<PAGE>   1

                                                        EXHIBIT 13

                   [LOGO]  GREAT LAKES CHEMICAL CORPORATION


BUSINESS PROFILE

1997 Revenue by Business Unit
(in millions)
-------------------------------------------------------------------------------

[PIE CHART] -- $309

FLAME RETARDANTS
The world's leading producer of brominated flame retardants is now the leading
supplier of antimony-based flame retardant products as well.  Our customers use
these synergistic products, in combination as well as independently, to reduce
or eliminate the inherent flammability of a wide variety of combustible
materials, such as engineered plastics, urethane foams and epoxy resins.

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

[PIE CHART] -- $211

INTERMEDIATES AND FINE CHEMICALS
Great Lakes is leveraging its expertise in complex chemical synthesis and
experience in handling specialized chemistries to become a world-leading
developer and manufacturer of custom chemicals.  With ISO 9000 quality
manufacturing facilities on two continents, Great Lakes is well positioned to
serve a growing number of customers around the globe that choose to outsource
the custom manufacture of a variety of intermediates and fine chemicals.

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

[PIE CHART] -- $245

POLYMER STABILIZERS
A broad range of stabilizing products -- from antioxidants to hindered amine
light stabilizers -- enhances critical polymer performance characteristics such
as heat and light resistance and color consistency.  Great Lakes is also a
pioneer in the development and manufacture of alternative physical forms, such
as patented No Dust Blends, which satisfy market demand for additives that are
easier to process and safer for employees and the environment.

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

[PIE CHART] -- $194

SPECIALIZED SERVICES AND MANUFACTURING
The company's highly profitable, narrowly focused specialty businesses
exemplify the entrepreneurial spirit that propelled Great Lakes to the
forefront of the specialty chemical industry. Serving high-growth niche
markets, these businesses open dynamic markets for Great Lakes' high-margin,
value-added products and services.

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

[PIE CHART] -- $352

WATER TREATMENT
Great Lakes is the premier supplier of recreational water treatment products to
consumers throughout the world.  The company's BioLab and Bayrol subsidiaries
develop and market popular pool and spa products in North America, Europe,
Australia and South Africa. In addition, Great Lakes is the world's leading
producer of bromine-based water treatment chemicals used for cooling towers,
municipal wastewater treatment and other specialty applications.




6









<PAGE>   2

                  [ LOGO ]  GREAT LAKES CHEMICAL CORPORATION


FLAME RETARDANTS


                                  [ PHOTO ]


Look around any home, office or vehicle, and chances are Great Lakes flame
retardant additives are hard at work, silently protecting the products
consumers rely on from the destructive effects of fire. These additives are
built into the plastic casings of computer monitors. They protect the circuit
boards found in electronic appliances. They're part of the foams and fabrics
used in furniture and automobiles, and the wiring behind walls and inside of
components. As the world's leading supplier of brominated, antimony-based and
other specialty flame retardants, Great Lakes helps manufacturers ensure that
the products they produce are safe to use.




8


<PAGE>   3



IN INDUSTRIES AS DIVERSE AS PLASTICS, CONSUMER ELECTRONICS, TEXTILES AND
BUILDING MATERIALS, MANUFACTURERS FACE THE SAME FUNDAMENTAL CHALLENGE: FINDING
A DEPENDABLE, EFFICIENT WAY TO INCORPORATE FLAME RETARDANCY AND OTHER
PERFORMANCE CHARACTERISTICS INTO THEIR PRODUCTS. AS THESE PRODUCTS BECOME MORE
COMPLEX, AND AS REGULATORS ESTABLISH NEW STANDARDS FOR FIRE SAFETY IN MARKETS
AROUND THE WORLD, COMPANIES TURN TO GREAT LAKES AND ITS COMPREHENSIVE LINE OF
FLAME RETARDANTS TO MEET THEIR HIGHLY SPECIFIC PRODUCTION REQUIREMENTS. AS THE
WORLD'S LEADING MANUFACTURER OF FLAME RETARDANT COMPOUNDS, GREAT LAKES HAS THE
TECHNOLOGY, GLOBAL RESOURCES AND EXPERTISE TO DEVELOP SOLUTIONS THAT OPTIMIZE
PRODUCT PERFORMANCE WHILE CONTRIBUTING TO MORE EFFICIENT AND HIGHER QUALITY
PROCESSING.


FLAME RETARDANTS  [ BAR CHART ]
[in millions]

93   240
94   265
95   300
96   294
97   309


After a stagnant 1996, the worldwide flame retardant market gained momentum
during 1997 and approached its traditional growth levels. Increased demand from
the consumer electronics and plastics industries, especially in the fourth
quarter, propelled worldwide volumes of Great Lakes flame retardants to an
eight percent gain over 1996. Earnings from the company's joint venture
tetrabrombisphenol-A (TBBA) plant in Israel improved markedly as the facility
operated well above last year's level. In addition, volumes of staple products
such as pentabromodiphenyloxide (PBDPO), polydibromostyrene (PDBS),
hexabromocyclododecane (HBCD) and a number of custom flame retardant compounds
all surpassed 1996 levels. Despite this strong volume performance, revenues
were partially constrained by price erosion in select areas that resulted from
increased competition and general foreign currency weakness against the U.S.
dollar.

Great Lakes continues to emphasize customer- and market-focused research and
development as the key to meeting the evolving needs of its customers. These
efforts have produced a variety of new products, some of which began
commercialization in 1997. The company's South Arkansas plant began commercial
production of BI-70, a new brominated flame retardant used in both wire and
cable and light-stable packaging film applications. Sales are likewise
accelerating for BZ-54, a new non-diphenyloxide (non-DPO) product for the
flexible urethane market. In addition, the company successfully piloted its
first non-halogenated flame retardant compound with large-scale commercial
potential -- a new phosphorous-based product developed to meet a customer's
specific engineering thermoplastics requirements. Commercialization of this
product is slated for 1998.

The company further expanded its flame retardant product line -- and fortified
its world leadership position -- when it acquired Anzon, the leading global
manufacturer of antimony products. In addition to antimony trioxide, the key
synergist used with halogenated flame retardants, Anzon manufactures a variety
of user friendly products that eliminate dust and reduce yield loss. Anzon also
boasts a robust new product pipeline, which includes its recently
commercialized "super-submicron" technology that disperses additives more
quickly and completely to give customers better quality and more cost-effective
processing. While offering complementary products to most of the current Great
Lakes customer base, the Anzon acquisition also opens new downstream markets
for Great Lakes and provides a solid platform for developing new specialty
chemicals.

Quality improvement represents another strong platform for growth. In 1997 the
company demonstrated its commitment to meeting the high quality standards of
its customers by investing in a number of quality improvement projects. These
projects will ensure that Great Lakes' products lead the industry in quality
and performance.

1998 OUTLOOK  The market conditions that contributed to strong flame retardant
volumes in the fourth quarter should provide abundant growth opportunities in
1998. The Asian financial instability, which had no measurable effect on 1997
results, in all likelihood will have an impact in 1998, the extent of which is
not yet known. In any event, Great Lakes stands ready with the industry's
broadest array of existing flame retardant products -- and a customer-focused
approach to research, development and applications testing -- to help
manufacturers meet new and stricter performance criteria. Great Lakes also
anticipates increased sales to electronics manufacturers as this industry
projects seven to eight percent growth in 1998. In the year ahead, Great Lakes
will boost revenues and margins by capitalizing on synergies afforded by both
the Anzon acquisition and the Polymer Stabilizers business unit, to provide the
most comprehensive basket of high-quality polymer additives to the plastics
industry. All these factors point to 1998 as a year of steady, consistent
growth.


                                                                              9

<PAGE>   4

                  [ LOGO ]  GREAT LAKES CHEMICAL CORPORATION


INTERMEDIATES AND FINE CHEMICALS


                                  [ PHOTO ]


Complex chemical synthesis is often required to help products achieve their
highly specialized performance characteristics. Great Lakes' fine chemicals and
intermediates are key building blocks for many of the pharmaceutical products
that keep consumers healthy. They work their magic in agricultural products
that protect crops from insects and disease. They function as a key reactive
agent in the photographic process. And Great Lakes has developed a number of
end-product applications, such as a family of new bromine-based solvents for
precision and electronic cleaning.



10


<PAGE>   5



IN TODAY'S FAST-PACED MANUFACTURING ENVIRONMENT, COMPETITIVE ADVANTAGE GOES TO
THOSE COMPANIES THAT CAN STREAMLINE AND ACCELERATE THE PROCESS OF DEVELOPING
AND INTRODUCING NEW, HIGH QUALITY PRODUCTS. WITH INCREASING FREQUENCY,
COMPANIES ARE MEETING THIS OBJECTIVE BY OUTSOURCING STRATEGIC SEGMENTS OF THE
PRODUCT DEVELOPMENT PROCESS TO ORGANIZATIONS WITH THE BROAD RESOURCES AND
PROVEN EXPERTISE TO MEET HIGHLY SPECIFIC REQUIREMENTS. GREAT LAKES IS FAST
EMERGING AS A LEADING RESOURCE FOR PERFORMING THE COMPLEX CHEMICAL PROCESSES
THAT ARE VITAL TO NEW PRODUCT DEVELOPMENT. WITH A STRONG PRESENCE IN BOTH THE
UNITED STATES AND EUROPE, GREAT LAKES IS WELL EQUIPPED TO PERFORM A VARIETY OF
ACTIVITIES -- FROM CREATING COMPLEX ORGANIC MOLECULES THAT MEET SPECIFIC
PERFORMANCE CRITERIA, TO DEVELOPING AND PILOTING ECONOMICAL MANUFACTURING
PROCESSES FOR PHARMACEUTICAL, AGROCHEMICAL AND OTHER FINISHED PRODUCTS
DEVELOPED BY CUSTOMERS.


INTERMEDIATES AND FINE CHEMICALS   [ BAR CHART ]
[in millions]

93   145
94   167
95   197
96   196
97   211


Great Lakes' strategic decision to focus on those core specialty businesses
that offer the best potential for high, consistent growth has changed the face
of its intermediates and fine chemicals business. In 1997 Great Lakes began the
process of exiting the furfural and derivatives business to concentrate on
meeting growing customer demand for high-value fine chemical compounds, as well
as bromine-based chemicals. As part of the company's plan to spin off its
petroleum additives business, the European bromine and fine chemicals
businesses formerly managed by Octel were integrated into Great Lakes'   global
bromine and fine chemicals businesses. This more focused approach will allow
the company to leverage its raw materials and technology resources to serve
areas where recent performance promises a significant return on this
investment.

Great Lakes built on its strong 1996 sales of bromine and bromine derivatives
by meeting or exceeding its 1997 performance targets in these areas. In
addition to increasing its sales of derivatives to the photographic and
pharmaceutical markets, the company signed a number of new contracts with
companies worldwide to perform custom research projects. Results in 1997 also
reflect the successful introduction of several price increases for certain
bromine derivatives and intermediates. In 1998 and beyond, this business unit
should realize further enhanced margins as the company explores new bromine
production strategies that will impact the company's entire range of bromine
products.

The company's custom synthesis activities continue to yield significant
long-term manufacturing opportunities that contribute significantly to the
business unit's revenue stream. Great Lakes' Newport, Tennessee, facility is
operating at optimal capacity to meet the requirements of a seven-year contract
to supply one customer with DBB, a key agrochemical intermediate used in an
acaricide. Full-scale production is also underway for BMA, a key intermediate
used in a new AIDS drug, and for OTBN, a new intermediate used in a variety of
beta-blocker drugs. Revenues should continue to increase as more agrochemical
and pharmaceutical manufacturers see the benefits of outsourcing their complex
intermediate and fine chemical synthesis. Great Lakes is exploiting this market
opportunity by fortifying relationships with major life science customers, by
making acquisitions and by developing new process technologies.

Great Lakes also made its first deliveries of its HyperSolve(TM) NPB, the first
of a family of new Great Lakes solvents based on n-propyl bromide chemistry.
HyperSolve, which the U.S. Environmental Protection Agency is expected to
approve under its Significant New Alternatives Policy, offers a lower cost,
environmentally friendly alternative to ozone depleting solvents used in
precision applications such as electronics, aerospace and the military. This
new technology, which is also under review by manufacturers of sealants and
adhesives as a raw material solvent, leaves Great Lakes well positioned to
increase its share of the more than $10 billion solvent market.

1998 OUTLOOK  As Great Lakes refocuses on its core specialty chemical
businesses, the Intermediates and Fine Chemicals business unit becomes an even
more important ingredient in the company's formula for success. The continuing
challenge is to manage our bromine resources strategically to concentrate on
the highest value-added applications. We will also exploit our global
manufacturing capacity and expertise to develop our niches in custom
intermediate and fine chemical synthesis and to penetrate new and expanding
markets.




                                                                            11

<PAGE>   6

                  [ LOGO ]  GREAT LAKES CHEMICAL CORPORATION


POLYMER STABILIZERS


                                  [ PHOTO ]


Plastics compounds gain many of their important performance characteristics
from special polymer stabilizer additives such as antioxidants and UV
stabilizers produced by Great Lakes. Manufacturers use them to protect a
variety of products -- from car seats and steering wheels to the colorful
fibers used in carpets and upholstery -- from the damaging effects of sunlight.
They are incorporated into polyethylene pipes used for water and natural gas
transmission to assure long-term stability. And Great Lakes' revolutionary No
Dust Blends simplify manufacturing processes by compressing multiple additives
into precisely calibrated granular mixtures.




12

<PAGE>   7



LESS THAN FIVE YEARS AFTER IT ENTERED THE DYNAMIC AND FAST-GROWING POLYMER
STABILIZERS BUSINESS, GREAT LAKES HAS BECOME THE WORLD'S SECOND-LARGEST
SUPPLIER OF POLYMER STABILIZERS BY DEVELOPING HIGH-PERFORMANCE NEW PRODUCTS,
RESPONDING TO INCREASING DEMANDS OF THE MARKET AND EXPANDING ITS GLOBAL
MANUFACTURING AND DISTRIBUTION CAPABILITIES. EVEN IN THE FACE OF FIERCE
COMPETITION, GREAT LAKES CONTINUES TO IMPROVE ITS MARKET SHARE BY WORKING WITH
CUSTOMERS TO DEVELOP INNOVATIVE STABILIZATION SYSTEMS, BY FORMULATING CUSTOM
BLENDS AND BY PROVIDING TECHNICAL SERVICE WORLDWIDE.


POLYMER STABILIZERS   [ BAR CHART ]
[in millions]

93    81
94   164
95   224
96   242
97   245


Great Lakes manufactures antioxidants, ultraviolet light stabilizers and
customized additive blends in the three major polymer stabilizer markets --
Europe, North America and the Far East. These products expand the use of
plastics by providing better protection against heat and light degradation and
by making them cleaner to process and easier to recycle. In 1997 sales volume
increased 16 percent worldwide despite severe price competition and an
unusually strong U.S. dollar. Operating income rose more than 30 percent as
increased volumes, more efficient manufacturing operations and other cost
reduction initiatives boosted profit margins.

The company's antioxidant plant in Newport, Tennessee, enabled Great Lakes to
establish a strong manufacturing base in the key North American market, which
accounts for almost one-third of the worldwide volume of plastics additives.
The facility began production last year of Anox(R) 20, a high-volume,
high-performance phenolic antioxidant used in polyolefins and engineering
polymers. In the spring of 1998, the company will start up a second
manufacturing line in Newport to produce the phenolic antioxidant Anox(R) PP-18,
thereby gaining economies of scale, optimizing throughput and lowering
production costs.

New product introductions are providing additional platforms for growth. Sales
of UV stabilizers such as Lowilite(R) 77, Lowilite(R) 62 and Uvasil(R) 299,
exceeded expectations and should continue to grow following recent approvals by
large polymer manufacturers. Great Lakes' proprietary No Dust Blend (NDB)
technology -- which provides a calibrated, uniform combination of
high-performance additives blended into one dustless granule -- should continue
its above-average growth in 1998 as an alternative to commonly used powders.
These NDB compounds simplify processing, handling and storage; enhance product
quality; eliminate the use of inactive binders; and reduce workers' health and
safety risks.

Great Lakes plans to produce commercial quantities of another new product, a
silicon-based antioxidant, whose low extractability will expand the use of
plastics. The company will further extend its geographic reach through a
world-scale antioxidants joint venture in Saudi Arabia, one of the fastest
growing polyolefin producing countries in the world.

The company's acquisition of the Anzon antimony business provides yet another
opportunity to exploit the natural synergies with the Flame Retardants business
unit. Great Lakes now offers an even broader combination of high-performance
polymer additives, strengthening the company's commit-ment to provide
comprehensive solutions to all its customers' additive needs.

1998 OUTLOOK  Growth will be driven by innovative solutions for polymer
stabilization, enhanced sales and technical service, as well as further efforts
to increase the company's market penetration and manufacturing presence in
China, South America and other regions. Great Lakes has the solid customer
relationships, global manufacturing capabilities and enhanced service support
systems to increase its share of the highly competitive $1.6 billion plastics
additives market.






                                                                             13

<PAGE>   8

                  [ LOGO ]  GREAT LAKES CHEMICAL CORPORATION


SPECIALIZED SERVICES AND MANUFACTURING


                                  [ PHOTO ]


Great Lakes excels in identifying niche markets that provide outlets for its
value-added products. In 1997 FM-200(R) portable fire extinguishers were
unveiled to protect the interiors of military vehicles and other close quarters
where human safety is critical. FM-200 systems also protect valuable
possessions such as the Thrust SSC supersonic car and collections of sensitive
materials like digital tapes. The company's OSCA subsidiary uses specially
designed marine vessels to extend its oil field services beyond the Gulf of
Mexico's shelf to the deep-water market. The toxicological testing services of
WIL Research help many industries develop new products that are as safe as they
are effective.



14

<PAGE>   9

THROUGH INVESTMENTS IN COMPLEMENTARY, HIGH-MARGIN BUSINESSES, GREAT LAKES
LEVERAGES ITS CORE COMPETENCIES AND CAPITALIZES ON OPPORTUNITIES FOR LONG-TERM
GROWTH. IN 1997 GREAT LAKES STRENGTHENED ITS SPECIALIZED SERVICES AND
MANUFACTURING BUSINESS BY RETAINING ONLY THOSE BUSINESSES THAT COMPLEMENT THE
COMPANY'S WELL FOCUSED SPECIALTY CHEMICAL PORTFOLIO WHILE MEETING KEY OPERATING
PERFORMANCE CRITERIA. EACH OF THESE BUSINESSES RECORDED INCREASES IN BOTH SALES
AND OPERATING INCOME.


SPECIALIZED SERVICES AND MANUFACTURING  [ BAR CHART ]
[in millions]

93   125
94   118
95   152
96   190
97   194


OIL FIELD SERVICES  Through its OSCA, Inc. subsidiary, Great Lakes finds a
unique and profitable outlet for its bromine technology. OSCA's wide product
array includes bromine-based well completion, drill-in and stimulation fluids
as well as ancillary services. OSCA's on-site personnel help customers increase
production through such services as gravel packing, high-pressure frac packing,
well stimulation and coiled tubing well intervention.

Steadily growing oil demand and declining reserves continue to fuel increased
drilling activity. In 1997 OSCA bolstered its leadership position with products
and services that enhance the productivity of existing oil and gas wells and
contribute to the recovery of energy resources. Boosted by the strong
performance of its domestic completion services division and recent investments
in marine services and coiled tubing businesses, OSCA posted 18 percent revenue
gains over 1996.

OSCA successfully entered the marine well services business in 1997 with a
vessel designed to provide high-pressure frac packing services. In 1998 OSCA
will add two more vessels that are specially designed for the challenging
deep-water segment of the Gulf of Mexico. These vessels have the capacity to
provide sand control, stimulation and completion fluid for five to 10 wells at
a time. This floating warehouse strategy has diversified OSCA's service
offerings and created pull-through sales for its down-hole tool and coiled
tubing divisions.

For 1998 OSCA will apply this strategy to other key geographic regions,
particularly the North Sea and Latin America. By adding these complementary
services internationally, OSCA will further capitalize on its strong,
vertically integrated service capabilities.

FLUORINE CHEMICALS  With worldwide industry sales of $6 billion, fluorine
chemicals represent a key growth platform for Great Lakes to capitalize on its
core strengths in manufacturing, technology and process development. The
company is implementing a specialty chemical niche market strategy with its
fluorine-based compounds, FM-200(R) and HFC-32, which continue to gain worldwide
recognition and acceptance for their superior performance and environmental
benefits. Increased demand for both of these products boosted sales and
operating income to record heights in 1997.

FM-200, an environmentally friendly fire extinguishing agent that leaves no
residue, is now used in tens of thousands of total-flooding fire suppression
systems around the world. In 1997 it received approval by the U.S.
Environmental Protection Agency for use in portable fire extinguishers, opening
new sales opportunities in applications requiring a safe, non-ozone depleting
alternative to halon 1211.

FM-200's space-weight ratio and performance characteristics, combined with its
unmatched safety features, make it the most successful halon replacement on the
market. Because of this superior performance, FM-200 systems were selected to
protect an array of high-value critical assets last year, such as historical
artifacts at the Antiques Library in Cairo, the first draft of the Declaration
of Independence, the U.S. Navy's new nuclear-powered air-craft carrier under
construction, and the engine of Thrust SSC, a supersonic car that shattered the
land-speed record. Success with Thrust SSC proves FM-200 can meet or exceed the
strictest performance criteria and may lead to other opportunities in the
aerospace industry.

HFC-32 is a key component of environmentally friendly refrigerant blends used
in commercial refrigeration applications. With demand growing in North America
and Europe, Great Lakes has the production capabilities and sales support to
give major manufacturers access to the latest technology.

TOXICOLOGICAL TESTING  WIL Research Laboratories, Inc. provides a broad array
of interdisciplinary research and toxicological assessment services. From its
recently expanded facility in Ashland, Ohio, WIL conducts critical product
research and develop-ment for pharmaceutical, chemical, veterinary medical,
agricultural, food and consumer products industries. This expanded capacity
propelled WIL to record sales and forms a solid platform for continued growth.

1998 OUTLOOK  By expanding global penetration and distribution of their
customer-preferred products and services, these businesses are poised to take
advantage of high growth rates in diverse specialty markets and contribute to
the overall success of Great Lakes.



                                                                             15

<PAGE>   10

                  [ LOGO ]  GREAT LAKES CHEMICAL CORPORATION


WATER TREATMENT


                                  [ PHOTO ]


Pool owners may not recognize Great Lakes by name, but they know all about the
pool and spa chemical products manufactured by the company's BioLab and Bayrol
subsidiaries. Their patented water treatment technologies provide exceptional
pool and spa maintenance results, keeping the water clear and algae free.
Innovations like Smart Sticks(TM) demonstrate how improvements in formulation
can make pool and spa care more easy and effective than ever. An active
research and development effort is also producing an expanding range of product
offerings.




16

<PAGE>   11


AGGRESSIVE INTERNAL GROWTH INITIATIVES, COUPLED WITH EXPANDING MARKETS AND
CONSISTENT GROWTH IN NEW POOL CONSTRUCTION, ARE INCREASING BUSINESS
OPPORTUNITIES FOR GREAT LAKES, A LEADING GLOBAL SUPPLIER OF WATER SANITIZERS
FOR RESIDENTIAL, COMMERCIAL AND INSTITUTIONAL POOLS AND SPAS AND RECREATIONAL
MARKETS SUCH AS THEME PARKS. THROUGH ITS BIOLAB AND BAYROL SUBSIDIARIES, THE
COMPANY HAS A STRONG PRESENCE IN THE MAJOR RECREATIONAL WATER MARKETS OF NORTH
AMERICA, EUROPE, AUSTRALIA, NEW ZEALAND AND SOUTH AFRICA, WITH BRANDS SUCH AS
BIOGUARD(R), OMNI(R), GUARDEX(R), HYDROTECH(R), POOL TIME(R), AQUA CHEM(R) AND
BAYROL(R). IN ADDITION, GREAT LAKES IS THE WORLD'S LEADING PRODUCER OF
BROMINE-BASED WATER TREATMENT CHEMICALS USED FOR COOLING TOWERS, MUNICIPAL
WASTEWATER TREATMENT AND OTHER SPECIALTY APPLICATIONS.


WATER TREATMENT   [ BAR CHART ]
[in millions]

93    361
94    383
95    419
96    430
97    352


Despite unfavorable weather conditions in certain markets throughout the year,
the domestic water treatment business recorded a 16 percent increase in sales,
excluding the divested pool products distribution network. Tighter cost
controls and improved manufacturing efficiencies also fueled a 35 percent gain
in operating income over 1996. In 1997 BioLab discontinued its BCDMH
manufacturing line in Lake Charles, Louisiana, and consolidated production at
its Adrian, Michigan, facility, an ISO 9002 plant. In Europe, the company's
Bayrol subsidiary improved operating efficiencies and reduced inventories by
more than 40 percent.

BioLab received a record eight new technology and process-based patents in 1997
and filed applications for several new ones in both domestic and international
markets. The company also achieved increased market penetration with several
new product introductions, including Polysheen(R) Blue, Optimizer(R) and the
Softswim(R) filter cleaner.

Great Lakes continued to help customers, consumers, employees and suppliers
keep pace with its new products and advanced technologies by offering a number
of educational seminars. With the cooperation and support of its dealer
network, the company presented seminars on pool and spa maintenance to more
than 25,000 consumers. In addition, it held two extensive professional
conferences in the United States for its network of BioGuard Authorized
Dealers, as well as additional conferences in Canada, Australia and South
Africa. It also conducted 23 educational seminars covering chemical technology
at locations throughout the United States. These programs are among the most
comprehensive educational programs available in the industry.

The Internet is providing yet another forum for Great Lakes' water treatment
business to communicate product information and advance its marketing
initiatives. To reach pool and spa owners, it launched World Wide Web sites
dedicated to specific product lines such as BioGuard, OMNI, Pool Time and AQUA
CHEM. Visitors to these sites can find valuable pool and spa product
information, promotions, product updates and tips on pool care. The BioGuard
site also provides consumers access to their nearest U.S. dealer locations.

The company also redesigned several product lines, including BioGuard's
SpaGuard(R) and the distributor products division's Guardex product lines, to
strengthen brand recognition and accentuate specific product features. These
product lines feature new packaging with an important color-coded functionality
designed to enhance consumers' understanding of pool care and maintenance.
Also, updated designs helped establish consumer friendly identities.

Globally, Great Lakes introduced new product lines in Australia and expanded
distribution of its BioGuard products in South Africa by targeting pool
builders and smaller retailers. The company also introduced its industrial
water treatment compounds to pulp and paper manufacturers in several new
markets, including Europe and Japan.

1998 OUTLOOK  With a strong portfolio of new products, Great Lakes' worldwide
water treatment business is poised to strengthen and leverage its leadership
position. In the United States, approximately 140,000 new in-ground pools,
450,000 above-ground pools and 350,000 spas are added each year, creating a
corresponding growth in demand for water-treatment chemicals and related
products. In addition, the company's bromine-based biocides are gaining broader
market acceptance as environmentally friendly solutions for commercial,
industrial and household water treatment applications, as well as for
applications in the pulp and paper industries. This technology will continue to
be a strong focus in 1998.

Great Lakes' well established presence in important world markets gives the
company a solid base from which to optimize the revenue potential for its
multiple brands and related products. By building on the base of its recognized
brand names, extending the applications and reach of its products, and
achieving further operational efficiencies, Great Lakes expects to grow well
ahead of water treatment industry averages in 1998.




                                                                             17

<PAGE>   12



FINANCIAL REVIEW


<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------
(in millions of dollars, except per share data)
                                                              1997     1996     1995     1994     1993
------------------------------------------------------------------------------------------------------
<S>                                                       <C>       <C>      <C>      <C>       <C>
SUMMARY OF EARNINGS
  Net sales                                               $1,311.2  1,352.3  1,291.6  1,097.1    952.0
  Operating income                                        $  141.8    183.9    198.3    151.6    150.6
  Income from continuing operations
    before income taxes                                   $  117.2    184.0    200.2    169.7    166.0
  Income taxes                                            $   45.4     63.4     68.0     44.0     37.6
    Percent of income before income taxes                     38.7     34.5     34.0     25.9     22.6
  Net income from continuing operations                   $   71.8    120.6    132.2    125.7    128.4
  Net (loss) income from discontinued operations             (14.9)   129.7    163.4    153.0    144.3
------------------------------------------------------------------------------------------------------
  Total net income                                        $   56.9    250.3    295.6    278.7    272.8
    Percent of stockholders' average equity                    4.1     17.2     21.7     21.7     23.6

FINANCIAL POSITION AT YEAR-END
  Working capital                                         $  364.2    424.1    399.7    286.8    283.2
  Current ratio                                                2.2      2.5      2.4      2.3      2.5
  Capital expenditures                                    $  133.0    168.7    182.9     86.0     57.8
  Total assets                                            $2,270.4  2,352.7  2,179.9  1,810.8  1,632.8
  Long-term debt                                          $  561.5    496.2    331.2    133.1     49.0
    Percent of total capitalization                           29.1     24.4     18.9      8.8      4.3
  Stockholders' equity                                    $1,307.4  1,486.9  1,416.2  1,310.9  1,256.6
    Per share                                             $  22.18    24.13    21.92    19.48    17.63

SHARE DATA
  Basic earnings (loss) per share
    Continuing operations                                 $   1.20     1.90     2.02     1.80     1.80
    Discontinued operations                                  (0.25)    2.04     2.50     2.20     2.02
------------------------------------------------------------------------------------------------------
       Total                                              $   0.95     3.94     4.52     4.00     3.82
  Diluted earnings (loss) per share
    Continuing operations                                 $   1.19     1.89     2.00     1.79     1.78
    Discontinued operations                                  (0.25)    2.02     2.48     2.17     1.99
------------------------------------------------------------------------------------------------------
       Total                                              $   0.94     3.91     4.48     3.96     3.77
  Cash dividends per share
    Declared during year                                  $   0.63     0.57     0.44     0.39     0.35
    Paid during year                                      $   0.62     0.54     0.43     0.38     0.34
    Payout as percent of net income                           66.3     14.5      9.7      9.8      9.2
  Shares outstanding (basic)
    Average during year                                     60,041   63,539   65,364   69,659   71,329
    At year-end                                             58,944   61,613   64,604   67,297   71,275
  Stock price
    High                                                  $ 54 7/8   78 5/8   74 5/8   82       84
    Low                                                   $ 41 1/2   44 1/4   55 3/4   48 3/4   64 1/2
    At year-end                                           $ 44 7/8   46 3/4   72       57       74 5/8
------------------------------------------------------------------------------------------------------
</TABLE>


                                          Great Lakes Chemical Corporation   19

<PAGE>   13


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

This annual report, including Management's Discussion and Analysis, contains
both historical information and forward-looking statements. The
forward-looking statements involve risks and uncertainties that could affect
the Company's operations, markets, products, services, prices and factors as
discussed in the Company's Annual Report on Form 10-K filed with the
Securities and Exchange Commission. These risks and uncertainties include, but
are not limited to, economic, competitive, governmental and technological
factors. Accordingly, there is no assurance that the Company's expectations
will be realized.

OVERVIEW

In 1997 the Company took a number of actions to focus on its core specialty
chemical businesses. Reported as discontinued operations in the accompanying
financial statements is the announced spin-off of the Company's petroleum
additives business (Octel) as well as several non-core and underperforming
businesses--furfural and derivatives, Eastern European trading (Chemol) and
environmental services--that the Company decided to exit. In addition, the
Company recorded a special charge to provide for the cost associated with
restructuring remaining operations, exiting certain product lines and to write
down impaired assets. Also, the Company strengthened its polymer additives
market position by acquiring Anzon, a producer of antimony-based flame
retardants and other products.

CONTINUING OPERATIONS

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


<TABLE>
<CAPTION>

------------------------------------------------------------------
                                             1997    1996    1995
------------------------------------------------------------------
<S>                                        <C>     <C>     <C>
Net Sales                                   100.0%  100.0%  100.0%
Gross Profit                                 28.5    28.3    30.5
Selling and
  Administrative Expense                     10.7    11.5    11.9
Research and
  Development Expense                         3.2     3.2     3.2
Special Charge                                3.8      --      --
------------------------------------------------------------------
Operating Income                             10.8    13.6    15.4
Interest and Other Income                     2.4     4.2     2.1
Interest and Other Expense                    4.2     4.2     2.0
------------------------------------------------------------------
Income before Income Taxes                    9.0    13.6    15.5
Income Taxes                                  3.5     4.7     5.3
------------------------------------------------------------------
Net Income from
  Continuing Operations                       5.5%    8.9%   10.2%
==================================================================
</TABLE>


RESULTS OF CONTINUING OPERATIONS -- 1997 COMPARED WITH 1996

Sales for the year amounted to $1,311 million, a decrease of $41 million from
the prior year. Sales by business unit are shown in the following table (in
millions):

<TABLE>
<CAPTION>
--------------------------------------------------------------------------
                                                             Percent Inc./
                                                               (Dec.) Over
                        1997          1996           1995       Prior Year
--------------------------------------------------------------------------
                      $    %        $    %         $    %     1997    1996
--------------------------------------------------------------------------
<S>               <C>    <C>    <C>    <C>     <C>    <C>     <C>     <C>
Flame Retardants    309   24      294   22       300   23        5      (2)
Intermediates
  and Fine
  Chemicals         211   16      196   14       197   15        8      (1)
Polymer
  Stabilizers       245   19      242   18       224   17        1       8
Specialized
  Services and
  Manufacturing     194   14      190   14       152   13        2      25
Water Treatment     352   27      430   32       419   32      (18)      3
--------------------------------------------------------------------------
                  1,311  100    1,352  100     1,292  100       (3)      5
==========================================================================
</TABLE>

On an overall basis, the increase (decrease) from the prior year results from
the following (in millions):

<TABLE>
<CAPTION>
--------------------------------------------------------------------------
                                                           1997       1996
--------------------------------------------------------------------------
<S>                                                       <C>         <C>
Selling Prices                                            $ (23)      $  8
Volume                                                      155         86
Dispositions                                               (155)       (27)
Acquisitions                                                  9          3
Foreign Exchange                                            (27)       (10)
--------------------------------------------------------------------------
                                                          $ (41)      $ 60
==========================================================================
</TABLE>

Flame Retardants sales were $309 million in 1997, an increase of $15 million
over the $294 million reported in 1996. The acquisition of Anzon, a producer
of antimony-based products, contributed about $9 million of the increase.
Excluding the acquisition, the business recorded a strong volume improvement
which was primarily offset by the negative effects of lower selling prices and
foreign exchange as the U.S. dollar strengthened vis-a-vis the Japanese yen
and the German mark. Volume for key products was strong throughout the year in
U.S. and Far Eastern markets. European markets showed improvement in the
latter part of the year. Selling prices, which began to soften in late 1996,
remained under pressure throughout 1997. It appears that some price
stabilization has occurred as selective price increases were successfully
implemented in the Far East during the second half of 1997 and in Europe
during the fourth quarter of 1997. Worldwide market share was maintained in a
very competitive environment.

Intermediates and Fine Chemicals sales of $211 million increased $15 million
over the $196 million reported in 1996. The increase results primarily from
the introduction of new fine chemical products developed in collaboration with
customers and the introduction of HyperSolve(TM), a bromine-based solvent.
Prices and foreign exchange were small positives for the year.

Polymer Stabilizers sales amounted to $245 million as compared to $242 million
recorded in the prior year. Volume improvements of about 16 percent were
offset by a decline in its average selling prices of about 8 percent and
unfavorable currency effects. Antioxidant volume gains led a volume expansion
that was achieved across all product areas. The growth in antioxidants


20   Great Lakes Chemical Corporation

<PAGE>   14


resulted from customer acceptance of new proprietary products and physical
forms and expanded presence in both the U.S. and Far Eastern markets. Recent
market indications suggest that price pressure is beginning to ease.

Specialized Services and Manufacturing sales were $194 million in 1997 as
compared to $190 million in 1996. The 1996 amount included the sales of E/M
Corporation which was sold in November 1996. Excluding the divestiture, 1997
sales increased almost 20 percent primarily due to volume improvements. Sales
in the fluorine segment increased approximately 18 percent over 1996 as the
FM-200(R) fire extinguishant product expanded its geographic presence and
entered the marine market with a portable fire extinguisher. OSCA, our oil
field services business, posted increased sales of about 18 percent as a
result of meeting customer requirements for a full service supplier and by
entering into the deep water well marine service market. WIL, our
toxicological testing service business, sales increased approximately 27
percent due to increased utilization of its expanded facilities and changes in
the type of test services provided.

Water Treatment sales totaled $352 million in 1997 compared to $430 million in
the prior year. Results in 1996 included $126 million of sales related to a
pool products distribution business that was sold in September, 1996.
Excluding the divestiture, sales increased approximately 16 percent over the
prior year. The sales gain was essentially all volume related as average
selling prices improved only 1 percent while currency had a 2 percent negative
effect. Volume gains were achieved in all markets except Europe. The U.S.
recreational water treatment business achieved significant growth in both its
branded and distributor market segments.

Gross profits for 1997 amounted to $374 million compared to $383 million in
1996. The change in gross profit from the prior year resulted from the
following (in millions):


<TABLE>
<CAPTION>
--------------------------------------------------------
<S>                                               <C>
Selling Price Decreases                           $ (23)
Volume Increases                                     55
Cost Increases                                      (11)
Dispositions                                        (29)
Acquisitions                                          2
Foreign Exchange                                     (3)
--------------------------------------------------------
                                                  $  (9)
========================================================
</TABLE>

Cost increases resulted from higher cost of raw materials, primarily chlorine
and energy, and increased depreciation. Capacity utilization increased in most
facilities. As a percentage of sales, gross profit was 28.5 percent, a slight
improvement over the 28.3 percent in the prior year.

Selling, administrative and research expenditures amounted to $182 million in
1997 compared to $199 million in 1996, a decrease of $17 million from the
prior year. The reduction reflected the benefits of divestitures, $24 million,
and favorable foreign exchange, $5 million, offset, in part, by cost increases
including a $3 million provision for potential litigation settlements. As a
percentage of sales, SAR improved about 1 percentage point amounting to
approximately 14 percent for 1997. This improvement resulted from the
disposition of a business that had a disproportionately high selling and
administrative cost structure. Spending on research and development has
remained constant as a percentage of sales over the last several years.

The special charge of $50 million in 1997 provides for, among other things,
the restructuring of the Company's European water treatment business, closing
a BCDMH manufacturing facility in Louisiana and a pharmaceutical intermediates
plant in Arkansas, and withdrawal from a European joint venture. It is
estimated that these actions will result in a pre-tax savings of approximately
$3 million in 1998, primarily from depreciation.

Operating income, including the special charge, amounted to 11 percent of
sales. Excluding the special charge, operating income was 15 percent of sales,
a 1 percentage point improvement from the 14 percent achieved in 1996.

Interest and other income amounted to $32 million for 1997 compared to $57
million for the prior year. 1996 included a net gain of $19 million from
breakup fees when NOWSCO Well Service Ltd. accepted an acquisition offer that
the Company was unwilling to meet and a net gain of $13 million from the sale
of the Company's subsidiary, E/M. Excluding the aforementioned items, the $7
million increase in 1997 was attributable to increased interest income, in
part, related to loans to Octel to finance the acquisition of minority owners
and the increased earnings of affiliates.

Interest and other expenses in both 1997 and 1996 amounted to approximately
$56 million as follows (in millions):


<TABLE>
<CAPTION>
-------------------------------------------------------------
                                                   1997  1996
-------------------------------------------------------------
<S>                                                <C>   <C>
Interest Expense                                    $28   $18
Amortization of Goodwill                              4     4
Environmental                                        10    11
Asset Write-off and Redundancy                       --    11
Other                                                14    12
-------------------------------------------------------------
                                                    $56   $56
=============================================================
</TABLE>

The increase in interest expense resulted from higher borrowings related to
acquisitions, capital expenditures and share repurchases. Environmental
expense in both years is related to a provision for estimated remediation
costs of a former plant site sold by the Company in the early 1980s.

Income taxes were $45 million, or effectively 38.7 percent of income, for 1997
compared to $63 million, or effectively 34.5 percent, for 1996. The increase
in the effective rate is primarily related to the lower tax rate on the
special charge of approximately 22 percent because certain charges are not
expected to result in a tax benefit. Excluding the effect of this special
charge, the effective tax rate was 34 percent.

Reported net income for 1997 was $72 million, or $1.19 per share, compared to
$121 million, or $1.89 per share, in 1996. Excluding the after-tax effect of
the special charge, $39 million, and the environmental and legal provision of
$6 million and $2 million, respectively, net income amounts to $119 million,
or $1.97 per share, as compared to 1996 net income of $120 million, or $1.88
per share, adjusted for after-tax effects of miscellaneous charges, gains on
E/M and on the NOWSCO break-up fee.





                                          Great Lakes Chemical Corporation   21

<PAGE>   15

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


RESULTS OF CONTINUING OPERATIONS -- 1996 COMPARED WITH 1995

Sales for 1996 amounted to $1,352 million compared to $1,292 million in 1995,
an increase of $60 million, or 4.6 percent.

Flame Retardants sales of $294 million were approximately 2 percent short of
the record performance in 1995. Even though volumes increased, reduced product
prices and the negative effects of a strong dollar vis-a-vis both the Japanese
yen and the German mark more than offset the volume improvement. Market demand
was weak all year, particularly in automotive, wire and cable and consumer
electronics. A sluggish European economy also held down customer requirements.

Intermediates and Fine Chemicals sales of $196 million were comparable with
the prior year. Sales of agricultural chemicals, bromine and derivatives and
fine chemicals were essentially flat following a very strong performance in
1995.

Polymer Stabilizers sales for the year increased $18 million, or approximately
8 percent, over 1995. On an overall basis, the sales improvement was
attributable to volume gains as market conditions and competitive activity
restricted price improvements and the effect of currency fluctuations was
negative. The lower growth rate experienced by this business unit in 1996
reflected a stagnant European economy, our largest market, where total
plastics output declined about 10 percent in 1996. End-use markets in North
America and the Far East grew at a modest rate. The business unit improved
market share outside of Europe, in part, by bringing onstream an antioxidant
production facility in Newport, Tennessee, and establishing a joint venture in
Korea.

Specialized Services and Manufacturing sales were $190 million in 1996 as
compared to $152 million in 1995. OSCA, the Company's oil field services
business, sales improved approximately 35 percent from the prior year as
drilling activity in the Gulf of Mexico expanded and the business extended its
presence in international markets. Fluorine chemicals sales grew approximately
25 percent as the FM-200(R) fire extinguishing product strengthened its
worldwide market position.

Water Treatment sales gained $11 million primarily due to volume improvements.
U.S. recreational water treatment sales posted strong growth to distributors
and mass merchandisers in an average weather year. Volumes in Europe suffered
due to cool weather conditions during the pool season. Competitive pressure
allowed only minimal price improvements which were mostly offset by
unfavorable currency effects.

Gross profits amounted to $383 million in 1996 compared to $394 million in
1995. The $11 million decline reflects the negative effects of divestitures,
higher manufacturing and raw materials costs and unfavorable currency effects
partially offset by increased prices and volumes.

SAR expense of $199 million increased $3 million over the prior-year period
and as a percentage of sales was 15 percent, a slight decline from the
prior-year period.

Interest and other income increased $30 million from 1995 primarily due to the
break-up fees associated with the failed NOWSCO acquisition and the gain on
the sale of E/M.

Interest and other expense increased $31 million from 1995 primarily due to
provision for environmental and redundancy costs and asset write-off recorded
in 1996.

Net income from continuing operations was $121 million, or $1.89 per share,
compared to $132 million, or $2.00 per share in the 1995 period. The share
repurchase program benefited earnings by approximately $0.02 per share.

DISCONTINUED OPERATIONS

Discontinued operations include the results of the Company's petroleum
additives business, Octel, and the furfural and derivatives, Eastern European
trading and environmental services businesses. Also included is a special
provision of $137 million, net of income taxes, related to estimated losses on
divestitures and taxes related to repatriation of earnings from Octel. The
historical operating results of the Octel business which will be spun off to
shareholders is reviewed below. These results may not reflect the results of
operations that Octel would have achieved had Octel been a separate
independent company.

1997 compared to 1996 -- Excluding special provisions, Octel reported sales of
$531 million and net income of $119 million for 1997 compared to sales of $590
million and net income of $131 million for 1996. The decline in sales and
earnings continues to reflect the reduction in demand for alkyl lead antiknock
compound (TEL). Retail TEL volume declined about 13 percent from the prior year
while price improvement averaged about 2 percent. Volume declines exceeded
recent trends, in part, due to the timing of deliveries. The lower level of
price improvement reflects a continued shift in the geographic mix of customers
and price competition. Wholesale volumes declined by about 20 percent from 1996
because of the Mexican phaseout of leaded gasoline. This market had been served
by E.I. du Pont de Nemours & Company with TEL purchased from Octel. Prices in
the wholesale market improved due to contractual price escalators. The ratio
between retail TELsales and wholesale TEL sales was 70/30. Operating income, as
a percent of sales, was 42 percent for 1997, a decline of 1 percentage point
from 1996, as Octel has been generally successful in scaling back operations in
line with the decline in TEL.

1996 compared to 1995 -- Octel's net sales decreased $32 million in 1996 to
$590 million from $622 million in 1995. Net income was $131 million and $149
million in 1996 and 1995, respectively. The decrease in net sales was
primarily attributable to a decline in sales volumes of $48 million, which was
partly offset by a price increase of $19 million. In addition, foreign
exchange losses totaled $3 million. In 1996, the retail volume of TEL sold
declined approximately 13 percent, which was higher than the 8 to 10 percent
annual market decline experienced previously. No single factor accounted for
the decline, and the Company believes it maintained its share of the worldwide
retail TEL market during this period. Retail sales prices of TEL increased by
approximately 4 percent in 1996 as compared to 1995, which is lower than the
rate of increase in 1995. Sales of TEL on a wholesale basis increased
approximately 5 percent in 1996 as compared to 1995. The ratio between the
Company's retail TEL sales and wholesale TEL sales was 68/32 in 1996 as
compared to 72/28 in 1995. Income declined because lower TEL volumes were only
partially offset by increased sales prices.

FINANCIAL CONDITIONS AND LIQUIDITY

Cash flow from operating activities of the continuing operations amounted to
$193 million compared to the $209 million generated in 1996. This cash flow,
coupled with increased commercial paper borrowings of $58 million, cash
provided by the discontinued operations of $64 million and use of cash and
cash equivalents of $67 million, funded $133 million in plant and equipment
additions, acquisitions of $91 million, share repurchases of $129 million and
$38 million in dividends to shareholders.


22   Great Lakes Chemical Corporation

<PAGE>   16

The Company's investment in working capital, excluding cash and cash
equivalents, increased approximately $8 million. Accounts receivable increased
$4 million from 1996 as a result of trade accounts receivable increasing
almost $15 million due to increased sales and the acquisition of Anzon offset
by a $12 million reduction in non-trade accounts receivable. Day sales
outstanding in accounts receivable improved four days from 73 days to 69 days.

Inventories at December 31, 1997, were $298 million, an increase of
approximately $21 million from the prior year. The increase resulted from the
Anzon acquisition and a planned build-up in the polymer stabilizer business to
meet anticipated demand. Inventory turnover at 3.3 times per year improved
slightly from the prior year.

Accounts payable and accrued liabilities increased $49 million from the prior
year due, in part, to liabilities related to the special charge and amounts
due on stock repurchases.

Spending on plant and equipment in 1997 amounted to $133 million, compared to
$169 million in 1996. In 1997 the emphasis on capital projects shifted from
capacity expansion and additions toward projects to improve infrastructure and
efficiency, primarily the LINX enterprise-wide computer support system
project. In 1997 capital approval for capacity expansions amounted to about 30
percent, down from 45 percent in 1996. Over the two years, projects for
capacity maintenance, cost savings and safety and regulatory accounted for
about 20 percent, 10 percent and 7 percent, respectively. Capital spending in
1998 is expected to total about $150 million with a distribution pattern
similar to 1997.

Capital spending on environmental projects was $4 million in 1997 compared to
$12 million in 1996. Capital requirements in 1998 for environmental-related
projects is estimated to be about the same as 1997.

The Company utilizes commercial paper borrowings as its primary source of
external financing which, because of its predictably strong cash flows,
substantially reduces its cost of debt. Commercial paper borrowings at
December 31, 1997, amounted to $530 million compared to $467 million at
December 31, 1996. At December 31, 1997, debt to total capitalization was 29
percent compared to 24 percent at December 31, 1996. The Company has a $600
million credit facility with various banks. The credit facility provides
back-up to the Company's $600 million commercial paper program. The Company's
senior debt rating is A/A2 and its commercial paper rating is A1/P1. These
ratings were lowered due to the pending spin-off of Octel and the announced
divestitures. The spin-off will also require a renegotiation of the credit
facility.

Stockholders' equity was $1.3 billion, or $22.18 per share, at December 31,
1997, compared to $1.5 billion, or $24.13 per share, at December 31, 1996.

Dividends declared increased for the 25th consecutive year totaling $38
million, compared with $36 million in the prior year. On a per-share basis,
dividends declared of $0.63 per share were increased 11 percent over the $0.57
per share declared in 1996.

In 1997 the Company purchased 2.8 million shares of its stock for a total cost
of $129 million under share repurchase authorization by the Board of
Directors. The average price per share of the stock purchased was $46.17.
During the four-year period ended December 31, 1997, the Company repurchased
13.1 million shares at a cost of approximately $717 million, or $54.83 per
share. As of December 31, 1997, management is authorized to repurchase an
additional 6.5 million shares. Management intends to repurchase additional
shares as market conditions warrant.

The cumulative translation adjustment component of stockholders' equity
represents the translation of foreign currency-denominated financial
statements into U.S. dollars. The change in the cumulative translation
adjustment decreased stockholders' equity by $70 million in 1997. The decrease
primarily related to the strength of the U.S. dollar against most European
currencies. Approximately 50 percent of the Company's net assets are in
Europe.

OTHER MATTERS

Spin-Off Of Petroleum Additives Business
On July 16, 1997, the Company's Board of Directors approved a plan to spin off
its petroleum additives business, establishing a new independently traded
public Company (Octel). The Company created by the spin-off will consist of
the Company's tetraethyl lead antiknock compounds business and its non-lead
petroleum additives businesses.

As part of the process to affect the spin-off, Chevron Chemical Company's
(Chevron) 10.65 percent interest in Octel was redeemed in November 1997 at a
cost of approximately $117 million.

Current plans call for Octel to raise approximately $450 million through
borrowings in the public and private sector prior to the spin-off. A portion
of the proceeds will be used to repay Great Lakes' advances related to the
acquisition of the Chevron interest with the remainder of the proceeds, plus
available cash from Octel, less taxes and transaction costs, distributed to
Great Lakes in the form of a special distribution of roughly $300 million. It
is anticipated that the debt will mature over eight years and have an average
interest cost of 9.5 percent. This level of debt will result in Octel having
debt to total capitalization of about 60 percent at the time of the spin.

The transaction will be carried out in the form of a tax-free distribution to
Great Lakes shareholders of shares in Octel, and it is expected to be
completed during the first half of 1998. The transaction is subject to receipt
of a favorable ruling from the Internal Revenue Service and final approval by
Great Lakes' Board of Directors of the structure and financing of the new
Company.

Dispositions
In December 1997 the Board of Directors approved a comprehensive restructuring
plan including exiting the furfural and derivatives, Eastern European trading
and environmental services businesses. A pre-tax charge of $145 million, $96
million after income taxes, was recorded in connection with these actions. The
Company expects to affect the dispositions during 1998 and anticipates
realizing approximately $150 million in cash.

Acquisitions
On November 3, 1997, the Company completed the acquisition of Cookson Group
plc's global antimony products business, Anzon, for $90 million. Anzon is a
global producer of antimony-based components for use as flame retardants.

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


                                         Great Lakes Chemical Corporation   23
<PAGE>   17

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


International operations, including U.S. export sales, constitute a
significant portion of the Company's revenues and identifiable assets. These
operations result in a large volume of foreign currency commitment and
transaction exposures and foreign currency net asset exposures. Since the
Company manufactures its products in a number of locations around the world,
principally North America and Europe, it has a cost base that is diversified
over a number of different currencies which mitigates, in part, its currency
transaction risk. Management of foreign currency exposure is coordinated at
the corporate headquarters level, and exposures that are not offset are
hedged. The Company forecasts foreign-currency-denominated cash flow for
12-month periods and aggregates these flows by currency to determine the
amount of exposure. Hedging decisions are made based on the amount of exposure
and the near-term outlook for each currency. The Company's policy is to hedge
approximately 60-80 percent of key currencies using forward or option
contracts. Hedges are set to mature coincident with the estimated timing of
the underlying transactions. The Company currently does not hedge foreign
currency net asset positions; however, by borrowing in local currency, it
reduces such exposure. Considering the Company's operating profile, a uniform
10 percent change in the value of the dollar from December 31, 1997, would
result in approximately a $1 million change in annual net income. This
calculation assumes that each exchange rate would change in the same direction
relative to the U.S. dollar, and does not factor in any potential changes in
sales levels or local currency prices which may result from changes in
exchange rates.

Currently, commercial paper is the primary source of external financing which
exposes the Company to changes in short-term interest rates. The Company
monitors interest rate trends for volatility. The Company presently does not
hold interest rate derivative contracts against its debt portfolio. Based on
the commercial paper balance outstanding at December 31, 1997, a hypothetical
1 percentage point change in interest rates for a one-year period would change
net income by $3 million. The sensitivity does not consider any effect a
change in interest rates would have on overall economic activity nor
management actions to mitigate the impact of interest rate changes.

Environmental
The Company's operations, like those of most companies which use or make
chemicals, are subject to various laws and regulations relating to maintaining
or protecting the quality of the environment. Such laws and regulations, along
with the Company's own internal compliance efforts, have required and will
continue to require capital expenditures and associated operating costs.
Spending for environmental compliance, including expenditures associated with
waste minimization and pollution prevention programs, amounted to
approximately $40 million in 1997 and about $47 million in 1996. These amounts
include approximately $4 million and $12 million for capital equipment in 1997
and 1996, respectively. Spending for environmental compliance is anticipated
to be in the $45 million range in 1998.

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

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

Year 2000
The Company is in the process of upgrading much of its information systems and
computer hardware. The Company is also in the process of evaluating all other
computer-based systems. The upgrading activities which encompass the key
business processes such as sales, order entry, financial and procurement, for
approximately two-thirds of the Company began in 1996 and are expected to be
completed in early 1999. The evaluation of the remaining business processes
and computer control systems were begun in 1997 and are expected to be
completed by mid 1998. Based on progress to date, the Company does not expect
the cost of its Year 2000 compliance program will be material to its business,
results of operations or financial condition. The Company believes that it
will be able to achieve compliance prior to the end of 1999 and does not
currently anticipate any material disruption of its operations as the result
of any failure by the Company to be in compliance. Although the Company is in
the process of determining the degree of Year 2000 compliance of significant
suppliers and customers, it does not believe that their failure to be fully
compliant will materially adversely affect its business or operating results.

Future Accounting Changes
In June 1997 SFAS No. 130, "Reporting Comprehensive Income," was issued. The
statement must be adopted in the first quarter of 1998. Under provisions of
this statement, the Company will be required to change the financial statement
presentation of comprehensive income and its components to conform to these
new requirements. As a consequence of this change, certain reclassifications
will be necessary for previously reported amounts to achieve the required
presentation of comprehensive income.

In June 1997 SFAS No. 131, "Disclosure about Segments of an Enterprise and
Related Information," was issued. Under provisions of this statement, the
Company will be required to provide financial statement disclosures for
operating segments, products and services and geographic areas, beginning in
1998.

In December 1997 SFAS No. 132, "Employers' Disclosures about Pensions and
Other Postretirement Benefits," was issued and is effective for the Company's
1998 fiscal year. The statement revises current disclosure requirements for
employers' pensions and other retiree benefits. Implementation of these
disclosure standards will not affect the Company's financial position or
results of operations.



24   Great Lakes Chemical Corporation
<PAGE>   18

MANAGEMENT'S STATEMENT OF RESPONSIBILITY FOR FINANCIAL STATEMENTS

The management of Great Lakes Chemical Corporation is responsible for the
preparation and presentation of the accompanying consolidated financial
statements and all other information in this Annual Report. The financial
statements are prepared in accordance with generally accepted accounting
principles and include amounts that are based on management's informed
judgements and estimates.

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

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

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



/s/ Robert T. Jeffares



Robert T. Jeffares
Executive Vice President and Chief Financial Officer







REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS

We have audited the accompanying consolidated balance sheets of Great Lakes
Chemical Corporation and subsidiaries as of December 31, 1997 and 1996, and
the related consolidated statements of income and retained earnings and cash
flows for each of the three years in the period ended December 31, 1997. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

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

In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Great Lakes
Chemical Corporation and subsidiaries at December 31, 1997 and 1996, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1997, in conformity with
generally accepted accounting principles.




/s/  Ernst & Young LLP



Indianapolis, Indiana
February 3, 1998




                                        Great Lakes Chemical Corporation    25
<PAGE>   19

CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS


<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------
(in thousands of dollars, except per share data)

YEAR ENDED DECEMBER 31                                                                 1997        1996        1995
-------------------------------------------------------------------------------------------------------------------
<S>                                                                              <C>         <C>         <C>
NET SALES                                                                        $1,311,227  $1,352,279  $1,291,552

OPERATING EXPENSES
   Cost of products sold                                                            937,523     969,030     897,309
   Selling, administrative and research expenses                                    182,084     199,386     195,899
   Special charge                                                                    49,800          --          --
-------------------------------------------------------------------------------------------------------------------
                                                                                  1,169,407   1,168,416   1,093,208
-------------------------------------------------------------------------------------------------------------------

OPERATING INCOME                                                                    141,820     183,863     198,344

INTEREST AND OTHER INCOME                                                            31,668      56,660      27,097

INTEREST AND OTHER EXPENSES                                                          56,318      56,508      25,219
-------------------------------------------------------------------------------------------------------------------

INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES                               117,170     184,015     200,222

INCOME TAXES                                                                         45,400      63,400      68,000
-------------------------------------------------------------------------------------------------------------------

NET INCOME FROM CONTINUING OPERATIONS                                                71,770     120,615     132,222

NET (LOSS) INCOME FROM DISCONTINUED OPERATIONS                                      (14,825)    129,681     163,351
-------------------------------------------------------------------------------------------------------------------

NET INCOME                                                                           56,945     250,296     295,573
-------------------------------------------------------------------------------------------------------------------



RETAINED EARNINGS AT BEGINNING OF YEAR                                            1,893,104   1,678,834   1,411,890

CASH DIVIDENDS DECLARED                                                              37,581      36,026      28,629
-------------------------------------------------------------------------------------------------------------------

RETAINED EARNINGS AT END OF YEAR                                                 $1,912,468  $1,893,104  $1,678,834
===================================================================================================================

EARNINGS (LOSS) PER SHARE:
BASIC
   Continuing Operations                                                         $     1.20  $     1.90  $     2.02
   Discontinued Operations                                                            (0.25)       2.04        2.50
-------------------------------------------------------------------------------------------------------------------
                                                                                 $     0.95  $     3.94  $     4.52
-------------------------------------------------------------------------------------------------------------------

DILUTED
   Continuing Operations                                                         $     1.19  $     1.89  $     2.00
   Discontinued Operations                                                            (0.25)       2.02        2.48
-------------------------------------------------------------------------------------------------------------------
                                                                                 $     0.94  $     3.91  $     4.48
-------------------------------------------------------------------------------------------------------------------

CASH DIVIDENDS DECLARED PER SHARE                                                $     0.63  $     0.57  $     0.44
-------------------------------------------------------------------------------------------------------------------
</TABLE>


See notes to consolidated financial statements.


26   Great Lakes Chemical Corporation
<PAGE>   20


CONSOLIDATED BALANCE SHEETS


<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------------------
(in thousands of dollars)

DECEMBER 31                                                                                        1997        1996
---------------------------------------------------------------------------------------------------------------------
<S>                                                                                             <C>         <C>
ASSETS
CURRENT ASSETS
   Cash and cash equivalents                                                                 $   73,673  $  141,439
   Accounts and notes receivable, less allowance of
      $5,803 and $7,321, respectively                                                           256,892     253,368
   Inventories                                                                                  298,175     276,787
   Prepaid expenses                                                                              39,806      32,356
---------------------------------------------------------------------------------------------------------------------
   TOTAL CURRENT ASSETS                                                                         668,546     703,950
---------------------------------------------------------------------------------------------------------------------

PLANT AND EQUIPMENT                                                                             658,635     636,560

GOODWILL                                                                                        114,902      79,055

INVESTMENTS IN AND ADVANCES TO UNCONSOLIDATED AFFILIATES                                         72,716      66,307

OTHER ASSETS                                                                                     29,052      32,008

NET ASSETS OF DISCONTINUED OPERATIONS                                                           726,540     834,818
---------------------------------------------------------------------------------------------------------------------
                                                                                             $2,270,391  $2,352,698
=====================================================================================================================

LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
   Accounts payable                                                                          $  140,310  $  117,579
   Accrued expenses                                                                             134,547     108,529
   Income taxes payable                                                                          13,511      38,230
   Dividends payable                                                                              9,431       9,242
   Notes payable and current portion of long-term debt                                            6,557       6,284
---------------------------------------------------------------------------------------------------------------------
   TOTAL CURRENT LIABILITIES                                                                    304,356     279,864
---------------------------------------------------------------------------------------------------------------------

LONG-TERM DEBT, LESS CURRENT PORTION                                                            561,455     496,246

OTHER NONCURRENT LIABILITIES                                                                     28,692      27,642

DEFERRED INCOME TAXES                                                                            68,445      62,047

STOCKHOLDERS' EQUITY
   Common stock, $1 par value, authorized 200,000,000 shares,
      issued 72,572,602 and 72,455,051 shares, respectively                                      72,573      72,455
   Additional paid-in capital                                                                   123,379     121,224
   Retained earnings                                                                          1,912,468   1,893,104
   Minimum pension liability adjustment                                                          (2,543)         --
   Cumulative translation adjustment                                                            (52,855)     17,064
   Less treasury stock, at cost, 13,628,300 and 10,842,200 shares, respectively                (745,579)   (616,948)
---------------------------------------------------------------------------------------------------------------------
   TOTAL STOCKHOLDERS' EQUITY                                                                 1,307,443   1,486,899
---------------------------------------------------------------------------------------------------------------------
                                                                                             $2,270,391  $2,352,698
=====================================================================================================================
</TABLE>


See notes to consolidated financial statements.


                                           Great Lakes Chemical Corporation   27
<PAGE>   21

CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------------
(in thousands of dollars)

YEAR ENDED DECEMBER 31                                                                 1997        1996        1995
--------------------------------------------------------------------------------------------------------------------
<S>                                                                                <C>         <C>         <C>
OPERATING ACTIVITIES
   Net income from continuing operations                                            $71,770    $120,615    $132,222
   Adjustments to reconcile net income to net cash
      provided by operating activities:
        Depreciation and depletion                                                   69,918      61,180      57,452
        Amortization of intangible assets                                             3,770       4,164       4,799
        Deferred income taxes                                                          (500)        859       7,003
        Net (unremitted) remitted earnings of affiliates                             (1,892)     (1,085)         42
        Loss on disposition of assets                                                   313       7,577         182
        Special charge                                                               49,800          --          --
        Other                                                                        (6,847)    (11,179)       (510)
        Change in operating assets and liabilities,
           net of effects from business combinations:
             Accounts receivable                                                      1,873         962     (40,559)
             Inventories                                                            (22,297)      4,469     (63,868)
             Other current assets                                                    (7,885)     (3,575)     (7,913)
             Accounts payable and accrued expenses                                   40,524      18,810      33,724
             Income taxes and other current liabilities                             (15,896)      5,016       9,127
             Other noncurrent liabilities                                            10,342         962       2,598
--------------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES FROM CONTINUING OPERATIONS                192,993     208,775     134,299

DISCONTINUED OPERATIONS:
   Net (loss) income                                                                (14,825)    129,681     163,351
   Change in net assets                                                              78,688     (98,076)    (52,769)
--------------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES                                           256,856     240,380     244,881

INVESTING ACTIVITIES
   Plant and equipment additions                                                   (132,981)   (168,661)   (182,947)
   Business combinations, net of cash acquired                                      (91,142)     (6,341)     (4,399)
   Proceeds from sale of assets                                                       1,177       2,755         334
   Other                                                                             (2,052)     23,254     (21,342)
--------------------------------------------------------------------------------------------------------------------
NET CASH USED IN INVESTING ACTIVITIES                                              (224,998)   (148,993)   (208,354)

FINANCING ACTIVITIES
   Net borrowings and (repayments) under short-term credit lines                      3,644     (15,013)      1,011
   Net proceeds from and (payments) of long-term borrowings                           6,556      (8,036)     (2,399)
   Net increase in commercial paper and other long-term obligations                  58,132     175,159     209,644
   Proceeds from stock options exercised                                              2,272       7,923       1,065
   Cash dividends                                                                   (37,581)    (36,026)    (28,629)
   Repurchase of common stock                                                      (128,631)   (191,720)   (164,816)
--------------------------------------------------------------------------------------------------------------------
NET CASH (USED) PROVIDED BY FINANCING ACTIVITIES                                    (95,608)    (67,713)     15,876

EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS                         (4,016)      1,331      (1,527)
--------------------------------------------------------------------------------------------------------------------

(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS                                    (67,766)     25,005      50,876


CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR                                      141,439     116,434      65,558
--------------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF YEAR                                            $73,673    $141,439    $116,434
====================================================================================================================
</TABLE>

See notes to consolidated financial statements.
Parentheses indicate decrease in cash and cash equivalents.


28   Great Lakes Chemical Corporation
<PAGE>   22

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of dollars, except as indicated)


ACCOUNTING POLICIES

Basis of Presentation
In 1997 the Company took a number of actions that will enable it to focus on
core specialty chemical operations. These include the announced spin-off of
the petroleum additives business (Octel) to shareholders and the decision to
exit the furfural and derivatives, Eastern European trading (Chemol) and
environmental services businesses. The net assets and results of operations of
these businesses are reflected in the accompanying financial statements as
discontinued operations. Consolidated results of continuing operations,
financial position and cash flows in the accompanying financial statements
refer to the continuing specialty chemical operations of the Company.

Nature of Operations
The Company is a diversified specialty chemical company. Primary manufacturing
operations are located in the United States and Europe. Principal product
lines ranked in order of sales are: Water Treatment, Flame Retardants, Polymer
Stabilizers, Intermediates and Fine Chemicals and Specialized Services and
Manufacturing. The Company's products are sold globally. The principal markets
include: Computer and Business Equipment, Consumer Electronics, Data
Processing, Construction Materials, Telecommunications, Pharmaceuticals, and
Pool and Spa Dealers and Distributors.

Principles of Consolidation
The consolidated financial statements include all subsidiaries of the Company
after elimination of significant intercompany accounts and transactions.
Investments in less than majority-owned companies in which the Company has the
ability to exercise significant influence over operating and financial
policies of the investees are recorded at cost, plus equity in their
undistributed earnings since acquisition.

Use of Estimates
The preparation of the consolidated financial statements requires management
to make estimates and assumptions that affect the amount reported in the
financial statements and accompanying notes. Significant estimates are used in
the accounting for restructuring, asset impairments and losses on discontinued
operations. Actual results could differ from those estimates.

Revenue Recognition
Revenue from sales of products is recognized at the time products are shipped
to the customer. Revenue from services is recognized when the services are
provided to the customer.

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

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

Plant and Equipment
Plant and equipment are stated at cost. Depreciation is provided over the
estimated useful lives of the assets using the straight-line method.

Goodwill
Goodwill, the excess of investment over net assets of subsidiaries acquired is
amortized over periods of eight to 40 years. The Company regularly evaluates
the realizability of goodwill based on projected undiscounted cash flows and
operating income for each business having material goodwill balances. Based on
its most recent analysis, the Company believes that no impairment of goodwill
exists. As of December 31, 1997, and 1996, accumulated amortization was $13
million and $11 million, respectively.

Environmental Compliance and Remediation
Environmental compliance costs include ongoing maintenance, monitoring and
similar costs. Such costs are expensed as incurred. Environmental remediation
costs are accrued, except to the extent costs can be capitalized, when
environmental assessments or remedial efforts are probable, and the cost can
be reasonably estimated. Environmental costs which improve the condition of a
property as compared to the condition when constructed or acquired are
capitalized.

Income Taxes
Income taxes are provided on the portion of the income of foreign affiliates
that is expected to be remitted to the parent company and be taxable.

Earnings per Share
In 1997 the Financial Accounting Standards Board issued Statement No. 128,
"Earnings per Share" (SFAS 128). SFAS 128 requires the calculation of both
basic and diluted 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. All earnings per share
amounts for all periods have been presented, and where appropriate, restated
to conform to SFAS 128 requirements.

Stock-Based Compensation
In 1996 the Company adopted Statement of Financial Accounting Standards No.
123, "Accounting for Stock-Based Compensation." As allowed under SFAS No. 123,
the Company has chosen to continue to account for stock-based compensation
cost in accordance with Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees." Under this opinion, compensation
cost is recorded when the fair market value of the Company's stock



                                        Great Lakes Chemical Corporation    29
<PAGE>   23

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

at the date of grant for fixed options exceeds the exercise price of the stock
option. The Company's policy is to grant stock options at a value equal to its
common stock's fair market value on the date of grant. Compensation cost for
restricted stock awards is accrued over the life of the award based on the
quoted market price of the Company's stock at the date of the award.

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

Derivatives used for hedging purposes must be designated as, and effective as,
a hedge of the identified risk exposure at the inception of the contract.
Accordingly, changes in the market value of the derivative contract must be
highly correlated with changes in the market value of the underlying hedged
item at inception of the hedge and over the life of the hedge contract. Any
derivative instrument designated but no longer effective as a hedge would be
reported at market value and the related gains and losses would be recognized
in earnings.

Derivatives that are designated as, and effective as, a hedge of firm foreign
currency commitments are accounted for using the deferral method. Gains and
losses from instruments that hedge firm commitments are deferred and
recognized as part of the economic basis of the transactions underlying the
commitments when the associated hedged transaction occurs. Gains and losses
from instruments that hedge foreign-currency-denominated receivables, payables
and debt instruments are reported in earnings and offset the effects of
foreign exchange gains and losses from the associated hedged items.

ACQUISITIONS

On November 3, 1997, the Company completed the acquisition of Cookson Group
plc's global antimony products business, Anzon, for $90 million including
approximately $46 million of goodwill which will be amortized over a period of
40 years. Anzon is a global producer of antimony-based compounds for use as
flame retardants.

In 1995 the Company completed acquisitions in the Water Treatment and
Intermediates and Fine Chemicals business units at a cost of $11 million,
including $6 million excess purchase price over the book value of net assets
acquired.

All acquisitions have been accounted for as purchases and the results of
operations of the acquired businesses are included in the consolidated
financial statements from the dates of acquisition. The following represents
the unaudited pro forma results of operations as if the above-noted business
combinations had occurred at the beginning of the respective year in which the
companies were acquired as well as at the beginning of the immediately
preceding year:


<TABLE>
<CAPTION>
           Year Ended December 31        1997        1996        1995
           <S>                     <C>         <C>         <C>
           Net sales               $1,376,927  $1,430,126  $1,384,624
           Net income                  73,915     123,215     139,422
           Earnings per share      $     1.23  $     1.93  $     2.11
</TABLE>


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

DISPOSITIONS

During 1996 the Company sold its pool equipment distribution business and its
engineered surface treatment business. On an annual basis, these operations
accounted for approximately $150 million in sales. These transactions did not
have a material impact on the Company's results of operations.

DISCONTINUED OPERATIONS

During 1997 the Board of Directors approved a plan to spin off the Company's
petroleum additives business to the shareholders and to exit furfural and
derivatives, Eastern European trading (Chemol) and environmental services
businesses. These operations are included in discontinued operations along
with a special provision of $137 million net of income tax benefits of $49
million related to the estimated losses on divestitures and an income tax
provision of $38 million related to the anticipated repatriation of Octel
earnings.

The Octel spin-off will be affected through a tax-free distribution of shares
in the new company to Great Lakes' shareholders. The transaction is subject to
the receipt of a favorable tax ruling from the Internal Revenue Service and the
final approval by the Great Lakes Board of Directors. Prior to the spin-off, it
is anticipated that Octel will borrow approximately $450 million and use part of
the proceeds to repay Great Lakes $117 million for the November 1997 acquisition
of Chevron Chemical Company's interest in Octel. The remainder of the borrowing,
plus available cash from Octel, less taxes and transaction costs, will be
distributed to Great Lakes in the form of a special dividend of approximately
$300 million. Great Lakes will contribute Octel's remaining net assets to Octel
reducing Great Lakes shareholders' equity.

The Company expects the other businesses included in discontinued operations
to be sold during 1998.




30    Great Lakes Chemical Corporation
<PAGE>   24

Summary statements of income and financial position for the discontinued
operations as a whole and Octel alone are set forth below (in millions):

Summary Statements of Income


<TABLE>
<CAPTION>
-------------------------------------------------------------------
Year Ended December 31                          1997   1996    1995
-------------------------------------------------------------------
<S>                                            <C>    <C>    <C>
Total Discontinued Operations:
  Net Sales                                     $769   $866  $1,065
  Income before Income Taxes                     181    196     237
  Income Taxes                                    59     66      74
-------------------------------------------------------------------
  Income from Operations
    (Net of Taxes)                               122    130     163
  Special Provision
    (Net of Taxes)                               137     --      --
-------------------------------------------------------------------
  Net (Loss) Income from
    Discontinued Operations                     $(15)  $130  $  163
===================================================================

Petroleum Additives (Octel):
  Net Sales                                     $531   $590  $  622
  Income before Income Taxes                     177    195     221
  Income Taxes                                    58     64      72
-------------------------------------------------------------------
  Income from Operations
    (Net of Taxes)                               119    131     149
  Special Provision
    (Net of Taxes)                                41     --      --
-------------------------------------------------------------------
  Net Income                                    $ 78   $131  $  149
===================================================================
</TABLE>


Summary Statements of Net Assets

<TABLE>
<CAPTION>
-------------------------------------------------------------------
December 31                                            1997    1996
-------------------------------------------------------------------
<S>                                                  <C>     <C>
Total Discontinued Operations:
  Current Assets                                     $  434  $  473
  Net Plant & Equipment                                 205     222
  Goodwill and Other Assets                             480     438
-------------------------------------------------------------------
  Total Assets                                        1,119   1,133

  Current Liabilities                                   306     151
  Other Liabilities                                      86     147
-------------------------------------------------------------------
  Net Assets                                         $  727  $  835
===================================================================

Petroleum Additives (Octel):
  Current Assets                                     $  283  $  340
  Net Plant & Equipment                                 109     115
  Goodwill and Other Assets                             434     383
-------------------------------------------------------------------
  Total Assets                                          826     838

  Current Liabilities                                   138     125
  Other Liabilities                                      78     131
-------------------------------------------------------------------
  Net Assets                                         $  610  $  582
===================================================================
</TABLE>


SPECIAL CHARGE

In December 1997 the Board of Directors approved a series of measures designed
to improve operating efficiency, responsiveness to customers and return on
assets. These measures include restructuring the Company's European water
treatment business, closing its BCDMH manufacturing facility in Louisiana and a
pharmaceutical intermediates production plant in Arkansas, and withdrawing from
a bromine production joint venture in Europe.

The consolidated statement of income for 1997 includes pre-tax charges of $50
million ($39 million after income taxes, or $0.64 per share) related to these
initiatives. The components of the pre-tax charges were $2 million for
employee severance costs, $2 million for facility closure costs, $5 million
for joint venture withdrawal expenses and $41 million for asset write-offs.

CASH AND CASH EQUIVALENTS

Cash and cash equivalents consist of the following:


<TABLE>
<CAPTION>
------------------------------------------------------------------------------------
December 31                                                          1997       1996
------------------------------------------------------------------------------------
<S>                                                               <C>       <C>
Cash                                                              $38,705   $ 49,651
Time deposits                                                      34,968     91,788
------------------------------------------------------------------------------------
                                                                  $73,673   $141,439
====================================================================================
</TABLE>

INVENTORIES
The major components of inventories are as follows:

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------
December 31                                                          1997       1996
------------------------------------------------------------------------------------
<S>                                                              <C>        <C>
Finished products                                                $217,398   $205,812
Raw materials                                                      51,984     43,498
Supplies                                                           28,793     27,477
------------------------------------------------------------------------------------
                                                                 $298,175   $276,787
====================================================================================
</TABLE>

PLANT AND EQUIPMENT
Plant and equipment consist of the following:

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------
December 31                                                          1997       1996
------------------------------------------------------------------------------------
<S>                                                              <C>        <C>
Land                                                             $ 19,861   $ 20,552
Buildings and land improvements                                   122,520    116,810
Equipment and
  leasehold improvements                                          871,734    848,751
Construction in progress (estimated
  additional cost to complete at
  December 31, 1997, $78,000)                                     126,502    101,502
------------------------------------------------------------------------------------
                                                                1,140,617  1,087,615
Less allowances for depreciation,
  depletion and amortization                                      481,982    451,055
------------------------------------------------------------------------------------
                                                                 $658,635   $636,560
====================================================================================
</TABLE>




                                           Great Lakes Chemical Corporation   31
<PAGE>   25

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The estimated useful lives for purposes of computing depreciation are:
buildings and land improvements, 7-40 years and equipment and leasehold
improvements, 2-17 years.

Maintenance and repairs charged to costs and expenses were $60 million, $63
million and $63 million for 1997, 1996 and 1995, respectively.

Rent expense for all operating leases amounted to $16 million, $19 million and
$20 million for 1997, 1996 and 1995, respectively. Under long-term operating
leases, minimum annual rentals are $13 million in 1998, $10 million in 1999,
$9 million in 2000, $5 million in 2001 and $4 million in 2002.

DEBT

Long-term debt is summarized as follows:


<TABLE>
<CAPTION>
----------------------------------------------------------------------
December 31                                             1997      1996
----------------------------------------------------------------------
<S>                                                 <C>       <C>
Commercial paper, 1997 year-end
  average interest rate of 6.0%                     $529,665  $467,283
Industrial development bonds, at
  fixed and variable interest rates from
  4.0% to 7.0% at December 31, 1997
  (weighted average 4.4%) with
  maturities to May 2025                              14,185    14,185
Other                                                 22,775    20,774
----------------------------------------------------------------------
                                                     566,625   502,242
Less current portion                                   5,170     5,996
----------------------------------------------------------------------
                                                    $561,455  $496,246
======================================================================
</TABLE>


The Company has a $600 million revolving credit agreement with nine banks
which serves as a backup for the Company's commercial paper program that
expires in 2001. The agreement provides various interest rate options,
including the banks' prime interest rate, and contains restrictive financial
covenants, including an interest coverage ratio. The Company's commercial
paper is rated A1 by Standard and Poor's and P1 by Moody's.

Long-term debt matures as follows: 1998, $5 million; 1999, $3 million; 2000,
$12 million; 2001, $532 million; and 2002, $3 million.

At December 31, 1997, the Company had notes payable of approximately $1
million at an interest rate of 5.9 percent.

The Company has no confirmed short-term credit lines, but has available for
its use substantial non-confirmed credit lines.

During 1997, 1996 and 1995, interest costs were $34 million, $24 million and
$20 million, respectively, of which $6 million per year was capitalized as
additional costs of equipment and leasehold improvements in connection with
the expansion of physical facilities. In these years, interest payments were
$34 million, $25 million and $20 million, respectively.

INCOME TAXES

The following is a summary of domestic and foreign income before income taxes,
the components of the provisions for income taxes, a reconciliation of the
U.S. statutory income tax rate to the effective income tax rate, and the
components of deferred tax assets and liabilities.

Income Before Income Taxes:


<TABLE>
<CAPTION>
---------------------------------------------------------------------------
Year Ended December 31                             1997      1996      1995
---------------------------------------------------------------------------
<S>                                            <C>       <C>       <C>
Domestic                                      $  79,917  $145,523  $143,583
Foreign                                          37,253    38,492    56,639
---------------------------------------------------------------------------
                                               $117,170  $184,015  $200,222
===========================================================================
</TABLE>


Provisions for Income Taxes:

<TABLE>
<CAPTION>
---------------------------------------------------------------------------
Year Ended December 31                             1997      1996      1995
---------------------------------------------------------------------------
<S>                                             <C>       <C>       <C>
Current:
  Federal                                       $32,800   $42,500   $37,100
  State                                           4,400     6,900     5,100
  Foreign                                         8,700    13,141    18,797
---------------------------------------------------------------------------
                                                 45,900    62,541    60,997
---------------------------------------------------------------------------

Deferred:
  Domestic                                       (2,800)   (2,600)    6,300
  Foreign                                         2,300     3,459       703
---------------------------------------------------------------------------
                                                   (500)      859     7,003
---------------------------------------------------------------------------
                                                $45,400   $63,400   $68,000
===========================================================================
</TABLE>


Effective Income Tax Rate Reconciliation:


<TABLE>
<CAPTION>
---------------------------------------------------------------------------
Year Ended December 31                             1997      1996      1995
---------------------------------------------------------------------------
<S>                                               <C>       <C>       <C>
U.S. statutory
  income tax rate                                  35.0%     35.0%     35.0%
Decrease resulting from:
  State income tax                                  2.4       2.5       1.7
  Depletion                                        (2.2)     (1.3)     (1.2)
  Foreign Sales Corp.                              (3.5)     (1.4)     (1.2)
  Statutory tax
     rate changes                                  (2.1)       --        --
  Special charge
     rate differential                              4.8        --        --
  Other                                             4.3      (0.3)     (0.3)
---------------------------------------------------------------------------
Effective income tax rate                          38.7%     34.5%     34.0%
===========================================================================
</TABLE>


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



32   Great Lakes Chemical Corporation
<PAGE>   26

Components of Deferred Tax Assets and Liabilities:


<TABLE>
<CAPTION>
---------------------------------------------------------------------
December 31                                             1997     1996
---------------------------------------------------------------------
<S>                                                  <C>      <C>
Deferred tax assets
  Accrued expenses                                   $13,400  $10,500
  Other                                               15,400   19,000
---------------------------------------------------------------------
                                                     $28,800  $29,500
---------------------------------------------------------------------
Deferred tax liabilities
  Depreciation                                       $46,200  $44,000
  Foreign liabilities pending settlements             20,000   20,000
  Other                                               20,079   18,561
---------------------------------------------------------------------
                                                     $86,279  $82,561
=====================================================================
</TABLE>


Cash payments for income taxes were $36 million, $73 million and $49 million
in 1997, 1996 and 1995, respectively.

Statutory tax rate decreases resulted in a tax benefit in 1997 of $3 million.

STOCKHOLDERS' EQUITY

Changes in common stock and additional paid-in capital accounts are summarized
as follows:




<TABLE>
<CAPTION>
------------------------------------------------------------------------
                                                              Additional
                                           Common Stock          Paid-In
                                        Shares      Amount       Capital
------------------------------------------------------------------------
<S>                                   <C>           <C>         <C>
Balance at
   December 31, 1994                    72,024,520  $72,025     $112,667

Exercise of stock options,
   net of shares exchanged                  84,957       84          400
Tax benefit from early
   disposition of stock
   by optionees                                 --       --          580
------------------------------------------------------------------------
Balance at
   December 31, 1995                    72,109,477   72,109      113,647

Exercise of stock options,
   net of shares exchanged                 345,574      346        1,357
Tax benefit from early
   disposition of stock
   by optionees                                 --       --        6,220
------------------------------------------------------------------------
Balance at
   December 31, 1996                    72,455,051   72,455      121,224

Exercise of stock options,
   net of shares exchanged                 117,551      118        1,175
Tax benefit from early
   disposition of stock
   by optionees                                 --       --          980
------------------------------------------------------------------------
BALANCE AT
   DECEMBER 31, 1997                    72,572,602  $72,573     $123,379
========================================================================
</TABLE>


The Company has a Stockholder Rights Plan. Under the Plan, the stockholders
have received a right (the "Right") for each outstanding share of common stock
of the Company. Each Right entitles the holder under certain circumstances to
purchase from the Company at an exercise price of $92.50 per Right (after
adjustment pursuant to the Plan) one unit consisting initially of one-tenth of a
share of the Company's common stock and a note in a principal amount equal to
nine-tenths of the market price of a share of the Company's common stock on the
date of exercise.

The Rights become exercisable and transferable apart from the common stock if
a person acquires 15 percent or more of the Company's outstanding common stock
or the Company declares a 10 percent-or-more stockholder an "adverse person"
because such stockholder meets certain criteria set forth in the Plan. In such
event, each Right entitles the holder, except the acquiring person or adverse
person, to purchase, at the Right's then-current exercise price, the number of
Great Lakes common shares having a market value equal to twice the Right's
exercise price.

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

Under certain conditions, the Rights may be redeemed by the Company at a price
of $.0025 per Right (after adjustment pursuant to the Plan) prior to their
expiration on September 22, 1999.

The Company has repurchased shares of its common stock as follows:



<TABLE>
<CAPTION>
---------------------------------------------------------------
                                       Number of
                                          Shares           Cost
---------------------------------------------------------------
<S>                                    <C>             <C>
1997                                   2,786,100       $128,631
1996                                   3,337,100       $191,720
1995                                   2,778,000       $164,816
---------------------------------------------------------------
</TABLE>


Changes in the cumulative translation adjustment account are
as follows:


<TABLE>
<CAPTION>
----------------------------------------------------------------------
Year Ended December 31                      1997       1996       1995
----------------------------------------------------------------------
<S>                                    <C>        <C>        <C>
Balance at beginning of year            $ 17,064   $(23,179)  $(25,222)
Translation adjustments and
   gains and losses from
   hedging transactions                  (69,919)    40,243      2,043
----------------------------------------------------------------------
Balance at end of year                  $(52,855)  $ 17,064   $(23,179)
======================================================================
</TABLE>


The 1997 change in the cumulative translation adjustment is due to the
approximate 17 percent weakening of European currencies and the approximate 4
percent weakening of the British pound sterling against the U.S. dollar. The
1996 and 1995 increase in the cumulative translation adjustment account was
principally due to the effect of the weakening U.S. dollar in relation to the
currencies of the various foreign countries in which the Company operates.


                                        Great Lakes Chemical Corporation     33
<PAGE>   27

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


EARNINGS PER SHARE

The computation of basic and diluted earnings per share is determined by
dividing net income or loss as reported as the numerator, by the number of
shares included in the denominator as follows:


<TABLE>
<CAPTION>
-------------------------------------------------------------------------
Year Ended December 31                       1997        1996        1995
-------------------------------------------------------------------------
<S>                                    <C>         <C>         <C>
Denominator for basic
   earnings per share -
   weighted-average shares             60,041,081  63,538,759  65,364,066

Effect of dilutive securities:
   Employee stock options                 248,511     433,317     626,736
   Restricted stock                         8,045          --          --
-------------------------------------------------------------------------
Dilutive potential
   common shares                          256,556     433,317     626,736

Denominator for diluted
   earnings per share                  60,297,637  63,972,076  65,990,802
=========================================================================
</TABLE>


Options to purchase shares of common stock of 1,070,422 in 1997, 836,308 in
1996 and 564,656 in 1995 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.

STOCK OPTIONS

In May 1993 the stockholders adopted the 1993 Employee Stock Compensation Plan
for officers and other key employees, authorizing the issuance of 2 million
shares of the Company's common stock upon exercise of incentive stock options,
non-qualified stock options or other stock-based awards. The Plan replaced the
1984 Plan which expired in May 1994. Under the Plan, options are granted at
the market value at date of grant, become exercisable over periods of one to
five years after grant and expire 10 years from the date of grant.

The following summarizes the changes in options under the Plans:



<TABLE>
<CAPTION>
-----------------------------------------------------------------------
                                                              Weighted-
                                                 Shares         Average
                                           Under Option  Exercise Price
-----------------------------------------------------------------------
<S>                                        <C>           <C>
Outstanding at December 31, 1994              1,850,637          $39.47
Granted                                         309,030           59.71
Exercised                                       (98,280)          15.29
Terminated                                      (14,319)          61.94
-----------------------------------------------------------------------
Outstanding at December 31, 1995              2,047,068           43.53
Granted                                         260,610           74.94
Exercised                                      (529,039)          26.26
Terminated                                      (77,883)          67.64
-----------------------------------------------------------------------
Outstanding at December 31, 1996              1,700,756           52.61
GRANTED                                         458,130           43.05
EXERCISED                                      (141,170)          16.82
TERMINATED                                      (98,822)          55.89
-----------------------------------------------------------------------
OUTSTANDING AT DECEMBER 31, 1997              1,918,894          $52.79
=======================================================================
CURRENTLY EXERCISABLE                         1,258,619          $52.72
=======================================================================
</TABLE>


Options outstanding at December 31, 1997, expire from March 7, 1998, to
October 27, 2007. A total of 1 million shares are reserved for future grants
as of December 31, 1997.

The following table summarizes information concerning outstanding and
exercisable options at December 31, 1997:


<TABLE>
<CAPTION>
--------------------------------------------------------------------
Range of Exercise Prices             $10 - $25  $26 - $50  $51 - $80
--------------------------------------------------------------------
<S>                                  <C>        <C>        <C>
Options Outstanding:
Weighted-Average
  Remaining
  Contractual Life                    2.1 yrs.   8.1 yrs.   7.3 yrs.
Weighted-Average
  Exercise Price                        $18.98     $42.23     $69.41
Number                                 312,025    594,547  1,012,322

Options Exercisable:
Weighted-Average
  Exercise Price                        $18.98     $40.79     $69.44
Number                                 312,025    185,067    761,527
--------------------------------------------------------------------
</TABLE>


The weighted-average fair value of options granted during 1997, 1996 and 1995
is estimated at $13.14, $24.61 and $22.34 per share, respectively, on the date
of grant using the Black-Scholes option-pricing model with the following
assumptions:


<TABLE>
<CAPTION>
---------------------------------------------------------------------
                                            1997      1996      1995
---------------------------------------------------------------------
<S>                                        <C>       <C>       <C>
Expected volatility                         21.0%     22.8%     26.5%
Expected life in years                       6.5       6.0       5.5
Risk-free interest rate                     6.15%     5.27%     7.34%
Dividend yield                              1.40%     0.60%     0.64%
---------------------------------------------------------------------
</TABLE>


Had compensation cost for the Company's 1997, 1996 and 1995 grants for
stock-based compensation plans been recognized consistent with SFAS 123, the
Company's net income and earnings per share for 1997, 1996 and 1995 would
approximate the pro forma amounts below:


<TABLE>
<CAPTION>
-------------------------------------------------------------------
Year Ended December 31                     1997      1996      1995
-------------------------------------------------------------------
<S>                                     <C>      <C>       <C>
Net income from
  Continuing Operations -
  as reported                           $71,770  $120,615  $132,222
Net income from
  Continuing Operations -
  pro forma                             $69,017  $116,107  $129,356
Diluted earnings
  per share - as reported                 $1.19     $1.89     $2.00
Diluted earnings
  per share - pro forma                   $1.15     $1.82     $1.96
-------------------------------------------------------------------
</TABLE>




34   Great Lakes Chemical Corporation
<PAGE>   28

For the purpose of pro forma disclosure, the estimated compensation costs are
amortized to expense over the options' vesting period, primarily three years.
Therefore, because SFAS 123 is applicable only to options granted subsequent
to December 31, 1994, its pro forma effect will not be fully reflected until
1998.

RETIREMENT PLANS

The Company maintains several noncontributory defined benefit pension plans
covering substantially all U.S. employees. Benefits are based on total
compensation, as defined, and years of credited service reduced by social
security benefits according to a plan formula. Normal retirement age is 65,
but provisions are made for early retirement. The Company's funding policy is
to contribute amounts to the plans to meet the funding requirements of federal
laws and regulations, as determined by the Company's actuary. The plans'
assets are invested by an insurance company, one bank and nine investment
management companies in various commingled and segregated funds holding
equities, bonds, guaranteed income contracts and cash or cash equivalents.

The Company maintains three contributory defined benefit pension plans
covering substantially all United Kingdom employees. Benefits are based on
final salary and years of credited service, reduced by social security
benefits according to a plan formula. Normal retirement age is 65, but
provisions are made for early retirement. The Company's funding policy is to
contribute amounts to the plans to cover service costs to date as recommended
by the Company's actuary. The plans' assets are invested by three investment
management companies in funds holding U.K. and overseas equities, U.K. and
overseas fixed interest securities, index linked securities, property unit
trusts and cash or cash equivalents.

The Company provides no significant postretirement benefits other than
pensions.

A summary of the components of net periodic pension cost for U.S. and U.K.
pension plans is as follows:


<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------
Year Ended December 31                          1997                      1996                      1995
--------------------------------------------------------------------------------------------------------
<S>                                         <C>                       <C>                       <C>
Service cost                                $  7,172                  $  5,340                  $  4,351
Interest cost on projected
   benefit obligation                          9,942                     7,598                     7,099
Actual return
   on plan assets                            (31,681)                  (12,241)                  (14,296)
Net amortization
   and deferral                               20,869                     4,910                     7,865
--------------------------------------------------------------------------------------------------------
Net pension cost                            $  6,302                  $  5,607                  $  5,019
========================================================================================================
</TABLE>

The funded status and accrued pension cost for the U.S. and U.K. pension plans
are as follows:

<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------
December 31                                     1997                      1996                      1995
--------------------------------------------------------------------------------------------------------
<S>                                         <C>                       <C>                       <C>
Actual present value
   of accumulated
   plan benefits:
Vested                                       $94,513                   $80,869                   $72,066
Non-vested                                     3,168                     2,712                     1,540
--------------------------------------------------------------------------------------------------------
Total accumulated
   benefit obligation                         97,681                    83,581                    73,606
Additional amounts
   related to projected
   salary increases                           24,189                    25,059                    21,814
--------------------------------------------------------------------------------------------------------
Total projected
   benefit obligation                        121,870                   108,640                    95,420
Plan assets at fair value                    130,642                   108,007                    88,547
--------------------------------------------------------------------------------------------------------
Plan assets (over)
   under projected
   benefit obligation                         (8,772)                      633                     6,873
Unrecognized net gain                         20,145                     9,756                     4,400
Unrecognized prior
   service cost                                 (177)                     (459)                      527
Unrecognized net
   transition obligation                      (1,070)                   (1,261)                   (1,452)
Additional
   minimum liability                           5,456                     3,046                       819
--------------------------------------------------------------------------------------------------------
Accrued pension cost                          15,582                    11,715                    11,167
Estimated transfers
   from discontinued
   operations                                 (7,064)                   (7,500)                   (5,800)
--------------------------------------------------------------------------------------------------------
Net accrued
   pension cost                               $8,518                    $4,215                    $5,367
========================================================================================================
</TABLE>


The estimated transfer represents prepaid pension cost attributable to
employees who participate in the Octel retirement plans that will remain with
the Company. Ultimate determination of the transfer is subject to, among other
things, a final actuarial evaluation and election of the employee.

Assumptions used in determining the actuarial present value of the projected
benefit obligations are set forth below. Assumptions used in 1997 are
consistent with the prior year.


<TABLE>
<CAPTION>
-----------------------------------------------------------------------
<S>                                                       <C>
Weighted-average discount rates                           7.7% to 7.75%
Rates of increase in compensation levels                   4.8% to 5.5%
Expected long-term return on assets                        8.5% to 9.0%
-----------------------------------------------------------------------
</TABLE>


RESEARCH AND DEVELOPMENT EXPENSES

Research and development expenses were approximately $42 million, $43 million
and $41 million in 1997, 1996 and 1995, respectively.



                                         Great Lakes Chemical Corporation    35
<PAGE>   29


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

INDUSTRY SEGMENTS AND FOREIGN OPERATIONS

The Company's operations consist of one dominant industry segment, chemicals
and allied products.

Net sales, income before income taxes and identifiable assets by geographic
areas follows:

<TABLE>
<CAPTION>
-------------------------------------------------------------------
Year Ended December 31               1997        1996        1995
-------------------------------------------------------------------
<S>                            <C>         <C>         <C>
Net sales to
  unaffiliated customers:
    United States              $  920,778  $  954,287  $  907,460
    Foreign                       390,449     397,992     384,092
-------------------------------------------------------------------
                               $1,311,227  $1,352,279  $1,291,552
===================================================================
Intercompany
  sales between
  geographic areas:
    United States              $   82,940  $   72,962  $   61,758
    Foreign                        59,536      37,841      31,934
-------------------------------------------------------------------
                               $  142,476  $  110,803     $93,692
===================================================================
Income before
  income taxes:
    United States              $  129,093  $  178,613  $  170,723
    Foreign                        13,397      22,089      41,724
    Earnings of affiliates          2,410         788         (43)
    Corporate
      interest expense            (27,730)    (17,475)    (12,182)
-------------------------------------------------------------------
                               $  117,170  $  184,015  $  200,222
===================================================================
Identifiable assets
  at year-end:
    United States              $  988,830  $  906,573  $  904,976
    Foreign                       482,305     545,000     498,421
    Affiliates                     72,716      66,307      53,882
    Discontinued
      operations                  726,540     834,818     722,653
-------------------------------------------------------------------
                               $2,270,391  $2,352,698  $2,179,932
===================================================================
</TABLE>


Most of the Company's foreign operations are conducted by European
subsidiaries or U.S. branch offices. Sales between the United States and its
foreign operations are generally priced to recover cost plus an appropriate
markup for profit and are eliminated in the consolidated financial statements.
Identifiable assets include assets directly identified with the operations,
principally: accounts receivable, inventories and plant and equipment, plus an
allocation of goodwill.

Export sales for 1997, 1996 and 1995 were approximately $214 million, $226
million and $194 million, respectively, of which 89 percent, 88 percent and 86
percent, respectively, were outside the Western Hemisphere.

INVESTMENT IN AND ADVANCES TO UNCONSOLIDATED AFFILIATES

As of December 31, 1997, the Company's investment in unconsolidated affiliates
consists mainly of a 50 percent interest in Tetrabrom Technologies, Ltd., an
Israeli manufacturer of tetrabromobisphenol-A, and a preferred stock interest
in Huntsman Chemical Corporation (HCC) consisting of 58,700 shares of series A
cumulative preferred stock with an annual dividend rate of 14 percent.
Beginning in the year 2000, the annual dividend rate will increase 1 percent
per year to a maximum rate of 25 percent. The preferred shares have a face
value of $59 million. The Company is a limited partner in certain low income
housing investments that generate benefits in the form of tax credits.

The Company's equity in earnings of unconsolidated affiliates was $2 million
and $1 million for 1997 and 1996, respectively. Preferred dividends from HCC
amounted to $8 million in 1997 and 1996.

FINANCIAL INSTRUMENTS AND CONCENTRATION OF CREDIT RISK

The carrying amounts reported in the balance sheet of cash and cash
equivalents, notes payable and long-term debt do not materially differ from
their fair value at December 31, 1997. The fair value of the Company's debt
was estimated using a discounted cash flow analysis based upon the Company's
current incremental borrowing rates for similar borrowing arrangements.

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.

The Company hedges certain portions of its exposure to foreign currency
fluctuations in revenues and net foreign investments through the use of
options and forward exchange contracts. Gains and losses arising from the use
of such instruments are recorded in the income statement concurrently with
gains and losses arising from the underlying hedged transactions.

The Company enters into currency option contracts to hedge anticipated foreign
currency transactions during the next 12 months. At December 31, 1997, the
Company had outstanding option contracts with a notional value of
approximately $6 million. The cost to acquire the contracts that hedge 1998
net foreign currency transactions was approximately $1 million, and that
amount was deferred as of December 31, 1997. Had these contracts been acquired
at December 31, 1997, their cost to acquire would have been approximately $1
million. The Company had outstanding option contracts in place at December 31,
1996, with a notional value of approximately $37 million.

The Company uses currency swap contracts to hedge long-term intercompany loans
and the related interest. The terms of the swap contracts match the loan
payment terms. Swap contracts in existence at December 31, 1997, were for
French francs, German marks and Italian lira against the British pound
sterling. The U.S. dollar equivalent of the notional amount of the contracts
outstanding as of December 31, 1997, was approximately $118 million.
Liquidating the position at December 31, 1997, would have generated gains of
approximately $11 million. It is the Company's intention to hold the swap
contracts to maturity.

Counterparties to the currency swap agreements are major financial
institutions. Credit losses from counterparty nonperformance are not
anticipated.

36 Great Lakes Chemical Corporation


<PAGE>   30

QUARTERLY RESULTS OF OPERATIONS

<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------------
(in thousands of dollars, except per share data)
1997 - THREE MONTHS ENDED                                      Mar. 31     Jun. 30    Sept. 30     Dec. 31
---------------------------------------------------------------------------------------------------------------
<S>                                                           <C>         <C>         <C>        <C>
Net Sales                                                     $319,618    $356,373    $309,570   $ 325,666
Operating Expenses
  Cost of products sold                                        230,753     253,794     220,508     232,468
  Selling, administrative and research expenses                 44,647      45,658      42,210      49,569
  Special charge                                                    --          --          --      49,800
---------------------------------------------------------------------------------------------------------------
                                                               275,400     299,452     262,718     331,837
---------------------------------------------------------------------------------------------------------------
Operating Income (Loss)                                         44,218      56,921      46,852      (6,171)
Interest and Other Income                                        5,915       6,501       8,368      10,884
Interest and Other Expenses                                      9,104      11,488      10,170      25,556
---------------------------------------------------------------------------------------------------------------
Income (Loss) from Continuing Operations before Income Taxes    41,029      51,934      45,050     (20,843)
Income Taxes                                                    14,700      18,800      16,000      (4,100)
---------------------------------------------------------------------------------------------------------------
Net Income (Loss) from Continuing Operations                    26,329      33,134      29,050     (16,743)
Net Income (Loss) from Discontinued Operations                  26,539      29,257      29,768    (100,389)
---------------------------------------------------------------------------------------------------------------
Net Income (Loss)                                             $ 52,868    $ 62,391    $ 58,818   $(117,132)
===============================================================================================================
Earnings (Loss) per Share:
Basic
  Continuing Operations                                       $   0.43    $   0.55    $   0.48   $   (0.28)
  Discontinued Operations                                         0.44        0.49        0.50       (1.68)
---------------------------------------------------------------------------------------------------------------
                                                              $   0.87    $   1.04    $   0.98   $   (1.96)
---------------------------------------------------------------------------------------------------------------
Diluted
  Continuing Operations                                       $   0.43    $   0.55    $   0.48   $   (0.28)
  Discontinued Operations                                         0.43        0.49        0.50       (1.68)
---------------------------------------------------------------------------------------------------------------
                                                              $   0.86    $   1.04    $   0.98   $   (1.96)
---------------------------------------------------------------------------------------------------------------
Cash Dividends Paid per Share                                 $    .15    $    .15    $    .16   $     .16
===============================================================================================================
Stock Price Data
       High                                                         50 3/4      52 7/8      54 7/8      53
       Low                                                          41 5/8      41 1/2      45 9/16     42 1/16
  Year-End Close                                                                                        44 7/8
---------------------------------------------------------------------------------------------------------------
1996 - THREE MONTHS ENDED                                      Mar. 31     Jun. 30    Sept. 30     Dec. 31
---------------------------------------------------------------------------------------------------------------
Net Sales                                                     $324,459    $394,033    $347,498   $ 286,289
Operating Expenses
  Cost of products sold                                        225,514     277,779     251,123     214,614
  Selling, administrative and research expenses                 48,685      52,656      50,668      47,377
---------------------------------------------------------------------------------------------------------------
                                                               274,199     330,435     301,791     261,991
---------------------------------------------------------------------------------------------------------------
Operating Income                                                50,260      63,598      45,707      24,298
Interest and Other Income                                        6,905      25,706       5,437      18,612
Interest and Other Expenses                                      9,052      19,994       7,299      20,163
---------------------------------------------------------------------------------------------------------------
Income from Continuing Operations before Income Taxes           48,113      69,310      43,845      22,747
Income Taxes                                                    16,600      24,200      14,400       8,200
---------------------------------------------------------------------------------------------------------------
Net Income from Continuing Operations                           31,513      45,110      29,445      14,547
Net Income from Discontinued Operations                         34,709      32,848      38,900      23,224
---------------------------------------------------------------------------------------------------------------
Net Income                                                    $ 66,222    $ 77,958    $ 68,345   $  37,771
===============================================================================================================
Earnings per Share:
Basic
  Continuing Operations                                       $   0.49    $   0.71    $   0.46   $    0.23
  Discontinued Operations                                         0.54        0.51        0.62        0.38
---------------------------------------------------------------------------------------------------------------
                                                              $   1.03    $   1.22    $   1.08   $    0.61
---------------------------------------------------------------------------------------------------------------
Diluted
  Continuing Operations                                       $   0.48    $   0.70    $   0.46   $    0.23
  Discontinued Operations                                         0.54        0.51        0.61        0.37
---------------------------------------------------------------------------------------------------------------
                                                              $   1.02    $   1.21    $   1.07   $    0.60
---------------------------------------------------------------------------------------------------------------
Cash Dividends Paid per Share                                 $   .115    $    .12    $    .15   $     .15
===============================================================================================================
Stock Price Data
  High                                                              78 5/8      69 3/8      62 7/8      57 1/2
  Low                                                               65          61          46 1/2      44 1/4
  Year-End Close                                                                                        46 3/4
---------------------------------------------------------------------------------------------------------------
</TABLE>


                                        Great Lakes Chemical Corporation      37




<PAGE>   31

CORPORATE OFFICERS


Robert B. McDonald
Chief Executive Officer and President

Robert T. Jeffares
Executive Vice President and Chief Financial Officer

L. Donald Simpson
Executive Vice President

Dennis J. Kerrison
Group Vice President

Marshall E. Bloom
Vice President, Water Treatment

David R. Bouchard
Vice President, Bromine and Bromine Derivatives

Stephen D. Clark
Vice President, Corporate R&D

Mark S. Esselman
Vice President, Human Resources

Richard R. Ferguson
Vice President, Treasurer and Asst. Secretary

Otto K. Furuta
Vice President, Purchasing and Logistics

Robert L. Hollier
Vice President, and President of OSCA, Inc.

John V. Lacci
Vice President, General Counsel

J. Larry Robertson
Vice President, LINX

Robert J. Smith
Vice President, Controller

John B. Talpas
Vice President, Manufacturing

David C. Sanders
Associate Vice President, New Product Development

Mary P. McClanahan
Corporate Secretary

Stephen E. Brewer
Asst. Treasurer



DIRECTORS


Evan Bayh  3, 5
Partner, Baker & Daniels
Attorneys-at-law
Director since 1997

William H. Congleton  1, 6
General Partner, Palmer Partners L.P.
Private investment partnership
Director since 1973

John S. Day  1, 2, 4
Vice President and Dean Emeritus, Purdue University
Director since 1975

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

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

Louis E. Lataif  1, 2
Dean of the School of Management, Boston University
Director since 1995

Richard H. Leet  2, 3, 4
Retired Vice Chairman and Director
Amoco Corporation
Director since 1994

Robert B. McDonald  4, 5, 6
Chief Executive Officer and President
Director since 1994

Mack G. Nichols
President and Chief Operating Officer
Mallinckrodt Inc.
Director since February 1998

Jay D. Proops  4, 5, 6
Former Vice Chairman
The Vigoro Corporation
Director since 1996


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


[LOGO]   [LOGO]

Economic Value Added(R) is a Registered trademark of Stern Stewart & Co.
Responsible Care(R) is a registered trademark of Chemical Manufacturers
Association.


38   Great Lakes Chemical Corporation

<PAGE>   32

WHOLLY OWNED SUBSIDIARIES AND AFFILIATES


Bayrol Chemische Fabrik GmbH
Swimming Pool and Spa Products

Bio-Lab, Inc.
Swimming Pool and Spa Products

Great Lakes Chemical (Europe), Ltd.
Specialty Chemicals

Great Lakes Chemical France S.A.
Specialty Chemicals

Great Lakes Chemical International, Inc.
Export Sales-FSC

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

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

LOWI Polymer Stabilizers GmbH
Specialty Chemicals

Octel Associates and
The Associated Octel Company, Limited
Petroleum Additives

OSCA, Inc.
Oil Field Services

WIL Research Laboratories, Inc.
Toxicological Testing



SHAREHOLDER INFORMATION


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

Harris Trust and Savings Bank
Attn: Shareholder Services
311 West Monroe Street, 11th Floor
Chicago, Illinois 60606-4607
(312) 461-6001
hearing impaired: (312) 461-5633
www.harrisbank.com

AUDITORS
Ernst & Young LLP
Indianapolis, Indiana

LISTINGS
New York Stock Exchange
New York, New York

Pacific Stock Exchange
Los Angeles and San Francisco, California

Ticker Symbol: GLK

ANNUAL MEETING
The Annual Meeting of the Stockholders will be held at 11:00 a.m., Thursday,
May 7, 1998, at the Harris Trust and Savings Bank, 111 West Monroe Street, 8th
Floor Auditorium, Chicago, Illinois.

FORM 10-K AND OTHER INFORMATION
A complimentary copy of the company's 1997 Annual Report to the Securities and
Exchange Commission on Form 10-K is available upon request. For this, or for
other information concerning the company, please contact:

Jeffrey Potrzebowski
Director, Investor Relations

or

Gregory J. Griffith
Director, Public Affairs and Administration

Great Lakes Chemical Corporation
One Great Lakes Boulevard
West Lafayette, Indiana 47996-2200
Phone: (765) 497-6100
www.greatlakeschem.com