As Filed with the Securities and Exchange Commission on February 6, 2002
_______________________________________________________________________________

                                 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, 2001

                                      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 10 per share

Ordinary shares, par value CHF 10 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, 2001.

                         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............................................................1


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


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


      PART I   ...............................................................2

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.....................................9

Item 5.        Operating and Financial Review and Prospects..................38

Item 6.        Directors, Senior Management and Employees....................68

Item 7.        Major Shareholders and Related Party Transactions.............76

Item 8.        Financial Information.........................................77

Item 9.        The Offer and Listing.........................................78

Item 10.       Additional Information........................................81

Item 11.       Quantitative and Qualitative Disclosures About Market Risk....88

Item 12.       Description of Securities Other than Equity Securities........88


      PART II  ..............................................................89

Item 13        Defaults, Dividend Arrearages and Delinquencies...............89

Item 14.       Material Modifications to the Rights of Security Holders
               and Use of Proceeds...........................................89

Item 15.       [Reserved]

Item 16.       [Reserved]



      PART III ..............................................................89

Item 17.       Financial Statements..........................................89

Item 18.       Financial Statements..........................................89

Item 19.       Exhibits......................................................89


      Signature..............................................................92


                                      i


<PAGE>


                                 Introduction

     This Annual Report on Form 20-F relates to the registered shares with a
nominal value of 10 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, 2001, 2000, 1999, 1998 and 1997, and for each of the
years in the five-year period ended December 31, 2001 (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, 2001, which was CHF 1.6598 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, 2001, 2000 and 1999,
and for each of the years in the three year period ended December 31, 2001,
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 document 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,
market size, market share, market demands, volumes, prices, margins, research
and development, capital expenditures, cash flows, debt levels, patents,
outlook for 2002 and beyond, 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. 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 selected consolidated financial data as of December 31, 2001, 2000,
1999, 1998 and 1997, and for each of the years in the five-year period ended
December 31, 2001, 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>
                                                                 2001       2000       1999       1998       1997
                                                             ------------------------------------------------------
                                                               (in millions of CHF, except percentages, share,
                                                                   per share and number of employees data)
<S>                                                             <C>        <C>         <C>       <C>        <C>
Results of operations
Net sales  ..................................................   7 367      7 902      7 244      6 632      6 196
Operating income (loss)  ....................................     761        876        632      (528)        357
Income (loss) from continuing operations(1)  ................     380        418        238      (971)        222
Income (loss) from discontinued operations, net of                  -         34         87       (13)         60
tax(2)(3)  ..................................................
Cumulative effect of change in accounting principles, net of        2          -          -          -          -
tax(4)  .....................................................
Net income (loss)(5)  .......................................     382        452        325      (984)        282
-------------------------------------------------------------------------------------------------------------------
Basic earnings (loss) per share:
  Continuing operations(1)  .................................    5.72       6.31       3.58    (14.65)       3.25
  Discontinued operations(3)  ...............................       -       0.50       1.31     (0.20)       0.88
  Cumulative effects of change in accounting principles  ....    0.04          -          -          -          -
  Net income (loss) per share(5)  ...........................    5.76       6.81       4.89    (14.85)       4.13
-------------------------------------------------------------------------------------------------------------------
Diluted earnings (loss) per share:
  Continuing operations(1)  .................................    5.72       6.31       3.58    (14.65)       3.25
  Discontinued operations(3)  ...............................       -       0.50       1.31     (0.20)       0.88
  Cumulative effects of change in accounting principles  ....    0.04          -          -          -          -
  Net income (loss) per share(5)  ...........................    5.76       6.81       4.89    (14.85)       4.13
-------------------------------------------------------------------------------------------------------------------
Equity per share(6)  ........................................   59.08      56.82      54.74      48.94      68.58
Dividend per share(7)  ......................................    2.00       2.00       2.00       2.00       2.00
Capital reduction per share(7)  .............................    1.00          -          -          -          -
-------------------------------------------------------------------------------------------------------------------
Weighted average number of Shares outstanding:
  Basic  ....................................................66 419 147 66 311 879 66 454 357 66 293 130 68 158 845
  Diluted  ..................................................66 419 147 66 311 879 66 462 898 66 293 130 68 158 845
-------------------------------------------------------------------------------------------------------------------
Other data - continuing operations
Net sales development percentage  ...........................    (7)%         9%         9%         7%        14%
Restructuring and special charges(8)  .......................       0          2          0      1 286        296
EBITDA(9), before restructuring and special charges  ........   1 230      1 348      1 086      1 175        972
EBITDA margin(10), before restructuring and special charges     16.7%      17.1%      15.0%      17.7%      15.7%
Capital expenditures  .......................................     259        249        267        396        413
Depreciation and amortization  ..............................     469        470        454        418        319
Research and development  ...................................     276        293        256        249        250
Personnel costs  ............................................   1 796      2 047      1 836      1 883      1 650
Number of employees at year end  ............................  19 683     20 306     20 117     21 148     18 137
-------------------------------------------------------------------------------------------------------------------


                                      2


<PAGE>


                                                                 2001       2000       1999       1998       1997
                                                             ------------------------------------------------------
                                                               (in millions of CHF, except percentages, share,
                                                                   per share and number of employees data)
Balance sheet data
Current assets  .............................................   4 827      4 797      4 272      4 284      4 734
Property, plant and equipment, net  .........................   3 565      3 787      3 914      3 853      3 454
Total assets  ...............................................  11 718     12 105     12 407     12 045     10 151
Short-term debt  ............................................     316        371      1 174      1 905      1 814
Long-term debt  .............................................   3 678      3 859      4 265      3 648        294
Common stock  ...............................................     721        721        721        721        721
Shareholders' equity  .......................................   3 908      3 754      3 638      3 252      4 553
-------------------------------------------------------------------------------------------------------------------
Business Segment data(11)
Plastic Additives
  Net sales  ................................................   1 834      1 959      1 784      1 609      1 781
  Operating income  .........................................     271        314        276        273        246
  EBITDA(9)  ................................................     388        423        377        375        352
  EBITDA margin(10)  ........................................   21.1%      21.6%      21.1%      23.3%      19.8%
-------------------------------------------------------------------------------------------------------------------
Coating Effects
  Net sales  ................................................   1 944      2 118      1 955      1 823      1 820
  Operating income  .........................................     304        366        305        298        280
  EBITDA(9)  ................................................     411        475        403        392        373
  EBITDA margin(10)  ........................................   21.1%      22.4%      20.6%      21.5%      20.5%
-------------------------------------------------------------------------------------------------------------------
Water & Paper Treatment(12)
  Net sales  ................................................   1 486      1 558      1 408      1 100        385
  Operating income  .........................................      82        111         68         94         26
  EBITDA(9)  ................................................     157        187        151        168         45
  EBITDA margin(10)  ........................................   10.6%      12.0%      10.7%      15.3%      11.7%
-------------------------------------------------------------------------------------------------------------------
Textile Effects
  Net sales  ................................................   1 673      1 841      1 683      1 678      1 776
  Operating income  .........................................     183        204        117        111        162
  EBITDA(9)  ................................................     248        275        179        172        223
  EBITDA margin(10)  ........................................   14.8%      14.9%      10.6%      10.2%      12.6%
-------------------------------------------------------------------------------------------------------------------
Home & Personal Care  .......................................
  Net sales  ................................................     430        426        414        422        434
  Operating income  .........................................      67         58         62         68         58
  EBITDA(9)  ................................................      95         80         85         91         80
  EBITDA margin(10)  ........................................   22.2%      18.8%      20.5%      21.5%      18.4%
-------------------------------------------------------------------------------------------------------------------
Discontinued operations(13)
Performance Polymers business
  Net sales  ................................................       -        774      1 729      1 791      1 626
  Operating income (loss)  ..................................       -         57        131       (17)         82
  Gain on sale, net of tax  .................................       -         34          -          -          -
  EBITDA(9)  ................................................       -       n.m.        193        140        217
  EBITDA margin(10) .........................................       -       n.m.      11.2%       7.8%      13.3%
-------------------------------------------------------------------------------------------------------------------
</TABLE>
(1)  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, CHF 1 274 million or CHF 19.22 per share in 1998 and CHF 222
     million or CHF 3.27 per share in 1997.

(2)  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 (13) below).

(3)  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 and CHF 56 million or CHF 0.82 per share in 1997.

(4)  On January 1, 2001, the Company adopted the Financial Accounting
     Standards Board (FASB) Statements of Financial Accounting Standard (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", which
     replaced existing pronouncements and practices with a single, integrated
     accounting framework for derivatives and hedging activities.

(5)  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 and CHF 278 million or CHF 4.09 per share in
     1997.


                                      3


<PAGE>


(6)  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.

(7)  The Board of Directors proposes a payment to the Company's shareholders
     in 2002 of an unchanged dividend of CHF 2 per share, based on 2001
     results and a capital reduction of CHF 1 per Share. If approved, the
     capital reduction will take the form of a reduction in the nominal value
     of each Share from CHF 10 per share to CHF 9 per share. Both the dividend
     and capital reduction are subject to shareholder approval at the Annual
     General Meeting on March 22, 2002. If approved, the Company expects that
     the dividend will be distributed on March 27, 2002 and expects, subject
     to various conditions, that the payments from capital reduction will be
     made on June 28, 2002. The dividend per share and capital reduction for
     2001, based on the US$ exchange rate of December 31, 2001, are US$ 1.20,
     and US$ 0.60, respectively. Based on the US$ exchange rate at the
     respective payment dates of the 2000, 1999, 1998 and 1997 dividends, the
     US$ equivalent of the dividend per share were US$ 1.23, US$ 1.25, US$
     1.36 and US$ 1.34, respectively.

(8)  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.

(9)  EBITDA is calculated as operating income plus depreciation and
     amortization.

(10) EBITDA margin is EBITDA expressed as a percentage of net sales.

(11) 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. Amounts reported for the previous periods have been restated to
     conform to the 2001 presentation.

(12) 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.

(13) 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).

n.m. Data is not meaningful as the Performance Polymers business was sold on
     May 31, 2000 (see footnote (13) above).


     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.

                                       Average(1)   High       Low       Period
                                                                           End
     --------------------------------------------------------------------------
     Year
     1997  ..........................   1.4526     1.5136     1.4051     1.4547
     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
     --------------------------------------------------------------------------
     Months
     2001      January  .......................    1.6582     1.6025     1.6425
               February  ......................    1.6920     1.6330     1.6736
               March  .........................    1.7360     1.6465     1.7360
               April  .........................    1.7375     1.6926     1.7345
               May  ...........................    1.7970     1.7255     1.7970
               June  ..........................    1.8046     1.7648     1.7968
               July  ..........................    1.8185     1.7145     1.7285
               August  ........................    1.7165     1.6552     1.6698
               September  .....................    1.7075     1.5878     1.6188
               October  .......................    1.6642     1.6157     1.6347
               November  ......................    1.6680     1.6315     1.6405
               December  ......................    1.6920     1.6307     1.6598

     2002      January  .......................    1.7190     1.6417     1.7190
     --------------------------------------------------------------------------

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

     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".


                                      4


<PAGE>


     Risk Factors

     Prospective purchasers of the ADRs 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 ADRs. 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, e.g., "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. These conditions are described below:

     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 confronted 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 2001 was,
for example, 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 economic crisis. In the
Asia-Pacific region, the Japanese market has 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 United 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. The economic
conditions in the NAFTA, Europe, and parts of Asia-Pacific, particularly Japan
may continue to worsen or not fully recover which depending on the extent of
the severity of any adverse economic situations in these regions, 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 euro, U.S. dollar, Japanese yen, British pound and Swiss franc
relative to each other. For more information, see "Item 5. Operating and
Financial Review and Prospects--Currency Trends" in this Annual Report.


                                      5


<PAGE>


     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 as well
as additional risks inherent in international operations in developing
regions.

     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.

     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.

     In the past the Company has received communications asserting that its
products or their applications infringe on the proprietary rights of others.
Currently, there is no material pending litigation against the Company
regarding any intellectual property claim but there could be claims in the
future. Such 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 technical and management personnel
from their regular responsibilities. Furthermore, successful claims against
the Company could suspend the manufacture of products using the contested
invention.

     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


                                      6


<PAGE>


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
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.

     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 having 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
accurately 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 ADRs.

     Certain tax considerations, 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 ADRs.
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


                                      7


<PAGE>


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.

     On January 1, 1999, eleven (2001: twelve) of fifteen member countries of
the European Union established fixed conversion rates between their existing
sovereign currencies and adopted the euro as their new common currency. The
euro trades on currency exchanges while the legacy currencies remained legal
tender in the participating countries for a transition period between January
1, 1999 and January 1, 2002. The Company conducts a portion of its operations
in the EU and in countries that have adopted the euro, and therefore the
introduction of the euro may still likely have an impact on these operations.
For more information, see "Item 5. Operating and Financial Review and
Prospects--Supplemental Information--Euro conversion" in this Annual Report.

     The Company's share price may be highly volatile and subject to sudden
and significant drops.

     The trading price of the Shares and the ADRs 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 international economic
trends and other factors, some of which are unrelated to the operating
performance of the Company. 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.


                                      8


<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
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 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 will speed 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. 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


                                      9


<PAGE>


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.

     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 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.

     Capital expenditures

     Ciba Specialty Chemicals' aggregate capital expenditures for property,
plant and equipment were CHF 259


                                      10


<PAGE>


million in 2001, CHF 249 million in 2000 and CHF 267 million in 1999. In 2001
and 2000, 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) and the core
Water & Paper Treatment business (increasing the production for Cationic
Monomers in the United States).

     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 2001, the Company had net sales from continuing operations of CHF 7
367 million, operating income of CHF 761 million and net income of CHF 382
million.

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

                                     2001              2000            1999
                                -------------     ------------    -------------
     amounts in CHF millions    Sales    in %     Sales   in %    Sales    in %

     Europe ................    2 755    37%      2 913   37%     2 826    39%
     Americas(1) ...........    2 654    36%      2 936   37%     2 620    36%
     Asia Pacific(2) .......    1 958    27%      2 053   26%     1 798    25%
     ---------------------------------------------------------------------------
     Total net sales .......    7 367   100%      7 902  100%     7 244   100%
     --------------------------------------------------------------------------
     (1) The Americas are comprised of North, Central and South America.

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

     Organization

     In 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. 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 and supply chain services.

     Segments

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

                                     2001              2000            1999
                                -------------     ------------    -------------
     amounts in CHF millions    Sales    in %     Sales   in %    Sales    in %

     Plastic Additives .....    1 834    25%      1 959   25%     1 784    25%
     Coating Effects .......    1 944    26%      2 118   27%     1 955    27%
     Water & Paper
       Treatment ...........    1 486    20%      1 558   20%     1 408    19%
     Textile Effects .......    1 673    23%      1 841   23%     1 683    23%
     Home & Personal Care ..      430     6%        426    5%       414     6%
     ---------------------------------------------------------------------------
     Total net sales(1) ....    7 367   100%      7 902  100%     7 244   100%
     ---------------------------------------------------------------------------

     (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 and 1999.


                                      11


<PAGE>


     The Segment 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, synthetic pigments, pigment and additive 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.

     Water & Paper Treatment is one of the leading global suppliers to the
paper industry and the municipal and industrial waste-water treatment
industries. It offers products and services for paper production starting at
the wet-end and progressively moving towards dry end application. The range of
products and services offered increase mill productivity as well as
determining appearance, handle and performance of the paper by making it water
repellent, glossy or white. The Segment also offers products and services used
to help clean industrial and municipal effluents and to improve the efficiency
of mineral and oil processing.

     Textile Effects is the world's second largest manufacturer of textile
dyes, the largest manufacturer of dyes for wool, polyamide carpets and
automotive fabrics and the second largest manufacturer of reactive dyes and
dispersive dyes for polyester. It serves the textile industry, offering dyes
and chemicals, services and integrated solutions to customers along the whole
textile value chain. 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.

     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-use industries. Among its broad product offerings are whiteners for
detergents, antimicrobials for a variety of home and personal care products,
UV absorbers for sun screens and innovative hair dyes.

     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. The Performance
Polymers business that was sold includes substantially all of the Performance
Polymers division which produces epoxy resins and other high performance
thermosets that provide durability, extraordinary strength and resistance to
heat and corrosion. The Performance Polymers business achieved sales of CHF
774 million for the five-month period ended May 31, 2000 (for the year 1999
CHF 1 729 million).

     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 (i) they allow the Segments to fully concentrate on serving
their markets and customers and (ii) 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 Service organization is responsible for distribution of
all the finished products and order processing, warehousing and transportation
of products. Shared order desks are maintained 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 will be introduced and
operated by the Supply Chain Service organization to ensure adequate coverage
of the Company's distribution requirements. They also are responsible for
negotiating and managing the Company's major transport partners, including the
negotiation of the service contracts. The objective of the Supply Chain
Service organization is to significantly reduce the number of partners in the
transportation area with the ultimate goal to co-operate with one global Lead
Logistics Provider. Supply Chain Service is currently working on the
integration of the Company's three supply chains into a single global supply
chain.


                                      12


<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 interests 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 8 million in 2001, CHF 113
million in 2000 and CHF 15 million in 1999.

     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, 2001 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 plants of 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. ("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 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. Hexcel's 1999 results reduced the Company's operating income by CHF
17 million or approximately 3 percent in 1999.


                                      13


<PAGE>


     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.
     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, 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, which comprise approximately two thirds of the
          Company's portfolio, 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' represent about one-third of the Company's
          portfolio. They 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 recent 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


                                      14


<PAGE>


     fields to explore in attractive markets, the Company has introduced a
     corporate 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 has initiated an
     integration of its previous three supply chains into a single streamlined
     global supply chain system that will increase efficiency across the
     Company. This initiative is ongoing.

     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.

     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,


                                      15


<PAGE>


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 9 billion in 2001, of which the polymer products and
base polymers market represented CHF 7 billion and the lubricant additives
market CHF 2 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, 2001, 2000 and 1999.

     (amounts in millions of CHF)                  2001        2000        1999
                                                   ----        ----        ----
     Total Segment net sales .................    1 834       1 959       1 784
     Operating income ........................      271         314         276
     Capital expenditures ....................       80          67         54
     Research and development expenditures ...       73          82         64
     Contribution to the consolidated
      Company net sales from continuing
      operations, in percentage ..............      25%         25%         25%
     --------------------------------------------------------------------------

     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 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 Polymer Design such has 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.


                                      16


<PAGE>


     In addition to the Segments traditional IRGANOX(R) heat stabilizer range,
IRGANOX(R) HP and IRGANOX(R) XP are examples of how additives support the
polymer industry with new, innovative products and services. Both the
IRGANOX(R) HP and IRGANOX(R) XP ranges combine HP-136, the Company's
innovative lactone technology, with established high-performance phosphites.
Some examples of applications for these products are IRGANOX(R) HP which
ensures excellent stabilization for polyurethane foams and provides excellent
protection of polyolefin during processing.

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

     FIBERSTAB(R) L & 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.
FIBERSTAB(R) L is particularly suited for PP fiber applications such as
carpets and hygienic non-wovens.

     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, CHIMASSORB(R) 2020 exemplifies
Ciba's continuing efforts to achieve the best performance in UV light
protection possible, complimenting our already comprehensive range of
CHIMASSORB(R) light stabilisers.

     Ciba(R) TINUVIN(R) light stabilizers /UV absorbers TINUVIN(R) 123 S is
the preferred solution for demanding polyolefin outdoor applications.
TINUVIN(R) 1577 is 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, ATMER(TM)- antistatic agents,
ATMER(TM) SA - slip agents, Ciba(R) IRGAGUARD(TM) antimicrobial line,
including Ciba(R) IRGAGUARD(R) A - antialgae and Ciba(R) IRGAGUARD B -
antibacterial, Ciba(R) IRGAGUARD(R) B - antimicrobials, Ciba(R) IRGASTAT -
antistatic agents, Ciba(R) IRGACLEAR(R) - clarifying agents, Ciba(R)
SHELFPLUS(TM) - shelf life extension, Ciba(R) FLAMESTAB(TM) NOR - 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 this new focus on
surface modification, the Segment is improving materials with special physical
effects, thereby improving surface properties and product performance. A step
in that 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 Segment is identifying opportunities along the polymer product value
chain and promoting property enhancements by entering into branding
partnerships. For example, OTTO Entsorgungssysteme GmbH, the leading waste
container manufacturer in Europe, developed a garbage bin whose plastic
contains Ciba(R) IRGAGUARD(TM) B 1000(R), an antimicrobial that helps reduce
the proliferation of bacteria and mold, cutting down on odors.

     The trend of plastics replacing other materials, such as glass and wood,
is expected to continue. This offers the Segment opportunities with its base
polymers and polymer products 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 marketing approach that emphasizes customer contact and
quick response times.

     In 2001, Plastic Additives Segment introduced "Ciba Expert Services"
which will enhance the customers' business performance via the delivery of
knowledge-based services. This will be accomplished by applying a global
services network possessing Plastic Additives' comprehensive expertise and
experience in the plastics industry. "Ciba Expert Services" 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
     o Additives packages for industrial lubricants.
     o Segments product offerings are used in almost every plastic product or
       lubricant application.


                                      17


<PAGE>


     Product offerings in the polymer additives field include high performance
plastic additives that extend and enhance the performance of polymers. In this
area, the Segment offers polymer stabilizers, clarifying agents, optical
brighteners, surface modifiers, antimicrobials and preblends.

     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, ashless antioxidants for lubricants are becoming more important
with increased environmental awareness and regulation.

     Customers and End-User Markets

     In 2001, end-user markets such as the packaging industry accounted for
approximately 28 percent, the construction industry for 18 percent, the
plastic industry for 15 percent, automotive industry for 8 percent and the
lubricants industries for 8 percent of the Segment's sales. A number of other
smaller end-user markets account for the remaining 23 percent of the Segment's
sales. The top ten customers of the Segment accounted for approximately 30
percent of the Segment's 2001 sales.

     Research and Development

     Plastic Additives spends approximately 4 percent of sales each year on
research and development activities (CHF 73 million in 2001). 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. Certain patents covering some of the
Segment's important products such as light stabilizers, antioxidants and
processing stabilizers expired in 2001. 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. In addition, in
response to increasing environmental and safety regulations, Plastic Additives
is developing additives for plastics recycling, a metal-free replacement for
zinc dithiophosphates in lubricants and a replacement for stabilizers and
corrosion inhibitors containing heavy metals.

     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 and Great Lakes. In addition to these competitors, 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, synthetic
pigments, pigment and additive concentrates for the coatings, printing,
imaging, electronic and plastics and 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 primarily
focuses five market segments: (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,


                                      18


<PAGE>


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 2001.

     Growth in the global pigments market tends to track 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.

     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, 2001, 2000 and 1999.

     (amounts in millions of CHF)                  2001        2000        1999
     --------------------------------------------------------------------------
       Total Segment net sales ...............    1 944       2 118       1 955
       Operating income ......................      304         366         305
       Capital expenditures ..................       66          65          78
       Research and development expenditures .       96         102          97
       Contribution to the consolidated
        Company net sales from continuing
        operations, in percentage ............      26%         27%         27%
     --------------------------------------------------------------------------

     Strategy

     Expansion through innovative technology

     The goal for the Coating Effects Segment is to expand the business
through growth beyond the traditional


                                      19


<PAGE>


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 high
potential 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 Coatings business line is promoting its recent entry into the polymer
specialties sector, particularly with its dispersants, 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 coatings.

     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 photographs, 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 2001, 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 2001 sales.

     In 2001, the end-user markets such as the automotive industry accounted
for approximately 22 percent, the imaging and publication industry for 14
percent, the packaging industry for 18 percent, the electronics industry for
14 percent and the construction industry for 10 percent of the Segment's
sales. A number of other smaller end-user markets account for the remaining 22
percent of the Segment's sales.

     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 96 million in 2001). 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.


                                      20


<PAGE>


     Certain patents covering some of the Segment's important products such as
a hindered amine light stabilizer an algaecide expired in 2001. 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. Although patent
protection for part of the DPP product range will expire in 2002, the Company
has newer patents covering more recently launched or yet to be launched
products. 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 like waterborne, powder or radiation curable systems.

     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 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 and major retailers.

     Water & Paper Treatment

     Water & Paper Treatment offers products and services for the market
segment paper and broad 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 help clean industrial and municipal effluents and
to improve the efficiency of mineral and oil processing. 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 16 billion in 2001, of which the paper
market represented CHF 7 billion and the water treatment market represented
CHF 9 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, 2001, 2000 and 1999.


                                      21


<PAGE>


     (amounts in millions of CHF)                  2001        2000        1999
     --------------------------------------------------------------------------
     Total Segment net sales .................    1 486       1 558       1 408
     Operating income ........................       82         111          68
     Capital expenditures ....................       52          52          90
     Research and development expenditures ...       34          36          31
     Contribution to the consolidated Company
       net sales from continuing operations,
       in percentage .........................      20%         20%         19%
     --------------------------------------------------------------------------

     Strategy

     Provider of choice in Water & Paper Treatment

     Water & Paper Treatment intends to complete the turnaround and establish
a growth platform. To do this, the Segment has to rationalize its total cost
base, drive productivity and efficiency in its manufacturing base, and align
all processes in terms of business process excellence. The paper group 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, the water treatment group 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 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(R), 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 2001 Water & Paper Treatment supplied products and services to the
paper and municipal and industrial waste-water treatment industries. The top
ten customers of the Segment accounted for approximately 18 percent of the
Segment's 2001 sales.

     In 2001, end-user markets such as the paper industry accounted for
approximately 52 percent, the pollution control industry for 28 percent, the
extraction industry for 13 percent and the agricultural industry for 3 percent
of the Segment's sales. A number of other smaller end-user markets account for
the remaining 4 percent of Segment sales.


                                      22


<PAGE>


     Research and Development

     Water & Paper Treatment spends approximately 2 percent of sales each year
on research and development activities (CHF 34 million in 2001). 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 2001 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 specialty
colors 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 14 billion in 2001.

     Demand for textile dyes is mainly driven by developments in the textiles
markets, such as fashion trends, and by environmental regulations. The textile
industry is shifting to Asia, where 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).


                                      23


<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, 2001, 2000 and 1999.

     (amounts in millions of CHF)                  2001        2000        1999
     --------------------------------------------------------------------------
     Total Segment net sales .................    1 673       1 841       1 683
     Operating income ........................      183         204         117
     Capital expenditures ....................       32          37          24
     Research and development expenditures ...       39          44          41
     Contribution to the consolidated Company
       net sales from continuing operations,
       in percentage .........................      23%         23%         23%
     --------------------------------------------------------------------------

     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 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.

     Ultraviolet (UV) absorbers are supplied to the textile industry. 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 integrated into the base manufacturing of
textiles and fibers, to provide protection against ultraviolet radiation, in
items such as clothing, tents, outdoor awnings and umbrellas. Immediate growth
prospects are particularly strong in regions where concerns for effective
broadband (both UVA and UVB) protection from sunlight are high as well as in
regions where awareness is growing on the issues of rising skin cancer rates
and the consequences of ozone depletion.

     Textile Chemicals include a full range of products provided to the
textile industry, which serves three end-user segments: (i) apparel, (ii) home
furnishing and (iii) technical textiles. The main factors influencing growth
in textile chemicals are fashion trends, and the level of personal disposable
incomes. The Segment's core European markets are experiencing a plateau in
demand, however, substantial growth continues in Eastern Europe, Asia and
Latin America.

     Customers and End-User Markets

     In 2001 Textile Effects supplied the clothing/apparel industry, the home
furnishing industry and the industrial textile industry (including automotive
textiles). In 2001, the top ten customers of the Segment accounted for
approximately 7 percent of the Segment's 2001 sales. The customer base of the
textile dyes market is highly fragmented.

     In 2001, the end-user markets of the fibers, carpets, textiles industries
accounted approximately for 94 percent with the automotive industry accounting
for the remaining 6 percent of the Segment's sales.

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


                                      24


<PAGE>


     Research and Development

     Textile Effects spends approximately 2 percent of sales each year on
research projects (CHF 39 million in 2001). 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 wool,
replacements for indigo, and sulphur and naphthol dyes. Textile chemicals
currently being developed by the Segment include ecologically improved flame
retardants for cotton textiles

     Competition

     The markets in which Textile Effects operates are highly competitive.
There are worldwide overcapacities in both the textile dyes and the textile
processing 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, 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.

     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.

     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) cosmetic and hygiene. Among its major product
offerings into these industries are whiteners for detergents, hygiene effects
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 2001 sales, management estimates that the
Home & Personal Care is the leading global manufacturer of whiteners and the
leading provider of hygiene effects, mainly to the personal care market
segments.

     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 2001.

     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, 2001, 2000 and 1999.

     (amounts in millions of CHF)                  2001        2000        1999
     --------------------------------------------------------------------------
     Total Segment net sales .................      430         426         414
     Operating income ........................       67          58          62
     Capital expenditures ....................       25          23          16
     Research and development expenditures ...       24          21          19
     Contribution to the consolidated Company
       net sales from continuing operations,
       in percentage .........................       6%          5%          6%
     --------------------------------------------------------------------------

     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 customer relationships in the fields of whiteners for laundry detergents
and hygiene effects. The Segment seeks to match the kind of success achieved
with the rapid market acceptance of its line of UV absorbers in sunscreens and
laundry detergents and rinse conditioners by pursuing profitable growth in the
personal care market, including moisturizers, hair dyes and conditioners. The
Segment's


                                      25


<PAGE>


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, may result.

     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 hygiene effects for soaps, toothpaste, detergents, and
disinfectants; Ciba(R) SALCARE(R) rheology modifiers and conditioning
polymers; Ciba(R) TINODERM(TM) 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 and United States markets,
while the Asian markets continue to show signs of growth. Overall supplier
capacity utilization are now running at high levels.

     Hygiene effects are high value-adding ingredients supplied to the
cosmetic and hygiene, home and fabric care industries. They are mainly used in
soaps, deodorants, toothpastes, dishwashing liquids, detergents and
disinfectants for hospitals and medical purposes. The Segment's products
IRGASAN(R), IRGACARE(R) and TINOSAN 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 used in detergents. Immediate growth prospects
are particularly strong in regions where concerns 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 the cosmetic and hygiene industries. Rheology
modifiers allow customers to produce formulations to the highest standards of
quality and consistency without using heat or neutralizing agents. Colorants
are used in products ranging from soaps to toothpaste. The Segment also
utilizes microscopic nanocolloid technology to deliver 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 2001 Home & Personal Care supplied the home and fabric care and the
cosmetic and hygiene industries. The top ten customers of the Segment
accounted for approximately 63 percent of the Segment's 2001 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 2001, 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.

     Research and Development

     Home & Personal Care spends approximately 6 percent of sales each year on
research and development activities (CHF 24 million in 2001). 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,
price, as well as customer contacts and relationships. The importance of these
competitive factors varies among the customer industries served by the
Segment.


                                      26


<PAGE>


     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 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 the year 1999 and 1998, CHF 1 729 million and CHF 1
791 million, respectively). For more information, see Note 3 to the
Consolidated Financial Statements.

     Manufacturing

     The Company has 64 manufacturing sites in 25 countries in important
regions of the world. Currently, 40 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 75 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
4 non-consolidated joint ventures, predominantly in Asia.

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

     The Company owns all of its principal manufacturing facilities and
substantially all of the land on which such facilities are located.

     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 over the next five years.

     Plastic Additives plans to invest over the next three years
approximately, CHF 70 million in the Hindered Amine Stabilizer area, primarily
in the NAFTA region.

     Coating Effects has concluded investments of approximately CHF 280
million for new manufacturing facilities in the UK and the USA for granules,
DPP and Quinacridone pigments.

     In the past three years, Water & Paper Treatment has invested
approximately CHF 80 million in a production site in West Memphis, Arkansas,
USA, which allows for backward integration in the field of cationic monomers.
Water & Paper Treatment plans to invest approximately CHF 20 million to
upgrade its production site at Bradford, United Kingdom.

     Textile Effects invested approximately CHF 14 million from 1998 to 2000
in a consolidated production joint venture in Thailand. Textile Effects is
currently implementing a new Key Manufacturing Base Concept in China, with an
estimated total investment of approximately CHF 12 million.

     Home & Personal Care is investing in Grenzach (Germany) and Basel
(Switzerland) CHF 10 million in a production facility for a new UV absorber
for skin protection.


                                      27


<PAGE>


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

     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 Service 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 utilizes a large number of specialty chemicals and base
chemicals as its main raw materials 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. The Company purchases raw materials and chemical
intermediates from a large number of third parties from around the world and
strives to optimize the supply chain for each Segment. The Company has limited
backward integration and out-sources production where economically practical.
The Company has entered into long-term arrangements with respect to certain
strategic raw materials. In the aggregate, these commitments are not in excess
of current market prices and reflect normal business operations.

     In 2001, due to increases in market prices, the Company experienced a
slight increase in its overall prices paid for its raw materials purchased.
Some of the more significant raw materials used by the Company include
di-tert-butylphenol, methyl acrylate, acrylonitrile, dimethylaminoethanol and
allyl chloride.

     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.


                                      28


<PAGE>


     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 over 400 product names. 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 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, 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 are most
significant to the Company's business. 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. In addition, the Company has worked with
certain of its customers in a joint effort to obtain FDA approval of the
antimicrobial triclosan, which was obtained.

     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.


                                      29


<PAGE>


     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.


                                      30


<PAGE>


     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 ADRs trade on the New York Stock Exchange
(see Item 9 - The Offer and Listing).
<TABLE>
<CAPTION>
                                                                          Group
                                                                        Holdings
                                                                           in %         Principle Function of company
                                                                        ---------  ---------------------------------------
                                                                                             Manufac-             Service/
                                                                                   Selling   turing    Research   Finance
                                                                                   -------   --------  --------   -------
<S>                                                                        <C>        <C>       <C>        <C>       <C>
EUROPE

Austria

Ciba Spezialitaetenchemie GmbH, Wien .................................     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, Rueil-Malmaison .......................     100        o         o
Societe Nouvelle de Chimie Industrielle (S.N.C.I.) SA, Saint Jeoire
 en Faucigny .........................................................     100        o         o          o
Societe Pyreneenne de coloration "Sopyco" Sarl, Abidos Mourens .......     100        o         o

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, Athens .........................     100        o         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.p.A., 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

Portugal

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

Spain

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

Sweden

Ciba Specialty Chemicals Sweden AB, Goteborg .........................     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


                                      31


<PAGE>


                                                                          Group
                                                                        Holdings
                                                                           in %         Principle Function of company
                                                                        ---------  ---------------------------------------
                                                                                             Manufac-             Service/
                                                                                   Selling   turing    Research   Finance
                                                                                   -------   --------  --------   -------
Turkey

Ciba Ozel Kimyevi Urunler 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 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., Brampton ............     100        o

Chile

Ciba Especialidades Quimicas Ltd., Santiago de Chile .................     100        o
Ciba Especialidades Quimicas Conosur S.A., Santiago de Chile .........      67        o

Colombia

Ciba Especialidades Quimicas S.A., Bogota ............................     100        o         o

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
Ciba Specialty Chemicals Water Treatments Inc., Suffolk, VA ..........     100        o         o          o

ASIA-PACIFIC

Australia

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


                                      32


<PAGE>


                                                                          Group
                                                                        Holdings
                                                                           in %         Principle Function of company
                                                                        ---------  ---------------------------------------
                                                                                             Manufac-             Service/
                                                                                   Selling   turing    Research   Finance
                                                                                   -------   --------  --------   -------
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
Ciba Specialty Chemicals (India) Ltd., Mumbai ........................      51        o         o          o
Diamond Dye-Chem Limited, Mumbai .....................................      51        o         o
Swathi Organics & Specialities Pvt. Ltd., Pondicherry ................      22        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., Takarazuka/ Tokyo .....................     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

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         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
     shares of the company as of December 31, 2001 was approximately CHF 33
     million (INR 971 million).

      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


                                      33


<PAGE>


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.

                               Size in
      Location                hectares(1)          Major Product Lines
-------------------------------------------------------------------------------
EUROPE

Basel, Switzerland                 14      Textile Effects (reactive dyes
                                           for cellulose and wool, disperse,
                                           vat and acid dyes)

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

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

Kaisten, Switzerland               59      Plastic Additives (polymer additives)

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

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)

Paisley, United Kingdom            17      Coating Effects (classical pigments)

Clayton, United Kingdom            22      Textile Chemicals (direct, disperse
                                           and acid dyes, specialty colors)

Bradford, United Kingdom           20      Water & Paper Treatment (water
                                           treatment chemicals, imaging and
                                           coating additives and textile
                                           chemicals)

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

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

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

St-Jeoire, France                   5      Coating Effects (masterbatches)

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

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

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

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

AMERICAS

McIntosh, Alabama United          637      Plastic Additives (polymer additives
States of America (USA)                    and imaging and coating additives)
                                           Home & Personal Care (whiteners,
                                           toll manufacturing of pesticides
                                           for Syngenta)

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

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

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

Old Bridge, New Jersey USA(3)      13      Water & Paper Treatment (water
                                           treatment chemicals)

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

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


                                      34


<PAGE>


                                Size in
      Location                 hectares(1)         Major Product Lines
-------------------------------------------------------------------------------
Albermarle, North Carolina USA     21      Textile Effects (textile chemicals)

Mississauga, Canada                 2      Plastic Additives (polymer additives)

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

Camacari, Brazil                   14      Plastic Additives (polymer additives)

Atotonilquillo, Mexico             43      Textile Effects (disperse and
                                           cationic dyes)
                                           Home & Personal Care (whiteners,
                                           fabric finishing)

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

ASIA-PACIFIC

Ulsan, South Korea(4)               7      Coating Effects (classical pigments)

Shanghai, China(5)                  6      Plastic Additives (polymer additives)

Qingdao, China(6)                   1      Coating Effects (classical pigments)

Qingdao, China(7)                   1      Textile Effects (wool and disperse
                                           dyes)

Panyu, China(8)                     5      Textile Effects (textile chemicals)

Isohara, Japan(9)                   8      Plastic Additives (polymer additives)

Ai-oi, Japan(10)                    -      Plastic Additives (polymer additives
                                           and imaging and coating additives)

Chiba, Japan(11)                    -      Plastic Additives (polymer additives)

Kaohsiung, Taiwan                   4      Plastic Additives (polymer additives)

Goa, India                         14      Plastic Additives (polymer additives)

Candra Sari, Indonesia              5      Textile Effects (fabric finishing,
                                           standardization)

Mahachai, Thailand                  4      Textile Effects (textile dyes)

Perth, Australia                    2      Water & Paper Treatment (water
                                           treatment chemicals)
--------------------------------------------------------------------------------
(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)  In December 2000, the Company announced a restructuring program that
     included the closure of this manufacturing site. The closure was begun in
     2001 and will be completed in 2002.
(4)  Joint venture with Daihan Color Ind., Co., Ltd., in which the Company
     holds a 50 percent interest.
(5)  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 interests.
(6)  Venture with Qingdao Double Peach, in which the Company holds a 91.4
     percent interest.
(7)  Venture with Qingdao Double Peach, in which the Company holds a 94
     percent interest.
(8)  Venture with Panyu City Shilou Town Economical Development Company
     Limited, in which the Company holds a 95 percent interest.
(9)  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.
(10) Joint venture with Chemipro Kasai Kaisha, Ltd., in which the Company
     holds a 51 percent interest.
(11) Joint venture with Mitsui Petrochemical and Musashino-Geigy, in which the
     Company holds a 40 percent interest.

     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 its 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. Management believes that 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 748 million at
December 31, 2001 and CHF 798 million at December 31, 2000 have been recorded
in the accompanying Consolidated Balance Sheets. The main difference between
2001 and 2000 relates to changing foreign currency exchange rates, usage of
the provisions, and updates to the estimated costs to


                                      35


<PAGE>


complete outstanding claims and issues. The Company's environmental protection
and improvement cash expenditures were approximately CHF 43 million in 2001
(CHF 47 million in 2000), including investments in construction, operations
and development.

     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 the polluter pays principle. 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).

     In 1998, certain litigation matters related to sites located in the
United States were settled with the insurance companies. The Company received
the cash of approximately CHF 43 million, net of related legal costs incurred,
in 1999 and such amount was included as a reduction in selling, general and
administrative expenses in 1998. The Company has not reflected any potential
insurance recoveries that may be available in the future.

     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 for two major sites where remediation measures are still in discussion,
as described in the following paragraphs.

     At its Toms River, New Jersey remediation site the Company agreed with
the United States Environmental Protection Agency to implement the selected
remedy, which involves design and construction of a large bio-remediation
project over the next eight to ten years. Based on management's current
estimates, the Company's environmental provisions are adequate to cover the
expected costs to complete this remediation plan.

     In connection with the former operation of the Ciba-Geigy plant in Toms
River, the Company and two other companies were contacted by attorneys
representing the interests of approximately 70 families, each of which has or
had a child with cancer. These families claimed that the cancer was caused by
exposure to contaminated drinking water and that the contamination was partly
caused by the former operations at the plant. All parties engaged themselves
in informal dispute resolution proceedings over the past 4 years, which led to
a settlement in 2001. The total amount owed by the Company has been
sufficiently provided for in its environmental provisions and will not have a
material adverse effect on the Company's financial position or results of
operations.

     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
individual plaintiffs in these suits claim that the manufacturing operations
at the Toms River plant from 1952 through its closure in 1996 are linked to
and caused their damages. None of these plaintiffs were involved in the
settlement described in the preceding paragraph. These cases are in the
discovery stage of litigation. The Company does not believe these claims have
merit and it is vigorously defending itself.

     The planning for the total clean-up of the waste disposal site in Bonfol,
Switzerland, which was closed in 1976, is ongoing. The responsibility for the
clean-up lies with eight chemical companies, 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.

     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.

     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


                                      36


<PAGE>


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."


                                      37


<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

     In certain sections of this Management's Discussion and Analysis, the
reported results have been adjusted to exclude restructuring and special
charges. 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 and in 2000 compared to 1999, 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 for the years 1999 and 2000, until May 31,
2000, the date of the divestment (see Note 3 to the Consolidated Financial
Statements).

     Currency Trends

     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.

     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" of this Management's Discussion and
Analysis - "Treasury management", "Consolidated balance sheets", "Liquidity
and capital resources" and "Supplemental Information - Euro conversion", as
well as "Item 11. - Quantitative and qualitative disclosures about market
risk".

     2000 Compared to 1999

     The average exchange rates for the major currencies used to translate the
consolidated statement of income into Swiss francs were significantly
different in 2000 as compared to 1999. The appreciation in the average rate
for the U.S. dollar, the British pound and the Japanese yen against the Swiss
franc was slightly offset, however, by the depreciation of the euro. With
respect to the U.S. dollar, the average rate used for translating the
statement of income was CHF 1.69 per USD in 2000, as compared CHF 1.50 per USD
in 1999.

     With the exception of the U.S. dollar, which appreciated substantially
against the Swiss franc, the December 31, 2000 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, 1999. The appreciation of the U.S. dollar against
Swiss franc was partly offset, however, by the depreciation in the British
pound, the Japanese yen and the euro against the Swiss franc.

     These currency trends resulted in currency effects on the Swiss franc
statement of income and to a lesser extent, on the Swiss franc balance sheet
items.


                                      38


<PAGE>


     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 - 2000 Compared to 1999" of this Management's Discussion and
Analysis - "Treasury management", "Consolidated balance sheets", "Liquidity
and capital resources" and "Supplemental Information - Euro conversion", as
well as "Item 11. - Quantitative and qualitative disclosures about market
risk".

     Use of Certain Supplementary Financial Indicators

     The following comparative discussion of the results of operations and
financial condition of the Company includes, among other items, an analysis of
a number of non-U.S. GAAP financial indicators that form part of the Company's
value based management reporting system and that are used by management for
purposes of analyzing the results of operations and financial condition of the
Company. These financial indicators are derived from U.S. GAAP financial
items. Such indicators include EBITDA (Earnings Before Interest, Taxes,
Depreciation and Amortization), EBITDA margin, free cash flow and velocity.
For a definition of these terms and other financial terms, see "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.

     Year in Review - 2001 Compared to 2000
     --------------------------------------

     Results of operations                                2001            2000
     --------------------------------------------------------------------------
     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

     EBITDA, before restructuring and special
      charges(1) ....................................    1 230           1 348
     Restructuring and special charges, net .........        0               2
     Operating cash flows, before restructuring
       payments(2) ..................................    1 100           1 065
     Free cash flow .................................      779             638
     Net debt .......................................    2 351           2 983
     Shareholders' equity at year end ...............    3 908           3 754

     Dividend per share(3) ..........................     2.00            2.00
     Capital reduction per share(3) .................     1.00               -

     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%

     Velocity .......................................     0.75            0.80
     --------------------------------------------------------------------------
     (1) Including restructuring expenses and special charges of CHF 2 million
         in 2000, EBITDA was CHF 1 346 million in 2000.
     (2) From continuing operations. Including restructuring payments of CHF
         46 million in 2001 and CHF 35 million in 2000, operating cash flows
         from continuing operations were CHF 1 054 million in 2001 and
         CHF 1 030 million in 2000.
     (3) The Board of Directors proposes a payment to the Company's
         shareholders in 2002 of an unchanged dividend of CHF 2 per Share,
         based on 2001 results, and a capital reduction of CHF 1 per Share. If
         approved, the capital reduction will take the form of a reduction in
         the nominal value of each Share, from CHF 10 per share to CHF 9 per
         share. Both the dividend and the capital reduction are subject to
         shareholder approval at the Annual General Meeting on March 22, 2002.
         If approved, the Company expects that the dividend will be
         distributed on March 27, 2002 and expects, subject to various
         conditions, that the payment from the capital reduction will be made
         on June 28, 2002.


                                      39


<PAGE>


     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 economic crisis. In the
Asia-Pacific region, the Japanese market has 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 is positioned for future growth with 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.

     Decisive and timely action protects 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 has 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 will continue 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 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 enhances 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


                                      40


<PAGE>


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 has
improved to 9.18 from 6.47 in 2000.

     The Company continues to optimize 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.

     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 proposes 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 proposes 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' is proposed in the form
of a capital reduction of CHF 1 per share. The Company is able to make this
additional extraordinary cash distribution to its shareholders and still have
sufficient capital available to pursue its strategic objectives. If approved,
the capital reduction will take the form of a reduction in the nominal value
of each common share from CHF 10 per share to CHF 9 per share. Both the
dividend and capital reduction are subject to shareholder approval at the
Annual General Meeting on March 22, 2002. If approved, the Company expects
that the dividend will be distributed on March 27, 2002, and expects, subject
to various conditions, that payments from the capital reduction will be made
on June 28, 2002.

     Financial review

     Sales decline 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


                                      41


<PAGE>


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 reflects 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 North, Central and South America.
     (2) Asia-Pacific is comprised of 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 decrease

     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 improvement has been achieved as a result of the Company's
continuous efforts to streamline its operational structures. Cost savings and
headcount reductions have been 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 has implemented other targeted cost control programs
that are 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 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. In 2002, selling, general and administrative expenses
will be adversely affected by the reduction in non-recurring income and the
necessity to incur expenditures that were delayed in 2001. Offsetting these
negative effects will be the positive impacts from the completion of a number
of previously announced operational improvement programs.

     Continuing 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 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 innovation. As
part of the reorganization, announced in February 2001, certain research and
development activities mostly focused on innovative new ideas


                                      42


<PAGE>


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 continues 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 remains 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 will no longer amortize any goodwill to earnings, but
instead will be required to review its recoverability through annual
impairment testing. Other identifiable intangibles will continue to be
amortized to earnings over their estimated useful lives. As a result of
goodwill not being amortized, the Company's operating income in 2002 will be
improved by approximately CHF 61 million, the annual goodwill amortization
expense in 2001. 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 decreases 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 is 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.


                                      43


<PAGE>


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.

     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.

     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 allow for a greater focus on providing not just products,
but total integrated solutions. This program resulted in the establishment of
five new 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 also was 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.

     During 2001, under the "Fit For Growth!" program, the Company has
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 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 represents approximately 81 percent of the Company's
holdings (see Notes 3 and 8 to the 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. The remaining terminations relating
to these restructuring programs are expected to be substantially completed
during 2002.

     The costs and activity associated with the 2000 restructuring programs
during 2001 are summarized below:

                                            Severance      Other
                                              costs        costs         Total
     --------------------------------------------------------------------------
     January 1, 2001 ....................       30           22            52
     Amounts utilized(1) ................      (25)         (15)          (40)
     --------------------------------------------------------------------------
     December 31, 2001 ..................        5            7            12
     ---------------------------------------------------------------------------

     (1) Includes currency adjustments and a release of excess reserves of CHF
         8 million.

     Management believes that the remaining restructuring provision is
adequate to complete all of its programs.

     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


                                      44


<PAGE>


through continuing innovation and close customer partnerships. Continuing
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 ................................     271            314
     As a percentage of sales (EBIT margin) .........    14.8%          16.0%
     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 continues at the
level of approximately 4 percent of sales.

     Asset management                                    2001           2000
     --------------------------------------------------------------------------
     Net current operating assets:
       Absolute in CHF ..............................     420            415
       As a percentage of sales .....................      23%            21%
     Capital expenditure in CHF .....................      80             67
     Net assets (invested capital) in CHF ...........   1 403          1 458
     Velocity .......................................    1.28           1.37
     --------------------------------------------------------------------------

     In 2001 the Segment maintained its good asset management record.
Effective inventory management resulted in an improvement in both absolute and
intensity terms. Receivables reduced in absolute terms. These reductions were,
however, offset by reduced payables. Capital expenditures were invested mostly
in efficiency improvement projects in the Segment's major production
facilities. The combination of currency effects, lower investment than annual
depreciation in fixed assets, and tight current asset management led to a
reduction in net assets. These reductions could not offset the decline in net
sales, resulting in a decline in velocity to 1.28 from 1.37 in the prior year.

     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)%
     --------------------------------------------------------------------------

     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.


                                      45


<PAGE>


                                                         2001           2000
     --------------------------------------------------------------------------
     Operating income (EBIT)
     Absolute in CHF ................................     304            366
     As a percentage of sales (EBIT margin) .........    15.6%          17.3%
     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 continues 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.

     Asset management                                    2001           2000
     --------------------------------------------------------------------------
     Net current operating assets:
       Absolute in CHF ..............................     658            740
       As a percentage of sales .....................      34%            35%
     Capital expenditure in CHF .....................      66             65
     Net assets (invested capital) in CHF ...........   1 852          1 904
     Velocity .......................................    1.03           1.10
     --------------------------------------------------------------------------

     In 2001, the Segment continued its focus on asset management. Net current
operating assets reduced both in absolute and intensity terms. The main reason
for this improvement is more effective inventory management. Capital
expenditure was invested mainly in efficiency improvement projects. The
combination of currency effects, lower investment than annual depreciation in
fixed assets, and effective current asset management led to a reduction in net
assets. These reductions could not offset the decline in net sales, resulting
in a decline in velocity to 1.03 from 1.10 in the prior year.

     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.


                                      46



<PAGE>


                                                         2001           2000
     --------------------------------------------------------------------------
     Operating income (EBIT)
     Absolute in CHF ................................      82            111
     As a percentage of sales (EBIT margin) .........     5.5%           7.1%
     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 actions have been 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.

     Asset management                                    2001           2000
     --------------------------------------------------------------------------
     Net current operating assets:
         Absolute in CHF ............................     357            398
         As a percentage of sales ...................      24%            26%
     Capital expenditure in CHF .....................      52             52
     Net assets (invested capital) in CHF ...........   1 092          1 149
     Velocity .......................................    1.33           1.35
     --------------------------------------------------------------------------

     During 2001, the Segment initiated actions to reduce the current asset
level resulting in a reduction of net current operating assets, both in
absolute and intensity terms. Inventories and receivables decreased
significantly due to tighter asset management. These reductions were partly
offset by reduced payables. Capital expenditures remained stable in absolute
terms. The effect of lower investment than annual depreciation in fixed
assets, currency effects and reduced net current operating assets resulted in
a reduction in net assets. As a result of these actions, velocity remained
relatively stable at 1.33 compared to 1.35 in the prior year.

     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.


                                      47


<PAGE>


                                                         2001           2000
     --------------------------------------------------------------------------
     Operating income (EBIT)
     Absolute in CHF ................................     183            204
     As a percentage of sales (EBIT margin) .........    10.9%          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. Ongoing
productivity improvement initiatives, together with the continuing 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.

     Asset management                                    2001           2000
     --------------------------------------------------------------------------
     Net current operating assets:
       Absolute in CHF ..............................     641            739
       As a percentage of sales .....................      38%            40%
     Capital expenditure in CHF .....................      32             37
     Net assets (invested capital) in CHF ...........   1 270          1 385
     Velocity .......................................    1.26           1.34
     --------------------------------------------------------------------------

     During 2001, the Segment reduced its net current operating assets, both
in absolute and intensity terms. The benefits of the initiatives to reduce
inventories and receivables that began in mid-year 2001 led to this decrease.
Payables remained stable in absolute terms. In 2001 capital expenditures
decreased both in absolute and intensity terms. The effects of the tight
current asset management, lower investment than annual depreciation in fixed
assets, together with currency effects, resulted in a reduction in net assets.
These reductions could not offset the decline in net sales, resulting in a
decline in velocity to 1.26 from 1.34 in the prior year.

     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.


                                      48



<PAGE>


                                                         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%
     --------------------------------------------------------------------------

     Operating income and EBITDA increased both in absolute and intensity
terms. Stable volumes and a continuing 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.

     Asset management                                    2001           2000
     --------------------------------------------------------------------------
     Net current operating assets:
       Absolute in CHF ..............................      98             95
       As a percentage of sales .....................      23%            22%
     Capital expenditure in CHF .....................      25             23
     Net assets (invested capital) in CHF ...........     286            271
     Velocity .......................................    1.54           1.61
     --------------------------------------------------------------------------

     The Segment maintained its good asset management record during 2001. The
increase in sales led to higher inventories both in absolute and intensity
terms while receivables remained relatively stable. The increase in
inventories was partly offset by increased payables. Capital expenditures
increased both in absolute and intensity terms. The combination of currency
effects and the increase in net current operating assets, partly compensated
by the effect of lower investment than annual depreciation in fixed assets,
led to an increase in net assets. The increase in net assets led to a decline
in velocity to 1.54 from 1.61 in the prior year.

     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,
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 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 is
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 are 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


                                      49



<PAGE>


CHF 844 million in 2000. When economically feasible, the Company also
selectively retires 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. The Company's remaining cash reserves will be utilized in future periods
to maintain short-term debt at stable levels and for the repayment of
long-term debt when it is economically advantageous to the Company.

     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" and SFAS
No. 138 "Accounting for Certain Derivative Instruments and Certain Hedging
Activities an amendment of FASB Statement No. 133", which replaces existing
pronouncements and practices for derivatives and hedging activities with a
single, integrated accounting framework. These statements expand the previous
accounting definition of derivatives to include embedded derivatives and many
commodity contracts. Upon adoption of these statements, 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 the Consolidated Financial Statements
and "Supplemental Information - Change in accounting policy and new accounting
standards" of this Management's Discussion and Analysis.

     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.

     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.


                                      50


<PAGE>


     Consolidated balance sheets

     Strong focus on asset management continues to reduce investment in assets
and net debt

     Selected balance sheet data as of December 31,      2001           2000
     --------------------------------------------------------------------------

     Cash and cash equivalents and short-term
       investments ..................................   1 643          1 247
     Total assets ...................................  11 718         12 105
     Total shareholders' equity .....................   3 908          3 754
     --------------------------------------------------------------------------

     The continued emphasis on the management of operational assets led to a
reduction in total assets, excluding cash and cash equivalents and short-term
investments, of CHF 783 million. This reduction was achieved through continued
proactive asset management in the areas of inventories and accounts receivable
and through focusing the Company's capital expenditures on efficiency and
safety improvement related items. Proposed investments in additional
production capacity are carefully evaluated to ensure that sufficient market
demand exists to justify the investment. The Company 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 2000, used for translating the balance
sheet into Swiss francs, had a significant effect. Most major currencies
including the U.S. dollar, the British pound, the euro and the Japanese yen
depreciated against the Swiss franc.

     The continued focus on cash and asset management resulted in
significantly lower net debt in 2001. The table below shows the movement in
net debt from December 31, 2000 to December 31, 2001.

     Net debt roll from                Total  Cash & cash  Short-term    Total
      2000 to 2001                      debt  equivalents  investments  Net Debt
     --------------------------------------------------------------------------
     December 31, 2000 ..............  4 230     1 179         68        2 983
     Cash flows increase (decrease),
       net ..........................   (152)      445        (27)        (570)
     Currency effects and other .....    (84)      (22)         0          (62)
     --------------------------------------------------------------------------
     December 31, 2001 ..............  3 994     1 602         41        2 351
     --------------------------------------------------------------------------

     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 632 million in 2001. Net debt amounted to CHF 2 351 million
in 2001 compared to CHF 2 983 million in 2000.

     Short-term debt was reduced from CHF 371 million in 2000 to CHF 316
million in 2001. Long-term debt was reduced from CHF 3 859 million in 2000 to
CHF 3 678 million in 2001. This reduction in total debt was achieved through
the Company's continued debt repayment program, which began in 1999. When
economically feasible, the Company selectively retires portions of its
long-term debt. In 2001 and 2000, there were no material gains or losses being
realized from debt retirements.

     Decrease in sales combined with stable invested capital level leads to a
lower velocity

     December 31,                                        2001          2000
     --------------------------------------------------------------------------
     Net assets (invested capital), end of year .....   9 814          9 804
     Velocity .......................................    0.75           0.80
     --------------------------------------------------------------------------

     Velocity is a measurement designed to measure the effectiveness of the
Company's asset utilization. The combination of invested capital remaining
relatively stable and decreasing sales led to a decline in velocity in 2001 to
0.75 from 0.80 in 2000.

     Liquidity and capital resources

          Liquidity - Free cash flow improves to CHF 779 million from CHF 638
million

     Cash flows from operating activities              2001     2000      1999
     --------------------------------------------------------------------------
     Net cash from continuing operations, before
       restructuring payments .....................   1 100    1 065     1 054
     Cash used for restructuring payments .........     (46)     (35)     (148)
     Net cash provided by discontinued operations .       0        1       174
     --------------------------------------------------------------------------
     Net cash provided by operating activities ....   1 054    1 031     1 080
     --------------------------------------------------------------------------

     The Company's continued focus on cash flow and asset management generated
operating cash flows from continuing operations of CHF 1 100 million in 2001
compared to CHF 1 065 million in 2000 and CHF 1 054 million in 1999, before
restructuring payments. Successful operating assets management programs
resulted in reduced funding requirements for working capital.


                                      51


<PAGE>


      Cash flows from investing activities         2001       2000       1999
      -------------------------------------------------------------------------
      Capital expenditures  ..................... (259)       (249)      (267)
      Sale (acquisition) of businesses, net
        of cash  ................................ (144)      1 566         70
      Proceeds from sale of assets and changes
        in loans and other long-term assets......   69         (42)       102
      Cash flows used in investing activities,
        discontinued operations  ................    0          (4)       (36)
      -------------------------------------------------------------------------
      Net cash (used in) provided by investing
        activities  ............................. (334)      1 271      (131)
      -------------------------------------------------------------------------


     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. This differs from the
Company's prior year estimate of CHF 270 million, as a result of a delay in
certain transaction taxes and separation cost payments beyond the Company's
control. The Company's current estimate is that the majority of the remaining
costs will be paid during 2002. 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.

     The 1999 investment activities focused on the sale of non-strategic
assets and investments, the most significant being the sale of the equity
investment in Cerdec AG for CHF 70 million.

      Cash flows from financing activities          2001       2000       1999
      -------------------------------------------------------------------------
      Decrease in short-term and long-term
        debt, net  ............................... (152)     (1 339)      (634)
      Dividends paid  ............................ (132)       (133)      (133)
      Treasury stock transactions and other  .....    9         (36)         2
      -------------------------------------------------------------------------
      Cash flows used in financing activities  ... (275)     (1 508)      (765)
      -------------------------------------------------------------------------

     Free cash flow amounted to CHF 779 million in 2001 compared to CHF 638
million in 2000 and CHF 720 million in 1999. This increase is primarily a
result of the 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 2001 proposed distributions to the Company's
shareholders to be made in 2002, see the Operational Review section of this
Managements' 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 8 to the
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
currently intends to maintain the Company's capital expenditure levels


                                      52


<PAGE>


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.

     For further information on capital resources available to the Company,
see Notes 11 and 12 to the Consolidated Financial Statements and to
"Supplemental information - Capital Resources" section of this Management's
Discussion and Analysis of Results of Operations and Financial Condition.

     Outlook for 2002 and beyond

     Macroeconomic conditions during the first quarter of 2002, and probably
the second quarter as well, are expected to be recessionary, which would lead
to weaker sales and margins in these quarters as compared to the stronger,
corresponding quarters of 2001. For the full year of 2002, however, the
Company expects both sales and earnings to be above the levels of 2001,
assuming an economic recovery later in the year in the United States and,
afterwards, in Europe.

     The early measures taken in 2001 to improve productivity will result in a
structurally lower cost base and thus provide a sound basis for improvements
in profitability once the general economic conditions improve. Lower interest
expenses are expected, due to the reduced net debt position of the Company.
Overall, the Company is striving to achieve a free cash flow for 2002 in
excess of CHF 500 million.

     These forecasts are based on the assumption of an improving global
economic situation in the second half of 2002 and reasonably stable exchange
rates vis-a-vis the Swiss franc.

     See "Cautionary Statement Regarding Forward-Looking Information".


      Year in Review - 2000 Compared to 1999
      Results of operations                            2000              1999
      -------------------------------------------------------------------------
      Net sales  ..................................   7 902             7 244
      Gross profit  ...............................   2 569             2 288
      Operating income  ...........................     876               632
      Income from continuing operations  ..........     418               238
      Net income  .................................     452               325
      Basic and diluted earnings per share:
          Income from continuing operations per
            share  ................................    6.31              3.58
          Net income per share  ...................    6.81              4.89
      EBITDA, before restructuring and special
        charges(1)  ...............................   1 348             1 086
      Restructuring and special charges  ..........       2                 0
      Operating cash flow(2)  .....................   1 065             1 054
      Free cash flow   ............................     638               720
      Shareholders' equity at year end  ...........   3 754             3 638
      Dividend per share(3)    ....................    2.00              2.00

      Key performance ratios
      -------------------------------------------------------------------------
      Sales development  ..........................       9%                9%
      Sales development in local currencies

      Expressed as a percentage of sales:
          Gross profit  ...........................    32.5%             31.6%
          Operating income  .......................    11.1%              8.7%
          Income from continuing operations  ......     5.3%              3.3%
          Net income  .............................     5.7%              4.5%
          EBITDA, before restructuring and
            special charges  ......................    17.1%             15.0%
      -------------------------------------------------------------------------

     (1)  Including restructuring expenses and special charges of CHF 2
          million in 2000, EBITDA was CHF 1 346 million.
     (2)  From continuing operations. Including restructuring payments of CHF
          35 million in 2000 and CHF 148 million in 1999, operating cash flows
          from continuing operations were CHF 1 030 million and CHF 906
          million, respectively.
     (3)  The 2000 dividend per share reflects the dividend payment proposal,
          based on 2000 results, that was approved at the shareholders'
          meeting on March 23, 2001.


                                      53


<PAGE>


     Overview

     Market conditions in the Company's customer industries in 2000 were
characterized, for most of the year, by the continuation of the improved
economic environment, which commenced in the second half of 1999. Many
European markets, fueled in part by the weakness of the euro against the U.S.
dollar, continued to improve throughout 2000. In the United States, a
slow-down in market demand was noted near the end of the year 2000. In Asia,
the Japanese market had not fully recovered from its lows of 1999, remaining
sluggish throughout 2000. In other Asian markets, there was a continuation
throughout most of 2000 of the steady growth that began in the second half of
1999. Market demand in Brazil and Mexico remained at high levels during the
entire year.

     Operational review

     Profitability grew through innovation, customer focus and continuing
operational improvements

     Net sales in 2000 at CHF 7 902 million grew 9 percent in Swiss francs and
2 percent in local currencies compared to the previous year. The Company's
gross profit increased in 2000 to CHF 2 569 million or 32.5 percent of sales
from CHF 2 288 million or 31.6 percent of sales in 1999. Operating income
improved in 2000 to CHF 876 million or 11.1 percent of sales from CHF 632
million or 8.7 percent of sales in 1999. Net income in 2000 increased to CHF
452 million or CHF 6.81 per share from CHF 325 million or CHF 4.89 per share
in 1999. The Company's EBITDA and EBITDA margin increased to CHF 1 348 million
and 17.1 percent, respectively, in 2000 compared to CHF 1 086 million and 15.0
percent, respectively, in 1999.

     Favorable currency conditions, particularly the strengthening of the U.S.
dollar and the Japanese yen against the euro and the Swiss franc, contributed
7 percent to the total sales growth in 2000. The Company's continued focus on
innovation and meeting customer needs led to an increase in net sales in 2000,
contributing to the 5 percent volume and product mix increase. Pricing
pressure continued in many of the Company's markets. Selective price
increases, however, helped to contain price erosion, ending the year with a
negative 3 percent price effect on net sales.

     The combination of volume growth and product mix changes coupled with
continuing operational efficiency improvements more than compensated for
selling price reductions and modest raw material price increases leading to
higher profits in both absolute and intensity terms.

     Hexcel, the Company's major equity affiliate, realized a one time gain in
2000 on the sale of its Bellingham aircraft business. The Company's share of
this gain, recorded in the line "income from earnings of equity affiliates",
amounted to CHF 57 million. This one time gain was, however, offset by a
number of non-recurring expenses relating primarily to a thorough review of
the Company's liabilities including environmental liabilities and an increase
in performance based compensation expenses. In addition, in the fourth quarter
the Company realized a gain of CHF 71 million from the sale of its majority
stake in Hexcel, which is included in the line "restructuring and special
charges" in the 2000 Consolidated Statement of Income. A number of
restructuring and special charges relating to business reorganization and
anticipated impairments of equity affiliate amounted to CHF 73 million.
Overall, the one time gains described in this paragraph were offset by
non-recurring expenses, resulting in only a small net effect on the Company's
income.

     The Company announced several restructuring initiatives in the fourth
quarter of 2000. These initiatives were driven by the Company's focus on
improving its overall operational efficiencies and by the deteriorating
external market conditions, especially in the United States. The initiatives
primarily included the closure of a Water & Paper Treatments facility in the
United States, the reduction of Plastic Additives and Home & Personal Care
headcount at a shared production facility in the United States and the
reorganization of the administrative functions of the Company's Southern
Europe organization. The closure of the Water & Paper Treatments facility will
improve efficiencies of its business as well as in other United States based
manufacturing facilities, improving operating margins and market
competitiveness. The Plastic Additives, Home & Personal Care and Southern
Europe programs are designed to reduce operating costs in response to the
reduced infrastructure requirements resulting from the sale of the Performance
Polymers business.

     Strategic focus on innovation

     The Company continued its strategic initiatives of innovation and
development of environmentally friendly products. Significant investments in
research and development underscore the importance of innovation as a key
success factor. The Company's research and development program continued to
focus on generating new business and defending leading market positions.
Research and development expenses as a percentage of sales were 3.7 percent in
2000 compared to 3.5 percent in 1999. In absolute terms, research and
development expenses increased by CHF 37 million to CHF 293 million in 2000
compared to CHF 256 million in 1999, an increase of 15 percent in Swiss francs
or 12 percent in local currencies.


                                      54


<PAGE>


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

     The most significant portfolio change was the completion on May 31, 2000
of 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. 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 comprised
substantially all of the previously reported Performance Polymers division.
The Company realized a 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 the costs of selling the business.

     In the first half of 2000, the Company concluded the acquisition of
Prochimica s.r.l. for a total purchase price of approximately CHF 85 million.
This acquisition secures an uninterrupted supply of key photoinitiators and
supports the already high EBITDA margins of the Coating Effects Segment.

     In the second half of 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). This
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 holdings in its most significant equity affiliate, Hexcel, to an
investor group led by Goldman Sachs for CHF 277 million (USD 160 million).
This divestment underscores the Company's strategy to exit joint ventures
which have little strategic fit with its core business. Hexcel is focused on
the sale of 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.

     Cash flows higher due to operational improvements and divestment
activities

     Continued improvements in net income and effective asset management led
to a growth in cash flows provided by continuing operations to CHF 1 065
million in 2000 as compared to CHF 1 054 million in 1999, before restructuring
payments of CHF 35 million in 2000 and CHF 148 million in 1999. This reflects
high levels of net income and successful asset management. The Company's focus
on tight asset management continued to show positive results with both
inventories and accounts receivable, expressed as a percentage of sales, below
the levels achieved in 1999. During 1999, significant reductions in current
assets were realized in comparison with prior years as a result of the
completion of asset improvement initiatives commenced during 1998. The
combination of the effects from the Company's net business portfolio changes
and the continued emphasis on cost effective capital expenditures contributed
to increased cash flows from investing activities in 2000, providing cash of
CHF 1 271 million, compared to a use of cash in 1999 of CHF (131) million. It
should be noted, however, that certain cash payments relating to separation
costs arising from the Polymers divestment had not yet been made in 2000 and
will become payable in the future.

     As a result of continued operating cash flows in excess of one billion
Swiss francs, the positive contributions to cash from divestment activities,
the level of free cash flow, including cash provided by discontinued
operations, cash from sale (acquisition) of businesses and restructuring
payments, improved to CHF 2 169 million compared to CHF 816 million in 1999.
Free cash flow was used for debt repayment, when economically advantageous to
the Company, restructuring payments and small strategic acquisitions. In 2000,
free cash flow (excluding cash provided by discontinued operations, cash from
sale (acquisition) of business and cash used for restructuring payments) was
CHF 638 million compared to CHF 720 million in 1999.


                                      55


<PAGE>


     Financial review

     Strong volume growth in positive economic environment through most of the
year

     Sales increased to CHF 7 902 million in 2000 or by 9 percent in Swiss
francs and by 2 percent in local currencies. Sales development compared to
1999 resulted from the following factors:

      Consolidated sales                                2000 compared to 1999
      -------------------------------------------------------------------------
      Volume/product mix  ...................................             5%
      Price  ................................................           (3)%
      Currency  .............................................             7%
      -------------------------------------------------------------------------
      Total in Swiss francs  ................................             9%
      -------------------------------------------------------------------------

     The strong volume growth and the positive economic environment, which
began during the second half of 1999, continued through most of 2000. The
Company's global market presence, selective price increases and favorable
currency effects enabled the Company to benefit from the positive economic
environment. Price declines arose from competitive conditions in certain
markets. In addition, during 2000, prices were negatively impacted for
products delivered into regions such as the United States where, due to the
recent appreciation of the U.S. dollar, customers were demanding a share of
the suppliers' currency gains. The economic environment began to show signs of
weakness late in the fourth quarter of 2000.

     Sales increases were posted in all the major markets in Europe, both in
Swiss francs and in local currencies, with the exception of the United Kingdom
where sales declined slightly in local currency. In the Americas, sales
increased in Swiss francs but remained flat in local currencies. The sales
development during the year was characterized by a strong first half, followed
by a slowdown in the second half, particularly in the United States. As a
consequence of this economic slowdown, noted in the fourth quarter of 2000,
sales in the United States declined in local currency. In Asia Pacific, sales
increases were posted by most major markets both in Swiss francs and in local
currencies, with the exception of Japan where sales declined in local
currency. In the China Region and in the Rest of Asia strong sales growth was
posted in both Swiss francs and in local currencies.

      Geographic sales distribution                   2000              1999
      -------------------------------------------------------------------------
      Europe  .....................................     37%               39%
      Americas(1)  ................................     37%               36%
      Asia Pacific(2)  ............................     26%               25%
      -------------------------------------------------------------------------
     (1)  Americas is comprised of North, Central and South America.
     (2)  Asia-Pacific is comprised of Asia, Africa, the Middle East,
          Australia and New Zealand.

     Profit margins improve

     Gross profit margin improved to 32.5 percent of sales compared to 31.6
percent in the prior year. This improvement reflects the impact of strong
volume growth and product mix changes coupled with improvements in production
and process efficiencies, which led to an increase in overall capacity
utilization. These positive factors more than compensated for both the
reductions in selling prices and the 2 to 3 percent increase in raw material
prices. This relatively stable increase in raw material prices, in comparison
to overall market conditions, was achievable due to the Company's ability to
optimize procurement of raw materials by purchasing supplies globally through
its worldwide organization and partnerships. This global reach allows the
Company to take advantage of availability of supply as well as favorable
foreign currency movements. In addition, the margin benefited from the impact
of the U.S. dollar strengthening against the euro in 2000, as the Company has
a higher proportion of its production costs than its sales concentrated in
Europe.

     Despite ongoing investments in the future and unfavorable foreign
currency effects, costs decreased as a percentage of sales

     Selling, general and administrative expenses expressed as a percentage of
sales decreased from 18.5 percent in 1999 to 18.0 percent in 2000. In absolute
terms, selling, general and administrative expenses increased by CHF 84
million to CHF 1 425 million, compared to CHF 1 341 million in 1999, an
increase of 6 percent in Swiss francs but only 2 percent in local currencies.
Despite only modest cost increases in local currencies, foreign exchange
currency movements led to higher annual costs when these local costs were
translated into Swiss francs. Apart from this large foreign exchange currency
movement effect, a number of other factors affected expenses. The Company
conducted a thorough review of its liabilities, including environmental
liabilities, to ensure that all known and quantifiable liabilities were
adequately provided for and disclosed. Continued focus on future growth,
through investments in promising new technologies, together with a number of
smaller initiatives relating to streamlining operations, also increased costs.
In addition, an improved business performance in 2000 resulted in higher
employee compensation costs, as compensation levels are partly linked to
achieving performance targets.


                                      56


<PAGE>


These cost increases were offset by a number of cost reductions which resulted
from the completion of key reorganizations and business improvement
initiatives implemented by the Company over the past several years. Overall,
the company was able to improve its selling, general and administrative
expenses to sales ratio by a structural half percentage point.

     Continuing commitment to research and development

     Research and development expenses as a percentage of sales were 3.7
percent in 2000 compared to 3.5 percent in 1999. In absolute terms, research
and development expenses increased by CHF 37 million to CHF 293 million in
2000 compared to CHF 256 million in 1999, an increase of 15 percent in Swiss
francs or 12 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 innovation. The
Company's research and development strategy is to enter both new and existing
markets with innovative formulations and solutions which satisfy customer
needs.

     Some examples of entering new markets with new formulations are the
development of textile dyes products for use in the manufacture of transparent
colored plastics, which have many applications including in colorful
translucent computers and notebooks and applying Water & Paper Treatments'
nanocolloids technology in Home & Personal Care's detergent chemicals sector,
thereby enhancing the products stain removal capability.

     Innovative product range extensions and customer focused solutions within
existing markets include improvements in the pre-blend business in Polymer
Additives, where in-house or toll-manufactured additives are mixed and
formulated to fulfill specific customer needs and pigment granules from the
Inks, Paints and Plastics business that have been developed from pigment
powder, thereby reducing dosage levels in the customers manufacturing process.

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

     Amortization of goodwill and other intangibles

     Amortization of goodwill and other intangibles increased to CHF 94
million in 2000, an increase of CHF 17 million. This increase was primarily
related to the additional goodwill and intangible amortization that resulted
from the year 2000 business acquisitions.

     Effective January 1, 2002, in accordance with new U.S. GAAP accounting
rules, the Company will no longer amortize any goodwill to earnings, but
instead will be 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 the 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.

     Increased income from earnings of equity affiliates

     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, increased to CHF 113 million in 2000 from
CHF 15 million in 1999. The related income taxes on earnings of equity
affiliates are recorded separately in the Company's provision for income taxes.

     In 2000, income from earnings of equity affiliates was positively
impacted by Hexcel. In 2000, the Company's share of Hexcel's income amounted
to CHF 66 million, as compared to a loss of CHF (17) million in 1999. Also
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.

     In December 2000, the Company sold a majority of its interest in its
investment in Hexcel. The Company realized a gain of CHF 71 million from this
sale, which is included in the line "restructuring and special charges" on the
Consolidated Income Statement. For further discussion related to this sale,
refer to the section "Restructuring and special charges, net" of this
Management's Discussion and Analysis of Financial Condition.


                                      57


<PAGE>


     Profitable growth and operational improvements led to an increase in
operating income and EBITDA

                                                       2000              1999
      -------------------------------------------------------------------------
      Operating income (EBIT) .......................   876               632
      EBITDA, before restructuring and special
        charges  .................................... 1 348             1 086
      EBIT margin  ..................................  11.1%              8.7%
      EBITDA margin, before restructuring and
        special charges  ............................  17.1%             15.0%

      2000 compared to 1999
      -------------------------------------------------------------------------
          Operating income (EBIT) ...................    39%
          EBITDA  ...................................    24%
      -------------------------------------------------------------------------

     Improved operating income and EBITDA is reflective of the profitable
sales growth, the optimization of procurement of raw materials to minimize the
impact of raw material price increases, favorable currency conditions and the
effects of cost reductions which have been achieved from the completion of key
reorganizations and business improvement initiatives implemented over the past
several years.

     As discussed above, operating performance in 2000 was affected by the
equity income from Hexcel, which included the Company's share of the gain
recognized by Hexcel on the sale of its Bellingham aircraft business, and by a
number of non-recurring expenses recorded in selling, general and
administrative expenses. The net effect of the one time gain and the
non-recurring expenses is not material to the Company's income.

     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 2000 restructuring programs and special charges
refer to the discussion above in the section "Year in Review - 2001 Compared
to 2000 - Financial Review - Restructuring and special charges, net" of this
Management's Discussion and Analysis.

     In 1999, the Company implemented a program in its Water & Paper
Treatments Segment to eliminate approximately 250 FTEs, principally in the
production, sales and administration areas. These programs were completed in
1999 for a total cost of CHF 10 million. The Company also released to income
excess restructuring provisions of CHF 10 million that were established in
prior years.

     In 2000, the Company completed all of its outstanding restructuring
programs that were announced in prior years. For further information see Note
10 to the Consolidated Financial Statements.

     Plastic Additives results

     Sales increased to CHF 1 959 million in 2000 or by 10 percent in Swiss
francs and by 3 percent in local currencies.

     Plastic Additives sales were marked by strong volume growth through most
of the year. This sales development reflects the positive economic environment
during the first nine months of the year, followed by the expected slowdown in
the United States economy towards the end of the year. In addition, some price
erosion was caused by customers located in strong currency regions, such as
the United States, who purchased products manufactured in weaker currency
regions, such as the euro region, requesting a share of the suppliers'
currency gains.

     The Segment realized sales growth in polymer product, base polymers and
particularly in lubricant additives, both in Swiss francs and local
currencies. The results were driven by continuing innovation in meeting
customer needs and by favorable global market conditions.

     Geographically, in Europe, a strong performance was posted in most major
markets. In the Americas, sales were strong in South and Central America, both
in Swiss francs and in local currencies. Sales in North America decreased
moderately in local currencies, but increased in Swiss francs due to the
strengthening of the U.S. dollar. In Asia-Pacific, strong sales performances
were posted in most major Asian markets in both Swiss francs and in local
currencies.


                                      58


<PAGE>


                                                       2000              1999
      -------------------------------------------------------------------------
      Operating income (EBIT)
      Absolute in CHF  .............................    314               276
      As a percentage of sales (EBIT margin)  ......   16.0%             15.5%
      EBITDA
      -------------------------------------------------------------------------
      Absolute in CHF  .............................    423               377
      As a percentage of sales (EBITDA margin)  ....   21.6%             21.1%
      -------------------------------------------------------------------------

     Operating income improved to CHF 314 million and EBITDA improved to CHF
423 million. This growth was largely attributable to higher sales and
continued improvement in operational efficiency. In addition, raw material
price increases were minimized as a result of favorable currency effects in
the procurement process. In addition, as relatively more production costs as
compared to sales are incurred in Europe, the prevailing euro and Swiss franc
weakness relative to the U.S. dollar and the Japanese yen positively impacted
the results. EBIT margin rose to 16.0 percent and EBITDA margin rose to 21.6
percent.

     In anticipation of the changing market conditions in the United States, a
reorganization of the Segment's McIntosh manufacturing plant was initiated to
reduce costs and to meet the expected future manufacturing requirements.

     Coating Effects results

     Sales increased to CHF 2 118 million in 2000 or by 8 percent in Swiss
francs and by 2 percent in local currencies.

     Sales in the major business areas of the Segment improved both in Swiss
francs and local currencies. In particular, sales continued to be strong in
publication inks, decorative paints, powder coatings and coil coatings. The
Segment's sales in the overall coatings business line were strong in the first
half of the year but were unfavorably affected by a slowdown in the United
States automotive industry in the fourth quarter. However, business line
electronic materials showed a promising sales growth.

     Geographically, in Europe, a strong performance was posted in most major
markets, except Germany where sales were relatively flat. In the Americas,
sales were strong in South and Central America, both in Swiss francs and in
local currencies. Sales in North America decreased in local currencies, but
increased in Swiss francs due to the strengthening of the U.S. dollar. In
Asia-Pacific, strong sales performances were posted in most major Asian
markets in both Swiss francs and in local currencies, except Japan which
posted a decline in local currency.

                                                       2000              1999
      -------------------------------------------------------------------------
      Operating income (EBIT)
      Absolute in CHF  .............................    366               305
      As a percentage of sales (EBIT margin)  ......   17.3%             15.6%
      EBITDA
      -------------------------------------------------------------------------
      Absolute in CHF  .............................    475               403
      As a percentage of sales (EBITDA margin)  ....   22.4%             20.6%
      -------------------------------------------------------------------------

     Operating income improved to CHF 366 million and EBITDA improved to CHF
475 million. This increase reflects the positive impact of volume growth
coupled with increased capacity utilization and ongoing process improvements.
These positive effects have more than offset selling price declines. The
integration of Prochimica s.r.l., the company's former key photoinitiator
supplier, which was purchased in March 2000, has started to positively
contribute to the Segment's results. In addition, as relatively more
production costs as compared to sales are incurred in Europe, the prevailing
euro and Swiss franc weakness relative to the U.S. dollar and the Japanese yen
positively impacted the results. EBIT margin rose to 17.3 percent and EBITDA
margin rose to 22.4 percent.

     Water & Paper Treatment results

     Sales increased to CHF 1 558 million in 2000 or by 11 percent in Swiss
francs and by 4 percent in local currencies.

     Sales growth in business line paper increased strongly in both Swiss
francs and in local currencies, reflecting the continued positive impacts of
the firm paper markets. This was particularly evident in the paper whitener
and paper barrier effects businesses. Sales in business line water treatments
faced continuing competitive pressure on prices, especially with respect to
the highly regulated municipal pollution control market. Extractive Industries
sales increased significantly, as a result of increased drilling activity,
fueled by continuing high price levels for oil.


                                      59


<PAGE>


     Geographically, in Europe, sales growth in most major markets was posted
in Swiss francs and was stable to slightly higher in local currencies. In the
Americas, sales increased in most major markets, in both Swiss francs and in
local currencies, except for the United States, which posted a moderate
decline in local currency. In Asia-Pacific, sales increased in the major Asian
markets, in both Swiss francs and in local currencies.

                                                       2000              1999
      -------------------------------------------------------------------------
      Operating income (EBIT)
      Absolute in CHF  ..............................   111                68
      As a percentage of sales (EBIT margin)  .......   7.1%              4.9%
      EBITDA
      -------------------------------------------------------------------------
      Absolute in CHF  ..............................   187               151
      As a percentage of sales (EBITDA margin)  .....  12.0%             10.7%
      -------------------------------------------------------------------------

     Operating income of CHF 111 million and EBITDA of CHF 187 million in 2000
reflect an improvement compared to the 1999 results. This is largely due to
reorganization programs introduced in the first half-year of 1999 which
continue to yield positive results. More actions have been initiated to
further improve operational performance. In the fourth quarter the company
announced that it would reorganize its Water & Paper Treatments business in
the United States. This is in response to more difficult market conditions in
that region and the need to reorganize the Water & Paper Treatments business
in order to assure continued profitability. The program includes the closure
of the Old Bridge manufacturing facility and the streamlining of logistics and
manufacturing processes at other facilities. This initiative will improve
efficiencies across the business and in other United States based
manufacturing facilities, improving operating margins and market
competitiveness. EBIT margin rose to 7.1 percent and EBITDA margin rose to
12.0 percent.

     Textile Effects results

     Sales increased to CHF 1 841 million in 2000 or by 9 percent in Swiss
francs and by 4 percent in local currencies.

     The colors for textiles business showed strong growth throughout most of
the year, continuing the sales recovery that began in the third quarter of
1999. The increase in sales was noted in all major dyeing industries. Sales in
the textile chemicals business also posted an increase in both Swiss francs
and in local currencies, benefiting from innovative products for the fabric
finishing market.

     Geographically, Europe posted relatively flat sales in both Swiss francs
and in local currencies, performance between individual countries, however,
was mixed. In the Americas, sales were higher in Central and South America in
both Swiss francs and in local currencies. In North America, sales were higher
in Swiss francs but decreased in local currencies. North American sales were
affected by the continued relocation of the United States textile industry to
the Asian region and to Central and South America. In Asia-Pacific, sales were
strong in the Asian markets, in both Swiss francs and in local currencies,
except in Japan, which posted a decline in local currency.

                                                       2000              1999
      -------------------------------------------------------------------------
      Operating income (EBIT)
      Absolute in CHF  .............................    204               117
      As a percentage of sales (EBIT margin)  ......   11.1%              6.9%
      EBITDA
      -------------------------------------------------------------------------
      Absolute in CHF  .............................    275               179
      As a percentage of sales (EBITDA margin)  ....   14.9%             10.6%
      -------------------------------------------------------------------------

     Operating income of CHF 204 million and EBITDA of CHF 275 million in 2000
reflect a strong improvement compared to the 1999 results. This increase
reflects the positive impact of volume growth coupled with increased capacity
utilization and ongoing process improvements. These positive effects have more
than offset selling price declines. The full benefits of process improvement
initiatives became visible in lower production and selling, general and
administrative expenses as a percentage of sales and consequently, led to 11.1
percent EBIT margin and a 14.9 percent EBITDA margin.


                                      60


<PAGE>


     Home & Personal Care results

     Sales increased to CHF 426 million in 2000 or by 3 percent in Swiss
francs but declined by 5 percent in local currencies.

     The Home & Personal Care business faced difficult market conditions for
most of the year, due to the effects of intense price competition among key
detergent manufacturers, and pricing pressures from new producers in Asia in
the antimicrobials business. Towards the end of 2000 there was, however, an
upturn in sales in the detergent market. In addition, sales of recently
introduced new products in the personal care market, such as products for use
in hair-dyes, grew during 2000.

     Geographically, in Europe sales increased in both Swiss francs and in
local currencies. Performance among individual countries, however, was mixed.
In the Americas, sales increased in South and Central America in Swiss francs
but were relatively flat in local currencies. In North America, sales
increased slightly in Swiss francs but were decreased in local currencies. In
Asia-Pacific, sales decreased in most major Asian markets in both Swiss francs
and in local currencies.

                                                       2000              1999
      -------------------------------------------------------------------------
      Operating income (EBIT)
      Absolute in CHF  .............................     58                62
      As a percentage of sales (EBIT margin)  ......   13.7%             15.0%
      EBITDA
      -------------------------------------------------------------------------
      Absolute in CHF  .............................     80                85
      As a percentage of sales (EBITDA margin)  ....   18.8%             20.5%
      -------------------------------------------------------------------------

     Due to the challenging sales conditions in the Home & Personal Care
markets, coupled with increased expenditures in research and development led
to a decrease in operating income to CHF 58 million and in EBITDA to CHF 80
million. This led to a 13.7 percent EBIT margin and a 18.8 percent EBITDA
margin.

     Treasury management

     The international financial markets in 2000 continued to be volatile. The
major trends in the markets, which were the focus of the Company's treasury
management, included the strengthening of the U.S. dollar against the Swiss
franc, the weakening of the euro against the Swiss franc and other European
currencies, the volatility in the Japanese yen and the movements in interest
rates.

     In the first half of 2000, the Swiss franc strengthened against most of
the major currencies, with the exception of the U.S. dollar and Japanese yen.
In the second half of 2000, the Swiss franc continued to strengthen against
these major currencies, however, the U.S. dollar and the Japanese yen
continued to strengthen, with a weakening occurring in December 2000. During
2000, the U.S. dollar fluctuated against the Swiss franc from a high of
approximately CHF 1.82 to a low of approximately CHF 1.56. At the end of the
year 2000, the Swiss franc was at a level of CHF 1.67 against the U.S. dollar
versus CHF 1.58 at the end of 1999.

     As a consequence of the continued economic expansion in the United States
and Europe, global interest rates continued to rise over 1999 levels. In
particular, a significant increase was seen in short-term Swiss franc
borrowing rates. 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
2000 to 5.2 percent, which is below 1999 levels. The Company's net interest
costs decreased by CHF 56 million to CHF 209 million in 2000 compared to CHF
265 million in 1999. This decrease resulted from a combination of effective
treasury management and the use of proceeds received from the divestment of
the Performance Polymers business on May 31, 2000, to further reduce net debt
levels during the second half of 2000.

     The Company, in accordance with its stated risk management policy,
continued to monitor its currency exposures and, where appropriate, had
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 2000, other financial income
(expense) including foreign currency exchange gains and losses and net hedging
expenses, increased by CHF 9 million, to a net expense of CHF 14 million in
2000 as compared to a net expense of CHF 5 million in 1999. Through the use of
effective treasury management, the Company was able to maintain net other
financial income (expense) at a relatively stable level as compared to 1999,
despite the volatility in the financial markets during 2000. In addition, the
Company continued to realize benefits from the introduction of the euro in
Europe, which has enabled the Company to further improve cash management,
reduce costs and simplify risk management by reducing the number of currencies
requiring attention.


                                      61


<PAGE>


     The Company continued its debt repayment program, which commenced in
1999, utilizing its free cash flow to substantially reduce its short-term
debt. Cash flow utilized for this purpose amounted to CHF 844 million in 2000
and CHF 915 million in 1999. When economically feasible, the Company also
selectively retired portions of its long-term debt. Free cash flow utilized
for this purpose amounted to CHF 499 million in 2000 versus CHF 49 million in
1999.

     Effective tax rate

     The Company reported an effective tax rate of 35 percent in 2000 versus
33 percent in 1999. 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 1999 effective tax rate, the effective tax
rate in 2000 would have been 34 percent.

      Net income and earnings per share

      Net income                                       2000              1999
      -------------------------------------------------------------------------
      Income from continuing operations  ............   418               238
      Discontinued operations (1)  ..................    34                87
      -------------------------------------------------------------------------
      Net income  ...................................   452               325
      -------------------------------------------------------------------------
      (1) In 2000, discontinued operations reported is the gain on sale of
          discontinued operations, net of tax. In 1999, discontinued
          operations reported is the income from operations of discontinued
          operations, net of tax. In 2000, discontinued operations reported is
          the gain on sale of discontinued operations, net of tax.

     Improving operational business performance, favorable currency conditions
and effective treasury management, which reduced overall financing costs, led
to an increase in net income.

      Earnings per share, basic and diluted            2000              1999
      -------------------------------------------------------------------------
      Continuing operations  ........................  6.31              3.58
      Discontinued operations  ......................  0.50              1.31
      -------------------------------------------------------------------------
      Net income  ...................................  6.81              4.89
      -------------------------------------------------------------------------

     Earnings per share amounts were computed by dividing income from
continuing operations, discontinued operations and net income, respectively,
by the weighted average number of Shares outstanding.

     Discontinued operations - Performance Polymers business sold

     Divestment underscores 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. These
administrative service contracts have expired and will not be 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.


                                      62


<PAGE>


     This divestiture underscores 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 and
1999 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 and CHF 1 729 million
for the year ended December 31, 1999. 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. For the year ended December 31, 1999,
income from discontinued operations, net of tax amounted to CHF 87 million.
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. See Note 3 to the
Consolidated Financial Statements for further 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

     The Company maintains multicurrency loan facilities, 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 316 million as of December 31, 2001 (2000:
CHF 371 million).

     The Company's most significant multicurrency revolving loan agreement
provides for borrowings in multiple currencies up to CHF 400 million at an
interest rate of LIBOR plus 21.5 basis points. This facility expires on July
11, 2002. As of December 31, 2001 and 2000, there were no borrowings
outstanding under this facility.

     The Company's other multicurrency facility, which provided for borrowings
of CHF 300 million at LIBOR plus 20.0 basis points, expired on June 30, 2000
and was not renewed by the Company. There were no borrowings outstanding under
this facility during 2000.

     The Company's principle commercial paper programs are in the United
States and provide for short-term borrowings up to USD 1 billion. At December
31, 2001 no amounts were outstanding and at December 31, 2000, CHF 1 million
(USD 0.6 million) were outstanding under these programs.

     As of December 31, 2001, the Company had available unused credit lines
under its other bank overdraft and credit facilities of a total of
approximately CHF 1 040 million (2000: CHF 1 229 million).

     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 was CHF 3 678 million as
of December 31, 2001 (2000: CHF 3 859 million).

     The Company maintains a Euro Medium-Term Note program under which the
Company may issue up to USD 2.0 billion (CHF 3.3 billion) multicurrency,
unsecured, unsubordinated notes with a minimum maturity of one month and at
fixed, floating or indexed interest rates. As of December 31, 2001 the Company
had available borrowings under this program of approximately CHF 2 251 million
(USD 1 380 million) and as of December 31, 2000, had available approximately
CHF 2 305 million (USD 1 380 million).

     The Company, in July 1998, issued USD 687 million (CHF 1 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), 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 also has outstanding at both December 31, 2001 and 2000, CHF
1 300 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


                                      63


<PAGE>


substantially complies with all such laws. For further information, see Note
20 to the Consolidated Financial Statements and "Item 4. Information on the
Company--Property, Plant and Equipment; Manufacturing--Environmental Matters."

     Euro conversion

     On January 1, 1999, eleven (2001: twelve) of fifteen member countries of
the European Union established fixed conversion rates between their existing
sovereign currencies and adopted the euro as their new common currency. The
euro traded on currency exchanges while the national currency units remained
legal tender in the participating countries for a transition period between
January 1, 1999 and December 31, 2001.

     During the transition period, cashless payments were made in the euro and
parties elected to pay for goods and services and transact business using
either the euro or a national currency unit. Between January 1, 2002 and July
1, 2002, the new euro banknotes and coins are being put into circulation in
substitution for banknotes and coins in the old national currency units. By
July 1, 2002, at the latest, euro banknotes and coins will be the only
banknotes and coins to have legal tender status in participating member
states.

     The Company has in place a joint team representing affected functions
within the Company. This team has established and implemented actions and
performed the necessary systems changes to address the potential impact to the
Company from the euro conversion. These issues include, but are not limited to
(i) the technical challenges of adapting information systems to accommodate
euro transactions, (ii) the competitive impact of cross-border price
transparency, (iii) the impact on currency exchange rate risks, (iv) the
impact on existing contracts and (v) tax, legal and accounting implications.
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. Based on the Company's progress to date, management is
of the opinion that the introduction of the euro and the phasing out of the
national currency units 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."

     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 have been
initiated 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

     Derivative financial instruments

     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" 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 8 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 2001
results of operations and financial position.


                                      64


<PAGE>


     Goodwill and intangible assets

     In July 2001, the FASB issued SFAS No. 142 "Goodwill and Other Intangible
Assets". SFAS No. 142 requires that goodwill no longer be amortized to
earnings, but instead be reviewed annually for impairment. Other identifiable
intangibles will continue to be amortized to earnings over their estimated
useful lives. The amortization of goodwill ceases upon adoption of SFAS No.
142. The standard is 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 is 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.

     The Company is required to and has adopted SFAS No. 142 as of January 1,
2002. Management estimates that the adoption will not have a material effect
on the Company's 2002 results of operations and financial position other than
the impacts described in the following paragraphs.

     In connection with past acquisitions, the Company has included, for
financial reporting purposes, goodwill and certain identifiable intangibles in
the same balance sheet caption. SFAS No. 141 and SFAS No. 142 require the
carrying amount of identifiable intangibles to be stated separately from
goodwill on the balance sheet. For previously acquired intangible assets that
were reported together with goodwill, the Company, starting on January 1,
2002, will report them separately. This is expected to result in goodwill and
intangibles of CHF 2 147 million (2000: CHF 2 240 million) being reported
separately on the Consolidated Balance Sheets as goodwill of CHF 1 417 million
(2000: CHF 1 543 million) and identifiable intangibles of CHF 730 million
(2000: CHF 697 million).

     In 2002, as a result of goodwill not being amortized, the Company
estimates a reduction in amortization expense of CHF 61 million. As a
consequence, the Company expects a reduction in its effective tax rate of
approximately 2 percent.

     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 currently 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 October 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 is required to and has adopted this standard as of January 1,
2002. Management estimates that the adoption will not have a material effect
on the Company's 2002 results of operations and financial position.

     Forward-Looking Statements

     Forward-looking statements and information contained in this Management's
Discussion and Analysis of Financial Condition and Results of Operations are
qualified in their entirety as there are certain important factors that could
cause results to differ materially from those anticipated. 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. In addition to the factors discussed above, among the factors
that could cause actual results to differ materially are 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, and to continue to obtain sufficient financing to meet its liquidity
needs, 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. Furthermore, the
Company does not assume any obligation to update these forward-looking
statements. For more information, see "Item 3. Key Information - Risk
Factors."


                                      65


<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 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 (Earnings Before Interest and Taxes) is calculated as operating
income.

     EBIT Margin is 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
dividends paid. 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 is defined as net sales less costs of goods sold.

     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


                                      66


<PAGE>


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.

     Intensities are amounts 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.

     Net Assets are defined as Invested Capital. Please refer to the
definition of Invested Capital.

     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 Swiss francs 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.

     Notional Value (of a derivative financial instrument) is the stated
contract amount or the notional principal amount if there is no stated
contract amount for the financial instrument.

     Velocity is calculated by dividing net sales by average invested capital
for the period.


                                      67


<PAGE>


Item 6.  Directors, Senior Management and Employees

Directors and Senior Management

The members of the Board are as follows:

<TABLE>
<CAPTION>

                                       Year       Year
                                    appointed     term                      Significant positions
          Name                 Age   to Board    expires                      outside the Company
----------------------------------------------------------------------------------------------------------------------
<S>                            <C>  <C>          <C>    <C>
Armin Meyer,                    52      1997      2004   Member of the Board of Directors, Zurich Financial Services
  Chairman of the Board

Kurt Feller,                    64      1999      2003   Chairman of the Board of Directors, Rieter Group
  Vice Chairman of the Board                             Chairman of the Board of Directors, Geberit AG
                                                         Member of the Board of Directors, Daetwyler Holding AG
                                                         Member of the Board of Directors, Scintilla AG

Erwin W. Heri                   47      1997      2003   Chief Investment Officer, Credit Suisse Financial Services
                                                         Professor of Finance, University of Basel
                                                         Member of the Board of Directors, Hilti
                                                         Member of the Board of Directors, Clariden Bank
                                                         Member of the Board of Directors, DBV Winterthur

Gertrud Hoehler                 61      1997      2004   Professor of Humanities and author
                                                         Member of the Board of Directors, Baloise-Holding
                                                         Member of the Board of Directors, Georg Fischer Ltd.
                                                         Management consultant

Jean-Marie Pierre Lehn(1)       62      1997      2002   Professor of Chemistry and Chair of Chemistry of Molecular
                                                            Interactions, College de France
                                                         Nobel prize for Chemistry in 1987

Peter Littmann(1)               54      1997      2002   Professor of Marketing, University Witten/Herdecke
                                                         Former Chief Executive, Hugo Boss AG
                                                         Former Chief Executive Wunsche AG
                                                         Chairman of the Board of Directors, Beautynet AG
                                                         Member of the Board of Directors, Compass Ltd. (Bata
                                                            Shoe Company)

Uli Sigg                        55      1999      2003   Chairman of the Board of Directors, Ringier Group

Hans-Ulrich Mueller,            60      1997      N/A    Chairman of the board of directors, Hermann Buehler AG.
  Secretary
  (not member of the Board)
----------------------------------------------------------------------------------------------------------------------
</TABLE>
(1)  At the Company's Annual General Meeting of Shareholders to be held on
     March 22, 2002, Messieurs Lehn and Littmann will be proposed to be
     re-elected as members of the Board for an additional term of four years.

     Corporate Governance

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

     The Members of the Board are elected by the General Meeting of
Shareholders for a term of between one and four years; re-election is
possible. The Chairman is elected by the Board.


                                      68


<PAGE>


     The Board continues to commit to maintaining the highest standards of
integrity and transparency in its governance of the Company. The Board's
charter reflects the most recent developments in Corporate Governance
principles and the Board is confident that it is in compliance with
international standards, in particular with regard to:

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

     o    A majority of the Directors being independent from the Company

     o    Having Board Committees in which the outside Directors hold the
          majority

     o    Having an Audit Committee comprised of financially literate outside
          Directors

     o    Providing continuous and comprehensive information to Board Members

     A written charter sets out in detail the powers and responsibilities of
the Board and its Committees. The three standing Board Committees in the areas
of audit, finance, human resources and compensation provide modern Corporate
Governance 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, 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 laws and regulations governing the preparation and filing of
     financial statements.

          o    Finance Committee: Armin Meyer (Chairman) Kurt Feller, Erwin W.
               Heri

           Mission: Develops principles for financial planning,
      accounting/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, 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 resources
     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 resources policy,
     nomination and assessment of candidates to be made by the Board, supports
     the preservation and enhancement of the company's reputation in the human
     resource area, assesses the specific compensation received by the Members
     of the Board and the Committees and presents its findings to the Board.
     The Compensation Committee assesses the emoluments and terms of
     employment of the Chairman and Delegate of the Board, the Chairman of the
     Executive Committee and the Members of the Executive Committee and
     presents its findings to the Board.

     Topics of the Board in 2001

     In 2001, the Board focused on the following key topics: New
organizational structure of the group ("Fit for Growth!"); strategic direction
and vision of the group and the new Segments, financial control; management
development; monitoring of key strategic projects, cases and risks; technology
position of the group; recent developments in Corporate Governance principles
(Swiss Code of Best Practice and draft of the SWX's amended listing rules) and
performance review for the Board members and the Chairman and exchange views
of the Board under the leadership of the Vice Chairman without the Chairman
being present.


                                      69


<PAGE>


Senior Management

The responsibility for the day-to-day management of the Company is vested in
the Executive Committee.

There are currently nine members of the Executive
Committee:

<TABLE>
<CAPTION>

                                                                         Significant positions
Name                     Age   Function                                  outside the Company
--------------------------------------------------------------------------------------------------------
<S>                      <C>   <C>                                       <C>

Armin Meyer               52   Chief Executive Officer                   Member of the Board of Zurich
                                                                           Financial Services, Zurich.
Michael Jacobi            49   Chief Financial Officer                   None
Brendan Cummins           50   Executive Vice President, International   None
                               Coordination and Human Resources
Martin Riediker           49   Chief Technology Officer                  None
Hermann Angerer           54   Head Segment Coating Effects              None
Christoph Biedermann      44   Head Segment Textile Effects              None
Mark Garrett              39   Head Segment Water & Paper Treatment      None
Felix Meyer               48   Head Segment Plastic Additives            None
Tim Schlange              39   Head Segment Home & Personal Care         None
--------------------------------------------------------------------------------------------------------
Mr. Armin Meyer and Mr. Felix Meyer are not related.
</TABLE>

     Armin Meyer been Chairman of the Board of Ciba Specialty Chemicals since
November 17, 2000 and became Chief Executive Officer as of January 1, 2001. He
has been a Member of the Board since 1997 and became Vice-Chairman in 1999.
His experience includes 25 years with ABB in Switzerland as Business Segment
Head (Power Generation as of 1995, Building Technologies as of 1998) and a
Member of its Group Executive Committee since 1995.

     Michael Jacobi joined Ciba-Geigy in 1978 in the finance area. In 1990, he
was appointed Company Controller with responsibility for overall financial
accounting and reporting. His international management experience includes
long-term assignments in finance, accounting and planning in both Brazil and
the U.S.A. He has held his present position with the Company since the
Spin-off in 1997.

     Brendan Cummins, was appointed head of International Coordination and
Human Resources on December 1, 2001. Held a number of leading international
positions before serving as Regional President China and as Head of the
Business Unit Home and Personal Care. He joined Ciba-Geigy in 1971.

     Martin Riediker, was appointed Chief Technology Officer in 2001.
Previously global president of the Consumer Care division as well as head of
the USA Polymers division and member of the Executive Committee. Broad
experience in research and development and in resins, polymers, detergents and
cosmetics chemistry. He joined Ciba-Geigy in 1982.

     Hermann Angerer, was appointed Head of Coating Effects Segment in 2001.
Formerly head of Additives division Central Europe region and Additives
division Japan. Extensive experience in marketing and sales, development
chemistry, radiation curing and lubricant additives. He joined Ciba-Geigy in
1981.

     Christoph Biedermann, was appointed Head of Textile Effects Segment in
2001 (effective April 1). Formerly, President of ABB Industrie AG, Switzerland
from 1997 to 2001. Member of the ABB Switzerland Management Committee since
1999. Wide experience in engineering, automation and process optimization.

     Mark Garrett, was appointed Head of Water and Paper Treatment Segment in
2001. Previously global head of Business Unit Textile Chemicals, Business
Segment Whiteners and Business Unit Paper. Wide experience in business
planning and development. He joined Ciba-Geigy in 1986.

     Felix Meyer, was appointed Head of Plastic Additives Segment in 2001.
Previously global head of Polymer Additives Business Unit and member of the
Additives division management committee and, prior to that, Strategic Affairs,
Additives division. Wide experience in marketing and sales, additives
chemistry, purchasing and materials management. He joined Ciba-Geigy in 1981.

     Tim Schlange, was appointed Head of Home and Personal Care Segment in
2001. Previously Head of Strategic Business Development for the Consumer Care
division and Transition Manager for the divestment of the Performance Polymers
division. Management experience in corporate planning, marketing and sales. He
joined Ciba-Geigy in 1992.


                                      70


<PAGE>

Changes in senior management

     During 2001, the following changes occurred in senior management of the
Company:

     Franz Gerny retired effective December 1, 2001. Until his retirement, he
held the position of Executive Vice President International Coordination and
Human Resources, since the Spin-off in 1997. He became head of Ciba-Geigy
Human Resources in 1987, following assignments in Spain, Brazil and
Switzerland in areas such as Planning, Financing and Control, and New Business
Development, for Crop Protection. He also served as Personal Assistant to the
Chairman of Ciba-Geigy and head of the Executive Secretariat.

     Jean-Luc Schwitzguebel left the Company effective February 2001. Until
his departure, he held the position as Global President of the former Colors
division, a position that he held since September 1, 1998. He was appointed
head of Ciba-Geigy's Textile Dyes division in 1995. Prior to this, he held
several positions including Managing Director of Ciba Pigments in Paisley,
Scotland and worldwide head of the Classical Pigments business unit, also
based in Paisley. At the time of the Spin-off, he became Global President of
the former Textile Dyes division, which in 1998 was combined with the former
Pigments divisions to form the then Colors division.

     Executive and senior officers

     In addition to the members of the Executive Committee, the following
persons currently serve as executive and senior officers of the Company in the
following positions:

     Hans-Ulrich Muller, Head Group Service Law & Environment, Secretary to
the Board of Directors, age 59, joined Ciba-Geigy in 1990 as Head of Legal
Service. Prior to joining Ciba-Geigy, he held positions at Basler & Hoffman in
Zurich and Head of Legal Service at Rieter Holding Ltd. in Winterthur and was
in private practice. He has held his present position with the Company since
the Spin-off in 1997. He is also Chairman of the board of Hermann Buhler AG in
Winterthur.

     Reinhard Neubeck, Senior Corporate Officer, age 62, became global head of
Ciba-Geigy's Additives division in 1996. Prior to this he was responsible for
the Polymer Additives business unit. He has broad international experience as
a result of management positions in Japan and in Germany. He has held his
present position with the Company since February 2001. He joined Ciba-Geigy in
1972. He is also member of the board of Sarna Kunststoff Holding AG, Sarnen.

     Rodolfo Ciucci, Head of Corporate Communications, age 42, joined Ciba
Specialty Chemicals in 1999. Prior to joining the Company, he started his
career as a journalist for the Swiss Italian Radio and subsequently held
positions as Head of Corporate and Marketing communication at Intercontainer,
an international railway subsidiary in Basel, as Head of PR and Information at
Patria Insurances in Basel, as Head of the Press and Information Department of
Hilti AG in Schaan (Principality of Liechtenstein), and Head of Corporate
Communications at Swiss Re (Schweizerische Rueckversicherungsgesellschaft AG),
Zurich. He has held his present position with the Company since October 1999.

     Willy Rohrbach, Head of Internal Audit, age 63, retired effective
December 31, 2001. He held this position since the Spin-off in 1997.

     Michael Loechle, Head of Internal Audit, age 40. He has held a wide range
of experience in audit management in the pharmaceutical industry. He has also
held project management positions in Latin America and Spain with his previous
employer. He has held his present position with the Company since January
2002.

     Franz H. Killer, Head of Global Production & Process Optimization,
reporting directly to the CEO, age 49. He also heads the Steering Committee
for Technical Operations. He has held various management jobs with his former
employer. He holds his present position with the Company since January 2002.

     Compensation

     The aggregate amount of remuneration paid, including bonuses, by the
Company during 2001 to the members of the Board and the executive and senior
officers of the Company, taken as a group, was approximately CHF 26.6 million,
of which approximately CHF 1.8 million was the fair value of compensation paid
to the members of the Board. The Company's aggregate accrual during 2001 for
pension, retirement or other similar benefits for the members of the Board and
the executive and senior officers of the Company was approximately CHF 0.9
million. As of January 31, 2002, the members of the Board and the executive
and senior officers of the Company had a total of 309 032 options outstanding
under the Company's various stock option and share ownership plans which are
described under "Share Ownership". Base salaries 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, which are
established at the beginning of the year. Bonuses are expressed as a
percentage of base salary and may be adjusted, upward or downward, based on
corporate performance and on individual performance.


                                      71


<PAGE>


     Employees

     The Company employee's worldwide totaled 19 683 in 2001, 20 306 in 2000
and 23 189 (20 117 from continuing operations) in 1999. The following table
shows the number of employees at the end of December 31, 2001.


<TABLE>
<CAPTION>

                                                            Europe      Americas   Asia-Pacific        Total
     ---------------------------------------------------------------------------------------------------------
     <S>                                                    <C>         <C>        <C>                 <C>
     2001
     Plastic Additives  .........................            1 868         1 484            680        4 032
     Coating Effects  ...........................            3 465           533            523        4 521
     Water & Paper Treatment  ...................            2 237           862            306        3 405
     Textile Effects  ...........................            2 833           854          1 141        4 828
     Home & Personal Care  ......................              642           498            336        1 476
     Unallocated Group Services  ................              566           323            280        1 169
     Headquarters  ..............................              252             -              -          252
     ---------------------------------------------------------------------------------------------------------
     Total Company  .............................           11 863         4 554          3 266       19 683
     ---------------------------------------------------------------------------------------------------------
</TABLE>

     In 2001, the Company implemented a new organizational structure, which
created five new Segments focused on specific customer markets. See "Item 4.
Information on the Company--Business Overview". Information related to the
employees of these five new Segments for prior years by individual Segment 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 and
1999 for the Segments in total, unallocated and corporate.

<TABLE>
<CAPTION>
                                                            Europe      Americas   Asia-Pacific       Total
     ---------------------------------------------------------------------------------------------------------
     <S>                                                    <C>         <C>        <C>                <C>
     2000
     Segments in total  ..........................          11 399         4 735          2 901       19 035
     Unallocated Group Services  .................             491           306            257        1 054
     Headquarters  ...............................             217             -              -          217
     ---------------------------------------------------------------------------------------------------------
     Total Company  ..............................          12 107         5 041          3 158       20 306
     ---------------------------------------------------------------------------------------------------------
     1999
     Segments in total  ..........................          11 274         4 903          2 559       18 736
     Unallocated Group Services  .................             537           358            284        1 179
     Headquarters  ...............................             202             -              -          202
     ---------------------------------------------------------------------------------------------------------
     Continuing operations  ......................          12 013         5 261          2 843       20 117
     Discontinued operations (1)  ................           1 719           828            525        3 072
     ---------------------------------------------------------------------------------------------------------
     Total Company  ..............................          13 732         6 089          3 368       23 189
     ---------------------------------------------------------------------------------------------------------
</TABLE>
(1)  On May 31, 2000, the Company completed the sale of its Performance
     Polymers business to Morgan Grenfell Private Equity and to certain Asian
     joint venture partners. Refer to Note 3 to Consolidated Financial
     Statements for further information.

     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


                                      72


<PAGE>


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

     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. 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 will be 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 a
result of terminations from the program, a total of 66 682 options (2000: 60
418 options; 1999: 58 148 options) have been returned to the Company. As of
January 31, 2002, a total of 66 682 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 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, may also include grants of restricted
shares of common stock of the Company to senior management, other 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 2001, 2000 and 1999, no compensation
expense was recorded for the options issued under this plan.


                                      73


<PAGE>


     The following table summarizes option activity under the LTIP for the
three year period ended December 31, 2001 and from January 1, 2002 through
January 31, 2002:

                                              Weighted
                                               average               Options
                                        exercise price           outstanding
-------------------------------------------------------------------------------
Balance at December 31, 1998 ..........            165               351 055
Options granted .......................            113               521 088
Options canceled/forfeited ............            152              (14 235)
-------------------------------------------------------------------------------
Balance at December 31, 1999  .........            134               857 908
-------------------------------------------------------------------------------
Options granted  ......................            108               461 210
Options canceled/forfeited  ...........            118              (19 218)
-------------------------------------------------------------------------------
Balance at December 31, 2000  .........            125             1 299 900
-------------------------------------------------------------------------------
Options granted  ......................            112               461 444
Options issued on conversion of stock
  appreciation rights .................            165                60 799
Options canceled/forfeited  ...........            115              (43 694)
-------------------------------------------------------------------------------
Balance at December 31, 2001  .........            123             1 778 449
-------------------------------------------------------------------------------
Options granted  ......................              -                     -
Options canceled/forfeited  ...........            111               (1 113)
-------------------------------------------------------------------------------
Balance at January 31, 2002  ..........            123             1 777 336
-------------------------------------------------------------------------------

     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. 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 165. In 2001, 2000 and 1999, no compensation expense was recognized on
the stock appreciation rights.

     The following table summarizes the status of stock options outstanding
and exercisable at January 31, 2002:

<TABLE>
<CAPTION>

      -----------------------------------------------------------------------------------------------------
                                            Stock Options Outstanding         Stock Options Exercisable
      -----------------------------------------------------------------------------------------------------
                                                                 Weighted                          Weighted
                                                                  average                           average
                              Weighted         Number of        remaining        Number of        remaining
             Exercise          average       outstanding      contractual      outstanding      contractual
          price range   exercise price           options             life          options             life
                                                               (in years)                        (in years)
      ------------------------------------------------------------------------------------------------------
      <S>               <C>                  <C>              <C>              <C>              <C>

      108 - 115  .....          111.12         1 382 318              4.9          238 528              7.9
      165  ...........          165.00           395 018              2.6          395 018              2.6
      ------------------------------------------------------------------------------------------------------
                                               1 777 336                           633 546
      ------------------------------------------------------------------------------------------------------
</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.

                                      74


<PAGE>


     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 of the options is the market value of the
shares of common stock at the date of the grant, CHF 183. These options vest
after four years and expire after seven years from date of grant. As of
December 31, 2001, 12 560 of the stock options have been forfeited. In 2001,
2000 and 1999, no compensation expense was recorded under this plan. As of
January 31, 2002, 12 560 stock options have been forfeited.

     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 2001, 2 279 employees (2000:
2 836 employees; 1999: 3 515 employees) purchased 40 069 shares (2000: 50 099
shares; 1999: 63 929 shares) for which approximately CHF 4 million (2000: CHF
5 million; 1999: CHF 6 million) was paid to the Company. In 2001, 2000 and
1999, no compensation expense was recorded under this plan. In the period from
January 1, 2002 through January 31, 2002, no Shares have been purchased under
the plan.

     MAB - In 1998, the Company established a "Mitarbeiterbeteiligungsplan"
(Employee Investment Plan) which grants annually to most Swiss employees (as
an enhancement to their pension plan arrangements) the right to purchase 20
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 is
adjusted). The rights vest at the grant date and become exercisable at the
date of the employees' retirement or termination. As of December 31, 2001, 393
300 rights (2000: 307 060 rights; 1999: 223 800 rights) have been granted and
90 560 rights (2000: 74 300 rights; 1999: 35 160 rights) were exercised.
Compensation expense is recorded in the year the rights are granted and in
2001 CHF 8 million (CHF 10 million in 2000 and in 1999) of compensation
expense was recorded under this plan. In the period from January 1, 2002
through January 31, 2002, 86 040 rights were granted and 1 160 rights were
exercised.

     PSP - In 2001, the Company established a Performance Share Plan for
selected 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 1 250 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 2001. As of January 31, 2002, a total of 1 250 rights have been
returned to the Company resulting in a total of 85 450 rights outstanding as
of January 31, 2002.

     Change in control and reserve of Shares

     Upon a change in control of the Company (defined as for LEAP 30 percent,
for LTIP 2001, 2000 and 1999 33.33 percent, LTIP 1998 50 percent and for PSP
20 percent, 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.

     To cover demands for future option plans that may be established in the
next five years, the Company plans to purchase up to 5 percent of its common
stock (exclusive of the shares purchased from Novartis AG in the spin-off). At
December 31, 2001, the Company had 1.8 million shares (2000: 1.7 million
shares; 1999: 1.2 million shares) of treasury stock reserved for issuance
under the various stock based compensation plans.

     For further information see Note 16 to the Consolidated Financial
Statements.


                                      75


<PAGE>


Item 7.  Major Shareholder and Related Party Transactions.

Major Shareholders

     According to the Share Registrar of the Company and other publicly
available information as January 31, 2002, 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.

                                                        2001             2000
      -------------------------------------------------------------------------
      BNP Paribas (Suisse) SA, Geneva*                     -             2.2%
      Chase Nominees Ltd, London*                       3.1%                -
      Putnam Group, Boston (1)                          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, 2002, according to the Share Register, there were
218 registered holders of ordinary shares in the United States. These United
States ordinary shareholders collectively held 727 244 ordinary shares, or
approximately 1.01 percent of the Company's total issued and outstanding Share
as of that date. Also as of January 31, 2002, there were 256 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 302 434 ADRs, or
approximately 0.21 percent of the issued and outstanding 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.


                                      76


<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 2001, approximately 98 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. In connection with
its Toms River, New Jersey site in the United States, the Company has been
named as a defendant in several actions (see "(see "Item 4. Information on the
Company - Environmental Matters" above). 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, the third parties have initiated arbitration proceedings against the
Company. Although the outcome can not be predicted with certainty, management
is of the opinion that this matter will not have any material adverse effects
on the financial position or results of operations of the Company.

     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 shareholders' meeting that was held on March 23, 2001 a
dividend of CHF 2.00 per share was approved in respect of the fiscal year
2000.

     The Board will proposes 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' is proposed in the form
of a capital reduction of CHF 1 per share. If approved, the capital reduction
will take the form of a reduction in the nominal value of each common share
from CHF 10 per share to CHF 9 per share. Both the dividend and capital
reduction are subject to shareholder approval at the Annual General Meeting on
March 22, 2002. If approved, the Company expects that the dividend will be
distributed on March 27, 2002, and expects, subject to various conditions,
that payments from the capital reduction will be made on June 28, 2002.

     Significant Changes

     No significant change has occurred since the date of the Consolidated
Financial Statements included in this Annual Report.


                                      77


<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 ADRs, 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>
<CAPTION>


     Trading Prices on the Swiss Exchange                                       Price per Share
     ---------------------------------------------------------------------------------------------------------
                                                                  High          Low         High          Low
                                                           ------------ ------------ ----------- -------------
                                                                    in CHF                    in USD
<S>                                                        <C>          <C>          <C>         <C>
      Annual highs and lows
      1997  ..............................................      174.50       110.00       119.96        75.62
      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

      Quarterly highs and lows

      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

      1999
          First Quarter  .................................      127.00       103.00        85.35        69.22
          Second Quarter  ................................      128.00       112.00        82.46        72.15
          Third Quarter  .................................      126.25       108.50        84.12        72.29
          Fourth Quarter  ................................      121.25       110.75        75.89        69.31

      Monthly highs and lows

      2001
          January  .......................................      115.00       107.25        70.02        65.30
          February  ......................................      112.75       105.75        67.37        63.19
          March  .........................................      115.75       102.75        66.68        59.19
          April  .........................................      106.50        98.75        61.40        56.93
          May  ...........................................      109.25       102.25        60.80        56.90
          June  ..........................................      110.25       102.50        61.36        57.05
          July  ..........................................      107.00       101.50        61.90        58.72
          August  ........................................      108.75       101.25        65.13        60.64
          September  .....................................      107.75        75.00        66.56        46.33
          October  .......................................      106.25        91.35        65.00        55.88
          November  ......................................      112.00       102.00        68.27        62.18
          December  ......................................      106.00       100.50        63.86        60.55

      2002
          January  .......................................      110.50       103.25        64.28        60.06
      --------------------------------------------------------------------------------------------------------
</TABLE>


                                      78


<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 ADR.

<TABLE>
<CAPTION>
      Trading Prices on the New York Stock Exchange                         Price per ADR (1)
      ------------------------------------------------------------------------------------------
                                                                                High        Low
                                                                           ---------- ----------
                                                                                  in USD
<S>     <C>    <C>    <C>    <C>    <C>    <C>
      Annual highs and lows

      2000 (from August 2, 2000) )  ......................................     33.25      26.88

      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

      Monthly highs and lows

      2000
          August (from August 2, 2000)  ..................................     31.13      29.00
          September  .....................................................     29.50      27.50
          October  .......................................................     30.19      26.88
          November  ......................................................     30.69      29.63
          December  ......................................................     33.25      30.44

      2001
          January  .......................................................     35.44      33.25
          February  ......................................................     33.81      31.69
          March  .........................................................     34.63      29.81
          April  .........................................................     30.75      29.63
          May  ...........................................................     31.50      29.75
          June  ..........................................................     31.00      28.88
          July  ..........................................................     30.63      28.56
          August  ........................................................     32.31      30.56
          September  .....................................................     31.75      24.00
          October  .......................................................     32.25      28.69
          November  ......................................................     34.00      31.81
          December  ......................................................     31.88      31.00

      2002
          January  .......................................................     32.63      31.44

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

     (1)  One ADR represents one half of one share of the Company.

     On January 31, 2002, the last reported sale price was for Shares on the
Swiss Exchange CHF 108.75 and for ADR's on the New York Stock Exchange USD
31.75. According to the Share Registrar of the Company, as of December 31,
2001, there were 222 United States resident shareholders holding 737 814
Shares, representing approximately 1.02 percent of the issued and outstanding
Shares as of such date, and there were 257 United States resident holders of
American Depositary Receipts holding 302 434 ADRs, representing approximately
0.21 percent of the issued and outstanding Shares as of such date.


                                      79


<PAGE>


     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:

<TABLE>
<CAPTION>
                                                        First        Second         Third       Fourth
                                                      Quarter       Quarter       Quarter      Quarter
      -------------------------------------------------------------------------------------------------
      <S>                                             <C>           <C>           <C>          <C>

      2001  ....................................      280 000       190 000       330 000      280 000
      2000  ....................................      250 000       220 000       230 000      230 000
      -------------------------------------------------------------------------------------------------

     The information presented in the table below represents, for the periods
indicated, the average approximate daily volumes of the ADRs traded on the New
York Stock Exchange First Second Third Fourth Quarter Quarter Quarter Quarter

      -------------------------------------------------------------------------------------------------
      2001  ....................................        1 868         1 251         3 619        2 103
      2000  ....................................         n.a.          n.a.         1 873        2 504
      -------------------------------------------------------------------------------------------------
      n.a. Not applicable as the as the ADRs began trading from August 2, 2000.
</TABLE>

     The above information was supplied by the Swiss Exchange via the Swiss
Market Feed, Citibank N.A., and Reuters, all which supply such data to its
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 107 members. As
of December 31, 2001, 263 Swiss companies and 149 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, 2001, was CHF 876 billion. As
of December 31, 2001, the 10 largest companies in terms of market
capitalization (free float) represented CHF 696 billion or approximately 79
percent, of the Swiss Exchange's aggregate market capitalization. Average
monthly trading volume during 2001 was CHF 92.9 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.


                                      80


<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 registration
statement, 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

     Swiss law requires that at least 5 percent of the annual net profits of
the Company be retained by the Company as general reserves for so long as
these reserves amount to less than 20 percent of the Company's nominal share
capital. Under Swiss law, dividends are paid out only if approved by the
shareholders. The Board may propose that a dividend be paid out, but cannot
itself set the dividend. In practice, the shareholders' meeting usually
approves the dividend proposal of the Board. Dividends are usually due and
payable three business days after the shareholders' resolution relating to the
allocation of profits has been passed. The Company only has one class of
shares with a nominal value of CHF 10 each. Therefore, all shareholders are
entitled to equal dividends. According to section 30 of the Articles,
dividends which have not been claimed for within five years after the due date
fall back to the Company and would be allocated to the general reserves. 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. At the shareholders' meeting
that was held on March 23, 2001, a dividend of CHF 2.00 per share was approved
in respect of the fiscal year 2000.

     The Shares

     Each Share carries one vote at the shareholders' meetings of the Company.
Voting rights may be exercised only after a shareholder has been recorded in
the Company's share register (Aktienbuch) as a shareholder with voting rights.
The share register is maintained by the Company at its registered office.
Registration with voting rights is subject to certain restrictions. The
Company's board is staggered and there is cumulative voting for directors. See
"-Transfer of Shares" and "-Shareholders' Meeting".


                                      81


<PAGE>


     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 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

     Under the Swiss Stock Exchange Act, shareholders and groups of
shareholders acting in concert who acquire more than 33 1/3 percent of the
voting rights of a company incorporated in Switzerland of which at least one
class of equity securities is listed on the Swiss Exchange must submit a
takeover bid to all remaining shareholders. A mandatory takeover bid must be
made under certain rules (including rules with respect to price and
procedures) set forth in the Swiss Stock Exchange Act.


                                      82


<PAGE>


     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. Shareholders holding Shares with a
nominal value of a least CHF 1 million have the right to request that a
specific proposal be discussed and voted upon at the next shareholders'
meeting. A shareholders' meeting is convened by publishing a notice in the
Swiss Official Commercial Gazette (Schweizerisches Handelsamtsblatt) at least
20 days prior to such meeting.

     There is no provision in the Articles or under Swiss law requiring a
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 elimination of the transfer restrictions described above
(see "- Transfer of Shares"), (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.

     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 (Sonderprufung).

     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.

     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 to be held on March
22, 2002, the Board intends to propose to the shareholders another two year
extension.


                                      83


<PAGE>


     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 Commercial Gazette. 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 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. On October 23, 2001, the Company disclosed that the Putnam Group held
together 3 720 789 shares or 5.158% of the Company's share capital.

     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.

     Material Contracts

     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 ("Holders") and
beneficial owners ("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 (the "Custodian"). 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 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 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 30, 2001. As of December 31, 2001, CHF 1 009 million was
outstanding indebtedness of the Company under the program.


                                      84


<PAGE>


     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 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.


                                      85


<PAGE>


     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 82, I for individuals, Form 82 C
for corporations, Form 82 E 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, 2000. 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.


                                      86


<PAGE>


     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.

     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 31 percent (30.5 percent for payments made after August 6, 2001
and 30 percent for payments made after December 31, 2001) 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.


                                      87


<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 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. 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 2001, 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
been increased when compared to previous years.

     The fair value of foreign currency exchange contracts is sensitive to
changes in foreign currency exchange rates. As of December 31, 2001, 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 103
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 123 million as of December 31, 2001. 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, 2001, 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.


                                      88


<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.  [Reserved].



Item 16.  [Reserved].




                                   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-37


Item 19.  Exhibits.

     (a)  The following consolidated financial statements, together with the
          auditors' report of Arthur Andersen AG, are filed as part of this
          registration statement:

                                                                       Page

     Report of Independent Auditors  .................................  F-2

     Consolidated Statements of Income for the
     Years ended December 31, 2001, 2000 and 1999 ....................  F-3


                                      89


<PAGE>


     Consolidated Balance Sheets at December 31, 2001 and 2000  ......  F-4

     Consolidated Statements of Cash Flows for the Years ended
     December 31, 2001, 2000 and 1999 ................................  F-5

     Consolidated Statements of Shareholders' Equity for the
     Years ended December 31, 2001, 2000 and 1999  ...................  F-6

     Business Segment Data ...........................................  F-7

     Geographic Data  ................................................  F-10

     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 registration statement:

     **1.1 Articles of Association of Ciba Specialty Chemicals Holding Inc.
dated April 13, 2000.

     **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.

     4.1EMTN Programme Agreement in respect of a USD 2 billion Euro Medium
Term Note Programme dated March 30, 2001, among Ciba Specialty Chemicals PLC,
Ciba Specialty Chemicals Corporation, Ciba Spezialitaetenchemie Holding
Deutschland GmbH, Ciba Specialty Chemicals Holding Inc., UBS AG and the
additional parties named therein.

     4.2EMTN Deed of Covenant in respect of a USD 2 billion Euro Medium Term
Note Programme dated March 30, 2001, by each of Ciba Specialty Chemicals
Corporation, Ciba Specialty Chemicals PLC, Ciba Spezialitaetenchemie 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.

     4.3EMTN Deed of Guarantee in respect of a USD 2 billion Euro Medium Term
Note Programme dated March 30, 2001, by Ciba Specialty Chemicals Holding Inc.

     4.4EMTN Agency Agreement in respect of a USD 2 billion Euro Medium Term
Note Programme dated March 30, 2001, among Ciba Specialty Chemicals PLC, Ciba
Specialty Chemicals Corporation, Ciba Spezialitaetenchemie 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.

     **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.


                                      90


<PAGE>


     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 List of Subsidiaries
---------------------------------------

     * 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 )


                                      91


<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 6, 2002


                                      92


<PAGE>


Ciba Specialty Chemicals
Index to Consolidated Financial Statements



                                                                            Page

Report of Independent Auditors.........................................      F-2

Consolidated Statements of Income for the Years
ended December 31, 2001, 2000 and 1999  ...............................      F-3

Consolidated Balance Sheets at December 31, 2001 and 2000  ............      F-4

Consolidated Statements of Cash Flows for the Years
ended December 31, 2001, 2000 and 1999  ...............................      F-5

Consolidated Statements of Shareholders' Equity for the Years
ended December 31, 2001, 2000 and 1999  ...............................      F-6

Business Segment Data  ................................................      F-7

Geographic Data  ......................................................     F-10

Notes to Consolidated Financial Statements  ...........................     F-12


                                      F-1


<PAGE>


INDEPENDENT AUDITORS' REPORT
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


Eric G. Ohlund                                                Patrick Fawer

Basel, Switzerland, January 18, 2002


                                      F-2


<PAGE>


Ciba Specialty Chemicals
Consolidated Statements of Income
(in millions of Swiss francs except share and per share data)


<TABLE>

<S>                                                      <C>             <C>          <C>           <C>

Year ended December 31,                                  Notes           2001         2000          1999
--------------------------------------------------------------------------------------------------------

Net sales                                                               7 367        7 902         7 244
Cost of goods sold                                                      4 988        5 333         4 956

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

Gross profit                                                            2 379        2 569         2 288
Selling, general and administrative                                     1 258        1 417         1 338
Research and development                                                  276          293           256
Amortization of goodwill and other intangibles            1,7              92           94            77
Income from earnings of equity affiliates                   8              (8)        (113)          (15)
Restructuring and special charges                          10               0            2             0

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

Operating income                                                          761          876           632
Interest expense                                                         (203)        (265)         (295)
Interest income                                                            69           56            30
Other financial expense, net                                              (59)         (14)           (5)
Minority interest                                                         (10)          (7)           (7)

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

Income from continuing operations before income taxes                     558          646           355
Provision for income taxes                                 13             178          228           117

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

Income from continuing operations                                         380          418           238

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

Income from discontinued operations, net of tax             3               0            0            87
Gain on sale of discontinued operations, net of tax         3               0           34             0
Cumulative effects of change in accounting
principles, net of tax                                      1               2            0             0

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

Net income                                                                382          452           325

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

Per share data                                             18
Basic and diluted earnings per share
Continuing operations                                                    5.72         6.31          3.58
Discontinued operations                                                     -         0.50          1.31
Cumulative effects of change in accounting principles                    0.04            -             -

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

Net income per share                                                     5.76         6.81          4.89

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

Weighted average shares outstanding
Basic                                                              66 419 147   66 311 879    66 454 357
Diluted                                                            66 419 147   66 311 879    66 462 898

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

</TABLE>

See Notes to Consolidated Financial Statements




                                      F-3
<PAGE>


Ciba Specialty Chemicals
Consolidated Balance Sheets
(in millions of Swiss francs except share and per share data)

<TABLE>

<S>                                                      <C>             <C>          <C>


December 31,                                             Notes           2001         2000
------------------------------------------------------------------------------------------

ASSETS
------------------------------------------------------------------------------------------
Current assets
Cash and cash equivalents                                               1 602        1 179
Short-term investments                                                     41           68
Accounts receivable, net                                4               1 066        1 188
Inventories                                             5               1 526        1 695
Prepaid and other current assets                                          592          667

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

Total current assets                                                    4 827        4 797

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

Property, plant and equipment, net                      6               3 565        3 787
Goodwill and other intangible assets, net              1,7              2 147        2 240
Financial investments                                   8                 193          344
Other assets                                                              986          937

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

Total assets                                                           11 718       12 105

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


LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------------------------------------------------------------
Current liabilities
Accounts payable                                                          490          568
Short-term debt                                        11                 316          371
Income taxes payable                                                       81           32
Accruals and other current liabilities                  9               1 090        1 431

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

Total current liabilities                                               1 977        2 402

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

Long-term debt                                         12               3 678        3 859
Deferred income taxes                                  13                 379          317
Other liabilities                                      14               1 688        1 723
Minority interest                                                          88           50

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

Total liabilities                                                       7 810        8 351

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

Shareholders' equity                                   15
Common stock(1)                                                           721          721
Additional paid-in capital                                              3 957        3 955
Retained earnings                                                         (74)        (324)
Accumulated other comprehensive income                                   (240)        (116)
Treasury stock, at cost(2)                                               (456)        (482)

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

Total shareholders' equity                                              3 908        3 754

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

Total liabilities and shareholders' equity                             11 718       12 105

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



</TABLE>

(1) Par value CHF 10 per share - 82 130 117 shares authorized and 72 130 117
    shares issued in 2001 and 2000.

(2) In 2001: 5 987 947 treasury shares; in 2000: 6 061 434 treasury shares.

See Notes to Consolidated Financial Statements



                                      F-4
<PAGE>


Ciba Specialty Chemicals
Consolidated Statements of Cash Flow
(in millions of Swiss francs except share and per share data)


<TABLE>

<S>                                                      <C>         <C>          <C>

Year ended December 31,                                  2001        2000         1999
--------------------------------------------------------------------------------------

Cash flows from operating activities
Net income                                                382         452          325
Deduct net income from discontinued operations,
net of tax                                                  0          34           87

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

Income from continuing operations                         382         418          238

Adjustments to reconcile income from continuing
operations to net cash provided by operating activities:
   Depreciation and amortization                          469         470          454
   Deferred income taxes                                   87         179           35
   Unremitted earnings of equity affiliates                 0         (88)           4
   Restructuring and special charges                        0           2            0
   Restructuring payments                                 (46)        (35)        (148)
   Gain on sale/disposal of assets, net                    (5)        (15)         (22)
   Minority interest and other non-cash items, net         71          38          (75)
Changes in operating assets and liabilities:
   Short-term investments                                  27         (10)          (4)
   Accounts receivable, net                                53          37           (1)
   Inventories                                            117         (45)          149
   Accounts payable                                       (33)         (8)           45
   Other operating assets and liabilities                 (68)         87           231

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

Net cash provided by continuing operations              1 054       1 030           906
Net cash provided by discontinued operations                0           1           174

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

Net cash provided by operating activities               1 054       1 031         1 080

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

Cash flows from investing activities
Capital expenditures                                     (259)       (249)         (267)
Proceeds from sale of assets                               34          39            35
Sale (acquisition) of businesses, net of cash            (144)      1 566            70
Loans and other long-term assets                           35         (81)           67
Discontinued operations                                     0          (4)          (36)

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

Net cash (used in) provided by investing activities      (334)      1 271          (131)

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

Cash flows from financing activities
Decrease in short-term debt, net                          (48)       (844)         (915)
Proceeds from long-term debt                                6           4           330
Repayments of long-term debt                             (110)       (499)          (49)
Dividends paid                                           (132)       (133)         (133)
Treasury stock transactions                                 9         (40)            0
Other                                                       0           4             2

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

Net cash used in financing activities                    (275)     (1 508)         (765)

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

Effect of exchange rate changes on cash and cash
 equivalents                                              (22)        (28)           23

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

Net increase in cash and cash equivalents                 423         766           207

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

Cash and cash equivalents, beginning of year            1 179         413           206
Cash and cash equivalents, end of year                  1 602       1 179           413

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

Supplemental cash flow information
Cash paid for interest                                   (204)       (260)         (328)
Cash paid for income taxes                                (49)        (72)          (95)

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

</TABLE>

See Notes to Consolidated Financial Statements



                                      F-5
<PAGE>


Ciba Specialty Chemicals
Consolidated Statements of Shareholders' Equity
(in millions of Swiss francs except share and per share data)



<TABLE>

<S>                               <C>      <C>     <C>         <C>       <C>            <C>          <C>          <C>


                                                                         Accumulated    Treasury     Treasury
                                                   Additional              other        stock:       stock:
                                           Common  paid-in     Retained  comprehensive  unreserved   reserved
                                   Notes   stock   capital     earnings    income       shares       shares       Total
-----------------------------------------------------------------------------------------------------------------------

Balance at December 31, 1998                 721   3 930       (835)       (122)        (164)        (278)        3 252

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

Net income                                                      325                                                 325
Currency translation adjustments                                            180                                     180
Unrealized gain on available-for-sale
  securities, net of tax                                                      1                                       1

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

Comprehensive ime                                               325         181                                     506
Cash dividends declared and paid(1)                            (133)                                               (133)
Treasury stock transactions         15                                                   118            (118)         0
Other                                                 11          1           1                                      13

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

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,
  net of tax                                                                  1                                       1

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

Comprehensive income                                            452        (176)                                    276
Cash dividends declared and paid(1)                            (133)                                               (133)
Treasury stock transactions         15                                                   (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  17                                      (19)                                    (19)


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

Comprehensive income                                            382        (125)                                    257
Cash dividends declared and paid(1)                            (132)                                               (132)
Treasury stock transactions         15                (4)                                  6              19         21
Other                                                  6                      1            1                          8

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

Balance at December 31, 2001                 721   3 957        (74)       (240)         (65)           (391)     3 908

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

</TABLE>

(1) Cash dividends declared and paid were CHF 2.00 per share in 2001, 2000 and
    1999.

See Notes to Consolidated Financial Statements


                                     F-6


<PAGE>


Ciba Specialty Chemicals
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 that are used by
management for purposes of analyzing the results of operations and the financial
condition of the Company and its reportable segments. These financial indicators
are derived from U.S. GAAP financial items. Such indicators include EBITDA
(Earnings Before Interest, Taxes, Depreciation and Amortization) and EBITDA
margin.

     Management believes 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 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. Amounts reported for the
previous periods have been restated to conform to the 2001 presentation. 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, corporate related items, and certain other
net expenses not allocated to reportable segments. Intersegment sales between
subsidiaries are based on market price.

     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. Beginning in 2000, compensation expense relating to the interest
portion of pension costs for unfunded pension plans has been allocated to the
segments. Previously, this amount was recorded as a corporate expense. The
operating income and EBITDA of the segments have been adjusted accordingly.
Amounts reported for the previous periods 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 primarily serves the coatings, printing,
imaging, electronic and plastic industries. The end-user industries are, among
others, the automotive, industrial and decorative paint industries, the
electronic industry, all plastic-processing industries, and the packaging,
publication and security printing ink industries. The Segment develops,
manufactures and markets products and solutions such as pigments for inks,
paints and plastics, optical information storage products for re-writable CDs as
well as additives. The additives include, among others, photoinitiators for UV
curing of coatings as well as anti-static, anti-corrosion and anti-aging agents
for coatings and electronics and imaging applications.

     The segment Water & Paper Treatment serves the paper and municipal and
industrial waste-water treatment industries. The Segment offers products and
services for paper production starting at the wet-end with anti-foaming and
flocculation agents through the whole paper production process to the dry-end
with paper finishings that determine appearance, handling and performance of the
paper by making it water repellent, glossy or white. The Segment also offers
products and services used to help clean industrial and municipal effluents and
to improve the efficiency of mineral and oil processing.

     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 develops, manufactures and markets
products for home and personal care end-user industries. Among the Segment's
broad product offerings are whiteners for detergents, antimicrobials for a
variety of home and personal care products, UV absorbers for sun screens and
innovative hair dyes.

See Notes to Consolidated Financial Statements


<PAGE>

Ciba specialty Chemicals
Business Segment Data
(in millions of Swiss francs except share and per share data)

<TABLE>

<S>                                                      <C>           <C>           <C>


                                                         2001          2000          1999
-----------------------------------------------------------------------------------------
Net sales
Plastic Additives                                       1 834         1 959         1 784
Coating Effects                                         1 944         2 118         1 955
Water & Paper Treatment                                 1 486         1 558         1 408
Textile Effects                                         1 673         1 841         1 683
Home & Personal Care                                      430           426           414

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

Total net sales                                         7 367         7 902         7 244

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

Operating income
Plastic Additives                                         271           314           276
Coating Effects                                           304           366           305
Water & Paper Treatment                                    82           111            68
Textile Effects                                           183           204           117
Home & Personal Care                                       67            58            62
Corporate and other expe                                 (146)         (175)         (196)
Restructuring and special charges                           0            (2)            0

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

Total operating income                                    761           876           632

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

EBITDA(1)
Plastic Additives                                         388           423           377
Coating Effects                                           411           475           403
Water & Paper Treatment                                   157           187           151
Textile Effects                                           248           275           179
Home & Personal Care                                       95            80            85
Corporate                                                 (69)          (92)         (109)

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

Total EBITDA, before restructuring
and special charges                                     1 230         1 348         1 086

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

EBITDA margin(2)
Plastic Additives                                       21.1%         21.6%         21.2%
Coating Effects                                         21.1%         22.4%         20.6%
Water & Paper Treatment                                 10.6%         12.0%         10.7%
Textile Effects                                         14.8%         14.9%         10.6%
Home & Personal Care                                    22.2%         18.8%         20.5%
Corporate                                                  -             -             -

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

Total EBITDA margin, before restructuring
and special charges                                     16.7%         17.1%         15.0%

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

Depreciation and amortization
Plastic Additives                                         117           109           101
Coating Effects                                           107           109            98
Water & Paper Treatment                                    76            76            83
Textile Effects                                            66            71            62
Home & Personal Care                                       28            22            23
Corporate                                                  75            83            87

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

Total depreciation and amortization                       469           470           454

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

Research and development expenditures
Plastic Additives                                          73            82            64
Coating Effects                                            96           102            97
Water & Paper Treatment                                    34            36            31
Textile Effects                                            39            44            41
Home & Personal Care                                       24            21            19
Corporate                                                  10             8             4

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

Total research and development expenditures               276           293           256

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


</TABLE>

See Notes to Consolidated Financial Statements



                                      F-8

<PAGE>

Ciba Specialty Chemicals
Business Segment Data
(in millions of Swiss francs except share and per share data)


<TABLE>

<S>                                                      <C>           <C>           <C>


                                                         2001          2000          1999
-----------------------------------------------------------------------------------------
Capital expenditures
Plastic Additives                                          80            67            54
Coating Effects                                            66            65            78
Water & Paper Treatment                                    52            52            90
Textile Effects                                            32            37            24
Home & Personal Care                                       25            23            16
Corporate                                                   4             5             5

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

Total capital expenditures                                259           249           267

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

                                                                       2001          2000
-----------------------------------------------------------------------------------------
Net assets(3)
Plastic Additives                                                     1 403         1 458
Coating Effects                                                       1 852         1 904
Water & Paper Treatment                                               1 092         1 149
Textile Effects                                                       1 270         1 385
Home & Personal Care                                                    286           271
Shared net assets not allocated to segments(4)                        1 757         1 844
Non-operating net assets(5)                                           2 154         1 793

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

Total net assets                                                      9 814         9 804

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

Total assets
Plastic Additives                                                     1 623         1 758
Coating Effects                                                       2 100         2 195
Water & Paper Treatment                                               1 286         1 398
Textile Effects                                                       1 456         1 614
Home & Personal Care                                                    347           336
Shared assets not allocated to segments(4)                            2 312         2 599
Non-operating assets(5)                                               2 594         2 205

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

Total assets                                                         11 718        12 105

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


</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)  Net Assets (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.

(4)  Shared net assets and assets not allocated to segments include the goodwill
     and intangibles recognized in connection with the Allied Colloids
     acquisition.

(5)  Non-operating net assets and non-operating assets include cash and cash
     equivalents and short-term investments.

See Notes to Consolidated Financial Statements



                                      F-9

<PAGE>


Ciba Specialty Chemicals
Geographic Data
(in millions of Swiss francs except share and per share data)




<TABLE>

<S>                                                      <C>           <C>           <C>


Net Sales to Customers                                   2001          2000          1999
-----------------------------------------------------------------------------------------
Europe
Germany                                                   572           618           606
United Kingdom                                            373           394           385
Italy                                                     351           366           358
France                                                    311           325           326
Rest of European Union                                    846           899           865
Switzerland                                                75            84            79
Rest of Europe                                            227           227           207

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

Total Europe                                            2 755         2 913         2 826

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

Americas
United States of America                                1 819         2 025         1 882
Canada                                                    243           276           231
Central America                                           227           247           206
South America                                             365           388           301

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

Total Americas                                          2 654         2 936         2 620

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

Asia-Pacific
Japan                                                     431           528           483
Region China                                              424           413           318
Rest of Asia                                              686           689           570
Australia and New Zealand                                 154           158           161
Africa and Middle East                                    263           265           266

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

Total Asia-Pacific                                      1 958         2 053         1 798

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

Total net sales to customers                            7 367         7 902         7 244

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

Net sales to customers are based on the final destination of the sale.

See Notes to Consolidated Financial Statements


                                      F-10


<PAGE>

Ciba Specialty Chemicals
Geographic Data
(in millions of Swiss francs except share and per share data)



Long-lived Assets                                        2001          2000
---------------------------------------------------------------------------
Europe
Germany                                                   380           409
United Kingdom                                            627           679
Italy                                                     166           166
France                                                    128           135
Rest of European Union                                     81            62
Switzerland                                               629           671
Rest of Europe                                              1             1

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

Total Europe                                            2 012         2 123

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

Americas
United States of America                                1 076         1 190
Canada                                                      7             8
Central America                                           123           108
South America                                              30            35

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

Total Americas                                          1 236         1 341

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

Asia-Pacific
Japan                                                      47            29
Region China                                              195           204
Rest of Asia                                               48            58
Australia and New Zealand                                  18            22
Africa and Middle East                                      9            10

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

Total Asia-Pacific                                        317           323

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

Total long-lived assets                                 3 565         3 787

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

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>


Ciba Specialty Chemicals
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, fibers, fabrics and other products.
The Company's products and services are also used to provide clean water and to
treat industrial and municipal effluent.

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.



                                      F-12

<PAGE>

Ciba Specialty Chemicals
Notes to Consolidated Financial Statements
(in millions of Swiss francs except share and per share data)


Goodwill and intangible assets

     Goodwill and purchased identifiable intangibles are capitalized at
acquisition cost. Goodwill acquired on or before June 30, 2001 and identifiable
intangibles are amortized on a straight-line basis over the estimated periods to
be benefited, which can range from 5 to 40 years. Goodwill acquired after June
30, 2001, is not amortized. The Company assesses its goodwill acquired on or
before June 30, 2001 and its identifiable intangibles 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 goodwill or the identifiable intangible, a loss
is recognized for the difference between the fair value and carrying value of
the goodwill or the identifiable intangible. See "Change in accounting policy
and new accounting standards - Goodwill and intangible assets" section below.

Financial investments and other assets

     Financial investments and other assets comprise primarily investments in
and loans to equity affiliates, investments in unconsolidated companies (less
than 20 percent ownership) and prepaid pension costs.

     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 in "accumulated other comprehensive income"
in the Consolidated Balance Sheets.

Derivative financial instruments

     Effective January 1, 2001, with the adoption of the new accounting standard
on derivative financial instruments (refer to "Changes in accounting policy and
new accounting standards - Derivative financial instruments" section below), all
derivative financial instruments, such as interest rate swap contracts, foreign
exchange contracts and certain derivative financial instruments embedded in host
contracts, are recorded in the balance sheet as either assets or liabilities and
are measured at fair value, regardless of the purpose or intent for holding
them. Changes in the fair value of derivative financial instruments are
recognized periodically either in income or stockholders' equity (as a component
of other comprehensive income), depending on whether the derivative is
designated and qualifies as an accounting hedge of changes in fair value or cash
flows.

     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.



                                      F-13

<PAGE>

Ciba Specialty Chemicals
Notes to Consolidated Financial Statements
(in millions of Swiss francs except share and per share data)


Income taxes

     Provision for income taxes has been determined using the comprehensive
liability method 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. 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.

Change in accounting policy and new accounting standards

Derivative financial instruments

     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" and SFAS No.
138 "Accounting for Certain Derivative Instruments and Certain Hedging
Activities an amendment of FASB Statement No. 133", which replaces existing
pronouncements and practices for derivatives and hedging activities with a
single, integrated accounting framework. These statements expand the previous
accounting definition of derivatives to include embedded derivatives and many
commodity contracts. Upon adoption of these statements, 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.

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 2001 results of
operations and financial position.

Goodwill and intangible assets

     In July 2001, the FASB issued SFAS No. 142 "Goodwill and Other Intangible
Assets". SFAS No. 142 requires that goodwill no longer be amortized to earnings,
but instead be reviewed annually for impairment. Other identifiable intangibles
will continue to be amortized to earnings over their estimated useful lives. The
amortization of goodwill ceases upon adoption of SFAS No. 142. The standard is
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 is 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.

     The Company is required to adopt and has adopted SFAS No. 142 as of January
1, 2002. Management estimates that the adoption will not have a material effect
on the Company's 2002 results of operations and financial position other than
the impacts described in the following paragraphs.



                                      F-14

<PAGE>

Ciba Specialty Chemicals
Notes to Consolidated Financial Statements
(in millions of Swiss francs except share and per share data)


     In connection with past acquisitions, the Company has included, for
financial reporting purposes, goodwill and certain identifiable intangibles in
the same balance sheet caption. SFAS No. 141 and SFAS No. 142 require the
carrying amount of identifiable intangibles to be stated separately from
goodwill on the balance sheet. For previously acquired intangible assets that
were reported together with goodwill, the Company, starting on January 1, 2002,
will report them separately. This is expected to result in goodwill and
intangibles of CHF 2 147 million (2000: CHF 2 240 million) being reported
separately on the Consolidated Balance Sheets as goodwill of CHF 1 417 million
(2000: CHF 1 543 million) and identifiable intangibles of CHF 730 million (2000:
CHF 697 million).

     In 2002, as a result of goodwill not being amortized, the Company estimates
a reduction in amortization expense of CHF 61 million. As a consequence, the
Company expects a reduction in its effective tax rate of approximately 2
percent.

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 currently 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 October 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 is
required to and has adopted this standard as of January 1, 2002. Management
estimates that the adoption will not have a material effect on the Company's
2002 results of operations and financial position.

Reclassifications

     Certain reclassifications to the 2000 and 1999 financial statements and
related footnote amounts have been made to conform with the 2001 presentation.

2.  Exchange rates of principal currencies

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

--------------------------------------------------------------------------------------------------------------
                                             Statement of income average rate     Balance sheet year-end rates
                                          ------------------------------------  ------------------------------

                                                2001        2000         1999            2001           2000
----------------------------------------  ------------------------------------  ------------------------------

     1 U.S. dollar            (USD)             1.68        1.69         1.50            1.63           1.67
     1 British pound          (GBP)             2.43        2.56         2.42            2.37           2.46
     1 Euro(1) (2)            (EUR)             1.51        1.56         1.60            1.47           1.53
   100 German marks(2)        (DEM)                -       79.62        81.82               -          77.97
   100 French francs(2        (FRF)                -       23.74        24.40               -          23.25
  1000 Italian lira(2         (ITL)                -        0.80         0.83               -           0.79
   100 Japanese yen           (JPY)             1.39        1.57         1.32            1.28           1.48

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

(1)  On January 1, 1999, eleven (on January 1, 2001, twelve) of the fifteen
     member countries of the European Union established fixed conversion rates
     between their existing sovereign currencies and adopted the euro as their
     new common currency. The euro trades on currency exchanges and the legacy
     currencies remained legal tender in the participating countries for a
     transition period between January 1, 1999 and January 1, 2002.

     At January 1, 1999, the Swiss franc exchange rate to the euro was 1.607.

(2)  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-15

<PAGE>

Ciba Specialty Chemicals
Notes to Consolidated Financial Statements
(in millions of Swiss francs except share and per share data)


3.  Acquisitions and divestitures
--------------------------------------------------------------------------------

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 and 1999. 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:

--------------------------------------------------------------------------------
Year ended December 31,                                      2000(1)        1999
--------------------------------------------------------------------------------

Net sales                                                        774       1 729

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

Income before income taxes and minority interest                  57         131
Provision for income taxes                                        21          45
Minority interest                                                  1           1

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

Income from operations of the Performance Polymers
business, net of tax                                              37          87
--------------------------------------------------------------------------------
Loss from sale from net assets of Performance
Polymers business, net of tax(2)                                  (3)
--------------------------------------------------------------------------------
Gain on sale of discontinued operations,
net of tax                                                        34

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

(1)  The 2000 income statement data reflects the Performance Polymers operating
     results through to May 31, 2000.

(2)  The loss from sale includes transaction related taxes of approximately CHF
     160 million and costs associated with selling the business.

Minor acquisitions and divestitures

     In June 2001, the Company completed the acquisition of Efka Additives B.V.,
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 goodwill being
amortized over 20 years and intangibles being amortized over an average life of
8 years. 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 8 and 10).

     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, including goodwill, 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.

     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.


                                      F-16


<PAGE>

Ciba Specialty Chemicals
Notes to Consolidated Financial Statements
(in millions of Swiss francs except share and per share data)


4.  Accounts receivable                                       2001          2000
--------------------------------------------------------------------------------

Accounts receivable                                          1 186         1 306
Allowance for doubtful accounts                              (120)         (118)

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

Total                                                        1 066         1 188

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


5.  Inventories                                               2001          2000
--------------------------------------------------------------------------------

Raw materials                                                 180           214
Work in process and finished goods                          1 412         1 554
Allowance for obsolete and slow moving inventory              (66)          (73)

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

Total                                                        1 526         1 695

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

<TABLE>

<S>                                 <C>    <C>         <C>         <C>            <C>       <C>

6.   Property, plant and equipment
--------------------------------------------------------------------------------
                                                       Machinery
                                                             and  Construction
                                    Land   Buildings    equipment  in progress    Total     Total
                                    2001        2001         2001         2001     2001      2000
-------------------------------------------------------------------------------------------------

Cost at January 1,                   128       1 934        5 865          171    8 098     7 923
Additions                              2           5           63          189      259       249
Retirements/disposals                 (2)        (45)         (96)          (3)    (146)      (90)
Changes in consolidation scope         2          23           16            3       44        42
Currency adjustments                  (7)        (25)        (173)          (6)    (211)      (17)
Other                                  0          31          167         (200)      (2)       (9)

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

Cost at December 31,                 123       1 923        5 842          154    8 042     8 098

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

Accumulated depreciation at January 1,          (878)      (3 433)               (4 311)   (4 009)
Depreciation                                     (60)        (317)                 (377)     (377)
Accumulated depreciation on
   retirements/disposals                          28           81                   109        53
Changes in consolidation scope                     0            0                     0       (5)
Currency adjustments                              17           94                   111        30
Other                                              0           (9)                   (9)       (3)

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

Accumulated depreciation at December 31,        (893)      (3 584)               (4 477)   (4 311)

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

Net book value at December 31,       123       1 030        2 258          154    3 565     3 787

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

</TABLE>

     The insurance value of the property, plant and equipment was approximately
CHF 10 804 million at December 31, 2001 and CHF 10 622 million at December 31,
2000.


7.  Goodwill and other intangible assets                      2001          2000
--------------------------------------------------------------------------------

Goodwill and other intangibles                               2 467         2 501
Less accumulated amortization                                (320)         (261)

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

Total                                                        2 147         2 240

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

     The line goodwill and other intangibles includes goodwill of approximately
CHF 1 486 million (2000: CHF 1 542 million) that was acquired in the Allied
Colloids acquisition in 1998 and goodwill of approximately CHF 145 million
(2000: CHF 162 million) that was acquired in other acquisitions. The Allied
Colloids goodwill is being amortized over its estimated useful life of 33 years.

     The line goodwill and other intangibles includes the intangible assets,
developed technology and know-how of approximately CHF 686 million (2000: CHF
712 million) that were acquired in the Allied Colloids acquisition in 1998 and
intangible assets of approximately CHF 150 million (2000: CHF 85 million) that
were acquired in other acquisitions. The Allied Colloids intangible assets are
being amortized over their estimated useful lives of 33 years.



                                      F-17

<PAGE>

Ciba Specialty Chemicals
Notes to Consolidated Financial Statements
(in millions of Swiss francs except share and per share data)


     Amortization expense on goodwill and other intangible assets amounted to
CHF 92 million (2000: CHF 94 million; 1999: CHF 77 million).

     For further information refer to the sections in Note 1 "Change in
accounting policies and new accounting standards - Business combinations" and
"- Goodwill and intangible assets".

8.  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.

     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>

<S>                                        <C>           <C>          <C>           <C>

----------------------------------------------------------------------------------------------
                                                     2001                       2000
                                            ------------------------  ------------------------
                                           -------------------------  ------------------------
                                           Book value    Fair value   Book value    Fair value
----------------------------------------------------------------------------------------------

Long-term debt, including current portion       3 680         3 675        3 861         3 726

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

</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, it is not practical to estimate fair value.


Financial investments

-------------------------------------------------------------------------------
                                            2001                           2000
-------------------------------------------------------------------------------

Investments in equity affiliates             157                            278
Investments in unconsolidated companies       36                             66

-------------------------------------------------------------------------------
Total financial investments                  193                            344

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


     At December 31, 2001, the cumulative unrealized gain/(loss), before tax on
investments in unconsolidated companies, which is included in "Accumulated other
comprehensive income", was a loss of CHF 37 million (2000: CHF 0 million; 1999:
CHF 1 million). These unrealized losses are a result of market weakness in the
industry segments in which these companies participate. In management's opinion,
this situation is temporary.

     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 2001, 2000 and 1999. 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 10). 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. 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.


                                      F-18


<PAGE>


Ciba Specialty Chemicals
Notes to Consolidated Financial Statements
(in millions of Swiss francs except share and per share data)


     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, 2001, 2000 and 1999.

<TABLE>
<CAPTION>
<S>                                   <C>        <C>       <C>                <C>
-----------------------------------------------------------------------------------
                                                           2000
                                             --------------------------------------
                                      2001       Total       Hexcel (1)      Other
-----------------------------------------------------------------------------------

Sales                                  213       2 469         1 791           678
Income before taxes                     16         207           141            66
Net income                              11         141            97            44
Total assets                           161         937             0           937
Shareholders' equity                   293         538             0           538
-------------------------------------------------------------------------------------
</TABLE>
(1) The figures for the year 2000 for Hexcel have been shown separately due to
its size. Total assets and shareholders' equity are excluded as a result of
the sale of the Company's majority interest in December 2000.

<TABLE>
<CAPTION>
<S>                                               <C>          <C>            <C>
1999                                             Total        Hexcel(1)      Other
-----------------------------------------------------------------------------------

Sales                                            2 457         1 770           687
Income before taxes                                 20          (25)            45
Net income                                           6          (25)            31
Total assets                                     3 111         2 074         1 037
Shareholders' equity                             1 006           434           572
-----------------------------------------------------------------------------------
</TABLE>

(1) The figures for Hexcel have been shown separately due to its size. The
Company's ownership percentage was 49.73%.

     The income from earnings of equity affiliates of CHF 8 million (CHF 113
million in 2000 and CHF 15 million in 1999) 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 3 million (CHF
32 million in 2000 and CHF 6 million in 1999) 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
(1999: CHF 17 million loss), included in the line Income from earnings of
equity affiliates, and a provision for income taxes of CHF 22 million (credit
of CHF 1 million in 1999) 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.

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.


                                     F-19


<PAGE>


Ciba Specialty Chemicals
Notes to Consolidated Financial Statements
(in millions of Swiss francs except share and per share data)


     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 financial 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.

     Interest rate swaps and forward rate agreements 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 2001, the Company recorded a net gain of CHF 6 million for hedging
ineffectiveness in "other financial expense, net" in the Consolidated
Statements of Income.

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 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. The
following table presents the book value, the fair values and notional
principal amount of derivative financial instruments at December 31, 2000:

-------------------------------------------------------------------------------
                                                                      Notional
                                               Book          Fair    principal
2000                                          value         value      amount(1)
-------------------------------------------------------------------------------
Foreign currency forward contracts               33            33        1 033
Foreign currency options contracts                3             3          704
Foreign currency swaps                            6             6        1 511
Interest rate contracts                           7           (7)        1 400
-------------------------------------------------------------------------------
Bracketed amounts are liabilities.
(1) The notional values of derivative instruments at year end provide an
  indication of the extent of the Company's involvement in such instruments,
  but do not represent exposure to market risks. The amounts indicated are
  gross values and include closed transactions that had not matured at the
  balance sheet date.


                                     F-20


<PAGE>


Ciba Specialty Chemicals
Notes to Consolidated Financial Statements
(in millions of Swiss francs except share and per share data)


9.  Accruals and other current liabilities               2001          2000
------------------------------------------------------------------------------

Payroll and employee benefits                             166           274
Environmental remediation and compliance                   31            61
Restructuring                                             180           368
Retirement and postemployment benefits                     33            27
Deferred income taxes                                     115           109
Other                                                     565           592
------------------------------------------------------------------------------
Total                                                   1 090         1 431
------------------------------------------------------------------------------

     In 2001, restructuring includes CHF 12 million (2000: 52 million) for
restructuring programs (see Note 10) and CHF 168 million (2000: CHF 316
million) for accrued separation costs and transaction taxes 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.


10. Restructuring and special charges
------------------------------------------------------------------------------

Current year program

     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 allow for a greater focus on providing not just products,
but total integrated solutions. This program resulted in the establishment of
five new 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.

     During 2001, under the "Fit For Growth!" program, the Company has
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.

Prior year programs

     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 8). 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. The remaining terminations relating to these
restructuring programs are expected to be substantially completed during 2002.

     In 1999, the Company implemented a program in the Water & Paper Treatment
Segment to eliminate approximately 250 FTEs, principally in the production,
sales and administration areas. This program was completed in 1999 for a total
cost of CHF 10 million. The Company also released to income excess
restructuring provisions of CHF 10 million that were established in prior
years.

     The costs and activity associated with the prior years' restructuring
programs are summarized below:

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

                                                 Severance    Other
2001                                                 costs    costs    Total
-----------------------------------------------------------------------------
January 1,                                              30       22       52
Amounts utilized(1)                                   (25)     (15)     (40)
-----------------------------------------------------------------------------
December 31,                                             5        7       12
-----------------------------------------------------------------------------
(1) Includes currency adjustments and a release of excess reserves of CHF 8
million.


                                     F-21


<PAGE>


Ciba Specialty Chemicals
Notes to Consolidated Financial Statements
(in millions of Swiss francs except share and per share data)


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

                                                 Severance    Other
2000                                                 costs    costs    Total
-----------------------------------------------------------------------------
January 1,                                              35        9       44
Restructuring expense                                   30       22       52
Amounts utilized(1)                                    (35)      (9)     (44)
-----------------------------------------------------------------------------
December 31,                                            30       22       52
-----------------------------------------------------------------------------
(1)  Includes currency adjustments.
-----------------------------------------------------------------------------

                                                 Severance    Other
1999                                                 costs    costs    Total
-----------------------------------------------------------------------------
January 1,                                             120       68      188
Restructuring expense(1)                                 0        0        0
Amounts utilized(2)                                    (85)     (59)    (144)
-----------------------------------------------------------------------------
December 31,                                            35        9       44
-----------------------------------------------------------------------------
(1) Includes an addition related to severance cost of CHF 10 million and a
    release of excess reserves from prior year programs of CHF 10 million.
(2) Includes currency adjustments.

     Management believes that the remaining restructuring provision is
adequate to complete all of its programs.


11. Short-term debt                                           2001     2000
----------------------------------------------------------------------------

Bank overdrafts                                                 31       71
Loans                                                          122      119
Commercial paper                                                 4       12
Other                                                          157      167
Current portion of long-term debt                                2        2
----------------------------------------------------------------------------
Total                                                          316      371
----------------------------------------------------------------------------


     The Company's principle commercial paper programs are in the United
States and provide for short-term borrowings up to USD 1 000 million. At
December 31, 2001, no amounts were outstanding and at December 31, 2000 CHF 1
million (USD 0.6 million) were outstanding under these programs. The programs
are secured by a USD 50 million standby credit facility.

     The CHF 300 million multicurrency standby facility with a major Swiss
bank, entered into in 1998, expired on June 30, 2000 and was not renewed. This
facility bore interest at the London Interbank Offered Rate (LIBOR) plus 20.0
basis points and a facility fee of 0.08 percent per annum was paid on the
total amount.

     The Company maintains a multicurrency revolving loan facility. At
December 31, 2001 and 2000, the available commitments under this facility were
CHF 400 million. A commitment fee of 0.10% per annum is paid on the average
unused facility. The outstanding loans bear interest at LIBOR plus 21.5 basis
points. The facility expires on July 11, 2002. At December 31, 2001 and 2000,
the facility was unused.

     The weighted average interest rate for short-term debt (excluding current
portion of long-term debt) calculated at December 31, 2001 was 6.3 percent and
at December 31, 2000 was 6.6 percent. Unused short-term credit lines totaled
approximately CHF 1 040 million at December 31, 2001 and CHF 1 229 million at
December 31, 2000.


                                     F-22


<PAGE>


Ciba Specialty Chemicals
Notes to Consolidated Financial Statements
(in millions of Swiss francs except share and per share data)


<TABLE>
<CAPTION>
<S>                                                                                           <C>          <C>
12. Long-term debt                                                                           2001          2000
----------------------------------------------------------------------------------------------------------------

Bonds and Euro Medium-Term Notes                                                            2 585         2 648
Convertible bonds                                                                           1 005         1 107
Amounts owed to credit institutions                                                            11             8
Other long-term debt                                                                           79            98
----------------------------------------------------------------------------------------------------------------
Total                                                                                       3 680         3 861
Less: current portion of long-term debt                                                         2             2
----------------------------------------------------------------------------------------------------------------
Total long-term debt                                                                        3 678         3 859
----------------------------------------------------------------------------------------------------------------


Bonds and Euro Medium-Term Notes                                                             2001          2000
----------------------------------------------------------------------------------------------------------------
CHF  1 000  3.25% Straight Bonds, principal due 2008                                          982         1 011
CHF    300  3.25% Straight Bonds, principal due 2009                                          303           304
USD    178  U.S. pollution control and industrial development bonds, principal
              due between 2008 and 2028 (weighted average interest rate of 3.22 %)            291           298

----------------------------------------------------------------------------------------------------------------
Total Bonds                                                                                 1 576         1 613
----------------------------------------------------------------------------------------------------------------
GBP      243     6.50%     Euro Medium-Term Note, principal due 2013                          563           584
USD      175     6.125%    Euro Medium-Term Note, principal due 2003                          277           275
EUR    114(1)    4.875%    Euro Medium-Term Note, principal due 2005                          169           176
----------------------------------------------------------------------------------------------------------------
Total Euro Medium-Term Notes                                                                1 009         1 035
----------------------------------------------------------------------------------------------------------------
Total Bonds and Euro Medium-Term Notes                                                      2 585         2 648
----------------------------------------------------------------------------------------------------------------
</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 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.

     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 (2000: 3 783 582 shares) of treasury stock
reserved for the potential conversion.

     The annual maturities of long-term debt outstanding at December 31, 2001
are as follows: 2002 CHF 2 million; 2003 CHF 1 374 million; 2004
CHF 2 million; 2005 CHF 167 million; 2006 CHF 2 million; 2007 and thereafter
CHF 2 167 million.


                                     F-23


<PAGE>


Ciba Specialty Chemicals
Notes to Consolidated Financial Statements
(in millions of Swiss francs except share and per share data)


13. Income taxes
------------------------------------------------------------------------------

      The provision for income taxes in 2001, 2000 and 1999 from continuing
operations consists of the following:

------------------------------------------------------------------------------
                                                   2001      2000      1999
------------------------------------------------------------------------------

Current provision                                    91        49       82
Deferred provision                                   87       179       35
------------------------------------------------------------------------------
Total provision for income taxes                    178       228      117
------------------------------------------------------------------------------

     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:

------------------------------------------------------------------------------
                                                   2001      2000      1999
                                                      %         %         %
------------------------------------------------------------------------------
Expected tax rate                                    30        30        30
Non-deductible items                                  7        14         7
Tax free income                                     (2)       (1)       (3)
Income taxed at reduced rates                       (3)         0       (2)
Changes in valuation allowance                        1      (11)       (1)
Other                                               (1)         3         2
----------------------------------------------------------------------------
Effective tax rate                                   32        35        33
------------------------------------------------------------------------------

     "Non-deductible items" includes the tax effect of amortization of
goodwill and other intangibles. In 2000, also included is the tax effect of
the impairment loss on certain of the Company's equity investments (see Note
10) and the effect of certain taxable income in one of the Company's
subsidiaries that was not recognized for financial accounting purposes.

     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 and 1999 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.

     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 prior years, "Other " includes approximately
2 percent in 2000 and 1 percent in 1999, reflecting the effect of the
reduction in the German statutory tax rates on the year-end 2000 and 1999 net
deferred tax asset balances of the Company's German subsidiaries.


                                     F-24


<PAGE>


Ciba Specialty Chemicals
Notes to Consolidated Financial Statements
(in millions of Swiss francs except share and per share data)


     The significant components of activities that gave rise to deferred tax
assets and liabilities on the balance sheet at December 31, 2001 and 2000,
were as follows:

------------------------------------------------------------------------------
                                                              2001       2000
------------------------------------------------------------------------------

Deferred tax assets
Pensions and other employee compensation                       104         91
Inventory                                                       44         48
Restructuring and special charges                               22         84
Environmental reserves                                         241        259
Tax loss carryforwards                                         170        135
Other                                                           45         33

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

Gross deferred tax assets                                      626        650
Valuation allowance                                          (146)      (143)

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

Net deferred tax assets                                        480        507

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

Deferred tax liabilities
Property, plant and equipment                                (429)      (394)
Other                                                        (186)      (160)

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

Gross deferred tax liabilities                               (615)      (554)

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

Net deferred tax liabilities                                 (135)       (47)

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

Included in
Prepaid and other current assets                               191        222
Other assets                                                   168        157
Accruals and other current liabilities                       (115)      (109)
Deferred income taxes                                        (379)      (317)

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

Net deferred tax liabilities                                 (135)       (47)

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

     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.

     For tax return purposes, the Company has available tax loss carryforwards
of approximately CHF 478 million, of which CHF 88 million will expire in the
next five years and CHF 240 million will expire between five and twenty years.
The remaining carryforwards do not expire.

     At December 31, 2001, unremitted earnings of subsidiaries outside of
Switzerland of approximately CHF 300 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.


14. Other liabilities                                         2001       2000
------------------------------------------------------------------------------

Environmental remediation and compliance                       717        737
Retirement and postemployment benefits                         625        577
Other                                                          346        409
------------------------------------------------------------------------------
Total                                                        1 688      1 723
------------------------------------------------------------------------------


                                     F-25


<PAGE>


Ciba Specialty Chemicals
Notes to Consolidated Financial Statements
(in millions of Swiss francs except share and per share data)


15. 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
10 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 April 13, 2002 without any restriction.

     The Company sold 1 929 453 shares in 2001 (4 862 shares in 2000 and 1 679
shares in 1999) of treasury stock at market prices. In addition, in 2001, the
Company purchased 1 855 966 shares of treasury stock (2000: 391 177 shares of
treasury stock and none in 1999) at market prices.

     The Company designated a total of 5 278 224 shares in 2001 (5 485 963
shares in 2000 and 5 304 753 shares in 1999) of its treasury stock as reserved
shares primarily for satisfaction of future share requirements under its
various outstanding employee stock option plans and for the potential share
issuance under its outstanding convertible bonds (see Notes 12 and 16). The
remaining 709 723 shares in 2001 (575 471 shares in 2000 and 370 366 shares in
1999) of treasury stock have been designated as unreserved shares.

     The after-tax components of accumulated other comprehensive income are as
follows:
------------------------------------------------------------------------------
                                                             2001       2000
------------------------------------------------------------------------------

Currency translation adjustment                              (199)      (117)
Unrealized gains/(losses) on available-for-sale securities    (23)          0
Minimum pension liability                                     (19)          0
Other                                                            1          1
------------------------------------------------------------------------------
Accumulated other comprehensive income                       (240)      (116)
------------------------------------------------------------------------------

     The deferred tax effect on the unrealized gains/(losses) on
available-for-sale securities is a benefit of CHF 14 million in 2001 and CHF 0
million in 2000. The deferred tax effect on the minimum pension liability
adjustment is a deferred tax benefit of CHF 12 million in 2001. The currency
translation adjustment is not adjusted for income taxes as it relates
primarily to indefinite investments in non-Swiss subsidiaries.


16. 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. A description of the terms of the Company's plans are presented in the
following paragraphs.

     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. 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 will be 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 a
result of terminations from the program, a total of 66 682 options (2000: 60
418 options; 1999: 58 148 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 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.


                                     F-26


<PAGE>


Ciba Specialty Chemicals
Notes to Consolidated Financial Statements
(in millions of Swiss francs except share and per share data)


     LTIP - In 1998, the Company established a Long-Term Incentive Plan which
grants options and, beginning in 2000, may also include grants of restricted
shares of common stock of the Company to senior management, other 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 2001, 2000 and 1999, no compensation
expense was recorded for the options issued under this plan.

     The following table summarizes option activity under the LTIP during
2001, 2000 and 1999:
------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S>                                                              <C>                <C>
                                                                Weighted
                                                                 average          Options
                                                          exercise price      outstanding
------------------------------------------------------------------------------------------
Balance at December 31, 1998                                         165          351 055
Options granted                                                      113          521 088
Options canceled/forfeited                                           152         (14 235)
------------------------------------------------------------------------------------------
Balance at December 31, 1999                                         134          857 908
------------------------------------------------------------------------------------------
Options granted                                                      108          461 210
Options canceled/forfeited                                           118         (19 218)
------------------------------------------------------------------------------------------
Balance at December 31, 2000                                         125        1 299 900
------------------------------------------------------------------------------------------
Options granted                                                      112         461 444
Options issued on conversion of stock appreciation rights            165          60 799
Options canceled/forfeited                                           115         (43 694)
------------------------------------------------------------------------------------------
Balance at December 31, 2001                                         123        1 778 449
------------------------------------------------------------------------------------------
</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. 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 165. In 2001, 2000 and 1999, 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, 2001:
------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S>                     <C>                     <C>           <C>                       <C>         <C>
                                           Stock Options Outstanding             Stock Options Exercisable
                                       -----------------------------------   -----------------------------------

                                                         Weighted average                      Weighted average
                                               Number of        remaining            Number of        remaining
    Exercise price Weighted average          outstanding contractual life          outstanding contractual life
             range   exercise price              options       (in years)              options       (in years)
----------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------
         108 - 115           111.13            1 383 431              5.1              178 034              7.6
               165           165.00              395 018              2.7              395 018              2.7
----------------------------------------------------------------------------------------------------------------
                                               1 778 449                               573 052
------------------------------------------------------------------------------------------------------------------
</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.


                                     F-27


<PAGE>


Ciba Specialty Chemicals
Notes to Consolidated Financial Statements
(in millions of Swiss francs except share and per share data)


     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 of the options is the market value of the
shares of common stock at the date of the grant, CHF 183. These options vest
after four years and expire after seven years from date of grant. As of
December 31, 2001, 12 560 of the stock options have been forfeited. In 2001,
2000 and 1999, 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 2001, 2 279 employees (2000:
2 836 employees; 1999: 3 515 employees) purchased 40 069 shares (2000: 50 099
shares; 1999: 63 929 shares) for which approximately CHF 4 million (2000: CHF
5 million; 1999: CHF 6 million) was paid to the Company. In 2001, 2000 and
1999, no compensation expense was recorded under this plan.

     MAB - In 1998, the Company established a "Mitarbeiterbeteiligungsplan"
(Employee Investment Plan) which grants annually to most Swiss employees (as
an enhancement to their pension plan arrangements) the right to purchase 20
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 is
adjusted). The rights vest at the grant date and become exerciseable at the
date of the employees' retirement or termination. As of December 31, 2001,
393 300 rights (2000: 307 060 rights; 1999: 223 800 rights) have been granted
and 90 560 rights (2000: 74 300 rights; 1999: 35 160 rights) were exercised.
Compensation expense is recorded in the year the rights are granted and in
2001 CHF 8 million (CHF 10 million in 2000 and in 1999) of compensation
expense was recorded under this plan.

     PSP - In 2001, the Company established a Performance Share Plan for
selected 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 1 250 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 2001.

Change in control and reserve of shares

     Upon a change in control of the Company (defined as for LEAP 30 percent,
for LTIP 2001, 2000 and 1999 33.33 percent, LTIP 1998 50 percent and for PSP
20 percent, 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.

     To cover demands for future option plans that may be established in the
next five years, the Company plans to purchase up to 5 percent of its common
stock (exclusive of the shares purchased from Novartis AG in the spin-off). At
December 31, 2001, the Company had 1.8 million shares (2000: 1.7 million
shares; 1999: 1.2 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 2001, 2000 and 1999
have been determined as if the Company had used the fair value method of
accounting for its stock option grants and employee share ownership plan in
accordance with the provisions of SFAS No. 123.


                                     F-28


<PAGE>


Ciba Specialty Chemicals
Notes to Consolidated Financial Statements
(in millions of Swiss francs except share and per share data)


     The pro forma amounts presented below reflect the portion of the
estimated fair value of awards granted in 2001, 2000 and 1999, based on the
vesting or service period over which the awards are earned.
<TABLE>
<CAPTION>
<S>                                                                             <C>          <C>          <C>
----------------------------------------------------------------------------------------------------------------
Year-ended December 31,                                                         2001         2000          1999
----------------------------------------------------------------------------------------------------------------
Pro forma income from continuing operations                                     368           410           224
Pro forma income from discontinued operations                                     0            34            87
Cumulative effects of change in accounting principles, net of tax                 2             0             0
----------------------------------------------------------------------------------------------------------------
Pro forma net income                                                            370           444           311
----------------------------------------------------------------------------------------------------------------
Pro forma earnings per share - basic and diluted:
Continuing operations                                                          5.53          6.19          3.37
Discontinued operations                                                           -          0.50          1.31
Cumulative effects of a change in accounting principle                         0.04             -             -
----------------------------------------------------------------------------------------------------------------
Pro forma net income per share                                                 5.57          6.69          4.68
----------------------------------------------------------------------------------------------------------------
     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,                                                        2001          2000          1999
----------------------------------------------------------------------------------------------------------------
Expected option lives in years                                                 7.04          7.36          6.82
Expected volatility in percentage                                             29.93         32.36         40.29
Risk-free interest rate in percentage                                          3.60          3.94          2.06
Expected dividend yield in percentage                                          1.80          1.85          1.71
Weighted average fair value in CHF                                            33.13         36.14         42.91
----------------------------------------------------------------------------------------------------------------
</TABLE>


17. Retirement benefits
------------------------------------------------------------------------------
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 19 million in 2001, CHF 19 million in 2000 and CHF 13 million in
1999.

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
                                               -------------------------------- --------------------------------
                                                      2001      2000      1999        2001       2000      1999
                                               -------------------------------- --------------------------------
Major plans:
   Service cost                                         92       114       120           1          1         2
   Interest cost                                       185       162       161           5          5         4
   Expected return on plan assets                    (252)     (239)     (216)           0          0         0
   Amortization of prior service cost                    0       (3)         0         (1)        (1)       (1)
   Other (gains), losses and amortization,            (38)      (36)      (35)           0        (3)       (4)
   net
---------------------------------------------- -------------------------------- --------------------------------
Benefit expense (income) major plans                  (13)       (2)        30           5          2         1
Other plans                                              2         3         1           0          0         0
---------------------------------------------- -------------------------------- --------------------------------
Total benefit expense (income)(1)                     (11)         1        31           5          2         1
---------------------------------------------- -------------------------------- --------------------------------
Continuing operations                                 (11)         1        26           5          2         0
Discontinuing operations                                 0         0         5           0          0         1
---------------------------------------------- -------------------------------- --------------------------------
Total benefit expense (income)(1)                     (11)         1        31           5          2         1
----------------------------------------------------------------------------------------------------------------
</TABLE>

(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 1999,
the components of pension expense and the components reconciling the changes
in the projected benefit obligation, the changes in the fair value of assets,
and the funded status have not been restated for amounts related to continuing
and discontinued operations as no detailed information was available. An
estimate of the prepaid (accrued) pension cost and pension expense allocable
to the Performance Polymers business has been included in discontinued
operations.


                                     F-29


<PAGE>


Ciba Specialty Chemicals
Notes to Consolidated Financial Statements
(in millions of Swiss francs except share and per share data)


     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,
2001 and 2000:
<TABLE>
<CAPTION>
<S>                                                             <C>          <C>             <C>           <C>
----------------------------------------------------------------------------------------------------------------
                                                                Pension benefits        Postretirement benefits
                                                            ----------------------------------------------------
                                                                2001          2000           2001          2000
                                                            ----------------------------------------------------

Benefit obligation, beginning of year                          3 340         3 588             66            73
   Service cost                                                   92           114              1             1
   Interest cost                                                 185           162              5             5
   Participant contributions                                      20            23              2             0
   Actuarial (gain) loss                                          74          (33)              1           (2)
   Plan amendments                                                 7           (4)              0           (2)
   Change in consolidation scope                                   0         (339)              0           (8)
   Benefits paid                                               (157)         (141)            (7)           (5)
   Foreign currency translation                                 (65)          (30)            (1)             4
   Other                                                          36             0              0             0
----------------------------------------------------- ----------------------------------------------------------
Benefit obligation, end of year                                3 532         3 340             67            66
----------------------------------------------------- ----------------------------------------------------------

Plan assets, beginning of year                                 3 939         3 862              0             0
   Actual return on plan assets                                (505)           463              0             0
   Employer contributions                                         60            59              5             5
   Participant contributions                                      20            23              2             0
   Change in consolidation scope                                   0         (302)              0             0
   Benefits paid                                               (157)         (141)            (7)           (5)
   Foreign currency translation                                 (53)          (25)              0             0
   Other                                                        (12)             0              0             0
----------------------------------------------------- ----------------------------------------------------------
Plan assets, end of year                                       3 292         3 939              0             0
----------------------------------------------------- ----------------------------------------------------------
Funded status                                                  (240)           599           (67)          (66)
Unrecognized net (gain) loss                                     415         (510)           (17)          (19)
Unrecognized prior service cost                                  (9)           (4)            (8)           (9)
----------------------------------------------------- ----------------------------------------------------------
Net amount recognized, major plans(1)                            166            85           (92)          (94)
Other plans                                                      (9)           (9)              0             0
----------------------------------------------------- ----------------------------------------------------------
Total net amount recognized                                      157            76           (92)          (94)
----------------------------------------------------- ----------------------------------------------------------
</TABLE>
(1) Refer to footnote (1) to the previous table.

     Certain of the Company's pension plans have accumulated benefit
obligations that exceed plan assets by CHF 501 million in 2001 and CHF 425
million in 2000. Those plans have aggregate accumulated benefit obligations of
CHF 882 million in 2001 and CHF 464 million in 2000 and plan assets of CHF 381
million in 2001 and CHF 39 million in 2000. These unfunded plans are mainly in
Germany, where in line with local practices, the Company has not funded the
pension plans of its German subsidiaries. This results in accrued pension
costs, which exceed the unfunded accumulated benefit obligation of
approximately CHF 435 million in 2001 and CHF 438 million in 2000.

     The Company recognizes a minimum pension liability for pension plans when
the accrued pension cost for the plan is less than the unfunded accumulated
benefit obligation. This minimum pension liability has no impact on income. In
2001, the Company recorded a minimum pension liability of CHF 53 million,
which was offset by recording an intangible asset of CHF 22 million and by
reducing equity through accumulated other comprehensive income of CHF 31
million, before tax of CHF 12 million.

     The amounts recognized in the Consolidated Balance Sheets as of December
31, 2001 and 2000, related to retirement benefits consists of the following:

<TABLE>
<CAPTION>
<S>                                                             <C>          <C>             <C>           <C>
----------------------------------------------------------------------------------------------------------------
                                                                Pension benefits        Postretirement benefits
                                                            ----------------------------------------------------
                                                               2001          2000            2001          2000
                                                            ----------------------------------------------------
Prepaid benefit cost                                            650           565              0             0
Accrued benefit liability                                     (546)          (489)           (92)          (94)
Intangible asset                                                 22             0              0             0
Accumulated other comprehensive income                           31             0              0             0
----------------------------------------------------------------------------------------------------------------
Total net amount recognized                                     157          76              (92)          (94)
----------------------------------------------------------------------------------------------------------------
</TABLE>


                                                     F-30


<PAGE>



Ciba Specialty Chemicals
Notes to Consolidated Financial Statements
(in millions of Swiss francs except share and per share data)


     The weighted average key actuarial assumptions used to compute the
benefit obligations were as follows:
<TABLE>
<CAPTION>
<S>                                                     <C>        <C>      <C>        <C>       <C>        <C>
----------------------------------------------------------------------------------------------------------------
                                                          Pension benefits          Postretirement benefits
                                                   -------------------------------------------------------------
                                                         2001      2000      1999      2001      2000      1999
                                                   -------------------------------------------------------------

Discount (interest rate)                                 5.3%      5.5%      4.9%      7.2%      7.7%      7.4%
Rate of increase in compensation levels                  2.9%      3.2%      2.8%      n.a.      n.a.      n.a.
Expected long-term rate of return on plan assets         6.5%      6.3%      6.4%      n.a.      n.a.      n.a.
----------------------------------------------------------------------------------------------------------------
</TABLE>

     The weighted average healthcare cost trend rate is 9.5 percent for 2002
and is assumed to decrease to an ultimate trend rate of 5.0 percent in 2008. A
one percent annual increase in the assumed healthcare cost trend rate would
increase the 2001 accumulated postretirement benefit obligation by
approximately CHF 3 million and the annual postretirement benefit cost by
approximately CHF 0.3 million. A one percent annual decrease in the assumed
healthcare cost trend rate would decrease the 2001 accumulated postretirement
benefit obligation by approximately CHF 2 million and the annual
postretirement benefit cost by approximately CHF 0.3 million.

     The market value of the Company's shares held by its various pension
plans was approximately CHF 52 million as of December 31, 2001, CHF 55 million
as of December 31, 2000, and CHF 47 million as of December 31, 1999.

Number of personnel and personnel expenses

     The Company employed in its continuing operations 19 683 employees at
December 31, 2001, 20 306 at December 31, 2000, and 20 117 at December 31,
1999. The Company's salaries and wages, including social charges in its
continuing operations were CHF 1 796 million in 2001, CHF 2 047 million in
2000 and CHF 1 836 million in 1999. The Company employed in its discontinued
operations 3 072 employees at December 31, 1999. 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, and were CHF 284 million in 1999.


18. Earnings per share
------------------------------------------------------------------------------

     In 2001, 2000 and 1999 there was no difference in basic and diluted
earnings per share. In 2001 and 2000, basic and diluted weighted average
numbers of shares outstanding were the same and amounted to 66 419 147 in 2001
and 66 311 879 in 2000. In 1999, basic weighted average number of share
outstanding were 66 454 357 and diluted weighted average shares outstanding
were 66 462 898, reflecting the 8 541 incremental shares for stock option
plans. This difference in diluted weighted average number of shares
outstanding was not material for the calculation of diluted earnings per
share. For purposes of calculating basic and diluted earnings per share in
2001, 2000 and 1999, there was no required adjustment to the reported income
from continuing operations, discontinued operations or in 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.

     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 2001,
2000 and in 1999, 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, 2001, 2000 and 1999, 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.

     In 2001, the calculation of diluted earnings per share excluded 1 768 952
stock options (2000: 1 297 543 stock options; 1999: 417 153 stock options)
with exercise prices between CHF 108 and CHF 183 as their exercise prices were
greater than the average market price of the common shares for the year.


                                     F-31


<PAGE>


Ciba Specialty Chemicals
Notes to Consolidated Financial Statements
(in millions of Swiss francs except share and per share data)


19. Related party transactions
------------------------------------------------------------------------------
Transactions with associated companies

     The Company had receivables with associated companies of CHF 0 million in
2001 and CHF 12 million in 2000. Investments in affiliates of CHF 157 million
in 2001 and CHF 278 million in 2000 are included in financial investments and
are described in Note 8.

     Loans receivable from equity affiliates of CHF 10 million in 2001 and CHF
52 million in 2000 are included in other assets. Included is a loan to CIMO
Compagnie Industrielle de Monthey SA, of CHF 10 million in 2001 and 2000,
which bears interest at 3 percent in 2001 (2000: 2 percent). In 2000, a
variable interest rate loan from Hexcel Corporation was outstanding and
amounted to CHF 42 million (USD 25 million). This loan was repaid in 2001.

     The Company had payables and accrued expenses to equity affiliates of CHF
11 million in 2001 and CHF 46 million in 2000.

Other

     The fair value of the compensation paid to members of the Board of
Directors was CHF 1.8 million in 2001, CHF 1.6 million in 2000 and CHF 1.5
million in 1999. There were no loans between the Company and members of the
Board of Directors.



20. Commitments and contingencies
------------------------------------------------------------------------------
Lease Commitments

     The Company leases certain facilities under operating leases. The future
minimum lease commitments required under fixed term leases are: 2002 CHF 44
million; 2003 CHF 32 million; 2004 CHF 56 million; 2005 CHF 18 million; 2006
CHF 6 million; 2007 and thereafter CHF 7 million. Rental expense amounted to
CHF 74 million in 2001, CHF 85 million in 2000 and CHF 75 million in 1999.

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.

Guarantees

     In the normal course of business, the Company has provided guarantees of
approximately CHF 36 million. Although it is not practical to estimate their
fair value, the Company does not expect to incur losses as a result of these
guarantees.

Contingencies

     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 financial statements.

     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. In connection with
its Toms River, New Jersey site in the United States, the Company has been
named as a defendant in several actions (see "Environmental matters" below).
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, the third parties have initiated arbitration proceedings against the
Company. Although the outcome cannot be predicted with certainty, management
is of the opinion that this matter will not have any material adverse effects
on the financial position or results of operations of the Company.

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 have been
initiated 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.


                                     F-32


<PAGE>


Ciba Specialty Chemicals
Notes to Consolidated Financial Statements
(in millions of Swiss francs except share and per share data)


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. Management believes that 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 748 million at
December 31, 2001 and CHF 798 million at December 31, 2000 have been recorded
in the accompanying Consolidated Balance Sheets. The main difference between
2001 and 2000 relates to changing foreign currency exchange rates, usage of
the provisions, and updates to the estimated costs to complete outstanding
claims and issues. The Company's environmental protection and improvement cash
expenditures were approximately CHF 43 million in 2001 (CHF 47 million in
2000), including investments in construction, operations and development.

     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 the polluter pays principle. 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).

     In 1998, certain litigation matters related to sites located in the
United States were settled with the insurance companies. The Company received
the cash of approximately CHF 43 million, net of related legal costs incurred,
in 1999 and such amount was included as a reduction in selling, general and
administrative expenses in 1998. The Company has not reflected any potential
insurance recoveries that may be available in the future.

     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 for two major sites where remediation measures are still in discussion,
as described in the following paragraphs.

     At its Toms River, New Jersey remediation site the Company agreed with
the United States Environmental Protection Agency to implement the selected
remedy, which involves design and construction of a large bio-remediation
project over the next eight to ten years. Based on management's current
estimates, the Company's environmental provisions are adequate to cover the
expected costs to complete this remediation plan.

     In connection with the former operation of the Ciba-Geigy plant in Toms
River, the Company and two other companies were contacted by attorneys
representing the interests of approximately 70 families, each of which has or
had a child with cancer. These families claimed that the cancer was caused by
exposure to contaminated drinking water and that the contamination was partly
caused by the former operations at the plant. All parties engaged themselves
in informal dispute resolution proceedings over the past 4 years, which led to
a settlement in 2001. The total amount owed by the Company has been
sufficiently provided for in its environmental provisions and will not have a
material adverse effect on the Company's financial position or results of
operations.

     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
individual plaintiffs in these suits claim that the manufacturing operations
at the Toms River plant from 1952 through its closure in 1996 are linked to
and caused their damages. None of these plaintiffs were involved in the
settlement described in the preceding paragraph. These cases are in the
discovery stage of litigation. The Company does not believe these claims have
merit and it is vigorously defending itself.

     The planning for the total clean-up of the waste disposal site in Bonfol,
Switzerland, which was closed in 1976, is ongoing. The responsibility for the
clean-up lies with eight chemical companies, 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.

     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.


                                     F-33


<PAGE>


Ciba Specialty Chemicals
Notes to Consolidated Financial Statements
(in millions of Swiss francs except share and per share data)


     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.


21. Valuation and qualifying accounts and reserves
------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S>                                                                             <C>          <C>           <C>
Allowance for doubtful accounts

For the year ended December 31,                                                2001          2000          1999
----------------------------------------------------------------------------------------------------------------
Balance at beginning of year                                                    118           125           111
Additions (deductions) charged (credited) to cost and expenses, net              22            24            19
Other, net(1)                                                                  (20)          (30)           (8)
Currency adjustments                                                              0           (1)             3
----------------------------------------------------------------------------------------------------------------
Balance at end of year                                                          120           118           125
----------------------------------------------------------------------------------------------------------------


Allowance for obsolete and slow moving inventory

For the year ended December 31,                                                2001          2000          1999
----------------------------------------------------------------------------------------------------------------
Balance at beginning of year                                                     73            78            67
Additions (deductions) charged (credited) to cost and expenses, net               5            17             4
Other, net(1)                                                                  (13)          (22)             0
Currency adjustments                                                              1             0             7
----------------------------------------------------------------------------------------------------------------
Balance at end of year                                                           66            73            78
----------------------------------------------------------------------------------------------------------------


Deferred income tax valuation allowance

For the year ended December 31,                                                2001          2000          1999
----------------------------------------------------------------------------------------------------------------
Balance at beginning of year                                                    143           217           182
Additions (deductions) charged (credited) to cost and expenses, net               3          (70)           (5)
Other, net(1)                                                                     0           (8)            27
Currency adjustments                                                              0             4            13
----------------------------------------------------------------------------------------------------------------
Balance at end of year                                                          146           143           217
----------------------------------------------------------------------------------------------------------------
</TABLE>

(1) Other, net is primarily additions and deductions applicable to
acquisitions and divestitures, amounts written-off and miscellaneous other
adjustments.


                                     F-34