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UNITED STATES
SECURITIES AND EXCHANGE COMMISSIONWASHINGTON, D. C. 20549

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FORM 10-K/AAmendment No. 1

|ýANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE    
|---------------------------------------------------------
|SECURITIES EXCHANGE ACT OF 1934                          
|For the fiscal year ended December 31, 2002              
|OR                                                       
|oTRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
|SECURITIES EXCHANGE ACT OF 1934                          
|For the Transition Period From  to                       

Commission file number 1-6450

GREAT LAKES CHEMICAL CORPORATION(Exact name of registrant as specified in its charter)

|DELAWARE(State or other jurisdiction of
incorporation or organization) |  | 95-1765035(IRS Employer
Identification No.)
|---------------------------------------------------------------------- |  | -------------------------------------------

500 EAST 96TH STREET, SUITE 500
INDIANAPOLIS, INDIANA 46240(Address of principal executive offices)    (Zip Code)

Registrant's
telephone number, including area code317-715-3000

Securities registered pursuant to Section 12(b) of the Act:

|Title of each classCommon stock, $1.00 par value |  | Name of each exchange on which registeredNew York Stock Exchange
Pacific Stock Exchange
|------------------------------------------------ |  | ---------------------------------------------------------------------------------------

Securities
registered pursuant to Section 12 (g) of the Act: None

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

Indicate
by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the
Act).    Yes    ý    No    o

Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's
knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.    o

As
of June 28, 2002, the aggregate market value of the voting stock held by non-affiliates of the registrant was $1,329,445,286 based on the last reported sales price on the New
York Stock Exchange.

As
of March 3, 2003, 50,200,485 shares of the registrant's stock were outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Proxy Statement for the Registrant's Annual Meeting of Shareholders to be held on May 1, 2003 are incorporated by reference into Part III.

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Explanatory Note

This report is an amendment to the Great Lakes Chemical Corporation Form 10-K for the year ended December 31, 2002. Item 8 is being amended to
file a signed copy of the opinion of the Company's independent auditors, Ernst & Young LLP, which was inadvertently omitted, and to correct typographical errors in the opinion and in
Note 18 to the Consolidated Financial Statements related to years of rent expense disclosed.

2

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ITEM 8.    Financial Statements and Supplementary Data

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

|                                                                                                     |  | Page
|---------------------------------------------------------------------------------------------------- |  | ----
|Consolidated Statements of Operations for the years ended December 31, 2002, 2001 and 2000           |  | 31  
|Consolidated Balance Sheets at December 31, 2002 and 2001                                            |  | 32  
|Consolidated Statements of Cash Flows for the years ended December 31, 2002, 2001 and 2000           |  | 33  
|Consolidated Statements of Shareholders' Equity for the years ended December 31, 2002, 2001 and 2000 |  | 34  
|Notes to Consolidated Financial Statements                                                           |  | 35  

30

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CONSOLIDATED STATEMENTS OF OPERATIONS

|(millions, except per share data)
Year Ended December 31                             |                                              | 2002                    |         | 2001    |      | 2000    |        
|------------------------------------------------------------------------------------ | -------------------------------------------- | ----------------------- | ------- | ------- | ---- | ------- | -------
|
|Net Sales                                                                            |                                              | $                       | 1,401.5 |         | $    | 1,352.8 |        
|Operating Expenses                                                                   |                                              |                         |         |         |      |         |        
|                                                                                     | Cost of products sold                        |                         |         | 1,070.2 |      |         | 1,121.1
|                                                                                     | Selling, general and administrative expenses |                         |         | 215.0   |      |         | 224.5  
|                                                                                     | Special charges                              |                         |         | 5.1     |      |         | 148.6  
|                                                                                     |                                             
|                                                                                     |                                              |                         | 1,290.3 |         |      | 1,494.2 |        
|                                                                                     |                                             
|Operating Income (Loss)                                                              |                                              |                         | 111.2   |         |      | (141.4  | )      
|Interest Income (Expense) - net                                                      |                                              |                         | (27.6   | )       |      | (32.8   | )      
|Other Income (Expense) - net                                                         |                                              |                         | (14.9   | )       |      | (46.8   | )      
|                                                                                     |                                             
|Income (Loss) from Continuing Operations before Income Taxes                         |                                              |                         | 68.7    |         |      | (221.0  | )      
|Income Taxes (Credit)                                                                |                                              |                         | 21.3    |         |      | (39.8   | )      
|                                                                                     |                                             
|Income (Loss) from Continuing Operations                                             |                                              | $                       | 47.4    |         | $    | (181.2  | )      
|                                                                                     |                                             
|Discontinued Operations                                                              |                                              |                         |         |         |      |         |        
|Income (Loss) from Discontinued Operations Before Minority Interest and Income Taxes |                                              | $                       | 121.6   |         | $    | (131.4  | )      
|Minority Interest                                                                    |                                              |                         | 5.5     |         |      | (4.5    | )      
|Income Taxes (Credit)                                                                |                                              |                         | 49.5    |         |      | (27.6   | )      
|                                                                                     |                                             
|Income (Loss) from Discontinued Operations                                           |                                              | $                       | 77.6    |         | $    | (108.3  | )      
|Net Income (Loss)                                                                    |                                              | $                       | 125.0   |         | $    | (289.5  | )      
|                                                                                     |                                             
|Earnings (Loss) per Share:                                                           |                                              |                         |         |         |      |         |        
|                                                                                     | Basic and Diluted                            |                         |         |         |      |         |        
|                                                                                     |                                              | Continuing Operations   |         | $       | 0.94 |         | $      
|                                                                                     |                                              | Discontinued Operations |         |         | 1.54 |         |        
|                                                                                     |                                             
|Net Income (Loss)                                                                    |                                              | $                       | 2.48    |         | $    | (5.76   | )      
|                                                                                     |                                             
|Cash Dividends Declared per Share                                                    |                                              | $                       | 0.33    |         | $    | 0.32    |        
|                                                                                     |                                             

See Notes to Consolidated Financial Statements.

31

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CONSOLIDATED BALANCE SHEETS

|(millions)
December 31                                             |                                                                                          | 2002 |         | 2001     |  
|------------------------------------------------------------------ | ---------------------------------------------------------------------------------------- | ---- | ------- | -------- | -
|
|Assets                                                             |                                                                                          |      |         |          |  
|Current Assets                                                     |                                                                                          |      |         |          |  
|                                                                   | Cash and cash equivalents                                                                |      | $       | 259.1    |  
|                                                                   | Accounts and notes receivable, less allowances of $4.7 and $5.8, respectively            |      |         | 262.2    |  
|                                                                   | Inventories                                                                              |      |         | 252.2    |  
|                                                                   | Prepaid expenses                                                                         |      |         | 33.2     |  
|                                                                   | Deferred income taxes                                                                    |      |         | 6.4      |  
|                                                                   | Current assets held for sale from discontinued operations                                |      |         | 34.0     |  
|                                                                   |                                                                                         
|Total current assets                                               |                                                                                          |      | 847.1   |          |  
|                                                                   |                                                                                         
|Plant and Equipment, Net                                           |                                                                                          |      | 621.6   |          |  
|Goodwill                                                           |                                                                                          |      | 143.6   |          |  
|Intangible Assets                                                  |                                                                                          |      | 33.0    |          |  
|Investments in and Advances to Unconsolidated Affiliates           |                                                                                          |      | 27.2    |          |  
|Other Assets                                                       |                                                                                          |      | 21.6    |          |  
|Deferred Income Taxes                                              |                                                                                          |      | 3.5     |          |  
|Non-Current Assets Held for Sale from Discontinued Operations      |                                                                                          |      | 20.1    |          |  
|                                                                   |                                                                                         
|Total Assets                                                       |                                                                                          | $    | 1,717.7 |          | $
|                                                                   |                                                                                         
|Liabilities and Stockholders' Equity                               |                                                                                          |      |         |          |  
|Current Liabilities                                                |                                                                                          |      |         |          |  
|                                                                   | Accounts payable                                                                         |      | $       | 165.9    |  
|                                                                   | Accrued expenses                                                                         |      |         | 117.0    |  
|                                                                   | Income taxes payable                                                                     |      |         | 108.3    |  
|                                                                   | Dividends payable                                                                        |      |         | 4.5      |  
|                                                                   | Notes payable and current portion of long-term debt                                      |      |         | 8.0      |  
|                                                                   | Current liabilities held for sale from discontinued operations                           |      |         | 14.5     |  
|                                                                   |                                                                                         
|Total current liabilities                                          |                                                                                          |      | 418.2   |          |  
|                                                                   |                                                                                         
|Long-Term Debt, less Current Portion                               |                                                                                          |      | 432.6   |          |  
|Other Noncurrent Liabilities                                       |                                                                                          |      | 103.1   |          |  
|Non-Current Liabilities Held for Sale from Discontinued Operations |                                                                                          |      | 12.1    |          |  
|Minority Interest                                                  |                                                                                          |      |         |          |  
|                                                                   | Continuing Operations                                                                    |      |         | 6.0      |  
|                                                                   | Discontinued Operations                                                                  |      |         |         |  
|Stockholders' Equity                                               |                                                                                          |      |         |          |  
|                                                                   | Common Stock, $1 par value, authorized 200.0 shares; issued 73.0 shares in 2002 and 2001 |      |         | 73.0     |  
|                                                                   | Additional paid-in capital                                                               |      |         | 133.7    |  
|                                                                   | Retained earnings                                                                        |      |         | 1,682.7  |  
|                                                                   | Treasury stock, at cost; 22.8 shares in 2002 and 2001                                    |      |         | (1,054.5 | )
|                                                                   | Accumulated other comprehensive loss                                                     |      |         | (89.2    | )
|                                                                   |                                                                                         
|Total stockholders' equity                                         |                                                                                          |      | 745.7   |          |  
|                                                                   |                                                                                         
|Total Liabilities and Stockholders' Equity                         |                                                                                          | $    | 1,717.7 |          | $
|                                                                   |                                                                                         

See Notes to Consolidated Financial Statements.

32

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CONSOLIDATED STATEMENTS OF CASH FLOWS

|(millions)
Year Ended December 31                                              |                                                                                                                                         | 2002 |                                                                                         | 2001  |                                            | 2000   |       
|------------------------------------------------------------------------------ | --------------------------------------------------------------------------------------------------------------------------------------- | ---- | --------------------------------------------------------------------------------------- | ----- | ------------------------------------------ | ------ | ------
|
|Operating Activities                                                           |                                                                                                                                         |      |                                                                                         |       |                                            |        |       
|                                                                               | Income (loss) from continuing operations                                                                                                |      | $                                                                                       | 47.4  |                                            | $      | (181.2
|                                                                               | Adjustments to reconcile income (loss) from continuing operations to net cash provided by operating activities - continuing operations: |      |                                                                                         |       |                                            |        |       
|                                                                               |                                                                                                                                         |      | Depreciation and depletion                                                              |       |                                            | 76.7   |       
|                                                                               |                                                                                                                                         |      | Amortization of intangible assets                                                       |       |                                            | 3.4    |       
|                                                                               |                                                                                                                                         |      | Provision for inventory write-downs                                                     |       |                                            |       |       
|                                                                               |                                                                                                                                         |      | Deferred income taxes                                                                   |       |                                            | (2.8   | )     
|                                                                               |                                                                                                                                         |      | Net (unremitted) earnings of affiliates                                                 |       |                                            | 2.3    |       
|                                                                               |                                                                                                                                         |      | Loss on disposition of assets                                                           |       |                                            | 5.5    |       
|                                                                               |                                                                                                                                         |      | Special charges                                                                         |       |                                            | 5.1    |       
|                                                                               |                                                                                                                                         |      | Other                                                                                   |       |                                            | 13.4   |       
|                                                                               |                                                                                                                                         |      | Changes in operating assets and liabilities, net of effects from business combinations: |       |                                            |        |       
|                                                                               |                                                                                                                                         |      |                                                                                         |       | Accounts receivable                        |        |       
|                                                                               |                                                                                                                                         |      |                                                                                         |       | Inventories                                |        |       
|                                                                               |                                                                                                                                         |      |                                                                                         |       | Other current assets                       |        |       
|                                                                               |                                                                                                                                         |      |                                                                                         |       | Accounts payable and accrued expenses      |        |       
|                                                                               |                                                                                                                                         |      |                                                                                         |       | Income taxes and other current liabilities |        |       
|                                                                               |                                                                                                                                         |      |                                                                                         |       | Other noncurrent liabilities               |        |       
|                                                                               |                                                                                                                                        
|Net Cash Provided by Operating Activities - Continuing Operations              |                                                                                                                                         |      | 152.3                                                                                   |       |                                            | 128.6  |       
|                                                                               | Income (loss) from Discontinued Operations                                                                                              |      |                                                                                         | 77.6  |                                            |        | (108.3
|                                                                               | Net operating activities - Discontinued Operations                                                                                      |      |                                                                                         | (85.1 | )                                          |        | 166.8 
|                                                                               |                                                                                                                                        
|Net Cash (Used for) Provided by Operating Activities - Discontinued Operations |                                                                                                                                         |      | (7.5                                                                                    | )     |                                            | 58.5   |       
|Net Cash Provided by Operating Activities                                      |                                                                                                                                         |      | 144.8                                                                                   |       |                                            | 187.1  |       
|Investing Activities                                                           |                                                                                                                                         |      |                                                                                         |       |                                            |        |       
|                                                                               | Plant and equipment additions                                                                                                           |      |                                                                                         | (64.8 | )                                          |        | (131.2
|                                                                               | Business combinations, net of cash acquired                                                                                             |      |                                                                                         | (11.1 | )                                          |        | (30.4 
|                                                                               | Proceeds from sale of assets                                                                                                            |      |                                                                                         | 0.4   |                                            |        | 1.5   
|                                                                               | Other                                                                                                                                   |      |                                                                                         | (1.8  | )                                          |        | (1.5  
|                                                                               |                                                                                                                                        
|Net Cash Used for Investing Activities - Continuing Operations                 |                                                                                                                                         |      | (77.3                                                                                   | )     |                                            | (161.6 | )     
|Net Cash Provided by (Used for) Investing Activities - Discontinued Operations |                                                                                                                                         |      | 221.3                                                                                   |       |                                            | (12.3  | )     
|Net Cash Provided by (Used for) Investing Activities                           |                                                                                                                                         |      | 144.0                                                                                   |       |                                            | (173.9 | )     
|Financing Activities                                                           |                                                                                                                                         |      |                                                                                         |       |                                            |        |       
|                                                                               | Net (repayments) borrowings under short-term credit lines                                                                               |      |                                                                                         | (1.1  | )                                          |        | 5.2   
|                                                                               | Net repayments of commercial paper and other long-term obligations                                                                      |      |                                                                                         | (80.5 | )                                          |        | (156.8
|                                                                               | Proceeds from stock options exercised                                                                                                   |      |                                                                                         |      |                                            |        | 0.2   
|                                                                               | Cash dividends paid                                                                                                                     |      |                                                                                         | (16.5 | )                                          |        | (15.9 
|                                                                               | Repurchase of common stock                                                                                                              |      |                                                                                         |      |                                            |        | (2.2  
|                                                                               | Other                                                                                                                                   |      |                                                                                         | (3.8  | )                                          |        | 1.9   
|                                                                               |                                                                                                                                        
|Net Cash Used for Financing Activities - Continuing Operations                 |                                                                                                                                         |      | (101.9                                                                                  | )     |                                            | (167.6 | )     
|Net Cash (Used for) Provided by Financing Activities - Discontinued Operations |                                                                                                                                         |      | (0.3                                                                                    | )     |                                            | (4.0   | )     
|Net Cash Used for Financing Activities                                         |                                                                                                                                         |      | (102.2                                                                                  | )     |                                            | (171.6 | )     
|Effect of Exchange Rate Changes on Cash and Cash Equivalents                   |                                                                                                                                         |      | 9.7                                                                                     |       |                                            | 7.3    |       
|                                                                               |                                                                                                                                        
|Increase (Decrease) in Cash and Cash Equivalents                               |                                                                                                                                         |      | 196.3                                                                                   |       |                                            | (151.1 | )     
|Change in Cash and Cash Equivalents - Discontinued Operations                  |                                                                                                                                         |      | 7.3                                                                                     |       |                                            | (12.0  | )     
|Cash and Cash Equivalents at Beginning of Year                                 |                                                                                                                                         |      | 55.5                                                                                    |       |                                            | 218.6  |       
|                                                                               |                                                                                                                                        
|Cash and Cash Equivalents at End of Year                                       |                                                                                                                                         | $    | 259.1                                                                                   |       | $                                          | 55.5   |       
|                                                                               |                                                                                                                                        

See Notes to Consolidated Financial Statements.

33

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CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

|(millions)                                    |                                                         | Shares                                                                                     |       | 2002
Amount |       | Shares   |        | 2001
Amount |   | Shares |          | 2000
Amount |      
|--------------------------------------------- | ------------------------------------------------------- | ------------------------------------------------------------------------------------------ | ----- | ----------- | ----- | -------- | ------ | ----------- | - | ------ | -------- | ----------- | -----
|
|Common Stock                                  |                                                         |                                                                                            |       |             |       |          |        |             |   |        |          |             |      
|                                              | Balance at January 1                                    |                                                                                            | 73.0  |             | $     | 73.0     |        | 73.0        |   | $      | 73.0     |             | 72.9 
|                                              | Exercise of stock options net of shares exchanged       |                                                                                            |      |             |       |         |        |            |   |        |         |             | 0.1  
|                                              |                                                        
|                                              | Balance at December 31                                  |                                                                                            | 73.0  |             |       | 73.0     |        | 73.0        |   |        | 73.0     |             | 73.0 
|                                              |                                                        
|Additional Paid-In Capital                    |                                                         |                                                                                            |       |             |       |          |        |             |   |        |          |             |      
|                                              | Balance at January 1                                    |                                                                                            |       |             |       | 133.3    |        |             |   |        | 132.5    |             |      
|                                              | Exercise of stock options net of shares exchanged       |                                                                                            |       |             |       |         |        |             |   |        | 0.1      |             |      
|                                              | Tax benefits of early disposition of stock by optionees |                                                                                            |       |             |       |         |        |             |   |        |         |             |      
|                                              | Restricted stock activity                               |                                                                                            |       |             |       | 0.9      |        |             |   |        | 0.7      |             |      
|                                              | Termination of shareholder's rights plan                |                                                                                            |       |             |       | (0.5     | )      |             |   |        |         |             |      
|                                              | Employee stock plan activity                            |                                                                                            |       |             |       |         |        |             |   |        |         |             |      
|                                              |                                                        
|                                              | Balance at December 31                                  |                                                                                            |       |             |       | 133.7    |        |             |   |        | 133.3    |             |      
|                                              |                                                        
|Retained Earnings                             |                                                         |                                                                                            |       |             |       |          |        |             |   |        |          |             |      
|                                              | Balance at January 1                                    |                                                                                            |       |             |       | 1,574.2  |        |             |   |        | 1,879.6  |             |      
|                                              | Net income                                              |                                                                                            |       |             |       | 125.0    |        |             |   |        | (289.5   | )           |      
|                                              | Dividends                                               |                                                                                            |       |             |       | (16.5    | )      |             |   |        | (15.9    | )           |      
|                                              |                                                        
|                                              | Balance at December 31                                  |                                                                                            |       |             |       | 1,682.7  |        |             |   |        | 1,574.2  |             |      
|                                              |                                                        
|Treasury Stock                                |                                                         |                                                                                            |       |             |       |          |        |             |   |        |          |             |      
|                                              | Balance at January 1                                    |                                                                                            | (22.8 | )           |       | (1,054.5 | )      | (22.7       | ) |        | (1,052.3 | )           | (18.4
|                                              | Shares repurchased                                      |                                                                                            |      |             |       |         |        | (0.1        | ) |        | (2.2     | )           | (4.5 
|                                              | Employee stock plan activity                            |                                                                                            |      |             |       |         |        |            |   |        |         |             | 0.2  
|                                              |                                                        
|                                              | Balance at December 31                                  |                                                                                            | (22.8 | )           |       | (1,054.5 | )      | (22.8       | ) |        | (1,054.5 | )           | (22.7
|                                              |                                                        
|Accumulated Other Comprehensive Income (Loss) |                                                         |                                                                                            |       |             |       |          |        |             |   |        |          |             |      
|                                              | Cumulative Translation Adjustment                       |                                                                                            |       |             |       |          |        |             |   |        |          |             |      
|                                              |                                                         | Balance at January 1                                                                       |       |             |       |          | (109.4 | )           |   |        |          | (82.0       | )    
|                                              |                                                         | Translation adjustment                                                                     |       |             |       |          | 54.1   |             |   |        |          | (27.4       | )    
|                                              |                                                         | Other                                                                                      |       |             |       |          |       |             |   |        |          |            |      
|                                              |                                                        
|                                              |                                                         | Balance at December 31                                                                     |       |             |       |          | (55.3  | )           |   |        |          | (109.4      | )    
|                                              |                                                        
|                                              | Minimum Pension Liability                               |                                                                                            |       |             |       |          |        |             |   |        |          |             |      
|                                              |                                                         | Balance at January 1                                                                       |       |             |       |          | (1.8   | )           |   |        |          | (1.1        | )    
|                                              |                                                         | Minimum pension liability adjustment
[net of taxes (credit) of $(15.0), $(0.4) and $(0.1)] |       |             |       |          | (32.1  | )           |   |        |          | (0.7        | )    
|                                              |                                                        
|                                              |                                                         | Balance at December 31                                                                     |       |             |       |          | (33.9  | )           |   |        |          | (1.8        | )    
|                                              |                                                        
|                                              | Unrealized gain (loss) on derivative instruments        |                                                                                            |       |             |       |          |        |             |   |        |          |             |      
|                                              |                                                         | Balance at January 1                                                                       |       |             |       |          | (1.3   | )           |   |        |          |            |      
|                                              |                                                         | Derivative activity [net of taxes (credit) of $0.7 and $(0.7)]                             |       |             |       |          | 1.3    |             |   |        |          | (1.3        | )    
|                                              |                                                        
|                                              |                                                         | Balance at December 31                                                                     |       |             |       |          |       |             |   |        |          | (1.3        | )    
|                                              |                                                        
|                                              | Total Balance at December 31                            |                                                                                            |       |             |       | (89.2    | )      |             |   |        | (112.5   | )           |      
|                                              |                                                        
|Total Stockholders' Equity                    |                                                         | 50.2                                                                                       |       | $           | 745.7 |          | 50.2   |             | $ | 613.5  |          | 50.3        |      
|                                              |                                                        
|Comprehensive Income (Loss)                   |                                                         |                                                                                            |       |             |       |          |        |             |   |        |          |             |      
|                                              | Net income (loss)                                       |                                                                                            |       |             | $     | 125.0    |        |             |   | $      | (289.5   | )           |      
|                                              | Translation adjustment                                  |                                                                                            |       |             |       | 54.1     |        |             |   |        | (27.4    | )           |      
|                                              | Minimum pension liability adjustment                    |                                                                                            |       |             |       | (32.1    | )      |             |   |        | (0.7     | )           |      
|                                              | Unrealized gain (loss) on derivative instruments        |                                                                                            |       |             |       | 1.3      |        |             |   |        | (1.3     | )           |      
|                                              |                                                        
|Total Comprehensive Income (Loss)             |                                                         |                                                                                            |       | $           | 148.3 |          |        |             | $ | (318.9 | )        |             |      
|                                              |                                                        

See Notes to Consolidated Financial Statements.

34

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(in millions, except as indicated)

NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Nature of Operations

The Company is a diversified specialty chemical company. Primary manufacturing operations are located in the United States, Europe and Asia. The Company manages its business
and reports segment information based on the nature of its products and services. The Company's segments include Polymer Additives, Performance Chemicals and Water Treatment. 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.

In
May 2002, the Company sold its remaining ownership in OSCA, Inc. (OSCA), formerly the Energy Services and Products business unit. The results of the Energy Services and Products
business through May 2002 are reported as discontinued operations for all periods presented.

During
the second quarter of 2002, the Company committed to a plan to divest the Fine Chemicals portion of the Performance Chemicals segment. As a result of these actions, the Company has reflected
the Fine Chemicals business as discontinued operations for all periods presented.

Further
information on the Company's segments is included in Note 15 to the Consolidated Financial Statements.

Principles of Consolidation

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

Investments

Investments in less than majority-owned entities (20% to 50% ownership) in which the Company does not have the ability to exercise significant influence over operating and
financial policies of the investees are accounted for by the equity method, which is cost, plus equity in their undistributed earnings since acquisition. All other investments are carried at their
fair values or at cost, as appropriate.

Use of Estimates

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

Revenue Recognition

Revenue from sales of products, including amounts billed to customers for shipping and handling costs, is recognized at the time (1) ownership and all risks of loss have
been transferred to the buyer, which is generally upon shipment, (2) the price is fixed and determinable and (3) collectibility is reasonably assured. Provisions for discounts and
rebates and returns and other adjustments are provided for in the period the related sales are recorded. Revenue from services is recognized when the services are rendered.

Shipping and Handling Costs

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

35

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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

Effective January 1, 2002, goodwill, the excess of investment over fair value of net assets acquired, is tested annually, or when events occur or circumstances change
that would reduce the fair value of a reporting unit below its carrying value. In prior years, goodwill was amortized over periods of 8 years to 40 years using the
straight-line method. As of December 31, 2002 and 2001, accumulated goodwill amortization was $28.5 million and $26.7 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. Intangible assets are stated on the basis of cost and are being amortized by the
straight-line method over the estimated future periods to be benefited. 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 sale are reported at the lower of the assets' carrying amount or fair value less costs related to the assets' disposition.

Environmental Costs

The Company participates in environmental assessments and remediation efforts at operating facilities, previously owned or operated facilities, or other waste sites. Costs
related to these efforts are accrued when it is probable that a liability has been incurred and the amount of that liability can be reasonably estimated. Liabilities for estimated remediation costs
are recorded at undiscounted amounts, are based on experience and are regularly evaluated as efforts proceed.

Income Taxes

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

36

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Treasury Stock

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

Stock-Based Compensation

Statement of Financial Accounting Standards (SFAS) 123, "Accounting for Stock-Based Compensation," as amended by SFAS 148, "Accounting for Stock-Based
Compensation - Transition and Disclosure," established accounting and disclosure requirements using a fair value-based method of accounting for stock-based employee compensation plans. As provided for
under SFAS 123, the Company accounts for stock-based compensation using the intrinsic value method prescribed in Accounting Principles Board Opinion 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. The compensation expense incurred in
2002, 2001 and 2000 related to restricted stock awards totaled $0.9 million, $0.7 million and $1.0 million, respectively.

The
following is a reconciliation of reported income (loss) from continuing operations and earnings per share to income (loss) from continuing operations and related earnings per share as if the
Company used the fair value method of accounting for stock-based compensation.

|                                                                                                                     |         | 2002 |      | 2001 |   | 2000   |      
|-------------------------------------------------------------------------------------------------------------------- | ------- | ---- | ---- | ---- | - | ------ | -----
|
|Income (loss) - continuing operations                                                                                |         | $    | 47.4 |      | $ | (181.2 | )    
|Stock-based employee compensation expense included in reported income, net of tax                                    |         |      | 0.6  |      |   | 0.5    |      
|Total stock-based employee compensation expense determined under fair value-based method, for all awards, net of tax |         |      | (4.6 | )    |   | (3.4   | )    
|                                                                                                                     |        
|Pro forma income (loss) - continuing operations                                                                      |         | $    | 43.4 |      | $ | (184.1 | )    
|                                                                                                                     |        
|Earnings per share - continuing operations                                                                           |         |      |      |      |   |        |      
|As reported:                                                                                                         |         |      |      |      |   |        |      
|                                                                                                                     | Basic   |      | $    | 0.94 |   | $      | (3.60
|                                                                                                                     | Diluted |      | $    | 0.94 |   | $      | (3.60
|Pro forma:                                                                                                           |         |      |      |      |   |        |      
|                                                                                                                     | Basic   |      | $    | 0.86 |   | $      | (3.66
|                                                                                                                     | Diluted |      | $    | 0.86 |   | $      | (3.66
|                                                                                                                     |        

Foreign Currency Translation

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

Derivative Financial Instruments

The Company uses various derivative instruments including swaps, forward contracts and options to manage certain foreign currency, interest rate and natural gas price
exposures. These instruments are entered into under the Company's corporate financial risk management policy to manage market

37

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risk exposures and are not used for trading purposes. Management routinely reviews the effectiveness of the use of derivative instruments.

Derivatives
used for hedging purposes must be designated as, and effective as, a hedge of the identified risk exposure at the designation 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 terminated, designated but no longer effective as a hedge or initially not effective as a hedge would be recorded at market value and the related gains and losses would be recognized in
earnings. Derivatives not designated as hedges are adjusted to fair value through the consolidated statement of operations.

The
Company recognizes all derivative instruments as either assets or liabilities in the consolidated balance sheets at fair value. The accounting for changes in the fair value of a derivative
instrument depends on whether it has been designated and qualifies as part of a hedging relationship and further, on the type of hedging relationship. For those derivative instruments that are
designated and qualify as hedging instruments, the Company designates the hedging instrument, based upon the exposure being hedged, as a fair value, cash flow or a hedge of a net investment in a
foreign operation.

The
Company classifies its derivative financial instruments as held or issued for purposes other than trading. Gains and losses on hedges of existing assets and liabilities are included in other
income (expense) - net. Gains and losses from hedges of anticipated transactions are classified in the statement of operations consistent with the accounting treatment of the items being hedged.

Reclassifications

Certain amounts in the prior year financial statements and related notes have been reclassified to conform to the current year presentation.

New Accounting Standards

In December 2002, the Financial Accounting Standards Board (FASB) issued SFAS 148, "Accounting for Stock-Based Compensation - Transition and Disclosure." The
statement amends SFAS 123, "Accounting for Stock-Based Compensation," to provide alternative methods of transition to SFAS 123's fair value method of accounting for stock-based employee
compensation. In addition, SFAS 148 requires disclosure in the Summary of Significant Accounting Policies of the effects of the Company's accounting policy with respect to stock-based employee
compensation on net income and earnings per share in annual and interim financial statements accounted for using the intrinsic value method prescribed by Accounting Principles Board Opinon (APB) 25,
"Accounting for Stock Issued to Employees." The Company has adopted the disclosure provision of this statement as of December 31, 2002.

In
June 2002, the FASB issued SFAS 146, "Accounting for Costs Associated with Exit or Disposal Activities." SFAS 146 requires that a liability for costs associated with exit or
disposal activities be recognized when the liability is incurred rather than when an entity commits to an exit plan. SFAS 146 also provides that the liability be initially measured at fair
value. The statement is effective for the Company beginning January 1, 2003. Management expects the new standard to have an impact on the timing of recognition of any future restructuring
charges.

Effective
January 1, 2002, the Company adopted SFAS 144, "Accounting for the Impairment or Disposal of Long-Lived Assets," which addresses financial accounting and reporting
for the impairment or disposal of long-lived assets and supersedes SFAS 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed Of," and the accounting and reporting provisions of APB Opinion No. 30, "Reporting the Results of Operations for a Disposal

38

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of a Segment of a Business." OSCA and the Fine Chemicals portion of the Performance Chemicals business unit are reported as discontinued operations (see Note 3 to the Consolidated Financial
Statements). As a result, the Company restated its consolidated financial position, results of operations and cash flows for all periods presented.

In
June 2001, FASB issued SFAS No. 143, "Accounting for Asset Retirement Obligations," which will be effective for the Company January 1, 2003. The statement requires legal
obligations associated with retirement of long-lived assets to be recognized at their fair value at the time that the obligations are incurred. Upon initial recognition of a liability,
that cost should be capitalized as part of the related long-lived asset and allocated to expense over the useful life of the asset. The Company currently has legal obligations to plug
bromine supply and disposal wells, as well as waste disposal
wells, at the end of the assets useful lives. Upon adoption, the Company will record an increase in plant and equipment, net of $0.6 million and recognize an asset retirement obligation of
$5.7 million, resulting in a cumulative effect from a change in accounting principle upon adoption that will reduce net income and stockholders' equity by $3.5 million, net of income
taxes.

In
June 2001, the FASB issued SFAS 141, "Business Combinations," and SFAS 142, "Goodwill and Other Intangible Assets." The Company adopted these new standards January 1,
2002. Under the new rules, goodwill is no longer amortized but is subject to annual impairment tests in accordance with the statement. Other intangible assets continue to be amortized over their
estimated useful lives.

With
the adoption of SFAS 142, the Company ceased amortization of goodwill as of January 1, 2002. The following table provides a reconciliation of reported income (loss) from continuing
operations, net of income taxes, and the associated earnings (loss) per share to amounts adjusted to reflect the exclusion of goodwill amortization, net of related income taxes.

|                                       |                                                          | 2002 |   | 2001 |  | 2000
|-------------------------------------- | -------------------------------------------------------- | ---- | - | ---- |  | ----
|
|Income (loss) - Continuing Operations: |                                                          |      |   |      |  |     
|                                       | Reported income (loss) - continuing operations           |      | $ | 47.4 |  | $   
|                                       | Add: Goodwill amortization, net of related income taxes  |      |   |     |  |     
|                                      
|                                       | Adjusted income (loss) - continuing operations           |      | $ | 47.4 |  | $   
|                                      
|Basic and Diluted Earnings per Share:  |                                                          |      |   |      |  |     
|                                       | Reported income (loss) per share - continuing operations |      | $ | 0.94 |  | $   
|                                       | Add: Goodwill amortization, net of related income taxes  |      |   |     |  |     
|                                      
|                                       | Adjusted income (loss) per share - continuing operations |      | $ | 0.94 |  | $   
|                                      

The Company completed the transitional impairment tests required by SFAS 142 and determined that there was no impairment loss as a result of the adoption. The Company
conducted its annual impairment testing during the fourth quarter of 2002 and has determined that the fair values of its reporting units exceed the carrying values of those units.

39

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The
following tables include information regarding the carrying values and related amortization expense of intangible assets as of and for the periods ended December 31, 2002 and 2001.

|                             |                                  | 2002
Gross Carrying
Amount |   | 2002
Accumulated
Amortization |  | 2001
Gross Carrying
Amount |       | 2001
Accumulated
Amortization |  
|---------------------------- | -------------------------------- | -------------------------- | - | ----------------------------- |  | -------------------------- | ----- | ----------------------------- | -
|
|Amortized Intangible Assets: |                                  |                            |   |                               |  |                            |       |                               |  
|                             | Non-compete agreements           |                            | $ | 8.4                           |  | $                          | (3.6  | )                             | $
|                             | Patents, trademarks and licenses |                            |   | 5.0                           |  |                            | (3.6  | )                             |  
|                             | Intellectual property            |                            |   | 17.0                          |  |                            | (2.6  | )                             |  
|                             | Customer-related                 |                            |   | 11.4                          |  |                            | (2.0  | )                             |  
|                             | Other                            |                            |   | 6.4                           |  |                            | (3.4  | )                             |  
|                             |                                 
|                             | Total                            |                            | $ | 48.2                          |  | $                          | (15.2 | )                             | $
|                             |                                 

Amortization expense for the year ended December 31, 2002 was $3.4 million. Future amortization expense for the next five years is estimated to be as follows:
2003 - $3.5 million; 2004 - $2.9 million; 2005 - $2.2 million; 2006 - $2.1 million; and 2007 - $2.1 million.

On
December 3, 2002, the Company acquired certain assets of Flexsys America's non-staining phenolic antioxidants business. Included in these assets were $6 million of
intangibles, which consisted of a $2.7 million non-compete agreement, $0.5 million of intellectual property and $2.8 million of customer-related intangibles. These
amounts have been included in the above table.

The
changes in the carrying amount of goodwill for the years ended December 31, 2001 and 2002, are as follows:

|Goodwill:                       |                                 | Polymer
Additives |       | Water
Treatment |   | Total |     
|------------------------------- | ------------------------------- | ----------------- | ----- | --------------- | - | ----- | ----
|
|Balance as of January 1, 2001   |                                 | $                 | 109.0 |                 | $ | 75.9  |     
|                                | Goodwill acquired               |                   |       | 10.7            |   |       |    
|                                | Goodwill impaired               |                   |       | (41.9           | ) |       |    
|                                | Purchase accounting adjustments |                   |       | (5.9            | ) |       | (8.8
|                                | Goodwill amortization expense   |                   |       | (3.3            | ) |       | (3.2
|                                | Effects of foreign currency     |                   |       | 0.4             |   |       | 0.3 
|                                |                                
|Balance as of December 31, 2001 |                                 | $                 | 69.0  |                 | $ | 64.2  |     
|                                | Goodwill acquired               |                   |       | 3.1             |   |       |    
|                                | Effects of foreign currency     |                   |       | 5.3             |   |       | 2.0 
|                                |                                
|Balance as of December 31, 2002 |                                 | $                 | 77.4  |                 | $ | 66.2  |     
|                                |                                

40

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NOTE 2: SPECIAL CHARGES

2001 Repositioning Plan

On June 27, 2001, the Company's Board of Directors approved a detailed repositioning plan which provides for a series of cost reduction initiatives which were intended
to further streamline operations, strengthen the Company's competitive position and continue to provide a strong platform for future growth. Additionally, on September 15, 2001 and
December 6, 2001, the Company's Board of Directors approved an additional series of cost reduction initiatives developed to minimize the effects of the current economic conditions. The major
components of these repositioning plans included the consolidation of certain Polymer Additives operations, resulting in two plant closures; elimination of approximately 485 manufacturing, research
and development, sales and other management positions; and the impairment of certain underperforming and non-strategic long-lived assets, including goodwill.

The
special charges related to this repositioning plan and included in continuing operations totaled $153.6 million, $118.9 million after income taxes, or $2.36 per share, for the year
ended December 31, 2001. The special charges consisted of $106.1 million of asset impairments, including $61.3 million for fixed asset impairments and $44.8 million of
impaired goodwill, $25.6 million of severance costs, $15.3 million for plant closure and environmental costs and $6.6 million of other costs.

Net
special charges for the year ended December 31, 2001 totaled $148.6 million, $115.2 million after income taxes or $2.29 per share. This reflects the $153.6 million of
charges recorded in 2001 offset by a reversal of $3.5 million related to changes in estimates in the 2001 special charges and certain reversals of the special charges taken in 2000 totaling
$1.5 million, as detailed below. The net effect of the special charge reversals after income taxes was $3.7 million or $0.07 per share. The net of the 2001 special charges and reversals
are reflected in the 2001 consolidated statement of operations as a separate component of operating income.

A
reconciliation of the reserve balance at December 31, 2002 and the activity (including the effects of foreign exchange) of the reserve in 2002 is as follows:

|Description                      |                       | Reserve
Balance at
December 31,
2001 |      | Adjustments
to Original
Reserve
Estimates |   | 2002
Activity |      | Reserve
Balance at
December 31,
2002
|-------------------------------- | --------------------- | ------------------------------------ | ---- | ----------------------------------------- | - | ------------- | ---- | ------------------------------------
|
|Asset Impairment (non-cash):     |                       |                                      |      |                                           |   |               |      |                                     
|                                 | Polymer Additives     |                                      | $    |                                          |   | $             | 6.0  |                                     
|                                
|                                 |                       |                                      |     |                                           |   | 6.0           |      |                                     
|Severance Costs:                 |                       |                                      |      |                                           |   |               |      |                                     
|                                 | Polymer Additives     |                                      |      | 16.4                                      |   |               | (1.6 | )                                   
|                                 | Performance Chemicals |                                      |      | 0.2                                       |   |               |     |                                     
|                                 | Water Treatment       |                                      |      | 0.1                                       |   |               |     |                                     
|                                 | Corporate             |                                      |      | 1.7                                       |   |               |     |                                     
|                                
|                                 |                       |                                      | 18.4 |                                           |   | (1.6          | )    |                                     
|                                
|Plant Closure and Environmental: |                       |                                      |      |                                           |   |               |      |                                     
|                                 | Polymer Additives     |                                      |      | 15.4                                      |   |               | 1.0  |                                     
|                                
|Other (Corporate)                |                       |                                      | 2.1  |                                           |   | (0.3          | )    |                                     
|                                
|                                 |                       | $                                    | 35.9 |                                           | $ | 5.1           |      | $                                   
|                                

As of December 31, 2002, $15.7 million of the $148.6 million charge remains to be spent. This remaining amount includes the effects of $5.1 million
of net special charges recorded in 2002 related

41

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to changes in estimates in the special charge reserves recorded in 2001. The major components of this remaining reserve relate to severance and plant closure costs yet to be spent for the two plant
closures and the shutdown of two unprofitable product lines. The majority of the severance costs are expected to be paid out by the second quarter of 2003 and the plant closure and environmental costs
by 2005.

Also,
during 2001 the Company recorded lower of cost or market inventory write-downs totaling $25.7 million. These write-downs were recorded as a component of cost of products sold and resulted
primarily from significant declines in forecasted revenue for the Polymer Additives business unit. In addition, the Water Treatment business incurred some lower of cost or market valuation adjustments
due to some unsuccessful promotional inventory buys.

Additionally,
as part of these repositioning actions, the Company recorded a $24.5 million liability for environmental remediation costs, $7.4 million for plant shutdown operating
inefficiencies, a $1.5 million cumulative U.K. pension liability, $0.9 million of accounts receivable write-offs and $1.0 million of contract cancellation costs. These
items amounted to $35.3 million and were recorded in the 2001 consolidated statement of operations as follows: $33.9 million to cost of products sold and $1.4 million as a
component of selling, general and administrative expenses.

Certain
other charges were also recorded during 2001. These charges, which netted to $33.8 million, included $11.6 million related to the write-off of an uncollectible note
receivable from the sale of a previously owned business, $10.7 million for losses incurred on fixed asset replacement activities, primarily at one of the Company's U.S. plants,
$13.4 million of increases in litigation accruals resulting from estimated settlement amounts on outstanding litigation matters, a $(3.2) million net foreign exchange gain arising from
the repatriation of cash from a foreign subsidiary partially offset by a loss
from a fair value adjustment on an intercompany loan of a foreign subsidiary and $1.3 million of other costs. All of these charges are reflected in the 2001 consolidated statement of operations
as a component of other income (expense) - net.

The
following paragraphs provide detailed information relating to the special charges and inventory write-downs that were recorded in 2001. Litigation and environmental liability updates are contained
in Note 18 - Commitments and Contingencies.

SPECIAL CHARGES

Asset Impairments

Asset impairment losses in Polymer Additives related to the closure of an underperforming operating site in the U.S. and one site in Europe. These charges included the
impairment of fixed assets at each site and $18.4 million of impaired goodwill attributable to the sites. In addition, these losses included the impairment of certain non-strategic
bromine and flame retardant production assets at two U.S operating sites and the impairment of $26.4 million of goodwill related to the 1997 acquisition of the antimony products business. The
asset impairment charges for Performance Chemicals included the shut-down of two unprofitable product lines at a U.S. manufacturing site.

These
impairment losses adjusted the carrying value of these assets to fair value. Fair value was determined using discounted cash flows for goodwill and for fixed assets either discounted cash flows
or appraised values as appropriate. Any impaired fixed assets held for disposal were written down to fair value less costs of disposal. The adjusted carrying value of the assets, classified as held
for use, are being depreciated or amortized over the estimated remaining lives of the assets.

Severance Costs

Severance costs included the cost of separation payments to certain employees who were terminated. Determinations of the severance costs were negotiated individually with the
employee, were based upon the provisions of statutory or contractual severance plans or, for the European

42

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locations, were negotiated with their unions and workers' councils. The severance charges included severance costs for the termination of approximately 485 positions. The severance plans include
approximately 439 positions for Polymer Additives, four positions for Performance Chemicals and 42 positions for Water Treatment and Corporate.

Plant Closure, Environmental and Other

The plant closure and environmental costs associated with the 2001 special charges related primarily to closure costs such as dismantling, decontamination and remediation that
were or will be incurred in conjunction with the closure of the two operating sites discussed previously.

The
other costs related primarily to legal and consulting costs associated with the special charge activities, the write-off of certain components of the Company's data processing software
proprietary to one of the operating sites being closed, the write-off of certain spare parts inventories associated with the impaired fixed assets and costs resulting from the termination
of an equipment lease.

Inventory Write-Downs

The Company recorded a lower of cost or market inventory write-down totaling $25.7 million during 2001. These inventory write-downs included
$13.0 million related to the Polymer Additives business unit, $3.8 million to Performance Chemicals and $8.9 million to Water Treatment. The Polymer Additives portion of the
write-down reflected market adjustments resulting from declines in customer demand, and the Water Treatment portion provided for the revaluation of inventory resulting from some
unsuccessful promotional inventory buys. These write-downs were calculated in accordance with the Company's inventory valuation accounting policies.

2000 Repositioning Plan

The major components of the 2000 repositioning plan included the consolidation of the Company's three antimony manufacturing operations, elimination of approximately 309
manufacturing and research and development positions, primarily in the Polymer Additives business unit, and impairment or disposal of certain underperforming and nonstrategic assets. The asset
impairments related to four Polymer Additives manufacturing locations, including sites in Europe and the United States, and two Performance Chemicals locations, including sites in the United States
and United Kingdom. The special charges related to this repositioning plan and included in continuing operations totaled $56.4 million, $38.9 million after income taxes or $0.77 per
share for 2000. The $56.4 million special charge consisted of $38.0 million for asset impairments, $12.2 million for severance costs and $6.2 million for plant closure and
environmental costs.

Net
special charges for the year ended December 31, 2000 totaled $54.3 million. This reflected the $56.4 million charge offset by reversals of $2.1 million, which related
to a change in estimate in the 2000 special charges and certain reversals of special charges taken in 1999 and 1998. The net effect of the special charge reversals after income taxes was
$1.5 million or $0.03 per share. The net of the 2000 special charges and reversals are reflected in the 2000 consolidated statement of operations as a separate component of operating income.

43

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A
reconciliation of the reserve balance at December 31, 2002 and the 2002 activity in the reserve is as follows:

|Description                      |                   | Reserve
Balance at
December 31,
2001 |     | 2002
Activity |   | Reserve
Balance at
December 31,
2002
|-------------------------------- | ----------------- | ------------------------------------ | --- | ------------- | - | ------------------------------------
|
|Severance Costs:                 |                   |                                      |     |               |   |                                     
|                                 | Polymer Additives |                                      | $   | 0.2           |   | $                                   
|                                
|Plant Closure and Environmental: |                   |                                      |     |               |   |                                     
|                                 | Polymer Additives |                                      |     | 4.5           |   |                                     
|                                
|                                 |                   | $                                    | 4.7 |               | $ | (0.6                                
|                                

The remaining 2000 reserves consist primarily of plant closure and environmental costs related to the closure of a brine pond in El Dorado, Arkansas.

NOTE 3: DISCONTINUED OPERATIONS

The sale of the Company's Energy Services and Products business unit, OSCA, to BJ Services Company was completed on May 31, 2002. Under the terms of the sale, BJ
Services acquired all outstanding shares of OSCA, including the Company's 53.2% holding, for $28.00 per share in cash or $221 million, resulting in a gain of $175.4 million. This
transaction provided the Company with net proceeds of approximately $200 million in cash, a part of which was used to reduce the Company's debt position. As a result of this transaction, the
Company has reflected OSCA as discontinued operations for all periods presented.

During
the second quarter of 2002, management, with the approval of the Board of Directors, committed to a plan to divest the Company's Fine Chemicals business, previously a part of the Performance
Chemicals business unit. The Company is now engaged in efforts to sell the net assets of the Fine Chemicals business. As a result of these actions, the Company has reflected the Fine Chemicals
business as discontinued operations for all periods presented.

The
operating results from discontinued operations presented in the accompanying consolidated statements of operations are as follows:

|Year Ended December 31                     |                | 2002 |       | 2001  |   | 2000   |       
|------------------------------------------ | -------------- | ---- | ----- | ----- | - | ------ | ------
|
|Net sales                                  |                |      |       |       |   |        |       
|                                           | OSCA           |      | $     | 58.1  |   | $      | 175.9 
|                                           | Fine Chemicals |      |       | 55.2  |   |        | 66.0  
|Special charges- Fine Chemicals            |                |      | 26.7  |       |   | 118.5  |       
|Operating income (loss)                    |                |      |       |       |   |        |       
|                                           | OSCA           |      |       | (16.3 | ) |        | 18.1  
|                                           | Fine Chemicals |      |       | (33.7 | ) |        | (154.0
|Gain on sale of subsidiary stock - OSCA    |                |      | 175.4 |       |   | 9.4    |       
|Interest income (expense) - net            |                |      | (0.4  | )     |   | (1.3   | )     
|Other income (expense) - net               |                |      | 2.1   |       |   | (8.1   | )     
|                                           |               
|Income (loss) before income taxes          |                | $    | 127.1 |       | $ | (135.9 | )     
|Income taxes (credit)                      |                |      | 49.5  |       |   | (27.6  | )     
|                                           |               
|Income (loss) from discontinued operations |                | $    | 77.6  |       | $ | (108.3 | )     
|                                           |               

44

---

Included in special charges for the Fine Chemicals business in 2002 are $22.9 million of fixed asset impairment charges and $3.8 million of severance accruals.
These charges were recorded in conjunction with the intended sale of the Fine Chemicals business. Fine Chemicals net special charges recorded in 2001 of $118.5 million consisted of
$106.0 million of asset impairments, including $22.0 million of fixed asset impairments and $84.0 million of impaired goodwill, $5.8 million of severance accruals,
$5.1 million of plant closure and environmental costs and $1.4 million of other costs, as well as adjustments of $0.2 million related to special charges taken in 2000. The 2001
charges were undertaken as a part of a detailed repositioning plan approved by the Company's Board of Directors in 2001. Included in 2000 operating income (loss) in 2000 are net special charges of
$9.1 million, which reflect $10 million of charges recorded in 2000 offset by a reversal of $0.8 million related to reversals of certain charges taken in 1999 and 1998. The 2000
charges of $10 million included $5.8 million of asset impairments and $4.2 million of severance accruals.

Also
included in 2002 operating income for Fine Chemicals are $3.7 million of inventory write-downs. Fine Chemicals operating income in 2001 included $18.9 million of inventory
write-downs recorded as a part of the 2001 repositioning plan.

During
1997, the Board of Directors approved a plan to exit the furfural and derivatives business, Chemol and environmental services businesses. 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, and the furfural and derivatives business was sold in June 1999.
Remaining reserves for the 1997 discontinued operations amounted to $1.7 million and $3.4 million at December 31, 2002 and 2001, respectively. Net assets (liabilities) of the 1997
discontinued operations amounting to $(0.3) million and $(1.1) million have been included in other assets in the consolidated balance sheets at December 31, 2002 and 2001,
respectively.

Included
in the other income (expense) - net above in 2002 are charges of $1.4 million related to the 1997 discontinued operations.

45

---

The
assets and liabilities held for sale from discontinued operations related to OSCA and Fine Chemicals presented in the accompanying consolidated balance sheets are comprised of:

|December                                  |                               | 2002 |      | 2001
|----------------------------------------- | ----------------------------- | ---- | ---- | ----
|
|Current Assets:                           |                               |      |      |     
|Cash and cash equivalents                 |                               | $    | 0.3  |     
|Accounts receivable                       |                               |      | 14.0 |     
|Inventories                               |                               |      | 11.5 |     
|Prepaid expenses and other current assets |                               |      | 8.2  |     
|                                         
|                                          | Total current assets          |      | $    | 34.0
|Non-Current Assets:                       |                               |      |      |     
|Plant and equipment, net                  |                               | $    | 14.2 |     
|Goodwill and other assets                 |                               |      | 5.9  |     
|                                         
|                                          | Total non-current assets      |      | $    | 20.1
|Current Liabilities:                      |                               |      |      |     
|Accounts payable and accrued expenses     |                               | $    | 14.5 |     
|Current portion, long-term debt           |                               |      |     |     
|                                         
|                                          | Total current liabilities     |      |      | 14.5
|Non-Current Liabilities:                  |                               |      |      |     
|Long-term debt, less current portion      |                               | $    |     |     
|Other non-current liabilities             |                               |      | 12.1 |     
|                                         
|                                          | Total non-current liabilities |      | $    | 12.1
|Minority Interest - OSCA                  |                               | $    |     |     
|                                         

As of December 31, 2002, $2.9 million of the $26.7 million of special charges recorded in 2002 and $7.9 million of the $118.3 million of
special charges recorded in 2001 remain to be spent. There are no amounts outstanding related to the charges taken in 2000. The major components of the remaining reserves are severance of
$1.5 million and plant closure and environmental costs of $6.4 million. Plant closure and environmental costs have been allocated between accrued expenses and non-current
liabilities based on the anticipated timing of these expenditures.

NOTE 4: ACQUISITIONS AND SALE OF SUBSIDIARY STOCK

Acquisitions

On December 3, 2002, the Company acquired certain assets of Flexsys America's non-staining phenolic antioxidants business for approximately
$11 million. Assets acquired included inventory, other intangibles and the process technology associated with Santonox® TBMC, Santovar® TAHQ and
Santowhite® BBMC. Great Lakes will market these products under the Company's established line of Lowinox® non-staining antioxidants. Goodwill resulting from the
acquisition amounted to approximately $3 million.

On
February 14, 2001, the Company acquired the Optical Monomers business from Akzo Nobel Polymer Chemicals LLC for approximately $30 million in cash. The Optical Monomers business
operates at a leased manufacturing site in Pasadena, Texas, and has sales and support networks throughout the United States and Europe. This acquisition was accounted for using the purchase method of
accounting with its results of operations included since the date of acquisition. Goodwill resulting from the acquisition amounted to $11.5 million.

On
July 14, 2000, the Company acquired Aqua Clear for $40.7 million. Aqua Clear, a manufacturer and distributor of specialty pool chemical products, operated a manufacturing site in
Watervliet, New

46

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York, which was closed in 2001. Aqua Clear continues to operate distribution sites in St. Louis, Missouri, and Waterford, New York, as well as sales and support networks throughout the United States
and Canada. The acquisition of Aqua Clear was accounted for using the purchase method of accounting with its results of operations included since the date of acquisition. Goodwill resulting from the
acquisition amounted to $37.8 million.

These
acquisitions were funded with available cash and borrowing capacity.

Sale of Subsidiary Stock

On February 20, 2002, the Company announced that its Energy Services and Products business unit, OSCA, entered into a definitive merger agreement with BJ Services
Company. The sale of OSCA was completed on May 31, 2002. Under the terms of the sale, BJ Services acquired all outstanding shares of OSCA, including the Company's 53.2% holding, for $28.00 per
share in cash, or $221 million, resulting in a gain of $175.4 million. This transaction provided the Company with net proceeds of approximately $200 million in cash, a part of
which was used to reduce the Company's debt position. As a result of this transaction, the Company has reflected OSCA as discontinued operations for all periods presented.

In
addition, in each of the first and second quarters of 2001, the Company sold 250,000 shares of its OSCA Class B common stock pursuant to Rule 144 under the Securities Act of 1933 for
a total of 500,000 shares being sold for the year ended December 31, 2001. The terms of these transactions provided that upon the sale of these Class B shares, the shares were
automatically converted to OSCA Class A common stock. Net proceeds were $5.4 million and $6.3 million and the related taxable gains were $4.2 million and
$5.2 million for the first and second quarters of 2001, respectively.

Effective
June 15, 2000, the Company had sold 40% of its ownership in OSCA through an initial public offering. Net proceeds of approximately $79 million from the initial sale were paid
to the Company by OSCA to satisfy indebtedness. The initial sale resulted in a $51.9 million gain to the Company, which was recognized in the second quarter of 2000. Subsequently, on
July 13, 2000, the over-allotment option granted to the underwriters was exercised and resulted in an additional $12 million of net proceeds. The over-allotment
exercise resulted in an additional gain to the Company of $8.5 million, which was recorded in the third quarter of 2000. The initial sale and the over-allotment option exercise
resulted in the Company selling a total of 43.4% of its ownership interest in this subsidiary.

NOTE 5: CASH AND CASH EQUIVALENTS

Cash and cash equivalents consist of the following:

|December 31      |  | 2002 |       | 2001
|---------------- |  | ---- | ----- | ----
|
|Cash             |  | $    | 101.2 |     
|Cash equivalents |  |      | 157.9 |     
|                
|                 |  | $    | 259.1 |     
|                

47

---

NOTE 6: INVENTORIES

The major components of inventories are as follows:

|December 31       |  | 2002 |       | 2001
|----------------- |  | ---- | ----- | ----
|
|Finished products |  | $    | 186.4 |     
|Raw materials     |  |      | 33.5  |     
|Supplies          |  |      | 32.3  |     
|                 
|                  |  | $    | 252.2 |     
|                 

NOTE 7: PLANT AND EQUIPMENT

Plant and equipment consist of the following:

|December 31                                                  |  | 2002 |         | 2001 |  
|------------------------------------------------------------ |  | ---- | ------- | ---- | -
|
|Land                                                         |  | $    | 14.3    |      | $
|Buildings                                                    |  |      | 129.6   |      |  
|Equipment                                                    |  |      | 1,150.0 |      |  
|Construction in progress                                     |  |      | 31.9    |      |  
|                                                             | 
|                                                             |  |      | 1,325.8 |      |  
|Less allowances for depreciation, depletion and amortization |  |      | (704.2  | )    |  
|                                                             | 
|                                                             |  | $    | 621.6   |      | $
|                                                             | 

NOTE 8: DEBT

Long-term debt is summarized as follows:

|December 31                  |  | 2002 |       | 2001 |  
|---------------------------- |  | ---- | ----- | ---- | -
|
|Notes payable                |  | $    | 400.0 |      | $
|Commercial paper             |  |      |      |      |  
|Industrial development bonds |  |      | 12.3  |      |  
|Other                        |  |      | 28.3  |      |  
|                             | 
|                             |  |      | 440.6 |      |  
|Less current portion         |  |      | (8.0  | )    |  
|                             | 
|                             |  | $    | 432.6 |      | $
|                             | 

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 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
of securities remaining to be sold on the registration statement is $350 million.

On
October 3, 2002, the Company renewed the 364-day portion of its unsecured revolving credit facility established on October 4, 2001. This 364-day credit
facility was originally established along with a facility with a five-year term. Under these combined facilities, the Company may borrow up to $462.5 million. These facilities are
used to support the Company's commercial paper program and for general corporate purposes. The facility contains certain covenants that include, among others, requirements to limit the maximum ratio
of Debt to EBITDA to 3.5 to 1, as defined in the agreement. Debt to EBITDA, as defined in the agreement, was 1.3 as of December 31, 2002. Interest on

48

---

borrowings outstanding under the agreement is based upon a variable rate tied to LIBOR. There were no outstanding borrowings on these facilities as of December 31, 2002 and 2001

The
interest rate on industrial development bonds was 2.99% at December 31, 2002, and the bonds have maturities through 2025.

Commercial
paper financing was classified as a component of long-term debt at December 31, 2001, since the Company had the ability and the intent to refinance these borrowings on a
long-term basis either through continued commercial paper borrowings or utilization of available long-term credit facilities. There were no outstanding commercial paper
borrowings as of December 31, 2002.

Long-term
debt matures as follows: 2003, $8.0 million; 2004, $2.9 million; 2005, $2.7 million; 2006, $1.5 million; 2007, $1.1 million; and thereafter,
$424.4 million.

During
2002, 2001 and 2000, interest costs were $32.1 million, $42.3 million and $52.4 million, respectively, which included interest capitalized as additional costs of plant and
equipment of $0.6 million in 2002, $1.0 million in 2001 and $1.7 million in 2000. In these years, cash interest payments were $33.9 million, $42.5 million and
$52.8 million, respectively.

NOTE 9: INCOME TAXES

The following is a summary of domestic and foreign income from Continuing Operations before income taxes, the components of the provisions for income taxes, a reconciliation of
the United States federal income tax rate to the effective income tax rate and the components of deferred tax assets and liabilities.

Income Before Income Taxes:

|Year Ended December 31 |  | 2002 |      | 2001 |   | 2000  
|---------------------- |  | ---- | ---- | ---- | - | ------
|
|Domestic               |  | $    | 28.6 |      | $ | (79.0 
|Foreign                |  |      | 40.1 |      |   | (142.0
|                      
|                       |  | $    | 68.7 |      | $ | (221.0
|                      

Provisions for Income Taxes:

|Year Ended December 31 |          | 2002 |       | 2001  |   | 2000 
|---------------------- | -------- | ---- | ----- | ----- | - | -----
|
|Current:               |          |      |       |       |   |      
|                       | Federal  |      | $     | (53.5 | ) | $    
|                       | State    |      |       | (1.0  | ) |      
|                       | Foreign  |      |       | 19.1  |   |      
|                      
|                       |          |      | (35.4 | )     |   | 49.7 
|                      
|Deferred:              |          |      |       |       |   |      
|                       | Domestic |      |       | 69.2  |   |      
|                       | Foreign  |      |       | (12.5 | ) |      
|                      
|                       |          |      | 56.7  |       |   | (89.5
|                      
|                       |          | $    | 21.3  |       | $ | (39.8
|                      

49

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Effective Income Tax Rate Reconciliation:

|Year Ended December 31       |                               | 2002 |      | 2001  |      | 2000 |     
|---------------------------- | ----------------------------- | ---- | ---- | ----- | ---- | ---- | ----
|
|U.S. federal income tax rate |                               | 35.0 | %    | (35.0 | )%   | 35.0 | %   
|Change resulting from:       |                               |      |      |       |      |      |     
|                             | State income tax              |      | (0.9 | )     | (0.7 | )    | 2.7 
|                             | Depletion                     |      | (3.0 | )     | (0.8 | )    | (1.6
|                             | Export sales incentive        |      | (2.1 | )     | (0.4 | )    | (2.1
|Tax-exempt interest          |                               |     |      |      |      | (0.7 | )   
|                             | Dividends received deduction  |      |     |       |     |      | (0.4
|                             | Low income housing credit     |      | (4.5 | )     | (1.5 | )    | (2.7
|International operations     |                               | 1.6  |      | 2.4   |      | (0.6 | )   
|                             | Stock redemption -            |      |      |       |      |      |     
|                             | Huntsman                      |      |     |       |     |      | (0.6
|                             | Nondeductible goodwill        |      |     |       | 3.8  |      | 0.3 
|                             | Change in valuation allowance |      | 6.0  |       | 14.9 |      | 1.5 
|                             | Other                         |      | (1.1 | )     | (0.7 | )    | 0.4 
|                             |                              
|Effective income tax rate    |                               | 31.0 | %    | (18.0 | )%   | 31.2 | %   
|                             |                              

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

Components of Deferred Tax Assets and Liabilities:

|December 31                                     |                                  | 2002 |       | 2001  |  
|----------------------------------------------- | -------------------------------- | ---- | ----- | ----- | -
|
|Deferred tax assets                             |                                  |      |       |       |  
|                                                | Accrued expenses                 |      | $     | 11.0  |  
|                                                | Special charges                  |      |       | 3.9   |  
|                                                | Tax credit carryforwards         |      |       | 36.9  |  
|                                                | Net operating loss carryforwards |      |       | 44.1  |  
|                                                | Other                            |      |       | 31.4  |  
|                                                |                                 
|Deferred tax assets                             |                                  |      | 127.3 |       |  
|                                                | Valuation allowance              |      |       | (35.7 | )
|                                                |                                 
|Deferred tax assets, net of valuation allowance |                                  | $    | 91.6  |       | $
|                                                |                                 
|Deferred tax liabilities                        |                                  |      |       |       |  
|                                                | Depreciation                     |      | $     | 65.1  |  
|                                                | Other                            |      |       | 16.6  |  
|                                                |                                 
|Deferred tax liabilities                        |                                  | $    | 81.7  |       | $
|                                                |                                 
|Net deferred tax assets                         |                                  | $    | 9.9   |       | $
|                                                |                                 

As of December 31, 2002, the Company had tax credit carryforwards of $36.9 million available. A valuation allowance of $17.7 million has been recorded
against the portion of these credit carryforwards for which utilization is uncertain. Of the amount of tax credit carryforwards for which no valuation allowance has been recorded, $0.7 million
expire in 2018; $2.6 million expire in 2019; $3.2 million expire in 2020; $3.3 million expire in 2021; $3.2 million expire in 2022; and the remaining $6.2 million
have no expiration dates. At December 31, 2002, the Company and certain of its foreign subsidiaries had net operating losses totaling $119.0 million. These carryforwards will be
available to offset $44.1 million of future tax liabilities. A valuation allowance of $18.0 million has been recorded against the portion of these net operating loss carryforwards for
which utilization is

50

---

uncertain. Of the amount of net operating loss carryforwards for which no valuation allowance has been recorded, $9.4 million expire in 2021 and the remaining $16.7 million have no
expiration dates.

Cash
payments for income taxes were $14.0 million, $14.3 million and $11.2 million in 2002, 2001 and 2000, respectively.

NOTE 10: STOCKHOLDERS' EQUITY

The Board of Directors has authorized the Company to purchase shares of the Company's common stock in the open market or in privately negotiated transactions. No share
repurchases were made in the current year. The Company purchased approximately 0.1 million shares during 2001 at an average price of $22.19. A total of 2.8 million shares remain
available under existing Board authorizations.

Under
a Stockholders' Rights Plan adopted in 1999, for each outstanding share of common stock of the Company held by a stockholder, each stockholder had a right, which entitled the holder upon certain
triggering events described in the Stockholders' Rights Plan, to acquire at the Right's then current exercise price, the number of shares of common stock of the Company (or, if applicable, an
acquiring company) having a market value equal to twice the Right's exercise price.

On
February 12, 2002, the Company's Board of Directors redeemed the outstanding Rights under the Stockholders' Rights Plan at a price of $.01 per Right, paid to stockholders of record on
April 1, 2002.

NOTE 11: EARNINGS PER SHARE

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

|Year Ended December 31                                             |  | 2002 |  | 2001 |  | 2000
|------------------------------------------------------------------ |  | ---- |  | ---- |  | ----
|
|Denominator for basic earnings per share (weighted-average shares) |  | 50.2 |  | 50.3 |  | 52.4
|Effect of dilutive securities                                      |  | 0.1  |  |     |  | 0.1 
|                                                                  
|Denominator for diluted earnings per share                         |  | 50.3 |  | 50.3 |  | 52.5
|                                                                  

Options to purchase shares of common stock of 3.0 million in 2002, 3.3 million in 2001 and 3.1 million in 2000 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 four plans that provide for the granting of stock awards to officers and key employees. The 2002, 1998 and 1993 Stock Compensation Plans have stock awards
available for grant; the fourth plan, the 1984 Stock Compensation Plan, has no stock awards available for grant, but does have options exercisable as of December 31, 2002. The Company is
authorized to grant options for up to 7.0 million shares under the 2002, 1998 and 1993 plans, of which 3.5 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.

51

---

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 remaining shares 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:

|                                 |  | Shares
Under
Option |   | Weighted-
Average
Exercise Price
|-------------------------------- |  | ------------------- | - | --------------------------------
|
|Outstanding at January 1, 2000   |  | 3.1                 |   | $                               
|Granted                          |  | 0.8                 |   |                                 
|Exercised                        |  | (0.1                | ) |                                 
|Terminated                       |  | (0.5                | ) |                                 
|                                
|Outstanding at December 31, 2000 |  | 3.3                 |   |                                 
|Granted                          |  | 0.8                 |   |                                 
|Exercised                        |  | 0.0                 |   |                                 
|Terminated                       |  | (0.8                | ) |                                 
|                                
|Outstanding at December 31, 2001 |  | 3.3                 |   |                                 
|Granted                          |  | 0.9                 |   |                                 
|Exercised                        |  | 0.0                 |   |                                 
|Terminated                       |  | (0.3                | ) |                                 
|                                
|Outstanding at December 31, 2002 |  | 3.9                 |   | $                               
|                                
|Currently Exercisable            |  | 2.2                 |   | $                               
|                                

During 2002, 2001 and 2000, the Company awarded restricted stock totaling approximately 20,000, 90,000 and 14,000 shares, respectively, to directors and other key employees.
These awards become exercisable over a period of one to 10 years. The Company recognizes compensation expense consistent with the vesting of each award. The compensation expense incurred in
2002, 2001 and 2000 related to these awards totaled $0.9 million, $0.7 million and $1.0 million, respectively.

The
following table summarizes information concerning outstanding and exercisable options at December 31, 2002:

|                    
|--------------------
|
|
|Options outstanding:
|                    
|                    
|                    
|Options exercisable:
|                    
|                    
|                    

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

52

---

the purposes of the pro forma disclosure, the estimated compensation costs are amortized to expense over the options' vesting period, principally three years.

While
no compensation expense has been recognized for the Company's stock option plans, outstanding options whose exercise prices were less than the average market price of common stock during the
period are included in the determination of share dilution for the purposes of calculating diluted earnings per share.

|December 31                                                                 |                         | 2002 |      | 2001 |   | 2000  |       
|--------------------------------------------------------------------------- | ----------------------- | ---- | ---- | ---- | - | ----- | ------
|
|Weighted-average fair value per share of options granted during the year(1) |                         | $    | 7.24 |      | $ | 10.81 |       
|Income (loss) from continuing operations:                                   |                         |      |      |      |   |       |       
|                                                                            | As reported             |      |      | 47.4 |   |       | (181.2
|                                                                            | Pro forma               |      |      | 43.4 |   |       | (184.1
|Diluted earnings per share:                                                 |                         |      |      |      |   |       |       
|                                                                            | As reported             |      |      | 0.94 |   |       | (3.60 
|                                                                            | Pro forma               |      |      | 0.86 |   |       | (3.66 
|Assumptions:                                                                |                         |      |      |      |   |       |       
|                                                                            | Expected volatility     |      |      | 28.9 | % |       | 27.8  
|                                                                            | Expected life in years  |      |      | 6.5  |   |       | 6.5   
|                                                                            | Risk-free interest rate |      |      | 4.7  | % |       | 4.4   
|                                                                            | Dividend yield          |      |      | 1.5  | % |       | 1.1   
|                                                                            |                        

NOTE 13: RETIREMENT PLANS

Defined Benefit Pension Plans

The Company sponsors various noncontributory and contributory defined benefit retirement plans covering certain of its U.S. and non-U.S. employees. Retirement
benefits are based upon years of service and the employee's compensation levels during this service period. The Company also has unfunded supplemental nonqualified defined benefit plans, which provide
pension benefits for certain employees in excess of the tax-qualified plans' limits. The net periodic benefit cost is assessed in accordance with the advice of professionally qualified
actuaries.

The
Company's funding policy is to make contributions to the extent such contributions are tax deductible as actuarially determined and as permitted by regulatory authorities. The funded amounts
reflect actuarial assumptions regarding compensation, interest and other projections. Plan assets are comprised primarily of equity securities, fixed-income securities and short-term
investments.

53

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The
following table provides a progression of the plans' benefit obligations and fair value of plan assets for 2002 and 2001, and reconciles the funded status to the amounts recognized in the
consolidated balance sheets for those years.

|                                                     |                                                | U.S. Plans |   | Non-U.S. Plans |  
|---------------------------------------------------- | ---------------------------------------------- | ---------- | - | -------------- | -
|
|
|
|Changes in benefit obligation:                       |                                                |            |   |                |  
|                                                     | Benefit obligation at beginning of year        |            | $ | 123.5          |  
|                                                     | Service cost                                   |            |   | 4.9            |  
|                                                     | Interest cost                                  |            |   | 9.0            |  
|                                                     | Plan participants' contributions               |            |   |               |  
|                                                     | Net actuarial loss                             |            |   | 7.7            |  
|                                                     | Benefits paid                                  |            |   | (4.5           | )
|                                                     | Foreign exchange loss (gain)                   |            |   |               |  
|                                                     |                                               
|                                                     | Benefit obligation at end of year              |            | $ | 140.6          |  
|                                                     |                                               
|Changes in fair value of plan assets:                |                                                |            |   |                |  
|                                                     | Fair value of plan assets at beginning of year |            | $ | 107.2          |  
|                                                     | Actual return on plan assets                   |            |   | (11.0          | )
|                                                     | Employer contributions                         |            |   | 0.8            |  
|                                                     | Benefits and expenses paid                     |            |   | (4.9           | )
|                                                     | Foreign exchange gain (loss)                   |            |   |               |  
|                                                     |                                               
|                                                     | Fair value of plan assets at end of year       |            | $ | 92.1           |  
|                                                     |                                               
|Funded status of plans:                              |                                                |            |   |                |  
|                                                     | Funded status                                  |            | $ | (48.5          | )
|                                                     | Unrecognized prior service cost                |            |   | 0.4            |  
|                                                     | Unrecognized transition obligation             |            |   | 0.2            |  
|                                                     | Unrecognized net actuarial loss                |            |   | 39.8           |  
|                                                     |                                               
|                                                     | Prepaid (accrued) benefit cost                 |            | $ | (8.1           | )
|                                                     |                                               
|Amounts recognized in the balance sheets consist of: |                                                |            |   |                |  
|                                                     | Prepaid benefit costs                          |            | $ |               |  
|                                                     | Accrued benefit liability                      |            |   | (8.4           | )
|                                                     | Additional minimum liability                   |            |   | (19.9          | )
|                                                     | Intangible asset                               |            |   | 0.3            |  
|                                                     | Accumulated other comprehensive loss           |            |   | 19.9           |  
|                                                     |                                               
|                                                     | Prepaid (accrued) benefit cost                 |            | $ | (8.1           | )
|                                                     |                                               
|Weighted-average assumptions:                        |                                                |            |   |                |  
|                                                     | Discount rates                                 |            |   | 7.0            | %
|                                                     | Expected return on plan assets                 |            |   | 9.0            | %
|                                                     | Rate of compensation increases                 |            |   | 4.0            | %
|                                                     |                                               

54

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The components of net periodic benefit costs are as follows:

|                                      |  | U.S. Plans |      | Non-U.S. Plans |  
|------------------------------------- |  | ---------- | ---- | -------------- | -
|
|
|
|Service cost                          |  | $          | 4.9  |                | $
|Interest cost                         |  |            | 9.0  |                |  
|Expected return on plan assets        |  |            | (9.5 | )              |  
|Amortization of prior service cost    |  |            | 0.1  |                |  
|Amortization of transition obligation |  |            | 0.2  |                |  
|Recognized net actuarial loss/(gain)  |  |            | 0.1  |                |  
|                                      | 
|Net periodic benefit cost             |  | $          | 4.8  |                | $
|                                      | 

The allocation of net periodic benefit cost is as follows:

|                          |  | U.S. Plans |     | Non-U.S. Plans
|------------------------- |  | ---------- | --- | --------------
|
|
|
|Continuing Operations     |  | $          | 4.8 |               
|Discontinued Operations   |  |            |    |               
|                         
|Net periodic benefit cost |  | $          | 4.8 |               
|                         

Amounts applicable to the Company's U.S. and non-U.S. pension plans with projected benefit obligations in excess of plan assets are summarized as follows as of the
October 1 measurement date:

|                             |  | 2002 |       | 2001
|---------------------------- |  | ---- | ----- | ----
|
|Projected benefit obligation |  | $    | 285.7 |     
|Fair value of plan assets    |  |      | 178.5 |     
|                            

Amounts applicable to the Company's U.S. and non-U.S. pension plans with accumulated benefit obligations in excess of plan assets are summarized as follows as of
the October 1 measurement date:

|                               |  | 2002 |       | 2001
|------------------------------ |  | ---- | ----- | ----
|
|Accumulated benefit obligation |  | $    | 226.3 |     
|Fair value of plan assets      |  |      | 178.5 |     
|                              

The Company provides no significant postretirement benefits other than pensions.

Defined Contribution Retirement Plans

Certain Company employees participate in the Great Lakes Savings Plan, which is a defined contribution, 401(k) employee savings plan generally available to all U.S.
full-time salaried, non-union hourly employees and certain union hourly employees. The plan is funded by contributions from participants and the Company. Contributions by the
Company to the plan approximated $2.7 million, $2.9 million and $3.4 million in 2002, 2001 and 2000, respectively.

The
Company also maintains a supplemental savings plan, the Great Lakes Chemical Corporation Supplemental Savings Plan. The plan is nonqualified and restores the employer match that certain employees
lose due to IRS limits on eligible compensation under the Great Lakes Savings Plan. Contributions to this plan by the Company approximated $0.04 million, $0.1 million and
$0.1 million in 2002, 2001 and 2000, respectively.

55

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NOTE 14: RESEARCH AND DEVELOPMENT EXPENSES

Research and development expenses were approximately $26.0 million, $28.1 million and $25.6 million in 2002, 2001 and 2000, respectively.

NOTE 15: SEGMENT INFORMATION

The Company is organized into three global segments: Polymer Additives, Performance Chemicals and Water Treatment. 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 bromine-, phosphorus- and antimony-based flame retardants; antioxidants; UV absorbers; light stabilizers; optical monomers; and patented No Dust Blends
(NDB). The segment serves suppliers in a wide variety of industries, including 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: agricultural products; brominated intermediates; fluorine chemicals for use in fire suppression systems, refrigerants and
medical and pharmaceutical products; fine chemicals for pharmaceutical and life sciences companies; and toxicological testing services for pharmaceutical, chemicals and biotechnology customers. As a
result of the Company's decision in 2002 to sell the Fine Chemicals portion of the Performance Chemicals business, the net assets of Fine Chemicals have been reclassified as assets held for sale and
liabilities held for sale, with operating results reported in discontinued operations for all periods presented.

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

The
Company evaluates business unit performance and allocates resources based on the operating income, which represents net sales less cost of products sold and selling, general and administrative
expenses and cash flows of each business unit. Each of the Company's segments uses bromine as a raw material in their production processes. Bromine is transferred at cost to all business segments.
Their cost is based upon a bromine supply agreement. In addition, assets used in the production of bromine are allocated to each business unit based on the percentage of production consumed. The
accounting policies of the reportable segments are the same as those described in the Summary of Significant Accounting Policies.

Corporate
includes the corporate offices and any other activities not associated with a specific segment. Segment assets include primarily accounts receivable, inventory, net plant and equipment and
other miscellaneous assets. Assets included in Corporate principally are cash and cash equivalents; deferred income taxes; certain investments and other assets; and certain unallocated plant and
equipment, including the Company's ERP software systems. Geographic sales information is reported based on the location that invoices the external customer. Geographic long-lived assets

56

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are grouped by the location of the reporting country. Inter-segment sales are insignificant and are eliminated in consolidation.

|Year Ended December 31                      |                                       | 2002 |         | 2001    |   | 2000    |        
|------------------------------------------- | ------------------------------------- | ---- | ------- | ------- | - | ------- | -------
|
|Net Sales by Segment to External Customers: |                                       |      |         |         |   |         |        
|                                            | Polymer Additives                     |      | $       | 618.2   |   | $       | 581.7  
|                                            | Performance Chemicals                 |      |         | 232.7   |   |         | 250.2  
|                                            | Water Treatment                       |      |         | 543.0   |   |         | 507.0  
|                                            |                                      
|                                            | Total sales of reportable segments    |      |         | 1,393.9 |   |         | 1,338.9
|                                            | Corporate                             |      |         | 7.6     |   |         | 13.9   
|                                            |                                      
|                                            |                                       | $    | 1,401.5 |         | $ | 1,352.8 |        
|                                            |                                      
|Segment Profit (Loss):                      |                                       |      |         |         |   |         |        
|                                            | Polymer Additives                     |      | $       | 16.4    |   | $       | (70.8  
|                                            | Performance Chemicals                 |      |         | 52.6    |   |         | 60.9   
|                                            | Water Treatment                       |      |         | 83.1    |   |         | 54.1   
|                                            |                                      
|                                            | Total profits of reportable segments  |      |         | 152.1   |   |         | 44.2   
|                                            | Corporate                             |      |         | (35.8   | ) |         | (37.0  
|                                            | Special charges                       |      |         | (5.1    | ) |         | (148.6 
|                                            |                                      
|                                            | Operating income (loss)               |      |         | 111.2   |   |         | (141.4 
|                                            |                                      
|Interest income (expense) - net             |                                       |      | (27.6   | )       |   | (32.8   | )      
|Other income (expense) - net                |                                       |      | (14.9   | )       |   | (46.8   | )      
|                                            |                                      
|Income (loss) before income taxes           |                                       | $    | 68.7    |         | $ | (221.0  | )      
|                                            |                                      
|Depreciation Expense:                       |                                       |      |         |         |   |         |        
|                                            | Polymer Additives                     |      | $       | 43.8    |   | $       | 39.4   
|                                            | Performance Chemicals                 |      |         | 11.0    |   |         | 7.9    
|                                            | Water Treatment                       |      |         | 14.6    |   |         | 14.1   
|                                            | Corporate                             |      |         | 7.3     |   |         | 9.5    
|                                            |                                      
|                                            |                                       | $    | 76.7    |         | $ | 70.9    |        
|                                            |                                      
|Segment Assets:                             |                                       |      |         |         |   |         |        
|                                            | Polymer Additives                     |      | $       | 792.6   |   | $       | 711.4  
|                                            | Performance Chemicals                 |      |         | 173.5   |   |         | 178.4  
|                                            | Water Treatment                       |      |         | 376.5   |   |         | 393.4  
|                                            | Corporate                             |      |         | 321.3   |   |         | 193.2  
|                                            | Net assets of discontinued operations |      |         | (0.3    | ) |         | (1.1   
|                                            |                                      
|                                            |                                       | $    | 1,663.6 |         | $ | 1,475.3 |        
|                                            |                                      

57

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|Year Ended December 31                 |                       | 2002 |         | 2001  |   | 2000   
|-------------------------------------- | --------------------- | ---- | ------- | ----- | - | -------
|
|Investment in Equity Method Investees: |                       |      |         |       |   |        
|                                       | Polymer Additives     |      | $       | 13.6  |   | $      
|Expenditures for Long-lived Assets:    |                       |      |         |       |   |        
|                                       | Polymer Additives     |      | $       | 33.4  |   | $      
|                                       | Performance Chemicals |      |         | 8.2   |   |        
|                                       | Water Treatment       |      |         | 21.3  |   |        
|                                       | Corporate             |      |         | 1.9   |   |        
|                                      
|                                       |                       | $    | 64.8    |       | $ | 131.2  
|                                      
|Geographic Information                 |                       |      |         |       |   |        
|Net Sales to External Customers:       |                       |      |         |       |   |        
|                                       | United States         |      | $       | 894.5 |   | $      
|                                       | United Kingdom        |      |         | 126.0 |   |        
|                                       | Switzerland           |      |         | 158.3 |   |        
|                                       | Other foreign         |      |         | 222.7 |   |        
|                                      
|                                       |                       | $    | 1,401.5 |       | $ | 1,352.8
|                                      
|Long-lived Assets:                     |                       |      |         |       |   |        
|                                       | United States         |      | $       | 535.6 |   | $      
|                                       | United Kingdom        |      |         | 87.7  |   |        
|                                       | Other foreign         |      |         | 202.1 |   |        
|                                      
|                                       |                       | $    | 825.4   |       | $ | 812.9  
|                                      

NOTE 16: INVESTMENT IN AND ADVANCES TO UNCONSOLIDATED AFFILIATES

As of December 31, 2002, the Company's investment in unconsolidated affiliates consisted primarily of a 49% interest in Gulf Stabilizers Industries Limited, a Saudi
Arabian manufacturer of antioxidants, and a 50% interest in Tetrabrom Technologies, Ltd., an Israeli manufacturer of tetrabromobisphenol-A. During 2000, the Company sold its
remaining preferred stock in Huntsman Chemical Company (HCC). The Company had recognized pretax gains on sales of HCC preferred shares of $3 million in 2000. Preferred stock dividends from HCC
amounted to $0.3 million in 2000. 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 $(2.1) million, $0.7 million and $5.7 million in 2002, 2001 and 2000, 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 foreign exchange rates. These fluctuations can vary the costs of
financing, investing and operating activities. Accordingly, the Company hedges certain portions of its exposure to foreign currency fluctuations through the use of options and forward exchange
contracts to protect the value of its existing foreign currency asset and liability commitments and anticipated foreign currency revenues.

It
is the Company's policy to enter into foreign currency hedging transactions only to the extent considered necessary to achieve the objectives stated above. The Company does not enter into foreign
currency transactions for trading purposes. The Company enters into forward contracts to hedge portions of its foreign currency denominated, forecasted sales and subsequent cash flows. The critical
terms of the hedges are the same as the underlying forecasted transactions, and the

58

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hedges are considered perfectly effective to offset the changes in fair value of cash flows from the hedged transactions. Gains and losses on these instruments are generally recorded in other
comprehensive income (loss) until the underlying transaction is recognized in net income.

The
Company enters into currency option and forward contracts to hedge anticipated foreign currency transactions during the next 12 months. The principal currency hedged is the Japanese yen.

The
Company uses currency swap contracts to hedge a long-term intercompany loan. These contracts hedge the euro against the British pound. The terms of the swap contracts match the loan
principal repayment terms. Gains or losses on these contracts are reflected in earnings and are offset by losses or gains on the underlying intercompany loan.

In
addition, the Company enters into certain foreign currency forward contracts that are not treated as hedges under SFAS 133 to hedge recognized foreign currency transactions. Gains and losses
on these contracts are recorded in net earnings and are substantially offset by the earnings effect of the revaluation of the underlying foreign currency denominated transaction.

Gains
and losses arising from the use of the above instruments are recorded in the statement of operations concurrently with gains and losses arising from the underlying hedged transactions. The
impact on pretax income of the currency forwards and options used to mitigate gains and losses on foreign exchange was a net (loss) gain of approximately $4.4 million, $9.2 million and
$(1.6) million in 2002, 2001 and 2000, respectively.

The
Company uses forward foreign exchange contracts to protect the value of its investments in its foreign subsidiaries in Europe. Realized and unrealized gains and losses from these hedges are not
included in the income statement, but are shown in the cumulative translation adjustment account in other comprehensive income (loss), with the related amounts due to or from counterparties included
in other liabilities or other assets.

During
the year ended December 31, 2002, the Company recognized $3.1 million of net losses, included in the cumulative translation adjustment, related to the forward foreign currency
exchange contracts.

Interest Rate Risk Management

The Company has employed certain hedging instruments to minimize its exposure to changes in interest rates, including an interest rate swap agreement. In 2000, the Company
terminated a swap arrangement and as a result recognized a $2.9 million gain, which is being amortized over the remaining term of the underlying 7% fixed rate notes that are due July 15,
2009. In 2002, the Company entered into a $75 million interest rate swap accounted for as a fair value hedge to manage its exposure to interest rate changes.

Gains
and losses arising from the use of such interest rate hedging instruments are recorded in the income statement concurrently with gains and losses arising from the underlying transactions. The
impact on pretax income of interest rate risk management activities was a net gain of approximately $2.1 million for 2002.

Natural Gas Price Risk Management

The Company consumes natural gas during the normal course of production. The fluctuations of natural gas prices can vary the costs of production. During the second quarter of
2001, as part of its risk management strategy, the Company entered into fixed price swap and option contracts, including caps and floors, to manage its exposure to changes in natural gas prices. These
natural gas contracts obligate the Company to make or receive a payment equal to the net change in the value of the contracts at their maturity. Such contracts are designated as hedges of the
Company's

59

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forecasted purchases up to November 2003 and are effective in hedging the Company's exposure to changes in natural gas prices during this period.

The
natural gas contracts that qualify as cash flow hedges under SFAS 133 are marked to market with unrealized gains and losses deferred and recognized in earnings when realized as an
adjustment to cost of products sold. Unrealized changes in fair value of contracts no longer effective as hedges are recognized in cost of products sold from the date that the contracts become
ineffective until their expiration. The Company elected to terminate several contracts in 2002 with a supplier due to counterparty risk consideration. The amounts reclassified into earnings were
immaterial. The impact on pretax income of natural gas risk management activities were a net (loss) of approximately $(1.1) million in 2002 and approximately $(1.8) million in 2001.

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 notional amounts, carrying
amounts and estimated fair values of other financial instruments, both on and off the balance sheets:

|                                               |  | 2002 |       | 2001 |  
|---------------------------------------------- |  | ---- | ----- | ---- | -
|
|
|Long-term debt including current portion       |  | $    |      |      | $
|Interest rate swap agreements                  |  |      | 75.0  |      |  
|Foreign currency options and forward contracts |  |      | 140.6 |      |  
|Foreign currency swap contracts                |  |      | 36.2  |      |  
|Natural gas options and swap contracts         |  |      | 2.5   |      |  
|                                               | 

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

Concentrations of Credit Risk

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

NOTE 18: COMMITMENTS AND CONTINGENCIES

The Company has various purchase commitments for raw materials, supplies and plant and equipment incident to the ordinary conduct of business. In the aggregate, such
commitments are not at prices in excess of current market. At December 31, 2002, the Company had committed approximately $18 million to complete capital projects.

At
December 31, 2002, the Company had guaranteed $22.2 million of debt of an unconsolidated affiliate. The unconsolidated affiliate was in violation of several covenants related to its
debt that the Company guarantees. The affiliate is currently negotiating with the respective lenders to amend its loan agreements. The banks have not called the loan, and the Company believes that a
waiver or amendment will be received and has not recorded a liability as of December 31, 2002.

60

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The
Company has various operating leases primarily for the use of office space, computer equipment and services. Future minimum lease payments under these non-cancelable operating leases
totaled $48.9 million at December 31, 2002, due as follows: 2003 - $10.7 million; 2004 -$7.0 million; 2005 - $7.0 million; 2006 -
$6.1 million; 2007 - $5.3 million; 2008 and thereafter, $12.8 million.

Rent
expense for all operating leases amounted to $14.8 million, $19.2 million and $15.8 million for 2002, 2001 and 2000, respectively.

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

The
Company has been cooperating with the United States Department of Justice (DOJ) and the European Commission since the spring of 1998 in their respective investigations of the bromine and
brominated products industry. Both investigations were initiated after the Company self-reported to those agencies certain business practices that raised questions under antitrust laws. As
a result of the Company's cooperation, the Company and its current directors and employees were accepted into the DOJ's amnesty program. Concurrently, the Company sought favorable treatment under a
program in the European Union that also rewards self-reporting and cooperation. To the Company's knowledge, no proceedings have ever been instituted in the European Union in connection
with the investigation.

The
Company believes it has fully complied with all applicable conditions to date and has continued to cooperate with the DOJ in connection with certain follow-up matters arising out of
the investigation, all of which are covered by the Company's acceptance into the amnesty program. Although, to the Company's knowledge, there have been no additional matters that have arisen in
connection with the investigations, the Company intends to continue to be in full compliance with the DOJ and European Union programs.

There
were ten federal purported class action lawsuits and five California purported class actions naming the Company, each claiming treble damages arising out of an alleged conspiracy concerning the
pricing of bromine and brominated products. The federal lawsuits were consolidated in the District Court for the Southern District of Indiana, which, over the Company's objections, certified a class
of direct purchasers of certain brominated products.

On
September 10, 2002, the Company agreed to settle all of the federal class actions. The settlement agreement affects direct purchasers from the Company of brominated diphenyl oxides
(decabromodiphenyl oxide, octabromodiphenyl oxide and pentabromodiphenyl oxide) and their blends, tetrabromobisphenol-A and its derivatives and all methyl bromide products and their
derivatives in the United States between January 1, 1995 and April 30, 1998. The Company agreed to a $4.1 million cash payment and $2.6 million in vouchers for the future
purchase of decabromodiphenyl oxide and/or tetrabromobisphenol-A, to be distributed to class members. The settlement was reflected in the third quarter of 2002 as a reduction to litigation
reserves previously recorded in prior periods.

Pursuant
to the settlement agreement, the Company remitted the cash portion to an escrow account on November 8, 2002, subject to final approval of the settlement agreement by the federal court.
After notice to class members, the federal court gave final approval to the settlement in January 2003. The plaintiffs have submitted a plan of distribution for court approval. The plan
included a form of voucher agreed to by the Company.

61

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The
California cases pending in the Superior Court for San Francisco County claim alleged violations of California competition laws and were stayed pending resolution of the federal cases. The cases
are not impacted by the federal settlement. The Company has denied that the cases were legitimately filed as class actions, denies all liability and intends to defend the cases vigorously.

OSCA,
the interest in which the Company divested to BJ Services Company as of May 31, 2002, is a party to certain pending litigation regarding a blowout of a well in the Gulf of Mexico operated
by Newfield Exploration Company. In the lawsuit, the plaintiffs claimed that OSCA and the other defendants breached their contracts to perform work-over operations on the well and were
negligent in performing those operations. On April 4, 2002, a jury reached a verdict on those claims, finding OSCA and the other defendants responsible for those claims and determining OSCA's
share of the damages. In connection with the lawsuit, the Company asserted claims against its insurers and insurance brokers in support of insurance coverage for this incident. A related trial on
these insurance coverage claims was conducted by the submission of legal briefs. Thereafter, the court issued its final judgments on the underlying liability claims and the insurance coverage claims,
entering judgment against OSCA for a net amount of approximately $13.3 million plus interest, and finding that such amount was only partially covered by insurance. Pursuant to an
indemnification agreement between the Company and BJ Services entered into at the time of the sale of OSCA (see Note 4 to the Consolidated Financial Statements), Great Lakes has agreed to pay
BJ Services a certain percentage of any uninsured cash damages in excess of an amount paid by OSCA upon settlement or final determination of this pending litigation. As of December 31, 2002,
the Company recorded a $9.0 million reserve in discontinued operations for this indemnification liability. Great Lakes and BJ expect to appeal some or all of the liability and insurance
coverage decisions.

On
May 28, 2002, Albemarle Corporation filed two complaints against the Company in the United States District Court for the Middle District of Louisiana, one alleging that the Company had
infringed on three process patents held by Albemarle Corporation relating to bromine vacuum tower technology, and the other alleging that the Company had infringed or contributed or induced the
infringement of a patent relating to the use of decabromodiphenyl ehtane as a flame retardant in thermoplastics. On a motion by the Company and over Albemarle's objection, the cases were consolidated.
In addition, the Company has filed a counterclaim with the District Court in the flame retardant cases, alleging, among other things, that the Albemarle patent is invalid or was obtained as a result
of inequitable conduct in the United States Patent and Trademark Office.

With
respect to the Albemarle case, the Company believes that the allegations of the complaints are without basis factually or legally, and intends to defend the cases vigorously.

Litigation
accruals of approximately $16.8 million and $13.2 million have been reflected in the Company's consolidated balance sheet as of December 31, 2002 and 2001,
respectively.

The
Company is subject to various U.S. and international federal, state and local environmental, health and safety laws and regulations. The Company is also subject to liabilities arising under the
Comprehensive Environmental Response Compensation and Liability Act ("CERCLA"), the Resource Conservation and Recovery Act ("RCRA") and similar state and international laws that impose responsibility
for remediation of hazardous substances and hazardous waste constituents released into the environment.

The
Company provides reserves for environmental liabilities that management considers probable for which a reasonable estimate of the liability can be made. Accordingly, the Company's reserves for
environmental liabilities, including reserves associated with restructuring charges, were approximately $45.2 million and $53.7 million at December 31, 2002 and 2001,
respectively, with the current portion of these liabilities included in accrued expenses and the long-term portion included in noncurrent liabilities. While it is difficult to predict or
determine the outcome of actions brought against the Company or the ultimate cost of environmental matters, management believes that the

62

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ultimate cost, if any, in excess of the amounts already provided is not likely to have a material adverse effect on its consolidated financial position, consolidated results of operations or
liquidity.

NOTE 19: QUARTERLY FINANCIAL DATA (UNAUDITED)

A summary of the quarterly results of operations for the years ended December 31, 2002 and 2001 is as follows:

QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)

|(millions, except per share data)
2002 - Three Months Ended  |                                              | March 31(1)             |       | June 30 |       | September 30 |       | December 31 |      
|------------------------------------------------------------ | -------------------------------------------- | ----------------------- | ----- | ------- | ----- | ------------ | ----- | ----------- | -----
|
|Net sales                                                    |                                              | $                       | 305.0 |         | $     | 408.5        |       | $           | 360.6
|Operating expenses                                           |                                              |                         |       |         |       |              |       |             |      
|                                                             | Cost of products sold                        |                         |       | 237.8   |       |              | 304.1 |             |      
|                                                             | Selling, general and administrative expenses |                         |       | 50.4    |       |              | 58.6  |             |      
|                                                             | Special charges                              |                         |       |        |       |              | 1.7   |             |      
|                                                             |                                             
|Operating income (loss) from Continuing Operations           |                                              |                         | 16.8  |         |       | 44.1         |       |             | 30.1 
|Interest income (expense) - net                              |                                              |                         | (8.5  | )       |       | (7.1         | )     |             | (6.2 
|Other income (expense) - net                                 |                                              |                         | (0.6  | )       |       | (5.0         | )     |             | (4.3 
|                                                             |                                             
|Income (loss) from Continuing Operations before income taxes |                                              |                         | 7.7   |         |       | 32.0         |       |             | 19.6 
|Income taxes (credit)                                        |                                              |                         | 2.6   |         |       | 9.9          |       |             | 5.9  
|                                                             |                                             
|Income (loss) - Continuing Operations                        |                                              |                         | 5.1   |         |       | 22.1         |       |             | 13.7 
|Income (loss) - Discontinued Operations                      |                                              |                         | (6.6  | )       |       | 83.8         |       |             | (0.7 
|Net income (loss)                                            |                                              | $                       | (1.5  | )       | $     | 105.9        |       | $           | 13.0 
|Earnings (loss) per share:                                   |                                              |                         |       |         |       |              |       |             |      
|                                                             | Basic                                        |                         |       |         |       |              |       |             |      
|                                                             |                                              | Continuing Operations   |       | $       | 0.10  |              | $     | 0.44        |      
|                                                             |                                              | Discontinued Operations |       | $       | (0.13 | )            | $     | 1.67        |      
|                                                             | Diluted                                      |                         |       |         |       |              |       |             |      
|                                                             |                                              | Continuing Operations   |       | $       | 0.10  |              | $     | 0.44        |      
|                                                             |                                              | Discontinued Operations |       | $       | (0.13 | )            | $     | 1.67        |      
|                                                             |                                             

63

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|2001 - Three Months Ended                                    |                                              | March 31(1) |       | June 30 |   | September 30 |       | December 31 |       
|------------------------------------------------------------ | -------------------------------------------- | ----------- | ----- | ------- | - | ------------ | ----- | ----------- | ------
|
|Net sales                                                    |                                              | $           | 342.1 |         | $ | 406.3        |       | $           | 321.1 
|Operating expenses                                           |                                              |             |       |         |   |              |       |             |       
|                                                             | Cost of products sold                        |             |       | 260.3   |   |              | 316.2 |             |       
|                                                             | Selling, general and administrative expenses |             |       | 54.4    |   |              | 59.9  |             |       
|                                                             | Special charges                              |             |       |        |   |              | 72.7  |             |       
|                                                             |                                             
|Operating income (loss) from Continuing Operations           |                                              |             | 27.4  |         |   | (42.5        | )     |             | (106.4
|Gain on sale of subsidiary stock                             |                                              |             |      |         |   |             |       |             |      
|Interest income (expense) - net                              |                                              |             | (8.7  | )       |   | (8.7         | )     |             | (7.5  
|Other income (expense) - net                                 |                                              |             | (0.3  | )       |   | (27.1        | )     |             | (11.4 
|                                                             |                                             
|Income (loss) from Continuing Operations before income taxes |                                              |             | 18.4  |         |   | (78.3        | )     |             | (125.3
|Income taxes                                                 |                                              |             | 6.8   |         |   | (24.6        | )     |             | (27.0 
|                                                             |                                             
|Income (loss) - Continuing Operations                        |                                              | $           | 11.6  |         | $ | (53.7        | )     | $           | (98.3 
|Income (loss) - Discontinued Operations                      |                                              |             | 8.6   |         |   | (100.0       | )     |             | (8.3  
|Net income (loss)                                            |                                              | $           | 20.2  |         | $ | (153.7       | )     | $           | (106.6
|Earnings per share:                                          |                                              |             |       |         |   |              |       |             |       
|Basic                                                        |                                              |             |       |         |   |              |       |             |       
|                                                             | Continuing Operations                        |             | $     | 0.23    |   | $            | (1.07 | )           | $     
|                                                             | Discontinued Operations                      |             | $     | 0.17    |   | $            | (1.99 | )           | $     
|Diluted                                                      |                                              |             |       |         |   |              |       |             |       
|                                                             | Continuing Operations                        |             | $     | 0.23    |   | $            | (1.07 | )           | $     
|                                                             | Discontinued Operations                      |             | $     | 0.17    |   | $            | (1.99 | )           | $     
|                                                             |                                             

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REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS

We have audited the accompanying consolidated balance sheets of Great Lakes Chemical Corporation as of December 31, 2002 and 2001, and the related consolidated
statements of operations, cash flows and stockholders' equity for each of the three years in the period ended December 31, 2002. Our audits also included the financial statement schedule listed
in the Index at Item 15(a). These financial statements and schedule 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 at December 31, 2002
and 2001, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 2002, in conformity with accounting principles generally
accepted in the United States. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all
material respects the information set forth therein.

As
discussed in Note 1 to the Consolidated Financial Statements, the Company adopted Statement of Financial Accounting Standards No. 142, "Goodwill and Other Intangible Assets," in 2002.

/s/
ERNST & YOUNG LLP

Indianapolis,
Indiana
January 28, 2003

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.

|GREAT LAKES CHEMICAL CORPORATION(Registrant) |  | 
|-------------------------------------------- |  | 

|Date |  | March 17, 2003 |  | /s/ Mark P. BulrissMark P. Bulriss, Chairman, President and Chief Executive Officer
(Principal Executive Officer)
|---- |  | -------------- |  | -----------------------------------------------------------------------------------------------------------------

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Certifications

I, Mark P. Bulriss, certify that:





|Date:    March 17, 2003 |  |  |  | /s/ Mark P. Bulriss
Mark P. Bulriss, Chief Executive Officer
|----------------------- |  |  |  | ------------------------------------------------------------

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I, John J. Gallagher III, certify that:





|Date:    March 17, 2003 |  |  |  | /s/ John J. Gallagher III
John J. Gallagher III, Chief Financial Officer
|----------------------- |  |  |  | ------------------------------------------------------------------------

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