities and
Exchange Commission on Form 10-K is available upon request. For this, or for
other information concerning the Company, please contact:

Jeffrey Potrzebowski
Director, Investor Relations

or

Gregory J. Griffith
Director, Corporate Communications



Great Lakes Chemical Corporation
500 E. 96th Street, Suite 500
Indianapolis, Indiana 46240 USA
Phone: (317) 715-3000
www.greatlakes.com

Economic Value Added (EVA(R)) is a registered trademark of Stern Stewart &
Company. Responsible Care(R) is a registered trademark of the American Chemistry
Council.


                                       47