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                                                                      EXHIBIT 13
                        Great Lakes Chemical Corporation
                               1999 Annual Report

                                     (PHOTO)





Great Lakes is a customer-focused supplier of innovative specialty chemical
solutions. Its broad range of products includes flame retardants and other
polymer additives, performance and fine chemicals, fire extinguishants, water
treatment chemicals and products and services for oil and gas drilling. The
company serves customers and markets through a global network of integrated
sales, production, research, technical service and distribution facilities.



1    1999 FINANCIAL AND OPERATING HIGHLIGHTS

2    MESSAGE TO SHAREHOLDERS

6    GROWING OUR TECHNOLOGY BASE

8    WORKING SMARTER

10   DIALING INTO OUR CUSTOMERS

12   WORLD-CLASS CULTURE

14   REVIEW OF OPERATIONS

18   FINANCIAL REVIEW

19   MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
     OPERATIONS

26   MANAGEMENT'S STATEMENT OF RESPONSIBILITY FOR FINANCIAL STATEMENTS

26   REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS

27   CONSOLIDATED STATEMENTS OF INCOME

28   CONSOLIDATED BALANCE SHEETS

29   CONSOLIDATED STATEMENTS OF CASH FLOWS

30   CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

31   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

41   QUARTERLY RESULTS OF OPERATIONS

42   CORPORATE OFFICERS AND DIRECTORS



1999 FINANCIAL HIGHLIGHTS

<TABLE>
<CAPTION>
(millions, except per share data)                                                  1999               1998                  1997
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Results of Operations, Including Special Charges:
<S>                                                                            <C>                <C>                   <C>
   Net sales                                                                   $1,453.3           $1,394.3              $1,311.2

   Gross profit                                                                   423.1              382.8                 373.7

   Operating income                                                               162.1               73.9                 141.8

   Net income from continuing operations                                          139.6               56.4                  71.8

   Net income                                                                     139.6               89.0                  56.9

   Diluted earnings per share from continuing operations                           2.41               0.95                  1.19

   Diluted earnings per share                                                      2.41               1.50                  0.94
--------------------------------------------------------------------------------------------------------------------------------

Results of Continuing Operations, Excluding Special Charges:

   Net sales                                                                   $1,453.3           $1,394.3              $1,311.2

   Gross profit                                                                   423.1              382.8                 373.7

   Operating income                                                               180.3              190.4                 191.6

   Net income                                                                     151.4              131.2                 110.4

   Diluted earnings per share                                                      2.61               2.21                  1.83
--------------------------------------------------------------------------------------------------------------------------------

</TABLE>

1999 OPERATING HIGHLIGHTS

-    Increased sales volume by 8%, with 6% coming from acquisitions.

-    Boosted gross margins to 29.1% - the highest level since 1995, with the
     commencement of restructuring and productivity initiatives.

-    Increased net income from continuing operations before special charges by
     15%.

-    Generated a record setting 33% operating income growth in the Water
     Treatment business.

-    Expanded the product offerings in Polymer Additives and Water Treatment by
     acquiring FMC's Process Additives Division (PAD).

-    Broadened our capabilities in Performance Chemicals with the acquisition of
     NSC Technologies.

-    Implemented Enterprise Resource Planning (ERP) systems company-wide in
     order to serve our customers more effectively.

-    Continued to drive Economic Value Added(R) (EVA) deep into the organization
     as the measurement of success in generating shareholder value.

-    Generated $76 million in cash through the sale of previously discontinued
     businesses.

-    Announced anticipated sale of approximately 50% of Energy Services and
     Products business through an initial public offering to be completed in
     2000.



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MESSAGE TO SHAREHOLDERS

(PHOTO)

Mark P. Bulriss, Chief Executive Officer and President

More than a year ago, we set out to build a new foundation for Great Lakes on
the twin pillars of growth and productivity. Our blueprint for creating
shareholder value has been straightforward and simple: Grow by commercializing
new products and by acquiring complementary technologies, and improve the
productivity of all our assets through restructuring and Six Sigma.

In 1999 we stuck to our plan. Our hard work produced good--but not
great--results. We faced the head wind of higher systems costs necessary to
ready us for the new century, pricing pressure particularly in our Polymer
Additives business, and significantly lower exploration and production in the
Gulf of Mexico. Despite these challenges, earnings per share from continuing
operations increased by 18 percent, excluding special charges, revenue for the
year grew 4 percent to $1.5 billion, and we generated, including the cash from
discontinued businesses, free cash flow of $152 million. Though certainly not
satisfied with these results, we view them as a positive signpost on our journey
to becoming a great company.

PERFORMANCE HIGHLIGHTS We knew we would have our work cut out for us in 1999.
Strong leadership and a clear focus on our objectives would be required. As a
result of our employees' resilience, commitment and determination, we achieved
several noteworthy goals:

-    Our safety record as measured by our OSHA injury rate improved 40 percent
     over 1998.

-    We expanded and fortified our growth platforms by acquiring NSC
     Technologies and FMC's Process Additives Division. Together, these
     acquisitions expand and strengthen our product offerings as well as
     capabilities in three of our four business units.

-    Our drive for productivity helped us achieve a gross margin of 29.1
     percent, the company's highest level since 1995.

-    Our Water Treatment business achieved record sales and operating income.
     These results reflect strong key account management, sales growth of higher
     margin products, an acquisition that more than doubled our industrial water
     treatment business and the leverage of lower raw materials costs.



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-    Polymer Additives volume grew by 15 percent despite tough competition in
     bromine-based flame retardants. Sales of our patented No Dust Blends (NDB)
     grew by 50 percent for the second consecutive year.

-    Strong sales of fluorine derivatives and agricultural chemicals contributed
     to a 10 percent increase in sales of Performance Chemicals.

-    We announced our plan to sell up to 50 percent of our wholly owned OSCA,
     Inc. oil field services subsidiary in an initial public offering scheduled
     for the first half of 2000. This move positions Great Lakes as a pure
     specialty chemical company with one of the strongest business and product
     portfolios in our sector.

-    Great Lakes enters the millennium with one of the strongest balance sheets
     in the industry. This inherent financial strength and flexibility provides
     the wherewithal to meet our growth objectives.

>    Great Lakes generated sufficient cash flow allowing not only for the
     investment in organic growth opportunities but also the expansion of the
     Company's product offerings and global reach through two significant
     acquisitions and the return of cash to our shareholders in the form of
     share repurchase totaling $159 million.

ENGINEERING GROWTH AND PRODUCTIVITY To build shareholder value we must continue
to grow. And the two proven means of generating growth are through strategic
acquisitions and the commercialization of new products that bring value to our
customers. In 1999 we made important strides on both fronts. We fortified our
Polymer Additives business when we purchased the Process Additives Division
(PAD) of FMC Corporation. By adding phosphate- based flame retardants to our
product mix, we solidified our competitive differentiation as the one-stop
resource for additives. In addition, PAD is a leading manufacturer of corrosion
inhibitors and scale control products for industrial water treatment
applications, and this acquisition effectively doubles the size of our
industrial water treatment business.

We also strengthened our Fine Chemicals business when we acquired NSC
Technologies, a leading developer of complex chiral-based intermediates for the
pharmaceutical industry. This acquisition brought a talented group of
scientists, a robust new product pipeline and the synergy of building-block
compounds that can be manufactured at existing Great Lakes facilities. NSC will
be an important enabler for achieving our target of more than 15 percent annual
growth for our Fine Chemicals business.

To meet our targets for organic growth, we developed a new infrastructure that
focuses and re-energizes the new product development process. In our Polymer
Additives business, for example, we consolidated both our research and pilot
testing functions, and created marketing-led project teams chartered to
identify, develop and rapidly commercialize new products that bring value to our
customers. We have set our sights high, but remain confident we can reduce our
time to market for new products by 50 percent.

In addition, we are driving revenue growth by making investments in providing
new skills and tools for our sales organization. We introduced new incentive
plans to focus our commercial teams on profitable growth opportunities, and we
are rolling out Sales Excellence training to better enable our people to convey
the value Great Lakes can bring to existing and prospective customers.

Great Lakes is blessed with employees who work hard and who want to win. But in
today's competitive environment, effort and determination alone are not enough.
So we've introduced new skills, powerful new tools and proven processes that, by
further strengthening our committed people, will help our company meet its
commitments.

We took important steps to improve quality, eliminate waste and drive down costs
when we introduced Six Sigma across all of Great Lakes. Six Sigma gives us
precise tools for measuring product variability and for discovering
opportunities to improve manufacturing processes. In Laredo, Texas, for example,
Six Sigma helped us boost capacity by 20 percent. While the incremental savings
will be in excess of $10 million in 2000, an even bigger win will be higher
quality and better service for our customers.

We also launched our new Enterprise Resource Planning system in Europe and the
Americas. This system gives us instant access to the data we need to manage our
company more efficiently as a global business. As the backbone of our Sales,
Operations and Inventory Planning process, it is helping us lower costs through
improved inventory planning and logistics. It also gives our customer service
and administrative associates a new tool to deliver world-class customer
service.



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Our company-wide focus on Economic Value Added(R) (EVA) is helping us create
shareholder value by maximizing our return on our capital investments. In 1999
we achieved 90 percent of our EVA target across the company. It is worth noting
that EVA drove a 25 percent reduction on capital spending by forcing us to
recognize the true cost of capital.

Winning organizations succeed by focusing and cultivating the talents of their
employees. This year more than 2,000 Great Lakes employees participated in our
comprehensive Human Resources Review process, designed to help instill core
values, open new career paths and encourage constructive dialogue about
performance and career development. This process helps ensure we have the right
people with the right skills committed to building a great business.

OUTLOOK Great Lakes overcame some difficult obstacles in 1999 to achieve a
strong performance. Still, our results fall short of our vision, and we are
disappointed that our stock price does not yet reflect the progress we've made.
We believe recognition will come, however, as we continue to expand our
technology base, develop new customer-driven applications, focus on higher value
products and strengthen our market positions in the Americas, Europe and Asia.

We have much work ahead of us as we turn the corner into a new century. At the
same time, I'm proud of the position we're in and especially proud of the people
who have worked so hard to put us there. Our employees are preparing for the
future by embracing new training opportunities. They're stretching themselves to
cover a broader set of responsibilities. And they're taking on--and
completing--new projects that looked impossible 18 months ago. Their commitment
and performance leaves me confident that for Great Lakes shareholders, employees
and customers alike, the best is yet to come.

Sincerely,

(SIGNATURE)

Mark P. Bulriss, Chief Executive Officer and President
March 29, 2000



CHAIRMAN'S MESSAGE

In September 1994, I was asked by your Board of Directors to step in, initially
as acting Chairman, to oversee a management transition brought about by the
disability and eventual death of Emerson Kampen, longtime Chairman, CEO and
builder of Great Lakes. It quickly became apparent that this was not going to be
a short-term assignment, and I realized that a total transformation of the
company was required.

During this time period many costly and time-consuming changes were made.
Non-core businesses were sold or spun-off. Significant infrastructure
investments were made. With the exception of myself, the Board of Directors was
completely renewed, with the senior member now dating back to only 1994. And
most importantly, Mark Bulriss was hired as CEO and President in April 1998 with
a mandate for change.

Today, Great Lakes is a dynamically managed, tightly focused, financially
strong, goal-oriented team. There is not one small corner of the company that
has not been positively affected by the arrival of Mark Bulriss. I believe that
the assignment given me in 1994 has been completed. Consequently, I will be
stepping down as non-Executive Chairman effective at the Annual Meeting, May 4,
2000.

The appointment of Mark Bulriss as Chairman reflects the obvious: that the Board
of Great Lakes Chemical has very high confidence in Mark, the management team he
has attracted to Great Lakes and the strategic plans that have been formulated
and are being executed to renew and extend Great Lakes' traditional role as a
growth company and a leader in the specialty chemical industry. Congratulations,
Mark, and my sincere wishes for enormous success in your new role.

Dick Leet will be leaving the Board at this year's Annual Meeting as a result of
the Board's mandatory retirement age. Personally, and on behalf of the Board, I
would like to thank Dick for his steadfast support during this period of great
transition. I will miss his wise counsel and firm guidance.

In closing, I would be remiss if I failed to comment on my great disappointment
in the valuation of our stock. All I can say is that, in my opinion, it fails to
reflect the significantly positive work of the Board and the achievements of
management and all our employees over the past several years. Please be assured
that we all remain committed to maximizing the long-term value of our stock.

Sincerely,

(SIGNATURE)





Martin M. Hale, Chairman of the Board



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BEST PRACTICES

There's a new spirit of innovation and creativity at Great Lakes. Throughout the
corporation, our employees are committing themselves to best practices that are
boosting our performance in four vital areas. They're helping us GROW OUR
TECHNOLOGY BASE by integrating newly acquired and developed technologies into
our product mix. They're applying their expertise and technical prowess toward
new programs that help us WORK SMARTER. They're DIALING INTO OUR CUSTOMERS like
never before to deliver value through technology and service. And they're
contributing to a WORLD-CLASS CULTURE built on leadership, initiative and
accountability. This year, we asked employees from throughout the organization
to describe what they're doing to make Great Lakes a premier specialty chemical
company. They speak for the thousands of Great Lakes employees around the world
whose resilience, commitment and determination are making us a better company
every day.


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GROWING OUR TECHNOLOGY BASE

"Growth doesn't have to come from new molecules alone. We've been able to move
many of our traditional brominated intermediates from commodity-type chemicals
into performance products that serve our customers in a variety of markets and
applications. We no longer make molecules and assume one size fits all. In the
Brominated Performance Products business, we direct our marketing and technology
focus solely at providing solutions to key customer and market needs."

Anne Noonan, Global Manager, Commercial Development and Technology,
Brominated Performance Products

(PHOTO)

(PHOTO)

(PHOTO)

"Drug candidates developed to treat HIV, cancer and cardiovascular disease are
increasingly complex and are nearly always chiral materials. Synthesizing these
complex chiral intermediates requires sophisticated bioprocesses and chemical
processes. The combined strengths of NSC Technologies for chiral synthesis and
Great Lakes in both traditional chemical processes and manufacturing gives us
the competitive edge we need to capitalize on these growth opportunities and
contribute to more effective therapies. We can perform these reactions in a
cost-effective manner and in cGMP facilities."

Mark R. Johnson, Research and Development Director,
Great Lakes Fine Chemicals


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"We've made expanding our non-halogen platform a leading research priority. And
we're better positioned than other companies to succeed for several reasons.
First, we have some good building blocks already in place. Plus, we can leverage
both our stabilization knowledge and our knowledge of flame retardant
technology. We also have strong positions in high-growth markets like consumer
electronics and furniture. In the latter case, federal regulations concerning
many other applications - especially for tables and chairs in public-sitting
places like restaurants, hospitals and student unions - are now requiring
stabilization as well as flame retardancy. From there, we can also start
building other polymers - other resins, for example - and expand into even more
applications."

Elisabeth Papazoglou,
Project Manager, Flame Retardants

(PHOTO)

(PHOTO)


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WORKING SMARTER

(PHOTO)

"Our new Enterprise Resource Planning system has allowed us to introduce
Manufacturing Resource Planning to the entire organization through our
company-wide Sales, Operations and Inventory Planning (SOIP) process. With SOIP,
management uses realistic planning underpinned with performance measurement to
fully plan and control the business, lower costs and boost productivity. It's
allowed us to better respond to customer demand by improving sales forecasting
processes, operations planning disciplines and inventory planning processes."

Dirk Verelst, Global SOIP Project Leader


"Today, the polyolefin products group has no less than nine key markets
including automobile, packaging, wire and cable, building and construction,
durable goods, fibers, agrofilms, medical devices and electronics equipment -
and most of those markets are growing faster than the GDP. We take a
market-needs-driven approach to all of them. That means we talk not only to our
customers but to customers of our customers as well, because they set the
trends. That way, we can find out what the auto industry, for example, will want
in two to three years. We also stay in very close contact with Sales and
Technical Service. By anticipating trends and focusing most attentively on a
smaller number of top-priority projects, we're able to translate them into
products we know our customers want. And we're able to decrease time to market."

Claudia Beyer, Global Markets Leader, Polyolefins,
Frauenfeld, Switzerland


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"New products are always an exciting and morale-boosting challenge, and our
operators are keying on the opportunities NSC Technologies is providing. In 1999
we began to manufacture two intermediates for anti-viral and anti-cancer drugs
that NSC had traditionally outsourced - Tic B at Konstanz and Z D Proline at
Halebank. And there's much more ahead. Over the next 18 months Halebank will
begin work on a three-stage process for NSC with sales potential of $20 million.
And our Palmer Research and Halebank pilot plants have already produced three
products in NSC's exciting new product pipeline."

Len Marland, Product and Process Development Director for Europe

(PHOTO)

(PHOTO)

(PHOTO)
"Last year we increased the capacity of our antimony trioxide furnacing process
- that's our bread and butter product at our Laredo plant - and we used Six
Sigma to do it. Six Sigma gives the experts in the process - the operators and
supervisors who run the equipment - new tools and statistical data that are much
more accurate than gut feel. These tools dispelled some myths and helped us
focus on the big levers, so we get more bang for the buck. A 3 percent increase
in capacity would have resulted in significant productivity gains; we got 20
percent. And that was just the first series of designs. We have several others
slated for 2000."

Ron Erickson, Operations Manager, Laredo, Texas, and Reynosa, Mexico, plants


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DIALING INTO OUR CUSTOMERS

(PHOTO)

(PHOTO)

"Today, our customers make their decisions based on technology, safety and
especially quality of service, which is the number one buying impetus in this
industry overall. And that's where we excel: as one of our customers told a
competitor of ours, "We do business with OSCA for one simple reason - superior
field performance." We've become the most capable company in the world at
delivering a focused bundle of well completion services that protect and enhance
the most valuable portion of the well."

Dick Alario, Executive Vice President, OSCA


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"We want our customers outside enjoying their pools and spas, not inside talking
to our customer service representatives. So we've found new ways to deliver the
information they need faster--in most cases in nine minutes or less. Our Expert
System gives our reps instant access to all the information they need--whether
they're checking water test results, explaining new products or troubleshooting
technical problems. We also support the wholesale side by making sure our
point-of-sale kiosks are doing the job."

Carol Webb, Manager of Marketing Services,
BioLab, Inc.


(PHOTO)

(PHOTO)

"I'm thrilled with our new approach to customer service, and so are our
customers. We are consolidating all customer data onto a single system, and each
customer will have a number to call for either service or analytical support.
When they call, we can quickly access all the information we need to help them.
And the new information we gain during every call helps us better understand
their changing needs, so we're better prepared for their next call."

Dieter Morath,
Director of Sales, EMEA


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WORLD-CLASS CULTURE

(PHOTO)

(PHOTO)

"Safety is not just a way of life here, it's a way of business. Why? Because
customers focus on it. First thing they want to look at is your safety and
environmental report - if yours is good, you've got their ear. So we're very
proud of the milestone we hit last fall: five years without a lost-time incident
- that's one serious enough to cause someone to miss work. Our great safety
record is our bread and butter, because it helps bring in business."

Larry Overholt, Production Technician and Safety Committee Member,
Newport, Tennessee


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(PHOTO)

(PHOTO)

"Our Human Resources Review process is moving Great Lakes and our BioLab
division quickly toward higher levels of performance and continuous improvement.
We're becoming a more effective, highly successful organization, and we're doing
it through focused, ongoing personal development plans that employees and
managers agree on. This approach creates an environment employees want to work
in--and reinforces our values of trust, mutual respect and candor in one-to-one
communications. This helps us retain high-performing employees and prepare for
our future growth."

Martha Forlines, Vice President of Human Resources and Corporate Services,
BioLab, Inc.


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POLYMER ADDITIVES

(PHOTO)

OVERVIEW Great Lakes brings the most comprehensive product basket of flame
retardants, polymer stabilizers and antimony-based derivatives to the global
marketplace. Our broad product line provides a distinct competitive advantage in
the $6 billion "property extenders" segment of the global polymer additives
market. Plastics producers and resin suppliers use our high-performance
additives to create products that resist heat and combustion and maintain
stability during processing. These products serve strong and growing markets
such as consumer electronics, fibers, wire and cable, telecommunications
equipment, automotive, cosmetics and furniture.

COMPETITIVE STRENGTHS Today's polymer customers are consolidating their
suppliers, facing more stringent regulations and launching new products with
superior performance characteristics. Great Lakes is ideally positioned to
emerge as the supplier of choice because we can anticipate and address the
unique ways in which additives interact within resin systems. We add further
value by offering blended compounds that simplify processing, improve product
quality and reduce health and safety risks. Further, Great Lakes has the breadth
of product offerings, global supply capabilities, streamlined research and
development processes, and low-cost manufacturing processes to deliver
high-quality compounds when and where customers need them.

1999 BUSINESS INITIATIVES Great Lakes expanded its technology platform to
include non-halogenated flame retardants with the acquisition of FMC's Process
Additives Division. The company continued its strong financial focus on
profitability by concentrating on DSO and inventory turns. At the same time, we
introduced Six Sigma manufacturing processes at key production facilities to
boost quality and lower production costs. Finally, we rationalized manufacturing
operations to maximize production volume and restructured the marketing and
technology organization to better anticipate our customers' needs and accelerate
organic growth.

GROWTH OPPORTUNITIES Great Lakes is building on the success of its patented No
Dust Blends (NDB) products, which recorded 1999 sales growth in excess of 50
percent. We will continue to meet strong global demand for consumer electronics
products, especially in rebounding markets such as Asia. Further, the company
will aggressively market non-halogenated compounds to flame retardant customers
while maintaining its brominated flame retardant leadership role. Great Lakes
will advance its commercialization of Bloomgard(TM), a nonblooming flame
retardant for polyolefin thermoplastics. In addition, we will focus on
proprietary products, including those bundled for major polymer resin producers
and polymer compounders.


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PERFORMANCE CHEMICALS

(PHOTO)

OVERVIEW Great Lakes leverages its core competencies in complex chemical
synthesis to produce a wide range of specialty and fine chemicals for dynamic
markets that include life sciences, agrochemicals, electronics and
telecommunications. Through the company's expertise in a broad range of chemical
synthesis, process development, manufacturing and toxicological testing
activities, Great Lakes delivers globally superior, single-sourced solutions to
companies that outsource their complex chemical production needs. A dedication
to operational excellence has provided a strong competitive position and ensures
that our products and services exceed customers' expectations for speed, quality
and reliability.

COMPETITIVE STRENGTHS Competitive advantage in today's demanding business
environment goes to companies that can streamline and accelerate the process of
developing and introducing new, high-quality products. The 1999 acquisition of
NSC Technologies increased Great Lakes' depth of chemistry and bioscience
technology and, coupled with WIL Labs, strategically positions Great Lakes to
participate in all stages of the pharmaceutical industry's new product
development process, from discovery to market. The company keeps pace with the
ever shorter new product commercialization cycle times, responding quickly to
emerging market needs for new fluorine- and bromine-based applications. As the
only bromine producer on two continents, Great Lakes continues to hold its
leadership position in bromine technology, increasing its focus on product
stewardship, safe handling, education and customer service.

1999 BUSINESS INITIATIVES Great Lakes broadened its fine chemicals growth
platform with the acquisition of NSC Technologies, a leader in the production of
chiral intermediates and selected bulk actives for pharmaceutical companies.
NSC's intermediate production was then integrated into Great Lakes'
manufacturing facilities in the United Kingdom and Germany. In addition, WIL
Labs instituted a 50 percent expansion of its capabilities to meet increased
demand for a broad array of interdisciplinary research and toxicological
assessment services. This expansion will be complete in the second quarter of
2000. Finally, Great Lakes more than doubled the production capacity of HFC-32,
an important component in refrigerant blends used as replacements for
ozone-depleting products.

GROWTH OPPORTUNITIES Great Lakes is aggressively building on synergies to
provide customers worldwide a more diverse package of value-added products and
services. We will aggressively expand our presence in fine chemicals,
participating earlier in the new product life cycle and supplying quality
products that meet the most exacting standards. Further, we will broaden our new
technology platforms in fluorine and bromine. The company's fluorocarbon
technology is already in place producing HFC-227ea for the fire extinguishing
market, a product that will soon be offered to the pharmaceutical market as a
replacement for CFC-based propellants in pharmaceutical metered dose
inhalers--like those used to dispense medications to over 50 million asthma and
bronchitis sufferers.


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WATER TREATMENT

(PHOTO)

OVERVIEW Great Lakes is the world's premier formulator of water treatment
biocides and related specialty chemicals. Through its BioLab, Inc. subsidiary,
popular swimming pool and spa brands including BioGuard(R), SpaGuard(R),
Omni(R), Hydrotech(R), Guardex(R), Pool Seasons(R), Pool Time(R), AquaChem(R)
and Bayrol(R) are sold throughout major swimming pool markets including North
America, Europe, South Africa and Australia. BioLab's Water Additives business
provides its specialty oxidizing biocides and deposit control agents to
industrial customers in the process, cooling, waste treatment and desalination
markets throughout the world.

COMPETITIVE STRENGTHS BioLab's channel strategy positions its swimming pool
chemical brands, in every important retail category where consumers shop
including mass merchants, home centers, do-it-yourself stores and specialty
retailers. This results in optimum utilization of company resources and market
positions on all consumer fronts. Through the acquisition of FMC's Water
Additives business, BioLab broadened its product offerings and technical
capabilities to include scale, corrosion and deposit control chemistry, thereby
providing a superior offering and service to its industrial customers. Both
business areas offer unique value-creating products featuring patent and
know-how protection.

1999 BUSINESS INITIATIVES BioLab expanded its technology platform to include
scale, corrosion and deposit control products with the acquisition of FMC's
Water Additives business. As a result of the acquisition, the company
anticipates enhanced product development and commercialization, and combined
with research and development activities, should also generate additional
productivity gains. The FMC business carried a Class A MRP II certification, and
we are taking advantage of this "best practice" to improve sales, operations and
inventory planning for the rest of BioLab. In addition, we introduced Six Sigma
at key production facilities to further improve operating effectiveness. Lastly,
we successfully implemented a new Enterprise Resource Planning (ERP) information
system featuring Web browser interfaces.

GROWTH STRATEGIES The stage and gate new product development process implemented
at BioLab in 1999 resulted in six new patents received and the filing of five
more. Commercialization activities for 2000 include AQUATE(R), a new pumpable
biocide for the industrial water market, and ProGuard(R), a product line
addressing the attractive commercial swimming pool market. As always, new
products focus on meeting the needs of our customers better than competitive
offerings while providing sustainable competitive advantages.


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ENERGY SERVICES AND PRODUCTS

(PHOTO)

OVERVIEW OSCA is a leading provider of specialized oil and gas well completion
products and services including completion and drill-in fluids, downhole tools,
sand control, fracturing and stimulation services that help customers maximize
the recovery of hydrocarbons from the production reservoir. The company focuses
on delivering customized products and services for high-demand completions in
deep water and soft formations geological regimes that present unique technical
challenges.

COMPETITIVE STRENGTHS OSCA offers a broad line of specially formulated and
customized completion fluids for high-demand wells and has established a track
record for its ability to service technically challenging projects in harsh
environments. The company operates an integrated fluid facility that streamlines
the logistical process, provides on-site technical services to supervise the
application of these systems during the completion process, and optimizes well
productivity. Further, OSCA designs, builds and installs some of the market's
most advanced specialized downhole tools for technically demanding wells. The
company also operates a fleet of marine well service vessels that can service 5
to 10 wells per trip offshore and are specially designed to enhance safety and
operating efficiency. Strategically located distribution facilities make OSCA
one of the most valuable suppliers on the Gulf Coast.

1999 BUSINESS INITIATIVES During the year, OSCA implemented a number of
strategic actions to meet the needs of its customers. The company reformulated
its specialty fluids to reduce production costs and improve quality. OSCA also
moved the applications engineering department to Houston and commissioned a
world-class downhole tool system facility. Both moves position the company to
respond more quickly and efficiently to the market's anticipated recovery during
2000. Concurrently, OSCA restructured its international division, targeting new
sources of revenue by focusing on opportunities in strategic markets. As a
result, OSCA opened new markets such as Brazil, providing immediate revenue and
establishing the foundation for additional growth.

GROWTH STRATEGIES OSCA will continue to build market share in the Gulf of
Mexico, where vast oil reservoirs make it one of the world's most attractive
exploration and development areas. We will focus on deep water and high-demand
well completions, which are forecasted to grow at a 24 percent compounded rate
between 1999 and 2008. In addition, the company will leverage Gulf of Mexico
deep water expertise as a foundation to expand into select international markets
such as Brazil and West Africa. OSCA will maintain a customer-driven philosophy
and provide customized solutions and technically advanced products such as its
InsulGel insulated packer fluids and the PAC-Valve downhole control valve to
promote sale of other products.

                                       17

<PAGE>   18


FINANCIAL REVIEW

<TABLE>
<CAPTION>
(millions, except per share data)
                                                      1999             1998              1997             1996              1995
--------------------------------------------------------------------------------------------------------------------------------
<S>                                               <C>              <C>               <C>              <C>               <C>
SUMMARY OF EARNINGS
   Net sales                                      $1,453.3         $1,394.3          $1,311.2         $1,352.3          $1,291.6
   Operating income before special charges           180.3            190.4             191.6            183.9             198.3
   Operating income(1)                               162.1             73.9             141.8            183.9             198.3
   Income from continuing operations
     before income taxes                             175.4             66.2             117.2            184.0             200.2
   Income taxes                                       35.8              9.8              45.4             63.4              68.0
     Effective income tax rate                       20.4%            14.8%             38.7%            34.5%             34.0%
   Net income from continuing operations            $139.6            $56.4             $71.8           $120.6            $132.2
   Net income (loss) from
     discontinued operations                            --             32.6            (14.9)            129.7             163.4
--------------------------------------------------------------------------------------------------------------------------------

   Total net income                                 $139.6            $89.0             $56.9           $250.3            $295.6
     Percent of average stockholders' equity         13.6%             7.5%              4.1%            17.2%             21.7%

FINANCIAL POSITION AT YEAR-END
   Working capital (excluding cash and
     cash equivalents)                              $378.0           $237.4            $290.5           $282.7            $283.3
   Current ratio                                       3.8              2.9               2.2              2.5               2.4
   Capital expenditures                             $119.0           $160.6            $133.0           $168.7            $182.9
   Total assets                                    2,261.0          2,004.6           2,270.4          2,352.7           2,179.9
   Debt (net of cash and cash equivalents)           411.1            108.3             492.9            360.8             229.1
   Debt                                              889.4            519.9             566.6            502.2             345.5
     Percent of total capitalization                 46.2%            31.9%             29.1%            24.4%             18.9%
   Stockholders' equity                             $994.1         $1,054.3          $1,307.4         $1,486.9          $1,416.2
     Per share                                       18.24            18.05             22.18            24.13             21.92

SHARE DATA
   Basic earnings (loss) per share
     Continuing operations                           $2.42            $0.96             $1.20            $1.90             $2.02
     Discontinued operations                            --             0.55            (0.25)             2.04              2.50
--------------------------------------------------------------------------------------------------------------------------------

       Total                                         $2.42            $1.51             $0.95            $3.94             $4.52
   Diluted earnings (loss) per share
     Continuing operations                           $2.41            $0.95             $1.19            $1.89             $2.00
     Discontinued operations                            --             0.55            (0.25)             2.02              2.48
--------------------------------------------------------------------------------------------------------------------------------

       Total                                         $2.41            $1.50             $0.94            $3.91             $4.48
   Cash dividends per share
     Declared during year                            $0.32            $0.40             $0.63            $0.57             $0.44
     Paid during year                                 0.32             0.48              0.62             0.54              0.43
     Payout as a percent of net income               13.2%            26.5%             66.3%            14.5%              9.7%
   Shares outstanding (basic)
     Average during year                              57.8             59.0              60.0             63.5              65.4
     At year-end                                      54.5             58.4              59.0             61.7              64.6
   Stock price(2)
     High                                              $50           $54 3/16         $54 7/8          $78 5/8           $74 5/8
     Low                                           33 3/16           36 11/16          41 1/2           44 1/4            55 3/4
     At year-end                                   38 3/16              40             44 7/8           46 3/4                72
--------------------------------------------------------------------------------------------------------------------------------
</TABLE>


(1)  After special charges of $18.2 million, $116.5 million and $49.8 million in
     1999, 1998 and 1997, respectively.
(2)  Stock prices prior to May 22, 1998, do not reflect the Octel spin-off.


                                       18

<PAGE>   19

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS

This annual report, including Management's Discussion and Analysis, contains
both historical information and forward-looking statements. The 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 is no assurance that the Company's expectations will be realized.

A registration statement relating to the securities of OSCA, Inc., referred to
in this annual report and accompanying notes to financial statements has been
filed with the Securities and Exchange Commission but has not yet become
effective. These securities may not be sold nor may offers to buy be accepted
prior to the time the registration statement becomes effective. This
communication shall not constitute an offer to sell or the solicitation of an
offer to buy nor shall there be any sale of these securities in any state in
which such offer, solicitation or sale would be unlawful prior to the
registration or qualification under the securities laws of any such state.


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


<TABLE>
<CAPTION>
--------------------------------------------------------------------------------
Years Ended December 31        1999          1998             1997
--------------------------------------------------------------------------------
<S>                          <C>           <C>                <C>
Net sales                    100.0%        100.0%             100.0%
Cost of products sold          70.9          72.5             71.5
--------------------------------------------------------------------------------

Gross profit                   29.1          27.5             28.5
Selling, general and
   administrative expenses     16.7          13.8             13.9
--------------------------------------------------------------------------------

Operating contribution         12.4          13.7             14.6
Special charges                 1.2           8.4              3.8
--------------------------------------------------------------------------------

Operating income               11.2           5.3             10.8
Interest and other income       3.0           2.7              2.4
Interest and other expense      2.1           3.2              4.2
--------------------------------------------------------------------------------

Income from continuing
   operations before
   income taxes                12.1           4.8              9.0
Income taxes                    2.5           0.7              3.5
--------------------------------------------------------------------------------

Net income from
   continuing operations       9.6%          4.1%              5.5%
--------------------------------------------------------------------------------
</TABLE>



RESULTS OF CONTINUING OPERATIONS -- CURRENT YEAR REVIEW
Sales for 1999 increased 4% to $1,453 million. Volume grew 8% led by Fluorine,
Agricultural Products, and Polymer Additives and the acquisitions of NSC
Technologies and the Process Additives Division (PAD) of FMC Corporation. 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 1 gross profit margin improved to 29.1% in 1999 from
27.5% 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 12.4% in 1999 from 13.7% in 1998. This decrease was
driven by increased information systems expense as the Company implemented its
new ERPinformation 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 14.8% in 1999 as compared to 13.7% in 1998.

Operating income margin, including special charges, was 11.2% in 1999 as
compared to 5.3% 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 million to $44 million in
1999 from 1998 due primarily to a gain from the partial disposition of an equity
investment.

Interest and other expense decreased by $14 million to $31 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 nonoperating sites.

Income taxes for the year were $36 million or 20.4% as compared to the 1998
effective tax rate of 14.8%. The lower effective tax rate is primarily due to a
favorable $10 million tax credit in 1998 related to foreign taxes and the
magnitude of the special charges in 1998. This was offset by 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 31%.

Net income for 1999, excluding the special charges, was $151 million, or $2.61
per share. This compares to net income from continuing operations of $131
million, or $2.21 per share, excluding special charges, for 1998. Net income
from continuing operations including the special charges was $140 million, or
$2.41 per share, for 1999 as compared to $56 million, or $0.95 per share, for
1998.


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 1999 and
1998. Bromine used by each of the Company's segments as a raw material in their
production processes is reflected at cost.



                                       19

<PAGE>   20


POLYMER ADDITIVES
The Polymer Additives business unit is a leading worldwide developer, producer
and marketer of brominated, non-halogen, intumescent and antimony-based flame
retardants and antioxidants, UV absorbers and light stabilizers.

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.


<TABLE>
<CAPTION>
--------------------------------------------------------------------------------
Polymer Additives                            1999             1998
--------------------------------------------------------------------------------

<S>                                          <C>              <C>
Net sales                                    $613             $584
Operating income                               78               79
--------------------------------------------------------------------------------
</TABLE>


Polymer Additives' sales increased 5% to $613 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 Non Dust Blends (NDB), and the recovery underway 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.

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 ERPinformation systems. Excluding the higher information systems
expense, operating income would have been approximately $86 million and
operating margin would have increased to 14% in 1999 from 13.5% in 1998.

PERFORMANCE CHEMICALS
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.

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
pharmaceutical 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.


<TABLE>
<CAPTION>
--------------------------------------------------------------------------------
Performance Chemicals                        1999             1998
--------------------------------------------------------------------------------

<S>                                          <C>              <C>
Net sales                                    $347             $315
Operating income                               79               70
--------------------------------------------------------------------------------
</TABLE>


Sales in Performance Chemicals grew 10% to $347 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 Laboratories' 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 13% to a record level of
$79 million for the year. Significant volume growth, product and service mix
improvements in Fluorine and WIL Labs, 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
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.

<TABLE>
<CAPTION>
--------------------------------------------------------------------------------
Water Treatment                              1999             1998
--------------------------------------------------------------------------------

<S>                                          <C>              <C>
Net sales                                    $400             $379
Operating income                               73               55
--------------------------------------------------------------------------------
</TABLE>


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 33% increase in operating earnings. The 6% 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 United States 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
The Energy Services and Products business unit (OSCA) provides specialized oil
and gas well completion products and services including completion and drill-in
fluids, downhole tools, sand control, fracturing and stimulation services to oil
and gas well operators and exploration customers.

<TABLE>
<CAPTION>
--------------------------------------------------------------------------------
Energy Services and Products                 1999             1998
--------------------------------------------------------------------------------

<S>                                           <C>             <C>
Net sales                                     $95             $116
Operating (loss) income                       (9)               11
--------------------------------------------------------------------------------
</TABLE>



                                       20

<PAGE>   21


Sales decreased 18% in 1999 to $95 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.

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.


RESULTS OF CONTINUING OPERATIONS -- 1998 COMPARED WITH 1997
Sales increased 6% to $1,394 million from $1,311 million in 1997. The growth in
sales was driven primarily by strong volume growth in the Performance Chemicals
and Water Treatment business units. Volume for the Company grew 9% including the
acquisition of Anzon, a producer of antimony-based flame retardants which
accounted for 3% of the year-over-year volume growth. The volume growth was
partially offset by a 1% overall decline in selling prices and a 1% effect from
unfavorable foreign currency fluctuations.

Gross profit increased $9 million to $383 million while gross margin decreased 1
percentage point from 28.5% to 27.5%. Gross margin benefited from volume growth,
lower manufacturing costs resulting from cost productivity programs, and
increased asset utilization and favorable raw material prices. These benefits
were more than offset by lower selling prices and a shift in product mix,
primarily in Polymer Additives where the lower margin Anzon business was added
to the portfolio.

Research and development spending was even with 1997 and declined slightly as a
percentage of sales. The Company has refocused and streamlined the development
process to ensure optimal allocation of resources enabling accelerated
commercialization of new products. Selling and administrative expenses increased
$10 million as compared to prior year, but remained flat as a percentage of
sales. The increase is due to a conscious effort to increase the Company's sales
and marketing presence in several key businesses and geographic areas and higher
spending on information technology related to implementation of new ERP
information systems and Year 2000 remediation and readiness.

In 1998, the Company recorded special charges of $116.5 million to consolidate
manufacturing operations, write down or dispose of underperforming or
underutilized assets and product lines, consolidate sales offices and research
and development facilities, and replace the chief executive officer and other
members of the executive leadership team. The restructuring will result in
approximately a 10% reduction of the workforce. As part of the reorganization
the number of positions in sales, marketing and research and development was
increased to provide renewed focus on new products and the customer.

Operating income margin, including special charges, was 5.3% as compared to
10.8% in 1997. Excluding special charges, 1998 operating income margin was
13.7%, a decline of 1 percentage point from the prior year. Strong growth in
Performance Chemicals and Water Treatment and savings from productivity programs
initiated in the second half of 1998 were more than offset by the effects of
competitive pricing pressure in Polymer Additives, lower oil prices on the
Energy Services and Products business and the addition of the lower margin Anzon
antimony business.

Interest and other income increased $5 million to $37 million in 1998. Interest
income increased $9 million due to higher average investment balances resulting
from cash generated by operations and proceeds received in connection with the
spin-off of the Octel business. This increase was partially offset by lower
earnings from equity affiliates.

Interest and other expense decreased by $12 million to $45 million in 1998. The
decline was due in part to lower interest expense resulting from reduced
borrowings. A $1 million increase in goodwill amortization resulting from the
Anzon acquisition was offset by favorable foreign exchange. Both 1998 and 1997
include environmental provisions of approximately $10 million related to former
operating sites.

Income taxes were $10 million or 14.8% of income before taxes compared to 38.7%
in 1997. The lower effective tax rate was due to a favorable $10 million tax
credit related to foreign taxes and the magnitude of the special charges.
Excluding the effect of special charges in 1998 and 1997 and the favorable $10
million foreign tax credit noted above, the effective tax rate in both years
would have been 34%.

Net income from continuing operations was $56 million or $0.95 per share in
1998, as compared to $72 million or $1.19 per share in 1997. Excluding the
after-tax effect of special charges of $75 million and $38 million in 1998 and
1997, respectively, net income was $131 million or $2.21 per share in 1998, as
compared to $110 million, or $1.83 per share in 1997.


SEGMENT INFORMATION
A review of operations by business segment for 1998 compared with 1997 follows.
Businesses sold or disposed of that are not part of one of the reportable
business segments had sales of $7 million in 1997 and are included as part of
corporate and other. The operating income data presented below is before the
special charges recorded in 1998 and 1997.

POLYMER ADDITIVES
Polymer Additives' sales increased 5% to $584 million in 1998. Volume improved
by 10% including the acquisition of Anzon which contributed 8 percentage points
of the increase. Expanded production capabilities, particularly in the United
States, and demand for the Company's proprietary blends and physical forms in
polymer stabilizers fueled the growth. The increase was partially offset by a 3%
decline in selling prices due to competitive price pressures primarily in
polymer stabilizers and the effects of unfavorable currency fluctuations.

<TABLE>
<CAPTION>
--------------------------------------------------------------------------------
Polymer Additives                            1998             1997
--------------------------------------------------------------------------------

<S>                                          <C>              <C>
Net sales                                    $584             $554
Operating income                               79               93
--------------------------------------------------------------------------------
</TABLE>


Operating income in 1998 decreased $14 million to $79 million. The decrease was
the result of the aforementioned price decline, higher spending for
implementation of the Company's new ERP information systems, Year 2000
remediation and readiness and the effects of unfavorable currency fluctuations
partially offset by improving manufacturing costs. The division made major
strides in improving manufacturing costs and efficiency particularly in the
South Arkansas bromine and flame retardant facility and in the European Polymer
Stabilizers operations. However, the improvements were predominantly in the
fourth quarter of 1998 and the full effect, as well as the effects of the
Company's reorganization, will not be fully realized until the end of 1999.
Additionally, operating margin was unfavorably affected by the addition of the
lower margin Anzon antimony business acquired in the fourth quarter of 1997.



                                       21

<PAGE>   22


PERFORMANCE CHEMICALS
As a group, Performance Chemicals' sales grew 11% to $315 million in 1998.
Leading the way was the record performance of the Fluorine group, which
continues to gain worldwide recognition and acceptance of its fluorine-based
compounds, FM-200(R) and HFC-32. A stronger second half of 1998 in the OEM
segment coupled with a recovery in Asian demand toward the end of the year
boosted fluorine sales by 21% in 1998. Sales at WIL Research Labs, our
toxicological testing service business, also reached record levels. Increased
demand for developmental and reproductive studies and higher facility
utilization drove a 17% sales improvement. Fine Chemicals' sales were
essentially flat with the prior year as volume improvements were offset by lower
pricing as the end use products, of which the group's intermediates are a part,
moved to commercialization.


<TABLE>
<CAPTION>
--------------------------------------------------------------------------------
Performance Chemicals                        1998             1997
--------------------------------------------------------------------------------

<S>                                          <C>              <C>
Net sales                                    $315             $283
Operating income                               70               51
--------------------------------------------------------------------------------
</TABLE>


In 1998, the Fine Chemicals group initiated steps that moved it along a path
from simply providing building block materials to supplying more complex
intermediates and proprietary compounds which typically offer the greatest
potential to capture value for the organization. Agricultural product sales
posted a 9% sales gain primarily as a result of higher selling prices. The
Bromine Intermediates group benefited from stronger volume in its base products
as well as from HyperSolve(TM), the Company's new bromine-based solvent, to
achieve double digit growth. Sales of this new offering will accelerate once the
EPA ruling under its Significant New Alternatives Policy is issued.

Operating income in 1998 rose 37%, reflecting strong volume growth across most
units comprising this segment. Fine Chemicals achieved a 71% increase in
operating income and a 63% increase in operating margin from selective price
increases, a better mix of value-added product offerings, plant debottlenecking
and strict cost controls. These factors plus higher selling prices for the
segment's Bromine Intermediates and Agricultural Chemical products pushed
operating margins 4 percentage points higher, reaching a level of 22% for the
year.

WATER TREATMENT
1998 represented another exceptional year for Water Treatment, with both sales
and operating income exceeding 1997 record levels. Water Treatment sales
increased 8% to $379 million in 1998. A volume increase of 10% far exceeded the
effects of unfavorable currency fluctuations and resulted in gains almost three
times the inherent growth rate for this market. The success of Water Treatment's
new technology product SHOCK Plus(R), a higher penetration in the important mass
market and a strong early season for cooling tower biocides drove the growth.


<TABLE>
<CAPTION>
--------------------------------------------------------------------------------
Water Treatment                              1998             1997
--------------------------------------------------------------------------------

<S>                                          <C>              <C>
Net sales                                    $379             $350
Operating income                               55               46
--------------------------------------------------------------------------------
</TABLE>


Operating income in 1998 surged 20% to a record $55 million. The aforementioned
record volumes and a richer mix of value-added products leveraging the unit's
customer-first approach coupled with an improvement in manufacturing costs drove
the record performance. The 1997 restructuring efforts by Bayrol Europe were
integral to the manufacturing improvements as Bayrol showed a significant
improvement in the second half of 1998.

ENERGY SERVICES AND PRODUCTS
Sales increased 3% in 1998 to $116 million as depressed oil prices and adverse
weather conditions in the Gulf of Mexico during the second half of the year
significantly reduced drilling activity and increased competitive price
pressure. Crude oil prices ended the year at $11 per barrel, down $4 per barrel
from July.


<TABLE>
<CAPTION>
--------------------------------------------------------------------------------
Energy Services and Products                 1998             1997
--------------------------------------------------------------------------------

<S>                                          <C>              <C>
Net sales                                    $116             $113
Operating income                               11               20
--------------------------------------------------------------------------------
</TABLE>


Operating income declined $9 million as the result of price pressure from the
reduced drilling activity, lost drilling days caused by adverse weather
conditions in the Gulf of Mexico and higher overhead from capacity expansion in
the latter part of 1997 and first half of 1998. The business unit, as part of
the Company's overall reorganization plan, has taken aggressive action to bring
its cost structure in line with market conditions.


FINANCIAL CONDITION AND LIQUIDITY
Cash flow from the operating activities of continuing operations amounted to
$186 million in 1999, compared to the $140 million generated in 1998, which
included a $54 million payment for tax liabilities of Octel. Excluding this
payment, cash flow from operating activities of continuing operations decreased
as compared to the prior year primarily as a result of increased investment in
working capital.

The Octel spin-off on May 22, 1998, generated net cash of approximately $300
million after associated debt repayment of approximately $50 million and tax
liabilities of Octel of $108 million assumed by Great Lakes. The $462 million
received by Great Lakes before associated debt and tax payments is included in
discontinued operations in 1998. Stockholders' equity (retained earnings and
cumulative translation adjustment) was reduced approximately $292 million in
1998 representing the remaining net book value of the Octel asset distribution
to Great Lakes stockholders.

The Company's investment in working capital, excluding cash and cash
equivalents, increased approximately $141 million during 1999. Of this increase,
approximately $64 million was working capital associated with the acquisitions
of NSC Technologies and the PAD division from FMC. The remaining increase was
comprised of approximately $45 million in higher receivables as a larger
percentage of sales in Polymer Additives shifted to Europe and Asia and a
reduction of approximately $40 million in accrued expenses as the Company made
cash outlays associated with its 1997 and 1998 restructuring programs. These
increases in working capital were partially offset by a $23 million decrease in
inventories as the Company increased its emphasis on inventory planning.

Capital spending through December 31, 1999, amounted to $119 million compared to
$161 million in 1998. The reduction was attributable to lower capital spending
on the Company's ERP systems.

The Company has traditionally utilized commercial paper borrowings as its
primary source of external financing. During 1999 the Company moved to lock in
historically low long-term interest rates. 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 and fund the
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 unsecured



                                       22


<PAGE>   23

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 equivalents) was $411 million at December 31, 1999 and was
comprised of $889 million of debt and $478 million of cash and cash equivalents.
The Company maintains a high cash and cash equivalents balance to offset its
commercial paper borrowings and the income from the investments exceeds the
borrowing costs. The Company's investment in marketable securities is comprised
of a mix of highly liquid, investment grade securities. Debt increased $369
million in 1999. The increase was due primarily to the previously mentioned
acquisitions and the repurchase of $4.2 million shares of common stock for $159
million. At December 31, 1999, the Company's senior debt rating is A2/A and its
commercial paper rating is A1/P1. Debt to total capitalization at December 31,
1999, was 46% as compared to 32% at December 31, 1998.

Stockholders' equity was $1.0 billion, or $18.24 per share, at December 31,
1999, as compared to $1.1 billion, or $18.05 per share at the end of 1998.

Dividends declared totaled $18 million or $0.32 per share, compared with $24
million or $0.40 per share in the prior year. The dividend was adjusted in the
second quarter of 1998 to take into account the effect of the spin-off of Octel
in May 1998.

Under a share repurchase authorization from the Board of Directors, the Company
purchased 4.2 million shares of its stock in 1999 for a total cost of $159
million. The average price per share of the stock purchased was $37.97. As of
December 31, 1999, management is authorized to repurchase an additional 1.6
million shares. Management continues to analyze share repurchases as cash flow,
market conditions and investment opportunities warrant.

The cumulative translation adjustment component of stockholders' equity
represents the translation of foreign currency-denominated financial statements
into United States dollars. The 1999 change in the cumulative translation
adjustment decreased stockholders' equity by $25 million. Approximately 63% of
the Company's net assets are outside the United States.


OTHER MATTERS
SPECIAL CHARGES
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 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 is
intended 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 the reversals of the prior year charges
is reflected in the consolidated statement of income as a separate component of
operating income.

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 relate 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 relate to the write-off of certain
components of the Company's data processing software which 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 relates to a write-down of certain fixed assets formerly used in the
Mexico environmental business. Severance costs include the cost of separation
payments to certain Polymer Additives and Corporate employees who have been or
will be terminated.

The 1998 portion of the repositioning plan affects the Polymer Additives,
Performance Chemicals, and Energy Services and Products business units and
includes both domestic and international operations primarily in France, Italy
and the United Kingdom. The plan provides for improving manufacturing
productivity; the closing of production units at four sites; and the
consolidation of United States flame retardant production. Additionally, the
consolidation of sales offices and research and development facilities is
planned. As a result of these actions, approximately 500 positions will be
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 special charges is provided
in Note 2 to the consolidated financial statements.

The plan has now been substantially completed and the Company expects to achieve
$35 million to $40 million in cost savings on an annual basis. These
improvements will 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 plan affects all segments of the Company's operations. Outlined below is an
overview of the conditions each of the units is encountering and the actions
being 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 provide 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; consolidating brominated flame
retardant manufacturing in El Dorado, Arkansas; eliminating excess production
capacity; and reducing the number of sales offices and research and development
facilities. In connection with these activities, the workforce was reduced by
approximately 115 employees. Approximately 100 additional Polymer Additives
employees will be terminated in 2000. Reserves remaining related to Polymer



                                       23


<PAGE>   24
Additives severance totaled $8.6 million at December 31, 1999, 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 2000. The remaining reserves for Polymer Additives plant closures
of $2.9 million at December 31, 1999, relate primarily to the consolidation of
brominated flame retardant manufacturing in El Dorado, Arkansas, which is
expected to be completed in 2000.

In the Performance Chemicals business unit, the Company is eliminating 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 no longer
plans to close one of the plants included in the restructuring plan in 1998. As
a result, $4.4 million of reserves have been reversed in 1999.

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 deep water 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.

Cash outlays are expected to be substantially complete by the end of 2000. The
remaining liabilities at December 31, 1999, relate primarily to severance costs
and senior management transition. Operating cash flows are expected to be
sufficient to finance the remaining repositioning activities.

The 1997 consolidated statement of income includes pretax 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, 1999, was $1.7
million, which is expected to be fully utilized in 2000.

ACQUISITIONS
On August 2, 1999, the Company completed the acquisition of FMC Corporation's
Process Additives Division (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 posted 1998
sales of $160 million, employs 500 and includes 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
In December 1997, the Board of Directors approved a restructuring plan including
exiting the furfural and derivatives, Chemol and environmental services
businesses. A pretax 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 on June
30, 1999. In September 1999, the Company announced its intentions to sell
approximately 50% of its interest in its Energy Services and Products business
(OSCA). OSCA has been included in continuing operations because the Company will
retain the ability to exert significant influence over OSCA due to its
continuing ownership interest.

MARKET RISKS
The Company's operations are exposed to changes in foreign currency exchange and
interest rates primarily in its cash, debt and foreign currency transactions.
The derivative instruments, including swaps, forward contracts and options, are
held to manage certain foreign currency exposures. The derivative instruments
utilized by the Company in its hedging activities are considered risk management
tools and are not used for trading or speculative purposes. The Company
diversifies the counterparties used and monitors the concentration of risk to
limit its counterparty exposure.

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. Management of commitment and transaction
exposures is coordinated at the corporate level and exposures that are not
offset are hedged. Hedges are set to mature concurrently with the estimated
timing of the underlying transactions. The Company does not hedge foreign
currency net asset positions currently.

Considering the Company's operating profile, a uniform 10% change in the value
of the dollar from December 31, 1999, would result in approximately a $1 million
change in annual net income. A similar change in 1998 would have had a like
effect on annual net 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 which
may result from changes in exchange rates.

The Company uses commercial paper as a significant source of external financing
which exposes the Company to changes in short-term interest rates. The Company
carefully monitors interest rate trends. Based on the commercial paper and other
variable rate debt balances outstanding at December 31, 1999, a hypothetical 1
percentage point change in interest rates for a one-year period would change net
income by $4 million. The sensitivity does not consider any effect that a

                                       24

<PAGE>   25
change in interest rates would have on overall economic activity nor management
actions to mitigate interest rate changes.

As of December 31, 1999, the Company had short-term time deposits of $393
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 net income by $3 million.

ENVIRONMENTAL
The Company's operations, like those of most companies which 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
$27 million in 1999, $34 million in 1998 and $40 million in 1997. These amounts
include approximately $2 million, $2 million and $4 million for capital
equipment in 1999, 1998 and 1997, respectively. Spending for environmental
compliance is anticipated to be approximately $30 million in 2000.

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 disposal 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 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 condition.

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 the antitrust laws. As a
result of the Company's cooperation, Great Lakes 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 continued full cooperation with the DOJ's
investigation and policy regarding reasonable remedial efforts. The Company
believes it has fully complied with all applicable conditions to date and
intends to continue full compliance. Concurrently, the Company is seeking
favorable treatment under a program in the European community that also rewards
self reporting and cooperation. Participation in the above programs does not,
however, provide the Company with immunity from civil liability, including
restitution claims. To date, 10 federal purported class action lawsuits and 3
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.

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.

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.

IMPACT OF YEAR 2000
In prior years, the Company discussed the nature and progress of its plans to
become Year 2000 ready. In late 1999, the Company completed its remediation and
testing of systems. As a result of those planning and implementation efforts,
the Company experienced no significant disruptions in mission critical
information technology and non-information technology systems and believes those
systems successfully responded to the Year 2000 date change. The Company spent
approximately $9 million in 1999 in connection with remediating its systems. Of
this amount, approximately $3 million was expensed; the remainder represented
costs for new systems and equipment and was capitalized. The Company is not
aware of any material problems resulting from Year 2000 issues, either with its
products, its internal systems or the products and services of third parties.
The Company will continue to monitor its mission critical computer applications
and those of its suppliers and vendors throughout 2000 to ensure that any latent
Year 2000 matters that may arise are addressed promptly.

THE EURO
Effective January 1, 1999, member states of the European Economic and Monetary
Union converted to a common currency known as the euro. Modifications to certain
of the Company's information systems software were made in connection with this
conversion. The Company has completed these modifications at a nominal cost, and
has not experienced any operational impact from the implementation of the euro.
The Company does not expect the conversion to the euro to have a material impact
on results of operations, financial position or liquidity of its European
businesses.

ACCOUNTING CHANGES
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.

In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 133, "Accounting for Derivative
Instruments and Hedging Activities." This accounting standard, as amended by
SFAS No.137, is effective for all fiscal quarters of fiscal years beginning
after June 15, 2000, and requires that all derivatives be recognized as either
assets or liabilities at fair value. The Company is evaluating the new
statement's provisions and has not yet determined the impact of adoption on the
results of operations or financial position.


                                       25
<PAGE>   26

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 generally accepted accounting
principles and include amounts that are based on management's informed
judgements and estimates.

The Company maintains accounting systems and internal accounting controls which
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 which 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 generally accepted auditing standards.
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 annual
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.


(SIGNATURE)

Mark E. Tomkins
Senior Vice President and Chief Financial Officer


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, 1999 and 1998, and the
related consolidated statements of income, cash flows and stockholders' equity
for each of the three years in the period ended December 31, 1999. 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, 1999 and 1998, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1999, in conformity with accounting
principles generally accepted in the United States.


(SIGNATURE)

Indianapolis, Indiana
February 18, 2000


                                       26
<PAGE>   27


CONSOLIDATED STATEMENTS OF INCOME

<TABLE>
<CAPTION>

(millions, except per share data)
YEAR ENDED DECEMBER 31                                                                   1999             1998              1997
--------------------------------------------------------------------------------------------------------------------------------
<S>                                                                                  <C>              <C>               <C>
NET SALES                                                                            $1,453.3         $1,394.3          $1,311.2

OPERATING EXPENSES
   Cost of products sold                                                              1,030.2          1,011.5             937.5
   Selling, general and administrative expenses                                         242.8            192.4             182.1
   Special charges                                                                       18.2            116.5              49.8
--------------------------------------------------------------------------------------------------------------------------------

                                                                                      1,291.2          1,320.4           1,169.4
--------------------------------------------------------------------------------------------------------------------------------


OPERATING INCOME                                                                        162.1             73.9             141.8

INTEREST AND OTHER INCOME                                                                44.3             37.0              31.7

INTEREST AND OTHER EXPENSE                                                               31.0             44.7              56.3
--------------------------------------------------------------------------------------------------------------------------------


INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES                                   175.4             66.2             117.2

INCOME TAXES                                                                             35.8              9.8              45.4
--------------------------------------------------------------------------------------------------------------------------------


NET INCOME FROM CONTINUING OPERATIONS                                                   139.6             56.4              71.8

NET INCOME (LOSS) FROM DISCONTINUED OPERATIONS                                             --             32.6             (14.9)
--------------------------------------------------------------------------------------------------------------------------------


NET INCOME                                                                             $139.6            $89.0             $56.9
--------------------------------------------------------------------------------------------------------------------------------


EARNINGS (LOSS) PER SHARE:
BASIC
   Continuing operations                                                                $2.42            $0.96             $1.20
   Discontinued operations                                                                 --             0.55             (0.25)
--------------------------------------------------------------------------------------------------------------------------------

                                                                                        $2.42            $1.51             $0.95
--------------------------------------------------------------------------------------------------------------------------------


DILUTED
   Continuing operations                                                                $2.41            $0.95             $1.19
   Discontinued operations                                                                 --             0.55             (0.25)
--------------------------------------------------------------------------------------------------------------------------------

                                                                                        $2.41            $1.50             $0.94
--------------------------------------------------------------------------------------------------------------------------------


CASH DIVIDENDS DECLARED PER SHARE                                                       $0.32            $0.40             $0.63
--------------------------------------------------------------------------------------------------------------------------------
</TABLE>

See notes to consolidated financial statements.


                                       27
<PAGE>   28

CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>

(millions)
DECEMBER 31                                                                                               1999              1998
--------------------------------------------------------------------------------------------------------------------------------


ASSETS
CURRENT ASSETS
<S>                                                                                                   <C>               <C>
   Cash and cash equivalents                                                                            $478.3            $411.6
   Accounts and notes receivable, less allowance of $4.7 and $4.1, respectively                          339.6             258.0
   Inventories                                                                                           316.8             293.2
   Prepaid expenses                                                                                       32.8              32.8
--------------------------------------------------------------------------------------------------------------------------------

   TOTAL CURRENT ASSETS                                                                                1,167.5             995.6
--------------------------------------------------------------------------------------------------------------------------------


PLANT AND EQUIPMENT                                                                                      751.8             689.5

GOODWILL                                                                                                 246.5             115.6

INVESTMENTS IN AND ADVANCES TO UNCONSOLIDATED AFFILIATES                                                  55.5              80.3

OTHER ASSETS                                                                                              39.7              21.1

NET ASSETS OF DISCONTINUED OPERATIONS                                                                       --             102.5

                                                                                                      $2,261.0          $2,004.6
--------------------------------------------------------------------------------------------------------------------------------


LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
   Accounts payable                                                                                     $136.5            $129.3
   Accrued expenses                                                                                      123.7             163.8
   Income taxes payable                                                                                   40.5              44.2
   Dividends payable                                                                                       4.5               4.7
   Notes payable and current portion of long-term debt                                                     6.0               4.6
--------------------------------------------------------------------------------------------------------------------------------

   TOTAL CURRENT LIABILITIES                                                                             311.2             346.6
--------------------------------------------------------------------------------------------------------------------------------


LONG-TERM DEBT, LESS CURRENT PORTION                                                                     883.4             515.3

OTHER NONCURRENT LIABILITIES                                                                              34.4              37.1

DEFERRED INCOME TAXES                                                                                     37.9              51.3

STOCKHOLDERS' EQUITY
   Common stock, $1 par value, authorized 200 shares                                                      72.9              72.7
   Additional paid-in capital                                                                            132.0             128.6
   Retained earnings                                                                                   1,769.2           1,657.1
   Accumulated other comprehensive income                                                                (56.5)            (32.9)
   Less treasury stock, at cost                                                                         (923.5)           (771.2)
--------------------------------------------------------------------------------------------------------------------------------

   TOTAL STOCKHOLDERS' EQUITY                                                                            994.1           1,054.3
--------------------------------------------------------------------------------------------------------------------------------

                                                                                                      $2,261.0          $2,004.6
--------------------------------------------------------------------------------------------------------------------------------
</TABLE>

See notes to consolidated financial statements.


                                       28
<PAGE>   29

CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>

(millions)
YEAR ENDED DECEMBER 31                                                                   1999             1998              1997
--------------------------------------------------------------------------------------------------------------------------------
<S>                                                                                   <C>              <C>               <C>
OPERATING ACTIVITIES
   Net income from continuing operations                                               $139.6            $56.4             $71.8
   Adjustments to reconcile net income to net cash provided by operating activities:
     Depreciation and depletion                                                          80.8             78.6              69.9
     Amortization of intangible assets                                                    8.7              4.9               3.8
     Deferred income taxes                                                               19.1            (14.1)             (0.5)
     Net (unremitted) remitted earnings of affiliates                                    (1.2)             1.7              (1.9)
     (Gain) Loss on disposition of assets                                                (8.3)             0.7               0.3
     Special charges                                                                     18.2            116.5              49.8
     Other 6.2                                                                           (0.4)            (6.8)
     Change in operating assets and liabilities,
       net of effects from business combinations:
         Accounts receivable                                                            (46.5)            (3.3)              1.9
         Inventories                                                                     19.1              9.8             (22.3)
         Other current assets                                                            (1.1)            (2.6)             (7.9)
         Accounts payable and accrued expenses                                          (51.7)           (32.7)             40.5
         Income taxes and other current liabilities                                       3.6            (76.8)            (15.9)
         Other noncurrent liabilities                                                    (0.2)             1.6              10.3
--------------------------------------------------------------------------------------------------------------------------------

NET CASH PROVIDED BY OPERATING ACTIVITIES FROM CONTINUING OPERATIONS                    186.3            140.3             193.0

DISCONTINUED OPERATIONS (see note below):
   Net income (loss)                                                                       --             32.6             (14.8)
   Change in net assets                                                                  75.9            433.6              78.7
--------------------------------------------------------------------------------------------------------------------------------

NET CASH PROVIDED BY OPERATING ACTIVITIES                                               262.2            606.5             256.9

INVESTING ACTIVITIES
   Plant and equipment additions                                                       (119.0)          (160.6)           (133.0)
   Business combinations, net of cash acquired                                         (286.8)             0.6             (91.1)
   Proceeds from sale of assets                                                          13.2              1.8               1.2
   Other (4.3)                                                                           (9.2)            (2.1)
--------------------------------------------------------------------------------------------------------------------------------

NET CASH USED FOR INVESTING ACTIVITIES                                                 (396.9)          (167.4)           (225.0)

FINANCING ACTIVITIES
   Net borrowings and (repayments) under short-term credit lines                          1.5             (2.4)              3.6
   Net proceeds from long-term borrowings                                               393.9              6.7               6.6
   Net (decrease) increase in commercial paper and other                                (25.5)           (53.0)             58.1
   long-term obligations
   Proceeds from stock options exercised                                                  5.1              5.3               2.3
   Cash dividends paid                                                                  (18.6)           (28.4)            (37.6)
   Repurchase of common stock                                                          (158.7)           (28.5)           (128.6)
   Other                                                                                  4.3             (1.0)               --
--------------------------------------------------------------------------------------------------------------------------------

NET CASH PROVIDED BY (USED FOR) FINANCING ACTIVITIES                                    202.0           (101.3)            (95.6)

EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS                             (0.6)             0.1              (4.0)
--------------------------------------------------------------------------------------------------------------------------------

INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS                                         66.7            337.9             (67.7)

CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR                                          411.6             73.7             141.4
--------------------------------------------------------------------------------------------------------------------------------

CASH AND CASH EQUIVALENTS AT END OF YEAR                                               $478.3           $411.6             $73.7
--------------------------------------------------------------------------------------------------------------------------------
</TABLE>

Cash flow from discontinued operations in 1998 was $466.2 million of which
$461.9 million was received from Octel.
Parentheses indicate decrease in cash and cash equivalents.
See notes to consolidated financial statements.



                                       29

<PAGE>   30

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

<TABLE>
<CAPTION>
(millions)
                                                                 1999                      1998                       1997
--------------------------------------------------------------------------------------------------------------------------------

                                                          Shares     Amount         Shares      Amount        Shares      Amount
<S>                                                       <C>       <C>            <C>         <C>           <C>         <C>
COMMON STOCK
   Balance at January 1                                     72.7      $72.7           72.6       $72.6          72.5       $72.5
   Exercise of stock options net of shares exchanged         0.2        0.2            0.1         0.1           0.1         0.1
--------------------------------------------------------------------------------------------------------------------------------

   Balance at December 31                                   72.9       72.9           72.7        72.7          72.6        72.6
--------------------------------------------------------------------------------------------------------------------------------

ADDITIONAL PAID-IN CAPITAL
   Balance at January 1                                               128.6                      123.4                     121.2
   Exercise of stock options net of shares exchanged                    3.0                        1.1                       1.2
   Tax benefits of early disposition
     of stock by optionees                                              0.8                        0.9                       1.0
   Restricted stock activity                                            1.3                        3.2                        --
   Employee stock plan activity                                       (1.7)                         --                        --
--------------------------------------------------------------------------------------------------------------------------------

   Balance at December 31                                             132.0                      128.6                     123.4
--------------------------------------------------------------------------------------------------------------------------------

RETAINED EARNINGS
   Balance at January 1                                             1,657.1                    1,912.5                   1,893.1
   Net income                                                         139.6                       89.0                      56.9
   Dividends                                                         (18.3)                     (23.6)                    (37.5)
   Spin-off of Octel                                                     --                    (320.8)                        --
   Other                                                              (9.2)                         --                        --
   BALANCE AT DECEMBER 31                                           1,769.2                    1,657.1                   1,912.5
--------------------------------------------------------------------------------------------------------------------------------

TREASURY STOCK
   Balance at January 1                                   (14.3)    (771.2)         (13.6)     (745.6)        (10.8)     (617.0)
   Shares repurchased                                      (4.2)    (158.7)          (0.7)      (28.5)         (2.8)     (128.6)
   Employee stock plan activity                              0.1        6.4             --         2.9            --          --
--------------------------------------------------------------------------------------------------------------------------------

   Balance at December 31                                 (18.4)    (923.5)         (14.3)     (771.2)        (13.6)     (745.6)
--------------------------------------------------------------------------------------------------------------------------------

ACCUMULATED OTHER COMPREHENSIVE INCOME
   Cumulative translation adjustment
     Balance at January 1                                            (30.1)                     (52.9)                      17.1
     Translation adjustment                                          (34.6)                      (6.2)                    (70.0)
     Other                                                   9.2                        --                        --
     Spin-off of Octel                                                   --                       29.0                        --
--------------------------------------------------------------------------------------------------------------------------------

     BALANCE AT DECEMBER 31                                          (55.5)                     (30.1)                    (52.9)
   Minimum Pension Liability
     Balance at January 1                                             (2.8)                      (2.6)                        --
     Minimum pension liability adjustment                               1.8                      (0.2)                     (2.6)
--------------------------------------------------------------------------------------------------------------------------------

     Balance at December 31                                           (1.0)                      (2.8)                     (2.6)
--------------------------------------------------------------------------------------------------------------------------------

   Total Balance at December 31                                      (56.5)                     (32.9)                    (55.5)
--------------------------------------------------------------------------------------------------------------------------------

Total Stockholders' Equity                                  54.5     $994.1           58.4    $1,054.3          59.0    $1,307.4
--------------------------------------------------------------------------------------------------------------------------------

COMPREHENSIVE INCOME (LOSS)
   Net income                                                        $139.6                      $89.0                     $56.9
   Translation adjustment                                            (34.6)                      (6.2)                    (70.0)
   Minimum pension liability adjustment                                 1.8                      (0.2)                     (2.6)
--------------------------------------------------------------------------------------------------------------------------------

   TOTAL COMPREHENSIVE INCOME (LOSS)                                 $106.8                      $82.6                   $(15.7)
</TABLE>

   See notes to consolidated financial statements.


                                       30
<PAGE>   31


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. In September 1999, the
Company announced its intentions to sell approximately 50% of its interest in
its Energy Services and Products business (OSCA) through an initial public
offering. OSCA has been included in continuing operations because the Company
will retain the ability to exert significant influence over OSCA due to its
continuing ownership 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.

PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include all subsidiaries of the Company
after elimination of significant intercompany accounts and transactions.
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 recorded at cost, plus equity in their undistributed
earnings since acquisition.

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

REVENUE RECOGNITION
Revenue from sales of products is recognized at the time title passes to the
customer. Revenue from services is recognized when the services are provided to
the customer.

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, 1999 and 1998, accumulated amortization was $22 million and $17
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
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 taxes have not been provided is immaterial.

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 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.

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 exposures and are not for speculative
trading purposes. Management periodically 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 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



                                       31
<PAGE>   32





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.

NEW ACCOUNTING STANDARDS
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.

In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 133, "Accounting for Derivative
Instruments and Hedging Activities." This Statement, as amended by SFAS No.137,
will be effective for the Company beginning with the first quarter of 2001. The
Statement requires companies 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. Hedge ineffectiveness, the amount by which the
change in the value of a hedge does not exactly offset the change in the value
of the hedged item, will be immediately recognized in earnings. The Company is
evaluating the new statement's provisions and has not yet determined the impact
of adoption on the results of operations or financial position.


NOTE 2: SPECIAL CHARGES
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 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 is
intended 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 the 1999
special charges 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 the reversals of the
prior year charges is reflected in the 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, 1999, follows:

<TABLE>
<CAPTION>

-----------------------------------------------------------------------------------------------------
                                                              Reserve
                             Amount                           Balance at
                          of Charge          1999             December 31_
Description                 in 1999      Activity             1999
-----------------------------------------------------------------------------------------------------
<S>                       <C>            <C>                  <C>
Asset Impairment (non cash):
   Polymer Additives          $10.8         $10.8             $--
   Energy Services
     and Products               1.8           1.8             --
   Corporate                   10.7          10.7             --
-----------------------------------------------------------------------------------------------------

                               23.3          23.3             --
Severance Costs:
   Polymer Additives            1.2           0.2             1.0
   Corporate                    0.9            --             0.9

                                2.1           0.2             1.9

                              $25.4         $23.5            $1.9
-----------------------------------------------------------------------------------------------------
</TABLE>


Asset impairment losses in Polymer Additives relate 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 relates to a write-down of certain fixed
assets formerly used in the Mexico environmental business. Asset impairment
losses in Corporate relate to the write-off of certain components of the
Company's data processing software which have 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 will be 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 65
positions as a result of the 1999 actions. As of December 31, 1999,
substantially all personnel involved 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
terminations relate 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 will focus primarily on halogen and non-halogen based flame retardant
and performance additives and fluids technology. Those in Bolgiano will
concentrate on polymer stabilizers. All European Technical Service and
Applications capabilities will be consolidated in a new Customer Technical
Service and Applications Center in Geel, Belgium. European Polymer Additives
customers will receive all the technical service and analytical support they
need from a single location, which is located near 80 percent of the Company's
European customers. The Corporate severance costs relate to information systems
personnel.

The 1998 portion of the repositioning plan affects the Polymer Additives,
Performance Chemicals and Energy Services and Products business units and
includes both domestic and international operations primarily in France, Italy
and the United Kingdom. The plan provides for improving manufacturing
productivity; the closing of production units at four sites; and the
consolidation of United States flame retardant production. Additionally, the
consolidation of sales offices and research and development facilities is
planned. As a result of these actions, approximately 500 positions will be
eliminated.



                                       32

<PAGE>   33




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
is reflected in the 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, 1999 follows:



<TABLE>
<CAPTION>

--------------------------------------------------------------------------------------------------------------------------------

                                                                          Reserve                                        Reserve
                                           Amount of                   Balance at                                     Balance at
                                              Charge           1998  December 31,              1999          1999   December 31,
Description                                  in 1998       Activity          1998          Activity     Reversals           1999
<S>                                        <C>            <C>        <C>                  <C>           <C>         <C>
Asset Impairment (non-cash):
   Polymer Additives                           $25.9        $(25.9)           $--               $--           $--            $--
   Performance Chemicals                        12.7         (12.7)            --                --            --             --
   Energy Services and Products                  7.9          (7.9)            --               2.6         (2.6)             --
   Corporate                                    10.0         (10.0)            --                --            --             --
--------------------------------------------------------------------------------------------------------------------------------

                                                56.5         (56.5)            --               2.6         (2.6)             --
Severance Costs:
   Polymer Additives                            10.9             --          10.9             (2.3)            --            8.6
   Performance Chemicals                         3.3          (1.6)           1.7             (1.1)           0.3            0.9
   Energy Services and Products                  0.4          (0.3)           0.1             (0.1)            --             --
   Corporate                                     3.0          (0.2)           2.8             (0.9)         (0.9)            1.0
--------------------------------------------------------------------------------------------------------------------------------

                                                17.6          (2.1)          15.5             (4.4)         (0.6)           10.5
Plant Closure and Environmental:
   Polymer Additives                             3.2             --           3.2             (0.5)           0.2            2.9
   Performance Chemicals                         6.9             --           6.9             (0.3)         (4.4)            2.2
--------------------------------------------------------------------------------------------------------------------------------

                                                10.1             --          10.1             (0.8)         (4.2)            5.1
Senior Management
   Transition (Corporate)                       20.5         (11.2)           9.3             (3.1)         (0.1)            6.1
Lease Costs
   (Energy Services and Products)                4.4          (0.8)           3.6             (1.8)            --            1.8
Other                                            7.4          (3.4)           4.0             (4.3)           0.3             --
--------------------------------------------------------------------------------------------------------------------------------

                                              $116.5        $(74.0)         $42.5           $(11.8)        $(7.2)          $23.5
--------------------------------------------------------------------------------------------------------------------------------
</TABLE>


Asset impairment losses relate to consolidation of certain product lines,
primarily in the Polymer Additives business unit, where the Company has
sufficient capacity to meet anticipated requirements, and the shutdown of
certain unprofitable operating units. Approximately $41.4 million of the asset
impairment loss is related to assets which were to be held and used until the
facility closures could be completed; most of these facilities have now been
closed. The balance of the asset impairment loss relates primarily to certain
components of the Company's data processing software which has 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 will be depreciated over the remaining
lives of the assets. The reversal of $2.6 million in 1999 relates to an Energy
Services and Products calcium chloride production facility which 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 will now not be sold or abandoned.

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 eliminated approximately 500 positions
as a result of the 1998 actions. While all areas of the Company will be 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 decision to abandon facilities results in closure costs, such as
dismantling, decontamination and remediation. Spending related to these costs
will begin after the facilities have been closed. Due in part to increased
volumes resulting from the NSC Technologies acquisition in 1999, the Company no
longer plans to close a plant which was included in the restructuring plan in
1998. As a result, $4.2 million of plant closure and environmental reserves have
been reversed in 1999, primarily in the Performance Chemicals business unit.

Included in the senior management transition costs is $15.5 million for the
change in the chief executive officer. The majority of these payments will be
completed by 2001. 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 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 deep water oil well service. Payments under the lease agreement
extend through 2001.



                                       33
<PAGE>   34




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 underperforming assets. Details of the 1997 charge and a
reconciliation to the reserve balance at December 31, 1999 follows:

<TABLE>
<CAPTION>

-----------------------------------------------------------------------------------------------------
                                   Reserve                    Reserve
                   Amount       Balance at                    Balance at
                of Charge     December 31,         1999       December 31,
Description       in 1997             1998     Activity       1999
-----------------------------------------------------------------------------------------------------
<S>             <C>           <C>              <C>            <C>
Asset impairment
   (non-cash)       $38.0           $ --           $  --       $ --
Severance costs       1.9            0.9             0.1        1.0
Other                 9.9            2.3            (1.6)       0.7
-----------------------------------------------------------------------------------------------------

                    $49.8           $3.2           $(1.5)      $1.7
-----------------------------------------------------------------------------------------------------
</TABLE>


The asset impairment relates 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 $1.7 million is
expected to be fully utilized in 2000.


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 $15 million and $145 million at December 31, 1999 and
1998, 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.

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


SUMMARY STATEMENTS OF INCOME

<TABLE>
<CAPTION>

-----------------------------------------------------------------------------------------------------
Year Ended December 31                       1998             1997
-----------------------------------------------------------------------------------------------------
<S>                                        <C>                <C>
Net sales                                  $351.7             $768.7
Income before income taxes                   48.6             181.0
Income taxes                                 16.0             58.9
-----------------------------------------------------------------------------------------------------

Income from operations
   (net of taxes)                            32.6             122.1
Special provision (net of taxes)               --             137.0


Net income (loss) from
   discontinued operations                  $32.6             $(14.9)
-----------------------------------------------------------------------------------------------------


Summary Statements of Net Assets
<CAPTION>
-----------------------------------------------------------------------------------------------------
December 31                                                   1998
-----------------------------------------------------------------------------------------------------
<S>                                                           <C>
Current assets                                                $147.5
Net property 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
-----------------------------------------------------------------------------------------------------
</TABLE>


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


NOTE 4: ACQUISITIONS
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. 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 August 2, 1999, the Company completed the acquisition of FMC Corporation's
Process Additives Division (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



                                       34
<PAGE>   35




assumed liabilities, including goodwill, is preliminary since discussions are
ongoing with the seller regarding potential purchase price adjustments.

The following represents the unaudited pro forma results of continuing
operations as if the NSC Technologies and PAD acquisitions had occurred as of
January 1 of each year presented.

<TABLE>
<CAPTION>

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

<S>                                      <C>                  <C>
Net sales                                $1,557.6             $1,619.3
Net income                                  141.8                 63.8
Earnings per share                            2.45                 1.08
-----------------------------------------------------------------------------------------------------
</TABLE>

The pro forma results do not represent the Company's actual operating results
had the acquisition been made at the beginning of the respective years, or the
results which may be expected in the future.

On November 3, 1997, the Company completed the acquisition of Cookson Group
plc's global antimony products business, Anzon, for $90 million. Approximately
$46 million of goodwill resulted from the acquisition which is being amortized
over 40 years. Anzon is a global producer of antimony-based flame retardants.
The acquisition was accounted for as a purchase and the results of operations
are included in the consolidated financial statements from the date of
acquisition.


NOTE 5: CASH AND CASH EQUIVALENTS

Cash and cash equivalents consist of the following:

<TABLE>
<CAPTION>

-----------------------------------------------------------------------------------------------------
December 31                                  1999             1998
-----------------------------------------------------------------------------------------------------
<S>                                         <C>               <C>
Cash                                        $ 85.4            $ 88.4
Cash equivalents                             392.9             323.2


                                            $478.3            $411.6
-----------------------------------------------------------------------------------------------------
</TABLE>


NOTE 6: INVENTORIES
The major components of inventories are as follows:

<TABLE>
<CAPTION>

-----------------------------------------------------------------------------------------------------
December 31                                  1999             1998
-----------------------------------------------------------------------------------------------------
<S>                                        <C>                <C>
Finished products                          $227.9             $211.3
Raw materials                                60.1               50.0
Supplies                                     28.8               31.9
-----------------------------------------------------------------------------------------------------

                                           $316.8             $293.2
-----------------------------------------------------------------------------------------------------
</TABLE>


NOTE 7: PLANT AND EQUIPMENT

Plant and equipment consist of the following:

<TABLE>
<CAPTION>

-----------------------------------------------------------------------------------------------------
December 31                                  1999             1998
-----------------------------------------------------------------------------------------------------
<S>                                       <C>                 <C>
Land                                        $   18.2          $   19.8
Buildings                                      109.6             121.9
Equipment                                    1,150.3             939.8
Construction in progress                        79.3             160.1
-----------------------------------------------------------------------------------------------------

                                             1,357.4           1,241.6
Less allowances for depreciation,
   depletion and amortization                  605.6             552.1


                                            $  751.8          $  689.5
-----------------------------------------------------------------------------------------------------
</TABLE>

Maintenance and repairs charged to costs and expenses were $63 million, $57
million and $60 million for 1999, 1998 and 1997, respectively.


NOTE 8: DEBT
Long-term debt is summarized as follows:

<TABLE>
<CAPTION>

-----------------------------------------------------------------------------------------------------
December 31                                  1999             1998
-----------------------------------------------------------------------------------------------------

<S>                                        <C>                <C>
Notes payable                              $401.0             $  0.6
Commercial paper                            455.8              481.3
Industrial development bonds                 12.3               12.3
Other                                        20.3               25.7
-----------------------------------------------------------------------------------------------------

                                            889.4              519.9
Less current portion                          6.0                4.6


                                           $883.4             $515.3
-----------------------------------------------------------------------------------------------------
</TABLE>

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 average rate of interest on commercial paper borrowing was 5.8% at December
31, 1999. The interest rate on industrial development bonds was 3.5% at December
31, 1999. The bonds have maturities through 2025.

The Company has a $600 million revolving credit agreement with 11 banks which
serves as a backup for the Company's commercial paper program that 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.

Long-term debt matures as follows: 2000, $6 million; 2001, $459 million; 2002,
$3 million; 2003, $3 million; 2004, $2 million; and thereafter $416 million.

During 1999, 1998 and 1997, interest costs were $35 million, $31 million and $34
million, respectively, which included interest capitalized as additional costs
of plant and equipment of $4 million for 1999 and $6 million in years 1998 and
1997. In these years, interest payments were $22 million, $32 million and $34
million, respectively.





                                       35

<PAGE>   36
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:
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------
Year Ended December 31                      1999               1998              1997
-----------------------------------------------------------------------------------------------------
<S>                                        <C>                <C>               <C>
Domestic                                   $112.7             $18.3              $79.9
Foreign                                      62.7              47.9               37.3

                                           $175.4             $66.2             $117.2
-----------------------------------------------------------------------------------------------------
</TABLE>

Provisions for Income Taxes:

<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------
Year Ended December 31                       1999             1998              1997
-----------------------------------------------------------------------------------------------------
<S>                                        <C>               <C>               <C>
Current:
   Federal                                 $(5.2)             $6.5              $32.8
   State                                     1.7               4.9                4.4
   Foreign                                  20.2              12.5                8.7

                                            16.7              23.9               45.9
-----------------------------------------------------------------------------------------------------
Deferred:
   Domestic                                 20.8             (20.5)              (2.8)
   Foreign                                  (1.7)              6.4                2.3

                                            19.1             (14.1)              (0.5)

                                           $35.8              $9.8              $45.4
-----------------------------------------------------------------------------------------------------
</TABLE>

Effective Income Tax Rate Reconciliation:

<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------
Year Ended December 31                      1999              1998              1997
-----------------------------------------------------------------------------------------------------
<S>                                         <C>               <C>               <C>
U.S. federal income tax rate                35.0%             35.0%             35.0%
Change resulting from:
   State income tax                          0.6               4.8               2.4
   Depletion                                (0.9)             (3.3)             (2.2)
   Foreign sales corporation                (1.8)             (4.8)             (3.5)
   Tax exempt interest                      (0.5)             (1.7)               --
   Dividends received
     deduction                              (1.3)             (3.3)             (2.5)
   Low income housing credit                (1.6)             (3.2)             (1.5)
   International operations                 (1.1)             (5.5)              1.5
   Statutory tax rate changes                 --                --              (2.1)
   Special charge
     rate differential                        --               2.7               4.8
   Stock redemption -
     Huntsman                               (1.3)               --                --
   Release of previously
     provided tax provisions                (7.2)               --                --
   Other                                     0.5              (5.9)              6.8

Effective income tax rate                   20.4%             14.8%             38.7%

-----------------------------------------------------------------------------------------------------
</TABLE>


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:

<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------
December 31                                  1999             1998
-----------------------------------------------------------------------------------------------------

Deferred tax assets
<S>                                         <C>              <C>
   Accrued expenses                          $7.4             $13.0
   Special charges                            9.1              15.6
   Tax credit carryforwards                  11.0                --
   Other                                     16.9              13.6

                                            $44.4             $42.2
-----------------------------------------------------------------------------------------------------
Deferred tax liabilities
   Depreciation                             $47.9             $40.1
   Foreign liabilities pending settlements     --              20.0
   Other                                     22.2              19.6

                                            $70.1             $79.7
-----------------------------------------------------------------------------------------------------
</TABLE>


As of December 31, 1999, the Company has unutilized tax credits of $11.0
million. Of this amount, $5.4 million expire in 2003; $0.3 million expire in
2004; and the remainder have no expiration dates.

Cash payments for income taxes were $24 million, $109 million and $36 million in
1999, 1998 and 1997, respectively.

NOTE 10: STOCKHOLDERS' EQUITY
The Company is authorized to issue up to 200 million shares of common stock with
a par value of $1 per share.

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 percent-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.

                                       36

<PAGE>   37

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:

<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------
Year Ended December 31         1999          1998             1997
-----------------------------------------------------------------------------------------------------
<S>                            <C>           <C>              <C>
Denominator for basic
   earnings per share
   (weighted average shares)   57.8          59.0             60.0
Effect of dilutive securities   0.2           0.2              0.3


Denominator for diluted
   earnings per share          58.0          59.2             60.3
-----------------------------------------------------------------------------------------------------
</TABLE>

Options to purchase shares of common stock of 1.6 million, 1.4 million and 1.1
million in 1999, 1998 and 1997, respectively, 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, 1999. The Company is authorized to grant options for up to 4.3
million shares under the plans, of which 2.1 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:

<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------
                                                              Weighted
                                     Shares Under             Average
                                           Option             Exercise Price
-----------------------------------------------------------------------------------------------------
<S>                                  <C>                      <C>
Outstanding at January 1, 1997                1.7             $52.61
Granted                                       0.4              43.05
Exercised                                    (0.1)             16.82
Terminated                                   (0.1)             55.89
-----------------------------------------------------------------------------------------------------

Outstanding at December 31, 1997              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


Currently Exercisable                         1.5             $47.32
-----------------------------------------------------------------------------------------------------
</TABLE>

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. In the preceding table, prior years' information has not
been restated.

During 1999 and 1998 the Company awarded restricted stock totaling 0.1 million
and 0.2 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 1999 and 1998 related to these awards totaled
$1.3 million and $3.2 million, respectively.

Options outstanding at December 31, 1999, expire from March 2000 to December
2009. A total of 2.2 million shares are reserved for future grants as of
December 31, 1999.

The following table summarizes information concerning outstanding and
exercisable options at December 31, 1999:

<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------
Range of Exercise Prices                 $21-$35              $36-$50           $51-$69
-----------------------------------------------------------------------------------------------------
<S>                                      <C>                  <C>               <C>
Options outstanding:
Weighted average
   remaining contractual life            8.7 yrs.             8.3 yrs.          5.7 yrs.
Weighted average exercise price            $33.81               $41.42            $61.85
Number                                        0.5                  2.0               0.6

Options exercisable:
Weighted average exercise price            $22.60               $40.12            $61.85
Number                                        0.1                  0.9               0.5
-----------------------------------------------------------------------------------------------------
</TABLE>


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. Therefore, because SFAS 123 is applicable to
options granted subsequent to December 31, 1994, its pro forma effect is only
fully reflected in 1999 and 1998.


<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------
December 31                                  1999             1998              1997
-----------------------------------------------------------------------------------------------------
<S>                                        <C>                <C>               <C>
Weighted average fair value
   per share of options
   granted during the year(1)               $ 14.36           $ 13.96           $ 13.14
Net income from continuing operations:
   As reported                               139.6              56.4              71.8
   Pro forma                                 132.8              47.6              67.5
Diluted earnings per share:
   As reported                                 2.41              0.95              1.19
   Pro forma                                   2.30              0.81              1.12
Assumptions:
   Expected volatility                        27.7%             23.9%             21.0%
   Expected life in years                      6.5               6.5               6.5
   Risk free interest rate                     4.9%              5.5%              6.2%
   Dividend yield                              0.8%              0.9%              1.4%
-----------------------------------------------------------------------------------------------------
</TABLE>


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


                                       37

<PAGE>   38

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
assets for 1999 and 1998, and reconciles the funded status to the amounts
recognized in the balance sheets for those years.

<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------
                                                              1999              1998
-----------------------------------------------------------------------------------------------------
<S>                                                           <C>               <C>
Change in benefit obligation:
   Benefit obligation at beginning of year                     $156.8            $121.9
   Service cost                                                   9.2               6.7
   Interest cost                                                 10.2               9.1
   Plan participants' contributions                               0.7               0.4
   Amendments and terminations                                    1.5               2.1
   Net actuarial loss/(gain)                                    (22.4)             20.8
   FAS 88 gain                                                   (1.7)               --
   Benefits paid                                                 (5.1)             (4.8)
   Foreign currency translation loss/(gain)                      (1.2)              0.6

   Benefit obligation at end of year                           $148.0            $156.8
-----------------------------------------------------------------------------------------------------
Change in fair value of plan assets:
   Fair value of plan assets at beginning of year              $129.3            $130.6
   Actual return on plan assets                                  25.8              (1.7)
   Employer contributions                                         6.2               4.6
   Benefits and expenses paid                                    (5.6)             (5.4)
   Foreign currency translation (loss)/gain                      (0.2)              1.2

   Fair value of plan assets at end of year                    $155.5            $129.3
-----------------------------------------------------------------------------------------------------
Reconciliation of funded status to
   amounts recognized in the balance sheets:
   Funded status                                                 $7.5            $(27.5)
   Unrecognized prior service cost                                2.1               0.9
   Unrecognized transition obligation                             0.7               0.9
   Unrecognized net actuarial loss/(gain)                       (24.6)             12.6

   Net accrued benefit cost                                    $(14.3)           $(13.1)
-----------------------------------------------------------------------------------------------------
Amounts recognized in the balance sheets consist of:
   Prepaid benefit costs                                         $1.8              $2.4
   Accrued benefit liability                                    (19.1)            (21.7)
   Intangible asset                                               1.5               1.9
   Accumulated other comprehensive income                         1.5               4.3

   Net accrued benefit cost                                    $(14.3)           $(13.1)
-----------------------------------------------------------------------------------------------------

Weighted average assumptions at end of year:
Discount rates                                                6.5% to 8.0%      6.0% to 6.75%
Expected return on plan assets                                7.0% to 9.0%      7.0% to 9.0%
Rates of compensation increases                               4.0% to 4.5%      4.0% to 4.8%
</TABLE>

The increase in the discount rate assumption in 1999 decreased the projected
benefit obligation by approximately $25 million. The decrease in the discount
rate assumption in 1998 increased the projected benefit obligation by
approximately $22 million.

The components of net periodic benefit costs are as follows:


<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------
                                             1999            1998              1997
-----------------------------------------------------------------------------------------------------
<S>                                          <C>             <C>               <C>
Service cost                                  $9.2            $6.7              $5.7
Interest cost                                 10.2             9.1               8.5
Expected return on plan assets               (11.4)          (11.6)             (9.6)
Amortization of prior service cost             0.2             0.2               0.1
Amortization of transition obligation          0.2             0.2               0.2
Recognized net actuarial loss                  1.3             0.1               0.2
Termination benefits                           0.1             1.4                --
Net benefit costs transferred
   from discontinued operations                 --              --               1.2

Net periodic benefit cost                     $9.8            $6.1              $6.3
-----------------------------------------------------------------------------------------------------
</TABLE>


The net benefit costs transferred from discontinued operations represents
benefit costs attributable to employees who participated in the Octel pension
plans and remained with the Company after the spin-off. In 1998, the benefits
for these employees were incorporated into the Company plans.

Amounts applicable to the Company's pension plans with accumulated benefit
obligations in excess of plan assets are as follows:


<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------
                                            1999              1998
-----------------------------------------------------------------------------------------------------
<S>                                         <C>               <C>
Projected benefit obligation                $11.5             $60.2
Accumulated benefit obligation               10.3              54.0
Fair value of plan assets                      --              38.7
-----------------------------------------------------------------------------------------------------
</TABLE>


The Company provides no significant post-retirement benefits other than
pensions.


NOTE 14: RESEARCH AND DEVELOPMENT EXPENSES
Research and development expenses were approximately $45.7 million, $42.3
million and $41.8 million in 1999, 1998 and 1997, 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 markets: 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 spas 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 and pulp and paper production and
desalination products.

The Energy Services and Products segment provides services and products to oil
and gas well operators. The segment produces bromine-based clear fluids and
completion fluids and provides ancillary well completion services such as gravel
packing, high-pressure fracturing, packing, well stimulation and coil-tube
intervention.

The Company evaluates business unit performance and allocates resources based on
operating income which represents net sales less costs 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 and assets used in the production of bromine are allocated
to business units based on the percentage of production consumed. The accounting
policies of the reportable segments are the same as those described in the
summary of significant accounting policies.


                                       38

<PAGE>   39

Corporate includes the corporate offices and the discontinued operations.
Segment assets primarily include 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 new ERP software systems.
Geographic sales information is reported based on the location which invoices
the external customer. Geographic long-lived assets are grouped by the location
of the reporting country. Intersegment sales are insignificant and are
eliminated in consolidation.


<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------
Year Ended December 31                      1999               1998              1997
-----------------------------------------------------------------------------------------------------
<S>                                      <C>                <C>               <C>
Net Sales by Segment
   to External Customers:
   Polymer Additives                       $613.0             $584.2            $553.9
   Performance Chemicals                    346.9              314.8             282.7
   Water Treatment                          399.8              378.7             350.1
   Energy Services
     and Products                            95.2              115.7             112.9
-----------------------------------------------------------------------------------------------------

   Total sales of
     reportable segments                  1,454.9            1,393.4           1,299.6
   Corporate                                 (1.6)               0.9              11.6


                                         $1,453.3           $1,394.3          $1,311.2
-----------------------------------------------------------------------------------------------------
Segment Profit:
   Polymer Additives                        $78.0              $78.9             $92.9
   Performance Chemicals                     78.7               70.2              51.1
   Water Treatment                           73.1               54.5              46.3
   Energy Services
     and Products                            (8.5)              11.0              20.3
-----------------------------------------------------------------------------------------------------

   Total profits of
     reportable segments                    221.3              214.6             210.6
   Corporate                                (41.0)             (24.2)            (19.0)
   Special charges                          (18.2)            (116.5)            (49.8)


   Operating Income                         162.1               73.9             141.8
-----------------------------------------------------------------------------------------------------
Interest and other income                    44.3               37.0              31.7
Interest and other expense                   31.0               44.7              56.3


Income before Income Taxes                 $175.4              $66.2            $117.2
-----------------------------------------------------------------------------------------------------
Depreciation Expense:
   Polymer Additives                        $34.7              $37.9             $32.6
   Performance Chemicals                     19.1               20.8              18.9
   Water Treatment                           10.5                9.1              10.4
   Energy Services
     and Products                             9.7                8.7               6.9
   Corporate                                  6.8                2.1               1.1
-----------------------------------------------------------------------------------------------------

                                            $80.8              $78.6             $69.9

Segment Assets:
   Polymer Additives                       $782.6             $664.3            $650.6
   Performance Chemicals                    436.1              302.4             307.2
   Water Treatment                          303.3              227.7             239.3
   Energy Services
     and Products                           131.1              147.3             128.1
   Corporate                                613.1              560.4             218.7
   Net assets of discontinued
     operations                              (5.2)             102.5             726.5


                                         $2,261.0           $2,004.6          $2,270.4
-----------------------------------------------------------------------------------------------------
</TABLE>

<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------
Year Ended December 31                       1999             1998              1997
-----------------------------------------------------------------------------------------------------
<S>                                      <C>               <C>                <C>
Investment in Equity
   Method Investees:
   Polymer Additives                        $18.1             $10.7              $11.3
Expenditures for
   Long-lived Assets:
   Polymer Additives                        $40.7             $52.0             $118.9
   Performance Chemicals                     29.0              29.4               27.4
   Water Treatment                           13.1              11.1                7.0
   Energy Services
     and Products                            13.1              28.7               21.0
   Corporate                                 23.1              39.4               33.7


                                           $119.0            $160.6             $208.0
-----------------------------------------------------------------------------------------------------
Geographic Information
Net Sales to
   External Customers:
   United States                           $888.1            $880.8             $826.0
   United Kingdom                           147.9             313.1              271.8
   Switzerland                              130.9                --                 --
   Other Foreign                            286.4             200.4              213.4


                                         $1,453.3          $1,394.3           $1,311.2
-----------------------------------------------------------------------------------------------------
Long-lived Assets:
   United States                           $740.5            $644.9             $622.6
   United Kingdom                           123.7              78.0               78.1
   Other Foreign                            189.6             162.5              145.5


                                         $1,053.8            $885.4             $846.2
-----------------------------------------------------------------------------------------------------
</TABLE>

NOTE 16: INVESTMENT IN AND ADVANCES TO UNCONSOLIDATED AFFILIATES
As of December 31, 1999, the Company's investment in unconsolidated affiliates
consists mainly of a 50% interest in Tetrabrom Technologies, Ltd., an Israeli
manufacturer of tetrabromobisphenol-A, and 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%. Beginning in the
year 2000, the annual dividend rate will increase 1% per year to a maximum rate
of 25%. The Company sold 44,025 shares of the HCC preferred stock in 1999 and
recognized a before tax gain of approximately $9 million. The preferred shares
held at December 31, 1999 have a face value of $15 million. Preferred dividends
from HCC amounted to $7 million, $8 million and $8 million for 1999, 1998 and
1997, 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 $1
million, $(0.2) million and $2 million for 1999, 1998 and 1997, 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 speculative
purposes.

                                       39

<PAGE>   40

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. At December 31, 1999 and 1998, the Company had deferred losses
related to hedging activities of $0 and $0.2 million, respectively. Deferred
amounts to be recognized can change with market conditions and will be
substantially offset by changes in the value of the related hedged transactions.
The impact of currency options used for foreign exchange risk management on
pretax income in 1999 and in 1998 was a net (loss) gain of approximately $(0.7)
million and $0.9 million, 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:


<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------
                            1999                   1998
                     Stated       Fair      Stated         Fair
                      Value      Value       Value         Value
--------------------------------------------------------------------------------------------------
<S>                  <C>        <C>         <C>            <C>
Long-term debt
   including
   current portion   $889.4     $870.9      $519.9         $519.9
Interest rate
   swap agreements       --       (8.4)         --             --
Foreign currency
   options and
   forward contracts   23.2       22.2        13.3            7.8
Foreign currency
   swap contracts      46.8       53.5       108.8          115.6
--------------------------------------------------------------------------------------------------
</TABLE>

The estimated fair value of long-term debt is based primarily on quoted market
prices for the same or similar issues. The fair value 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
swap agreements are major financial institutions. Credit losses from
counterparty non-performance 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, 1999, the Company had committed approximately
$77 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 million at
December 31, 1999, due as follows: 2000 - $19 million; 2001 - $18 million; 2002
- $13 million; 2003 - $12 million; and 2004 - $11 million.

Rent expense for all operating leases amounted to $20 million, $24 million and
$16 million for 1999, 1998 and 1997, 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 U.S. 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 the 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 continued full cooperation with the DOJ's
investigation and policy regarding reasonable remedial efforts. The Company
believes it has fully complied with all applicable conditions to date and
intends to continue full compliance. Concurrently, the Company is seeking
favorable treatment under a program in the European community that also rewards
self reporting and cooperation. Participation in the above programs does not,
however, provide the Company with immunity from civil liability, including
restitution claims. To date, 10 federal purported class action lawsuits and 3
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.

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 which 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 $14 million
have been reflected as accrued expenses in the Company's consolidated balance
sheet at December 31, 1999.

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.


                                       40

<PAGE>   41

QUARTERLY RESULTS OF OPERATIONS

<TABLE>
<CAPTION>
(millions, except per share data)
1999 - Three Months Ended                                           Mar. 31           Jun. 30         Sept. 30           Dec. 31
--------------------------------------------------------------------------------------------------------------------------------
<S>                                                                 <C>               <C>             <C>                <C>
Net sales                                                            $334.2            $374.8           $374.4            $369.9
Operating expenses
   Cost of products sold                                              236.4             262.0            266.1             265.7
   Selling, general and administrative expenses                        51.5              55.7             62.7              72.9
   Special charges                                                       --                --               --              18.2

                                                                      287.9             317.7            328.8             356.8
--------------------------------------------------------------------------------------------------------------------------------
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)(1)                                              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(2)
   High                                                             44 3/16                50          47 9/16           38 9/16
   Low                                                               35 1/2            36 1/4           37 1/4           33 3/16
   Year-end close                                                                                                        38 3/16
</TABLE>

<TABLE>
<CAPTION>
1998 - Three Months Ended                                           Mar. 31           Jun. 30         Sept. 30           Dec. 31
--------------------------------------------------------------------------------------------------------------------------------
<S>                                                                 <C>               <C>             <C>                <C>
Net sales                                                            $334.7            $401.9           $340.5            $317.2
Operating expenses
   Cost of products sold                                              241.4             286.6            249.8             233.7
   Selling, general and administrative expenses                        46.0              54.9             48.2              43.3
   Special charges                                                     15.5                --             48.3              52.7

                                                                      302.9             341.5            346.3             329.7
--------------------------------------------------------------------------------------------------------------------------------
OPERATING INCOME (LOSS)                                                31.8              60.4             (5.8)            (12.5)
Interest and other income                                               8.1               8.1             12.3               8.5
Interest and other expense                                             12.4              11.0              4.8              16.5
--------------------------------------------------------------------------------------------------------------------------------
Income (loss) from continuing operations before income taxes           27.5              57.5              1.7             (20.5)
Income taxes (benefit)                                                 10.3              19.6              0.5             (20.6)
--------------------------------------------------------------------------------------------------------------------------------
Net income from continuing operations                                  17.2              37.9              1.2               0.1
Net income from discontinued operations                                25.5               7.1               --                --

Net income                                                            $42.7             $45.0             $1.2              $0.1

--------------------------------------------------------------------------------------------------------------------------------
EARNINGS PER SHARE:
Basic
   Continuing operations                                              $0.29             $0.64            $0.02               $--
   Discontinued operations                                             0.44              0.12               --                --

                                                                      $0.73             $0.76            $0.02               $--
--------------------------------------------------------------------------------------------------------------------------------
Diluted
   Continuing operations                                              $0.29             $0.64            $0.02               $--
   Discontinued operations                                             0.43              0.12               --                --
--------------------------------------------------------------------------------------------------------------------------------
                                                                      $0.72             $0.76            $0.02               $--

Cash dividends paid per share                                         $0.16             $0.16            $0.08             $0.08
--------------------------------------------------------------------------------------------------------------------------------
Stock Price Data(2)
   High                                                                  54           54 3/16           41 1/2           45 7/16
   Low                                                                   40          37 13/16         36 11/16           37 7/16
   Year-end close                                                                                                             40
</TABLE>


(1) Income taxes (benefit) for 1999 reflects fourth quarter adjustments
amounting to $18.5 million due primarily to the release of previously provided
taxes.
(2) Stock prices prior to May 22, 1998, do not reflect the Octel
spin-off.


                                                 41

<PAGE>   42

CORPORATE OFFICERS

MARK P. BULRISS
Chief Executive Officer and President

LARRY J. BLOOM
Executive Vice President and President of Water Treatment

LOUIS M. MARESCA
Executive Vice President and President of Performance Chemicals

C. HUGH MORTON
Executive Vice President and President of Polymer Additives

RICHARD L. BOEHNER
Senior Vice President, Corporate Development and Strategic Planning

RICHARD J. KINSLEY
Senior Vice President, Human Resources and Communications

JEFFREY M. LIPSHAW
Senior Vice President, General Counsel and Corporate Secretary

MARK E. TOMKINS
Senior Vice President and Chief Financial Officer

ANGELO BRISIMITZAKIS
Vice President, Global Supply Chain Management

STEPHEN D. CLARK
Vice President, General Manager, Asia/Pacific y Polymer Additives

GREGORY J. HEINLEIN
Vice President, Treasurer and Assistant Secretary

ROBERT L. HOLLIER
Vice President and President of OSCA, Inc.

KEVIN J. MULCRONE
Vice President and Controller

MARY P. MCCLANAHAN
Assistant Corporate Secretary

STEPHEN E. BREWER
Assistant Treasurer



BOARD OF DIRECTORS

MARK P. BULRISS 3, 4, 5, 6
Chief Executive Officer and President
Director since 1998

JAMES CROWNOVER
Director of Xpedior, Inc.
Director since 2000

THOMAS M. FULTON 2, 3, 4
President and Chief Executive Officer
Landauer, Inc.
Director since 1995

MARTIN M. HALE 1, 4, 5, 6
Chairman of the Board of Great Lakes;
Executive Vice President
Hellman Jordan Management Company, Inc.
Investment advisors
Director since 1978

LOUIS E. LATAIF 1, 2
Dean of the School of Management, Boston University
Director since 1995

JOHN C. LECHLEITER
Senior Vice President
Pharmaceutical Products
Eli Lilly and Company
Director since 1999

RICHARD H. LEET 2, 3, 4
Retired Vice Chairman and Director
Amoco Corporation
Director since 1994

MACK G. NICHOLS 1, 2, 3
Retired President and Chief Operating Officer
Mallinckrodt Inc.
Director since 1998

JAY D. PROOPS 1, 4, 5, 6
Former Vice Chairman
The Vigoro Corporation
Director since 1996

1 Audit Committee
2 Compensation and Incentive Committee
3 Environmental, Safety and Health Committee
4 Executive Committee
5 Finance Committee
6 Succession Planning Committee




                                       42

<PAGE>   43

WHOLLY OWNED SUBSIDIARIES

Bayrol Chemische Fabrik GmbH
Swimming Pool and Spa Products

Bio-Lab, Inc.
Swimming Pool and Spa Products

Great Lakes Chemical (Europe), Ltd.
Specialty Chemicals

Great Lakes Chemical France S.A.
Specialty Chemicals

Great Lakes Chemical International, Inc.
Export Sales-FSC

Great Lakes Chemical Italia S.r.l.
Specialty Chemicals

Great Lakes Fine Chemicals, Ltd.
Manufacturer of Fine and Specialty Chemicals
and Intermediates

LOWI Polymer Stabilizers GmbH
Specialty Chemicals

OSCA, Inc.
Oil Field Services

WIL Research Laboratories, Inc.
Toxicological Testing


SHAREHOLDER INFORMATION

TRANSFER AGENT AND REGISTRAR
The stock transfer agent and registrar for Great Lakes' stock is Harris Trust
and Savings Bank. Stockholders who wish to transfer their stock, or change the
name in which the shares are registered, should contact:

HARRIS TRUST AND SAVINGS BANK
Attn: Shareholder Services
311 West Monroe Street, 11th Floor
Chicago, Illinois 60606-4607
(312) 461-6001
hearing impaired: (312) 461-5633
www.harrisbank.com

INDEPENDENT AUDITORS
Ernst & Young LLP
Indianapolis, Indiana

LISTINGS
New York Stock Exchange
New York, New York

PACIFIC STOCK EXCHANGE
Los Angeles and San Francisco, California

Ticker Symbol: GLK

ANNUAL MEETING
The Annual Meeting of the Stockholders will be held at 11:00 a.m., Thursday, May
4, 2000, at the Parkwood IV, 500 East 96th Street, Conference Center,
Indianapolis, Indiana.

FORM 10-K AND OTHER INFORMATION
A complimentary copy of the company's 1999 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.greatlakeschem.com