As Filed with the Securities and Exchange Commission on February 4, 2003
________________________________________________________________________________


                                 UNITED STATES
                      SECURITIES AND EXCHANGE COMMISSION
                            Washington, D.C. 20549
                                   FORM 20-F

      (Mark One)


               REGISTRATION STATEMENT PURSUANT TO SECTION 12(b)
                OR 12(g) OF THE SECURITIES EXCHANGE ACT OF 1934


                                      OR


           X     ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
                    OF THE SECURITIES EXCHANGE ACT OF 1934
                  For the fiscal year ended December 31, 2002

                                      OR

              TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)
                    OF THE SECURITIES EXCHANGE ACT OF 1934
       For the transition period from _______________ to _______________



                     Ciba Specialty Chemicals Holding Inc.
            (Exact name of Registrant as specified in its charter)
                                  Switzerland

                (Jurisdiction of incorporation or organization)

                              Klybeckstrasse 141
                                  4002 Basel
                                  Switzerland

                   (Address of principal executive offices)

              Securities registered or to be registered pursuant
                         to Section 12(b) of the Act.



      Title of each class                             Name of each exchange
                                                      on which registered
---------------------------------               -------------------------------
   American Depositary shares,                       New York Stock Exchange
Each representing one half of one
ordinary share, nominal value CHF 9 per share



 Ordinary shares, par value CHF 9 per share*


     *Not for trading but only in connection with the registration of the
          American Depositary Shares pursuant to the requirements of
                   the Securities and Exchange Commission.

             Securities registered or to be registered pursuant to
                          Section 12(g) of the Act.

                                     None
                                  ----------
                               (Title of Class)

       Securities for which there is a reporting obligation pursuant
                          to Section 15(d) of the Act.

                                     None
                                  ----------
                               (Title of Class)

       Indicate the number of outstanding shares of each of the issuer's
           classes of capital or common stock as of the close of the
            period covered by the annual report, December 31, 2002.

                         72 130 117 Registered Shares
                      ----------------------------------

        Indicate by check mark whether the registrant (1) has filed all
     reports required to be filed by Section 13 or 15(d) of the Securities
     Exchange Act of 1934 during the preceding 12 months (or such shorter
        period that the registrant was required to file such reports),
           and (2) has been subject to such filing requirements for
                               the past 90 days.

                         Yes      X          No
                               -------             -------

           Indicate by check mark which financial statement item the
                      registrant has elected to follow.

                       Item 17                 Item 18      X
                                -------                  -------

________________________________________________________________________________


<PAGE>


                               Table of Contents
                                                                          Page


      Introduction

      Currency Translation....................................................1

      Cautionary Statement Regarding Forward-Looking Statements...............1


      PART I      ............................................................1

Item 1.           Identity of Directors, Senior Management and Advisors.......2

Item 2.           Offer Statistics and Expected Timetable.....................2

Item 3.           Key Information.............................................2

Item 4.           Information on the Company..................................8

Item 5.           Operating and Financial Review and Prospects...............29

Item 6.           Directors, Senior Management and Employees.................58

Item 7.           Major Shareholders and Related Party Transactions..........69

Item 8.           Financial Information......................................70

Item 9.           The Offer and Listing......................................71

Item 10.          Additional Information.....................................74

Item 11.          Quantitative and Qualitative Disclosures About Market......79
                    Risk

Item 12.          Description of Securities Other than Equity Securities.....79


      PART II     ...........................................................80

Item 13           Defaults, Dividend Arrearages and Delinquencies............80

Item 14.          Material Modifications to the Rights of Security Holders
                    and Use of Proceeds......................................80

Item 15.          Controls and Procedures....................................80

Item 16.          [Reserved].................................................80


      PART III    ...........................................................81

Item 17.          Financial Statements.......................................81

Item 18.          Financial Statements.......................................81

Item 19.          Exhibits...................................................81

                  Signature..................................................83






<PAGE>


                                 Introduction

     This Annual Report on Form 20-F relates to the registered shares with a
nominal value of 9 Swiss francs per share (the "Shares") of Ciba Specialty
Chemicals Holding Inc., the American Depositary Shares ("ADSs"), each
representing one half of one Share, and the American Depositary Receipts
("ADR") evidencing the ADSs under the Deposit Agreement among the Company,
Citibank, N.A. (the "Depositary"), and the registered holders and beneficial
owners from time to time of the ADRs.

     In this Annual Report, "Company" refers to Ciba Specialty Chemicals
Holding Inc. and its consolidated subsidiaries. In certain cases, where
indicated or where the context requires it, "Company" refers to Ciba Specialty
Chemicals Holding Inc.

     The consolidated financial statements and selected consolidated financial
data as of December 31, 2002, 2001, 2000, 1999 and 1998, and for each of the
years in the five-year period ended December 31, 2002 (the "Consolidated
Financial Statements"), included in this Annual Report, have been prepared in
accordance with United States generally accepted accounting principles ("U.S.
GAAP"). Statements in this Annual Report with respect to such financial
information are based on U.S. GAAP information.

     All market share data contained in this Annual Report is based on
management's estimates.

                             Currency Translation

     Unless otherwise indicated, all amounts herein are expressed in Swiss
francs ("CHF") or United States dollars ("U.S. dollars", "dollars", "USD",
"US$" or "$"). Amounts stated in U.S. dollars, unless otherwise indicated,
have been translated from Swiss francs at the noon buying rate in New York
City for cable transfers in foreign currencies as certified for customs
purposes by the Federal Reserve Bank of New York (the "Noon Buying Rate") on
December 31, 2002, which was CHF 1.3833 per US$ 1.00. This rate should be used
solely for convenience and should not be construed as a representation that
the Swiss franc amounts actually represent such U.S. dollar amounts or could
be converted into U.S. dollars at the rate indicated, or at all. This rate may
differ from the actual rates used in the preparation of the Consolidated
Financial Statements of the Company as of December 31, 2002, 2001 and 2000,
and for each of the years in the three year period ended December 31, 2002,
included in Item 18 of this Annual Report, which are expressed in Swiss
francs. Accordingly, U.S. dollar amounts appearing herein may differ from the
actual U.S. dollar amounts that were translated into Swiss francs in the
preparation of such financial statements.

                             Cautionary Statement
                    Regarding Forward-Looking Information

     This Annual Report contains certain forward-looking statements and
information with respect to the financial condition, results of operations and
business of the Company and certain of the plans, objectives and market
position of the Company with respect to these items that are based on beliefs
of the Company's management as well as assumptions made by and information
currently available to the Company. In particular, among other statements,
certain statements in "Item 4. Information on the Company" and "Item 5.
Operating and Financial Review and Prospects" with regard to trends, revenues,
costs, net income, accounting policies, market size, market share, market
demands, volumes, prices, margins, research and development, capital
expenditures, cash flows, debt levels, patents, outlook 2003, the effect of
technological developments, strategy and management objectives, opinions and
beliefs and sufficiency of environmental reserves and insurance arrangements
are forward-looking in nature. Such statements reflect the current views of
the Company with respect to market conditions and future events and are
subject to certain risks, uncertainties and assumptions. Investors are
cautioned that all forward-looking statements involve risks and uncertainty as
there are certain important factors that could cause actual results,
performance or events to differ materially from those anticipated including,
but not limited to, the following: the timing and strength of new product
offerings, pricing strategies of competitors, introduction of competing
products by other companies, lack of acceptance of new products and services
by the Company's targeted customers, changes in the Company's business
strategy, the Company's ability to continue to receive adequate raw materials
from its suppliers on acceptable terms, or at all, or to continue to obtain
sufficient financing to meet its liquidity needs, the effects of the Company's
reorganization and restructuring and changes in the political and regulatory
framework in which the Company operates or in economic or technological trends
or conditions, including currency fluctuations, inflation and consumer
confidence, on a global, regional or national basis and various other factors.
All forward-looking statements are expressly qualified in their entirety by
the cautionary statements contained or referred to in this section.
Furthermore, the Company does not assume any obligation to update these
forward looking statements. For more information regarding some of these
factors, see "Item 3. Key Information-Risk Factors."

                                                                               1

<PAGE>


                                    PART I

ITEM 1.  IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISORS

     Not applicable.

ITEM 2.  OFFER STATISTICS AND EXPECTED TIMETABLE

     Not applicable.

ITEM 3.  KEY INFORMATION

SELECTED FINANCIAL DATA

     The tables below set forth selected consolidated financial data for the
Company for the periods indicated and are qualified by reference to, and
should be read in conjunction with, the Company's Consolidated Financial
Statements and the Notes thereto, which are included elsewhere in this Annual
Report, and "Item 5. Operating and Financial Review and Prospects".

     The following comparative table of selected consolidated financial data
presents EBITDA (Earnings Before Interest, Taxes, Depreciation and
Amortization) and EBITDA margin. These non-U.S. GAAP financial indicators form
part of the Company's value based management reporting system and are used by
management to analyze the results of operations and financial condition of the
Company. The Company derives EBITDA and EBITDA margin from financial measures
prepared in accordance with U.S. GAAP. The way in which these financial
indicators are derived is described in footnotes (11) and (12) at the end of
this Selected Financial Data. Management is of the opinion that these
financial indicators are an important measure of comparative operating
performance of the businesses of the Company and, in the case of EBITDA, when
used in comparison to debt levels or the coverage of interest expense, as a
measure of financial stability. However, these supplementary financial
indicators should be considered in addition to, and not as a substitute for,
operating income, net income, cash flow and other measures of financial
performance and liquidity reported in accordance with U.S. GAAP.

     The selected consolidated financial data as of December 31, 2002, 2001,
2000, 1999 and 1998, and for each of the years in the five-year period ended
December 31, 2002, have been taken or are derived from the audited
consolidated financial statements of the Company for the relevant periods. The
selected financial data have been prepared in accordance with U.S. GAAP.

<TABLE>
<CAPTION>
                                                                 2002        2001        2000        1999        1998
                                                           ------------------------------------------------------------
                                                                (in millions of CHF, except percentages, share,
                                                                    per share and number of employees data)
-----------------------------------------------------------------------------------------------------------------------
Results of operations(1)
<S>                                                             <C>         <C>         <C>         <C>         <C>
Net sales  ..................................................   7 085       7 367       7 902       7 244       6 632
Operating income (loss)  ....................................     788         761         876         632       (528)
Income (loss) from continuing operations(2)  ................     406         380         418         238       (971)
Income (loss) from discontinued operations, net of tax(3)(4).       -           -          34          87        (13)
Cumulative effect of change in accounting principles, net
of tax(5)  ..................................................       -           2           -           -           -
-----------------------------------------------------------------------------------------------------------------------
Net income (loss)(6)  .......................................     406         382         452         325       (984)
-----------------------------------------------------------------------------------------------------------------------
Basic earnings (loss) per share:
Continuing operations(2)  ...................................    5.92        5.72        6.31        3.58     (14.65)
Discontinued operations(4)  .................................       -           -        0.50        1.31      (0.20)
Cumulative effects of change in accounting principles(5)  ...       -        0.04           -           -           -
-----------------------------------------------------------------------------------------------------------------------
Net income (loss) per share(6)  .............................    5.92        5.76        6.81        4.89     (14.85)
-----------------------------------------------------------------------------------------------------------------------
Diluted earnings (loss) per share:
Continuing operations(2)  ...................................    5.92        5.72        6.31        3.58     (14.65)
Discontinued operations(4)  .................................       -           -        0.50        1.31      (0.20)
Cumulative effects of change in accounting principles(5)  ...       -        0.04           -           -           -
-----------------------------------------------------------------------------------------------------------------------
Net income (loss) per share(6)  .............................    5.92        5.76        6.81        4.89     (14.85)
-----------------------------------------------------------------------------------------------------------------------
Equity per share(7)  ........................................   63.16       59.08       56.82       54.74       48.94
Dividend per share(8)  ......................................       -        2.00        2.00        2.00        2.00
Capital reduction per share(8) ..............................    3.00        1.00           -           -           -
-----------------------------------------------------------------------------------------------------------------------
Weighted average number of Shares outstanding:
Basic  ....................................................68 549 964  66 419 147  66 311 879  66 454 357  66 293 130
Diluted  ..................................................68 575 058  66 419 147  66 311 879  66 462 898  66 293 130
-----------------------------------------------------------------------------------------------------------------------
Other data - continuing operations
Net sales development in CHF percentage  ....................    (4)%        (7)%          9%          9%          7%
-----------------------------------------------------------------------------------------------------------------------
Operating income (loss)  ....................................     788         761         876         632       (528)
Depreciation and amortization of other intangible assets  ...     385         408         406         402         380
Amortization of goodwill  ...................................       -          61          64          52          38
Restructuring and special charges(9)  .......................       -           -           2           -       1 286
-----------------------------------------------------------------------------------------------------------------------
EBITDA(10), before restructuring and special charges  .......   1 173       1 230       1 348       1 086       1 175
-----------------------------------------------------------------------------------------------------------------------
EBITDA margin(11), before restructuring and special charges..   16.6%       16.7%       17.1%       15.0%       17.7%
EBIT margin(12)  ............................................   11.1%       10.3%       11.1%        8.7%      (8.0)%
-----------------------------------------------------------------------------------------------------------------------
Capital expenditures  .......................................     250         259         249         267         396
Research and development  ...................................     294         276         293         256         249
Personnel costs  ............................................   1 752       1 796       2 047       1 836       1 883
-----------------------------------------------------------------------------------------------------------------------
Number of employees at year end  ............................  19 007      19 683      20 306      20 117      21 148
-----------------------------------------------------------------------------------------------------------------------

</TABLE>

                                                                               2

<PAGE>
<TABLE>
<CAPTION>

                                                                 2002        2001        2000        1999        1998
                                                           ------------------------------------------------------------
                                                                (in millions of CHF, except percentages, share,
                                                                    per share and number of employees data)
-----------------------------------------------------------------------------------------------------------------------
<S>                                                             <C>         <C>         <C>         <C>         <C>

Results of operations as adjusted, excluding goodwill
amortization(1)

Operating income (loss)  ....................................     788         822         940         684       (490)
Income (loss) from continuing operations(2)  ................     406         441         482         290       (933)
-----------------------------------------------------------------------------------------------------------------------
Net income (loss)(6)  .......................................     406         443         520         387       (934)
-----------------------------------------------------------------------------------------------------------------------
Basic earnings (loss) per share:
Continuing operations(2)  ...................................    5.92        6.64        7.27        4.37     (14.08)
Net income (loss) per share(6)  .............................    5.92        6.68        7.83        5.83     (14.10)
-----------------------------------------------------------------------------------------------------------------------
Diluted earnings (loss) per share:
Continuing operations(2)  ...................................    5.92        6.64        7.27        4.37     (14.08)
Net income (loss) per share(6)  .............................    5.92        6.68        7.83        5.83     (14.10)
-----------------------------------------------------------------------------------------------------------------------
Balance sheet data
-----------------------------------------------------------------------------------------------------------------------
Current assets  .............................................   5 314       4 827       4 797       4 272       4 284
Property, plant and equipment, net  .........................   3 196       3 565       3 787       3 914       3 853
Total assets  ...............................................  11 792      11 718      12 105      12 407      12 045
Short-term debt  ............................................   1 496         316         371       1 174       1 905
Long-term debt  .............................................   2 344       3 678       3 859       4 265       3 648
Common stock  ...............................................     649         721         721         721         721
Shareholders' equity  .......................................   4 354       3 908       3 754       3 638       3 252
-----------------------------------------------------------------------------------------------------------------------
Business Segment data(13)

Plastic Additives
Net sales  ..................................................   1 813       1 834       1 959       1 784       1 609
-----------------------------------------------------------------------------------------------------------------------
Operating income  ...........................................     245         275         319         279         276
Depreciation and amortization of other intangible assets          101         113         104          98          99
-----------------------------------------------------------------------------------------------------------------------
EBITDA(10)...................................................     346         388         423         377         375
-----------------------------------------------------------------------------------------------------------------------
EBITDA margin(11)  ..........................................   19.1%       21.1%       21.6%       21.1%       23.3%
EBIT margin(12)  ............................................   13.5%       15.0%       16.3%       15.6%       17.2%
-----------------------------------------------------------------------------------------------------------------------

Coating Effects
Net sales  ..................................................   1 920       1 944       2 118       1 955       1 823
-----------------------------------------------------------------------------------------------------------------------
Operating income  ...........................................     341         312         371         307         299
Depreciation and amortization of other intangible assets  ...      99          99         104          96          93
-----------------------------------------------------------------------------------------------------------------------
EBITDA(10)...................................................     440         411         475         403         392
-----------------------------------------------------------------------------------------------------------------------
EBITDA margin(11)  ..........................................   22.9%       21.1%       22.4%       20.6%       21.5%
EBIT margin(12)  ............................................   17.7%       16.1%       17.5%       15.7%       16.4%
-----------------------------------------------------------------------------------------------------------------------
Water & Paper Treatment(14)
Net sales  ..................................................   1 409       1 486       1 558       1 408       1 100
-----------------------------------------------------------------------------------------------------------------------
Operating income  ...........................................      98          65          92          50          81
Depreciation and amortization of other intangible assets ....      88          92          95         101          87
-----------------------------------------------------------------------------------------------------------------------
EBITDA(10)...................................................     186         157         187         151         168
-----------------------------------------------------------------------------------------------------------------------
EBITDA margin(11)  ..........................................   13.2%       10.6%       12.0%       10.7%       15.3%
EBIT margin(12)  ............................................    7.0%        4.4%        5.9%        3.6%        7.4%
-----------------------------------------------------------------------------------------------------------------------
Textile Effects
Net sales  .....................................................1 544       1 673       1 841       1 683       1 678
-----------------------------------------------------------------------------------------------------------------------
Operating income  ................................................142         181         204         116         110
Depreciation and amortization of other intangible assets ......... 66          67          71          63          62
-----------------------------------------------------------------------------------------------------------------------
EBITDA(10)...................................................     208         248         275         179         172
-----------------------------------------------------------------------------------------------------------------------
EBITDA margin(11)  ..........................................   13.5%       14.8%       14.9%       10.6%       10.2%
EBIT margin(12)  ............................................    9.2%       10.8%       11.1%        6.9%        6.6%
-----------------------------------------------------------------------------------------------------------------------
Home & Personal Care  .......................................
Net sales  ..................................................     399         430         426         414         422
Operating income  ...........................................      56          67          58          62          68
Depreciation and amortization of other intangible assets ....      26          28          22          23          23
-----------------------------------------------------------------------------------------------------------------------
EBITDA(10)...................................................      82          95          80          85          91
-----------------------------------------------------------------------------------------------------------------------
EBITDA margin(11)  ..........................................   20.6%       22.2%       18.8%       20.5%       21.5%
EBIT margin(12)  ............................................   14.0%       15.7%       13.5%       15.0%       16.1%
-----------------------------------------------------------------------------------------------------------------------
Discontinued operations(15)
Performance Polymers business
Net sales  ..................................................       -           -         774       1 729       1 791
-----------------------------------------------------------------------------------------------------------------------
Operating income (loss)  ....................................       -           -          57         131        (17)
Gain on sale, net of tax  ...................................       -           -          34           -           -
-----------------------------------------------------------------------------------------------------------------------
</TABLE>

                                                                               3
<PAGE>
(1)  As of January 1, 2002, the Company adopted Financial Accounting Standards
     Board (FASB) Statement of Financial Accounting Standard (SFAS) No. 142
     "Goodwill and Other Intangible Assets", which requires that goodwill no
     longer be amortized to earnings. The results of operations on an adjusted
     basis, excluding goodwill amortization, for the years prior to 2002 are
     shown in the Summary of Selected Financial Data in the "Results of
     operations as adjusted, excluding goodwill amortization" section (see
     Note 1 to the Consolidated Financial Statements). For the year 2000 and
     prior years, net income as adjusted excludes goodwill amortization from
     continuing operations and from discontinued operations (see footnote (11)
     below).
(2)  Included in income from continuing operations is restructuring and
     special charges, net of tax of CHF 2 million or CHF 0.03 per share in
     2000 and CHF 1 274 million or CHF 19.22 per share in 1998.
(3)  The 2000 income from discontinued operations of CHF 34 million represents
     the gain on sale of discontinued operations, net of tax for the Company's
     Performance Polymers business which was sold on May 31, 2000. This gain
     includes income from operations, net of taxes, of CHF 37 million and a
     CHF (3) million loss from the sale of the net assets of the Performance
     Polymers business. (See footnote (15) below).
(4)  Included in income from discontinued operations is restructuring and
     special charges, net of tax of CHF 68 million or CHF 1.03 per share in
     1998.
(5)  As of January 1, 2001, the Company adopted SFAS No. 133 "Accounting for
     Derivative Instruments and Hedging Activities" as amended which replaced
     existing pronouncements and practices with a single, integrated
     accounting framework for derivatives and hedging activities. (see Note 1
     to the Consolidated Financial Statements).
(6)  Included in net income is restructuring and special charges, net of tax
     of CHF 2 million or CHF 0.03 per share in 2000, CHF 1 342 million or CHF
     20.24 per share in 1998.
(7)  Equity per share is calculated by dividing the total shareholders' equity
     by the number of outstanding common shares (total common shares issued
     less treasury shares outstanding) at the balance sheet date.
(8)  For 2002 the Board of Directors proposes to carry forward the entire
     retained earnings of Ciba Specialty Chemicals Holding Inc. and not to pay
     a dividend. The Board of Directors, however, proposes a cash payment to
     its shareholders resulting from a capital reduction of CHF 3 per share.
     The capital reduction is subject to shareholder approval at the Annual
     General Meeting to be held on March 6, 2003. If approved the capital
     reduction will take the form of a reduction in the nominal value of each
     share from CHF 9 per share by CHF 3 per share to CHF 6 per share. The
     Company expects, subject to various conditions and approval, that the
     payments of the capital reduction will be made to the shareholders on May
     23, 2003. The proposed capital reduction, based on the USD exchange rate
     of December 31, 2002 is USD 2.17 per share. Based on the US$ exchange
     rate at the payment date of June 28, 2002, the 2001 capital reduction per
     share was USD 0.67.
     Based on the US$ exchange rate at the respective payment dates of the
     2001, 2000, 1999, and 1998 dividends, the US$ equivalent of the dividend
     per share was US$ 1.19, US$ 1.23, US$ 1.25 and US$ 1.36, respectively.
(9)  Included in the 1998 restructuring and special charges is CHF 1 012
     million for the write-off of acquired in-process research and development
     costs associated with the acquisition of Allied Colloids.
(10) EBITDA is calculated as operating income plus depreciation and
     amortization of other intangible assets and amortization of goodwill.
(11) EBITDA margin is EBITDA expressed as a percentage of net sales.
(12) EBIT margin is operating income (loss) expressed as a percentage of net
     sales.
(13) In 2002, the Company implemented SFAS No. 142 "Goodwill and Other
     Intangible Assets". As a result of adopting this standard, the Company
     reclassified certain goodwill and other intangible assets to the segments
     that were previously reported as corporate items and not allocated to the
     segments. In addition, the Company reclassified goodwill amortization
     that was previously allocated to the segments to corporate and
     reclassified other intangible amortization from corporate to the segments
     corresponding to the other intangible asset reclassification. Amounts
     reported for the previous periods have been restated to conform to the
     2002 presentation.
(14) The 1998 Financial data for the Water & Paper Treatment Segment includes
     the results of the Water & Paper treatment business acquired from Allied
     Colloids for the nine month period commencing April 1, 1998, the date of
     the Allied Colloids acquisition.
(15) Reflects the results of the Performance Polymers business as a
     discontinued operation due to its sale on May 31, 2000. The results
     represent substantially all of the operations of the Performance Polymers
     division's business and do not include an allocation of the Company's
     interest costs or unallocated corporate general and administrative
     expenses. For 2000, the results are for the five month period ended May
     31, 2000, the date of the divestment (see Note 3 to the Consolidated
     Financial Statements). Included in the Performance Polymers results is
     goodwill amortization of CHF 4 million in 2000, CHF 10 million in 1999
     and CHF 12 million in 1998.

         EXCHANGE RATE INFORMATION

     The table below sets forth, for the periods indicated, the average, high,
low and period-end Noon Buying Rate for Swiss francs expressed in Swiss francs
per U.S. dollar.

<TABLE>
<CAPTION>
                                                       Average(1)          High             Low       Period End
      -------------------------------------------------------------------------------------------------------------
      <S>                                              <C>               <C>             <C>          <C>
      Year
      1998  .....................................        1.4509          1.5255          1.3485           1.3789
      1999  .....................................        1.5151          1.5991          1.4163           1.5991
      2000  .....................................        1.6930          1.8250          1.5526           1.6202
      2001  .....................................        1.6893          1.8185          1.5878           1.6598
      2002  .....................................        1.5566          1.7190          1.3833           1.3833
      -------------------------------------------------------------------------------------------------------------
      Months
      2002                   January  ..........................         1.7190          1.6417           1.7190
                             February  .........................         1.7179          1.6835           1.7025
                             March  ............................         1.7060          1.6568           1.6786
                             April  ............................         1.6740          1.6215           1.6216
                             May  ..............................         1.6155          1.5621           1.5693
                             June  .............................         1.5672          1.4885           1.4920
                             July  .............................         1.5062          1.4387           1.4833
                             August  ...........................         1.5188          1.4703           1.5007
                             September  ........................         1.5202          1.4730           1.4758
                             October  ..........................         1.5140          1.4793           1.4805
                             November  .........................         1.4895          1.4434           1.4645
                             December  .........................         1.4845          1.3833           1.3833

      2003                   January  ..........................         1.4015          1.3512           1.3683
-----------------------------------------------------------------------------------------------------------------
</TABLE>

(1)  Represents the average of the Noon Buying Rates on the last business day
     of each month during the relevant year.

                                                                               4
<PAGE>
Fluctuations in the exchange rate between the Swiss franc and the U.S.
dollar will affect the U.S. dollar equivalent of the Swiss franc price of the
Shares on the Swiss Exchange and, as a result, will likely affect the market
price of the ADSs in the United States, and vice versa. Such fluctuations will
also affect the U.S. dollar conversion by the Depositary of any cash dividends
paid in Swiss francs on the shares of the Company represented by the ADSs. In
addition, such fluctuations (as well as fluctuations between the Swiss franc
and other currencies) affect the presentation of the Company's operating
results and financial condition in its financial statements, which are
denominated in Swiss francs, and the results of its operations and financial
condition. See "Item 5. Operating and Financial Review and Prospects".

     RISK FACTORS

     Prospective purchasers and existing holders of the ADSs of the Company
should consider carefully all of the information set forth in this Annual
Report and, in particular, should evaluate the following risks in connection
with an investment in the ADSs. Information contained or incorporated by
reference in this Annual Report contains "forward-looking statements" which
can be identified by the use of forward-looking terminology such as
"believes", "opinion", "expects," "may", "will", "should" or "anticipates" or
the negative thereof or other variations thereon or comparable terminology, or
by discussions of strategy. Such statements include, without limitation, the
Company's beliefs about trends in the global economy, in the specialty
chemicals industry and its views about the long-term future of the industry
and the Company. See "Item 5. Operating and Financial Review and Prospects"
and "Item 4. Information on the Company." No assurance can be given that the
future results covered by the forward-looking statements will be achieved. The
following matters constitute cautionary statements identifying important
factors `with respect to such forward-looking statements, including certain
risks and uncertainties that could cause actual results to vary materially
from the future results covered in such forward-looking statements. Other
factors could also cause actual results to vary materially from the future
results covered in such forward-looking statements.

     The Company is subject to various changing competitive, economic,
political, legal and social conditions, including the following:

     AS AN INTERNATIONAL BUSINESS, THE COMPANY IS EXPOSED TO VARIOUS GLOBAL
ECONOMIC, POLITICAL, SOCIAL AND LOCAL BUSINESS RISKS THAT MAY HAVE A MATERIAL
ADVERSE EFFECT ON ITS FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

     The Company has a small home market for its products and has for many
years operated on a global basis. The Company currently has manufacturing
facilities in 25 countries and sales organizations in more than 120 countries.
This means the Company is faced with different complex legal and regulatory
requirements in many jurisdictions. These include tariffs and trade barriers,
requirements relating to withholding taxes on remittances and other payments
by subsidiaries and different intellectual property regimes. The Company's
international operations also expose it to different local business risks and
challenges. The Company's overall success as a global business depends, in
part, upon its ability to succeed in differing economic, social and political
conditions. The Company may not continue to succeed in developing and
implementing policies and strategies that are effective in each location where
it does business.

     The Company's results of operations and financial position also are
affected by developments and trends in the world economy. The year 2002 was,
for example, characterized by a continuous uncertain economic environment. The
expected economic recovery in the United States and the rest of the NAFTA
region did not fully occur. European economies, particularly the German,
United Kingdom and French economies continued to remain weak. Economic
performance in South America softened, compared to 2001, having been affected
by the political and economic crises in the region. In the Asia-Pacific
region, the Japanese market has not yet recovered from its lows of 1999,
remaining sluggish throughout 2002. The China Region continued to grow, with
real GDP growth remaining at between 7 to 8 percent. In most of the regions of
the world, with the exception of China, the industrial sector growth was below
total GDP growth. This was particularly accentuated in the United Kingdom. In
the United States consumer demand remained relatively stable, due to
significant incentives and rebates in several market sectors, particularly in
the automotive sector.

     The economic conditions in the NAFTA, Europe, and parts of Asia-Pacific,
particularly Japan may continue to worsen or not fully recover, which could
have a material adverse effect on the Company's results of operations and
financial position. In addition, an adverse development in the political and
social stability in the regions where the Company operates, may have a
material adverse effect on the Company's results and financial condition.

     THE COMPANY CURRENTLY HAS OPERATIONS IN MORE THAN 120 COUNTRIES, AND ITS
RESULTS OF OPERATIONS MAY BE ADVERSELY AFFECTED BY CURRENCY FLUCTUATIONS.

     The results of the operations and the financial position of the Company's
subsidiaries outside of Switzerland are reported in the relevant foreign
currencies and then translated into Swiss francs at the applicable exchange
rates for inclusion in the Company's Consolidated Financial Statements. The
exchange rates between these currencies and the Swiss franc may fluctuate
substantially. Because the Company generates a significant percentage of its
revenues and a substantially lower percentage of its operating expenses in
currencies other than the Swiss franc, fluctuations in the value of the Swiss
franc against other currencies have had in the past, and may have in the
future, a material effect on the Company's operating margins as well as its
competitive position compared with local producers in affected markets.
Currency fluctuations also may significantly affect the comparability of the
Company's results between financial periods. The Company's results and
financial condition are particularly affected by significant changes in the
value of the Swiss franc, euro, U.S. dollar, Japanese yen, and British pound
relative to each other. For more information, see "Item 5. Operating and
Financial Review and Prospects--Currency Trends" in this Annual Report.

      SIGNIFICANT COMPETITION MAY FORCE THE COMPANY TO REDUCE ITS PRODUCT
PRICES WHICH MAY ADVERSELY IMPACT ITS RESULTS OF OPERATIONS.

     The Company faces significant competition in the markets in which it
operates. Although competition in specialty chemicals is based upon a number
of considerations, such as product innovation, product range and quality,
relationships with customers, reliability of delivery, technical support and
distribution capability, price competition does exist in certain of the
Company's markets due to factors such as industry overcapacity and low-cost
local competition. Increased price competition may also occur in certain
product areas due to consolidation and globalization among the Company's
customers and competitors and as industry segments mature. As a result of the
trends toward global expansion and consolidation by competitors, the Company
anticipates that it will continue to face new competitive challenges,
continued price competition as well as additional risks inherent in
international operations in developing regions.

                                                                               5
<PAGE>
     THE COMPANY'S INABILITY TO REMAIN TECHNOLOGICALLY INNOVATIVE AND TO OFFER
IMPROVED PRODUCTS AND APPLICATIONS COST-EFFECTIVELY COULD NEGATIVELY IMPACT
ITS OPERATING RESULTS.

     The Company's operating results depend to a significant extent on its
ability to be a low-cost producer of its core products and to continue to
introduce new products and applications that offer distinct value in use for
its customers. In many of the industry sectors to which the Company sells its
products, products are subject to a traditional product life cycle. The
Company must devote significant resources to the development of new
technologically advanced products and applications, and the Company may not be
successful in these efforts at all times.

     THE CYCLICALITY IN THE VARIOUS INDUSTRIES SERVED BY THE COMPANY MAY HAVE
A MATERIAL ADVERSE EFFECT ON THE COMPANY'S BUSINESS AND FINANCIAL CONDITION.

     The Company's results are affected by cyclicality in various industries
served directly or indirectly by the Company, including the automotive,
plastics, textiles and clothing, paper, packaging, paint and coating,
electronics and construction industries. Such cyclicality in specialty
chemicals is, however, less pronounced than in base chemicals. Industry
cyclicality may affect particular business segments of the Company at
different times and in different geographical regions. In the past, to some
extent there have been offsetting effects because of these timing differences
with one business segment being affected by a downturn of the economy while
others were not affected or affected to a lesser extent. There is no guarantee
that this may continue in the future. The Company's results of operations and
financial position have in the past been affected adversely, for example, by
slow growth in the textile and paper industries, reduced demand in the
automotive industry and by declining demand in a number of industries. The
cyclical nature of pricing and investment in the specialty chemicals business
is likely to continue, and the Company will continue to experience periods of
overcapacity, declining prices and lower profit margins. In addition, external
factors beyond the Company's control, such as general economic conditions,
competitors' actions, international events and circumstances and governmental
regulation in the United States and in other foreign jurisdictions, can cause
volatility in raw material prices and product demand, as well as fluctuations
in the Company's prices, volumes and margins.

     THE COMPANY DEPENDS UPON PROPRIETARY TECHNOLOGIES, AND ITS COMPETITIVE
POSITION MAY BE ADVERSELY AFFECTED IF IT FAILS TO PROTECT ITS INTELLECTUAL
PROPERTY RIGHTS OR IS SUBJECT TO CLAIMS THAT IT IS INFRINGING UPON THE RIGHTS
OF OTHERS.

     Proprietary rights are important to the success and competitive position
of the Company. If the Company is unable to maintain the relative exclusivity
of certain of its products following patent expiration, through manufacturing
scale, technical know-how, advanced applications and service expertise,
increased competition may result with consequent erosion of profit margins.
Actions taken by the Company to protect its proprietary rights may be
insufficient to prevent others from developing similar products to those of
the Company. In addition, the laws of many foreign countries do not protect
the Company's intellectual property rights to the same extent as the laws of
Switzerland, other European countries, the United States and Japan.

     The Company has in the past received and may continue to receive in the
future communications asserting that certain of its products or their
applications infringe on the proprietary rights of others. In the recent past,
the Company has experienced a significant increase in intellectual property
conflicts, either initiated by the Company or by third parties. In
management's opinion there is no material pending litigation against the
Company regarding any intellectual property claim but there could be in the
future. Such legal proceedings or claims, with or without merit, and whether
initiated by the Company or another party, could subject the Company to costly
and time-consuming litigation and divert its research, technical and
management personnel from their regular responsibilities. Furthermore,
successful legal proceedings or claims against the Company could suspend the
development and manufacture of products using the contested invention, or
require the Company to pay substantial penalties or royalties.

     ANY DISRUPTION OR DETERIORATION IN THE QUALITY OF THE RAW MATERIALS
AVAILABLE FOR THE COMPANY'S PRODUCTS MAY HAVE A MATERIAL ADVERSE EFFECT ON THE
RESULTS OF THE COMPANY'S OPERATIONS.

     The Company utilizes specialty chemicals and base chemicals as its main
raw material in its manufacturing process. Raw material costs represent a
significant component of the Company's cost of goods sold. The prices and
availability of these raw materials vary with market conditions and can be
highly volatile. As a result of these factors, the Company's operating margins
may decrease if it cannot pass on increased raw material prices to customers,
if prices for its products decrease faster than raw material prices or if the
price it pays under long-term supply contracts is above the market price.

     There have been in the past, and may be in the future, periods of time
during which raw material price increases cannot be passed on to customers in
whole or in part. Even in periods during which raw material prices decrease
the Company may suffer decreasing operating profit margins if raw material
price reductions occur at a slower rate than decreases in the selling prices
of its products. Historically, the Company typically has not entered into
significant hedging arrangements with respect to prices of raw materials but
the Company has entered into long-term supply contracts for some raw
materials. Any major dislocation in the supply or price of these raw materials
or any material difference between the price the Company pays under its supply
contracts and market price may have a material adverse effect on its financial
condition and results of operations. Additionally, the Company requires raw
materials to be of a satisfactory standard for manufacturing its products. Any
deterioration in the quality of the raw materials available to the Company may
adversely impact the Company's ability to manufacture its products to an
acceptable standard and may have a material adverse effect on the results of
its operations. Even if it could obtain acceptable substitute raw materials,
the Company could incur increased expenses in securing the raw materials from
an alternative source and suffer reduced profit margins and an adverse impact
on its business.

     ENVIRONMENTAL LAWS AND REGULATIONS MAY EXPOSE THE COMPANY TO LIABILITY
AND RESULT IN INCREASED COSTS.

     The Company's business is subject to stringent environmental laws and
regulations in the various countries in which it operates. Such laws and
regulations govern, among other things, air emissions, wastewater discharges,
the use and handling of hazardous substances, waste disposal and the
investigation and remediation of soil and groundwater contamination. As with
other companies engaged in similar activities, a risk of environmental
liability is inherent in its current and historical activities. See "Item 4.
Information on the Company--Environmental Matters" in this Annual Report.

                                                                               6
<PAGE>


     THE COMPANY'S BUSINESS MAY BE ADVERSELY AFFECTED BY RIGOROUS HEALTH AND
SAFETY REGULATION.

     Certain of the Company's products are subject to rigorous health and
safety regulations. There is a risk that key raw materials or one of the
Company's products may be recharacterized as or found to have a toxicological
or health related impact on the environment or on its customers or employees.
Health and safety regulations are continually strengthened and relevant raw
materials or products may be banned or the Company may incur increased costs
in complying with new requirements.

     LIABILITIES ARISING FROM THE DEVELOPMENT, MANUFACTURING AND USE OF THE
COMPANY'S PRODUCTS MAY ADVERSELY IMPACT THE COMPANY'S FINANCIAL CONDITION.

     The Company's operations are subject to various hazards associated with
the production of chemicals, including the use, handling, processing, storage
and transportation of hazardous materials. These hazards can cause personal
injury and loss of life, severe damage to and destruction of property and
equipment, and environmental damage, and may result in the suspension of
operations and the imposition of civil and criminal liabilities. The Company
has been subject to claims of injury from direct exposure to such materials
and from indirect exposure when such materials are incorporated into other
companies' products. As a result of past or future operations, there may be
additional claims of injury by employees or members of the public due to
exposure, or alleged exposure, to such materials. Furthermore, the Company
also has exposure to present and future claims with respect to workplace
exposure, workers' compensation and other matters arising from events both
prior to and after the date of this Annual Report. The Company cannot predict
the actual amount of these liabilities or the timing thereof, if any.

     CHANGE OF CONTROL PROVISIONS AND LIMITATIONS ON SHAREHOLDER VOTING RIGHTS
MAY RENDER THE COMPANY AN UNATTRACTIVE TARGET FOR ANY TRANSACTION IN WHICH THE
COMPANY'S INVESTORS COULD RECEIVE A PREMIUM FOR THEIR SHARES OR ADSS.

     Certain contractual arrangements with Novartis and restrictions on the
voting rights of shareholders of the Company may make an acquisition of the
Company less likely, and thus may limit any opportunity for the Company's
shareholders to receive a premium for their Shares or ADSs. Because the
spin-off of the Company from Novartis qualified as a tax exempt transaction
under Swiss tax law, the Company may be restricted from disposing of certain
assets, and may face adverse Swiss tax consequences if a change of control in
the Company occurs. Similarly, the Company may face adverse tax consequences
in foreign jurisdictions if certain material parts of the business are
divested. Accelerated vesting provisions and the elimination of restriction
periods under one or more employee incentive plans instituted by the Company
could result in a significant cost to the Company in the event of a change of
control not recommended by the Company's board of directors.

     Additionally, a change in control of the Company or a sale of
substantially all the assets of the Company could relieve Novartis of its
contractual obligation to indemnify the Company for a portion of specified
environmental liabilities arising from prior activities of the predecessor of
the Company in the United States.

     Pursuant to the Company's articles of association, no shareholder or
group of shareholders of the Company will be recognized in the Company share
register as owning the voting rights of more than 2 percent of the Company's
share capital. No shareholder or group of shareholders may represent more than
5 percent, by proxy or otherwise, of the Company's share capital at a
shareholders' meeting.

     UNDER CERTAIN CIRCUMSTANCES, THE COMPANY MAY NOT BE PERMITTED TO CONTINUE
TO USE THE NAME "CIBA", WHICH COULD ADVERSELY AFFECT ITS BRAND NAME
RECOGNITION AND ITS RESULTS OF OPERATIONS.

     Pursuant to an agreement between the Company and Novartis, the Company is
permitted to use "Ciba Specialty Chemicals" as part of its registered
corporate name, while Novartis may continue to use the name "Ciba" in the Ciba
Vision Group and in certain other cases. The Company is entitled to use the
"Ciba" trademarks and trade names outside the core business of Novartis
(pharma specialties, pharma OTC and generics, eyecare, crop protection, seeds,
animal health and nutrition). Novartis remains entitled to continue to use
trademarks and trade names containing the term "Ciba" as they were being used
at the date of the Spin-off. In addition, Novartis is entitled to use
trademarks and tradenames containing the term "Ciba" in the areas for its
marketing concept for the "Ciba" line of pharmaceutical products and for
products and services of the Ciba Vision Group. In addition, the Master
Spin-off Agreement entered into by the Company and Novartis includes
provisions which specify that upon the occurrence of certain change of control
events or acquisitive transactions involving the Company or other members of
the Company, or in the event any member of the Company begins to compete
materially with Novartis' business as in existence as of the time of the
Spin-off, the Company may be required to cease using "Ciba" as a corporate
name or to pay Novartis significant liquidated damages for its continued use.
The above restrictions could affect the Company's ability to conduct its
business with its present and future customers. Even if the Company is able to
establish brand name recognition under a new name, it may incur significant
expenses in doing so, which could adversely affect its future results of
operations.

     THE INTRODUCTION OF THE EURO AND THE REPLACEMENT OF CURRENCIES IN WHICH
THE COMPANY PRESENTLY CONDUCTS BUSINESS MAY ADVERSELY AFFECT THE OPERATIONS OF
THE COMPANY.

     The introduction of the euro in twelve of the fifteen member states of
the European Union may continue to have an impact on the Company's operations.
These potential impacts include, but are not limited to, increased
cross-border price transparency and tax and legal implications (such as easier
harmonization).

     THE COMPANY'S SHARE PRICE MAY BE HIGHLY VOLATILE AND SUBJECT TO SUDDEN
AND SIGNIFICANT DROPS.

     The trading price of the Shares and the ADSs has been, and could in the
future continue to be, subject to significant fluctuations in response to
variations in the Company's financial performance, regulatory and business
conditions in the specialty chemicals industry, general economic trends and
other factors, some of which are unrelated to the operating performance of the
Company. For more information on the historical price ranges of the Company's
shares and the ADSs see "Item 9. The Offer and Listing - Principal Trading
Market and Price Range.". From time to time, following periods of volatility
in the market price of a company's securities, securities litigation has been
instituted against that company. The institution of any such litigation
against the Company could result in substantial costs and a diversion of the
Company's management's attention and resources, which could materially
adversely affect its business, results of operation and financial condition.

     THE COMPANY'S INABILITY TO SUCCESSFULLY MANAGE AND INTEGRATE BUSINESSES
ACQUIRED OR ITS ALLIANCES MAY ADVERSELY IMPACT THE COMPANY'S RESULTS
OPERATIONS AND FINANCIAL CONDITION.

     The Company has made and expects to continue to make acquisitions and to
enter into alliances from time to time. Acquisitions and alliances present
significant challenges and risks relating to the integration of the acquired
business into the existing business of the Company. There can be no assurances
that the Company will manage the integration of acquisitions and alliances
successfully.

                                                                               7
<PAGE>


ITEM 4.  INFORMATION ON THE COMPANY

HISTORY AND DEVELOPMENT

     Ciba Specialty Chemicals Holding Inc.'s registered office is located at
Klybeckstrasse 141, CH-4002 Basel, Switzerland, telephone +41 61 636 1111.

     Ciba Specialty Chemicals Holding Inc. was first registered as a
corporation in Switzerland on April 24, 1996, and began to conduct the
specialty chemicals business of the former Ciba-Geigy Limited ("Ciba-Geigy")
as of January 1, 1997. Until the merger of Ciba-Geigy and Sandoz Limited
("Sandoz") into Novartis AG ("Novartis"), as described below, the businesses
of the Company were part of Ciba-Geigy. Ciba-Geigy was formed in 1970 through
the merger of CIBA Aktiengesellschaft ("CIBA") and J.R. Geigy AG ("Geigy"),
two Basel, Switzerland-based chemicals and pharmaceuticals multinationals.

     The Company's roots go back to 1757 when Geigy, the oldest chemical
company in Basel began trading in chemicals and dyes. In 1925, Geigy began
research into textile chemicals and in the 1930s turned its attention to
agrochemicals. A pharmaceuticals division was formed in 1938.

     In 1970, Geigy merged with CIBA, a chemical company founded in 1884 in
Basel. CIBA developed its first pharmaceutical products in 1889 and added
other products such as textile auxiliaries and finishing products, cosmetics
and plastics in the 1920s. It introduced epoxy resins in 1946 and began to
manufacture plant protection products in 1954, followed by products for animal
health and hygiene in 1959.

     On March 7, 1996, the boards of directors of Ciba-Geigy and Sandoz
announced the merger of the two companies to form Novartis (the "Merger"). The
Merger was approved at the shareholders' meetings of Ciba-Geigy and Sandoz on
April 23, 1996 and April 24, 1996, respectively. As part of their vote on the
Merger, the shareholders of Ciba-Geigy and Sandoz also approved the spin-off
to the stockholders of Novartis of Ciba-Geigy's specialty chemicals divisions
at that time, Additives, Consumer Care, Performance Polymers, Pigments and
Textile Dyes (the "Spin-off") (in 1998, Pigments and Textile Dyes were
combined by the Company to form the Colors division). The Merger became
effective on December 20, 1996. On March 13, 1997, the former Ciba-Geigy
specialty chemical divisions were listed on the Swiss Exchange as an
independent new enterprise, Ciba Specialty Chemicals Holding Inc.

     In connection with the Spin-off, the Company issued 72 105 116 Shares and
an equal number of rights to subscribe for such Shares at a subscription price
equal to CHF 10 per Share. On February 25, 1997, holders of shares of Novartis
were issued one right for each Novartis share held by them. A syndicate of
banks subscribed for all the Shares issued by the Company for CHF 721 051 160.
The Company used substantially all of the proceeds of such subscription to
repay an advance made by Novartis in connection with the Spin-off. In a rights
offering, the banks offered the Shares for subscription by the holders of
rights. In addition, the banks made a rights bid in which they offered to
purchase any rights tendered to them for CHF 90 per right. Following the
consummation of the rights offering and the rights bid, on March 13, 1997, the
banks sold in a global offering 3 013 489 Shares at a price of CHF 110 per
Share. The Shares sold in the global offering consisted of Shares acquired by
the banks through the exercise of rights purchased by them in the rights bid
and Shares sold to the banks by Novartis. The Company did not receive any
proceeds from the global offering.

     In early 2001, the Company implemented a new organizational structure
comprising five segments ("Segments") focused on specific customer markets.
The five reporting Segments are Plastic Additives, Coating Effects, Water &
Paper Treatment, Textile Effects and Home & Personal Care. Each Segment is
responsible for marketing, research and development, technology, production
and sales. The mission of the Segments is to provide the best and most
complete service to its customers' industries and strive for market leadership
in its respective area. To ensure that innovation efforts are successfully
shared across Segments a corporate technology office under the leadership of a
Chief Technology Officer was created. All Segments share support functions
such as finance and accounting, human resources, communications, legal,
information technology (IT) infrastructure and supply chain services.

     While each Segment has a lasting role in providing for a well-balanced
portfolio for the Company, they are positioned for growth and higher
profitability through different approaches: innovation (Plastic Additives and
Coating Effects), cost leadership (Textile Effects) and by concentrating on
business growth (Water & Paper Treatment and Home & Personal Care).

     To accelerate the speed of decision-making and implementation, the
Company's new structure ended the dual business responsibility between
divisions and business units and allocated the full responsibility to the
Segments. This speeded up decision-making and implementation allowing the
Company to become faster and more flexible, gaining a competitive advantage in
a fast-changing environment. Support functions are provided through shared
structures on a global basis. As part of the reorganization, the Company
initiated an integration of its previous three supply chains into a single
global supply chain. This initiative is ongoing and is expected to be
completed in 2003. Additionally, the Company is moving towards an integrated
e-business platform and standardized core processes for finance, human
resources, information technology and communications. These integration and
standardization actions allows the Segments to devote their full attention to
meeting customer needs.

     Acquisition and divestiture activities

     Effective January 1, 1998, the Company and Witco Corporation (Witco)
exchanged, in a one-for-one transaction, the then Additives division's PVC heat
stabilizer business for Witco's epoxy systems and adhesives business. The
transaction was accounted for as a sale and a purchase. The business acquired
was integrated into the Performance Polymers division, which was sold on May 31,
2000, and is included in discontinued operations in the Consolidated Financial
Statements. The resulting goodwill was being amortized over 20 years. The
Company's non-cash gain on the assets sold is included in the 1998 restructuring
and special charges in the Consolidated Statements of Income.

     On April 1, 1998, the Company completed the acquisition of Allied Colloids
Group PLC, a leading global water treatment company organized and listed in the
United Kingdom ("Allied Colloids"), for CHF 3 615 million, including acquisition
costs of CHF 110 million. The acquisition of Allied Colloids resulted in the
creation, in 1998, of a new Water Treatments division in the Company. As a part
of on-going efforts to achieve operational efficiency, management, in April
1999, integrated the Water Treatments business into the then Additives division.
In 2001, under the reorganization of the Company into five segments, the Water
Treatments business was combined with the Company's paper chemicals business to
create a new segment Water & Paper Treatment.

                                                                             8

<PAGE>
     In March 1999, the Company sold its 30 percent interest in Cerdec AG for
net cash proceeds of CHF 70 million (DEM 85 million), resulting in a pre-tax
gain of CHF 39 million or CHF 37 million after tax.

     In March 2000, the Company completed the purchase of Prochimica s.r.l., the
Company's key photoinitiator supplier of its Coating Effects Segment. The
Company paid CHF 85 million.

     On May 31, 2000, the Company completed the sale of the Performance Polymers
business to Vantico, a company established by Morgan Grenfell Private Equity,
the then private equity arm of Deutsche Bank AG, and to certain Asian joint
venture partners. Total gross proceeds from the sale were CHF 1.6 billion, which
includes net debt assumed of approximately CHF 160 million. Net debt consists of
approximately CHF 71 million of third party debt and approximately CHF 121
million of debt to Ciba Specialty Chemicals, offset by approximately CHF 32
million of cash. This divestiture underscores the Company's strategy of focusing
its portfolio on specialty chemicals rather than specialty materials. The
Company realized an after tax net gain from discontinued operations of CHF 34
million, after consideration of the Performance Polymers business operating
results through May 31, 2000, the results of the divestment transaction taxes
and costs of selling the business.

     In November 2000, the Company concluded the acquisition of certain
paper-chemical product lines and technology from Cytec Industries for a total
purchase price of approximately CHF 40 million (USD 23 million). The acquisition
complements and expands the Water & Paper Treatment's product offerings to the
paper industry, one of its strategic industry segments.

     In December 2000, the Company sold approximately 81 percent or 14 525 000
shares of its holding in its equity affiliate Hexcel Corporation ("Hexcel") to
an investor group led by Goldman Sachs for CHF 277 million (USD 160 million), of
which CHF 62 million (USD 36 million) is payable with a 7 percent interest
bearing note, due December 31, 2004. This divestment underscores the Company's
strategy to exit joint ventures which have little strategic fit with its core
business. Hexcel is focused on specialty materials and not on specialty
chemicals. As a result, after the sale of the Performance Polymers business,
this investment no longer supported or supplemented the growth of the Company's
remaining core businesses and therefore, divestment steps were undertaken. In
2000, the Company recognized a pre-tax gain on this divestment of approximately
CHF 71 million or CHF 50 million after tax.

     In order to optimize the Plastic Additives Segment's global manufacturing
network, the Company acquired, in January 2001, a controlling interest in
Musashino-Geigy Co. Ltd. ("Musashino-Geigy"), increasing its holdings from 50
percent to 60 percent. Musashino-Geigy has a facility in Isohara, Japan and
produces antioxidants, UV absorbers and blends for plastics.

     As part of its focus on core businesses, in March 2001, the Company sold
its 50 percent interest in TFL Ledertechnik GmbH & Co. KG, an international
chemical company whose products and technical services are geared exclusively to
the needs of the leather industry. The net proceeds received of CHF 62 million
approximated the carrying value of the investment at the date of sale.

     To expand Coating Effects service business and its high value added
products offerings, in June 2001, the Company acquired EFKA Additives B.V.
("EFKA") for a total purchase price of approximately CHF 65 million. EFKA
manufactures, markets and distributes additives for the coatings and inks
industries.

     To expand the flame retardant business of Plastic Additives and its
offerings to combine flame retardancy with other effect additives in customized
solutions, the Company, in May 2002, purchased Melapur B.V. ("Melapur") from DSM
N.V. for approximately CHF 22 million. Melapur markets and distributes
halogen-free melamine-based flame retardants. If the Melapur business reaches
certain sales milestones over the next three years, additional purchase
consideration of up to CHF 5 million (euro 3.5 million) will be paid to DSM N.V.

     Capital expenditures

     Ciba Specialty Chemicals' aggregate capital expenditures for property,
plant and equipment were CHF 250 million in 2002, CHF 259 million in 2001 and
CHF 249 million in 2000. In 2002 and 2001, capital expenditures were focused
primarily on efficiency and safety improvement-related items. The Company has
also continued to make some major investments in the imaging & inks, coatings
and plastics business lines of Coating Effects (the quinacridone project in
the United States, which was finished in 2001) and the core Water & Paper
Treatment business (increasing the production for cationic monomers in the
United States, which was finished in 2001).

     BUSINESS OVERVIEW

     Ciba Specialty Chemicals is one of the world's leading developers and
producers of specialty chemicals which are high value added chemical products
used as key components and in a wide variety of consumer and industrial
products. The Company operates on a global basis with manufacturing facilities
in 25 countries and sales organizations in more than 120 countries.

     In 2002, the Company had net sales from continuing operations of
CHF 7 085 million, operating income of CHF 788 million and net income of
CHF 406 million.

     Net sales, by geographic region of the Company for the past three years
were as follows:

<TABLE>
<CAPTION>
                                                     2002                  2001                   2000
                                               ---------------        ---------------        --------------
    <S>                                         <C>       <C>          <C>      <C>          <C>       <C>
    amounts in CHF millions                     Sales     in %         Sales    in %         Sales     in %
                                                -----     ----         -----    ----         -----     ----

    Europe  ............................        2 721      38%         2 755     37%         2 913      37%
    Americas(1)  .......................        2 459      35%         2 654     36%         2 936      37%
    Asia Pacific(2)  ...................        1 095      27%         1 958     27%         2 053      26%
-----------------------------------------------------------------------------------------------------------
    Total net sales  ...................        7 085     100%         7 367    100%         7 902     100%
-----------------------------------------------------------------------------------------------------------

(1)  The Americas are comprised of the regions North, Central and South America.

(2)  Asia Pacific is comprised of the regions Asia, Africa, the Middle East, Australia and New Zealand.

</TABLE>

                                                                             9
<PAGE>
     ORGANIZATION

     The Company's organizational structure consists of five Segments focused on
specific customer markets and various Group Service Units focused on providing
cost efficient support services to the Segments. To ensure that innovation
efforts are successfully shared across Segments the Company has created a
corporate technology office under the leadership of a Chief Technology Officer.
All Segments share the support functions provided by the Group Service Units,
which include finance and accounting, human resources, communications,
information technology (IT) infrastructure, legal and supply chain services.

     SEGMENTS

     The five reporting Segments are Plastic Additives, Coating Effects, Water &
Paper Treatment, Textile Effects and Home & Personal Care. The Company's
reportable Segments develop, manufacture and market different products, services
and solutions. They are managed separately because each Segment has different
customer markets and requires different technology and marketing strategies.
Each Segment is responsible for marketing, research and development, technology,
production and sales. The mission of the Segments is to provide the best and
most complete service to its customers' industries and strive for market
leadership in its respective area.

     Net sales, by Segment, of the Company for the past three years were as
follows:

<TABLE>
<CAPTION>
<S>                                             <C>                      <C>                    <C>
                                                   2002                  2001                   2000
                                                ---------------        -------------         --------------
     amounts in CHF millions                    Sales     in %         Sales    in %         Sales     in %
                                                -----     ----         -----    ----         -----     ----
     Plastic Additives  .................       1 813    25.6%         1 834   24.9%         1 959    24.8%
     Coating Effects  ...................       1 920    27.1%         1 944   26.4%         2 118    26.8%
     Water & Paper Treatment  ...........       1 409    19.9%         1 486   20.2%         1 558    19.7%
     Textile Effects  ...................       1 544    21.8%         1 673   22.7%         1 841    23.3%
     Home & Personal Care  ..............         399     5.6%           430    5.8%           426     5.4%
-----------------------------------------------------------------------------------------------------------
     Total net sales(1)  ................       7 085     100%         7 367    100%         7 902     100%
-----------------------------------------------------------------------------------------------------------
</TABLE>

     (1)  On May 31, 2000, the Company completed the sale of its Performance
          Polymers business and therefore excluded it from the segment data in
          2000.

     Plastic Additives is one of the leading global suppliers of additives to
the polymers and lubricants industries. The Segment develops, manufactures and
markets products and provides services to the plastic and lubricant industries.
The Segment's products are additives which are ingredients added in small
quantities to polymers and lubricants that prevent aging and corrosion and help
improve processing, appearance, durability and performance of finished goods
such as polyolefins and engineering plastics as well as high-performance motor
oils and lubricants. The service business adds value to customers by providing
solutions in product applications.

     Coating Effects is a leading global manufacturer of organic pigments and
the leading supplier of photoinitiators and lightstabilizers to the coatings,
graphic arts and electronic industries. The Segment develops, manufactures and
markets additives, pigments, as well as additive and pigment concentrates, for
the coatings, printing, imaging, electronic, plastics and synthetic fibers
industries. The end-user markets for its products and services are, among
others, the automotive, packaging, publication, electronics, construction,
photographic and digital printing industries.

     Water & Paper Treatment serves the paper and water treatment industries.
The Segment offers products and services to the global paper and board industry
focused on increasing mill productivity as well as "effect chemicals" which
provides solutions for its customers in order to determine appearance, handling
and performance of the paper or board. The Segment also offers products and
services used to treat the water streams in industrial and municipal
applications and to improve the efficiency of mineral and oil processing as well
as soil additives and specialty monomers.

     Textile Effects serves the textile industry, offering dyes and chemicals,
services and integrated solutions to customers along the whole textile value
chain. The Segment's products include dyes and chemicals for dyeing and printing
of almost all textile fibers, optical brighteners and textile finishing products
for protection and easy-care. Services offered by the Segment include color
standard development, via the Internet and technical consultancy regarding
textile color and effects management for international brand houses and
retailers.

     Home & Personal Care is one of the leading global suppliers to the home and
personal care market. The Segment develops, manufactures and markets products
for home and personal care end-use industries. Among its broad range of product
offerings are whiteners for detergents, antimicrobials for hygiene effects for a
variety of home and personal care products, UV absorbers for sunscreens and hair
dyes.

     GROUP SERVICES

     The Company has established a number of Group Service Units that are
responsible for providing cost efficient support services to the Segments. The
utilization of these centralized Group Service Units has two primary benefits to
the Company, they allow the Segments to fully concentrate on serving their
markets and customers and they reduce the overall costs as a consequence of
increased economies of scale. The functions of the main Group Service Units of
the Company are described in the following paragraphs.

     The Supply Chain Services organization is responsible for distribution of
all the finished products and order processing, warehousing and transportation
of products. They also are responsible for negotiating and managing the
Company's major transport partners, including the negotiation of the service
contracts. The Supply Chain Services organization maintains shared order desks
on a regional/country level that service all Segments with regards to order
taking and order processing, shipping and invoicing to the customer. A global
network of warehouses and distribution centers, both externally and internally
has been introduced and is being operated by the Supply Chain Services
organization to ensure adequate coverage of the Company's distribution
requirements.. Supply Chain Services is in the process of completing the
integration of the Company's three supply chains into a single global supply
chain, which is expected to be completed during 2003. The Supply Chain Services
organization is also currently working to significantly reduce the number of
partners in the transportation area with the ultimate goal to co-operate with
one global Lead Logistics Provider.

                                                                            10
<PAGE>
     The Global Infrastructure group, working with outsourcing partners, manages
the Company's information technology infrastructure including its wide area
networks. This Group Services Unit objective is to ensure that the Company's
global and regional information technology infrastructure set-up is optimized.

     The Company maintains twelve Business Support Centers that provide finance
and accounting services to the regions, instead of using numerous country
organizations. The Business Support Centers, using standardized financial
systems, provide control, treasury and information management services to the
Company for financial and corporate applications. They are responsible for
ensuring the accuracy, validity and timeliness of financial reporting.

     Corporate functions such as legal, environmental, communications and human
resources are managed through eight Regional Presidents Offices.

     Headquarters is responsible for strategy and corporate governance.

     EQUITY AFFILIATES

     The Company, from time to time, acquires and disposes of participation in
entities to balance its portfolio of businesses and help achieve strategic
objectives. The Company's investments in equity affiliates resulted in total
income from earnings of equity affiliates of CHF 6 million in 2002; CHF 8
million in 2001 and CHF 113 million in 2000.

     The Company invests in equity affiliates where its analysis indicates that
such investment will support and supplement the growth of its core business.
Some of these investments are made in countries where legislation requires or
custom dictates local investor control or participation. The Company holds an
active interest in its equity affiliates.

     The Company's most significant investments in equity affiliates as of
December 31, 2002 are a 50 percent interest in each of CIMO Compagnie
Industrielle de Monthey SA and Daihan Swiss Chemical Corp. CIMO Compagnie
Industrielle de Monthey SA is a joint venture with Syngenta that provides
infrastructure services and utilities to the partner's manufacturing facilities
in Monthey Switzerland. Daihan Swiss Chemical Corp. is a joint venture with
Daihan Color Ind. Co., Ltd., which has a pigments facility in Ulsan, Korea, and
makes classical pigments for inks, paints, plastics and synthetic fibers.

     In order to optimize the Plastic Additives Segment's global manufacturing
network, the Company acquired, in January 2001, a controlling interest in
Musashino-Geigy Co. Ltd., increasing its holding from 50 percent to 60 percent.
As a result, beginning in 2001, its operations have been consolidated with those
of the Company. Musashino-Geigy has a facility in Isohara, Japan and produces
antioxidants, UV absorbers and blends for plastics.

     As part of its focus on core businesses, in March 2001, the Company sold
its 50 percent interest in TFL Ledertechnik GmbH & Co. KG, an internationally
active chemical company whose products and technical services are geared
exclusively to the needs of the leather industry. The net proceeds received of
CHF 62 million approximated the carrying value of the investment at the date of
sale.

     The Company's most significant investment in equity affiliates during 2000
was a 49.3 percent interest in Hexcel, a leading producer of advanced structural
materials. Hexcel develops, manufactures and markets lightweight,
high-performance reinforcement products, composite materials and engineered
products for use in the aerospace, space, electronics and industrial markets.

     In December 2000, the Company sold approximately 81 percent or 14 525 000
shares of its holdings in Hexcel to an investor group led by Goldman Sachs at
USD 11 per share. Total proceeds were CHF 277 million (USD 160 million), of
which CHF 62 million (USD 36 million) is payable with a 7 percent interest
bearing note, due December 31, 2004. In 2000, the Company recognized a gain on
this divestment of approximately CHF 71 million or CHF 50 million after tax or
CHF 0.75 per share. This divestment underscores the Company's strategy to exit
joint ventures which have little strategic fit with its core business. Hexcel is
focused on specialty materials and not on specialty chemicals. As a result,
after the sale of the Performance Polymers business, this investment no longer
supported or supplemented the growth of the Company's remaining core businesses
and therefore, divestment steps were undertaken.

     Hexcel's 2000 results increased operating income of the Company by CHF 66
million or approximately 8 percent. Included in this income from earnings of
equity affiliates is CHF 57 million, representing the Company's share of the
operating gain recognized by Hexcel on the sale of its Bellingham Aircraft
business.

     COMPANY STRATEGY

     VALUE BEYOND CHEMISTRY

     Ciba Specialty Chemicals' objectives are to build upon its leading
positions in selected segments of the specialty chemicals industry and is
committed to be number one in all of its chosen markets. The Company strives to
be the partner of choice for customers seeking innovative effects to enhance the
performance of their products. The Company brings the benefits of leading-edge
research to the real world to improve the quality of people's lives and deliver
value to its customers, shareholders and employees.

     The Company's strategy for achieving these objectives contains the
following elements:

         Build upon Strong Global Market Positions. The Company will continue
      its efforts to build upon its strong global market positions in existing
      product areas. The Company will seek to capitalize upon its leading
      positions, and to reduce its exposure to regional or industry-specific
      economic conditions, by further expanding in Asia and other rapidly
      growing markets through economical expenditures for research and
      development and capital improvements and by pursuing selective
      acquisitions and strategic alliances. Management expects opportunities
      for growth to arise from increasing globalization and continuing
      consolidation within industries it serves. Strategically, the Company
      will seek to achieve an appropriate level of diversity within its
      businesses, while at the same time maintaining focus and containing risk
      within naturally linked business sectors where the Company can achieve
      and maintain leading market positions.

         Focus on Serving the Customer. The Company's management is of the
      opinion that producing high quality products and providing high quality
      technical service with dependable supply are key factors in the
      Company's ability to compete successfully in the specialty chemicals
      market.

                                                                            11
<PAGE>
      Management is of the opinion that the Company's commitment to
      customer service has resulted in strong customer relationships and a
      high degree of customer loyalty. In response to the trend of increasing
      globalization among the Company's customers, the Company is emphasizing
      key account management for global customers. The Company has aligned
      itself more closely with its customer industries by forming five strong
      business Segments with clear direction, market focus and global business
      responsibility. Management is of the opinion that customers want a
      single point of contact for accessing the Company's products and
      services and they want fully integrated solutions tailored to their
      needs and their industries. Each Segment has the mission of meeting
      these needs - serving the customer under one strong brand and one
      corporate identity - and understanding and anticipating customer needs
      to help make the Company's customers and their products more competitive
      and profitable. The Company strives for leading positions in all of its
      activities.

         Build upon Three Business Models. The Company has shifted its focus
      from selling specialty chemicals to providing high value-added effects
      to its customers' products. The Company is pursuing a strategy of
      managing its extensive portfolio with three separate business models to
      accommodate its broad and interconnected customer base.

         o   'Specialty' products offer broad growth opportunities, are
             protected either by patents or proprietary knowledge and bring
             considerable value to the Company's customers through
             differentiation.

         o   'Semi-specialties' provide growth opportunities in attractive
             niche markets while offering somewhat lower differentiation. Key
             to managing these products is operational excellence - consistent
             high quality, low-cost production and supply performance.

         o   Comprehensive customer `Services' is an emerging area, whereby
             the Company leverages and markets its unique competencies,
             expertise, advice and consulting talents to its customers. This
             offers strong revenue growth potential, although from a lower
             base.

         The Company's acquisition and divestment activities underscores the
      commitment to the strategy focusing on high value-added products and
      technologies in specialty chemicals that generate innovative effects for
      customers and consumers. This strategy allows the Company to focus its
      resources on the high potential market segments in its portfolio and on
      funding further innovation in these and related areas for future
      profitable growth. The Company will continue its efforts to explore and
      capture needs and opportunities across the total value chain and to
      provide total fully integrated solutions to its customers.

         Promote and Accelerate Innovation. The Company's management is of the
      opinion that it is widely recognized in the markets in which it serves as
      a leading innovator for technologically advanced products. The Company's
      research and development activities are conducted on a decentralized basis
      through each of its Segments in order to respond more effectively and
      efficiently to market trends and specific customer requirements. To
      facilitate the sharing and leveraging of core technical competencies and
      identifying new fields to explore in attractive markets, the Company has a
      Chief Technology Office under the leadership of a Chief Technology Officer
      and a Research and Technology Board, which includes representation from
      all of the Segments. Historically, the Company has invested approximately
      3 to 4 percent of net sales in research and development activities.
      Management intends to continue to invest in research and development at a
      similar level in the future. Management also intends to continue to invest
      in product innovation in order to provide products that offer distinct
      "value in use". Value in use encompasses not only the price and physical
      performance of the Company's products but also the beneficial impacts they
      have on the Company's customers' products and production processes (for
      instance, by reducing energy consumption and environmental costs). The
      Company's management is of the opinion that the Company's substantial
      investments in environmentally compatible product technologies and
      processes will enable the Company to take advantage of business
      opportunities created by increasingly stringent regulatory standards.

         Achieve Best in Class Manufacturing. Management is committed to
      increasing the cost competitiveness of the Company's businesses by
      improving the efficiency of existing operations and reducing costs. The
      Company's Manufacturing Council is responsible for worldwide coordination
      with the Segments of the Company's manufacturing assets, including
      utilization of production capacities and associated capital expenditure
      requirements. The Company intends to increase its production capacity
      through continued productivity improvements, debottlenecking, improved
      utilization of existing plants and outsourcing when such activities are
      more economical than constructing new plants. Identification and
      rationalization of underutilized assets will be a priority, complemented
      by a new focus on reducing capital intensity and costs, to match or exceed
      benchmark industry standards. The Company is in the process of completing
      the integration of its previous three supply chains into a single global
      supply chain system that will increase efficiency across the Company. This
      initiative is ongoing and the integration is expected to be completed
      during 2003.

     CHEMICALS INDUSTRY OVERVIEW

     The chemicals industry is generally divided into three major categories:
commodity chemicals, intermediates and specialty chemicals. Commodity
chemicals and intermediates are produced in large volumes using established
manufacturing processes and generally have multiple producers and do not
command high premiums. Specialty chemicals, such as those produced by the
Company, are high value-added products used in the manufacture of a wide
variety of products. They are produced in relatively low volumes which must
satisfy well-defined performance requirements and specifications. Specialty
chemicals are often critical components of the end products in which they are
used. Consequently, they are often developed for customers' specific
manufacturing requirements, making substitution of alternative products more
difficult and resulting in a close relationship between the specialty
chemicals producer and the customer. Rapid response to customers, consistent
product quality and reliability of supply are important competitive factors in
specialty chemicals businesses, with price competition generally increasing as
particular industry segments mature and customers or other chemical companies
consolidate or otherwise become more global. Continuous innovation and
development of new product applications and process improvements give scope
for long-term value added and attractive profit margins.

     Management is of the opinion that patent protection and trademarks alone
do not create a sustainable competitive advantage in the specialty chemicals
industry. A specialty chemicals company's ability to extract value from its
patent protected products and processes is dependent upon its ability to apply
its technical expertise in the manufacturing process to meet customer
requirements.

     The Company estimates that the global specialty chemicals market is
valued at around CHF 100 billion and consists of some 40 market segments.

                                                                            12
<PAGE>


     PLASTIC ADDITIVES

     OVERVIEW

     Plastic Additives maintain or improve the desirable properties, or
suppress the adverse properties, of materials and improve the stability of
these materials during processing, thereby facilitating or improving the
efficiency of industrial processes. In addition, additives can improve quality
and provide long-term stability and economical viability for the final product
by, for example, protecting the product against aging, corrosion or wear.

     Plastic Additives business has for many years experienced strong growth
and profitability resulting from its leadership in the additives markets. The
Segment is the leading supplier of stabilizers and stabilizer systems to the
plastics industry. In addition, the Segment is a leading supplier of ashless
antioxidants and extreme pressure and antiwear agents to the lubricant
industry.

     Plastic Additives is managed as an integrated global business and
primarily focuses on three market segments: (i) Polymer Products, (ii) Base
Polymers, (iii) Process and Lubricant Additives.

     The additives market is affected by shorter-term economic and industrial
cycles experienced by its customers, particularly in the plastics and oil
industries, which in turn are dependent on the automotive, construction and
packaging industries. Increasing environmental and safety regulations
governing the industries of the Company's customers have also affected the
additives market. These regulations have resulted in an increased demand for
more innovative products with lower environmental impacts. The Company's
products are developed for sensitive applications, such as use with food and
drinking water. These applications are subject to a higher degree of
regulatory control. Other regulatory initiatives being introduced in the area
of environmental control (for example, the removal of volatile organic
chemicals) have led to the reformulation of some products and greater
engineering oversight in production by the Company. Management estimates that
the additives market in which the Segment operates was approximately CHF 15
billion in 2002, of which the polymer products and base polymers market
represented CHF 8 billion and the lubricant additives market CHF 7 billion.

     Management is of the opinion that many industries served by Plastic
Additives will experience significant growth in future periods. In certain
areas of these industries demand for additive products is expected to be equal
to or in excess of this industry growth. The Segment's extension beyond
stabilization into additives for properties modification should contribute to
above market growth. Additives for lubricants also have the potential for
sales growth in excess of market growth, principally due to replacement of
older formulations by more effective and environmentally compatible products.
Management is of the opinion that the Company's Segment Plastic Additives is
well positioned to participate in these growth areas with its products.

     The table below sets forth certain historical combined financial
information and the percentage contribution to the consolidated Company net
sales from continuing operations for Plastic Additives for the years ended
December 31, 2002, 2001 and 2000.

<TABLE>
<CAPTION>
       (amounts in millions of CHF)                                    2002             2001             2000
                                                                   ------------     -----------      ------------
      <S>                                                             <C>              <C>              <C>
       Total Segment net sales  ............................          1 813            1 834            1 959
       Operating income  ...................................            245              275              319
       Capital expenditures  ...............................             86               80               67
       Research and development expenditures  ..............             81               73               82
       Contribution to the consolidated Company net sales
        from continuing operations, in percentage  .........          25.6%            24.9%            24.8%
       ----------------------------------------------------------------------------------------------------------
</TABLE>

     STRATEGY

     LEVERAGING INDUSTRY LEADERSHIP

     The Plastic Additives Segment will continue to leverage its leading
position in the global polymer additives market through innovation and
marketing alliances to provide new effects, integrated customized solutions
and one-stop shopping to the plastics industry. Growth is supported by
operational excellence, in particular, lowest-cost manufacturing. Innovation
supports differentiation in the traditional stabilizer business and provides
technology platforms for new areas such as surface modifiers and flame
retardants. In the lubricant additives market, meeting the ever-increasing
trend toward higher engine performance with environmentally friendly products
provides substantial growth opportunities. New business opportunities will
continue to be developed either through research and development activities or
selective acquisitions.

     PRODUCTS

     Plastic Additives products add value to the polymer and lubricant
industries. The Segments product offerings for the polymer industry include:

     o    Polymer Protection products such as antioxidants, processing
          stabilizers, UV absorbers and hindered amine light stabilizers
          (HALS)

     o    Special Effects such as antifogging agents, antistatic agents, slip
          agents, antimicrobials, clarifying agents, shelf life extension,
          flame retardants, optical brighteners and additives for degradable
          plastics.

     o    Products for Polymer Recycling such as antioxidants and light
          stabilizer systems.

     o    Specialized product forms and multicomponent product packages which
          simplify the incorporation process and improve worker hygiene and
          resin quality.

     o    Products for Polymer Design such as polymerization regulators.

     The Segment's leading product lines in the polymer protection category
are Ciba(R) IRGANOX(R) antioxidants, Ciba(R) IRGAFOS(R) processing
stabilizers, Ciba(R) FIBERSTAB(R) L phenol-free processing stabilizers,
Ciba(R) IRGASTAB(R) FS phenol-free processing stabilizers, Ciba(R)
CHIMASSORB(R) light stabilizers /UV absorbers, Ciba(R) TINUVIN(R) light
stabilizers /UV absorbers.

     In addition to the Segment's traditional Ciba(R) IRGANOX(R) heat
stabilizer range, Ciba(R) IRGANOX(R) HP and Ciba(R) IRGANOX(R) XP are examples
of how additives support the polymer industry with new, innovative products
and services. Both the Ciba(R) IRGANOX(R) HP and Ciba(R) IRGANOX(R) XP ranges
combine HP-136, the Company's innovative lactone technology, with established
high-performance phosphites. Some examples of applications for

                                                                            13
<PAGE>
these products are Ciba(R) IRGANOX(R) HP which ensures excellent stabilization
for polyurethane foams and provides excellent protection of polyolefin during
processing.

     The Ciba(R) IRGAFOS(R) processing stabilizer range ensures efficiency in
processing and maintenance of polymer properties across a broad range of
processing conditions.

     Ciba(R) FIBERSTAB(R) L & Ciba(R) IRGASTAB(R) FS phenol-free processing
stabilizers systems set a new standard in the processing stabilization of
polyolefin fibers with excellent gas-fade resistance. They provide outstanding
processing stability to polyolefin fibers while virtually eliminating any
gas-fade discoloration that may occur when phenolic systems are used. The
systems also provide good long-term thermal stability and enhanced light
stability. Ciba(R) FIBERSTAB(R) L is particularly suited for PP fiber
applications such as carpets and hygienic non-wovens.

     Ciba(R) CHIMASSORB(R) 2020 is a new high performance hindered amine light
stabiliser with high molecular weight. Optimizing the balance between
exceptional UV stabilisation, long-term thermal stabilisation, minimal pigment
interaction, and improved melt flow control, Ciba(R) CHIMASSORB(R) 2020
exemplifies Ciba's continuing efforts to achieve the best performance in UV
light protection possible, complimenting the already comprehensive range of
Ciba(R) CHIMASSORB(R) light stabilisers.

     Ciba(R) TINUVIN(R) light stabilizers /UV absorbers constitute a complete
range of products for providing light stability to polyolefins, engineering
plastics, adhesives and elastomers. Examples of new innovative products
include Ciba(R) TINUVIN(R) 123 S as the preferred solution for demanding
polyolefin outdoor applications and Ciba(R) TINUVIN(R) 1577 as the innovative
UV absorber for glazing, thin films and laminates.

     Ciba(R) POLYAD(R) customer-specific blends are multi-component additive
packages in easy-to-handle forms.

     The Segment's leading product lines in the special effects additives
category are ATMER(TM)- antifogging agents, Ciba(R) IRGASTAT and ATMER(TM)-
antistatic agents, ATMER(TM) SA - slip agents, Ciba(R) IRGAGUARD(TM)
antimicrobial line, including Ciba(R) IRGAGUARD(TM) A - antialgae and Ciba(R)
IRGAGUARD(TM) B - antibacterial, - antimicrobials, Ciba(R) IRGACLEAR(R) -
clarifying agents, Ciba(R) SHELFPLUS(R) - shelf life extension, Ciba(R)
FLAMESTAB(R)NOR(TM) - flame retardant, Ciba(R) UVITEX(R) optical brighteners.

     The Segments polymer products are branching out from their core polymer
protection and stabilization business to take advantage of new market
opportunities in the area of property enhancement. With a new focus on surface
modification, the Segment is improving materials with special physical
effects, thereby improving surface properties and product performance. A step
in this direction has been the expansion of an antistatic and antifogging
product range, which modifies surfaces to temper the buildup of static charge
or water as fog.

     The trend of plastics replacing other materials, such as glass and wood,
is expected to continue. This offers the Segment opportunities to further work
with customers to develop new applications for the Segments products, for
example, in the automotive industry where engineering plastics are replacing
traditional materials. In addition, in the area of base polymers the Segment
is continuously expanding its services businesses area to provide customers
with tailor-made additives blends as part of a market approach that emphasizes
customer contact and quick response times.

     In 2001, Plastic Additives Segment introduced "CIBA EXPERT SERVICES(TM)"
which enhances the customers' business performance via the delivery of
knowledge-based services. This is accomplished by applying a global services
network possessing Plastic Additives' comprehensive expertise and experience
in the plastics industry. "CIBA EXPERT SERVICES(TM)" is an innovative business
approach drawing on more than 50 years of experience in supporting the
Company's global plastics business. This well recognized know-how and
experience is now available on the open market.

     For the lubricant industry, the Segment offers:

     o    Single components for engine oils and industrial lubricants such as
          antioxidants, extreme pressure/ antiwear additives, friction
          modifiers, corrosion inhibitors and metal deactivators.
     o    Services such as preblends and
     o    Additives packages for industrial lubricants.


     In the Process and Lubricant Additives business, the focus is on working
with customers to develop additives for lubricants, such as Ciba(R)
IRGALUBE(R) F10, that enhance the performance of engine oils while providing
environmental benefits.

     Management is of the opinion that products such as additives for plastics
recycling and ashless antioxidants for lubricants are becoming more important
with increased environmental awareness and regulation.

     CUSTOMERS AND END-USER MARKETS

     In 2002, end-user markets such as the packaging industry accounted for
approximately 27 percent of the Segment's sales, the construction industry for
17 percent, the plastic industry for 15 percent, automotive industry for 8
percent, the agricultural industry for 6 percent and the lubricants industries
for 8 percent. A number of other smaller end-user markets account for the
remaining 19 percent of the Segment's sales. The top ten customers of the
Segment accounted for approximately 34 percent of the Segment's 2002 sales.

     RESEARCH AND DEVELOPMENT

     Plastic Additives spends approximately 4 percent of sales each year on
research and development activities (CHF 81 million in 2002). The primary
objective of these research and development activities is to achieve and
maintain a high level of the Segment sales of "innovative products".
Innovative products are defined as patent protected products or products and
applications younger than five years Patents covering some of the Segment's
important products such as light stabilizers, antioxidants and processing
stabilizers expired in 2001 and 2002. Management is of the opinion that
expiration of these patents will not have a material effect on its result of
operations because of the Company's level of customer service associated with
these products and processes. In addition, management is of the opinion that
Plastic Additives has a strong product pipeline and its goal is to increase
substantially the percentage of sales of patent protected products over the
medium to long term. Products currently being developed include new classes of
light stabilizers, anti-static additives, process stabilizers for plastics,
flame retardants and process chemicals for reactive monomers.

                                                                            14
<PAGE>


Research and development activities focus on new product development as
well as process improvements that aim at lowering costs and increasing
productivity, speeding time-to-market of new products and improving
responsiveness to customers by increased integration of manufacturing
processes with the Segment's distribution network.

     COMPETITION

     Historically, the majority of Plastic Additives competitors have operated
only in selected markets and produced narrow product ranges. However,
competitors are consolidating and expanding their product ranges and
geographical reach. The Segment's main competitors include BASF, Clariant,
Cytec, Great Lakes and Lubrizol. In addition, Plastic Additives has a number
of smaller competitors, particularly in Asia, many of whom offer off-patent
products at low prices.

     Management is of the opinion that the Segment's competitive strengths are
its global leadership position, global presence, consistency in product
quality, excellence in innovation, broad product range, ability to provide
customer specific solutions and its relationships with multinational
customers.

     COATING EFFECTS

     OVERVIEW

     Coating Effects develops, manufactures and markets additives, pigments,
pigment and additive concentrates for the coatings, printing, imaging,
electronic plastics and synthetic fibers industries. Coating Effects is a
leading global manufacturer of organic pigments and the leading supplier of
photoinitiators and lightstabilizers to the coatings, graphic arts and
electronic industries.

     Coating Effects is managed as an integrated global business and serves
five industry-focused markets: (i) coatings, (ii) plastics, (iii) electronic
materials, (iv) imaging & inks and (v) masterbatches.

     Pigments are insoluble coloring materials used for the coloration of
printing inks, paints, plastics and synthetic fibers in products such as
automotive paints, transportation coatings, synthetic carpets and upholstery,
printed materials and publications, building paints, packaging, cables,
flooring, toys, industrial goods and equipment, furniture, consumer goods and
electronics.

     Additives maintain or improve the desirable properties, or suppress the
adverse properties, of materials and improve the stability of these materials
during processing, thereby facilitating or improving the efficiency of
industrial processes. In addition, additives can improve quality and provide
long-term stability and economical viability for the final product by, for
example, protecting the product against aging, corrosion or wear.

     Management estimates that the market in which Coating Effects competes
was approximately CHF 14 billion in 2002.

     Growth in the global pigments market tends to track Gross Domestic
Product (GDP) development. There is a move towards high value pigments and
improved additives as customers upgrade their products and the technical
performance requirements of the colorants and additives they incorporate in
their formulations. Changes in technology in the customer base provide
opportunities for new products, for example in the fast changing electronics
industry. In recent years, environmental pressure to replace heavy metals such
as cadmium and lead has led to an increased demand in organic pigments. The
impact of the low volatile organic content (VOC) regulations is that solvent
usage is being reduced in the printing ink and coatings industries with
alternative technologies, such as UV-curing, powder coatings, high solid paint
systems and water-based systems. With the Segment's current portfolio and
innovation projects it is well placed to take advantage of these trends. There
also is a need for products which make processing easier and more cost
effective for customers, in all the traditional served industries. In
particular, there is a focus on ease of product handling, for example, low
dusting colorants and additives. The Segment's range of products includes
liquid forms, granules, dispersions and concentrates. As pigment manufacturers
have traditionally had strong market positions in particular colors (for
example, the Segment has a strength in high performance, opaque red pigments
used in automotive paint), color trends can benefit particular producers while
negatively affecting others.

     The high performance and high value pigments market are characterized by
capital-intensive production facilities and demanding standards for high and
constant quality. The major applications for these pigments are automotive
paints, general industrial paints, decorative paints, plastics and packaging
and specialty inks, with competition based mainly upon the technical
properties of the products. In contrast, the classical pigments market is
characterized by relatively mature products with minimal patent protection and
strong competition from low cost manufacturers in emerging countries. The
major application for these pigments is printing inks. The dispersions market
for organic and inorganic pigments is characterized primarily by the provision
of customer-specific solutions and delivery service. The major application for
dispersions is the plastics industry and the major applications for inorganic
pigments are plastics and industrial paint.

     The additives market is affected by shorter-term economic and industrial
cycles experienced by its customers, particularly in the coatings industry,
which in turn is dependent on the automotive industry. Increasing
environmental and safety regulations governing the industries of the Company's
customers also have affected the additives market. These regulations have
resulted in an increased demand for more innovative products with lower
environmental impacts. The Company's products are developed for sensitive
applications, such as use with food and drinking water. These applications are
subject to a higher degree of regulatory control.

     Management is of the opinion that many industries served by Coating
Effects will experience significant growth in future periods. The Segment's
extension into polymer specialties for coatings should contribute to above
market growth. In addition, management is of the opinion that the radiation
curing industry shows high growth potential.

                                                                            15


<PAGE>

     The table below sets forth certain historical combined financial
information and the percentage contribution to the consolidated Company net
sales from continuing operations for Coating Effects for the years ended
December 31, 2002, 2001 and 2000.

<TABLE>
<CAPTION>

       (amounts in millions of CHF)                                    2002             2001             2000
       -------------------------------------------------------------------------------------------------------
       <S>                                                            <C>              <C>              <C>
       Total Segment net sales  ............................          1 920            1 944            2 118
       Operating income  ...................................            341              312              371
       Capital expenditures  ...............................             74               66               65
       Research and development expenditures  ..............            100               96              102
       Contribution to the consolidated Company net sales
        from continuing operations, in percentage  .........          27.1%            26.4%            26.8%
       -------------------------------------------------------------------------------------------------------
</TABLE>

     STRATEGY

     EXPANSION THROUGH INNOVATIVE TECHNOLOGY

     The goal for the Coating Effects Segment is to expand the business
through growth beyond the traditional core markets and by seizing
opportunities from new technology developments. It intends to build upon and
extend its leading positions in high-performance pigments, photoinitiators and
UV absorbers in its various coatings markets by launching innovative new
product ranges to bring improved value to its customers. Research and
development is a key driver for entering new markets, particularly in the
fast-paced world of electronic materials.

     The Segment plans to (i) increase sales and market share in its key
market segments, inks, coatings, electronic materials and plastics, by
emphasizing product innovation, (ii) fully exploit its high performance
pigments product lines in automotive paints, (iii) expand into high value
pigments markets such as general industrial paints, decorative paints,
plastics and packaging inks, (iv) develop a service business offering color
matching and formulation advice and (v) maintain its position as a low cost
manufacturer of its core classical pigments through further productivity
improvements.

     The Segment is promoting its recent entry into the polymer specialties
sector, particularly with its dispersants and rheology agents and specialty
binders for water based inks. This new business activity, which is based on
technologies acquired from Allied Colloids and EFKA is a key growth platform for
the business.

     In automotive coatings, the Segment continues to focus on developing
environmentally friendly technologies, such as the promising
HPT(hydroxy-phenyl-triazine) based UV absorbers for use in solvent-free powder
coatings applied on cars. The business is also developing the next generation of
photoinitiators for pigmented coatings.

     PRODUCTS

     The Segment's leading colorant product lines include the high performance
pigments, Ciba(R) IRGAZIN(R), Ciba(R) CINQUASIA(R) and Ciba(R) CROMOPHTAL(R),
used in coatings, inks, plastics and synthetic fibers, the ULTRAGREEN and
SUPERGREEN functional dye products used in the Optical Information Storage
business (CD-R) and Ciba(R) IRGALITE(R) classical pigments used primarily in
printing inks. The Segment also produces pigment dispersions and
masterbatches. The Segment's management is of the opinion that its
Diketo-Pyrrolo-Pyrrol (DPP) technology offers distinct advantages to users of
its high performance pigments for coatings and plastics. DPP pigments are
currently being used in automotive paints and high performance plastics
materials. Current environmental pressure on cadmium pigments opens up good
growth opportunities for DPP pigments in the plastics industry. The Segment
does not believe it has yet fully exploited the benefits of DPP technology in
the automotive industry or in other paint, plastics or inks applications.

     The Segment's leading additives products lines include, Ciba(R)
TINUVIN(R) light stabilizers for coatings, inks and photographic applications,
Ciba(R) IRGACURE(R) photoinitiators for ultraviolet curing of coatings,
paints, inks and electronic materials and the polymer specialty rheology
agents and dispersants for coatings. The Segment also produces corrosion
inhibitors for metal coatings, stabilizers and process chemicals for
photographic and photo-reproduction systems, algaecides for antifouling and
dispersion paints. Management is of the opinion that products such as
photoinitiators for solvent-free coatings are becoming more important with
increased environmental awareness and regulation.

     CUSTOMERS AND END-USER MARKETS

     In 2002, Coating Effects supplied pigments and additives to the paint and
coatings industries, the printing ink industry, the plastics industry, the
synthetic fibers industries and the electronic materials industry. The top ten
customers of the Segment accounted for approximately 31 percent of the
Segment's 2002 sales.

     In 2002, the end-user markets such as the automotive industry accounted
for approximately 22 percent of the Segment's sales, the imaging and
publication industry for 16 percent, the packaging industry for 16 percent,
the electronics industry for 13 percent and the construction industry for 11
percent of the Segment's sales. A number of other smaller end-user markets
account for the remaining 22 percent.

     Consolidation and globalization have occurred in certain of the customer
industries served by the Segment, particularly in the coatings and printing
ink industries. The effect of such consolidation and globalization is that
pressure is exerted on suppliers towards global pricing.

     RESEARCH AND DEVELOPMENT

     Coating Effects spends approximately 5 percent of sales each year on
research projects (CHF 100 million in 2002). The primary objective of these
research and development activities is to achieve and maintain a high level of
the Segment sales of "innovative products". Innovative products are defined as
patent protected products or products and applications younger than five years.
Pigment products currently being developed by the Segment include high value
pigments with a new standard of performance to price ratio (a novel range of
polymer soluble dyes), novel granule forms of pigments, solvent-free
dispersions, pigments for optical storage and color filters. The Segment is also
developing colorants for digital ink jet printing on paper and plastic.

                                                                            16
<PAGE>

     Additive products currently being developed include high performance
photoinitiators for coatings, imaging and information storage, new classes of
light stabilizers, UV-absorbers, sterically hindered amines for coatings as well
as algaecides for antifouling paints. In addition, in response to increasing
environmental and safety regulations, Coating Effects is developing various
additives for waterborne, powder or radiation curable systems.

     Certain patents covering some of the Segment's important products such as a
hindered amine light stabilizer and an algaecide expired in 2001. In addition
one of the photoinitiator patents for ink applications will expire in 2003.
Management is of the opinion that expiration of these patents will only have a
limited effect on its result of operations because of the Company's level of
customer service associated with these products and processes. Although patent
protection for part of the DPP product range will expire in 2003, the Company
has newer patents covering more recently launched or yet to be launched
products.

     COMPETITION

     Although the pigments market is highly competitive, particularly in the
classical pigment sector, the high capital and know-how requirements have
resulted in a relatively limited number of pigment manufacturers in the high
performance and high value pigments sectors. The Segment's principal competitors
in the pigments field, include BASF, Dainippon Ink and Clariant, and in the
photoinitiators and light stabilizers fields, Lamberti, BASF, Clariant and Asian
producers. The Segment competes in the high performance pigments, high value
pigments, photoinitiators and light stabilizers markets on the basis of
innovation and technical competence, relationships with global customers and
quality. The Segment competes in the classical pigments market on the basis of
its relationships with global customers, quality of service and price. Despite a
certain trend toward commoditization in the classical pigments market,
management is of the opinion that Coating Effects can continue to compete
effectively through innovation and a continued focus on remaining a low cost
producer. Price competition is prevalent in the classical pigments segment and
has been led by Asian producers seeking to gain market share outside Asia.

     Management is of the opinion that the Segment's competitive strengths are
its commitment to technological innovation, quality and process leadership,
global presence and competitive cost structure, as well as its relationships
with global customers.

     WATER & PAPER TREATMENT

     Water & Paper Treatment offers products and services for the market
segment paper and board production starting with wet-end and progressively
moving towards dry end application. The range of products and services offered
increase mill productivity as well determining appearance, handle and
performance of the paper by making it water repellent, glossy or white. The
Segment also offers products and services in the market segment water
treatments that are used to treat the water streams in industrial and
municipal applications and to improve the efficiency of mineral and oil
processing as well as soil additives and specialty monomers. Water & Paper
Treatment is one of the leading global suppliers to the paper industry and the
municipal and industrial waste-water treatment industries and is managed as an
integrated global business.

     Management estimates that the Water & Paper Treatment market in which the
Segment operates was approximately CHF 18 billion in 2002, of which the paper
market represented CHF 12 billion and the water treatment market represented
CHF 6 billion.

     The Water & Paper Treatment market has been affected by increasing
environmental and safety regulations governing the industries of the Company's
customers. These regulations have resulted in an increased demand for more
innovative products with lower environmental impacts.

     Management is of the opinion that many industries served by Water & Paper
Treatment will experience significant growth in future periods. In certain areas
of these industries demand for water treatment and paper chemicals is expected
to be equal to or in excess of this industry growth.

     The table below sets forth certain historical combined financial
information and the percentage contribution to the consolidated Company net
sales from continuing operations for Water & Paper Treatment for the years ended
December 31, 2002, 2001 and 2000.

<TABLE>
<CAPTION>

       (amounts in millions of CHF)                                    2002             2001             2000
      --------------------------------------------------------------------------------------------------------
       <S>                                                            <C>              <C>              <C>
       Total Segment net sales  ............................          1 409            1 486            1 558
       Operating income  ...................................             98               65               92
       Capital expenditures  ...............................             35               52               52
       Research and development expenditures  ..............             29               34               36
       Contribution to the consolidated Company net sales
        from continuing operations, in percentage  .........          19.9%            20.2%            19.7%
       -------------------------------------------------------------------------------------------------------
</TABLE>

     STRATEGY

     PROVIDER OF CHOICE IN WATER & PAPER TREATMENT

     Water & Paper Treatment intends to complete the turnaround and establish a
growth platform. To accomplish this, the Segment will continue to rationalize
its total cost base, drive productivity and efficiency in its manufacturing
base, and align all processes in terms of business process excellence. In the
paper market, the Segment intends to grow from its strong base in whiteners,
colors, specialty effects, and retention aids, while filling the necessary gaps
in its range of functional chemicals to offer a total package solution to
customers where necessary. Simultaneously, in the water treatment market, the
Segment will focus on driving geographic expansion into Asia and South America.

     As businesses come under increased pressure to recycle and meet stringent
environmental regulations, the Segment will look to enhance its strong position
in the market of delivering clean water. Management is of the opinion that
increasing literacy rates and e-commerce packaging needs will create higher
demand in the paperboard and printing paper markets.

     PRODUCTS

     Leading product lines in the paper market segment include retention and
drainage aids, Ciba(R) TINOPAL(R) whiteners for paper and Ciba(R) PERGASOL(R)
dyes for paper coloration. In the paper industry, there is an ongoing demand for
more efficient production processes and this is where the patented technology of
the Company in retention and drainage aids brings value to the customers. At the
same time consumers are demanding more

                                                                            17

<PAGE>


innovative paper products and here the Company's range of effect chemicals -
whiteners, colors, color formers & barrier effects - allow the Company to be a
leading innovator in meeting consumer requirements. The rapid change of
technology, the globalization of the customer base and the growing importance
of emerging economies are likely to shape the future direction of these
markets. Of particular importance are the growing environmental regulations
which are expected to contribute to a growth in chemical demand in excess of
that of the paper and board industry.

     The Segment develops, produces and sells the following products to the
water treatments market segment: Ciba(R) Zetag(TM), Ciba(R) Magnafloc(R) and
Ciba(R) Magnasol(TM) polyacrylamide polymers, organic coagulants, and poly
acrylic acid polymers. The main usage of these products is as flocculants for
separation of solid particles from water. The water treatments product range
also includes, dispersants to reduce the viscosity and increase the performance
of inorganic pigments and fillers in water systems and monomers as building
blocks used in water treatment, mineral recovery, adhesives, synthetic fibers
and antistatic finishes.

     Management is of the opinion that products such as delivery of clean water
are becoming more important with increased environmental awareness and
regulation.

     CUSTOMERS AND END-USER MARKETS

     In 2002 Water & Paper Treatment supplied products and services to the
paper and board, municipal and industrial waste-water treatment industries.
The top ten customers of the Segment accounted for approximately 19 percent of
the Segment's 2002 sales.

     In 2002, end-user markets such as the paper and board industry accounted
for approximately 53 percent of the Segment's sales, the waste water
specialties industry for 21 percent, the extractives and process technologies
industry for 12 percent and the agricultural industry for 3 percent. A number
of other smaller end-user markets account for the remaining 11 percent of
Segment sales.

     RESEARCH AND DEVELOPMENT

     Water & Paper Treatment spends approximately 2 percent of sales each year
on research and development activities (CHF 29 million in 2002). The primary
objective of these research and development activities is to achieve and
maintain a high level of the Segment sales of "innovative products".
Innovative products are defined as patent protected products or products and
applications younger than five years. Products currently being developed
include new whiteners and direct dyes for paper application, novel color
formers for use in carbonless and thermal papers and a new retention and
drainage systems designed to further improve mill productivity. A new
generation of water-soluble flocculants is being developed for the treatment
of drinking water and to clarify polluted water.

     COMPETITION

     Historically, the majority of Water & Paper Treatment's competitors have
operated only in selected markets and produced narrow product ranges. However,
competitors are consolidating and expanding their product ranges and
geographical reach. The Segment's main competitors include BASF, Clariant,
Crompton & Knowles, Floerger, Nalco, Hercules/BetzDearborn, Buckman, Calgon
and Stockhausen. The Water Treatments business line competes primarily with
(i) production focused companies, which focus primarily on low cost production
and volume, (ii) service focused companies, which concentrate on offering a
broad range of products and high levels of technical products, and (iii)
partially integrated companies, which only focus on production and sales.
Competition in the whiteners segment has been intense due to overcapacity,
which is likely to continue for several years. Significant surplus capacity
also exists in the paper dye segment of the specialty colors market.

     Management is of the opinion that the Segment's competitive strengths are
its global leadership position, global presence, consistency in product
quality, excellence in innovation, broad product range, ability to provide
customer specific solutions and its relationships with multinational
customers.

     TEXTILE EFFECTS

     OVERVIEW

     Textile Effects develops, manufactures and markets organic and inorganic
synthetic dyes and other chemicals for natural and synthetic fibers, focusing
on cellulose, polyester, wool and polyamide and their blends.

     Based on 2002 sales, management estimates that the Segment Textile
Effects is one of the largest textile effects businesses in the world. The
Segment is the world's second largest manufacturer of textile dyes, the
largest manufacturer of dyes for wool, polyamide carpets and automotive
fabrics, the second largest manufacturer of reactive dyes and disperse dyes
for polyester, and one of the leading suppliers of textile chemicals to the
textile industry. Other major product offerings into these industries are
whiteners, antimicrobials, UV (ultraviolet) protection products and
auxiliaries for textile processing and finishing for the textile industries.
The textile chemicals business provides customers with an integrated range of
products and services for fabric processing and finishing, including sizing,
pretreatment, dyeing and printing auxiliaries, whiteners, comfort and easy
care, UV protection, oil and water repellents, flame retardants and coating
chemicals.

     Management estimates that the total textile dyes and treatments market
was approximately CHF 13 billion in 2002.

     Demand for textile dyes and chemicals is mainly driven by developments in
the textiles markets, such as fashion trends, the level of personal disposable
incomes and by environmental regulations. The textile industry is shifting to
Asia, and even within Asia production of textiles is moving from higher wage
countries (such as Japan, South Korea and Taiwan) to lower wage countries,
particularly those with fast growing internal markets (such as China, India
and Vietnam).

                                                                              18
<PAGE>

      The table below sets forth certain historical combined financial
information and the percentage contribution to the consolidated Company net
sales from continuing operations for Textile Effects for the years ended
December 31, 2002, 2001 and 2000.

<TABLE>
<CAPTION>

       (amounts in millions of CHF)                                    2002             2001             2000
       ------------------------------------------------------------------------------------------------------
       <S>                                                            <C>              <C>              <C>
       Total Segment net sales  ............................          1 544            1 673            1 841
       Operating income  ...................................            142              181              204
       Capital expenditures  ...............................             34               32               37
       Research and development expenditures  ..............             36               39               44
       Contribution to the consolidated Company net sales
        from continuing operations, in percentage  .........          21.8%            22.7%            23.3%
       -------------------------------------------------------------------------------------------------------
</TABLE>

     STRATEGY

     THE PROVIDER OF INTEGRATED TEXTILE SOLUTIONS

     The Textile Effects Segment will focus on growing its high quality line
of products and services while at the same time continuing its considerable
efforts in managing production at a low cost. It intends to combine its
experience in textile dyes, its full range of chemicals for the pretreatment,
dyeing, printing and finishing of textiles and its expertise and related
services for both natural and synthetic fabrics and garments to offer total
customer solutions for all major fibers, everywhere along the whole textile
value chain.

     PRODUCTS

     The Segment's leading dyestuffs product lines include CIBACRON(R)
reactive dyes for cellulose, Ciba(R) LANASET(R) and Ciba(R) NEOLAN(R) for
wool, Ciba(R) TECTILON(R) acid dyes for carpet and Ciba(R) TERASIL(R) and
Ciba(R) TERATOP(R) disperse dyes for polyester. In addition, the Segment
manufactures vat and direct dyes for cellulose, and cationic dyes for
polyacrylonitril. The Segment's leading textile chemical product lines include
Ciba(R) UVITEX(R) whiteners for textiles, CIBATEX(R) UV absorbers for the
protection of textiles against ultraviolet radiation; Ciba(R) PYROVATEX(R)
flame retardants and Ciba(R) ALCOPRINT(R) print thickeners. In February 2002,
a global cooperation agreement between Ciba and DuPont Textiles and Interiors
(DTI) was announced. The agreement enables both companies to share
intellectual and technical resources and serve the increasingly sophisticated
needs of the consumer for easy care and other effects. It includes
Ciba(R)OLEOPHOBOL(R) fabric protector products for protection against stains
as well as access to DuPont's TEFLON(R) brand.

     The Segment's core European markets are experiencing a plateau in demand,
however, substantial growth opportunities continue in Eastern Europe, Asia and
Latin America.

     CUSTOMERS AND END-USER MARKETS

     In 2002 Textile Effects supplied the clothing/apparel industry, the home
furnishing industry and the industrial textile industry (including automotive
textiles). In 2002, the top ten customers of the Segment accounted for
approximately 8 percent of the Segment's 2002 sales. The customer base of the
textile dyes market is highly fragmented.

     In 2002, the end-user markets of the fibers, carpets, textiles industries
accounted approximately for 94 percent of the Segment's sales with the
automotive industry accounting for the remaining 6 percent.

     While the clothing/apparel industry is predominant in Asia, the
automotive textiles and the carpet industry is focused in North America and
Europe.

     RESEARCH AND DEVELOPMENT

     Textile Effects spends approximately 2 percent of sales each year on
research projects (CHF 36 million in 2002). The primary objective of these
research and development activities is to achieve and maintain a high level of
the Segment sales of "innovative products". Innovative products are defined as
patent protected products or products and applications younger than five
years. Textile dyes currently being developed by the Segment include reactive
dyes with improved ecological and economical performance, a range of
economically and technically superior reactive dyes for printing, a range of
wetfast reproducible and economical disperse dyes, metal free dyes for
polyamide and wool, replacements for indigo, and sulphur and naphthol dyes.
Textile chemicals currently being developed by the Segment include
ecologically improved flame retardants, more efficient Ultraviolet (UV)
absorbers and optical brighteners, economical Oil and Water repellents, range
of improved products for Easy Care and the whole process chemicals range to
increase the efficiency and simplify dyeing and printing processes. Also
technologies towards new effects, like microencapsulation, application of
nanoparticles and use of biotechnological processes are in the R&D focus.

     COMPETITION

     The markets in which Textile Effects operates are highly competitive.
There are worldwide overcapacities predominantly in textile dyes markets.
Until the mid-1980's the Segment's principal competitors were BASF, Bayer,
Hoechst, Sumitomo Chemical, Sandoz and ICI. Over the last 18 years, however, a
large number of smaller, low-cost textile dyes producers, located primarily in
Asia, have entered the market and a number of the traditional manufacturers
have consolidated or divested their operations. For example, Bayer and Hoechst
combined their textile dye operations to form DyStar in 1995, ICI divested
Zeneca in 1993, and BASF acquired the textile dyes business of Zeneca in 1996.
In 2000, DyStar and BASF merged their dyes businesses retaining the "DyStar"
corporate name. Sandoz divested its specialty chemicals operations (including
textile dyes) with the formation of Clariant in 1995 and finally Clariant and
Hoechst specialty chemicals merged in 1997. On the chemicals side Bayer
acquired Sybron.

     Management is of the opinion that the Segment's competitive strengths are
its commitment to technological innovation, quality and process leadership,
global presence and competitive cost structure, as well as its relationships
with global customers and major retailers.

                                                                            19

<PAGE>


     HOME & PERSONAL CARE

     OVERVIEW

     Home & Personal Care is managed as an integrated global business and
develops, manufactures and markets products for two end-use industries: (i) home
and fabric care and (ii) personal care. Among its major product offerings into
these industries are whiteners for detergents, antimicrobials providing hygiene
benefits for home and fabric care and personal care products; UV (ultraviolet)
absorbers for fabric and personal care as well as specialty colors for home and
personal care products. Based on 2002 sales, management estimates that the Home
& Personal Care is the leading global manufacturer of whiteners and the leading
provider of antimicrobials of hygiene, mainly to the personal care industry.

     Home & Personal Care is dedicated to the production of high value chemical
ingredients for manufacturers of non-durable home and personal care consumer
goods. Management estimates that the total market for specialty chemicals which
are incorporated into home and personal care products was approximately CHF 19
billion in 2002.

     The table below sets forth certain historical combined financial
information and the percentage contribution to the consolidated Company net
sales from continuing operations for Home & Personal Care for the years ended
December 31, 2002, 2001 and 2000.

<TABLE>
<CAPTION>

       (amounts in millions of CHF)                                    2002             2001             2000
      --------------------------------------------------------------------------------------------------------
       <S>                                                             <C>              <C>              <C>
       Total Segment net sales  ............................            399              430              426
       Operating income  ...................................             56               67               58
       Capital expenditures  ...............................             18               25               23
       Research and development expenditures  ..............             30               24               21
       Contribution to the consolidated Company net sales
        from continuing operations, in percentage  .........           5.6%             5.8%             5.4%
      --------------------------------------------------------------------------------------------------------
</TABLE>

     STRATEGY

     TECHNOLOGY OPPORTUNITIES BUILDING A BRIGHT FUTURE

     The Home & Personal Care Segment aims to gain fast access to new markets
with novel products and solutions by building on its technological strengths
and established customer relationships. The Segment seeks to achieve rapid
market acceptance of its line of UV absorbers in sunscreens as well as laundry
detergents and rinse conditioners. It pursues profitable growth in the
personal care market, including moisturizers, hair dyes and conditioners. The
Segment's marketing strategies are tailored to the specific needs of its
customers who are marketing directly to the end consumer. Complementary
opportunities for other segments, for example those serving the packaging
industry, result from these marketing strategies.

     PRODUCTS

     The Segment's leading product lines include Ciba(R)TINOPAL(R) whiteners
for detergents; Ciba(R) TINOSORB(R) UV absorbers for the protection of skin
against ultraviolet radiation; Ciba(R) IRGASAN(R), Ciba(R) IRGACARE(R) and
Ciba(R) TINOSAN(R) antimicrobials providing hygiene benefits in soaps,
toothpaste, detergents, and disinfectants; Ciba(R) SALCARE(R) rheology
modifiers and conditioning polymers; Ciba(R) TINODERM(R) carrier systems for
personal care applications; and Ciba(R) TINOTEX(TM) laundry additives for
comfort enhancement.

     The Segment's main product categories and their characteristics can be
broadly summarized as follows:

     Whiteners are supplied to the detergents industry. In detergents, the
demand for whiteners has stagnated in the European, United States and Japanese
markets, while the emerging markets of Asia and South America continue to show
signs of growth.

     Hygiene effects are high value-adding antimicrobial ingredients supplied
to the personal care, home and fabric care industries. Main applications
include soaps, deodorants, toothpastes, dishwashing liquids, detergents and
disinfectants for hospitals and medical purposes. The Segment's antimicrobial
solutions IRGASAN(R), IRGACARE(R) and TINOSAN(R) continue to be recognized as
the industry standard for efficiency, performance and safety by key customers.

     Ultraviolet (UV) absorbers are supplied to the fabric, cosmetic and
hygiene industries. UV absorbers are used to provide protection to the skin
against the harmful effects of ultraviolet A (UVA - long wave-length) and
ultraviolet B (UVB - short wave-length) radiation, both of which are
identified as high-risk causes of skin cancer. UV absorbers are manufactured
for use in a variety of products applied directly to the skin, including
sunscreens and lotions and are as well used in detergents. Growth prospects
are particularly strong in regions where concern for effective broadband (both
UVA and UVB) protection from sunlight is high.

     Personal care specialties, such as rheology modifiers, ingredient
protectants, colors, moisturizers and carrier systems, enhance the quality of
end consumer products in cosmetic and hygiene applications. Rheology modifiers
allow customers to produce formulations to the highest standards of quality
and consistency. Colorants are used in a range of products including soaps and
toothpaste. The Segment also utilizes microscopic nanocolloid technology for
the delivery of active ingredients for more direct application of effects. In
addition, the Segment researches various natural substances for use in the
field of personal care as active ingredients.

     CUSTOMERS AND END-USER MARKETS

     In 2002 Home & Personal Care supplied the home and fabric care and the
personal care industries. The top ten customers of the Segment accounted for
approximately 62 percent of the Segment's 2002 sales. The home and fabric care
market is dominated by a small number of large global customers with strong
purchasing power and a desire to form strategic alliances with suppliers.

     In 2002, the end-user markets for home and fabric care accounted for the
majority of the Segment's sales, with the cosmetic and hygiene industries
accounting for the remainder.

                                                                            20

<PAGE>


     RESEARCH AND DEVELOPMENT

     Home & Personal Care spends approximately 8 percent of sales each year on
research and development activities (CHF 30 million in 2002). The primary
objective of these research and development activities is to achieve and
maintain a high level of the Segment's sales with "innovative products".
Innovative products are defined as patent protected products or products and
applications younger than five years. Products recently developed by the
Segment include new UV absorbers for sunscreens, a new photobleach agent for
laundry detergents, a new antimicrobial for use in Home & Fabric Care
applications and new nanocolloid encapsulated active ingredients for skin care
products.

     COMPETITION

     The Home & Personal Care Segment mainly competes with other large global
producers of specialty chemicals such as BASF, Clariant, ISP and
Sigma-Aldrich.

     The Segment primarily competes on the basis of innovation, product
quality and technical performance, reliability of delivery, technical support,
as well as customer relationships. The importance of these competitive factors
varies among the customer industries served by the Segment.

     THE PERFORMANCE POLYMERS DIVISION (DISCONTINUED OPERATIONS)

     On May 31, 2000, the Company completed the sale of the Performance
Polymers business to Vantico, a company established by Morgan Grenfell Private
Equity, the then private equity arm of Deutsche Bank AG, and to certain Asian
joint venture partners. Total gross proceeds from the sale were CHF 1.6
billion, which includes net debt assumed of approximately CHF 160 million. Net
debt consists of approximately CHF 71 million of third party debt and
approximately CHF 121 million of debt to Ciba Specialty Chemicals, offset by
approximately CHF 32 million of cash. In connection with the sale of the
Performance Polymers business to Vantico, the Company agreed to provide
certain infrastructure related services, such as utility services and railroad
access, to the Performance Polymers business at shared production facilities.

     The Performance Polymers business that was sold includes substantially
all of the Performance Polymers division which operated in many industrial
applications with performance specialty materials. Management is of the
opinion that synergies with the Company's overall strategic portfolio
emphasizing high value-added specialty chemicals were limited. The Performance
Polymers business achieved sales of CHF 774 million for the five-month period
ended May 31, 2000. For more information, see Note 3 to the Consolidated
Financial Statements.

     MANUFACTURING

     The Company has 63 manufacturing sites in 25 countries in important
regions of the world. Currently, 39 of these sites are used primarily for
chemical synthesis and the others are used to manufacture formulations that
meet customer specific requirements. Europe and North America account for
over 85 percent of the fixed asset base of the Company, with over 70 percent of
the Company's assets located in Switzerland, the United States, Germany and
the United Kingdom. All of the Company's major manufacturing facilities have
qualified for International Organization for Standardization ("ISO") 9001 or
ISO 9002 certification. The Company has also entered into several
manufacturing arrangements and participates with shares of up to 50 percent in
four non-consolidated joint ventures, predominantly in Asia.

     The Company's production costs, excluding raw materials, amounted to
approximately 23 percent of sales in 2002, 23 percent in 2001 and 22 percent
in 2000.

     In recent years, the Company has achieved significant capacity increases
at its facilities, through process and production improvements. For example,
through de-bottlenecking, production capacities have been increased for high
performance pigments, whiteners and antioxidants and newly developed
production processes have increased capacities for hindered amine stabilizers
and antimicrobials. Management is of the opinion that capacity utilization is
satisfactory and provides adequate growth potential. However, improved asset
utilization is a priority for the Company generally and the Company conducts
an ongoing monitoring study of capacity utilization on a cross-segmental basis
to improve asset utilization. For example the Company closed its production
site at Old Bridge, New Jersey, USA, at the end 2001 and moved all production
activities to West Memphis, Arkansas, USA.

     The Company's manufacturing strategy is to be a low cost producer, to
increase productivity and to concentrate production on higher value-added
products. To this end, after a period of considerable investments in new
facilities, all Segments plan to focus capital expenditure on capacity, product
and process improvements with a total spending of more than CHF 500 million
until 2008.

     Plastic Additives is investing in the Hindered Amine Stabilizer area,
primarily in the NAFTA region. These projects are expected to be completed in
2004, with a total estimated total cost of approximately CHF 70 million.

     Between 1999 and 2001, Coating Effects invested in new manufacturing
facilities in the United Kingdom and the United States for granules, DPP and
Quinacridone pigments. The investments totaled approximately CHF 280 million.

     Water & Paper Treatment invested, from 1999 to 2001, approximately CHF 80
million in a production site in West Memphis, Arkansas, United States, which
allows for backward integration in the field of cationic monomers. During the
period from 2002 to 2004, Water & Paper Treatment's expects to invest more
than CHF 40 million to upgrade its production site at Bradford, United Kingdom
and West Memphis, Arkansas, United States.

     Textile Effects invested approximately CHF 14 million from 1998 to 2000
in a consolidated production joint venture in Thailand. In addition, Textile
Effects has implemented a new Key Manufacturing Base Concept in Panyu, China,
which was finished in 2002, at a total cost of approximately CHF 15 million.

     Home & Personal Care invested approximately CHF 10 million in Grenzach,
Germany and Basel, Switzerland in a production facility for a new UV absorber
for skin protection, which was completed in 2002.

     The Company is strengthening its position in emerging markets,
particularly Asia, by expanding its facilities in these areas. For example,
Plastic Additives invested from 1997 to 2001 approximately CHF 100 million in
a new facility in Shanghai, China and approximately CHF 15 million in an
antioxidants plant in Goa, India.

                                                                            21

<PAGE>
     The Company is not dependent on any single production site. The five
largest production sites of the Company are in Basel (Switzerland), Grenzach
(Germany), McIntosh (Alabama, United States), Bradford (United Kingdom) and
Monthey (Switzerland).

     SALES, MARKETING AND DISTRIBUTION

     The Company sells its products in more than 120 countries through a global
sales network. The sales and marketing functions are decentralized within the
Company, with each Segment having its own sales and marketing strategy for its
products and services. The organization of these functions varies from Segment
to Segment.

     Sales in all Segments are generally on a purchase order basis. However, the
Company has established longer-term arrangements with certain key customers or
where required by customers. Such arrangements generally do not extend beyond
one year. Bidding on one to three year supply arrangements has become common in
the paper and detergent whiteners markets, with contracts in the paper industry
tending to be for longer periods. Such bidding has tended to increase price
pressure in these product segments.

     All distribution and order processing, warehousing and transportation are
centrally managed by the Supply Chain Services organization on behalf of the
Segments.

     Shared order desks on a regional/country level service all Segments with
regards to order taking and processing, shipping and invoicing. A global network
of warehouses and distribution centers, both externally and internally operated,
ensures adequate coverage of the Company's distribution requirements. Contracts
with major transport partners are negotiated/managed centrally. The strategy is
to significantly reduce the number of partners in this field with the ultimate
goal to co-operate with one global Lead Logistics Provider.

     In 2000, the Company was one of the first chemical companies to offer a
comprehensive e-business service to all its customers: mybusiness@cibasc. The
site is a secure, user-customized one-stop shop which lets customers place and
track orders from all Segments, get access to product and safety information,
receive technical support and learn about new applications. In addition, the
Company participates in Elemica, a specialized business-to-business exchange
which allows the Company, in one step, to link its Enterprise Resource Planning
system directly to those of major suppliers and customers, allowing the Company
to achieve higher efficiency and reduce supply-chain costs.

     The Company is focusing production and process development efforts on
better integration of the manufacturing process with the supply chain in order
to increase customer responsiveness while at the same time reducing inventories
by increasing the volume of products shipped directly from the production
facility to the customers.

     SOURCING OF RAW MATERIALS

     The Company purchases a large number of raw materials and intermediates
from third parties around the world for its manufacturing processes, and strives
to optimize the supply chain for each Segment. Raw material costs represent a
significant component of the Company's cost of goods sold. The prices and
availability of these raw materials vary with market conditions and can be
highly volatile. The Company has limited backward integration and has
out-sourced production where economically feasible.

     In 2002, the Company experienced a slight overall decrease in its cost for
raw materials. This was achieved through strategic actions in purchasing,
leverage between Segments and support from key supplier and partners.

     The function of product sourcing is decentralized, with each Segment having
responsibility for its own global sourcing. The Company's Purchasing Council is
responsible for identifying potential synergies and coordinating cross-segmental
sourcing.

     Although the Segments purchase certain raw materials from single suppliers,
management does not believe that the loss of any supplier would have a material
adverse effect on the Company's business or financial condition.

     INTELLECTUAL PROPERTY

     Where appropriate, the Company covers its new products and processes by
patent applications in the relevant regional markets. The Company has over
19 000 granted patents and pending applications world-wide and has trademark
protection for around 400 product names. In the recent past, the Company has
experienced a significant increase in intellectual property conflicts, either
initiated by the Company or by third parties. The Company relies on its
know-how and technical expertise in many of its manufacturing processes for
developing and maintaining its market position. Management is of the opinion
that intellectual property rights as sole measure do not create a sustainable
competitive advantage in the specialty chemicals industry. The Company's
ability to extract the maximum value from its patent protected products and
processes is dependent upon the Company's ability to apply its technical
expertise in its manufacturing process to meet customer requirements. In
general, the Company historically has not licensed or sold its intangibles to
third parties. In addition, separate cash flow streams cannot, in general, be
identified with intangible assets separately from the cash flows associated
with the related productive assets. The value of patent and process protection
is, therefore, generally inseparable from the Company's productive assets and
processes.

     In connection with the Spin-off, Novartis assigned to the Company certain
patents relating to the specialty chemicals business. Pursuant to the Master
Spin-off Agreement, Novartis has also granted the Company a non-exclusive
royalty-free worldwide license with respect to (i) certain patents that were
originally registered by Ciba-Geigy's central research department and (ii) those
patents remaining with Novartis which the Company was using, or had a specific
plan to use, at the effective date of the Spin-off. The Master Spin-off
Agreement also provides that Novartis and the Company may enter into other
arrangements with respect to certain patents pursuant to which royalties would
be payable.Although relative exclusivity can be maintained for certain products
following patent expiration through know-how and technical expertise, the
expiration of a basic patent can result in intense competition, including from
lower cost producers, and erosion of profit margins. Prior to and following
expiration of the basic patent for a key product, the Company will generally
focus efforts on developing patentable enhancements to the product or new
patentable formulations for which the product is used. Management is of the
opinion that the loss of patent protection for any particular product or process
would not have a material adverse effect on the Company's results of operation
or financial condition.

     The Company and Novartis have concluded an agreement on the use of the name
and the trademark "Ciba". Pursuant to such agreement, the Company and its
subsidiaries and affiliates may use "Ciba Specialty Chemicals" as part of their
registered corporate names, while Novartis may

                                                                            22
<PAGE>
continue to use the name "Ciba" in connection with the Ciba Vision Group and
in some other special cases. The Company and its subsidiaries and affiliates
are entitled to use the "Ciba" trademarks and trade names outside of the core
business of Novartis (pharma specialties, pharma over-the-counter and
generics, eyecare, crop protection, seeds, animal health and nutrition).
Novartis is entitled to continue to use trademarks and trade names containing
the term "Ciba" as they are currently used and to use new and existing
trademarks and trade names containing the term "Ciba" to market the "Ciba"
line of pharmaceutical products and for products and services of the Ciba
Vision Group.

     INDUSTRY REGULATORY MATTERS

     Production and marketing of chemical substances are regulated by national
and international laws. Although almost every country has its own legal
procedure for registration and import of chemical substances, the most
significant to the Company's business are the laws and regulations in the
European Union, the United States and Japan, including the European inventory
of existing commercial chemical substances, the European list of notified
chemical substances, the United States Toxic Substances Control Act and the
chemicals list of the Japanese Ministry of Trade and Industry. Chemicals which
are on one or more of the above lists can usually be registered and imported
without additional testing in any other country, although additional
administrative requirements may exist.

     The Company also actively seeks approvals from the United States Food and
Drug Administration ("FDA") for certain specialty chemicals that it produces,
principally where the Company's management is of the opinion that such
specialty chemicals will or may be used in the manufacture of products that
will come in contact with food. The Company has also worked with certain of
its customers in a joint effort to obtain FDA approval of the antimicrobial
triclosan, which was obtained. On November 21, 2002, the Company announced
that a Food Contact Notification became effective for its Ciba(R)
IRGAGUARD(TM) B 5000 silver-based inorganic antimicrobial, allowing its use as
an antimicrobial agent in all types of food contact polymers. IRGAGUARD B 5000
is now listed on the U.S. FDA website. In addition, this product is registered
for use under the U.S. EPA's Federal Insecticide, Fungicide and Rodenticide
Act (FIFRA) as a material preservative and antimicrobial agent for use in the
manufacture of polymer, plastic and textile products to protect the finished
article itself.

     AGREEMENTS WITH NOVARTIS IN CONNECTION WITH THE SPIN-OFF

     Novartis and the Company entered into a Master Spin-off Agreement dated
December 20, 1996, which governed the separation of the specialty chemicals
business from Novartis. In addition, this agreement, together with certain
ancillary agreements, established various interim and ongoing relationships
between Novartis and the Company.

     Pursuant to the Master Spin-off Agreement, Novartis and the Company
continue to provide each other with chemical products and intermediates and
certain services, such as provision of utilities, waste handling and security at
shared production sites, that they had provided to each other prior to the
Spin-off. Such products and intermediates are provided at market prices or, in
the absence of market prices, at cost, and such services are provided at the
lower of market price or cost. Local and site-specific agreements govern, among
other things, the management and administration of production sites and contract
manufacturing arrangements. In addition, pursuant to the Master Spin-off
Agreement, the Company and Novartis agreed on the allocation of taxes relating
to the transaction and past operations of the businesses. The Company is
responsible for taxes relating to the past operations of entities engaged
exclusively in the specialty chemicals business and Novartis is responsible for
transaction related taxes and taxes relating to the past operations of entities
other than those engaged exclusively in the specialty chemicals business.

     Pursuant to the Cooperation Agreement Regarding the Use of "Ciba" as
Corporate Name and as a Mark, the Company is permitted to use "Ciba Specialty
Chemicals" as part of its registered corporate name, while Novartis may
continue to use the name "Ciba" in the Ciba Vision Group and in certain other
cases. See "Intellectual Property".

     Novartis and the Company have also entered into certain arrangements with
respect to the responsibility for environmental liabilities associated with
operation of the specialty chemicals business prior to the Spin-off. See
"Environmental Matters."

     INSURANCE

     Management is of the opinion that the Company's insurance arrangements
regarding property, liability and marine are adequate and sufficient.

     ORGANIZATIONAL STRUCTURE

     Ciba Specialty Chemicals Holding Inc. is the ultimate holding company of
the Ciba Specialty Chemicals group. Its Shares are listed on the Swiss
Exchange, traded on virt-x, and its ADSs trade on the New York Stock Exchange
(see Item 9 - The Offer and Listing).

     The following table identifies the Company's significant subsidiaries,
their jurisdiction of incorporation or residence, the Company's ownership
interest in each subsidiary and the principal function of the subsidiary.
<TABLE>
<CAPTION>
<S>                                                                     <C>             <C>
                                                                          Group
                                                                        Holdings
                                                                           in %      Principal Function of company
                                                                        ------------------------------------------------------------

                                                                                                                            Service/
                                                                                   Selling    Manufacturing     Research    Finance

EUROPE

Austria
Ciba Spezialitaetenchemie GmbH, Hard  ................................     100        o

Belgium
Ciba Specialty Chemicals N.V., Groot-Bijgaarden  .....................     100        o

Finland
Ciba Specialty Chemicals Finland OY, Helsinki  .......................     100        o

France
Ciba Specialites Chimiques SA, Saint Fons  ...........................     100        o           o
Ciba Specialty Chemicals Masterbatch SA, Saint Jeoire en Faucigny.....     100        o           o             o
</TABLE>

                                                                            23
<PAGE>



<TABLE>
<CAPTION>
<S>                                                                     <C>             <C>

Germany
Ciba Spezialitaetenchemie Grenzach GmbH, Grenzach-Wyhlen  ............     100                    o             o
Ciba Spezialitaetenchemie Holding Deutschland GmbH, Lampertheim  .....     100                                                 o
Ciba Spezialitaetenchemie Lampertheim GmbH, Lampertheim  .............     100        o           o             o
Ciba Spezialitaetenchemie Pfersee GmbH, Langweid/Lech  ...............     100        o           o             o

Greece
Ciba Specialty Chemicals Hellas ABEE, Thessaloniki....................     100        o

Hungary
Ciba Specialty Chemicals Magyarorszag, Kft., Budapest  ...............     100        o

Italy
Ciba Specialty Chemicals S.p.A., Sasso Marconi (Bologna) .............     100        o          o              o
Magenta Master Fibres, S.r.l.., Milano  ..............................      60        o          o              o

Netherlands
Ciba Specialty Chemicals International Nederland B.V., Maastricht  ...     100                                                 o
Ciba Specialty Chemicals (Maastricht) B.V., Maastricht  ..............     100        o          o              o
EFKA Additives B.V., Heerenveen ......................................     100        o          o
Melapur B.V., Heerlen ................................................     100        o

Portugal
Ciba Especialidades Quimicas Lda., Porto  ............................     100        o

Spain
Ciba Especialidades Quimicas S.L., Barcelona  ........................     100        o          o

Sweden
Ciba Specialty Chemicals Sweden AB, Goeteborg  .......................     100        o

Switzerland
Ciba Specialites Chimiques Monthey SA, Monthey  ......................     100                   o
Ciba Spezialitaetenchemie AG,  Basel  ................................     100        o          o             o
Ciba Spezialitaetenchemie Finanz AG, Basel  ..........................     100                                                o
Ciba Spezialitaetenchemie International AG, Basel  ...................     100                                                o
Ciba Spezialitaetenchemie Kaisten AG, Kaisten  .......................     100                   o
Ciba Spezialitaetenchemie Schweizerhalle AG, Muttenz  ................     100                   o
Ciba Spezialitaetenchemie Services AG, Basel  ........................     100                                                o
CIMO Compagnie Industrielle de Monthey SA, Monthey  ..................      50                                                o

Turkey
Ciba Oezel Kimyevi Ueruenler Sanayi ve Ticaret Ltd., Istanbul  .......     100        o

United Kingdom
Ciba Specialty Chemicals PLC, Macclesfield  ..........................     100        o          o             o
Ciba Specialty Chemicals Investment PLC, Macclesfield  ...............     100                                                o
Ciba Specialty Chemicals Water Treatments Ltd., Bradford  ............     100        o          o             o

AMERICAS

Argentina
Ciba Especialidades Quimicas S.A., Buenos Aires  .....................     100        o

Bermuda
Chemical Insurance Company Ltd., Hamilton  ...........................     100                                                o
Ciba Specialty Chemicals Eurofinance Ltd., Hamilton  .................     100                                                o
Ciba Specialty Chemicals International Finance Ltd., Hamilton  .......     100                                                o
Ciba Specialty Chemicals Investment Ltd., Hamilton  ..................     100                                                o

Brazil
Ciba Especialidades Quimicas Ltda., Sao Paulo  .......................     100        o          o

Canada
Ciba Specialty Chemicals Canada Inc., Mississauga  ...................     100        o          o
Ciba Specialty Chemicals Water Treatments Corp., Mississauga  ........     100        o


Chile
Ciba Especialidades Quimicas Ltd., Santiago de Chile  ................     100        o          o
Ciba Especialidades Quimicas Conosur S.A., Santiago de Chile  ........      67        o
..
Colombia
Ciba Especialidades Quimicas S.A., Bogota  ...........................     100        o          o
</TABLE>

                                                                              24

<PAGE>


<TABLE>
<CAPTION>
<S>                                                                     <C>             <C>
Guatemala
Ciba Especialidades Quimicas, S.A. (ACC), Guatemala  .................     100        o          o

Mexico
Ciba Especialidades Quimicas Mexico S.A. de C.V., Mexico  ............     100        o          o

Panama
Ciba Especialidades Quimicas Colon S.A., Colon  ......................     100        o

United States of America
Ciba Specialty Chemicals Corporation, Tarrytown, NY  .................     100        o          o             o

ASIA-PACIFIC

Australia
Ciba Specialty Chemicals Pty. Ltd., Thomastown  ......................     100        o          o

China
Ciba Specialty Chemicals (China) Ltd., Beijing  ......................     100                                                o
Ciba Specialty Chemicals (Hong Kong) Ltd., Hong Kong  ................     100        o
Ciba Specialty Chemicals (Shanghai) Ltd., Shanghai  ..................     100        o
Guangdong Ciba Specialty Chemicals Co. Ltd., Panyu, Guangdong  .......      95        o          o
Guangzhou Ciba Specialty Chemicals Co. Ltd., Guangzhou  ..............      80        o          o
Qingdao Ciba Dyes Co. Ltd., Qingdao  .................................      94        o          o
Qingdao Ciba Pigments Co. Ltd., Qingdao  .............................      91        o          o
Shanghai Ciba Gao-Qiao Chemical Co. Ltd., Shanghai  ..................      67        o          o
Shenzhen Ciba Specialty Chemicals Co. Ltd., Shenzhen  ................      85        o          o
Xiangtan Chemicals & Pigments Co. Ltd., Xiangtan  ....................      49        o          o

India
Ciba India Private Ltd., Mumbai  .....................................     100                                 o              o
Ciba Specialty Chemicals (India) Ltd., Mumbai(1)  ....................      69        o          o
Diamond Dye-Chem Limited, Mumbai  ....................................      51        o          o

Indonesia
P.T. Ciba Specialty Chemicals Indonesia, Jakarta  ....................      80        o          o

Japan
Chemipro Fine Chemical Kaisha Ltd., Kobe  ............................      51        o          o
Ciba Specialty Chemicals K.K., Osaka..................................     100        o          o
Musashino-Geigy Co. Ltd., Tokyo  .....................................      60        o          o
Nippon Alkyl Phenol Co. Ltd., Tokyo  .................................      46        o          o

Republic of Korea (South Korea)
Ciba Specialty Chemicals Korea Ltd., Seoul  ..........................     100        o
Daihan Swiss Chemical Corp., Seoul  ..................................      50        o          o             o
Doobon Fine Chemical Co., Ltd., Chongwon-kun  ........................      63        o          o

Malaysia
Ciba Specialty Chemicals (Malaysia) SDN. BHD., Klang  ................      70        o          o

New Zealand
Ciba Specialty Chemicals N.Z. Ltd., Auckland  ........................     100        o          o

Singapore
Ciba Specialty Chemicals (Singapore) Pte Ltd., Singapore  ............     100        o

South Africa
Ciba Specialty Chemicals (Pty) Ltd., Spartan  ........................     100        o

Taiwan
Ciba Specialty Chemicals (Taiwan) Ltd., Kaohsiung  ...................     100        o          o

Thailand
Ciba Specialty Chemicals (Thailand) Ltd., Bangkok  ...................     100        o          o
Ciba Specialty Chemicals Industries Ltd., Bangkok  ...................      95        o          o
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>


(1) The shares of Ciba Specialty Chemicals (India) Ltd., Mumbai are listed on
    the Mumbai Stock Exchange. The total market value of the 13 280 819
    outstanding shares of the company as of December 31, 2002 was
    approximately CHF 43 million (INR 1 454 million).

                                                                              25
<PAGE>

     PROPERTY, PLANT AND EQUIPMENT; MANUFACTURING

     The Company owns all of its principal manufacturing facilities and owns
substantially all the land on which such facilities are located. In certain
cases, infrastructure is either shared with Novartis or with its recent
spin-off Syngenta or outsourced to third parties as in some Swiss facilities.
The Company also has other properties, including office buildings, research
laboratories and warehouses. The principal office buildings are the
headquarters in Basel, Switzerland. The principal research and development
facilities are located in Basel, Switzerland and Tarrytown, New York, USA.

     The following table sets forth the Company's principal manufacturing
facilities by geographic region together with the Segment or Segments that
maintain principle responsibility for the management and production at the
site and the major product lines that each facility is designed to
manufacture.

<TABLE>
<CAPTION>

                                     Size in
        Location                    hectares(1)         Major Product Lines
-----------------------------------------------------------------------------------------------------------------
  EUROPE
  <S>                                  <C>       <C>
  Basel, Switzerland                   14        Textile Effects (reactive dyes for cellulose and wool,
                                                 disperse, vat and acid dyes)

  Bradford, United Kingdom             28        Water & Paper Treatment (water treatment and paper chemicals,
                                                 inks, soil additives, intermediate monomers, rheology modifiers
                                                 and textile chemicals)

  Clayton, United Kingdom              22        Textile Effects (direct, disperse and acid dyes)
                                                 Water & Paper Treatment (specialty chemicals for paper coating)

  Grenzach, Germany                    52        Home & Personal Care (whiteners, specialty colors,
                                                 antimicrobials, new businesses, cationic and solvent soluble
                                                 dyes)
                                                 Coating Effects (high performance pigments)

  Grimsby, United Kingdom              19        Water & Paper Treatment (water treatment chemicals)

  Heerenveen, Netherlands               2        Coating Effects (defoamers, slip and leveling, high molecular
                                                 weight dispersants, wetting and dispersing agents)

  Huningue, France                     12        Coating Effects (high performance pigment preparations, imaging
                                                 and coating additives)
                                                 Plastic Additives (polymer additives and process and lubricant
                                                 additives)

  Kaisten, Switzerland                 59        Plastic Additives (polymer additives)

  Lampertheim, Germany                 80        Plastic Additives (polymer additives, imaging and coating
                                                 additives and process and lubricant additives)

  Langweid/Lech, Germany               29        Textile Effects (fabric finishing and dyeing and printing
                                                 auxiliaries)

  Maastricht, Netherlands              11        Coating Effects (dispersions and inorganic pigments)

  Monthey, Switzerland (2)             11        Home & Personal Care (whiteners)
                                                 Coating Effects (high performance pigments)

  Mortara & Trivolzio, Italy           17        Coating Effects (imaging and coating additives)

  Paisley, United Kingdom              17        Coating Effects (classical pigments)

  Pontecchio Marconi, Italy            12        Plastic Additives (polymer additives and production of
                                                 insecticides for a third party)

  Saint Fons, France                    9        Textile Effects (metal-complex and acid dyes)

  Saint Jeoire, France                  5        Coating Effects (masterbatches)

  Schweizerhalle, Switzerland           1        Coating Effects (polymer additives, imaging and coating additives)
                                                 Textile Effects (standardization)

  AMERICAS

  Albermarle, North Carolina           21        Textile Effects (textile chemicals)
  United States of America
  (USA)(3)

  Atotonilquillo, Mexico               43        Textile Effects (disperse, basic and acid dyes, textile
                                                 chemicals)
                                                 Home & Personal Care (whiteners, photobleach)

  Camacari, Brazil                     14        Plastic Additives (polymer additives)

  Charlotte, North Carolina USA         6        Textile Effects (dyeing and printing auxiliaries)

  Estrada do Colegio, Brazil            4        Home & Personal Care (whiteners, fabric finishing)

  McIntosh, Alabama USA               637        Plastic Additives (polymer additives and imaging and coating
                                                 additives)
                                                 Home & Personal Care (whiteners)

  Mississauga, Canada(3)                2        Plastic Additives (polymer additives)

  Newport, Delaware USA                15        Coating Effects (high performance pigments)

  Puebla, Mexico                       22        Plastic Additives (polymer additives and process
                                                 and lubricant additives)

  St. Gabriel, Louisiana USA           81        Textile Effects (reactive and acid dyes)

  Suffolk, Virginia USA                89        Water & Paper Treatment (water treatment chemicals)

  West Memphis, Arkansas USA           60        Water & Paper Treatment (water treatment chemicals)

</TABLE>

                                                                            26


<PAGE>
<TABLE>
<CAPTION>

  <S>                                  <C>       <C>
  ASIA-PACIFIC

  Ai-oi, Japan(4)                       -        Plastic Additives (polymer additives and imaging and coating
                                                 additives)

  Ankleshwar, India                     2        Home & Personal Care (whiteners)

  Candra Sari, Indonesia                5        Textile Effects (textile chemicals)

  Chiba, Japan(5)                       -        Plastic Additives (polymer additives)

  Goa, India                           14        Plastic Additives (polymer additives)

  Isohara, Japan(6)                     8        Plastic Additives (polymer additives)

  Kaohsiung, Taiwan                     4        Plastic Additives (polymer additives)

  Mahachai, Thailand                    4        Textile Effects (reactive dyes for cellulose)

  Panyu, China(7)                       5        Textile Effects (textile chemicals)

  Perth, Australia                      2        Water & Paper Treatment (water treatment chemicals)

  Qingdao, China(8)                     1        Coating Effects (classical pigments)

  Qingdao, China(9)                     1        Textile Effects (wool and disperse dyes)

  Shanghai, China(10)                   6        Plastic Additives (polymer additives)

  Ulsan, South Korea(11)                7        Coating Effects (classical pigments)
----------------------------------------------------------------------------------------------------------------

(1)  One hectare is equal to 2.471 United States acres.
(2)  Most of the infrastructure facilities are shared with Syngenta through a joint venture in which the
     Company holds a 50 percent interest.
(3)  The closures of these manufacturing sites will be completed in 2003.
(4)  Joint venture with Chemipro Kasai Kaisha, Ltd., in which the Company holds a 51 percent interest.
(5)  Joint venture with Mitsui Petrochemical and Musashino-Geigy, in which the Company holds a 40 percent
     interest.
(6)  Effective January 2001, the Company acquired a controlling interest in Musashino-Geigy Co. Ltd.,
     increasing its holdings from 50 percent to 60 percent in this joint venture with Musashino Chemical
     Laboratory Co. Ltd.
(7)  Venture with Panyu City Shilou Town Economical Development Company Limited, in which the Company holds a
     95 percent interest.
(8)  Venture with Qingdao Double Peach, in which the Company holds a 91.4 percent interest.
(9)  Venture with Qingdao Double Peach, in which the Company holds a 94 percent interest.
(10) Joint venture with Shanghai Gao-Qiao Petrochemical Company and Nippon Alkyl Phenol Company, in which the
     Company holds a 60 percent direct interest and a 6.9 percent indirect interest.
(11) Joint venture with Daihan Color Ind., Co., Ltd., in which the Company holds a 50 percent interest.
</TABLE>

     The Company's management is of the opinion that its principal
manufacturing facilities and other significant properties are in good
condition and that they are adequate to meet the Company's needs. Except as
disclosed in this Annual Report, the Company does not currently plan to
construct, expand or improve facilities significantly.

     ENVIRONMENTAL MATTERS

     Operating in the chemical industry, the Company is subject to stringent
environmental, health and safety laws and regulations. It is the Company's
policy to continuously develop and improve the environmental performance of
key manufacturing processes through an active program to address environmental
matters. In addition to process improvements, the Company uses advanced waste
treatment and disposal facilities at all major manufacturing sites that allow
the sites to comply with recent laws and regulations applicable to waste
streams. In management's opinion, the Company substantially complies with all
such laws.

     For outstanding environmental matters that are currently known and
estimable by the Company, provisions of approximately CHF 614 million at
December 31, 2002 and CHF 748 million at December 31, 2001 have been recorded
in the accompanying Consolidated Balance Sheets. The decrease in the provision
of CHF 134 million in 2002 compared to 2001 relates to usage of the provision
of CHF 82 million and to foreign currency exchange rate effects of CHF 52
million. The Company's environmental protection and improvement cash
expenditures were approximately CHF 96 million in 2002 (CHF 43 million in
2001), including investments in construction, operations and maintenance and
usage of the provision.

     In the agreement on the Company's spin-off from Novartis, Novartis agreed
to reimburse the Company 50 percent of United States environmental liabilities
arising from past operations of the Company in excess of the agreed reserves.
Outside the United States, environmental liabilities are allocated between
Novartis and the Company based on ownership of the site or, if environmental
liabilities do not relate to production sites or these are not owned by either
entity, according to which business unit allegedly used the site before the
Spin-off. If causation between the parties cannot be determined, costs are
shared equally. The agreement with Novartis is not subject to any time or
amount limits but could terminate for certain liabilities in the United States
(i) upon a sale of substantially all of the Company's assets, (ii) upon a
change in control of the Company, or (iii) for individual facilities, upon the
sale of the facility, unless the Company retains responsibility for any
clean-up at such site.

     The contractual terms of the sale of the Performance Polymers business
stipulate that, in general, the Company will retain responsibility for
environmental claims relating to the operations of the Performance Polymers
business prior to May 31, 2000, whereby damages for remediation in connection
with sites outside the United States shall cover only 80 percent of the
respective costs. The responsibility with respect to any non-United States
sites covers environmental liabilities incurred within fifteen years from
May 31, 2000 and is limited to CHF 75 million. With respect to any such
environmental liabilities in the United States, the Company's obligation to
indemnify is unlimited in time or amount. Novartis' environmental
indemnification obligations to the Company described above are not affected by
the sale of the Performance Polymers business.

     The Company continues to participate in environmental assessments and
clean-ups at a number of locations, including operating facilities, previously
owned facilities and United States Superfund sites. The Company accrues
reserves for all known environmental liabilities for remediation costs when a
clean-up program becomes probable and costs can be reasonably estimated.
Clean-up of the most significant sites has been or is nearly completed, except
as described in the following paragraphs.

                                                                            27
<PAGE>


     At its Toms River, New Jersey remediation site the Company began
implementation of the of a large bio-remediation project which will take eight
to ten years to complete. Based on management's current estimates, the
Company's environmental provisions are adequate to cover the expected costs to
complete this remediation plan.

     In 2000, several actions were filed against the Company's subsidiary in
the United States in New Jersey state court seeking medical monitoring as well
as payment of damages for alleged personal injuries and property damage. The
Company settled all the medical monitoring and personal injury cases in 2002,
the total amount of which was sufficiently provided for in the Company's
environmental reserve. The case seeking property damages is still in
litigation, but the Company does not believe the outcome of this case will
have any material adverse impact on its financial position. Following the
settlement of the above mentioned personal injury cases, the Company received
three additional personal injury claims against its subsidiary in the United
States in connection with the Toms River site. No law suits, however, have yet
been filed with respect to these claims. The Company does not believe these
additional claims have merit and does not believe that these additional claims
will have any material adverse impact on its financial position.

     The planning for the total remediation of the waste disposal site in
Bonfol, Switzerland, which was closed in 1976, is ongoing. The responsibility
for the remediation lies with eight chemical enterprises including among
others the Company. The responsible companies cooperate with the governmental
authorities to define the necessary measures in view of a final remediation of
the site. The remediation effort could require up to fifteen years to
complete. In management's opinion, based on the current remediation plans, the
Company's environmental provisions are adequate to cover the Company's share
of the expected costs to complete the remediation at this site.

     In the Basel region several landfills (Switzerland, France and Germany)
contain chemical waste besides other industrial und household wastes.
Presently eleven landfills are the subject of investigations carried out with
the authorities by the 'Interessengemeinschaft Deponiesicherheit Regio Basel',
an association of the involved pharmaceutical and chemical enterprises
(including the Company). As of December 31, 2002, no remedial actions have
been defined or required in a legally binding form.

     In management's opinion, the environmental reserves accrued are
sufficient to meet all currently known and estimable environmental claims and
contingencies. Because of the nature of the Company's operations, however,
there can be no assurance that significant costs and liabilities from ongoing
or past operations will not be incurred in the future. In addition,
environmental clean-up periods are protracted in length and environmental
costs in future periods are subject to changes in environmental remediation
regulations.

     See "Item 3. Key Information--Risk Factors--Environmental laws and
regulations may expose the Company to liability and result in increased
costs."


                                                                              28
<PAGE>
ITEM 5.  OPERATING AND FINANCIAL REVIEW AND PROSPECTS.

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

     The discussion in this Management's Discussion and Analysis of Financial
Condition and Results of Operations ("Management's Discussion and Analysis") is
based on, and should be read in conjunction with "Item 3 Key Information" and
the Consolidated Financial Statements and the Notes thereto, which are prepared
in accordance with United States Generally Accepted Accounting Principles ("U.S.
GAAP") and are included elsewhere in this Annual Report. For a definition of
certain financial terms used herein, see "Glossary of Financial Terms" at the
end of this Management's Discussion and Analysis. Except for percentages, share,
per share data or exchange rate data and except as otherwise stated, all numbers
in tables are in millions of Swiss francs (CHF).

      INTRODUCTION

     The Company follows applicable corporate governance guidelines including
the "Swiss Code of Best Practice", the Corporate Governance guideline of the
Swiss Exchange (SWX) as well as the "U.S. Sarbanes-Oxley Act" of 2002 and the
applicable rules and regulations in effect thereunder.

     In certain sections of this Management's Discussion and Analysis, some of
the results have been adjusted to exclude restructuring payments, and also in
the "Year in Review 2001 compared to 2000". In addition, one time gains and
non-recurring expenses have been highlighted and commented upon in order to
facilitate comparability of ongoing business performance.

     To facilitate a meaningful analysis and interpretation of the Company's
results in 2001 compared to 2000, the Management's Discussion and Analysis for
these periods focuses on the discussion and analysis of the results of
continuing operations, which excludes the results of the Performance Polymers
operations, which have been reported as discontinued operations until May 31,
2000, the date of the divestment (see Note 3 to the Consolidated Financial
Statements).

     CURRENCY TRENDS

     2002 COMPARED TO 2001

     The average exchange rates for the major currencies used to translate the
consolidated statements of income into Swiss francs were significantly different
in 2002 as compared to 2001. The average rate for the U.S. dollar (USD), British
pound (GBP) the euro (EUR) and the Japanese yen (JPY) depreciated against the
Swiss franc. With respect to the USD, the average rate used for translating the
statement of income was CHF 1.56 per USD in 2002, as compared to CHF 1.68 per
USD in 2001. With respect to the EUR, the average rate used for translating the
statement of income was CHF 1.47 per EUR in 2002, as compared to CHF 1.51 per
EUR in 2001.

     The December 31, 2002 year-end currency exchange rates for the major
currencies used in translating the Company's consolidated balance sheet into
Swiss francs depreciated against the Swiss franc, as compared to December 31,
2001.

     These currency trends resulted in currency effects on the Swiss franc
statement of income and on the Swiss franc balance sheet items and should be
considered in the analysis of the Company's results of operations and financial
position.

     For further discussion on the effect of different year-end exchange rates
and information on the Company's currency risk management, see the sections in
"Year in Review - 2002 Compared to 2001" - "Treasury management", "Consolidated
balance sheets" and "Liquidity and capital resources" in this Management's
Discussion and Analysis, as well as "Item 11. - Quantitative and Qualitative
Disclosures About Market Risk".

     2001 COMPARED TO 2000

     The average exchange rates for the major currencies used to translate the
consolidated statements of income into Swiss francs were significantly different
in 2001 as compared to 2000, except for the U.S. dollar (USD). The average rate
for the British pound (GBP) the euro (EUR) and the Japanese yen (JPY)
depreciated against the Swiss franc. With respect to the U.S. dollar, the
average rate used for translating the statement of income was relatively stable
at CHF 1.68 per USD in 2001, as compared to CHF 1.69 per USD in 2000.

     The December 31, 2001 year-end currency exchange rates for the major
currencies used in translating the Company's consolidated balance sheet into
Swiss francs depreciated against the Swiss franc, as compared to December 31,
2000.

     These currency trends resulted in currency effects on the Swiss franc
statement of income and on the Swiss franc balance sheet items and should be
considered in the analysis of the Company's results of operations and financial
position.

     Effective January 1, 2001, the Company's subsidiaries in the twelve
countries that adopted the euro, converted their transaction systems and their
reporting currency to the euro.

     For further discussion on the effect of different year-end exchange rates
and information on the Company's currency risk management, see the sections in
"Year in Review - 2001 Compared to 2000" - "Treasury management", "Consolidated
balance sheets" and "Liquidity and capital resources" in this Management's
Discussion and Analysis.

     CRITICAL ACCOUNTING POLICIES

     The consolidated financial statements of the Company are sensitive to
accounting methods, assumptions and estimates that form the basis of these
financial statements and accompanying notes. Critical accounting policies, the
judgments and other uncertainties affecting application of those policies and
the sensitivity of reported results to changes in conditions and assumptions are
factors to be considered in conjunction with reviewing the Company's financial
statements and the discussion in this Management's Discussion and Analysis.

     Note 1 to the Consolidated Financial Statements in this Annual Report
describes the significant accounting policies and methods used in the
preparation of the Company's Consolidated Financial Statements. Following are
the Company's critical accounting policies impacted by judgments, assumptions
and estimates.

     Impairment of property, plant and equipment, goodwill and other intangible
assets

     The Company periodically evaluates property, plant and equipment, goodwill
and other intangible assets for potential impairment. The impairment review
process requires significant management estimates and judgments regarding the
future cash flows expected to result from the use and, if

                                                                            29
<PAGE>
applicable, the eventual disposition of the respective assets and other
factors to determine the fair value of the respective assets. The key
variables which management must estimate in determining these expected future
cash flows and fair values include sales volumes, sale prices, sales growth,
production and operating costs, capital expenditures, market conditions, and
other economic factors. Significant management judgment is involved in
estimating these variables, and such estimates are inherently uncertain;
however, the assumptions used are consistent with the Company's internal
planning. Management periodically evaluates and updates the estimates based on
the conditions that influence these variables. If such assets are considered
impaired, they are written down to fair value as appropriate.

     The assumptions and conditions for determining impairments of property,
plant and equipment, goodwill and other intangible assets, reflect
management's best assumptions and estimates, but these items involve inherent
uncertainties as described above, many of which are not under management's
control. As a result, the accounting for such items could result in different
estimates or amounts if management used different assumptions or if different
conditions occur in future accounting periods.

     Environmental compliance and expenditures

     The measurement of environmental liabilities is based on an evaluation of
currently available facts with respect to each individual site and considers
factors such as existing technology, presently enacted laws and regulations
and prior experience in remediation of contaminated sites. Inherent
uncertainties exist in such evaluations primarily due to unknown conditions,
changing governmental regulations and legal standards regarding liability, the
protracted length of the clean-up periods and evolving technologies.
Environmental operations and maintenance as well as remediation costs are
accrued when environmental assessments and the need for remediation are
probable and the costs can be reasonably estimated. The recorded liabilities
are adjusted periodically as remediation efforts progress or as additional
technical or legal information becomes available.

     The assumptions and conditions for determining the level of the
environmental liabilities reflects management's best assumptions and
estimates, but these items involve inherent uncertainties as described above,
many of which are not under management's control. As a result, the accounting
for such items could result in different amounts if management used different
assumptions or if different conditions occur in future accounting periods.

     For further discussion related to environmental matters, see Note 22 to
the Consolidated Financial Statements and "Item 4 - Information on the Company
- Environmental Matters".

     Pension and other postretirement benefits

     The amounts recognized in the consolidated financial statements related to
pension and other postretirement benefits are determined from actuarial
valuations. Inherent in these valuations are assumptions including discount
rates, expected return on plan assets, rate of increase in future compensation
levels, mortality rates and health care cost trend rates. These assumptions are
updated annually based on current economic conditions and, if required, also for
any changes to the terms and conditions of the pension and postretirement plans.
These assumptions can be affected by (i) for the discount rate, changes in rates
of return on high-quality fixed income investments currently available in the
market and those expected to be available during the period to maturity of the
pension benefits; (ii) for the expected return on plan assets, changes in the
pension plans strategic asset allocations to various investment types or to
long-term return trend rates in the capital markets in which the pension fund's
assets are invested; (iii) for future compensation levels, on future labor
market conditions; and (iv) for health care cost trend rates, on the rate of
medical cost inflation in the regions of the world where these benefits are
offered to the Company's employees. The weighted average actuarial assumptions
used to compute the pension and postretirement benefit obligation for 2002, 2001
and 2000 are disclosed in Note 19 to Consolidated Financial Statements. In
accordance with U.S. GAAP, actual results that differ from the assumptions used
in calculating the annual retirement benefit liabilities and costs are
accumulated and amortized over future periods and therefore generally affect
recognized expense and recorded obligations in future accounting periods. While
management believes that the assumptions used are appropriate, differences in
actual experience or changes in assumptions may affect the Company's pension and
other postretirement obligations and expenses in future accounting periods.

     Income taxes

     Deferred tax assets and liabilities are determined using enacted tax
rates for the effects of net operating losses and temporary differences
between the book and tax bases of assets and liabilities. The Company records
a valuation allowance on deferred tax assets when appropriate to reflect the
expected future tax benefits to be realized. In determining the appropriate
valuation allowance, certain judgments are made by management relating to
recoverability of deferred tax assets, use of tax loss carryforwards, level of
expected future taxable income and available tax planning strategies.

     These assumptions are updated periodically by management based on the
current business conditions affecting the Company and overall economic
conditions. These management judgments are therefore subject to change based on,
but not limited to, factors such as (i) changes in the profitability of the
Company's subsidiaries, as well as for the Company as a whole, (ii) the ability
of the Company to successfully execute its tax planning strategies and (iii) the
accuracy of the Company's estimates of the potential effect that changes in tax
legislation, in the jurisdictions where the Company operates, may have on the
Company's future taxable profits. Failure by the Company to achieve forecasted
taxable income and the failure to execute its tax planning strategies may affect
the ultimate realization of certain deferred tax assets. Factors that may affect
the Company's ability to achieve sufficient forecasted taxable income and
successfully execute its tax planning strategies include, but are not limited
to, increased competition, general economic conditions, a decline in sales or
earnings, loss of market share or delays in product availability and changes in
tax legislation.

     In addition, the Company operates within multiple taxing jurisdictions
and is subject to audits in these jurisdictions. These audits can involve
complex issues that may require an extended period of time for resolution. In
management's opinion adequate provisions for income taxes have been made.

     USE OF CERTAIN SUPPLEMENTARY FINANCIAL INDICATORS

     The following comparative discussion of the results of operations and
financial condition of the Company includes certain non-U.S. GAAP financial
indicators which form part of the Company's value based management reporting
system and are used by management to analyze the results of operations and
financial condition of the Company. Such non-U.S. GAAP financial indicators
include EBITDA (Earnings Before Interest, Taxes,

                                                                            30
<PAGE>


Depreciation and Amortization), EBITDA margin, EBITDA interest coverage ratio,
free cash flow, operating cash flows before restructuring payments and net
debt. These financial indicators are derived from financial measures prepared
in accordance with U.S. GAAP. The way these non-U.S. GAAP financial indicators
are derived, as well as definitions of other financial terms used in this
Management's Discussion and Analysis is shown in the "Glossary of Financial
Terms" at the end of this Management's Discussion and Analysis.

     Management is of the opinion that these financial indicators are an
important measure of comparative operating performance of the businesses of
the Company and, in the case of EBITDA, when used in comparison to debt levels
or the coverage of interest expense, as a measure of financial stability.
However, these supplementary financial indicators should be considered in
addition to, and not as a substitute for, operating income, net income, cash
flow and other measures of financial performance and liquidity reported in
accordance with U.S. GAAP.

<TABLE>
<CAPTION>


         Year in Review - 2002 Compared to 2001
         --------------------------------------
                                                                                       2002           2001(1)
      -------------------------------------------------------------------------------------------------------------
      <S>                                                                             <C>             <C>
      RESULTS OF OPERATIONS
      Net sales  ............................................................         7 085             7 367
      Gross profit  .........................................................         2 356             2 379
      Operating income  .....................................................           788               761
      Income from continuing operations  ....................................           406               380
      Net income  ...........................................................           406               382
      Basic and diluted earnings per share:
      Income from continuing operations per share  ..........................          5.92              5.72
      Net income per share  .................................................          5.92              5.76
      -------------------------------------------------------------------------------------------------------------
      OTHER DATA

      Operating income  .....................................................           788               761
      Depreciation and amortization of other intangible assets ..............           385               408
      Amortization of goodwill ..............................................             -                61
      -------------------------------------------------------------------------------------------------------------
      EBITDA  ...............................................................         1 173             1 230
      -------------------------------------------------------------------------------------------------------------
      Operating cash flows ..................................................         1 038             1 054

      Operating cash flows, before restructuring payments(2)  ...............         1 050             1 100

      Free cash flow(3)    ..................................................           683               779
      -------------------------------------------------------------------------------------------------------------
      Net debt(4) ...........................................................         1 463             2 351

      Shareholders' equity at year-end  .....................................         4 354             3 908
      -------------------------------------------------------------------------------------------------------------
      Dividend per share(5)  ................................................             -              2.00
      Capital reduction per share(5)  .......................................          3.00              1.00
      -------------------------------------------------------------------------------------------------------------
      RESULTS OF OPERATIONS AS ADJUSTED, EXCLUDING GOODWILL AMORTIZATION(1)
      Operating income  .....................................................           788               822
      Income from continuing operations  ....................................           406               441
      Net income  ...........................................................           406               443
      Basic and diluted earnings per share:
      Income from continuing operations per share  ..........................          5.92              6.64
      Net income per share  .................................................          5.92              6.68
      -------------------------------------------------------------------------------------------------------------
      KEY PERFORMANCE RATIOS

      Sales development  ....................................................           (4) %             (7) %
      Sales development in local currencies  ................................             3 %             (3) %
      Expressed as a percentage of sales:
      Gross profit  .........................................................          33.3 %            32.3 %
      Operating income  .....................................................          11.1 %            10.3 %
      Income from continuing operations  ....................................           5.7 %             5.2 %
      Net income  ...........................................................           5.7 %             5.2 %
      EBITDA.................................................................          16.6 %            16.7 %
      -------------------------------------------------------------------------------------------------------------
</TABLE>

(1)  Effective January 1, 2002, the Company adopted Financial Accounting
     Standards Board (FASB) Statement of Financial Accounting Standard (SFAS)
     No. 142 "Goodwill and Other Intangible Assets", which requires that
     goodwill no longer be amortized to earnings. For comparison purposes to
     the 2002 reported results, the results of operations on an adjusted
     basis, excluding goodwill amortization, for the year 2001 are shown in
     the table above in the "Results of operations as adjusted excluding
     goodwill amortization" section (see Note 1 to Consolidated Financial
     Statements).

(2)  Restructuring payments were CHF 12 million in 2002 and CHF 46 million in
     2001.

(3)  For the calculation of free cash flow, see the corresponding table in the
     "Liquidity and Capital resources" section of this Management's Discussion
     and Analysis.

(4)  For the calculation of net debt, see the corresponding table in the
     "Consolidated balance sheets" section of this Management's Discussion and
     Analysis.

(5)  For 2002, the Board of Directors proposes to carry forward the entire
     retained earnings of Ciba Specialty Chemicals Holding Inc. and not to pay
     a dividend. The Board of Directors, however, proposes a cash payment to
     the shareholders resulting from a capital reduction of CHF 3 per share.
     For further information see the "Operational review" section of this
     Management's Discussion and Analysis and "Item 8. Financial Information -
     Dividends and Dividend Policy".


                                                                            31

<PAGE>
         OVERVIEW

     The weakening of the global economic environment of the year 2001
continued during 2002. Following slight signs of recovery during the spring,
the economic climate noticeably declined towards the end of the year. The U.S.
economy showed volatile and mixed economic development. In the second quarter
of 2002, economic growth was noticeable but was followed by a significant
weakening by the end of the year. European economic development was sluggish,
with Germany experiencing an above average decline in growth. In Asia, the
China Region remained the global growth engine in 2002.

     The volatile sales development indicates a cautious buying pattern of the
customers in the Company's market segments. Towards the end of the year, a
slight increase in inventories at the Company's customers was noticed.

     OPERATIONAL REVIEW

     Tight cost management compensated for difficult market conditions

     Net sales at CHF 7 085 million increased in local currencies by 3
percent. The Company improved its market position in a difficult environment.
Sales in Swiss francs decreased by 4 percent compared to the prior year.
Through the Company's continued focus on global sourcing of raw materials and
its position in the chemicals value chain, the Company benefited from a
decrease in raw material prices mainly during the first half of the year 2002.
The decrease in raw material prices slowed down during the second half of the
year and by the end of the year, the Company experienced price increases for
some raw materials. In 2002, a higher capacity utilization compared to 2001
also contributed to the increase of the gross profit margin. In absolute
terms, gross profit decreased to CHF 2 356 million from CHF 2 379 million in
the prior year. This decline is attributable to unfavorable currency
fluctuations.

     Due to numerous process improvements, normal fluctuation and the
completion of restructuring programs that had been previously announced, the
number of employees was reduced by 676 full-time equivalents ("FTEs") to
19 007 FTEs in 2002, compared to 19 683 FTEs in 2001. The integration of the
original three supply chains into one single supply chain progresses according
to plan and will be completed in 2003. The rationalization of the Information
Technology (IT) support structure was completed during 2002.

     While these proactive actions to protect profitability were generally
successful in reducing the Company's cost base in 2002, compared to the
previous year, they were unable to fully compensate for unfavorable currency
fluctuations. The weakening of most currencies against the Swiss franc,
particularly the U.S. dollar, the British pound, the euro and the Japanese
yen, had a significant negative effect on the Company's results.

     Effective January 1, 2002, in accordance with new U.S. GAAP accounting
rules, the Company no longer amortized goodwill to earnings. As a result of
goodwill not being amortized, the Company's operating income in 2002 was
improved by CHF 61 million, as compared to prior year.

     Operating income increased by CHF 27 million to CHF 788 million compared
to CHF 761 million in the prior year.

     Income from continuing operations was CHF 406 million or CHF 5.92 per
share in 2002 compared to CHF 380 million or CHF 5.72 per share in the prior
year. Net income was CHF 406 million or CHF 5.92 per share in 2002 compared to
CHF 382 million or CHF 5.76 per share in the prior year. The Company's EBITDA
and EBITDA margin were CHF 1 173 million and 16.6 percent, respectively, in
2002 compared to CHF 1 230 million and 16.7 percent, respectively, in 2001.

     Free cash flow of CHF 683 million further enhances the Company's financial
position

     The Company's continued focus on the generation of cash further
strengthened the financial position of the Company. Improved operational
performance plays a crucial role in sustaining high cash flows for the
Company. In addition, inventory levels and accounts receivables were reduced
to 34.7 percent of net sales in 2002, compared to 35.2 percent in 2001.

     Capital expenditures remained relatively stable at 2001 levels and
continue to be focused on efficiency improvement projects, remaining below the
level of annual depreciation. The combination of cash flows generated from
operations and effective asset management resulted in free cash flow of CHF
683 million in 2002 compared to CHF 779 million in 2001.

     The continuing focus on operational efficiencies, cash flow and portfolio
management resulted in a reduction of the Company's net debt to CHF 1 463
million in 2002, an improvement of CHF 888 million from 2001 levels. The
Company's treasury share transactions, as well as the capital reduction
payment made in 2002, are excluded from the Company's definition of free cash
flow. In 2002, the net effect from the sale of the Company's treasury shares
and the capital reduction also contributed to reduction of net debt.

     EBITDA interest cover has improved to 10.66 in 2002 from 9.18 in 2001.
EBITDA interest cover is calculated as EBITDA (2002: CHF 1 173 million; 2001:
CHF 1 230 million) divided by net interest - interest expense less interest
income (2002: CHF 110 million; 2001: CHF 134 million).

     The Company continues to optimize its business portfolio through selective
acquisitions to strengthen its focus on its core businesses and to improve
profitability

     In order to improve the product range for flame retardants and integrated
formulation with effect combinations in the Plastic Additives Segment, the
Company purchased "Melapur B.V." ("Melapur") from DSM N.V. in May 2002. Melapur
manufactures and distributes halogen-free flame retardants on melamine basis.

     The Board of Directors of the Company proposes also for the year 2002 the
same distribution of CHF 3 per share

     For 2001, the Company made a total payment to its shareholders of CHF 3
per share CHF 2 per share as dividend and CHF 1 per share in cash resulting
from a share capital reduction. For 2002, the Board of Directors proposes to
also make a total payment to shareholders of CHF 3 per share, but exclusively
in the form of a capital reduction.

     If approved, the capital reduction will take the form of a reduction in
the nominal value of each common share from CHF 9 per share by CHF 3 per share
to CHF 6 per share. The capital reduction is subject to shareholder approval
at the Annual General Meeting to be held on March 6, 2003. If approved, the
Company expects that payment of the capital reduction will be made to the
shareholders on May 23, 2003, subject to various conditions.

                                                                            32
<PAGE>
     FINANCIAL REVIEW

     Sales increased by 3 percent in local currencies

     Net sales in local currencies increased by 3 percent. In Swiss francs
sales decreased by 4 percent to CHF 7 085 million. Sales development in 2002
compared to 2001 resulted from the following factors:

      CONSOLIDATED SALES DEVELOPMENT                   2002 COMPARED TO 2001
      -------------------------------------------------------------------------
      Volume/product mix(1)  ....................               6%
      Price  ....................................             (3)%
      Currency  .................................             (7)%
      -------------------------------------------------------------------------
      Total in Swiss francs  ....................             (4)%
      -------------------------------------------------------------------------
      (1) Includes acquisition effects of 1 percent.

     Sales for the year started off moderately as a result of the continued
weak economic environment. Sales in Europe and in the NAFTA region started to
improve during the second quarter and weakened slightly towards the end of the
year. As a consequence of volatile market conditions and mixed economic
development, sales in 2002 showed a rather high oscillation from month to
month compared to 2001. Contributing to the sales decline in Swiss francs was
the strengthening of the Swiss franc compared to other currencies,
particularly against the U.S. dollar, the British pound, the euro and the
Japanese yen, resulting in a reduction in sales in Swiss francs of 4 percent
compared to 2001. In these difficult economic conditions, the Company
experienced sales price erosion of 3 percent but was able to compensated for
this by a volume/product mix increase of 6 percent. This emphasizes the
overall quality of the Company's product portfolio and customer partnerships.

     Sales in local currencies increased in some of the major markets in
EUROPE, except in the United Kingdom and in France. In Swiss francs, sales
declined. In the AMERICAS, sales in local currencies increased in North
America and Central America, but decreased in Swiss francs. Sales in South
America showed a stronger increase in local currencies than the rest of the
Americas, but declined in Swiss francs. In most of the major markets in
ASIA-PACIFIC, sales increased in local currencies. The China Region and
Australia showed increased sales also in Swiss francs. Whereas in the other
major markets of the region, sales in Swiss francs declined. In the China
Region, sales increased by double digits in local currencies.

      GEOGRAPHIC SALES DISTRIBUTION                   2002              2001
      -------------------------------------------------------------------------

      Europe  ....................................      38 %            37 %
      Americas(1)  ...............................      35 %            36 %
      Asia Pacific(2)  ...........................      27 %            27 %

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

(1)  The Americas are comprised of the regions North, Central and South
     America.
(2)  Asia Pacific is comprised of the regions Asia, Africa, the Middle East,
     Australia and New Zealand.


     Profit margins remained relatively stable and benefited from the
Company's cost reduction programs

     The gross profit margin improved to 33.3 percent of sales compared to
32.3 percent in the prior year. The increase in gross profit was achieved
through price reductions on raw materials and effective control on other
production costs, combined with relatively stable selling prices. In the first
half of 2002, raw material prices declined due to the continuation of the
Company's policy to purchase supplies globally through its worldwide
organization and its position in the chemical value chain. In the second half
of the year, the decline of raw material prices slowed down and prices started
to increase for some raw materials towards the end of the year. Process
improvements in production with respective staff reductions combined with the
increased plant utilization due to higher production output further improved
the gross profit margin.

     Selling, general and administrative expenses decrease

     Selling, general and administrative expenses decreased in absolute terms
by CHF 11 million to CHF 1 247 million, compared to CHF 1 258 million in 2001.
Selling, general and administrative expenses expressed as a percentage of
sales were 17.6 percent compared to 17.1 percent in the prior year. The
Company's continuous efforts to streamline its operational structure, the cost
initiatives under the Company's reorganization program "Fit For Growth!" as
announced in 2001, process improvements and the completion of previously
announced restructuring programs, resulted in a reduction of personnel levels
and a decrease in selling, general and administrative expenses that offset
most of the negative impacts. The Company had higher variable compensation
expenses in 2002 compared to 2001, as compensation levels are partly linked to
achieving performance targets, which were only partly met in 2002, and to a
lesser extent in 2001. The Company also had in 2001 non-recurring income
related to providing third party services to Vantico, a company that was
established by the purchaser of the Company's Performance Polymers business.
These service contracts have expired and will not be renewed.

     In 2003, selling, general and administrative expenses will be adversely
affected by higher costs relating to pension funds and insurance. Effective
January 1, 2003, the company will adopt the fair value method of accounting
for stock option plans as defined in SFAS No. 123 "Accounting for Stock-based
Compensation". As a consequence, future employee stock option grants and other
stock based compensation plans will be recorded as expenses over the vesting
period of the award based on their fair values as of the date the award is
granted. However, continuous cost control programs and further process
improvements are expected to offset these negative impacts.

     Continuing commitment to research and development

     Research and development expenses as a percentage of sales increased to
4.2 percent in 2002 compared to 3.8 percent in 2001. In absolute terms,
research and development expenses increased by CHF 18 million to CHF 294
million in 2002 as compared to CHF 276 million in 2001, an increase of 7
percent in Swiss francs or 9 percent in local currencies.

     The Company has historically invested and plans to continue to invest
approximately 3 to 4 percent of sales in research and development activities.
The Company's research and development program focuses on generating new
business and defending leading market positions by continuous

                                                                            33
<PAGE>

innovation. As part of the reorganization, announced in February 2001, certain
research and development activities, mostly focused on innovative new ideas
and opportunities, were transferred to a central group managed directly by the
Chief Technology Officer. The Company's research and development strategy is
to enter both new and existing markets with innovative formulations and
solutions that will satisfy customer needs.

     Some examples of new formulations used to enter new markets are "soft
pigment" formulations for both textile printing and textile dyeing. These
formulations have superior characteristics as they can be used for printing
and bath dyeing. They maintain the soft handle of the textile in the finished
product and are environmentally friendly. A further example are new UV
absorber systems that are added to laundry detergents, which when applied
regularly, increase the sun-protection of a fabric up to a factor of 30.

     Innovative product range extensions and customer focused solutions within
existing markets include a new compound for optical information storage on
recordable Compact Discs (CDs) and Digital Versatile Discs (DVDs) with
improved data storage quality, warp free pigments for use in plastics, and new
colors for color filters used in color flat-screen displays (LCD-TFT). The
Water & Paper Treatment Segment introduced a series of environmentally
friendly fluorine chemicals for the paper market, which prevent, for example,
food-packaging papers from being stained by fatty content.

     In parallel, the Company continues to develop new and improved
manufacturing processes, which are cost competitive and meet all
environmental, health and safety requirements.

     Amortization of goodwill ceased to apply with the adoption of SFAS No. 142

     As of January 1, 2002, in accordance with new U.S. GAAP accounting rules,
the Company no longer amortizes any goodwill to earnings, but instead is
required to review its recoverability through annual impairment testing. Other
identifiable intangibles continue to be amortized to earnings over their
estimated useful lives. The Company adopted the new accounting rule effective
January 1, 2002. Upon adoption of this accounting rule, an initial impairment
test of the goodwill as of January 1, 2002 was required. In addition, the
Company was required to perform an annual impairment test of goodwill during
2002. The Company tested the recoverability of its goodwill as of January 1,
2002 and as of December 31, 2002, concluding as of each respective date that
the book value of goodwill was not impaired. For further information see the
"Supplemental Information - Change in accounting policy and new accounting
standards" section below and Note 1 to Consolidated Financial Statements. In
2001, the goodwill amortization expense was CHF 61 million.

     Amortization of other intangibles

     The amortization of other intangibles remained relatively constant at CHF
33 million compared to CHF 31 million in 2001. The increase was a result of
recent acquisitions during 2002 and acquisitions that occurred at the end of
2001.

     Income from earnings of equity affiliates decreased

     Income from earnings of equity affiliates (investments in unconsolidated
companies with greater than 20 percent and less than or equal to 50 percent
ownership), before income taxes, decreased to CHF 6 million in 2002 from CHF 8
million in 2001. The related income taxes on earnings of equity affiliates are
recorded separately in the Company's provision for income taxes.

     The reduction in income from earnings of equity affiliates is primarily
due to the sale, in March 2001, of the Company's 50 percent interest in TFL
Ledertechnik GmbH & Co. KG ("TFL"). The net proceeds received from the sale of
the TFL interest approximated the carrying value of the investment at the date
of sale.

     Operating income and EBITDA adversely affected by lower sales levels and
unfavorable currency developments

                                                          2002          2001
      --------------------------------------------------------------------------

      Operating income (EBIT) ........................     788           761
      EBITDA  ........................................   1 173         1 230
      EBIT margin  ...................................    11.1%         10.3%
      EBITDA margin  .................................    16.6%         16.7%

      2002 compared to 2001
      --------------------------------------------------------------------------
      Operating income (EBIT) ........................       4%
      EBITDA  ........................................     (5)%
      --------------------------------------------------------------------------

     Operating income increased by CHF 27 million in 2002 and the EBIT margin
increased by 0.8 percent points to 11.1 percent of sales. Increased sales in
local currencies, favorable raw material prices, process improvements and
proactive measures for cost control contributed to these improvements. The
strengthening of the Swiss franc against most currencies negatively impacted
operating income by approximately CHF 165 million. The amortization of
goodwill amounted to CHF 61 million in 2001.

     EBITDA declined by CHF 57 million compared to 2001, mainly as a result of
the unfavorable currency fluctuation of the Swiss franc against other
currencies. In local currencies, EBITDA increased by 10 percent. The EBITDA
margin of 16.6 percent in 2002 maintained at the previous year's level.

     Restructuring and special charges, net - prior year programs completed in
2002

     The Company evaluates the performance of its segments' operating incomes
before restructuring and special charges. Accordingly, restructuring and
special charges are not included in the segments' operating results.

     The restructuring accrual at January 1, 2002 relates to the 2000
restructuring projects, announced in the second half of 2000. These
restructuring programs were completed during 2002 and are described below.

     The Company implemented a program ("Fit For Growth!") in 2001 that
aligned the Company's operational activities with its customers' industries.
This new structure was designed to bring the Company's businesses closer to
its customers and allow for a greater focus on providing not just products,
but total integrated solutions. This program resulted in the establishment of
five business segments, a Chief Technology Officer at the

                                                                            34
<PAGE>


     Executive Committee level and a new, cross-segment Research and
Technology Board, which was formed to leverage the Company's existing
technological core competencies and to identify new technology platforms for
future growth. The "Fit for Growth!" program was also designed to speed up
decision-making by eliminating the former divisional layer, as well as to
improve efficiency by harmonizing several support areas. The major initiatives
in these efficiency projects are the merging of the existing three supply
chains into one coordinated global supply chain system, which is expected to
be completed during 2003, the rationalization of Information Technology
support structures and infrastructure and the reduction of personnel in the
Water & Paper Treatment Segment as part of the strategy to streamline
operations, improve profitability and business growth.

     During 2002, in connection with the "Fit For Growth!" program initiated
in 2001, the Company reduced its headcount by an additional 676 employees.
These reductions in the number of employees were achieved through productivity
gains realized from the implementation of the new organizational structures
introduced in 2001. The reductions were made, for the most part, through
attrition and the very limited hiring of new personnel.

     In 2001, under the "Fit For Growth!" program, the Company reduced its
headcount by 262 full-time equivalents ("FTEs") under severance programs. The
total cost of these severances was approximately CHF 33 million. The Company
also released to income excess restructuring provisions of CHF 8 million and
special charges provisions of CHF 25 million that were established in prior
years.

     The 2000 year programs comprised primarily the restructuring of certain
operations of the Water & Paper Treatment segment in the United States (mainly
relating to the closure of a manufacturing facility), the reorganization of
the Company's administration functions in Southern Europe and the reduction of
personnel, principally at a Plastic Additives and Home & Personal Care
manufacturing facility in the United States. Severance costs that were
incurred in 2000 related to the reduction of approximately 238 FTEs in the
United States and Southern Europe, principally in the administration, sales
and marketing functions and, in addition, the manufacturing functions in the
United States. These restructuring programs were completed during 2002.

     Under all programs reported and through additional initiatives in the
last two years, the company reduced its headcount from 20 306 FTEs at end of
2000 by 1 299 employees to 19 007 FTEs at the end of 2002.

      The costs and activity associated with the 2000 restructuring programs
during 2002 are summarized below:

                                         Severance        Other
                                             costs        costs           Total
      --------------------------------------------------------------------------
      January 1, 2002 ...................        5            7              12
      Amounts utilized(1)  ..............       (5)          (7)            (12)
      --------------------------------------------------------------------------
      December 31, 2002  ................        0            0               0
      --------------------------------------------------------------------------
         (1)  Includes currency adjustments.

     PLASTIC ADDITIVES RESULTS

     Sales decreased to CHF 1 813 million in 2002 or by 1 percent in Swiss
francs and increased by 6 percent in local currencies. Sales development in
2002 compared to 2001 resulted from the following factors:

      Sales development                               2002 compared to 2001
      --------------------------------------------------------------------------
      Volume/product mix(1)  ................................      10%
      Price  ................................................     (4)%
      Currency  .............................................     (7)%
      --------------------------------------------------------------------------
      Total in Swiss francs  ................................     (1)%
      --------------------------------------------------------------------------

      (1) Includes acquisition effects of less than 1 percent.

     Sales increased in local currencies due to strong volume growth,
particularly in lubricant additives, while sales in Swiss francs declined
slightly. Base polymers and polymer products sales also increased in local
currencies, despite the competitive environment and pricing strategies of
competitors. In response to these market conditions, sales price reductions
were necessary to maintain the Segment's market position.

     Geographically, sales in EUROPE increased both in local currencies and to
a lesser extent in Swiss francs. Sales growth was positive in the majority of
the region in local currencies. In the AMERICAS, sales declined in Swiss
francs but grew in local currencies, fuelled especially by a favorable second
half in the United States. In ASIA PACIFIC, sales levels increased in local
currencies, with sales in China being particularly solid. Sales were, however,
slightly lower in Swiss francs.


                                                             2002        2001
      -------------------------------------------------------------------------
      OPERATING INCOME (EBIT)
      Absolute in CHF  .....................................  245         275
      As a percentage of sales (EBIT margin)  .............. 13.5%       15.0%

      EBITDA
      -------------------------------------------------------------------------
      Absolute in CHF  .....................................  346         388
      As a percentage of sales (EBITDA margin)  ............ 19.1%       21.1%
      --------------------------------------------------------------------------

     Operating income and EBITDA were adversely affected by lower sales and
unfavorable currency fluctuations. Improvements made to the operating cost
structure in addition to productivity gains could not fully offset sales price
declines. These impacts led to a slight decline in gross profit margin

                                                                            35

<PAGE>

levels. Selling, general and administration costs remained stable at the prior
year level, despite a higher level of variable compensation expense in 2002
compared to 2001. This is due to the compensation being partly linked to
achieving specified performance targets, which the Segment met in 2002, and to
a lesser extent in 2001. The Segment continued its investment in future growth
through research and development activities, which were maintained at the
level of approximately 5% of sales. In addition, during 2002 the Segment
completed the acquisition of Melapur B.V., a provider of environmentally
friendly, halogen-free flame retardants, strengthening the Segment's position
in this market.

      ASSET MANAGEMENT                                        2002        2001
      --------------------------------------------------------------------------
      Net current operating assets:
         Absolute in CHF  .................................    378         420
         As a percentage of sales  ........................     21%         23%
      Capital expenditure in CHF  .........................     86          80
      Invested capital in CHF  ............................  1 236       1 403
      Total assets in CHF  ................................  1 493       1 623
      --------------------------------------------------------------------------

     The Segment continued to focus on asset management during 2002, resulting
in a lower investment in assets compared to the prior year. Despite higher
sales volume, inventory levels were further reduced below prior year levels,
improving both in absolute and intensity terms. Receivables levels were also
lower in both absolute and intensity terms. In addition, payable levels
increased above prior year levels. Capital expenditures were mainly focused on
efficiency and improvements programs at the production facilities and were
below the level of depreciation. The combination of currency effects, lower
investment than annual depreciation in fixed assets and the effective
management of current assets led to a reduction in total assets and invested
capital.

     COATING EFFECTS RESULTS

     Sales decreased to CHF 1 920 million in 2002 or by 1 percent in Swiss
francs but increased by 5 percent in local currencies. Sales development in
2002 compared to 2001 resulted from the following factors:

         Sales development                             2002 compared to 2001
      --------------------------------------------------------------------------
      Volume/product mix(1)  ................................       8%
      Price  ................................................     (3)%
      Currency  .............................................     (6)%
      --------------------------------------------------------------------------
      Total in Swiss francs  ................................     (1)%
      --------------------------------------------------------------------------

      (1) Includes acquisition effects of 2 percent.

     Sales grew in local currencies due to the strong volume growth,
particularly in the coatings, imaging and plastics market sectors, while in
Swiss francs sales declined slightly. Continued sales growth of patented
products into the automotive industry and the introduction of new and
innovative products in the plastic markets, where the Segment is well
positioned to meet increasing demand for materials substitutes, also
contributed to the sales growth. The global printing ink industry continued to
be very challenging in the traditional publication areas, although digital
printing products continued to grow strongly. The information storage sector
remains a difficult market, whereas growth opportunities have occurred in
displays and microelectronics.

     Geographically, sales in EUROPE increased in both Swiss francs and in
local currencies. In the AMERICAS, sales levels increased in local currencies,
supported by a good second half of 2002 in the United States. ASIA PACIFIC
sales increased in local currencies and were marginally lower in Swiss francs.


                                                               2002       2001
      --------------------------------------------------------------------------
      OPERATING INCOME (EBIT)
      Absolute in CHF  ....................................     341        312
      As a percentage of sales (EBIT margin)  .............    17.7%      16.1%

      EBITDA
      --------------------------------------------------------------------------
      Absolute in CHF  ....................................     440        411
      As a percentage of sales (EBITDA margin)  ...........    22.9%      21.1%
      --------------------------------------------------------------------------

     Operating income and EBITDA increased both in absolute terms and as a
percentage of sales, despite being adversely affected by slightly lower sales
and unfavorable currency fluctuations. This improvement was primarily due to
lower raw material costs, in conjunction with increased capacity utilization and
cost savings realized through continued streamlining activities at selected
production facilities. These factors contributed to a significant improvement in
gross margin levels. Selling, general and administrative costs were slightly
higher, primarily due to the higher level of variable compensation expense in
2002 compared to 2001. This is due to the compensation being partly linked to
achieving specified performance targets, which the Segment met in 2002, and to a
lesser extent in 2001. Investment in research and development continued at the
high level of the prior year, being approximately 5% of sales.

                                                                            36

<PAGE>



      ASSET MANAGEMENT                                    2002        2001
      ------------------------------------------------------------------------
      Net current operating assets:
         Absolute in CHF  ...............................  575         658
         As a percentage of sales  ......................   30%         34%
      Capital expenditure in CHF  .......................   74          66
      Invested capital in CHF  .......................... 1 834      2 001
      Total assets in CHF  .............................. 2 107      2 249
      ------------------------------------------------------------------------

     In 2002, the Segment continued its focus on the management of its assets.
Inventory levels were below those of the prior year and improved in both
absolute and intensity terms. Receivable levels were also lower in both
absolute and intensity terms. Payable levels increased above prior year
levels. Capital expenditures were focused primarily on efficiency and
productivity programs and were below the level of depreciation. The
combination of currency effects, lower investment than annual depreciation in
fixed assets and the effective management of current assets led to a reduction
in total assets and invested capital.

     WATER & PAPER TREATMENT RESULTS

     Sales decreased to CHF 1 409 million in 2002 or by 5 percent in Swiss
francs but increased by 1 percent in local currencies. Sales development in
2002 compared to 2001 resulted from the following factors:

      SALES DEVELOPMENT                               2002 COMPARED TO 2001
      ------------------------------------------------------------------------
      Volume/product mix  .................................             4%
      Price  ..............................................           (3)%
      Currency  ...........................................           (6)%
      ------------------------------------------------------------------------
      Total in Swiss francs  ..............................           (5)%
      ------------------------------------------------------------------------

     Water Treatment sales increased slightly in local currencies, but were
lower in Swiss francs. The Segment continues to operate in a difficult
economic environment, particularly in the United States where overall demand
for its products remains weak. Competitive pricing continues to negatively
affect the sales performance. Sales into the paper industry were slightly
above prior year levels in local currencies, despite strong competition and
the pricing strategies of key competitors. This was achieved, in part, as a
result of new product introductions.

     Geographically, sales in EUROPE increased in local currencies and
declined marginally in Swiss francs. Performance was mixed in the region. In
the AMERICAS, sales decreased in both Swiss francs and in local currencies,
driven mainly by the NAFTA region. South America again showed a strong
performance in local currencies. Sales in ASIA PACIFIC increased both in Swiss
francs and in local currencies with sales in China being particularly solid.


                                                             2002       2001
      --------------------------------------------------------------------------
      OPERATING INCOME (EBIT)
      Absolute in CHF  ..................................      98         65
      As a percentage of sales (EBIT margin)  ...........     7.0%       4.4%

      EBITDA
      --------------------------------------------------------------------------
      Absolute in CHF  ..................................     186        157
      As a percentage of sales (EBITDA margin)  .........    13.2%      10.6%
      --------------------------------------------------------------------------

     Operating income and EBITDA increased both in absolute terms and as a
percentage of sales. This was achieved despite the weak sales development
through the successful implementation of rightsizing initiatives undertaken to
reduce the operating cost base of the Segment by lowering selling, general and
administrative costs, idle capacity costs, raw material costs and energy
costs. The reduction in selling, general and administrative costs was achieved
mainly from lower personnel costs, as a consequence of the completion of the
headcount reduction programs, initiated in prior years. Investments in
research and development remained stable at approximately 2 percent of sales.

      ASSET MANAGEMENT                                         2002       2001
      --------------------------------------------------------------------------
      Net current operating assets:
         Absolute in CHF  ....................................   335       357
         As a percentage of sales  ...........................    24%       24%
      Capital expenditure in CHF  ............................    35        52
      Invested capital in CHF  ............................... 2 429     2 596
      Total assets in CHF .................................... 2 606     2 790
      --------------------------------------------------------------------------

     The Segment was again successful in effectively managing its assets.
Inventory and receivable levels were below the prior year. Capital
expenditures were well below the level of the prior year, with investments
focused mainly on debottlenecking projects. The combination of currency
fluctuations, lower investment than annual depreciation in fixed assets and
the effective management of current assets led to a reduction in total assets
and invested capital.

                                                                            37

<PAGE>


     TEXTILE EFFECTS RESULTS

     Sales decreased to CHF 1 544 million in 2002 or by 8 percent in Swiss
francs and by 2 percent in local currencies. Sales development in 2002
compared to 2001 resulted from the following factors:

      SALES DEVELOPMENT                                2002 COMPARED TO 2001
      -----------------------------------------------------------------------
      Volume/product mix  ................................             2%
      Price  .............................................           (4)%
      Currency  ..........................................           (6)%
      -----------------------------------------------------------------------
      Total in Swiss francs  .............................           (8)%
      -----------------------------------------------------------------------

     The Segment continued to face challenges from weak overall demand in the
textile dyes markets. In Europe, there were further textile mill closures.
This coupled with the continued low level of activity in the wool sector and
intensified competition in the market, contributed to the weak performance. In
the textile chemicals markets, however, the Segment was able to increase sales
in local currencies compared to the prior year, despite the difficult market
conditions. In particular, the Segment posted a strong performance in its
offering of effects chemicals, where demand for innovative oil and water
repellant products, in conjunction with close customer alliances, continues to
result in further market share gains.

     Geographically, in EUROPE, sales were below the prior year in both Swiss
francs and in local currencies. Sales declines were experienced across all
major European markets. In the AMERICAS, sales declined in Swiss francs and
were slightly lower in local currencies. In the United States, a slight
recovery was seen in the second half of the year, although sales remained
below prior year levels in both Swiss francs and in local currency. In the
ASIA PACIFIC region, sales increased in local currencies, particularly in the
China Region and India, but declined in Swiss francs.

                                                             2002       2001
      --------------------------------------------------------------------------
      OPERATING INCOME (EBIT)
      Absolute in CHF  ..................................     142        181
      As a percentage of sales (EBIT margin)  ...........     9.2%      10.8%

      EBITDA
      --------------------------------------------------------------------------
      Absolute in CHF  ..................................     208        248
      As a percentage of sales (EBITDA margin)  .........    13.5%      14.8%
      --------------------------------------------------------------------------

     Operating income and EBITDA, in both absolute terms and as a percentage
of sales were adversely affected by lower sales and unfavorable currency
fluctuations. The Segment continued its initiatives to improve productivity
and to reduce its cost structures during the year. The cost savings achieved
out of these initiatives together with the reduction in raw material costs
could not fully compensate for the lower sales levels and, as a consequence,
gross profit margins were lower when compared to the prior year. Selling,
general and administrative costs were lower compared to the prior year due to
the lower cost base achieved, in part from further reductions in the number of
employees. Investment in research and development remained stable at
approximately 2 percent of sales.

      ASSET MANAGEMENT                                      2002         2001
      --------------------------------------------------------------------------
      Net current operating assets:
         Absolute in CHF  ...........................        532          641
         As a percentage of sales  ..................         34%          38%
      Capital expenditure in CHF  ...................         34           32
      Invested capital in CHF  ......................      1 291        1 490
      Total assets in CHF  ..........................      1 495        1 676
      --------------------------------------------------------------------------

     The Segment continued its efforts in the area of reducing its net current
operating assets. Successful initiatives to further harmonize inventory
management resulted in lower inventory levels in both absolute and intensity
terms. Receivable levels in both absolute and intensity terms were well below
those of the prior year. In addition, payable levels increased above prior
year levels. The combination of effective management of current assets, lower
capital investment than annual depreciation in fixed assets, together with
currency fluctuations, resulted in a reduction of total assets and invested
capital.

     HOME & PERSONAL CARE RESULTS

     Sales decreased to CHF 399 million in 2002 or by 7 percent in Swiss
francs and increased by 1 percent in local currencies. Sales development in
2002 compared to 2001 resulted from the following factors:

      SALES DEVELOPMENT                                2002 COMPARED TO 2001
     ---------------------------------------------------------------------------
      Volume/product mix  ....................................       2%
      Price  .................................................     (1)%
      Currency  ..............................................     (8)%
     ---------------------------------------------------------------------------
      Total in Swiss francs  .................................     (7)%
     ---------------------------------------------------------------------------

                                                                            38

<PAGE>


     Sales in Home & Personal Care remained relatively stable in local
currency in comparison to a strong performance last year, but declined
significantly in Swiss francs. As a significant proportion of the Segment's
sales are made in the Americas, the strengthening of the Swiss franc against
the U.S. dollar and the other currencies in the region negatively affected the
Swiss franc sales performance. In the personal care market, sales increased in
local currencies as lower sales in hygiene effects were offset by growth new
effects, particularly UV-filters and hair dyes. In the home and fabric care
market sector, the negative impact of price competition and lower volumes in
selected whitener products was offset by growth in new effects products in the
areas of protection, colorants and home care specialties, resulting in a
stable sales performance compared to the prior year.

     Geographically, sales in EUROPE increased both in Swiss francs and in
local currencies, driven by the acceleration of new product launches.
Performance among the countries was mixed. In the AMERICAS, sales increased in
local currencies but declined in Swiss francs in all major markets in both
North and South America. In ASIA PACIFIC, sales declined both in Swiss francs
and in local currencies.


                                                           2002          2001
      --------------------------------------------------------------------------
      OPERATING INCOME (EBIT)
      Absolute in CHF  ....................................  56            67
      As a percentage of sales (EBIT margin)  .............14.0%         15.7%

      EBITDA
      --------------------------------------------------------------------------
      Absolute in CHF  ....................................  82            95
      As a percentage of sales (EBITDA margin)  ...........20.6%         22.2%
      --------------------------------------------------------------------------

     Operating income and EBITDA both in absolute terms and as a percentage of
sales were adversely affected by lower sales and unfavorable currency
fluctuations. Continued tight controls on costs, reductions in raw material
costs and operational improvements could not fully compensate for the decline
in sales, resulting in a decline in EBIT and EBITDA margins. Selling, general
and administrative costs remained relatively stable compared to the prior
year. In keeping with the Segment's long-term commitment to product
innovation, investments in research and development activities increased to
approximately 8 percent of sales.

      ASSET MANAGEMENT                                         2002      2001
      --------------------------------------------------------------------------
      Net current operating assets:
         Absolute in CHF  ..................................     93        98
         As a percentage of sales  .........................     23%       23%
      Capital expenditure in CHF  ..........................     18        25
      Invested capital in CHF  .............................    294       340
      Total assets in CHF  .................................    356       401
      --------------------------------------------------------------------------

     The Segment maintained its good asset management record, reducing its
asset base. Increases in inventory levels required to meet demand for new
products and decreases in payable levels were offset by lower receivable
levels, in both absolute and intensity terms. Capital investments were lower
than the prior year and were focused primarily on efficiency and productivity
programs and were below the level of depreciation. The effects of the
reduction in net current assets, lower capital investment than annual
depreciation in fixed assets, together with currency fluctuations, resulted in
a reduction of total assets and invested capital.

     TREASURY MANAGEMENT

     The international financial markets in 2002 remained volatile. The major
trends in the markets, which were the focus of the Company's treasury
management, included the weakening of the major currencies against the Swiss
franc, and during the latter part of the year, the strengthening of the euro
against the U.S. dollar, and movements in interest rates.

     During 2002, the U.S. dollar fluctuated against the Swiss franc from a
high of approximately CHF 1.72 to a low of approximately CHF 1.38. The Swiss
franc balance sheet year-end rate was at CHF 1.43 against the U.S. dollar in
2002 versus CHF 1.63 at the end of 2001.

     During 2002, the euro fluctuated against the Swiss franc from a high of
approximately CHF 1.48 to a low of approximately CHF 1.45. At the end of 2002,
the Swiss franc was at a level of CHF 1.46 against the euro versus CHF 1.47 at
the end of 2001.

     As a consequence of the anticipated economic recovery not being fully
realized in the United States and the relatively flat economic growth in
Europe, global interest rates fell below 2001 levels. Through the effective
anticipation of market conditions and the use of financial instruments
available in the financial markets, the Company was able to further reduce the
average cost of its total borrowings in 2002 to 4.02 percent, which is below
2001 levels. The Company's net interest costs decreased by CHF 24 million to
CHF 110 million in 2002 compared to CHF 134 million in 2001. This decrease
resulted primarily from a reduction in interest rates globally and effective
treasury management.

     The Company, in accordance with its stated risk management policy,
continues to monitor its currency exposures and, where appropriate, enters
into transactions to minimize its overall exposures to volatility in the
currency markets. The Company selectively executes foreign currency
transactions to protect the cash flows of its operating companies against
unfavorable foreign currency movements. In 2002, other financial expense, net
which includes foreign currency exchange gains and losses, net hedging
expenses, and losses on financial investments, is CHF 105 million, an increase
of CHF 46 million, compared to the net expense of CHF 59 million in 2001.
Included in other financial expense in 2002 is a CHF 43 million loss on
certain of the Company's short-term investments and financial investments in
unconsolidated companies, primarily Hexcel Corporation. The Company was
required to record these losses since the decline in market values below the
Company's historical cost basis in these financial investments was, in
management's opinion, no longer deemed temporary. The remainder of the other
financial, expense, net, excluding the loss on

                                                                            39

<PAGE>


investments, remained relatively stable compared to the prior year, despite
the effects of the strengthening of the Swiss franc against the U.S. dollar
and the other major currencies, and the effects of currency exchange losses
caused by the devaluation of the Brazilian Real, the Mexican Peso and the
Argentinean Peso.

     Throughout 2002, the Company continued to maintain its long-term debt
ratings of 'A' from Standard & Poors and of 'A2' from Moody's. In management's
opinion, based on the Company's current financial position, its credit
protection ratios are strong for its rating category.

     In accordance with its risk management policy for country risk, the
Company increased short-term debt due to local funding needs by CHF 22
million. In 2001 short-term debt was reduced by CHF 48 million. When
economically feasible, the Company selectively retires portions of its
long-term debt. Free cash flow utilized for this purpose amounted to CHF 19
million in 2002 versus CHF 110 million in 2001. The Company's remaining cash
reserves will be utilized in future periods to continue to maintain short-term
debt at stable levels, to repay the straight bond debt in May 2003 and the
convertible bond debt in July 2003, in accordance with their terms, and to
repay of long-term debt when it is economically advantageous to the Company.
The Company may, if and when it is economically advantageous, issue new debt
either under the EMTN Program or as a Bond issuance as partial funding of the
long-term debt amounts that are due in 2003.

     As of January 1, 2001, the Company adopted SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities", as amended, which replaced
existing pronouncements and practices for derivatives and hedging activities
with a single, integrated accounting framework. Upon adoption of SFAS No. 133,
the Company recorded a net transition adjustment gain after taxes of CHF 2
million in net income. The adoption did not have any effect on accumulated
other comprehensive income. For further information, see Note 1 to
Consolidated Financial Statements.

     EFFECTIVE TAX RATE

     The Company reported an effective tax rate of 27 percent in 2002, a
reduction of 5 percent compared to 32 percent reported in 2001. This reduction
in the effective tax rate results, in part, from goodwill not being amortized
for financial reporting purposes, in accordance with the Company's adoption of
SFAS No. 142 "Goodwill and Other Intangible Assets" (see Note 1 to
Consolidated Financial Statements), as a considerable portion of the Company's
goodwill is non-deductible for tax purposes. In 2002, the effective tax rate
was also impacted by a lower amount of other non-deductible items (see Note 15
to Consolidated Financial Statements).

     In 2001, the effective tax rate was impacted by several non-recurring
events. The tax rate was negatively impacted by the effect of a tax payment in
Italy (the "Imposta Sostitutiva") that permitted the future tax deductibility
of Prochimica s.r.l.'s goodwill amortization and a tax adjustment. Both of
these negative effects were substantially offset by the benefit received from
the effect of certain taxable expenses in one of the Company's subsidiaries
that were recognized for income tax purposes but were not recognizable for
financial reporting purposes. Excluding the impact of these 2001 non-recurring
events, for comparability with the 2002 effective tax rate, the effective tax
rate in 2001 would have been 30 percent.

      NET INCOME AND EARNINGS PER SHARE

      NET INCOME                                                 2002      2001
      --------------------------------------------------------------------------
      Income from continuing operations  ......................   406      380
      Cumulative effects of change in accounting principles ...     -        2
      --------------------------------------------------------------------------
      Net income  .............................................   406      382
      --------------------------------------------------------------------------


      EARNINGS PER SHARE, BASIC AND DILUTED                      2002      2001
      --------------------------------------------------------------------------
      Continuing operations  .................................  5.92      5.72
      Cumulative effects of change in accounting principles...     -      0.04
      --------------------------------------------------------------------------
      Net income  ............................................  5.92      5.76
      --------------------------------------------------------------------------

     Earnings per share amounts were computed by dividing income from
continuing operations, cumulative effects of change in accounting principles
and net income, respectively, by the weighted average number of shares
outstanding.

     CONSOLIDATED BALANCE SHEETS

     Strong focus on asset management continues to reduce net debt

     SELECTED BALANCE SHEET DATA AS OF DECEMBER 31,              2002     2001
     ---------------------------------------------------------------------------
     Cash and cash equivalents and short-term investments...    2 377    1 643
     Total assets  .........................................   11 792   11 718
     Total shareholders' equity  ...........................    4 354    3 908
     ---------------------------------------------------------------------------

     The continued emphasis on the management of operational assets led to a
reduction in total assets of CHF 660 million, excluding cash and cash
equivalents and short-term investments. This reduction was achieved through
continued proactive asset management in the areas of inventories and accounts
receivable and through the continued efforts to focus the Company's capital
expenditures on efficiency and safety improvement related items. Proposed
investments in additional production capacity continue to be carefully
evaluated to ensure that sufficient market demand exists to justify the
investment. The Company also continues its practice of maintaining total
investments in property, plant and equipment at less than the annual
depreciation cost.

     In addition to operational effects, the change in year-end exchange
rates, between December 31, 2001 and 2002, used for translating the balance
sheet into Swiss francs, had a significant effect. Most major currencies
particularly the U.S. dollar, the British pound, the Japanese yen and to a
lesser extent the euro depreciated against the Swiss franc.

                                                                            40

<PAGE>

     The continued focus on cash and asset management resulted in
significantly lower net debt in 2002. The table below shows the movement in
net debt from December 31, 2001 to December 31, 2002.

<TABLE>
<CAPTION>
                                                        Total         Cash & cash       Short-term        Total
      Net debt development from 2001 to 2002             debt         equivalents       investments     net debt
      ------------------------------------------------------------------------------------------------------------
      <S>                                               <C>           <C>               <C>             <C>
      December 31, 2001  .............................. 3 994            1 602              41            2 351
      Cash flows increase (decrease), net  ............     4              833             (25)            (804)
      Currency effects and other  .....................  (158)             (74)              0              (84)
      ------------------------------------------------------------------------------------------------------------
      December 31, 2002  .............................. 3 840            2 361              16            1 463
      ------------------------------------------------------------------------------------------------------------
</TABLE>

     The continued generation of cash flows from operations in excess of 1
billion Swiss francs allowed the Company to reduce net debt levels in Swiss
franc terms by CHF 888 million in 2002. Net debt amounted to CHF 1 463 million
in 2002 compared to CHF 2 351 million in 2001.

     Short-term debt, excluding the current portion of long-term debt, and
long-term debt, including the current portion, remained relatively stable in
2002 compared to 2001. This was achieved through the Company's ability to
finance its working capital needs through cash flows generated from its
operating activities.

     LIQUIDITY AND CAPITAL RESOURCES

     Liquidity - Net cash provided by operating activities in excess of CHF 1
billion and free cash flow at CHF 683 million in 2002

<TABLE>
<CAPTION>

      CASH FLOWS FROM OPERATING ACTIVITIES                                        2002       2001        2000
      -------------------------------------------------------------------------------------------------------
      <S>                                                                        <C>        <C>         <C>
      Net cash from continuing operations, before restructuring payments ..      1 050      1 100       1 065
      Cash used for restructuring payments ................................       (12)       (46)        (35)
      Net cash provided by discontinued operations ........................          -          -           1
      -------------------------------------------------------------------------------------------------------
      Net cash provided by operating activities  ..........................      1 038      1 054       1 031
      -------------------------------------------------------------------------------------------------------
</TABLE>

     The Company's continued focus on asset management and effective cash
management again showed good results in the Company's cash generation during
2002. The Company generated cash flows from its operating activities, before
restructuring payments, of CHF 1 050 million in 2002 compared to CHF 1 100
million in 2001 and CHF 1 065 million in 2000.

<TABLE>
<CAPTION>

      CASH FLOWS FROM INVESTING ACTIVITIES                                          2002       2001        2000
      --------------------------------------------------------------------------------------------------------------
      <S>                                                                          <C>        <C>        <C>
      Capital expenditures  ..................................................     (250)      (259)       (249)
      Sale (acquisition) of businesses, net of cash  .........................     (116)      (144)      1 566
      Proceeds from sale of assets and changes in loans and other long-term
      assets  ................................................................       17         69         (42)
      Cash flows used in investing activities, discontinued operations  ......         -          -         (4)
      --------------------------------------------------------------------------------------------------------------
      NET CASH (USED IN) PROVIDED BY INVESTING ACTIVITIES  ...................     (349)      (334)       1 271
      --------------------------------------------------------------------------------------------------------------
</TABLE>

     In 2002, the net cash used in acquisition and divestment activities
amounted to CHF 116 million. The most significant costs incurred related to
additional cash payments for separation cost attributable to the divestment of
the Performance Polymers business, which amounted to approximately CHF 69
million. This is lower than the Company's prior year estimate of cash payments
to be made due to delays in the settlement of certain matters between the
parties that is out of the direct control of the Company. The remaining CHF 47
million was used primarily for minor strategic business acquisitions, including
the acquisition of the flame retardant business of Melapur B.V. from DSM N.V.

     In 2001, the net cash used in acquisition and divestment activities
amounted to CHF 144 million. The most significant costs incurred related to
cash payments for separation and transaction taxes attributable to the
divestment of the Performance Polymers business. Cash payments made in 2001
for these purposes was approximately CHF 145 million. The net cash effects of
the Company's other 2001 business portfolio management activities
substantially offset each other.

     In 2000, the net proceeds received from acquisition and divestment
activities were CHF 1 566 million. Included in this amount were the net
proceeds from the sale of the Performance Polymers business and the net
proceeds from the sale of the majority of the Company's interest in its equity
affiliate, Hexcel. These net proceeds from divestment activities were offset
by several strategic acquisitions of businesses and technology, including the
purchase of Prochimica s.r.l., Coating Effects' key photoinitiators supplier,
at a cost of CHF 85 million and the purchase of certain paper chemical product
lines and technologies from Cytec Industries for CHF 40 million to expand
Water & Paper Treatment's product offerings to the paper industry, one of its
strategic industry segments.

<TABLE>
<CAPTION>

      CASH FLOWS FROM FINANCING ACTIVITIES                                          2002      2001      2000
      -------------------------------------------------------------------------------------------------------------
      <S>                                                                          <C>        <C>     <C>
      Increase (Decrease) in short-term and long-term debt, net  ................     4      (152)    (1 339)
      Dividends paid  ...........................................................  (134)     (132)      (133)
      Capital reduction paid  ...................................................   (69)        -          -
      Treasury stock transactions and other  ....................................   343         9        (36)
      -------------------------------------------------------------------------------------------------------------
      NET CASH FLOWS PROVIDED BY (USED IN) FINANCING ACTIVITIES  ................   144      (275)    (1 508)
      -------------------------------------------------------------------------------------------------------------
</TABLE>

                                                                            41
<PAGE>
     The Company's short-term and long-term debt increased slightly by
CHF 4 million in 2002 compared to a reduction of CHF 152 million in 2001 and
CHF 1 339 million in 2000. Short-term debt increased by CHF 22 million in 2002,
due to certain subsidiaries local funding needs, compared to a decrease of
CHF 48 million in 2001 and CHF 844 million in 2000. When economically feasible,
the Company selectively retires portions of its long-term debt. Free cash flow
utilized for this purpose amounted to CHF 19 million in 2002 versus CHF 110
million in 2001 and CHF 499 million in 2000. The Company's remaining cash
reserves will be utilized in future periods to continue to maintain short-term
debt at stable levels, for repayment of the straight bond debt in May 2003 and
the convertible bond debt in July 2003, in accordance with their terms and for
the repayment of long-term debt when it is economically advantageous to the
Company. The Company might, when it is economically advantageous, issue new
debt either under the EMTN Program or as a Bond issuance for part of the
long-term debt amounts that are due in 2003.

     At the Company's Annual General Meeting on March 22, 2002, the shareholders
approved the Board of Directors proposal for an unchanged dividend of CHF 2 per
share and an extraordinary payment to the shareholders in the form of a capital
reduction of CHF 1 per share. The capital reduction was in the form of a
reduction in the nominal value of each common share from CHF 10 per share to CHF
9 per share. The Company paid the dividend on March 27, 2002, which amounted to
CHF 134 million and paid the capital reduction on June 28, 2002, which totaled
CHF 69 million.

     As a result of treasury stock transaction, the Company received net
proceeds of CHF 344 million in 2002 compared to CHF 9 million in 2001 and a use
of cash for net acquisition of treasury shares of CHF (40) million in 2000. For
further details, refer to Note 17 to Consolidated Financial Statements.

<TABLE>
<CAPTION>

      FREE CASH FLOWS                                                               2002        2001        2000
      --------------------------------------------------------------------------------------------------------------
      <S>                                                                          <C>         <C>         <C>
      Net cash provided by operating activities .............................      1 038       1 054       1 031

      Add:   Restructuring payments .........................................         12          46          35
      Less:  Net cash used in investing activities ..........................      (349)       (334)       1 271
      Add:   (Sale) acquisition of business, net of cash ....................        116         144     (1 566)
      Less:  Dividends ......................................................      (134)       (132)       (133)
      Other  ................................................................          0           1           0
      --------------------------------------------------------------------------------------------------------------
      FREE CASH FLOW  .......................................................        683         779         638
      --------------------------------------------------------------------------------------------------------------

</TABLE>

     Free cash flow amounted to CHF 683 million in 2002 compared to CHF 779
million in 2001 and CHF 638 million in 2000. This stable result, despite the
difficult economic environment, is primarily a consequence of the Company's
continued strong focus on cash flow and the positive effects being realized
from the completion of the prior years restructuring programs. Free cash flow
was used for debt repayment where it was economically advantageous to the
Company, for restructuring programs and for small strategic acquisitions.

     For information on the 2002 proposed distributions to the Company's
shareholders to be made in 2003, see the Operational Review section of this
Management's Discussion and Analysis above.

     CAPITAL RESOURCES

     The Company's policy is to maintain a high degree of flexibility in its
funding process by using a broad variety of financial instruments and currencies
depending on market conditions. The Company enters into derivative financial
instruments in the ordinary course of business to mitigate its exposure to
adverse changes in foreign exchange rates and to manage its interest rate
exposures. Various risk exposures, arising from existing assets and liabilities,
from future transactions in which the Company is firmly committed and from
future anticipated transactions, are assessed and managed centrally by the
Company's treasury group based on the Company's aggregate exposure.

     Under the Company's written hedging policy, treasury management
continuously monitors and reports the results of its risk management programs
to senior management and may choose to partially or fully hedge exposures. In
accordance with its hedging policy, the Company primarily utilizes foreign
exchange currency forwards, swaps and options contracts. The Company's risk
management policies do not permit the utilization of financial instruments for
speculative or trading purposes. For further information see Note 9 to
Consolidated Financial Statements and "Item 11. - Quantitative and Qualitative
Disclosures About Market Risks".

     In recent years, the Company's sources of liquidity have primarily been
provided by operations and funds from capital markets. The management of the
Company is of the opinion that the funding available to it from these sources
will be sufficient to satisfy its working capital and debt service
requirements for the foreseeable future. The Company's capital requirements
are primarily dependent on management's business plans regarding the levels
and timing of capital expenditures and investments. Subject to developments
affecting the Company which cannot be predicted or controlled, management, for
the next one to two years, intends to maintain the Company's capital
expenditure levels generally in the range of the past three years. The Company
is not currently subject to any commitment for capital expenditures which
individually is material to the Company.

     As described above, the Company may, if and when it is economically
advantageous, issue new debt either under the EMTN Program or as a Bond
issuance as partial funding for the long-term debt amounts that are due in
2003. However, there can be no assurances that the debt capital markets will
be available to the Company on appropriate terms.

     For further information on capital resources available to the Company,
see Notes 13 and 14 to Consolidated Financial Statements and Supplemental
Information - Capital resources - additional information" section of this
Management's Discussion and Analysis.

     OUTLOOK 2003

     In the upcoming quarters, Ciba Specialty Chemicals does not expect
substantial changes in the current trading conditions. In such a challenging
market environment, it is particularly important to continue to reduce the
cost base by increasing operational efficiency and by adhering to strict

                                                                            42
<PAGE>



expense controls. The Company will need to compensate for around CHF 60
million in additional expenses, mainly for an increase in pension
contributions and higher insurance premiums.

     Despite the anticipated challenging first two quarters of the year, for
the full year the Company expects sales in local currencies, the EBITDA margin
and net income in Swiss francs to be above the levels of 2002. With the
continuous strong focus on cash generation, the Company is striving to achieve
a free cash flow for 2003 in excess of CHF 600 million.

     These forecasts are based on the assumption of an economic recovery later
in the year in the United States and, afterwards, in Europe, as well as
reasonably stable currency exchange rates vis-a-vis the Swiss franc, and, as
usual, the effects of potential acquisitions are not included. In addition,
the Company continues to monitor developments in the geopolitical climate
globally and is prepared to react accordingly.

     See "Cautionary Statement Regarding Forward-Looking Information".

     SUPPLEMENTAL INFORMATION

     INFLATION

     The movements in the annual rates of inflation in Switzerland and the
other major markets in which the Company operates have not been significant in
the last three fiscal years.

     CAPITAL RESOURCES - ADDITIONAL INFORMATION

     The Company maintains commercial paper programs and bank overdraft and
credit line facilities to finance its working capital requirements. The total
amounts outstanding under all the Company's short-term debt facilities was CHF
298 million as of December 31, 2002 (2001: CHF 314 million).

     The Company maintained a multicurrency revolving loan facility that
provided for borrowings in multiple currencies up to CHF 400 million at an
interest rate of London Interbank Offered Rate ("LIBOR") plus 21.5 basis
points. There were no borrowings outstanding under this facility during 2002
and 2001. This facility expired on July 11, 2002.

     On January 24, 2003, the Company entered into a new multicurrency
revolving loan facility agreement that provides for borrowings in multiple
currencies up to CHF 500 million. A commitment fee of 45 percent of the
applicable margin per annum, currently at 0.1125 percent, is paid on the
average unused facility. The loans bear interest at an interest rate of LIBOR
plus 25 basis points, subject to adjustment on a sliding scale, in the range
of LIBOR plus 22.5 to 42.5 basis points, depending on the Company's Standard &
Poor's and Moody's debt rating. The facility expires on January 23, 2006. As
of January 31, 2003, there were no borrowings outstanding under this facility.

     As of December 31, 2002, the Company had available unused credit lines
under its other bank overdraft and credit facilities of a total of
approximately CHF 753 million (2001: CHF 1 040 million).

     The Company's principle commercial paper programs are in the United
States and provide for short-term borrowings up to USD 1.0 billion
(approximately CHF 1.4 billion). At December 31, 2002 and at December 31,
2001, no amounts were outstanding under these programs.

     The Company's long-term debt consists primarily of Euro Medium-Term
Notes, convertible bonds, and straight bonds. The total amounts outstanding
under all of the Company's long-term debt facilities, including current
portions, was CHF 3 542 million as of December 31, 2002 (2001: CHF 3 680
million).

     The Company maintains a Euro Medium-Term Note ("EMTN") program under
which the Company may issue up to USD 2.0 billion (approximately CHF 2.8
billion) multicurrency, unsecured, unsubordinated notes with a minimum
maturity of one month and at fixed, floating or indexed interest rates. The
Company had outstanding borrowings under this EMTN program at December 31,
2002 of approximately CHF 959 million (2001: CHF 1 009 million). As of
December 31, 2002 the Company had available borrowings under this EMTN program
of approximately CHF 1.9 billion. In May 2003, CHF 247 million (USD 175
million) of the these EMTN borrowings are due for repayment in accordance with
its terms. Of the remaining outstanding EMTN borrowings, CHF 168 million (EUR
114 million) is due in 2005 and CHF 544 million (GBP 243 million) is due in
2013.

     The Company's commercial paper and EMTN programs, as described above, are
uncommitted and the availability of future funds thereunder depends to a large
extent on market conditions.

     The Company, in July 1998, issued USD 687 million (CHF 1.0 billion)
unsecured, unsubordinated convertible bonds due 2003 with a fixed interest
rate of 1.25 percent that are convertible into the Company's common stock from
September 2, 1998 to July 10, 2003 at a conversion price of CHF 254.14 per
share (the exchange rate to the USD being fixed at 1.505 until the maturity of
the bond), with the conversion price being subject to the usual adjustments.
In 2001, the Company repurchased approximately CHF 91 million (USD 59 million)
of these bonds, and the remaining outstanding balance will be repaid on July
10, 2003, in accordance with the terms of the bonds.

     The Company also has outstanding at both December 31, 2002 and 2001, CHF
1300 million, 3.25 percent Straight Bonds, of which CHF 1 000 million is due
in 2008 and CHF 300 million is due in 2009.

     ENVIRONMENTAL MATTERS

     Operating in the chemical industry, the Company is subject to stringent
environmental, health and safety laws and regulations. It is the Company's
policy to continuously develop and improve the environmental performance of
key manufacturing processes through an active program. In addition to process
improvements, the Company uses advanced waste treatment and disposal
facilities at all major manufacturing sites that allow the sites to comply
with recent laws and regulations applicable to waste streams. Management
believes that the Company substantially complies with all such laws. For
further information, see Note 22 to Consolidated Financial Statements and
"Item 4. Information on the Company--Property, Plant and Equipment;
Manufacturing--Environmental Matters."

                                                                            43

<PAGE>
     LONG-TERM OBLIGATIONS, COMMITMENTS AND CONTINGENCIES

     The Company has various purchase commitments for materials, supplies and
items of permanent investment incident to the ordinary course of business.
These commitments are not in excess of current market prices and reflect
normal business operations. The Company has outstanding at December 31, 2002,
various long-term obligations that will become due in 2003 and beyond. These
various purchase commitments and long-term obligations will have an effect on
the Company's future liquidity and capital resources. The table below shows,
by major category of commitment and long-term obligations outstanding as of
December 31, 2002, the Company's current estimate of their annual maturities.

<TABLE>
<CAPTION>
                                                                  Payments by year, as from December 31, 2002
                                                                 ----------------------------------------------
                                                                      Less
                                                                     than 1     1 to 3     3 to 5    More than
                                                            Total     year      years      years      5 years
     ----------------------------------------------------------------------------------------------------------
     <S>                                                   <C>      <C>        <C>        <C>       <C>
     Long-term debt, including current portion(1) ......   3 492     1 208        169          2      2 113
     Long-term obligations, including current portion(2)   1 665       128        153        140      1 244
     Raw material purchase commitments ...................   421       171        250          -          -
     Fixed asset and other purchase commitments              160        61         99          -          -
     Lease commitments  .....................................113        44         46         16          7
     ----------------------------------------------------------------------------------------------------------
     Total     ............................................5 851     1 612        717        158      3 364
     ----------------------------------------------------------------------------------------------------------
</TABLE>

     (1)  Long-term debt shown is the face amount of the debt obligations. The
          amounts reported on the Consolidated Balance Sheets and in Note 14
          to Consolidated Financial Statements are net of discounts and
          premiums, in accordance with U.S. GAAP.

     (2)  Estimated payments for long-term obligations have been determined by
          the Company based on payment schedules for those long-term
          obligations where set payments exist. For long-term obligations with
          no set payment schedules, estimates have been made by the Company
          based on the most likely timing of cash payments based on the facts
          and circumstances that exist as of December 31, 2002. The ultimate
          timing of these future cash flows may differ due to events and
          circumstances that are out of the direct control of the Company.
          Also included is liabilities related to environmental matters, which
          are further discussed in Note 22 to Consolidated Financial
          Statements and "Item 4. Information on the Company--Property, Plant
          and Equipment; Manufacturing--Environmental Matters."


     In addition to the long-term obligations and commitments disclosed above,
the Company in the normal course of business, provided guarantees to third
parties. The Company estimates that the fair value of these guarantees is not
material and does not expect to incur losses as a result of these guarantees.
As of December 31, 2002, the Company has provided guarantees to third parties
for indebtedness of others of approximately CHF 18 million of which CHF 6
million expire in 2003, CHF 10 million expire in 2004 and CHF 2 million expire
in 2005.

     In connection with past divestments of businesses, the Company has issued
certain indemnifications to the purchasers of those businesses related to the
past actions of the Company in the area of compliance with environmental and
tax regulations. At December 31, 2002, the Company had issued CHF 34 million
of environmental indemnifications that decrease to CHF 22 million in 2008 and
which expire in 2009. In addition, the Company has outstanding environmental
indemnifications that were issued to the purchaser of its Performance Polymers
business, which was sold in May 2000. These environmental indemnifications are
further discussed in Note 22 to Consolidated Financial Statements and "Item 4.
Information on the Company--Property, Plant and Equipment;
Manufacturing--Environmental Matters". The Company has issued certain tax
indemnifications in connection with divestments of businesses and in
connection with certain debt financing arrangements of the Company, that are
unlimited in amount and, in certain instances, in time. As of December 31,
2002, the Company has recorded a liability related to the environmental
indemnifications in the amount of CHF 13 million (2001: CHF 13 million) and
for the tax indemnifications a liability has been recorded in the amount of
CHF 1 million (2001: CHF 1 million).

     The Company operates in countries where political, economic, social,
legal and regulatory developments can have an impact on the operational
activities. The effects of such risks on the Company's results, which arise
during the normal course of business, are not foreseeable and are therefore
not included in the Consolidated Financial Statements.

     In the ordinary course of business, the Company is involved in lawsuits,
claims, investigations and proceedings, including product liability,
intellectual property, commercial, environmental, and health and safety
matters. Although the outcome of any legal proceedings cannot be predicted
with certainty, management is of the opinion that there are no such matters
pending which would be likely to have any material adverse effect in relation
to its business, financial position or results of operations.

     For further information on commitments and contingencies, see Note 22 to
Consolidated Financial Statements.

     EURO CONVERSION

     The introduction of the euro in the twelve of the fifteen member states
of the European Union may continue to have an impact on the Company's
operations. These potential impacts include, but are not limited to, increased
cross-border price transparency and tax and legal implications (e.g. easier
harmonization). Based on the Company's experiences to date, management is of
the opinion that the introduction of the euro will not have a material impact
on the Company's consolidated financial position, results of operations or
cash flows. See "Item 3. Key Information - Risk Factors."

     TAX MATTERS

     In their tax audit of the Company's operations in Grenzach, Germany, the
German tax authorities have made a substantial tax adjustment. In accordance
with the Master Spin-off Agreement with Novartis and with Swiss commercial
law, management is of the opinion that the total liability owed is the
responsibility of Novartis. In 2001, arbitration proceedings were initiated by
Novartis against the Company in relation to this matter. In management's
opinion, the ultimate outcome of this matter will not have a material adverse
effect on the financial position or results of operations of the Company.

     CHANGE IN ACCOUNTING POLICY AND NEW ACCOUNTING STANDARDS

     During 2002, the Company adopted several new accounting standards that were
issued by the Financial Accounting Standards Board ("FASB"). In addition, the
Company will be required to adopt certain other new accounting standards during
2003 that have been issued by the FASB as of December 31, 2002, but were not
required to be adopted during 2002. For further information regarding the impact
on the Company's results of operations and financial position from the adoption
of the these new FASB standards in 2002 and the potential impact from the
adoption of the

                                                                            44
<PAGE>
new FASB standards in 2003, refer to the discussion below and to the
"Financial Review" section of this Management's Discussion and Analysis under
the sub-sections "Amortization of Goodwill ceased to apply with the adoption
of SFAS No. 142" and "Selling, general and administration expenses decreases".

     Derivative financial instruments

     Effective January 1, 2001, the Company adopted SFAS No. 133, "Accounting
for Derivative Instruments and Hedging Activities" and SFAS No. 138
"Accounting for Certain Derivative Instruments and Certain Hedging Activities
an amendment of FASB Statement No. 133". For further information, see the
"Treasury management" section of this Management's Discussion and Analysis and
Notes 1 and 9 to Consolidated Financial Statements.

     Business combinations

     In July 2001, the FASB issued SFAS No. 141 "Business Combinations". SFAS
No. 141 requires that all business combinations completed after June 30, 2001 be
accounted for under the purchase method of accounting. Use of the
pooling-of-interests method (also known as the "uniting of interest method") is
no longer permitted. The new standard requires the recording, as a separate
asset apart from goodwill, of all intangible assets that can be identified and
named if the intangible asset meets the criteria as defined in SFAS No. 141. In
addition, the disclosure requirements related to business combinations have been
expanded to include, for material business combinations, the disclosure of the
reason for the acquisition and the allocation of the purchase price paid to the
assets and liabilities assumed by major balance sheet caption. The adoption of
this standard did not have any effect on the Company's results of operations and
financial position in either 2002 or 2001.

     Goodwill and intangible assets

     In July 2001, the FASB issued SFAS No. 142 "Goodwill and Other Intangible
Assets". The Company fully adopted SFAS No. 142 effective January 1, 2002. An
initial impairment test of goodwill was required to be performed as of January
1, 2002. The Company completed the initial impairment test and determined that
its reported goodwill was not impaired.

     SFAS No. 142 requires that goodwill acquired in a business combination be
capitalized at acquisition cost and requires that goodwill no longer be
amortized to earnings. On an annual basis, the Company is required to evaluate
the book value of goodwill at the reporting unit level for impairment using a
two step impairment test. Other identifiable intangibles will continue to be
amortized to earnings over their estimated useful lives. The amortization
of goodwill ceased upon adoption of SFAS No. 142. The standard was required to
be adopted as of July 1, 2001 for any goodwill acquired in an acquisition
completed after June 30, 2001. For all other existing goodwill, the new
standard was required to be adopted as of January 1, 2002. In addition, the
disclosure requirements related to goodwill and intangible assets have been
expanded to include information about changes in the carrying value of
goodwill, the value of intangible assets by major type and the estimated
intangible asset amortization expense for the next five years.

     During 2002, the Company completed the annual impairment test of goodwill
and determined that its reported goodwill is not impaired.

     In connection with past acquisitions, the Company in prior years had
included, for financial reporting purposes, goodwill and certain identifiable
intangible assets in the same balance sheet caption. SFAS No. 141 and SFAS No.
142 required the carrying amount of identifiable intangible assets to be
stated separately from goodwill on the balance sheet. The amounts reported for
2001 have been reclassified to conform to the 2002 presentation.

     For a reconciliation of previously reported 2001 and 2000 financial
information to the adjusted basis amounts excluding goodwill amortization, which
is no longer required under SFAS No. 142, see Note 1 to Consolidated Financial
Statements.

     Accounting for asset retirement obligations

     In June 2001, the FASB issued SFAS No. 143 "Accounting for Asset
Retirement Obligations" which addresses financial accounting and reporting for
obligations associated with the retirement of tangible long-lived assets and
the associated retirement costs. The Company is required to adopt this new
standard as of January 1, 2003, and does not expect the adoption to have a
material effect on its results of operations and financial position.

     Accounting for the impairment or disposal of long-lived assets

     In August 2001, the FASB issued SFAS No. 144 "Accounting for the Impairment
or Disposal of Long-Lived Assets". SFAS No. 144 establishes a single accounting
model to be used for long-lived assets to be disposed of by sale or otherwise,
whether previously held and used or newly acquired, and broadens the
presentations of discontinued operations to include disposal transactions below
the reportable segment level, if certain criteria are met. The Company as
required adopted this standard as of January 1, 2002. The adoption did not have
an effect on the Company's 2002 results of operations and financial position.

     Rescission of FASB Statements No. 4, 44, and 64, amendments to SFAS No.
13, and technical corrections

     In April 2002, the FASB issued SFAS No. 145 "Rescission of FASB
Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and
Technical Corrections". SFAS No. 145 rescinds SFAS No. 4, "Reporting Gains and
Losses from Extinguishment of Debt", SFAS No. 44, "Accounting for Intangible
Assets of Motor Carriers", and SFAS No. 64, "Extinguishments of Debt Made to
Satisfy Sinking-Fund Requirements".

     The rescission of SFAS No. 4 and SFAS No. 64 eliminates the requirement
to report material gains and losses from the extinguishment of debt as an
extraordinary item in the statement of income that are not unusual or
infrequent in nature. The rescission of SFAS No. 44 does not impact the
Company. The Company is required to adopt the provisions of these rescissions
as of January 1, 2003 and does not expect the adoption to have a material
effect on the results of its operations and financial position.

     The amendment to SFAS No. 13 "Accounting for Leases" eliminated an
inconsistency between required accounting for sale-leaseback transactions and
the required accounting for certain lease modifications that have economic
effects that are similar to sale-leaseback transactions. The Company is
required to and has adopted these provisions for transactions occurring after
May 15, 2002. There was no impact on the Company's results of operations and
financial position upon adoption.

     Certain other existing authoritative pronouncements have been amended to
make various technical corrections, clarify meanings, or describe their

                                                                            45
<PAGE>


applicability under changed conditions. The Company is required to adopt these
provisions as of January 1, 2003 and does not expect the adoption to have a
material effect on the results of its operations and financial position.

     Accounting for costs associated with exit or disposal activities

     In June 2002, the FASB issued SFAS No. 146 "Accounting for Cost
Associated with Exit or Disposal Activities" which addresses the accounting
for restructuring and similar costs. This standard supersedes Emerging Issues
Task Force ("EITF") Issue No. 94-3, "Liability Recognition for Certain
Employee Termination Benefits and Other Costs to Exit an Activity (including
Certain Costs Incurred in a Restructuring)." This standard requires that a
liability associated with an exit activity that does not involve a newly
acquired company in a business combination, or a disposal activity covered by
SFAS No. 144, be recognized when the liability is incurred instead of
recognizing the liability at the date of a company's commitment to an exit
plan, as was required under EITF Issue No. 94-3. The statement establishes
that the fair value of the liability is the objective for initial measurement
of the liability and requires that the liability be updated for any changes in
its fair value each reporting period. With respect to one-time employee
termination costs, SFAS No. 148 changed the accounting in situations where the
employee to be terminated is required to render service between the
notification date of their termination and the date the employee will be
terminated in order to receive any termination benefits. For these situations
when the required post-notification service period extends beyond the minimum
retention period required by local law, the fair value liability will be
amortized over the service period. The Company is required to adopt this new
standard for any exit or disposal activities that are initiated after December
31, 2002. The impact of the adoption of SFAS No. 146 on the Company's future
financial position or results of operations will depend upon the timing of and
facts underlying any future exit or disposal activities.

     Accounting and disclosure for guarantees

     In November 2002, the FASB issued FASB Interpretation No. 45 ("FIN No.
45") "Guarantor's Accounting and Disclosure Requirements for Guarantees,
Including Indirect Guarantees of Indebtedness of Others". FIN No. 45 requires
a guarantor to recognize, at the inception of a guarantee, a liability for the
fair value of the obligation undertaken by it in issuing the guarantee. It
also expands the disclosure requirements in the financial statements of the
guarantor with respect to its obligations under certain guarantees that it has
issued. The Company is required to adopt the initial recognition and initial
measurement accounting provisions of this interpretation on a prospective
basis to guarantees issued or modified after December 31, 2002. The Company
does not anticipate the adoption to have a material effect on the Company's
financial position or results of operations. The disclosure requirements are
required to and have been adopted by the Company as of December 31, 2002 (see
Note 22 to Consolidated Financial Statements).

     Stock based compensation

     Effective January 1, 2003, the Company will adopt the fair value method
of accounting for stock option plans as defined in SFAS No. 123 "Accounting
for Stock-Based Compensation." As a consequence, future employee stock option
grants and other stock based compensation plans will be recorded as an expense
over the vesting period of the award based on their fair values at the date
the stock based compensation is granted. The FASB has issued, in December
2002, SFAS No. 148 "Accounting for Stock-Based Compensation - Transition and
Disclosure, an amendment to FASB Statement No. 123" that allows companies
adopting the fair value method permitted under SFAS No. 123 to choose from
three alternative transition methods. The Company has elected to adopt the
modified prospective method that recognizes stock based compensation expense
from January 1, 2003 as if the fair value based accounting method had been
used to account for all outstanding unvested employee awards granted, modified
or settled in prior years. The ultimate impact on the future years' results of
operations and financial position will depend upon the level of stock-based
compensation granted in future years. Assuming no additional stock based
compensation grants are made in 2003 and no additional forfeitures of
outstanding unvested grants, the Company estimates the additional compensation
expense associated with its current outstanding awards will be CHF 5 million
in 2003, CHF 3 million after tax, and CHF 1 million in 2004, CHF 0.6 million
after tax. SFAS No. 148 also amends certain annual disclosure provisions of
SFAS No. 123. The Company has adopted these disclosure requirements in 2002,
as permitted in accordance with the statement. SFAS No. 148 also requires the
disclosure in interim financial statements the pro forma net income and
earnings per share determined as if the Company had used the fair value method
of accounting for its stock based compensation plans in accordance with the
fair value method for all periods for which it has not been applied.
Previously this pro forma disclosure was only required for annual financial
statements. For the pro forma net income and earnings per share of the Company
for 2002, 2001 and 2000 determined as if the Company had used the fair value
method of accounting for its stock based compensation plans, see Note 18 to
Consolidated Financial Statements.

     In 2002 and prior years, the Company has applied the disclosure-only
provisions of SFAS No. 123 in accounting for its stock-based compensation
plans that permitted the application of the intrinsic value method, as defined
in Accounting Principles Board (APB) Opinion No. 25 "Accounting for Stock
Issued to Employees" and related interpretations. Under APB Opinion No. 25,
the Company recognized no compensation expense related to certain stock based
compensation plans, as certain stock options have been granted at a price
equal to the market price on the day of the grant and the discount offered
under its employee share ownership plan was at a discount rate permitted
without requiring compensation costs to be recorded.

                                                                              46
<PAGE>

      YEAR IN REVIEW - 2001 COMPARED TO 2000
      --------------------------------------
                                                                2001      2000
   -----------------------------------------------------------------------------
   RESULTS OF OPERATIONS
   Net sales  ...............................................  7 367     7 902
   Gross profit  ............................................  2 379     2 569
   Operating income  ........................................    761       876
   Income from continuing operations  .......................    380       418
   Net income  ..............................................    382       452

   Basic and diluted earnings per share:
   Income from continuing operations per share  .............   5.72      6.31
   Net income per share  ....................................   5.76      6.81
   -----------------------------------------------------------------------------
   OTHER DATA
   Operating income  ........................................    761       876
   Depreciation and amortization of other intangible assets .    408       406
   Amortization of goodwill..................................     61        64
   -----------------------------------------------------------------------------
   EBITDA....................................................  1 230     1 346
   Restructuring and special charges, net  ..................      0         2
   -----------------------------------------------------------------------------
   EBITDA, before restructuring and special charges .........  1 230     1 348
   -----------------------------------------------------------------------------
   Operating cash flows                                        1 054     1 031
   Operating cash flows, before restructuring payments(2)  ..  1 100     1 065
   Free cash flow(3)  .......................................    779       638
   -----------------------------------------------------------------------------
   Net debt(4)  .............................................  2 351     2 983
   Shareholders' equity at year end  ........................  3 908     3 754

   Dividend per share(5)  ...................................   2.00      2.00
   Capital reduction per share(5)  ..........................   1.00         -
   -----------------------------------------------------------------------------
   RESULTS OF OPERATIONS AS ADJUSTED EXCLUDING GOODWILL
   AMORTIZATION(1)
   Operating income  .......................................     822      940
   Income from continuing operations  ......................     441      482
   Net income                                                    443      520
   Basic and diluted earnings per share:
   Income from continuing operations per share  ............    6.64     7.27
   Net income per share  ...................................    6.68     7.83
   -----------------------------------------------------------------------------
   KEY PERFORMANCE RATIOS
   Sales development  ......................................     (7)%       9%
   Sales development in local currencies  ..................     (3)%       2%
   Expressed as a percentage of sales:
   Gross profit  ...........................................    32.3%    32.5%
   Operating income  .......................................    10.3%    11.1%
   Income from continuing operations  ......................     5.2%     5.3%
   Net income  .............................................     5.2%     5.7%
   EBITDA, before restructuring and special charges  .......    16.7%    17.1%
   -----------------------------------------------------------------------------

   (1)  Effective January 1, 2002, the Company adopted Financial Accounting
        Standards Board (FASB) Statement of Financial Accounting Standard
        (SFAS) No. 142 "Goodwill and Other Intangible Assets, which requires
        that goodwill no longer be amortized to earnings. For comparison
        purposes to the 2002 reported results, the results of operations on an
        adjusted basis, excluding goodwill amortization, for the year 2001 and
        2000 are shown in the table above in the "Results of operations as
        adjusted excluding goodwill amortization" section (see Note 1 to
        Consolidated Financial Statements).

   (2) Restructuring payments were CHF 46 million in 2001 and CHF 35 million in
       2000.

   (3) For the calculation of free cash flow see the corresponding table in
       section "Year in Review - 2002 Compared to 2001 - Liquidity and Capital
       resources" above in this Management's Discussion and Analysis.

   (4) For the calculation of net debt in 2001 see the corresponding table in
       section "Year in Review - 2002 Compared to 2001 - Consolidated balance
       sheets" in this Management's Discussion and Analysis. Net debt for 2000
       is calculated as total debt of CHF 4 230 less cash and cash equivalents
       of CHF 1 179 million, less short-term investments of CHF 68.

   (5)  For 2001, the shareholders approved, at the Annual General Meeting on
        March 22, 2002, the Board of Directors proposal for an unchanged
        dividend of CHF 2 per share and an extraordinary payment to the
        shareholders in the form of a capital reduction of CHF 1 per share.
        The capital reduction was in the form of a reduction in the nominal
        value of each common share from CHF 10 per share by CHF 1 per share to
        CHF 9 per share. The Company paid the capital reduction on June 28,
        2002 and the 2001 dividend was paid on March 27, 2002. The 2000
        dividend, based on 2000 results, was paid on March 28, 2001.


     OVERVIEW

     The year 2001 was characterized by a continuous weakening of the economic
environment. The slowdown was first evident in the United States and the
impact spread throughout the NAFTA region. European economies, particularly
Germany and France, also began to slow down in mid-year, with the slowdown
accelerating towards year-end. Performance in South America remained strong
and was only mildly affected by the Argentine


                                                                            47

<PAGE>
economic crisis. In the Asia-Pacific region, the Japanese market had not yet
recovered from its lows of 1999, remaining sluggish throughout 2001. The China
Region remained the global growth engine with real GDP growth remaining at
approximately 7 percent. In most of the regions of the world, with the
exception of China, the industrial sector growth was below total GDP growth.
This was particularly accentuated in the United Kingdom. In the Unites States
consumer demand remained relatively stable due to significant incentives and
rebates in several market sectors, particularly in the automotive sector. This
resulted in a net decrease of inventories at the Company's customers.

     OPERATIONAL REVIEW

     The Company implemented an organization focused on the customer

     During 2001, the Company successfully implemented a new organizational
structure comprising five Segments focused on specific customer markets. The
five reporting Segments are Plastic Additives, Coating Effects, Water & Paper
Treatment, Textile Effects and Home & Personal Care. Each Segment is
responsible for marketing, research and development, technology, production
and sales. The mission of the Segments is to provide the best and most
complete service to its customers' industries and strive for market leadership
in their respective areas. To ensure that innovation efforts are successfully
shared across Segments a corporate technology office under the leadership of a
Chief Technology Officer was created. All Segments share support functions
such as finance and accounting, human resources, communications, legal and
supply chain services. As part of the reorganization, the Company initiated an
integration of the original three supply chains into a single global supply
chain. This initiative is ongoing and is expected to be completed during 2003.

     Decisive and timely action protected profitability

     Net sales at CHF 7 367 million decreased in local currencies by 3 percent
and in Swiss francs decreased by 7 percent compared to the previous year. This
decline was largely a consequence of the slowing global economy. The Company
took timely and decisive action to protect profitability in this adverse
business environment. Despite strong competitive pressures, the Company
successfully maintained sales prices at relatively stable levels compared to the
prior year. The Company's continued focus on global sourcing of raw materials
and its position in the chemicals value chain kept raw material cost increases
to a minimum. Rightsizing initiatives that commenced in 2000 and initiatives
implemented with the reorganization into five customer-focused Segments in 2001
resulted in headcount reductions in excess of 600. In response to the economic
downturn, worldwide cost-saving programs were introduced. Additionally, in order
to tightly control inventory levels and save costs temporary production plant
shutdowns were implemented where feasible.

     The 2001 productivity initiatives continued to be implemented during
2002. Their objective is to continue to improve the Company's overall
operational efficiencies. The most significant of these initiatives is
streamlining the organization through the establishment of the single supply
chain to be used by all Segments. The completion of these initiatives in 2003
will result in further headcount reductions and a lower cost base.

     While these proactive actions to protect profitability were generally
successful, they were unable to fully compensate for unfavorable currency
conditions. The weakening of most currencies against the Swiss franc,
particularly the euro, the Japanese yen and the British pound, had a
significant negative effect on the Company's results.

     The Company's gross profit margin remained relatively stable at 32.3
percent compared to 32.5 percent of sales in the prior year. In absolute
terms, gross profit decreased to CHF 2 379 million from CHF 2 569 million in
the prior year. Most of this decline is attributable to unfavorable currency
conditions. The positive impact of cost saving initiatives resulted in lower
operating costs, however, these savings could not fully compensate for the
lower gross profit, resulting in operating income of CHF 761 million compared
to CHF 876 million in the prior year.

     Income from continuing operations was CHF 380 million or CHF 5.72 per
share compared to CHF 418 million or CHF 6.31 per share in the prior year. Net
income was CHF 382 million or CHF 5.76 per share compared to CHF 452 million
or CHF 6.81 per share in the prior year. The Company's EBITDA and EBITDA
margin were CHF 1 230 million and 16.7 percent, respectively, in 2001 compared
to CHF 1 348 million and 17.1 percent, respectively, in 2000.

     Free cash flow of more than CHF 750 million enhanced the Company's
financial position

     Throughout 2001, in view of the negative economic conditions, the Company
placed a high priority worldwide on managing its cash flows, even though
certain actions taken to improve cash flows had some short-term negative
effects on earnings. For example, temporary production plant shutdowns
generate cash through the reduction of inventory levels, but negatively
affected earnings through increased idle capacity costs. As a result of these
actions, cash provided by operating activities again exceeded CHF 1 billion.
This positive cash flow was generated by significant reductions in inventories
and accounts receivable. These reductions were due to a number of proactive
initiatives, such as the temporary plant shutdowns and continued effective
management of operational assets, especially inventories.

     Capital expenditures have remained relatively stable at 2000 levels and
continues to be focused on efficiency improvement projects, remaining below
the level of annual depreciation. The combination of cash flows generated from
operations and tight asset management resulted in free cash flow increasing to
CHF 779 million in 2001 compared to CHF 638 million in 2000.

     The continuing focus on operational efficiencies, cash flow and portfolio
management has resulted in a reduction of the Company's net debt to CHF 2 351
million in 2001, an improvement of CHF 632 million from 2000 levels and from
1999 levels, an improvement of CHF 2 617 million. EBITDA interest cover
improved to 9.18 from 6.47 in 2000.

     The Company optimized its business portfolio through selective
acquisitions and divestments to strengthen its focus on its core businesses
and to improve profitability

     As part of its focus on core businesses, in March 2001, the Company sold
its 50 percent interest in TFL Ledertechnik GmbH & Co. KG, an international
chemical company whose products and technical services are geared exclusively
to the needs of the leather industry. The net proceeds received approximated
the carrying value of the investment at the date of sale.

     In order to optimize the Plastic Additives Segment's global manufacturing
network, the Company acquired, in January 2001, a controlling interest in
Musashino-Geigy Co. Ltd. ("Musashino-Geigy"), increasing its holdings from 50
percent to 60 percent. Musashino-Geigy has a facility in Isohara, Japan and
produces antioxidants, UV absorbers and blends for plastics.

                                                                            48
<PAGE>



     To expand Coating Effects service business and its high value added
products offerings, in June 2001, the Company acquired EFKA Additives B.V.
("EFKA"). EFKA manufactures, markets and distributes additives for the
coatings and inks industries.

     The Board of Directors of the Company proposed an unchanged dividend per
share of CHF 2 and an extraordinary distribution in the form of a capital
reduction of CHF 1 per share

     The Board of Directors proposed a payment to the Company's shareholders
in 2002 of an unchanged dividend of CHF 2 per share, based on 2001 results.
Additionally, in consideration of the improved financial structures of the
Company, an extraordinary payment to the shareholders' was proposed in the
form of a capital reduction of CHF 1 per share. The capital reduction
proposed was in the form of a reduction in the nominal value of each common
share from CHF 10 per share to CHF 9 per share. The 2001 dividend and capital
reduction were both approved at the shareholders' meeting on March 22, 2002.
The 2001 dividend was paid on March 27, 2002 and the capital reduction was
paid on June 28, 2002.

     FINANCIAL REVIEW

     Sales declined as a result of a weak economic environment

     Sales in local currencies decreased by 3 percent. In Swiss francs sales
decreased by 7 percent to CHF 7 367 million. Sales development in 2001
compared to 2000 resulted from the following factors:

      CONSOLIDATED SALES DEVELOPMENT                   2001 COMPARED TO 2000
     ---------------------------------------------------------------------------
      Volume/product mix  ....................................     (2)%
      Price  .................................................     (1)%
      Currency  ..............................................     (4)%
     ---------------------------------------------------------------------------
      Total in Swiss francs  .................................     (7)%
     ---------------------------------------------------------------------------

     The continued weakness of the economic environment, which began in the
United States during the fourth quarter of 2000, continued to worsen in the
NAFTA region through most of 2001. Starting in May 2001, the European
economies, particularly Germany and France, also began to show signs of
weakness, becoming more evident in the later part of 2001. Contributing to the
Swiss franc sales decline was the strengthening of the Swiss franc compared to
other currencies, particularly against the euro, British pound and the
Japanese yen, resulting in a reduction in sales in Swiss franc terms by 4
percent when compared to 2000. Despite these difficult economic conditions,
sales price erosion and volume reduction were not significant; underlying the
overall quality of the Company's product portfolio and customer partnerships.

     Sales in local currencies in most of the major markets in EUROPE, except
Germany, were stable. This reflected the overall impact of the modest sales
growth that was achieved during the first half of the year, offset by the
effects of the slowdown during the second half of the year. In Swiss francs,
sales declined. In the AMERICAS, sales decreased in North and Central America,
in both Swiss francs and in local currencies. The sales in South America
increased by double digits in local currency, but declined in Swiss francs. In
ASIA PACIFIC, for most major markets except in Japan and the China Region,
sales increased in local currencies, however, declined in Swiss francs terms.
In Japan, sales decreased in both Swiss francs and in local currency. In the
China Region, sales increased in both Swiss francs and in local currencies.

      GEOGRAPHIC SALES DISTRIBUTION                           2001        2000
      --------------------------------------------------------------------------
      Europe  ..........................................        37 %        37 %
      Americas(1)  .....................................        36 %        37 %
      Asia Pacific(2)  .................................        27 %        26 %
      --------------------------------------------------------------------------

     (1)  The Americas are comprised of the regions North, Central and South
          America.

     (2)  Asia Pacific is comprised of the regions Asia, Africa, the Middle
          East, Australia and New Zealand.

     Profit margins remained relatively stable and benefited from the
Company's cost reduction programs

     Gross profit margin remained relatively stable at 32.3 percent of sales
compared to 32.5 percent in the prior year. The stable gross profit margin was
achieved through maintaining raw material prices at stable levels with the
prior year's levels, tight control on other production costs, combined with
the relatively stable selling prices. The ability to maintain relatively
stable raw material prices was achieved as a result of the continuation of the
Company's policy to optimize procurement of raw materials by purchasing
supplies globally through its worldwide organization and partnerships and its
position in the chemicals value chain. While proactive inventory reduction
initiatives led to increased idle capacity charges, these additional costs
were offset by production cost reductions. Costs were reduced as a consequence
of the rightsizing initiatives that were announced in 2000, which involved
permanent plant shutdowns in the United States, ongoing efficiency
initiatives, such as debottlenecking and productivity improvements, and
selective temporary plant shutdowns worldwide.

     Selling, general and administrative expenses decreased

     Selling, general and administrative expenses expressed as a percentage of
sales decreased to 17.1 percent from 17.9 percent in the prior year. In
absolute terms, selling, general and administrative expenses decreased by CHF
159 million to CHF 1 258 million, compared to CHF 1 417 million in the prior
year, a decrease of 11 percent in Swiss francs and 8 percent in local
currencies. This improvementwas achieved as a result of the Company's
continuous efforts to streamline its operational structures. Cost savings and
headcount reductionswere achieved as a consequence of the rightsizing
initiatives that were announced in 2000, and of the reduction in personnel
under the Company's "Fit For Growth!" reorganization program, which was
announced in early 2001. Also, in response to the deteriorating market
conditions, the Company implemented other targeted cost control programs
thatwere mostly focused on reducing discretionary spending and delaying
expenditures where possible. The Company had lower variable compensation
expenses in 2001 compared to 2000, as compensation levels are partly linked to
achieving performance targets, which

                                                                            49

<PAGE>


were only partly met in 2001. Additionally, the Company had non-recurring
income related to providing third party services to Vantico, the company
established by the purchaser of the Company's Performance Polymers business.
These service contracts have expired and will not be renewed.

     Continued commitment to research and development

     Research and development expenses as a percentage of sales remained
stable at 3.8 percent in 2001 compared to 3.7 percent in the prior year. In
absolute terms, research and development expenses decreased by CHF 17 million
to CHF 276 million in 2001 compared to CHF 293 million in 2000, a decrease of
6 percent in Swiss francs or 5 percent in local currencies.

      The Company's research and development program focuses on generating new
business and defending leading market positions by continuous innovation. As
part of the reorganization, announced in February 2001, certain research and
development activities mostly focused on innovative new ideas and
opportunities were transferred to a central group managed directly by the
Chief Technology Officer. The Company's research and development strategy is
to enter both new and existing markets with innovative formulations and
solutions that will satisfy customer needs.

     Some examples of entering new markets with new formulations are "soft
pigment" formulations for both textile printing and textile dyeing. These
formulations have superior characteristics as they can be used for printing
and bath dyeing, they maintain the soft handle of the textile in the finished
product and they are environmentally friendly. A further example are new UV
absorber systems that are added to laundry detergents, which when applied
regularly increase the sun-protection of a fabric up to a factor of 30.

     Innovative product range extensions and customer focused solutions within
existing markets include a new compound for optical information storage on
recordable Compact Discs (CDs) and Digital Versatile Discs (DVDs) with
improved data storage quality, warp free pigments for use in plastics, and new
colors for color filters used in color flat-screen displays (LCD-TFT). The
Segment Water & Paper Treatment introduced a series of environmentally
friendly fluoro-chemicals for the paper market, which prevents, for example,
food-packaging papers from being stained by fatty content.

     Also, the Company continued to develop new and improved manufacturing
processes, which are cost competitive and meet all environmental, health and
safety requirements.

     Amortization of goodwill and other intangibles remained constant

     Amortization of goodwill and other intangibles remained relatively
constant at CHF 92 million, a decrease of CHF 2 million from 2000.

     Effective January 1, 2002, in accordance with new U.S. GAAP accounting
rules, the Company no longer amortize any goodwill to earnings, but instead is
required to review its recoverability through annual impairment testing. Other
identifiable intangibles will continue to be amortized to earnings over their
estimated useful lives. For further information see "Supplemental Information
- Change in accounting policy and new accounting standards" section below of
this Management's Discussion and Analysis and Note 1 to Consolidated Financial
Statements.

     Income from earnings of equity affiliates decreased due to Hexcel sale

     Income from earnings of equity affiliates (investments in unconsolidated
companies with greater than 20 percent and less than or equal to 50 percent
ownership), before income taxes, decreased to CHF 8 million in 2001 from CHF
113 million in 2000. The related income taxes on earnings of equity affiliates
are recorded separately in the Company's provision for income taxes.

     The reduction in income from earnings of equity affiliates was primarily
due to the sale, in December 2000, of the majority of the Company's investment
in Hexcel Corporation ("Hexcel") and to the sale in March 2001, of the
Company's 50 percent interest in TFL Ledertechnik GmbH & Co. KG ("TFL").

     The net proceeds received from the sale of the TFL interest approximated
the carrying value of the investment at the date of sale. In 2000, the Company
realized a gain of CHF 71 million from the sale of its majority stake in
Hexcel, which is included in the restructuring and special charges reported in
the Consolidated Statements of Income. For further discussion related to this
sale refer to the section "Restructuring and special charges, net" of this
Management's Discussion and Analysis.

     Operating income and EBITDA adversely affected by lower sales levels and
unfavorable currency developments

                                                                 2001     2000
      --------------------------------------------------------------------------
      Operating income (EBIT) ...............................     761      876
      EBITDA, before restructuring and special charges  .....   1 230    1 348
      EBIT margin  ..........................................    10.3%    11.1%
      EBITDA margin, before restructuring and special charges    16.7%    17.1%

      2001 COMPARED TO 2000
      --------------------------------------------------------------------------
          Operating income (EBIT) ...........................    (13)%
          EBITDA  ...........................................     (9)%
      --------------------------------------------------------------------------

     Operating income and EBITDA were adversely affected by lower sales
levels, unfavorable currency developments, and by increased idle capacity
costs that resulted from the proactive actions undertaken by the Company to
lower its investment in inventories in view of the weak economic environment.
The strengthening of the Swiss franc against most currencies negatively
impacted operating income by approximately CHF 100 million. These adverse
effects were offset by tight cost controls, reduced performance based
compensation payments and non-recurring service income. The net result is a
reduction in the EBITDA margin from 17.1 percent to 16.7 percent.

                                                                            50

<PAGE>


      Restructuring and special charges, net

     The Company evaluates the performance of its Segments operating incomes
before restructuring and special charges. Accordingly, restructuring and
special charges are not included in the Segments' operating results.

     For a discussion of the 2001 restructuring programs and special charges
refer to the discussion above in the section "Year in Review - 2002 Compared
to 2001 - Financial Review - Restructuring and special charges, net" of this
Management's Discussion and Analysis.

     In 2000, the Company incurred net restructuring and special charges of
CHF 2 million. This charge includes a CHF 71 million gain on the sale of 14
525 000 shares of the Company's investment in Hexcel Corporation, at USD 11.00
per share, which represented approximately 81 percent of the Company's
holdings (see Notes 3 and 9 to Consolidated Financial Statements). Also
included is a charge of CHF 21 million which relates to an impairment loss on
certain equity investments. The restructuring projects, totaling CHF 52
million, comprised primarily the restructuring of certain operations of the
Water & Paper Treatment Segment in the United States (mainly relating to the
closure of a manufacturing facility), the reorganization of the Company's
administration functions in Southern Europe and the reduction of personnel,
principally at a Plastic Additives and Home & Personal Care manufacturing
facility in the United States. Severance costs incurred in 2000 relate to the
elimination of approximately 238 FTEs in the United States and southern
Europe, principally in the administration, sales and marketing functions and,
in addition, the production function in the United States. As of December 31,
2001, 58 FTEs are still to be terminated.

     In 2002, the Company completed all of its outstanding restructuring
programs that were announced in prior years. For further information, see Note
12 to Consolidated Financial Statements.

     PLASTIC ADDITIVES RESULTS

     Sales decreased to CHF 1 834 million in 2001 or by 6 percent in Swiss
francs and by 3 percent in local currencies. Sales development in 2001
compared to 2000 resulted from the following factors:

      SALES DEVELOPMENT                                   2001 COMPARED TO 2000
      --------------------------------------------------------------------------
      Volume/product mix  ...................................        (1)%
      Price  ................................................        (2)%
      Currency  .............................................        (3)%
      --------------------------------------------------------------------------
      Total in Swiss francs  ................................        (6)%
      --------------------------------------------------------------------------

     Sales growth in lubricant additives compensated for slower sales in base
polymers and polymer products resulting in overall stable volumes. Maintaining
stable volumes in challenging market conditions was achieved through
continuing innovation and close customer partnerships. Continued competitive
pressure and a slower economic environment in major customer industries,
particularly in the automotive industry, caused the sales price declines.
Unfavorable currency developments between years adversely affected sales
performance.

     Geographically, despite a slowing trend towards year-end, sales in EUROPE
in local currencies exceeded prior year. Sales in the AMERICAS were lower,
although sales declines stabilized in the United States in the second half. In
ASIA-PACIFIC, sales were stable in local currencies.

                                                           2001       2000
      ------------------------------------------------------------------------
      OPERATING INCOME (EBIT)
      Absolute in CHF  ..................................   275        319
      As a percentage of sales (EBIT margin)  ...........  15.0%      16.3%

      EBITDA
      ------------------------------------------------------------------------
      Absolute in CHF  ..................................   388        423
      As a percentage of sales (EBITDA margin)  .........  21.1%      21.6%
      ------------------------------------------------------------------------

     Operating income and EBITDA, in absolute terms, were adversely affected
by lower sales. EBITDA margin declined marginally from the prior year.
Continued high volumes, stable raw material prices and tight cost controls in
production resulted in stable gross profit margin levels. Unfavorable currency
developments had an adverse effect on results as proportionately more costs
than sales are incurred in Swiss francs. Selling, general and administrative
costs, on a comparable basis, were held at similar levels to prior years.
Investment in future growth through research and development continued at the
level of approximately 4 percent of sales.

     COATING EFFECTS RESULTS

     Sales decreased to CHF 1 944 million in 2001 or by 8 percent in Swiss
francs and by 4 percent in local currencies. Sales development in 2001
compared to 2000 resulted from the following factors:

      SALES DEVELOPMENT                                   2001 COMPARED TO 2000
      --------------------------------------------------------------------------
      Volume/product mix  .........................................    (2)%
      Price  ......................................................    (2)%
      Currency  ...................................................    (4)%
      -------------------------------------------------------------------------
      Total in Swiss francs  ......................................    (8)%
      -------------------------------------------------------------------------

                                                                            51

<PAGE>


     The weak economic environment, particularly in the United States and in
the automotive paint industry, negatively affected sales. Despite this
generally negative economic environment, sales into the imaging and inks
industry remained stable. The strong growth in sales into the electronics
materials industry due to innovative products could not fully compensate for
the challenging competitive conditions encountered in the automotive coatings
and plastic fiber industries. Unfavorable currency developments between years
also adversely affected sales performance.

     Geographically, despite a slowing trend towards year-end, sales in EUROPE
in local currencies were only marginally below prior year. Sales in the
AMERICAS, especially in the United States, were lower. In the second half,
however, sales levels stabilized, albeit at a lower level. In ASIA-PACIFIC
sales grew in local currencies and were stable in Swiss francs.

                                                          2001         2000
      -------------------------------------------------------------------------
      OPERATING INCOME (EBIT)
      Absolute in CHF  .............................      312           371
      As a percentage of sales (EBIT margin)  ......     16.1%         17.5%

      EBITDA
      -------------------------------------------------------------------------
      Absolute in CHF  .............................      411           475
      As a percentage of sales (EBITDA margin)  ....     21.1%         22.4%
      -------------------------------------------------------------------------

     Operating income and EBITDA, in absolute terms, were adversely affected
by lower sales and unfavorable currency developments. Proactive actions to
reduce inventory levels and increase cash, including the temporary shutdown of
certain production plants, negatively affected the gross profit margin.
Selling, general and administrative costs were reduced as a consequence of the
new Segment structure and targeted cost reduction initiatives implemented in
the second half of the year. Investment in future growth through research and
development continued at the high level of approximately 5 percent of sales.
In addition, during 2001 EFKA Additives B.V., a manufacturer of additives for
the coatings and inks industries was acquired. The business will expand the
service element and the Segments high value added products offering.

     WATER & PAPER TREATMENT RESULTS

     Sales decreased to CHF 1 486 million in 2001 or by 5 percent in Swiss
francs and by 1 percent in local currencies. Sales development in 2001
compared to 2000 resulted from the following factors:

      SALES DEVELOPMENT                                   2001 COMPARED TO 2000
      --------------------------------------------------------------------------
      Volume/product mix  ...................................       (1)%
      Price  ................................................         0%
      Currency  .............................................       (4)%
      --------------------------------------------------------------------------
      Total in Swiss francs  ................................       (5)%
      --------------------------------------------------------------------------

     Despite the difficult economic environment, sales in paper chemical
products increased in local currencies. This positive result was supported by
growth in the barrier effects and imaging markets. Sales in water treatments
products declined in local currencies partly due to aggressive pricing from
competitors. Sales into the extractive industries were adversely impacted by
the energy crisis in the United States that led to a reduction in aluminum and
steel production. Unfavorable currency developments adversely affected sales
performance.

     Geographically, in EUROPE, sales decreased both in Swiss francs and in
local currencies. Performance of the individual countries, however, was mixed.
In the AMERICAS, sales remained relatively stable in Swiss francs and
increased in local currencies. South America showed a strong sales performance
both in Swiss francs and in local currencies. In ASIA-PACIFIC, sales decreased
in the major Asian markets, in both Swiss francs and in local currencies.

                                                               2001       2000
      --------------------------------------------------------------------------
      OPERATING INCOME (EBIT)
      Absolute in CHF  .......................................    65        92
      As a percentage of sales (EBIT margin)  ................   4.4%      5.9%

      EBITDA
      --------------------------------------------------------------------------
      Absolute in CHF  .......................................   157       187
      As a percentage of sales (EBITDA margin)  ..............  10.6%     12.0%
      --------------------------------------------------------------------------

     Operating income and EBITDA decreased both in absolute and intensity
terms. This decline is partly due to raw material price increases and to under
utilization of production capacities. Significant actionswere taken and
continue to be taken to both improve operational efficiency and to either
improve utilization of production facilities or eliminate the idle capacities.
As part of this process, during 2001, the Segment reorganized its business in
the United States, including the closure of a production facility. While these
actions started to have a noticeable positive impact on gross profit margins
during the fourth quarter of 2001, overall margins for the entire year
declined slightly. Selling, general and administrative costs decreased
marginally in Swiss francs, but increased in local currencies, partly due to
one-time rightsizing costs. These ongoing rightsizing initiatives have
resulted in a significant reduction in headcount and a lower cost base for the
Segment. Research and development costs remained stable at approximately 2
percent of sales.

                                                                            52

<PAGE>


     TEXTILE EFFECTS RESULTS

     Sales decreased to CHF 1 673 million in 2001 or by 9 percent in Swiss
francs and by 6 percent in local currencies. Sales development in 2001
compared to 2000 resulted from the following factors:

      SALES DEVELOPMENT                             2001 COMPARED TO 2000
      -----------------------------------------------------------------------
      Volume/product mix  ................................  (5)%
      Price  .............................................  (1)%
      Currency  ..........................................  (3)%
      -----------------------------------------------------------------------
      Total in Swiss francs  .............................  (9)%
      -----------------------------------------------------------------------

     The general economic slow down that accelerated in the second quarter of
2001 adversely affected the sales performance. The industries participating in
the wool sector recorded a particularly low level of activity for the year. On
the positive side, effect chemicals matched last year's performance in local
currencies, owing to continued customer demands for functional effects.
Despite the challenging business environment, innovative products and close
customer partnerships, in areas such as reactive dyeing and effect chemicals,
resulted in positive sales developments. The relatively stable price effect
was achieved through the Segment's continued focus on profitable sales growth.
Unfavorable currency conditions in 2001 adversely impacted the sales
development of the Segment.

     Geographically, EUROPE posted lower sales in both Swiss francs and in
local currencies. Performance of the individual countries, however, was mixed.
The AMERICAS were particularly weak, both in Swiss francs and in local
currencies. All major markets in the region were affected by the downward
trend in sales. In ASIA-PACIFIC, sales were stable in local currencies, but
declined in Swiss francs.

                                                         2001           2000
      --------------------------------------------------------------------------
      Operating income (EBIT)
      Absolute in CHF  .............................      181            204
      As a percentage of sales (EBIT margin)  ......     10.8%          11.1%

      EBITDA
      --------------------------------------------------------------------------
      Absolute in CHF  .............................      248            275
      As a percentage of sales (EBITDA margin)  ....     14.8%          14.9%
      --------------------------------------------------------------------------

     Operating income and EBITDA, in absolute terms, reflect the adverse
effects of the decline in sales. EBITDA margin remained stable. The impact
from the productivity improvement initiatives together with the effect of
reduced raw material prices resulted in improved gross profit margin levels.
Currency adversely affected the results, as proportionately more costs than
sales are incurred in Swiss francs. Selling, general and administrative costs
decreased in Swiss francs and decreased even more significantly in local
currencies, due principally to reductions in headcount. Research and
development costs remained stable at approximately 2 percent of sales.

     HOME & PERSONAL CARE RESULTS

     Sales increased to CHF 430 million in 2001 or by 1 percent in Swiss
francs and by 6 percent in local currencies. Sales development in 2001
compared to 2000 resulted from the following factors:

      SALES DEVELOPMENT                                  2001 COMPARED TO 2000
     ---------------------------------------------------------------------------
      Volume/product mix  ......................................      6%
      Price  ...................................................      0%
      Currency  ................................................    (5)%
     ---------------------------------------------------------------------------
      Total in Swiss francs  ...................................      1%
     ---------------------------------------------------------------------------

     Sales growth in home and fabric care was mainly driven by an upturn in
sales in the detergent market, while personal care recorded strong sales of UV
absorbers, particularly in European markets, and of products for use in hair
dyes. These growth areas more than compensated for the declines in the hygiene
effects market, which was most notably seen in the United States, resulting in
an overall positive volume development. Selling prices remained stable
compared to the previous year while unfavorable currency developments
adversely affected sales performance.

     Geographically, sales in EUROPE increased in both Swiss francs and in
local currencies. Performance among individual countries was, however, mixed.
In the AMERICAS, sales increased in local currencies but were flat in Swiss
francs. This performance resulted from an increase in sales in South America,
both in Swiss francs and local currencies, while sales in North America
decreased. In ASIA-PACIFIC, sales increased in both Swiss francs and to an
even more significant extent in local currencies.

                                                             2001       2000
      --------------------------------------------------------------------------
      OPERATING INCOME (EBIT)
      Absolute in CHF  .....................................   67         58
      As a percentage of sales (EBIT margin)  .............. 15.7%      13.7%

      EBITDA
      --------------------------------------------------------------------------
      Absolute in CHF  .....................................   95         80
      As a percentage of sales (EBITDA margin)  ............ 22.2%      18.8%
      --------------------------------------------------------------------------

                                                                            53

<PAGE>



     Operating income and EBITDA increased both in absolute and intensity
terms. Stable volumes and a continued focus on cost controls led to constant
gross profit margin levels. Tight cost controls in discretionary spending and
operational improvements resulted in a decrease in selling, general and
administrative costs, both in Swiss francs and in local currencies. Investment
in research and development increased to approximately 6 percent of sales
reflecting the commitment to future growth.

     TREASURY MANAGEMENT

     The international financial markets in 2001 continued to be volatile. The
major trends in the markets, which were the focus of the Company's treasury
management, included the weakening of certain currencies against the U.S.
dollar, the weakening of the U.S. dollar against the Swiss franc, the
weakening of the euro against the Swiss franc, as well as against other
European currencies, the weakening of the Japanese yen against the Swiss franc
and movements in interest rates.

     In 2001, the Swiss franc strengthened against most of the major
currencies. During 2001, the U.S. dollar fluctuated against the Swiss franc
from a high of approximately CHF 1.81 to a low of approximately CHF 1.59. At
the end of 2001, the Swiss franc was at a level of CHF 1.63 against the U.S.
dollar versus CHF 1.67 at the end of 2000.

     As a consequence of the economic slowdown in the United States and the
flat growth development in Europe, global interest rates fell below 2000
levels. Through the effective anticipation of market conditions and the use of
financial instruments available in the financial markets, the Company was able
to further reduce the average cost of its total borrowings in 2001 to 4.8
percent, which is below 2000 levels. The Company's net interest costs
decreased by CHF 75 million to CHF 134 million in 2001 compared to CHF 209
million in 2000. This decrease resulted from a reduction in interest rates
globally and effective treasury management.

     The Company, in accordance with its stated risk management policy,
continued to monitor its currency exposures and, where appropriate, entered
into transactions to minimize its overall exposures to volatility in the
currency markets. The Company selectively executed foreign currency
transactions to protect the cash flows of its operating companies against
unfavorable foreign currency movements. In 2001, other financial income
(expense) including foreign currency exchange gains and losses and net hedging
expenses, increased by CHF 45 million, to a net expense of CHF 59 million in
2001 as compared to a net expense of CHF 14 million in 2000. This increase was
a consequence of currency exchange losses caused by the devaluation of (i) the
Brazilian real against the U.S. dollar of CHF 15 million, (ii) the Turkish
lira against the U.S. dollar of CHF 6 million, (iii) the South African rand
against the Swiss franc of CHF 5 million, (iv) the Mexican peso against the
U.S. dollar of CHF 2 million and (v) the Argentine peso against the U.S.
dollar of CHF 2 million. Also included were increases in miscellaneous bank
fees of CHF 5 million and premiums paid on currency options of CHF 10 million
that were incurred to hedge the Company's exposure in various currencies.

     The Company continued its debt repayment program, which commenced in
1999, utilizing free cash flow to further reduce its short-term debt. Cash
flow utilized for this purpose amounted to CHF 48 million in 2001 and CHF 844
million in 2000. When economically feasible, the Company also selectively
retired portions of its long-term debt. Free cash flow utilized for this
purpose amounted to CHF 110 million in 2001 versus CHF 499 million in 2000.

     Effective January 1, 2001, the Company adopted the Financial Accounting
Standards Board (FASB) Statement of Financial Accounting Standard (SFAS) No.
133, "Accounting for Derivative Instruments and Hedging Activities", as
amended. Upon adoption, the Company recorded a net transition adjustment gain
after taxes of CHF 2 million in net income. The adoption did not have any
effect on accumulated other comprehensive income. For further information,
refer to the discussion above in the section "Year in Review - 2002 Compared
to 2001 - Treasury Management and "Supplemental Information - Change in
accounting policy and new accounting standards" of this Management's
Discussion and Analysis as well as Notes 1 and 9 to Consolidated Financial
Statements.

     EFFECTIVE TAX RATE

     The Company reported an effective tax rate of 32 percent in 2001 versus
35 percent in 2000. In 2001, the effective tax rate was impacted by several
non-recurring events. The tax rate was negatively impacted by the effect of a
tax payment in Italy (the "Imposta Sostitutiva") that permitted the future tax
deductibility of Prochimica s.r.l.'s goodwill amortization and a tax
adjustment. Both of these negative effects were substantially offset by the
benefit received from the effect of certain taxable expenses in one of the
Company's subsidiaries that were recognized for income tax purposes but were
not recognizable for financial reporting purposes.

     In 2000, the effective tax rate was impacted by several non-recurring
events. The tax rate was positively impacted by the realization of tax loss
carryforwards for which the Company had previously recorded a valuation
allowance, as at the time of their origination, realization was uncertain.
Offsetting this positive effect on the effective tax rate were three events
that generated additional income tax expense in 2000. First, statutory tax
rates were further reduced in Germany from 50 percent to 38 percent. This tax
rate reduction required the Company to re-value its net deferred tax asset of
its German subsidiaries. This revaluation reduced the net deferred tax asset,
resulting in additional tax expense in 2000. Second, additional tax expense
was recorded for financial reporting purposes from certain taxable income in
one of the Company's subsidiaries that was not recognized for financial
reporting purposes. Third, the Company experienced a change in the
profitability mix of its subsidiaries to countries with higher fiscal tax
rates. Excluding the impact of the non-recurring events discussed above, for
comparability with the 2001 effective tax rate, the effective tax rate in 2000
would have been 34 percent.

                                                                            54

<PAGE>



     NET INCOME AND EARNINGS PER SHARE

     NET INCOME                                                 2001     2000
     ---------------------------------------------------------------------------
     Income from continuing operations  ......................   380      418
     Discontinued operations (1)  ............................     -       34
     Cumulative effects of change in accounting principles  ..     2        -
     ---------------------------------------------------------------------------
     Net income  ............................................    382      452
     ---------------------------------------------------------------------------

     (1)  In 2000, discontinued operations reported is the gain on sale of
          discontinued operations, net of tax.


      EARNINGS PER SHARE, BASIC AND DILUTED                     2001      2000
      --------------------------------------------------------------------------
      Continuing operations  ...............................    5.72      6.31
      Discontinued operations  .............................       -      0.50
      Cumulative effects of change in accounting principles     0.04         -
      --------------------------------------------------------------------------
      Net income  ..........................................    5.76      6.81
      --------------------------------------------------------------------------

     Earnings per share amounts were computed by dividing income from
continuing operations, discontinued operations, cumulative effects of change
in accounting principles and net income, respectively, by the weighted average
number of shares outstanding.


     DISCONTINUED OPERATIONS - PERFORMANCE POLYMERS BUSINESS SOLD

     Divestment underscored specialty chemical focus

     On May 31, 2000, the Company completed the sale of its Performance
Polymers business to Morgan Grenfell Private Equity ("MGPE"), the then private
equity arm of Deutsche Bank AG. The total gross proceeds from the sale of the
Performance Polymers business to MGPE and Asian joint venture partners were
CHF 1.6 billion, which included net debt assumed of approximately CHF 160
million. The assumed net debt consisted of approximately CHF 71 million of
third party debt and approximately CHF 121 million of debt to Ciba Specialty
Chemicals, offset by approximately CHF 32 million of cash.

     In connection with the sale of the Performance Polymers business to MGPE,
the Company agreed to provide certain administrative support services and
infrastructure related services, such as utility services and railroad access,
at shared production facilities to Vantico, the company established by MGPE
that operates the Performance Polymers business it acquired. The
administrative service contracts have expired and were not renewed.

     The Performance Polymers division produced epoxy resins and other high
performance thermosets that provide durability, extraordinary strength and
resistance to heat and corrosion. The Performance Polymers division supplied
its products to the coatings, aircraft, electrical and electronic industries,
among others.

     This divestiture underscored the Company's strategy of focusing its
portfolio on specialty chemicals rather than specialty materials. The
Performance Polymers business that was sold is substantially all of the
previously reported Performance Polymers division.

     The Performance Polymers business is reported as a discontinued
operation. This requires the Company to report separately, in the 2000
Consolidated Statements of Income, the Performance Polymers business' results
of operations. The Performance Polymers business achieved sales of CHF 774
million for the five-month period ended May 31, 2000. The Company recorded, in
the Consolidated Statement of Income, a gain on sale of discontinued
operations, net of tax of CHF 34 million in 2000. The 2000 gain on sale of
discontinued operations, net of tax, of CHF 34 million, consists of the
Performance Polymers business operating results through May 31, 2000 of CHF 37
million offset by the loss from the sale of the net assets of the business of
CHF 3 million, which includes the expenses for transaction taxes and the costs
of selling the business. For further information, refer to Note 3 to
Consolidated Financial Statements.

     FORWARD-LOOKING STATEMENTS

     This Management's Discussion and Analysis of Financial Condition and
Results of Operations contains certain forward-looking statements and
information with respect to the financial condition, results of operations and
business of the Company and certain of the plans, objectives and market
position of the Company with respect to these items that are based on beliefs
of the Company's management as well as assumptions made by and information
currently available to the Company. In particular, among other statements,
certain statements in this Management's Discussion and Analysis of Financial
Condition and Results of Operations with regard to trends, revenues, costs,
net income, accounting policies, market size, market share, market demands,
volumes, prices, margins, research and development, capital expenditures, cash
flows, debt levels, patents, outlook 2003, the effect of technological
developments, strategy and management objectives, opinions and beliefs and
sufficiency of environmental reserves and insurance arrangements are
forward-looking in nature. Such statements reflect the current views of the
Company with respect to market conditions and future events and are subject to
certain risks, uncertainties and assumptions. Investors are cautioned that all
forward-looking statements involve risks and uncertainty as there are certain
important factors that could cause actual results, performance or events to
differ materially from those anticipated including, but not limited to, the
following: the timing and strength of new product offerings, pricing
strategies of competitors, introduction of competing products by other
companies, lack of acceptance of new products and services by the Company's
targeted customers, changes in the Company's business strategy, the Company's
ability to continue to receive adequate raw materials from its suppliers on
acceptable terms, or at all, or to continue to obtain sufficient financing to
meet its liquidity needs, the effects of the Company's reorganization and
restructuring and changes in the political and regulatory framework in which
the Company operates or in economic or technological trends or conditions,
including currency fluctuations, inflation and consumer confidence, on a
global, regional or national basis and various other factors. All
forward-looking statements are expressly qualified in their entirety by the
cautionary statements contained or referred to in this section. Furthermore,
the Company does not assume any obligation to update these forward looking
statements. For more information regarding some of these factors, see "Item 3.
Key Information-Risk Factors."

                                                                            55

<PAGE>

     GLOSSARY OF FINANCIAL TERMS

     AVERAGE INVESTED CAPITAL is the sum of invested capital at year end plus
the invested capital as of the beginning of the year divided by two; the result
is adjusted for an annualizing adjustment for acquisitions and divestitures that
occurred during the reporting period, plus the current year goodwill
amortization. The annualizing adjustment amends average invested capital in a
way which ensures that invested capital relating to an acquisition/divestment is
proportional to the period during which the investment was consolidated. To
illustrate, for an acquisition where the operations are consolidated for nine
months, invested capital is proportionately adjusted to reflect 75 percent of
the amount that would normally be expected for a full year.

     BASIC EARNINGS PER SHARE is defined as net income divided by the weighted
average number of common shares outstanding during the reporting period.

     CASH FLOWS FROM OPERATING ACTIVITIES is the net cash provided from the
principal revenue-producing activities of the business. It excludes financing
and investing activities.

     COMMERCIAL PAPER are short-term borrowings in the capital markets that
are typically due within 30 to 270 days from the date of issuance and are
issued by companies with good credit ratings.

     COMPREHENSIVE INCOME is the change in equity of the Company during the year
from transaction and other events, other than dividends paid, treasury stock and
common stock transactions. It includes (i) net income for the year; (ii) the
current year's currency translation adjustment; (iii) the current year's
unrealized gains and losses on available-for-sale securities, net of tax; (iv)
the changes in the effective portion of a derivative financial instruments' fair
values, net of tax, that qualify and that are designated as cash flow hedges;
and (v) the change in the minimum pension liability less the change in the
corresponding intangible asset, net of tax.

     CONVERTIBLE BONDS are debt instruments that may be converted into shares
based on predefined conditions as stipulated in the debt agreement.

     DILUTED EARNINGS PER SHARE is similar to basic earnings per share (net
income divided by the weighted average number of common shares outstanding)
except that it reflects the potential dilution that could occur if dilutive
securities, such as stock options and convertible debt, were exercised or
converted into common shares or resulted in the issuance of common shares that
then shared in the earnings of the Company. Antidilutive effects are not
considered.

     DERIVATIVES, DERIVATIVE FINANCIAL INSTRUMENTS are financial contracts or
agreements, the value of which is linked to current or future interest rates,
exchange rates, prices of securities, or financial or commodity indices.
Derivative financial instruments currently used by the Company are forward
exchange contracts, options and interest and currency swaps. The Company uses
these instruments to reduce its exposure to adverse fluctuations in interest
and exchange rates and other market risks.

     EBIT MARGIN is operating income (EBIT) expressed as a percentage of net
sales (EBIT divided by net sales).

     EBITDA (EARNINGS BEFORE INTEREST, TAXES, DEPRECIATION AND AMORTIZATION)
is calculated as operating income plus depreciation and amortization.

     EBITDA INTEREST COVER is calculated as EBITDA divided by net interest
expense (interest expense less interest income).

     EBITDA MARGIN is EBITDA expressed as a percentage of net sales (EBITDA
divided by net sales).

     EMBEDDED DERIVATIVE FINANCIAL INSTRUMENTS are derivatives that are included
within another type of contract ("host contract") that affect some or all of the
cash flows or value of other exchanges required by the host contract in a manner
similar to a derivative financial instrument.

     FREE CASH FLOW is Cash Flows from Operating Activities from continuing
operations before restructuring payments, less net cash from investing
activities before sale (acquisition) of businesses, net of cash, less a pro
forma dividend payment of CHF 2 per share. The Company uses free cash flows for
reinvestment in the business, for repayment of debt and for restructuring
programs.

     GOODWILL is recognized in an acquisition of a business if the amount of
the consideration paid by the Company is in excess of the fair value of the
acquired entity's tangible and identifiable intangible net assets.

     GROSS PROFIT MARGIN is Gross Profit expressed as a percentage of net
sales (Gross Profit divided by net sales).

     A HEDGE is an economic relationship between a hedged item and a
derivative financial instrument whereby losses or gains are expected to offset
each other in whole or in part.

     A HEDGED ITEM is specifically identified as either all or a specific
portion of a recognized asset, liability, a forecasted transaction or of an
unrecognized firm commitment.

     IDENTIFIABLE INTANGIBLE ASSETS are assets (excluding financial assets)
that lack physical substance, not including goodwill. They may include, but
are not limited to, such assets as trademarks; trade names; patented and
unpatented developed technology and know how; trade secrets, including
processes and formulations; certain agreements such as licensing, royalty,
not-to-compete, supply contracts, operating permits; and customer
relationships, lists and contracts.

     INTENSITY is an amount expressed as a percentage of net sales. Intensity
of inventories is equal to the inventories divided by net sales. Intensities
of accounts receivable and accounts payable are calculated correspondingly.

     INVESTED CAPITAL is the sum of total assets less non-interest bearing
current liabilities (i.e. accounts payable, income taxes payable as well as
accruals and other current liabilities, except the current portion of deferred
tax liabilities) less deferred tax assets.

     MINIMUM PENSION LIABILITY is the additional pension liability required to
be recognized for a pension plan if the accumulated benefit obligation of the
plan exceeds the fair value of the plan's assets (this excess obligation is the
"unfunded accumulated benefit obligation") and the pension accrual recorded on
the balance sheet is not equal to or greater than the unfunded accumulated
benefit obligation or a prepaid asset has been recognized

                                                                            56
<PAGE>


for these plans. This additional minimum pension liability has no impact on
income as it is offset by recording an intangible asset, if certain conditions
are met, and by reducing shareholders' equity.

     NET CURRENT OPERATING ASSETS is the sum of inventories and accounts
receivable less accounts payable.

     NET DEBT is the sum of short-term debt and long-term debt less cash and
cash equivalents and short-term investments.

     NET SALES DEVELOPMENT PERCENTAGE is the change in the current period's net
sales in local currencies over the previous period's net sales in Swiss francs
expressed as a percentage.

     NET SALES DEVELOPMENT PERCENTAGE, IN LOCAL CURRENCIES is the change in
the current period's net sales in local currencies over the previous period's
net sales in local currencies expressed as a percentage.

     OPERATING CASH FLOWS BEFORE RESTRUCTURING PAYMENTS is net cash provided
by operating activities before restructuring payments.

                                                                              57
<PAGE>


ITEM 6.  DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES

CORPORATE GOVERNANCE

     THE BOARD OF DIRECTORS AND ITS COMMITTEES

     The Board of Directors of Ciba Specialty Chemicals defines the strategic
direction and supervises the overall affairs of the Company, while the
implementation of strategies and the day-to-day management is vested in the
Executive Committee. The Board also reviews the Company's key plans and
objectives, identifies external risks and opportunities, and initiates
required activities.

     The Members of the Board are elected by the General Meeting of
Shareholders for a term of between one and four years; a re-election is
possible. The Company has a staggered board. The Chairman is elected by the
Board from its members. A Board Member may tender his or her resignation
during the term of his or her office. The Shareholders' Meeting may vote to
remove a Board Member.

     The Board continues to commit itself to maintaining the highest standards
of integrity and transparency in its governance of the Company. The Board
charter reflects recent developments in corporate governance principles
including the Swiss Code of Best Practice and the Board believes that it is in
compliance with well recognized corporate governance standards, in particular
with regard to:

     o    A Lead Director having been appointed by the Board who is entitled
          to convene on his own and chair meetings of the Board

     o    Broad supervisory and reviewing powers being held by the Board
          directly supported by Internal Audit

     o    With the exception of the Chairman, the Members of the Board both
          being non-executive directors and independent from the Company

     o    Having Board Committees with a majority of non-executive,
          independent directors

     o    Having an Audit Committee exclusively comprised of outside directors

     o    Providing continuous and comprehensive information to Board members
          including periodic and yearly reports prepared by management on
          finances, strategies, research and development, production planning
          and risk management

     TOPICS OF THE BOARD IN 2002

     In 2002, the Board focused on the following key topics besides the
overall supervision of the Company's affairs and the preparation of the annual
accounts and the General Meeting of the Shareholders: global production,
product stewardship, supply chain, corporate governance including implications
of the U.S. Sarbanes-Oxley Act on the Company, performance review of board
members, management development, development of the sales and the capital
markets, outlook and strategic analysis of the Company's segments.

     DIRECTORS

     The members of the Board of Directors are as follows:

<TABLE>
<CAPTION>

                                                              Year          Year             Significant
                        Date of                             appointed       term           positions outside
   Name                 Birth               Nationality     to Board       expires            the Company
----------------------------------------------------------------------------------------------------------------------------
<S>                    <C>                  <C>             <C>            <C>           <C>
Armin Meyer            July 25, 1949        Swiss           1997           2004          Member of the Board of
Chairman and CEO                                                                         Directors, Zurich
                                                                                         Financial Services, Zurich

                                                                                         Member of the Board, CEFIC
                                                                                         (European Chemical Industry
                                                                                         Council), Brussels

                                                                                         Member Foundation Board IMD
                                                                                         - International Institute
                                                                                         for Management Development,
                                                                                         Lausanne
----------------------------------------------------------------------------------------------------------------------------
Kurt Feller            August 31, 1937      Swiss             1999         2003(1)       Chairman of the Board of
Vice Chairman                                                                            Directors, Rieter
Lead Director                                                                            Holding Ltd., Winterthur

                                                                                         Chairman of the Board of
                                                                                         Directors, Geberit Ltd., Jona

                                                                                         Member of the Board of
                                                                                         Directors, Scintilla Ltd.,
                                                                                         Solothurn

                                                                                         Member of the Board of
                                                                                         Directors, Buro-Furrer Ltd.,
                                                                                         Zurich
----------------------------------------------------------------------------------------------------------------------------
Erwin W. Heri           March 6, 1954      Swiss             1997         2003(1)        Consultant in Finance and
                                                                                         Asset Management

                                                                                         Member of the Board of
                                                                                         Directors, Hilti Ltd., Schaan

                                                                                         Chairman of the Board of
                                                                                         Trustees, Anlagestiftung
                                                                                         Winterthur, Winterthur

                                                                                         Member of the Board of
                                                                                         Trustees, Publica,
                                                                                         Pensionskasse des
                                                                                         Bundes, Bern
----------------------------------------------------------------------------------------------------------------------------
Gertrud Hoehler        January 10, 1941     German            1997          2004         Management Consultant


                                                                                         Member of the Board of
                                                                                         Directors, Baloise-Holding,
                                                                                         Basel

                                                                                         Member of the Board of
                                                                                         Directors, Georg Fischer
                                                                                         Ltd., Schaffhausen
----------------------------------------------------------------------------------------------------------------------------
Jean-Marie Pierre      September 30, 1939   French            1997          2006         Professor of Chemistry, Nobel
Lehn                                                                                     Prize Winner

                                                                                         Member of the Scientific
                                                                                         Advisory Board of
                                                                                         Aventis, Strasbourg

                                                                                         Member of the Scientific Board
                                                                                         of the Novartis Venture Fund, Basel
----------------------------------------------------------------------------------------------------------------------------
Peter Littmann         Dec. 21, 1947        German            1997          2006         Chairman and Chief Executive
                                                                                         Officer, Brandinsider GmbH,
                                                                                         Hamburg

                                                                                         Member of the Board of
                                                                                         Directors, Compass Ltd.
                                                                                         (Bata Shoe Company), Toronto

                                                                                         Member of the Advisory Board,
                                                                                         Nijenrode University, The
                                                                                         Netherlands

                                                                                         Member of the Harvard
                                                                                         University Art
                                                                                         Museum's Visiting Committee,
                                                                                         Cambridge, Massachusetts
----------------------------------------------------------------------------------------------------------------------------
</TABLE>

                                                                            58

<PAGE>



<TABLE>
<CAPTION>

                                                              Year          Year             Significant
                        Date of                             appointed       term           positions outside
   Name                 Birth               Nationality     to Board       expires            the Company
----------------------------------------------------------------------------------------------------------------------------
<S>                    <C>                  <C>             <C>            <C>           <C>
Uli Sigg               April 29, 1946       Swiss             1999          2003(1)      Chairman of the Board of
                                                                                         Directors, Ringier Group

                                                                                         Member of the Board, Infront
                                                                                         Holding AG
----------------------------------------------------------------------------------------------------------------------------
Hans-Ulrich Mueller    June 25, 1941        Swiss             1997            -          Member of the Board of SGCI
(Secretary, not member                                                                   (Schweiz. Gesellschaft fuer
of the Board)                                                                            Chemische Industrie), Zurich
----------------------------------------------------------------------------------------------------------------------------
</TABLE>

(1)      At the Company's Annual General Meeting of Shareholders to be held on
         March 6, 2003, Messieurs Feller, Heri and Sigg are proposed to be
         re-elected as Members of the Board for an additional term of four
         years.


     With the exception of Armin Meyer, who is also CEO of Ciba Specialty
Chemicals, all other Board Members are both non-executive directors and
independent from the Company.

     More biographical details of the Board Members are available at the
Company's website, www.cibasc.com/view.asp?id=1726.

     None of the non-executive directors has ever been a member of the
management of the Company or any of its subsidiaries and none of them has or
had a substantial business relationship with the Company or any of its
subsidiaries in the last four financial years.

     There is no cross-involvement among the boards of directors of the
Company and other listed Swiss companies. There are no service contracts
between any director and the Company providing for benefits upon termination
of employment.

     Four standing Board Committees in the areas of audit, finance, human
resources and compensation and nomination provide guidance and support to the
full Board:

     o AUDIT COMMITTEE: Erwin W. Heri (chairman), Kurt Feller, Uli Sigg

          Mission: Evaluates the independence, objectivity and effectiveness
     of external and internal auditors, approves auditing services to be
     performed by the external auditors, evaluates business risk assessment,
     evaluates scope and overall audit plan, assesses the quality of financial
     accounting and reporting, reviews audit results and monitors compliance
     with specific laws and regulations governing the preparation and filing
     of financial statements. The Audit Committee reviews complaints regarding
     accounting, internal accounting controls or auditing matters of
     employees.

     o FINANCE COMMITTEE: Armin Meyer (chairman), Kurt Feller, Erwin W. Heri

          Mission: Develops principles for financial planning, accounting and
     reporting, disclosure and control, reviews concepts of financial
     objectives to optimize shareholder value, develops finance policy, is
     regularly briefed on application/implementation of principles of finance
     policy, approves financial transactions, investments and acquisitions and
     supports the preservation and enhancement of the Company's reputation in
     the financial markets.

     o HUMAN RESOURCES AND COMPENSATION COMMITTEE: Kurt Feller (chairman),
     Gertrud Hoehler, Peter Littmann, Armin Meyer (member of the Human Resources
     Committee only)

          Mission: Develops objectives and principles of human resource policy
     and internal communication, reviews the management development situation,
     develops compensation guidelines in line with overall company strategies,
     is informed about benefit plans for employees, is briefed in
     applications/implementation of principles of human resource policy and
     supports the preservation and enhancement of the Company's reputation in
     the Human Resources area. The Compensation Committee assesses the
     emoluments of the members of the Board and its Committees and prepares a
     request to the Board concerning the emoluments and the terms of
     employment of the CEO and the members of the Executive Committee. The
     Lead Director is the chairman of the Human Resources and Compensation
     Committee.

     o NOMINATION COMMITTEE: Armin Meyer (chairman), Gertrud Hoehler, Peter
     Littmann, Kurt Feller

          Mission: Develops the principles for the selection of candidates for
     election or re-election to the Board by the General Meeting and prepares
     a selection of candidates in accordance with these criteria. The
     Nomination Committee nominates the candidates for the appointments made
     by the Board. The chairman of the Board is the chairman of the Nomination
     Committee.

     The Company's "Rules governing the Organization" and committee Charters
set out in detail the powers and responsibilities of the Board and its
Committees. In order for the Board and its Committees to pass resolutions, at
least half of its Members must be personally present, which may be deemed
satisfied if simultaneous communication is ensured, such as by telephone or
video conference. The full Board meets at least 6 times per year.


                                                                              59
<PAGE>

     THE COMPANY'S EXECUTIVE COMMITTEE
<TABLE>
<CAPTION>
<S>              <C>               <C>              <C>                     <C>
                          Date of                                                            Significant positions
   Name                   Birth            Nationality          Function                        outside the Company
---------------------------------------------------------------------------------------------------------------------------------
Armin Meyer             July 25, 1949      Swiss            Chief                        Member of the Board of Directors,
                                                            Executive Officer            Zurich Financial Services, Zurich

                                                                                         Member of the Board of CEFIC
                                                                                         (European Chemical Industry Council),
                                                                                         Brussels

                                                                                         Member of the Foundation Board
                                                                                         IMD-International Institute for
                                                                                         Management Development, Lausanne
---------------------------------------------------------------------------------------------------------------------------------
Michael Jacobi          January 30, 1953   German           Chief                        Member of the Board of
                                                            Financial Officer            Industrie-Holding, Berne

                                                                                         Member of the commission and of
                                                                                         the committee of Swiss GAAP, FER, Zurich
---------------------------------------------------------------------------------------------------------------------------------
Brendan Cummins         May 18, 1951       Irish            Executive                    None
                                                            Vice President
                                                            International
                                                            Coordination and
                                                            Human Resources
---------------------------------------------------------------------------------------------------------------------------------
Martin Riediker         June 28, 1952      Swiss            Chief                        Member of the Board,
                                                            Technology Officer           American Chemistry Council, Arlington
---------------------------------------------------------------------------------------------------------------------------------
Hermann Angerer         Dec. 23, 1947      Swiss            Head                         None
                                                            Segment Coating Effects
---------------------------------------------------------------------------------------------------------------------------------
Christoph Biedermann    March 19, 1957     Swiss            Head                         None
                                                            Segment Textile Effects
---------------------------------------------------------------------------------------------------------------------------------
Mark Garrett            May 11, 1962       Australian       Head                         Member of the Board of TEGEWA
                                                            Segment Water &              Industry Association, Frankfurt am Main
                                                            Paper Treatment
---------------------------------------------------------------------------------------------------------------------------------
Felix Meyer             Feb. 18, 1953      Swiss            Head                         None
                                                            Segment Plastic
                                                            Additives
---------------------------------------------------------------------------------------------------------------------------------
Tim Schlange            January 15, 1963   German           Head                         None
                                                            Segment Home &
                                                            Personal Care
---------------------------------------------------------------------------------------------------------------------------------

        Mr. Armin Meyer and Mr. Felix Meyer are not related.
</TABLE>


     ARMIN MEYER became Chairman of the Board of Ciba Specialty Chemicals in
autumn 2000. Starting January 1, 2001, he in addition took over as Chief
Executive Officer. He streamlined the Company structure and shifted priority
targets to profitable growth, innovation, highly qualified people as well as
cash generation. He has been a Member of the Board of the Company since its
spin-off in 1997.

     Previously Armin Meyer was Head of the global Building Technologies
Segment of ABB Ltd. As of 1995, he was a member of the Executive Committee of
ABB, a global technology Group.

     Armin Meyer started his career in 1976 when he joined the former Brown
Boveri Ltd. (BBC) as development engineer. In 1980 he became Head of Research
and Development for industrial motors and took over as Head of the
international business unit for electrical power generators in 1984. Further
steps included the presidency of ABB Drives Ltd. as well as of ABB Power
Generation Ltd. In 1995, he became Head of the Power Generation Segment. In
1998, he took over as Head of the Building Technologies Segment.

     Armin Meyer, born 1949 in Zurich, Switzerland, holds a Ph.D. in
electrical engineering from the Swiss Federal Institute of Technology (ETH) in
Zurich. In addition to his responsibilities at ABB, Armin Meyer was also
Professor for Electrical Engineering and Drives at ETH, Zurich for twelve
years.

     MICHAEL JACOBI joined Ciba-Geigy's finance area in 1978. In 1980, Michael
Jacobi moved to Brazil as Corporate Controller and later was appointed
Treasurer. In 1986, he moved to the United States where he led the financial
department at the Toms River Plant in New Jersey. After further management
training at Harvard, he returned to the Finance department in Basel in 1987 as
Head of Management Accounting. He became Group Controller of Ciba-Geigy in
1990, responsible for the Company's overall corporate financial accounting and
reporting. In 1997, he was appointed Chief Financial Officer for Ciba
Specialty Chemicals, responsible for Treasury, Mergers and Acquisitions (M&A),
Investor Relations, Control and Information Management. Michael Jacobi serves
on the Council of the Foundation for Accounting and Reporting Recommendations
and plays a significant role in setting Swiss guidelines for accounting and
disclosure. He has a doctorate in Economics from the university of St. Gallen.

     BRENDAN CUMMINS was appointed head of International Coordination and
Human Resources on December 1, 2001. Brendan Cummins joined Ciba-Geigy in
Ireland in 1971 as an Accountancy Student. In 1974, he assumed the position of
Planning and Information Manager in Ireland. In 1979, he moved to Ciba-Geigy
Singapore as Treasury Head and, in 1981, was appointed Head of Finance and
Administration South East Asia. In 1984, he transferred to Hong Kong as Head
of Finance and HR North Asia with project responsibility for China. In 1990,
he moved to Philippines as Head of Pharmaceutical Division and later that year
was appointed in combination Group Company Head. In 1994, he transferred to
the UK as Head of Finance and HR of Ciba-Geigy Horsham. In 1995, he returned
to the Far East as Group Company Head China and, in 1997, assumed the position
of Regional President Greater China for Ciba Specialty Chemicals. In 1999, he
moved to Basel and was appointed Global Head of Whiteners and, in 2000, he
established and headed the Global Business Unit Home & Personal Care. In 2001,
he worked for Irish Fertilizer Industries as Managing Director. He has a
degree in accounting and is a Fellow of The Institute of Company Accountants.

                                                                            60

<PAGE>



     MARTIN RIEDIKER was appointed Chief Technology Officer in 2001. Martin
Riediker joined Ciba-Geigy in 1982 as a photochemist in central research at
Ciba-Geigy in Basel. In 1988, he moved to the United States as Vice President,
Research and Development (R&D) for the Polymers Division and was later
appointed Vice President and General Manager of the North American Resins
Business Unit in 1991. He was named Head of Ciba's US Polymers Division in
1994. Riediker was named as Global President of the Consumer Care Division in
1995. He also took direct charge of the Detergents and Cosmetics Business
Units. In 1997 he was named Global President of the Consumer Care Division and
member of the Executive Committee of Ciba Specialty Chemicals. Mr Riediker has
a Doctorate in Chemistry and did Post-Doctoral Studies at Princeton
University.

     HERMANN ANGERER was appointed Head of Coating Effects Segment in 2001. He
joined Ciba-Geigy Limited in 1981 as a development chemist in the Additives
Division in Basel. In 1985, he assumed the global marketing responsibility for
radiation curing additives in the Business Unit Imaging and Coating Additives.
In 1990, he was appointed Head of the Business Unit Additives for Lubricants.
In 1996, he moved to Japan as Head Additives Division, responsible for the
markets in Japan and South Korea. In 1999, he moved to Germany, responsible
for the German holding company of Ciba Specialty Chemicals and the Additives
Division in the Central Europe region. Mr Angerer holds a Ph.D. in Chemical
Engineering from the Swiss Federal Institute of Technology Zurich.

     CHRISTOPH BIEDERMANN was appointed Head of Textile Effects Segment in
2001. From 1982 to 1985, Christoph Biedermann worked for ABB as Project
Engineer in Switzerland and Commissioning Engineer in South Africa. From 1986
to 1989, he was Associate and Project Manager at McKinsey in Zurich,
Switzerland. In 1990 he joined ABB Drives AG as Manager of High Power
Semiconductors. In 1991 he was appointed Manager of Electrical Machines. From
1994 to 1997, he was Manager Business Unit Total Optimization of Processes at
ABB Business Area Automation & Drives. In 1997, Christoph Biedermann was
appointed President of ABB Industrie AG Switzerland. Since 1999, he was also a
member of the Management Committee ABB Switzerland, responsible for the
Segment Automation. Mr Biedermann holds a Diploma in Electrical Engineering
from the Swiss Federal Institute of Technology, Zurich and has an MBA from
INSEAD, Fontainebleau, France.

     MARK GARRETT was appointed Head of the Water & Paper Treatment Segment in
2001. He joined Ciba-Geigy in Australia in 1986 and worked there as
Information and Planning Manager. In 1989, he moved to the Swiss headquarters
in Basel, working in Finance and as Marketing Center Manager and Business
Development Manager. In 1995, he became head of the Business Unit Paper and in
1996 he was appointed Global Head of the Business Segment Whiteners. In 1998,
Garrett became Global Head of the Business Unit Textile Chemicals where he
successfully integrated three textile chemical businesses into one Business
Unit that became a worldwide leader in its field. Garrett joined DuPont from
Ciba Specialty Chemicals in September 2000, initially as Director Corporate
Plans before becoming the Global Business Director Tyvek/Typar. Mark Garrett
holds the following degrees: Bachelor of Arts, Economics, University of
Melbourne, Melbourne, and Master of Applied Information Systems, Royal
Melbourne Institute of Technology, Melbourne, Australia.

     FELIX MEYER was appointed Head of the Plastic Additives Segment in 2001.
Felix Meyer joined Ciba-Geigy Limited in 1981 as Marketing Specialist for
Polymer Additives and was appointed Head of Marketing for Polyolefin Additives
in 1984. In 1987, he became Product Manager for Antioxidants, was promoted in
1990 to Head of Business Product Management and then to Head of Strategic
Affairs, Additives Division in 1993. From 1994 to 1996 he was responsible for
Purchasing and Materials Management and was a member of the Executive
Committee of Ciba Additives GmbH in Lampertheim, Germany. In 1996, he assumed
responsibility as Global Head of the Business Unit Polymer Additives and
member of the Management Committee Additives Division. Mr Meyer has a Diploma
in Chemical Engineering and a Ph.D. in Physical Chemistry from the Swiss
Federal Institute of Technology, Lausanne.

     TIM SCHLANGE joined Ciba-Geigy's Corporate Planning staff in 1992. In
1994, Schlange assumed a marketing and sales position with Ciba Vision. In
1996, he began as Head of the Market Center Basic Polyolefins in a global
marketing role for the Polymer Additives Business Unit. In 1999, he was
appointed Transition Manager for the project management of the divestment of
the Performance Polymers Division. In 2000, he headed Strategic Business
Development for the Consumer Care Division. Since 2001, he has been Head of
the Home & Personal Care Segment. He has a doctorate in Economics from the
university of St. Gallen.

     There are no management agreements between the Company or its management
bodies and any third parties.

     So as to promote honest and ethical conduct, legal compliance, prompt
internal reporting, accountability, full, fair, accurate, timely, and
understandable disclosure in public reports, the Company relies on its "Rules
governing the Organization", its "Code of Conduct", its "Social Policy
Statement" and its "Insider Trading Policy" as well principles of Swiss law
which require an employee to behave honestly and in an ethical way. In
management's opinion, all these rules amount to a "Code of Ethics".

     COMPENSATION

     NON-EXECUTIVE MEMBERS OF THE BOARD

     In 2002, the non-executive members of the Board in aggregate received as
remuneration, bonuses and other benefits a total of CHF 691 008. In addition,
they were given 3 831 Shares by the Company and held a total of 18 330 Shares
as at December 31, 2002 (including those allocated in 2002).

                                                                            61

<PAGE>

     In addition, these persons have been given the following options by the
Company:

<TABLE>
<CAPTION>

          Year                   Term of
                          allocation (years)      Subscription ratio      Number        Strike price (CHF)
----------------------------------------------------------------------------------------------------------------------------
         <S>              <C>                     <C>                     <C>           <C>
         1997                    8                   1:1                  23 632           108.70

         1998                    5                   1:1                   3 284           163.70

         1999                    5                   1:1                   4 108           112.09

         2000                    5                   1:1                   2 562           107.09

         2001                    5                   1:1                   6 892           111.09

         2002                    5                   1:1                   9 280           111.09
----------------------------------------------------------------------------------------------------------------------------
</TABLE>


     EXECUTIVE MEMBER OF THE BOARD AND MEMBERS OF THE EXECUTIVE COMMITTEE

     In 2002, the executive member of the Board and the members of the group
Executive Committee in aggregate received as salaries, bonuses and other
benefits inclusive any voluntary company pension contributions a total of
CHF 7 795 438. In addition, they were given 28 330 Shares by the Company (of
which most are restricted) and held a total of 67 745 Shares as at December 31,
2002 (including those allocated in 2002).


<TABLE>
<CAPTION>

          Year                   Term of
                          allocation (years)      Subscription ratio      Number        Strike price (CHF)
----------------------------------------------------------------------------------------------------------------------------
         <S>              <C>                     <C>                    <C>            <C>
         1997                         8                   1:1            63 624              108.70
         1998                         5                   1:1            18 613              163.70
         1999                         5                   1:1            28 970              112.09
         2000                         5                   1:1            23 549              107.09
         2001                         5                   1:1            65 672              111.09
         2001               4y and 10.5
Supplementary grant              months                   1:1            19 572              111.09
         2002                         5                   1:1           135 640              111.09
----------------------------------------------------------------------------------------------------------------------------
</TABLE>

     HIGHEST TOTAL COMPENSATION

     In 2002, the member of the Board with the highest total compensation
received as salary, bonus and other benefits inclusive any voluntary Company
pension contributions a total of CHF 2 641 271. In addition, in 2002, this
person was allocated 5 965 restricted Shares, 2 232 unrestricted Shares and
31 000 options (terms as indicated above).

     ADDITIONAL FEES AND LOANS

     None of the above mentioned persons has received any fees or any
compensation for services rendered to the Company during 2002 other than
disclosed in this report, nor have they been extended any loans.

     FORMER MEMBERS

     Four former executive members of the Company's Board and of the group
management have received a total compensation of CHF 2 568 313 in 2002. This
amount includes contributions in the form of Shares and options and voluntary
Company pension contributions. It also includes the salary paid to former
Executive Committee members who became employees of the Company.

     CLOSELY LINKED PERSONS

     The Company has never made any share or cash contribution to any Closely
Linked Person, i.e. to a third party which is closely linked to members of the
board or to members of the group Executive Committee. However, they may have
acquired Shares of the Company or options on their own. Also, the Company
never paid any fees to such persons nor has it granted them any loans.

     Shareholdings of Closely Linked Persons - if any - are included in the
figures reported above.

     Base salaries of the Members of the Board and of the Executive Committee
are established according to a comparative analysis of base salaries paid
within selected peer groups of international companies. Annual bonuses are
based on corporate performance, primarily in relation to profitability, and
personal objectives, established at the beginning of the year.

     THE COMPANY'S SHARES AND SHAREHOLDERS

     The Company's nominal share capital amounts to CHF 649 171 053 and is
divided in 72 130 117 shares with a nominal value of CHF 9 each. Until June
28, 2002, the nominal value per share amounted to CHF 10. The Board of
Directors proposes to the shareholders of the Company to further reduce the
Company's share capital from CHF 649 171 053 by CHF 216 390 351 to
CHF 432 780 702 by reducing the nominal value of each of the Company's Shares
from CHF 9 by CHF 3 to CHF 6 and by making a cash payment to the Company's
shareholders of CHF 3 per Share. The shareholders will vote on this proposal at
the Company's General Meeting of Shareholders on March 6, 2003.

     For the Company's major subsidiaries, see Item 4 "Information on the
Company - Organizational Structure".

     The Company only has one class of shares and has no bonus certificates.
Each share is entitled to any dividends proposed by the Board and approved by
the shareholders, and has one vote, subject to the limitations set out below.
The Company has an authorized capital of CHF 36 million, conditional capital
for acquisitions of CHF 36 million and conditional capital for employee
participation plans of CHF 18 million. For additional

                                                                            62


<PAGE>



information please refer to article 4 of the Company's Articles of Association
which can be downloaded as a pdf file from http://www.cibasc.com/image.
ASP?ID=1704. The German version - which is legally binding - can be downloaded
from http://www.cibasc.com/image.ASP?ID=1705. For changes in capital, see Note
17 to the Consolidated Financial Statements.

     For information about the Company's major shareholders see Item 7 "Major
Shareholders and Related Party Transactions - Major Shareholders". The Company
has no cross holdings nor has it executed any pooling or management
agreements.

     No shareholder may be registered as a shareholder with voting rights for
more than 2 percent of the Company's share capital. A shareholder purchasing
more than 2 percent of the Company's share capital will be recorded in the
Company's share register for the shares in excess of 2 percent of the
Company's share capital as a shareholder without voting rights. The Board or a
committee designated by the Board may, however, on a case-by-case basis allow
some or all of the excess shares to be registered with voting rights. In 2002,
the Board granted no such exception and currently no shareholder has the
benefit of any such exception. For purposes of the 2 percent rule, individuals
and/or legal entities acting in concert are considered to be one shareholder.

     Nominees may be entered with the right to vote for more than 2 percent of
the voting stock, if the nominee discloses the names, addresses and number of
shares of those persons for which it holds the shares.

     For information about the Company's treasury stock, see Note 17 to the
Consolidated Financial Statements and the Consolidated Balance Sheets.

     At the Company's general meeting, no person may vote more than 5 percent
of the Company's stock, with the exception of depositaries, corporate bodies,
independent proxies or nominees complying with their duty to disclose the
names, addresses and number of shares of those persons for which it holds the
shares.

     Any shareholder may demand that an item be put on the agenda of the
general meeting if he represents shares held with a nominal value of at least
CHF 1 million. Such a demand must be made in writing at least 60 days before
the Annual General Meeting ("AGM"). In line with good Corporate Governance,
the Board proposes to the shareholders to reduce the above threshold amount to
CHF 600 000, so as to ensure that 100 000 Shares are sufficient to have an
item put on the agenda. The shareholders will vote on this proposal at the
Company's General Meeting of Shareholders on March 6, 2003.

     The record date for participation at the AGM is usually fifteen days
before the general meeting while persons who have subsequently become
shareholders may register their voting rights at the AGM Office if the
shareholder can prove that he or she is the owner of the shares and that these
shares are not being voted otherwise.

     There is no provision in the Articles or under Swiss law requiring a
presence quorum for the holding of shareholders' meetings. Resolutions
generally require the approval of the "majority" of the shares represented at
a shareholders' meeting (i.e. a simple majority of the shares represented at
the shareholders' meeting, with abstentions having the effect of votes against
the resolution). A resolution passed at a shareholders' meeting with the
affirmative vote of at least two-thirds of the shares represented at such
meeting is required for:


     (i)  any change to the Company's business purpose,

     (ii) the creation of shares with privileged voting rights,

    (iii) the creation of restrictions on the transferability of registered
          shares, or the elimination of transfer restrictions,

     (iv) an authorized or conditional increase in the Company's share
          capital,

     (v)  an increase in the Company's share capital by way of capitalization
          of reserves (Kapitalerhohung aus Eigenkapital), against contribution
          in kind, for the acquisition of assets, or involving the grant of
          special privileges,

     (vi) the restriction or elimination of preemptive rights of shareholders,

    (vii) a relocation of the domicile of the Company or

   (viii) the dissolution of the Company other than by liquidation (for
          example, by way of a merger). In addition, any provision in the
          Articles for a greater voting requirement than is prescribed by law
          or the existing Articles must be adopted in accordance with such
          greater voting requirements.


     DIVIDENDS AND DIVIDEND POLICY

     The amount of dividends to be paid by the Company to its shareholders
depends on general business conditions, the Company's financial performance
and other relevant factors. Under Swiss law, dividends may be paid out only if
approved at the shareholders' meeting. The Board may propose that a dividend
be paid out, but cannot itself set the dividend. In practice, the shareholders
usually approve the dividend proposal of the Board. At the shareholders'
meeting that was held on March 22, 2002, a dividend of CHF 2 per Share was
approved in respect of the fiscal year 2001. In addition, the shareholders
approved a capital reduction of CHF 1 per Share and a cash payment of the same
amount to the shareholders. For 2002, the Board proposes to the shareholders
to carry forward the entire retained earnings, not to pay a dividend and to
make a cash payment of CHF 3 per share from a capital reduction. The
shareholders will vote on this proposal at the Company's General Meeting of
Shareholders on March 6, 2003.

     EQUITY LINKED DEBT

     The Company has a USD 687 milllion convertible bond outstanding. The bond
matures on July 10, 2003. For details see Note 14 to Consolidated Financial
Statements.

                                                                            63

<PAGE>


     SHARE AND OPTION PLANS

     The Company's share and option plans are further described in Note 18 to
Consolidated Financial Statements.

     CHANGE OF CONTROL PROVISIONS

     If a shareholder acquires securities of a listed Swiss company and
thereby exceeds the threshold of 33 1/3 percent of the voting rights, it has
to offer to acquire the remaining shares ("mandatory offer obligation"). By
shareholders' resolution, this threshold may be raised to 49 percent ("opting
up"). A company may also opt out of the mandatory offer obligation. In its
articles of association, the Company has no opting out or opting up provision.

     All members of the Company's Executive Committee have an "employee
retention agreement" with the Company which enables them to be involved in a
transaction with a third party that considers to take over the Company in a
way which does not affect their status as employees.

     AUDITORS

     Effective August 6, 2002, Ciba Specialty Chemicals Holding Inc., Basel,
replaced its statutory and group auditors Arthur Andersen AG, Zurich, with
Ernst & Young Ltd, Zurich, to implement a resolution taken by its shareholders
on March 22, 2002. This resolution was taken in anticipation of Arthur
Andersen's inability to safeguard the Company's interests.

     Ernst & Young Ltd's lead audit partner, Eric Ohlund, who had formerly
been with Arthur Andersen AG, has supervised the Company's audit since 1997.

     The audit fees paid by the Company in 2002 to Ernst & Young and to Arthur
Andersen amounted to CHF 3.3 million. In addition, the Company paid CHF 2.3
million to Ernst & Young and to Arthur Andersen for other services in 2002.

     The auditors of the Company are present at those Board meetings during
which the annual accounts of the Company are discussed and the items and
proposals to the general meeting of the shareholders of the Company are
decided upon. The auditors are also present at the meetings of the audit
committee where audit mandate and audit planning are discussed. Any other
participation is as required.

     The audit committee will introduce processes for the pre-approval of
audit and of non-audit services. During a preliminary assessment on a
world-wide basis, there has been found to be no material issue. The Company is
fully on track with its preparations and will implement appropriate additional
processes as soon as the respective regulation has come into effect.


     INFORMATION POLICY

     The Company also reports to the exchanges on which it is listed, the SWX
Swiss Exchange and the New York Stock Exchange ("NYSE"). Its reports submitted
to the U.S. stock exchange supervision authority, the Securities and Exchange
Commission ("SEC"), may also be downloaded from:
http://www.sec.gov/cgi-bin/srch-edgar?text=ciba+specialty+chemicals+holding.

     The Company's official means of communication is the Swiss Official
Gazette of Commerce.

     Enquiries may also be made to Investor Relations, telephone + 41 61 636
5081 and to Group Communications, telephone +41 61 636 4444.

     The Company's website is www.cibasc.com

     EMPLOYEES

     The Company employee's worldwide totaled 19 007 in 2002, 19 683 in 2001
and 20 306 in 2000. The following table shows the number of employees at the
end of December 31, 2002.

<TABLE>
<CAPTION>
     <S>                              <C>      <C>        <C>             <C>
                                     EUROPE   AMERICAS   ASIA-PACIFIC    TOTAL
-------------------------------------------------------------------------------
2002

Plastic Additives  .................. 1 569   1 163         530          3 262
Coating Effects  .................... 3 023     396         491          3 910
Water & Paper Treatment  ............ 1 541     697         226          2 464
Textile Effects  .................... 2 120     611         848          3 579
Home & Personal Care  ...............   987     436         299          1 722
Unallocated Group Services  ......... 2 006     969         853          3 828
Headquarters  .......................   242       0           0            242
-------------------------------------------------------------------------------
Total Company  ......................11 488   4 272       3 247         19 007
-------------------------------------------------------------------------------
</TABLE>


     In 2002, the Company ceased allocating its Group Service Units' employees
to the Segments or to Headquarters for internal management reporting purposes.
The December 31, 2001 employee data shown in the table below has been
reclassified to conform to the 2002 presentation of the number of employees.

                                                                            64

<PAGE>

<TABLE>
<CAPTION>
  <S>                                <C>      <C>        <C>              <C>
                                     Europe   Americas   Asia-Pacific    Total
-------------------------------------------------------------------------------
  2001

  Plastic Additives  ................ 1 591    1 288       544           3 423
  Coating Effects  .................. 3 096      393       462           3 951
  Water & Paper Treatment  .......... 1 597      718       208           2 523
  Textile Effects  .................. 2 261      629       879           3 769
  Home & Personal Care  ............. 1 003      443       304           1 750
  Unallocated Group Services  ....... 2 074    1 083       869           4 026
  Headquarters  .....................   241        -         -             241
 ------------------------------------------------------------------------------
  Total Company  ....................11 863    4 554     3 266           19 683
 ------------------------------------------------------------------------------
</TABLE>


     In 2001, the Company implemented a new organizational structure, which
created five Segments focused on specific customer markets and various Group
Service Units focused on providing cost efficient support services to the
Segments. See "Item 4. Information on the Company--Business Overview".
Information related to the employees of these five Segments and the Group
Service Units, for prior years by individual Segment and for the Group Service
Units is not available in the Company's transaction systems. As a result, the
following table presents the number of employees at the end of December 31,
2000 for the Segments in total, including the employees of the Segments that
were transferred to the Group Service Units as a result of the reorganization,
and the number of employees in the Unallocated and Headquarters categories.
<TABLE>
<CAPTION>
<S>                                     <C>       <C>        <C>          <C>
                                     Europe   Americas    Asia-Pacific   Total
-------------------------------------------------------------------------------

 2000
 Segments in total  .................11 399    4 735         2 901       19 035
 Unallocated  .......................   491      306           257        1 054
 Headquarters  ......................   217        -             -          217
-------------------------------------------------------------------------------
 Total Company  .....................12 107    5 041         3 158       20 306
-------------------------------------------------------------------------------
</TABLE>


     LABOR RELATIONS

     Membership of the Company's employees in trade unions varies from country
to country, and the Company has entered into various collective bargaining
agreements. It is the Company's practice to renew or replace its various labor
arrangements relating to continuing operations as and when they expire and the
Company is not aware of any material arrangements whose expiry is pending and
which is not expected to be satisfactorily renewed or replaced in a timely
manner. The Company has not experienced any material work stoppages or strikes
in the past three fiscal years. The Company's management is of the opinion
that relations with the Company's employees are good.

     The Company requires a number of highly skilled technology, chemical and
other specialists. The supply of such employees is highly limited, and
competition to hire and retain them is consequently increasingly intense.
Competition raises the cost of hiring and retaining these employees and
increases employee turnover as competitors seek to lure away employees with
particularly rare or sought-after skills. The Company is continually seeking
to recruit skilled high-technology, chemical and other specialized workers and
management is of the opinion that the Company offers compensation, benefits
and opportunities for development and advancement which will attract and
retain a sufficient number of such employees.

     EUROPE

     A significant number of the Company's employees in Europe are represented
by trade unions. The Company's labor relations in Europe have been good and
the Company has not experienced any material work stoppages in recent years.

     Wages and general working conditions are generally the subject of
negotiated collective bargaining agreements. Within the limits established by
these agreements, operating companies negotiate directly with unions and other
labor organizations representing the Company's employees. Collective bargaining
agreements relating to remuneration typically have a term of one year.

     In addition to trade unions, the Company also consults from time to time
with various local, national and European work councils. Employees elect the
members of work councils. These work councils primarily serve an advisory
role. However, under certain circumstances, the Company may be required to
consult with one or more of the work councils before proceeding with a course
of action. Furthermore, the Company is obligated to apprise the work councils
of activities which affect its workforce in Europe.

     OTHER REGIONS

     The Company's employees in the Western and Eastern Hemispheres are often
represented by trade unions or employed pursuant to collective bargaining
agreements. This includes some of the Company's United States sites. In Japan,
approximately one half of the employees are represented by labor unions. Labor
relations in all of these regions have been good and the Company has not
experienced any material work stoppages in recent years.

     SHARE OWNERSHIP

     As of January 1, 2003, the Company will adopt the fair value method of
accounting for stock option plans as defined in SFAS No. 123 "Accounting for
Stock-Based Compensation." As a consequence, future employee stock option
grants and other stock based compensation plans will be recorded as an expense
over the vesting period of the award based on their fair values at the date
the stock based compensation is granted. For further information, see "Item 5.
Operating and Financial Review and Prospects - Management's Discussion and
Analysis of Financial Condition and Results of Operations - Supplemental
Information - Change in accounting policy and new accounting standards" and
Notes 1 and 18 to Consolidated Financial Statements.

     In 2002, in connection with the capital reduction of CHF 1 per share (see
note 17 to Consolidated Financial Statments), the Company, in accordance with
the terms of its stock option plans, reduced the exercise price of its
outstanding stock options ("the capital reduction repricing").

                                                                            65
<PAGE>


No compensation expense was recorded as a result of the capital reduction
repricing. For the Leverage Executive Asset Plan, which is described below,
the capital reduction repricing was set by the investment bank. All exercise
prices disclosed herein have been accordingly adjusted.

     LEAP - In March 1997, the Company established a one-time Leveraged
Executive Asset Plan for key executives and non-executive Board members
(participants) to promote share ownership. Under the LEAP, approximately 320
participants were given the opportunity to purchase a total of 288 400
restricted shares of common stock of the Company at a price per share of CHF
110, which was the market price per share on the purchase date. For each share
purchased, each participant was granted a right to receive four share options
(a total of 1 153 600 options) with an exercise price of CHF 110 per share,
the market value of the shares at the grant date (after the capital reduction
repricing, the exercise price was CHF 108.70 per share). The participants will
receive the market price increase from the grant date to the exercise date in
equivalent shares of the Company's common stock. The restricted shares were
released to the participants on March 15, 2002. The share options became fully
vested on March 1, 2000, and may be exercised on the 15th day of any month
beginning March 15, 2002 through March 15, 2005, the date the share options
expire. As of December 31, 2002, a total of 50 468 share options have been
exercised. As a result of terminations from the program, a total of 60 318
options (2001: 58 502; 2000: 55 776 options) have been returned to the
Company. As of January 31, 2003, there has been no additional share options
exercised or returned to the Company as compared to December 31, 2002.

     The Company paid a fee of CHF 51 million to a major investment bank to
assume the Company's obligations to the participants under the LEAP, including
supplying all necessary equivalent shares of the Company's stock to the
participants of the LEAP when they are due and administering the plan. Even if
the cost of supplying the shares exceeds the fee paid by the Company of CHF 51
million, the investment bank will supply all necessary shares and the Company
will not be required to issue any additional shares. Therefore, independent of
the prevailing future share price, the total cost of the LEAP program to the
Company will be the CHF 51 million fee that was paid. Compensation expense has
been recognized as this fee was amortized ratably over the three year vesting
period through March 1, 2000.

     CAPS - In 1997, the Company established a Capital Appreciation
Performance Share Plan for key executives and non-executive Board members
(participants). In accordance with the CAPS, participants were granted rights
to receive one share of common stock of the Company for each right granted in
the event that the closing share price on any seven days up to August 31,
2001, the date the share option expires, equaled or exceeded CHF 264 per share
(which was double the price at the initial grant date in August 1997). Under
the program a total of 5 participants were granted 8 192 rights in 1998 and
333 participants were granted 342 572 rights in 1997. As the conditions of the
CAPS were not met by August 31, 2001, all share options under this program
expired unexercised. No compensation expense was ever recorded under this plan
as the target price was never reached.

     LTIP - In 1998, the Company established a Long-Term Incentive Plan which
grants options and, beginning in 2000, also include grants of restricted
shares of common stock of the Company to senior management, other key
employees and non-executive Board members. For grants of options made to
participants other than those in the United States, vesting is at the date of
grant and the right to exercise is restricted for three years following the
grant date. For grants of options made to participants in the United States,
vesting and the right to exercise is over three years. The options expire
either five years or ten years after the date of grant. In 2002, 2001 and 2000,
no compensation expense was recorded for the options issued under this plan.

     The following table summarizes option activity under the LTIP for the three
year period ended December 31, 2002 and from January 1, 2003 through January 31,
2003:

<TABLE>
<CAPTION>
<S>                                                                   <C>                 <C>

                                                                        Weighted
                                                                         average          Options
                                                                  exercise price      outstanding
--------------------------------------------------------------------------------------------------
Balance at December 31, 1999  ................................            132.57          857 908
Options granted  .............................................            107.23          461 210
Options canceled/forfeited  ..................................            117.21          (19 218)
--------------------------------------------------------------------------------------------------
Balance at December 31, 2000  ................................            123.81        1 299 900
--------------------------------------------------------------------------------------------------
Options granted  ...........................                              111.07          461 444
Options issued on conversion of stock appreciation rights ....            163.70           60 799
Options canceled/forfeited  ..................................            114.61          (43 694)
--------------------------------------------------------------------------------------------------
Balance at December 31, 2001  ................................            122.09        1 778 449
--------------------------------------------------------------------------------------------------
Options granted  .............................................            111.09          481 401
Options exercised  ...........................................            110.90          (32 098)
Options canceled/forfeited  ..................................            113.41          (32 413)
--------------------------------------------------------------------------------------------------
Balance at December 31, 2002  ................................            119.97        2 195 339
--------------------------------------------------------------------------------------------------
Options granted  .............................................                 0                0
Options canceled/forfeited  ..................................            122.59           (3 021)
Options expired ..............................................            163.70         (264 355)
--------------------------------------------------------------------------------------------------
Balance at January 31, 2003  .................................            113.97        1 927 963
--------------------------------------------------------------------------------------------------
</TABLE>

     In January 1998, the Company issued 68 500 stock appreciation rights to
certain of its senior managers with an exercise price of CHF 165, which
equaled the market value of the common stock at grant date, adjusted to CHF
163.70 after the capital reduction repricing. These rights entitle the
participants to receive the appreciation in the common stock's market value
between grant date and exercise date in cash or under certain circumstances in
common stock. These rights vest ratably over a three year period and expire
after ten years from date of grant. In March 2001, the remaining 60 799 stock
appreciation rights under this plan were, according to the provisions of the
plan, converted to stock options with an exercise price of CHF 163.70. In 2001
and 2000, no compensation expense was recognized on the stock appreciation
rights.

                                                                            66

<PAGE>


     The following table summarizes the status of stock options outstanding
and exercisable at January 31, 2003:

<TABLE>
<CAPTION>
<S>                              <C>              <C>            <C>              <C>               <C>
--------------------------------------------------------------------------------------------------------
                                   Stock Options Outstanding              Stock Options Exercisable
--------------------------------------------------------------------------------------------------------
                          Weighted                         Weighted                          Weighted
                           average                          average                           average
                          exercise       Number of        remaining        Number of        remaining
         Exercise  price-outstanding/  outstanding      contractual      outstanding      contractual
      price range      exercisable         options             life          options             life
                                                         (in years)                        (in years)
--------------------------------------------------------------------------------------------------------
107.09 - 114.09....  110.44/111.12       1 800 000              4.2          693 247              4.3
163.70  ...........  163.70/163.70         127 963              4.9          127 963              4.9
--------------------------------------------------------------------------------------------------------
                                         1 927 963                           821 210
--------------------------------------------------------------------------------------------------------
</TABLE>

     In connection with the LTIP 2000, the Company granted 33 288 restricted
shares of common stock, which are restricted for three years from the date of
grant, to 376 participants. The market value of the common stock at date of
grant was CHF 108 per share. Compensation expense of approximately CHF 3.6
million has been recognized in 2000 related to the grant of these shares.

     In connection with the LTIP 2001, the Company granted 96 729 restricted
shares of common stock, which are restricted for three years from the date of
grant, to 639 participants. These restricted shares were granted as part of
the payment of the 2000 incentive bonus, which was recorded as compensation
expense in 2000. The market value of the common stock at date of grant was CHF
112 per share.

     In connection with the LTIP 2002, the Company granted 85 128 restricted
shares of common stock, which are restricted for three years from the date of
grant, to 683 participants. The market value of the common stock at date of
grant was CHF 112 per share. Compensation expense of approximately CHF 10
million has been recognized in 2002 in relation to the grant of these shares.

     LEXIP - In April 1998, the Company established a Long-term Executive
Incentive Plan in which five participants were given the right to purchase
6 007 shares of common stock at the market value at grant date of CHF 183. For
each share purchased, four stock options (a total of 24 028 options) were
granted to the participants. The strike price of the options is the market
value of the shares of common stock at the date of the grant, CHF 183,
adjusted to CHF 181.70 after the capital reduction repricing. These options
vest after four years and expire after seven years from date of grant. As of
December 31, 2002, 12 560 of the stock options have been forfeited. In 2002,
2001 and 2000, no compensation expense was recorded under this plan. As of
January 31, 2003, there has been no share options exercised or additional
share options returned to the Company as compared to December 31, 2002.

     ESOP - In 1998, the Company established a plan which enables
substantially all employees to annually purchase up to 20 shares of common
stock at a price equal to 85 percent of the average market price, as defined
as the average closing price of the shares on the Swiss Exchange for 10
trading days prior to the purchase date of the shares, pursuant to the
Company's "Employee Share Ownership Plan". During 2002, 1 660 employees (2001:
2 279 employees; 2000: 2 836 employees) purchased 29 499 shares (2001: 40 069
shares; 2000: 50 099 shares) for which approximately CHF 3 million (2001: 4
million; 2000: CHF 5 million) was paid to the Company. In 2002, 2001 and 2000,
no compensation expense was recorded under this plan. In the period from
January 1, 2003 through January 31, 2003, no Shares have been purchased under
the plan.

     MAB - In 1998, the Company established a "Mitarbeiterbeteiligungsplan"
(Employee Investment Plan) which grants annually to most employees in
Switzerland (as an enhancement to their pension plan arrangements) the right
to purchase 20 shares (from 2003, 25 shares) of common stock at CHF 15 per
share (so long as the share price is not greater than CHF 200 at which level
the Employee Investment Plan price may be adjusted). The rights vest at the
grant date and become exercisable at the date of the employees' retirement or
termination.

     The following table summarizes option activity under the MAB for the
three year period ended December 31, 2002 and from January 1, 2003 through
January 31, 2003:

<TABLE>
<CAPTION>
<S>                                                      <C>             <C>
                                                       Exercise       Rights
                                                        price      outstanding
-------------------------------------------------------------------------------
Balance at December 31, 1999  ......................     15          188 640
Rights granted  ....................................     15           83 260
Rights exercised  ..................................     15          (39 140)
-------------------------------------------------------------------------------
Balance at December 31, 2000  ......................     15          232 760
-------------------------------------------------------------------------------
Rights granted  ....................................     15           86 240
Rights exercised  ..................................     15          (16 260)
-------------------------------------------------------------------------------
Balance at December 31, 2001  ......................     15          302 740
-------------------------------------------------------------------------------
Rights granted  ....................................     15           86 040
Rights exercised  ..................................     15          (18 500)
-------------------------------------------------------------------------------
Balance at December 31, 2002  ......................     15          370 280
-------------------------------------------------------------------------------
Rights granted  ....................................     15          105 275
Rights exercised  ..................................     15           (1 350)
-------------------------------------------------------------------------------
Balance at January 31, 2003  .......................     15          474 205
-------------------------------------------------------------------------------
</TABLE>

                                                                            67

<PAGE>


     Compensation expense is recorded in the year the rights are granted and,
in 2002, CHF 8 million (2001: CHF 8 million, 2000: CHF 10 million) of
compensation expense was recorded under this plan.

     PSP - In 2001, the Company established a Performance Share Plan (PSP) for
selected senior and key management and non-executive Board members
(participants). In accordance with the PSP, participants are granted rights to
receive shares of common stock of the Company if the performance of the
Company, defined and measured as Total Shareholder Return (TSR), during the
measurement period under the PSP meets or exceeds specified conditions and the
share price of the Company is equal to or higher than the market value of
shares at the beginning of the measurement period. The TSR includes three
parameters: (i) the change in the share price from the close of the first
trading day at the beginning of the measurement period to the share price at
the close of the last trading day at the end of the measurement period,
expressed as a percentage; (ii) any dividends paid or payable for the
measurement period and (iii) any extraordinary returns paid to the
shareholders during the measurement period. In 2001, 86 700 rights were
granted to 137 participants with a measurement period from January 1, 2001
through December 31, 2003. The share price as of the beginning of the
measurement period was CHF 109.25, the market value of the shares on January
3, 2001. The rights vest ratably over a three year period except when a
participant voluntarily terminates employment, in which case all rights are
forfeited. Each right is entitled to receive from one share up to a maximum of
four shares of Company common stock, depending on the Company's share price
and the Company's TSR ranking within the benchmark group at the end of the
measurement period. As a result of terminations from the plan, a total of 1
675 rights (2001: 1 250 rights) have been returned to the Company. As the
conditions of the PSP were not met, no compensation expense was recorded under
this plan in 2002 and 2001.

     As of January 31, 2003, the there has been no additional grants of rights
or additional rights returned to the Company as compared to December 31, 2002.

     CHANGE IN CONTROL AND RESERVE OF SHARES

     Upon a change in control of the Company (defined as for 30 percent LEAP,
for 33.33 percent other than 1998, which is 50 percent, for LTIP program and
20 percent for PSP, such percentage, in each case, as a percentage of total
voting power. Additionally, for the PSP in a merger where the Company's
shareholders retain less than 50 percent of total voting power or the
Company's board of directors does not maintain a majority of the voting rights
in the board of the combined company), the vesting and restriction periods for
the plans stated above (if still current) will cease to apply and a cash or
share payment for the value of the outstanding plans and related taxes and
duties will be due to the participants.

     At December 31, 2002, the Company had approximately 2.0 million shares
(2001: 1.8 million shares; 2000: 1.7 million shares) of treasury stock
reserved for issuance under the various stock based compensation plans.

     For further information see Note 18 to Consolidated Financial Statements.

                                                                              68
<PAGE>


ITEM 7.  MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS.

MAJOR SHAREHOLDERS

     According to the Share Registrar of the Company and other publicly
available information as of January 31, 2003 the following persons in the
table below were known by the Company to be the owner of 2 percent or more of
the Company's Shares. These shareholders may use their voting rights up to 2
percent of the common stock.
                                        January 31,   January 31,   February 12,
                                          2003          2002          2001
-------------------------------------------------------------------------------

Artisan Partners Limited, USA-Wisconsin    5.0%           -             -
BNP Paribas (Suisse) SA, Geneva*             -            -           2.2%
Chase Nominees Ltd, London*                5.3%         3.1%            -
Putnam Group, Boston (1)                   5.2%         5.2%            -
Euroclear Nominees Ltd., Bruxelles*          -            -           2.1%
Hanover Nominees Ltd., London*               -            -           2.2%

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

* Registered as nominees.
(1) Of which 0.7 percent was entered into the Share Register of the Company with
the right to vote.

     As of the January 31, 2003, according to the Share Register, there were
207 registered holders of ordinary shares in the United States. These ordinary
shareholders in the United States collectively held 510 079 ordinary shares,
or approximately 0.7 percent of the Company's total issued and outstanding
Shares as of that date. Also as of January 31, 2003, there were 304 registered
holders of American depositary receipts under an ADR program (including Cede &
Co., the DTC's nominee). Each ADR issued under the program represents one
American Depositary Share, which in turn, represents one-half of one share of
the common stock of the Company. All these registered ADR holders have
addresses in the United States. They collectively held 81 190 ADRs, or
approximately 0.1 percent of the issued and outstanding ordinary Shares as of
such date.

     To its knowledge, the Company is not owned or controlled, directly or
indirectly, by another corporation, by any government or by any other natural
or legal person, severally or jointly.

     RELATED PARTY TRANSACTIONS

     The Company and its subsidiaries have not entered into any material
transactions in the last three years in which any director, officer or any
associate of any director or officer of the Company has or had any interest.
No director, officer or associate of any director or officer is or was during
the last three years indebted to the Company or any of its subsidiaries.  For
further information see Note 18 to the Consolidated Financial Statements.


                                                                              69

<PAGE>



ITEM 8.  FINANCIAL INFORMATION.

     CONSOLIDATED FINANCIAL STATEMENTS

     See "Item 18. Financial Statements" and pages F-1 through F-34

     OTHER FINANCIAL INFORMATION

     EXPORT SALES

     The Company's products and services are primarily sold outside of its
home market, Switzerland. In 2003, approximately 99 percent of the Company's
sales of products and services produced in Switzerland were exported to other
countries.

     LEGAL PROCEEDINGS

     The Company operates in countries where political, economic, social, and
legal developments could have an impact on the operational activities. The
effects of such risks on the Company's results, which arise during the normal
course of business, are not foreseeable and are therefore not included in the
accompanying Consolidated Financial Statements of this Annual Report.

     In the ordinary course of business, the Company is involved in lawsuits,
claims, investigations and proceedings, including product liability,
commercial, environmental, and health and safety matters. Although the outcome
of any legal proceedings cannot be predicted with certainty, management is of
the opinion that there are no such matters pending which would be likely to
have any material adverse effect in relation to its business, financial
position or results of operations.

     As a result of a dispute over certain agreements with third parties, in
the context of the Company's divestment of the Performance Polymers Business
in 2000, some third parties initiated arbitration proceedings against the
Company. This dispute has been settled and will not have any material adverse
effect on the financial position or results of operations of the Company.

     In connection with its Toms River, New Jersey site in the United States,
the Company was named as a defendant in several actions, most of which most of
which were settled by the end of 2002 "(see "Item 4. Information on the
Company - Environmental Matters" of this Annual Report).

     DIVIDENDS AND DIVIDEND POLICY

     The amount of dividends to be paid by the Company to its shareholders
depends on general business conditions, the Company's financial performance
and other relevant factors. The Board has adopted a policy on the proposal of
dividends which will provide shareholders with dividend growth in line with
the underlying growth in the earnings of the Company. Under Swiss law,
dividends are paid out only if approved at the shareholders' meeting. The
Board may propose that a dividend be paid out, but cannot itself set the
dividend. In practice, the shareholders usually approve the dividend proposal
of the Board.

     At the Company's Annual General Meeting held on March 22, 2002, the
shareholders approved the Board's proposal to pay a dividend of CHF 2.00 per
share, in respect of the fiscal year 2001. The Company paid the dividend on
March 27, 2002, which totaled CHF 134 million. At this meeting, the
shareholders also approved the Board's proposal to pay an extraordinary
payment to the shareholders in the form of a capital reduction of CHF 1 per
share. The capital reduction was in the form of a reduction in the nominal
value of each common share from CHF 10 per share by CHF 1 per share to CHF 9
per share. The Company paid the capital reduction on June 28, 2002, which
totaled CHF 69 million.

     For 2002 the Board of Directors proposes to carry forward the entire
retained earnings of Ciba Specialty Chemicals Holding Inc. and not to pay a
dividend. The Board of Directors, however, proposes a cash payment to its
shareholders resulting from a capital reduction of CHF 3 per share. The
capital reduction is subject to shareholder approval at the Annual General
Meeting to be held on March 6, 2003. If approved the capital reduction will
take the form of a reduction in the nominal value of each share from CHF 9 per
share by CHF 3 per share to CHF 6 per share. The Company expects, subject to
various conditions and approval, that the payment of the capital reduction
will be made to the shareholders on May 23, 2003.


     SIGNIFICANT CHANGES

     Except has otherwise disclosed in this Annual Report, no significant
change has occurred since the date of the Consolidated Financial Statements
included in this Annual Report.


                                                                              70

<PAGE>



ITEM 9.  THE OFFER AND LISTING.

     PRINCIPAL TRADING MARKET AND PRICE RANGE

     The Shares are listed on the Swiss Exchange and principally traded on
London based virt-x, a Recognized Investment Exchange supervised by the
Financial Services Authority (FSA) in the U.K. and are also quoted on SEAQ
International, the London Stock Exchange's automated quotation system for
non-U.K. equity securities. The prices for Shares as quoted in the official
list of the Swiss Exchange are expressed in Swiss francs. As of August 2,
2000, the ADSs, each representing one-half of one ordinary share of the
Company's common stock, have been listed on the New York Stock Exchange.

     The information presented in the table below represents, for the periods
indicated, (i) the reported high and low closing sales prices quoted in Swiss
francs for the Shares on the Swiss Exchange and (ii) the U.S. dollar
equivalent of the price per Share based on the Noon Buying Rate on the last
trading day of the periods presented. The Shares began trading on the Swiss
Exchange on March 13, 1997, at a price of CHF 116.25 per share.

<TABLE>


        Trading Prices on the Swiss Exchange                          Price per Share
--------------------------------------------------------------------------------------------------------
<S>                                                  <C>           <C>          <C>         <C>

                                                            High          Low         High          Low
                                                     ------------ ------------ ------------ ------------
                                                              in CHF                    in USD

Annual highs and lows
---------------------

1998  ..............................................      214.00       102.75       155.20        74.52
1999  ..............................................      128.00       103.00        80.05        64.41
2000  ..............................................      122.50        94.25        75.61        58.17
2001  ..............................................      115.75        75.00        69.74        45.19
2002  ..............................................      128.00        89.75        92.53        64.88

Quarterly highs and lows
------------------------
2002
    First Quarter  .................................      128.00       103.25        76.25        61.51
    Second Quarter  ................................      128.00       113.53        85.79        76.09
    Third Quarter  .................................      122.00        89.75        82.67        60.81
    Fourth Quarter  ................................      108.75        93.75        78.62        67.77

2001
    First Quarter  .................................      115.75       102.75        66.68        59.19
    Second Quarter  ................................      110.25        98.75        61.36        54.96
    Third Quarter  .................................      108.75        75.00        67.18        46.33
    Fourth Quarter  ................................      112.00        91.35        67.48        55.04

2000
    First Quarter  .................................      122.50        98.00        73.66        58.93
    Second Quarter  ................................      112.75        99.85        69.10        61.19
    Third Quarter  .................................      108.50        94.75        62.84        54.88
    Fourth Quarter  ................................      110.00        94.25        67.89        58.17

Monthly highs and lows
----------------------
2002
    January  .......................................      110.50       103.25        64.28        60.84
    February  ......................................      125.75       108.75        73.86        63.88
    March  .........................................      128.00       121.50        76.25        72.38
    April  .........................................      128.00       122.25        78.93        75.39
    May  ...........................................      127.00       122.00        80.93        77.74
    June  ..........................................      122.95       113.53        82.41        76.09
    July  ..........................................      122.00        89.75        82.25        60.51
    August  ........................................      116.75        91.00        77.80        60.64
    September  .....................................      110.50        93.05        74.87        63.05
    October  .......................................      105.25        93.75        71.09        63.32
    November  ......................................      108.75       100.75        73.18        67.80
    December  ......................................      108.50        94.50        78.44        68.31

2003
    January  .......................................      101.50        81.75        74.18        59.75

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


                                                                              71

<PAGE>



     The information presented in the table below represents, for the periods
indicated, the reported high and low closing sales prices quoted in USD on the
New York Stock Exchange. The Shares began trading on the New York Stock
Exchange on August 2, 2000 at a price of USD 29.50 per ADS.

<TABLE>

Trading Prices on the New York Stock Exchange                          Price per ADS(1)
------------------------------------------------------------------------------------------
<S>                                                                  <C>        <C>

                                                                          High        Low
                                                                     ---------- ----------
                                                                            in USD

Annual highs and lows
---------------------
2000 (from August 2, 2000)  .....................................        33.25      26.88
2001  ...........................................................        35.44      24.00
2002  ...........................................................        40.60      30.83

Quarterly highs and lows
------------------------
2000
    Third Quarter (from August 2, 2000)  ...........................     31.13      27.50
    Fourth Quarter  ................................................     33.25      26.88

2001
    First Quarter  .................................................     35.44      29.81
    Second Quarter  ................................................     31.50      28.88
    Third Quarter  .................................................     32.31      24.00
    Fourth Quarter  ................................................     34.00      26.69

2002
    First Quarter  .................................................     38.61      31.44
    Second Quarter  ................................................     40.20      37.31
    Third Quarter  .................................................     40.60      30.83
    Fourth Quarter  ................................................     36.75      31.75

Monthly highs and lows
----------------------
2002
    January  .......................................................     32.63      31.44
    February  ......................................................     36.75      31.88
    March  .........................................................     38.61      36.00
    April  .........................................................     38.38      37.31
    May  ...........................................................     40.11      38.10
    June  ..........................................................     40.20      37.90
    July  ..........................................................     40.60      30.83
    August  ........................................................     38.10      31.90
    September  .....................................................     36.34      31.73
    October  .......................................................     35.09      31.75
    November  ......................................................     36.75      35.11
    December  ......................................................     35.79      33.71

2003
    January  .......................................................     36.60      30.15
------------------------------------------------------------------------------------------
</TABLE>

(1)  One ADS represents one half of one share of the Company.

     On January 31, 2003, the last reported sale price was for Shares on the
Swiss Exchange CHF 86.00 and for ADS's on the New York Stock Exchange USD 31.80
According to the Share Registrar of the Company, as of December 31, 2002,
there were 210 United States resident shareholders holding 626 787 Shares,
representing approximately 0.87 percent of the issued and outstanding Shares
as of such date, and there were 303 registered United States resident holders
of American Depositary Receipts holding 81 114 ADRs, representing
approximately 0.06 percent of the issued and outstanding Shares as of such
date.

     The information presented in the table below represents, for the periods
indicated, the approximate average daily volumes of the Shares traded on the
Swiss Exchange.

                                First        Second         Third       Fourth
                               Quarter       Quarter       Quarter      Quarter

-------------------------------------------------------------------------------
2002  .......................  440 000       300 000       370 000      275 000

2001  .......................  285 000       190 000       330 000      284 000
--------------------------------------------------------------------------------

                                                                            72

<PAGE>



     The information presented in the table below represents, for the periods
indicated, the average approximate daily volumes of the ADS traded on the New
York Stock Exchange.

                                First        Second         Third       Fourth
                               Quarter       Quarter       Quarter      Quarter
-------------------------------------------------------------------------------
2002  ........................   4 130         4 094         5 720        4 386

2001  ........................   1 868         1 251         3 619        2 103
--------------------------------------------------------------------------------

     The above information was supplied by the Swiss Exchange via the Swiss
Market Feed, Citibank N.A., and Reuters, all of which supply such data to
their customers, subscribers and other information providers.

     TRADING PRACTICES AND PROCEDURES ON THE SWISS EXCHANGE/VIRT-X

     The Swiss Exchange is a private organization comprised of 98 members. As
of December 31, 2002, 258 Swiss companies and 140 foreign companies were
listed on the Swiss Exchange. Securities traded on the Swiss Exchange include
Swiss and foreign bonds, equities, investment funds, rights and warrants.

     The aggregate market value of domestic equity securities (free float)
listed on the Swiss Exchange as of December 31, 2002, was CHF 656 billion. As
of December 31, 2002, the 10 largest companies in terms of market
capitalization (free float) represented CHF 516 billion, or approximately 79
percent of the Swiss Exchange's aggregate market capitalization. Average
monthly trading volume during 2002 was CHF 88.6 billion.

     Virt-x, the new name for Tradepoint, is a collaboration between the TP
Group LDC and the SWX Swiss Exchange to provide an efficient and cost
effective pan-European blue chip market. The SWX contributed the trading flows
in Swiss blue chips and the TP Consortium that is backing virt-x, already
accounts for over 50 percent of existing cross border equity flows in Europe.
Virt-x provides a single open architecture platform positioned to provide
efficient, low cost trading and straight through processing of trades through
to settlement in European equities. The SWX Swiss Exchange trading platform,
which is used by virt-x, is the only current exchange System in Europe able to
exploit this need and builds on the work already done by Tradepoint in
developing a framework for European equity trading.

                                                                              73


<PAGE>

ITEM 10.  ADDITIONAL INFORMATION.

     MEMORANDUM AND ARTICLES OF INCORPORATION ("ARTICLES")

     Set out below is a summary of certain provisions of the Company's
Articles and of the Swiss Code of Obligations relating to the Shares. This
description does not purport to be complete and is qualified in its entirety
by reference to the Articles, which are an exhibit to this Annual Report, and
Swiss law.

     PURPOSE OF THE COMPANY

     Section 2 of the Company's Articles establishes that the purpose of the
Company is the acquisition, holding and disposition of enterprises which are
also active in the area of specialty chemicals. The Company may acquire,
mortgage, liquidate or sell real estate and intellectual property rights in
Switzerland or abroad and finance other companies.

     CONFLICT OF INTEREST

     Swiss law does not have a general provision regarding conflicts of
interest. However, the Swiss Code of Obligations requires directors and
members of senior management to safeguard the interests of the Company and, in
this connection, imposes a duty of care and a duty of loyalty on directors and
officers. The breach of these provisions entails personal liability for the
directors and officers towards the Company. Swiss law also provides that
payments made to a shareholder or a director or any person(s) associated
therewith other than at arm's length must be repaid to the Company if the
shareholder, director or associated person(s) has or have acted in bad faith.
In addition, the by-laws of the Company provide that the Members of the Board
of Directors are required to abstain from voting on matters which relate to
their own personal interests or to the interests of legal or natural persons
with whom they are associated.

     DIRECTORS

     According to Section 25 of the Articles, the Board of Directors can pass
resolutions with respect to all matters which are not reserved to the
authority of the General Meeting of Shareholders by law or by Articles of
Incorporation. The power to borrow falls within the competencies of the Board
of Directors which has delegated part of this power to the Finance Committee.
Exercise of this power does not require shareholder approval. Neither Swiss
law nor the Articles restrict in any way the Company's power to borrow or
otherwise raise funds.

     Members of the Board retire upon their sixty-eight birthday. The
retirement is effective on the date of the next Ordinary Shareholders Meeting.
Under special circumstances the Board can make exceptions to this rule. Both
Swiss law and the Articles require that the Directors be shareholders of the
Company. Ownership of one share is sufficient to satisfy this condition.

     DIVIDENDS

     For information on dividends, see "Item 6 -Directors, Senior Management
and Employees" section of this Annual Report.

     THE SHARES

     For information on the Shares, see "Item 6 -Directors, Senior Management
and Employees" section of this Annual Report.

     LIQUIDATION

     According to Swiss Law, each shareholder is entitled to receive the part
of the assets of a company remaining after its liquidation which is
proportional to its paid in shareholding.

     REDEMPTION PROVISION

     Swiss law limits the number of shares which the Company may hold or
repurchase. The Company and its subsidiaries may repurchase shares only if (i)
the Company has sufficient free reserves to pay the purchase price and (ii)
the aggregate nominal value of such shares does not exceed 10 percent of the
nominal share capital of the Company. Shares held by the Company and its
subsidiaries do not have any voting rights. Furthermore, the Company must
create a reserve on its balance sheet in the amount of the purchase price of
the acquired shares. Long-term share buy-backs by the Company may be subject
to certain adverse tax consequences in Switzerland.

     SINKING FUND PROVISION

     If liabilities exceed assets, the Board of Directors must notify the
competent court at the registered office of the Company thereof.

     FURTHER CAPITAL CALLS BY THE COMPANY

     Since all of the Company's issued and outstanding Shares have been fully
paid in, the Company has no further capital calls.

     TRANSFER OF SHARES

     The transfer of Shares (for as long as they are book-entry Shares) is
affected by an entry in the books of a bank or depositary institution
following an assignment in writing by the selling shareholder and notification
of such assignment to the Company. In the event that the Shares are printed,
the transfer is effected by delivery of the endorsed Share certificate. The
right to exercise voting rights with regard to the Shares further requires
that the name of the purchaser be registered in the share register
(Aktienbuch) of the Company. Failing such registration, the purchaser may not
vote at shareholders' meetings.

     There are no restrictions on the transfer of Shares. However, no
shareholder may be registered as a shareholder with voting rights for more
than 2 percent of the Company's share capital. A shareholder purchasing more
than 2 percent of the Company's share capital will be recorded in the
Company's share register for the Shares in excess of 2 percent of the
Company's share capital as a shareholder without voting rights. The Board or a
committee designated by the Board may, however, on a case-by-case basis allow
some or all of the excess shares to be registered with voting rights. For
purposes of the 2 percent rule, natural persons and/or legal entities acting
in concert are considered to be one shareholder.

     A purchaser of Shares will be recorded in the Company's share register if
the purchaser discloses its name, citizenship and address and gives a
declaration that it has acquired the Shares in its own name and for its own
account. The Articles provide that shareholders may register their Shares in
the name of a nominee approved by the Company, including Morgan Guaranty Trust
Company of New York, Brussels office, as operator of the Euroclear System
("Euroclear"), Citibank, N.A., as operator of Clearstream Banking, societe
anonyme ("Clearstream Luxembourg"), and the Depositary, and may exercise their
voting rights by giving instructions to such nominee to vote on their behalf.
However, the Company has agreed

                                                                            74
<PAGE>
to exempt the Depositary and the custodian and their respective nominees, if
any (but no individual Holder or Beneficial Owner of ADSs), from the 2 percent
limitation in respect of Deposited Securities held in connection with the ADR
facility created by the Deposit Agreement (as defined therein) to the extent
that (a) the Depositary requires each Holder who provides voting instructions
to the Depositary upon the terms of the Deposit Agreement to certify (the
"Voter Certification") that (i) such Holder does not beneficially own,
directly or indirectly, more than 2 percent of the share capital of the
Company in the form of Shares or ADSs and (ii) neither such Holder nor any of
its affiliates has filed, or is under any obligation to file, a Schedule 13D
or 13G under the Exchange Act in respect of the Shares or the ADSs (if any
such Holder fails to provide such Voter Certification to the Depositary, the
Depositary will disregard any voting instructions received from such Holder
unless otherwise instructed by the Company), and (b) the Deposited Securities
held in the ADR facility do not exceed the 5 percent limitation. See
"-Description of the ADSs-Voting of Deposited Securities".

     MANDATORY BID RULE

     For information on Mandatory bid rule, see "Item 6 -Directors, Senior
Management and Employees" section of this Annual Report.

     SHAREHOLDERS' MEETING

     Under Swiss law, an annual, ordinary shareholders' meeting must be held
within six months after the end of the Company's business year. Shareholders'
meetings may be convened by the Board or, if necessary, by the statutory
auditors. The Board is further required to convene an extraordinary
shareholders' meeting if so resolved by a shareholders' meeting or if so
requested by holders of Shares holding in aggregate at least 10 percent of the
nominal share capital of the Company.

     The shareholders at a shareholders' meeting also have the power to vote on
amendments to the Articles, to elect the members of the Board and the statutory
auditors, to approve the annual report and the annual Company accounts, to set
the annual dividend, to grant the members of the Board and management discharge
from liability for matters disclosed to the shareholders' meeting, and to order
an independent investigation into the specific matters proposed to the
shareholders' meeting (Sonderpruefung).

     At shareholders' meetings, shareholders can be represented by proxy but
only by another shareholder, a proxy appointed by the Company, an independent
representative nominated by the Company or a depositary institution. Proxy may
also be given to the legal representative of the shareholder. Subject to certain
exceptions set forth in the Articles, no shareholder (or group of shareholders
acting in concert) may represent more than 5 percent of the Company's share
capital at any shareholders' meeting. For purposes of this 5 percent limit,
natural persons and/or legal entities acting in concert are considered to be one
shareholder. The 5 percent limit does not apply to banks exercising proxies
granted by their customers, to shareholders' representatives acting under
statutory rules or to nominees, provided such nominees comply with the
disclosure requirement discussed above (see "-Transfer of Shares"). Votes are
taken on a show of hands unless it is resolved at the shareholders' meeting to
have a ballot or such ballot is ordered by the Chairman of the meeting.

     For additional information on shareholders' meeting, see "Item 6 -
Directors, Senior Management and Employees" section of this Annual Report.

     PREEMPTIVE RIGHTS

     Under Swiss law, any share issue, whether for cash or non-cash
consideration, is subject to the prior approval at the shareholders' meeting.
Shareholders of the Company have certain preemptive rights to subscribe for
new issues of Shares in proportion to the nominal amount of Shares held. A
resolution adopted at a shareholders' meeting with a two-thirds majority may,
however, limit or suspend preemptive rights in certain limited circumstances.

     At the 1998 shareholders' meeting, the shareholders of the Company
authorized the Board to issue from time to time up to two million Shares for the
purpose of accommodating options and conversion rights granted to the Company's
employees and excluded the subscription rights of the holders of the Shares
regarding thereto.

     At the same meeting, the shareholders of the Company also authorized the
Board to issue from time to time up to four million additional Shares at its
discretion and to allot preferential subscription rights relating thereto to
third parties in the event that the additional Shares are used by shareholders
to takeover a business, in whole or in part, or to participate in or finance
such takeover. According to article 651 of the Swiss Code of Obligations, this
authorization was only valid for two years. At the Annual General Meeting held
on April 13, 2000, the shareholders consented to extend this authorization for
another two years. At the Company's Annual General Meeting held on March
22, 2002, the Board proposed to the shareholders another two year extension. The
shareholders voted in favor of such extension.

     In addition to the above, the shareholders also authorized the Board to
issue from time to time up to four million additional Shares in connection with
the execution of option and conversion rights and to exclude the subscription
rights of the holders of Shares regarding thereto.

     NOTICES

     Notices to shareholders are validly made by publication in the Swiss
Official Gazette of Commerce. The Board may designate further means of
communication for publishing notices to shareholders.

     DURATION AND LIQUIDATION

     The Articles do not limit the Company's duration.

     The Company may be dissolved at any time by a shareholders' resolution
which must be passed by (i) a simple majority of the Shares represented at the
meeting if the Company is being dissolved by way of liquidation and (ii)
two-thirds of the Shares represented at the meeting if the Company is being
dissolved for other reasons (for example, in a merger where the Company is not
the surviving entity).

     Under Swiss law, any surplus arising out of a liquidation (after
settlement of all claims of creditors) is distributed to shareholders in
proportion to the paid-up nominal value of Shares held.

     DISCLOSURE OF PRINCIPAL SHAREHOLDERS

     Under the applicable provisions of the Swiss Stock Exchange Act,
shareholders (and groups of shareholders acting in concert) who own shares or
other securities representing more than 5 percent, 10 percent, 20 percent, 33
1/3 percent, 50 percent or 66 2/3 percent of the voting rights of a

                                                                            75
<PAGE>
company incorporated in Switzerland of which at least one class of equity
securities is listed on the Swiss Exchange are required to notify the company
and the Swiss Exchange of such holdings, whether or not the voting rights can be
exercised. Following receipt of such notification, the company is required to
inform the public. The same disclosure obligation applies to subsequent
reductions in the holding of voting rights below the thresholds described above.

     An additional disclosure obligation exists under Swiss corporate law
pursuant to which the Company must disclose the identity of all of its
shareholders (or related groups of shareholders) who hold more than 2 percent
of its voting rights (i.e. shareholders owning shares in excess of the limit
set forth in the Articles; see "- Transfer of Shares"). Disclosure of
shareholders owning more than 2 percent but less than 5 percent of the voting
rights in the Company must only be made once a year in the notes to the
financial statements published in the annual report. See "Item 7. - Major
Shareholders and Related Party Transactions" in this Annual Report.

     MATERIAL CONTRACTS

     ADR DEPOSIT AGREEMENT

     Pursuant to Second Amended and Restated Deposit Agreement (including all
exhibits thereto, the "Deposit Agreement") dated as of August 2, 2000 among
the Company, Citibank, N.A., and the registered holders and beneficial owners
from time to time of the ADRs of the Company, ADRs evidencing ADSs are
issuable by Citibank on behalf of the Company. Each ADS represents the right
to receive one-half of one Share deposited under the Deposit Agreement. Shares
will be deposited to an account maintained by Citibank, N.A., Zurich Branch,
as the custodian and agent of the Depositary in Switzerland. Only persons in
whose names ADRs are registered on the books of the Depositary will be treated
by the Depositary and the Company as the absolute owners of such ADRs.

     POLYMERS TRANSACTION AGREEMENT

     On May 31, 2000, the Company sold its Performance Polymers business to
Vantico No. 3 S.A., a company established by Morgan Grenfell Private Equity,
the then private equity arm of Deutsche Bank AG, and certain additional joint
venture partners. Total gross proceeds from the sale were CHF 1.6 billion,
including the assumption of approximately CHF 160 million in net debt.

     EMTN PROGRAM

     In 1997, the Company set up a Euro Medium Term Notes program under which
certain specified subsidiaries of the Company may issue bonds up to an
aggregate amount of USD 2 billion. The program documentation, among Ciba
Specialty Chemicals Corporation, Ciba Specialty Chemicals Eurofinance Ltd.,
Ciba Specialty Chemicals PLC, Ciba Spezialitaetenchemie Holding Deutschland
GmbH, the Company and the Dealers named thereon, includes an offering
circular, a program agreement, a deed of covenant and a guarantee by the
Company, and is updated annually, most recently on March 27, 2002. As of
December 31, 2002, approximately CHF 959 million (USD 684 million) was
outstanding indebtedness of the Company under the program.

     EXCHANGE CONTROLS

     There are no legislative or other legal provisions currently in force in
Switzerland or arising under the Articles of Association of the Company (the
"Articles") restricting the export or import of capital, including, but not
limited to, the availability of cash and cash equivalents for use by the
Company's group, or that affect the remittance of dividends, interest or other
payments to nonresident holders of securities of the Company. Cash dividends
payable in Swiss francs on Shares and ADSs may be officially transferred from
Switzerland and converted into any other convertible currency. There are no
limitations imposed by Swiss laws or the Company's Articles on the right of
non-Swiss residents to hold or vote the Shares or ADSs, except that under the
Articles, both resident and non-resident holders of Shares and ADSs (acting as
individuals or as a group) may not be entered into the Company's share register
as a shareholder with voting rights or be permitted to exercise voting rights
with respect to more than 2 percent of the share capital of the Company.

     TAXATION

     SWISS TAXATION

     SWISS TAX CONSEQUENCES OF HOLDING SHARES OR ADSS

     The following is a summary of the material Swiss tax consequences of the
ownership of Shares or ADSs, in particular by United States holders (as defined
below; see "-United States Taxation"). The summary does not purport to be a
comprehensive description of all of the tax considerations that may be relevant
to a decision to purchase Shares or ADSs, and prospective investors should
consult their professional advisors as to the tax consequences of their
purchase, ownership and disposition of Shares and ADSs. In particular, the
summary does not address the tax treatment of holders subject to special tax
rules, such as banks, insurance companies and dealers in securities, investors
liable for alternative minimum tax or investors who hold Shares or ADSs as part
of a straddle or hedging or a conversion transaction, some of which may be
subject to special rules. This summary should not be read as extending by
implication to matters not specifically discussed herein. Additional rules may
apply to holders of 10 percent or more in voting power or value of the Shares
and ADSs. With respect to United States holders, this discussion generally
applies only to such holders who hold Shares or ADSs as a portfolio investment.

     The description of the Swiss and United States tax laws and practices set
forth below is based on the statutes, regulations, rulings, judicial decisions
and other authorities as in force and as applied in practice on the date of
this Annual Report and is subject to changes to those laws and practices,
subsequent to that date, which changes could be made on a retroactive basis.

     It is assumed for purpose of this summary that a United States holder is
entitled to the benefits of the Swiss-American Treaty on Double Taxation (the
"Treaty"). A United States holder would generally be eligible for the benefits
of the Treaty. However, certain exceptions apply, including (a) United States
citizens or residents that do not have a substantial presence, permanent home
or habitual abode in the United States, and (b) United States corporations
that fail to satisfy the "limitations on benefits" provisions of Article 22 of
the Treaty because of the nature of their activities in the United States and
the nature of their shareholders.

     SWISS WITHHOLDING TAX ON DIVIDENDS AND DISTRIBUTIONS

     Dividends paid and similar cash or in kind distributions made by the
Company to a holder of Shares or ADSs (including dividends on liquidation
proceeds and stock dividends) are subject to a Swiss federal withholding tax
(the "Withholding Tax") at a rate of 35 percent. The Withholding Tax

                                                                            76
<PAGE>
must be withheld by the Company from the gross distribution and be paid to the
Swiss Federal Tax Administration. The Withholding Tax is refundable in full to
a Swiss resident who receives a distribution if such resident is the
beneficial owner of the payment and duly reports the gross distribution
received on his tax return.

     An individual or corporation that is a resident of a country other than
Switzerland and that owns or is deemed to own Shares or ADSs will be subject to
the 35 percent Withholding Tax. The Withholding Tax, however, is a final charge
for non-residents unless such an individual or corporation could be eligible for
a partial exemption or refund of the Withholding Tax if a tax treaty is in
effect between such individual's or corporation's country of residence and
Switzerland. Switzerland has concluded such treaties with the United States,
Canada, Japan, all European Union member states and certain other countries.

     The Depositary intends to make use of informal procedures under which it
will submit a certificate to the Swiss tax authorities in respect of all United
States holders who have provided certifications of their entitlement to Treaty
benefits. So long as these procedures remain available it generally should be
possible for qualifying United States holders to recover on a timely basis
Withholding Tax in excess of the 15 percent rate as provided in the Treaty.
There can be no assurance that these informal procedures will remain available.

     Alternatively, a United States holder that qualifies for Treaty benefits (a
"United States resident") may apply on an individual basis for a refund of the
Withholding Tax withheld in excess of the 15 percent Treaty rate. The claim for
refund must be filed with the Swiss Federal Tax Administration, Eigerstrasse 65,
3003 Berne, Switzerland (http:\\www.estv.admin.ch). The form used for obtaining
a refund is Swiss Tax Form 82I for individuals, Form 82C for corporations, Form
82E for other United States citizens, and Form 829 for Swiss citizens resident
in the United States, which may be obtained from any Swiss Consulate General in
the United States or from the Swiss Federal Tax Administration at the address
above. The form must be filled out in triplicate with each copy duly completed
and signed before a notary public in the United States. The form may be filed no
earlier than July 1 or January 1 following the dividend date but no later than
December 31 of the third year following the calendar year that includes the
dividend date. The form must be accompanied by evidence of the deduction of
Withholding Tax withheld at the source.

     STAMP DUTIES UPON TRANSFER OF SECURITIES (UMSATZABGABE)

     The sale of Shares may be subject to a Swiss securities transfer stamp
duty of 0.15 percent calculated on the sale proceeds if it occurs through or
with a Swiss bank or other Swiss securities dealer as defined in the Swiss
Federal Stamp Tax Act.

     SUMMARY OF SWISS TAX CONSEQUENCES

     A non-resident holder of Swiss shares will not be liable for any Swiss
taxes other than the Withholding Tax described above and the Swiss Securities
transfer stamp duty if the transfer occurs through or with a Swiss securities
dealer. If, however, the Shares can be attributed to a permanent establishment
or fixed place of business maintained by such person within Switzerland, the
Shares may be subject to Swiss taxes generally.

     UNITED STATES TAXATION

     The following is a general summary of certain United States federal income
tax consequences of the purchase, ownership, and disposition of Shares and ADSs.

     For purposes of this discussion, a "United States holder" means any
individual, citizen or resident of the United States for United States federal
income tax purposes, corporations created or organized under the laws of the
United States or any state thereof or the District of Columbia, or estates or
trusts which are residents in the United States for United States federal income
tax purposes, in each case who:

     (i) is not also resident of, or ordinarily resident in Switzerland for
Swiss tax purposes;

     (ii) is not engaged in a trade or business in Switzerland through a
permanent establishment; and

     (iii) does not own, directly, indirectly or by attribution, 10 percent or
more of the Shares (by vote or value).

     This summary is of a general nature only and does not discuss all aspects
of United States and Swiss taxation that may be relevant to a particular
investor. This summary deals only with Shares and ADSs held as capital assets
and does not address special classes of purchasers, such as dealers in
securities, United States holders whose functional currency is not the U.S.
dollar and certain United States holders (including, but not limited to,
insurance companies, tax-exempt organizations, financial institutions and
persons subject to the alternative minimum tax) who may be subject to special
rules. In particular, the following summary does not address the adverse tax
treatment of United States holders who own, directly, or by attribution, one
or more of the Company's outstanding classes of voting stock in the event that
the Company were to be classified as a "Controlled Foreign Corporation" for
United States federal income tax purposes. The Company was not classified as a
Controlled Foreign Corporation at December 31, 2002. There can, however, be no
assurance that it will not be a Controlled Foreign Corporation in the future.

     Owners of ADSs are advised to consult their own tax advisors with respect
to the United States federal, state and local tax consequences, of the
ownership of ADSs and Shares applicable to their particular tax situations.

     For purposes of tax treaties and United States tax laws, United States
holders will be treated as the owners of the Shares represented by ADSs.

     UNITED STATES INCOME TAX ON DIVIDENDS

     The gross amount of any dividends received with respect to the ADSs or
Shares (including amounts withheld in respect of the Withholding Tax) generally
will be subject to United States federal income taxation as foreign source
dividend income, and will not be eligible for the dividends received deduction
allowed to corporations. For this purpose, a "dividend" will include any
distribution paid by the Company with respect to the ADSs or Shares, as the case
may be, but only to the extent such distribution is not in excess of the
Company's current and accumulated earnings and profits as defined for United
States federal income tax purposes. Any distribution that exceeds the Company's
earnings and profits will be treated as a nontaxable return of capital to the
extent of the United States holder's tax basis in the ADSs or Shares and
thereafter as capital gain. Dividends paid in Swiss francs will be includable in
the income of United States holders in a U.S. dollar amount calculated by
reference to the exchange rate in effect on the date of receipt by the holder,
or in the case of Shares held in ADS form, by the Depositary. If dividends paid
in Swiss francs are converted into U.S. dollars on the date of receipt, holders
generally should not be required to recognize foreign currency gain or loss in
respect of the dividend income.

                                                                            77
<PAGE>



     Subject to generally applicable limitations under United States tax law,
the non-recoverable portion of the Withholding Tax (at the 15 percent rate as
provided in the Treaty) will be treated as a foreign income tax that is
eligible for credit against a holder's United States federal income tax
liability or, at the holder's election, may be deducted in computing taxable
income.

     United States residents that receive a Treaty refund may be required to
recognize foreign currency gain or loss to the extent the amount of the refund
(in U.S. dollars) received by the United States resident differs from the U.S.
dollar equivalent of the Treaty refund on the date the dividends were received
by the United States resident or (in the case of ADSs) the Depositary.

     UNITED STATES CAPITAL GAINS TAX UPON DISPOSAL OF ADSS OR SHARES

     Gains realized by a United States holder on the sale or other disposition
of ADSs or Shares generally will be subject to United States federal income
taxation as capital gain, and generally will be treated as United States source
income. A United States holder will recognize capital gain or loss on the
disposition of ADSs or Shares equal to the difference between the amount
realized upon the disposition and the United States holder's tax basis in the
ADSs or Shares. Such capital gain will be long-term capital gain if the ADSs or
Shares were held for more than one year. Deposits and withdrawals of Shares in
exchange for ADSs will not result in the realization of gain or loss for United
States federal income tax purposes.

     UNITED STATES INFORMATION REPORTING AND BACKUP WITHHOLDING OBLIGATIONS

     Dividends paid on ADSs or Shares to a United States person are generally
subject to information reporting and may be subject to backup withholding at the
rate of 30 percent for payments made in 2002 and 2003, unless the holder (i) is
a corporation or other exempt recipient or (ii) provides a taxpayer
identification number and certifies that no loss of exemption from backup
withholding has occurred.

     Dividends paid on ADSs or Shares to a holder that is not a United States
person are generally exempt from information reporting and backup withholding
under current law. However, such a holder may be required to provide a
certification to ensure such exemption.

     DOCUMENTS ON DISPLAY

     The following documents referred to herein can be obtained from the Company
at its registered office at Klybeckstrasse 141, 4002 Basel, Switzerland.

                                                                              78

<PAGE>


ITEM 11.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     MARKET RISK DUE TO FLUCTUATING FOREIGN CURRENCY EXCHANGE RATES AND INTEREST
RATES

     As a result of its global operating and financial activities, the Company
is exposed to market risk from changes in foreign currency exchange rates and
interest rates. The Company actively manages the resulting exposure through
its regular operating and financing activities and, when deemed appropriate,
through the use of derivative financial instruments. In accordance with the
written policies of the Company, such instruments are used only as risk
management tools and not for speculative or trading purposes. The Company's
written policy with respect to the use of risk management tools has not
changed since 1997.

     The Company collects global cash flow information on a monthly basis and,
based on these cash flows, prepares a consolidated exposure forecast by
currency and determines to what extent these consolidated currency exposures
will be hedged. Foreign currency forwards and swaps as well as options may be
used to reduce the Company's exposure that results from the market risk
arising from the fluctuation of foreign currency exchange rates. To reduce the
cost of such activities, the Company may sell covered options. Potential
losses, if any, on these sold options would be substantially offset by gains
on the underlying transactions that are hedged. The Company's primary net
foreign currency market exposures include the U.S. dollar, the euro, the
British pound and the Japanese yen. In 2002, the Company's hedging activities
have to a large extent focused on the U.S. dollar. However, hedging activities
on the other major currencies as well as on selected minor currencies have
also been undertaken.

     The fair value of foreign currency exchange contracts is sensitive to
changes in foreign currency exchange rates. As of December 31, 2002, a 10
percent appreciation in foreign currency exchange rates against the Swiss
franc, with all other variables held constant, would have resulted in a
decrease in the fair value of the Company's financial instruments of CHF 70
million. Conversely, a 10 percent depreciation in these currencies would have
resulted in an increase in the fair value of the Company's financial
instruments of CHF 97 million as of December 31, 2002. As the impact of
offsetting changes in the fair value of the underlying positions is not
included in the sensitivity model, these results are not indicative of an
increase or decrease in the Company's actual exposure to foreign currency
exchange risk. Consistent with the nature of the economic hedge of such
foreign currency exchange contracts, such unrealized gains or losses would be
compensated by the corresponding decreases or increases of the underlying
transaction being hedged. The fair value of foreign currency forwards and
swaps is calculated by separating the two components and applying the forward
rate and the balance sheet rate as well as a discount factor. The discount
factor is composed of the respective yield curves as well as the number of
days until maturity. The fair value of options is calculated by applying the
Black-Scholes model.

     The Company is exposed to market risks due to fluctuating interest rates
primarily through its borrowing activities and less so through its
investments. The Company utilizes borrowings denominated in Swiss francs and
in foreign currencies to fund its working capital and investment needs. The
majority of short-term borrowings are in foreign currencies and floating
interest rate instruments whereas the majority of long-term borrowings are in
fixed interest rate instruments. The Company manages its ratio of fixed to
floating interest rate instruments with the objective of achieving a mix which
is appropriate both in terms of risk and cost. To manage this mix effectively,
the Company, selectively, enters into interest rate swaps and forward rate
agreements, in which it agrees to exchange various combinations of fixed and
variable interest rates based on agreed-upon nominal amounts.

     There is inherent roll-over risk for borrowings as they mature and are
renewed at current market rates. Based on the short-term and long-term debt
balance outstanding at December 31, 2002, a hypothetical one percentage point
increase in interest rates for a one-year period would have reduced net income
by CHF 40 million. The assumption is that all debt would be impacted by this
hypothetical one percentage point increase, no matter whether actual interest
is based on a fixed or a floating rate agreement.



ITEM 12.  DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES.

      Not applicable.

                                                                              79

<PAGE>


                                     PART II

ITEM 13.  DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES.

     None.


ITEM 14.  MATERIAL MODIFICATION TO THE RIGHTS OF SECURITY HOLDERS
          AND USE OF PROCEEDS.

     None.


ITEM 15. CONTROLS AND PROCEDURES.

     Pursuant to rules adopted by the Securities and Exchange Commission as
directed by Section 302 of the Sarbanes-Oxley Act of 2002, the Company is
providing the following information:

     As of a date within 90 days of the date of the filing of this Form 20-F
Annual Report (the "Evaluation Date") the Company conducted an evaluation
(under the supervision and with the participation of the Company's chief
executive officer and chief financial officer), pursuant to Rule 13a-15
promulgated under the Securities and Exchange Act of 1934, as amended (the
"Exchange Act") of the effectiveness of design and operation of the Company's
disclosure controls and procedures. Based on this evaluation, the Company's
chief executive officer and chief financial officer have concluded that as of
the Evaluation Date such disclosure controls and procedures were reasonably
designed to ensure that information required to be disclosed by the Company in
reports it files or submits under the Exchange Act is recorded, processed,
summarized and reported within the time periods specified in the rules and
forms of the Securities and Exchange Commission.

     Since the last evaluation by the Company of the Company's internal
controls there have not been any significant changes in the internal controls,
or in factors that could significantly affect the internal controls.


ITEM 16.  [RESERVED].

                                                                            80

<PAGE>



                                    PART III


ITEM 17.  FINANCIAL STATEMENTS.

     The Company is furnishing financial statements pursuant to the instructions
of Item 18 of Form 20-F.



ITEM 18.  FINANCIAL STATEMENTS.

     See pages F-1 through F-34



ITEM 19.  EXHIBITS.

     (a)  The following consolidated financial statements, together with the
          auditors' reports of Ernst & Young Ltd and Arthur Andersen AG, are
          filed as part of this Annual Report:


Index to Consolidated Financial Statements                                  Page
                                                                        --------

Report of Independent Auditors Ernst & Young ..............................  F-2

Independent Auditors' Report - Arthur Andersen AG .........................  F-3

Consolidated Statements of Income for the Years
  ended December 31, 2002, 2001 and 2000 ..................................  F-4

Consolidated Balance Sheets at December 31, 2002 and 2001 .................  F-5

Consolidated Statements of Cash Flows for the Years ended
  December 31, 2002, 2001 and 2000 ........................................  F-6

Consolidated Statements of Shareholders' Equity for the Years
  ended December 31, 2002, 2001 and 2000 ..................................  F-7

Business Segment Data .....................................................  F-8

Geographic Data  .......................................................... F-11

Notes to Consolidated Financial Statements  ............................... F-12



     All schedules are omitted because they are not applicable or because the
required information is contained in the Consolidated Financial Statements or
Notes thereto.

     (b)  Documents filed as exhibits to this Annual Report:

     +1.1 Articles of Association of Ciba Specialty Chemicals Holding Inc.
          dated March 22, 2002.

    **1.2 Specimen share certificate of Ciba Specialty Chemicals Holding Inc.

     *2.1 Second Amended and Restated Deposit Agreement dated as of August 2,
          2000, between Ciba Specialty Chemicals Holding Inc., Citibank, N.A.,
          and the additional parties named therein.

     *2.2 Form of American Depositary Receipt of Ciba Specialty Chemicals
          Holding Inc.

     4.1  EMTN Programme Agreement in respect of a USD 2 billion Euro Medium
          Term Note Programme dated March 27, 2002, among Ciba Specialty
          Chemicals PLC, Ciba Specialty Chemicals Corporation, Ciba Specialty
          Chemicals Eurofinance Ltd., Ciba Spezialitatenchemie Holding
          Deutschland GmbH, Ciba Specialty Chemicals Holding Inc., UBS AG and
          the additional parties named therein.

     4.2  EMTN Deed of Covenant in respect of a USD 2 billion Euro Medium Term
          Note Programme dated March 27, 2002, by each of Ciba Specialty
          Chemicals Corporation, Ciba Specialty Chemicals Eurofinance Ltd., Ciba
          Specialty Chemicals PLC, Ciba Spezialitatenchemie Holding Deutschland
          GmbH, Ciba Specialty Chemicals Holding Inc., Credit Suisse First
          Boston (Europe) Limited, Deutsche Bank AG London, Goldman Sachs
          International, J.P. Morgan Securities Ltd. and UBS AG.

     4.3  EMTN Deed of Guarantee in respect of a USD 2 billion Euro Medium Term
          Note Programme dated March 27, 2002, by Ciba Specialty Chemicals
          Holding Inc.

     4.4  EMTN Agency Agreement in respect of a USD 2 billion Euro Medium Term
          Note Programme dated March 27, 2002, among Ciba Specialty Chemicals
          PLC, Ciba Specialty Chemicals Corporation, Ciba Specialty Chemicals
          Eurofinance Ltd., Ciba Spezialitatenchemie Holding Deutschland GmbH,
          Ciba Specialty Chemicals Holding Inc., The Chase Manhattan Bank and
          Chase Manhattan Bank Luxembourg S.A.

   **4.5  Subscription Agreement relating to US $687 000 000 1.25 per cent
          Guaranteed Convertible Bonds due 2003, dated July 23, 1998, by Ciba
          Specialty Chemicals Investment Ltd.

                                                                            81

<PAGE>


   **4.6  Trust Deed constituting US $687 000 000 1.25 per cent Guaranteed
          Convertible Bond due 2003, dated July 24, 1998, among Ciba Specialty
          Chemicals Investment Ltd., Ciba Specialty Chemicals Holding Inc., and
          The Law Debenture Trust Corporation p.l.c.

   **4.7  Paying and Conversion Agency Agreement, dated July 24, 1998, among
          Ciba Specialty Chemicals Investment Ltd., Ciba Specialty Chemicals
          Holding Inc., The Chase Manhattan Bank and others.

          The total amount of long-term debt securities of the Company or of its
          subsidiaries authorized under any other instrument does not exceed 10
          percent of the total assets of the Company on a consolidated basis.
          The Company hereby agrees to furnish to the Commission, upon its
          request, a copy of any instruments defining the rights of holders of
          long-term debt of the Company or of its subsidiaries for which
          consolidated or unconsolidated financial statements are required to be
          filed.

   **4.8  Master Spin-off Agreement dated December 20, 1996, between Novartis
          AG and Ciba Specialty Chemicals Holding Inc.

   **4.9  Transaction Agreement re: Sale of the Performance Polymers division
          to Morgan Grenfell Private Equity dated December 14, 1999, by and
          between Ciba Specialty Chemicals Holding Inc. and Avanti N03.

     8.1  Subsidiaries of the Company

    10.1  Consent of Ernst & Young Ltd.

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

     +    Incorporated by reference from the Form 6-K of Ciba Specialty
          Chemicals Holding Inc., filed August 28, 2002. (File No. 333-56040).

     *    Incorporated by reference to Post-Effective Amendment No. 1 to the
          Registration Statement of Ciba Specialty Chemicals Holding Inc. on
          Form F-6, filed August 2, 2000. (File No. 082-04541)

     **   Incorporated by reference to the Registration Statement of Ciba
          Specialty Chemicals Holding Inc. on Form 20-F (Amendment No. 2), filed
          August 1, 2000. (File No. 082-04541)

                                                                             82


<PAGE>



     SIGNATURE



     Pursuant to the requirements of Section 12 of the Securities Exchange Act
of 1934, Ciba Specialty Chemicals Holding Inc. certifies that it has
reasonable grounds to believe that it meets all requirements for filing on
Form 20-F and has duly caused this Annual Report to be signed on its behalf by
the undersigned, thereunto duly authorized.



                                   Ciba Specialty Chemicals Holding Inc.,



                                   By: /s/ Michael Jacobi
                                      ------------------------------------
                                      Name: Michael Jacobi
                                      Title: Chief Financial Officer

Date:  February 4, 2003



                                                                             83

<PAGE>


CERTIFICATION

I, Armin Meyer, Chairman of the Board and Chief Executive Officer of Ciba
Specialty Chemicals Holding Inc., certify that:

     1.   I have reviewed this annual report on Form 20-F of Ciba Specialty
          Chemicals Holding Inc.;

     2.   Based on my knowledge, this annual report does not contain any untrue
          statement of a material fact or omit to state a material fact
          necessary to make the statements made, in light of the circumstances
          under which such statements were made, not misleading with respect to
          the period covered by this annual report;

     3.   Based on my knowledge, the financial statements, and other financial
          information included in this annual report, fairly present in all
          material respects the financial condition, results of operations and
          cash flows of the registrant as of, and for, the periods presented in
          this annual report;

     4.   The registrant's other certifying officers and I are responsible for
          establishing and maintaining disclosure controls and procedures (as
          defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant
          and have:

          (a) designed such disclosure controls and procedures to ensure that
          material information relating to the registrant, including its
          consolidated subsidiaries, is made known to us by others within those
          entities, particularly during the period in which this annual report
          is being prepared;

          (b) evaluated the effectiveness of the registrant's disclosure
          controls and procedures as of a date within 90 days prior to the
          filing date of this annual report (the "Evaluation Date"); and

          (c) presented in this annual report our conclusions about the
          effectiveness of the disclosure controls and procedures based on our
          evaluation as of the Evaluation Date;

     5.   The registrant's other certifying officers and I have disclosed, based
          on our most recent evaluation, to the registrant's auditors and the
          audit committee of registrant's board of directors (or persons
          performing the equivalent function):

          (a) all significant deficiencies in the design or operation of
          internal controls which could adversely affect the registrant's
          ability to record, process, summarize and report financial data and
          have identified for the registrant's auditors any material weaknesses
          in internal controls; and

          (b) any fraud, whether or not material, that involves management or
          other employees who have a significant role in the registrant's
          internal controls; and

     6.   The registrant's other certifying officers and I have indicated in
          this annual report whether or not there were significant changes in
          internal controls or in other factors that could significantly affect
          internal controls subsequent to the date of our most recent
          evaluation, including any corrective actions with regard to
          significant deficiencies and material weaknesses.



                              By: /s/ Armin Meyer
                                  --------------------------
                                  Name: Armin Meyer
                                  Title: Chairman of the Board and
                                         Chief Executive Officer

Date: February 4, 2003

                                                                             84

<PAGE>



I, Michael Jacobi, Chief Financial Officer of Ciba Specialty Chemicals Holding
Inc., certify that:

     1.   I have reviewed this annual report on Form 20-F of Ciba Specialty
          Chemicals Holding Inc.;

     2.   Based on my knowledge, this annual report does not contain any untrue
          statement of a material fact or omit to state a material fact
          necessary to make the statements made, in light of the circumstances
          under which such statements were made, not misleading with respect to
          the period covered by this annual report;

     3.   Based on my knowledge, the financial statements, and other financial
          information included in this annual report, fairly present in all
          material respects the financial condition, results of operations and
          cash flows of the registrant as of, and for, the periods presented in
          this annual report;

     4.   The registrant's other certifying officers and I are responsible for
          establishing and maintaining disclosure controls and procedures (as
          defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant
          and have:

          (a) designed such disclosure controls and procedures to ensure that
          material information relating to the registrant, including its
          consolidated subsidiaries, is made known to us by others within those
          entities, particularly during the period in which this annual report
          is being prepared;

          (b) evaluated the effectiveness of the registrant's disclosure
          controls and procedures as of a date within 90 days prior to the
          filing date of this annual report (the "Evaluation Date"); and

          (c) presented in this annual report our conclusions about the
          effectiveness of the disclosure controls and procedures based on our
          evaluation as of the Evaluation Date;

     5.   The registrant's other certifying officers and I have disclosed, based
          on our most recent evaluation, to the registrant's auditors and the
          audit committee of registrant's board of directors (or persons
          performing the equivalent function):

          (a) all significant deficiencies in the design or operation of
          internal controls which could adversely affect the registrant's
          ability to record, process, summarize and report financial data and
          have identified for the registrant's auditors any material weaknesses
          in internal controls; and

          (b) any fraud, whether or not material, that involves management or
          other employees who have a significant role in the registrant's
          internal controls; and

     6.   The registrant's other certifying officers and I have indicated in
          this annual report whether or not there were significant changes in
          internal controls or in other factors that could significantly affect
          internal controls subsequent to the date of our most recent
          evaluation, including any corrective actions with regard to
          significant deficiencies and material weaknesses.



                                   By: /s/ Michael Jacobi
                                       ------------------------
                                       Name Michael Jacobi
                                       Title: Chief Financial Officer



Date: February 4, 2003

                                                                             85

<PAGE>


Index to Consolidated Financial Statements
                                                                           Page

Report of Independent Auditors - Ernst & Young Ltd  ......................  F-2

Independent Auditors' Report - Arthur Andersen AG  ......................   F-3

Consolidated Statements of Income for the Years ended
        December 31, 2002, 2001 and 2000.................................   F-4

Consolidated Balance Sheets at December 31, 2002 and 2001 ...............   F-5

Consolidated Statements of Cash Flows for the Years ended
        December 31, 2002, 2001 and 2000.................................   F-6

Consolidated Statements of Shareholders' Equity for the Years ended
        December 31, 2002, 2001 and 2000.................................   F-7

Business Segment Data  ..................................................   F-8

Geographic Data  ........................................................  F-11

Notes to Consolidated Financial Statements  .............................  F-12











                                       F-1



<PAGE>


REPORT OF INDEPENDENT AUDITORS

TO THE BOARD OF DIRECTORS AND SHAREHOLDERS OF CIBA SPECIALTY CHEMICALS HOLDING
INC.


We have audited the accompanying consolidated balance sheet of Ciba Specialty
Chemicals Holding Inc. as of December 31, 2002, and the related consolidated
statements of income, shareholders' equity, and cash flows for the year then
ended, appearing on pages F-4 to F-34 of this Annual Report. 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 audit. The financial statements of Ciba Specialty Chemicals Holding Inc.
as of December 31, 2001 and for the years ended December 31, 2001 and 2000,
were audited by other auditors who have ceased operations as a foreign
associated firm of the Securities and Exchange Commission Practice Section of
the American Institute of Certified Public Accountants and whose report dated
January 18, 2002 expressed an unqualified opinion on those statements.

We conducted our audit in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audit provides 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 Ciba Specialty
Chemicals Holding Inc. at December 31, 2002, and the consolidated results of
their operations and their cash flows for the year then ended, in conformity
with accounting principles generally accepted in the United States.

As discussed in Note 1 to the consolidated financial statements, the Company
changed its method of accounting for goodwill and other intangible assets. As
discussed above, the financial statements of Ciba Specialty Chemicals Holding
Inc. as of December 31, 2001, and for the years ended December 31, 2001 and
2000, were audited by other auditors who have ceased operations as a foreign
associated firm of the Securities and Exchange Commission Practice Section of
the American Institute of Certified Public Accountants. As described in Note
1, these financial statements have been revised to include the transitional
disclosures required by Statement of Financial Accounting Standards
(Statement) No. 142, "Goodwill and Other Intangible Assets," which was adopted
by the Company as of January 1, 2002. Our audit procedures with respect to the
disclosures in Note 1 with respect to 2001 and 2000 included (a) agreeing the
previously reported net income to the previously issued financial statements
and the adjustments to reported net income representing amortization expense
(including any related tax effects) recognized in those periods related to
goodwill, intangible assets that are no longer being amortized, deferred
credits related to an excess over cost, equity method goodwill, and changes in
amortization periods for intangible assets that will continue to be amortized
as a result of initially applying Statement No. 142 (including any related tax
effects) to the Company's underlying records obtained from management, and (b)
testing the mathematical accuracy of the reconciliation of adjusted net income
to reported net income, and the related earnings-per-share amounts. In our
opinion, the disclosures for 2001 and 2000 in Note 1 are appropriate. However,
we were not engaged to audit, review, or apply any procedures to the 2001 and
2000 financial statements of the Company other than with respect to such
disclosures and, accordingly, we do not express an opinion or any other form
of assurance on the 2001 or 2000 financial statements taken as a whole.


Zurich, January 17, 2003

Ernst & Young Ltd


/s/ Eric Ohlund                 /s/ Martin Mattes

Eric Ohlund                     Martin Mattes
Certified Public Accountant     Swiss Certified Accountant
(in charge of the audit)



                                       F-2


<PAGE>


INDEPENDENT AUDITORS' REPORT(1)
TO THE SHAREHOLDERS OF CIBA SPECIALTY CHEMICALS HOLDING INC.

We have audited the accompanying consolidated balance sheets of Ciba Specialty
Chemicals Holding Inc. (a Swiss corporation) and subsidiaries (the Company) as
of December 31, 2001 and 2000, and the related consolidated statements of
income, cash flows and shareholders' equity for each of the three years in the
period ended December 31, 2001, appearing on pages F-3 to F-34 of this Annual
Report. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.

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

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Ciba
Specialty Chemicals Holding Inc. and subsidiaries as of December 31, 2001 and
2000, and the results of their operations and their cash flows for each of the
three years in the period ended December 31, 2001, in conformity with
accounting principles generally accepted in the United States.



ARTHUR ANDERSEN AG


/s/ Eric Ohlund                 /s/ Patrick Fawer

Eric G. Ohlund                   Patrick Fawer

Basel, Switzerland, January 18, 2002



(1) The report is a copy of the previously issued report. The predecessor
    auditor has not reissued the report.


                                       F-3


<PAGE>


CONSOLIDATED STATEMENTS OF INCOME
(in millions of Swiss francs, except share and per share data)
<TABLE>
<CAPTION>

Year ended December 31,                                         Notes          2002       2001(1)       2000(1)
----------------------------------------------------------------------------------------------------------------
<S>                                                             <C>      <C>           <C>           <C>
Net sales                                                                     7 085         7 367         7 902
Cost of goods sold                                                            4 729         4 988         5 333
----------------------------------------------------------------------------------------------------------------
GROSS PROFIT                                                                  2 356         2 379         2 569
Selling, general and administrative                                           1 247         1 258         1 417
Research and development                                                        294           276           293
Amortization of goodwill                                          1               0            61            64
Amortization of other intangible assets                          1,8             33            31            30
Income from earnings of equity affiliates                         9             (6)           (8)         (113)
Restructuring and special charges                                 12              0             0             2
----------------------------------------------------------------------------------------------------------------
OPERATING INCOME                                                                788           761           876
Interest expense                                                              (159)         (203)         (265)
Interest income                                                                  49            69            56
Other financial expense, net                                                  (105)          (59)          (14)
----------------------------------------------------------------------------------------------------------------
INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES AND
MINORITY INTEREST                                                               573           568           653
Provision for income taxes                                        15            154           178           228
----------------------------------------------------------------------------------------------------------------
INCOME FROM CONTINUING OPERATIONS BEFORE MINORITY INTEREST                      419           390           425
Minority interest                                                                13            10             7
----------------------------------------------------------------------------------------------------------------
INCOME FROM CONTINUING OPERATIONS                                               406           380           418
----------------------------------------------------------------------------------------------------------------
Gain on sale of discontinued operations, net of tax               3               0             0            34
Cumulative effects of change in accounting principles, net of     1               0             2             0
tax
----------------------------------------------------------------------------------------------------------------
NET INCOME                                                                      406           382           452
----------------------------------------------------------------------------------------------------------------

PER SHARE DATA                                                    20
BASIC AND DILUTED EARNINGS PER SHARE
Continuing operations                                                          5.92          5.72          6.31
Discontinued operations                                                        0.00          0.00          0.50
Cumulative effects of change in accounting principles                          0.00          0.04          0.00
----------------------------------------------------------------------------------------------------------------
NET INCOME PER SHARE                                                           5.92          5.76          6.81
----------------------------------------------------------------------------------------------------------------
WEIGHTED AVERAGE SHARES OUTSTANDING
Basic                                                                    68 549 964    66 419 147    66 311 879
Diluted                                                                  68 575 058    66 419 147    66 311 879
----------------------------------------------------------------------------------------------------------------
</TABLE>

(1) Effective January 1, 2002, the Company adopted Financial Accounting
    Standards Board (FASB) Statement of Financial Accounting Standard (SFAS)
    No. 142 "Goodwill and Other Intangible Assets". In 2001 and 2000, on an
    adjusted basis, excluding goodwill amortization, operating income would
    have been CHF 822 million (2000: CHF 940 million), income from continuing
    operations before income taxes and minority interest CHF 629 million
    (2000: CHF 717 million), income from continuing operations before minority
    interest CHF 451 million (2000: CHF 489 million), income from continuing
    operations CHF 441 million (2000: CHF 482 million), net income CHF 443
    million (2000: CHF 520 million) and basic and diluted earnings per share
    CHF 6.68 (2000: CHF 7.83).

See Notes to Consolidated Financial Statements


                                       F-4

<PAGE>


CONSOLIDATED BALANCE SHEETS
(in millions of Swiss francs, except share and per share data)
<TABLE>
<CAPTION>

December 31,                                                               Notes              2002         2001
----------------------------------------------------------------------------------------------------------------
<S>                                                                        <C>              <C>          <C>
ASSETS
----------------------------------------------------------------------------------------------------------------
CURRENT ASSETS
Cash and cash equivalents                                                                    2 361        1 602
Short-term investments                                                                          16           41
Accounts receivable, net                                                     4               1 014        1 066
Inventories                                                                  5               1 446        1 526
Prepaid and other current assets                                                               477          592
----------------------------------------------------------------------------------------------------------------
TOTAL CURRENT ASSETS                                                                         5 314        4 827
----------------------------------------------------------------------------------------------------------------
Property, plant and equipment, net                                           6               3 196        3 565
Goodwill                                                                    1,7              1 382        1 417
Other intangible assets, net                                                1,8                694          730
Financial investments                                                        9                 172          193
Other assets                                                                10               1 034          986
----------------------------------------------------------------------------------------------------------------
TOTAL ASSETS                                                                                11 792       11 718
----------------------------------------------------------------------------------------------------------------

LIABILITIES AND SHAREHOLDERS' EQUITY
----------------------------------------------------------------------------------------------------------------
CURRENT LIABILITIES
Accounts payable                                                                               549          490
Short-term debt                                                             13               1 496          316
Income taxes payable                                                                           108           81
Accruals and other current liabilities                                      11                 942        1 090
----------------------------------------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES                                                                    3 095        1 977
----------------------------------------------------------------------------------------------------------------
Long-term debt                                                              14               2 344        3 678
Deferred income taxes                                                       15                 386          379
Other liabilities                                                           16               1 537        1 688
----------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES                                                                            7 362        7 722
----------------------------------------------------------------------------------------------------------------
MINORITY INTEREST                                                                               76           88
----------------------------------------------------------------------------------------------------------------
SHAREHOLDERS' EQUITY                                                        17
Common stock(1)                                                                                649          721
Additional paid-in capital                                                                   4 186        3 957
Retained earnings                                                                              198         (74)
Accumulated other comprehensive income                                                       (360)        (240)
Treasury stock, at cost(2)                                                                   (319)        (456)
----------------------------------------------------------------------------------------------------------------
TOTAL SHAREHOLDERS' EQUITY                                                                   4 354        3 908
----------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY                                                  11 792       11 718
----------------------------------------------------------------------------------------------------------------
</TABLE>

(1)  Par value CHF 9 per share (December 31, 2001: CHF 10 per share),
     82 130 117 shares authorized and 72 130 117 shares issued in 2002 and 2001.

(2)  December 31, 2002: 3 192 087 treasury shares; December 31, 2001:
     5 987 947 treasury shares.

See Notes to Consolidated Financial Statements



                                       F-5



<PAGE>


CONSOLIDATED STATEMENTS OF CASH FLOWS
(in millions of Swiss francs, except share and per share data)
<TABLE>
<CAPTION>

Year ended December 31,                                                           2002        2001         2000
----------------------------------------------------------------------------------------------------------------
<S>                                                                              <C>         <C>         <C>

CASH FLOWS FROM OPERATING ACTIVITIES
NET INCOME                                                                         406         382          452
Deduct net income from discontinued operations, net of tax                           0           0           34
----------------------------------------------------------------------------------------------------------------
INCOME FROM CONTINUING OPERATIONS                                                  406         382          418

Adjustments to reconcile income from continuing operations to net cash
provided by operating activities:
   Depreciation and amortization                                                   385         469          470
   Deferred income taxes                                                            50          87          179
   Unremitted earnings of equity affiliates                                          0           0          (88)
   Restructuring and special charges                                                 0           0            2
   Restructuring payments                                                          (12)        (46)         (35)
   Loss (Gain) on sale/disposal of assets, net                                       2          (5)         (15)
   Realized loss on available-for-sale securities                                   38           0            0
   Minority interest and other non-cash items, net                                 144          71           38
Changes in operating assets and liabilities:
   Short-term investments                                                           25          27          (10)
   Accounts receivable, net                                                          4          53           37
   Inventories                                                                     (33)        117          (45)
   Accounts payable                                                                 90         (33)          (8)
   Other operating assets and liabilities                                          (61)        (68)          87
----------------------------------------------------------------------------------------------------------------
Net cash provided by continuing operations                                       1 038       1 054        1 030
Net cash provided by discontinued operations                                         0           0            1
----------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES                                        1 038       1 054        1 031
----------------------------------------------------------------------------------------------------------------

CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures                                                              (250)       (259)        (249)
Proceeds from sale of assets                                                        22          34           39
Sale (Acquisition) of businesses, net of cash                                     (116)       (144)       1 566
Loans and other long-term assets                                                    (5)         35          (81)
Discontinued operations                                                              0           0           (4)
----------------------------------------------------------------------------------------------------------------
NET CASH (USED IN) PROVIDED BY INVESTING ACTIVITIES                               (349)       (334)       1 271
----------------------------------------------------------------------------------------------------------------

CASH FLOWS FROM FINANCING ACTIVITIES
Increase (Decrease) in short-term debt, net                                         22         (48)        (844)
Proceeds from long-term debt                                                         1           6            4
Repayments of long-term debt                                                       (19)       (110)        (499)
Dividends paid                                                                    (134)       (132)        (133)
Capital reduction paid                                                             (69)          0            0
Treasury stock transactions                                                        344           9          (40)
Other                                                                               (1)          0            4
----------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES                                144        (275)      (1 508)
----------------------------------------------------------------------------------------------------------------
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS                       (74)        (22)         (28)
----------------------------------------------------------------------------------------------------------------
NET INCREASE IN CASH AND CASH EQUIVALENTS                                          759         423          766
----------------------------------------------------------------------------------------------------------------
Cash and cash equivalents, beginning of year                                     1 602       1 179          413
Cash and cash equivalents, end of year                                           2 361       1 602        1 179
----------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for interest                                                            (177)       (204)        (260)
Cash paid for income taxes                                                         (90)        (49)         (72)
----------------------------------------------------------------------------------------------------------------
</TABLE>

See Notes to Consolidated Financial Statements


                                       F-6


<PAGE>


CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(in millions of Swiss francs, except share and per share data)
<TABLE>
<CAPTION>

                                                                            ACCUMULATED    TREASURY   TREASURY
                                                    ADDITIONAL            OTHER COMPRE-      STOCK:     STOCK:
                                            COMMON     PAID-IN  RETAINED        HENSIVE  UNRESERVED   RESERVED
                                   Notes     STOCK     CAPITAL  EARNINGS         INCOME      SHARES     SHARES  TOTAL
---------------------------------------------------------------------------------------------------------------------
<S>                                <C>      <C>     <C>         <C>       <C>            <C>          <C>       <C>
BALANCE AT DECEMBER 31, 1999                   721       3 941      (642)            60         (46)      (396) 3 638
---------------------------------------------------------------------------------------------------------------------
Net income                                                           452                                          452
Currency translation adjustments                                                   (177)                         (177)
Realization of previously
  unrealized loss on
  available-for-sale securities,                                                      1                             1
  net of tax
---------------------------------------------------------------------------------------------------------------------
Comprehensive income                                                 452           (176)                          276
Cash dividends declared and paid(1)                                 (133)                                        (133)
Treasury stock transactions          17                                                         (26)       (14)   (40)
Other                                                       14        (1)                                          13
---------------------------------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 2000                   721       3 955      (324)          (116)        (72)      (410) 3 754
---------------------------------------------------------------------------------------------------------------------
Net income                                                           382                                          382
Currency translation adjustments                                                    (83)                          (83)
Unrealized loss on
  available-for-sale securities,                                                    (23)                          (23)
  net of tax of CHF 14
Minimum pension liability
  adjustment, net of tax of CHF 12   19                                             (19)                          (19)
---------------------------------------------------------------------------------------------------------------------
Comprehensive income                                                 382           (125)                          257
Cash dividends declared and paid(1)                                 (132)                                        (132)
Treasury stock transactions          17                     (4)                                   6         19     21
Other                                                        6                        1           1                 8
---------------------------------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 2001                   721       3 957       (74)          (240)        (65)      (391) 3 908
---------------------------------------------------------------------------------------------------------------------
Net income                                                           406                                          406
Currency translation adjustments                                                    (86)                          (86)
Realization of previously
  unrealized loss on
  available-for-sale securities,
  net of tax of CHF 16                9                                              28                            28
Unrealized loss on
  available-for-sale securities,                                                     (5)                           (5)
  net of tax of CHF 2
Unrealized gain on cash flow
  hedges, net of tax of CHF 0.7                                                       1                             1
Minimum pension liability
  adjustment, net of tax of CHF 37   19                                             (58)                          (58)
Other                                                                                 0                             0
---------------------------------------------------------------------------------------------------------------------
Comprehensive income                                                 406           (120)                          286
Cash dividends declared and paid(1)                                 (134)                                        (134)
Capital reduction paid(2)                     (72)           3                                                    (69)
Treasury stock transactions          17                    216                                  (13)       150    353
Other                                                       10                                                     10
---------------------------------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 2002                   649       4 186       198           (360)        (78)      (241) 4 354
---------------------------------------------------------------------------------------------------------------------
</TABLE>
(1)  Cash dividends declared and paid were CHF 2.00 per share in 2002, 2001
     and 2000.
(2)  Capital reduction paid was CHF 1.00 per share in 2002.

See Notes to Consolidated Financial Statements



                                       F-7


<PAGE>

BUSINESS SEGMENT DATA
(in millions of Swiss francs, except share and per share data)

<TABLE>
<CAPTION>
                                                                               2002          2001          2000
----------------------------------------------------------------------------------------------------------------
<S>                                                                           <C>           <C>           <C>
NET SALES
Plastic Additives                                                             1 813         1 834         1 959
Coating Effects                                                               1 920         1 944         2 118
Water & Paper Treatment                                                       1 409         1 486         1 558
Textile Effects                                                               1 544         1 673         1 841
Home & Personal Care                                                            399           430           426
----------------------------------------------------------------------------------------------------------------
TOTAL NET SALES                                                               7 085         7 367         7 902
----------------------------------------------------------------------------------------------------------------
OPERATING INCOME (EBIT)
Plastic Additives                                                               245           275           319
Coating Effects                                                                 341           312           371
Water & Paper Treatment                                                          98            65            92
Textile Effects                                                                 142           181           204
Home & Personal Care                                                             56            67            58
Corporate and other expenses                                                    (94)          (78)         (102)
Restructuring and special charges                                                 0             0            (2)
----------------------------------------------------------------------------------------------------------------
TOTAL OPERATING INCOME BEFORE AMORTIZATION OF GOODWILL                          788           822           940
----------------------------------------------------------------------------------------------------------------
Amortization of goodwill                                                          0           (61)          (64)
----------------------------------------------------------------------------------------------------------------
TOTAL OPERATING INCOME                                                          788           761           876
----------------------------------------------------------------------------------------------------------------

DEPRECIATION AND AMORTIZATION
Plastic Additives                                                               101           113           104
Coating Effects                                                                  99            99           104
Water & Paper Treatment                                                          88            92            95
Textile Effects                                                                  66            67            71
Home & Personal Care                                                             26            28            22
Corporate                                                                         5             9            10
----------------------------------------------------------------------------------------------------------------
TOTAL DEPRECIATION AND AMORTIZATION OF OTHER INTANGIBLE ASSETS                  385           408           406
----------------------------------------------------------------------------------------------------------------
Amortization of goodwill                                                          0            61            64
----------------------------------------------------------------------------------------------------------------
TOTAL DEPRECIATION AND AMORTIZATION                                             385           469           470
----------------------------------------------------------------------------------------------------------------

EBITDA(1)
Plastic Additives                                                               346           388           423
Coating Effects                                                                 440           411           475
Water & Paper Treatment                                                         186           157           187
Textile Effects                                                                 208           248           275
Home & Personal Care                                                             82            95            80
Corporate                                                                       (89)          (69)          (92)
----------------------------------------------------------------------------------------------------------------
TOTAL EBITDA, BEFORE RESTRUCTURING AND SPECIAL CHARGES                        1 173         1 230         1 348
----------------------------------------------------------------------------------------------------------------

EBITDA MARGIN(2)
Plastic Additives                                                              19.1%         21.1%         21.6%
Coating Effects                                                                22.9%         21.1%         22.4%
Water & Paper Treatment                                                        13.2%         10.6%         12.0%
Textile Effects                                                                13.5%         14.8%         14.9%
Home & Personal Care                                                           20.6%         22.2%         18.8%
Corporate                                                                         -             -             -
-------------------------------------------------------------------------------------------------------------------
TOTAL EBITDA MARGIN, BEFORE RESTRUCTURING AND SPECIAL CHARGES                  16.6%         16.7%         17.1%
-------------------------------------------------------------------------------------------------------------------

EBIT MARGIN
Plastic Additives                                                              13.5%         15.0%         16.3%
Coating Effects                                                                17.7%         16.1%         17.5%
Water & Paper Treatment                                                         7.0%          4.4%          5.9%
Textile Effects                                                                 9.2%         10.8%         11.1%
Home & Personal Care                                                           14.0%         15.7%         13.5%
Corporate                                                                         -             -             -
-------------------------------------------------------------------------------------------------------------------
TOTAL EBIT MARGIN                                                              11.1%         10.3%         11.1%
-------------------------------------------------------------------------------------------------------------------
</TABLE>


                                       F-8


<PAGE>

BUSINESS SEGMENT DATA
(in millions of Swiss francs, except share and per share data)


<TABLE>
<CAPTION>
                                                                               2002          2001          2000
----------------------------------------------------------------------------------------------------------------
<S>                                                                           <C>           <C>           <C>
RESEARCH AND DEVELOPMENT EXPENDITURES
Plastic Additives                                                                81            73            82
Coating Effects                                                                 100            96           102
Water & Paper Treatment                                                          29            34            36
Textile Effects                                                                  36            39            44
Home & Personal Care                                                             30            24            21
Corporate                                                                        18            10             8
----------------------------------------------------------------------------------------------------------------
TOTAL RESEARCH AND DEVELOPMENT EXPENDITURES                                     294           276           293
----------------------------------------------------------------------------------------------------------------

CAPITAL EXPENDITURES
Plastic Additives                                                                86            80            67
Coating Effects                                                                  74            66            65
Water & Paper Treatment                                                          35            52            52
Textile Effects                                                                  34            32            37
Home & Personal Care                                                             18            25            23
Corporate                                                                         3             4             5
----------------------------------------------------------------------------------------------------------------
TOTAL CAPITAL EXPENDITURES                                                      250           259           249
----------------------------------------------------------------------------------------------------------------

                                                                                             2002          2001
----------------------------------------------------------------------------------------------------------------
NET ASSETS
Plastic Additives                                                                           1 236         1 403
Coating Effects                                                                             1 834         2 001
Water & Paper Treatment                                                                     2 429         2 596
Textile Effects                                                                             1 291         1 490
Home & Personal Care                                                                          294           340
Shared operating net assets not allocated to segments(3)                                       (8)         (170)
Non-operating net assets(4)                                                                 2 875         2 154
----------------------------------------------------------------------------------------------------------------
INVESTED CAPITAL(5)                                                                         9 951         9 814
----------------------------------------------------------------------------------------------------------------
Other assets and liabilities not included in invested capital                              (5 597)       (5 906)
----------------------------------------------------------------------------------------------------------------
TOTAL NET ASSETS                                                                            4 354         3 908
----------------------------------------------------------------------------------------------------------------

TOTAL ASSETS
Plastic Additives                                                                           1 493         1 623
Coating Effects                                                                             2 107         2 249
Water & Paper Treatment                                                                     2 606         2 790
Textile Effects                                                                             1 495         1 676
Home & Personal Care                                                                          356           401
Shared operating assets not allocated to segments(3)                                          426           385
Non-operating assets(4)                                                                     3 309         2 594
----------------------------------------------------------------------------------------------------------------
TOTAL ASSETS                                                                               11 792        11 718
----------------------------------------------------------------------------------------------------------------
</TABLE>

(1)     EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization)
        is calculated as operating income plus depreciation and amortization.
(2)     EBITDA Margin is EBITDA expressed as a percentage of net sales (EBITDA
        divided by net sales).
(3)     Shared net operating assets not allocated to segments and shared
        operating assets not allocated to segments include certain net assets
        and shared assets of Group Service Units and Headquarters. Group
        Service Units provide services to the segments.
(4)     Non-operating net assets and non-operating assets include primarily
        cash and cash equivalents and certain financial investments. Also
        included in non-operating net assets are certain Group Service Units'
        current liabilities.
(5)     Invested capital is the sum of total assets less non-interest bearing
        current liabilities (i.e., accounts payable, income taxes payable as
        well as accruals and other current liabilities, except the current
        portion of deferred tax liabilities) and less deferred tax assets.

See Notes to Consolidated Financial Statements


                                       F-9


<PAGE>

BUSINESS SEGMENT DATA
(in millions of Swiss francs, except share and per share data)


     The segment data includes certain non-United States Generally Accepted
Accounting Principles ("U.S. GAAP") financial indicators which form part of the
Company's value based management reporting system and are used by management to
analyze the results of operations and the financial condition of the Company.
Such non-U.S. GAAP financial indicators include EBITDA (Earnings Before
Interest, Taxes, Depreciation and Amortization), EBITDA margin and invested
capital. The Company derives EBITDA, EBITDA margin and invested capital from
financial measures prepared in accordance with U.S. GAAP. The way these
financial indicators are derived is described in the glossary of financial terms
at the end of this Financial Review. The way these financial indicators are
derived is described in footnote (1) through (5) at the end of the Business
Segment Data.

     Management is of the opinion that these financial indicators are an
important measure of comparative operating performance for the businesses of the
Company and, in the case of EBITDA, when used in comparison to debt levels or
the coverage of interest expense, as a measure of financial stability. However,
these supplementary financial indicators should be considered in addition to,
not as a substitute for, operating income, net income, cash flow, total assets,
EBIT margin and other measures of financial performance and liquidity reported
in accordance with U.S. GAAP.

     In the first half of 2001, the Company implemented a new organizational
structure which created five segments focused on specific customer markets. The
five reporting segments are Plastic Additives, Coating Effects, Water & Paper
Treatment, Textile Effects and Home & Personal Care. The Company's reportable
segments develop, manufacture and market different products, services and
solutions. They are managed separately because each segment has different
customer markets and requires different technology and marketing strategies. On
May 31, 2000, the Company completed the sale of its Performance Polymers
business and therefore excluded it from the segment data in 2000 (see Note 3).

     The accounting policies of the segments are the same as those described in
Note 1 to the Consolidated Financial Statements. The Company evaluates the
performance of its reportable segments based on operating income before
restructuring and special charges, headquarters costs, corporate related items,
and certain other net expenses not allocated to reportable segments.
Intersegment sales are eliminated on consolidation and, as a result, reportable
net sales of the segments reflect only sales to third parties.

     In 2002, the Company implemented Statement of Financial Accounting Standard
(SFAS) No. 142 "Goodwill and Other Intangible Assets" (see Notes 1 and 7). As a
result of adopting this standard, the Company reclassified certain goodwill and
intangible assets to the segments that were previously reported as corporate
items and not allocated to the segments. In addition, the Company reclassified
the 2001 and 2000 goodwill amortization that was previously allocated to the
segments to corporate and reclassified intangible amortization from corporate to
the segments corresponding to the intangible asset reclassification. The amounts
reported for 2001 and 2000 have been reclassified to conform to the 2002
presentation.

     In 2001, as part of the new organizational structure, certain net costs
that were previously reported as corporate related items have been attributed to
the segments. Amounts reported for 2000 have been reclassified to conform to the
2001 presentation.

     The segment Plastic Additives develops, manufactures and markets products
and provides services to the plastic and lubricant industries. The Segment's
products are additives, which are ingredients added in small quantities to
polymers and lubricants that prevent aging and corrosion and help improve
appearance, durability and performance of finished goods such as polyolefins and
engineering plastics as well as high-performance motor oils and lubricants. The
service business adds value to customers by providing solutions in product
applications.

     The segment Coating Effects is a leading global manufacturer of organic
pigments and the leading supplier of photoinitiators and lightstabilizers to the
coatings, graphic arts and electronic industries. The Segment develops,
manufactures and markets additives, pigments, as well as additive and pigment
concentrates, for the coatings, printing, imaging, electronic, plastics and
fibers industries. The end-user markets for its products and services are, among
others, the automotive, packaging, publication, electronics, construction,
photographic and digital printing industries.

     The segment Water & Paper Treatment serves the paper and water treatment
industries. The Segment offers products and services to the global paper and
board industry focused on increasing mill productivity as well as `effect
chemicals' which provides solutions for its customers in order to determine
appearance, handling and performance of the paper or board. The Segment also
offers products and services used to treat the water streams in industrial and
municipal applications and to improve the efficiency of mineral and oil
processing as well as soil additives and specialty monomers

     The segment Textile Effects serves the textile industry, offering dyes and
chemicals, services and integrated solutions to customers along the whole
textile value chain. The Segment's products include dyes and chemicals for
dyeing and printing of almost all textile fibers, optical brighteners and
textile finishing products for protection and easy-care. Services offered by the
Segment include color matching via the Internet and technical consultancy
regarding textile color and effects management for international brand houses
and retailers.

     The segment Home & Personal Care is one of the leading global manufacturers
of whiteners and a leading supplier of antimicrobials to the personal care
market. It develops, manufactures and markets products for home and personal
care end-user industries. Among its broad product offerings are whiteners for
detergents, hygiene effects for a variety of home and personal care products, UV
absorbers for sunscreens and innovative hair dyes.

See Notes to Consolidated Financial Statements

                                      F-10
<PAGE>

GEOGRAPHIC DATA
(in millions of Swiss francs, except share and per share data)

<TABLE>
<CAPTION>
NET SALES TO CUSTOMERS                                                         2002          2001          2000
----------------------------------------------------------------------------------------------------------------
<S>                                                                           <C>           <C>           <C>
EUROPE
Germany                                                                         567           572           618
United Kingdom                                                                  334           373           394
Italy                                                                           343           351           366
France                                                                          298           311           325
Rest of European Union                                                          841           846           899
Switzerland                                                                      86            75            84
Rest of Europe                                                                  252           227           227
----------------------------------------------------------------------------------------------------------------
TOTAL EUROPE                                                                  2 721         2 755         2 913
----------------------------------------------------------------------------------------------------------------

AMERICAS
United States of America                                                      1 703         1 819         2 025
Canada                                                                          223           243           276
Central America                                                                 209           227           247
South America                                                                   324           365           388
----------------------------------------------------------------------------------------------------------------
TOTAL AMERICAS                                                                2 459         2 654         2 936
----------------------------------------------------------------------------------------------------------------

ASIA-PACIFIC
Japan                                                                           384           431           528
Region China                                                                    439           424           413
Rest of Asia                                                                    677           686           689
Australia and New Zealand                                                       155           154           158
Africa and Middle East                                                          250           263           265
----------------------------------------------------------------------------------------------------------------
TOTAL ASIA-PACIFIC                                                            1 905         1 958         2 053
----------------------------------------------------------------------------------------------------------------
TOTAL NET SALES TO CUSTOMERS                                                  7 085         7 367         7 902
----------------------------------------------------------------------------------------------------------------

Net sales to customers are based on the final destination of the sale.

LONG-LIVED ASSETS                                                                            2002          2001
----------------------------------------------------------------------------------------------------------------
EUROPE
Germany                                                                                       361           380
United Kingdom                                                                                561           627
Italy                                                                                         165           166
France                                                                                        128           128
Rest of European Union                                                                         82            81
Switzerland                                                                                   614           629
Rest of Europe                                                                                  2             1
----------------------------------------------------------------------------------------------------------------
TOTAL EUROPE                                                                                1 913         2 012
----------------------------------------------------------------------------------------------------------------
AMERICAS
United States of America                                                                      869         1 076
Canada                                                                                          3             7
Central America                                                                               123           123
South America                                                                                  17            30
----------------------------------------------------------------------------------------------------------------
TOTAL AMERICAS                                                                              1 012         1 236
----------------------------------------------------------------------------------------------------------------
ASIA-PACIFIC
Japan                                                                                          42            47
Region China                                                                                  157           195
Rest of Asia                                                                                   46            48
Australia and New Zealand                                                                      18            18
Africa and Middle East                                                                          8             9
----------------------------------------------------------------------------------------------------------------
TOTAL ASIA-PACIFIC                                                                            271           317
----------------------------------------------------------------------------------------------------------------
TOTAL LONG-LIVED ASSETS                                                                     3 196         3 565
----------------------------------------------------------------------------------------------------------------
</TABLE>

Long-lived assets represent property, plant and equipment, net and are shown
by the location of the assets.

See Notes to Consolidated Financial Statements


                                      F-11


<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in millions of Swiss francs, except share and per share data)

1.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
------------------------------------------------------------------------------

COMPANY OPERATIONS

     Ciba Specialty Chemicals Holding Inc. and its wholly owned and
majority-owned subsidiaries (the "Company") is a global leader in the discovery
and manufacture of innovative specialty chemicals that provide color,
performance and care for plastics, coatings, textile, paper, home and personal
care and other products. The Company's products and services are also used to
provide clean water and to treat the water streams in industrial and municipal
applications.

BASIS OF CONSOLIDATION AND PRESENTATION

     The accompanying consolidated financial statements of the Company have been
prepared in accordance with United States Generally Accepted Accounting
Principles ("U.S. GAAP"). The assets, liabilities and results of operations of
entities in which the Company has a controlling interest have been consolidated.
Investments in which the Company exercises significant influence, but which it
does not control (generally 20-50 percent ownership interest) are accounted for
under the equity method of accounting. Investments in which the Company has less
than a 20 percent ownership interest are accounted for under the cost method of
accounting. All significant intercompany accounts and transactions have been
eliminated in consolidation.

USE OF ESTIMATES

     The preparation of financial statements in conformity with U.S. GAAP
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Although these estimates are
based on management's best knowledge of current events and actions the Company
may undertake in the future, actual results ultimately may differ from those
estimates.

FOREIGN CURRENCY TRANSLATION

     The Company's financial statements are prepared in Swiss francs (CHF
million). For most operations outside Switzerland, where the functional currency
is the local currency, income, expense and cash flows are translated at average
exchange rates during the period, and assets and liabilities are translated at
period-end exchange rates. The translation adjustments are included as a
component of accumulated other comprehensive income in shareholders' equity. The
financial statements of subsidiaries that operate in economic environments that
are highly inflationary maintain financial information for reporting purposes in
U.S. dollars or Swiss francs and include gains and losses from translation in
income.

CASH EQUIVALENTS

     All highly liquid investments with original maturities of three months or
less are considered to be cash equivalents.

SHORT-TERM INVESTMENTS

     Short-term investments consist of securities that are traded in highly
liquid markets. Since they are held for the purpose of investing liquid funds
and are readily convertible to cash, they are classified as trading securities
and are carried at fair value. Gains and losses are recorded as a component of
financial income/expense in the Consolidated Statements of Income.

ACCOUNTS RECEIVABLE

     Accounts receivable are recorded at their net realizable value after
deducting an allowance for doubtful accounts. Such deductions reflect either
specific cases or estimates based on historical evidence of collectibility. This
also includes an allowance for country specific transfer risks.

INVENTORIES

     The Company values its inventories at the lower of cost, determined
principally on a first-in, first-out (FIFO) method, or market. Costs include all
costs of production, including applicable portions of plant overhead. Allowances
are made for obsolete and slow-moving inventory.

PROPERTY, PLANT AND EQUIPMENT

     Property, plant and equipment are recorded at cost less accumulated
depreciation. Depreciation is provided on a straight-line basis over the
estimated useful lives of the assets ranging from approximately 20 to 50 years
for buildings, 10 to 20 years for machinery and equipment, and 3 to 10 years for
office furniture and fixtures and other equipment. The Company assesses its
long-lived assets for impairment whenever events or changes in circumstances
indicate that the carrying amounts may not be recoverable. If the sum of the
expected future undiscounted cash flows is less than the carrying amount of the
asset, a loss is recognized for the difference between the fair value and
carrying value of the asset.

Property, plant and equipment acquired through finance lease arrangements are
recorded as assets at their fair value at the date of acquisition and
depreciated over the shorter of the useful life of the asset or the lease term.
The corresponding obligation is recorded as a liability in the Consolidated
Balance Sheets.

GOODWILL AND OTHER INTANGIBLE ASSETS

Goodwill

     Change in accounting policy - In July 2001, the Financial Accounting
Standards Board (FASB) issued Statement of Financial Accounting Standard (SFAS)
No. 142 "Goodwill and Other Intangible Assets". The Company fully adopted SFAS
No. 142 effective January 1, 2002. An initial impairment test of goodwill was
required to be performed as of January 1, 2002. The Company completed the
initial impairment test and determined that its reported goodwill was not
impaired.

     SFAS No. 142 requires that goodwill acquired in a business combination be
capitalized at acquisition cost and requires that goodwill no longer be
amortized to earnings. On an annual basis, the Company is required to evaluate
the book value of goodwill at the reporting unit level for

                                     F-12

<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in millions of Swiss francs, except share and per share data)


impairment using a two step impairment test. In the first step, the book value
of the reporting unit's assets, including goodwill and other intangibles, and
liabilities (the "net assets") is compared to the fair value of the reporting
unit. If the fair value of the reporting unit exceeds the book value of its net
assets, goodwill is deemed not impaired and the second step is not required to
be performed. If, however, the fair value of the reporting unit is less than the
book value of its net assets, the second step of the impairment test is required
to be performed to measure the amount of impairment loss, if any.

     In the second step, an allocation is made of the fair value of the assets
and liabilities of the reporting unit to all of its tangible assets, other
intangible assets (including unrecognized intangible assets but excluding
goodwill) and liabilities (the "assets and liabilities"). This fair value
allocation to the assets and liabilities is made as if the reporting unit had
been acquired in a business combination and the fair value of the reporting unit
was the price paid to acquire the reporting unit. The fair value assigned to the
reporting unit's assets and liabilities is compared to the total fair value of
the reporting unit with the excess, if any, considered to be the implied
goodwill value of the reporting unit. If the book value of the reporting unit's
goodwill exceeds this implied goodwill value, that excess is recorded as an
impairment loss as a component of operating income in the Consolidated Statement
of Income. If the book value of the reporting unit's goodwill is less than the
implied goodwill value, goodwill is deemed not to be impaired and no impairment
is required to be recorded.

     During 2002, the Company completed the annual impairment test of goodwill
and determined that its reported goodwill is not impaired.

     Goodwill that had been acquired on or before June 30, 2001 was amortized on
a straight-line basis over the estimated periods to be benefited, which ranged
from 5 to 33 years. Goodwill acquired after June 30, 2001, was not amortized. In
2001 and 2000, goodwill was assessed for impairment whenever events or changes
in circumstances indicated that the book value might not be recoverable. If the
sum of the expected future undiscounted cash flows was less than the book value
of the goodwill, a loss would have been recognized for the difference between
the fair value and the book value of the goodwill.

     The following is a reconciliation of previously reported financial
information to the adjusted basis amounts excluding goodwill amortization,
which is no longer required under SFAS No. 142:
<TABLE>
<CAPTION>
                                                        2002                          2001
                                                    -------------------------------------------------------------------
                                                           As          Adjusted          Goodwill                As
                                                     reported             basis      amortization          reported
-----------------------------------------------------------------------------------------------------------------------
<S>                                                  <C>               <C>           <C>                   <C>
Operating income                                          788               822                61               761
Income from continuing operations, before
  taxes and minority interest                             573               629                61               568
Income from continuing operations, before
  minority interest                                       419               451                61               390
Income from continuing operations                         406               441                61               380
-----------------------------------------------------------------------------------------------------------------------
NET INCOME                                                406               443                61               382
-----------------------------------------------------------------------------------------------------------------------
BASIC AND DILUTED EARNINGS PER SHARE
Continuing operations                                    5.92              6.64              0.92              5.72
-----------------------------------------------------------------------------------------------------------------------
NET INCOME PER SHARE                                     5.92              6.68              0.92              5.76
-----------------------------------------------------------------------------------------------------------------------
</TABLE>

<TABLE>
<CAPTION>
                                                                   2000
                                          --------------------------------------------------------
                                                    Adjusted           Goodwill                As
                                                       basis       amortization          reported
--------------------------------------------------------------------------------------------------
<S>                                                 <C>            <C>                   <C>
Operating income                                         940                 64               876
Income from continuing operations, before
  taxes and minority interest                            717                 64               653
Income from continuing operations, before
  minority interest                                      489                 64               425
Income from continuing operations                        482                 64               418
Gain on sale of discontinued operations,
  net of tax                                              38                  4                34
--------------------------------------------------------------------------------------------------
NET INCOME                                               520                 68               452
--------------------------------------------------------------------------------------------------
BASIC AND DILUTED EARNINGS PER SHARE
Continuing operations                                   7.27               0.96              6.31
Discontinued operations                                 0.56               0.06              0.50
--------------------------------------------------------------------------------------------------
NET INCOME PER SHARE                                    7.83               1.02              6.81
--------------------------------------------------------------------------------------------------
</TABLE>

Other intangible assets

     In accordance with SFAS No. 142, purchased identifiable intangible assets
are capitalized at acquisition cost. Other intangible assets with a finite life
are amortized on a straight-line basis over the estimated periods to be
benefited, which is the period that the intangible asset can contribute to the
cash flow of the Company as determined at the date of acquisition of the
intangible asset. Other intangible assets with indefinite lives are not
amortized. Other intangible assets are amortized on a straight-line basis over a
period ranging from 5 to 33 years, which are the estimated periods to be
benefited.

     The Company assesses other intangible assets for impairment whenever events
or changes in circumstances indicate that the carrying amounts may not be
recoverable. If the sum of the expected future undiscounted cash flows is less
than the book value of the other intangible asset, a loss is recognized for the
difference between the fair value and book value of the other intangible asset.

                                     F-13
<PAGE>


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in millions of Swiss francs, except share and per share data)


FINANCIAL INVESTMENTS

     Financial investments comprise primarily investments in equity affiliates
and investments in unconsolidated companies (less than 20 percent ownership).

     The investments in unconsolidated companies are accounted for as
available-for-sale securities and are recorded at fair value with unrealized
gains or losses, net of tax included as a component of shareholders' equity in
"accumulated other comprehensive income". The company uses the specific
identification method to determine the cost base of financial investments
related to sales or reclassifications from other comprehensive income to
earnings.

DERIVATIVE FINANCIAL INSTRUMENTS

      Change in accounting policy - Effective January 1, 2001, the Company
adopted SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities" as amended, which replaced existing pronouncements and practices
for derivatives and hedging activities with a single, integrated accounting
framework. This statement, as amended, expands the previous accounting
definition of derivatives to include embedded derivatives and many commodity
contracts. Upon adoption of this statement, as amended, the Company, in 2001,
recorded a net transition adjustment gain after taxes of CHF 2 million in net
income. The adoption did not have any effect on accumulated other
comprehensive income.

     For derivative financial instruments designated and that qualify as fair
value hedges, changes in the fair value of the derivative financial instrument
and the hedged item are recognized currently in earnings. The changes in fair
value of the hedged item are recorded as an adjustment to its carrying amount
on the balance sheet. If the derivative financial instrument in a subsequent
period is no longer designated or no longer qualifies as a fair value hedge,
then the changes in fair value of the hedged item are not recognized in income.
The previous changes in fair value that have been recorded as an adjustment to
the carrying amount of the hedged item are generally amortized to earnings as
the hedged item affects earnings.

     For derivative financial instruments designated and that qualify as cash
flow hedges, changes in the effective portion of the derivative financial
instrument's fair value are recorded in accumulated other comprehensive income
in the balance sheet until the hedged item is recognized in earnings. The
ineffective portion of the change in fair value of the derivative financial
instruments is immediately recognized in the income statement as a component of
financial income/expense. If the hedged item was a forecasted transaction that
is subsequently not expected to or will not occur, then the derivative
financial instrument would no longer qualify as a cash flow hedge. As a result,
fair value changes that were previously recorded in accumulated other
comprehensive income are immediately recognized in earnings as a component of
financial income/expense. In all other instances, when a derivative financial
instrument ceases to be designated or to qualify as a cash flow hedge, the
previously recorded changes in fair value remain in accumulated other
comprehensive income until the hedged item affects earnings.

     For derivative financial instruments that are not designated or that do
not qualify as accounting hedges, the changes in the fair value of the
derivative financial instruments are recognized currently in income as a
component of financial income/expense.

     Prior to January 1, 2001, gains and losses on derivative financial
instruments related to qualifying accounting hedges of existing assets or
liabilities, firm commitments or anticipated transactions were deferred and
were recognized in income or adjustments of carrying amounts when the hedged
transaction occurred. Gains and losses on derivative financial instruments that
did not qualify as accounting hedges were recognized currently in other
financial income/expense. For interest rate swaps, the differential to be paid
or received was accrued as interest rates changed and was recognized over the
life of the agreements in interest expense.

REVENUE RECOGNITION

     Revenue is recognized upon shipment of goods to customers. Provisions for
discounts and rebates to customers and returns and other adjustments are
provided for in the same period the related sales are recorded.

INCOME TAXES

     Provision for income taxes has been determined using the asset and
liability approach and consists of income taxes paid or payable plus the change
in deferred taxes for the current year. Deferred taxes represent the estimated
future tax consequences of temporary differences between the amounts of assets
and liabilities recognized for financial reporting purposes and such amounts
recognized for tax purposes. Valuation allowances are recorded to reduce
deferred tax assets when it is more likely than not that a tax benefit will not
be realized.

     Provision has been made for income taxes on the earnings of foreign
operations that are expected to be remitted to the parent company. No accruals
are made for unremitted earnings of operations that are intended to be
reinvested indefinitely or that can be remitted substantially free of tax. The
provision for income taxes also includes income taxes from earnings of equity
affiliates.

ENVIRONMENTAL COMPLIANCE AND EXPENDITURES

     The measurement of environmental liabilities is based on an evaluation of
currently available facts with respect to each individual site and considers
factors such as existing technology, presently enacted laws and regulations and
prior experience in remediation of contaminated sites. Environmental operations
and maintenance as well as remediation costs are accrued when environmental
assessments and the need for remediation are probable and the costs can be
reasonably estimated. The estimated liability is not discounted or reduced for
any potential insurance recoveries. Actual costs to be incurred at identified
sites in future periods may vary from the estimates given the inherent
uncertainties in evaluating environmental exposures.

EARNINGS PER SHARE

     Basic earnings per share is computed by dividing net income by the
weighted average number of common shares outstanding during the period.

                                     F-14

<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in millions of Swiss francs, except share and per share data)


Diluted earnings per share is similar to basic earnings per share except that
it reflects the potential dilution that could occur if dilutive securities,
such as stock options and convertible debt, were exercised or converted into
common shares or resulted in the issuance of common shares that then shared in
the earnings of the Company.

NEW ACCOUNTING STANDARDS

Business combinations

     In July 2001, the FASB issued SFAS No. 141 "Business Combinations". SFAS
No. 141 requires that all business combinations completed after June 30, 2001,
be accounted for under the purchase method of accounting. Use of the
pooling-of-interests method (also known as the "uniting of interest method") is
no longer permitted. The new standard requires the recording, as a separate
asset apart from goodwill, of all intangible assets that can be identified and
named if the intangible asset meets the criteria as defined in SFAS No. 141. In
addition, the disclosure requirements related to business combinations have been
expanded to include, for material business combinations, the disclosure of the
reason for the acquisition and the allocation of the purchase price paid to the
assets and liabilities assumed by major balance sheet caption. The adoption of
this standard did not have any effect on the Company's results of operations and
financial position in either 2002 or 2001.

Accounting for asset retirement obligations

     In June 2001, the FASB issued SFAS No. 143 "Accounting for Asset
Retirement Obligations" which addresses financial accounting and reporting for
obligations associated with the retirement of tangible long-lived assets and
the associated retirement costs. The Company is required to adopt this new
standard as of January 1, 2003, and does not expect the adoption to have a
material effect on its results of operations and financial position.

Accounting for the impairment or disposal of long-lived assets

     In August 2001, the FASB issued SFAS No. 144 "Accounting for the Impairment
or Disposal of Long-Lived to be disposed of by sale or otherwise, whether
previously held and used or newly acquired, and broadens the presentations of
discontinued operations to include disposal transactions below the reportable
segment level, if certain criteria are met. The Company as required adopted this
standard as of January 1, 2002. The adoption did not have an effect on the
Company's 2002 results of operations and financial position.

Rescission of FASB Statements No. 4, 44, and 64, amendment of SFAS No. 13, and
technical corrections

     In April 2002, the FASB issued SFAS No. 145 "Rescission of FASB Statements
No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical
Corrections." SFAS No. 145 rescinds SFAS No. 4, "Reporting Gains and Losses from
Extinguishment of Debt", SFAS No. 44, "Accounting for Intangible Assets of Motor
Carriers", and SFAS No. 64, "Extinguishments of Debt Made to Satisfy
Sinking-Fund Requirements".

     The rescission of SFAS No. 4 and SFAS No. 64 eliminates the requirement to
report material gains and losses from the extinguishment of debt as an
extraordinary item in the statement of income that are not unusual or infrequent
in nature. The rescission of SFAS No. 44 does not impact the Company. The
Company is required to adopt the provisions of these rescissions as of January
1, 2003 and does not expect the adoption to have a material effect on the
results of its operations and financial position.

     The amendment to SFAS No. 13 "Accounting for Leases" eliminated an
inconsistency between required accounting for sale-leaseback transactions and
the required accounting for certain lease modifications that have economic
effects that are similar to sale-leaseback transactions. The Company is required
to and has adopted these provisions for transactions occurring after May 15,
2002. There was no impact on the Company's results of operations and financial
position upon adoption.

     Certain other existing authoritative pronouncements have been amended to
make various technical corrections, clarify meanings, or describe their
applicability under changed conditions. The Company is required to adopt these
provisions as of January 1, 2003 and does not expect the adoption to have a
material effect on the results of its operations and financial position.

Accounting for costs associated with exit or disposal activities

     In June 2002, the FASB issued SFAS No. 146 "Accounting for Costs Associated
with Exit or Disposal Activities" which addresses the accounting for
restructuring and similar costs. This standard supersedes Emerging Issues Task
Force ("EITF") Issue No. 94-3, "Liability Recognition for Certain Employee
Termination Benefits and Other Costs to Exit an Activity (including Certain
Costs Incurred in a Restructuring)." This standard requires that a liability
associated with an exit activity that does not involve a newly acquired company
in a business combination, or a disposal activity covered by SFAS No. 144, be
recognized when the liability is incurred instead of recognizing the liability
at the date of a company's commitment to an exit plan, as was required under
EITF Issue No. 94-3. The statement establishes that the fair value of the
liability is the objective for initial measurement of the liability and requires
that the liability be updated for any changes in its fair value each reporting
period. With respect to one-time employee termination costs, SFAS No. 148
changed the accounting in situations where the employee to be terminated is
required to render service between the notification date of their termination
and the date the employee will be terminated in order to receive any termination
benefits. For these situations when the required post-notification service
period extends beyond the minimum retention period required by local law, the
fair value liability will be amortized over the service period. The Company is
required to adopt this new standard for any exit or disposal activities that are
initiated after December 31, 2002. The impact of the adoption of SFAS No. 146 on
the Company's future financial position or results of operations will depend
upon the timing of and facts underlying any future exit or disposal activities.

Accounting and disclosure for guarantees

     In November 2002, the FASB issued FASB Interpretation No. 45 ("FIN No.45")
"Guarantor's Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Others". FIN No. 45 requires a guarantor
to recognize, at the inception of a guarantee, a liability for the fair value of
the obligation undertaken by it in issuing the guarantee. It also expands the
disclosure requirements in the

                                     F-15
<PAGE>



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in millions of Swiss francs, except share and per share data)


financial statements of the guarantor with respect to its obligations under
certain guarantees that it has issued. The Company is required to adopt the
initial recognition and initial measurement accounting provisions of this
interpretation on a prospective basis to guarantees issued or modified after
December 31, 2002. The Company does not anticipate the adoption to have a
material effect on the Company's financial position or results of operations.
The disclosure requirements are required to and have been adopted by the
Company as of December 31, 2002 (see Note 22).

Stock based compensation

     Effective January 1, 2003, the Company will adopt the fair value method of
accounting for stock option plans as defined in SFAS No. 123 "Accounting for
Stock-Based Compensation." As a consequence, future employee stock option grants
and other stock based compensation plans will be recorded as expense over the
vesting period of the award based on their fair values at the date the stock
based compensation is granted. The FASB has issued, in December 2002, SFAS No.
148 "Accounting for Stock-Based Compensation - Transition and Disclosure, an
amendment to FASB Statement No. 123" that allows companies adopting the fair
value method permitted under SFAS No. 123 to choose from three alternative
transition methods. The Company has elected to adopt the modified prospective
method that recognizes stock based compensation expense from January 1, 2003 as
if the fair value based accounting method had been used to account for all
outstanding unvested employee awards granted, modified or settled in prior
years. The ultimate impact on the future years' results of operations and
financial position will depend upon the level of stock based compensation
granted in future years. Assuming no additional stock based compensation grants
are made in 2003 and no additional forfeitures of outstanding unvested grants,
the Company estimates the additional compensation expense associated with its
current outstanding awards will be CHF 5 million in 2003, CHF 3 million after
tax, and CHF 1 million in 2004, CHF 0.6 million after tax. SFAS No. 148 also
amends certain annual disclosure provisions of SFAS No. 123. The Company has
adopted these disclosure requirements in 2002, as permitted in accordance with
the statement. SFAS No. 148 also requires the disclosure in interim financial
statements the pro forma net income and earnings per share determined as if the
Company had used the fair value method of accounting for its stock based
compensation plans in accordance with the fair value method for all periods for
which it has not been applied. Previously this pro forma disclosure was only
required for annual financial statements. For the pro forma net income and
earnings per share of the Company for 2002, 2001 and 2000 determined as if the
Company had used the fair value method of accounting for its stock based
compensation plans, see Note 18.

     In 2002 and prior years, the Company has applied the disclosure-only
provisions of SFAS No. 123 in accounting for its stock based compensation plans
that permitted the application of the intrinsic value method, as defined in
Accounting Principles Board (APB) Opinion No. 25 "Accounting for Stock Issued to
Employees" and related interpretations. Under APB Opinion No. 25, the Company
recognized no compensation expense related to certain stock based compensation
plans, as certain stock options have been granted at a price equal to the market
price on the day of the grant and the discount offered under its employee share
ownership plan was at a discount rate permitted without requiring compensation
costs to be recorded.

RECLASSIFICATIONS

     In accordance with the provisions of SFAS No. 142 "Goodwill and Other
Intangible Assets", effective January 1, 2002, the Company was required to
present goodwill as a separate line item on the Consolidated Balance Sheet.
Previously the Company had presented goodwill and other intangible assets
together on a single line on the Consolidated Balance Sheet. In addition,
certain reclassifications were made to separately report amortization of
goodwill and amortization of other intangible assets in the Consolidated
Statements of Income. The amounts reported for 2001 and 2000 have been
reclassified to conform to the 2002 presentation.

     Beginning in 2002, minority interest is no longer reported as a component
of "financial expense, net" and is reported separately on the Consolidated
Statements of Income. On the Consolidated Balance Sheets, minority interest is
no longer classified with liabilities, but rather presented as a separate line
after total liabilities and before shareholders' equity. Reclassifications have
been made to the 2001 Consolidated Balance Sheet and the 2001 and 2000
Consolidated Statements of Income to conform to the 2002 presentations.

     Certain other reclassifications to the 2001 and 2000 financial statements
and related footnote amounts have been made to conform with the 2002
presentation.


2.  EXCHANGE RATES OF PRINCIPAL CURRENCIES
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------------
                                            STATEMENT OF INCOME AVERAGE RATES     BALANCE SHEET YEAR-END RATES
                                          ------------------------------------  -------------------------------
                                                2002        2001         2000              2002           2001
------------------------------------------------------------------------------  -------------------------------
<S>                                           <C>          <C>          <C>               <C>            <C>
     1 U.S. dollar            (USD)             1.56        1.68         1.69              1.43           1.63
     1 British pound          (GBP)             2.34        2.43         2.56              2.28           2.37
     1 Euro(1)                (EUR)             1.47        1.51         1.56              1.46           1.47
   100 German marks(1)        (DEM)                -           -        79.62                 -              -
   100 French francs(1)       (FRF)                -           -        23.74                 -              -
  1000 Italian lira(1)        (ITL)                -           -         0.80                 -              -
   100 Japanese yen           (JPY)             1.24        1.39         1.57              1.18           1.28
-------------------------------------------------------------------------------------------------------------------
</TABLE>

(1)  Effective January 1, 2001 the Company's subsidiaries in the twelve
     countries that adopted the euro, converted their transaction systems and
     their reporting currency to the euro.

                                      F-16

<PAGE>


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in millions of Swiss francs, except share and per share data)

3.  ACQUISITIONS AND DIVESTITURES
------------------------------------------------------------------------------

MINOR ACQUISITIONS AND DIVESTITURES

     In May 2002, the Company purchased Melapur B.V. ("Melapur") from DSM N.V.
for a total purchase price of approximately CHF 22 million (euro 15 million).
Melapur is a provider of halogen-free melamine-based flame retardants. If the
Melapur business reaches certain sales milestones over the next three years,
additional purchase consideration of up to CHF 5 million (euro 3.5 million) will
be paid to DSM N.V. The resulting other intangible assets are being amortized
over a weighted average of 12 years. The results of operations for Melapur have
been included in the Company's statement of income from the date of acquisition.
The business acquired will expand the range of flame retardants of the Plastic
Additives Segment.

     In June 2001, the Company completed the acquisition of EFKA Additives B.V.
("EFKA"), a manufacturer of additives for the coatings and inks industries, for
a total purchase price of approximately CHF 65 million. The acquisition was
accounted for under the purchase method of accounting with the resulting
intangibles being amortized over a weighted average of 11 years. The results of
operations for EFKA have been included in the Company's statement of income from
the date of acquisition. The business acquired will expand the service element
and the high added value products for the Coating Effects Segment.

     In March 2001, the Company sold its 50 percent interest in TFL Ledertechnik
GmbH & Co. KG for net proceeds of CHF 62 million. The net proceeds received
approximated the carrying value of the investment at the date of sale.

     In December 2000, the Company sold 14 525 000 shares of its investment in
its equity affiliate Hexcel Corporation, representing approximately 81 percent
of its 49.3 percent investment for CHF 277 million (USD 160 million), of which
CHF 62 million (USD 36 million) is payable with a 7 percent interest bearing
note, due December 31, 2004. The sale resulted in a pre-tax gain of
approximately CHF 71 million or CHF 50 million after tax. (See Notes 9 and 12).

     In November 2000, the Company concluded the acquisition of certain
paper-chemical product lines and technology from Cytec Industries for a total
purchase price of approximately CHF 40 million (USD 23 million). The resulting
intangibles are being amortized over 12 years. This acquisition complements and
expands the Water & Paper Treatment's product offerings to the paper industry,
one of its strategic industry segments.

     In March 2000, the Company completed the purchase of Prochimica s.r.l., the
Company's key photoinitiator supplier of its Coating Effects Segment. The
Company paid CHF 85 million and accounted for the acquisition under the purchase
method of accounting with the resulting goodwill being amortized over 10 years,
up to December 31, 2001, after then goodwill is no longer amortized (see
Note 1).

DIVESTMENT OF PERFORMANCE POLYMERS BUSINESS

     On May 31, 2000, the Company completed the sale of its Performance Polymers
business to Morgan Grenfell Private Equity, the then private equity arm of
Deutsche Bank AG. The total gross proceeds from the sale of the Performance
Polymers division to Morgan Grenfell Private Equity and Asian joint venture
partners amounted to approximately CHF 1.6 billion, which includes the net debt
assumed of approximately CHF 160 million.

     The Performance Polymers division produced epoxy resins and other high
performance thermosets that provide durability, extraordinary strength and
resistance to heat and corrosion. Performance Polymers supplied its products to
the coatings, aircraft, electrical and electronic industries, among others.

     The results of the Performance Polymers business, which represents
substantially all of the operations of the Performance Polymers division, have
been reported as discontinued operations in the Consolidated Financial
Statements and Notes in 2000. The results of the Performance Polymers include
revenues and expenses that are directly associated with the Performance Polymers
business, but do not include an allocation of the Company's interest expense or
unallocated corporate general and administrative expenses.

     Summarized financial information of the discontinued Performance Polymers
business is presented in the following table:

<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,                                                          2000(1)
-----------------------------------------------------------------------------------------
<S>                                                                             <C>
NET SALES                                                                         774
-----------------------------------------------------------------------------------------
INCOME BEFORE INCOME TAXES AND MINORITY INTEREST                                   57
Provision for income taxes                                                         21
Minority interest                                                                   1
-----------------------------------------------------------------------------------------
INCOME FROM OPERATIONS OF THE PERFORMANCE POLYMERS BUSINESS, NET OF TAX            37
-----------------------------------------------------------------------------------------
Loss on sale of net assets of Performance Polymers business, net of tax(2)         (3)
-----------------------------------------------------------------------------------------
GAIN ON SALE OF DISCONTINUED OPERATIONS, NET OF TAX                                34
-----------------------------------------------------------------------------------------
</TABLE>

(1) The 2000 income statement data reflects the Performance Polymers operating
    results through to May 31, 2000.

(2) The loss on sale includes transaction related taxes of approximately CHF
    160 million and costs associated with selling the business.

                                      F-17



<PAGE>


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in millions of Swiss francs, except share and per share data)

<TABLE>
<CAPTION>
4.  ACCOUNTS RECEIVABLE                                                                      2002          2001
----------------------------------------------------------------------------------------------------------------
<S>                                                                                         <C>           <C>
Accounts receivable                                                                         1 110         1 186
Allowance for doubtful accounts                                                               (96)         (120)
----------------------------------------------------------------------------------------------------------------
TOTAL                                                                                       1 014         1 066
----------------------------------------------------------------------------------------------------------------
</TABLE>

The allowance for doubtful accounts decreased by CHF 24 million in 2002
compared to 2001. This decrease includes a CHF 23 million reclassification to
accrued liabilities for provisions that did not relate to accounts receivable
(see Note 23).


<TABLE>
<CAPTION>
5.  INVENTORIES                                                                              2002          2001
----------------------------------------------------------------------------------------------------------------
<S>                                                                                         <C>           <C>
Raw materials                                                                                 180           180
Work in process and finished goods                                                          1 324         1 412
Allowance for obsolete and slow moving inventory                                              (58)          (66)
----------------------------------------------------------------------------------------------------------------
TOTAL                                                                                       1 446         1 526
----------------------------------------------------------------------------------------------------------------
</TABLE>

<TABLE>
<CAPTION>
6.   PROPERTY, PLANT AND EQUIPMENT
-----------------------------------------------------------------------------------------------------------------
                                                                       MACHINERY
                                                                             AND  CONSTRUCTION
                                                   LAND   BUILDINGS    EQUIPMENT  IN PROGRESS    TOTAL     TOTAL
                                                   2002        2002         2002         2002     2002      2001
-----------------------------------------------------------------------------------------------------------------
<S>                                                <C>    <C>          <C>        <C>            <C>       <C>
Cost at January 1,                                  123       1 923        5 842          154    8 042     8 098
Additions                                             0           1           65          184      250       259
Retirements/disposals                                (1)         (4)         (92)          (4)    (101)     (146)
Changes in consolidation scope                        0           0            1            0        1        44
Currency adjustments                                 (7)       (104)        (348)          (7)    (466)     (211)
Other                                                (1)         28          117         (170)     (26)       (2)
-----------------------------------------------------------------------------------------------------------------
COST AT DECEMBER 31,                                114       1 844        5 585          157    7 700     8 042
-----------------------------------------------------------------------------------------------------------------

Accumulated depreciation at January 1,                         (893)      (3 584)               (4 447)   (4 311)
Depreciation                                                    (55)        (297)                 (352)     (377)
Accumulated depreciation on
   retirements/disposals                                          3           75                    78       109
Changes in consolidation scope                                    0            0                     0         0
Currency adjustments                                             38          196                   234       111
Other                                                             0           13                    13        (9)
-----------------------------------------------------------------------------------------------------------------
ACCUMULATED DEPRECIATION AT DECEMBER 31,                       (907)      (3 597)               (4 504)    (4 477)
-----------------------------------------------------------------------------------------------------------------
NET BOOK VALUE AT DECEMBER 31,                      114         937        1 988          157    3 196     3 565
-----------------------------------------------------------------------------------------------------------------
</TABLE>

The insurance value of the property, plant and equipment was approximately CHF
10 325 million at December 31, 2002 and CHF 10 804 million at December 31,
2001.


                                      F-18


<PAGE>


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in millions of Swiss francs, except share and per share data)


<TABLE>
<CAPTION>
7.  GOODWILL
--------------------------------------------------------------------------------------------------------------

Changes in the carrying amount of goodwill by Segment from December 31, 2001
to December 31, 2002 were as follows:
                                        DECEMBER 31,                DECEMBER 31,  FOREIGN CURRENCY
                                               2001   RECLASS TO          2001         TRANSLATION       OTHER    DECEMBER 31,
                                        AS REPORTED     SEGMENTS   RECLASSIFIED        ADJUSTMENTS     CHANGES(1)        2002
------------------------------------------------------------------------------------------------------------------------------
<S>                                     <C>           <C>          <C>            <C>                  <C>        <C>

Plastic Additives                                20            0             20                 (3)          4             21
Coating Effects                                  70          128            198                 (9)          0            189
Water & Paper Treatment                           7          984            991                (34)         15            972
Textile Effects                                   0          166            166                 (6)          0            160
Home & Personal Care                              1           41             42                 (2)          0             40
Corporate                                     1 319       (1 319)             0                  0           0              0
------------------------------------------------------------------------------------------------------------------------------
TOTAL                                         1 417            0          1 417                (54)         19          1 382
------------------------------------------------------------------------------------------------------------------------------
</TABLE>

(1) Other changes represents a reclassification from other intangible assets
    and minor acquisitions.

<TABLE>
<CAPTION>
8.  OTHER INTANGIBLE ASSETS
--------------------------------------------------------------------------------------------------------------

Other intangible assets by major class consist of the following:

                                                              GROSS                                         NET
                                                           CARRYING          ACCUMULATED               CARRYING
DECEMBER 31, 2002                                             VALUE         AMORTIZATION                  VALUE
-----------------------------------------------------------------------------------------------------------------
<S>                                                        <C>              <C>                        <C>
Developed technology and know-how                               763                 (125)                    638
Patents                                                          37                   (6)                     31
Trademarks and tradenames                                         3                    0                       3
Minimum pension liability - intangible asset                     19                    -                      19
Other                                                             4                  ( 1)                      3
-----------------------------------------------------------------------------------------------------------------
TOTAL                                                           826                 (132)                    694
-----------------------------------------------------------------------------------------------------------------
</TABLE>

<TABLE>
<CAPTION>
                                                              GROSS                                         NET
                                                           CARRYING          ACCUMULATED               CARRYING
DECEMBER 31, 2001                                             VALUE         AMORTIZATION                  VALUE
-----------------------------------------------------------------------------------------------------------------
<S>                                                        <C>              <C>                        <C>
Developed technology and know-how                               774                 (103)                    671
Patents                                                          36                   (3)                     33
Trademarks and tradenames                                         2                    0                       2
Minimum pension liability - intangible asset                     22                    -                      22
Other                                                             2                    0                       2
-----------------------------------------------------------------------------------------------------------------
TOTAL                                                           836                 (106)                    730
-----------------------------------------------------------------------------------------------------------------
</TABLE>

For 2002, amortization of other intangible assets amounted to CHF 33 million
(2001: CHF 31 million and 2000: CHF 30 million). Based on the other intangible
assets values at December 31, 2002, the estimated future annual other
intangible assets amortization expense is expected to be as follows: 2003: CHF
33 million, 2004: CHF 32 million, 2005: CHF 32 million, 2006: CHF 32 million,
2007: CHF 31 million, 2008 and thereafter CHF 515 million.


9.  FINANCIAL INVESTMENTS AND INSTRUMENTS
------------------------------------------------------------------------------
FAIR VALUE OF FINANCIAL INVESTMENTS AND INSTRUMENTS

     The fair value of financial investments and instruments is the price at
which one party would assume the rights and duties of another party. Fair values
of financial investments and instruments have been determined with reference to
available market information at the balance sheet date and when such information
is not readily available using valuation methodologies as described below.
Considering the variability of their value-determining factors, the fair values
used for financial reporting purposes may not be indicative of the amounts that
the Company could realize under current market conditions.

     Financial assets and liabilities with book values approximating fair market
value due to their short-term nature include cash and cash equivalents, accounts
receivable, accounts payable and short-term debt.

     The fair value of short-term investments is estimated using quoted market
prices.

                                     F-19

<PAGE>


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in millions of Swiss francs, except share and per share data)


     The fair value of publicly traded long-term debt is estimated using quoted
market prices. The fair value of other long-term debt is estimated by
discounting future cash flows using interest rates currently available for
similar debt with identical terms, similar credit ratings and remaining
maturities. The book value and fair value of the Company's long-term debt is as
follows.

<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------
                                                                2002                           2001
                                                    -----------------------------  -----------------------------
                                                        BOOK VALUE    FAIR VALUE       BOOK VALUE    FAIR VALUE
----------------------------------------------------------------------------------------------------------------
<S>                                                     <C>           <C>              <C>           <C>
Long-term debt, including current portion                    3 542         3 601            3 680         3 675
----------------------------------------------------------------------------------------------------------------
</TABLE>

     The fair value of financial investments for which quoted market prices are
available are based on such market prices. Financial investments for which
quoted market prices do not exist and where it is not practical to estimate fair
value are reflected at their book value. Investments in unconsolidated companies
are reported at fair value with the unrealized gains and losses reported in
accumulated other comprehensive income. For investments in equity affiliates,
there are no quoted market prices available.

<TABLE>
<CAPTION>
FINANCIAL INVESTMENTS
----------------------------------------------------------------------------------------------------------------
                                                                                             2002          2001
----------------------------------------------------------------------------------------------------------------
<S>                                                                                          <C>           <C>
Investments in equity affiliates                                                              147           157
Investments in unconsolidated companies                                                        25            36
----------------------------------------------------------------------------------------------------------------
TOTAL FINANCIAL INVESTMENTS                                                                   172           193
----------------------------------------------------------------------------------------------------------------
</TABLE>

     At December 31, 2002, the cumulative unrealized gain/(loss), before tax on
investments in unconsolidated companies, which is recorded in accumulated other
comprehensive income, was CHF 0 million and at December 31, 2001, was an
unrealized loss of CHF 37 million (December, 31, 2000: CHF 0 million). The
unrealized losses were the result of market weakness in the industry segments in
which these companies participate. In management's opinion, this situation in
2001 was temporary.

     In 2002, the decline in the market values below the Company's cost basis in
its financial investments in unconsolidated companies, primarily the Company's
investment in Hexcel Corporation, was in management's opinion no longer deemed
to be temporary. As a result, a loss was realized in the Consolidated Statement
of Income of CHF 38 million (CHF 23 million, net of tax).

     The most significant of the Company's investments in equity affiliates are
CIMO Compagnie Industrielle de Monthey SA (50 percent) and Daihan Swiss Chemical
Corp. (50 percent), both of which have maintained the same level of investment
in 2002, 2001 and 2000. In March 2001, the Company sold its 50 percent
investment in TFL Ledertechnik GmbH & Co. KG (see Note 3). Effective January 1,
2001, the Company acquired a controlling interest in Musashino-Geigy Co. Ltd
increasing its holdings from 50 percent to 60 percent.

     In December 2000, the Company sold the majority of its investment in Hexcel
Corporation reducing its ownership interest from 49.3 percent to approximately
9.5 percent (see Note 3 and 12). As a result, as of December 31, 2000 the
investment is accounted for as an available-for-sale security reported in
investments in unconsolidated companies.

      The following table presents summarized financial information on a 100
percent basis for the companies accounted for as investments in equity
affiliates as of December 31, 2002, 2001 and 2000.
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------------
                                                                                        2000
                                                                      -----------------------------------------
                                              2002            2001            TOTAL      HEXCEL (1)      OTHER
---------------------------------------------------------------------------------------------------------------
<S>                                           <C>             <C>             <C>        <C>             <C>
Sales                                          152             213            2 469        1 791           678
Income before taxes                             21              16              207          141            66
Net income                                      16              11              141           97            44
---------------------------------------------------------------------------------------------------------------
Total assets                                   136             161              937            0           937
Shareholders' equity                           280             293              538            0           538
---------------------------------------------------------------------------------------------------------------
</TABLE>
(1) The figures for the year 2000 for Hexcel have been shown separately due to
    its size.

     The income from earnings of equity affiliates of CHF 6 million (CHF 8
million in 2001 and CHF 113 million in 2000) are shown before taxes as a
separate line item in the operating income section of the Consolidated
Statements of Income. The related income tax provision of CHF 2 million (CHF 3
million in 2001 and CHF 32 million in 2000) is included in the Company's
provision for income taxes.

     The investment in Hexcel was recorded using a one quarter time lag. In
2000, the Company recognized CHF 66 million as its share of Hexcel's income,
included in the line Income from earnings of equity affiliates, and a provision
for income taxes of CHF 22 million as its share of the related Hexcel income
taxes in the line provision for income taxes in the accompanying Consolidated
Statements of Income. Included in Hexcel's 2000 income from earnings of equity
affiliates is CHF 57 million, representing the Company's share of the gain
recognized by Hexcel on the sale of its Bellingham Aircraft business. The
associated taxes recognized by Hexcel on this gain, of CHF 18 million, are
included in the line provision for income taxes in the accompanying Consolidated
Statements of Income.

                                     F-20

<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in millions of Swiss francs, except share and per share data)


     DERIVATIVE FINANCIAL INSTRUMENTS

     The Company enters into derivative financial instruments in the ordinary
course of business to mitigate its exposure to adverse changes in foreign
exchange rates and to manage its interest rate exposures. Various risk
exposures, arising from existing assets and liabilities, from future
transactions in which the Company is firmly committed and from future
anticipated transactions, are assessed and managed centrally by the Company's
treasury function based on the Company's aggregate exposure. Under the Company's
written hedging policy, treasury management continuously monitors and reports
the results of its risk management programs to senior management and may choose
to partially or fully hedge exposures. The Company's risk management policies do
not permit the utilization of financial instruments for speculative or trading
purposes.

     The Company has procedures to monitor the credit exposure amounts and
manages exposure to counter-party credit risk through specific minimum credit
standards and diversification of counter-parties. The counter-parties to
financial instruments are financial institutions with a minimum `A' credit
rating or its equivalent and with significant experience with such instruments.

Foreign currency risk management

     A substantial portion of the Company's cash flows is denominated in foreign
currencies. The Company collects global expected cash flows information on a
monthly basis and, based on these cash flows, prepares a consolidated exposure
forecast by currency and determines to what extent these consolidated currency
exposures will be hedged. To hedge the balance sheet and income exposure
associated with diminution in value of foreign currency cash flows (principally
U.S. dollars, euro, British pounds, Australian dollars and Japanese yen), the
Company primarily utilizes foreign currency forwards and swaps as well as
options, which generally expire within twelve months. In order to lower the
overall hedging costs, the Company may issue derivatives on existing or future
positions.

     Generally, the Company does not designate foreign exchange contracts as
accounting hedges. For specific anticipated transactions, the Company may
designate the foreign exchange contract as a cash flow hedge. For specific firm
purchase or sale commitments or for recognized foreign currency denominated
assets and liabilities, the Company may designate the foreign exchange contract
as a fair value hedge.

Interest rate risk management

      The Company is exposed to market risks due to fluctuating interest rates
primarily through its borrowing activities and to a lesser extent through its
investments. The Company issues debt, using the most efficient capital markets
and products to fund its working capital and investment needs, which can
result in a currency or interest rate mismatch with the underlying assets.
Most short-term borrowings are in foreign currencies and floating interest
rate instruments, whereas the majority of long-term borrowings are in fixed
interest rate instruments. The Company manages its ratio of fixed to floating
interest rate with financial instruments and the objective of achieving a mix
which is appropriate both in terms of risk and cost. To manage this mix
effectively, the Company selectively enters into interest rate swaps and
forward rate agreements, in which it agrees to exchange various combinations
of fixed and variable interest rates based on agreed-upon nominal amounts.

     Interest rate swaps that qualify and are designated as a hedge against the
change in the fair value of the Company's fixed-rate debt obligations are
recorded as fair value hedges. Interest rate swaps and forward rate agreements
that qualify and are designated as a hedge against the variability of cash flows
associated with Company's variable-rate long-term debt are recorded as cash flow
hedges.

Information with respect to fair value hedges

      In 2002, the Company recorded a net gain of CHF 1 million (2001: a net
gain of CHF 6 million) for hedging ineffectiveness in "Other financial
expense, net" in the Consolidated Statements of Income.

Information with respect to cash flow hedges

     The Company has entered into natural gas forward contracts that are
designated as cash flow hedges of price risk related to a portion of the
Company's forecasted natural gas purchases in the United States. The Company
used natural gas forward contracts to minimize its exposure to increases in
natural gas prices in 2002 and in 2001. At December 31, 2002, the Company had
open forward contracts with maturity dates ranging from January 2003 to
September 2003.

     At December 31, 2002, the fair value of open natural gas forward contracts
was an unrealized gain of CHF 1.7 million, before taxes (2001: CHF 0 million)
recorded in other comprehensive income. If this amount were to be realized, all
of it would be reclassified into cost of goods sold during the next twelve
months. During 2002, both realized gains and losses recorded in cost of goods
sold and hedge ineffectiveness were not significant.

      DERIVATIVE FINANCIAL INSTRUMENTS PREVIOUS YEAR

      Foreign exchange currency forwards, swaps and options were mainly used
to hedge existing assets and liabilities, firm commitments and anticipated
transactions denominated in foreign currencies (principally U.S. dollars,
euro, British pounds, Australian dollars and Japanese yen). The Company had
entered into currency contracts to cover foreign exchange risks on certain
anticipated foreign currency transactions relating to sales and purchase
transactions expected to occur within a period of one year. The premiums
associated with purchased and written option contracts were generally
amortized over the lives of the options and were not material to the Company's
results. For purchased options that hedge anticipated transactions which did
not qualify for hedge accounting, gains and losses were recorded in net income
as they occurred on a mark-to-market basis. All written options were marked to
market monthly and were not material to the Company's results.

      The Company used interest rate swaps and forward rate agreements as part
of its program to manage the fixed and floating interest rate mix of the total
debt portfolio and related overall cost of borrowing. Interest and currency
rate differentials accruing under these contracts were recognized over the
life of the contracts. In the event of an early termination of an interest
rate related derivative financial instrument designated as an

                                     F-21
<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in millions of Swiss francs, except share and per share data)


accounting hedge, the gain or loss was deferred and recorded as an adjustment
to financial income/expense over the remaining term of the underlying
financial instrument.

     All derivative financial instruments were valued based upon quoted market
prices or market prices for instruments with similar terms and maturities.

<TABLE>
<CAPTION>
10.   OTHER ASSETS                                                              2002          2001
---------------------------------------------------------------------------------------------------
<S>                                                                             <C>           <C>

Prepaid pension costs                                                            699           640
Deferred taxes                                                                   183           168
Loans to third parties and equity affiliates                                      86            80
Other                                                                             66            98
---------------------------------------------------------------------------------------------------
TOTAL                                                                          1 034           986
---------------------------------------------------------------------------------------------------
</TABLE>

<TABLE>
<CAPTION>
11. ACCRUALS AND OTHER CURRENT LIABILITIES                                      2002          2001
---------------------------------------------------------------------------------------------------
<S>                                                                             <C>           <C>
Payroll and employee benefits                                                    208           166
Environmental remediation and compliance                                          33            31
Restructuring                                                                    141           180
Retirement and postemployment benefits                                            27            33
Deferred income taxes                                                             84           115
Other                                                                            449           565
---------------------------------------------------------------------------------------------------
TOTAL                                                                            942         1 090
---------------------------------------------------------------------------------------------------
</TABLE>
     Restructuring includes CHF 141 million (2001: CHF 168 million) for accrued
separation costs related to the divestment of the Performance Polymers business
(see Note 3). The change in the accrued separation costs and transaction taxes
for the Performance Polymers business reflects amounts utilized and currency
adjustments. In 2001, restructuring also included CHF 12 million for prior
years' restructuring programs (see Note 12).


12. RESTRUCTURING AND SPECIAL CHARGES
------------------------------------------------------------------------------

PRIOR YEAR PROGRAMS

     The restructuring accrual at January 1, 2002 relates to the 2000
restructuring projects, announced in the second half of 2000. These programs
comprised primarily the restructuring of certain operations of the Water & Paper
Treatment segment in the United States (mainly relating to the closure of a
manufacturing facility), the reorganization of the Company's administration
functions in Southern Europe and the reduction of personnel, principally at a
Plastic Additives and Home & Personal Care manufacturing facility in the United
States. Severance costs incurred in 2000 relate to the elimination of
approximately 238 full-time equivalents ("FTEs") in the United States and
Southern Europe, principally in the administration, sales and marketing
functions and, in addition, the manufacturing functions in the United States.
The terminations and costs related to these restructuring programs were
completed during 2002.

     In 2001, the Company implemented a program ("Fit For Growth!") that aligned
the Company's operational activities with its customers' industries. This new
structure was designed to bring the Company's businesses closer to its customers
and allows for a greater focus on providing not just products, but total
integrated solutions. This program resulted in the establishment of five
business segments, a Chief Technology Officer at the Executive Committee level
and a new, cross-segment Research and Technology Board, which was formed to
leverage the Company's existing technological core competencies and to identify
new technology platforms for future growth. The "Fit for Growth!" program was
also designed to speed up decision-making by eliminating the former divisional
layer, as well as to improve efficiency by harmonizing several support areas.
The major initiatives in these efficiency projects are the merging of the
existing three supply chains into one coordinated global supply chain system,
the rationalization of Information Technology support structures and
infrastructure and the reduction of personnel in the Water & Paper Treatment
Segment as part of the strategy to streamline operations, improve profitability
and grow the business.

     In 2001, under the "Fit For Growth!" program, the Company eliminated 262
full-time equivalents ("FTEs") under severance programs. The total cost of these
severances was approximately CHF 33 million. The Company also released to income
excess restructuring provisions of CHF 8 million and special charges provisions
of CHF 25 million that were established in prior years.

     In 2000, the Company incurred net restructuring and special charges of CHF
2 million. This charge includes restructuring expenses of CHF 52 million related
to the 2000 restructuring program discussed above. These restructuring expenses
were offset by a CHF 71 million gain on the sale of 14 525 000 shares of the
Company's investment in Hexcel Corporation at USD 11.00 per share, which
represented approximately 81 percent of the Company's holdings (see Notes 3 and
9). Also included is a special charges expense of CHF 21 million which relates
to an impairment loss on certain equity investments.

                                     F-22

<PAGE>


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in millions of Swiss francs, except share and per share data)


     The costs and activity associated with the prior year restructuring
programs are summarized below:
<TABLE>
<CAPTION>

----------------------------------------------------------------------------------------------------------------
                                                                          SEVERANCE         OTHER
2002                                                                          COSTS         COSTS         TOTAL
----------------------------------------------------------------------------------------------------------------
<S>                                                                       <C>               <C>           <C>
January 1,                                                                        5             7            12
Amounts utilized(1)                                                              (5)           (7)          (12)
----------------------------------------------------------------------------------------------------------------
DECEMBER 31,                                                                      0             0             0
----------------------------------------------------------------------------------------------------------------
</TABLE>
(1)  Includes currency adjustments.

<TABLE>
<CAPTION>

----------------------------------------------------------------------------------------------------------------
                                                                          SEVERANCE         OTHER
2001                                                                          COSTS         COSTS         TOTAL
----------------------------------------------------------------------------------------------------------------
<S>                                                                       <C>               <C>           <C>
January 1,                                                                       30            22            52
Amounts utilized(1)                                                             (25)          (15)          (40)
----------------------------------------------------------------------------------------------------------------
December 31,                                                                      5             7            12
----------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Includes currency adjustments and a release of excess reserves of CHF
    8 million.

<TABLE>
<CAPTION>

----------------------------------------------------------------------------------------------------------------
                                                                          SEVERANCE         OTHER
2000                                                                          COSTS         COSTS         TOTAL
----------------------------------------------------------------------------------------------------------------
<S>                                                                       <C>               <C>           <C>
January 1,                                                                       35             9            44
Restructuring expense                                                            30            22            52
Amounts utilized(1)                                                             (35)           (9)          (44)
----------------------------------------------------------------------------------------------------------------
December 31,                                                                     30            22            52
----------------------------------------------------------------------------------------------------------------
</TABLE>
(1)  Includes currency adjustments.


<TABLE>
<CAPTION>
13. SHORT-TERM DEBT                                                                          2002          2001
----------------------------------------------------------------------------------------------------------------
<S>                                                                                         <C>            <C>
Bank overdrafts                                                                                38            31
Loans                                                                                         102           122
Commercial paper                                                                                5             4
Other                                                                                         153           157
Current portion of long-term debt                                                           1 198             2
----------------------------------------------------------------------------------------------------------------
TOTAL                                                                                       1 496           316
----------------------------------------------------------------------------------------------------------------
</TABLE>

     The Company's principal commercial paper programs are in the United States
and provide for short-term borrowings up to USD 1 000 million. At December 31,
2001 and 2002, no amounts were outstanding. The programs were secured by a USD
50 million standby credit facility through December 31, 2002, when the standby
letter of credit expired.

     The Company maintained a multicurrency revolving loan facility. The
facility expired on July 11, 2002. At December 31, 2001, the available
commitments under this facility were CHF 400 million, all of which were unused.
A commitment fee of 0.10% per annum was paid on the average unused facility. The
facility bore interest at London Interbank Offered Rate (LIBOR) plus 21.5 basis
points.

     The weighted average interest rate for short-term debt (excluding current
portion of long-term debt) calculated at December 31, 2002 was 4.9 percent and
at December 31, 2001 was 6.3 percent. Unused short-term credit lines totaled
approximately CHF 753 million at December 31, 2002 and CHF 1 040 million at
December 31, 2001.

                                     F-23

<PAGE>


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in millions of Swiss francs, except share and per share data)



<TABLE>
<CAPTION>
14. LONG-TERM DEBT                                                                           2002          2001
----------------------------------------------------------------------------------------------------------------
<S>                                                                                         <C>           <C>
Bonds and Euro Medium-Term Notes                                                            2 583         2 585
Convertible bonds                                                                             889         1 005
Amounts owed to credit institutions                                                             5            11
Other long-term debt                                                                           65            79
----------------------------------------------------------------------------------------------------------------
Total                                                                                       3 542         3 680
Less: current portion of long-term debt                                                     1 198             2
----------------------------------------------------------------------------------------------------------------
TOTAL LONG-TERM DEBT                                                                        2 344         3 678
----------------------------------------------------------------------------------------------------------------
</TABLE>

<TABLE>
<CAPTION>
BONDS AND EURO MEDIUM-TERM NOTES                                                             2002          2001
----------------------------------------------------------------------------------------------------------------
<S>                                                                                         <C>           <C>
CHF     1000  3.25% Straight Bonds, principal due 2008                                      1 065           982
CHF      300  3.25% Straight Bonds, principal due 2009                                        303           303
USD      178  U.S. pollution control and industrial development bonds, principal
              due between 2008 and 2028 (weighted average interest rate of 3.03 %)            256           291
----------------------------------------------------------------------------------------------------------------
TOTAL BONDS                                                                                 1 624         1 576
----------------------------------------------------------------------------------------------------------------
USD      175  6.125% Euro Medium-Term Note, principal due 2003                                247           277
EUR    114(1) 4.875% Euro Medium-Term Note, principal due 2005                                168           169
GBP      243  6.50% Euro Medium-Term Note, principal due 2013                                 544           563
----------------------------------------------------------------------------------------------------------------
TOTAL EURO MEDIUM-TERM NOTES                                                                  959         1 009
----------------------------------------------------------------------------------------------------------------
TOTAL BONDS AND EURO MEDIUM-TERM NOTES                                                      2 583         2 585
----------------------------------------------------------------------------------------------------------------
</TABLE>
(1) The underlying note is denominated in German Marks (DEM 223).

     The Company maintains a Euro Medium-Term Note program, under which the
Company may issue up to USD 2 000 million multicurrency unsecured,
unsubordinated notes with a minimum maturity of one month and at fixed, floating
or indexed interest rates.

     In July 1998, the Company issued USD 687 million unsecured, unsubordinated
convertible bonds, due 2003, with a 1.25% fixed interest rate. The bonds are
convertible into the Company's common stock from September 2, 1998 to July 10,
2003 at a conversion price of CHF 254.14 per share, the conversion price being
subject to the usual adjustments. In 2001, the Company repurchased approximately
CHF 91 million (USD 59 million) of these bonds. The Company had 3 461 399 shares
of treasury stock reserved for the potential conversion in 2001, and none in
2002.

     In June 1998, the Company issued a USD 300 million Euro Medium-Term Note
(reduced to USD 175 million in 2000) with a 6.125% U.S. dollar fixed interest
rate. In connection with this Note, the Company entered into certain interest
and principal currency swaps in 1998, all of which were canceled in 2000.

     The annual maturities of long-term debt outstanding at December 31, 2002
are as follows: 2003 CHF 1 208 million; 2004 CHF 1 million; 2005 CHF 168
million; 2006 CHF 1 million; 2007 CHF 1 million; 2008 and thereafter CHF 2 113
million.
<TABLE>
<CAPTION>
15. INCOME TAXES
----------------------------------------------------------------------------------------------------------------

      Income from continuing operations before income taxes and minority
interest consists of the following:
----------------------------------------------------------------------------------------------------------------
                                                                               2002          2001          2000
----------------------------------------------------------------------------------------------------------------
<S>                                                                            <C>           <C>           <C>
Switzerland                                                                     258           319           405
Foreign                                                                         315           249           248
----------------------------------------------------------------------------------------------------------------
TOTAL INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES AND
MINORITY INTEREST                                                               573           568           653
----------------------------------------------------------------------------------------------------------------

      The provision for income taxes in 2002, 2001 and 2000 from continuing
operations consists of the following:
---------------------------------------------------------------------------------------------------------------
                                                                               2002          2001          2000
----------------------------------------------------------------------------------------------------------------
Switzerland                                                                      62            34            33
Foreign                                                                          42            57            16
----------------------------------------------------------------------------------------------------------------
TOTAL CURRENT PROVISION                                                         104            91            49
----------------------------------------------------------------------------------------------------------------
Switzerland                                                                       3            35            26
Foreign                                                                          45            49           121
----------------------------------------------------------------------------------------------------------------
DEFERRED PROVISION                                                               48            84           147
----------------------------------------------------------------------------------------------------------------
SHARE OF TAXES FROM EARNINGS OF EQUITY AFFILIATES.                                2             3            32
----------------------------------------------------------------------------------------------------------------
TOTAL PROVISION FOR INCOME TAXES                                                154           178           228
----------------------------------------------------------------------------------------------------------------
</TABLE>

                                     F-24

<PAGE>


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in millions of Swiss francs, except share and per share data)


     The Company is incorporated in Switzerland but operates in numerous
countries with differing tax laws and rates. The income before income taxes and
provision for income taxes are generated primarily outside of Switzerland.
Therefore, the weighted average expected tax rate (computed by multiplying the
statutory rate applicable to each local subsidiary's income or loss) may vary
between periods reflecting the income or losses generated in each country. The
main factors causing the effective tax rate to differ from the expected tax rate
are:
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------
                                                                               2002          2001          2000
                                                                                  %             %             %
----------------------------------------------------------------------------------------------------------------
<S>                                                                            <C>           <C>           <C>

Expected tax rate                                                                30            30            30
Non-deductible items                                                              2             7            14
Tax free income                                                                  (2)           (2)           (1)
Income taxed at reduced rates                                                    (3)           (3)            0
Changes in valuation allowance                                                    0             1           (11)
Other                                                                             0            (1)            3
----------------------------------------------------------------------------------------------------------------
EFFECTIVE TAX RATE                                                               27            32            35
----------------------------------------------------------------------------------------------------------------
</TABLE>

     "Non-deductible items" includes the tax effect of amortization of other
intangible assets in 2002 and in 2001 and 2000 additionally the effect of
amortization of goodwill. In 2000, also included is the tax effect of the
impairment loss on certain of the Company's equity investments (see Note 12) and
the effect of certain taxable income in one of the Company's subsidiaries that
was not recognized for financial accounting purposes.

     In 2002, "Other" includes approximately 4 percent for tax adjustments,
offset by (4) percent reflecting the effect of certain taxable expenses in
certain of the Company's subsidiaries that were not recognized for financial
reporting purposes.

     In 2001, "Other" includes approximately 3 percent for the effect of a tax
payment in Italy (the "Imposta Sostitutiva") that permitted the future tax
deductibility of Prochimica s.r.l.'s goodwill amortization, 3 percent for tax
adjustments, offset by (4) percent reflecting the effect of certain taxable
expenses in one of the Company's subsidiaries that was not recognized for
financial reporting purposes. In 2000, "Other " includes approximately 2
percent, reflecting the effect of the reduction in the German statutory tax
rates on the year-end 2000 net deferred tax asset balances of the Company's
German subsidiaries.

     In 2001, the change in valuation allowance is primarily the result of not
recognizing the full benefit from loss carryforwards in certain tax
jurisdictions as their realization was not certain. In 2000 the change in
valuation allowance is primarily the result of the realization of tax loss
carryforwards for which the Company had previously recorded a valuation
allowance, as realization was uncertain at the time of their origination.

     The significant components of activities that gave rise to deferred tax
assets and liabilities on the balance sheet at December 31, 2002 and 2001, were
as follows:

<TABLE>
<CAPTION>
<S>                                                                                        <C>           <C>
--------------------------------------------------------------------------------------------------------------
                                                                                            2002         2001
--------------------------------------------------------------------------------------------------------------

DEFERRED TAX ASSETS
Pensions and other employee compensation                                                     120          104
Inventory                                                                                     32           44
Restructuring and special charges                                                             26           22
Environmental reserves                                                                       186          241
Tax loss carryforwards                                                                       181          170
Other                                                                                         34           45
--------------------------------------------------------------------------------------------------------------
Gross deferred tax assets                                                                    579          626
Valuation allowance                                                                         (131)        (146)
--------------------------------------------------------------------------------------------------------------
NET DEFERRED TAX ASSETS                                                                      448          480
--------------------------------------------------------------------------------------------------------------

DEFERRED TAX LIABILITIES
Property, plant and equipment                                                               (398)        (429)
Other                                                                                       (193)        (186)
--------------------------------------------------------------------------------------------------------------
GROSS DEFERRED TAX LIABILITIES                                                              (591)        (615)
--------------------------------------------------------------------------------------------------------------
NET DEFERRED TAX LIABILITIES                                                                (143)        (135)
--------------------------------------------------------------------------------------------------------------

INCLUDED IN
Prepaid and other current assets                                                             144          191
Other assets                                                                                 183          168
Accruals and other current liabilities                                                       (84)        (115)
Deferred income taxes                                                                       (386)        (379)
--------------------------------------------------------------------------------------------------------------
NET DEFERRED TAX LIABILITIES                                                                (143)        (135)
--------------------------------------------------------------------------------------------------------------
</TABLE>

     In management's opinion the majority of deferred tax assets will be
realized because of the depletion of certain significant tax deductions and
anticipated future taxable income resulting from the Company's operations.
Valuation allowances have been established for certain tax loss carryforwards
and certain long-term deferred tax assets of the Company.

                                     F-25

<PAGE>



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in millions of Swiss francs, except share and per share data)


     For tax return purposes, the Company has available tax loss carryforwards
of approximately CHF 500 million, of which CHF 71 million will expire in the
next five years and CHF 325 million will expire between five and twenty years.
The remaining carryforwards do not expire.

     At December 31, 2002, unremitted earnings of subsidiaries outside of
Switzerland of approximately CHF 340 million were deemed to be permanently
invested. No deferred tax liability has been recognized with regard to the
remittance of such earnings as it is not practicable to estimate the income tax
liability that might be incurred if such earnings were remitted to Switzerland.
<TABLE>
<CAPTION>
<S>                                                                                        <C>           <C>

16. OTHER LIABILITIES                                                                        2002          2001
----------------------------------------------------------------------------------------------------------------

Environmental remediation and compliance                                                      581           717
Retirement and postemployment benefits                                                        679           625
Other                                                                                         277           346
----------------------------------------------------------------------------------------------------------------
TOTAL                                                                                       1 537         1 688
----------------------------------------------------------------------------------------------------------------
</TABLE>

The environmental remediation and compliance accrual, including the current
portion, decreased by CHF 134 million as a result of a CHF 82 million usage of
the accrual in 2002 (see Note 22) and a CHF 52 million reduction related to
currency effects.

17. SHAREHOLDERS' EQUITY
-------------------------------------------------------------------------------

     On April 20, 1998 the Company's shareholders approved the creation of
authorized and conditional capital of the Company. The approval allows for the
issuance of a maximum of 10 million registered shares with a par value of CHF 9
per share (2001 and 2000: 10 CHF per share). While 2 million shares are reserved
for employee stock option plans, 4 million are primarily reserved for an
issuance under future convertible bonds and similar debt instruments. After a
re-approval by the shareholders due to requirements of Swiss law, another 4
million shares may also be issued until March 22, 2004 without any restriction.

     According to the Swiss Code of Obligations, the Company may under certain
conditions, as defined, acquire up to 10 percent of its own shares. Within this
limit, the Company intends to acquire up to 5 percent of its shares to cover
future demands under its various stock based compensation plans (see Note 18).

     At the Company's Annual General Meeting held on March 22, 2002, the
shareholders voted in favor of the proposal made by the Board of Directors to
pay to the Company's shareholders a dividend of CHF 2 per share, based on 2001
results and a capital reduction of CHF 1 per share. The capital reduction
payment was in the form of a reduction in the nominal value of each common share
from CHF 10 per share to CHF 9 per share. The Company paid the dividend on March
27, 2002, which totaled CHF 134 million (2001: CHF 132 million paid on March 28,
2001, based on 2000 results and 2000 CHF 133 million paid on April 18, 2000,
based on 1999 results). The capital reduction was paid on June 28, 2002, which
totaled CHF 69 million.

     The Company sold 4 970 437 shares in 2002 (1 929 453 shares in 2001 and 4
862 shares in 2000) of treasury stock at market prices. In addition, in 2002,
the Company purchased 2 174 577 shares of treasury stock (2001: 1 855 966 shares
of treasury stock and 391 177 in 2000) at market prices. At December 31, 2002,
the Company held 3 192 087 of treasury shares (2001: 5 987 947 treasury shares).

     The Company designated a total of 1 978 567 shares in 2002 (5 278 224
shares in 2001 and 5 485 963 shares in 2000) of its treasury stock as reserved
shares primarily for satisfaction of future share requirements under its various
outstanding employee stock option plans and in 2001 also for the potential share
issuance under its outstanding convertible bonds (see Notes 14 and 18). The
remaining 1 213 520 shares in 2002 (709 723 shares in 2001 and 575 471 shares in
2000) of treasury stock have been designated as unreserved shares.

     The after-tax components of accumulated other comprehensive income are as
follows:

<TABLE>
<CAPTION>
<S>                                                                                        <C>           <C>
----------------------------------------------------------------------------------------------------------------
                                                                                             2002         2001
----------------------------------------------------------------------------------------------------------------

Currency translation adjustment                                                              (285)         (199)
Unrealized loss on cash flow hedges, net of tax                                                 1             0
Unrealized gains/(losses) on available-for-sale securities, net of tax                          0           (23)
Minimum pension liability, net of tax                                                         (77)          (19)
Other, net of tax                                                                               1             1
----------------------------------------------------------------------------------------------------------------
ACCUMULATED OTHER COMPREHENSIVE INCOME                                                       (360)         (240)
----------------------------------------------------------------------------------------------------------------
</TABLE>

     The deferred tax effect on the unrealized gains/(losses) on available-for-
sale securities is a benefit of CHF 0 million in 2002 (2001: CHF 14 million) and
on cash flow hedges an expense of CHF 0.7 million (2001: CHF 0 million). The
deferred tax effect on the minimum pension liability adjustment is a deferred
tax benefit of CHF 49 million in 2002 (2001: CHF 12 million). The currency
translation adjustment is not adjusted for income taxes as it relates primarily
to indefinite investments in non-Swiss subsidiaries.

                                     F-26

<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in millions of Swiss francs, except share and per share data)


18. STOCK BASED COMPENSATION PLANS
-------------------------------------------------------------------------------

     The Company has adopted the disclosure-only provisions of SFAS No. 123,
"Accounting for Stock Based Compensation," and applies Accounting Principles
Board (APB) Opinion No. 25 and related interpretations in accounting for its
plans. Descriptions of the terms of the Company's plans are presented in the
following paragraphs.

     In 2002, in connection with the capital reduction of CHF 1 per share (see
note 17), the Company, in accordance with the terms of its stock option plans,
reduced the exercise price of its outstanding stock options ("the capital
reduction repricing"). No compensation expense was recorded as a result of the
capital reduction repricing. For the Leveraged Executive Asset Plan, which is
described below, the capital reduction repricing was set by the investment bank.
All exercise prices disclosed herein have been accordingly adjusted.

     LEAP - In March 1997, the Company established a one-time Leveraged
Executive Asset Plan for key executives and non-executive Board members
(participants) to promote share ownership. Under the LEAP, approximately 320
participants were given the opportunity to purchase a total of 288 400
restricted shares of common stock of the Company at a price per share of CHF
110, which was the market price per share on the purchase date. For each share
purchased, each participant was granted a right to receive four share options
(total 1 153 600) with an exercise price of CHF 110 per share, the market value
of the shares at the grant date (after the capital reduction repricing CHF
108.70 per share). The participants will receive the market price increase from
the grant date to the exercise date in equivalent shares of the Company's common
stock. The restricted shares were released to the participants on March 15,
2002. The share options became fully vested on March 1, 2000, and may be
exercised on the 15th day of any month beginning March 15, 2002 through March
15, 2005, the date the share options expire. As of December 31, 2002 a total of
50 468 share options have been exercised. As a result of terminations from the
program, a total of 60 318 options (2001: 58 502 options; 2000: 55 776 options)
have been returned to the Company.

     The Company paid a fee of CHF 51 million to a major investment bank to
assume the Company's obligations to the participants under the LEAP, including
supplying all necessary equivalent shares of the Company's stock to the
participants of the LEAP when they are due and for administering the plan. Even
if the cost of supplying the shares exceeds the fee paid by the Company of CHF
51 million, the investment bank will supply all necessary shares and the Company
will not be required to issue any additional shares. Therefore, independent of
the prevailing future share price, the total cost of the LEAP program to the
Company will be the CHF 51 million fee that was paid. Compensation expense was
recognized as this fee was amortized ratably over the three year vesting period
through March 1, 2000.

     CAPS - In 1997, the Company established a Capital Appreciation Performance
Share Plan for key executives and non-executive Board members (participants). In
accordance with the CAPS, participants were granted rights to receive one share
of common stock of the Company for each right granted in the event that the
closing share price on any seven days up to August 31, 2001, the date the share
option expires, equaled or exceeded CHF 264 per share (which was double the
price at the initial grant date in August 1997). Under the program a total of 5
participants were granted 8 192 rights in 1998 and 333 participants were granted
342 572 rights in 1997. As the conditions of the CAPS were not met by August 31,
2001, all share options under this program expired unexercised. No compensation
expense was ever recorded under this plan as the target price was never reached.

     LTIP - In 1998, the Company established a Long-Term Incentive Plan which
grants options and, beginning in 2000, also include grants of restricted shares
of common stock of the Company to senior management, other key employees and
non-executive Board members. For grants of options made to participants other
than those in the United States, vesting is at the date of grant and the right
to exercise is restricted for three years following the grant date. For grants
of options made to participants in the United States, vesting and the right to
exercise is over three years. The options expire either five years or ten years
after the date of grant. In 2002, 2001 and 2000, no compensation expense was
recorded for the options issued under this plan.

     The following table summarizes option activity under the LTIP during 2002,
2001 and 2000:

<TABLE>
<CAPTION>
<S>                                                                             <C>              <C>
----------------------------------------------------------------------------------------------------------------
                                                                                   WEIGHTED
                                                                                    AVERAGE         OPTIONS
                                                                                EXERCISE PRICE    OUTSTANDING
----------------------------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1999                                                            132.57          857 908
Options granted                                                                         107.23          461 210
Options canceled/forfeited                                                              117.21          (19 218)
----------------------------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 2000                                                            123.81        1 299 900
----------------------------------------------------------------------------------------------------------------
Options granted                                                                         111.07          461 444
Options issued on conversion of stock appreciation rights                               163.70           60 799
Options canceled/forfeited                                                              114.61          (43 694)
----------------------------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 2001                                                            122.09        1 778 449
----------------------------------------------------------------------------------------------------------------
Options granted                                                                         111.09          481 401
Options exercised                                                                       110.90          (32 098)
Options canceled/forfeited                                                              113.41          (32 413)
----------------------------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 2002                                                            119.97        2 195 339
----------------------------------------------------------------------------------------------------------------
</TABLE>


     In January 1998, the Company issued 68 500 stock appreciation rights to
certain of its senior managers with an exercise price of CHF 165 which equaled
the market value of the common stock at grant date, adjusted to CHF 163.70 after
the capital reduction repricing. These rights entitle the


                                      F-27

<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in millions of Swiss francs, except share and per share data)


participants to receive the appreciation in the common stock's market value
between grant date and exercise date in cash or under certain circumstances in
common stock. These rights vest ratably over a three year period and expire
after ten years from date of grant. In March 2001, the remaining 60 799 stock
appreciation rights under this plan were, according to the provisions of the
plan, converted to stock options with an exercise price of CHF 163.70. In 2001
and 2000, no compensation expense was recognized on the stock appreciation
rights.

     The following table summarizes the status of stock options outstanding and
exercisable at December 31, 2002:

<TABLE>
<CAPTION>
<S>                 <C>                   <C>             <C>                   <C>            <C>
----------------------------------------------------------------------------------------------------------------
                                           STOCK OPTIONS OUTSTANDING             STOCK OPTIONS EXERCISABLE
                                       -----------------------------------   -----------------------------------


                    WEIGHTED AVERAGE                      WEIGHTED AVERAGE                     WEIGHTED AVERAGE
                      EXERCISE PRICE          NUMBER OF          REMAINING         NUMBER OF          REMAINING
    EXERCISE PRICE    - OUTSTANDING/        OUTSTANDING   CONTRACTUAL LIFE       OUTSTANDING   CONTRACTUAL LIFE
             RANGE       EXERCISABLE            OPTIONS         (IN YEARS)           OPTIONS         (IN YEARS)
----------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------
   107.09 - 114.09     110.20/111.12          1 802 321              4.3             636 234               4.1
            163.70     163.70/163.70            393 018              1.6             393 018               1.6
----------------------------------------------------------------------------------------------------------------
                                              2 195 339                            1 029 252
----------------------------------------------------------------------------------------------------------------
</TABLE>

     In connection with the LTIP 2000, the Company granted 33 288 restricted
shares of common stock, which are restricted for three years from the date of
grant, to 376 participants. The market value of the common stock at date of
grant was CHF 108 per share. Compensation expense of approximately CHF 4 million
has been recognized in 2000 related to the grant of these shares.

     In connection with the LTIP 2001, the Company granted 96 729 restricted
shares of common stock, which are restricted for three years from the date of
grant, to 639 participants. These restricted shares were granted as part of the
payment of the 2000 incentive bonus, which was recorded as compensation expense
in 2000. The market value of the common stock at date of grant was CHF 112 per
share.

     In connection with the LTIP 2002, the Company granted 85 128 restricted
shares of common stock, which are restricted for three years from the date of
grant, to 683 participants. The market value of the common stock at date of
grant was CHF 112 per share. Compensation expense of approximately CHF 10
million has been recognized in 2002 related to the grant of these shares.

     LEXIP - In April 1998, the Company established a Long-term Executive
Incentive Plan in which five participants were given the right to purchase 6 007
shares of common stock at the market value at grant date of CHF 183. For each
share purchased, four stock options (total 24 028) were granted to the
participants. The strike price equals to the market value of the shares of
common stock at the date of the grant of CHF 183, adjusted to CHF 181.70 after
the capital reduction repricing. These options vest after four years and expire
after seven years from date of grant. As of December 31, 2002, 12 560 of the
stock options have been forfeited. In 2002, 2001 and 2000, no compensation
expense was recorded under this plan.

     ESOP - In 1998, the Company established a plan which enables substantially
all employees to annually purchase up to 20 shares of common stock at a price
equal to 85 percent of the average market price, as defined as the average
closing price of the shares on the Swiss Exchange for 10 trading days prior to
the purchase date of the shares, pursuant to the Company's "Employee Share
Ownership Plan". During 2002, 1 660 employees (2001: 2 279 employees; 2000: 2
836 employees) purchased 29'499 shares (2001: 40 069 shares; 2000: 50 099
shares) for which approximately CHF 3 million (2001: CHF 4 million; 2000: CHF 5
million) was paid to the Company. In 2002, 2001 and 2000, no compensation
expense was recorded under this plan.

     MAB - In 1998, the Company established a "Mitarbeiterbeteiligungsplan"
(Employee Investment Plan) which grants annually to most employees in
Switzerland (as an enhancement to their pension plan arrangements) the right to
purchase 20 shares (beginning in 2003, 25 shares) of common stock at CHF 15 per
share (so long as the share price is not greater than CHF 200 at which level the
Employee Investment Plan price may be adjusted). The rights vest at the grant
date and become exercisable at the date of the employees' retirement or
termination. The following table summarizes rights activity under the MAB during
2002, 2001 and 2000:

<TABLE>
<CAPTION>
<S>                                                                               <C>               <C>
----------------------------------------------------------------------------------------------------------------
                                                                                                         RIGHTS
                                                                                  EXERCISE PRICE    OUTSTANDING
----------------------------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1999                                                                  15        188 640
Rights granted                                                                                15         83 260
Rights exercised                                                                              15        (39 140)
----------------------------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 2000                                                                  15        232 760
----------------------------------------------------------------------------------------------------------------
Rights granted                                                                                15         86 240
Rights exercised                                                                              15        (16 260)
----------------------------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 2001                                                                  15        302 740
----------------------------------------------------------------------------------------------------------------
Rights granted                                                                                15         86 040
Rights exercised                                                                              15        (18 500)
----------------------------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 2002                                                                  15        370 280
----------------------------------------------------------------------------------------------------------------
</TABLE>

     Compensation expense is recorded in the year the rights are granted and, in
2002, CHF 8 million (2001: CHF 8 million; 2000: CHF 10 million) of compensation
expense was recorded under this plan.

                                     F-28
<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in millions of Swiss francs, except share and per share data)


     PSP - In 2001, the Company established a Performance Share Plan (PSP) for
selected senior and key management and non-executive Board members
(participants). In accordance with the PSP, participants are granted rights to
receive shares of common stock of the Company if the performance of the Company,
defined and measured as Total Shareholder Return (TSR), during the measurement
period under the PSP meets or exceeds specified conditions and the share price
of the Company is equal to or higher than the market value of shares at the
beginning of the measurement period. The TSR includes three parameters: (i) the
change in the share price from the close of the first trading day at the
beginning of the measurement period to the share price at the close of the last
trading day at the end of the measurement period, expressed as a percentage;
(ii) any dividends paid or payable for the measurement period and (iii) any
extraordinary returns paid to the shareholders during the measurement period. In
2001, 86 700 rights were granted to 137 participants with a measurement period
from January 1, 2001 through December 31, 2003. The share price as of the
beginning of the measurement period was CHF 109.25, the market value of the
shares on January 3, 2001. The rights vest ratably over a three year period
except if a participant voluntarily terminates employment, in which case all
rights are forfeited. Each right is entitled to receive from one share up to a
maximum of four shares of Company common stock, depending on the Company's share
price and the Company's TSR ranking within the benchmark group at the end of the
measurement period. As a result of terminations from the plan, a total of 1 675
rights (2001: 1 250 rights) have been returned to the Company. As the conditions
of the PSP were not met, no compensation expense was recorded under this plan in
2002 and 2001.

     CHANGE IN CONTROL AND RESERVE OF SHARES

     Upon a change in control of the Company (defined as 30 percent for LEAP,
33.33 percent other than 1998, which is 50 percent, for LTIP program, and 20
percent for PSP, such percentage, in each case, as being a percentage of total
voting power. Additionally, for the PSP in a merger where the Company's
shareholders retain less than 50 percent of total voting power or the Company's
board of directors does not maintain a majority of the voting rights in the
board of the combined company), the vesting and restriction periods for the
plans stated above (if still current) will cease to apply and a cash or share
payment for the value of the outstanding plans and related taxes and duties will
be due to the participants.

     At December 31, 2002, the Company had approximately 2.0 million shares
(2001: 1.8 million shares; 2000: 1.7 million shares) of treasury stock reserved
for issuance under the various stock based compensation plans.


PRO FORMA DISCLOSURE

      The pro forma net income and earnings per share for 2002, 2001 and 2000
have been determined as if the Company had used the fair value method of
accounting for its stock option based compensation plans in accordance with
the provisions of SFAS No. 123. No pro forma compensation expense was recorded
as a result of the capital reduction repricing. The pro forma amounts
presented below reflect the portion of the estimated fair value of awards
granted in 2002, 2001 and 2000, based on the vesting or service period over
which the awards are earned.

<TABLE>
<CAPTION>
<S>                                                                              <C>          <C>         <C>
----------------------------------------------------------------------------------------------------------------
YEAR-ENDED DECEMBER 31,                                                          2002         2001         2000
----------------------------------------------------------------------------------------------------------------

Net income, as reported                                                           406          382          452
Add: Stock based employee compensation expense included in reported net
income, net of related tax effects                                                 18            8           25
Deduct: Stock based employee compensation expense determined as if the
fair value based method was used for all plans, net of related tax effects        (29)         (20)         (33)
----------------------------------------------------------------------------------------------------------------
PRO FORMA NET INCOME                                                              395          370          444
----------------------------------------------------------------------------------------------------------------
EARNINGS PER SHARE - BASIC AND DILUTED:
Basic and diluted - as reported                                                  5.92         5.76         6.81
Basic and diluted - pro forma                                                    5.76         5.57         6.69
----------------------------------------------------------------------------------------------------------------

     The Company used the Black-Scholes model to value the stock options
granted. The weighted-average assumptions used to estimate the fair value of the
options included in the pro forma amounts are as follows:
----------------------------------------------------------------------------------------------------------------
YEAR-ENDED DECEMBER 31,                                                          2002         2001         2000
----------------------------------------------------------------------------------------------------------------

Expected option lives in years                                                   6.07         7.04         7.36
Expected volatility in percentage                                               23.00        29.93        32.36
Risk-free interest rate in percentage                                            3.23         3.60         3.94
Expected dividend yield in percentage                                            1.81         1.80         1.85
Weighted average fair value in CHF                                              24.05        33.13        36.14
----------------------------------------------------------------------------------------------------------------

19. RETIREMENT BENEFITS
----------------------------------------------------------------------------------------------------------------
</TABLE>

PENSION PLANS

     Employees receive and the Company funds pensions and retirement benefits in
accordance with the applicable laws and customs in the countries in which the
Company operates. The Company has both contributory and non-contributory defined
benefit and defined contribution plans.

DEFINED CONTRIBUTION PLANS

     In countries in which employees are covered by defined contribution plans,
employer contributions charged to income from continuing operations were CHF 16
million in 2002, CHF 19 million in 2001 and CHF 19 million in 2000.

                                     F-29

<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in millions of Swiss francs, except share and per share data)


DEFINED BENEFIT PLANS

     Benefits are generally based on years of service, levels of compensation or
stated amounts for each year of service.

     The components of net pension and postretirement expense for the
Company-sponsored defined benefit plans were:


<TABLE>
<CAPTION>
<S>                                                  <C>       <C>       <C>          <C>      <C>        <C>
                                                          PENSION BENEFITS            POSTRETIREMENT BENEFITS
                                                     --------------------------    ----------------------------
                                                      2002      2001      2000         2002     2001      2000
---------------------------------------------------------------------------------------------------------------

MAJOR PLANS:
   Service cost                                         95        92       114            1        1          1
   Interest cost                                       182       185       162            5        5          5
   Expected return on plan assets                     (230)     (252)     (239)           0        0          0
   Amortization of prior service cost                    1         0        (3)          (1)      (1)        (1)
   Other (gains), losses and amortization, net         (26)      (38)      (36)          (2)       0         (3)
----------------------------------------------------------------------------------------------------------------
BENEFIT EXPENSE (INCOME) MAJOR PLANS                    22       (13)       (2)           3        5          2
Other plans                                              1         2         3            0        0          0
----------------------------------------------------------------------------------------------------------------
TOTAL BENEFIT EXPENSE (INCOME)(1)                       23       (11)        1            3        5          2
----------------------------------------------------------------------------------------------------------------
(1) In connection with the sale of the Performance Polymers business on
    May 31, 2000 (see Note 3), the pension benefits and post-retirement
    benefits, liabilities and related assets for the active employees and
    certain retirees of the Performance Polymers business were assumed by
    the purchaser.

     For the Company's major plans, the following table provides a
reconciliation of the changes in the benefit obligation, the changes in the fair
value of assets, and the funded status of the plans as of December 31, 2002 and
2001:
----------------------------------------------------------------------------------------------------------------
                                                          PENSION BENEFITS            POSTRETIREMENT BENEFITS
                                                     --------------------------    -----------------------------
                                                                2002      2001                  2002       2001
                                                     --------------------------    -----------------------------
BENEFIT OBLIGATION, BEGINNING OF YEAR                          3 532     3 340                    67         66
   Service cost                                                   95        92                     1          1
   Interest cost                                                 182       185                     5          5
   Participant contributions                                      22        20                     2          2
   Actuarial (gain) loss                                        (114)       74                    12          1
   Plan amendments                                                 2         7                     0          0
   Benefits paid                                                (171)     (157)                   (9)        (7)
   Foreign currency translation                                 (102)      (65)                   (9)        (1)
   Other                                                         (3)        36                     1          0
----------------------------------------------------------------------------------------------------------------
BENEFIT OBLIGATION, END OF YEAR                                3 443     3 532                    70         67
----------------------------------------------------------------------------------------------------------------

PLAN ASSETS, BEGINNING OF YEAR                                 3 292     3 939                     0          0
   Actual return on plan assets                                 (384)     (505)                    0          0
   Employer contributions                                        104        60                     6          5
   Participant contributions                                      22        20                     2          2
   Benefits paid                                                (171)     (157)                   (9)        (7)
   Foreign currency translation                                  (77)      (53)                     0          0
   Other                                                           3       (12)                    1          0
----------------------------------------------------------------------------------------------------------------
PLAN ASSETS, END OF YEAR                                       2 789     3 292                     0          0
----------------------------------------------------------------------------------------------------------------

Funded status                                                   (654)     (240)                  (70)       (67)
Unrecognized net (gain) loss                                     890       415                    (7)       (17)
Unrecognized prior service cost                                    9        (9)                   (1)        (8)
----------------------------------------------------------------------------------------------------------------
NET AMOUNT RECOGNIZED, MAJOR PLANS                               245       166                   (78)       (92)
Other plans                                                      (14)       (9)                    0          0
----------------------------------------------------------------------------------------------------------------
TOTAL NET AMOUNT RECOGNIZED                                      231       157                   (78)       (92)
----------------------------------------------------------------------------------------------------------------
</TABLE>

     Certain of the Company's pension plans have accumulated benefit obligations
that exceed plan assets (the "unfunded accumulated benefit obligation") by CHF
553 million in 2002 (2001: CHF 501 million). The aggregate accumulated benefit
obligations of those plans are CHF 871 million in 2002 (2001: CHF 882 million)
and the plan assets of those plans are CHF 318 million in 2002 (2001: CHF 381
million). The aggregate benefit obligations of these plans are CHF 958 million
in 2002 (2001: CHF 968 million).

     The Company is required to recognize an accrued pension liability at least
equal to the unfunded accumulated benefit obligation. For pension plans where
the accrued pension cost for the plan is less than the unfunded accumulated
benefit obligation or a prepaid pension asset has been recognized for these
plans, an additional minimum pension liability is required to be recorded.

                                      F-30


<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in millions of Swiss francs, except share and per share data)


     In certain of the Company's plans, mainly in the United States, the
unfunded accumulated benefit obligations, which amounted to CHF 126 million
(2001: CHF 70 million), exceeded the accrued pension costs resulting in the
recognition of an additional minimum pension liability of CHF 136 million (2001:
CHF 53 million). This additional minimum pension liability has no impact on
income as it was offset by recording an intangible asset of CHF 19 million
(2001: CHF 22 million) and by reducing shareholders' equity by CHF 117 million,
before taxes (2001: CHF 31 million, before taxes).

     The majority of the remaining unfunded plans are in Germany where, in line
with local practices, the Company has not funded the pension plans of its German
subsidiaries. This results in an accrued benefit liability of approximately CHF
445 million in 2002 (2001: CHF 435 million), which exceeds the unfunded
accumulated benefit obligation by CHF 33 million (2001: CHF 35 million).

      The amounts recognized in the Consolidated Balance Sheets as of December
31, 2002 and 2001, related to retirement benefits consists of the following:

<TABLE>
<CAPTION>
<S>                                                   <C>            <C>             <C>               <C>
--------------------------------------------------------------------------------------------------------------
                                                           PENSION BENEFITS           POSTRETIREMENT BENEFITS
                                                   -------------------------      ----------------------------
                                                           2002        2001                2002          2001
                                                   -------------------------      ----------------------------
Prepaid benefit cost(1)                                     700         650                   -             -
Accrued benefit liability(1)                               (605)       (546)                (78)          (92)
Minimum pension liability - intangible asset                 19          22                   -             -
Accumulated other comprehensive income, pre tax             126          31                   -             -
Currency adjustments(2)                                     (9)           -                   -             -
--------------------------------------------------------------------------------------------------------------
TOTAL NET AMOUNT RECOGNIZED                                 231         157                 (78)          (92)
--------------------------------------------------------------------------------------------------------------
(1) Current and long-term portion
(2) Currency effect on the prior year additional minimum pension liability

      The weighted average key actuarial assumptions used to compute the
benefit obligations were as follows:
</TABLE>

<TABLE>
<CAPTION>
<S>                                                      <C>     <C>        <C>      <C>        <C>      <C>
---------------------------------------------------------------------------------------------------------------
                                                                 PENSION BENEFITS       POSTRETIREMENT BENEFITS
                                                   ------------------------------------------------------------
                                                         2002      2001      2000      2002      2001      2000
                                                   ------------------------------------------------------------
Discount (interest rate)                                 5.1%      5.3%      5.5%      6.9%      7.2%      7.7%
Rate of increase in compensation levels                  2.4%      2.9%      3.2%      n.a.      n.a.      n.a.
Expected long-term rate of return on plan assets         6.2%      6.5%      6.3%      n.a.      n.a.      n.a.
---------------------------------------------------------------------------------------------------------------
</TABLE>

     The weighted average healthcare cost trend rate is 10.0 percent for 2003
and is assumed to decrease to an ultimate trend rate of 5.0 percent in 2010. A
one percent annual increase in the assumed healthcare cost trend rate would
increase the 2002 accumulated postretirement benefit obligation by approximately
CHF 4 million and the annual postretirement benefit cost by approximately CHF
0.4 million. A one percent annual decrease in the assumed healthcare cost trend
rate would decrease the 2002 accumulated postretirement benefit obligation by
approximately CHF 4 million and the annual postretirement benefit cost by
approximately CHF 0.4 million.

     At December 31, 2002, the Company's various pension plans held 86 211
shares (2001: 500 000 shares) with a market value of approximately CHF 8 million
(2001: CHF 52 million).

NUMBER OF PERSONNEL AND PERSONNEL EXPENSES

     The Company employed in its continuing operations 19 007 employees at
December 31, 2002, 19 683 at December 31, 2001, and 20 306 at December 31, 2000.
The Company's salaries and wages, including social charges in its continuing
operations, were CHF 1 752 million in 2002, CHF 1 796 million in 2001 and CHF 2
047 million in 2000. The Company's salaries and wages, including social charges
in its discontinued operations were CHF 130 million for the five month period
ended May 31, 2000, the date of Polymers divestment.


20. EARNINGS PER SHARE
------------------------------------------------------------------------------
     In 2002, 2001 and 2000 there was no difference in basic and diluted
earnings per share. In 2002 the basic weighted average number of shares
outstanding were 68 549 964 (2001: 66 419 147 and 2000: 66 311 879) and the
diluted weighted average number of shares outstanding were 68 575 058 (2001:
66 419 147 and 2000: 66 311 879). In 2002, the difference of 25 094 in the
weighted average number of shares outstanding (2001 and 2000: no difference)
for the purposes of computing the diluted earnings per share was due to the
inclusion of the dilutive effect of previously granted stock options with
exercise prices between CHF 107.09 and CHF 111.09, as their exercise prices
were less than the average market price of the Company's shares for 2002. For
purposes of calculating the basic and diluted earnings per share in 2002, 2001
and 2000 there was no required adjustment to the reported income from
continuing operations, discontinued operations or net income.

     The calculation of diluted earnings per share considers the effect of the
Company's outstanding convertible bonds and stock options as further described
in the following paragraphs.

                                     F-31

<PAGE>


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in millions of Swiss francs, except share and per share data)


     Diluted earnings per share assumes (i) that the 1.25 percent convertible
bonds, issued in 1998, were converted at the beginning of the year in 2002, 2001
and 2000, with related interest and common shares adjusted accordingly, and (ii)
that the weighted average shares outstanding were increased by shares issuable
upon exercise of those stock options for which the average stock market price
exceeded the exercise price, less shares which could have been purchased by the
Company with the related proceeds receivable from the exercise of the stock
options. These two calculations are not considered in calculating diluted
earnings per share if the effect would be antidilutive, that is the diluted
earnings per share would be higher than the basic earnings per share.

     For the years ended December 31, 2002, 2001 and 2000, the calculation of
diluted earnings per share excluded the assumed conversion of the 1.25 percent
convertible bonds, issued July 1998, due 2003, as their inclusion would have
been antidilutive.

     The calculation of diluted earnings per share in 2002 excluded 878 036
stock options outstanding with exercise prices between CHF 112.09 and CHF
181.70, in 2001 excluded 1 768 952 stock options outstanding with exercise
prices between CHF 108 and CHF 183, and in 2000 excluded 1 297 543 stock options
outstanding with exercise prices between CHF 108 and CHF 183, as their exercise
prices were greater than the average market price of the Company's shares in the
respective years.

21. RELATED PARTY TRANSACTIONS
------------------------------------------------------------------------------
TRANSACTIONS WITH ASSOCIATED COMPANIES

     Investments in affiliates of CHF 147 million in 2002 and CHF 157 million in
2001 are included in financial investments and are described in Note 9.

     Loans receivable from equity affiliates of CHF 10 million in 2002 and CHF
10 million in 2001 are included in other assets. Included is a loan to CIMO
Compagnie Industrielle de Monthey SA, of CHF 10 million in 2002 and 2001, which
bears interest at 2 percent in 2002 (2001: 3 percent). In 2001, the variable
interest rate loan from Hexcel Corporation of CHF 42 million (USD 25 million)
was repaid.

     The Company had payables and accrued expenses to equity affiliates of CHF
12 million in 2002 and CHF 11 million in 2001.

22. COMMITMENTS AND CONTINGENCIES
------------------------------------------------------------------------------
LEASE COMMITMENTS

     The Company leases certain facilities under operating leases. The future
minimum lease commitments required under fixed term leases are: 2003 CHF 44
million; 2004 CHF 30 million; 2005 CHF 16 million; 2006 CHF 9 million; 2007 CHF
7 million; 2008 and thereafter CHF 7 million. Rental expense amounted to CHF 67
million in 2002, CHF 74 million in 2001 and CHF 85 million in 2000.

PURCHASE COMMITMENTS

     The Company has various purchase commitments for materials, supplies and
items of permanent investment incident to the ordinary course of business. In
the aggregate, these commitments are not in excess of current market prices and
reflect normal business operations.

     The Company has the option to purchase two leased facilities, the first for
CHF 29 million (USD 21 million) in 2003 and the second for CHF 97 million (USD
68 million) in 2005. Should the Company choose not to purchase these facilities
it will be liable for any shortfall between the market value of the facilities
and the settlement value at the respective lease termination date. The Company
currently utilizes these facilities in its business operations and as a result
does not anticipate any material losses relating to these purchase options.

GUARANTEES

     In the normal course of business, the Company has provided guarantees to
third parties. The Company estimates that the fair value of these guarantees is
not material and does not expect to incur losses as a result of these
guarantees. As of December 31, 2002, the Company has provided guarantees to
third parties for indebtedness of others of approximately CHF 18 million of
which CHF 6 million expire in 2003, CHF 10 million expire in 2004 and CHF 2
million expire in 2005.

     In connection with past divestments of businesses, the Company has issued
certain indemnifications to the purchasers of those businesses related to the
past actions of the Company in the area of compliance with environmental and tax
regulations. At December 31, 2002, the Company had issued CHF 34 million of
environmental indemnifications that decrease to CHF 22 million in 2008 and which
expire in 2009. In addition, the Company has outstanding environmental
indemnifications that were issued to the purchaser of its Performance Polymers
business, which was sold in May 2000. These environmental indemnifications are
further discussed in the `Environmental Matters' section below. The Company has
issued certain tax indemnifications in connection with divestments of businesses
and in connection with certain debt financing arrangements of the Company, that
are unlimited in amount and, in certain instances, in time. As of December 31,
2002, the Company has recorded a liability related to the environmental
indemnifications in the amount of CHF 13 million (2001: CHF 13 million) and for
the tax indemnifications a liability has been recorded in the amount of CHF 1
million (2001: CHF 1 million).

CONTINGENCIES

     The Company operates in countries where political, economic, social, legal
and regulatory developments can have an impact on the operational activities.
The effects of such risks on the Company's results, which arise during the
normal course of business, are not foreseeable and are therefore not included in
the accompanying financial statements.

     In the ordinary course of business, the Company is involved in lawsuits,
claims, investigations and proceedings, including product liability,
intellectual property, commercial, environmental, and health and safety matters.
Although the outcome of any legal proceedings cannot be

                                     F-32

<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in millions of Swiss francs, except share and per share data)


predicted with certainty, management is of the opinion that there are no such
matters pending which would be likely to have any material adverse effect in
relation to its business, financial position or results of operations.

     As a result of a dispute over certain agreements with third parties, in the
context of the Company's divestment of the Performance Polymers Business in
2000, some third parties initiated arbitration proceedings against the Company.
This dispute has been settled and will not have any material adverse effect on
the financial position or results of operations of the Company.

     In connection with its Toms River, New Jersey site in the United States,
the Company was named as a defendant in several actions, most of which were
settled in 2002 (see "Environmental Matters" below).

TAXES

     In their tax audit of the Company's operations in Grenzach, Germany, the
German tax authorities have made a substantial tax adjustment. In accordance
with the Master Spin-off Agreement with Novartis and with Swiss commercial law,
management is of the opinion that the total liability owed is the responsibility
of Novartis. In 2001, arbitration proceedings were initiated by Novartis against
the Company in relation to this matter. In management's opinion, the ultimate
outcome of this matter will not have a material adverse effect on the financial
position or overall trends in the results of operations of the Company.

ENVIRONMENTAL MATTERS

     Operating in the chemical industry, the Company is subject to stringent
environmental, health and safety laws and regulations. It is the Company's
policy to continuously develop and improve the environmental performance of key
manufacturing processes through an active program to address environmental
matters. In addition to process improvements, the Company uses advanced waste
treatment and disposal facilities at all major manufacturing sites that allow
the sites to comply with recent laws and regulations applicable to waste
streams. In management's opinion, the Company substantially complies with all
such laws.

     For outstanding environmental matters that are currently known and
estimable by the Company, provisions of approximately CHF 614 million at
December 31, 2002 and CHF 748 million at December 31, 2001 have been recorded in
the accompanying Consolidated Balance Sheets. The decrease in the provision of
CHF 134 million in 2002 compared to 2001 relates to usage of the provisions of
CHF 82 million and to foreign currency exchange rate effects of CHF 52 million.
The Company's environmental protection and improvement cash expenditures were
approximately CHF 96 million in 2002 (CHF 43 million in 2001), including
investments in construction, operations and maintenance and usage of the
provision.

     In the agreement on the Company's spin-off from Novartis, Novartis agreed
to reimburse the Company 50 percent of United States environmental liabilities
arising from past operations of the Company in excess of the agreed reserves.
Outside the United States, environmental liabilities are allocated between
Novartis and the Company based on ownership of the site or, if environmental
liabilities do not relate to production sites or these are not owned by either
entity, according to which business unit allegedly used the site before the
Spin-off. If causation between the parties cannot be determined, costs are
shared equally. The agreement with Novartis is not subject to any time or
amount limits but could terminate for certain liabilities in the United States
(i) upon a sale of substantially all of the Company's assets, (ii) upon a
change in control of the Company, or (iii) for individual facilities, upon the
sale of the facility, unless the Company retains responsibility for any
clean-up at such site.

     The contractual terms of the sale of the Performance Polymers business
stipulate that, in general, the Company will retain responsibility for
environmental claims relating to the operations of the Performance Polymers
business prior to May 31, 2000, whereby damages for remediation in connection
with sites outside the United States shall cover only 80 percent of the
respective costs. The responsibility with respect to any non-United States sites
covers environmental liabilities incurred within fifteen years from May 31, 2000
and is limited to CHF 75 million. With respect to any such environmental
liabilities in the United States, the Company's obligation to indemnify is
unlimited in time or amount. Novartis' environmental indemnification obligations
to the Company described above are not affected by the sale of the Performance
Polymers business.

     The Company continues to participate in environmental assessments and
clean-ups at a number of locations, including operating facilities, previously
owned facilities and United States Superfund sites. The Company accrues reserves
for all known environmental liabilities for remediation costs when a clean-up
program becomes probable and costs can be reasonably estimated. Clean-up of the
most significant sites has been or is nearly completed, except as described in
the following paragraphs.

     At its Toms River, New Jersey remediation site, the Company began
implementation of the of a large bio-remediation project which will take eight
to ten years to complete. Based on management's current estimates, the Company's
environmental provisions are adequate to cover the expected costs to complete
this remediation plan.

     In 2000, several actions were filed against the Company's subsidiary in the
United States in New Jersey state court seeking medical monitoring as well as
payment of damages for alleged personal injuries and property damage. The
Company settled all the medical monitoring and personal injury cases in 2002,
the total amount of which was sufficiently provided for in the Company's
environmental reserve. The case seeking property damages is still in litigation,
but the Company does not believe the outcome of this case will have any material
adverse impact on its financial position. Following the settlement of the above
mentioned personal injury cases, the Company received three additional personal
injury claims against its subsidiary in the United States in connection with the
Toms River site. No lawsuits, however, have yet been filed with respect to these
claims. The Company does not believe these additional claims have merit and does
not believe that these additional claims will have any material adverse impact
on its financial position.

     The planning for the total remediation of the waste disposal site in
Bonfol, Switzerland, which was closed in 1976, is ongoing. The responsibility
for the remediation lies with eight chemical enterprises including among others
the Company. The responsible companies cooperate with the

                                     F-33

<PAGE>


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in millions of Swiss francs, except share and per share data)


governmental authorities to define the necessary measures in view of a final
remediation of the site. The remediation effort could require up to fifteen
years to complete. In management's opinion, based on the current remediation
plans, the Company's environmental provisions are adequate to cover the
Company's share of the expected costs to complete the remediation at this
site.

     In the Basel region several landfills (Switzerland, France and Germany)
contain chemical waste besides other industrial and household wastes. Presently
eleven landfills are the subject of investigations carried out with the
authorities by the 'Interessengemeinschaft Deponiesicherheit Regio Basel', an
association of the involved pharmaceutical and chemical enterprises (including
the Company). As of December 31, 2002, no remedial actions have been defined or
required in a legally binding form.

     In management's opinion, the environmental reserves accrued are sufficient
to meet all currently known and estimable environmental claims and
contingencies. Because of the nature of the Company's operations, however, there
can be no assurance that significant costs and liabilities from ongoing or past
operations will not be incurred in the future. In addition, environmental
clean-up periods are protracted in length and environmental costs in future
periods are subject to changes in environmental remediation regulations.


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in millions of Swiss francs, except share and per share data)

<TABLE>
<CAPTION>
<S>                                                                            <C>          <C>           <C>
23. VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
---------------------------------------------------------------------------------------------------------------

ALLOWANCE FOR DOUBTFUL ACCOUNTS

For the year ended December 31,                                                2002          2001          2000
---------------------------------------------------------------------------------------------------------------
Balance at beginning of year                                                    120           118           125
Additions (deductions) charged (credited) to cost and expenses, net              31            22            24
Other, net(1)                                                                   (43)          (20)          (30)
Currency adjustments                                                            (12)            0            (1)
---------------------------------------------------------------------------------------------------------------
BALANCE AT END OF YEAR                                                           96           120           118
---------------------------------------------------------------------------------------------------------------
ALLOWANCE FOR OBSOLETE AND SLOW MOVING INVENTORY

For the year ended December 31,                                                2002          2001          2000
----------------------------------------------------------------------------------------------------------------
Balance at beginning of year                                                     66            73            78
Additions (deductions) charged (credited) to cost and expenses, net               5             5            17
Other, net(1)                                                                    (9)          (13)          (22)
Currency adjustments                                                             (4)            1             0
----------------------------------------------------------------------------------------------------------------
BALANCE AT END OF YEAR                                                           58            66            73
----------------------------------------------------------------------------------------------------------------

DEFERRED INCOME TAX VALUATION ALLOWANCE
----------------------------------------------------------------------------------------------------------------
For the year ended December 31,                                                2002          2001          2000
----------------------------------------------------------------------------------------------------------------
Balance at beginning of year                                                    146           143           217
Additions (deductions) charged (credited) to cost and expenses, net               1             3          ( 70)
Other, net(1)                                                                     0             0          (  8)
Currency adjustments                                                            (16)            0             4

----------------------------------------------------------------------------------------------------------------
BALANCE AT END OF YEAR                                                          131           146           143
----------------------------------------------------------------------------------------------------------------
(1) Other, net is primarily additions and deductions applicable to
    acquisitions and divestitures, amounts written-off and miscellaneous
    other adjustments and for allowance for doubtful accounts in 2002, also
    included is a reclassification to accrued liabilities for provisions
    that did not relate to accounts receivable.
</TABLE>




                                      F-34