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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)

9025 NORTH RIVER ROAD, SUITE 400
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 30, 2004, the aggregate market value of the voting stock held by non-affiliates of the registrant was $1,323,833,401 based on the last reported sales price on the New York Stock Exchange.

As of February 23, 2005, 51,436,147 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 5, 2005 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 with principal executive offices at 9025 North River Road, Suite 400, 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 (NYSE: GLK) is a global company dedicated to delivering innovative, market-focused specialty chemical solutions and consumer products. The Company's products and services help treat and purify water, keep surfaces in and around the home shining, protect against and extinguish fire, and enhance the stability and performance of a wide range of consumer products, such as computers, electronics, automobiles, packaging, building materials and furniture. The Company serves customers and markets through an integrated network of research, production, sales, distribution and technical services facilities. The Company is organized into two global business units that serve diverse markets around the world: Industrial Performance Products and Consumer Products.

Industrial Performance Products - The Industrial Performance Products business unit offers one of the world's most comprehensive portfolios of polymer additive solutions and performance products formulated specially to meet the needs of its customers in a wide range of markets, from furniture and textiles to automotive to consumer electronics to building and construction. The Company's additive products directed to the polymer industry include flame retardants and polymer stabilizers. These additives are used in various phases during polymer production. Great Lakes is a leading producer of bromine-, phosphorus- and antimony-based flame retardants and synergists, as well as physical form compounds and blends, which reduce or eliminate the flammability of a wide variety of combustible materials. The Company's specialty additives are used in industrial water treatment and desalination processes and include antiscalents, corrosion inhibitors, dispersants, antifoams and superior bromine-based non-oxidizing and oxidizing microbiological control products. The Company's broad range of stabilizing products - from UV stabilizers to antioxidants to patented non-dusting blends - enhances critical polymer performance characteristics such as heat and light resistance and color consistency. The Company's performance products holdings include performance additives and fluids, fire suppressants, fluorine specialties, brominated performance products and optical monomers. The Company's line of performance additives and fluids is essential to the performance of natural, semi-synthetic and synthetic lubricants under extreme pressure, as well as fire-resistant fluids and lubricants used in industrial applications. The Company offers waterless fire suppression for mission-critical and high-value assets, which prevents extensive fire damage and eliminates collateral damage and downtime. The Company's fluorine specialties are essential to the performance of silicone-based materials under demanding conditions where aggressive solvents or high temperatures may be present. Other fluorine specialty products are used as propellants in medical inhalers and as refrigerants. The brominated performance products business offers fumigants that improve crop yields and protect grain and other stored food sources from infestation, including food imports and exports; chemical intermediates that serve as building blocks for other compounds; and clear brine fluids used in oil and gas exploration. The Company also produces optical monomers used in eyewear and for such applications as protection sheets for welding masks and screens, safety shields, photographic filters and lab equipment.

Consumer Products - The Consumer Products business unit is a leading supplier of products for use in swimming pools, hot tubs and home cleaning applications. The recreational water treatment division is a leading provider of pool and spa care products, including water treatment sanitizers, algaecides, biocides, oxidizers, pH and mineral balancers and other specialty chemicals. This

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business unit also offers specialty and multipurpose cleaners and degreasers that disinfect and clean indoor and outdoor surfaces in such areas as kitchens, bathrooms, laundry rooms, patios, garages and automobiles.

Segment data for the Company's operations for each of the three years in the period ended December 31, 2004 are presented in Note 17 to the Consolidated Financial Statements.

PRODUCTS AND SERVICES

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

INDUSTRIAL PERFORMANCE PRODUCTS

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CONSUMER PRODUCTS

RAW MATERIALS

The primary source of an essential raw material, bromine, is brine. The brine is extracted from geological formations in the state of Arkansas using Company-owned wells. 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. In addition, during 2003, the Company entered into a long-term strategic agreement to source elemental bromine and certain derivatives from Dead Sea Bromine Ltd. Based on projected production rates and the above-mentioned sourcing agreement, the Company's bromine and brine supplies 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.

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Significant raw materials purchased by the Industrial Performance Products segment include chlorine, caustic, hexafluoropropene, phenol, bisphenol A and antimony oxide. Raw materials purchased by the Consumer Products segment include Tri-Chlor, chlorine, dichlor and cyanuric acid. The Consumer Products segment also purchases packaging containers made of high-density polyethylene, HDPE.

The Company has multiple suppliers for most key raw materials and employs various raw material management practices, such as the establishment of long-term relationships with suppliers and ongoing performance assessments and benchmarking, as part of the total supplier selection process. In addition, the Company purchases 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 40% of the Company's assets reside outside the United States, and approximately 40% of the Company's sales are invoiced from foreign locations. The geographic segment data is set forth in Note 17, "Segment Information," of the Notes to Consolidated Financial Statements.

CUSTOMERS AND DISTRIBUTION

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

The Company's businesses do not normally reflect any significant backlog of orders.

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, who competes with the Company in varying degrees across a variety of product lines. The Company also competes with a major overseas manufacturer of bromine and brominated products. These two manufacturers compete with the Company on a global basis. Several small producers in the United States and overseas are competitors for various 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 its entire product line and with a number of smaller companies in individual product areas. The Fire Suppression and Fluorine Specialties businesses compete with a global manufacturer that produces similar products, as well as manufacturers with products intended for similar use. The Company's Consumer Products business competes with several manufacturers and distributors of swimming pool and spa chemicals, as well as household cleaners.

Principal methods of competition are innovation, value, 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

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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 in the fourth and first quarters of the year. Certain arrangements with mass market customers permit returns of unsold material at the end of a season. The effect of these items on working capital and liquidity requirements quarter to quarter may be 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.

Research and development expenditures are described in Note 1, "Summary of Significant Accounting Policies," 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 and Regulatory Issues" caption in "Management's Discussion and Analysis of Financial Condition and Results of Operations" and in Note 3, "Repositioning Plans," and Note 20, "Commitments and Contingencies," of the Notes to Consolidated Financial Statements.

EMPLOYEES

The Company currently employs approximately 3,700 people, 38% of whom are employed outside the United States. Approximately 180 U.S. employees are represented by collective bargaining agreements. The Company maintains good employee relations, and while the Company has successfully completed its past labor negotiations without a work stoppage, it cannot predict the outcome of any 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, as well as the Company's Code of Business Conduct and charters, 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. The Company operates 15 production facilities in 8 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, Lawrenceville, Georgia, and Herentals, Belgium. 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 operation of the Company's businesses.

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ITEM 3.    Legal Proceedings

The Company and certain of its officers and employees have been named as defendants in five class action lawsuits filed in three counties in Georgia pertaining to the fire at the Company's Conyers warehouse on May 25, 2004 including the Davis case in Rockdale County, the Burtts and Hill cases in Fulton County and the Chapman and Brown cases in Gwinnett County. These suits seek recovery for economic and non-economic damages allegedly suffered as a result of the fire. The Company intends to vigorously defend against these lawsuits. The Company established a claims settlement process within one day of the fire to resolve all legitimate economic and personal injury claims raised by residents and businesses in Rockdale County, Georgia. While attorneys for certain plaintiffs attempted to stop this process, the Rockdale Superior Court ordered that the claims process continue in the interests of the citizens of that county. At the time of the fire, the Company maintained, and continues to maintain, property and general liability insurance. While the overall amount of damages caused by the fire to all third parties cannot be ascertained at this time, the Company recorded approximately $5 million of claims which are included in the consolidated statement of operations in other income (expense) - net in 2004. The Company also incurred approximately $4 million of legal and claims processing fees in 2004 that were not reimbursable under the general liability policy. The Company believes that its general liability policies will adequately cover any third party claims and legal and processing fees beyond the amounts recorded through December 31, 2004.

The plaintiffs have attempted to consolidate various cases into the Hill case in Fulton County, and to that end, have attempted to voluntarily dismiss the Davis and Burtts cases. The Company successfully opposed the dismissal of the Davis case and the plaintiffs continue to appeal that outcome. The Burtts case has been stayed and that case, as well as the Chapman and Brown cases, remains inactive pending the outcome of the Davis appeal.

In May 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 had 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. In March 2004, Albemarle amended its complaints to add additional counts of patent infringement and trade secret violations. With respect to the Albemarle case, the Company believes that the allegations of the original complaints, as well as the allegations in the additional counts are without basis factually or legally, and intends to defend the cases vigorously.

OSCA, the interest in which the Company divested to BJ Services Company in May 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. In April 2002, a jury found OSCA and the other defendants responsible for those claims and determined 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 amount only partially covered by insurance. Pursuant to an indemnification agreement between the Company and BJ Services entered into at

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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, 2004, the Company has a $9.5 million reserve recorded in discontinued operations for this indemnification liability. Great Lakes and BJ Services expect to appeal some or all of the liability and insurance coverage decisions.

In May 1998, the Company self-reported to the United States Department of Justice (DOJ) and the European Commission certain business practices that raised questions under antitrust laws. As a result of the Company's cooperation, the Company and its 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. In May 2003, the Company received a letter from the EC Competition Directorate General officially notifying the Company of the Commission's decision not to pursue any proceedings.

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.

Ten federal class action lawsuits and five California class action lawsuits naming the Company arose out of an alleged conspiracy concerning the pricing of bromine and brominated products, each of which claimed treble damages. The federal lawsuits were consolidated in the District Court for the Southern District of Indiana and certified as a class of direct purchasers of certain brominated products.

In September 2002, the Company agreed to settle all of the federal class action lawsuits. The settlement agreement affected 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.

Pursuant to the settlement agreement, the Company remitted the cash portion to an escrow account in November 2002, subject to final approval of the settlement agreement by the federal court, which was given in January 2003. In addition, as of December 31, 2004, the vouchers have been issued and substantially redeemed.

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. On December 17, 2004, the plaintiffs proposed terms of a settlement that the Company deemed acceptable and so communicated to the plaintiffs. Formal agreements and court approval have net yet been completed.

In the fourth quarter of 2004, the Company entered into a Consent Administrative Order (CAO) with the Arkansas Department of Environmental Quality related to the Company's El Dorado, Arkansas, operations. Pursuant to the CAO, the Company will pay a civil penalty of $10,000; perform two supplemental environmental projects valued at approximately $200,000; install additional equipment and back-up power to enhance the effectiveness of certain equipment; and perform air permitting compliance audits of its El Dorado operations. The CAO resolves the Company's liability for certain

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alleged and potential Clean Air Act and state permit violations as well as any noncompliance that may be discovered during the course of the air permitting compliance audits.

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, 2004.

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PART II

ITEM 5.    Market for 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 quarterly 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 February 23, 2005, there were approximately 1,902 stockholders of record of the Company's common stock.

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ITEM 6.    Selected Financial Data

⁽¹⁾

Amounts reflect balances for continuing operations.

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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, 2004 and 2003, the consolidated results of operations for each of the three years in the period ended December 31, 2004, 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 4 to the Consolidated Financial Statements, the results of WIL Research Laboratories, the Fine Chemicals business and the results of OSCA, 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.

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Economic factors over which the Company has no control, including changes in global growth rates, inflation, U.S. Treasury or London Interbank Offering Rates (LIBOR), and foreign currency exchange rates.



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



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



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The uncertainties inherent in new product development, including product safety concerns, regulatory approval processes, excessive costs to manufacture, or potential infringements of the patents or intellectual property rights of others.



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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 or property damage insurance or denial of insurance coverage following a major product or general liability claim.



•

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



•

Accounting standards and other authoritative guidance issued by the Financial Accounting Standards Board; the Securities and Exchange Commission; the Public Company Accounting Oversight Board; or the American Institute of Certified Public Accountants.



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



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Unexpected disruption to the supply of bromine due to geological or geopolitical factors beyond the Company's control.

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:

The following table provides details of amounts for asset impairments, restructuring charges and certain other significant items reflected in the Company's operating results in 2004, 2003 and 2002. This information should be referenced when reading the discussions of results below.

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Certain Other Significant Items Included in Operating Income:

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See Note 3 to the Consolidated Financial Statements

OVERVIEW

Great Lakes is a global specialty chemical company serving both industrial and consumer customers. The Company's organizational structure is designed to provide effective and innovative products to these customers and is reflected in the Company's two reportable segments: Industrial Performance Products and Consumer Products. The Industrial Performance Products segment offers one of the world's most comprehensive portfolios of polymer additive solutions and performance products formulated specially to meet the needs of its customers in a wide range of markets, from furniture and textiles to automotive and consumer electronics to building and construction. This segment consists of the following businesses: Flame Retardants, Polymer Stabilizers, Brominated Performance Products, Fire Suppression and Fluorine Specialties (collectively referred to as Fluorine), and Industrial Water Additives. The Consumer Products segment, which includes Recreational Water and Household Products businesses, is a leading supplier of products for use in swimming pools, hot tubs and home cleaning applications.

Important to both of these segments and, therefore, the overall success of the Company, is the ability to achieve and maintain adequate selling prices and sales volumes, effectively manage material and manufacturing costs and develop effective and innovative new products. The following is a brief discussion of each of these factors in 2004.

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•

Pricing Levels - While the Flame Retardants, Brominated Performance Products and Polymer Stabilizers businesses were able to benefit from price increases introduced in 2004, the recreational water business experienced lower sales prices for much of 2004 as a result of the Company's response to commercial actions of its competitors' attempts to gain market share on Tri-Chlor based products at the beginning of the 2004 pool season. Price increases were announced in the fourth quarter of 2004 by the recreational water business in response to expected increases in costs for Tri-Chlor based products in 2005.



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Sales Volume Increases - Overall sales volumes for the Company increased 7% from 2003 levels led by 9% volume growth in Industrial Performance Products. The increased volumes in Industrial Performance Products reflected increased demand in key end markets such as electronics and building and construction.



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Manufacturing and Material Costs - The Company enters into raw material contracts and certain financial instruments to control material and energy costs. Entering into 2004, management believed that raw material and energy costs would be comparable with 2003 levels. Actual material and energy costs, however, were higher than anticipated resulting in a negative impact year over year on net income from these costs of approximately $8 million or $(0.16) per share. This negative impact was more than offset by a net income impact of $21 million from productivity gains achieved in the Industrial Performance Products segment as a result of plant consolidations and other strategic initiatives undertaken in 2003 (see below). The Consumer Products segment incurred higher manufacturing costs as a result of a fire at its Conyers facility and the decision to reconfigure manufacturing operations. Selling, general and administrative expenses for Consumer Products also increased due to the integration of household products.

During 2003, the Company began a comprehensive repositioning plan. This plan included site closures and consolidations, headcount reductions and other cost reducing actions. While the majority of these charges were incurred in 2003, an additional $30 million of charges were recorded in 2004. The actions undertaken under the plan have translated into productivity gains and additional savings of approximately $20-25 million in 2004 and are expected to continue in the years ahead.

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Product Innovation - Industrial Performance Products has gone from virtually no revenue from new products five years ago to $121 million in 2004. Consumer Products new product revenue in 2004 reached $156 million. For the Company as a whole, new product revenue was $277 million in 2004.

        Other factors that significantly impacted 2004 financial results and are discussed further in MD&A include:

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Conyers Facility Fire - On May 25, 2004, Consumer Products incurred a fire in a finished goods warehouse located at its main manufacturing site in Conyers, Georgia. Through December 31, 2004, the Company has recorded losses representing the inventory and assets destroyed by the fire, third party claims and other fire-related expenses of $37.6 million. These losses were partially offset by insurance recoveries received to date, net of deductibles, of $20.5 million. The majority of these expenses, $13.9 million, were recorded in other income-expense-net. Additional insurance recoveries of approximately $10 million are expected in the first quarter of 2005. In addition, the recreational water business believes up to $12 million of sales that would have otherwise occurred in 2004 were not recovered.



•

Sale of Toxicological Services Business - On September 30, 2004, the Company sold its toxicological services business, WIL Research Laboratories (WIL) for a gain of $84.1 million or $53.7 million, net of income tax expense of $30.4 million. As a result of the sale of WIL, this

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business has been reported as a component of discontinued operations for all years presented.

•

CEO Resignation - On November 5, 2004, Mark Bulriss resigned his position of Chief Executive Officer and member of the Company's Board of Directors. As a result of the Resignation Agreement entered into on that date and based on Mr. Bulriss' original employment contract dated April 1998, the Company incurred $6.8 million of salary, bonus and pension-related costs. John J. Gallagher, III, formerly the Company's Chief Financial Officer, was appointed as the acting Chief Executive Officer at that time. In addition, Nigel D.T. Andrews was named non-executive chairman of the Board of Directors.

2004 COMPARED WITH 2003

Continuing Operations

Net sales increased $177.8 million or 12% to $1,603.7 million in 2004 from $1,425.9 million in 2003. Sales volume increases in both segments led to an overall sales volume increase of 7%. Overall selling prices were relatively flat reflecting a 2% increase in selling prices in Industrial Performance Products offset by a decrease in prices of 2% in Consumer Products. The effects of acquisitions and foreign exchange each positively impacted sales by 3%.

Gross profit increased $66.2 million year over year to $326.3 million in 2004 from $260.1 million in 2003. Gross profit margins (gross margin as a percentage of net sales) increased to 20.3% from 18.2% in the prior year. Cost of products sold in 2004 and 2003 included $15.9 million and $28.6 million, respectively, of amounts reflected in the Certain Other Significant Items Included in Operating Income table on page 15. Excluding these amounts, gross margin increased to 21.3% from 20.2% year-over-year. The increase reflects the impact of higher sales volumes during the year as well as significant gains in productivity in Industrial Performance Products. The higher sales volumes and productivity gains more than offset a $12 million increase in raw material and energy costs.

Selling, general and administrative expenses decreased, as a percent of sales, to 16.8% in 2004 from 17.8% in 2003. Included in selling, general and administrative expenses in 2004 and 2003 are $20.7 and $14.0 million, respectively of amounts reflected in the Certain Other Significant Items Included in Operating Income table on page 15. Excluding these amounts, selling, general and administrative expenses as a percent of sales decreased to 15.6% in 2004 from 16.8% in 2003. Additional selling, general and administrative costs generated through the acquisition of the Household Products groups were more than offset by lower spending in the business segments reflecting the Company's continued focus on reducing operating costs and overhead.

Operating income (loss) increased $115.0 million to $52.8 million in 2004 from an operating loss of $(62.2) million. Included in operating income (loss) in 2004 and 2003 were $39.6 million and $111.7 million of restructuring charges, asset impairments and other significant items detailed above. Excluding these amounts, operating income (loss) increased $42.9 million year over year. The productivity gains in manufacturing and improved sales volumes more than offset higher raw material and energy costs and fire-related challenges faced by Consumer Products during the current year.

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The components of other income (expense) - net in both 2004 and 2003 were as follows:

In the second quarter of 2004, the Company reached a settlement with the Internal Revenue Service (IRS) on open audit issues related to the Company's treatment of certain international cash repatriation transactions in its 1995-2000 federal income tax filings. As a result of this settlement and through evaluation of its remaining income tax reserves, the Company released a net $17.5 million of tax benefit to earnings. In the third quarter of 2003, the Company received a favorable ruling from the IRS on certain other income tax issues related to the Company's federal income tax filings that resulted in the Company releasing $27.5 million of reserves to earnings. Excluding these releases to earnings in 2004 and 2003, the Company's effective tax rate would have been approximately 31.0% in both 2004 and 2003.

Income (loss) from continuing operations before cumulative effect of accounting change was $19.9 million or $0.39 per share in 2004 versus $(40.1) million or $(0.80) per share in 2003.

SEGMENT INFORMATION

The Company changed its reportable business segments as of the fourth quarter of 2004 in order to align the external presentation of results with the Company's current management and operating structure. In addition, the Company renamed its segments to more clearly reflect the key end markets and customers it serves. Previously, the Company segmented its financial operations into "Polymer Additives" and "Specialty Products." The renamed reporting structure continues to include two segments: "Industrial Performance Products" and "Consumer Products". The industrial water additives business, previously reported as a component of Specialty Products, was reclassified to the Industrial Performance Products segment. As a result of the 2004 change, segment results from the prior year have been reclassified to conform to the current year presentation.

Below is a discussion of the operations of the Company's business segments. The Company evaluates business unit performance and allocates resources based on operating income, which represents net sales less cost of products sold and selling, general and administrative expenses, as well as cash flows and return on investment. Both Industrial Performance Products and Consumer Products use bromine as a raw material in their production processes. In addition, assets used in the production of bromine are allocated from Industrial Performance Products to Consumer Products based on the percentage of production consumed.

Industrial Performance Products

The Industrial Performance Products business unit is a leading provider of flame retardants, polymer stabilizers and optical monomers, brominated performance products, fire suppression, fluorine

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specialty products and industrial water additives. Industrial Performance Products provides its customers an array of integrated polymer additive solutions and performance products formulated to 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, soil fumigants, water purifying, fire suppression and optical monomers.

Net sales increased $141.7 million or 16% in 2004. Full year sales volumes in Industrial Performance Products increased overall 9%, led by volume gains in Brominated Performance Products (BPP), Polymer Stabilizers and Flame Retardants of 12%, 9% and 9%, respectively. Industrial Water Additives and Fluorine also reported volume gains year over year but to a lesser extent. Selling prices added 2% to the overall net sales increase year over year led by a 6% increase in selling prices in Flame Retardants. The pricing increase in Flame Retardants combined with 1% price increases in both Polymer Stabilizers and BPP more than offset a 13% decrease in selling prices in Fluorine. Incremental sales related to the antimony joint venture formed in April 2004 also added 2% to the increase in net sales. Sales in Industrial Performance Products were favorably impacted 3% for the year from the effects of foreign exchange. Net sales in Industrial Performance Products benefited from new product sales, defined by management as products introduced in the last five years, and increased to $121 million in 2004 from $81 million in 2003.

Operating income (loss) increased $131.6 million to $58.9 million for the year. Included in operating income (loss) in 2004 and 2003 were $14.8 million and $95.9 million, respectively, of asset impairments, restructuring charges and other significant items. Excluding these items, operating income (loss) increased $50.5 million. The year-over-year improvement in operating income (loss) reflects $32 million of productivity gains as Industrial Performance Products benefited from increased throughput as a result of higher sales volumes. The segment also benefited from higher plant utilization as a result of facility consolidations and cost reduction initiatives. These productivity gains in combination with overall volume and pricing increases were more than able to offset the negative impact of higher raw material and energy costs.

Consumer Products

The Consumer Products business unit is a leading provider of recreational water care products. Through its acquisitions of Lime-O-Sol and A&M Cleaning Products in 2003, the Consumer Products business entered the specialty household cleaning products business with The Works® brand of non-abrasive bathroom cleaners, glass and surface cleaners, toilet bowl cleaners, drain openers and rust and calcium removers, as well as the Greased Lightning™ family of multipurpose cleaners.

Consumer Products net sales increased $36.1 million or 7% to $574.4 million in the current year. A 3% increase in sales volumes in Consumer Products was offset by a 2% decrease in selling prices. Acquisitions that were made in 2003 contributed 4% of the year-over-year increase while the effects of foreign exchange added 2%. The volume increases reflect the market penetration efforts undertaken by the Household Products business to expand The Works® and Greased Lightning™ brand products. The price erosion experienced year over year of approximately $13 million was

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primarily driven by competitive pricing actions on Tri-Chlor based products that took effect in the first quarter of 2004 in the Recreational Water business. In addition, a warehouse fire at the Recreational Water business' main production facility in Conyers, Georgia (see below), disrupted production and sales in the second and third quarters of 2004. The Recreational Water business estimates that it was unable to recover approximately $12 million of revenue that otherwise would have been recognized in the disruption period.

Operating income for Consumer Products decreased $11.5 million to $48.3 million for the year 2004. Other significant items included in 2004 and 2003 were $4.8 million and $4.0 million, respectively. Business interruption costs of $3.0 million related to the fire experienced by the Recreational Water business at its Conyers facility as well as a fire incurred at its La Chambre, France, facility are included in the $4.8 million of items above. The decrease in operating income reflects lower selling prices in Recreational Water as well as manufacturing inefficiencies and additional costs associated with a reconfiguration of plant operations at the Conyers manufacturing facility in preparation for the 2005 pool season and the disruptive effects of the facility fires. Unfavorable weather patterns in the United States during the third quarter, including the hurricanes experienced in the Southeast, also negatively impacted operating income in this segment.

As previously mentioned, in May 2004, the Company's BioLab Inc. subsidiary experienced a fire in a finished goods warehouse located at its main manufacturing site in Conyers, Georgia. Products stored in this warehouse served primarily the distributor and private label customers of the Consumer Products Recreational Water business. Production and shipping operations were temporarily suspended for three days while the fire was being controlled. While there was no damage to the production facilities, the business did encounter disruptions to its material handling and order fulfillment processes during the second quarter and the first two months of the third quarter. The Company has insurance coverage for this type of event, in excess of deductibles, and has been actively working with its insurance carriers to resolve all property, business interruption and third-party claims related to this incident.

For the year ended December 31, 2004, the Company recorded losses representing the carrying value of inventory and assets destroyed in the fire of approximately $13.1 million and $3.5 million, respectively. The Company also recorded third-party claims (see Note 20) and other fire-related expenses of $21.0 million. These losses were partially offset by insurance recoveries received to date, net of deductibles, of $20.5 million. These amounts have been included in cost of products sold and other income (expense) - net for the year ended December 31, 2004. The effects of the fire on the financial results of the Company on a quarter-to-quarter basis are impacted by the timing and amount of insurance recoveries. As a result of discussions with insurance carriers, the Company believes that it will receive approximately $10 million of additional insurance recoveries in the first quarter of 2005.

In the first quarter of 2004, the Consumer Products segment experienced a fire at its La Chambre, France, facility. For the year ended December 31, 2004, the Company recorded $2.3 million of business interruption costs, asset write-offs and other fire-related expenses in costs of products sold and other income (expense) - net. These expenses were offset by $1.3 million of insurance recoveries received in the fourth quarter of 2004. Subsequent to the fire, management decided to close the production facility and therefore, severance costs of $0.7 million were also recorded for the employees at the site during the first quarter of 2004.

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2003 COMPARED WITH 2002

Continuing Operations

Net sales increased 4% to $1,425.9 million from $1,365.4 million in the prior year. Included in net sales in 2003 were $43.9 million of sales related to the Household Products acquisitions of Lime-O-Sol and A&M Cleaning Products. Excluding the sales from these acquisitions, net sales increased 1%. Sales for the year were positively impacted by 4% from the effects of foreign exchange, offset by lower sales volumes of 2% and a 1% impact of lower sales prices.

Gross profit decreased $58.8 million. Gross profit margins (gross margin as a percentage of net sales) decreased to 18.2% from 23.4% in the prior year. Included in cost of products sold in 2003 and 2002 were $28.6 million and $(1.5) million, respectively, of certain significant items. Excluding these amounts, gross margin decreased to 20.2% from 23.2% from 2002 to 2003. The decrease reflects the impact of lower sales volumes during 2003. Higher raw material and energy costs totaling $24 million, lower selling prices and unabsorbed manufacturing costs also contributed to the decline in gross profit margin.

Selling, general and administrative expenses decreased $41.0 million to $253.2 million. As a percent of sales, selling, general and administrative expenses increased to 17.8% from 15.5%. Included in the increase are net expenses for restructuring and other significant items of $14.0 million and $(0.4) million for 2003 and 2002, respectively. Also contributing to the increase in selling, general and administrative expenses was the inclusion of $10 million of expenses incurred by the Household Product acquisitions in 2003, the negative impacts of foreign currency of $9 million and higher pension and insurance costs of $6 million.

Asset impairment charges in 2003 of $69.1 million reflected the closure of three Industrial Performance Products manufacturing sites and a research and development facility which totaled $41.8 million, approximately $21.5 million for the impairment of goodwill and other long-lived assets of the Industrial Performance Products antimony products business, $4.4 million of assets related to the Fluorine business and $1.4 million of asset impairments due to Consumer Products site consolidations. These asset impairments were part of the repositioning plan that was implemented by Company management starting in the second quarter of 2003. Asset impairments in 2002 of $6.0 million reflected additional impairments needed to complete actions undertaken in connection with the 2001 repositioning plan.

Operating income (loss) was $(62.2) million compared to $100.7 million in the prior year. Included in operating income (loss) were net charges of $111.7 million and $4.1 million in 2003 and 2002, respectively. Excluding these charges, operating income decreased $55.3 million. The decrease reflects the lower sales prices and volumes, higher raw material and energy costs and increased selling, general and administrative expenses described above. In total, foreign exchange lowered operating income by $3 million.

The components of other income (expense) - net in both 2003 and 2002 were as follows:

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Included in the fixed asset write-downs of $4.6 million is a $1.6 million impairment of the Consumer Products 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. The increase in amortization expense from 2002 to 2003 reflects the amortization of intangible assets acquired through the Household Products acquisitions.

Income tax expense (credit) for the year ended December 31, 2003 amounted to a credit of $(58.7) million or an effective tax rate of (59.4)% compared to an expense of $17.5 million or an effective tax rate of 30.1% in the prior year. The 2003 effective rate benefited from a favorable ruling from the Internal Revenue Service (IRS) regarding certain income tax issues related to the Company's federal income tax filings. As a result of this decision and through evaluation of its remaining reserves, the Company released $27.5 million to earnings through income taxes (credits) in the third quarter of 2003. Excluding this release in earnings in 2003, the Company's effective tax rate would have been approximately 31.0%.

Income (loss) from continuing operations was $(40.1) million or $(0.80) per share in 2003, as compared to $40.7 million or $0.81 per share in 2002.

SEGMENT INFORMATION

Net sales decreased $10.3 million or 1% in 2003. The increase in sales in Polymer Stabilizers was more than offset by a decline in sales in all other components of Industrial Performance Products. Overall selling prices for Industrial Performance Products were comparable year over year. Price increases in Flame Retardants were offset by pricing pressure in Polymer Stabilizers, which leveled off in the second half of 2003, and in Fluorine. Sales volumes in Industrial Performance Products decreased sales by 5%. Volume increases of 6% in Polymer Stabilizers were more than offset by volume declines in all other businesses. The level of new product sales, defined by management as products introduced in the last five years, increased to $81 million in 2003 from $59 million in 2002. Sales in Industrial Performance Products were favorably impacted 5% year-to-date in 2003 from the effects of foreign exchange.

Operating income (loss) decreased $143.3 million to $(72.7) million for the year. Included in operating income in 2003 are $95.9 million of charges for asset impairments, restructuring and other significant items. Included in operating income in 2002 are $5.4 million of charges for adjustments to reserves for previously recorded charges. In addition, the decrease reflects the impact of higher raw material costs, lower sales volumes, the reduction of inventory levels and unfavorable manufacturing variances in 2003 in the Bromine business. Operating results of Industrial Performance Products were also affected by a decline in sales of Methyl Bromide, an agricultural product, when compared to 2002. This decline reflected variations in customer order patterns and the phase-down of sales of Methyl Bromide in accordance with the Montreal Protocol (see Environmental and Regulatory Issues).

Consumer Products net sales increased $68.9 million or 15% to $538.3 million in the current year. Net sales attributable to the Company's 2003 Household Products acquisitions (see Note 4 to the

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Consolidated Financial Statements) were $43.9 million or 9%. Also contributing to the increase in sales were higher sales volumes of new products of 4% and the favorable effects of foreign currency of 3%, partially offset by a 1% decline in prices.

Operating income for Consumer Products decreased $5.8 million to $59.8 million for the year 2003. Included in 2003 are $4.0 million of asset impairment charges, severance costs and headquarter relocation costs. Included in 2002 are reversals of $1.0 million of previously recorded reserves for contract cancellation and other costs. An unfavorable sales mix triggered by an unseasonably cool and rainy pool season in the northeast and mid-central United States contributed to the lower operating results in 2003. In addition, the positive effects of acquisitions and foreign exchange were more than offset by the effects of a decrease in productivity, higher raw material costs and increased selling, general and administrative expenses to fund growth initiatives, in particular, for the Household Products business.

Discontinued Operations

On September 30, 2004, the Company sold its toxicological services business, WIL Research Laboratories (WIL) for a gain of $84.1 million or $53.7 million, net of tax expense of $30.4 million. The cash tax liability incurred in conjunction with the sale transaction has been substantially offset through the use of previously recorded deferred tax assets. As a result of the sale of WIL, the Company has reported this business as a discontinued operation in accordance with Statement of Financial Accounting Standards ("SFAS") No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets," for all periods presented.

In 2002, management, with approval of the Board of Directors, committed to a plan to divest the Company's Fine Chemicals business, previously part of the Performance Chemicals segment. The Halebank, U.K., site of the Fine Chemicals business was sold in the fourth quarter of 2003. The assets of the Holywell, U.K., site were sold in the second quarter of 2004 for a loss of $1.5 million, net of tax. In addition, the sale of the Holywell facility required the Company, under SFAS No. 52, "Foreign Currency Translation," to recognize a non-cash $12.8 million loss reflecting the reclassification to earnings of currency translation related to the Fine Chemicals business previously recorded as a component of stockholders' equity of the U.K. subsidiary that owned both Halebank and Holywell. The Company has reported Fine Chemicals as discontinued operations for all periods presented.

In May 2002, the Company completed the sale of its Energy Services and Products business unit, OSCA, to BJ Services Company. 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, which was used to reduce the Company's debt position. As a result of this transaction, the Company has reflected OSCA as discontinued operations in 2002.

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Net sales and operating income (loss) relating to discontinued operations for 2004, 2003 and 2002 are as follows:

Included in operating income (loss) in 2003 were restructuring charges for Fine Chemicals consisting of asset impairments of $15.8 million and $1.9 million of charges for severance. Included in operating income (loss) for the Fine Chemicals business in 2002 were $22.9 million of asset impairment charges and $3.8 million of severance costs recorded in conjunction with the intended sale of the Fine Chemicals business. Charges were also recorded in 2001 as a part of a detailed repositioning plan.

As of December 31, 2004, $9.5 million of restructuring charges recorded in 2001 remained to be spent. There were no amounts outstanding related to the charges taken in 2003 or 2002. The major components of the remaining reserves related to employee benefit costs of $2.0 million and $7.5 million of plant closure and environmental costs. Plant closure and environmental costs have been allocated between accrued expenses and non-current liabilities based on the anticipated timing of these expenditures.

Outlook

New Product Growth

The Company has gone from virtually no revenue from new products five years ago in the Industrial Performance Products segment to approximately $121 million in 2004. New product revenue in this segment is targeted to reach $150 million in 2005. Consumer Products new product revenues were $150 million in 2004. For the Company as a whole, new product revenues are expected to be approximately 17% of total revenues in 2005.

Raw Material and Energy Costs

The Company's operating units are greatly impacted by price changes for raw material and energy costs. Increases in raw material and energy costs, primarily natural gas, reduced operating income by $12 million in 2004 and $24 million in 2003. The Company enters into raw material contracts and certain financial instruments to minimize the impact of raw material and energy costs. Both raw material and natural gas costs for 2005 are anticipated to be higher than 2004 levels.

Foreign Exchange

Great Lakes, as a multinational company, is exposed to fluctuations in foreign exchange rates, primarily the euro, the British pound and the Japanese yen in relation to the U.S. dollar. Approximately 40% of the Company's external sales are invoiced from foreign locations, and approximately 40% of the Company's long-lived assets reside in foreign locations. In 2004, foreign exchange rates increased sales $40 million or 3% but increased operating income by only $1 million. In 2003, foreign exchange rate fluctuations increased sales $60 million or 4% but had a negative

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impact on operating income of $3 million. While the Company currently hedges certain portions of its foreign currency exposure, significant changes in foreign currency exchange rates in 2005 would impact both sales and operating income levels.

Industrial Performance Products

During 2004, the Industrial Performance Products business was able to enact price increases on several of its products, which led to an overall increase in sales due to pricing of 2% versus 2003. Flame retardants benefited the most from these increases with a 6% increase in sales from pricing initiatives. These price increases were successful in 2004 in offsetting increased raw material and energy costs. Lower selling prices were realized in the Fluorine business for products sold in non-patent protected markets. Additional price increases have been announced for 2005 in an effort to continue to grow margins while facing higher raw material and energy costs.

Volume growth in Industrial Performance Products in 2004 reflected improved demand in certain key end-markets. Based on a strong order rate at the end of 2004, the outlook for the first quarter of 2005 is for positive volume growth.

Industrial Performance Products also continues to focus on driving continuous productivity gains, completing restructuring plans initiated in 2003, and expanding new product applications to help offset continued higher raw material and energy costs. In 2004, the Company entered into a 50/50 joint venture to produce and market antimony-based products (see Note 5 to the Consolidated Financial Statements). The joint venture's manufacturing facilities are still to be consolidated as of December 31; however, the formation of the joint venture has already resulted in lower conversion costs in antimony production for 2004. The Company is also benefiting from a long-term strategic sourcing agreement for elemental bromine and certain derivatives from Dead Sea Bromine Ltd. The Fluorine business is working to offset lower selling prices with new product development as evidenced by two new products introduced during the second half of 2004.

Consumer Products

Consumer Products experienced lower selling prices for 2004 compared to 2003 reflecting the Company's response to commercial actions of its competitors to gain market share on Tri-Chlor based products at the beginning of the 2004 pool season. The Recreational Water business is anticipating higher raw material and transportation costs heading into 2005 and, therefore, has taken steps to reverse the price declines. Effective October 1, 2004, or as contracts permitted, the Recreational Water business enacted a $0.10 per pound price increase on all products containing Chlorinated Isocyarnurates and a 7% price increase on all other pool and spa chemicals. In addition, the Company announced in late December 2004 that effective February 1, 2005, or as contracts permit, prices for products containing Chlorinated Isocyarnurates increased by up to 35% and prices on all other pool and spa products increased up to 10%.

Demand for recreational water care products is influenced by a variety of factors including seasonal weather patterns. Unfavorable weather patterns in the United States in the third quarter of 2003, including hurricanes experienced in the Southeast, negatively impacted sales volumes in 2004. Sales volumes in 2003 were hampered by an unseasonably cool and wet spring in the Northeast and mid-Central regions of the United States. Volumes in 2005 may also be impacted by weather trends during the pool season.

In 2003, the Consumer Products segment acquired Lime-O-Sol and The Works® brand specialty household cleaning products and A&M Cleaning Products and its Greased Lightning™ family of multipurpose cleaners. Consumer Products is working to further penetrate the market with these established products as well as new products such as Greased Lightning™ with Colorsafe Bleach, The Works® Automatic Toilet Bowl Cleaner and Grapefruit Blast® through multiple distribution

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channels. The Household Products business delivered organic growth of 14% in the fourth quarter of 2004 versus the fourth quarter of 2003.

FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES

Cash and cash equivalents - continuing operations at December 31, 2004 were $222.2 million, which represents an increase of $51.5 million from $170.7 million at year-end 2003.

Cash provided by operating activities - continuing operations was $20.9 million in the current year compared to $76.8 million in the prior year. The current year decrease reflects the use of cash as a result of a higher working capital levels at the end of 2004 compared to 2003. Included in operating activities - continuing operations in both 2004 and 2003 was a $10 million cash contribution to the Company's pension plan. The Company also spent approximately $33 million in 2004 for costs associated with its 2003, 2001 and 2000 repositioning plans. Spending in 2003 for these plans totaled $11 million. Expenditures related to the Consumer Products facility fire, net of insurance reimbursements, also decreased cash by approximately $17 million in 2004. Additional insurance proceeds of approximately $10 million are expected in the first quarter of 2005.

Cash used for investing activities - continuing operations amounted to $77.9 million in 2004 compared to $164.3 million in the prior year. Prior year investing activities reflect the Company's acquisitions of Lime-O-Sol and A&M Cleaning Products for $105.7 million. Capital expenditures for 2004 were $84.0 million compared to $62.0 million in 2003. Included in capital expenditures in 2004 were costs related to the replacement of the Company's enterprise software during the year as well as the initial licensing costs to extend the use of this software to additional facilities in 2005 and 2006. Other significant capital expenditures in 2004 included costs related to brine supply wells, a high-end antioxidant stabilizer expansion project and production equipment for two new Fluorine products. Capital spending in 2005 is expected to be consistent with depreciation levels, with expenditures estimated to be approximately $85 million.

Cash (used for) provided by investing activities - discontinued operations in 2004 included $105 million of net cash proceeds received by the Company from the sale of WIL Research Laboratories (see Note 4 to the Consolidated Financial Statements).

Cash used for financing activities - continuing operations used $6.2 million of cash in 2004 compared to a use of $24.1 million in 2003. Net repayments of debt were $0.2 million in the current year and $4.2 million in 2003. The Company paid dividends of $19.3 million in 2004 versus $18.1 million in 2003, reflecting the Board of Director's decision to increase the per share dividend rate. Employee stock option activity contributed $11.1 million of cash during the year, primarily in the fourth quarter.

Foreign exchange rate fluctuations also had a significant impact on cash and cash equivalents during the year as both the euro and British pound experienced fluctuations of 8% from the end of 2003 to the end of 2004.

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 increased $1.3 million to $428.9 million from $427.6 million at the end of 2003. The Company's total long-term debt, including the current portion, as a percentage of total capitalization at December 31, 2004 was 33.4%. This compares to 36.9% at December 31, 2003. The Company's net debt, defined as total long-term debt less cash and cash equivalents, was $217.1 million or 19.9% of capitalization at December 31, 2004. This compares to $264.0 million or 26.2% at December 31, 2003.

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On September 30, 2004, the Company consolidated its 364-day unsecured revolving credit facility and its five-year facility into a new facility with a five-year term. Under the facility, the Company may borrow up to $375 million. The facility is used to support the Company's commercial paper program and for general corporate purposes. The new facility contains certain covenants, as defined in the agreement, that include, among others, requirements for a maximum ratio of debt to EBITDA, as defined in the agreement. Interest on borrowings outstanding under the agreement is based upon a variable rate tied to LIBOR. There were no outstanding borrowings on the facility as of December 31, 2004.

The Company has outstanding $400 million of 7% notes due July 15, 2009. The notes were sold under a shelf registration process. The Company 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 are $350 million at December 31, 2004. 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.

The Company's senior debt rating with Standard & Poor's and Moody's is BBB+ and A3, respectively, and its commercial paper rating is A2 and P2, respectively.

As of December 31, 2004, the Company had the following contractual obligations for continuing operations:

⁽¹⁾

As of December 31, 2004, the Company had three long-term arrangements that require the purchase of raw materials to be used in operations. The arrangements require 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 these arrangements will be utilized in production.

⁽²⁾

Other non-current liabilities relate primarily to environmental liabilities and long-term employee benefit obligations.

No common stock share repurchases were made in 2004 or 2003. At December 31, 2004, 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, 2004, the Company had guaranteed $20.8 million of debt of an unconsolidated affiliate.

CRITICAL ACCOUNTING ESTIMATES

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 restructuring charges, impairment of

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goodwill, intangibles and other long-lived assets, income taxes, pensions, asset retirement obligations and contingencies related to litigation and environmental matters. Actual amounts could differ significantly from these estimates.

Restructuring Activities

The Company recorded restructuring charges, net of adjustments, of $13.3 million, $28.6 million and $(0.9) million in 2004, 2003 and 2002, respectively. These charges and adjustments were made in connection with detailed repositioning and restructuring plans approved by the Board, 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 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 restructuring 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 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. The Company recorded asset impairments of $3.0 million, $69.1 million and $6.0 million in 2004, 2003 and 2002, respectively.

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.

The Company had deferred tax liabilities in excess of deferred tax assets, net of valuation allowances resulting in a net deferred tax liability position of $7.1 million at December 31, 2004. At December 31, 2003, the Company had deferred tax assets, net of valuation allowances, in excess of deferred tax liabilities of $50.5 million. At December 31, 2004 and 2003, management determined that it is more likely than not that $101.7 million and $56.4 million, respectively, of certain deferred tax assets, primarily foreign jurisdiction net operating loss carryforwards, 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

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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 that 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, 2004 (the plans' annual measurement date), appropriate changes were made in the key assumptions for the plans. See Note 16, "Retirement Plans" to the Company's Consolidated Financial Statements for detail of these assumptions. The Company currently expects pension costs to decrease by approximately $2 million to $10 million in 2005 compared to 2004. The Company has no funding requirements for 2005 as actuarially determined for the U.S. plans. Although there were no funding requirements for either 2004 or 2003, the Company made voluntary contributions of 225,000 and 300,000 shares of Company treasury stock, or $5.4 million and $6.3 million, to the U.S. qualified plan during 2004 and 2003, respectively. The Company made additional discretionary cash contributions to the U.S. qualified plan of $10 million in each year. In 2005, the Company expects to contribute approximately $4 million to the U.S. qualified plan and approximately $4 million to its non-U.S. plan.

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 2004 pension expense by $2.4 million and $0.6 million, respectively. Correspondingly, a decrease in these assumptions of one-fourth of 1 percentage point, holding all other assumptions constant, would increase the Company's pension expense by $2.4 million and $0.6 million, respectively.

Asset Retirement Obligations

The Company currently has legal obligations to close bromine supply and disposal wells at the end of the assets' useful lives. The Company carries these obligations at their fair value as determined under Statement of Financial Accounting Standards (SFAS) 143, "Accounting for Asset Retirement Obligations," which was adopted as of January 1, 2003. The statement requires that upon 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 calculation of fair value requires the Company to make certain estimates, including the amount and timing of future cash outflows and appropriate discount rates. Actual closure costs may differ significantly from these estimated obligations. Adjustments may be required in the future if the estimated costs and timing of closure activities change. The amount of these discounted obligations at December 31, 2004 was $5.5 million.

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, 2004, the Company had accrued $3.6 million and $40.6 million related to litigation and environmental liabilities, respectively, for continuing operations.

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These accruals are estimates and may change in the future as new developments arise as changes are made in settlement strategy.

OTHER MATTERS

Repositioning Activities
2003 Repositioning Plan

In 2003, management initiated a comprehensive cost reduction plan, which included site closures and consolidations, headcount reductions and other actions. Pretax charges related to this plan incurred in 2003 and 2004 were approximately $142 million. This plan has been substantially completed as of December 31, 2004.

In 2003, the Company recorded pretax restructuring charges in continuing operations of $97.8 million related to the repositioning plan. The restructuring charges incurred during the year included costs associated with the planned closure of three plants in the Industrial Performance Products business segment, a strategic realignment of a Consumer Products facility and other organizational changes, with the elimination of approximately 400 positions. The charges also included the impairment of $18.1 million of goodwill as a result of evaluating strategic alternatives for the Antimony Products business. Severance and other charges of $28.7 million were recorded in the Statement of Operations of which $24.2 million was recorded in cost of products sold and $4.5 million in selling, general and administrative expenses. Other charges included costs for decommissioning, environmental remediation, contract cancellations, inventoried spares impairment and other items. Full year 2003 charges also included charges of $69.1 million for asset impairments. The Company recorded $2.1 million of severance costs, $10.5 million of decommissioning, environmental and other costs, and $3.0 million of asset impairments in 2004.

Certain other costs were recorded during 2003 and 2004 that did not meet the definition of restructuring costs under SFAS 146 but were included in the 2003 repositioning plan. These costs included a change in the useful life of the Company's enterprise software based on intended replacement in 2004, which added an additional $15.7 million of depreciation expense to 2004 and $10.0 million to 2003. Also included in 2004 and 2003 were $1.3 million and $2.1 million, respectively, of costs to relocate the Corporate and BioLab, Inc. headquarters, severance, lease cancellation and other costs.

Repositioning Plans Prior to 2003

The Company's Board of Directors approved detailed repositioning plans in both 2000 and 2001 that provided for a series of cost reduction initiatives that were intended to streamline operations, to strengthen the Company's competitive position and to continue to provide a strong platform for future growth. The major components of these repositioning plans included the consolidation of operations; plant closures; the elimination of manufacturing, research and development, sales and other management positions; and the impairment of certain underperforming and non-strategic long-lived assets, including goodwill. The activities related to these repositioning plans have been substantially completed. As of December 31, 2004, $9.7 million of reserves related to the 2001 repositioning plan and $1.9 million related to the 2000 repositioning plan remain. The major components of these remaining reserves relate to retirement benefits and environmental remediation costs yet to be spent for two closed facilities and are long-term in nature. Operating cash flows are expected to be sufficient to fund the remaining repositioning spending.

Acquisitions and Joint Ventures

In May 2004, the Company formed a 50/50 joint venture with Laurel Industries, Inc., a subsidiary of Occidental Petroleum Corporation, to develop, produce and market antimony-based flame retardants,

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synergists and catalysts. The joint venture is operating under the name GLCC Laurel, LLC, with Great Lakes acting as general partner with responsibility for sales, customer service, technical support, credit and logistics. Great Lakes controls the joint venture and, therefore, the results of operations are consolidated in the Company's Consolidated Financial Statements as of May 1, 2004.

In February 2003, BioLab Inc., a part of the Company's Consumer Products business unit, acquired all of the outstanding shares of Lime-O-Sol Company. The acquisition included the Lime-O-Sol brand of specialty household cleaning products marketed under the trade name The Works®. Lime-O-Sol's operating results have been included in the Company's consolidated financial statements from the date of acquisition.

Additionally, in July 2003, BioLab Inc. acquired all of the outstanding shares of A&M Cleaning Products, Inc. (A&M). The acquisition included A&M's line of multipurpose cleaners sold under the trade names Greased Lightning™ and Orange Blast™. The operating results of A&M have been included in the Company's consolidated financial statements from the date of acquisition.

Environmental and Regulatory Issues

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 related to continuing operations, including reserves associated with restructuring charges, were $40.6 million and $43.8 million at December 31, 2004 and 2003, respectively, and are recorded in accrued expenses and other non-current liabilities. 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 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 ongoing environmental compliance and safety charged directly to expense were approximately $19 million, $27 million and $30 million in 2004, 2003 and 2002, respectively. Capital expenditures related to environmental compliance and safety totaled $13 million in 2004 and are expected to be approximately $24 million in 2005.

Methyl bromide, a pesticide produced by the Industrial Performance Products segment, is subject to the provisions of the 1987 Montreal Protocol, which originally called for the phase out of production of this pesticide by developed nations by January 1, 2005. In March 2004, the Parties to the Montreal Protocol (the "Parties") granted Critical Use Exemptions to the United States and several other nations for 2005, as end users of the pesticide argued that technically and economically viable alternatives do not currently exist for many methyl bromide applications. The March decision did not address Critical Use Exemptions beyond 2005. The Company's production levels of methyl bromide in 2005 are expected to be in line with 2004 levels. Production levels beyond 2005 are undeterminable at this time and will be affected by decisions made by the Parties.

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.

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Recently Issued Accounting Guidance

Refer to Note 1 to the Consolidated Financial Statements for a discussion of recently issued accounting guidance.

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, 2004 and 2003, the Company's primary net foreign currency market exposures were dispersed through various countries and primarily included the euro, 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, 2004, 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 $0.1 million. A similar change in 2003 would have had approximately a $0.7 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 2002, the Company entered into fixed-to-variable interest rate swaps to manage interest expense on $75 million of fixed rate debt. In 2003, the Company entered into an additional fixed-to-variable interest rate swap on $50 million of fixed rate debt. In 2004, the Company entered into an additional fixed-to-variable interest rate swap of $50 million and $25 million in the second and third quarters, respectively, bringing the total debt covered by swaps to $200 million. Based on the Company's debt position at December 31, 2004, 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 $2 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, 2004, the Company had investments of $118.6 million representing investment securities with maturities of three months or less. A hypothetical change in interest rates of

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1 percentage point earned on these deposits for a one-year period would change income before income taxes by $1.2 million.

As part of its risk management strategy, the Company enters 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 2004 and are effective in hedging the Company's exposure to changes in natural gas prices during this period.

Natural gas contracts that qualify as cash flow hedges under SFAS No. 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 values of these contracts at December 31, 2003 were immaterial to the Company's consolidated financial position. There were no contracts outstanding at December 31, 2004.

Based on the Company's natural gas exposure at December 31, 2004, a hypothetical 10% change in natural gas prices for a one-year period would change income before income taxes by approximately $1.4 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