ARCH CHEMICALS INC - 10-K Annual Report

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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K

FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO
SECTION 13 OR 15(d) OF THE SECURITIES ACT OF 1934

(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE FISCAL YEAR ENDED DECEMBER 31, 2002

OR

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE TRANSITION PERIOD FROM TO

COMMISSION FILE NUMBER 1-14601
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ARCH CHEMICALS, INC.
(Exact name of registrant as specified in its charter)

VIRGINIA 06-1526315
(State or other jurisdiction of (I.R.S. Employer
Incorporation or organization) Identification No.)

501 MERRITT 7 06851
NORWALK, CT (Zip Code)
(Address of principal executive offices)

REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE:
(203) 229-2900

SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:

SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
NONE

Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for 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 if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]

Indicate by check mark whether the registrant is an accelerated filer (as
defined in Exchange Act Rule 12b-2).
Yes [X] No [ ].

As of June 28, 2002, the aggregate market value of registrant's voting and
non-voting common equity held by non-affiliates of registrant was approximately
$540,183,550.

As of January 31, 2003, 22,404,404, shares of the registrant's common stock
were outstanding.

DOCUMENTS INCORPORATED BY REFERENCE
Portions of the following documents are incorporated by reference in this Form
10-K as indicated herein:

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TABLE OF CONTENTS

FORM 10-K

1

PART I

ITEM 1. BUSINESS

GENERAL

Arch Chemicals, Inc. ("Arch" or the "Company") is a specialty chemicals
manufacturer which supplies value-added products and services to several
industries on a worldwide basis, including the consumer products and the
semiconductor industries. The principal business segments in which the Company
competes are microelectronic materials, treatment products, performance products
and other specialty products. The Company's ability and willingness to provide
superior levels of technical customer support, the manufacturing flexibility of
many of its facilities, and the cultivation of close customer relationships are
the common skills on which the Company relies to service its global markets and
customers.

The Company was organized under the laws of the Commonwealth of Virginia on
August 25, 1998 as a wholly-owned subsidiary of Olin Corporation ("Olin") for
the purpose of effecting a tax-free distribution of Olin's Specialty Chemical
Businesses ("Distribution") to the shareholders of Olin. The Distribution
occurred on February 8, 1999 ("Distribution Date") upon which the Company became
a separate, independent company.

In connection with the acquisition of Hickson International PLC ("Hickson")
in 2000, the Company announced that it intends to divest the Hickson organics
division. See Item 7 of this Report. Accordingly, the Hickson organics division
has been classified as discontinued operations as is more fully discussed in
Note 5 of Notes to the Consolidated Financial Statements included in Item
8 -- Financial Statements and Supplementary Data and Item 15 -- Exhibits,
Financial Statement Schedules, and Reports on Form 8-K and Part IV of this
Report. Accordingly, Item 1 and Item 2 of this Report describe the Company's
businesses without the Hickson organics division.

The term "Company" as used in Parts I and II of this Report means Arch
Chemicals, Inc. and its subsidiaries (but excluding the Hickson organics
division) unless the context indicates otherwise. The Company's products and
services described in this Report may be sold, distributed, manufactured or
provided by Arch Chemicals, Inc. or by one or more of its subsidiaries,
affiliates or joint ventures.

The Company makes available through its Internet website, which is located
at http://www.archchemicals.com, its Annual Report on Form 10-K, its Quarterly
Reports on Form 10-Q, its Current Reports on Form 8-K, and amendments to those
reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities
Exchange Act of 1934 as soon as reasonably practicable after being
electronically filed with or furnished to the Securities and Exchange
Commission. The Company does not charge any fees to view, print or access these
reports on its website through the Internet.

PRODUCTS AND SERVICES

The Company's principal products and services fall within four business
segments: microelectronic materials, treatment products, performance products
and other specialty products. For financial information about each of the
Company's segments, and foreign and domestic and export sales, see Note 18 of
Notes to Consolidated Financial Statements contained in Item 8 of Part II of
this Report. The principal products of each business are described below.

MICROELECTRONIC MATERIALS

The Company manufactures and supplies a range of products and services to
semiconductor manufacturers and to flat panel display manufacturers throughout
the world.

The Company develops, manufactures and sells a wide range of photopolymer,
thin film and formulated products. The photopolymer products include negative,
g-line, i-line and 248nm and 193nm deep UV photoresists, which are being used to
produce integrated circuits by the leading semiconductor companies around the
world. The Company has announced a new line of 248nm product line extension and
193nm

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photoresist products for sub 130nm applications which are being used to
fabricate leading edge DRAMs and logic chips. These products are being
co-developed and marketed with FUJIFILM Arch (the Company's joint venture with
Fuji Photo Film in Japan) which manufactures and sells photoresists in Asia.
Photopolymer products also include an aqueous-based and environmentally friendly
photosensitive polyimide product line that is sold under the Durimide(TM) brand.
Negative tone and solvent based photosensitive polyimides are also sold.

The formulated product line includes aqueous-based, environmentally safer
residue removers, strippers, edge bead removers, developers, cleaners, post etch
residue removers and post chemical mechanical planarization ("CMP") cleaners,
which are sold throughout the world. Planar Solutions, LLC, the Company's joint
venture with Wacker Silicones, opened a CMP development and applications center,
which is located within the Company's Mesa, Arizona manufacturing facility.
Planar Solutions, LLC develops, manufactures and sells CMP slurry products to
advanced chip manufacturers. In addition, the Company's formulated products
include buffered hydrofluoric acid and mixed acid etchants used in the etching
of computer wafers.

The thin film systems business unit develops, manufactures and sells thin
film deposition precursors, dopants, chlorine sources and chemical delivery
equipment. A new product line of low dielectric constant thin film chemistries
was launched in 2002 and are targeted for use in low k-copper interconnect
technologies. The Company also sells chemical delivery systems such as its
Genstream(TM) thin film systems delivery cabinets.

In addition to the range of products offered, the Company provides the
semiconductor manufacturing industry in Europe and North America with chemical
management services, including chemical handling and dispensing, inventory
management and analytical services.

The Company's microelectronic materials products business competes against
other suppliers on the basis of performance, product quality, service,
technology and pricing. The Company has a broad patent portfolio encompassing
the technologies underlying the design of its products which the Company
believes provides a competitive advantage against other suppliers. The Company
enhances its technological competitive advantage by entering into technology
licenses and joint development agreements with third parties to meet the rapidly
evolving needs of the semiconductor industry. The Company's extensive product
line and global infrastructure are distinct advantages that enhance its
competitiveness. Product performance and quality and the technology associated
with quality are generally considered an industry prerequisite. The high quality
standards of the semiconductor industry serve as a hurdle, which limit the
number of new entrants as suppliers to the market.

The Company's microelectronic materials products are sold on a direct basis
or through independent third party distributors. Chemical management services
are offered on a direct basis only.

TREATMENT PRODUCTS

Within its treatment products segment, the Company manufactures and sells
water treatment chemicals, industrial biocides and personal care specialty
ingredients and wood treatment and industrial coatings products.

The Company manufactures and sells chemicals and distributes equipment on a
worldwide basis for the sanitization and treatment of residential and commercial
pool and spa water, drinking water and for industrial applications. The Company
sells both calcium hypochlorite and chlorinated isocyanurates as sanitizers. The
Company is a leading worldwide producer of calcium hypochlorite with various
concentrations of available chlorine. The Company has a competitive advantage
through ownership of the J3(TM) technology which enables it to produce calcium
hypochlorite with superior dissolving characteristics and higher available
chlorine as compared to other calcium hypochlorite products. The Company owns
widely recognized brand names for both calcium hypochlorite (HTH(R)) and
chlorinated isocyanurates (Pace(R)). The Company's water chemical products are
sold primarily under the HTH(R) brand name. The Company also sells products
under the Sock It(R), Super Sock It(R), Duration(R), POOLIFE(TM) and Pulsar(R)
brand names. The Company's water chemical products are also distributed as
private label brands. In addition to the pool water sanitizers, calcium
hypochlorite and chlorinated isocyanurates, the Company sells ancillary
chemicals and accessories for the

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maintenance of residential and commercial pools, such as test strips, leaf
skimmers and spa and kiddie pool vacuums.

The Company's water products are also sold in the municipal water market
for the purification of potable water. The Company sells calcium hypochlorite to
purify potable water mainly in a number of countries outside the U.S. The
Company has plans to expand its presence in the municipal water market both
domestically and internationally.

In 2002, approximately 69% of the Company's water products sales were
within North America, and the remaining 31% were throughout the rest of the
world. In North America, the Company sells water chemical products primarily and
directly to retail merchants. The Company also has ownership interests in joint
ventures in South Africa (Aquachlor (Pty) Ltd.) and Brazil (Nordesclor S.A.)
which manufacture and distribute calcium hypochlorite and other water products
to local markets.

In addition to the manufacture and sale of HTH water products, the Company
manufactures and distributes chemicals and distributes equipment and accessories
for pools in Europe mainly through its wholly-owned subsidiary Arch Water
Products France, S.A.S., located in France.

The Company also manufactures biocides that control the growth of
micro-organisms, particularly fungi and algae, and control dandruff on the
scalp. All biocide products are marketed under the well-recognized trademarks,
Omadine(R), Omacide(R) and Triadine(R) biocides. The majority of the biocide
chemicals produced by the Company are based on the zinc, sodium and copper salts
of the pyrithione molecule. These pyrithione-based biocides include over twenty
products with differing active concentrations, forms and salts, and the Company
is a worldwide leader in these biocide products. Other biocide chemicals are
based on iodopropargyl-n-butylcarbamate (IPBC), a broad-spectrum fungicide, and
serve the metalworking fluids and coatings markets. The IPBC-based biocides
currently consist of five variations with others in development stages. Biocides
make up a small portion of the customer's end products, and therefore must be
highly effective at low concentrations as well as compatible with the
formulation's other components. Meeting the biocide customer's needs requires a
high degree of technical support and the expertise to do business in a highly
regulated environment. The Company's ability to meet these needs makes it a
preferred supplier in the antidandruff market. The Company is also uniquely
positioned as the only pyrithione supplier with U.S. Environmental Protection
Agency registrations for metalworking fluids, coatings and antifouling paints.
Through its acquisition of Brooks Industries personal care specialty ingredients
business, the Company has broadened its position in the personal care market to
include actives and functional products sold primarily to manufacturers of skin
care and hair care products.

The Company is a leading producer of wood treatment chemical solutions that
enhance the properties of wood. Its industrial wood preservatives and fire
retardants are sold under the brand names WOLMAN(R), Dricon(R), Tanalith(R),
Vacsol(R), and Resistol(R) in markets around the world. These products protect
wood against moisture, fungal decay, or termites and other insects or retard the
combustibility of wood. The principal customers are sawmills and treaters of
softwoods that require chemical treatment to impart resistance properties to
fungal and insect damage, giving softwoods the performance of hardwoods in
service. In the U.S. and Canada, the majority of the customers are licensed wood
treaters that operate under guidelines and standards established by the Company.
The license program includes the use of the brand name for sale of the products
produced by the licensee as well as an extensive support package comprised of
marketing, technical, engineering and environmental services. The Company's
customers sell their wood-treated products into the construction, utility and
agricultural markets. The products sold by the Company are critical to the
performance and value of the end-use products. In February 2002, Arch Wood
Protection, Inc., a subsidiary of the Company, announced that it will seek to
amend its registration with the U.S. Environmental Protection Agency ("U.S.
EPA") for Chromated Copper Arsenate ("CCA") to transition to a new generation of
wood preservatives for use in non-industrial treated wood products by December
31, 2003. Growing consumer preferences and the availability of alternative
products are moving the industry to CCA-alternative products and the Company is
offering its WOLMAN(R)E product, a leading CCA-alternative wood treatment
product, which is utilized by wood treaters to make Wolmanized(R) Natural
Select(TM) wood.

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The Company owns 49% of a joint venture with Koppers Industries, Inc.,
based in Pittsburgh, Pennsylvania, for the manufacture and distribution of wood
treatment chemicals to the Australian and Asia-Pacific markets.

The Company also manufactures a wide range of industrial coatings for a
variety of wood applications. These finishes are industrial- or consumer-applied
products for the surface decoration and protection of wood, including stains,
polyester- and polyurethane-based coatings, and new technology water-based
coatings and UV systems. These wood coatings products are sold under the name
"Arch Coatings," including the brand names Sayerlack(R) and Linea Blu(R). The
major markets for these products include home and office furniture, window and
door frames, picture frames, and other specialty markets. The Company is a
market leader in several areas of Europe, including the strategic Italian market
as well as France and the United Kingdom. The Company also has operations in
Spain and technical support facilities in the U.S. and China to support sales
efforts in North America and Asia. The major customers for these coatings
require a high degree of applications assistance, and the development of a total
coatings solution, including product development, is key in the growth of this
business. As a result, the Company has many long-standing customers and its
customer base includes many of the leading furniture manufacturers in Europe.

PERFORMANCE PRODUCTS

The Company's performance products segment consists of the manufacture and
sale of a broad range of products with diverse end uses. The performance
products sold by the Company are critical to the performance and value of the
customer's end-use products. The performance products segment is characterized
by technology-driven product solutions that benefit specific customers and
provide custom manufacturing services. In addition, the business is
characterized by close customer relationships with entities who are leaders in
the markets in which they compete. The flexibility afforded by batch
manufacturing in some operations combined with the Company's ability and
willingness to provide superior technical support enables it to respond to the
specific needs of a diverse group of customers. This gives the Company a
competitive advantage over competitors whose manufacturing processes and related
cost structure constrain their ability to respond cost effectively to smaller
volume customers.

The Company's performance urethane products business manufactures flexible
polyols, specialty polyols, urethane systems and glycols and glycol ethers.
Specialty polyols, which are used as an ingredient for elastomers, adhesives,
coatings, sealants and rigid foam, are manufactured at the Company's
Brandenburg, Kentucky site, as well as by its Venezuelan subsidiary. The
Brandenburg facility also manufactures glycols and glycol ethers for use as an
ingredient in cleaners, personal care products and antifreeze and provides
custom manufacturing of specialty chemicals for a small group of companies.
Flexible polyols, which are used in the furniture, bedding, carpet and packaging
industries, are manufactured by the Company's wholly-owned Venezuelan
subsidiary, Arch Quimica Andina, C.A., for South American markets.

OTHER SPECIALTY PRODUCTS

Hydrazine. The Company supplies hydrazine hydrates as well as propellant
grade hydrazine and hydrazine derivatives. Hydrazine hydrate products are sold
for use in chemical blowing agents, water treatment chemicals, agricultural
products, pharmaceutical intermediates and other chemical products. Hydrazine
hydrates are produced at the Company's Lake Charles, Louisiana production
facility. The hydrazine hydrates are supplied in various concentrations and in
packaging containers that include bulk, tote bins and drums.

The Company supplies propellant grade hydrazine and hydrazine derivatives
for use as fuel in satellites, expendable launch vehicles and auxiliary and
emergency power units. These propellant grade hydrazine products include Ultra
Pure(TM) Hydrazine (UPH), anhydrous hydrazine (AH), unsymmetrical dimethyl
hydrazine (UDMH), monomethyl hydrazine (MMH) and hydrazine fuel blends. In
addition to space-related applications in satellites and launch vehicles,
auxiliary power from hydrazine-driven units is supplied to the NASA Space
Shuttle for maneuvering its rocket engine nozzles and for operating valves,
control surfaces, brakes and landing gear on the Shuttle Orbiter. Emergency
power from hydrazine is also provided to jet

5

aircraft like the F-16 to operate electrical and hydraulic units in the event of
an engine flameout. The Company also supplies launch services and special
packaging containers including cylinders to improve the safe handling and
storage of propellants and to reduce launch costs.

Sulfuric Acid. The Company is a major regional supplier of sulfuric acid
regeneration services and virgin sulfuric acid to the U.S. Gulf Coast market
with manufacturing facilities located in Beaumont, Texas and Shreveport,
Louisiana. The Company supplies sulfuric acid to refineries for their petroleum
alkylation process and to pulp and paper manufacturers for use as a reagent for
chlorine dioxide generation and water treatment neutralization for pH control.

CUSTOMERS

No single customer has accounted for more than 10% of the Company's total
annual sales over the last three fiscal years. The Company's customer base is
diverse and includes semiconductor manufacturers, flat panel display
manufacturers, world-renowned consumer product companies, major big box
retailers, furniture manufacturers, national and regional chemical and equipment
distributors, wood treaters, sawmills, other chemical manufacturers and the U.S.
Government. For additional information about customers, see the information
under the caption "Business and Credit Concentrations" in Item 7 of this Report.

RAW MATERIALS AND ENERGY

The Company utilizes a variety of raw materials in the manufacture of
products for its businesses. The Company has not experienced any difficulty in
securing raw materials. Outlined below are the principal raw materials for the
product businesses. The majority of the Company's raw material requirements are
purchased and many are provided under the terms and conditions of written
agreements.

Microelectronic Materials. The principal raw materials for the
microelectronic materials business include ethyl lactate, hydrofluoric acid,
methyl propyl ketone, glycol ether PMA, nitric acid, phosphoric acid, ammonia,
tetraethylorthosilicate (TEOS), dichloroethylene (DCE), trichloroethane (TCA),
phosphorous oxychloride (POCL3), hexamethyldisilazone (HMDS), custom polymers,
photoinitiators, tetra methyl ammonium hydroxide (TMAH) and custom polyimide
resins and photosensitizers.

Treatment Products. The principal raw materials for the HTH water products
line include chlorine, caustic soda, lime and chlorinated isocyanurates.
Chlorine and caustic soda are provided by Olin pursuant to a chlor-alkali supply
agreement expiring on December 31, 2003. The balance of the raw materials are
purchased from other suppliers and are readily available.

The principal raw materials for industrial biocide treatment chemicals and
personal care specialty ingredient chemicals are pyridine, iodine and propargyl
butyl carbamate.

The principal raw materials for wood protection products include chromic
acid, copper oxide, tebuconazole, copper carbonate, arsenic trioxide, cupric
oxide and proprietary organic biocides. The raw materials for the industrial
coatings line include a wide variety of polyester resin systems, organic
solvents, nitrocellulose, acrylic resins, acrylic and vinyl emulsions, titanium
dioxide, isocyanate, various pigments and colors and stains.

Performance Products. The principal raw materials for the performance
products business include a variety of chemicals such as propylene, propylene
oxide and ethylene oxide. For this segment, propylene is the most significant
raw material that is subject to significant price volatility.

Other Specialty Products. The principal raw materials for other specialty
products include sulfur, soda ash, chlorine, caustic soda and ammonia.

Electricity is the predominant energy source for the Company's
manufacturing facilities and is primarily supplied to the Company by public or
government utilities. Natural gas used for steam production is an important
energy source for many of the Company's U.S. manufacturing sites and is
purchased from multiple suppliers.

6

RESEARCH AND DEVELOPMENT AND PATENTS

The Company's research activities are conducted at a number of facilities.
Company-sponsored research expenditures were $23.0 million in 2002, $25.4
million in 2001 and $17.1 million in 2000.

In general, intellectual property is important to the Company, but no one
technology, patent, or license or group thereof related to a specific process or
product is of material importance to the Company as a whole. The Company
believes that its broad patent portfolio in the microelectronic materials
segment provides a sustainable competitive advantage for that product line. The
Company owns three U.S. patents for the technology relating to the manufacture
of J3(TM) calcium hypochlorite which are materially important to the HTH water
products business. Two of these patents expire in 2009 and the other expires in
2010. The Company owns two patents covering processes for producing Ultra
Pure(TM) hydrazine, the world's purest grade of anhydrous hydrazine, which makes
it the preferred propellant for monopropellant satellite thruster applications.
These patents expire in 2006.

The Company's biocides business holds several U.S. patents relating to
antifouling additives for paints. These patents expire in 2010 and 2012.

With respect to its wood protection business, the Company owns two U.S.
composition of matter patents. These patents include one for an additive to the
Company's wood preservative chromated copper arsenate ("CCA") that improves the
climbability of utility poles. This patent expires in 2008. The other is a
patent on the Company's new preservative formulation (WOLMAN(R)E, Natural
Select(TM) and Tanalith(R)E) which expires in 2014.

SEASONALITY

The Company as a whole usually experiences its highest sales and profits in
the second quarter primarily due to sales of its HTH water products line in that
quarter. The purchase of water chemical products by consumers in the residential
pool market is concentrated in the United States of America between Memorial Day
and the Fourth of July. The water chemical products business has switched from
distribution through distributors to principally distribution directly to retail
merchants. As a result, sales of these products have shifted from the first
quarter to the third quarter with the second quarter still being the quarter
with the most sales of these products. In addition, the weather can also have a
significant effect on water chemical and wood treatment sales during any given
year with unseasonable wet or cool weather negatively impacting sales.

BACKLOG

The amount of backlog orders is immaterial to the Company as a whole and to
any particular segment.

U.S. GOVERNMENT CONTRACTS AND REGULATIONS

The Company sells hydrazine to the U.S. Government under a government
contract which is material to the other specialty products segment. This
contract expires in 2004 with renewal options. As a government contractor, the
Company is subject to extensive and complex U.S. Government procurement laws and
regulations. These laws and regulations provide for ongoing government audits
and reviews of contract procurement, performance and administration. Failure to
comply, even inadvertently, with these laws and regulations and with laws
governing the export of controlled products and commodities could subject the
Company or one or more of its businesses to civil and criminal penalties and
under certain circumstances, suspension and debarment from future government
contracts and the exporting of products for a specified period of time. Several
of the Company's products are registered with U.S. EPA under the Federal
Insecticide, Fungicide, and Rodenticide Act and as such are subject to various
regulations regarding use and disclosure requirements.

COMPETITION

The Company's businesses are in highly competitive industries, and the
Company encounters strong competition with respect to each of its product lines
from other manufacturers worldwide. This competition,

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from other manufacturers of the same products and from manufacturers of
different products designed for the same uses, is expected to continue in both
U.S. and foreign markets. Depending on the product involved, various types of
competition are encountered, including price, delivery, service, performance,
product innovation, product recognition and quality. Overall, the Company
believes its principal product groups are competitive with many other products
of other producers.

EXPORT SALES

The Company's export sales from the United States to unaffiliated customers
were $72.7 million in 2002, $72.0 million in 2001 and $61.3 million in 2000. The
financial information about geographic areas contained in Note 18 of Notes to
the Consolidated Financial Statements found in Item 8 of Part II of this Report
is incorporated herein by reference.

EMPLOYEES

As of December 31, 2002, the Company had approximately 3,200 employees,
approximately 1,350 of whom were working in foreign countries. Approximately 270
of the hourly paid U.S. employees of the Company located at its Brandenburg,
Kentucky; Conley, Georgia; Lake Charles, Louisiana; Shreveport, Louisiana; and
Beaumont, Texas facilities are represented for purposes of collective bargaining
by several different labor organizations, and the Company is party to eight
labor contracts relating to such employees. These labor contracts extend for
three- or four-year terms which expire in the years 2003, 2004, 2005 and 2006.
No major work stoppages have occurred in the last three years. While relations
between the Company and its employees and their various representatives are
generally considered satisfactory, there can be no assurance that new labor
contracts can be entered into without work stoppages. European hourly employees
are also represented by unions in various countries.

ENVIRONMENTAL MATTERS

The Company operates manufacturing facilities throughout the world and as a
result is subject to a broad array of environmental laws and regulations in
various countries. The Company also implements a variety of voluntary programs
to reduce air emissions, eliminate or reduce the generation of hazardous wastes
and to decrease the amount of wastewater discharges. The establishment and
implementation of U.S. Federal, state and local standards to regulate air and
water quality and to govern contamination of land and groundwater has affected
and will continue to affect substantially all of the Company's U.S.
manufacturing locations. Federal legislation providing for regulation of the
manufacture, transportation, use and disposal of hazardous and toxic substances
has imposed additional regulatory requirements on industry in general, and
particularly on the chemicals industry. In addition, the implementation of
environmental laws, such as the Resource Conservation and Recovery Act, the
Clean Air Act and the Comprehensive Environmental Response, Compensation and
Liability Act of 1980, as amended by the Superfund Amendments and
Reauthorization Act of 1986, has required and will continue to require new
capital expenditures and will increase operating costs.

The Distribution Agreement, dated as of February 1, 1999 (the "Distribution
Agreement"), between the Company and Olin relating to the Distribution,
specifies that the Company is only responsible for certain environmental
liabilities at the Company's then current facilities and certain off-site
locations with respect to the businesses acquired from Olin in the Distribution.
The Company has also become subject to environmental exposures and potential
liabilities in the U.S. and abroad with respect to the businesses it purchased
following the Distribution. In connection with the acquisition of Hickson, the
Company acquired certain environmental exposures and potential liabilities of
current and past operating sites, all of which have been accrued for in the
accompanying consolidated financial statements.

Associated costs of investigatory and remedial activities are provided for
in accordance with generally accepted accounting principles governing
probability and the ability to reasonably estimate future costs. Charges to
income for investigatory and remedial efforts were not material to operating
results in 2002, 2001 and 2000, but may be material to net income in future
years.

8

Cash outlays for normal plant operations for the disposal of waste and the
operation and maintenance of pollution control equipment and facilities to
ensure compliance with mandated and voluntarily imposed environmental quality
standards are charged to income. Cash outlays for environmental-related
activities totaled $15.9 million in 2002, $22.0 million in 2001 and $20.1
million in 2000. During 2002, $3.4 million ($5.9 million in 2001; $8.1 million
in 2000) was spent on capital projects, $10.0 million ($11.7 million in 2001;
$9.5 million in 2000) was spent on normal plant operations, and $2.5 million in
2002 ($4.4 million in 2001; $2.5 million in 2000) was spent on remedial
activities. Cash outlays for remedial activities are charged to reserves.
Historically, the Company has funded its environmental capital expenditures
through cash flow from operations and expects to do so in the future. The
Company has not incurred cash outlays for remedial and investigatory activities
associated with certain former Olin-related waste sites and past operations of
Olin since Olin is responsible for these obligations pursuant to the
Distribution Agreement.

The Company's consolidated balance sheets included liabilities for future
environmental expenditures to investigate and remediate known sites amounting to
$10.4 million at December 31, 2002, of which $4.5 million is classified as other
current liabilities and $5.9 million is classified as other noncurrent
liabilities and $12.6 million at December 31, 2001, of which $4.1 million is
classified as other current liabilities and $8.5 million is classified as other
noncurrent liabilities. The Company's estimated environmental liability relates
to eight sites, six of which are in the United States and none of which are on
the U.S. National Priority List. These amounts did not take into account any
discounting of future expenditures, any consideration of insurance recoveries or
any advances in technology. These liabilities are reassessed periodically to
determine if environmental circumstances have changed or if the costs of
remediation efforts can be better estimated. As a result of these reassessments,
future charges to income may be made for additional liabilities.

Annual environmental-related cash outlays for site investigation and
remediation, capital projects and normal plant operations are expected to range
from $15 million to $20 million over the next several years. While the Company
does not anticipate a material increase in the projected annual level of its
environmental-related costs, there is always the possibility that such increases
may occur in the future in view of the uncertainties associated with
environmental exposures. A portion of the increase in environmental cash outlays
during 2000 and 2001 was associated with a remediation project at the Company's
Conley, GA wood treatment facility. Total cash outlays since its acquisition
(capital and remedial) were approximately $5.7 million. The project was complete
as of December 31, 2002.

Environmental exposures are difficult to assess for numerous reasons,
including the identification of new sites, developments at sites resulting from
investigatory studies, advances in technology, changes in environmental laws and
regulations and their application, the scarcity of reliable data pertaining to
identified sites, the difficulty in assessing the involvement and financial
capability of other potentially responsible parties and the Company's ability to
obtain contributions from other parties and the lengthy time periods over which
site remediation occurs. It is possible that some of these matters (the outcomes
of which are subject to various uncertainties) may be resolved unfavorably
against the Company and may have a materially adverse impact on the Company's
business. At December 31, 2002, the Company had estimated additional contingent
environmental liabilities of $8.5 million.

ITEM 2. PROPERTIES

The table below sets forth the primary locations where the Company has
offices or conducts operations, including some joint venture sites, along with a
brief description of the activities conducted at each identified location. A
more detailed description of the Company's principal manufacturing facilities
follows the table. The Company believes that its facilities are sufficiently
maintained and suitable and adequate for its immediate needs and that additional
space is available to accommodate expansion. Except for locations identified as
relating to a joint venture which are owned or leased by the joint venture or
unless otherwise noted below, the identified location is owned by the Company.

9

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(1) Land only is leased.

(2) Leased facility.

(3) Land and building owned by a third party.

(4) Portions are leased and portions are owned.

The Company also leases several sales offices and warehouse facilities in
the U.S. and in foreign countries.

PRINCIPAL MANUFACTURING FACILITIES

The principal manufacturing properties of the Company described below are
all owned by the Company, except for the land under the Belgian facility which
is leased until 2041, the land under the McIntosh plant and part of the land
under the Charleston facility which are being leased from Olin and except for
properties held by joint ventures or otherwise noted below.

McIntosh, Alabama. The Company's facility located in McIntosh, Alabama
blends, packages and stores propellant grade hydrazine products. Special
hydrazine fuel blends are produced as the principal propellant for several U.S.
Air Force launch vehicle programs, including the Titan and Delta rockets.

Mesa, Arizona. The Company has a state-of-the-art microelectronic
materials manufacturing facility in Mesa, Arizona. This facility manufactures,
purifies, formulates and packages formulated chemical products. This facility is
QS 9000-, ISO 9002- and ISO 14001-certified. A second facility for thin film
systems was constructed at Mesa in 1999, and a customer applications and a
product development laboratory for CMP slurries and related cleaning products
was added in February 2002.

In addition to manufacturing operations, the Company has extensive
analytical testing, applications testing and warehousing capabilities for both
formulated products and thin film chemicals at the Mesa plant site. Current
operations occupy approximately 30 acres of the 52-acre plant site. The
remaining acreage is available for future expansions.

Conley, Georgia. This is the Company's major facility for its wood
treatment business in the U.S. All of the arsenic acid and copper oxide for this
business is produced at this location and sent by truck or rail to the

11

Company's other two wood treatment U.S. plant facilities. In addition, this
plant produces CCA that is bulk shipped to customers in the Southeastern U.S.
and to Mexico. A 72% CCA concentrate is also produced at this facility. Office
facilities and a technical center for treatment products are also located at
this facility.

Brandenburg, Kentucky. The ISO 9002-certified Brandenburg plant covers an
area of 200 acres, surrounded by 1,200 acres of land which provides both a
buffer zone and expansion capability. The plant contains multiple manufacturing
facilities producing a wide range of products. Many of these products are
derivatives of ethylene oxide and propylene oxide. A broad line of specialty
polyols are produced in a flexible batch facility and sold into urethane
coatings, adhesives, sealant and elastomer applications. Chemical intermediates
for the Company's microelectronic materials business are produced in a separate
manufacturing facility dedicated to this purpose. There is a research and
development and technical center at the site which supports the development and
technical service needs of the polyol and glycol products, wood coatings
products and new product scale up for the microelectronics business. The Company
also operates other facilities on the site to produce commodity and specialty
chemicals for third parties under long-term contractual arrangements.

Lake Charles, Louisiana. The Company's facility located in Lake Charles,
Louisiana consists of three manufacturing plants that produce various hydrazine
products. One ISO 9002-certified plant, built in 1979, produces solution grade
hydrazine products for use in chemical blowing agents, water treatment
chemicals, agricultural products, pharmaceutical intermediates and other
chemical products. A second ISO 9002-certified plant, built in 1953, produces
propellant grade hydrazine products, including anhydrous hydrazine (AH),
unsymmetrical dimethyl hydrazine (UDMH) and monomethyl hydrazine (MMH) for use
as fuel in satellites, expendable launch vehicles and auxiliary power units.
Additional equipment of the Company at this site produces propellant grade Ultra
Pure(TM) Hydrazine (UPH), the world's purest grade of anhydrous hydrazine,
principally for satellite propulsion.

Shreveport, Louisiana. This ISO 9002-certified plant produces industrial
grade virgin sulfuric acid for delivery to the U.S. Gulf Coast and provides
regeneration services primarily to local refineries. In addition, this site
provides limited alternative fuel burning services and markets sodium bisulfite
solution.

Adrian, Michigan. This QS 9000-certified facility is operated by Planar
Solutions, LLC, the Company's joint venture with Wacker Silicones. The site
manufactures copper CMP slurries and dispersions.

Rochester, New York. This ISO 9002-certified facility manufactures a large
number of chemicals for the specialty chemicals industry. Many of these
chemicals are biocides used to control the growth of microorganisms,
particularly fungi and algae and to control dandruff on the scalp. The largest
2-chloropyridine production facility in the world is located here.
2-Chloropyridine is the key intermediate used to produce the Company's
Omadine(R) biocides. These products are based on the salts of the pyrithione
molecule. The Company manufactures over a dozen pyrithione products at this site
by modifying these salts by concentration, form or combining them with other
biocides. The Company's Triadine(R) brand of biocides is a combination of
pyrithione and triazine, a bactericide purchased from a supplier. This facility
also produces the Omacide(R) IPBC brand biocide, which is based upon
iodopropargyl-n-butylcarbamate (IPBC), a broad-spectrum fungicide. This facility
also manufactures personal care specialty ingredients for the Company's personal
care product line.

East Providence, Rhode Island. This QS 9000-, ISO 9001- and ISO
14001-certified facility is located in an industrial park in East Providence,
Rhode Island. Originally built as a materials research center in 1974, the
facility was expanded in 1984 to manufacture photoresists, photoresist
developers, and photoresist strippers used in the semiconductor industry. The
materials research center at this site develops new compounds used in the
manufacture of photoactive products and has on-site capabilities for chemical
synthesis, testing, and product formulation. This capability allows for rapid
commercialization of new technologies and is augmented by scale-up facilities at
the Brandenburg, Kentucky site. The manufacturing plant at the site receives raw
materials and formulates, filters and packages finished goods in a high purity,
clean environment. Full quality control capabilities are located on-site or at
the nearby Quonset Point facility. The high degree of flexibility required to
custom manufacture specific products is maintained through the number of
multiple-sized formulation vessels available here.

12

North Kingstown, Rhode Island. This QS 9000-, ISO 9001- and ISO
14001-certified facility is located in a new industrial park in North Kingstown,
Rhode Island (Quonset Point Industrial Park) which originally housed a
distribution warehouse. A new state-of-the-art manufacturing facility and
product development center for advanced photoresists has been built on-site to
expand the Company's capabilities in the development and manufacture of advanced
technology photoresists and aqueous-based polyimides. A technical service center
is located on-site with advanced photolithography equipment identical to that of
the customer base and provides technical service support to North American
customers. The equipment is also used by the advanced product development groups
to develop state-of-the-art products in anticipation of customer requirements.
The manufacturing plant receives raw materials and formulates, filters and
packages finished goods in a high purity, clean environment. Full test
capabilities are located on-site. The high degree of flexibility required to
custom manufacture specific products is maintained through the number of
multiple-sized formulation vessels available here. Packaging and manufacturing
facilities were designed for a new generation of purity requirements.

Charleston, Tennessee. The Company's ISO 9002-certified facility located
in Charleston, Tennessee produces, packages and stores calcium hypochlorite for
the HTH water products business. Products are packaged into containers that
range in size from 5 pounds to 2,000 pounds per container. The site also stores
product during peak periods.

Beaumont, Texas. The Company's facility is a major regional manufacturer
and supplier of industrial grade virgin sulfuric acid to the U.S. Gulf Coast and
provides regeneration services primarily to local refineries. In addition, the
Company provides alternative waste fuel burning services and markets sodium
bisulfite solution. This facility has achieved and maintained ISO 9002
certification since 1993.

Trentham, Victoria, Australia. This Koppers Arch joint venture facility
produces CCA-based wood preservatives for the Australian market. The sales
office services the Victoria, South Australian and Western Australian markets.
The site is ISO 9002-certified.

Zwijndrecht, Belgium. This QS 9000-, ISO 9002- and ISO 14001-certified
facility has been operational since 1993 and primarily manufactures and tests
photosensitive polyimides, photoresist developers, and photoresist strippers
used in the semiconductor industry. A technical service center is also located
on the site with photolithography equipment identical to that of the customer
base and provides technical service support for photoresist and polyimides to
European customers.

Igarassu, Brazil. The Company's facility located in Igarassu, Brazil is a
joint venture operation (Nordesclor S.A.) that produces and packages calcium
hypochlorite for the HTH water products business within Brazil. Products for the
swimming pool market and the water treatment market are manufactured and
packaged at this site. The Company also has a small repackaging facility in
Salto, Brazil. The Salto facility also blends and manufactures products for the
performance products business.

Les Mureaux, France. This ISO 9002-certified facility is located just
northwest of Paris, France and serves as the principal location for the
manufacturing of coatings for the French furniture market. The site produces a
wide range of stains and coatings, as well as repackages and sells a line of
industrial coatings produced by the Company's Italian operations.

Swords, Ireland. This facility is located just north of Dublin, Ireland.
2-Chloropyridine is imported from the Company's Rochester, New York plant and
converted into zinc, copper and sodium salts of the pyrithione molecule. The
products are shipped to customers in Europe and over fifty countries around the
world. This facility is both ISO 9002- and ISO 14001-certified.

Mariano Comense, Italy. This ISO 9002-certified facility serves as the
primary manufacturing location for the Company's UV-based product line for its
coatings business. It also serves as a distribution location and does some
product development.

Pianoro, Italy. This ISO 9002-certified and ISO 14001-certified facility
serves as the primary manufacturing location and research and development center
for the industrial coatings business. It produces the Sayerlack(R) branded
products that include both solvent- and water-borne urethane systems, solvents,
stains

13

and colors. In addition, the central management for the distribution of these
products throughout Italy and various export markets is located here.

Kempton Park, South Africa. The Company's facility located in Kempton
Park, South Africa is a joint venture operation (Aquachlor (Proprietary) Ltd.),
that produces and packages calcium hypochlorite for the HTH water products
business within the Southern Africa region. Products for the swimming pool and
water treatment markets are also packaged at this site.

Maracaibo, Venezuela. The Company's ISO 9002-certified facility in
Venezuela is a multi-product manufacturing plant producing a broad range of
polyols, demulsifiers, and specialty surfactants to support regional markets.
Specialty polyols are also produced for local consumption and export.

ITEM 3. LEGAL PROCEEDINGS

In connection with the Distribution, the Company assumed substantially all
non-environmental liabilities for legal proceedings relating to the Company's
businesses as conducted prior to the Distribution Date. In addition, in the
normal course of business, the Company is subject to proceedings, lawsuits and
other claims, including proceedings under laws and regulations related to
environmental and other matters. All such matters are subject to many
uncertainties and outcomes that are not predictable with assurance. While these
matters could materially affect operating results when resolved in future
periods, it is management's opinion that after final disposition, including
anticipated insurance recoveries, any monetary liability or financial impact to
the Company beyond that provided in the consolidated balance sheet as of
December 31, 2002, would not be material to the Company's financial position or
annual results of operations.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

No matter was submitted to a vote of security holders during the three
months ended December 31, 2002.

EXECUTIVE OFFICERS

The biographical information of the executive officers of the Company as of
March 1, 2003 is noted below.

No family relationship exists between any of the above named executive
officers or between any of them and any Director of the Company. Such officers
were elected or appointed to serve as such, subject to the Bylaws, until their
respective successors are chosen.

Mr. Campbell was elected Chairman of the Board and Chief Executive Officer
on February 7, 1999. On July 27, 2000, he was given the additional title of
President. Prior to the Distribution, he was Executive Vice President of Olin
and had global management responsibility for all of Olin's businesses. Prior to
his election as an Executive Vice President of Olin, Mr. Campbell served as
President of Olin's Microelectronic Materials Division. Prior to that time and
since 1987, he served as Olin's Corporate Vice President, Human Resources.

14

Mr. Craney was elected a Corporate Executive Vice President on January 30,
2003. Prior to that time and since September 13, 2000, he served as Vice
President and General Manager, Treatment. Prior to that position, he served as
Vice President, Strategic Development since August 31, 1999. From February 7,
1999 until August 31, 1999, he was Vice President and General Manager, Urethane
Products. Prior to the Distribution and since May 1996, Mr. Craney served as
Vice President and General Manager, Urethane Products Chemicals Division, at
Olin. Prior to May 1996, he served as Vice President, Business Development and
Materials Management Chemicals Division, at Olin.

Mr. Massimo was elected a Corporate Executive Vice President on January 30,
2003 and has held the position of Chief Financial Officer since January 27,
1999. Prior to January 30, 2003, Mr. Massimo was a Corporate Vice President
since January 27, 1999. Prior to the Distribution, he served as Controller of
Olin since April 1, 1996 and, in addition, as Corporate Vice President since
January 1, 1997. From November 1994 until April 1996, he served as Olin's
Director of Corporate Accounting. Prior to November 1994, he was an Audit Senior
Manager for KPMG LLP.

Mr. Anderson was elected Corporate Vice President, Human Resources
effective December 1, 2000. Prior to that, he had served as Vice President and
General Manager, Semiconductor Chemicals and Services since June 8, 1999. Prior
to that position and since February 19, 1999, Mr. Anderson was Business
Director, Process Chemicals and Chemical Management Services. Prior to serving
as Business Director and prior to the Distribution, Mr. Anderson served as
Business Director, Chemicals Management Services of Olin since 1995 and from
1993 to 1995 was Business Manager, Chemical Management Services at Olin.

Ms. O'Connor was elected Corporate Vice President, General Counsel and
Secretary on February 7, 1999. She was elected a Vice President of the Company
on October 13, 1998 when the Company was a wholly-owned subsidiary of Olin.
Prior to the Distribution and since 1995, Ms. O'Connor served as Olin's
Director, Planning and Development. Ms. O'Connor became an Associate Counsel in
the Olin Corporate Legal Department in 1989 and was promoted to Counsel in 1992
and to Senior Counsel in January 1995.

Mr. Bush was elected Treasurer on February 7, 1999 and also appointed a
Vice President on that date. Prior to the Distribution and since February 1998,
Mr. Bush was a consultant to Olin. Prior to February 1998, and since March 1994,
he was Vice President, Treasurer and then Vice President, Investments of Johnson
& Higgins, an insurance brokerage and benefits consulting firm. Prior to 1994,
he held various managerial positions, including Vice President and Treasurer and
Vice President, Financial Planning and Analysis for Squibb Corporation.

Mr. Gouby was appointed President, Arch Microelectronic Materials on
January 30, 2003. Prior to that time and since September 13, 2000, he was Vice
President and General Manager, Microelectronics. Prior to that appointment, he
had served as Vice President and General Manager, Arch Chemicals Semiconductor
Materials Europe since February 8, 1999. Prior to the Distribution and since
January 1, 1991, Mr. Gouby was Vice President and General Manager, Semiconductor
Materials Europe of the Olin Ciba Geigy joint venture which Olin acquired 100%
of in 1995.

Mr. Giuliano was elected Controller on January 27, 1999. Prior to the
Distribution, Mr. Giuliano was an Audit Senior Manager for KPMG LLP and prior to
that and since 1991, he held various positions of increasing responsibility for
KPMG LLP, where he had overall responsibility for services provided in
connection with audits, SEC filings, private offerings and other services for
certain domestic and multinational clients.

PART II

ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS

As of January 31, 2003, there were approximately 6,900 record holders of
Company Common Stock.

The Company's Common Stock is traded on the New York Stock Exchange
("NYSE") under the symbol "ARJ."

15

Information concerning the high and low sales prices of the Company's
Common Stock and dividends paid on Common Stock during each quarterly period in
2002 and 2001 is set forth in Note 22 of Notes to Consolidated Financial
Statements in Item 8 of this Report.

Among the provisions of the Credit Facilities (as defined in Item 7 of this
Report) are restrictions relating to the payments of dividends and the
acquisition of the Company's Common Stock based on a financial formula. As of
December 31, 2002, dividends and stock repurchases were limited to approximately
$22.1 million. In addition, the senior unsecured notes issued in March 2002
contain dividend restrictions, which limit dividends and repurchases to $52.6
million as of December 31, 2002. See Note 11 of Notes to Consolidated Financial
Statements in Item 8 of this Report.

See Item 12 of this Report for Equity Compensation Plan information.

ITEM 6. SELECTED FINANCIAL DATA

The following table summarizes certain selected historical financial and
operating information with respect to the Company and is derived from the
Consolidated Financial Statements of the Company. The financial data as of and
for each of the years in the three-year period ended December 31, 2002 were
derived from the audited financial statements included elsewhere herein. Such
historical financial data may not be indicative of the Company's future
performance. The information set forth below should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the historical Consolidated Financial Statements and Notes
thereto included elsewhere in this Form 10-K. The historical financial
information for the period preceding February 8, 1999 (the "Distribution Date")
includes an allocated share of Olin's historical centralized activities. The
following information is qualified in its entirety by the information and
financial statements appearing elsewhere in this Form 10-K. See Note 1 of the
Notes to Consolidated Financial Statements for additional information.

16

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Notes to Selected Financial Data appear on page 18.

17

(1) Cost of Goods Sold for 2000 includes $3.0 million to write-down inventory to
net realizable value, including disposal costs, due to the process chemicals
restructuring and the exiting of certain businesses.

(2) Selling and Administration expenses for 1999 include $2.3 million of
nonrecurring expenses related to an unfavorable arbitration award and the
decision to delay construction of a facility in China.

(3) Special Items consist of the following:

Impairment Charge -- 2000 includes $31.0 million related to the write-down of
property, plant and equipment due to the process chemicals
business restructuring.
Restructuring -- 2002 charges include $6.6 million related to headcount
reductions of approximately 200 employees in the
microelectronics materials, performance urethanes and HTH
water products businesses, as well as a $1.0 million charge
related to the consolidation of several treatment products
segment operations. The non-cash portion of the
restructuring charge was approximately $1.0 million. 2001
charges include $2.4 million for headcount reductions, a
$1.5 million reduction of the 2000 reserve and $0.8 million
of retention payments, offset by $0.2 million of
reimbursement of certain severance costs. 2000 charges
include a $34.0 million charge, which consists of $8.9
million related to the restructuring of the process
chemicals business, $14.1 million related to the write-off
of certain costs associated with the biocides business, and
$11.0 million related to other headcount reductions.
Other (Gains) and
Losses -- Other (gains) and losses in 2001 includes a $1.0 million
write-off of an investment in GlobalBA.com, Inc. Other
(gains) and losses in 2000 of $(8.1) million principally
comprised a pretax gain on the sale of Superior Pool
Products and certain acquisition-related costs.

(4) Represents the results of operations, net of tax, of the Hickson organics
division for 2002 and September through December 2001. The 2002 results also
include a $1.5 million loss, net of tax, on the sale of the DanChem organics
operation in Danville, Virginia for approximately $25 million and the
operating results of the DanChem operation through the date of its sale in
March 2002.

(5) Extraordinary Gain, net of tax in 1999 represents a gain on the
extinguishment of debt related to the settlement of a $5.2 million face
value note through the payment of $3.0 million, net of related taxes of $0.9
million.

(6) Reflects the impact of adoption of SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities."

(7) In January 1999, Olin borrowed $75 million and on February 8, 1999, the
Company assumed this debt from Olin. Unaudited pro forma net income per
share for 1998 reflects the pro forma effects of borrowings assuming $75
million was outstanding and that the Company had seasonal weighted average
borrowings related to the HTH water products business of $20 million at an
aggregate effective rate of 7%. Unaudited pro forma common stock outstanding
represents the number of common shares issued at the Distribution Date and
assumes that such shares were outstanding for all periods prior to the
Distribution.

(8) The annual dividend rate was $0.80 per share in 2002, 2001, 2000 and 1999.
1999 dividends represent three quarterly payments.

(9) The effective tax rate in 2002, 2001 and 2000 of 34.0%, 48.6% and 29.2%,
respectively, excludes special items, loss from discontinued operations and
cumulative effect of change in accounting.

(10) The Company sells certain accounts receivable through an accounts
receivable securitization program entered into in March 2002. As a result,
accounts receivable have been reduced, the Company's undivided interest in
such receivables has been reflected as a short-term investment and proceeds
from the sales have been used to pay down debt.

(11) Includes a cumulative pension minimum liability adjustment, net of taxes of
$61.3 million and $0.9 million as of December 31, 2002 and 2001,
respectively.

18

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

This Management's Discussion and Analysis of Financial Condition and
Results of Operations should be read in conjunction with the Company's
historical Consolidated Financial Statements and Notes thereto included
elsewhere herein. Sales consist of sales to third parties net of any discounts.
Gross Margin is defined as Sales less Cost of Goods Sold, which includes raw
materials, labor, overhead and depreciation associated with the manufacture of
the Company's various products and shipping and handling costs. In addition,
segment operating income includes the equity in earnings of affiliated companies
and excludes special items and certain unallocated expenses of the corporate
headquarters.

RESULTS OF OPERATIONS
CONSOLIDATED

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(1) Cost of Goods Sold for 2000 includes $3.0 million to write-down inventory to
net realizable value, including disposal costs, due to the process chemicals
restructuring and the exiting of certain businesses.

(2) Special Items have been segregated for discussion purposes due to their
unusual nature and as they are not indicative of ongoing operating results.

19

YEAR ENDED DECEMBER 31, 2002 COMPARED TO 2001

Sales increased 2.0%, or $18.6 million due to higher overall volumes
(approximately 3%) and favorable foreign exchange (approximately 1%), partially
offset by lower overall prices (approximately 2%). Excluding the decrease due to
the exit of certain unprofitable process chemical product lines (approximately
$17 million), sales increased $35.7 million or 4% primarily due to higher HTH
water products and wood protection volumes and industrial coatings favorable
foreign currency translation, partially offset by lower volumes in the
performance urethanes business and lower pricing in the microelectronic
materials, hydrazine and sulfuric acid businesses.

Gross margin percentage was 28.6% and 27.6% for 2002 and 2001,
respectively. The increase in percentage was due primarily to favorable product
mix in the personal care and industrial biocides businesses, higher margins in
the microelectronic materials segment due to the restructuring of the process
chemicals business and increased volumes due to the modest recovery, and lower
fixed costs due to restructuring in the HTH water products business. These were
partially offset by higher costs due to the change in the HTH water products
distribution strategy (approximately $13 million) and the 2001 benefit of a $5.0
million LIFO inventory decrement due to reduced inventory levels.

Selling and administration expenses as a percentage of sales increased to
22.7% in 2002 from 21.4% in 2001 and these expenses increased in amount by $15.8
million. The increase was primarily due to higher selling and advertising costs
in the treatment segment to support the HTH(R) brand relaunch and the entrance
into the professional pool dealer market (approximately $5 million). Higher
legal costs in the wood protection and microelectronic materials businesses,
additional expenses related to the geographic expansion of the industrial
coatings business, higher insurance and employee benefit-related expenses, and
costs related to the Company's accounts receivable securitization program ($1.6
million) also contributed to the increase. These factors were partially offset
by lower selling expenses associated with the microelectronic materials and
performance products segments due to cost reduction initiatives. In addition,
the write-off of the assets associated with a cancelled expansion of the HTH
water products J3(TM) plant of approximately $2 million was offset by a
favorable legal decision in a 1994 raw material spillage lawsuit ($1.9 million)
and a $1.8 million pre-tax gain on sales of excess land.

Amortization of intangibles decreased $6.3 million primarily due to the
adoption of SFAS 142 (see Note 8 of Notes to Consolidated Financial Statements).

Research and development expenses decreased $2.4 million primarily due to
cost reduction initiatives in the microelectronic materials, performance
products and HTH water products businesses.

Equity in earnings of affiliated companies increased $3.1 million
principally due to higher operating profits of the FUJIFILM Arch joint venture
due to higher sales related to stronger Asian demand and favorable operating
results of the Planar Solutions joint venture due to higher sales of
copper-based slurries.

Restructuring in 2002 includes a $6.6 million charge for headcount
reductions in the microelectronic materials, treatment products and performance
products segments, and a $1.0 million charge for expenses related to the
consolidation of several treatment products segment operations. The Company
realized the benefits of this program during 2002 and anticipates ongoing annual
cost savings related to the restructuring. Restructuring in 2001 consists of a
$2.4 million charge for headcount reductions at corporate and at the performance
products business, offset by a $1.5 million reduction of the estimated remaining
liability for the 2000 restructuring program. In addition, 2001 restructuring
includes $0.8 million of retention payments to employees associated with the
restructuring of the process chemicals business, offset by the $0.2 million
reimbursement of certain severance costs, which were previously recorded as part
of the restructuring charge in the fourth quarter of 2000.

Other gains and losses in 2001 represents the write-off of an investment in
GlobalBA.com, Inc., an Internet-based business-to-distributor-to-business
on-line marketplace for specialty chemical companies, which became insolvent in
the third quarter of 2001.

Interest expense, net was $16.0 million in 2002 compared to $17.7 million
in 2001. The decrease was primarily due to lower debt due to proceeds from an
accounts receivable securitization program (See Note 2

20

of Notes to Consolidated Financial Statements), the sale of the Hickson organics
DanChem business and lower working capital borrowing needs.

Excluding special items, discontinued operations and the cumulative effect
of accounting change, the effective tax rate on income decreased to 34.0% in
2002 from 48.6% in 2001, primarily due to increased income from equity
investments and non-tax deductible items on lower earnings in 2001.

Loss from discontinued operations, net of tax in 2002 includes the results
of operations of the Hickson organics Castleford business for the full year and
the results of operations of the Hickson organics DanChem business through the
sale of that business in March of 2002. Results in 2002 also include interest
expense allocated to this business, a $1.9 million restructuring charge for
headcount reductions for approximately 40 employees at Castleford and a
valuation reserve associated with capital spending at the Castleford business.
Loss from discontinued operations for 2001 includes operating results of the
Hickson organics Castleford and DanChem businesses and interest expense
allocated for September through December 2001 and includes a $1.8 million
restructuring charge for headcount reductions of approximately 45 employees at
Castleford. The net earnings (losses) related to the Hickson organics division
during the holding period through August 2001 are not included in the
Consolidated Statements of Income, but have been recorded as an adjustment to
the net asset value. The post-acquisition income before allocated interest
expense for the period from January 1, 2001 through August 31, 2001 associated
with these assets held for sale was $3.8 million. In addition, interest expense
of $3.8 million was allocated to the Hickson organics division for the
eight-month period ended August 31, 2001. See Note 5 of Notes to Consolidated
Financial Statements.

Loss on sale of DanChem, net of tax, represents the after-tax loss on the
sale of the Company's operations in Danville, Virginia for proceeds of
approximately $25 million.

2003 OUTLOOK

The Company expects a gradual economic recovery, with increasing momentum
during the second half of 2003. The microelectronic materials segment is
expected to continue to benefit from a modest improvement in the semiconductor
industry resulting in stronger demand for its products, particularly its
advanced product offerings. An improvement in HTH water products profitability
is expected from higher sales of its HTH(R) POOLIFE(TM) collection to the
professional pool dealer market and through cost reductions. In addition,
continued strong demand for its biocides for marine antifouling paints and new
wood preservative products are expected to drive growth in the Company's
treatment products segment. These improvements are expected to be partially
offset by higher pension costs and insurance premiums of approximately $8
million or $0.25 per share. As a result, the Company anticipates that sales for
the full year will increase from six to eight percent, and earnings from
continuing operations are expected to range from $0.65 to $0.90 per share.
EBITDA is expected to be in the $95 to $105 million range. In addition, capital
spending is anticipated to be in the $35 to $40 million range and pension
expense and related funding are both expected to increase by approximately $5
million. The projections are subject to various factors; see Cautionary
Statements Under Federal Securities Laws.

YEAR ENDED DECEMBER 31, 2001 COMPARED TO 2000

Sales decreased 2.2%, or $20.4 million. Excluding the decrease due to the
divestiture of Superior Pool Products, Inc. ("SPPI") (approximately $54
million), the exit of certain unprofitable process chemical product lines
(approximately $40 million) and the increase due to the impact of the
acquisitions of Hickson and Brooks (approximately $173 million), sales decreased
$99.5 million or 13% primarily due to a decrease in volumes in the
microelectronic materials, performance urethanes and HTH water products
businesses.

Gross margin percentage was 27.6% and 26.5% for 2001 and 2000,
respectively. Excluding the $3.0 million inventory write-down, 2000 gross margin
percentage was 26.8%. The increase in percentage was due to the inclusion for
the full year of the higher margin Hickson and Brooks businesses, the
disposition of a low margin business (SPPI), higher margins in the
microelectronic materials segment due to the restructuring of the process
chemical business, partially offset by unfavorable manufacturing costs and the
absence of income related to the BASF contract. Manufacturing costs were
unfavorable due to higher unabsorbed energy and manufacturing costs as a result
of lower contract manufacturing at the performance urethanes business

21

and unabsorbed fixed costs at the HTH water products business because of an
extended plant maintenance shutdown and lower production, partially offset by
the favorable impact of a $5.0 million LIFO inventory decrement due to reduced
inventory levels.

Selling and administration expenses as a percentage of sales increased to
21.4% in 2001 from 18.3% in 2000, due to the lower sales. Excluding the impact
of the acquisitions and disposition that occurred in 2000, selling and
administrative expenses decreased approximately $9 million. The decrease is
primarily due to lower selling expenses associated with the microelectronic
materials segment.

Amortization of intangibles increased $4.8 million primarily due to the
2000 acquisitions.

Research and development expenses increased $8.3 million primarily due to
the inclusion of expenses related to Hickson and Brooks (approximately $5
million) as well as higher expenditures associated with HTH water products and
the photopolymers businesses for new product development.

Equity in earnings of affiliated companies decreased $4.5 million due to
significantly lower profits from FUJIFILM Arch, partially offset by a full year
of profits from Koppers Arch Investments Pty Limited, which was acquired as part
of Hickson.

Restructuring in 2001 consists of a $2.4 million charge for headcount
reductions at corporate and at the performance urethanes business, offset by a
$1.5 million reduction of the estimated remaining liability for the 2000
restructuring program. In addition, 2001 restructuring includes retention
payments to employees associated with the restructuring of the process chemicals
business, offset by the reimbursement of certain severance costs, which were
previously recorded as part of the restructuring charge in the fourth quarter of
2000. Restructuring in 2000 relates to restructuring of the process chemical
business, the write-off of certain costs associated with the biocides business
and other headcount reductions.

Other gains and losses in 2001 represents the write-off of an investment in
GlobalBA.com, Inc., an Internet-based business-to-distributor-to-business
on-line marketplace for specialty chemical companies, which became insolvent in
the third quarter of 2001. Other gains and losses in 2000 includes $2.5 million
of costs related to the acquisition and integration of Hickson's operations, and
a gain of $10.6 million, principally related to the sale of SPPI.

Interest expense, net was $17.7 million in 2001 compared to $13.0 million
in 2000. The increase was primarily due to higher debt levels directly related
to the Hickson and Brooks acquisitions, partially offset by overall lower
effective interest rates and lower working capital borrowing requirements.

Excluding special items, discontinued operations and the cumulative effect
of accounting change, the effective tax rate on income increased to 48.6% in
2001 from 29.2% in 2000, primarily due to the impact of non-tax deductible items
on lower earnings.

Loss from discontinued operations, net of tax includes the results of
operations of the Hickson organics division and interest expense allocated to
this business for September through December 2001. The net earnings (losses)
related to the Hickson organics division during the holding period through
August 2001 are not included in the Consolidated Statements of Income, but have
been recorded as an adjustment to the net asset value. The post-acquisition
income for the period from January 1, 2001 through August 31, 2001 associated
with these assets held for sale was $3.8 million. In addition, interest expense
of $3.8 million was allocated to the Hickson organics division for the
eight-month period ended August 31, 2001. See Note 5 of Notes to Consolidated
Financial Statements.

On January 1, 2001, the Company adopted Statement of Financial Accounting
Standards No. 133 ("SFAS 133"), "Accounting for Derivative Instruments and
Hedging Activities", as amended by SFAS No. 137 and SFAS No. 138. Such adoption
of SFAS 133 in 2001 resulted in a cumulative pre-tax reduction to income of $0.4
million ($0.2 million after-tax).

SEGMENT OPERATING RESULTS

The Company has organized its segments around differences in products and
services, which is how the Company manages its business. In the first quarter of
2002, the Company reorganized its business portfolio into four operating
segments to better reflect the Company's business strategy. The four segments
are microelectronic materials, treatment products, performance products and
other specialty products. The

22

treatment products segment includes three reportable business units: the HTH
water products business, the personal care and industrial biocides business and
the wood protection and industrial coatings business. The performance products
segment includes the performance urethanes business and the other specialty
products segment includes the hydrazine and sulfuric acid businesses. Sales and
operating income for 2001 and 2000 have been restated to conform to the current
year presentation. Segment operating income includes the equity in earnings of
affiliated companies and excludes special items and certain unallocated expenses
of the corporate headquarters.

MICROELECTRONIC MATERIALS

YEAR ENDED DECEMBER 31, 2002 COMPARED TO 2001

Sales decreased 10.3% due to lower volumes (approximately 8%) and lower
prices (approximately 2%), and operating results improved by $4.7 million. Of
the sales decrease, approximately $17 million related to the exit of certain
unprofitable process chemical product lines announced in the fourth quarter of
2000. Excluding this effect, sales were comparable as higher volumes of
polyimides, photoresists and blends due to new product sales and existing
customer growth were offset by the weakness of the semiconductor industry in the
early part of the year, which resulted in lower pricing and adversely affected
demand for the thin film and ancillary product lines.

The improvement in operating results was due to improved operating results
from the Company's FUJIFILM Arch and Planar Solutions joint ventures due to
significantly higher sales. In addition, lower manufacturing, selling and
development costs resulting from cost-reduction initiatives were partially
offset by higher administration expenses due primarily to higher legal defense
costs, net of the benefit of an unrelated insurance recovery of $0.9 million. In
addition, operating results benefited from the non-amortization of goodwill and
other intangible assets of $1.6 million, partially offset by the write-off of
certain intangible assets due to the cancellation of certain technology
agreements of $0.4 million.

YEAR ENDED DECEMBER 31, 2001 COMPARED TO 2000

Sales decreased 32.0% and operating results decreased by $17.9 million. The
sales decrease was principally due to lower demand for customer products and the
exit of certain unprofitable process chemical product lines (approximately $37
million) in conjunction with the restructuring announced in the fourth quarter
of 2000, which was completed in 2001. Excluding the effect of the restructuring,
sales were approximately 20% lower, primarily due to the downturn in the
semiconductor industry, which reduced volumes in all product lines except
polyimides.

The decrease in operating results was due to the lower sales, significantly
lower profit ($4.7 million) from the Company's joint venture, FUJIFILM Arch, and
higher research and development expenditures for new product development,
partially offset by lower selling and manufacturing costs resulting from cost
reduction initiatives including employee furloughs and lower operating and
depreciation expenses as a result of the restructuring of the process chemicals
business.

23

TREATMENT PRODUCTS

YEAR ENDED DECEMBER 31, 2002 COMPARED TO 2001

Sales increased 10.9% due to higher volumes (approximately 10%) and
favorable foreign exchange (approximately 2%), partially offset by lower prices
(approximately 1%), and operating results increased by $13.9 million. The
increase in volumes is due primarily to higher HTH water products, new wood
preservative products volumes and higher biocides sales to the marine
antifouling paint and anti-dandruff markets. Operating income increased
principally due to the higher sales, partially offset by the increased costs of
the direct-to-retail distribution strategy for HTH water products (approximately
$13 million), higher selling and advertising costs to support the HTH(R) brand
relaunch and entrance into the dealer market (approximately $5 million) and the
write-off of the assets associated with a cancelled expansion of the J3(TM)
plant of approximately $2 million. Higher legal defense expenses associated with
CCA product-related lawsuits were mostly offset by a favorable legal decision in
a 1994 raw material spillage lawsuit ($1.9 million). In addition, 2002 operating
results included the benefit of the non-amortization of goodwill and other
intangible assets of $4.4 million and the pre-tax gain on sales of excess land
of $1.5 million. 2001 operating results included a benefit of a $2.8 million
LIFO inventory decrement.

HTH WATER PRODUCTS

Sales increased 16.8% and operating results improved by $1.2 million. Sales
increased primarily due to higher branded (J3(TM) and POOLIFE(TM)) and
nonbranded calcium hypochlorite, branded isos and pool maintenance products and
accessories volumes. The higher branded volumes were a result of the HTH(R)
brand relaunch and the launch of the new POOLIFE(TM) dealer exclusive brand. The
higher pool maintenance products and accessories volumes were due to new
marketing initiatives. Foreign sales also increased due to higher volumes as a
result of warm weather in Europe and Canada.

Operating results improved slightly. The higher sales, along with fixed
cost savings due to the restructuring program were mostly offset by higher
selling and advertising costs to support the HTH(R) brand relaunch and the
entrance into the dealer market (approximately $5 million), higher distribution
and warehouse expenses due to the change in distribution strategy to a
direct-to-retail approach (approximately $13 million) and the write-off of the
assets associated with a cancelled expansion of the J3(TM) plant of
approximately $2 million. In addition, 2001 operating results included a $2.0
million benefit of a LIFO inventory decrement.

PERSONAL CARE AND INDUSTRIAL BIOCIDES

Sales were 5.6% higher than 2001 as higher biocides volumes to the marine
antifouling paint and antidandruff markets were partially offset by lower
personal care sales due to the economic slowdown.

24

Operating income was approximately 34% higher than 2001 as a result of higher
gross margins due to favorable product mix and lower manufacturing costs from
cost-reduction initiatives. Operating results also benefited from the
non-amortization of goodwill of $1.6 million and the pre-tax gain on the sale of
excess land of $0.8 million. In addition, 2001 operating results included a $0.8
million benefit of a LIFO inventory decrement.

WOOD PROTECTION AND INDUSTRIAL COATINGS

Sales were 8.1% higher than the prior year due to higher volumes
(approximately 5%), favorable foreign currency translation (approximately 5%),
principally in the coatings business, partially offset by lower prices
(approximately 2%). The higher volumes were primarily due to higher volumes of
Wolman(R) E (Wolmanized(R) Natural Select(TM)) and Tanalith(R) E preservatives
(CCA-alternative products) as well as stronger European economic conditions
resulting in higher industrial coatings sales. Operating income was
approximately 47% higher than the prior year due to the higher sales, partly
offset by higher selling costs as a result of the geographic expansion of the
coatings business. Higher legal defense expenses associated with CCA
product-related lawsuits were mostly offset by a favorable legal decision in a
1994 raw material spillage lawsuit ($1.9 million). In addition, operating
results benefited from the non-amortization of goodwill and other intangible
assets of $2.7 million and the pre-tax gain on the sale of excess land of $0.7
million.

YEAR ENDED DECEMBER 31, 2001 COMPARED TO 2000

HTH WATER PRODUCTS

Sales decreased 14.8% and operating results decreased by $24.8 million.
Sales decreased primarily due to lower branded (HTH(R) and J3(TM)) and
non-branded calcium hypochlorite volumes. The lower volumes were due to excess
inventory from the 2000 pool season, a consolidation of the Company's
third-party distributor locations, customer destocking and a change in
distribution strategy which negatively impacted fourth quarter sales. The
Company's change in distribution strategy from utilizing distributors to
directly shipping to retail channels has postponed traditional distributor
program early winter sales to spring retail sales.

Operating income decreased primarily due to the lower sales, higher
research and development costs for new product development, unfavorable
manufacturing costs and additional costs associated with the launch of new brand
products. The unfavorable manufacturing costs were principally a result of
unfavorable fixed cost absorption due to an extended plant maintenance shutdown
in a continued effort to reduce inventory levels, partly offset by lower fixed
cost spending and the $2.0 million benefit of a LIFO inventory decrement.

PERSONAL CARE AND INDUSTRIAL BIOCIDES

Sales increased $16.1 million primarily due to the inclusion of sales
associated with the personal care intermediates business acquired from Brook's
Industries in November 2000, for the full year (approximately $25.2 million),
offset by lower biocides sales. Lower custom chemicals sales as a result of the
discontinuance of certain product lines ($8.4 million) and lower antidandruff
pricing were partially offset by higher biocides sales to the marine antifouling
paint and antidandruff markets.

Operating income increased significantly as a result of the acquisition,
lower manufacturing and selling costs due to cost reduction initiatives and the
$0.8 million benefit of a LIFO inventory decrement as a result of reduced
inventory levels.

WOOD PROTECTION AND INDUSTRIAL COATINGS

Sales increased $147.8 million and operating income increased $8.5 million,
primarily due to the inclusion of Hickson's wood protection and industrial
coatings businesses for the full year.

25

PERFORMANCE PRODUCTS

YEAR ENDED DECEMBER 31, 2002 COMPARED TO 2001

Sales decreased 14.8% principally due to lower Latin American sales
(approximately 10%), a result of poor economic conditions and political
instability in Venezuela and lower propylene glycol volumes, partially offset by
higher North American polyol volumes.

Operating results improved $1.0 million as a result of lower raw material
costs and lower manufacturing and selling and administrative costs due to
cost-reduction initiatives implemented in 2001 and 2002. These factors were
partially offset by the lower sales, the absence of a $2.2 million benefit of a
LIFO inventory decrement and the $2.5 million contract settlement gain related
to the termination of the contract manufacturing agreement with Sunoco in 2001.

YEAR ENDED DECEMBER 31, 2001 COMPARED TO 2000

Sales decreased 13.8% principally due to the absence of sales related to
the BASF contract, lower performance polyol volumes and lower contract
manufacturing, as a result of poor economic conditions.

Operating income decreased $21.6 million due to the lower sales, the
absence of income ($11.4 million) related to the BASF contract which was
completed on December 31, 2000 and higher unabsorbed energy and manufacturing
costs due to lower contract manufacturing. Lower operating results were
partially offset by the $2.5 million contract settlement gain related to the
termination of the contract manufacturing agreement with Sunoco and the benefit
of a $2.2 million LIFO inventory decrement as a result of reduced inventory
levels.

OTHER SPECIALTY PRODUCTS

YEAR ENDED DECEMBER 31, 2002 COMPARED TO 2001

Sales decreased 3.9% and operating income decreased $3.8 million.

Hydrazine sales were comparable with prior year as higher hydrate volumes
were offset by lower hydrate prices. Operating income was 16.4% lower than 2001
as lower pricing and unfavorable product mix were partially offset by the
absence in 2002 of unrealized losses related to natural gas futures contracts in
2001 of $0.7 million.

Sulfuric acid sales decreased 9.9% as a result of lower pricing due to an
unfavorable product mix compared to the prior year. Operating income was 54.0%
lower than prior year due to the unfavorable product mix.

YEAR ENDED DECEMBER 31, 2001 COMPARED TO 2000

Sales increased 4.1% and operating income increased $5.3 million.

26

Hydrazine sales were 14.4% higher primarily due to higher propellant
revenues associated with the new contract with the U.S. government, partially
offset by lower hydrate volumes in Asia due to depressed market conditions.
Operating income increased significantly due to the higher sales and lower
selling and administration expenses, partly offset by unabsorbed costs due to
lower production, higher energy costs and unrealized losses related to natural
gas futures contracts.

Sulfuric acid sales decreased 5.3% due to lower volumes as a result of
unfavorable product mix compared to the prior year and customer operating
difficulties. Operating income was lower primarily due to lower sales.

ENVIRONMENTAL

The Company operates manufacturing facilities throughout the world and as a
result is subject to a broad array of environmental laws and regulations in
various countries. The Company also implements a variety of voluntary programs
to reduce air emissions, eliminate or reduce the generation of hazardous wastes
and to decrease the amount of wastewater discharges. The establishment and
implementation of U.S. Federal, state and local standards to regulate air and
water quality and to govern contamination of land and groundwater has affected,
and will continue to affect, substantially all of the Company's U.S.
manufacturing locations. Federal legislation providing for regulation of the
manufacture, transportation, use and disposal of hazardous and toxic substances
has imposed additional regulatory requirements on industry in general, and
particularly on the chemicals industry. In addition, the implementation of
environmental laws, such as the Resource Conservation and Recovery Act, the
Clean Air Act and the Comprehensive Environmental Response, Compensation and
Liability Act of 1980, as amended by the Superfund Amendments and
Reauthorization Act of 1986, has required, and will continue to require, new
capital expenditures and will increase operating costs.

The Distribution Agreement specifies that the Company is only responsible
for certain environmental liabilities at the Company's current facilities and
certain off-site locations. In connection with the acquisition of Hickson, the
Company acquired certain environmental exposures and potential liabilities of
current and past operating sites, all of which have been accrued for in the
accompanying Consolidated Financial Statements.

Associated costs of investigatory and remedial activities are provided for
in accordance with generally accepted accounting principles governing
probability and the ability to reasonably estimate future costs. Charges to
income for investigatory and remedial efforts were not material to operating
results in 2002, 2001 and 2000 but may be material to net income in future
years.

Cash outlays for normal plant operations for the disposal of waste and the
operation and maintenance of pollution control equipment and facilities to
ensure compliance with mandated and voluntarily imposed environmental quality
standards were charged to income. Cash outlays for remedial activities are
charged to reserves. Historically, the Company has funded its environmental
capital expenditures through cash flows from operations and expects to do so in
the future. The Company has not incurred cash outlays for remedial and
investigatory activities associated with certain former Olin waste sites and
past operations since Olin is responsible for these obligations under the
Distribution Agreement.

Cash outlays for environmental related activities for 2002, 2001 and 2000
were as follows:

The Company's Consolidated Balance Sheets included liabilities for future
environmental expenditures to investigate and remediate known sites amounting to
$10.4 million at December 31, 2002, of which $4.5 million

27

are classified as current liabilities and $12.6 million at December 31, 2001, of
which $4.1 million are classified as current liabilities. The Company's
estimated environmental liability relates to eight sites, six of which are in
the United States and none of which are on the U.S. National Priority List.
These amounts did not take into account any discounting of future expenditures,
any consideration of insurance recoveries or any advances in technology. These
liabilities are reassessed periodically to determine if environmental
circumstances have changed or if the costs of remediation efforts can be better
estimated. As a result of these reassessments, future charges to income may be
made for additional liabilities.

Annual environmental-related cash outlays for site investigation and
remediation, capital projects and normal plant operations are expected to range
from $15 million to $20 million over the next several years. While the Company
does not anticipate a material increase in the projected annual level of its
environmental-related costs, there is always the possibility that such increases
may occur in the future in view of the uncertainties associated with
environmental exposures. A portion of the higher environmental cash outlays
during 2000 and 2001 was associated with a remediation project at the Company's
Conley, GA wood treatment facility. Total cash outlays since its acquisition
(capital and remedial) were approximately $5.7 million. The project was complete
as of December 31, 2002.

Environmental exposures are difficult to assess for numerous reasons,
including the identification of new sites, developments at sites resulting from
investigatory studies and remedial activities, advances in technology, changes
in environmental laws and regulations and their application, the scarcity of
reliable data pertaining to identified sites, the difficulty in assessing the
involvement and financial capability of other potentially responsible parties
and the Company's ability to obtain contributions from other parties and the
lengthy time periods over which site remediation occurs. It is possible that
some of these matters (the outcomes of which are subject to various
uncertainties) may be resolved unfavorably against the Company. At December 31,
2002, the Company had estimated additional contingent environmental liabilities
of $8.5 million.

LEGAL MATTERS

There are a variety of non-environmental legal proceedings pending or
threatened against the Company. In connection with the acquisition of Hickson,
the Company assumed certain legal obligations, including a trial court judgment
of approximately $8.5 million plus interest, in a lawsuit associated with a raw
material spillage in 1994. In 2001, the judgment was reversed on the successful
appeal by the Company and remanded for a new trial on damages. In 2002, a new
trial resulted in a judgment of $2.6 million plus interest. This judgment is
being appealed. The judgment and related interest is included in Accrued
Liabilities in the accompanying Consolidated Balance Sheets.

In 2001, the Company received notification of a potential product claim by
a customer related to a discontinued product. This claim was settled in the
third quarter of 2002 and the Company paid a total of $5.5 million, exclusive of
insurance proceeds. Total insurance proceeds of $1.6 million are expected to be
received in the first quarter of 2003.

Five putative class action lawsuits have been filed in various state and
federal courts against several chromated copper arsenate ("CCA") manufacturers,
including the Company's CCA-formulating subsidiary, Arch Wood Protection, Inc.,
the Company, several CCA customers and various retailers regarding the marketing
and use of CCA-treated wood. Generally, the proposed class members purport to
include persons who purchased, possess or own CCA-treated wood products or
properties upon which CCA-treated wood products were stored or installed. None
of the putative class actions currently alleges personal injury. In one case,
the federal district court ruled that the requirements for a class action have
not been met and has denied class action status to the lawsuit. One other case
has been denied class action status as a result of plaintiffs' failure to timely
request class certification and has been subsequently dismissed without
prejudice. Another case has been dismissed at the plaintiffs' request. In
neither of the other two cases has a class been certified by the court.

These putative class action lawsuits variously (1) allege conspiracy,
breach of contract, breach of implied warranties, violation of consumer
protection and/or unfair trade practices statutes, unjust enrichment, strict

28

liability, nuisance, negligence and intentional tort, (2) seek remedies, such as
refunds of the price of product sold, the cost of removal and replacement of
CCA-treated wood and the cost of soil testing and purported remediation of
allegedly contaminated soil and (3) do not specify an amount of monetary damages
requested. These lawsuits are in their early stages of discovery.

In addition, there are eight other CCA-related lawsuits naming one or more
of the Company's subsidiaries, and in some cases, the Company, as a defendant.
These additional eight cases are not putative class actions.

The Company and its subsidiaries deny the material allegations of all the
various CCA-related claims and has vigorously defended and will continue to
vigorously defend them. As a result, legal defense and related costs associated
with these cases were substantial in 2002 and may increase in the future.

All CCA-related cases are subject to a number of uncertainties, including
in the case of the putative class actions, whether and to what extent any will
be certified as class actions. As a result, their impact, if any, is difficult
to assess. Based on the information currently available to the Company, however,
the Company does not believe the resolution of these cases is likely to have a
material adverse effect on its consolidated financial condition, cash flow or
results of operations.

INCOME TAXES

The Company provides for deferred taxes on temporary differences between
the financial statement and tax bases of assets using the enacted tax rates,
which are expected to apply to taxable income when the temporary differences are
expected to reverse.

Prior to the Distribution, the Company's operations were included in the
U.S. Federal consolidated income tax returns of Olin. The provision for income
taxes prior to the Distribution includes the Company's allocated share of Olin's
consolidated income tax provision and is calculated on a separate company basis
consistent with the requirements of Statement of Financial Accounting Standards
No. 109, "Accounting for Income Taxes." Olin and the Company entered into a Tax
Sharing Agreement that provides that Olin is responsible for the Federal tax
liability of the Company for each year that the Company and its subsidiaries
were included in Olin's consolidated Federal income tax return, and for state,
local and foreign taxes of the Company and its subsidiaries attributable to
periods prior to the Distribution, in each case including tax subsequently
assessed pursuant to the audit of, or other adjustment to, previously filed tax
returns.

BUSINESS AND CREDIT CONCENTRATIONS

Sales of the Company's microelectronic materials products segment are
dependent upon the economic conditions of the semiconductor industry. Changes in
this industry may significantly affect management's estimates of current and
future operating results.

A significant portion of sales of the treatment products segment
(approximately 23%) is dependent upon two customers, one of which accounts for a
significant portion of the sales of the HTH water products business and the
other of which accounts for a significant portion of the sales of the personal
care and industrial biocides businesses. Sales to these two customers are
individually less than 10% of the Company's 2002 consolidated sales. However,
the loss of either of these customers could have a material adverse effect on
the sales and operating results of the respective segment and businesses if such
customer was not replaced.

In February 2002, the Company announced a voluntary transition from CCA, a
traditional wood preservative used for the past 70 years to protect treated wood
against termites and rotting, to a new generation of wood preservatives for use
in non-industrial wood products after December 31, 2003. In connection with the
transition, the Company simultaneously requested EPA's consent to an amendment
of its registration for CCA, which would limit the approved uses of CCA to
industrial, non-residential applications. Although the Company views this as a
growth opportunity for its wood protection business, a risk exists that new
sales of the CCA alternative product will not replace historical sales of the
CCA product.

29

Sales of the HTH water products segment are seasonal in nature as its
products are primarily used in the U.S. residential pool market. Historically,
approximately 40% -- 50% of the sales in the HTH water products business occur
in the second quarter of the fiscal year, as retail sales in the U.S.
residential pool market are concentrated between Memorial Day and the Fourth of
July. Therefore, interim results for this segment are not necessarily indicative
of the results to be expected for the entire fiscal year. In addition, in 2002
the HTH water products segment changed its distribution strategy from utilizing
distributors to directly shipping to retail channels, which has made the HTH
water product sales even more concentrated in the second and third quarters.

LIQUIDITY, INVESTMENT ACTIVITY AND OTHER FINANCIAL DATA

CASH FLOW DATA

For 2002, the $29.0 million increase in cash flow provided by net operating
activities from continuing operations was primarily attributable to the sale of
accounts receivable and lower restructuring payments. This was partially offset
by a lower working capital reduction as the Company reduced its working capital
by $28.7 million in 2002 compared to a $38.2 million decrease in 2001. The
Company significantly reduced its working capital over the past two years as a
result of its focus on reducing its investment in working capital and as a
result of the restructuring of the process chemical business.

For 2001, the $17.4 million increase in cash flow provided by net operating
activities from continuing operations was attributable to significantly
increased cash flows as a result of the Company's focus on reducing investment
in working capital and the restructuring of the process chemicals business,
partially offset by lower cash earnings and $14.5 million of restructuring
related payments.

Cash used by the operations of assets held for sale was $4.5 million in
2002 compared to $2.7 million in 2001 primarily due to the funding of the
Hickson organics Castleford restructuring initiatives and the absence of cash
generated by the Hickson organics DanChem business which was sold in March 2002.

Cash used by the operations of assets held for sale was $2.7 million in
2001 compared to cash provided of $4.8 million in 2000, primarily due to timing
of working capital.

Capital expenditures for 2002 decreased 22.5% as compared to 2001 primarily
due to lower discretionary expenditures associated with the microelectronic
materials and performance products segments.

Capital expenditures for 2001 decreased 27.6% as compared to 2000 due to
lower discretionary expenditures associated with the treatment products and
microelectronic materials segments.

Capital expenditures for 2003 are expected to be in the $35 to $40 million
range.

30

In the third quarter of 2002, the Company sold excess land in China,
Ireland and Arizona for cash proceeds of approximately $2.3 million and
recognized a pre-tax gain of approximately $1.8 million.

In March 2002, the Company completed the sale of its DanChem operations in
Danville, Virginia for approximately $25 million. Proceeds from the sale of
these assets have been used to pay down debt. See Note 19 of Notes to
Consolidated Financial Statements.

In September 2001, the Company acquired Butler Mabbutt & Wrighton and the
Industrial Division of Humbrol Limited for an aggregate of approximately $1
million in cash.

In March 2001, the Company completed the acquisition of the assets of
Walker Brothers, a division of Consolidated Coatings, for approximately $2
million in cash.

On November 30, 2000, the Company completed the acquisition of New
Jersey-based Brooks Industries' personal care intermediates business for
approximately $38 million in cash. The acquisition was financed from borrowings
under the Company's existing credit facilities. See Note 19 of Notes to
Consolidated Financial Statements.

On August 22, 2000, the Company completed the acquisition of UK-based
Hickson. The total purchase price, inclusive of expenses and net of cash
acquired, was $140.4 million and was financed from a new $225 million revolving
credit facility. See below for additional information concerning this revolving
credit facility. For additional information concerning the Hickson acquisition,
including pro forma financial information, see the Form 8-K/A filed by the
Company on November 2, 2000.

On July 31, 2000, the Company completed the sale to SCP Pool Corporation of
Covington, Louisiana of the assets of its subsidiary, SPPI, a distributor of
swimming pool equipment, parts and supplies. Net proceeds from the sale were
approximately $21 million. A pretax gain on the transaction of approximately $11
million was recorded. Net proceeds from the sale were used to reduce existing
debt levels.

In April 2000, the Company formed Planar Solutions, a joint venture with
Wacker Silicones Corporation, to produce and market chemical mechanical
planarization slurry products used in the advanced computer chip manufacturing
process. The Company contributed cash of approximately $3.4 million and
intellectual property to the venture.

In March 2000, the Company completed the sale of its building in Cheshire,
Connecticut. Proceeds from the sale were $6.3 million. No gain or loss was
recorded on the transaction. The Company subsequently leased approximately 40%
of the facility from the new owner.

Cash used by financing activities in 2002 was principally due to net
repayments of debt of $86.0 million and dividends paid to shareholders of $17.9
million.

Cash used by financing activities in 2001 was principally due to net
repayments of debt of $39.6 million and dividends paid to shareholders of $17.7
million.

Cash provided by financing activities in 2000 was primarily due to
increased borrowings associated with the Hickson and Brooks acquisitions,
partially offset by dividends paid to shareholders of $17.8 million, and $9.5
million used to repurchase common stock.

LIQUIDITY

At December 31, 2002, the Company had two credit facility agreements. These
included an unsecured $125 million revolving five-year credit facility
("Five-year Facility"), which expires in January 2004 and an unsecured $87.5
million 364-day facility ("364-day Facility"), which expired in January 2003 and
was subsequently renewed (see below) (collectively the "Credit Facilities"). As
of December 31, 2002, the Credit Facilities contained quarterly leverage ratio
(debt/EBITDA) covenants of 3.5, interest coverage ratio (EBITDA/interest)
covenants of 3.0, and restricted the payment of dividends and repurchases of
stock to $40 million less cumulative dividends and repurchases of stock plus 50%
of cumulative net income (loss) under certain circumstances beginning December
31, 2001 ($22.1 million at December 31, 2002). As of December 31, 2002, facility
fees are payable on the Credit Facilities and range from 0.15% to 0.3%. The

31

Company may select various floating rate borrowing options, including, but not
limited to, LIBOR plus 0.425% to 1.0%. At December 31, 2002, the Company had
$212.5 million of available borrowings under the Credit Facilities of which,
$87.5 million was available under the 364-day Facility, which was subsequently
reduced to $65.0 million (see below).

In January 2003, the Company extended the maturity date of its existing
364-day Facility to June 21, 2003 and reduced the maximum amount of the facility
to $65.0 million. In addition, a certain representation related to ERISA plan
funding was amended. In January 2003, the Company also amended its existing
Five-year Facility to amend the representation related to ERISA plan funding.

In March 2002, the Company issued $211.0 million of unsecured senior notes
to certain institutional investors in two series. The Series A notes of $149.0
million are due in March 2007 and the Series B notes of $62.0 million are due in
March 2009 and bear fixed interest rates of 7.94% and 8.24%, respectively,
subject to certain leverage ratio requirements through December 31, 2002. The
notes contain quarterly leverage ratio (debt/EBITDA) covenants of 4.5 through
December 31, 2002 and 3.5 thereafter and fixed coverage ratio covenants of 2.0
through December 31, 2002 and 2.25 thereafter, and restrict the payment of
dividends and repurchases of stock to $65 million less cumulative dividends and
repurchases of stock plus 50% of cumulative net income (loss) under certain
circumstances beginning January 1, 2002 ($52.6 million at December 31, 2002). In
addition, the notes contain a debt to total capitalization ratio requirement not
to exceed 55%. Proceeds from the issuance of these notes were used to pay down
debt, including the Company's $225 million revolving credit facility which
expired in March 2002 and which was used to finance the Hickson acquisition and
refinance a portion of the assumed Hickson debt. See Note 11 of Notes to
Consolidated Financial Statements.

In April 2002, the Company entered into interest rate swap agreements under
which the Company swapped the 7.94% fixed interest rate on $80.0 million
principal amount of its unsecured senior notes for floating rate interest based
on six-month LIBOR plus 3.045%. The counterparties to these agreements are major
financial institutions. The agreements expire in March 2007. The Company has
designated the swap agreements as fair value hedges of the risk of changes in
the value of fixed rate debt due to changes in interest rates for a portion of
its fixed rate borrowings under SFAS 133. Accordingly, the swap agreements have
been recorded at their fair market value of $6.8 million and are included in
Other Assets on the accompanying Consolidated Balance Sheet, with a
corresponding increase in the carrying amount of the related debt. No gain or
loss has been recorded as the contracts meet the criteria of SFAS 133 to qualify
for hedge accounting treatment with no ineffectiveness.

In March 2002, the Company completed arrangements to sell, without
recourse, certain accounts receivable through its wholly-owned subsidiary, Arch
Chemicals Receivables Corp., a special-purpose corporation. Arch Chemicals
Receivables Corp. entered into a trade accounts receivable securitization
agreement with an independent financial institution whereby it can sell, on an
ongoing basis, participation interests in accounts receivable for a maximum
purchase price of up to $80.0 million. Such agreement is renewable annually. As
of December 31, 2002, the Company had sold $33.5 million of participation
interests in accounts receivable under this program. The amount of participation
interests sold under this arrangement is subject to change based on the level of
eligible receivables. The accounts receivable sold are reflected as a sale of
accounts receivable in accordance with SFAS No. 140, "Accounting for Transfers
and Servicing of Financial Assets and Extinguishments of Liabilities." The costs
of the program of $1.6 million for the year ended December 31, 2002 are included
in Selling and Administration expenses in the accompanying Consolidated
Statement of Income. The costs of the accounts receivable securitization program
are a percentage of the fair market value of the participation interests sold.
The percentage is variable and was approximately equivalent to the one-month
LIBOR rate plus 0.45% (2.2% in 2002). See Note 2 of Notes to Consolidated
Financial Statements. The accounts receivable securitization program provides
another source of funding for the Company and lowers overall funding costs.

At December 31, 2002, the Company had $9.6 million of outstanding letters
of credit and $6.3 million of letters of guarantee, including $5.7 million of
Planar Solutions (a joint venture) borrowings. The Company has agreed to
guarantee up to $8.5 million of Planar borrowings as of December 31, 2002.

32

The Company believes that the Credit Facilities, accounts receivable
securitization program and cash provided by operations are adequate to satisfy
its liquidity needs for the near future. However, if Company earnings were to
fall significantly below current expectations, a risk exists that the Company
would not meet its quarterly leverage, interest coverage, fixed charge coverage
or debt to total capitalization ratio covenants, which could trigger a default
condition under its debt agreements.

OTHER FINANCIAL DATA

In 2001, the Company received notification of a potential product claim by
a customer related to a discontinued product. This claim was settled in the
third quarter of 2002 and the Company paid a total of $5.5 million, exclusive of
insurance proceeds. Total insurance proceeds of $1.6 million are expected to be
received in the first quarter of 2003.

On October 28, 1999, Arch's Board of Directors approved a stock repurchase
program whereby the Company is authorized to buy back up to 1.2 million shares
of its common stock, representing approximately 5% of outstanding shares. The
program has been suspended since 2000 pending the completion of the Hickson
acquisition, including the subsequent sale of the Hickson organics businesses.
Until its suspension, the Company had repurchased approximately 893,000 shares
under this program at a cost of approximately $16 million.

The Company continues to actively pursue the sale of the Hickson organics
Castleford, England operation in 2003. However, due to the current poor market
conditions, it is possible that it may not be sold. If the sale does not occur,
the Company may be required to discontinue its current accounting and include
the results of this division in continuing operations, which could have a
material effect on the Company's cash flows and results of continuing operations
but which will have no impact on cash flows and results of operations of the
total Company. Proceeds from the sale of the Hickson organics businesses are
expected to be used to repay debt. See Note 5 of Notes to Consolidated Financial
Statements.

On January 30, 2003, the Company declared a quarterly dividend of $0.20 on
each share of the Company's common stock. The dividend is payable on March 12,
2003 to shareholders of record at the close of business on February 10, 2003.

CRITICAL ACCOUNTING POLICIES

The Company's consolidated financial statements are based on the accounting
policies used. Certain accounting policies require that estimates and
assumptions be made by management for use in the preparation of the financial
statements. Critical accounting policies are those that are central to the
presentation of the Company's financial condition and results and that require
subjective or complex estimates by management. These include the following:

VALUATION OF ASSETS HELD FOR SALE

The valuation and classification of assets held for sale is reviewed at
each reporting period and at additional times when warranted. The valuation is
based upon a number of factors, including current market conditions and
management's forecast of future cash flows. The classification of assets held
for sale is based upon meeting the criteria of Statement of Financial Accounting
Standards ("FASB") No. 144, "Accounting for the Impairment or Disposal of
Long-Lived Assets." Due to changes in market conditions, proceeds realized from
the sale of these assets and liabilities may differ materially from estimates.
See Note 5 of Notes to Consolidated Financial Statements.

GOODWILL AND OTHER INTANGIBLE ASSETS

The Company reviews goodwill and other intangible assets with indefinite
lives at least annually for impairment, by comparing the estimated fair value of
these assets with their carrying value. The estimates of fair value are based on
management forecasts of future cash flows related to these assets. An impairment
would occur when the carrying value of the asset exceeds its fair value. Due to
uncertain market conditions and potential changes in strategic direction and
product portfolio, it is possible that forecasts used to support estimated fair
values will change in the future, and could result in material non-cash charges.
See Note 8 of Notes to Consolidated Financial Statements for additional
information.

33

INCOME TAXES

The Company's accompanying Consolidated Balance Sheets include certain
deferred tax assets resulting from net operating loss carryforwards and
deductible temporary differences, which are expected to reduce future taxable
income. These assets are based on management's estimate of realizability based
upon forecasted taxable income. Realizability of these assets is reassessed at
the end of each reporting period based upon the Company's forecast of future
taxable income and available tax planning strategies, and may result in the
recording of a valuation reserve. Failure to achieve forecasted taxable income
could affect the ultimate realization of certain deferred tax assets. For
additional information, see Note 14 of Notes to Consolidated Financial
Statements.

PENSION AND POSTRETIREMENT BENEFITS

The Company's accompanying Consolidated Balance Sheets include significant
pension and postretirement benefit obligations, which are recorded based on
actuarial valuations. Inherent in these valuations are key assumptions,
including discount rates, rates of increase in compensation levels, expected
return on plan assets and trends in health care costs, which are updated
annually. Market conditions and interest rates significantly impact future
assets, liabilities and expense of the Company's pension and postretirement
benefit plans.

VALUATION OF LONG-LIVED ASSETS

The impairment of tangible and intangible assets is assessed when changes
in circumstances (such as, but not limited to, a decrease in market value of an
asset, current and historical operating losses or a change in business strategy)
indicate that their carrying value may not be recoverable. This assessment is
based on estimates of future cash flows, salvage values or net sales proceeds.
These estimates take into account management's expectations and judgments
regarding future business and economic conditions, future market values and
disposal costs. Actual results and events could differ significantly from
management estimates.

ENVIRONMENTAL LIABILITIES

Liabilities for environmental matters are accrued for when it is probable
that a liability has been incurred and the amount of the liability can be
reasonably estimated, based upon current law and existing technologies. These
estimates take into account current law, existing technologies and management's
judgment about future changes in regulation. The Company's estimate of
environmental remediation liabilities may change in the future should additional
sites be identified, further remediation measures be required or undertaken or
current laws and regulations be changed. For additional information, see the
Environmental discussion on page 27.

RESTRUCTURING PROGRAM LIABILITIES

During 2002, 2001 and 2000, the Company recorded charges in connection with
its restructuring programs. Management judgment is used to estimate the various
costs involved in these programs including severance costs, inventory and fixed
asset disposal costs and settlements of contractual obligations. These liability
estimates are reassessed at the end of each reporting period. Actual experience
has been and may continue to be different from original estimates. For
additional information, see Note 21 of Notes to Consolidated Financial
Statements.

LEGAL CONTINGENCIES

The Company is subject to proceedings, lawsuits and other claims in the
normal course of business. These contingencies require management judgment in
order to assess the likelihood of any adverse judgments or outcomes and the
potential range of probable losses. Liabilities for legal matters are accrued
for when it is probable that a liability has been incurred and the amount of the
liability can be reasonably estimated, based upon current law and existing
information. Estimates of contingencies may change in the future due to new
developments or changes in legal approach. For additional information, see Note
20 of Notes to Consolidated Financial Statements.

For additional information about significant accounting policies, see Note
1 of Notes to Consolidated Financial Statements.

34

NEW ACCOUNTING STANDARDS

In August 2001, the FASB issued Statement No. 143, "Accounting for Asset
Retirement Obligations" ("SFAS 143"). SFAS 143 requires recording the fair
market value of an asset retirement obligation as a liability in the period in
which a legal obligation associated with the retirement of tangible long-lived
assets is incurred. SFAS 143 also requires recording the contra asset to the
initial obligation as an increase to the carrying amount of the related
long-lived asset and to depreciate that cost over the life of the asset. The
liability is then increased at the end of each period to reflect the passage of
time and changes in the initial fair value measurement. The Company is required
to adopt the provisions of SFAS 143 effective fiscal 2003 and has not yet
determined the extent of its impact, if any.

In December 2002, the FASB issued Statement No. 148, "Accounting for
Stock-based Compensation -- Transition and Disclosures," ("SFAS 148") which
amends SFAS 123, "Accounting for Stock-Based Compensation." SFAS 148 provides
alternative methods of transition for a voluntary change in the fair market
value method of accounting for stock-based employee compensation. In addition,
this statement requires SFAS 123 disclosure requirements in both annual and
interim financial statements. The Company expects to continue to measure
stock-based compensation expense in accordance with APB 25, "Accounting for
Stock Issued to Employees," and its related interpretations, and therefore does
not anticipate that the adoption of SFAS 148 will have a material impact on its
consolidated financial statements.

In November 2002, the FASB issued Interpretation No. 45, "Guarantor's
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others." Interpretation No. 45 requires the
guarantor to recognize a liability for the non-contingent component of a
guarantee; that is, the obligation to stand ready to perform in the event that
specified triggering events or conditions occur. The initial measurement of this
liability is the fair value of the guarantee at inception. The recognition of
the liability is required even if it is not probable that payments will be
required under the guarantee or if the guarantee was issued with a premium
payment or as part of a transaction with multiple elements. Interpretation No.
45 also requires additional disclosures related to guarantees. The disclosure
requirements are effective for interim and annual financial statements for
periods ending after December 15, 2002 and have been incorporated into the 2002
Notes to Consolidated Financial Statements. The recognition and measurement
provisions of Interpretation No. 45 are effective for all guarantees entered
into or modified after December 31, 2002. The Company is in the process of
evaluating the effect of this Interpretation on its financial statements.

In January 2003, the Financial Accounting Standards Board issued
Interpretation No. 46, "Consolidation of Variable Interest Entities." The
Interpretation may have an effect on existing practice because it requires
existing variable interest entities to be consolidated if those entities do not
effectively disperse risks among the parties involved. The Interpretation is
effective immediately for all variable interest entities created after January
31, 2003. All variable interest entities created before February 1, 2003 shall
apply the provisions of this Interpretation no later than the beginning of the
first interim or annual reporting period after June 15, 2003. The Company is in
the process of evaluating the effect of this Interpretation on its financial
statements and disclosures.

DERIVATIVE FINANCIAL INSTRUMENTS

The Company enters into forward sales and purchase contracts and currency
options to manage currency risk resulting from purchase and sale commitments
denominated in foreign currencies (principally British pound, euro, Canadian
dollar and Japanese yen) and relating to particular anticipated but not yet
committed purchases and sales expected to be denominated in those currencies.
All the currency derivatives expire within one year. At December 31, 2002, the
Company had forward contracts to sell foreign currencies with notional amounts
of $11.9 million and forward contracts to buy foreign currencies with notional
amounts of $12.0 million. The fair value of these forward contracts is included
in Accrued Liabilities and Other Current Assets. At December 31, 2001, the
Company had no forward contracts to buy or sell foreign currencies. At December
31, 2002 and 2001 the Company had no outstanding option contracts to sell or buy
foreign currencies.

35

The Company adopted Statement of Financial Accounting Standards No. 133
("SFAS 133"), "Accounting for Derivative Instruments and Hedging Activities," as
amended by SFAS No. 137 and SFAS No. 138 as of January 1, 2001. In accordance
with SFAS 133, derivative instruments are recognized as assets or liabilities in
the Company's balance sheet and are measured at fair value. The change in the
fair value of a derivative designated as a fair value hedge and the change in
the fair value of the hedged item attributable to the hedged risk are recognized
in earnings. For derivatives, which qualify for designation as cash flow hedges,
the effective portion of the changes in fair value is recognized as part of
other comprehensive income until the underlying transaction that is being hedged
is recognized in earnings. The ineffective portion of the change in fair value
of cash flow hedges is recognized in earnings currently. Changes in fair value
for other derivatives, which do not qualify as a hedge for accounting purposes
are recognized in current period earnings. Based upon the Company's current
policies of hedging market risks as discussed under Item 7A, the adoption of
SFAS 133 did not have a material effect on the Company's results of operations,
cash flows or financial position. However, the adoption of SFAS 133 may cause
increased volatility in the Company's results of operations in the future, if
the Company changes its policies or enters into new derivative instruments,
which do not meet the requirements for "hedge" accounting under SFAS 133.

In April 2002, the Company entered into interest rate swap agreements under
which the Company swapped the 7.94% fixed interest rate on $80.0 million
principal amount of unsecured senior notes for floating rate interest based on
six-month LIBOR plus 3.045%. The counterparties to these agreements are major
financial institutions. The agreements expire in March 2007. The Company has
designated the swap agreements as fair value hedges of the risk of changes in
the value of fixed rate debt due to changes in interest rates for a portion of
its fixed rate borrowings under SFAS 133. Accordingly, the swap agreements have
been recorded at their fair market value of $6.8 million and are included in
Other Assets on the accompanying Consolidated Balance Sheet, with a
corresponding increase in the carrying amount of the related debt. No gain or
loss has been recorded as the contracts meet the criteria of SFAS 133 to qualify
for hedge accounting treatment with no ineffectiveness.

CAUTIONARY STATEMENT UNDER FEDERAL SECURITIES LAWS

The information in this Form 10-K contains forward-looking statements that
are based on management's beliefs, certain assumptions made by management and
management's current expectations, outlook, estimates and projections about the
markets and economy in which the Company and its various businesses operate.
Words such as "anticipates," "believes," "estimates," "expects," "forecasts,"
"opines," "plans," "predicts," "projects," "should," "targets," "will," and
variations of such words and similar expressions are intended to identify such
forward-looking statements. These statements are not guarantees of future
performance and involve certain risks, uncertainties and assumptions ("Future
Factors"), which are difficult to predict. Therefore, actual outcomes and
results may differ materially from what is expected or forecasted in such
forward-looking statements. The Company undertakes no obligation to update
publicly any forward-looking statements, whether as a result of future events,
new information or otherwise. Future Factors which could cause actual results to
differ materially from those discussed include but are not limited to: general
economic and business and market conditions; lack of economic recovery in 2003
in the U.S.; lack of moderate growth or recession in European economies;
increases in interest rates; economic conditions in Asia; worsening economic and
political conditions in Venezuela; strengthening of the U.S. dollar against the
euro; customer acceptance of new products; efficacy of new technology; changes
in U.S. laws and regulations; increased competitive and/or customer pressure;
the Company's ability to maintain chemical price increases; higher-than-expected
raw material costs for certain chemical product lines; increased foreign
competition in the calcium hypochlorite markets; lack of continued recovery in
the semiconductor industry; unfavorable court, arbitration or jury decisions;
the supply/demand balance for the Company's products, including the impact of
excess industry capacity; failure to achieve targeted cost-reduction programs;
unsuccessful entry into new markets for electronic chemicals; capital
expenditures in excess of those scheduled; environmental costs in excess of
those projected; the occurrence of unexpected manufacturing
interruptions/outages at customer or company plants; reduction in expected
government contract orders for hydrazine propellants; unfavorable weather
conditions for swimming pool use; inability to expand sales in the professional
pool dealer market; gains or losses on

36

derivative instruments; and the inability of the Company to sell the Hickson
organics Castleford, England operation or to sell it at its desired price.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company is exposed to various market risks, including changes in
foreign currency exchange rates, interest rates and commodity prices. The
Company does not enter into derivatives or other financial instruments for
trading or speculative purposes in the normal course of business.

INTEREST RATES

The Company is exposed to interest rate risk on approximately 50% of its
outstanding borrowings, including, for this purpose, the participation interests
sold under its accounts receivable securitization program, which are subject to
floating rates. Based upon the Company's expected 2003 borrowing levels, an
increase in interest rates of 100 basis points would decrease the Company's
results of operations and cash flows by approximately $1 million.

FOREIGN CURRENCY RISK

Approximately 30% of the Company's sales and expenses are denominated in
currencies other than the U.S. dollar. As a result, the Company is subject to
risks associated with its foreign operations, including currency devaluations
and fluctuations in currency exchange rates. These exposures from foreign
exchange fluctuations can affect the Company's equity investments and its
respective share of earnings (losses), the Company's net investment in foreign
subsidiaries, translation of the Company's foreign operations for U.S. GAAP
reporting purposes and purchase and sales commitments denominated in foreign
currencies. The Company enters into forward sales and purchase contracts and
currency options to manage currency risk from actual and anticipated purchase
and sales commitments denominated or expected to be denominated in a foreign
currency (principally British pound, euro, Canadian dollar and Japanese yen). It
is the Company's policy to hedge up to 80% of these transactions. The
counterparties to the options and contracts are major financial institutions.

At December 31, 2002, the Company had forward contracts to sell foreign
currencies with notional amounts of $11.9 million and forward contracts to buy
foreign currencies with notional amounts of $12.0 million. The fair value of
these forward contracts of $0.1 million and $0.4 million is included in Accrued
Liabilities and Other Current Assets, respectively.

Holding other variables constant, if there was a 10 percent change in
foreign currency exchange rates, the net effect on the Company's annual cash
flows would be a increase (decrease) of between $1 million to $2 million related
to the unhedged portion, as any increase (decrease) in cash flows resulting from
the Company's hedge forward contracts would be offset by an equal (decrease)
increase in cash flows on the underlying transaction being hedged. The
application of SFAS 133 may cause increased volatility in the Company's results
of operations for interim periods in the future if the Company changes its
policies, or if some of the derivative instruments do not meet the requirements
for hedge accounting.

COMMODITY PRICE RISK

The Company is exposed to commodity price risk related to the price
volatility of natural gas utilized at certain manufacturing sites. Depending on
market conditions, the Company may purchase derivative commodity instruments to
minimize the risk of price fluctuations. At December 31, 2002, the Company had
no forward contracts to purchase natural gas. At December 31, 2001, the Company
had forward contracts to purchase natural gas with notional amounts of $1.7
million. The fair value of these contracts is included in Accrued Liabilities on
the accompanying Consolidated Balance Sheet. These contracts expired in April
2002. In addition, the Company is exposed to price risk related to the price
volatility of certain other raw materials including the ongoing purchase of
propylene and, after December 31, 2003, the purchase of chlorine and caustic.
Holding other variables constant, a 10 percent adverse change in the price of
propylene and natural gas would decrease the Company's results of operations and
cash flows by approximately $1 million each.

37

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

INDEPENDENT AUDITORS' REPORT

To the Board of Directors and Shareholders of Arch Chemicals, Inc.:

We have audited the accompanying consolidated balance sheets of Arch
Chemicals, Inc. and subsidiaries as of December 31, 2002 and 2001, and the
related consolidated statements of income, shareholders' equity and cash flows
for each of the years in the three-year period ended December 31, 2002. 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 of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the
consolidated financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the consolidated 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 Arch
Chemicals, Inc. and subsidiaries as of December 31, 2002 and 2001, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 2002, in conformity with accounting
principles generally accepted in the United States of America.

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

KPMG LLP

Stamford, CT
January 29, 2003

38

MANAGEMENT REPORT

To Our Shareholders:

The management of Arch Chemicals is responsible for the integrity and
objectivity of the financial and operating information contained in this annual
report, including the consolidated financial statements covered by the
Independent Auditors' Report. These statements were prepared in conformity with
accounting principles generally accepted in the United States of America and
include amounts that are based on the best estimates and judgments of
management.

The Company has a system of internal accounting controls that provides
management with reasonable assurance that transactions are recorded and executed
in accordance with its authorizations, that assets are properly safeguarded and
accounted for, and that financial records are maintained so as to permit
preparation of financial statements in accordance with accounting principles
generally accepted in the United States of America. This system includes written
policies and procedures, an organizational structure that segregates duties, and
a comprehensive program of periodic audits by the internal auditors. The Company
also has instituted policies and guidelines that require employees to maintain
the highest level of ethical standards.

In addition, the Audit Committee of the Board of Directors, consisting
solely of outside directors, meets periodically with management, the internal
auditors and the independent auditors to review internal accounting controls,
audit results and accounting principles and practices, and annually recommends
to the Board of Directors the selection of independent auditors.

MICHAEL E. CAMPBELL LOUIS S. MASSIMO
Chairman of the Board, President Executive Vice President and Chief Financial Officer
and Chief Executive Officer

39

ARCH CHEMICALS, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

See accompanying notes to the consolidated financial statements.
40

ARCH CHEMICALS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

See accompanying notes to the consolidated financial statements.
41

ARCH CHEMICALS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

See accompanying notes to the consolidated financial statements.
42

ARCH CHEMICALS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

See accompanying notes to the consolidated financial statements.
43

ARCH CHEMICALS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($ IN MILLIONS, EXCEPT SHARE AMOUNTS)

1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

FORMATION OF ARCH CHEMICALS, INC.

Arch Chemicals, Inc. ("Arch" or the "Company") was organized under the laws
of the Commonwealth of Virginia on August 25, 1998 as a wholly-owned subsidiary
of Olin Corporation ("Olin") for the purpose of effecting the distribution of
Olin's Specialty Chemical Businesses ("Distribution") to the shareholders of
Olin. The Company is a specialty chemicals manufacturer, which supplies
value-added products and services to several industries on a worldwide basis,
including the consumer products and semiconductor industries. The principal
businesses in which the Company competes are microelectronic materials,
treatment products, performance products and other specialty products. The
treatment products segment includes three reportable business units: the HTH
water products, the personal care and industrial biocides products and the wood
protection and industrial coatings products businesses.

Prior to the Distribution, the Company operated the Specialty Chemicals
Division of Olin. The Company has organized its segments around differences in
products and services, which is how the Company manages its businesses.

Microelectronic materials are used in creating integrated circuits and
chips for advanced electronics. The Company and FUJIFILM Arch, its joint venture
with Fuji Photo Film, manufactures and supplies a wide range of products and
services to semiconductor manufacturers and to flat panel display manufacturers
throughout the world. Its products and services include photopolymers, thin film
systems, formulated products, chemical management services, and chemical
mechanical planarization products ("CMP") through Planar Solutions LLC, a joint
venture with Wacker Silicones Corporation.

Treatment products manufactures and sells water treatment chemicals,
industrial biocides and personal care specialty ingredients and wood treatment
and industrial coatings products. HTH water products produces chemicals for the
sanitization and treatment of residential pool and commercial pool and spa
water, and the purification of potable water. Consumer brands include HTH(R),
Sock It(R), Super Sock It(R), Duration(R), POOLIFE(TM), and Pace(R). The
personal care and industrial biocides business manufactures biocides that
control growth of micro-organisms. It markets products such as Zinc Omadine(R),
the most widely used antidandruff agent in the world, as well as actives and
functional products sold primarily to manufacturers of skin care and hair care
products. The Company's industrial biocides are used in mildew-resistant paints,
coatings and lubricants. The Company's wood protection business sells wood
treatment chemicals solutions that enhance the properties of wood. Its
industrial wood preservatives and fire retardants are sold under the brand names
Wolmanized(R), Thompsonized(R), Tanalised(R), Vacsol(R), Resistol(R) and
Dricon(R). The Company's industrial coatings business manufactures a wide range
of coatings for a variety of wood applications, which are industrial or consumer
applied products for the surface decoration and protection of wood. These
products are sold under brand names such as Sayerlack(R) and Linea Blu(R).

Performance products manufacture a variety of specialty polyols, which are
used as an ingredient for elastomers, adhesives, coatings, sealants and rigid
foam. The business also manufactures glycols and glycol ethers for use as an
ingredient in cleaners, personal care products and antifreeze.

Other specialty products consist of hydrazine and sulfuric acid. Hydrazine
hydrates are used in chemical blowing agents, water treatment chemicals,
agricultural products and pharmaceutical intermediates. Propellant-grade
hydrazine and hydrazine derivatives are used by NASA, the Air Force and other
customers as fuel in satellites, expendable launch vehicles and auxiliary and
emergency power units. Ultra Pure(TM) hydrazine propellants is the highest
purity anhydrous propellant in the industry and can extend the working life of
satellites. The sulfuric acid business is a major regional supplier of sulfuric
acid regeneration services and virgin sulfuric acid to the U.S. Gulf Coast
market.

44

ARCH CHEMICALS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Olin and the Company entered into a Tax Sharing Agreement that provides
that Olin is responsible for the Federal tax liability of the Company for each
year that the Company and its subsidiaries were included in Olin's consolidated
Federal income tax return, and for state, local and foreign taxes of the Company
and its subsidiaries attributable to periods prior to the Distribution, in each
case, including tax subsequently assessed pursuant to the audit of, or other
adjustment to, previously filed tax returns.

Olin and the Company entered into a Chlor-Alkali Supply Agreement that
provides for the supply by Olin of chlorine and caustic soda. Under the terms of
the agreement, Olin will supply chlorine and caustic soda for a five-year period
ending in 2003, with extensions unless cancelled on two years' prior notice by
either party. Purchases of electrochemical units of chlorine and caustic soda
are at a fixed price. The Company has notified Olin of its intention to
terminate its agreement effective December 31, 2003.

BASIS OF PRESENTATION

The Consolidated Financial Statements include the accounts of the Company
and its majority-owned subsidiaries. Intercompany balances and transactions
between entities included in these Consolidated Financial Statements have been
eliminated. Investments in 20-50% owned affiliates are accounted for on the
equity method.

Reclassifications of prior-year data have been made, where appropriate, to
conform to the 2002 presentation.

USE OF ESTIMATES

The preparation of the Consolidated Financial Statements requires estimates
and assumptions that affect amounts reported and disclosed in the Consolidated
Financial Statements and related Notes. Estimates are used when accounting for
allowance for uncollectable accounts receivable, inventory obsolescence,
valuation of discontinued operations, depreciation and amortization, employee
benefit plans, taxes, impairment of assets, environmental and legal liabilities
and contingencies, among others. Actual results could differ from those
estimates.

CASH AND CASH EQUIVALENTS

Cash equivalents consist of highly liquid investments with an original
maturity of three months or less.

INVENTORIES

Inventories are stated at the lower of cost or net realizable value.
Certain inventories are valued by the dollar value last-in, first-out ("LIFO")
method of inventory accounting. Costs for other inventories have been determined
principally by the first-in, first-out ("FIFO") method. Elements of costs in
inventories include raw materials, direct labor and manufacturing overhead.

ASSETS HELD FOR SALE

The Company has accounted for the organics division, acquired in connection
with the acquisition of Hickson International PLC ("Hickson"), in accordance
with EITF 87-11, "Allocation of Purchase Price to Assets to be Sold" through
August 31, 2001 and since then, in accordance with Accounting Principles Board
Opinion No. 30, "Reporting the Results of Operations -- Reporting the Effects of
Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently
Occurring Events and Transactions" ("APB 30") and EITF NO. 90-6, "Accounting For
Certain Events Not Addressed in Issue No. 87-11 Relating to an Acquired
Operating Unit to be Sold" ("EITF 90-6"). As such, the fair value of the net
assets of this division had previously been reported as a net amount classified
as Assets Held for Sale in the Company's Consolidated Balance Sheet.
45

ARCH CHEMICALS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The Company adopted Statement of Financial Accounting Standard No. 144,
"Accounting for the Impairment or Disposal of Long-Lived Assets" ("SFAS 144")
effective January 1, 2002. SFAS 144 addresses financial accounting and reporting
for the impairment or disposal of long-lived assets. It also extended the
reporting requirements to report separately as discontinued operations,
components of an entity that have either been disposed of or classified as held
for sale. In accordance with the transition provisions in paragraphs 50 and 51
of SFAS 144, the Company continued to account for these assets held for sale in
accordance with APB 30 and EITF 90-6. As of December 31, 2002, the transition
provisions no longer applied, and the Company has accounted for the assets held
for sale in accordance with SFAS 144. The Company has presented separately, the
assets and liabilities of the discontinued operations on the face of the
consolidated financial statements and has reclassified prior-year amounts in
order to conform to the current year presentation.

The Company continues to actively work on completing the sale of this
business during 2003. However, due to the current poor market conditions, it is
possible that they may not be sold. If the sale does not occur and if the
Company does not continue to meet all of the requirements of SFAS 144, the
Company may be required to discontinue its current accounting and include the
results of this division in continuing operations, which could have a material
effect on the Company's continuing cash flows and results of continuing
operations but which will have no impact on cash flows and results of operations
of the total Company.

PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment are recorded at cost. Depreciation is
computed on a straight-line basis principally over the following estimated
useful lives:

Improvements to land........................................ 5 to 20 years
Building and building equipment............................. 5 to 40 years
Machinery and equipment..................................... 3 to 12 years

Leasehold improvements are amortized over the term of the lease or the
estimated useful life of the improvement, whichever is shorter. Start-up costs
are expensed as incurred.

GOODWILL

Goodwill represents the excess of the purchase price of acquired businesses
over the fair value of the respective net assets.

As of January 1, 2002, the Company adopted Statement of Financial
Accounting Standards No. 142, "Goodwill and Other Intangible Assets" ("SFAS
142"), which requires that goodwill no longer be amortized, but instead be
tested for impairment at least annually in accordance with the provisions of
SFAS 142. The Company tests goodwill for impairment as of January 1 of each year
and when an event occurs or circumstances change that would more likely than not
reduce the fair value of a reporting unit below its carrying amount. An
impairment charge is recognized for the amount, if any, by which the carrying
amount of goodwill exceeds its fair value. Fair values are established using
discounted cash flows. When available and as appropriate, comparative market
multiples are used to corroborate discounted cash flow results.

Prior to January 1, 2002, goodwill was amortized over periods ranging from
20 to 30 years on a straight-line basis.

OTHER INTANGIBLES

Other intangibles consist primarily of patents, trademarks, non-compete
agreements, customer relationships and various technology licensing agreements.

46

ARCH CHEMICALS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

In accordance with SFAS 142, intangible assets with indefinite useful lives
are not amortized. Intangible assets with definite useful lives are amortized
over their respective estimated useful lives to their estimated residual values
in proportion to the economic benefits consumed, principally over 2 to 30 years
and generally on a straight-line basis. Intangible assets with an indefinite
life are reviewed at least annually for impairment in accordance with SFAS 142.

Prior to January 1, 2002, all intangible assets were amortized on a
straight-line basis, principally over 2 to 30 years.

SECURITIZATIONS AND TRANSFERS OF FINANCIAL INSTRUMENTS

The Company may sell trade accounts or notes receivables with or without
recourse in the normal course of business. In accordance with Statement of
Financial Accounting Standards No. 140, "Accounting for Transfers and Servicing
of Financial Assets and Extinguishments of Liabilities" ("SFAS 140"), the
Company's sale of receivables associated with its accounts receivable
securitization program is removed from the consolidated balance sheet at the
time of sale. Sales and transfers that do not meet the criteria for surrender of
control would be accounted for as secured borrowings. The value assigned to the
undivided interest retained in securitized trade receivables is the allocated
carrying amount based on the relative fair values of the interests retained and
sold in the securitization, and is classified as a Short-Term Investment on the
accompanying Consolidated Balance Sheet.

LONG-LIVED ASSETS

The impairment of tangible assets other than goodwill and other intangible
assets is assessed when changes in circumstances indicate that their current
carrying value may not be recoverable. Under SFAS 144, which the Company adopted
effective January 1, 2002, a determination of impairment, if any, is made based
on the undiscounted value of estimated future cash flows, salvage value or
expected net sales proceeds, depending on the circumstances. Asset impairment
losses are measured as the excess of the carrying value over the estimated fair
value of such assets.

Prior to January 1, 2002, the impairment of tangible and intangible assets
was assessed when changes in circumstances indicated that their carrying value
may not be recoverable, in accordance with Statement of Accounting Standards No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of." A determination of impairment, if any, was made based
on the undiscounted value of estimated future cash flows, salvage value or
expected net sales proceeds, depending on the circumstances. Asset impairment
losses were measured as the excess of the carrying value over the estimated fair
value of such assets. In accordance with Accounting Principles Board Opinion No.
17, "Intangible Assets," the Company also periodically reviewed the future
period over which the benefit of goodwill would be received. Any impairment was
based on the undiscounted value of future cash flows.

ENVIRONMENTAL LIABILITIES AND EXPENDITURES

Accruals for environmental matters are recorded when it is probable that a
liability has been incurred and the amount of the liability can be reasonably
estimated, based upon current law and existing technologies. These amounts,
which are not discounted and are exclusive of claims against third parties, are
adjusted periodically as assessment and remediation efforts progress or
additional technical or legal information becomes available. Environmental
remediation costs are charged to reserves. Environmental costs are capitalized
if the costs increase the value of the property and/or mitigate or prevent
contamination from future operations.

47

ARCH CHEMICALS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

FINANCIAL INSTRUMENTS

The carrying values of cash and cash equivalents, accounts receivable,
accounts payable, and short-term borrowings approximated fair values due to the
short-term maturities of these instruments. The fair value of the Company's
borrowings under its credit facilities approximate book value due to their
floating rate interest rate terms. The fair value of the Company's senior notes
is estimated based on year-end prevailing market interest rates for similar debt
instruments. The fair value of the Company's interest rate swaps is based upon
prevailing market values for similar instruments. The fair values of currency
forward and option contracts, if any, are estimated based on quoted market
prices for contracts with similar terms.

DERIVATIVE INSTRUMENTS

As of January 1, 2001, the Company adopted SFAS No. 133 ("SFAS 133"),
"Accounting for Derivative Instruments and Hedging Activities" as amended by
SFAS No. 137 and SFAS No. 138. SFAS 133 establishes accounting and reporting
standards for derivative instruments, including certain derivative instruments
embedded in other contracts, and hedging activities.

In accordance with SFAS 133, derivative instruments are recognized as
assets or liabilities in the Company's balance sheet and are measured at fair
value. The change in the fair value of a derivative designated as a fair value
hedge and the change in the fair value of the hedged item attributable to the
hedged risk are recognized in earnings. For derivatives which qualify for
designation as cash flow hedges, the effective portion of the changes in fair
value is recognized as part of other comprehensive income until the underlying
transaction that is being hedged is recognized in earnings. The ineffective
portion of the change in fair value of cash flow hedges is recognized in
earnings currently. Changes in fair value for other derivatives which do not
qualify as a hedge for accounting purposes are recognized in current period
earnings.

REVENUE RECOGNITION

Revenues are principally recognized when services are rendered or products
are delivered to customers. Allowances for estimated returns, discounts and
retailer promotions and incentives are recognized when sales are recorded and
are based on various market data, historical trends and information from
customers. Actual returns, discounts and retail promotions and incentives have
not been materially different from estimates. Certain of the Company's product
lines have extended payment terms due to the seasonal nature of the business.

Sales and operating income for the year ended December 31, 2000 include
$11.4 related to the amortization of the deferred income under a supply
agreement with BASF, which expired on December 31, 2000.

SHIPPING AND HANDLING COSTS

Shipping and handling fees billed to customers are included in Sales and
shipping and handling costs are included in Cost of Goods Sold in the
accompanying Consolidated Statements of Income.

U.S. GOVERNMENT CONTRACTS

In April 2001, the Company agreed to a new contract with the United States
Department of the Air Force to supply hydrazine-based propellant. It is a
three-year contract with two one-year renewal options, effective March 1, 2001.
The contract principally consists of a fixed-price facility management fee and a
product purchase arrangement whereby the Company supplies product at a fixed
price per pound of product, adjusted annually for agreed-upon cost escalations.

48

ARCH CHEMICALS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

In 2002, 2001 and 2000, the Company's other specialty products segment
sales include $26.4, $26.8 and $13.9, respectively, related to this agreement.

FOREIGN CURRENCY TRANSLATION

Foreign affiliates generally use their local currency as their functional
currency. Accordingly, foreign affiliate balance sheet amounts are translated at
the exchange rates in effect at year-end, and income statement and cash flow
amounts are translated at the average rates of exchange prevailing during the
year. Translation adjustments are included in the Accumulated Other
Comprehensive Loss component of shareholders' equity. Where foreign affiliates
operate in highly inflationary economies, non-monetary amounts are translated at
historical exchange rates while monetary assets and liabilities are translated
at the current rate with the related adjustments reflected in the accompanying
Consolidated Statements of Income.

STOCK OPTIONS

The Company accounts for stock-based compensation under SFAS No. 123,
"Accounting for Stock-Based Compensation" ("SFAS 123"). As allowed under SFAS
No. 123, the Company has chosen to account for stock-based compensation cost
using the intrinsic value method, in accordance with APB No. 25, "Accounting for
Stock Issued to Employees." Pro forma information regarding net income and
earnings per share, as calculated under the provisions of SFAS 123, is disclosed
in Note 16. In December 2002, the Company adopted the disclosure provisions of
SFAS No. 148, "Accounting for Stock-Based Compensation - Transition and
Disclosure" (see Note 16).

INCOME TAXES

The Company provides for deferred taxes on temporary differences between
the financial statement and tax bases of assets using the enacted tax rates,
which are expected to apply to taxable income when the temporary differences are
expected to reverse. Prior to the Distribution, the Company's operations were
included in the U.S. federal consolidated tax returns of Olin.

EARNINGS PER COMMON SHARE

All earnings per share computations and presentations are in accordance
with SFAS No. 128, "Earnings Per Share." Basic earnings per common share are
computed by dividing net income available to common shareholders by the
weighted-average number of common shares outstanding during the period. Diluted
earnings per common share is calculated in a similar manner except that the
weighted-average number of common shares outstanding during the period includes
the potential dilution that could occur if stock options or other contracts to
issue common stock were exercised.

The reconciliation between basic and diluted shares outstanding for the
years ended December 31, 2002, 2001 and 2000 is as follows:

49

ARCH CHEMICALS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Stock options of approximately 1,300,000 and approximately 1,100,000 with
exercise prices greater than the average market price of the Company's common
stock are not included in the computation of diluted earnings per share for the
years ended December 31, 2002 and 2001, respectively.

COMPREHENSIVE INCOME (LOSS)

The Company's other comprehensive income (loss) consists of the changes in
the cumulative foreign currency translation gains and losses, the change in the
fair value of derivative financial instruments which qualify for hedge
accounting, net of tax and the minimum pension liability adjustment, net of tax.
The Company does not provide for U.S. income taxes on foreign currency
translation adjustments since it does not provide for such taxes on
undistributed earnings of foreign subsidiaries.

EMPLOYEE BENEFIT PLANS

Pension and postretirement health care and life insurance benefits earned
during the year as well as interest on projected benefit obligations are accrued
currently. Prior service costs and credits resulting from changes in plan
benefits are amortized over the average remaining service period of employees
expected to receive benefits. Curtailment gains and losses are recognized as
incurred. Settlement gains and losses are recognized when significant pension
obligations are settled and the gain or loss is determinable. The Company's
policy is to fund, at a minimum, amounts as are necessary to provide assets
sufficient to meet the benefits to be paid to plan members in accordance with
the relevant regulatory requirements governing such plans.

BUSINESS AND CREDIT CONCENTRATIONS

Sales of the Company's microelectronic materials products are dependent
upon the economic conditions of the semiconductor industry. Changes in this
industry may significantly affect management's estimates of current and future
operating results.

A significant portion of sales of the treatment products segment
(approximately 23%) is dependent upon two customers, one of which accounts for a
significant portion of the sales of the HTH water products business and the
other of which accounts for a significant portion of the sales of the personal
care and industrial biocides businesses. Sales to these two customers are
individually less than 10% of the Company's 2002 consolidated sales. However,
the loss of either of these customers could have a material adverse effect on
the sales and operating results of the respective segment if such customer was
not replaced.

Sales of the HTH water products segment are seasonal in nature as its
products are primarily used in the U.S. residential pool market. Historically,
approximately 40% -- 50% of the sales in the HTH water products business occur
in the second quarter of the fiscal year, as retail sales in the U.S.
residential pool market are concentrated between Memorial Day and the Fourth of
July. Therefore, interim results for this segment are not necessarily indicative
of the results to be expected for the entire fiscal year. In addition, in 2002
the HTH water products segment changed its distribution strategy from utilizing
distributors to directly shipping to retail channels, which has made the HTH
water product sales even more concentrated in the second and third quarters.

50

ARCH CHEMICALS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

2. ACCOUNTS RECEIVABLES/SHORT-TERM INVESTMENT

Accounts receivable at December 31, 2002 and 2001 include the following:

Changes in the allowance for doubtful accounts for the years ended December
31, 2002, 2001 and 2000 are as follows:

In March 2002, the Company completed arrangements to sell, without
recourse, certain accounts receivable through its wholly-owned subsidiary, Arch
Chemicals Receivables Corp., a special-purpose corporation. Arch Chemicals
Receivables Corp. entered into a trade accounts receivable securitization
agreement with an independent financial institution whereby it can sell, on an
ongoing basis, participation interests in accounts receivable for a maximum
purchase price of up to $80.0. Such agreement is renewable annually. The Company
has agreed to provide servicing for accounts receivable collections. The
proceeds from the sale of participation interests under this arrangement are
subject to change based on the level of eligible receivables. The accounts
receivable sold have been reflected as a sale of accounts receivable in
accordance with SFAS 140.

As of December 31, 2002, the Company had sold $33.5 of participation
interests in $55.1 of accounts receivable. The fair value of the retained
undivided interest of $17.9 is classified as a held-to-maturity debt security
and is reflected as Short-term Investment on the accompanying Consolidated
Balance Sheet. The proceeds of the sales were used to reduce borrowings. The
costs of the program, including certain one-time fees, for the year ended
December 31, 2002 of $1.6, are included in Selling and Administration expenses
in the accompanying Consolidated Statements of Income. The costs of the accounts
receivable securitization program are a percentage of the fair market value of
the participation interests sold. The percentage is variable and was
approximately equivalent to the one-month LIBOR rate plus 0.45% (2.2% in 2002).
Fair value of the retained undivided interest has not been discounted due to the
short-term nature of the underlying financial assets. The Company has not
recorded an asset or liability related to the servicing responsibility retained
as the fees earned for servicing are estimated to approximate fair value.

51

ARCH CHEMICALS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

3. INVENTORIES

Inventories at December 31, 2002 and 2001 include the following:

Inventory valued using the LIFO method comprised approximately 50% of the
total inventory at December 31, 2002 and 2001. Gross inventory values
approximate replacement cost.

During 2001, inventory level reductions resulted in a liquidation of LIFO
inventory layers carried at lower costs, which prevailed in prior years. The
effect of the liquidations was to decrease cost of goods sold by approximately
$5.0 for the year ended December 31, 2001.

4. OTHER CURRENT ASSETS

Other current assets at December 31, 2002 and 2001 include the following:

5. ASSETS HELD FOR SALE/DISCONTINUED OPERATIONS

ACCOUNTING TREATMENT

Assets held for sale were acquired in August 2000 in conjunction with the
Company's acquisition of Hickson International PLC ("Hickson") (see Note 19) and
include the Hickson organics division and certain land. The Company's intention
at the acquisition date was to divest of the organics division within twelve
months of acquisition. Accordingly, the Company accounted for the organics
division in accordance with EITF 87-11, "Allocation of Purchase Price to Assets
to be Sold." The Company continued to actively work on completing the sale of
these assets, but due to poor market conditions the Company was not able to sell
these assets within a one-year period after acquisition. Therefore, effective
September 1, 2001, the Company was required to discontinue its initial
accounting and begin reporting the results of this division as a discontinued
operation in accordance with APB No. 30, "Reporting the Results of
Operations -- Reporting the Effects of Disposal of a Segment of a Business, and
Extraordinary, Unusual and Infrequently Occurring Events and Transactions" and
EITF No. 90-6, "Accounting For Certain Events Not Addressed in Issue No. 87-11
Relating to an Acquired Operating Unit To Be Sold."

The Company adopted SFAS 144, effective January 1, 2002. SFAS 144 addresses
financial accounting and reporting for the impairment or disposal of long-lived
assets. It also extends the reporting requirements to report separately as
discontinued operations, components of an entity that have either been disposed
of or classified as held for sale. In accordance with the transition provisions
in paragraphs 50 and 51 of SFAS 144,

52

ARCH CHEMICALS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

the Company continued to account for these assets held for sale in accordance
with APB 30 and EITF 90-6. As of December 31, 2002, the transition provisions no
longer applied, and the Company has accounted for the assets held for sale in
accordance with SFAS 144. The Company has presented separately, the assets and
liabilities of the discontinued operations on the face of consolidated financial
statements and has reclassed prior-year amounts in order to conform with the
current year presentation.

The valuation of the Hickson organics division at the acquisition date
included an estimate of the cash flows, including estimated net sales proceeds,
and an allocation of interest expense during the holding period. Net earnings
(losses) of the Hickson organics division from the acquisition date through
August 31, 2001 were not included in the Consolidated Statements of Income, but
were recorded as an adjustment to the net asset value in accordance with EITF
87-11. Beginning September 1, 2001, results of operations of the organics
division are included in loss from discontinued operations, net of tax on the
accompanying Consolidated Statements of Income and include an allocation of
interest expense.

The Hickson organics business has been valued on the accompanying
Consolidated Balance Sheets at its estimated net selling price. The amounts
actually realized (including future operating results) by the Company could
differ materially from the amounts estimated in the financial statements and
could result in future gains or losses from discontinued operations or from
disposal of this business. Factors that could influence the ultimate outcome
include, but are not limited to, general economic conditions, the Company's
ability to dispose of the business within the time, price and manner originally
estimated, the retention of key customers during the divestiture period and
environmental matters.

The Company continues to actively work on completing the sale of this
business during 2003. However, due to the current poor market conditions, it is
possible that it may not be sold. If the sale does not occur and if the Company
does not continue to meet all of the requirements of SFAS 144, the Company may
be required to discontinue its current accounting and include the results of
this division in continuing operations. As a result, the results of operations,
cash flows and balance sheet information of the organics division would be
included in all applicable line items of the Company's consolidated financial
statements rather than the current treatment.

53

ARCH CHEMICALS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

BALANCE SHEET

Assets held for sale at December 31, 2002 and 2001 include the following:

In March 2002, the Company completed the sale of its DanChem operations in
Danville, Virginia, which was part of the Hickson organics division, for
approximately $25 and recorded a loss on the disposal of $1.5, net of a tax
benefit of $0.9. Proceeds from the sale of these assets have been used to pay
down debt.

The major classes of assets and liabilities classified as assets held for
sale of the remaining Hickson organics business based in Castleford at December
31, 2002 and 2001 are as follows:

During 2001, the value assigned at the acquisition date to certain land
included in assets held for sale was reduced by $6.6 and the value assigned at
the acquisition date to the organics division was reduced by $18.8 and goodwill
was adjusted accordingly. See also Note 19 for additional information.

INCOME (LOSS) FROM DISCONTINUED OPERATIONS

The Company accounted for the Hickson organics division in accordance with
EITF 87-11 for the first 12 months after the August 2000 acquisition date.
Operating results of these operations were charged against the related reserve
included in Assets Held For Sale as of the acquisition date. Beginning September
1, 2001, results of operations of the Hickson organics division are included in
Loss From Discontinued Operations, net of tax on the accompanying Consolidated
Statements of Income and include an allocation of interest expense.

54

ARCH CHEMICALS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Loss From Discontinued Operations for the year ended December 31, 2002 and the
four months ended December 31, 2001 includes the following:

Valuation reserves are established for capital spending that the Company
does not expect to be able to recover upon sale of the business based upon
current market conditions.

Operating results for the year ended December 31, 2002 include a $1.9
restructuring charge, which related to headcount reductions of approximately 40
employees, of whom substantially all have been terminated as of December 31,
2002. Operating results for the four months ended December 31, 2001 include a
$1.8 restructuring charge, which related primarily to headcount reductions of
approximately 45 employees, all of whom have been terminated as of December 31,
2002.

The results of operations associated with these assets held for sale and
interest allocated to these assets, which are not included on the accompanying
Consolidated Statements of Income are as follows:

Cash used by the operations of assets held for sale was $4.5 and $2.7 for
the years ended December 31, 2002 and 2001, respectively. The increase in 2002
was due to the funding of restructuring initiatives of $3.5 at the Hickson
organics Castleford business and the absence of the cash generated by the
Hickson organics DanChem business which was sold in March 2002.

6. INVESTMENTS AND ADVANCES -- AFFILIATED COMPANIES AT EQUITY

The Company's investments and advances to affiliated companies at December
31, 2002 include its 49% investment in FUJIFILM Arch, its 50% investment in
Planar Solutions LLC ("Planar"), its 50% investment in Nordesclor S.A., its 50%
investment in Aquachlor (Pty) Ltd., and its 49% investment in Koppers Arch.
FUJIFILM Arch is located in Japan and manufactures photoresists. Planar produces
and markets chemical mechanical planarization slurry products, and is located in
the United States of America. Nordesclor produces and packages calcium
hypochlorite, and is located in Brazil. Aquachlor produces and packages calcium

55

ARCH CHEMICALS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

hypochlorite, and is located in South Africa. Koppers manufactures CCA based
wood preservatives, and is located in Australia.

In 2000, the Company formed the Planar joint venture with Wacker Silicones
Corporation and contributed cash of approximately $3.4 and intellectual property
to the venture (See Note 19). As of December 31, 2002, the Company has agreed to
guarantee up to $8.5 of Planar borrowings of which $5.7 was outstanding.

The amount of cumulative unremitted earnings of joint ventures included in
consolidated accumulated deficit at December 31, 2002 was $8.3. During the years
ended December 31, 2002, 2001 and 2000, distributions of $3.3, $4.8 and $4.8
respectively, were received from joint ventures.

7. PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment at December 31, 2002 and 2001 include the
following:

Leased assets capitalized and included in the previous table are not
significant. Maintenance and repairs charged to operations amounted to $28.7,
$32.2 and $32.7 in 2002, 2001 and 2000, respectively.

8. GOODWILL AND OTHER INTANGIBLES

ADOPTION OF SFAS 142

As of January 1, 2002, the Company adopted SFAS 142, which requires that
goodwill and intangible assets with indefinite useful lives no longer be
amortized, but instead be tested for impairment at least annually in accordance
with the provisions of SFAS 142. The application of the non-amortization
provisions of SFAS 142 resulted in a decrease in amortization of goodwill and
other intangibles in the year ended December 31, 2002 of $6.2. SFAS 142 also
requires that intangible assets with definite useful lives be amortized over
their respective estimated useful lives to their estimated residual values, and
be reviewed for impairment in accordance with SFAS 144. The application of this
provision of SFAS 142 did not have a material effect on the Company's results of
operations.

The Company is required to test goodwill and other intangible assets with
indefinite lives for impairment at least annually and upon adoption of SFAS 142.
The first step of the transitional goodwill impairment assessment is a
comparison of the carrying amount of the reporting units to the corresponding
fair value of those units. An impairment charge is recognized for the amount, if
any, by which the carrying amount of goodwill exceeds its fair value. The
initial test for goodwill impairment was completed during the second quarter.
Fair values were established using discounted cash flows. When available and as
appropriate, comparative market multiples were used to corroborate discounted
cash flow results. The fair market values of the reporting units in all cases
exceeded the carrying value of those units, including the allocation of certain

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ARCH CHEMICALS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

corporate assets and liabilities, and therefore, no impairment has been recorded
related to the Company's goodwill balances.

GOODWILL

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

Included in net goodwill is $32.6 of accumulated amortization at December
31, 2002 and 2001.

In 2002, in accordance with EITF 93-7, "Uncertainties Related to Income
Taxes in a Purchase Business Combination," the Company recorded a deferred tax
liability and corresponding $3.6 adjustment to goodwill as a result of its
analysis of the tax basis of the DanChem assets acquired in the Company's
acquisition of Hickson.

During 2001, the determination of the Hickson fair values based upon final
appraisal was completed and resulted in a reduction of the initial goodwill by
$36.2 (See Note 19).

During 2001, the Company acquired the assets of Walker Brothers and Butler
Mabbutt & Wrighton and the Industrial Division of Humbrol Limited and recorded
total goodwill of $3.3 (See Note 19).

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ARCH CHEMICALS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

OTHER INTANGIBLES

The gross carrying amount and accumulated amortization for other intangible
assets as of December 31, 2002 and 2001 are as follows:

The Company recorded an intangible asset of $2.8 related to the Company's
minimum pension liability adjustment in 2002. In addition, the Company recorded
$2.3 of deferred financing fees related to the March 2002 renewal of the
Company's credit facilities and its issuance of senior notes.

AMORTIZATION

Amortization expense for the years ended December 31, 2002, 2001 and 2000
was $4.4, $10.7 and $5.9, respectively. Estimated amortization expense for the
years ended December 31, 2003, 2004, 2005, 2006 and 2007 is $2.4, $2.0, $2.0,
$2.0 and $2.0, respectively.

In accordance with SFAS 142, prior period amounts have not been restated. A
reconciliation of reported net income (loss) and diluted earnings (loss) per
share for the years ended December 31, 2001 and 2000 to net income (loss) and
diluted earnings (loss) per share as adjusted for the elimination of the
amortization of goodwill and certain other intangible assets, net of the related
income tax effect, are as follows:

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ARCH CHEMICALS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

9. OTHER ASSETS

Included in other assets at December 31, 2002 and 2001 are the following:

10. ACCRUED LIABILITIES

Included in accrued liabilities at December 31, 2002 and 2001 are the
following:

11. DEBT

Included in short-term borrowings and long-term debt at December 31, 2002
and 2001 are the following:

SENIOR NOTES

In March 2002, the Company issued $211.0 of unsecured senior notes to
certain institutional investors in two series. The Series A notes of $149.0 are
due in March 2007 and the Series B notes of $62.0 are due in March 2009 and bear
fixed interest rates of 7.94% and 8.24%, respectively, subject to certain
leverage ratio requirements.

In April 2002, the Company entered into interest rate swap agreements under
which the Company swapped the 7.94% fixed interest rate on $80.0 principal
amount of unsecured senior notes for floating rate

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ARCH CHEMICALS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

interest based on six-month LIBOR plus 3.045%. The counterparties to these
agreements are major financial institutions. The agreements expire in March
2007. The Company has designated the swap agreements as fair value hedges of the
risk of changes in the value of fixed-rate debt due to changes in interest
rates, for a portion of its fixed rate borrowings under SFAS 133. Accordingly,
the swap agreements have been recorded at their fair market value of $6.8 and
are included in Other Assets on the accompanying Consolidated Balance Sheet,
with a corresponding increase in the carrying amount of the senior notes. No
gain or loss has been recorded as the contracts meet the criteria of SFAS 133 to
qualify for hedge accounting treatment with no ineffectiveness.

The notes contain quarterly leverage ratio (debt/EBITDA) covenants of 4.5
through December 31, 2002 and 3.5 thereafter and fixed coverage ratio covenants
of 2.0 through December 31, 2002 and 2.25 thereafter, and restrict the payment
of dividends and repurchases of stock to $65.0 less cumulative dividends and
repurchases of stock plus 50% of cumulative net income (loss) subject to certain
adjustments beginning January 1, 2002 ($52.6 at December 31, 2002). In addition,
the notes contain a debt to total capitalization ratio requirement not to exceed
55%. Proceeds from the issuance of these notes have been used to pay down debt,
including the credit facility used to acquire Hickson ("Acquisition Facility").

CREDIT FACILITIES

At December 31, 2002, the Company had two credit facility agreements. These
included an unsecured $125 revolving five-year credit facility ("Five-year
Facility"), which expires in January 2004 and an unsecured $87.5 364-day
facility ("364-day Facility"), which expired in January 2003 and was
subsequently renewed (see below) (collectively the "Credit Facilities"). The
Company's $225 revolving credit facility ("Acquisition Facility"), which the
Company used to finance the Hickson acquisition and refinance a portion of the
assumed Hickson debt, expired in March 2002.

In January 2002, the Company renewed its existing 364-day Facility in the
amount of $87.5, with an expiration date in January 2003 and amended certain
prospective financial covenants of both the 364-day Facility and the Five-year
Facility to reflect the seasonality of its portfolio.

In January 2003, the Company extended the maturity date of its existing
364-day facility to June 21, 2003 and reduced the maximum amount of the facility
to $65.0. In addition, a representation requirement related to ERISA plan
funding was amended. In January 2003, the Company also amended its existing
Five-year Facility to amend the representation requirement related to ERISA plan
funding.

As of December 31, 2002, facility fees were payable on the Credit
Facilities and ranged from 0.15% to 0.30%. The Company may select various
floating rate borrowing options, including but not limited to LIBOR plus 0.425%
to 1.0%. The weighted average interest rate for the years ended December 31,
2002, and 2001 was 4.6% and 6.2%, respectively. At December 31, 2002 and 2001,
total borrowings under the Credit Facilities and Acquisition Facility were $0
and $286.1, respectively, of which $0 and $261.1, respectively were classified
as long-term. The effective interest rate, excluding fees at December 31, 2002
and 2001 was 2.3% and 3.1%, respectively.

As of December 31, 2002, the Credit Facilities contained quarterly leverage
ratio (debt/EBITDA) covenants of 3.5 and interest coverage ratio
(EBITDA/ interest) covenants of 3.0, and restricted the payment of dividends and
repurchases of stock to $40 less cumulative dividends and repurchases of stock
plus 50% of cumulative net income (loss) under certain circumstances beginning
December 31, 2001 ($22.1 at December 31, 2002).

At December 31, 2002 and 2001 the Company also had approximately $0 and
$20, respectively, of uncommitted short-term lines of credit available with an
interest rate of 3.0%.

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ARCH CHEMICALS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

OTHER BORROWINGS

Other borrowings at December 31, 2002 and 2001 have interest rates ranging
from 2% to 5%.

At December 31, 2002, the Company had $9.6 of outstanding letters of credit
and $6.3 of letters of guarantee. As of December 31, 2002, the Company has
agreed to guarantee 50% or up to $8.5 of Planar Solutions' (a joint venture)
borrowings ($5.7 at December 31, 2002), which is provided by the Company's joint
venture partner and expires in May 2005. In addition, the Company has guaranteed
$0.6 of payments on certain Planar Solutions' equipment leases, which expire in
May 2004. The Company would be required to perform under the above two
guarantees in the case of nonpayment by Planar Solutions.

FAIR VALUE OF LONG-TERM DEBT

The fair value of the Company's long-term debt at December 31, 2002 was
approximately $231.9. The fair value of the Company's short-term debt at
December 31, 2002 approximated the book value of $2.4 due to the floating
interest rate terms and the short maturity of the instruments.

12. OTHER LIABILITIES

Included in other non-current liabilities at December 31, 2002 and 2001 are
the following:

Included in pensions and other postretirement employee benefit obligations
as of December 31, 2002 and 2001 are minimum pension liability adjustments of
$93.6 and $1.4, respectively.

13. DERIVATIVE FINANCIAL INSTRUMENTS

ADOPTION OF SFAS 133

The cumulative effect of the accounting change due to the adoption of SFAS
133 as of January 1, 2001 was $0.4 before taxes or $0.2 net of tax, principally
due to interest rate swaps acquired in connection with the acquisition of
Hickson, which were cancelled in January 2001.

FOREIGN CURRENCY

The Company uses foreign currency forward sales and purchases contracts and
currency options as a means of hedging exposure to foreign currency risk. It is
the Company's policy to hedge up to 80% of its anticipated purchase and sales
commitments denominated or expected to be denominated in a foreign currency
(principally the euro, British pound, Canadian dollar and Japanese yen). All of
the currency derivatives expire within one year. During 2002 and 2001, the
majority of the Company's foreign currency forward contracts qualified as
effective cash flow hedges while the remainder of the foreign currency contracts
did not meet the criteria of SFAS 133 to qualify for effective hedge accounting.
The accounting for gains and losses associated with changes in the fair value of
the derivative and the effect on the consolidated financial statements will
depend on its hedge designation and whether the hedge is highly effective in
achieving offsetting changes in fair value of cash flows of the asset or
liability hedged.

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ARCH CHEMICALS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

During 2002 and 2001, the Company recorded net gains (losses) of $1.1 and
$(0.4), respectively in Other Comprehensive Income (Loss) related to the change
in the fair market value of the derivatives designated as effective cash flow
hedges of which, $0.8 and $0.4, respectively, were subsequently reclassified
into current earnings during the year. The Company records expense in Selling
and Administration expense related to the change in the time value of the
forward contracts, which has been excluded from the assessment of hedge
effectiveness.

At December 31, 2002 and 2001, the Company had no outstanding option
contracts to sell or buy foreign currencies. At December 31, 2002, the Company
had forward contracts to sell foreign currencies with notional amounts of $11.9
and forward contracts to buy foreign currencies with notional amounts of $12.0.
The fair value of these forward contracts is included in Accrued Liabilities and
Other Current Assets. At December 31, 2001, the Company had no forward contracts
to sell or buy foreign currencies. The counterparties to the contracts are major
financial institutions. The risk of loss to the Company in the event of
nonperformance by a counterparty is not significant. The Company does not use
financial instruments for speculative or trading purposes nor is the Company a
party to leveraged derivatives.

Foreign currency exchange gains/(losses), net of taxes, were $(0.3) in
2002, $(1.0) in 2001 and $(1.7) in 2000.

NATURAL GAS

In 2001, in order to manage the risks associated with the changes in
natural gas prices, the Company purchased futures contracts to hedge a portion
of its projected natural gas purchase requirements. These contracts expired on
various dates through April 2002. These contracts have been recorded at fair
value and are included in Accrued Liabilities on the accompanying Consolidated
Balance Sheet. These derivative contracts did not meet the criteria of SFAS 133
to qualify for effective hedge accounting. For the years ended December 31, 2002
and 2001, the Company recorded a net unrealized gain (loss) of $0.1 and $(0.9),
respectively, in Selling and Administration expenses related to the change in
fair value of derivatives, which did not qualify for hedge accounting.

DEBT AND INTEREST

In April 2002, the Company entered into interest rate swap agreements under
which the Company swapped the 7.94% fixed interest rate on $80.0 principal
amount of unsecured senior notes for floating rate interest based on six-month
LIBOR plus 3.045%. The counterparties to these agreements are major financial
institutions. The agreements expire in March 2007. The Company has designated
the swap agreements as fair value hedges of the risk of changes in the value of
fixed rate debt due to changes in interest rates for a portion of its fixed rate
borrowings under SFAS 133. Accordingly, the swap agreements have been recorded
at their fair market value of $6.8 and are included in Other Assets on the
accompanying Consolidated Balance Sheet, with a corresponding increase in the
carrying amount of the related debt. No gain or loss has been recorded as the
contracts meet the criteria of SFAS 133 to qualify for hedge accounting
treatment with no ineffectiveness.

As of December 31, 2001, a portion of the Company's outstanding short-term
borrowings was denominated in British pounds and had been designated since its
inception as a hedge of the British pound net investment in the Hickson organics
division. Foreign currency translation adjustments during the year ended
December 31, 2002, 2001 and 2000 include $(0.7), $(0.5) and $0.2, respectively,
related to this debt instrument. In March 2002, the portion of the Company's
outstanding borrowings that was denominated in British pounds and that had been
designated since its inception as a hedge of the British pound net investment in
the Hickson organics division was paid-off with the expiration of the
Acquisition Facility. Cumulative foreign currency translation gain adjustments
as of December 31, 2002 of $1.0 related to this debt instrument will be
recognized upon the sale of the Hickson organics Castleford, England operation.

62

ARCH CHEMICALS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

In connection with the acquisition of Hickson, the Company acquired certain
interest rate swaps related to the assumed debt. The counterparties to the swap
agreements were major financial institutions. As a result of the Company's
repayment of substantially all of the acquired debt of Hickson, the Company
cancelled the swaps in January 2001.

14. INCOME TAXES

COMPONENTS OF PRETAX INCOME (LOSS)

COMPONENTS OF INCOME TAX EXPENSE (BENEFIT)

The following table accounts for the difference between the actual tax
provision and the amounts obtained by applying the statutory U.S. federal income
tax rate of 35% to the income before taxes.

EFFECTIVE TAX RATE RECONCILIATION

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ARCH CHEMICALS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

COMPONENTS OF DEFERRED TAX ASSETS AND LIABILITIES

Included in Other Current Assets at December 31, 2002 and 2001,
respectively, are $24.4 and $16.5 of net current deferred tax assets. Included
in Other Assets at December 31, 2002 and 2001, respectively is $38.5 and $15.0
of net noncurrent deferred tax assets. Included in Other Liabilities at December
31, 2002 and 2001 was $1.2 and $0.2 of noncurrent deferred tax liabilities.
Taxable income is expected to be sufficient to recover the net benefit within
the period in which these differences are expected to reverse and, therefore, no
valuation allowance was established. Management believes it is more likely than
not that the results of future operations will generate sufficient taxable
income to realize the net deferred tax assets.

The Company has net operating loss carryforwards of approximately $45.8,
which are available to offset future taxable income through 2022. The Company
also has alternative minimum tax credit carryforwards of approximately $10.4,
which are available to reduce regular income taxes, if any, over an indefinite
period.

The Company provides for deferred taxes on temporary differences between
the financial statement and tax bases of assets using the enacted tax rates that
are expected to apply to taxable income when the temporary differences are
expected to reverse. At December 31, 2002, the Company's share of the cumulative
undistributed earnings of foreign subsidiaries was approximately $155. No
provision has been made for U.S. or additional foreign taxes on the
undistributed earnings of foreign subsidiaries since the Company intends to
continue to reinvest these earnings. Foreign tax credits would be available to
substantially reduce or eliminate any amount of additional U.S. tax that might
be payable on these foreign earnings in the event of distributions or sale.

15. EMPLOYEE BENEFIT PLANS

PENSION PLANS AND RETIREMENT BENEFITS

Effective February 8, 1999, the Company established the Arch Pension
Benefit Plan, a defined benefit pension plan covering most U.S. employees. The
Company also maintains two nonqualified supplemental pension plans. These plans
were established to provide additional retirement benefits for certain key
employees. Prior to the Distribution, these employees were participants in one
of several Olin pension benefit plans covering employees of other Olin
businesses. The Arch pension benefit plan provides benefits based on service
with Olin and with the Company. The Company is liable for the payment of all
pension plan benefits earned by Company employees prior to and following the
Distribution who retire after the Distribution. Olin transferred assets to the
Company's pension plan. The amount of the assets transferred was calculated in

64

ARCH CHEMICALS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

accordance with Section 4044 of the Employee Retirement Income Security Act of
1974, as amended. The assets of the Arch plan consist primarily of investments
in commingled funds administered by independent investment advisors. The
Company's policy is to fund, at a minimum, amounts as are necessary on an
actuarial basis to provide assets sufficient to meet the benefits to be paid to
plan members in accordance with the requirements of the Employee Retirement
Income Security Act of 1974.

Olin is liable for postretirement medical and death benefits provided to
former employees of the Company who retired prior to the Distribution.
Subsequent to the Distribution, the Company adopted a retiree medical and death
benefits plan that covers most domestic employees. The Company is liable for the
payment of all retiree medical and death benefits earned by Company employees
prior to and following the Distribution who retire after the Distribution. The
Olin plan was an unfunded plan; therefore, no assets were transferred, and the
Arch plan remains an unfunded plan.

As part of the acquisition of Hickson, the Company acquired the liability
for an additional U.S. pension plan. In 2002, the Hickson USA retirement plan
and the Arch Pension Benefit Plan were merged.

The following tables provide a reconciliation of the changes in the plans'
projected benefit obligations, fair value of plan assets, funded status, certain
assumptions and components of net periodic pension expense of the Arch
retirement plan.

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ARCH CHEMICALS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The Company's qualified pension plan has an accumulated benefit obligation
in excess of plan assets as of December 31, 2002. The accumulated benefit
obligation of this plan was $144.0 and $116.4 as of December 31, 2002 and 2001,
respectively. The projected benefit obligation relating to the qualified plan
was $167.6 and $140.7, as of December 31, 2002 and 2001, respectively. The
Company's nonqualified pension plans are unfunded. The accumulated benefit
obligation relating to these plans, included above, was $8.5 and $7.8, as of
December 31, 2002 and 2001, respectively. The projected benefit obligation
related to these plans was $11.1 and $9.9 as of December 31, 2002 and 2001,
respectively. The 2002 and 2000 curtailment losses are included in Restructuring
in the accompanying Consolidated Statements of Income.

In 2001, the Hickson USA long-term rate of return on assets assumption was
8.5%.

For measurement purposes, the assumed health care cost trend rate used for
pre-65 non-HMO plans was 9.5% and 5.75% in 2002 and 2001, respectively,
decreasing to an ultimate trend rate of 4.5% in 2009. The trend rate for pre-65
HMO plans was 9.5% and 5.1% in 2002 and 2001, respectively, decreasing to an
ultimate trend rate of 4.5% in 2009. For non-bargained participants, Arch's
subsidy for pre-65 coverage is limited to $10,000/retiree with all future cost
increases to be paid by the retiree. For post-65 retirees, the Company provides
a fixed dollar benefit that is not subject to escalation.

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ARCH CHEMICALS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The assumed health care cost trend rate assumptions can have a significant
impact on the amounts reported. A one percent increase or decrease each year in
the health care cost trend rate utilized would have resulted in a $0.1 increase
or decrease, respectively, in the aggregate service and interest cost components
of expense for the year 2002, and a $0.4 increase or decrease, respectively, in
the accumulated postretirement benefit obligation at December 31, 2002.

As part of the acquisition of Hickson, the Company acquired the liability
for the Hickson U.K. retirement plan. The following tables provide a
reconciliation of the changes in the plans' projected benefit obligations, fair
value of plan assets, funded status, certain assumptions and components of net
periodic pension expense of the Hickson UK retirement plan for the years ended
December 31, 2002 and 2001.

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ARCH CHEMICALS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The Company's policy is to fund, at a minimum, amounts as are necessary to
provide assets sufficient to meet the benefits to be paid to plan members in
accordance with the requirements of the United Kingdom Pensions Act of 1995.
Cash funding in 2003 is expected to be approximately $5.0 higher than in 2002.

The Company's other foreign subsidiaries maintain pension and other benefit
plans that are consistent with statutory practices and are not significant.

CONTRIBUTING EMPLOYEE OWNERSHIP PLAN

Prior to the Distribution, Company employees participated in the Olin
Corporation Contributing Employee Ownership Plan ("Olin CEOP"), which is a
defined contribution plan available to essentially all domestic Olin employees
and provides a match of employee contributions. Subsequent to the Distribution,
the Olin CEOP was converted into a multiple employer plan in which both Olin and
the Company participated. Effective March 1, 2001, the Company established the
Arch Chemicals, Inc. Contributing Employee Ownership Plan ("Arch CEOP") which is
a defined contribution plan available to all domestic employees. As of that
date, the Company ended its participation in the Olin CEOP and all Company
employee balances were transferred to the Arch CEOP. The matching contribution
allocable to Company employees under both plans has been included in costs and
expenses in the accompanying Consolidated Statements of Income and was $4.0,
$2.8, and $2.5 in 2002, 2001 and 2000, respectively.

16. STOCK OPTION AND SHAREHOLDER RIGHTS PLANS

STOCK OPTION PLANS

As of December 31, 2002, the Company had four stock-based compensation
plans, which are described below.

At the time of the Distribution, stock options issued by Olin were
converted into both an option to purchase Company common stock ("Company
Options") and an option to purchase Olin common stock ("New Olin Options") with
the same aggregate "intrinsic value" at the time of the Distribution as the old
award. The conversion of the options did not result in a charge to earnings as
no new measurement date was created. The Company is responsible for delivering
shares of Company common stock upon exercise of Company Options, and Olin is
responsible for the delivery of shares of Olin Common stock upon exercise of New
Olin Options. Options granted under the Olin 1980 Stock Option Plan terminated
during 2001. Options granted to such employees under the Olin 1988 Stock Option
Plan or the Olin 1996 Stock Option Plan retained the original term of the
option. Options granted to such employees under the Olin 1996 Stock Option Plan,
which were not vested at the time of the Distribution, continue to vest in
accordance with their vesting schedule so long as the optionee remains employed
at the Company. No additional Company options will be granted under the 1988 and
1996 Olin Stock Option Plans.

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ARCH CHEMICALS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

In 1999, the Company adopted the 1999 Long Term Incentive Plan, a long-term
incentive plan to encourage selected salaried employees to acquire a proprietary
interest in the Company's growth and performance and to attract and retain
qualified individuals. The plan will provide for the ability to issue stock
options, restricted stock and restricted stock units, and performance awards. In
addition, in 1999, the Company adopted the 1999 Stock Plan for Nonemployee
Directors pursuant to which stock options and other stock awards may be granted
to nonemployee directors. The Company's policy is to grant options to purchase
common stock at an exercise price representing the fair market value of the
common stock on the grant date. In general, the employee options vest and become
exercisable within one to three years and the directors' options are exercisable
upon grant. In general, all options are exercisable up to ten years from the
date of grant. In 1999, the Company granted to certain employees approximately
245,000 performance share units, the vesting of which was dependent on the
attainment of certain performance measures as of the end of 2001. The measures
were not met and the performance share units were forfeited. At December 31,
2002, total shares authorized for grant under plans established subsequent to
the Distribution Date were 2,298,000.

The following table summarizes stock option activity during 2002, 2001 and
2000 (number of options in thousands):

At December 31, 2002 and 2001, options covering 1,987,043 and 1,412,993
shares, respectively, were exercisable at weighted average exercise prices of
$24.66 and $26.92, respectively. The average remaining contractual life was
approximately five years.

The following table summarizes information about stock options outstanding
at December 31, 2002 (number of options in thousands):

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ARCH CHEMICALS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Pursuant to APB No. 25, compensation cost is recorded when the fair market
value of the Company's stock at the date of grant for fixed options exceeds the
exercise price of the stock option. The Company's policy is to grant stock
options with an exercise price equal to its common stock fair value on the date
of grant. Accordingly, there are no charges reflected in the accompanying
consolidated financial statements for stock options granted to employees.
Compensation cost for restricted stock awards is accrued over the life of the
award based on the quoted market price of the Company's stock at the date of the
award. Compensation cost for performance share units is estimated based on the
number of shares to be earned. The ultimate cost will be based on the market
price of the Company's stock at the settlement date. Prior to the Distribution,
certain employees of the Company received restricted stock unit awards under
Olin's stock-based compensation plans. The cost associated with the employees
participating in these plans is included in the Consolidated Statements of
Income and is not material to operating results.

Pro forma net income (loss) was calculated based on the following
assumptions as if the Company had recorded compensation expense for the stock
options granted to those employees of the Specialty Chemicals business since
1997. The fair value of each Arch option granted during 2002, 2001 and 2000 was
estimated on the date of grant using the Black-Scholes option pricing model.
Assumptions used, weighted average fair values and pro forma net income (loss)
for 2002, 2001 and 2000 are listed below:

SHAREHOLDER RIGHTS PLAN

The Board of Directors adopted a Shareholder Rights Plan in 1999. This plan
is designed to prevent a potential acquirer from gaining control of the Company
without offering a fair price to all shareholders. Each right entitles a
shareholder (other than the potential acquirer) to buy one one-thousandth share
of Series A Participating Cumulative Preferred Stock at a purchase price of $125
per share. The rights are exercisable only if a person (or group of affiliated
persons) acquires more than 15% of the Company's common stock or if the Board of
Directors so determines following the commencement of a tender or exchange offer
to acquire more than 15% of the Company's common stock. If any person acquires
more than 15% of the Company's common stock and effects a subsequent merger or
combination with the Company, each right will entitle the holder (other than the
acquirer) to purchase stock or other property of the acquirer having a market
value of twice the purchase price. The Company can redeem the rights at one cent
per right for a certain period of time. The rights will expire on January 29,
2009 unless redeemed earlier by the Company.

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ARCH CHEMICALS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

17. SHAREHOLDERS' EQUITY

COMMON STOCK

On February 8, 1999, Olin, the sole shareholder of the Company, distributed
(on a 1-for-2 basis) all the issued and outstanding shares of common stock, par
value $1 per share, of the Company, to the shareholders of record of Olin's
common stock as of February 1, 1999, upon which the Company became a separate,
independent company. The total number of shares distributed was approximately
22,980,000.

At December 31, 2002, the Company has reserved 2,984,539 shares of its
authorized but unissued common stock for possible future issuance in connection
with the exercise of stock options, restricted stock, and performance share
units.

On October 28, 1999, Arch's Board of Directors approved a stock repurchase
program whereby the Company is authorized to buy back up to 1,200,000 shares of
its common stock, representing approximately 5% of outstanding shares. The
program has been suspended since 2000 pending the completion of the Hickson
acquisition, including the subsequent sale of the Hickson organics businesses.
Until its suspension, the Company had repurchased approximately 893,000 shares
under this program at a cost of approximately $16.

SERIES A PARTICIPATING CUMULATIVE PREFERRED STOCK

The Company has 40,000 authorized shares of $1 par value Series A
Participating Cumulative Preferred Stock, of which none is outstanding.

RETAINED EARNINGS (ACCUMULATED DEFICIT)

Retained earnings (accumulated deficit) as of December 31, 2002 and 2001
includes earnings (losses) since the Distribution.

ACCUMULATED OTHER COMPREHENSIVE LOSS

Accumulated other comprehensive loss includes cumulative foreign currency
translation adjustments, additional minimum pension liability adjustments, net
of tax and accumulated net unrealized gain (loss) on derivative instruments, net
of tax.

The additional minimum pension liability adjustments recorded in 2002 were
a result of depressed market values of the Company's pension plan assets
combined with a decrease in the discount rate due to declining market interest
rates.

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ARCH CHEMICALS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

ACCUMULATED NET UNREALIZED GAIN (LOSS) ON DERIVATIVE INSTRUMENTS

Changes in the accumulated net unrealized gain (loss) on derivative
instruments for the years ended December 31, 2002 and 2001 are as follows:

The unrealized gains on derivative instruments included in Accumulated
Other Comprehensive Loss are expected to be reclassified into earnings within
the next 12 months.

18. SEGMENT REPORTING

The Company has organized its segments around differences in products and
services, which is how the Company manages its business. In the first quarter of
2002, the Company reorganized its business portfolio into four operating
segments to better reflect the Company's business strategy. The four segments
are microelectronic materials, treatment products, performance products and
other specialty products. The treatment products segment includes three
reportable business units: the HTH water products business, the personal care
and industrial biocides business and the wood protection and industrial coatings
business. The performance products segment includes the performance urethanes
business. The other specialty products segment includes the hydrazine and
sulfuric acid businesses. The operating segment information for 2001 and 2000
have been reclassified to conform to the current year presentation. Segment
operating income includes the equity in earnings of affiliated companies and
excludes special items and certain unallocated expenses of the corporate
headquarters. Segment results for the three years ended December 31 were as
follows:

72

ARCH CHEMICALS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

73

ARCH CHEMICALS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

74

ARCH CHEMICALS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Segment operating income (loss) includes the equity in earnings (losses) of
affiliated companies and an allocation of corporate charges based on various
allocation bases. Segment operating income (loss) excludes interest income,
interest expense, extraordinary or special items, and certain unallocated
expenses of the corporate headquarters. Segment assets include only those assets
that are directly identifiable to a segment and do not include such items as
cash, deferred taxes, LIFO reserves, assets held for sale, and certain other
assets. Sales by reportable business unit substantially represent sales for the
major product lines of the Company.

Geographic area information for the periods ended December 31, were as
follows:

Sales to external customers are attributed to geographic areas based on
country of destination. Transfers between geographic areas are priced generally
at prevailing market prices. Export sales from the United States to unaffiliated
customers were $72.7, $72.0 and $61.3 in 2002, 2001 and 2000, respectively.

19. ACQUISITIONS, DISPOSITION AND JOINT VENTURE

ACQUISITIONS

In September 2001, the Company acquired Butler Mabbutt & Wrighton and the
Industrial Division of Humbrol Limited for an aggregate of approximately $1 in
cash.

In March 2001, the Company completed the acquisition of the assets of
Walker Brothers, a division of Consolidated Coatings, for approximately $2 in
cash.

In addition, in November 2000, the Company completed the acquisition of the
personal care intermediates business of Brooks Industries for approximately $38
in cash. This acquisition was accounted for as a purchase business combination
and the results of operations have been included in the Consolidated Financial
Statements from the date of purchase and were not material in 2000. Prior to the
adoption of SFAS 142, the related goodwill had been amortized over 20 years.

In July 2000, Arch Chemicals UK Holdings Limited ("Arch UK"), a newly
formed, wholly-owned, indirect subsidiary of the Company made a formal cash
offer (the "Offer") for all of the issued shares of UK-based Hickson. The Offer,
which was unanimously recommended by Hickson's Board of Directors, was for L0.55
(US $0.82) in cash for each Hickson share. On August 22, 2000, Arch UK declared
the offer wholly unconditional (the "Acquisition Date"). The total purchase
price, including estimated expenses and net debt assumed ($59), was
approximately $215. The acquisition of Hickson was accounted for as a purchase
business combination, and accordingly, the results of Hickson have been included
in the consolidated financial

75

ARCH CHEMICALS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

statements since the Acquisition Date. Prior to the adoption of SFAS 142, the
related goodwill had been amortized over 30 years.

The Company financed the acquisition, including certain assumed debt
required to be repaid, from the Acquisition Facility. Expenses associated with
the purchase of derivative instruments to mitigate the risk of foreign currency
fluctuations related to the purchase price and the effect of the assumption of
certain foreign-denominated debt on the transaction are classified as a
component of Other (Gains) and Losses in the accompanying Consolidated Statement
of Income for the year ended December 31, 2000. In connection with the Hickson
acquisition, the Company intends to dispose of the Hickson organics division,
and, accordingly, those assets are classified in the balance sheet as Assets
Held for Sale (see Note 5). See the Form 8-K/A filed by the Company on November
2, 2000 for additional information regarding the acquisition of Hickson.

Supplemental cash flow information related to the Hickson and Brooks
acquisitions is as follows:

The determination of the fair values of the assets and liabilities of
Hickson, based upon final appraisal was completed in the third quarter of 2001
and resulted in adjustments to the initial purchase accounting adjustments. The
following adjustments have been made to the initial purchase accounting:

DISPOSITIONS

In September 2002, the Company sold excess land in China, Ireland and
Arizona for cash proceeds of approximately $2.3 million and recognized a pre-tax
gain of approximately $1.8 million.

In March 2002, the Company completed the sale of its DanChem operations in
Danville, Virginia for approximately $25 million and recorded a loss on the sale
of $1.5. Proceeds from the sale of these assets have been used to pay down debt.

On July 31, 2000, the Company completed the sale to SCP Pool Corporation of
Covington, Louisiana of the assets of its subsidiary, SPPI, a distributor of
swimming pool equipment, parts and supplies. Net proceeds from the sale were
approximately $21 and a pretax gain of approximately $11 was recorded. Net
proceeds

76

ARCH CHEMICALS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

from the sale were used to reduce existing debt levels. SPPI's sales and
operating income for the year ended December 31, 2000 was $54.1 and $2.5,
respectively.

Supplemental cash flow information on the business sold is as follows:

PRO FORMA FINANCIAL INFORMATION

The table below presents unaudited pro forma financial information in
connection with the 2000 acquisitions and disposition as if they had occurred as
of the beginning of 2000. This unaudited pro forma financial information
reflects the allocation of the excess of the acquisition cost over the fair
value of the assets and liabilities under the purchase method of accounting for
the acquisition of Hickson.

The unaudited pro forma financial information is presented for illustrative
purposes only and is not necessarily indicative of the operating results that
would have occurred if the acquisitions and disposition had been completed at
the dates indicated. The information does not necessarily indicate the future
operating results or financial position of the Company. This information should
be read in conjunction with the Form 8-K/A, filed by the Company on November 2,
2000, in connection with the Hickson acquisition, which contains unaudited pro
forma combined condensed financial statements.

JOINT VENTURE

In April 2000, the Company formed a joint venture with Wacker Silicones
Corporation, to produce and market chemical mechanical planarization slurry
products used in the advanced computer chip manufacturing process. The joint
venture, called Planar, is expected to provide opportunities in this high growth
area of the semiconductor industry. The Company contributed cash of
approximately $3.4 and intellectual property to the venture, and has guaranteed
up to $8.5 of its debt.

20. COMMITMENTS AND CONTINGENCIES

LEASES

The Company leases certain properties, such as manufacturing, warehousing
and office space and data processing and office equipment. Leases covering these
properties generally contain escalation clauses based on increased costs of the
lessor, primarily property taxes, maintenance and insurance and have renewal or

77

ARCH CHEMICALS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

purchase options. Total rent expense charged to operations amounted to $18.4 in
2002, $20.6 in 2001 and $22.1 in 2000 (sublease income and contingent rent
expense is not significant).

Future minimum rent payments under operating leases having initial or
remaining noncancelable lease terms in excess of one year at December 31, 2002
are as follows: $13.1 in 2003; $11.5 in 2004; $8.9 in 2005; $6.4 in 2006; $3.3
in 2007 and $10.8 thereafter.

LITIGATION

In connection with the acquisition of Hickson, the Company assumed certain
legal obligations, including a trial court judgment of approximately $8.5 plus
interest in a lawsuit associated with a raw material spillage in 1994. In 2001,
the judgment was reversed on the successful appeal by the Company and remanded
for a new trial on damages. In 2002, a new trial resulted in a judgment of $2.6
plus interest. This judgment has been appealed. The judgment and related
interest is included in Accrued Liabilities in the accompanying Consolidated
Balance Sheets.

In 2001, the Company received notification of a potential product claim by
a customer related to a discontinued product. This claim was settled in the
third quarter of 2002 and the Company paid a total of $5.5, exclusive of
insurance proceeds.

Five putative class action lawsuits have been filed in various state and
federal courts against several chromated copper arsenate ("CCA") manufacturers,
including the Company's CCA-formulating subsidiary Arch Wood Protection, Inc.,
the Company, several CCA customers and various retailers regarding the marketing
and use of CCA-treated wood. Generally, the proposed class members purport to
include persons who purchased, possess or own CCA-treated wood products or
properties upon which CCA-treated wood products were stored or installed. None
of the putative class actions currently alleges personal injury. In one case,
the federal district court ruled that the requirements for a class action have
not been met and has denied class action status to the lawsuit. One other case
has been denied class action status as a result of plaintiffs' failure to timely
request class certification and has been subsequently dismissed without
prejudice. Another case has been dismissed at the plaintiffs' request. In
neither of the other two cases has a class been certified by the court.

These putative class action lawsuits variously (1) allege conspiracy,
breach of contract, breach of implied warranties, violation of consumer
protection and/or unfair trade practices statutes, unjust enrichment, strict
liability, nuisance, negligence and intentional tort, (2) seek remedies, such as
refunds of the price of product sold, the cost of removal and replacement of
CCA-treated wood and the cost of soil testing and purported remediation of
allegedly contaminated soil and (3) do not specify an amount of monetary damages
requested. These lawsuits are in their early stages of discovery.

In addition, there are eight other CCA-related lawsuits naming one or more
of the Company's subsidiaries, and in some cases, the Company, as a defendant.
These additional eight cases are not putative class actions.

The Company and its subsidiaries deny the material allegations of all the
various CCA-related claims and has vigorously defended and will continue to
vigorously defend them. As a result, legal defense and related costs associated
with these cases were substantial in 2002 and may increase in the future.

All CCA-related cases are subject to a number of uncertainties, including
in the case of the putative class actions, whether and to what extent any will
be certified as class actions. As a result, their impact, if any, is difficult
to assess. Based on the information currently available to the Company, however,
the Company does not believe the resolution of these cases is likely to have a
material adverse effect on its consolidated financial condition, cash flow or
results of operations.

78

ARCH CHEMICALS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

There are a variety of non-environmental legal proceedings pending or
threatened against the Company. Those matters that are probable have been
accrued for in the accompanying Consolidated Financial Statements. Any
contingent amounts in excess of amounts accrued are not expected to have a
material adverse effect on results of operations, financial position or
liquidity of the Company.

ENVIRONMENTAL

Olin and the Company have entered into an agreement, which specifies that
the Company is only responsible for certain environmental liabilities at the
Company's current operating plant sites and certain offsite locations. Olin
retained the liability for all former Olin plant sites and former waste disposal
sites. In connection with the acquisition of Hickson, the Company acquired
certain environmental exposures and potential liabilities of current and past
operating sites all of which have been accrued for in the accompanying
Consolidated Financial Statements.

The Company's Consolidated Balance Sheets included liabilities for future
environmental expenditures to investigate and remediate known sites amounting to
$10.4 and $12.6 at December 31, 2002 and 2001, respectively. The Company's
estimated environmental liability relates to eight sites, six of which are in
the United States and none of which are on the U.S. National Priority List.
These amounts did not take into account any discounting of future expenditures,
any consideration of insurance recoveries or any advances in technology. These
liabilities are reassessed periodically to determine if environmental
circumstances have changed or if the costs of remediation efforts can be better
estimated. As a result of these reassessments, future charges to income may be
made for additional liabilities.

Environmental exposures are difficult to assess for numerous reasons,
including the identification of new sites, developments at sites resulting from
investigatory studies and remedial activities, advances in technology, changes
in environmental laws and regulations and their application, the scarcity of
reliable data pertaining to identified sites, the difficulty in assessing the
involvement and financial capability of other potentially responsible parties
and the Company's ability to obtain contributions from other parties and the
length of time over which site remediation occurs. It is possible that some of
these matters (the outcomes of which are subject to various uncertainties) may
be resolved unfavorably against the Company. At December 31, 2002, the Company
had estimated additional contingent environmental liabilities of $8.5.

21. SPECIAL ITEMS, EXTRAORDINARY GAIN AND NONRECURRING EXPENSES

SPECIAL ITEMS

Results for 2002, 2001 and 2000 include special items totaling $7.6, $2.5
and $56.9, respectively, of which $39.9 in 2000 was the result of the process
chemicals restructuring, as described below.

In 2000, due to continued losses and industry over-capacity in a part of
the process chemicals business (part of the microelectronic materials segment),
the Company implemented a restructuring plan in order to eliminate certain
under-performing product lines, including the shut-down of one plant. In
addition, based on certain streamlining and additional cost-saving initiatives,
the Company recorded restructuring charges related to the biocides business
(part of the treatment products segment) and charges for headcount reductions at
corporate and other businesses.

Impairment Charge

As a result of the restructuring plan for the process chemicals business
(part of the microelectronic materials segment), including the idling of certain
assets, the Company reviewed the value of these assets in accordance with SFAS
No. 121, which indicated that an impairment had occurred based upon an analysis
of the undiscounted cash flows of the restructured business. As a result, an
impairment charge of $31.0 was

79

ARCH CHEMICALS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

recorded to reduce certain property, plant and equipment to its fair market
value. Fair market value was determined based on a third party fair market value
appraisal.

Restructuring

The 2002 restructuring charge of $7.6 (of which, $4.4, $2.1 and $1.1
related to the treatment products, microelectronic materials, and performance
products segments, respectively), included $6.6 related to headcount reductions
of approximately 200 employees in the microelectronic materials, performance
urethanes and HTH water products businesses, as well as a charge related to the
consolidation of several treatment products segment operations. The non-cash
portion of the restructuring charge was approximately $1.0.

The 2001 restructuring of $1.5 includes a restructuring charge of $2.4 for
headcount reductions at corporate and at the performance urethanes business
offset by a $1.5 reduction of the 2000 restructuring reserve to its estimated
remaining liability as of December 31, 2001. In addition, the Company recorded
restructuring income of $0.2 for the reimbursement of certain severance costs
which were previously recorded in the fourth quarter of 2000, and a charge of
$0.8 consisting of retention payments made to employees as a result of the
Company's restructuring of the process chemicals business. The 2001 headcount
reductions affected approximately 30 individuals.

The 2000 restructuring charge of $34.0 included $8.9 of costs associated
with headcount reductions and contractual vendor obligations of the process
chemicals business, $14.1 related to the biocides business for the write-off of
certain costs associated with the abandonment of construction of a facility in
China, the completion of a consolidation study, and additional headcount
reductions, and $11.0 related to headcount reductions at other businesses and
corporate. Total headcount reductions affected approximately 450 individuals.
The non-cash portion of the restructuring charges was approximately $13.

The following table summarizes activity related to the 2002, 2001 and 2000
restructuring costs:

80

ARCH CHEMICALS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

As of December 31, 2002, 2001 and 2000, $35.0, $27.5 and $12.4,
respectively, had been charged against restructuring reserves.

As of December 31, 2002, substantially all of employees from the 2002
restructuring program and all of the employees from the 2001 and 2000
restructuring programs had been terminated with a portion still receiving
benefits. At December 31, 2002 and 2001, $7.5 and $7.4, respectively, of
restructuring reserves were included in Accrued Liabilities in the accompanying
Consolidated Balance Sheets.

Other (Gains) and Losses

Other gains and losses in 2001 includes a $1.0 write-off of an investment
in Global BA.com, Inc., an Internet-based business-to-distributor-to-business
on-line marketplace for specialty chemical companies, which became insolvent in
the third quarter of 2001.

Other gains and losses in 2000 include $2.5 of costs related to the
acquisition and integration of Hickson, and a pretax gain of $10.6, principally
related to the sale of SPPI (included in the HTH water products segment).

22. QUARTERLY FINANCIAL DATA (UNAUDITED)

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

(1) The sum of the quarters do not add to the total due to the weighting of
common shares outstanding.

81

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

Not Applicable.

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

The information relating to the Company's Directors under the paragraphs
entitled "Who are the persons nominated by the Board in this election to serve
as directors?" and "Who are the other remaining directors and when are their
terms scheduled to end?" under the heading "Item 1 -- Election of Directors" in
the Proxy Statement relating to the Company's 2003 Annual Meeting of
Shareholders (the "Proxy Statement") is incorporated by reference in this
Report. See also the list of executive officers following Item 4 of this Report.
The information regarding compliance with Section 16 of the Securities Exchange
Act of 1934, as amended, contained in the paragraph entitled "Section 16(a)
Beneficial Ownership Reporting Compliance" under the heading "Security Ownership
of Directors and Officers" in the Proxy Statement is incorporated by reference
in this Report.

ITEM 11. EXECUTIVE COMPENSATION

The information under the heading "Executive Compensation" in the Proxy
Statement (but excluding the Report of the Compensation Committee on Executive
Compensation contained in the Proxy Statement and the performance graph
contained in the Proxy Statement) is incorporated by reference in this Report.
The information under the heading "Additional Information Regarding the Board of
Directors -- What are the directors paid for their services?" in the Proxy
Statement is incorporated by reference in this Report.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS

The information concerning holdings of Company stock by certain beneficial
owners contained under the heading "Certain Beneficial Owners" in the Proxy
Statement and the information concerning beneficial ownership of Common Stock by
directors and officers of the Company under the heading "Security Ownership of
Directors and Officers" in the Proxy Statement are incorporated by reference in
this Report.

EQUITY COMPENSATION PLAN INFORMATION AS OF DECEMBER 31, 2002

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

(1) Figures include information for equity compensation plans of Olin which
issued in 1999 options to acquire shares of the Company's Common Stock in
exchange for old Olin options as part of an equitable adjustment made in
connection with the spinoff of the Company from Olin in 1999. No further
options to acquire the Company's Common Stock may be issued under such
plans. As of December 31, 2002, 867,791 of these options were outstanding.

82

(2) 642,287 of the shares shown may be issued in connection with future grants
of stock-based awards and future deferrals of compensation to stock
accounts. 58,709 of the shares shown relate to various current deferrals of
awards or compensation in the form of phantom shares payable in shares of
Company Common Stock at the end of the deferral period.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Not applicable.

ITEM 14. CONTROLS AND PROCEDURES

As of a date ("Evaluation Date") within 90 days prior to the date of this
report, the Company conducted an evaluation, under the supervision and with the
participation of the Company's chief executive officer and chief financial
officer, pursuant to Rule 13a-15 promulgated under the Securities Exchange Act
of 1934, as amended ("Exchange Act") of the effectiveness of the design and
operation of the Company's disclosure controls and procedures. Based on this
evaluation, the Company's chief executive officer and chief financial officer
concluded that as of the Evaluation Date such disclosure controls and procedures
were reasonably designed to ensure that information required to be disclosed by
the Company in reports it files or submits under the Exchange Act is recorded,
processed, summarized and reported within the time period specified in the rules
and forms of the Securities and Exchange Commission. The Company also has
investments in certain unconsolidated entities. As the Company does not control
or manage these entities, its disclosure controls and procedures with respect to
such entities are necessarily more limited than those it maintains with respect
to its consolidated subsidiaries.

Since the Evaluation Date, there has not been any significant changes in
the internal controls of the Company, or in other factors that could
significantly affect these controls.

83

PART IV

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

(a) 1. Financial Statements

The following is a list of the Financial Statements included in Item 8 of
Part II of this Report:

2. Financial Statement Schedules

Schedules not included herein are omitted because they are inapplicable or
not required or because the required information is given in the consolidated
financial statements and notes thereto.

Separate financial statements of 50% or less owned companies accounted for
by the equity method are not summarized herein and have been omitted because
they would not constitute a significant subsidiary.

3. Exhibits

Management contracts and compensatory plans and arrangements are listed as
Exhibits 10.10 through 10.20 below.

The Company is party to other instruments defining the rights of holders of
long-term debt. No such instrument authorizes an amount of securities in excess
of 10% of the total assets of the Company and its subsidiaries on a consolidated
basis. The Company agrees to furnish a copy of each instrument to the Commission
upon request.

3.1 Amended and Restated Articles of Incorporation of the
Company -- Exhibit 3.1 to the Company's Current Report on
Form 8-K, filed February 17, 1999.*
3.2 Bylaws of the Company as amended January 27, 2000 -- Exhibit
3.2 to the Company's Annual Report on Form 10-K for the
period ending December 31, 1999.*
4.1 Specimen Common Share certificate -- Exhibit 4.1 to the
Company's Registration Statement on Form 10, as amended.*
4.2 Amended and Restated Articles of Incorporation of the
Company (filed as Exhibit 3.1 hereto).
4.3 Bylaws of the Company (filed as Exhibit 3.2 hereto).
4.4(a) Rights Agreement dated as of January 29, 1999 between the
Company and ChaseMellon Shareholder Services, L.L.C., as
Rights Agent -- Exhibit 4.1 to the Company's Current Report
on Form 8-K, filed February 17, 1999.*
4.4(b) Amendment No. 1, dated July 25, 1999, to Rights Agreement,
dated as of January 29, 1999 -- Exhibit 4 to the Company's
Quarterly Report on Form 10-Q, for the period ending June
30, 1999.*

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

* Previously filed as indicated and incorporated herein by reference.
Exhibits incorporated by reference are located in SEC File No.
1-14601 unless otherwise indicated.

84

4.4(c) Amendment No. 2, dated April 26, 2002, to Rights Agreement,
dated as of January 29, 1999 -- Exhibit 4 to the Company's
Quarterly Report on Form 10-Q for the period ending March
31, 2002.*
4.5 Form of Rights Certificate (attached as Exhibit B to the
Rights Agreement filed as Exhibit 4.4(a) hereto).*
4.6(a) Five-year Credit Agreement, dated as of January 27, 1999,
among the Company, Olin, the Lenders party thereto, Bank of
America, National Trust and Savings Association, as
Syndication Agent, Wachovia Bank, N.A., as Documentation
Agent, The Chase Manhattan Bank, as Administrative Agent and
Chase Securities Inc., as Arranger -- Exhibit 10.2 to the
Company's Current Report on Form 8-K, filed February 17,
1999.*
4.6(b) Amendment, dated January 23, 2002, to the Five-year Credit
Agreement, dated as of January 27, 1999, among the Company,
the Lenders party thereto, JPMorgan Chase Bank, individually
and as Administrative Agent, Bank of America, N.C.,
individually and as Syndication Agent, and Wachovia Bank,
N.A., individually and as Documentation Agent -- Exhibit
4.6(b) to the Company's Annual Report on Form 10-K for the
period ending December 31, 2001.*
4.6(c) Amendment, dated January 22, 2003, to the Five-year Credit
Agreement, dated as of January 27, 1999, among the Company,
the Lenders party thereto, JPMorgan Chase Bank, individually
and as Administrative Agent, Bank of America, N.C.,
individually and as Syndication Agent, and Wachovia Bank,
N.A., individually and as Documentation Agent.
4.7 Note Purchase Agreement, dated as of March 20, 2002, among
the Company and the purchasers named therein, relating to
the Company's $149,000,000 Senior Notes, Series A, due March
20, 2007 and $62,000,000 Senior Notes, Series B, due March
20, 2009 -- Exhibit 4.8 to the Company's Annual Report on
Form 10-K for the period ending December 31, 2001.*
10.1 Distribution Agreement, dated as of February 1, 1999,
between the Company and Olin -- Exhibit 2 to the Company's
Current Report on Form 8-K, filed February 17, 1999.*
10.2 Chlor-Alkali Supply Agreement, dated as of February 8, 1999,
between the Company and Olin -- Exhibit 10.2 to the
Company's Annual Report on Form 10-K for the period ending
December 31, 1998.*
10.3 Covenant Not To Compete Agreement, dated as of February 8,
1999, between the Company and Olin -- Exhibit 10.3 to the
Company's Annual Report on Form 10-K for the period ending
December 31, 1998.*
10.4 Form of Employee Benefits Allocation Agreement between the
Company and Olin -- Exhibit 10.4 to the Company's Annual
Report on Form 10-K for the period ending December 31,
1998.*
10.5 Form of Intellectual Property Transfer and License Agreement
between the Company and Olin -- Exhibit 10.9 to the
Company's Registration Statement on Form 10, as amended.*
10.6 Form of Sublease between the Company and Olin -- Exhibit
10.5 to the Company's Registration Statement on Form 10, as
amended.*
10.7 Form of Trade Name License Agreement between the Company and
Olin -- Exhibit 10.11 to the Company's Registration
Statement on Form 10, as amended.*
10.8 Tax Sharing Agreement, dated as of February 8, 1999, between
the Company and Olin -- Exhibit 10.9 to the Company's Annual
Report on Form 10-K for the period ending December 31,
1998.*
10.9 Charleston Services Agreement, dated as of February 8, 1999,
between the Company and Olin -- Exhibit 10.10 to the
Company's Annual Report on Form 10-K for the period ending
December 31, 1998.*
10.10 Form of Executive Agreement -- Exhibit 10.12 to the
Company's Annual Report on Form 10-K for the period ending
December 31, 1999.*

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

* Previously filed as indicated and incorporated herein by reference.
Exhibits incorporated by reference are located in SEC File No.
1-14601 unless otherwise indicated.

85

10.11 1999 Stock Plan for Non-employee Directors, as amended and
restated January 30, 2003.
10.12 1999 Long Term Incentive Plan, as amended October 28, 1999
and December 14, 2000 -- Exhibit 10.14 to the Company's
Annual Report on Form 10-K for the period ending December
31, 2000.*
10.13 Supplemental Contributing Employee Ownership Plan, as
amended and restated January 30, 2003.
10.14 Supplementary and Deferral Benefit Pension Plan, as amended
July 29, 1999 -- Exhibit 10.16 to the Company's Annual
Report on Form 10-K for the period ending December 31,
1999.*
10.15 Senior Executive Pension Plan, as amended July 29,
1999 -- Exhibit 10.17 to the Company's Annual Report on Form
10-K for the period ending December 31, 1999.*
10.16 Employee Deferral Plan, as amended and restated January 30,
2003.
10.17 Key Executive Death Benefits -- Exhibit 10.19 to the
Company's Registration Statement on Form 10, as amended.*
10.18 Form of Endorsement Split Dollar Agreement -- Exhibit 10.20
to the Company's Registration Statement on Form 10, as
amended.*
10.19 Arch Chemicals, Inc. Annual Incentive Plan, as amended
December 9, 1999 and April 27, 2000 -- Exhibit 10.21 to the
Company's Annual Report on Form 10-K for the period ending
December 31, 2000.*
10.20 Senior Management Incentive Compensation Plan as amended
January 27, 2000 -- Exhibit 10.22 to the Company's Annual
Report on Form 10-K for the period ending December 31,
1999.*
10.21(a) 364-Day Credit Agreement, dated as of January 27, 1999,
among the Company, Olin, the Lenders party thereto, Bank of
America, National Trust and Savings Association, as
Syndication Agent, Wachovia Bank, N.A., as Documentation
Agent, The Chase Manhattan Bank, as Administrative Agent and
Chase Securities Inc., as Arranger -- Exhibit 10.1 to the
Company's Current Report on Form 8-K, filed February 17,
1999.*
10.21(b) Extension Agreement, dated as of January 24, 2001, among the
Company, the Lenders party thereto, Bank of America,
National Trust and Savings Association, as Syndication
Agent, Wachovia Bank, N.A., as Documentation Agent and The
Chase Manhattan Bank, as Administrative Agent, relating to
the 364-Day Credit Agreement -- Exhibit 4.6(b) to the
Company's Annual Report on Form 10-K for the period ending
December 31, 2000.*
10.21(c) Extension Agreement, dated as of January 23, 2002, among the
Company, the Lenders party thereto, JPMorgan Chase Bank, as
Administrative Agent, Bank of America, N.A., as Syndication
Agent, and Wachovia Bank, N.A., individually and as
Documentation Agent, relating to the 364-Day Credit
Agreement -- Exhibit 10.24(c) to the Company's Annual Report
on Form 10-K for the period ending December 31, 2001.*
10.21(d) Amendment, dated as of January 23, 2002, to the 364-Day
Credit Agreement, dated as of January 27, 1999, among the
Company, the Lenders party thereto, JPMorgan Chase Bank,
individually and as Administrative Agent, Bank of America,
N.A., individually and as Syndication Agent, and Wachovia
Bank, N.A., individually and as Documentation
Agent -- Exhibit 10.24(d) to the Company's Annual Report on
Form 10-K for the period ending December 31, 2001.*
10.21(e) Extension Agreement, dated as of January 22, 2003, among the
Company, the Lenders party thereto, JPMorgan Chase Bank, as
Administrative Agent, Bank of America, N.A., as Syndication
Agent, and Wachovia Bank, N.A., individually and as
Documentation Agent, relating to the 364-Day Credit
Agreement.
10.21(f) Amendment, dated as of January 22, 2003, to the 364-Day
Credit Agreement, dated as of January 27, 1999, among the
Company, the Lenders party thereto, JPMorgan Chase Bank,
individually and as Administrative Agent, Bank of America,
N.A., individually and as Syndication Agent, and Wachovia
Bank, N.A., individually and as Documentation Agent.

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

* Previously filed as indicated and incorporated herein by reference.
Exhibits incorporated by reference are located in SEC File No.
1-14601 unless otherwise indicated.

86

10.22(a) Receivables Sale Agreement, dated as of March 19, 2002,
between the Company, Arch Specialty Chemicals, Inc., Arch
Chemicals Specialty Products, Inc., Arch Electronic
Chemicals, Inc., Arch Wood Protection, Inc., Arch Personal
Care Products, L.P., and Arch Chemicals Receivables
Corp. -- Exhibit 10.25(a) to the Company's Annual Report on
Form 10-K for the period ending December 31, 2001.*
10.22(b) Receivables Purchase Agreement, dated as of March 19, 2002,
between Arch Chemicals Receivables Corp., the Company, Blue
Ridge Asset Funding Corporation and Wachovia Bank, N.A., as
agent -- Exhibit 10.25(b) to the Company's Annual Report on
Form 10-K for the period ending December 31, 2001.*
10.22(c) First Amendment, dated as of April 10, 2002, to Receivables
Purchase Agreement, dated as of March 19, 2002, among Arch
Chemicals Receivables Corp., Arch Chemicals, Inc., Blue
Ridge Asset Funding Corporation, and Wachovia Bank, National
Association -- Exhibit 10.1 to the Company's Quarterly
Report on Form 10-Q for the period ending March 31, 2002.*
10.22(d) Second Amendment, dated as of May 15, 2002, to Receivables
Purchase Agreement, dated as of March 19, 2002, among Arch
Chemicals Receivables Corp., Arch Chemicals, Inc., Blue
Ridge Asset Funding Corporation and Wachovia Bank, National
Association -- Exhibit 10.1 to the Company's Quarterly
Report on Form 10-Q for the period ending June 30, 2002.*
21. List of Subsidiaries.
23. Consent of KPMG LLP, dated March 5, 2003.

(b) Reports on Form 8-K

No reports on Form 8-K were filed during the quarter ended December 31,
2002.

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

* Previously filed as indicated and incorporated herein by reference.
Exhibits incorporated by reference are located in SEC File No.
1-14601 unless otherwise indicated.

87

SIGNATURES

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

ARCH CHEMICALS, INC.

By /s/ MICHAEL E. CAMPBELL
------------------------------------
Michael E. Campbell
Chairman of the Board, President and
Chief Executive Officer

Date: March 6, 2003

Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the date indicated.

Date: March 6, 2003

88

CERTIFICATIONS

I, Michael E. Campbell, Chief Executive Officer of the Company, certify that:

1. I have reviewed this annual report on Form 10-K of Arch Chemicals,
Inc.;

2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report;

3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;

4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

a. Designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this annual report is being
prepared;

b. Evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the filing
date of this annual report (the "Evaluation Date"); and

c. Presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;

5. The registrant's other certifying officer and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):

a. All significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have identified
for the registrant's auditors any material weaknesses in internal controls;
and

b. Any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's internal
controls; and

6. The registrant's other certifying officer and I have indicated in this
annual report whether there were significant changes in internal controls or in
other factors that could significantly affect internal controls subsequent to
the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.

/s/ MICHAEL E. CAMPBELL
--------------------------------------
Michael E. Campbell
Chief Executive Officer

Date: March 6, 2003

89

I, Louis S. Massimo, Chief Financial Officer of the Company, certify that:

1. I have reviewed this annual report on Form 10-K of Arch Chemicals,
Inc.;

2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report;

3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;

4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

a. Designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this annual report is being
prepared;

b. Evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the filing
date of this annual report (the "Evaluation Date"); and

c. Presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;

5. The registrant's other certifying officer and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):

a. All significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have identified
for the registrant's auditors any material weaknesses in internal controls;
and

b. Any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's internal
controls; and

6. The registrant's other certifying officer and I have indicated in this
annual report whether there were significant changes in internal controls or in
other factors that could significantly affect internal controls subsequent to
the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.

/s/ LOUIS S. MASSIMO
--------------------------------------
Louis S. Massimo
Chief Financial Officer

Date: March 6, 2003

90

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Printed on Recycled Paper

EXHIBIT INDEX

3.1 Amended and Restated Articles of Incorporation of the
Company -- Exhibit 3.1 to the Company's Current Report on
Form 8-K, filed February 17, 1999.*
3.2 Bylaws of the Company as amended January 27, 2000 -- Exhibit
3.2 to the Company's Annual Report on Form 10-K for the
period ending December 31, 1999.*
4.1 Specimen Common Share certificate -- Exhibit 4.1 to the
Company's Registration Statement on Form 10, as amended.*
4.2 Amended and Restated Articles of Incorporation of the
Company (filed as Exhibit 3.1 hereto).
4.3 Bylaws of the Company (filed as Exhibit 3.2 hereto).
4.4(a) Rights Agreement dated as of January 29, 1999 between the
Company and ChaseMellon Shareholder Services, L.L.C., as
Rights Agent -- Exhibit 4.1 to the Company's Current Report
on Form 8-K, filed February 17, 1999.*
4.4(b) Amendment No. 1, dated July 25, 1999, to Rights Agreement,
dated as of January 29, 1999 -- Exhibit 4 to the Company's
Quarterly Report on Form 10-Q, for the period ending June
30, 1999.*
4.4(c) Amendment No. 2, dated April 26, 2002, to Rights Agreement,
dated as of January 29, 1999 -- Exhibit 4 to the Company's
Quarterly Report on Form 10-Q for the period ending March
31, 2002.*
4.5 Form of Rights Certificate (attached as Exhibit B to the
Rights Agreement filed as Exhibit 4.4(a) hereto).*
4.6(a) Five-year Credit Agreement, dated as of January 27, 1999,
among the Company, Olin, the Lenders party thereto, Bank of
America, National Trust and Savings Association, as
Syndication Agent, Wachovia Bank, N.A., as Documentation
Agent, The Chase Manhattan Bank, as Administrative Agent and
Chase Securities Inc., as Arranger -- Exhibit 10.2 to the
Company's Current Report on Form 8-K, filed February 17,
1999.*
4.6(b) Amendment, dated January 23, 2002, to the Five-year Credit
Agreement, dated as of January 27, 1999, among the Company,
the Lenders party thereto, JPMorgan Chase Bank, individually
and as Administrative Agent, Bank of America, N.C.,
individually and as Syndication Agent, and Wachovia Bank,
N.A., individually and as Documentation Agent -- Exhibit
4.6(b) to the Company's Annual Report on Form 10-K for the
period ending December 31, 2001.*
4.6(c) Amendment, dated January 22, 2003, to the Five-year Credit
Agreement, dated as of January 27, 1999, among the Company,
the Lenders party thereto, JPMorgan Chase Bank, individually
and as Administrative Agent, Bank of America, N.C.,
individually and as Syndication Agent, and Wachovia Bank,
N.A., individually and as Documentation Agent.
4.7 Note Purchase Agreement, dated as of March 20, 2002, among
the Company and the purchasers named therein, relating to
the Company's $149,000,000 Senior Notes, Series A, due March
20, 2007 and $62,000,000 Senior Notes, Series B, due March
20, 2009 -- Exhibit 4.8 to the Company's Annual Report on
Form 10-K for the period ending December 31, 2001.*
10.1 Distribution Agreement, dated as of February 1, 1999,
between the Company and Olin -- Exhibit 2 to the Company's
Current Report on Form 8-K, filed February 17, 1999.*
10.2 Chlor-Alkali Supply Agreement, dated as of February 8, 1999,
between the Company and Olin -- Exhibit 10.2 to the
Company's Annual Report on Form 10-K for the period ending
December 31, 1998.*
10.3 Covenant Not To Compete Agreement, dated as of February 8,
1999, between the Company and Olin -- Exhibit 10.3 to the
Company's Annual Report on Form 10-K for the period ending
December 31, 1998.*

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

* Previously filed as indicated and incorporated herein by reference. Exhibits
incorporated by reference are
located in SEC File No. 1-14601 unless otherwise indicated.

10.4 Form of Employee Benefits Allocation Agreement between the
Company and Olin -- Exhibit 10.4 to the Company's Annual
Report on Form 10-K for the period ending December 31,
1998.*
10.5 Form of Intellectual Property Transfer and License Agreement
between the Company and Olin -- Exhibit 10.9 to the
Company's Registration Statement on Form 10, as amended.*
10.6 Form of Sublease between the Company and Olin -- Exhibit
10.5 to the Company's Registration Statement on Form 10, as
amended.*
10.7 Form of Trade Name License Agreement between the Company and
Olin -- Exhibit 10.11 to the Company's Registration
Statement on Form 10, as amended.*
10.8 Tax Sharing Agreement, dated as of February 8, 1999, between
the Company and Olin -- Exhibit 10.9 to the Company's Annual
Report on Form 10-K for the period ending December 31,
1998.*
10.9 Charleston Services Agreement, dated as of February 8, 1999,
between the Company and Olin -- Exhibit 10.10 to the
Company's Annual Report on Form 10-K for the period ending
December 31, 1998.*
10.10 Form of Executive Agreement -- Exhibit 10.12 to the
Company's Annual Report on Form 10-K for the period ending
December 31, 1999.*
10.11 1999 Stock Plan for Non-employee Directors, as amended and
restated January 30, 2003.
10.12 1999 Long Term Incentive Plan, as amended October 28, 1999
and December 14, 2000 -- Exhibit 10.14 to the Company's
Annual Report on Form 10-K for the period ending December
31, 2000.*
10.13 Supplemental Contributing Employee Ownership Plan, as
amended and restated through January 30, 2003.
10.14 Supplementary and Deferral Benefit Pension Plan, as amended
July 29, 1999 -- Exhibit 10.16 to the Company's Annual
Report on Form 10-K for the period ending December 31,
1999.*
10.15 Senior Executive Pension Plan, as amended July 29,
1999 -- Exhibit 10.17 to the Company's Annual Report on Form
10-K for the period ending December 31, 1999.*
10.16 Employee Deferral Plan, as amended and restated January 30,
2003.
10.17 Key Executive Death Benefits -- Exhibit 10.19 to the
Company's Registration Statement on Form 10, as amended.*
10.18 Form of Endorsement Split Dollar Agreement -- Exhibit 10.20
to the Company's Registration Statement on Form 10, as
amended.*
10.19 Arch Chemicals, Inc. Annual Incentive Plan, as amended
December 9, 1999 and April 27, 2000 -- Exhibit 10.21 to the
Company's Annual Report on Form 10-K for the period ending
December 31, 2000.*
10.20 Senior Management Incentive Compensation Plan as amended
January 27, 2000 -- Exhibit 10.22 to the Company's Annual
Report on Form 10-K for the period ending December 31,
1999.*
10.21(a) 364-Day Credit Agreement, dated as of January 27, 1999,
among the Company, Olin, the Lenders party thereto, Bank of
America, National Trust and Savings Association, as
Syndication Agent, Wachovia Bank, N.A., as Documentation
Agent, The Chase Manhattan Bank, as Administrative Agent and
Chase Securities Inc., as Arranger -- Exhibit 10.1 to the
Company's Current Report on Form 8-K, filed February 17,
1999.*
10.21(b) Extension Agreement, dated as of January 24, 2001, among the
Company, the Lenders party thereto, Bank of America,
National Trust and Savings Association, as Syndication
Agent, Wachovia Bank, N.A., as Documentation Agent and The
Chase Manhattan Bank, as Administrative Agent, relating to
the 364-Day Credit Agreement -- Exhibit 4.6(b) to the
Company's Annual Report on Form 10-K for the period ending
December 31, 2000.*

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

* Previously filed as indicated and incorporated herein by reference. Exhibits
incorporated by reference are
located in SEC File No. 1-14601 unless otherwise indicated.

10.21(c) Extension Agreement, dated as of January 23, 2002, among the
Company, the Lenders party thereto, JPMorgan Chase Bank, as
Administrative Agent, Bank of America, N.A., as Syndication
Agent, and Wachovia Bank, N.A., individually and as
Documentation Agent, relating to the 364-Day Credit
Agreement -- Exhibit 10.24(c) to the Company's Annual Report
on Form 10-K for the period ending December 31, 2001.*
10.21(d) Amendment, dated as of January 23, 2002, to the 364-Day
Credit Agreement, dated as of January 27, 1999, among the
Company, the Lenders party thereto, JPMorgan Chase Bank,
individually and as Administrative Agent, Bank of America,
N.A., individually and as Syndication Agent, and Wachovia
Bank, N.A., individually and as Documentation Agent --
Exhibit 10.24(d) to the Company's Annual Report on Form 10-K
for the period ending December 31, 2001.*
10.21(e) Extension Agreement, dated as of January 22, 2003, among the
Company, the Lenders party thereto, JPMorgan Chase Bank, as
Administrative Agent, Bank of America, N.A., as Syndication
Agent, and Wachovia Bank, N.A., individually and as
Documentation Agent, relating to the 364-Day Credit
Agreement.
10.21(f) Amendment, dated as of January 22, 2003, to the 364-Day
Credit Agreement, dated as of January 27, 1999, among the
Company, the Lenders party thereto, JPMorgan Chase Bank,
individually and as Administrative Agent, Bank of America,
N.A., individually and as Syndication Agent, and Wachovia
Bank, N.A., individually and as Documentation Agent.
10.22(a) Receivables Sale Agreement, dated as of March 19, 2002,
between the Company, Arch Specialty Chemicals, Inc., Arch
Chemicals Specialty Products, Inc., Arch Electronic
Chemicals, Inc., Arch Wood Protection, Inc., Arch Personal
Care Products, L.P., and Arch Chemicals Receivables
Corp. -- Exhibit 10.25(a) to the Company's Annual Report on
Form 10-K for the period ending December 31, 2001.*
10.22(b) Receivables Purchase Agreement, dated as of March 19, 2002,
between Arch Chemicals Receivables Corp., the Company, Blue
Ridge Asset Funding Corporation and Wachovia Bank, N.A., as
agent -- Exhibit 10.25(b) to the Company's Annual Report on
Form 10-K for the period ending December 31, 2001.*
10.22(c) First Amendment, dated as of April 10, 2002, to Receivables
Purchase Agreement, dated as of March 19, 2002, among Arch
Chemicals Receivables Corp., Arch Chemicals, Inc., Blue
Ridge Asset Funding Corporation, and Wachovia Bank, National
Association -- Exhibit 10.1 to the Company's Quarterly
Report on Form 10-Q for the period ending March 31, 2002.*
10.22(d) Second Amendment, dated as of May 15, 2002, to Receivables
Purchase Agreement, dated as of March 19, 2002, among Arch
Chemicals Receivables Corp., Arch Chemicals, Inc., Blue
Ridge Asset Funding Corporation and Wachovia Bank, National
Association -- Exhibit 10.1 to the Company's Quarterly
Report on Form 10-Q for the period ending June 30, 2002.*
21. List of Subsidiaries.
23. Consent of KPMG LLP, dated March 5, 2003.

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

* Previously filed as indicated and incorporated herein by reference. Exhibits
incorporated by reference are
located in SEC File No. 1-14601 unless otherwise indicated.