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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549

FORM 10-K

Commission file number 1-6450

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

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

Registrant's telephone number, including area code 317-715-3000

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, and (2) has been subject to the filing requirements for the past 90 days.    Yes    ý    No    o

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

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

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

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

DOCUMENTS INCORPORATED BY REFERENCE

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

TABLE OF CONTENTS

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PART I

ITEM 1.    Business

GENERAL

Great Lakes Chemical Corporation is a Delaware corporation incorporated in 1933 having its principal executive offices at 500 East 96th Street, Suite 500, Indianapolis, Indiana 46240. As used in this report, except where otherwise stated or indicated by the context, "Great Lakes" or "the Company" means Great Lakes Chemical Corporation and its consolidated subsidiaries.

Great Lakes is a customer-focused supplier of innovative specialty chemical solutions and consumer products. The Company serves customers and markets through a global network of integrated sales, production, research, technical service and distribution facilities. The Company is organized into three global business units:

Polymer Additives  - The Polymer Additives business unit is a leading developer, producer and marketer of bromine-, phosphorus- and antimony-based flame retardants and synergists; value-added antioxidants; UV absorbers; light stabilizers; performance additives and fluids; and optical monomers. These compounds are integrated into customer solutions that resist ignition and ensure the stability of products during processing or while in use.

Performance Chemicals  - The Performance Chemicals business unit is a collection of individual businesses that apply their expertise in fire suppression for mission critical and high-value assets; fluorinated intermediates; bromine and brominated intermediates; soil, crop and pest control; and all phases of nonclinical toxicological testing. As a result of the Company's decision in 2002 to sell its Fine Chemicals business, which provides complex chemical synthesis and process development for the pharmaceutical and agrochemical markets, the net assets of Fine Chemicals have been reclassified as assets held for sale, with operating results reported in Discontinued Operations for all periods presented

Water Treatment  - The Water Treatment business unit is the world's premier formulator of water treatment biocides and related specialty chemicals for recreational and commercial pools and spas. This business unit extends innovative recreational water treatment products across the value chain to mass merchants, wholesale distributors, specialty store owners and retail customers. Its bromine-based biocides and proprietary polymer-based antiscalants, corrosion inhibitors, dispersants, antifoam, hydantoin derivatives, formulated oxidizers and biocide dispensing equipment are used by industrial customers in global cooling processing, industrial and municipal wastewater, pulp and paper, food processing and desalination industries.

Segment data for the Company's operations for the three years ended December 31, 2002 are presented in Note 15 to the Consolidated Financial Statements.

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PRODUCTS AND SERVICES

The following is a list of the principal products and services, markets and production facilities of the Company:

POLYMER ADDITIVES

PERFORMANCE CHEMICALS

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WATER TREATMENT

RAW MATERIALS

The sources of essential raw materials for bromine are the brine from Company-owned wells in Arkansas and a sea water extraction plant in Europe. The Arkansas properties are located atop the Smackover lime deposits, which constitute a vast underground sea of bromine-rich brine. The 35-mile area between El Dorado and Magnolia, Arkansas, provides the best known geological location for bromine production in the United States, and both major domestic bromine manufacturers are located in this area. Based on projected production rates, the Company's brine reserves are estimated to be adequate.

Other raw materials used in the business are obtained from outside suppliers through purchase agreements. The cost of raw materials is generally based on market prices, although risk management tools may be utilized, as appropriate, to mitigate short-term market price fluctuations. Other raw materials purchased include chlorine, caustic, hexafluoropropene, phenol, bisphenol A and antimony oxide.

The Company has multiple suppliers for most key raw materials and uses quality raw materials management principles, such as the establishment of long-term relationships with suppliers and ongoing performance assessment and benchmarking, as part of the total supplier selection process. In addition, the Company uses electricity and natural gas to meet its energy needs.

INTERNATIONAL OPERATIONS

Great Lakes has a significant presence in foreign markets, principally Western Europe and Asia. Approximately one-third of the Company's assets and sales are outside the United States. The geographic segment data is set forth in Note 15, "Segment Information," of the Notes to Consolidated Financial Statements.

CUSTOMERS AND DISTRIBUTION

During the last three years, no single customer accounted for more than 10% of Great Lakes' total consolidated sales. The Company has no material contracts or subcontracts with government agencies. A major portion of the Company's sales are to industrial or commercial businesses for use in the production of other products. Some products, such as recreational water treatment chemicals and supplies, are sold to a large number of retail pool stores, mass merchandisers and distributors. Some export sales are marketed through distributors and brokers.

The Company's business does not normally reflect any significant backlog of orders.

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COMPETITION

Great Lakes is in competition with businesses producing the same or similar products, as well as businesses producing products intended for similar use. There is one other major bromine producer in the United States, which competes with the Company to varying degrees, depending on the product. In addition, the Company competes with only one major overseas manufacturer of bromine and brominated products, which competes with the Company's products primarily in Europe and Asia. Several small producers in the United States and overseas are competitors for several individual products. Furthermore, there are numerous manufacturers that compete with the Company by offering alternatives to Great Lakes products. In Polymer Stabilizers, the Company competes with a significantly larger supplier across this entire product line and with a number of smaller companies in individual product areas. Within Performance Chemicals, the Fluorine business competes with a global manufacturer producing similar products, as well as manufacturers with products intended for similar use. The Company's Water Treatment business competes with several manufacturers and distributors of swimming pool and spa chemicals.

Principal methods of competition are innovation, price, product quality and purity, technical services and service delivery. The Company is able to move quickly in providing new products to meet identified market demands. Management believes these factors, combined with highly qualified technical personnel, allow the Company to compete effectively.

SEASONALITY AND WORKING CAPITAL

The Company's products sold to the swimming pool industry exhibit some seasonality. The Company experiences higher sales and profits in the second and third quarters for pool products. Seasonality also requires that the Company build inventories for rapid delivery at certain times of the year. In particular, sales related to the pool product season require a build-up of inventory at the beginning of the year. Certain arrangements with mass market customers permit returns of unsold material at the end of a season. The effect of the these items on working capital and liquidity requirements is not material.

RESEARCH AND DEVELOPMENT, PATENTS AND TRADEMARKS

The Company holds various patents and trademarks covering a number of its products and processes. While the Company believes these patents and trademarks offer significant commercial benefits, the Company's management does not believe any individual patent or trademark is of material importance to the Company's business as a whole or that the success of the Company's business is dependent upon its portfolio of patents and trademarks.

Research and development expenditures are described in Note 14, "Research and Development Expenses," of the Notes to Consolidated Financial Statements.

ENVIRONMENTAL

The Company's operations are subject to various laws and regulations relating to maintaining or protecting the quality of the environment. Information regarding environmental compliance and contingencies is set forth under the "Environmental" caption in "Management's Discussion and Analysis of Financial Condition and Results of Operations" and in Note 18, "Commitments and Contingencies," of the Notes to Consolidated Financial Statements.

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EMPLOYEES

The Company currently employs approximately 4,600 people, 40% of whom are employed outside the United States. Approximately 190 U.S. employees are represented by collective bargaining agreements. The Company maintains good employee relations and is currently in negotiations with its one union whose contract expires in the first quarter of 2003. While the Company has successfully completed its past labor negotiations without a work stoppage, it cannot predict the outcome of current or future contract negotiations.

AVAILABLE INFORMATION

The Company's Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, proxy statements and amendments to those reports, are available free of charge on the Company's Internet website at http://www.greatlakes.com as soon as reasonably practicable after such reports are filed with the Securities and Exchange Commission.

ITEM 2.    Properties

The Company leases its principal executive offices in Indianapolis, Indiana, and owns its principal corporate facility in West Lafayette, Indiana. The Company operates 24 production facilities in 11 countries. The Company has distribution facilities at all of its manufacturing sites. Listed under "Item I. Business" above in the table captioned "Products and Services" are the production facilities by business unit. The Company's principal research facilities are in West Lafayette, Indiana; Decatur, Georgia; and Trafford Park (Manchester), U.K. Most principal locations are owned.

In addition, the Company owns or leases warehouses, distribution centers and office space for administrative and sales activities throughout the world. All of the Company's facilities are in good repair, suitable for the Company's businesses, and have sufficient capacity to meet present market demands at an efficient operating level.

ITEM 3.    Legal Proceedings

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

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

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

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

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

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

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

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

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

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There are also various other lawsuits and claims, other than those mentioned above, pending against the Company and certain of its consolidated subsidiaries. While it is not possible to predict or determine the outcome of legal actions brought against the Company or the ultimate cost of these actions, the Company believes the costs associated with all such actions in the aggregate will not have a material adverse effect on its consolidated financial position, liquidity or results of operations. Furthermore, no director, officer or affiliate of the Company, or any associate of any director or officer is involved, or has a material interest in, any proceeding that would have a material adverse effect on the Company.

ITEM 4.    Submission of Matters to a Vote of Security Holders

No matters were submitted to a vote of security holders during the quarter ended December 31, 2002.

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PART II

ITEM 5.    Market for the Registrant's Common Equity and Related Stockholder Matters

The common stock of Great Lakes Chemical Corporation is traded on the New York Stock Exchange (the "NYSE") under the trading symbol GLK. The following table sets forth the quarterly dividends paid per share and the ranges of high and low market prices per share on the NYSE for the last two fiscal years, based upon information supplied by the NYSE.

As of March 3, 2003, there were approximately 2,128 stockholders of record of the Company's common stock.

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ITEM 6.    Selected Financial Data

⁽¹⁾

After special charges of $5.1 million, $148.6 million, $54.3 million, $19.0 million and $112.7 million in 2002, 2001, 2000, 1999 and 1998, respectively.

⁽²⁾

Amounts reflect balances for continuing operations.

⁽³⁾

Earnings per share from continuing operations for 2002 were reduced by $0.01 per share, reflecting adjustments made subsequent to the Company's press release issued January 28, 2003, as described in Management's Discussion and Analysis of Financial Condition and Results of Operations.

⁽⁴⁾

Stock prices prior to May 22, 1999, do not reflect the Octel spin-off.

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ITEM 7.    Management's Discussion and Analysis of Financial Condition and Results of Operations

The following provides a review of the consolidated financial position of Great Lakes Chemical Corporation ("the Company"), at December 31, 2002 and 2001, the consolidated results of operations for the three years ended December 31, 2002, and where appropriate, factors that may affect future financial performance. Please read this discussion in conjunction with the accompanying consolidated financial statements, notes and selected consolidated financial data. As described in Note 3 to the Consolidated Financial Statements, the results of the Fine Chemicals business as a part of the Performance Chemicals business unit and OSCA, formerly the Energy Services and Products business unit, are reported in Discontinued Operations for all periods presented.

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION

The Company is including the following cautionary statement to make applicable and take advantage of the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995 with respect to any forward-looking statement made by, or on behalf of, the Company. Forward-looking statements generally may be identified by words such as "believes," "expects," "intends," "may," "will likely result," "estimates," "anticipates," "should," and other similar expressions, or the negative of such words or expressions. The factors identified in this cautionary statement are important factors (but do not necessarily constitute all important factors) that could cause actual results to differ materially from those expressed in any forward-looking statement made by, or on behalf of, the Company.

Where any such forward-looking statement includes a statement of the assumptions or bases underlying such forward-looking statement, the Company cautions that, while it believes such assumptions or bases to be reasonable and makes them in good faith, assumed facts or bases almost always vary from actual results, and the differences between assumed facts or bases and actual results can be material, depending upon the circumstances. Where, in any forward-looking statement, the Company, or its management, expresses an expectation or belief as to future results, such expectation or belief is expressed in good faith and believed to have a reasonable basis, but there can be no assurance that the statement of expectation or belief will result or be achieved or accomplished.

Taking into account the foregoing, certain factors, including, but not limited to, those listed below, may cause actual results to differ materially from those expressed in any forward-looking statement made by, or on behalf of, the Company.

•

Economic factors over which the Company has no control, including changes in inflation, tax rates, interest rates and foreign currency exchange rates.



•

Competitive factors such as pricing pressures on key products and the cost and availability of key raw materials.



•

Governmental factors including laws and regulations and judicial decisions related to the production or use of key products such as bromine and bromine derivatives.



•

The difficulties and uncertainties inherent in new product development. New product candidates that appear promising in development may fail to reach the market because of safety concerns, inability to obtain necessary regulatory approvals, difficulty or excessive costs to manufacture, or infringements of the patents or intellectual property rights of others.



•

Legal factors, including unanticipated litigation of product liability claims, antitrust litigation, environmental matters or patent disputes with competitors, which could preclude commercialization of products or negatively affect the profitability of existing products.

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•

Inability to obtain existing levels of product liability insurance or denial of insurance coverage following a major product liability claim.



•

Changes in tax laws, including future changes in tax laws related to the remittance of foreign earnings or investments in foreign countries with favorable tax rates.



•

Changes in accounting standards promulgated by the Financial Accounting Standards Board; the Securities and Exchange Commission; or the American Institute of Certified Public Accountants, which are adverse to the Company.



•

Internal factors such as changes in business strategies and the impact of cost control efforts and business combinations.



•

Loss of brine leases or inability to produce the bromide ion in required quantities due to depletion of resources or other causes beyond the Company's control.

CRITICAL ACCOUNTING POLICIES

Financial Reporting Release No. 60 requires all companies to include a discussion of critical accounting policies or methods used in the preparation of financial statements. See Note 1 to the Company's audited Consolidated Financial Statements for a summary of the significant accounting policies and methods used in the preparation of the consolidated financial statements. We believe the following are some of the more critical judgment areas in the application of our accounting policies that currently affect our consolidated financial condition and results of operations.

GENERAL

The preparation of the Consolidated Financial Statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the Consolidated Financial Statements and accompanying notes. The most significant estimates and assumptions relate to special charges, impairment of goodwill and intangible assets, income taxes, pensions and contingencies related to litigation and environmental matters. Actual amounts could differ significantly from these estimates.

SPECIAL CHARGES

The Company recorded special charges, net of adjustments, of $5.1 million, $148.6 million and $54.3 million in 2002, 2001 and 2000, respectively. These charges and adjustments were made in connection with detailed repositioning and restructuring plans, which provided for a series of cost reduction initiatives to further streamline operations, strengthen the Company's competitive position and provide a platform for future growth. The charges associated with these plans included estimates for amounts related to asset impairments, employee severance costs, plant closure and related environmental costs and the settlements of various contractual obligations resulting from these repositioning and restructuring actions. When it is determinable that the actual costs differ from the original estimates, adjustments, either additional charges or reversals, are made to the remaining special charge reserves at that time.

IMPAIRMENT OF LONG-LIVED AND INTANGIBLE ASSETS

The Company evaluates long-lived assets, including goodwill and other intangible assets, annually or when events occur or circumstances change that may result in a potential impairment. Judgments regarding the existence of impairment indicators are based on legal factors, market conditions and operational performance of acquired businesses. If impairment indicators are present, the Company is required to assess the recoverability of these assets. In assessing the recoverability of the Company's goodwill and other intangible assets, the Company must make assumptions regarding

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estimated future cash flows and other factors to determine the fair value of the respective assets. If these estimates or their related assumptions change in the future, the Company may be required to adjust the impairment charges for these assets.

INCOME TAXES

The Company accounts for income taxes in accordance with Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes," which requires that deferred tax assets and liabilities are recognized using enacted tax rates for the effect of temporary differences between the book and tax bases of recorded assets and liabilities. The statement also requires that deferred tax assets be reduced by a valuation allowance if it is more likely than not that some portion or all of the deferred tax asset will not be realized.

At December 31, 2002, the Company had deferred tax assets in excess of deferred tax liabilities of $9.9 million. At December 31, 2002 and 2001, management determined that it is more likely than not that $35.7 million and $49.4 million, respectively, of certain deferred tax assets will not be realized, requiring the Company to establish a valuation allowance for those amounts.

The Company evaluates on a quarterly basis its ability to realize its deferred tax assets by assessing its valuation allowance and by adjusting the amount of such allowance, if necessary. The factors used to assess the likelihood of realization are the Company's forecast of future taxable income and available tax planning strategies that could be implemented to support realization of certain deferred tax assets.

Failure to achieve forecasted taxable income might affect the ultimate realization of certain deferred tax assets. Factors that may affect the Company's ability to achieve sufficient forecasted taxable income include, but are not limited to, increased competition, general economic conditions, a decline in sales or earnings, loss of market share or delays in product availability.

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

DEFINED BENEFIT PENSION PLANS

The Company sponsors various non-contributory and contributory defined benefit pension plans which have significant pension benefit costs developed from actuarial valuations. Inherent in these valuations are key assumptions including discount rates, expected return on plan assets and rates of increases in compensation levels. The Company is required to consider current market conditions, including changes in interest rates and plan asset investment returns in determining these assumptions. At October 1, 2002 (the annual plan measurement date), appropriate changes were made in the discount rates and expected return on plan assets assumptions for all plans. See Note 13 to the Company's Consolidated Financial Statements for detail of these assumptions. The Company currently expects pension costs to increase approximately $8 million to $9 million in 2003 compared to 2002. The Company has no funding requirements for 2003 as actuarially determined for the U.S. plans. The Company does expect, however, to make a voluntary contribution to the U.S. qualified plan of approximately $7 million. It is anticipated that this contribution will consist primarily of Company stock. Company contributions to the non-U.S. plans in 2003 are expected to be approximately $3 million, in line with 2002 amounts.

An increase in either the discount rate or expected return on plan assets of one-fourth of 1 percentage point, holding all other assumptions constant, would decrease the Company's pension expense by $1.7 million and $0.5 million, respectively. Correspondingly, a decrease in these

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assumptions of one-fourth of 1 percentage point, holding all other assumptions constant, would increase the Company's pension expense by $1.7 million and $0.5 million, respectively.

CONTINGENCIES

The Company is subject to legal proceedings, lawsuits and other claims related to environmental, labor, product and other matters. The Company is required to assess the likelihood of any adverse judgments or outcomes related to these matters, as well as potential ranges of probable losses. A determination of the amount of reserves required, if any, for these contingencies is made after careful analysis of each individual issue. The Company records a reserve when management considers the likelihood of an unfavorable outcome probable and when a reasonable estimate of the liability can be made. At December 31, 2002, the Company had accrued $16.8 million and $45.2 million related to litigation and environmental liabilities, respectively. These accruals are estimates and may change in the future as new developments arise as changes are made in settlement strategy.

RESULTS OF OPERATIONS

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

2002 COMPARED WITH 2001

Continuing Operations

Net sales increased 3.6% to $1,401.5 million from $1,352.8 million in the prior year. Strong volume gains in the Water Treatment and Polymer Additives business units were offset by lower sales in Performance Chemicals related to the Fluorine business and lower selling prices in the Polymer Additives and Performance Chemicals business units. For the Company as a whole, sales volumes increased 5% while pricing was down 2%.

Gross profit margins increased to 23.7% from 17.1% in the prior year. Included in the gross profit margin in 2001 are $59.7 million of repositioning activity costs (see Note 2 to the Consolidated Financial Statements). Excluding these costs, gross profit margins increased to 23.7% from 21.5%. The increase reflects the benefits realized from improved manufacturing efficiencies, lower raw material costs and productivity gains associated with the repositioning efforts undertaken in the

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second half of 2001. These items more than offset reduced selling prices in Polymer Additives and Performance Chemicals.

Selling, general and administrative expenses decreased $9.5 million to $215.0 million. As a percent of sales, selling, general and administrative expenses decreased from 16.6% to 15.3%. These decreases reflect the benefits of repositioning efforts undertaken in the second half of 2001, as well as lower information technology and legal spending, which more than offset higher pension and insurance costs. Included in 2001 are $0.9 million of repositioning activity costs (see Note 2 to the Consolidated Financial Statements).

Special charges of $5.1 million in 2002 reflect net adjustments to special charge activities recorded in 2001 based on changes in original estimates. The $148.6 million of special charges in 2001 reflects $153.6 million of charges recorded during 2001 for a series of cost reduction initiatives undertaken by the Company, offset by $3.5 million of reversals of special charges taken in the second quarter of 2001 and $1.5 million of reversals of special charges taken in 2000. The net of the 2002 and 2001 special charges and reversals are reflected in the consolidated statement of operations as a separate component of operating income.

Operating income (loss) was $111.2 million compared to $(141.4) million in the prior year. Included in operating income in 2002 are $5.1 million of special charges and $1.0 million of reversals of previously recorded repositioning items. Operating income in 2001 includes the effects of $209.7 million of special charges and other repositioning activities. Excluding the impact of special charges and repositioning items, operating income increased $47.0 million year over year. This increase reflects the higher sales volumes, productivity gains, lower raw material costs and the decrease in selling, general and administrative expenses, all of which more that offset lower selling prices.

Interest income (expense) - net decreased $5.2 million to $(27.6) million in 2002 reflecting reduced net debt levels in the current year and the effects of an interest rate swap entered into during the first quarter of 2002, which reduced interest expense by $2.1 million in 2002.

Other income (expense) - net decreased $31.9 million from other expense - net of $(46.8) million in the prior year to $(14.9) million in 2002. Other income (expense) in 2002 includes $4.6 million of fixed asset write-downs net of a reversal of $(2.7) million for litigation and other settlements. Included in the fixed asset write-downs of $4.6 million is a $1.6 million impairment of the Water Treatment business unit's BioLab corporate facility as a part of a management plan to move to a leased facility in 2003. The existing facility was sold in January 2003. Other income (expense) in 2001 includes one-time charges of $33.8 million (see Note 2 to the Consolidated Financial Statements). In addition, as of January 1, 2002, the Company ceased amortization of goodwill in accordance with the adoption of SFAS No. 142 (see Note 1 to the Consolidated Financial Statements.) Goodwill amortization of $6.5 million was recognized in 2001. The absence of $6.5 million in goodwill amortization in other income (expense) - net in 2002 was more than offset by lower earnings of affiliates and higher foreign exchange losses due to the weakening of the U.S. dollar against the euro and the British pound.

Income tax expense (credit) for the year ended December 31, 2002, amounted to an expense of $21.3 million or an effective tax rate of 31.0% compared to a credit of $(39.8) million or effective tax rate of (18.0)% in the prior year. The 2002 effective income tax rate of 31% was higher than the Company's 2001 income tax rate due primarily to the increase in the valuation allowance and non-deductible goodwill write-offs related to the 2001 repositioning activities.

Income (loss) from continuing operations was $47.4 million or $0.94 per share in 2002, as compared to $(181.2) million or $(3.60) per share in 2001.

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The Company had reported in a press release on January 28, 2003, income from continuing operations of $48.0 million or $0.95 per share in 2002. The $0.6 million decrease is attributable to adjustments for inventory and employee benefit accruals, which arose subsequent to the issuance of the news release.

SEGMENT INFORMATION

Set forth below is a discussion of the operations of the Company's business segments: Polymer Additives, Performance Chemicals and Water Treatment. Operating income, which is the income measure the Company uses to evaluate business segment performance, represents net sales less costs of products sold and selling, general and administrative expenses. The operating income data presented below is before special charges. Each of the Company's segments uses bromine as a raw material in their production process. Bromine is transferred at cost to all business segments. In addition, assets used in the production of bromine are allocated to each business unit based on the percentage of production consumed.

Polymer Additives

The Polymer Additives business unit is a leading provider of flame retardants, polymer stabilizers and optical monomers and brings the most comprehensive product basket to the global marketplace. Polymer Additives provides its customers an array of integrated polymer additive solutions that meet specific, well-defined customer needs in a variety of products including consumer electronics, computers and business equipment, automotive, furniture, fibers, wire and cable, household appliances, communications equipment, building and construction materials, packaging, textiles, polymers, cosmetics and optical monomers.

Net sales increased $36.5 million or 6.3% in 2002. New product introductions and stronger end market demand drove an increase in sales volumes of 8%. This volume growth was partially offset by a 3% decline in selling prices. Roughly one-half of the 8% volume growth, or $25 million, is attributable to new product growth.

Operating income (loss) increased $87.2 million to $16.4 million for the year. Excluding inventory write-downs, environmental remediation costs and other repositioning items of $41.6 million included in operating income (loss) in 2001(see Note 2 to the Consolidated Financial Statements), operating income increased $45.6 million. Higher sales volumes and new product growth contributed $25 million to the increase. In addition, benefits derived from restructuring activities, lower raw material costs and focused productivity efforts added $39 million. These benefits more than offset the decrease in selling prices of $18 million in the current year.

Performance Chemicals

The Performance Chemicals business unit is a global supplier of fluorine-based fire suppression agent FM-200®, fluorine-based intermediates, bromine and brominated derivatives and all phases of nonclinical toxicological testing to broad and diverse markets that include information technology; telecommunications; transportation; medical; automotive; electronics; photographic paper and films;

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rubber compounds; detergents; soil, crop and structural pest control; pharmaceuticals; and the chemical and biotechnology industry.

Net sales decreased $17.5 million or 7.0% in the current year. Sales decreased 3% from lower volumes and 4% from a decline in selling prices, primarily in the Fluorine business. These decreases reflect the continued slow-down in information technology and telecommunication infrastructure spending.

Operating income decreased $8.3 million or 13.6% in the current year. Excluding inventory write-downs, environmental remediation costs and other repositioning items of $8.8 million included in operating income in 2001 (see Note 2 to the Consolidated Financial Statements), operating income decreased $17.1 million. Lower sales volumes contributed $10 million to the decrease while lower selling prices added $6 million to the decrease.

Water Treatment

The Company's Water Treatment business unit, through its BioLab subsidiary, is the world's leading provider of recreational water care products to the consumer. By deploying a brand/channel segmentation strategy, BioLab is able to maintain a strategic position in every important retail class of trade and leverage its resources. BioLab Water Additives, through its proprietary position in polymaleate chemistry, and as the world's foremost provider of bromine-based biocides, is a leading supplier of antiscalants, corrosion inhibitors, dispersants, antifoams, hydantoin derivatives, formulated oxidizers and desalination solutions.

Water Treatment net sales increased 7% to $543.0 million in the current year. Market penetration led by growing consumer acceptance of innovative product offerings and warmer weather patterns throughout most of the 2002 pool season drove the increase.

Operating income increased from $54.1 million in 2001 to $83.1 million in 2002. Included in 2002 are reversals of $1.0 million of previously recorded reserves for contract cancellation and other costs. Excluding these 2002 reversals and inventory write-downs, contract cancellation costs and other repositioning items of $10.7 million included in operating income in 2001 (see Note 2 to the Consolidated Financial Statements), operating income increased $17.3 million. The positive impact of higher sales volumes and the strength of the new product portfolio contributed $10 million. In addition, focused productivity efforts and lower raw material costs each added $5 million. Acquisitions also added $1 million. The positive impact of these items more than offset the effect of slightly lower selling prices of $4 million.

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2001 COMPARED WITH 2000

Continuing Operations

Net sales decreased 6.7% to $1,352.8 million from $1,449.8 million in the prior year. Volume growth in the Water Treatment business unit, which includes the effects of the acquisition of Aqua Clear, was offset by slowing end markets and lower selling prices in the Polymer Additives and Performance Chemical business units. Additionally, unfavorable foreign exchange impacted all business units.

Gross profit margins decreased to 17.1% from 28.7% in the prior year. Included in gross profit margin in 2001 are $59.7 million of repositioning activity costs (see Note 2 to the Consolidated Financial Statements). The adverse effects of price and volume decreases in the Polymer Additives business unit, efforts to reduce inventory levels across all business units and volume decreases in the Performance Chemicals business unit also contributed to the decrease.

Selling, general and administrative expenses increased $8.4 million to $224.5 million. As a percent of sales, selling, general and administrative expenses increased from 14.9% to 16.6%. These increases reflect higher sales and marketing costs in the Water Treatment business unit, including the impact of the Aqua Clear acquisition, and increased information technology and legal expenses partially offset by several cost containment efforts undertaken by the Company. Included in 2001 are $0.9 million of repositioning activities.

Special charges of $148.6 million reflect $153.6 million of charges recorded during 2001 for a series of cost reduction initiatives undertaken by the Company, offset by $3.5 million of reversals of special charges taken in the second quarter of 2001 and $1.5 million of special charges taken in 2000. The net of the 2001 special charges and reversals is reflected in the consolidated statement of operations as a separate component of operating income.

Operating income (loss) in 2001 decreased $287.6 million to $(141.4) million compared to $146.2 million in the prior year. Included in operating income in 2001 and 2000 are $209.7 million and $54.3 million of special charges and repositioning activities, respectively (see Note 2 to the Consolidated Financial Statements). Excluding the impact of these special charges and repositioning activities, operating decreased $132.2 million year over year. This decrease reflects the impact of lower sales volumes and prices, inventory reduction efforts and higher selling, general and administrative expenses.

Interest income (expense) - net increased $1.2 million to $(32.8) million in 2001 reflecting a slightly higher average net debt level.

Other income (expense) - net increased $49.6 million from other income - net of $2.8 million in the prior year to other expense - net of $(46.8) million in 2001. The increase is primarily attributable to lower earnings from affiliates and $33.8 million of repositioning activities recorded in 2001 (see Note 2 to the Consolidated Financial Statements).

Income tax expense (credit) for the year ended December 31, 2001, amounted to a credit of $(39.8) million or an effective tax rate of (18.0%) compared to an expense of $36.6 million or an effective tax rate of 31.2% in the prior year. The 2001 effective income tax rate is lower than the Company's expected ongoing effective income tax rate of 31% due primarily to the increase in the valuation allowance and non-deductible goodwill write-offs

Income (loss) from continuing operations was $(181.2) million or $(3.60) per share in 2001, as compared to $80.8 million or $1.54 per share in 2000.

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SEGMENT INFORMATION

Set forth below is a discussion of the operations of the Company's business segments: Polymer Additives, Performance Chemicals and Water Treatment. Operating income, which is the income measure the Company uses to evaluate business segment performance, represents net sales less costs of products sold and selling, general and administrative expenses. The operating income data presented below is before the special charges. Each of the Company's segments uses bromine as a raw material in their production process. Bromine is transferred at cost to all business segments. In addition, assets used in the production of bromine are allocated to each business unit based on the percentage of production consumed.

Polymer Additives

Net sales decreased $108.4 million or 15.7% in 2001. A sharp decline in demand in several key end markets, particularly consumer electronics, automotive and information technology, affected both volume and price in 2001. The acquisition of the optical monomers business partially offset the decrease.

Operating income (loss) decreased $123.2 million to a loss of $(70.8) million for the year. Excluding the inventory write-downs, environmental costs and other repositioning items of $41.6 million included in operating income (loss) in 2001 (see Note 2 to the Consolidated Financial Statements), operating income (loss) decreased $81.6 million. This decrease was attributable to lower sales levels, production cutbacks to align inventories with customer order patterns and higher raw material and energy costs in the first half of 2001. These items more than offset the cost savings resulting from productivity and cost savings initiatives.

Performance Chemicals

Net sales decreased $30.3 million or 10.8% from 2000 to 2001. This decrease was driven by lower than expected sales in the Fluorine business, predominately due to the significant slow-down in information technology and telecommunication infrastructure spending.

Operating income decreased $39.3 million or 39.2% in the current year. Excluding inventory write-downs, environmental costs and other repositioning items of $8.8 million included in operating income in 2001 (see Note 2 to the Consolidated Financial Statements), operating income decreased $30.5 million. This decrease in operating income reflects the impact of the sharply lower sales volumes in the Fluorine businesses. These lower sales volumes had a negative impact on unabsorbed manufacturing costs throughout the year. These items more than offset the record- setting performance of WIL Research Laboratories in 2001.

Water Treatment

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Water Treatment net sales increased 6.8% to $507.0 million in the current year. New products capturing increased market share as well as the effects of the Aqua Clear acquisition drove the increase.

Operating income declined from $85.0 million in 2000 to $54.1 million in 2001. Excluding inventory write-downs, contract cancellation costs and other repositioning items included in operating income in 2001 of $10.7 million (see Note 2 to the Consolidated Financial Statements), operating income declined $20.2 million. The positive impact of increased sales was more than offset by higher raw material costs and production cutbacks to lower inventory levels. Higher selling and marketing costs necessary to drive future growth in the mass market channel also contributed to the decrease.

Discontinued operations

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

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

Net sales and operating income (loss) relating to OSCA and Fine Chemicals for 2002, 2001 and 2000, are as follows:

Included in operating income (loss) in 2002 are special charges for the Fine Chemicals business of $26.7 million, which include $22.9 million of fixed asset impairment charges and $3.8 million of severance accruals. These charges were recorded in conjunction with the intended sale of the Fine Chemicals business. Net special charges recorded in 2001for Fine Chemicals totaled $118.5 million and consisted of $106.0 million of asset impairments, including $22.0 million of fixed asset impairments and $84.0 million of impaired goodwill, $5.8 million of severance accruals, $5.1 million of plant closure and environmental costs and $1.4 million of other costs, as well as adjustments of $0.2 million related to special charges taken in 2000. The 2001 charges were undertaken as a part of a detailed repositioning plan approved by the Company's Board of Directors in 2001. Included in 2000 operating income (loss) in 2000 are net special charges of $9.1 million, which reflect $10 million of charges recorded in 2000 offset by a reversal of $0.9 million related to reversals of certain charges taken in 1999 and 1998. The 2000 charges of $10 million included $5.8 million of asset impairments and $4.2 million of severance accruals.

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As of December 31, 2002, $2.9 million of the $26.7 million of special charges recorded in 2002 and $7.9 million of the $118.3 million of charges recorded in 2001 remains to be spent. There are no amounts outstanding related to charges taken in 2000.

FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES

Cash and cash equivalents at December 31, 2002 were $259.1 million, which represents an increase of $203.6 million from $55.5 million at year-end 2001.

Cash provided by operating activities - continuing operations was $152.3 million in the current year compared to $128.6 million in the prior year. Cash provided by operating activities in 2002 benefited from higher earnings and the Company's continued focus on working capital improvement. Included in operating activities - continuing operations in 2002 was approximately $20 million of spending related to 2001 and 2000 repositioning plans.

Cash used for investing activities - continuing operations amounted to $77.3 million in 2002 compared to $161.6 million in the prior year. The decrease reflects the Company's emphasis on controlling capital expenditures, which were $66.4 million lower than in the prior year. The current year investing activities also include the Flexsys acquisition of $11.1 million. Investing activities in the prior year reflect the acquisition of the optical monomers business of approximately $30 million.

Financing activities - continuing operations used $101.9 million of cash in 2002 compared to a use of $167.6 million in 2001. Net repayments of debt were $80.5 million in the current year and $156.8 million in 2001. The Company paid dividends of approximately $16 million in both years. No repurchases of common stock were made in the current year. Repurchases of common stock totaled $2.2 million in 2001.

In addition, as described in Note 3 to the Consolidated Financial Statements, the Company received net cash proceeds from the sale of OSCA of approximately $200 million in the second quarter of 2002. The proceeds from the sale of OSCA and the related gain from the transaction have been reflected in the consolidated statements of cash flows as operating and financing activities from discontinued operations, respectively. These proceeds were used to reduce the Company's debt position, as reflected in the net repayments on borrowings, and to increase cash and cash equivalents from the prior year-end.

The Company anticipates that cash provided by operating activities in the future will be sufficient to fund its operating costs and expenses, debt service obligations, dividend payments to common shareholders and capital expenditures.

Long-term debt, less current portion decreased $68.2 million to $432.6 million from $500.8 million at the end of the prior year reflecting the cash activity noted above. The Company's total long-term debt, including the current portion, as a percentage of total capitalization at December 31, 2002, was 37.1%. This compares to 45.5% at December 31, 2001. The Company's net debt, defined as total long-term debt less cash and cash equivalents, was $181.5 million or 19.6% of capitalization at December 31, 2002. This compares to 42.6% at December 31, 2001.

On October 3, 2002, the Company renewed the 364-day portion of its unsecured revolving credit facility established on October 4, 2001. This 364-day credit facility was originally established along with a facility with a five-year term. Under these combined facilities, the Company may borrow up to $462.5 million. These facilities are used to support the Company's commercial paper program. These facilities contain certain covenants that include, among others, requirements to limit the maximum ratio of Debt to EBITDA to 3.5 to 1, as defined in the agreement. Debt to EBITDA, as defined in the agreement, was 1.3 as of December 31, 2002. Interest on borrowings outstanding under the agreement is based upon a variable rate tied to LIBOR. There were no outstanding borrowings on these facilities as of December 31, 2002 and 2001.

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During 1999, the Company sold $400 million of 7% notes due July 15, 2009. The notes were sold under a shelf registration process. Under this process, the Company filed a Registration Statement on Form S-3 with the Securities and Exchange Commission and may sell various debt securities, common stock or rights or warrants to purchase common stock individually or in combination up to $750 million. The unissued securities remaining on the registration statement is $350 million at December 31, 2002. The registration provides the Company with increased flexibility to finance its growth. The amount and timing of any borrowings will depend on the Company's specific cash requirements.

At December 31, 2002, the Company's senior debt rating with Standard & Poor's and Moody's was A- and A2, respectively, and its commercial paper rating was A2 and P1, respectively.

As of December 31, 2002, the Company had the following contractual obligations for continuing operations:

Contractual Obligations:

As of December 31, 2002, the Company had a long-term arrangement that requires the purchase of raw materials to be used in operations. The arrangement requires the purchase of a supplier's output up to a maximum quantity of material at prices negotiated during the term of the contract. It is expected that all purchases under this arrangement will be utilized in production. Other noncurrent liabilities primarily relate to environmental liabilities and long-term employee benefit obligations.

No common stock share repurchases were made in the current year. The Company purchased approximately 0.1 million shares of common stock during 2001 at an average price of $22 per share. At December 31, 2002, a total of 2.8 million shares remain available for repurchase under existing Board authorizations. Management continues to analyze share repurchases as cash flow, market conditions and investment opportunities warrant.

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

Capital expenditures (excluding acquisitions) in 2002 of $64.8 million were significantly lower than the $131.2 million spent a year ago. Major projects for which capital expenditures were incurred in 2001 included the replacement of the bromine extraction towers at the Company's El Dorado, Arkansas, facility, the expansion of a Polymer Additives manufacturing site in Ravenna, Italy, to achieve backward integration of a key raw material and the expansion of Water Treatment's Lake Charles, Louisiana, plant. Capital spending is expected to be above depreciation levels in 2003, with expenditures estimated to be in the $85 million-$90 million range. Future capital spending, including amounts for environmental and safety projects, is expected to be financed primarily with cash provided by operating activities and, if necessary, with available debt financing. Great Lakes

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continues to evaluate potential acquisitions of facilities and/or businesses, particularly in the segments in which the Company currently does business or in market segments in which the Company believes it has synergistic competencies.

OTHER MATTERS

Special Charges and Repositioning

2001

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

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

Net special charges for the year ended December 31, 2001 totaled $148.6 million, $115.4 million after income taxes or $2.29 per share. This reflects the $153.6 million of charges recorded 2001 offset by a reversal of $3.5 million related to changes in estimates in the 2001 special charge and certain reversals of the special charges taken in 2000 totaling $1.5 million, as detailed below. The net effect of the special charge reversals after income taxes was $3.7 million or $0.07 per share. The net of the 2001 special charges and reversals are reflected in the 2001 consolidated statement of operations as a separate component of operating income. Additional information regarding the 2001 special charges is provided in Note 2 to the Consolidated Financial Statements.

As of December 31, 2002, $15.7 million of the $148.6 million charge remains to be spent. This remaining amount includes the effects of $5.1 million of net special charges recorded in 2002 related to changes in estimates in the special charge reserves recorded in 2001. The major components of this remaining reserve relate to severance and plant closure costs yet to be spent for the two plant closures and the shutdown of two unprofitable product lines. The majority of the severance costs are expected to be paid out by the second quarter of 2003 and the plant closure and environmental costs by the end of 2005.

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

Additionally, as part of these repositioning actions, the Company recorded a $24.5 million liability for environmental remediation costs, $7.4 million for plant shutdown operating inefficiencies, a $1.5 million cumulative U.K. pension liability, $0.9 million of accounts receivable write-offs and $1.0 million of contract cancellation costs. These items amounted to $35.3 million and were recorded

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in the 2001 consolidated statement of operations as follows: $33.9 million to cost of products sold and $1.4 million as a component of selling, general and administrative expenses.

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

2000

The major components of the repositioning plan included the consolidation of the Company's three antimony manufacturing operations, elimination of approximately 309 manufacturing and research and development positions, primarily in the Polymer Additives business unit, and impairment or disposal of certain underperforming and nonstrategic assets. The asset impairments related to four Polymer Additives manufacturing locations, including sites in Europe and the United States, and two Performance Chemicals locations, including sites in the United States and the United Kingdom. The special charges related to this repositioning plan totaled $56.4 million, $38.9 million after income taxes or $0.77 per share for 2000. The $56.4 million special charge consisted of $38.0 million for asset impairments, $12.2 million for severance costs and $6.2 million for plant closure and environmental costs. Additional information regarding the 2000 special charges is provided in Note 2 to the Consolidated Financial Statements.

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

The 2000 repositioning plan has now been substantially completed, with only $4.1 million of the original $56.4 million remaining to be spent. The primary component of this remaining reserve, or $4.0 million, relates to costs yet to be incurred for the closure of a brine pond in El Dorado, Arkansas. All of the 2000 remaining reserves are expected to be fully utilized by the end of 2005.

Cash outlays for all remaining special charge reserves are expected to be substantially complete by the end of 2005. Operating cash flows are expected to be sufficient to fund the remaining repositioning activities.

Acquisitions

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

On February 14, 2001, the Company acquired the Optical Monomers business from Akzo Nobel Polymer Chemicals LLC for approximately $30 million in cash. The Optical Monomers business operates at a leased manufacturing site in Pasadena, Texas, and has sales and support networks

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throughout the United States, Europe and Asia. This acquisition was accounted for using the purchase method of accounting with its results of operations included since the date of acquisition. Goodwill resulting from the acquisition amounted to $11.5 million.

On July 14, 2000, the Company acquired Aqua Clear for $40.7 million. Aqua Clear, a manufacturer and distributor of specialty pool chemical products, operated a manufacturing site in Watervliet, New York, which was closed in 2001. Aqua Clear continues to operate distribution sites in St. Louis, Missouri, and Waterford, New York, as well as sales and support networks throughout the United States and Canada. Goodwill resulting from the acquisition amounted to $37.8 million.

These acquisitions were funded with available cash and borrowing capacity.

Dispositions

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

In each of the first and second quarters of 2001, the Company sold 250,000 shares of its Class B common stock of OSCA pursuant to Rule 144 under the Securities Act of 1933 for a total of 500,000 shares being sold for the year ended December 31, 2001. The terms of these transactions provided that upon the sale of these Class B shares, the shares were automatically converted to OSCA Class A common stock. Net proceeds were $5.4 million and $6.3 million and the related taxable gains were $4.2 million and $5.2 million for the first and second quarters of 2001, respectively. There were no sales in the third or fourth quarters of 2001.

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

Environmental

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

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

26

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

The Company's operating costs relating to environmental compliance and safety charged directly to expense were approximately $30 million, $40 million and $36 million in 2002, 2001 and 2000, respectively.

Inflation

Inflation has not been a significant factor for the Company over the last several years. Management believes that the effect of inflation on Company operations will continue to be moderate for the foreseeable future.

New Accounting Standards

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

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

In October 2001, the FASB issued SFAS 144, "Accounting for the Impairment or Disposal of Long-Lived Assets," which addresses financial accounting and reporting for the impairment or disposal of long-lived assets and supersedes SFAS 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of," and the accounting and reporting provisions of APB Opinion 30, "Reporting the Results of Operations for a Disposal of a Segment of a Business." SFAS 144 is effective for fiscal years beginning after December 15, 2001. The Company adopted SFAS 144 as of January 1, 2002. As a result of the application of SFAS 144 and the classification of the Energy Services and Products business unit (OSCA) and the Fine Chemicals portion of the Performance Chemicals business unit as discontinued operations (see Note 3 to the Consolidated Financial Statements), the Company was required to restate its consolidated financial position, results of operations and cash flows for all periods presented.

In June 2001, the FASB issued SFAS 143, "Accounting for Asset Retirement Obligations." The statement requires legal obligations associated with the retirement of long-lived assets to be recognized at their fair value at the time that the obligations are incurred. Upon initial recognition of a liability, the cost is capitalized as part of the related long-lived asset and allocated to expense over the useful life of the asset. The Company will adopt the new rules on asset retirement obligations effective January 1, 2003. The Company currently has legal obligations to plug bromine supply and disposal wells, as well as waste disposal wells, at the end of the assets' useful lives. Upon adoption, the Company will record an increase in plant and equipment, net of $0.6 million and recognize an asset retirement obligation of $5.7 million, resulting in a cumulative effect from a change in

27

accounting principle upon adoption that will reduce net income and stockholders' equity by $3.5 million, net of income taxes.

In June 2001, the FASB issued SFAS 141, "Business Combinations," and SFAS 142, "Goodwill and Other Intangible Assets," effective for fiscal years beginning after December 15, 2001. Under the new rules, goodwill is no longer amortized but is subject to annual impairment tests in accordance with the statements. Intangible assets having finite lives will continue to be amortized over their useful lives. The pooling of interest method is no longer permitted for business combinations initiated after June 30, 2001. The Company adopted these new standards January 1, 2002.

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

ITEM 7A.    Quantitative and Qualitative Disclosures About Market Risk

The Company's operations are exposed to market risk from changes in foreign currency exchange rates, interest rates and natural gas prices that could impact its results of operations and financial condition. The Company manages its exposure to these market risks through its regular operations and financing activities and, when deemed appropriate, by using derivative financial instruments in accordance with established policies and procedures. The derivative financial instruments generally used include swaps, forward contracts and options. The derivative financial instruments utilized by the Company in its hedging activities are considered risk management tools and are not used for trading purposes. In addition, derivative financial instruments are entered into with a diversified group of major financial institutions in order to limit the exposure of nonperformance on such instruments.

International operations, including U.S. export sales, constitute a significant portion of the Company's revenues and identifiable assets. These operations result in a large volume of foreign currency commitment and transaction exposures and foreign currency net asset exposures. At December 31, 2002 and 2001, the Company's primary net foreign currency market exposures were dispersed through various countries and primarily included the euro and its legacy currencies, the British pound and the Japanese yen. Exposure to variability in currency exchange rates is mitigated, when possible, through the use of natural hedges, whereby purchases and sales in the same foreign currency and with similar maturity dates offset one another. The amount of hedging activity and management of commitment and transaction exposures is coordinated at the corporate level. Hedges are set to mature concurrently with the estimated timing of settlement of the underlying transactions.

Considering the Company's operating profile, at December 31, 2002, the result of a uniform 10% change in the value of the dollar relative to the currencies in which the Company's sales are denominated would result in a change in operating income of approximately $4.5 million. A similar change in 2001 would have had approximately a $1.7 million effect on operating income. This calculation assumes that each exchange rate would change in the same direction relative to the U.S. dollar, and does not factor in any potential changes in sales levels or local currency prices that may result from changes in exchange rates.

The Company uses commercial paper as a source of financing, which exposes the Company to changes in short-term interest rates. The Company manages its ratio of fixed to floating rate debt with the objective of achieving a mix that management believes is appropriate. To manage this mix in a cost effective manner, the Company, from time to time, enters into interest rate swap agreements in which it agrees to exchange various combinations of fixed and/or variable interest rates based on agreed-upon notional amounts that are supported by the Company's current debt position. In the first quarter of 2002, the Company entered into fixed-to-variable interest rate swaps to manage interest expense on $75 million of fixed rate debt. No interest rate swaps were in place during 2001. Based

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on the Company's debt position at December 31, 2002, a hypothetical change in interest rates of 1 percentage point for a one-year period would change income (loss) from continuing operations before income taxes by approximately $1.0 million. This analysis does not consider any effect that a change in interest rates would have on overall economic activity or management actions to mitigate interest rate changes.

As of December 31, 2002, the Company had investments of $154.8 million representing investment securities with maturities of three months or less. A hypothetical change in interest rates of 1 percentage point earned on these deposits for a one-year period would change income before income taxes by $1.6 million.

Since the second quarter of 2001, as part of its risk management strategy, the Company has entered into fixed price swap and option contracts, including caps and floors, to manage its exposure to changes in natural gas prices. These natural gas contracts obligate the Company to make or receive a payment equal to the net change in the value of the contracts at their maturity. Such contracts are designated as hedges of the Company's forecasted purchases through 2003 and are effective in hedging the Company's exposure to changes in natural gas prices during this period.

The natural gas contracts that qualify as cash flow hedges under SFAS 133 are marked to market with unrealized gains and losses deferred through other comprehensive income (loss) and recognized in earnings when realized as an adjustment to cost of products sold. The fair value of these contracts at December 31, 2002 was immaterial to the Company's consolidated financial position.

Based on the Company's natural gas exposure at December 31, 2002, a hypothetical 10% change in natural gas prices for a one-year period would change income before income taxes by approximately $1.0 million.

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ITEM 8.    Financial Statements and Supplementary Data

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

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CONSOLIDATED STATEMENTS OF OPERATIONS

See Notes to Consolidated Financial Statements.

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CONSOLIDATED BALANCE SHEETS

See Notes to Consolidated Financial Statements.

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CONSOLIDATED STATEMENTS OF CASH FLOWS

See Notes to Consolidated Financial Statements.

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CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY