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                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

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

                                    FORM 10-K

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

                   FOR THE FISCAL YEAR ENDED DECEMBER 31, 2001

                                       OR

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

                    FOR THE TRANSITION PERIOD FROM           TO

                        COMMISSION FILE NUMBER 000-29764

                      INTERNATIONAL SPECIALTY PRODUCTS INC.

             (Exact name of registrant as specified in its charter)

              DELAWARE                               51-0376469
      (State of Incorporation)          (I.R.S. Employer Identification No.)

         300 DELAWARE AVENUE
              SUITE 303
        WILMINGTON, DELAWARE                            19801
(Address of Principal Executive Offices)             (Zip Code)

       REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (302) 427-5715

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

         TITLE OF EACH CLASS          NAME OF EACH EXCHANGE ON WHICH REGISTERED
Common Stock, par value $.01 per share         New York Stock Exchange

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

    Indicate  by check mark  whether  the  registrant  (1) has filed all reports
required to be filed by Section 13 or 15(d) of the  Securities  Exchange  Act of
1934  during  the  preceding  12 months  (or for such  shorter  period  that the
registrant was required to file such reports),  and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]

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

    As of March 15, 2002,  64,550,939  shares of common stock of the  registrant
were  outstanding.  The  aggregate  market  value of the  voting  stock  held by
non-affiliates  of the  registrant  as of March 15,  2002 was  $99,576,422.  The
aggregate market value was computed by reference to the closing price on the New
York Stock Exchange of common stock of the registrant on such date ($8.92).  For
purposes  of the  computation,  voting  stock  held by  executive  officers  and
directors of the registrant  has been excluded.  Such exclusion is not intended,
and shall not be deemed,  to be an admission  that such  executive  officers and
directors are affiliates of the registrant.

                       DOCUMENTS INCORPORATED BY REFERENCE

    The  Proxy  Statement  for  the  2002  Annual  Meeting  of  Stockholders  of
International  Specialty  Products  Inc.  to be filed  within 120 days after the
registrant's   fiscal  year-end  (the  "Proxy  Statement")  is  incorporated  by
reference in Part III, Items 10, 11, 12 and 13.

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                                     PART I


ITEM 1.  BUSINESS

GENERAL

     International Specialty Products Inc., formerly known as ISP Holdings Inc.,
is a leading  multinational  manufacturer  of  specialty  chemicals  and mineral
products.  Unless  otherwise  indicated by the  context,  "we," "us," "our," and
"ISP"  refer to  International  Specialty  Products  Inc.  and its  consolidated
subsidiaries.

    ISP  operates  its  business  exclusively  through  its direct and  indirect
subsidiaries.  ISP was  incorporated  in Delaware  in 1996.  ISP owns all of the
issued and outstanding  capital stock of International  Specialty Holdings Inc.,
formerly known as Newco Holdings, which was formed in 2001 in connection with an
internal  restructuring  we  completed  in June  2001.  International  Specialty
Holdings  owns all of the issued  and  outstanding  capital  stock of ISP Chemco
Inc., formerly known as ISP Opco Holdings Inc., and ISP Investco LLC. ISP Chemco
operates our specialty  chemicals  business,  exclusively through its direct and
indirect  subsidiaries.  ISP  Investco  was  formed in 2001 for the  purpose  of
holding all of our investment assets and related liabilities.

    In  December  2001,  we  entered  into  a  letter   agreement  to  sell  our
pharmaceutical  fine chemicals  business to  Pharmaceutical  Resources,  Inc. On
March 14, 2002, we announced that the sale would not be consummated,  due to the
failure of Pharmaceutical  Resources to proceed with the transaction in a timely
manner.  Under the terms of the letter  agreement,  we  received a $3.0  million
break-up fee.

    The address and telephone number of our principal  executive offices are 300
Delaware Avenue, Suite 303, Wilmington, Delaware 19801, (302) 427-5715.

    Financial  information  concerning  our  industry  segments  and foreign and
domestic  operations  required  by Item 1 is  included in Notes 17 and 18 to our
Consolidated Financial Statements included in this Annual Report on Form 10-K.


SPECIALTY CHEMICALS


  PRODUCTS AND MARKETS.

    We  manufacture  a broad  spectrum of specialty  chemicals  having  numerous
applications in consumer and industrial products. We use proprietary  technology
to convert  various  raw  materials,  through a chain of one or more  processing
steps,  into increasingly  complex and higher  value-added  specialty  chemicals
specifically developed to meet customer requirements.

    Our specialty chemicals business is organized based upon the markets for our
products.  Accordingly, we manage our specialty chemicals in the following three
business segments:

     o    Personal  Care -- whose  products  are sold to the skin  care and hair
          care markets;

     o    Pharmaceutical,  Food and Beverage -- whose products are sold to these
          three government-regulated industries; and

     o    Performance Chemicals, Fine Chemicals and Industrial -- whose products
          are sold to numerous consumer and industrial markets.

    In each of the years  ending  December  31,  1999,  2000 and 2001,  sales of
specialty  chemicals  represented   approximately  90%  of  our  revenues.   For
information  about  the  amount  of  sales  by each of our  specialty  chemicals
business  segments,  see  Item  7,  "Management's  Discussion  and  Analysis  of
Financial  Condition and Results of Operations  -- Results of  Operations,"  and
Note 17 to our Consolidated  Financial Statements included in this Annual Report
on Form 10-K. Most of our specialty  chemical products fall within the following
categories:

     o    VINYL ETHER MONOMERS -- includes several products for use in specialty
          and radiation-cured coatings. Our vinyl ether monomers are marketed by
          the Performance  Chemicals group of our  Performance  Chemicals,  Fine
          Chemicals and Industrial business segment.


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     o    VINYL ETHER  COPOLYMERS -- includes our  GANTREZ(R)  line of products.
          These products serve as a bioadhesive  resin in consumer products such
          as  tartar-control  toothpaste,  denture  adhesives  and  facial  pore
          strips.  Vinyl ether  copolymers are marketed by our Personal Care and
          Pharmaceutical, Food and Beverage business segments.

     o    POLYVINYL  PYRROLIDONE (PVP) POLYMERS AND COPOLYMERS -- represents our
          largest  product group.  These polymers and copolymers are marketed by
          all  of  our  business  segments.  Our  PLASDONE(R),  POLYCLAR(R)  and
          GAFQUAT(R) product lines,  which are used as tablet binders,  beverage
          clarifiers  and hair fixative  resins,  respectively,  are included in
          this group.

     o    INTERMEDIATES  -- includes  butanediol,  butenediol,  butynediol,  and
          propargyl  alcohol  for  use  in  numerous  industrial   applications.
          Intermediates  are  marketed  by  our  Performance   Chemicals,   Fine
          Chemicals  and  Industrial  business  segment.   Our  largest  selling
          intermediate  product is  butanediol,  which is utilized by industrial
          companies to manufacture spandex fibers and polybutylene terephthalate
          (PBT) plastics for use in automobiles.

     o    SOLVENTS  -- includes  our  M-PYROL(R)  brand of N-methyl  pyrrolidone
          (NMP), for use in metal  degreasing and paint stripping,  BLO(R) brand
          of  gamma-butyrolactone,  for  use  by  electronics  companies  in the
          manufacture  of  semiconductors   and   micro-processing   chips,  and
          tetrahydrofuran   (THF),   which  is  used  in  the   manufacture  and
          installation   of  PVC  pipe.   Solvents  are  also  marketed  by  our
          Performance Chemicals, Fine Chemicals and Industrial business segment.

     o    ALGINATES -- includes sodium  alginate,  propylene glycol alginate and
          other  alginate  derivatives  for use as thickeners,  stabilizers  and
          viscosity   modifiers.    These   products   are   marketed   by   our
          Pharmaceutical,  Food and Beverage business segment, with the majority
          of our sales to the food industry.

     The  balance  of  our  specialty  chemical  products  are  marketed  by our
Performance  Chemicals,  Fine Chemicals and Industrial  business segment,  along
with  sunscreens,  preservatives  and emollients,  each marketed by our Personal
Care business segment.

    PERSONAL CARE. Our Personal Care business segment markets numerous specialty
chemicals  that  serve  as  critical  ingredients  in the  formulation  of  many
well-known skin care, hair care, toiletry and cosmetic products.

    Our skin care ingredients include:

     o    ultraviolet (UV) light absorbing chemicals, which serve as sunscreens;

     o    emollients, which provide skin softness;

     o    moisturizers, which enhance the skin's water balance;

     o    waterproofing  agents, which enhance the performance of eye-liners and
          sunscreens in wet environments; and

     o    preservatives,  which extend the shelf life of aqueous-based  cosmetic
          formulations by preventing the growth of harmful bacteria.

    Our ESCALOL(R)  sunscreen  actives serve as the primary active ingredient in
many of the most popular  sunscreens today and increasingly find applications in
many other  products such as lipsticks  and facial  creams.  Our  SUNSPHERES(TM)
product, which was jointly developed through our strategic alliance with a third
party, significantly enhances the sun protection properties of UV absorbers used
in skin care, makeup and beach products.  Our CERAPHYL(R) line of emollients and
moisturizers  provides a variety of popular bath products  with their  softening
and  moisturizing  characteristics.  We  produce a growing  number of  specialty
preservatives,  including  GERMALL(R)  Plus,  a  patented  product  that  offers
broad-spectrum  anti-microbial  activity,  and  SUTTOCIDE(R)  A, a  preservative
gentle enough for infant care products.

    Our hair care ingredients,  marketed under the GANTREZ(R),  GAFQUAT(R),  and
PVP/VA  family of products,  include a number of specially  formulated  fixative
resins which provide  hairsprays,  mousses and gels with their holding power, as
well as thickeners and stabilizers for shampoos and conditioners.  Utilizing our
combined expertise in


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hair care and  sunscreen  applications,  we  developed  the  world's  first high
performance hair protectant,  ESCALOL(R)  HP-610, to prevent sun damage to hair.
We also developed a new polymer,  AQUAFLEX(R) FX-64, for use in styling products
and low VOC hair sprays  where it provides a soft  feeling  with a long  lasting
hold for both aerosol and pump spray applications.

    PHARMACEUTICAL,   FOOD  AND  BEVERAGE.   Our  specialty  chemicals  for  the
Pharmaceutical,  Food and Beverage  markets provide a number of end-use products
with their unique  properties while enabling these products to meet increasingly
strict regulatory requirements.

    In  the  pharmaceutical   market,  our  specialty  chemicals  serve  as  key
ingredients in the following types of products:

    o prescription and over-the-counter tablets;

    o injectable prescription drugs and serums;

    o cough syrups;

    o antiseptics;

    o toothpastes; and

    o denture adhesives.

    Our PLASDONE(R) and  POLYPLASDONE(R)  polymers for tablet binders and tablet
disintegrants  are  established  excipients  for  use in the  production  of wet
granulated tablets,  and our GANTREZ(R)  bioadhesive  polymers serve as critical
ingredients in denture adhesives and tartar control toothpastes.

    Our advanced  materials  product  line  includes  the  FERRONYL(R)  brand of
dietary iron supplement, which is marketed to the pharmaceutical industry.

    In the  food and  beverage  markets,  our  alginates  and  acetylene-derived
polymers serve as critical  ingredients in the manufacture of numerous  consumer
products,  including salad dressings,  cheese sauces,  fruit fillings,  beer and
health  drinks.  For  example,  our  alginates  products,   marketed  under  the
KELCOLOID(R)  tradename,  are used as  stabilizers in many  well-known  consumer
products,  while our  acetylene-based  specialty  polymers,  marketed  under the
POLYCLAR(R)  tradename,  serve the  beverage  market by assuring the clarity and
extending the shelf life of beer, wine and fruit juices.

    PERFORMANCE  CHEMICALS,  FINE  CHEMICALS  AND  INDUSTRIAL.  Our  Performance
Chemicals business includes  acetylene-based  polymers, vinyl ether monomers and
advanced materials for consumer,  agricultural and industrial applications.  Our
acetylene-based  chemistry produces a number of performance chemicals for use in
a wide range of markets including:

    o coatings;

    o agriculture;

    o imaging;

    o detergents;

    o electronics; and

    o metalworking.

    VIVIPRINT(TM)  is our new line of polymers  developed for specialty  coating
applications in ink jet printing.  These products provide  significant  moisture
and abrasion  resistance,  high gloss and excellent  resolution for high quality
printers and photo reproductions.

    Our advanced  materials  product line  includes  high-purity  carbonyl  iron
powders, sold under the MICROPOWDER(R) name, for use in the aerospace,  defense,
electronics and powder metallurgy industries.


                                             3
<PAGE>


    On December  31,  2001,  we acquired  the  industrial  biocides  business of
Degussa   Corporation.   This   business  is  comprised  of  a  broad  range  of
preservatives and fungicides for various product applications,  including paints
and coatings. The acquisition,  which includes a manufacturing plant in Toronto,
Canada,  complements our strategic  platform for preservation and  significantly
expands our specialty chemicals offering to the coatings industry.

    Our Fine Chemicals business focuses on the production of a variety of highly
specialized products sold to the pharmaceutical, biotechnology, agricultural and
imaging  markets.  We  also  offer  custom  manufacturing   services  for  these
industries.  The pharmaceutical  ingredients portion of the business is centered
in our Columbus, Ohio facility.

    We  have  expanded  our  Freetown,  Massachusetts  manufacturing  facility's
production  capabilities to allow for the manufacture of some specialty chemical
product  lines  for our  Personal  Care  business  segment  and to offer  custom
manufacturing capability to the pharmaceutical,  biotechnology, agricultural and
chemical  process  industries.  In connection with the relocation of some of our
production  lines  for  our  Personal  Care  business  segment  to our  Freetown
facility, we shut down our manufacturing operation at our Belleville, New Jersey
plant in the first quarter of 2001.

    In our  Industrial  business,  we market  several  intermediate  and solvent
products,  such as butanediol,  tetrahydrofuran  (THF) and N-methyl  pyrrolidone
(NMP), for use in a variety of industries, including:

    o high performance plastics;

    o lubricating oil and chemical processing;

    o electronics cleaning; and

    o coatings.

    In addition, we offer a family of environmentally friendly products that can
replace  chlorinated  and other  volatile  solvents for a variety of  industrial
uses, including cleaning, stripping and degreasing.

    In the first quarter of 2001,  we shut down  production of butanediol at our
Texas City facility and now manufacture  butanediol solely at our Marl,  Germany
facility.  We  continue to produce  polymers at our Calvert  City and Texas City
plants and also continue to produce propargyl alcohol from butynediol.


  MARKETING AND SALES.

    We market our  specialty  chemicals  using a worldwide  marketing  and sales
force,  typically  chemists or chemical  engineers,  who work  closely  with our
customers to familiarize themselves with our customers' products,  manufacturing
processes and markets. We primarily sell our specialty chemicals directly to our
customers through our global distribution  network. We sell a limited portion of
our specialty chemicals through distributors.  We conduct our domestic marketing
and sales  efforts from our facility in Wayne,  New Jersey and regional  offices
strategically located throughout the United States.


  INTERNATIONAL OPERATIONS.

    We conduct our international operations through 39 subsidiaries and 48 sales
offices located in Europe, Canada, Latin America and the Asia-Pacific region. We
also  use the  services  of  local  distributors  to reach  markets  that  might
otherwise be unavailable to us.

    International  sales of our specialty  chemicals in 1999, 2000 and 2001 were
approximately   48%,  50%  and  52%  of  our  total  sales  for  those  periods,
respectively. Approximately 38% of our specialty chemicals sales in 2001 were in
Europe and Japan. For more information about our  international  sales, see Note
18 to our Consolidated  Financial  Statements  included in this Annual Report on
Form 10-K.  International  sales are subject to exchange rate fluctuation risks.
For a discussion of our policy regarding the management of these risks, see Item
7, "Management's  Discussion and Analysis of Financial  Condition and Results of
Operations -- Liquidity and


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Financial  Condition."  Other  countries  in which we have sales are  subject to
additional  risks,  including  high  rates  of  inflation,   exchange  controls,
government expropriation and general instability.

    We own and  operate  ISP Marl GmbH,  primarily  a  butanediol  manufacturing
facility, and ISP Acetylene GmbH, an acetylene production plant. Both production
facilities are located at Degussa's  Chemiepark site in Marl, Germany,  and each
relies upon Degussa to provide  specific  services,  including  utilities,  rail
transport  and  waste  handling.  We  believe  that  the  production  costs  for
butanediol  and THF at ISP Marl are among the most  competitive in the industry.
ISP  Acetylene  operates  a  fully-dedicated  modern  production  facility  that
provides ISP Marl with its primary raw material, acetylene. ISP Acetylene, which
employs  electric arc  technology  for the  production of acetylene from various
hydrocarbon feedstocks, utilizes state-of-the-art gas separation technology. ISP
Acetylene's entire production is dedicated to fulfilling ISP Marl's requirements
and has no third-party sales.

    We operate  an  alginates  manufacturing  plant in  Girvan,  Scotland  and a
research and administrative  center in Tadworth,  England. In addition,  we hold
equity  investments  in three  seaweed  processing  joint  ventures  located  in
Ireland,  Iceland  and  Tasmania.  These  joint  ventures  serve to provide  our
alginates business with a steady supply of its primary raw material, seaweed.

    For information about the locations of our long-lived  international assets,
see Note 18 to our  Consolidated  Financial  Statements  included in this Annual
Report on Form 10-K.


  RAW MATERIALS.

    Because of the multi-step  processes  required to manufacture  our specialty
chemicals,  we  believe  that  our  raw  materials  costs  represent  a  smaller
percentage of the cost of goods sold than for most other chemical companies.  We
estimate that  approximately  one-third of our  manufacturing  costs are for raw
materials,  including  energy  and  packaging.  As a  result,  we  believe  that
fluctuations  in the  price  of raw  materials  have  less of an  impact  on our
specialty  chemicals  business  than on those  chemical  companies for which raw
materials costs represent a larger percentage of manufacturing costs.

    The principal raw materials used in the  manufacture of our  acetylene-based
specialty  chemicals are acetylene,  methanol and  methylamine.  Most of the raw
materials  for  consumption  in the United  States are obtained from third party
sources  pursuant to supply  agreements.  Acetylene,  a significant raw material
used in the production of most of our specialty chemicals, is obtained by us for
domestic use from two unaffiliated  suppliers  pursuant to supply contracts.  At
our Texas City, Texas plant,  acetylene is primarily  supplied via pipeline by a
neighboring  large  multinational  company that generates this raw material as a
by-product  from the  manufacture  of ethylene.  At our Calvert  City,  Kentucky
facility,  acetylene  is supplied  via  pipeline by a  neighboring  company that
generates it from calcium carbide.

    Due to the nature of the manufacturing process,  electricity and hydrocarbon
feedstocks,  primarily butane,  are critical raw materials for the production of
acetylene at our operations in Marl, Germany, where methanol is also a principal
raw material.  Electricity, butane and methanol for our Marl, Germany operations
are supplied by Degussa pursuant to a long-term supply agreement.

    We believe that the diversity of our acetylene supply sources and our use of
a number of acetylene  production  technologies,  including ethylene by-product,
calcium carbide and electric arc  technology,  provide us with a reliable supply
of  acetylene.  In the  event of a  substantial  interruption  in the  supply of
acetylene from current  sources,  or, in the case of ISP Marl,  electricity  and
hydrocarbon feedstocks, we cannot assure that we would be able to obtain as much
acetylene  from  other  sources  as  would  be  necessary  to  meet  our  supply
requirements.  To date, we have not experienced an interruption of our acetylene
supply  that  has had a  material  adverse  effect  on our  sales  of  specialty
chemicals.

    The principal raw material used in the manufacture of alginates  consists of
select species of seaweed.  We process seaweed in both wet and dry forms. We use
our own specially  designed vessels to harvest,  under government  license,  wet
seaweed  from  leased  kelp beds in the  Pacific  Ocean to supply our San Diego,
California  facility.  Our Girvan,  Scotland  facility  processes  primarily dry
seaweed purchased from our joint ventures in Iceland,  Ireland and Tasmania,  as
well as from independent suppliers in South America. We believe that the


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species of  seaweed  required  to  manufacture  alginates  will  remain  readily
available  and that we will have  adequate  access to this seaweed to provide us
with adequate supplies of this raw material for the foreseeable future.

    Availability  of other raw materials,  including  methanol and  methylamine,
remained  adequate  during  2001.  We  believe  that,  in the  event of a supply
interruption,  we could obtain adequate supplies of raw materials from alternate
sources.

    We use natural gas and raw materials  derived from  petroleum in many of our
manufacturing processes and, consequently, the price and availability of natural
gas and petroleum could be material to our operations.  During 2001, supplies of
natural gas and petroleum remained adequate.


MINERAL PRODUCTS


  PRODUCTS AND MARKETS.

    We manufacture  mineral products  consisting of  semiceramic-coated  colored
roofing  granules,  algae  resistant  granules and headlap  granules,  which are
produced  from rock  deposits  that are mined and  crushed at our  quarries.  We
utilize a proprietary process to produce our colored and algae resistant roofing
granules.  We sell our mineral roofing  granules  primarily to the United States
roofing  industry for use in the  manufacture of asphalt roofing  shingles.  The
granules  help  to  provide  weather  resistance,   decorative  coloring,   heat
deflection  and increased  weight in the shingle.  We are the second  largest of
only three major suppliers of colored roofing granules in the United States. For
information  about  the  amount  of sales of our  mineral  products  see Item 7,
"Management's  Discussion  and  Analysis of Financial  Condition  and Results of
Operations -- Results of Operations," and Note 17 to our Consolidated  Financial
Statements included in this Annual Report on Form 10-K.

    We  estimate  that  approximately  80% of  the  asphalt  shingles  currently
produced by the roofing industry are sold for the reroofing/replacement  market,
in which  demand is driven not by the pace of new home  construction  but by the
needs of homeowners to replace  existing  roofs.  Homeowners  generally  replace
their  roofs  either  because  they are worn,  thereby  creating  concerns as to
weather-tightness,   or  because  of  the  homeowners'  desire  to  upgrade  the
appearance  of  their  homes.  We  estimate  that  the  balance  of the  roofing
industry's asphalt shingle  production  historically has been sold primarily for
use in new housing  construction.  Sales of our colored  mineral  granules  have
benefited   from  a   trend   toward   the   increased   use   of   heavyweight,
three-dimensional  laminated  roofing  shingles which results in both functional
and aesthetic  improvements.  These shingles require, on average,  approximately
60% more granules than traditional three-tab, lightweight roofing shingles.

    Sales to Building Materials  Corporation of America, or BMCA, our affiliate,
and its subsidiaries  constituted  approximately 79% of our mineral products net
sales in 2001. See Item 13, "Certain Relationships and Related Transactions" and
Note 16 to our Consolidated  Financial Statements included in this Annual Report
on Form  10-K.  See  also  Item 7,  "Management's  Discussion  and  Analysis  of
Financial  Condition  and Results of Operations -- Results of Operations -- 2001
Compared with 2000."


  MARKETING AND SALES.

    We market our  mineral  products  on a  national  basis to  residential  and
commercial roofing manufacturers utilizing a direct sales team with expertise in
product  application  and  logistics.  We ship finished  products using rail and
trucks from three manufacturing  facilities strategically located throughout the
United States. From our offices located in Hagerstown, MD, we provide logistical
support and operate a customer  design center to engineer  product  applications
according  to  our   customers'   requirements.   Our  technical   services  and
manufacturing  teams  provide  support and  consultation  services upon specific
requirements by our customers.


  RAW MATERIALS.

    We  own  rock  deposits  that  have  specific  performance  characteristics,
including weatherability,  the ability to reflect UV light, abrasion-resistance,
non-staining  characteristics  and the ability to absorb pigments.  We own three
quarries, each with proven reserves, based on current production levels, of more
than 20 years.


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COMPETITION

    We believe that we are either the first or second largest  seller,  based on
revenues,  worldwide of our specialty  chemicals  derived from acetylene,  other
than butanediol and  tetrahydrofuran,  and the second largest  seller,  based on
revenues, of alginates.

    In each end-use market, there are a limited number of companies that produce
substitutable  products for our  acetylene-derived  specialty  chemicals.  These
companies  compete with us in the personal  care,  pharmaceutical,  beverage and
industrial  markets and have the effect of limiting our market  penetration  and
pricing  flexibility.  For our specialty  chemicals not derived from  acetylene,
including alginates, sunscreens, emollients,  moisturizers and fine chemicals, a
number of world-wide competitors can provide similar products or services.

    Butanediol,  which we produce  primarily for use as a raw material,  is also
manufactured  by a limited  number of  companies  throughout  the world for both
their  captive use or to supply the merchant  market.  We believe that there are
three competitors of significance for merchant market  butanediol.  One of these
competitors  supplies the merchant  market from its plants in the United  States
and in Europe.  Two other competitors each supply the merchant market from their
single manufacturing  plants in the United States.  Tetrahydrofuran and N-methyl
pyrrolidone are manufactured by a number of companies throughout the world.

    With regard to our mineral products, we have only one larger and one smaller
competitor and believe that competition has been limited by:

     o    the substantial capital expenditures  associated with the construction
          of new mineral  processing and coloring  plants and the acquisition of
          suitable rock reserves;

     o    the limited availability of proven rock sources;

     o    the  complexity   associated  with  the   construction  of  a  mineral
          processing and coloring  plant,  together with the technical  know-how
          required to operate such a plant;

     o    the need to obtain, prior to commencing operations, reliable data over
          a substantial  period of time  regarding the weathering of granules in
          order to assure the quality and durability of the product; and

     o    the difficulty in obtaining the necessary  permits to mine and operate
          a quarry.

    Competition in the markets for our specialty  chemicals and mineral products
is largely  based upon  product and service  quality,  technology,  distribution
capability and price. We believe that we are  well-positioned in the marketplace
as a result of our broad product lines,  sophisticated  technology and worldwide
distribution network.


RESEARCH AND DEVELOPMENT

    Our worldwide  research and development  expenditures were $23.0,  $25.6 and
$25.4 million in 1999, 2000 and 2001, respectively.

    Our research  and  development  activities  are  conducted  primarily at our
worldwide  technical center and  laboratories in Wayne,  New Jersey.  Additional
research and development is conducted at plant sites in Calvert City,  Kentucky;
Texas City, Texas; Chatham, New Jersey; Freetown, Massachusetts; Columbus, Ohio;
San  Diego,  California;  and  Girvan,  Scotland,  and at a  research  center in
Piscataway,  New Jersey,  as well as at technical centers in the United Kingdom,
Germany, China, Singapore,  Mexico and Israel. Our mineral products research and
development  facility,  together with our customer  design and color center,  is
located in Hagerstown, Maryland.


ENVIRONMENTAL SERVICES

    We have received site  designation for the construction of a hazardous waste
treatment,  storage and disposal facility at our Linden, New Jersey property and
have  received  approval  from the New Jersey  Turnpike  Authority  for a direct
access  ramp  extension  from the New  Jersey  Turnpike  to the site.  If we are
successful  in  securing  the  necessary  permits to  construct  and operate the
hazardous  waste  facility  and decide to proceed  with this  project,  we would
develop and operate the facility in a separate subsidiary,  either on our own or
in a joint venture with a


                                        7

<PAGE>


suitable partner. We estimate that the cost of constructing the facility will be
approximately  $100 million and, if approved,  the facility is anticipated to be
in operation  three years after  commencement  of  construction.  We  anticipate
utilizing  internally generated cash and/or seeking project or other independent
financing  for  this  project.  We  are  also  investigating  other  development
opportunities  at this  site  consistent  with a plan by the  County of Union to
re-develop the Tremley Point area of Linden. We expect that related planning and
evaluation efforts will continue through 2002.


PATENTS AND TRADEMARKS

    As of December 31, 2001, we owned or licensed approximately 370 domestic and
540 foreign patents or patent  applications and owned or licensed  approximately
155 domestic and 2,015 foreign trademark  registrations or applications  related
to our  business.  While we believe the patent  protection  covering some of our
products  is  material  to those  products,  we do not  believe  that any single
patent,  patent  application  or  trademark  is  material  to  our  business  or
operations.  We believe  that the  duration of the  existing  patents and patent
licenses is consistent with our business needs.


ENVIRONMENTAL COMPLIANCE

    Since 1970, a wide variety of federal,  state and local  environmental  laws
and regulations relating to environmental matters have been adopted and amended.
By reason of the nature of our operations and the operations of our  predecessor
and certain of the substances that are or have been used, produced or discharged
at our or our  predecessor's  plants or at other  locations,  we are affected by
these environmental laws and regulations.  We have made capital  expenditures of
approximately  $5.0  million in each of 1999 and 2000,  and  approximately  $6.3
million in the year ended  December 31, 2001, in order to comply with these laws
and regulations. These expenditures are included in additions to property, plant
and equipment.  We anticipate that aggregate  capital  expenditures  relating to
environmental   compliance   in  each  of  the  years  2002  and  2003  will  be
approximately $6.0 million.

    The environmental  laws and regulations deal with air and water emissions or
discharges into the environment, as well as the generation,  storage, treatment,
transportation and disposal of solid and hazardous waste, and the remediation of
any releases of  hazardous  substances  and  materials  to the  environment.  We
believe that our  manufacturing  facilities comply in all material respects with
applicable  environmental  laws and  regulations,  and,  while we cannot predict
whether more burdensome requirements will be adopted by governmental authorities
in the future,  we believe that any  potential  liability  for  compliance  with
environmental  laws and  regulations  will not  materially  affect our business,
liquidity, results of operations, cash flows or financial position.


EMPLOYEES

    At December  31, 2001,  we employed  approximately  2,600 people  worldwide.
Approximately  725  employees  in the United  States were subject to seven union
contracts. We believe that our relations with our employees and their unions are
satisfactory.


OTHER DEVELOPMENTS

    On May 24, 2001, at Hercules  Incorporated's  Annual  Meeting,  three of our
director  nominees,   including  Messrs.  Heyman  and  Kumar,  were  elected  as
directors.  On June 28, 2001,  Hercules' board unanimously  appointed our fourth
director nominee as a director.


ITEM 2.  PROPERTIES

    Our  corporate   headquarters   and  principal   research  and   development
laboratories  are located at a 100-acre  campus-like  office and  research  park
owned by one of our subsidiaries at 1361 Alps Road, Wayne, New Jersey 07470.


                                        8

<PAGE>


    The  principal  domestic  and foreign  real  properties  either owned by, or
leased to, us are described below.  Unless otherwise  indicated,  the properties
are owned in fee. In addition  to the  principal  facilities  listed  below,  we
maintain  sales  offices  and  warehouses  in  the  United  States  and  abroad,
substantially  all of which are in leased premises under  relatively  short-term
leases.

LOCATION                  FACILITY                         PRODUCT LINE
---------------           ------------                     -------------------

                                    DOMESTIC
Alabama, Huntsville       Plant*                           Specialty Chemicals
California, San Diego     Plant*                           Specialty Chemicals
Kentucky, Calvert City    Plant                            Specialty Chemicals
Maryland, Hagerstown      Research Center, Design Center,
                            Sales Office                   Mineral Products
Massachusetts, Freetown   Plant, Research Center           Specialty Chemicals
Missouri, Annapolis       Plant, Quarry                    Mineral Products
New Jersey
  Bridgewater             Sales Office*                    Specialty Chemicals
  Chatham                 Plant, Research Center           Specialty Chemicals
  Piscataway              Research Center*, Sales Office*  Specialty Chemicals
  Wayne                   Headquarters, Corporate
                            Administrative Offices,
                            Research Center                Specialty Chemicals
New York, New York City   Corporate Administrative
                            Offices                        N/A
Ohio, Columbus            Plant, Research Center,
                            Sales Office                   Specialty Chemicals
Pennsylvania, Blue
  Ridge Summit            Plant, Quarry                    Mineral Products
Texas, Texas City         Plant                            Specialty Chemicals
Wisconsin, Pembine        Plant, Quarry                    Mineral Products

                                  INTERNATIONAL
Belgium, Sint-Niklaas     Sales Office, Distribution
                            Center                         Specialty Chemicals
Brazil, Sao Paulo         Sales Office*, Distribution
                            Center*                        Specialty Chemicals
Canada, Mississauga,
  Ontario                 Sales Office*, Distribution
                            Center*                        Specialty Chemicals
Canada, Toronto, Ontario  Plant, Research Center,
                            Sales Office, Warehouse        Specialty Chemicals
England, Tadworth         Research Center*, Sales Office*  Specialty Chemicals
Germany
  Cologne                 European Headquarters*,
                            Research Center*,
                            Sales Office*                  Specialty Chemicals
  Marl                    Plants**, Sales Office**         Specialty Chemicals
India, Nagpur             Plant**                          Specialty Chemicals
Israel, Haifa             Plant*, Research Center*         Specialty Chemicals
Japan, Tokyo              Sales Office*                    Specialty Chemicals
Scotland, Girvan          Plant                            Specialty Chemicals
Singapore                 Sales Office*,
                            Distribution Center*,
                            Asia-Pacific Headquarters*,
                            Warehouse*                     Specialty Chemicals

-----------
*   Leased property
**  Long-term ground lease

    We believe that our plants and facilities, which are of varying ages and are
of different  construction  types, have been satisfactorily  maintained,  are in
good  condition,  are suitable for their  respective  operations  and  generally
provide  sufficient  capacity to meet  production  requirements.  Each plant has
adequate transportation facilities for both raw materials and finished products.
In 2001, we made capital expenditures in the amount of $53.0 million relating to
plant, property and equipment.

                                       9

<PAGE>

ITEM 3.  LEGAL PROCEEDINGS

    We, together with other  companies,  are a party to a variety of proceedings
and  lawsuits   involving   environmental   matters   under  the   Comprehensive
Environmental Response Compensation and Liability Act, the Resource Conservation
and Recovery  Act and similar  state laws,  in which  recovery is sought for the
cost of cleanup of contaminated  sites or remedial  obligations  are imposed,  a
number of which are in the early  stages  or have been  dormant  for  protracted
periods. We refer to these claims in this report as "Environmental Claims".

    We  estimate  that our  liability  in respect of all  Environmental  Claims,
including those relating to our closed Linden, New Jersey plant described below,
and certain other environmental compliance expenses, as of December 31, 2001, is
$26.6  million,  before  reduction  for  insurance  recoveries  reflected on our
balance  sheet of $21.7  million that relate to both past expenses and estimated
future liabilities to which we refer as "estimated  recoveries." While we cannot
predict  whether  adverse  decisions  or events can occur in the future,  in the
opinion of management,  the resolution of such matters should not be material to
our  business,  liquidity,  results  of  operations,  cash  flows  or  financial
position.  However, adverse decisions or events, particularly as to increases in
remedial costs,  discovery of new  contamination,  assertion of natural resource
damages,  plans for  development  of the Linden,  New Jersey  property,  and the
liability  and the  financial  responsibility  of our  insurers and of the other
parties involved at each site and their insurers, could cause us to increase our
estimate  of our  liability  in respect of those  matters.  It is not  currently
possible to estimate the amount or range of any additional liability.

    After considering the relevant legal issues and other pertinent factors,  we
believe that we will receive the estimated  recoveries  and that the  recoveries
could be in excess of the  current  estimated  liability  for all  Environmental
Claims,  although  there can be no assurance  in this regard.  We believe we are
entitled  to  substantially  full  defense  and  indemnity  under our  insurance
policies for most Environmental Claims,  although our insurers have not affirmed
a legal obligation under the policies to provide indemnity for those claims.

    Prior to January 1, 1997, ISP Holdings was a wholly owned  subsidiary of GAF
Corporation. On January 1, 1997, GAF effected a series of transactions involving
its subsidiaries that resulted in, among other things,  the capital stock of ISP
Holdings being distributed to the stockholders of GAF. Since this  distribution,
we have not been a subsidiary  of GAF or its  successor by merger,  G-I Holdings
Inc. As used in this report,  "G-I Holdings"  includes G-I Holdings Inc. and any
and all of its  predecessors,  including GAF Corporation,  G-I Holdings Inc. and
GAF Fiberglass Corporation.

    In June 1997,  G-I  Holdings  commenced  litigation  against the insurers on
behalf of itself and its  predecessors,  successors,  subsidiaries  and  related
corporate  entities  seeking  amounts  substantially  in excess of the estimated
recoveries.  While we believe that our claims are  meritorious,  there can be no
assurance  that we will prevail in our efforts to obtain amounts equal to, or in
excess of, the estimated recoveries.

    In June 1989, we entered into a Consent Order with the New Jersey Department
of Environmental  Protection requiring the development of a remediation plan for
our closed Linden, New Jersey plant and the maintenance of financial assurances,
currently $7.5 million,  to guarantee our  performance.  This Consent Order does
not address any potential  natural  resource damage claims for which an estimate
cannot  currently  be  made.  In  April  1993,  the  New  Jersey  Department  of
Environmental Protection issued orders which require the prevention of discharge
of contaminated  groundwater and stormwater from the site and the elimination of
other potential  exposure concerns.  We believe,  although we cannot be certain,
that,  taking into account our plans for  development of the site, we can comply
with the New Jersey  Department of  Environmental  Protection order at a cost of
approximately $17.0 million. See Item 1, "Business -- Environmental Services."

    For more  information  about  legal  proceedings,  see Notes 8 and 19 to our
Consolidated Financial Statements included in this Annual Report on Form 10-K.


                                       10

<PAGE>

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

    None.


EXECUTIVE OFFICERS OF THE REGISTRANT

    The following table sets forth the name, age, position and other information
with respect to ISP's executive officers. Under ISP's By-laws, each director and
executive  officer  continues  in office  until  ISP's  next  annual  meeting of
stockholders and until his or her successor is elected and qualified. As used in
this  section,  "ISP" refers to both Old ISP prior to the merger of Old ISP into
ISP  Holdings  and ISP  subsequent  to the  merger.  See  Item 7,  "Management's
Discussion and Analysis of Financial Condition and Results of Operations".

                                         PRESENT PRINCIPAL OCCUPATION
NAME AND POSITION HELD    AGE    OR EMPLOYMENT AND FIVE-YEAR EMPLOYMENT HISTORY
----------------------    ---    ----------------------------------------------
Samuel J. Heyman          63     Mr. Heyman has been a director and Chairman
  Chairman of the Board          of the Board of ISP Chairman of the Board
                                 since its formation and Chairman of the Board
                                 and director of one of its subsidiaries since
                                 December 2001. He was Chief Executive Officer
                                 of ISP and some of its subsidiaries from
                                 their formation to June 1999. Mr. Heyman also
                                 has been a director of G-I Holdings for more
                                 than five years and was President and Chief
                                 Executive Officer of G-I Holdings and some of
                                 its subsidiaries for more than five years
                                 until September 2000. In January 2001, G-I
                                 Holdings filed a voluntary petition for
                                 reorganization under Chapter 11 of the U.S.
                                 Bankruptcy Code due to its asbestos-related
                                 claims. Mr. Heyman was a director and
                                 Chairman of the Board of BMCA from its
                                 formation to September 2000 and served as
                                 Chief Executive Officer of BMCA and some of
                                 its subsidiaries from June 1999 to September
                                 2000 and from June 1996 to January 1999. He
                                 is also the Chief Executive Officer, Manager
                                 and General Partner of a number of closely
                                 held real estate development companies and
                                 partnerships whose investments include
                                 commercial real estate and a portfolio of
                                 publicly traded securities. Mr. Heyman has
                                 served as a director of Hercules
                                 Incorporated, a global manufacturer and
                                 marketer of specialty chemicals, since May
                                 2001.

Sunil Kumar               52     Mr. Kumar has been a director, President and
  President and                  Chief Executive Officer of ISP and a director
  Chief Executive Officer        and President and Chief Executive Officer
                                 Officer of some of its subsidiaries since
                                 June 2001 and June 1999, respectively. Mr.
                                 Kumar was a director, President and Chief
                                 Executive Officer of BMCA and some of its
                                 subsidiaries from May 1995, July 1996 and
                                 January 1999, respectively, to June 1999. He
                                 also was Chief Operating Officer of BMCA and
                                 some of its subsidiaries from March 1996 to
                                 January 1999. Mr. Kumar was President,
                                 Commercial Roofing Products Division, and
                                 Vice President of BMCA from February 1995 to
                                 March 1996. He also was a director and
                                 Vice-Chairman of the Board of G-I Holdings
                                 from January 1999 to June 1999. In January
                                 2001, G-I Holdings filed a voluntary petition
                                 for reorganization under Chapter 11 of the U.
                                 S. Bankruptcy Code due to its
                                 asbestos-related claims. Mr. Kumar has served
                                 as a director of Hercules Incorporated since
                                 May 2001.

                                       11
<PAGE>
                                         PRESENT PRINCIPAL OCCUPATION
NAME AND POSITION HELD    AGE    OR EMPLOYMENT AND FIVE-YEAR EMPLOYMENT HISTORY
----------------------    ---    ----------------------------------------------
Richard A. Weinberg       42     Mr. Weinberg has been Executive Vice
  Executive Vice President,      President, General Counsel and Secretary of
  General Counsel and            ISP and its subsidiaries since May 1998 and
  Secretary                      was Senior Vice President, General Counsel
                                 and Secretary of ISP and its subsidiaries
                                 from May 1996 to May 1998. He has also been
                                 serving as a director of various ISP
                                 subsidiaries since February 2002, December
                                 2001 and May 1996. Mr. Weinberg has been
                                 President, Chief Executive Officer, General
                                 Counsel and Secretary of G-I Holdings since
                                 September 2000 and was Executive Vice
                                 President, General Counsel and Secretary of
                                 G-I Holdings from May 1998 to September 2000.
                                 He also was Senior Vice President, General
                                 Counsel and Secretary of these corporations
                                 from May 1996 to May 1998. Mr. Weinberg has
                                 served as a director of G-I Holdings since
                                 May 1996. In January 2001, G-I Holdings filed
                                 a voluntary petition for reorganization under
                                 Chapter 11 of the U.S. Bankruptcy Code due to
                                 its asbestos-related claims. Mr. Weinberg
                                 also has been Executive Vice President,
                                 General Counsel and Secretary of BMCA and its
                                 subsidiaries since May 1998, and was Senior
                                 Vice President, General Counsel and Secretary
                                 of BMCA and its subsidiaries from May 1996 to
                                 May 1998.

Susan B. Yoss             43     Ms. Yoss has been Executive Vice President--
  Executive                      Finance and Treasurer of ISP and its
  Vice President--               subsidiaries since September 2000. She was
  Finance and Treasurer          Senior Vice President and Treasurer of ISP
                                 and its subsidiaries from July 1999 to
                                 September 2000 and was Vice President and
                                 Treasurer of ISP and its subsidiaries from
                                 February 1998 to June 1999. She also has been
                                 Senior Vice President of BMCA and its
                                 subsidiaries since August 2001, was Senior
                                 Vice President and Treasurer of the same
                                 companies from July 1999 to August 2001 and
                                 was Vice President and Treasurer of the same
                                 companies from February 1998 to July 1999.
                                 Ms. Yoss also has served as Senior Vice
                                 President, Chief Financial Officer and
                                 Treasurer of G-I Holdings since July 1999. In
                                 January 2001, G-I Holdings filed a voluntary
                                 petition for reorganization under Chapter 11
                                 of the U.S. Bankruptcy Code due to its
                                 asbestos-related claims. She was Assistant
                                 Treasurer of Joseph E. Seagram & Sons, Inc.,
                                 a global beverage and entertainment company
                                 for more than five years until February 1998.

 Paul T. Brady             39    Mr. Brady has been Senior Vice President--
  Senior Vice President--        Sales, Americas of ISP, and a director of one
  Sales, Americas                of its subsidiaries since June 2001. He was
                                 Vice President -- Sales, North America for
                                 ISP and some of its subsidiaries from
                                 November 2000 to June 2001. Mr. Brady was
                                 Vice President, Global Commercial Operations
                                 -- ISP Alginates Inc. from October 1999 to
                                 November 2000. He was employed as Senior
                                 Director -- Sales and Marketing of Monsanto
                                 Company's Kelco Alginates from January 1998
                                 to October 1999. He was Global Sales and
                                 Marketing Director of Monsanto Company's
                                 Kelco Biopolymers from June 1997 to January
                                 1998 and was Business Director, Nutrasweet
                                 Kelco from November 1996 to June 1997.

                                       12
<PAGE>

                                         PRESENT PRINCIPAL OCCUPATION
NAME AND POSITION HELD    AGE    OR EMPLOYMENT AND FIVE-YEAR EMPLOYMENT HISTORY
----------------------    ---    ----------------------------------------------
Roger J. Cope             57     Mr. Cope has been Senior Vice President--
  Senior Vice President--        Sales and Commercial Director-- Europe of ISP
  Sales and Commericial          and one of its subsidiaries since July 1999
  Director--Europe               and a director of one of its subsidiaries
                                 since June 2001. He was Senior Vice
                                 President, Pharmaceutical, Agricultural and
                                 Beverage Group of ISP and some of its
                                 subsidiaries from July 1998 to July 1999 and
                                 Vice President, Asia-Pacific Region of the
                                 same corporations from March 1997 to July
                                 1998. Mr. Cope also held the position of Vice
                                 President -- Hair Care of ISP and some of its
                                 subsidiaries from December 1995 to March
                                 1997.

Neal E. Murphy            45     Mr. Murphy has been Senior Vice President and
  Senior Vice President          Chief Financial Officer of ISP and its
  and Chief Financial            subsidiaries since February 2002 and a Chief
  Officer                        Financial Officer director of one of its
                                 subsidiaries since February 2002. Prior to
                                 joining ISP, he was President of PQ Europe, a
                                 global developer and producer of silica-based
                                 specialty chemicals, inorganic chemicals and
                                 performance particles from August 1999 to
                                 September 2001 and Vice President and Chief
                                 Financial Officer of PQ Corporation, the
                                 parent of PQ Europe, from May 1995 until July
                                 1999.

Stephen R. Olsen          39     Mr. Olsen has been Senior Vice President--
  Senior Vice President--        Corporate Development and Strategy of ISP,
  Corporate Development          since September 2000 and a director of some
  and Strategy                   of its subsidiaries since June 2001. He was
                                 President and Chief Operating Officer of LL
                                 Building Products Inc., one of BMCA's
                                 subsidiaries, from June 1999 to September
                                 2000. He was Vice President, Corporate
                                 Development and Vice President and General
                                 Manager, Accessories and Specialty Products,
                                 of BMCA from May 1997 to October 1998 and
                                 also was Director, Operational Planning of
                                 BMCA from December 1993 to May 1997.

Steven E. Post            47     Mr. Post has been Senior Vice President--
  Senior Vice President--        Operations for Specialty Chemicals of ISP,
  Operations for Specialty       and a director of one of its subsidiaries
  Chemicals                      since June 2001. He has been President of ISP
                                 Alginates Inc. since October 1999. He was
                                 employed as President of Monsanto Company's
                                 Kelco Alginates division from January 1999 to
                                 October 1999. He served as Vice President and
                                 General Manager, Alginates of Monsanto
                                 Company from December 1997 to January 1999.
                                 He was Vice President, Manufacturing for the
                                 Nutrition and Consumer sector of Monsanto
                                 Company from January 1997 to December 1997.
                                 Mr. Post was Vice President, Manufacturing
                                 Services - Nutrasweet Kelco Division of
                                 Monsanto Company from January 1996 to January
                                 1997.

Lawrence Grenner          59     Mr. Grenner has been Senior Vice President--
  Senior Vice President--        Marketing and Product Development of ISP and
  Marketing and Product          some of its subsidiaries since June 2000. He
  Development                    was Vice President and Business Unit
                                 Director, Skin Care of ISP and some of its
                                 subsidiaries from January 1999 to June 2000
                                 and Vice President, Marketing-Personal Care
                                 of ISP and some of its subsidiaries from
                                 January 1997 to January 1999.

                                       13
<PAGE>

                                     PART II


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

    The following  information  pertains to our common stock, which is traded on
the New York Stock  Exchange.  As of March 15,  2002,  there were 188 holders of
record of our outstanding shares of common stock.

                      2001 BY QUARTER                  2000 BY QUARTER
             ---------------------------------    -----------------------------
              FIRST   SECOND    THIRD   FOURTH    FIRST  SECOND   THIRD  FOURTH
             ------   ------    -----   ------    -----  ------   -----  ------
Price Range
  Per Share
  High ....  $8.74   $11.25    $11.25    $9.60    $9.31   $6.50   $6.19   $7.00
  Low .....   6.63     7.80      7.95     7.85     5.75    5.19    5.31    5.00

    See Item 7, "Management's Discussion and Analysis of Financial Condition and
Results of  Operations"  and Note 13 to our  Consolidated  Financial  Statements
included  in  this  Annual  Report  on  Form  10-K  for  information   regarding
restrictions on the payment of dividends set forth on pages F-2 to F-11 and page
F-30,  respectively.  We have not paid  dividends  since 1995.  Any  decision to
resume the payment of dividends, and the timing and amount thereof, is dependent
upon, among other things, our results of operations,  financial condition,  cash
requirements,  prospects  and  other  factors  deemed  relevant  by our Board of
Directors.  Accordingly,  we cannot assure you that our Board of Directors  will
resume the declaration and payment of dividends or the amount thereof.


ITEM 6.  SELECTED FINANCIAL DATA

    See page F-12.

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

    See page F-2.

ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

    See Item 7, "Management's Discussion and Analysis of Financial Condition and
Results of  Operations  --Liquidity  and  Financial  Condition-Market  Sensitive
Instruments and Risk Management" on page F-9.

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

    See Index on page F-1 and Financial  Statements  and  Supplementary  Data on
pages F-14 to F-47.

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

    None.

                                    PART III

ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

    The  information  relating to the  directors  of ISP to be  contained in the
Proxy  Statement  under the heading  "Election of Directors" is  incorporated by
reference herein. For information relating to the executive officers of ISP, see
"Executive Officers of the Registrant" in Part I of this report.


ITEM 11.  EXECUTIVE COMPENSATION

    The  information to be contained in the Proxy  Statement  under the headings
"Compensation of Executive  Officers of the Company" and "Election of Directors"
is incorporated by reference herein.


                                       14
<PAGE>

ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

    The  information  to be contained in the Proxy  Statement  under the heading
"Security Ownership of Certain Beneficial Owners and Management" is incorporated
by reference herein.


ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

    The  information to be contained in the Proxy  Statement  under the captions
"Election of Directors" and "Certain  Transactions" is incorporated by reference
herein.



                                     PART IV


ITEM 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

    The following documents are filed as part of this report:

    (a)(1) Financial Statements: See Index on page F-1.

    (a)(2) Financial Statement Schedules: See Index on page F-1.

    (a)(3) Exhibits:



EXHIBIT
 NUMBER                                DESCRIPTIONS
-------                                ------------

  3.1 --  Amended and Restated  Certificate of  Incorporation  of  International
          Specialty  Products Inc.  (incorporated by reference to Exhibit 4.1 to
          Post-Effective  Amendment  No.  1 of  Form  S-8  to  the  Registration
          Statement  on  Form  S-4  of  International  Specialty  Products  Inc.
          (Registration No. 333-53709) (the "ISP Registration Statement")).

  3.2 --  By-laws of  International  Specialty  Products Inc.  (incorporated  by
          reference to Exhibit 99.2 to the ISP Registration Statement).

  4.1 --  Indenture,  dated as of June 27, 2001,  between ISP Chemco  Inc.,  ISP
          Chemicals  Inc.,  ISP Minerals  Inc.  and ISP  Technologies  Inc.,  as
          issuers, the subsidiary guarantors party thereto, and Wilmington Trust
          Company,  as trustee  (the "2011 Notes  Indenture")  (incorporated  by
          reference to Exhibit 4.1 to the Registration  Statement on Form S-4 of
          ISP  Chemco  Inc.   (Registration  No.  333-70144)  (the  "ISP  Chemco
          Registration Statement")).

  4.2 --  Amendment No. 1 to the 2011 Notes Indenture,  dated as of November 13,
          2001  (incorporated  by reference  to Exhibit 4.2 to the  Registration
          Statement   on  Form  S-4  of  ISP  Chemco  Inc.   (Registration   No.
          333-75574)).

  4.3 --  Registration  Rights Agreement,  dated as of November 13, 2001, by and
          among ISP Chemco Inc.,  ISP Chemicals  Inc., ISP Minerals Inc. and ISP
          Technologies  Inc.,  as  issuers,  the  subsidiary   guarantors  party
          thereto,  and UBS Warburg LLC, as initial  purchaser  (incorporated by
          reference to Exhibit 4.5 to the Registration  Statement on Form S-4 of
          ISP Chemco Inc. (Registration No. 333-75574)).

  4.4 --  Indenture,  dated  as of  December  13,  2001,  between  International
          Specialty  Holdings Inc., as issuer and Wilmington  Trust Company,  as
          trustee.

  4.5 --  A/B Exchange  Registration Rights Agreement,  dated as of December 13,
          2001, by and among  International  Specialty  Holdings Inc., as issuer
          and Bear Stearns & Co. Inc. and UBS Warburg LLC as initial purchasers.

                                       15

<PAGE>




EXHIBIT
 NUMBER                                DESCRIPTIONS
--------                               ------------

 10.1 --  Amended  and  Restated  Management  Agreement,  dated as of January 1,
          1999, by and among GAF  Corporation,  G-I Holdings  Inc., G Industries
          Corp.,   Merick  Inc.,  GAF  Fiberglass   Corporation,   International
          Specialty  Products  Inc.,  GAF Building  Materials  Corporation,  GAF
          Broadcasting Company,  Inc., Building Materials Corporation of America
          and ISP Opco Holdings Inc.  (incorporated by reference to Exhibit 10.1
          to Building  Materials  Corporation of America's Annual Report on Form
          10-K for the fiscal year ended December 31, 1998).

 10.2 --  Amendment  No. 1 to the Amended  and  Restated  Management  Agreement,
          dated as of January 1, 2000 by and among GAF Corporation, G-I Holdings
          Inc., G Industries  Corp.,  Merick Inc., GAF  Fiberglass  Corporation,
          International   Specialty   Products  Inc.,  GAF  Building   Materials
          Corporation,   GAF  Broadcasting  Company,  Inc.,  Building  Materials
          Corporation  of America  and ISP Opco  Holdings  Inc.,  as assignee of
          International  Specialty  Products Inc.  (incorporated by reference to
          Exhibit 10.2 to International  Specialty Products Inc.'s Annual Report
          on Form 10-K for the fiscal  year ended  December  31, 1999 (the "1999
          Form 10-K")).

 10.3 --  Amendment  No. 2 to the Amended  and  Restated  Management  Agreement,
          dated as of January  1, 2001 by and among G-1  Holdings  Inc.,  Merick
          Inc., International Specialty Products Inc., GAF Broadcasting Company,
          Inc., Building Materials  Corporation of America and ISP Opco Holdings
          Inc.,   as  assignee  of   International   Specialty   Products   Inc.
          (incorporated by reference to Exhibit 10.3 to International  Specialty
          Products  Inc.'s  Annual Report on Form 10-K for the fiscal year ended
          December 31, 2000 (the "2000 Form 10-K")).

 10.4 --  Amendment  No. 3 to the Amended  and  Restated  Management  Agreement,
          dated as of June 27, 2001 by and among G-1 Holdings Inc., Merick Inc.,
          International   Specialty   Products   Inc.,  ISP  Investco  LLC,  GAF
          Broadcasting Company,  Inc., Building Materials Corporation of America
          and ISP  Management  Company,  Inc.,  as  assignee  of ISP Chemco Inc.
          (incorporated   by  reference  to  Exhibit  10.7  to  the  ISP  Chemco
          Registration Statement).

 10.5 --  Amendment  No. 4 to the Amended  and  Restated  Management  Agreement,
          dated as of January  1, 2002 by and among G-1  Holdings  Inc.,  Merick
          Inc.,  International  Specialty  Products  Inc., ISP Investco LLC, GAF
          Broadcasting Company,  Inc., Building Materials Corporation of America
          and ISP  Management  Company,  Inc.,  as  assignee  of ISP Chemco Inc.

 10.6 --  Indemnification  Agreement,  dated as of October 18,  1996,  among GAF
          Corporation,  G-I Holdings Inc., ISP Holdings Inc., G Industries Corp.
          and GAF Fiberglass  Corporation  (incorporated by reference to Exhibit
          10.7 to the  Registration  Statement on Form S-4 of ISP Holdings  Inc.
          (Registration No. 333-17827) (the "Holdings Registration Statement")).

 10.7 --  Tax Sharing Agreement, dated as of January 1, 1997, among ISP Holdings
          Inc.,  International  Specialty Products Inc. and certain subsidiaries
          of International Specialty Products Inc. (incorporated by reference to
          Exhibit 10.8 to the Holdings Registration Statement).

 10.8 --  Tax  Sharing  Agreement,  dated as of January  1,  2001,  by and among
          International   Specialty  Products  Inc.,   International   Specialty
          Holdings  Inc.  and ISP Chemco  Inc.  (incorporated  by  reference  to
          Exhibit 10.8 to the ISP Chemco Registration Statement).

 10.9 --  Non-Qualified   Retirement  Plan  Letter  Agreement  (incorporated  by
          reference to Exhibit 10.11 to the  Registration  Statement on Form S-1
          of   International   Specialty   Products   Inc.   (Registration   No.
          333-40351)).*

 10.10--  International  Specialty  Products  Inc. 1991  Incentive  Plan for Key
          Employees  and  Directors,  as amended  (incorporated  by reference to
          Exhibit 4.3 to  Post-Effective  Amendment No. 1 on Form S-8 to the ISP
          Registration Statement).*


                                       16
<PAGE>


EXHIBIT
 NUMBER                                DESCRIPTIONS
--------                               ------------

 10.11 -- International  Specialty  Products  Inc.  2000 Stock  Option  Plan for
          Non-Employee  Directors  (incorporated  by reference to Exhibit 4.3 to
          the  Registration  Statement  on Form S-8 of  International  Specialty
          Products Inc. (Registration Statement No. 333-81490)).*

 10.12 -- International  Specialty  Products Inc. 2000 Long-Term  Incentive Plan
          (incorporated  by  reference  to  Annex A to  International  Specialty
          Products  Inc.'s  definitive  proxy  statement  on  Schedule  14A with
          respect to International Specialty Products Inc.'s 2000 Annual Meeting
          of Stockholders  filed with the Securities and Exchange  Commission on
          April 20, 2000).*

 10.13 -- Amendment  No. 2 to the  International  Specialty  Products  Inc. 2000
          Long-Term  Incentive  Plan  (incorporated  by  reference to Annex C to
          International  Specialty Products Inc.'s definitive proxy statement on
          Schedule 14A with respect to International  Specialty  Products Inc.'s
          2001 Annual  Meeting of  Stockholders  filed with the  Securities  and
          Exchange Commission on April 20, 2001)*.

 10.14 -- Letter  Agreement,  dated  September 29, 1999,  between  International
          Specialty Products Inc. and Sunil Kumar  (incorporated by reference to
          Exhibit 10 to the  International  Specialty  Products Inc.'s Quarterly
          Report on Form 10-Q for the fiscal quarter ended October 3, 1999).*

 10.15 -- First  Amendment to Letter  Agreement dated September 29, 1999 between
          International Specialty Products Inc. and Sunil Kumar (incorporated by
          reference to Exhibit 10.11 to International  Specialty Products Inc.'s
          Annual  Report on Form 10-K for the  fiscal  year ended  December  31,
          2000).*

 10.16 -- International  Specialty  Products  Inc.  Yoss  Restricted  Share Plan
          (incorporated   by  reference  to  Exhibit  4.3  to  the  Registration
          Statement  on  Form  S-8  of  International  Specialty  Products  Inc.
          (Registration No. 333-52504)).*

 10.17 -- International  Specialty  Products Inc.  Olsen  Restricted  Share Plan
          (incorporated  by  reference  to  Exhibit  4.3  to  the  Form  S-8  of
          International Specialty Products Inc. (Registration No. 333-52638)).*

 10.18 -- International  Specialty  Products Inc. Olsen Restricted Share Plan II
          (incorporated  by  reference  to  Exhibit  4.3  to  the  Form  S-8  of
          International Specialty Products Inc. (Registration No. 333-81486)).*

 10.19 -- International  Specialty  Products Inc.  Kumar  Restricted  Share Plan
          (incorporated  by  reference  to  Exhibit  4.3  to  the  Form  S-8  of
          International Specialty Products Inc. (Registration No. 333-81488)).*

 10.20 -- Compensation  and  Indemnification  Agreement  among Charles M. Diker,
          Burt Manning and International  Specialty Products Inc., dated October
          10,  1997  (incorporated  by  reference  to  Exhibit  10.23 to the ISP
          Registration Statement).*

 10.21 -- Credit Agreement,  dated as of June 27, 2001, between ISP Chemco Inc.,
          ISP Chemicals  Inc., ISP Minerals Inc. and ISP  Technologies  Inc., as
          borrowers,  the subsidiary guarantors party thereto, the lenders party
          thereto,  The Chase  Manhattan  Bank, as  administrative  agent,  J.P.
          Morgan Securities Inc., as advisor, lead arranger and bookrunner, Bear
          Stearns  Corporate Lending Inc. and UBS Warburg LLC, as co-syndication
          agents,  and  Deutsche  Bank  Alex.  Brown  Inc.  and The Bank of Nova
          Scotia,  as  co-documentation  agents  (incorporated  by  reference to
          Exhibit 10.1 to the ISP Chemco Registration Statement).

 10.22 -- Amendment No. 1 to Credit Agreement, dated as of July 24, 2001, by and
          among ISP Chemco Inc., ISP Chemicals Inc., ISP  Technologies  Inc. and
          ISP Minerals  Inc., as  borrowers,  and The Chase  Manhattan  Bank, as
          administrative agent (incorporated by reference to Exhibit 10.2 to the
          ISP Chemco Registration Statement).


                                       17
<PAGE>


EXHIBIT
 NUMBER                                DESCRIPTIONS
--------                               ------------

 10.23 -- Pledge and Security  Agreement,  dated as of June 27, 2001,  among ISP
          Chemco  Inc.,   ISP  Chemicals   Inc.,   ISP  Minerals  Inc.  and  ISP
          Technologies  Inc.,  as borrowers,  the  subsidiary  guarantors  party
          thereto,  The Chase  Manhattan  Bank, as  administrative  agent,  J.P.
          Morgan Securities Inc., as advisor, lead arranger and bookrunner, Bear
          Stearns  Corporate Lending Inc. and UBS Warburg LLC, as co-syndication
          agents,  and  Deutsche  Bank  Alex.  Brown  Inc.  and The Bank of Nova
          Scotia,  as  co-documentation  agents  (incorporated  by  reference to
          Exhibit 10.3 to the ISP Chemco Registration Statement).

 21    -- Subsidiaries of International Specialty Products Inc.

 23    -- Consent of Arthur Andersen LLP.

 99.1  -- Letter  to  commission pursuant  to  temporary  note  3T,  dated March
          22, 2002.

------
* Management and/or compensation plan or arrangement.

    (b)     Reports on Form 8-K

    No reports on Form 8-K were filed in the fourth quarter of 2001.





                                       18

<PAGE>
                                   SIGNATURES

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

                                      INTERNATIONAL SPECIALTY PRODUCTS INC.




                                      By: /s/ NEAL E. MURPHY
                                          --------------------------
                                          Neal E. Murphy
                                          Senior Vice President and
                                          Chief Financial Officer

Date: March 22, 2002


    Pursuant to the  requirements  of the Securities  Exchange Act of 1934, this
report has been signed  below on March 22,  2002,  by the  following  persons on
behalf of the Registrant and in the capacities indicated.



      SIGNATURE                                 TITLE
 ------------------                           ---------

/s/ SAMUEL J. HEYMAN         Chairman of the Board; Director
-----------------------

  Samuel J. Heyman

   /s/ SUNIL KUMAR           President and Chief Executive Officer; Director
-----------------------      (Principal Executive Officer)
     Sunil Kumar

/s/ CHARLES M. DIKER         Director
-----------------------

  Charles M. Diker

/s/ ROBERT ENGLANDER         Director
-----------------------

  Robert Englander

 /s/ SANFORD KAPLAN          Director
-----------------------

   Sanford Kaplan

  /s/ BURT MANNING           Director
-----------------------

    Burt Manning

 /s/ ALAN M. MECKLER         Director
-----------------------
   Alan M. Meckler

 /s/ NEAL E. MURPHY          Senior Vice President and Chief Financial Officer
-----------------------      (Principal Financial and Accounting Officer)
   Neal E. Murphy


                                        19
<PAGE>


                                  EXHIBIT INDEX

EXHIBIT
NUMBER                                DESCRIPTIONS
--------                              ------------
  3.1 --  Amended and Restated  Certificate of  Incorporation  of  International
          Specialty  Products Inc.  (incorporated by reference to Exhibit 4.1 to
          Post-Effective  Amendment  No.  1 of  Form  S-8  to  the  Registration
          Statement  on  Form  S-4  of  International  Specialty  Products  Inc.
          (Registration No. 333-53709) (the "ISP Registration Statement")).

  3.2 --  By-laws of  International  Specialty  Products Inc.  (incorporated  by
          reference to Exhibit 99.2 to the ISP Registration Statement).

  4.1 --  Indenture,  dated as of June 27, 2001,  between ISP Chemco  Inc.,  ISP
          Chemicals  Inc.,  ISP Minerals  Inc.  and ISP  Technologies  Inc.,  as
          issuers, the subsidiary guarantors party thereto, and Wilmington Trust
          Company,  as trustee  (the "2011 Notes  Indenture")  (incorporated  by
          reference to Exhibit 4.1 to the Registration  Statement on Form S-4 of
          ISP  Chemco  Inc.   (Registration  No.  333-70144)  (the  "ISP  Chemco
          Registration Statement")).

  4.2 --  Amendment No. 1 to the 2011 Notes Indenture,  dated as of November 13,
          2001  (incorporated  by reference  to Exhibit 4.2 to the  Registration
          Statement   on  Form  S-4  of  ISP  Chemco  Inc.   (Registration   No.
          333-75574)).

  4.3 --  Registration  Rights Agreement,  dated as of November 13, 2001, by and
          among ISP Chemco Inc.,  ISP Chemicals  Inc., ISP Minerals Inc. and ISP
          Technologies  Inc.,  as  issuers,  the  subsidiary   guarantors  party
          thereto,  and UBS Warburg LLC, as initial  purchaser  (incorporated by
          reference to Exhibit 4.5 to the Registration  Statement on Form S-4 of
          ISP Chemco Inc. (Registration No. 333-75574)).

  4.4 --  Indenture,  dated  as of  December  13,  2001,  between  International
          Specialty  Holdings Inc., as issuer and Wilmington  Trust Company,  as
          trustee.

  4.5 --  A/B Exchange  Registration Rights Agreement,  dated as of December 13,
          2001, by and among  International  Specialty  Holdings Inc., as issuer
          and Bear Stearns & Co. Inc. and UBS Warburg LLC as initial purchasers.

 10.1 --  Amended  and  Restated  Management  Agreement,  dated as of January 1,
          1999, by and among GAF  Corporation,  G-I Holdings  Inc., G Industries
          Corp.,   Merick  Inc.,  GAF  Fiberglass   Corporation,   International
          Specialty  Products  Inc.,  GAF Building  Materials  Corporation,  GAF
          Broadcasting Company,  Inc., Building Materials Corporation of America
          and ISP Opco Holdings Inc.  (incorporated by reference to Exhibit 10.1
          to Building  Materials  Corporation of America's Annual Report on Form
          10-K for the fiscal year ended December 31, 1998).

 10.2 --  Amendment  No. 1 to the Amended  and  Restated  Management  Agreement,
          dated as of January 1, 2000 by and among GAF Corporation, G-I Holdings
          Inc., G Industries  Corp.,  Merick Inc., GAF  Fiberglass  Corporation,
          International   Specialty   Products  Inc.,  GAF  Building   Materials
          Corporation,   GAF  Broadcasting  Company,  Inc.,  Building  Materials
          Corporation  of America  and ISP Opco  Holdings  Inc.,  as assignee of
          International  Specialty  Products Inc.  (incorporated by reference to
          Exhibit 10.2 to International  Specialty Products Inc.'s Annual Report
          on Form 10-K for the fiscal  year ended  December  31, 1999 (the "1999
          Form 10-K")).

  10.3--  Amendment  No. 2 to the Amended  and  Restated  Management  Agreement,
          dated as of January  1, 2001 by and among G-1  Holdings  Inc.,  Merick
          Inc., International Specialty Products Inc., GAF Broadcasting Company,
          Inc., Building Materials  Corporation of America and ISP Opco Holdings
          Inc.,   as  assignee  of   International   Specialty   Products   Inc.
          (incorporated by reference to Exhibit 10.3 to International  Specialty
          Products  Inc.'s  Annual Report on Form 10-K for the fiscal year ended
          December 31, 2000 (the "2000 Form 10-K")).


                                       20

<PAGE>

 EXHIBIT
 NUMBER                               DESCRIPTIONS
--------                              ------------

  10.4 -- Amendment  No. 3 to the Amended  and  Restated  Management  Agreement,
          dated as of June 27, 2001 by and among G-1 Holdings Inc., Merick Inc.,
          International   Specialty   Products   Inc.,  ISP  Investco  LLC,  GAF
          Broadcasting Company,  Inc., Building Materials Corporation of America
          and ISP  Management  Company,  Inc.,  as  assignee  of ISP Chemco Inc.
          (incorporated   by  reference  to  Exhibit  10.7  to  the  ISP  Chemco
          Registration Statement).

  10.5 -- Amendment  No. 4 to the Amended  and  Restated  Management  Agreement,
          dated as of January  1, 2002 by and among G-1  Holdings  Inc.,  Merick
          Inc.,  International  Specialty  Products  Inc., ISP Investco LLC, GAF
          Broadcasting Company,  Inc., Building Materials Corporation of America
          and ISP  Management  Company,  Inc.,  as  assignee  of ISP Chemco Inc.

  10.6 -- Indemnification  Agreement,  dated as of October 18,  1996,  among GAF
          Corporation,  G-I Holdings Inc., ISP Holdings Inc., G Industries Corp.
          and GAF Fiberglass  Corporation  (incorporated by reference to Exhibit
          10.7 to the  Registration  Statement on Form S-4 of ISP Holdings  Inc.
          Regiatration No. 333-17827) (the "Holdings Registration Statement")).

  10.7 -- Tax Sharing Agreement, dated as of January 1, 1997, among ISP Holdings
          Inc.,  International  Specialty Products Inc. and certain subsidiaries
          of International Specialty Products Inc. (incorporated by reference to
          Exhibit 10.8 to the Holdings Registration Statement).

  10.8 -- Tax  Sharing  Agreement,  dated as of January  1,  2001,  by and among
          International   Specialty  Products  Inc.,   International   Specialty
          Holdings  Inc.  and ISP Chemco  Inc.  (incorporated  by  reference  to
          Exhibit 10.8 to the ISP Chemco Registration Statement).

  10.9 -- Non-Qualified   Retirement  Plan  Letter  Agreement  (incorporated  by
          reference to Exhibit 10.11 to the  Registration  Statement on Form S-1
          of   International   Specialty   Products   Inc.   (Registration   No.
          333-40351)).*

  10.10-- International  Specialty  Products  Inc. 1991  Incentive  Plan for Key
          Employees  and  Directors,  as amended  (incorporated  by reference to
          Exhibit 4.3 to  Post-Effective  Amendment No. 1 on Form S-8 to the ISP
          Registration Statement).*

  10.11-- International  Specialty  Products  Inc.  2000 Stock  Option  Plan for
          Non-Employee  Directors  (incorporated  by reference to Exhibit 4.3 to
          the  Registration  Statement  on Form S-8 of  International  Specialty
          Products Inc. (Registration Statement No. 333-81490)).*

  10.12-- International  Specialty  Products Inc. 2000 Long-Term  Incentive Plan
          (incorporated  by  reference  to  Annex A to  International  Specialty
          Products  Inc.'s  definitive  proxy  statement  on  Schedule  14A with
          respect to International Specialty Products Inc.'s 2000 Annual Meeting
          of Stockholders  filed with the Securities and Exchange  Commission on
          April 20, 2000).*

  10.13-- Amendment  No. 2 to the  International  Specialty  Products  Inc. 2000
          Long-Term  Incentive  Plan  (incorporated  by  reference to Annex C to
          International  Specialty Products Inc.'s definitive proxy statement on
          Schedule 14A with respect to International  Specialty  Products Inc.'s
          2001 Annual  Meeting of  Stockholders  filed with the  Securities  and
          Exchange Commission on April 20, 2001)*.

  10.14-- Letter  Agreement,  dated  September 29, 1999,  between  International
          Specialty Products Inc. and Sunil Kumar  (incorporated by reference to
          Exhibit 10 to the  International  Specialty  Products Inc.'s Quarterly
          Report on Form 10-Q for the fiscal quarter ended October 3, 1999).*


                                       21
<PAGE>
 EXHIBIT
 NUMBER                               DESCRIPTIONS
--------                              ------------

  10.15-- First  Amendment to Letter  Agreement dated September 29, 1999 between
          International Specialty Products Inc. and Sunil Kumar (incorporated by
          reference to Exhibit 10.11 to International  Specialty Products Inc.'s
          Annual  Report on Form 10-K for the  fiscal  year ended  December  31,
          2000).*

  10.16-- International  Specialty  Products  Inc.  Yoss  Restricted  Share Plan
          (incorporated   by  reference  to  Exhibit  4.3  to  the  Registration
          Statement  on  Form  S-8  of  International  Specialty  Products  Inc.
          (Registration No. 333-52504)).*

  10.17-- International  Specialty  Products Inc.  Olsen  Restricted  Share Plan
          (incorporated  by  reference  to  Exhibit  4.3  to  the  Form  S-8  of
          International Specialty Products Inc. (Registration No. 333-52638)).*

  10.18-- International  Specialty  Products Inc. Olsen Restricted Share Plan II
          (incorporated  by  reference  to  Exhibit  4.3  to  the  Form  S-8  of
          International Specialty Products Inc. (Registration No. 333-81486)).*

  10.19-- International  Specialty  Products Inc.  Kumar  Restricted  Share Plan
          (incorporated  by  reference  to  Exhibit  4.3  to  the  Form  S-8  of
          International Specialty Products Inc. (Registration No. 333-81488)).*

  10.20-- Compensation  and  Indemnification  Agreement  among Charles M. Diker,
          Burt Manning and International  Specialty Products Inc., dated October
          10,  1997  (incorporated  by  reference  to  Exhibit  10.23 to the ISP
          Registration Statement).*

  10.21-- Credit Agreement,  dated as of June 27, 2001, between ISP Chemco Inc.,
          ISP Chemicals  Inc., ISP Minerals Inc. and ISP  Technologies  Inc., as
          borrowers,  the subsidiary guarantors party thereto, the lenders party
          thereto,  The Chase  Manhattan  Bank, as  administrative  agent,  J.P.
          Morgan Securities Inc., as advisor, lead arranger and bookrunner, Bear
          Stearns  Corporate Lending Inc. and UBS Warburg LLC, as co-syndication
          agents,  and  Deutsche  Bank  Alex.  Brown  Inc.  and The Bank of Nova
          Scotia,  as  co-documentation  agents  (incorporated  by  reference to
          Exhibit 10.1 to the ISP Chemco Registration Statement).

  10.22-- Amendment No. 1 to Credit Agreement, dated as of July 24, 2001, by and
          among ISP Chemco Inc., ISP Chemicals Inc., ISP  Technologies  Inc. and
          ISP Minerals  Inc., as  borrowers,  and The Chase  Manhattan  Bank, as
          administrative agent (incorporated by reference to Exhibit 10.2 to the
          ISP Chemco Registration Statement).

  10.23-- Pledge and Security  Agreement,  dated as of June 27, 2001,  among ISP
          Chemco  Inc.,   ISP  Chemicals   Inc.,   ISP  Minerals  Inc.  and  ISP
          Technologies  Inc.,  as borrowers,  the  subsidiary  guarantors  party
          thereto,  The Chase  Manhattan  Bank, as  administrative  agent,  J.P.
          Morgan Securities Inc., as advisor, lead arranger and bookrunner, Bear
          Stearns  Corporate Lending Inc. and UBS Warburg LLC, as co-syndication
          agents,  and  Deutsche  Bank  Alex.  Brown  Inc.  and The Bank of Nova
          Scotia,  as  co-documentation  agents  (incorporated  by  reference to
          Exhibit 10.3 to the ISP Chemco Registration Statement).

   21  -- Subsidiaries of International Specialty Products Inc.

   23  -- Consent of Arthur Andersen LLP.

  99.1 -- Letter to  commission  pursuant to temporary  note 3T, dated March 22,
          2002.

---------
* Management and/or compensation plan or arrangement.


                                       22
<PAGE>

                      INTERNATIONAL SPECIALTY PRODUCTS INC.


                                    FORM 10-K


                 INDEX TO MANAGEMENT'S DISCUSSION AND ANALYSIS,
                 CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULES

                                                                           PAGE

Management's Discussion and Analysis of Financial
  Condition and Results of Operations ....................................  F-2
Selected Financial Data ..................................................  F-12
Report of Independent Public Accountants .................................  F-13
Consolidated Statements of Income for the
  three years ended December 31, 2001 ....................................  F-14
Consolidated Balance Sheets as of December 31, 2000 and 2001. ............  F-15
Consolidated Statements of Cash Flows for the three years
  ended December 31, 2001 ................................................  F-16
Consolidated Statements of Stockholders' Equity
  for the three years ended December 31, 2001.............................  F-18
Notes to Consolidated Financial Statements................................  F-20
Supplementary Data (Unaudited):
  Quarterly Financial Data (Unaudited) ...................................  F-47


                                    SCHEDULES
Consolidated Financial Statement Schedules:
  Schedule II--Valuation and Qualifying Accounts ........................    S-1


                                      F-1
<PAGE>


                      INTERNATIONAL SPECIALTY PRODUCTS INC.


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

    On July 15, 1998,  International  Specialty Products Inc., which we refer to
as "Old ISP",  merged with and into ISP  Holdings  Inc. In  connection  with the
merger, our company,  which was then known as ISP Holdings,  changed its name to
International  Specialty Products Inc. In the merger,  each outstanding share of
Old ISP's common  stock,  other than those held by ISP  Holdings,  was converted
into one share of our  common  stock,  and the  outstanding  shares of Old ISP's
common stock which were held by ISP Holdings were converted into an aggregate of
53,833,333 shares (or approximately 78%) of the outstanding shares of our common
stock.

    In October 1999, we sold the stock of our filter products  subsidiaries (see
Note 7 to  Consolidated  Financial  Statements).  Accordingly,  the  results  of
operations  of the  filter  products  subsidiaries  have  been  classified  as a
"Discontinued  Operation" within the Consolidated  Financial  Statements for the
year 1999. The following discussion is on a continuing operations basis.


RESULTS OF OPERATIONS


  2001 COMPARED WITH 2000

    We recorded net income in 2001 of $0.2 million  compared  with $94.1 million
($1.38 diluted earnings per share) in 2000. The lower results were  attributable
to  investment  losses in 2001 compared with  significant  investment  income in
2000, as well as higher interest expense, partially offset by improved operating
income.  The results for 2001 include an after-tax  charge of $0.4 million ($.01
diluted earnings per share) for the cumulative  effect of adopting  Statement of
Financial Accounting  Standards No. 133, "Accounting for Derivative  Instruments
and  Hedging  Activities."  Also  included  in the  results  for 2001 are a $1.6
million gain on an insurance  settlement  and a $0.5 million  reversal of excess
restructuring reserves established in 2000.

    The results for 2000  included a $14.4 million  provision for  restructuring
and a $3.5 million gain on a contract  settlement.  Excluding the effect of such
nonrecurring  items in each year,  the net loss for 2001 was $0.7 million  ($.01
diluted  earnings per share)  compared with net income of $101.2  million ($1.49
diluted earnings per share) in 2000.

    Sales for 2001 were $787.2 million compared with $783.9 million in 2000. The
increase  in sales  resulted  from  higher  volumes  in the  Pharmaceutical  and
Beverage,  Personal  Care,  and  Mineral  Products  businesses  (totaling  $33.5
million)  and  improved  pricing  and  mix in  the  Industrial  business  ($22.4
million),  offset  by  lower  volumes  in the  Industrial,  Alginates  and  Fine
Chemicals  businesses  (totaling $45.3 million) and by the adverse effect of the
stronger U.S. dollar ($10.8 million), primarily in Europe.

    Operating  income for the year 2001 was $112.6  million  compared with $81.4
million in 2000. Excluding nonrecurring items in each year, operating income for
2001 was $110.5 million, a 15% increase compared with $95.8 million in 2000. The
improvement  in operating  income  resulted  primarily  from higher  volumes and
favorable  manufacturing  costs in the  Pharmaceutical and Beverage and the Fine
Chemicals businesses,  and improved pricing and favorable manufacturing costs in
the  Industrial  and Mineral  Products  businesses.  These gains were  partially
offset  by the  impact  of  lower  volumes  in  the  Industrial,  Alginates  and
Performance  Chemicals  businesses,   unfavorable  manufacturing  costs  in  the
Alginates and Performance  Chemicals businesses and by the adverse effect of the
stronger U.S. dollar, primarily in Europe. Operating income in 2001 increased in
Europe, Asia-Pacific and Latin America. Excluding the nonrecurring items in each
year discussed above, operating income decreased in the U.S. by $10.3 million in
2001.

    Interest  expense for 2001 was $86.2  million,  a $5.0 million (6%) increase
over the $81.2 million recorded in 2000, with the increase due to higher average
borrowings, primarily reflecting the debt financing transactions discussed below
in "Liquidity and Financial  Condition," partially offset by the impact of lower
average interest rates.


                                       F-2
<PAGE>


    Other income  (expense),  net,  comprises  net  investment  income,  foreign
exchange    gains/losses    resulting   from   the    revaluation   of   foreign
currency-denominated  accounts  receivable and payable as a result of changes in
exchange rates,  and other  nonoperating  and  nonrecurring  items of income and
expense.  Other  expense,  net, was $25.4  million in 2001  compared  with other
income of $141.3  million in 2000,  with the decrease  the result of  investment
losses in 2001 versus significant  investment income in 2000.  Investment losses
in 2001 were $9.4 million,  which  included a $29.1  million  write-down to fair
market value of certain  available-for-sale  securities  which were sold shortly
after the balance sheet date.  Investment  income in 2000 was $157.1 million and
included net gains of $127.6 million from the sale of our  investments in Dexter
Corporation and Life  Technologies,  Inc. (see Note 3 to Consolidated  Financial
Statements).


  BUSINESS SEGMENT REVIEW

    A discussion of operating results for each of our business segments follows.
We operate our Specialty  Chemicals  business through three reportable  business
segments,  in addition to the Mineral Products  segment.  See Notes 17 and 18 to
Consolidated Financial Statements for additional business segment and geographic
information.


  PERSONAL CARE

    Sales for the Personal  Care  business  segment in 2001 were $196.2  million
compared with $189.0 million in 2000,  while operating  income in 2001 was $34.0
million  compared with $33.2 million in 2000.  The 4% increase in sales resulted
primarily from higher volumes ($8.6  million),  mainly in the North American and
European hair care markets, reflecting strong mass market sales of hair gels and
styling aids, and, to a lesser extent, favorable pricing and mix ($1.9 million).
These sales gains were  partially  offset by lower volumes in the North American
skin  care  market,  reflecting  increased  competition  in  the  sunscreen  and
preservative  markets,  and were  also  impacted  by the  adverse  effect of the
stronger U.S. dollar ($3.3 million), primarily in Europe.

    The increase in operating  income in 2001 was  attributable to the favorable
volumes  and  pricing  and  to  favorable  manufacturing  costs,  offset  by  an
unfavorable  mix, higher  operating  expenses and the unfavorable  effect of the
stronger U.S. dollar ($2.3 million), primarily in Europe.


  PHARMACEUTICAL, FOOD AND BEVERAGE ("PFB")

    Sales for the PFB segment were $234.6  million in 2001  compared with $232.8
million in 2000. Sales for the  Pharmaceutical  and Beverage business  increased
$14.8 million (9%),  reflecting volume growth ($14.7 million) across all regions
and, to a lesser extent,  favorable  pricing and mix ($3.0  million),  partially
offset by the impact of the  stronger  U.S.  dollar  ($2.9  million).  The sales
growth in  Pharmaceutical  and Beverage was primarily the result of strong sales
in the excipients and beverage  markets,  partially offset by lower sales in the
oral care market.  Sales for the Alginates  food  business  decreased in 2001 by
$13.0 million (20%) due to lower volumes ($11.8 million) and unfavorable pricing
and mix ($1.2 million) across all regions due to competitive pressures.

    Operating income for the PFB segment was $48.5 million in 2001 compared with
$48.0  million in 2000.  Operating  income for the  Pharmaceutical  and Beverage
business  increased  37% in 2001 due to the higher  volumes  and  pricing and to
lower  manufacturing  costs which  reflected cost savings from lower natural gas
prices.  Partially  offsetting these  improvements was the adverse impact of the
stronger U.S. dollar ($2.2 million),  primarily in Europe. Operating results for
the Alginates food business decreased by $13.0 million from 2000, resulting from
the  lower  unit  volumes,  unfavorable  manufacturing  costs  related  to lower
production volumes and the impact of unfavorable pricing.


  PERFORMANCE CHEMICALS, FINE CHEMICALS AND INDUSTRIAL

    Sales for the Performance  Chemicals,  Fine Chemicals and Industrial segment
were $275.7  million for 2001, a decrease of $14.5  million (5%)  compared  with
$290.2 million in 2000,  while  operating  income  increased to $18.5 million in
2001  compared  with  $4.4  million  in  2000.  Although  all  three  businesses
experienced  sales  declines  in 2001,  the  decrease  in sales was  principally
attributable to 8% lower Industrial sales.


                                       F-3
<PAGE>


    Sales for the Performance  Chemicals business decreased by $0.6 million (1%)
in 2001.  The decline in sales  resulted from the adverse impact of the stronger
U.S.  dollar in Europe ($1.4  million) and slightly lower volumes ($0.3 million)
in the specialty coatings and adhesives market,  offset by favorable pricing and
mix ($1.1 million).  Operating  results for the Performance  Chemicals  business
decreased by $8.0 million in 2001 due mainly to an  unfavorable  product mix and
higher  manufacturing  costs and,  to a lesser  extent,  the impact of the lower
volumes and the stronger U.S. dollar ($0.9 million).

    Sales for the Fine Chemicals business decreased $0.7 million (1.5%) in 2001,
while operating income  increased $4.4 million.  The lower sales reflected lower
volumes  related to contract sales to Polaroid,  offset by sales of $2.2 million
from the FineTech  business,  which was  acquired in the second  quarter of 2001
(see Note 9 to Consolidated Financial Statements),  and by volume increases from
other fine chemicals products. The higher operating income for Fine Chemicals in
2001  resulted  from a  significantly  improved  gross  margin due to  favorable
manufacturing  costs,  and the  favorable  impact of the  FineTech  acquisition,
partially offset by increased operating  expenses.  The gross margin in 2000 for
Fine  Chemicals  was  adversely  impacted by higher energy costs and lower plant
utilization.

    Sales for the Industrial  business  decreased by $13.3 million (8%) in 2001,
with the decrease  resulting from lower volumes ($32.5  million) and the adverse
impact of the stronger U.S. dollar in Europe ($3.1 million), partially offset by
improved  pricing and mix ($22.4  million).  Operating income for the Industrial
business improved by $17.7 million in 2001,  resulting from the improved pricing
and  favorable  manufacturing  costs,  reflecting  favorable  methanol  and  raw
material pricing,  partially offset by the unfavorable volumes and the impact of
the stronger U.S. dollar.


  MINERAL PRODUCTS

    Sales for the Mineral Products  segment in 2001 were $80.7 million,  an $8.8
million  (12%)  increase  compared  with sales of $71.9  million in 2000,  while
operating  income  increased  $1.3 million (14%) to $10.7  million in 2001.  The
higher sales  resulted from a $4.7 million  (38%)  increase in third party sales
and a $4.1 million (7%) increase in sales to Building  Materials  Corporation of
America,  an  affiliate.  The higher  operating  profits in 2001  reflected  the
improved volume and favorable  manufacturing  efficiencies,  partially offset by
higher  natural  gas  prices  and  higher  operating  expenses  due mainly to an
increased provision for doubtful accounts.


RESULTS OF OPERATIONS


  2000 COMPARED WITH 1999

    We  recorded  income from  continuing  operations  in 2000 of $94.1  million
($1.38  diluted  earnings per share)  compared  with $49.6 million ($.72 diluted
earnings per share) in 1999.  Including income from a discontinued  operation of
$25.3 million,  which reflected an after-tax gain of $23.5 million from the sale
of filter products, net income in 1999 was $74.9 million ($1.09 diluted earnings
per share).

    The results for 2000  included a $14.4 million  provision for  restructuring
and a $3.5  million  gain on a contract  settlement,  while the results for 1999
included an $8.5 million pre-tax gain from the sale of our pearlescent  pigments
business, a non-core product line. Also in 1999, we reversed previously recorded
restructuring  reserves in the amount of $1.9  million and  established  a staff
reduction  program for which a pre-tax  provision  for severance of $2.3 million
was recorded (see Note 4 to Consolidated  Financial  Statements).  Excluding the
effect  of such  nonrecurring  items  in each  period,  income  from  continuing
operations  for 2000 was  $101.2  million  ($1.49  diluted  earnings  per share)
compared  with $44.4  million  ($.65  diluted  earnings per share) in 1999. On a
comparable  basis,  the higher  income from  continuing  operations  in 2000 was
attributable to higher  investment  income,  partially offset by lower operating
income and higher interest expense.

    Sales for 2000 were $783.9 million compared with $787.4 million in 1999. The
decrease  in sales  was  primarily  attributable  to lower  volumes  in the Fine
Chemicals, Mineral Products and Performance Chemicals businesses (totaling $50.1
million),  the adverse  effect of the  stronger  U.S.  dollar  ($27.5  million),
principally in Europe,  and to lower pricing and mix in the Industrial  business
($20.0 million), partially offset by the full year's


                                       F-4
<PAGE>


contribution  to sales by the Alginates  business  ($66.5  million)  acquired in
October 1999 (see Note 9 to Consolidated  Financial  Statements) and by improved
volumes in the  Pharmaceutical  and  Beverage  business  and the  Personal  Care
segment  (totaling  $19.8  million).  Sales in 2000 reflected 13% and 23% higher
sales in the  Asia-Pacific and Latin America  regions,  respectively,  offset by
lower sales in the U.S. and Europe.

    Operating  income was $81.4 million in 2000 compared with $146.0  million in
1999.  Excluding  nonrecurring items in each year, operating income for 2000 was
$95.8  million  compared with $137.8  million in 1999.  The decrease in 2000 was
attributable to lower pricing in the Industrial business,  the adverse effect of
the stronger U.S.  dollar in Europe,  higher raw material and energy costs which
lowered gross margins, and lower volumes in Fine Chemicals, Mineral Products and
Performance  Chemicals,  partially  offset by the full  year's  contribution  to
operating income of the Alginates  business.  Operating income in 2000 decreased
in  the  U.S.  and  Europe,  due to  the  factors  discussed  above,  while  the
Asia-Pacific and Latin America regions experienced a 50% and 14%,  respectively,
growth in operating income in 2000 over 1999.

    Interest  expense for 2000 was $81.2  million,  a $2.6 million (3%) increase
over the $78.6  million  recorded in 1999,  with the increase  due  primarily to
higher average interest rates, partially offset by lower average borrowings.

    Other income,  net, was $141.3  million in 2000 versus $9.0 million in 1999,
with the increase the result of higher investment  income,  reflecting net gains
in 2000 of $127.6 million from the sale of our investments in Dexter Corporation
and Life Technologies,  Inc. (see Note 3 to Consolidated  Financial Statements).
Our total gain  related to these  investments  prior to and in 1999 and 2000 was
approximately $150 million prior to expenses.


  BUSINESS SEGMENT REVIEW

    A discussion of operating results for each of our business segments follows.
We operate our Specialty  Chemicals  business through three reportable  business
segments,  in addition to the Mineral Products  segment.  See Notes 17 and 18 to
Consolidated Financial Statements for additional business segment and geographic
information.


  PERSONAL CARE

    Sales for the  Personal  Care segment in 2000 were $189.0  million  compared
with $187.1 million in 1999,  while  operating  income in 2000 was $33.2 million
compared with $47.1 million in 1999, which included an $8.5 million pre-tax gain
on the sale of the pearlescent  pigments business,  a non-core product line. The
sales increase  reflected  higher volumes ($10.3  million),  mainly in hair care
products,  partially offset by the adverse effect of the stronger U.S. dollar in
Europe ($5.9 million) and lower average pricing in both hair care and skin care.

    Operating income,  excluding the gain in 1999 on the sale of the pearlescent
pigments  business,  decreased by $5.4 million in 2000 to $33.2 million,  as the
impact of volume  increases  was offset by higher  manufacturing  and  operating
expenses,  the  adverse  effect of the  stronger  U.S.  dollar  in Europe  ($4.8
million) and lower average pricing.


  PHARMACEUTICAL, FOOD AND BEVERAGE ("PFB")

    Sales for the PFB segment were $232.8  million in 2000  compared with $177.3
million in 1999, principally reflecting a full year's contribution to sales from
the  Alginates  business  ($66.5  million),  compared with $12.8 million in 1999
after the date of its acquisition in October 1999. Sales for the  Pharmaceutical
and Beverage  business  increased $1.8 million,  reflecting volume growth across
all regions ($9.6 million),  partially offset by the impact of the stronger U.S.
dollar ($6.5 million). The sales growth was primarily the result of strong sales
in the oral care and excipients markets,  partially offset by lower sales in the
Beverage business.

    Operating  income for the PFB  segment  was $48.0  million  in 2000,  an 18%
improvement  compared  with $40.7 million in 1999,  with the increase  resulting
from the full year's contribution from the Alginates business.  Operating income
for the  Pharmaceutical and Beverage business decreased 9% in 2000 as the impact
of  favorable  volumes was offset by the  adverse  impact of the  stronger  U.S.
dollar in Europe ($5.2 million) and higher operating expenses.

                                      F-5

<PAGE>

    PERFORMANCE CHEMICALS, FINE CHEMICALS AND INDUSTRIAL

    Sales for the Performance  Chemicals,  Fine Chemicals and Industrial segment
were $290.2  million for 2000, a decrease of $45.5 million  (14%)  compared with
$335.7 million in 1999,  while operating income declined to $4.4 million in 2000
compared with $44.0 million in 1999.  Although all three businesses  experienced
significant  sales  declines  in  2000,  the  decrease  in sales  was  primarily
attributable to 34% lower Fine Chemicals sales.

    Sales for the  Performance  Chemicals  business  decreased by $12.3  million
(13%) in 2000.  The primary  factors for the decline in sales were lower volumes
($9.2  million),  mainly in Europe  and North  America  in PVP  polymers  in the
household,  industrial  and  institutional  markets,  in addition to the adverse
impact of the stronger U.S.  dollar in Europe ($3.0 million).  Operating  income
for the Performance  Chemicals  business decreased by $6.3 million (46%) in 2000
due to the volume  shortfalls and the stronger dollar ($2.4 million),  partially
offset by an improved gross margin due to favorable manufacturing costs.

    Sales for the Fine Chemicals business decreased $23.9 million (34%) in 2000,
while  operating  income  decreased  $19.1  million  (85%).  The Fine  Chemicals
business was  significantly  impacted by the expiration of a substantial  custom
manufacturing  agreement  at the end of 1999.  Sales  related to this  agreement
contributed  $32.2  million of sales and $17.4  million of gross margin in 1999.
Higher  sales  volumes of other fine  chemicals  products  partially  offset the
impact of this contract termination. The lower operating income in 2000 was also
impacted by higher energy costs and lower plant utilization.

    Sales for the Industrial  business  decreased by $9.3 million in 2000,  with
the decrease  resulting from unfavorable  selling prices and mix ($20.0 million)
and the adverse  impact of the stronger U.S.  dollar in Europe ($12.1  million),
partially offset by volume increases ($22.8 million) in Europe and Asia-Pacific.
As a result of the  unfavorable  pricing and the impact of the  stronger  dollar
($3.1 million), operating results for the Industrial business decreased by $14.4
million in 2000.

  MINERAL PRODUCTS

    Sales for the Mineral Products  segment in 2000 were $71.9 million,  a $15.4
million  (18%)  decrease  compared  with sales of $87.3  million in 1999,  while
operating income decreased $6.7 million (42%) to $9.4 million in 2000. The lower
sales and operating income resulted from substantially  lower third party sales,
resulting  from  the loss of two  major  trade  customers  for  colored  roofing
granules  in  the  fourth  quarter  of  1999,   which  together   accounted  for
approximately 68% of Mineral Products third party sales and approximately 23% of
total Mineral  Products  sales in 1999.  The loss of these  customers  adversely
impacted the year 2000 sales by $19.3 million. Operating income in 2000 was also
impacted by higher energy costs.


LIQUIDITY AND FINANCIAL CONDITION

    During  2001,  our net cash  flow  before  financing  activities  was  $68.2
million,  including  $254.3  million  of cash  generated  from  operations,  the
reinvestment of $101.4 million for capital  programs and the acquisitions of the
FineTech business and the industrial  biocides  business of Degussa  Corporation
(see Note 9 to Consolidated Financial Statements),  and the use of $84.7 million
of cash for net purchases of available-for-sale  securities and other short-term
investments.

    Cash from  operations for 2001 reflected a $186.6 million cash flow from net
sales of trading  securities.  Excluding  this cash  flow,  cash  provided  from
operations for 2001 totaled $67.5 million.  Cash from  operations  also reflects
non-cash  charges of $44.2 million from unrealized  losses on securities in 2001
(see Note 3 to Consolidated Financial  Statements).  Cash invested in additional
working  capital  totaled $48.1  million,  primarily  reflecting a $34.5 million
increase in inventories,  due mainly to higher  production  levels,  and a $16.5
million decrease in payables and accrued liabilities.

    Net  cash  used in  financing  activities  in  2001  totaled  $6.4  million,
reflecting the debt financing  transactions  discussed below, financing fees and
expenses of $20.5 million related to the financing  transactions,  repayments of
long-term debt totaling $246.0 million,  a $143.5 million decrease in short-term
borrowings  and a $100.8  million  decrease in  borrowings  under our  revolving
credit agreement. In addition, financing activities included a $17.6


                                       F-6
<PAGE>


million  cash outlay for  repurchases  of  1,937,800  shares of our common stock
pursuant to our  repurchase  program.  At December 31, 2001,  949,062  shares of
common stock remained available for purchase under our repurchase  program.  The
repurchased shares will be held for general purposes,  including the issuance of
shares under our stock option plan and for individual restricted stock plans.

    On June  27, 2001, ISP Chemco,  our indirect  wholly owned  subsidiary,  and
three of its wholly owned  subsidiaries  jointly issued $205.0 million aggregate
principal amount of 10 1/4% Senior  Subordinated  Notes due 2011, which we refer
to as the "2011 Notes." The net proceeds of $197.3  million,  after discount and
fees, were  placed  in a  restricted cash  escrow account and used to retire our
9 3/4% Senior Notes due 2002,  which we refer to as the "2002 Notes." During the
third  quarter of 2001,  we retired  $19.9  million of the 2002  Notes,  and the
remaining  $180.0  million of the 2002 Notes were retired on or prior to October
15,  2001.  On July 31,  2001,  ISP Chemco and those  same  three  wholly  owned
subsidiaries  jointly issued an additional  $100.0 million  aggregate  principal
amount of the 2011  Notes.  These  notes  have the same  terms as the 2011 Notes
issued in June 2001. The net proceeds were $98.9 million, including $0.9 million
of accrued  interest from June 27, 2001 to the date of issuance,  of which $98.0
million  were placed in a  restricted  cash escrow  account and used to retire a
portion of our 9% Senior Notes due 2003,  which we refer to as the "2003 Notes."
On November 13, 2001, ISP Chemco and those same three wholly owned  subsidiaries
jointly issued an additional  $100.0 million  aggregate  principal amount of the
2011  Notes.  These  notes have the same terms as the 2011 Notes  issued in June
2001, except with respect to interest accrual and registration  rights.  The net
proceeds of $101.0  million were placed in a restricted  cash escrow account and
used to retire a portion of the 2003 Notes.  We retired $16.9 million  aggregate
principal  amount of the 2003 Notes in 2001 and  redeemed the  remaining  $307.9
million  aggregate  principal  amount of the 2003 Notes on January 14, 2002.  We
will  record an  after-tax  extraordinary  charge of $4.7  million  in the first
quarter of 2002 in connection with this redemption.

    The 2011 Notes are guaranteed by substantially  all of ISP Chemco's domestic
subsidiaries.  The 2011 Notes were issued under an indenture which,  among other
things,  limits  the  ability of ISP  Chemco  and its  subsidiaries,  except our
accounts  receivable  subsidiary and certain immaterial  subsidiaries,  to incur
additional debt,  issue preferred stock,  incur liens, and pay dividends or make
certain other restricted payments and restricted investments.

    In a related transaction, ISP Chemco and those same three subsidiaries which
issued the 2011 Notes also  entered  into $450.0  million of new senior  secured
credit  facilities,  which we refer to as the "Senior  Credit  Facilities,"  the
initial borrowings under which were used to repay amounts  outstanding under our
previous credit facility. The Senior Credit Facilities are comprised of a $225.0
million term loan with a maturity of seven years and a $225.0 million  revolving
credit  facility  which will  terminate  in five  years.  The  revolving  credit
facility  includes  a  borrowing  capacity  not in excess of $50.0  million  for
letters of credit.  All borrowings under the Senior Credit  Facilities are based
on  either an  alternate  base rate  (based  on the  banks'  base rate or on the
federal funds rate) or on the  eurodollar  rate plus a margin based on the ratio
of ISP  Chemco's  total  consolidated  debt to EBITDA (as  defined in the Senior
Credit Facilities). The average interest rate at December 31, 2001 on borrowings
under the  Senior  Credit  Facilities  was 5.3%.  The Senior  Credit  Facilities
require  compliance  with various  financial  covenants,  including a total debt
leverage  maintenance  ratio,  a senior  debt  leverage  maintenance  ratio,  an
interest  coverage  ratio and a minimum  adjusted net worth.  As of December 31,
2001,  $95.3  million of  borrowings  and $5.6 million of letters of credit were
outstanding under the revolving credit facility. In addition,  the Senior Credit
Facilities  limit the  ability of ISP Chemco  and its  subsidiaries,  except its
accounts  receivable  subsidiary and certain immaterial  subsidiaries,  to incur
additional debt,  issue preferred stock,  incur liens, and pay dividends or make
certain other  restricted  payments and restricted  investments.  ISP Chemco and
substantially all of its domestic  subsidiaries are designated as obligors under
the Senior Credit  Facilities.  The obligations of the obligors under the Senior
Credit  Facilities are secured by a first-priority  security interest in 100% of
the capital stock of ISP Chemco's domestic  subsidiaries  and 66% of the capital
stock of some of ISP Chemco's foreign subsidiaries, and substantially all of the
real and personal property of the obligors,  except for our accounts  receivable
subsidiary and certain immaterial subsidiaries.

    On December 13, 2001, our wholly owned subsidiary,  International  Specialty
Holdings, issued $200.0 million principal amount of 10 5/8% Senior Secured Notes
due 2009, which we refer to as the "2009 Notes." The net proceeds


                                       F-7
<PAGE>


from this issuance were  approximately  $194.3 million,  of which $125.7 million
were placed in a restricted cash escrow account and used to redeem the remaining
2003 Notes on January 14, 2002.  The 2009 Notes are secured by a first  priority
lien on all of the outstanding  capital stock of ISP Chemco.  The 2009 Notes are
structurally   subordinated  to  all  liabilities  of  International   Specialty
Holdings'  subsidiaries.  The 2009 Notes were issued under an  indenture  which,
among other things,  limits the ability of International  Specialty Holdings and
its subsidiaries,  except unrestricted  subsidiaries,  to incur additional debt,
issue  preferred  stock,  incur liens,  and pay  dividends or make certain other
restricted  payments and restricted  investments.  ISP Investco,  a wholly owned
subsidiary of International  Specialty Holdings, its subsidiaries,  our accounts
receivable  subsidiary and certain immaterial  subsidiaries have been designated
as unrestricted subsidiaries under the indenture related to the 2009 Notes.

    As a result of the foregoing factors, cash and cash equivalents increased by
$61.3 million during 2001 to $79.5 million,  excluding $296.0 million of trading
and available-for-sale securities and other short-term investments.

    As of December 31, 2001, our current maturities of long-term debt, scheduled
to be repaid during 2002, totaled $310.3 million, including the remaining $307.9
million outstanding amount of the 2003 Notes as of December 31, 2001, which were
redeemed on January 14, 2002.

    Borrowings by our  subsidiaries  are subject to the  application  of certain
financial  covenants  contained  in  the  Senior  Credit  Facilities  and in the
indentures  governing  the 2009 and 2011 Notes.  As of December  31,  2001,  our
subsidiaries  were in compliance  with those  covenants,  and the application of
those covenants would not have restricted  available borrowings under the Senior
Credit Facilities. See Note 13 to Consolidated Financial Statements.

    The Senior Credit Facilities and the indentures  governing the 2009 and 2011
Notes contain additional  affirmative and negative  covenants  affecting some of
our  subsidiaries,  including  restrictions  on  transactions  with  affiliates,
sale-leaseback  transactions,  mergers and transfers of all or substantially all
of those  subsidiaries'  assets.  Additionally,  in the event the holders of the
2009 Notes were to foreclose on ISP Chemco's capital stock following an event of
default  under those  notes,  the sale of the capital  stock would  constitute a
change of control of ISP Chemco.  Under the indenture  governing the 2011 Notes,
if a change of control of ISP Chemco occurs,  ISP Chemco is obligated to make an
offer to repurchase the 2011 Notes from their respective  holders.  The terms of
the Senior Credit Facilities,  however, prohibit the repayment of the 2011 Notes
in that event,  unless and until such time as the indebtedness  under the Senior
Credit  Facilities  is repaid in full.  Failure  to make such  repayment  upon a
change of control  would result in a default  under the 2011 Notes.  A change of
control of ISP Chemco  would also  result in a default  under the Senior  Credit
Facilities.  In the event of a default  under the  indenture  governing the 2011
Notes or under the Senior  Credit  Facilities,  the holders of the 2011 Notes or
the lenders under the Senior Credit Facilities,  as the case may be, could elect
to  accelerate  the maturity of all the 2011 Notes or the loans under the Senior
Credit  Facilities.  Those  events could have a material  adverse  effect on our
financial condition and results of operations.

    Subject to restrictions  in our Senior Credit  Facilities and the indentures
governing the 2009 and 2011 Notes,  our  subsidiaries  may incur additional debt
for working capital, capital expenditures, acquisitions and other purposes.

    "Other assets" on the Consolidated Balance Sheets increased in 2001 by $45.7
million to $77.6 million,  primarily reflecting deferred financing fees of $20.5
million related to the financing  transactions discussed above and $15.8 million
of intangible  assets related to the  acquisitions of the FineTech  business and
the  biocides  business  of  Degussa  Corporation  (see  Note 9 to  Consolidated
Financial  Statements).  In  addition,  "Other  assets" and "Other  liabilities"
increased  by $9.0  million  each due to a gross-up of  environmental  insurance
receivables  and  liabilities  to  reflect  current  estimated  liabilities  and
insurance recoveries (see Note 19 to Consolidated Financial Statements).  "Other
liabilities"  increased  in 2001 by  $11.0  million  to $72.7  million  and also
reflected a $3.8 million  accrual  related to our Long Term  Incentive Plan (see
Note 15 to Consolidated Financial Statements).

    Capital expenditures are expected to be approximately $57.0 million in 2002,
primarily for maintenance and compliance expenditures.

    In the fourth  quarter of 2001,  the economic  turmoil in  Argentina,  which
resulted in the devaluation of the Argentinian currency,  adversely impacted our
pre-tax  earnings  by $0.8  million.  While  payments  from  our  subsidiary  in
Argentina  to our  domestic  operations  may be  adversely  affected  by current
banking regulations in


                                       F-8
<PAGE>


Argentina,  we do not believe that this situation will have a material impact on
our liquidity,  cash flows or results of operations.  Sales by our subsidiary in
Argentina were approximately $3.0 million in 2001.

    For  information  with respect to income taxes,  see Note 8 to  Consolidated
Financial Statements.

    We do not  believe  that  inflation  has had an  effect  on our  results  of
operations during the past three years. However,  there can be no assurance that
our business will not be affected by inflation in the future.

    We have received site  designation for the construction of a hazardous waste
treatment,  storage and disposal facility at our Linden, New Jersey property and
have  received  approval  from the New Jersey  Turnpike  Authority  for a direct
access  ramp  extension  from the New  Jersey  Turnpike  to the site.  If we are
successful  in  securing  the  necessary  permits to  construct  and operate the
hazardous  waste  facility  and decide to proceed  with this  project,  we would
develop and operate the facility in a separate subsidiary,  either on its own or
in a joint  venture  with a  suitable  partner.  We  estimate  that  the cost of
constructing the facility will be  approximately  $100 million and, if approved,
the facility is anticipated to be in operation three years after commencement of
construction.  We anticipate  utilizing internally generated cash and/or seeking
project or other independent financing for this project.  Accordingly,  we would
not  expect  such  facility  to  impact  materially  our  liquidity  or  capital
resources.  We are also  investigating  other development  opportunities at this
site  consistent  with a plan by the County of Union to  re-develop  the Tremley
Point area of Linden.  We expect that related  planning and  evaluation  efforts
will continue through 2002.

    We, together with other  companies,  are a party to a variety of proceedings
and  lawsuits  involving  environmental  matters.  See  Note 19 to  Consolidated
Financial Statements for further information.


  MARKET-SENSITIVE INSTRUMENTS AND RISK MANAGEMENT

    Our  investment  strategy is to seek returns in excess of money market rates
on our available cash while minimizing  market risks.  There can be no assurance
that we will be successful in implementing such a strategy.  We invest primarily
in international and domestic  arbitrage and securities of companies involved in
acquisition or  reorganization  transactions,  including at times,  common stock
short positions which are offsets against long positions in securities which are
expected,  under certain  circumstances,  to be exchanged or converted  into the
short positions. From time to time, we invest in securities of companies that we
consider  undervalued.  With respect to our equity positions,  we are exposed to
the risk of market loss. See Notes 2 and 3 to Consolidated Financial Statements.

    We enter into financial  instruments  in the ordinary  course of business in
order to manage our exposure to market  fluctuations in interest rates,  foreign
currency rates and on our short-term  investments.  The financial instruments we
employ  to  reduce  market  risk  include  swaps,  forwards  and  other  hedging
instruments.  The financial  instruments are subject to strict internal controls
and their use is primarily confined to the hedging of our debt, foreign currency
exposure  and  short-term  investment  portfolio.  The  counterparties  to these
financial  instruments  are  major  financial   institutions  with  high  credit
standings.  The  amounts  subject to credit  risk are  generally  limited to the
amounts,   if  any,  by  which  the   counterparties'   obligations  exceed  our
obligations.  We  control  credit  risk  through  credit  approvals,  limits and
monitoring procedures.  We do not anticipate nonperformance by counterparties to
these instruments.

                                            DECEMBER 31, 2000  DECEMBER 31, 2001
                                            -----------------  -----------------
                                                        (MILLIONS)
                                            NOTIONAL   FAIR    NOTIONAL   FAIR
                                             AMOUNT    VALUE    AMOUNT    VALUE
                                            -------   ------   --------   ------
Interest rate financial instruments .......  $100.0   $(0.8)   $100.0   $(3.1)
Foreign currency financial instruments ....  $ 20.9   $   0    $ 17.7   $   0
Equity-related financial instruments ......  $ 40.1   $   0    $ 20.7   $   0

    All of the financial  instruments in the above table have a maturity of less
than one year.

    We enter  into  forward  foreign  exchange  instruments  in order to hedge a
portion of both our borrowings  denominated in foreign currency and transactions
related  to  the  operations  of  our  foreign  subsidiaries.  Forward  contract
agreements  require us and the  counterparty  to exchange  fixed amounts of U.S.
dollars for fixed amounts


                                       F-9

<PAGE>

of foreign  currency on  specified  dates.  All forward  contracts  are in major
currencies  with  highly  liquid  markets  and mature  within one year.  Hedging
strategies are approved by senior management before they are implemented.

    As of December 31, 2000 and 2001, the U.S. dollar equivalent  notional value
of outstanding  forward foreign exchange  contracts was $20.9 and $17.7 million,
respectively.  The U.S.  dollar  equivalent  notional value of foreign  exchange
contracts  outstanding as of December 31, 2000 and 2001, which were entered into
as a hedge of  intercompany  loans,  was $17.0 and $17.7 million,  respectively,
representing 100% of our foreign currency exposure with respect to such loans.

    We enter into equity-related  financial instruments as a means to manage our
exposure to market  fluctuations on our short-term  investments.  As of December
31, 2001, the value of equity-related long contracts was $13.5 million,  and the
value of  equity-related  short  contracts was $7.2  million,  both of which are
marked-to-market  each month,  with unrealized  gains and losses included in the
results of operations.  As such,  there is no economic cost at December 31, 2001
to terminate these instruments and therefore the fair market value is zero.

    In June 1998, the Financial  Accounting  Standards Board issued Statement of
Financial  Accounting  Standards  ("SFAS") No. 133,  "Accounting  for Derivative
Instruments and Hedging  Activities."  SFAS No. 133  established  accounting and
reporting  standards  requiring that every derivative  instrument be recorded in
the balance  sheet as either an asset or  liability  measured at its fair value.
SFAS No. 133 requires  that changes in a  derivative's  fair value be recognized
currently in earnings unless specific hedge accounting criteria are met. Special
accounting  for  qualifying  hedges  allows a  derivative's  gains and losses to
offset related results on the hedged item in the income statement.

    We adopted SFAS No. 133 as of January 1, 2001.  Accounting for interest rate
swaps  and  foreign  exchange  forward  contracts  held  by  us is  affected  by
implementation  of  this  standard.   The  earnings  impact  of  the  transition
adjustments  related to the initial  adoption of the  standard  was an after-tax
loss of $0.4  million,  which was  recorded in the first  quarter of 2001 as the
cumulative effect of a change in accounting principle.

    The Senior  Credit  Facilities  include a $225.0  million term loan. We have
designated interest rate swaps, with a total notional amount of $100 million, as
a hedge of our exposure to changes in the  eurodollar  rate under the term loan.
The  interest  rate  swaps  are  structured  to  receive  interest  based on the
eurodollar  rate and pay  interest  on a fixed rate basis.  A cash flow  hedging
relationship has been established whereby the interest rate swaps hedge the risk
of changes in the eurodollar  rate related to borrowings  against the term loan.
The interest rate swaps hedge exposure to changes in the eurodollar rate through
July 2002.

    On June 30, 2001, the FASB issued SFAS No. 141, "Business  Combinations" and
SFAS No. 142, "Goodwill and Other Intangible  Assets." SFAS No. 141 requires all
business  combinations  initiated  after June 30, 2001 to be accounted for using
the  purchase  method  of  accounting  and  eliminates  the  pooling  method  of
accounting.  SFAS No. 141 will not have an impact on our business  since we have
historically  accounted for all business  combinations using the purchase method
of  accounting.  With the adoption of SFAS No. 142,  goodwill  will no longer be
subject to amortization over its estimated useful life.  However,  goodwill will
be subject to at least an annual  assessment for impairment and more  frequently
if  circumstances  indicate  a possible  impairment.  Companies  must  perform a
fair-value-based  goodwill impairment test. In addition,  under SFAS No. 142, an
acquired intangible asset should be separately  recognized if the benefit of the
intangible  asset is obtained through  contractual or other legal rights,  or if
the intangible asset can be sold,  transferred,  licensed,  rented or exchanged.
Intangible  assets will be amortized  over their useful  lives.  SFAS No. 142 is
effective as of January 1, 2002.  On an  annualized  basis,  our net income will
increase by  approximately  $16.6  million,  unless any  impairment  charges are
necessary.

                                      * * *


FORWARD-LOOKING STATEMENTS

    This Annual Report on Form 10-K contains both historical and forward-looking
statements.  All statements other than statements of historical fact are, or may
be deemed to be, forward-looking statements within the meaning of section 27A of
the  Securities  Act of 1933 and section 21E of the  Securities  Exchange Act of
1934. These forward-looking statements are only predictions and generally can be
identified by use of statements that


                                      F-10
<PAGE>


include phrases such as "believe,"  "expect,"  "anticipate,"  "intend,"  "plan,"
"foresee"  or other words or phrases of similar  import.  Similarly,  statements
that  describe  our  objectives,   plans  or  goals  also  are   forward-looking
statements.  Our operations are subject to certain risks and uncertainties  that
could cause actual results to differ  materially from those  contemplated by the
relevant  forward-looking  statement.  The  forward-looking  statements included
herein  are made only as of the date of this  Annual  Report on Form 10-K and we
undertake no obligation to publicly  update such  forward-looking  statements to
reflect  subsequent  events or  circumstances.  No assurances  can be given that
projected results or events will be achieved.






                                      F-11


<PAGE>

                      INTERNATIONAL SPECIALTY PRODUCTS INC.

                             SELECTED FINANCIAL DATA

    Set forth below are our selected  consolidated  financial  data. On July 15,
1998, Old ISP merged with and into ISP Holdings.  In connection with the merger,
ISP  Holdings  changed its name to  International  Specialty  Products  Inc. The
financial  information  presented  herein for periods prior to the merger of Old
ISP and ISP  Holdings  represent  the  results of the former  ISP  Holdings.  In
October 1999, we sold the stock of our filter products  subsidiaries (see Note 7
to Consolidated  Financial Statements).  Accordingly,  the results of operations
and  assets  and  liabilities  of the  filter  products  subsidiaries  have been
classified as a  "Discontinued  Operation"  within the Selected  Financial  Data
below for all periods presented prior to 2000.

<TABLE>
<CAPTION>
                                                                  YEAR ENDED DECEMBER 31,
                                           ---------------------------------------------------------------
                                               1997         1998         1999         2000          2001
                                           ----------- ------------- ----------- ------------- -----------
                                                          (THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S>                                        <C>          <C>          <C>          <C>          <C>
OPERATING DATA:
  Net Sales ...........................    $ 708,971    $ 784,616    $ 787,356    $ 783,941    $ 787,216
  Gross profit ........................      295,199      321,105      304,959      269,054      286,379
  Operating income ....................      137,689       66,177      145,978       81,353      112,589
  Interest expense ....................       73,612       75,564       78,552       81,166       86,198
   Income from continuing operations
    before income taxes ...............      104,219       27,168       76,454      144,975          957
  Income from continuing operations
    before cumulative effect of
    change in accounting principle ....       51,702        2,779       49,632       94,106          607
  Net income ..........................       54,005        4,812       74,930       94,106          167
  Income from continuing operations
    per common share:
    Basic .............................   $      .96   $      .05   $      .72   $     1.38    $      --
    Diluted ...........................   $      .96   $      .05   $      .72   $     1.38    $      --

OTHER DATA:
  Depreciation ........................   $   41,236   $   49,272   $   48,590   $   51,293    $  53,120
  Amortization of goodwill and
    intangibles .......................       13,294       15,025       16,344       16,192       17,229
  Capital expenditures and acquisitions       67,674      163,850      108,955       58,382      101,375

<CAPTION>
                                                                        DECEMBER 31,
                                           ---------------------------------------------------------------
                                               1997         1998         1999         2000          2001
                                           ----------- ------------- ----------- ------------- -----------
                                                                        (THOUSANDS)
<S>                                        <C>          <C>          <C>          <C>          <C>
BALANCE SHEET DATA:
  Total working capital ...............   $  322,080   $  406,654   $  438,083   $  339,751   $  564,516
  Total assets ........................    1,483,977    1,763,870    1,835,308    1,960,284    2,172,568
  Long-term debt less current
    maturities ........................      798,762      896,095      820,141      524,780      919,557
  Stockholders' equity ................      261,841      501,723      587,261      691,335      604,057
</TABLE>


                                      F-12

<PAGE>

                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS


To International Specialty Products Inc.:

    We  have   audited  the   accompanying   consolidated   balance   sheets  of
International  Specialty Products Inc. (a Delaware corporation) and subsidiaries
as of December 31, 2000 and 2001,  and the related  consolidated  statements  of
income,  stockholders'  equity and cash flows for each of the three years in the
period ended  December 31, 2001.  These  financial  statements  and the schedule
referred  to below  are the  responsibility  of the  Company's  management.  Our
responsibility  is to  express  an opinion  on these  financial  statements  and
schedule based on our audits.

    We conducted our audits in  accordance  with  auditing  standards  generally
accepted in the United States.  Those standards require that we plan and perform
the audit to obtain reasonable  assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.  An
audit also includes  assessing the accounting  principles  used and  significant
estimates  made by  management,  as well as  evaluating  the  overall  financial
statement  presentation.  We believe that our audits provide a reasonable  basis
for our opinion.

    In our opinion,  the financial  statements  referred to above,  appearing on
pages F-14 to F-46 of this Form 10-K,  present fairly, in all material respects,
the financial position of International Specialty Products Inc. and subsidiaries
as of December 31, 2000 and 2001, and the results of their  operations and their
cash flows for each of the three years in the period ended December 31, 2001, in
conformity with accounting principles generally accepted in the United States.

    Our  audits  were made for the  purpose  of  forming an opinion on the basic
financial  statements  taken as a whole.  The schedule  appearing on page S-1 of
this Form 10-K is presented for purposes of complying  with the  Securities  and
Exchange  Commission's rules and is not part of the basic financial  statements.
This schedule has been subjected to the auditing procedures applied in the audit
of the basic  financial  statements  and, in our opinion,  fairly  states in all
material  respects  the  financial  data  required  to be set forth  therein  in
relation to the basic financial statements taken as a whole.

                               ARTHUR ANDERSEN LLP

Roseland, New Jersey
February 27, 2002


                                      F-13
<PAGE>




                      INTERNATIONAL SPECIALTY PRODUCTS INC.


                        CONSOLIDATED STATEMENTS OF INCOME

<TABLE>
<CAPTION>
                                                                                      YEAR ENDED DECEMBER 31,
                                                                         ----------------------------------------------
                                                                            1999              2000              2001
                                                                         --------           --------           --------
                                                                             (THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S>                                                                        <C>             <C>               <C>
Net sales ...........................................................   $ 787,356          $ 783,941          $ 787,216
Cost of products sold ...............................................    (482,397)          (514,887)          (500,837)
Selling, general and administrative .................................    (150,768)          (157,080)          (158,632)
(Provision) benefit for restructuring ...............................        (410)           (14,429)               471
Gain on insurance settlement ........................................        --                 --                1,600
Gain on sale of assets ..............................................       8,541               --                 --
Amortization of goodwill and intangibles ............................     (16,344)           (16,192)           (17,229)
                                                                         --------           --------           --------
Operating income ....................................................     145,978             81,353            112,589
Interest expense ....................................................     (78,552)           (81,166)           (86,198)
Gain on contract settlement .........................................        --                3,450               --
Other income (expense), net .........................................       9,028            141,338            (25,434)
                                                                         --------           --------           --------
Income from continuing operations before income taxes ...............      76,454            144,975                957
Income taxes ........................................................     (26,822)           (50,869)              (350)
                                                                         --------           --------           --------
Income from continuing operations ...................................      49,632             94,106                607
                                                                         --------           --------           --------
Discontinued operation:
  Income from discontinued operation, net of income taxes ...........       1,769                --                  --
  Gain on sale of discontinued operation, net of income taxes
    of $12,725 ......................................................      23,529                --                  --
                                                                         --------           --------           --------
Income from discontinued operation ..................................      25,298                --                  --
                                                                         --------           --------           --------
Income before cumulative effect of change in accounting principle ...      74,930             94,106                607
Cumulative effect of change in accounting principle, net of income
    tax benefit of $216 .............................................         --                 --                (440)
                                                                        ---------          ---------          ---------
Net income ..........................................................   $  74,930          $  94,106          $     167
                                                                        =========          =========          =========
Earnings per common share:
  Basic:
    Income from continuing operations ...............................   $     .72          $    1.38          $     .01
    Income from discontinued operation ..............................         .37                 --                 --
    Cumulative effect of accounting change ..........................          --                 --               (.01)
                                                                        --------           --------           ---------
    Net income ......................................................   $    1.09          $    1.38          $      --
                                                                        =========          =========          =========



  Diluted:
    Income from continuing operations ...............................   $     .72          $    1.38          $     .01
    Income from discontinued operation ..............................         .37                 --                 --
    Cumulative effect of accounting change ..........................          --                 --               (.01)
                                                                        --------           --------           --------
    Net income ......................................................   $    1.09          $    1.38          $      --
                                                                        =========          =========          =========
Weighted average number of common and
common equivalent shares outstanding:
  Basic .............................................................      68,536             68,096             65,772
                                                                        =========          =========          =========
  Diluted ...........................................................      68,685             68,096             65,853
                                                                        =========          =========          =========
</TABLE>

   The accompanying Notes to Consolidated Financial Statements are an integral
part of these statements.


                                      F-14
<PAGE>

                      INTERNATIONAL SPECIALTY PRODUCTS INC.

                           CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                                                  DECEMBER 31,
                                                                                      ---------------------------------
                                                                                          2000                 2001
                                                                                       ----------          -----------
                                                                                                 (THOUSANDS)
<S>                                                                                     <C>                <C>
                                           ASSETS
Current Assets:
  Cash and cash equivalents ........................................................  $    18,181          $    79,509
  Investments in trading securities ................................................      303,103               54,437
  Investments in available-for-sale securities .....................................      222,327              239,273
  Other short-term investments .....................................................       19,129                2,299
  Restricted cash ..................................................................         --                307,866
  Accounts receivable, trade, less reserve of
    $4,911 and $5,472 ..............................................................       89,173               86,574
  Accounts receivable, other .......................................................       19,596               20,357
  Receivable from related parties, net .............................................       11,624                9,009
  Inventories ......................................................................      150,948              190,582
  Other current assets .............................................................       36,928               41,564
                                                                                      -----------          -----------
    Total Current Assets ...........................................................      871,009            1,031,470
Property, plant and equipment, net .................................................      562,973              560,844
Excess of cost over net assets of businesses acquired, net of accumulated
  amortization of $165,880 and $182,526 ............................................      494,386              502,607
Other assets .......................................................................       31,916               77,647
                                                                                      -----------          -----------

Total Assets .......................................................................  $ 1,960,284          $ 2,172,568
                                                                                      ===========          ===========

                      LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
  Short-term debt ..................................................................  $   143,682          $       143
  Current maturities of long-term debt .............................................      224,419              310,265
  Accounts payable .................................................................       58,238               49,088
  Accrued liabilities ..............................................................       91,309               97,659
  Income taxes .....................................................................       13,610                9,799
                                                                                      -----------          -----------
    Total Current Liabilities ......................................................      531,258              466,954
                                                                                      -----------          -----------
Long-term debt less current maturities .............................................      524,780              919,557
                                                                                      -----------          -----------
Deferred income taxes ..............................................................      151,181              109,297
                                                                                      -----------          -----------
Other liabilities ..................................................................       61,730               72,703
                                                                                      -----------          -----------
Commitments and Contingencies ......................................................
Stockholders' Equity:
  Preferred stock, $.01 par value per share; 20,000,000 shares authorized:
    no shares issued ...............................................................         --                   --
  Common stock, $.01 par value per share; 300,000,000 shares authorized:
    69,546,456 shares issued .......................................................          695                  695
  Additional paid-in capital .......................................................      485,629              487,156
  Unearned compensation-- restricted stock awards ..................................       (1,287)              (1,166)
  Treasury stock, at cost-- 3,135,192 and 4,831,939 shares .........................      (19,631)             (35,621)
  Retained earnings ................................................................      213,928              214,095
  Accumulated other comprehensive income (loss) ....................................       12,001              (61,102)
                                                                                      -----------          -----------
    Total Stockholders' Equity .....................................................      691,335              604,057
                                                                                      -----------          -----------
Total Liabilities and Stockholders' Equity .........................................  $ 1,960,284          $ 2,172,568
                                                                                      ===========          ===========
</TABLE>



    The accompanying Notes to Consolidated  Financial Statements are an integral
part of these statements.


                                      F-15
<PAGE>




                      INTERNATIONAL SPECIALTY PRODUCTS INC.

                      CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                                          YEAR ENDED DECEMBER 31,
                                                                             ---------------------------------------------
                                                                                1999             2000              2001
                                                                             -----------       ---------        ----------
                                                                                              (THOUSANDS)
<S>                                                                           <C>              <C>              <C>
Cash and cash equivalents, beginning of year ..............................   $  23,130        $  23,309        $  18,181
                                                                              ---------        ---------        ---------
Cash provided by (used in) operating activities:
  Net income ..............................................................      74,930           94,106              167
  Adjustments to reconcile net income to net cash provided by
    operating activities:
    Cumulative effect of change in accounting principle ...................        --               --                440
    Income from discontinued operation ....................................     (25,298)            --               --
    Gain on sale of assets ................................................      (8,541)            --               --
    Provision (benefit) for restructuring .................................         410           14,429             (471)
    Depreciation ..........................................................      48,590           51,293           53,120
    Amortization of goodwill and intangibles ..............................      16,344           16,192           17,229
    Deferred income taxes .................................................       6,064           26,652           (8,738)
    Unrealized (gains) losses on securities and
      other short-term investments ........................................      (6,778)          (7,293)          44,239
  Increase in working capital items .......................................     (11,851)          (4,087)         (48,073)
  Purchases of trading securities .........................................    (209,649)        (528,862)        (509,914)
  Proceeds from sales of trading securities ...............................     225,291          395,434          696,513
  Proceeds (repayments) from sale of
      accounts receivable .................................................       5,558           (2,485)            (423)
  (Increase) decrease in other assets .....................................        (513)           5,807            1,437
  Increase (decrease) in other liabilities ................................         503              115           (1,494)
  Other decreases in property, plant and equipment ........................       5,875           10,746            6,724
  (Increase) decrease in receivable from related parties ..................      (9,132)           2,600            2,615
  Change in cumulative translation adjustment .............................     (18,035)          (8,268)          (5,180)
  Other, net ..............................................................       1,386            5,276            6,100
                                                                              ---------        ---------        ---------
  Net cash provided by continuing operations ..............................      95,154           71,655          254,291
  Net cash provided by discontinued operation .............................       5,293             --               --
                                                                              ---------        ---------        ---------
Net cash provided by operating activities .................................     100,447           71,655          254,291
                                                                              ---------        ---------        ---------
Cash provided by (used in) investing activities:
  Capital expenditures and acquisitions ...................................    (108,955)         (58,382)        (101,375)
  Proceeds from sale of assets ............................................      11,533             --               --
  Proceeds from sale of discontinued operation ............................      62,000             --               --
  Purchases of available-for-sale securities ..............................    (432,782)        (479,401)        (309,469)
  Purchases of held-to-maturity securities ................................      (3,459)            --               --
  Purchases of other short-term investments ...............................      (5,600)            --               --
  Proceeds from sales of available-for-sale securities ....................     395,659          495,096          212,006
  Proceeds from held-to-maturity securities ...............................      15,746             --               --
  Proceeds from sales of other short-term investments .....................      14,716           27,795           12,765
                                                                              ---------        ---------        ---------
Net cash used in investing activities .....................................     (51,142)         (14,892)        (186,073)
                                                                              ---------        ---------        ---------
Cash provided by (used in) financing activities:
  Increase (decrease) in short-term debt ..................................      (6,866)          62,483         (143,539)
  Proceeds from issuance of debt ..........................................        --               --            828,332
  Increase (decrease) in borrowings under revolving credit facility .......     162,400          (99,000)        (100,750)

  Repayments of long-term debt ............................................    (200,378)         (10,615)        (245,982)
  Increase in restricted cash .............................................        --               --           (307,866)
  Financing fees and expenses .............................................        --               --            (20,470)
  Repurchases of common stock .............................................      (4,987)         (15,458)         (17,610)
  Other, net ..............................................................       2,037              557            1,491
                                                                              ---------        ---------        ---------
Net cash used in financing activities .....................................     (47,794)         (62,033)          (6,394)
                                                                              ---------        ---------        ---------
Effect of exchange rate changes on cash ...................................      (1,332)             142             (496)
                                                                              ---------        ---------        ---------
Net change in cash and cash equivalents ...................................         179           (5,128)          61,328
                                                                              ---------        ---------        ---------
Cash and cash equivalents, end of year ....................................   $  23,309        $  18,181        $  79,509
                                                                              =========        =========        =========
</TABLE>

                                      F-16

<PAGE>


                      INTERNATIONAL SPECIALTY PRODUCTS INC.

              CONSOLIDATED STATEMENTS OF CASH FLOWS -- (CONTINUED)

<TABLE>
<CAPTION>
                                                                                    YEAR ENDED DECEMBER 31,
                                                                            --------------------------------------
                                                                              1999           2000          2001
                                                                            --------       --------      ---------
                                                                                         (THOUSANDS)
<S>                                                                         <C>            <C>           <C>
Supplemental Cash Flow Information:
Effect on cash from (increase) decrease in working capital items*:
  Accounts receivable ....................................................  $(17,276)      $   (279)     $   3,262
  Inventories ............................................................     7,627         (4,459)       (34,466)
  Other current assets ...................................................       156            279           (336)
  Accounts payable .......................................................     3,972         (5,614)        (9,385)
  Accrued liabilities ....................................................    (1,616)        (1,761)        (3,341)
  Income taxes ...........................................................    (4,714)         7,747         (3,807)
                                                                            --------       --------      ---------
    Net effect on cash from increase in working capital items               $(11,851)      $ (4,087)     $ (48,073)
                                                                            ========       ========      =========
Cash paid during the period for:
  Interest (net of amount capitalized) ...................................  $ 83,948       $ 80,338      $  71,132
  Income taxes paid ......................................................    23,957         15,289         13,130

Acquisition of Kelco Alginates business, net of $269 cash acquired:
  Fair market value of assets acquired ...................................  $ 41,619
  Purchase price of acquisition** ........................................    39,731
                                                                            --------
  Liabilities assumed ....................................................  $  1,888
                                                                            ========

Acquisition of FineTech Ltd.:
  Fair market value of assets acquired ...................................                               $  26,575
  Purchase price of acquisition ..........................................                                  22,450
                                                                                                         ---------
  Liabilities assumed ....................................................                               $   4,125
                                                                                                         =========

Acquisition of industrial biocides business:
  Fair market value of assets acquired ...................................                               $  25,879
  Purchase price of acquisition ..........................................                                  25,879
                                                                                                         ---------
  Liabilities assumed ....................................................                               $      --
                                                                                                         =========
</TABLE>


----------
*   Working  capital  items  exclude  cash  and  cash  equivalents,   short-term
    investments,  restricted cash,  short-term debt and receivables from related
    parties.  Working  capital  acquired  in  connection  with  acquisitions  is
    reflected  within "Capital  expenditures and  acquisitions."  The effects of
    reclassifications  between noncurrent and current assets and liabilities are
    excluded  from the amounts  shown.  In  addition,  the  increase in accounts
    receivable  shown above does not reflect the cash  proceeds from the sale of
    the  Company's  domestic  trade  accounts  receivable  (see Note  10);  such
    proceeds are reflected separately in cash from operating activities.

**  The Company received a cash arbitration  award in 2000 of $4.9 million which
    lowered the purchase price of the acquisition to $34.8 million.


    The accompanying Notes to Consolidated  Financial Statements are an integral
part of these statements.

                                      F-17

<PAGE>


                      INTERNATIONAL SPECIALTY PRODUCTS INC.

                 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

<TABLE>
<CAPTION>
                                                         CAPITAL STOCK,
                                                           ADDITIONAL                 ACCUMULATED
                                                         PAID-IN CAPITAL TREASURY        OTHER
                                                          AND UNEARNED     STOCK      COMPREHENSIVE  RETAINED       COMPREHENSIVE
                                                          COMPENSATION    AT COST      INCOME (LOSS)  EARNINGS        INCOME (LOSS)
                                                          ------------   -----------   -----------    ---------       -----------
                                                                                       (THOUSANDS)
<S>                                                        <C>             <C>            <C>          <C>           <C>
Balance, December 31, 1998 .............................    $489,980      $  (8,388)   $  (24,761)  $ 44,892
  Comprehensive income, year ended
    December 31, 1999:
    Net income .........................................          --             --            --      74,930        $  74,930
                                                                                                                     ---------
    Other comprehensive income, net of tax:
    Unrealized holding gains, net of income taxes
      of $12,054 .......................................          --             --        27,949         --            27,949
    Less: Reclassification adjustment for gains included
      in net income, net of income taxes of $2,544 .....          --             --         2,068         --             2,068
                                                                                       ----------                    ---------
    Unrealized gains on available-for-sale securities ..          --             --        25,881         --            25,881
                                                                                       ----------                    ---------
    Translation adjustment .............................          --             --       (19,367)        --           (19,367)
    Less: Reclassification adjustment for translation
      adjustment included in net income,
      net of income tax effect of $521 .................          --             --        (1,483)        --            (1,483)
                                                                                       ----------                    ---------
    Net translation adjustment .........................          --             --       (17,884)        --           (17,884)
    Minimum pension liability adjustment ...............          --             --         4,715         --             4,715
                                                                                                                     ---------
  Comprehensive income .................................                                                             $  87,642
                                                                                                                     =========
  Repurchases of common stock -- 629,000 shares ........          --         (4,987)           --         --
  Issuances under stock option plan -- 291,946  shares..          --          2,931            --         --
  Excess of cost of treasury stock issued over proceeds         (890)            --            --         --
  Stock issued  pursuant to executive
    purchase agreement-- 318,599 shares ..................    (3,100)         3,100            --         --
  Effect of issuances of stock options as incentives ...         842           --              --         --
                                                           ---------      ---------    ----------   --------
Balance, December 31, 1999 .............................   $ 486,832      $  (7,344)     $(12,049)  $119,822
  Comprehensive income, year ended
    December 31, 2000:
    Net income .........................................          --             --            --     94,106         $  94,106
                                                                                                                     ---------
    Other comprehensive income, net of tax:
    Unrealized holding gains, net of income
      taxes of $71,382 .................................          --             --       142,995                      142,995
    Less: Reclassification adjustment for gains included
      in net income, net of income taxes of $53,430 ....          --             --       110,819         --           110,819
                                                                                       ----------                    ---------
    Unrealized gains on available-for-sale securities ..          --             --        32,176         --            32,176
    Translation adjustment .............................          --             --        (8,126)        --            (8,126)
                                                                                                                     ---------
  Comprehensive income .................................                                                             $ 118,156
                                                                                                                     =========
  Repurchases  of common stock -- 2,772,938 shares                --        (15,458)           --         --
  Issuances  under  stock  option  plan -- 86,945 shares          --            831            --         --
  Excess of cost of treasury stock issued over proceeds         (274)            --            --         --
  Issued for executive  stock
    bonus awards --  75,000 shares .....................        (275)           730            --         --
  Loans to executives ..................................        (167)            --            --         --
  Stock issued for executive restricted stock plans--
    230,000 shares .....................................        (323)         1,610            --         --
  Unearned compensation related to restricted
    stock awards .......................................      (1,287)            --            --         --
  Effect of issuances of stock options as incentives ...         531             --            --         --
                                                           ---------      --------     ----------  ---------
</TABLE>

                                      F-18


<PAGE>


                      INTERNATIONAL SPECIALTY PRODUCTS INC.


          CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY-- (CONTINUED)



<TABLE>
<CAPTION>
                                                         CAPITAL STOCK,
                                                           ADDITIONAL                 ACCUMULATED
                                                         PAID-IN CAPITAL TREASURY        OTHER
                                                          AND UNEARNED     STOCK      COMPREHENSIVE  RETAINED       COMPREHENSIVE
                                                          COMPENSATION    AT COST      INCOME (LOSS)  EARNINGS        INCOME (LOSS)
                                                          ------------   -----------   -------------  ---------       -----------
                                                                                       (THOUSANDS)
<S>                                                        <C>          <C>            <C>          <C>           <C>
 Balance, December 31, 2000 ...........................     $485,037    $(19,631)      $ 12,001     $213,928
  Comprehensive income (loss), year ended
    December 31, 2001:
    Net income ........................................           --         --             --           167             $ 167
                                                                                                                      --------
    Other comprehensive income (loss), net of tax:
    Unrealized holding losses, net of income
      tax benefit of $43,928 ..........................           --         --         (82,084)         --            (82,084)
    Less: Reclassification adjustment for losses
      included in net income, net of income
      tax benefit of $7,985 ...........................           --         --         (15,621)         --            (15,621)
                                                                                        -------                       --------
    Unrealized losses on available-for-sale securities.           --         --         (66,463)         --            (66,463)
                                                                                        -------                       ---------
    Change in unrealized losses on derivative hedging
      instruments -- cash flow hedges:
    Net derivative losses, net of tax effect of $1,189..          --         --          (2,198)         --             (2,198)
    Less: Reclassification adjustment for losses
      included in net income, net of tax effect
      of $667 .........................................           --         --          (1,234)         --             (1,234)
                                                                                       --------                      ---------
    Unrealized losses on derivative hedging
      instruments .....................................           --         --            (964)         --               (964)
                                                                                       ---------                     ---------
    Translation adjustment ............................           --         --          (5,676)         --             (5,676)
                                                                                                                     --------
  Comprehensive loss ..................................                                                               $(72,936)
                                                                                                                     =========
  Repurchases of common stock -- 1,937,800 shares .....           --     (17,610)            --
  Issuances under stock option plan -- 207,998 shares .           --       1,392             --
  Excess of proceeds of treasury stock issued over cost           98          --             --          --
  Issued for executive stock bonus award --
    13,055 shares .....................................           18          82             --          --
  Change in loans to executives .......................            7         --              --          --
  Amortization of executive stock loan ................          762         --              --          --
  Stock issued for executive restricted stock plan--
    20,000 shares .....................................           33         146             --          --
  Unearned compensation related to restricted
    stock awards ......................................         (179)         --             --          --
  Amortization of restricted stock awards
    compensation ......................................          300          --             --          --
  Effect of issuances of stock options as incentives             609          --             --          --
                                                           ---------    -------        --------    --------
Balance, December 31, 2001 ............................     $486,685    $(35,621)     $ (61,102)    $214,095
                                                           =========    ========      =========    ========
</TABLE>

The accompanying Notes to Consolidated Financial Statements are an integral
part of these statements.


                                      F-19

<PAGE>



                      INTERNATIONAL SPECIALTY PRODUCTS INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 1.  FORMATION OF THE COMPANY, MERGER OF INTERNATIONAL SPECIALTY PRODUCTS
         INC. INTO ISP HOLDINGS INC. AND CORPORATE RESTRUCTURING

    On July 15, 1998,  International  Specialty Products Inc. ("Old ISP") merged
(the "Merger") with and into ISP Holdings Inc. ("ISP  Holdings").  In connection
with the  Merger,  ISP  Holdings  changed  its name to  International  Specialty
Products Inc. (the  "Company").  In the Merger,  each  outstanding  share of Old
ISP's common stock,  other than those held by ISP Holdings,  was converted  into
one share of common  stock of the  Company,  and the  outstanding  shares of Old
ISP's  common  stock  which were held by ISP  Holdings  were  converted  into an
aggregate of 53,833,333 shares (or approximately  78%) of the outstanding shares
of common stock of the Company.

    International   Specialty  Holdings  Inc.   ("Holdings"),   a  wholly  owned
subsidiary  of the Company,  was formed on June 5, 2001 in  connection  with the
corporate  restructuring  discussed below. ISP Opco Holdings Inc., which changed
its name on June 5, 2001 to ISP  Chemco  Inc.  ("ISP  Chemco"),  a wholly  owned
subsidiary  of  Holdings,  was formed on June 24,  1998 in  connection  with the
Merger and 100 shares of its common  stock were  issued to the  Company.  At the
time of the Merger,  substantially  all of the assets and liabilities of Old ISP
were  transferred to ISP Chemco.  In connection with the financing  transactions
discussed  in Note 13, the  Company  completed a  corporate  restructuring  (the
"Restructuring")  of its  business  in  June  2001  in  order  to  separate  its
investment  assets  from  its  specialty  chemicals  business.  As  part  of the
Restructuring,  ISP  Chemco  transferred  net  assets  of  approximately  $235.7
million,  consisting of all of its investment  assets,  totaling $336.7 million,
associated  short-term debt and the outstanding stock of certain subsidiaries to
Holdings,  which,  in  turn,  transferred  those  assets  to  its  newly  formed
subsidiary,   ISP  Investco  LLC  ("ISP   Investco").   After  completing  these
transactions,  ISP  Chemco's  assets  consist  solely  of those  related  to the
Company's specialty chemicals business.

    The Company is engaged  principally  in the  manufacture  and sale of a wide
range of specialty  chemicals  and mineral  products.  See Notes 17 and 18 for a
description  of and financial  information  relating to the  Company's  business
segments and foreign and domestic operations.


NOTE 2.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES


  PRINCIPLES OF CONSOLIDATION

    All subsidiaries are  consolidated and intercompany  transactions  have been
eliminated.


  FINANCIAL STATEMENT ESTIMATES

    The  preparation  of financial  statements  in  conformity  with  accounting
principles  generally accepted in the United States requires  management to make
certain  estimates.  Actual  results could differ from those  estimates.  In the
opinion of management,  the financial  statements herein contain all adjustments
necessary to present fairly the financial position and the results of operations
and cash flows of the  Company  for the  periods  presented.  The  Company has a
policy to review  the  recoverability  of  long-lived  assets and  identify  and
measure any potential  impairments.  The Company does not anticipate any changes
in  management  estimates  that  would  have a  material  impact on  operations,
liquidity or capital resources.


  SHORT-TERM INVESTMENTS

    For  securities   classified  as  "trading"   (including  short  positions),
unrealized  gains and losses are  reflected  in the results of  operations.  For
securities classified as "available-for-sale,"  unrealized gains and losses, net
of income tax effect,  are  included in a separate  component  of  stockholders'
equity,  "Accumulated other comprehensive  income (loss)," and amounted to $34.0
and $(32.4) million as of December 31, 2000 and 2001, respectively.  The Company
periodically  reviews  available-for-sale  securities  for other than  temporary
impairment when the cost basis of a security exceeds the market value.


                                      F-20
<PAGE>



                      INTERNATIONAL SPECIALTY PRODUCTS INC.


            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-- (CONTINUED)


NOTE 2.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)

    "Other short-term investments" are investments in limited partnerships which
are accounted for by the equity method. Gains and losses are reflected in "Other
income (expense), net." Liquidation of partnership interests generally require a
30 to 45 day notice period.

    Cash  and cash  equivalents  include  cash on  deposit  and debt  securities
purchased with original maturities of three months or less.


  INVENTORIES

    Inventories  are stated at the lower of cost or market.  The LIFO  (last-in,
first-out) method is utilized to determine cost for a substantial portion of the
Company's domestic inventories. All other inventories are determined principally
based on the FIFO (first-in, first-out) method.


  PROPERTY, PLANT AND EQUIPMENT

    Property,   plant  and   equipment  is  stated  at  cost  less   accumulated
depreciation.  Depreciation is computed  principally on the straight-line method
based  on the  estimated  economic  lives of the  assets.  The  Company  uses an
economic life of 10-20 years for land improvements,  40 years for buildings, and
3-20 years for machinery and equipment,  which includes  furniture and fixtures.
Certain  interest  charges are capitalized  during the period of construction as
part of the cost of property, plant and equipment.


  FOREIGN EXCHANGE CONTRACTS

    The Company  enters into forward  foreign  exchange  instruments in order to
hedge a portion  of both its  borrowings  denominated  in foreign  currency  and
transactions  related to the  operations  of foreign  subsidiaries.  All forward
contracts are reflected on the Company's  Consolidated  Balance  Sheets at their
fair market value.

    Forward  contract  agreements  require the Company and the  counterparty  to
exchange fixed amounts of U.S.  dollars for fixed amounts of foreign currency on
specified  dates.  The market value of such contracts varies with changes in the
market  exchange  rates.  The  Company is exposed to credit loss in the event of
nonperformance  by  the  counterparties  to  the  forward  contract  agreements.
However,  the Company does not anticipate  nonperformance by the counterparties.
The Company does not generally  require  collateral or other security to support
these financial instruments.

    As of December 31, 2000 and 2001, the U.S. dollar equivalent  notional value
of outstanding  forward foreign exchange  contracts was $20.9 and $17.7 million,
respectively.  All forward  contracts are in major currencies with highly liquid
markets and mature  within one year.  The  Company  uses  quoted  market  prices
obtained from major financial  institutions to determine the market value of its
outstanding forward exchange contracts.  In addition, the U.S. dollar equivalent
notional value of foreign exchange contracts outstanding as of December 31, 2000
and 2001,  which were entered into as a hedge of intercompany  loans,  was $17.0
and $17.7  million,  respectively,  representing  100% of the Company's  foreign
currency  exposure  with respect to such loans.  See  "Derivatives  and Hedging"
below.

    The  Company  continually  monitors  its risk from the  effects  of  foreign
currency  fluctuations on its operations and on the derivative  products used to
hedge its risk. The Company  utilizes  real-time,  on-line foreign exchange data
and news as well as  evaluation  of economic  information  provided by financial
institutions.  Mark-to-market  valuations are made on a regular  basis.  Hedging
strategies are approved by senior management before being implemented.


  DERIVATIVES AND HEDGING

     In June 1998, the Financial  Accounting Standards Board (the "FASB") issued
Statement of Financial  Accounting  Standards ("SFAS") No. 133,  "Accounting for
Derivative  Instruments  and  Hedging  Activities."  SFAS  No.  133  establishes
accounting and reporting standards requiring that every derivative instrument be
recorded in


                                      F-21
<PAGE>


                      INTERNATIONAL SPECIALTY PRODUCTS INC.


            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-- (CONTINUED)


NOTE 2.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)

the balance  sheet as either an asset or  liability  measured at its fair value.
SFAS No. 133 requires  that changes in a  derivative's  fair value be recognized
currently in earnings unless specific hedge accounting criteria are met. Special
accounting  for  qualifying  hedges  allows a  derivative's  gains and losses to
offset related results on the hedged item in the income statement.

    The  Company  adopted  SFAS No. 133 as of January  1, 2001.  Accounting  for
interest rate swaps and foreign exchange  forward  contracts held by the Company
is affected by  implementation  of this  standard.  The  earnings  impact of the
transition  adjustments  related to the initial  adoption of the standard was an
after-tax loss of  approximately  $0.4 million,  which was recorded in the first
quarter of 2001 as the cumulative effect of a change in accounting principle.

    As discussed in Note 13, in June 2001,  ISP Chemco Inc. ("ISP  Chemco"),  an
indirect wholly owned subsidiary of the Company,  entered into $450.0 million of
Senior Credit Facilities,  which include a $225.0 million term loan. The Company
has  designated  interest  rate  swaps,  with a total  notional  amount  of $100
million,  as a hedge of its exposure to changes in the eurodollar rate under the
term loan. The interest rate swaps are  structured to receive  interest based on
the eurodollar  rate and pay interest on a fixed rate basis. A cash flow hedging
relationship has been established whereby the interest rate swaps hedge the risk
of changes in the eurodollar  rate related to borrowings  against the term loan.
The interest rate swaps hedge exposure to changes in the eurodollar rate through
July 2002.

    At December  31, 2001,  the fair value of the  interest  rate swaps was $3.1
million  and  is  included  within   "Accrued   liabilities"  on  the  Company's
Consolidated  Balance Sheet.  During 2001,  $1.6 million related to the interest
rate swaps was reclassified and charged against interest  expense.  In addition,
$0.3  million,  representing  hedge  ineffectiveness,  was also charged  against
interest  expense.  As of  December  31,  2001,  included in  Accumulated  Other
Comprehensive Loss is a $1.5 million pre-tax loss related to these interest rate
swaps.

    Derivatives  held by the  Company  not  designated  as  hedging  instruments
include  total return  equity swaps and forward  foreign  exchange  instruments.
These derivatives are being  marked-to-market each period, with unrealized gains
and losses included in results of operations.  The total return equity swaps are
held for investment income purposes. Foreign exchange forward contracts are held
to offset exposure to changes in exchange rates affecting intercompany loans.


  FOREIGN CURRENCY TRANSLATION

    Assets and  liabilities of foreign  subsidiaries  are translated at year-end
exchange  rates.  Income and expenses are  translated at average  exchange rates
prevailing  during the year. The effects of these  translation  adjustments  are
reported in a separate  component of stockholders'  equity,  "Accumulated  other
comprehensive  income (loss)," and amounted to $(22.0) and $(27.7) million as of
December 31, 2000 and 2001, respectively. Exchange gains and losses arising from
transactions denominated in a currency other than the functional currency of the
entity  involved,  principally  related  to  the  revaluation  of  payables  and
receivables, are included in "Other income (expense), net" and amounted to $4.9,
$(1.7) and $(4.2) million in 1999, 2000 and 2001, respectively.


  NEW ACCOUNTING STANDARDS

     On June 30, 2001, the FASB issued SFAS No. 141, "Business Combinations" and
SFAS No. 142, "Goodwill and Other Intangible  Assets." SFAS No. 141 requires all
business  combinations  initiated  after June 30, 2001 to be accounted for using
the  purchase  method  of  accounting  and  eliminates  the  pooling  method  of
accounting. SFAS No. 141 will not have an impact on the Company's business since
the Company has historically  accounted for all business  combinations using the
purchase method of accounting.  With the adoption of SFAS No. 142, goodwill will
no longer be subject to amortization  over its estimated  useful life.  However,
goodwill will be subject to at least an annual  assessment  for  impairment  and
more frequently if circumstances indicate a possible impairment.  Companies must
perform a fair-value-based goodwill impairment test. In addition, under SFAS No.
142, an


                                      F-22
<PAGE>


                      INTERNATIONAL SPECIALTY PRODUCTS INC.


            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-- (CONTINUED)


NOTE 2.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)

acquired intangible asset should be separately  recognized if the benefit of the
intangible  asset is obtained through  contractual or other legal rights,  or if
the intangible asset can be sold,  transferred,  licensed,  rented or exchanged.
Intangible  assets will be amortized  over their useful  lives.  SFAS No. 142 is
effective as of January 1, 2002.  On an  annualized  basis,  the  Company's  net
income will  increase by  approximately  $16.6  million,  unless any  impairment
charges are necessary.


  EXCESS OF COST OVER NET ASSETS OF BUSINESSES ACQUIRED ("GOODWILL")

    Goodwill, which arose principally from the 1989 management-led buyout of the
predecessor company to the Company's former parent company, G-I Holdings, and as
a result of the Merger (see Note 1), is  amortized on the  straight-line  method
over a period of  approximately 40 years. The Company believes that the goodwill
is recoverable.  To determine if goodwill is recoverable,  the Company  compares
the net carrying amount to  undiscounted  projected cash flows of the underlying
businesses to which the goodwill pertains.  If goodwill is not recoverable,  the
Company  would  record an  impairment  based on the  difference  between the net
carrying amount and fair value. See "New Accounting Standards" above.


  REVENUE RECOGNITION

    Revenue is recognized at the time products are shipped to the customer.


  SHIPPING AND HANDLING COSTS

    Shipping   and   handling   costs   included   in   "Selling,   general  and
administrative"  expenses  amounted to $24.8,  $30.3 and $29.1 million for 1999,
2000 and 2001, respectively.


  DEBT ISSUANCE COSTS

    Debt  issuance  costs are  amortized to expense over the life of the related
debt.  Unamortized debt issuance costs of $3.8 and $21.3 million are included in
"Other assets" in the Consolidated Balance Sheets at December 31, 2000 and 2001,
respectively.


  RESEARCH AND DEVELOPMENT

    Research and  development  costs are charged to  operations  as incurred and
amounted  to  $23.0,   $25.6  and  $25.4  million  for  1999,   2000  and  2001,
respectively.


  EARNINGS PER COMMON SHARE

    Basic Earnings per Share are calculated  based on the total weighted average
number of shares of the Company's  common stock  outstanding  during the period.
Diluted  Earnings per Share for periods  subsequent to the Merger give effect to
all potential  dilutive  common shares  outstanding  during the period under the
Company's stock option plans (see Note 15).


  ENVIRONMENTAL LIABILITY

    The  Company,  together  with  other  companies,  is a party to a variety of
proceedings and lawsuits involving  environmental matters. The Company estimates
that its liability with respect to such environmental matters, and certain other
environmental  compliance  expenses,  as of December 31, 2001, is $26.6 million,
before reduction for insurance  recoveries reflected on its Consolidated Balance
Sheet of $21.7 million.  The Company's liability is reflected on an undiscounted
basis.   The  gross   environmental   liability  is  included   within  "Accrued
liabilities" and "Other  liabilities," and the estimated recoveries are included
within  "Other  assets."  See Note 19 for  further  discussion  with  respect to
environmental liabilities and estimated insurance recoveries.


                                      F-23
<PAGE>



                      INTERNATIONAL SPECIALTY PRODUCTS INC.


            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-- (CONTINUED)





NOTE 2.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)


  ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)

    Comprehensive Income (Loss) includes net income, unrealized gains and losses
from  investments in  available-for-sale  securities,  net of income tax effect,
unrealized gains and losses from derivative hedging  instruments,  net of income
tax effect,  foreign  currency  translation  adjustments,  and  minimum  pension
liability  adjustments.  The Company has chosen to disclose Comprehensive Income
(Loss) in the Consolidated Statements of Stockholders' Equity.

    Changes in the components of "Accumulated other comprehensive income (loss)"
for the years 1999, 2000 and 2001 are as follows:

<TABLE>
<CAPTION>
                              UNREALIZED     UNREALIZED    CUMULATIVE
                             GAINS (LOSSES)  LOSSES ON       FOREIGN        MINIMUM       ACCUMULATED
                             ON AVAILABLE-   DERIVATIVE      CURRENCY       PENSION          OTHER
                               FOR-SALE       HEDGING      TRANSLATION      LIABILITY    COMPREHENSIVE
                              SECURITIES    INSTRUMENTS     ADJUSTMENT      ADJUSTMENT    INCOME (LOSS)
                              ----------    ------------    -----------    -----------   --------------
<S>                            <C>             <C>          <C>              <C>            <C>
Balance, December 31, 1998     $(24,037)       $    --       $  3,991        $ (4,715)      $(24,761)
Change for the year 1999         25,881             --        (17,884)          4,715         12,712
                               --------        -------       --------        --------       --------
Balance, December 31, 1999     $  1,844        $    --       $(13,893)       $     --       $(12,049)
Change for the year 2000         32,176             --         (8,126)             --         24,050
                               --------        -------       --------        --------       --------
Balance, December 31, 2000     $ 34,020        $    --       $(22,019)       $     --       $ 12,001
Change for the year 2001        (66,463)          (964)        (5,676)             --        (73,103)
                               --------        -------       --------        --------       --------
Balance, December 31, 2001     $(32,443)       $  (964)      $(27,695)       $     --       $(61,102)
                               ========        =======       ========        ========       ========
</TABLE>

  RECLASSIFICATIONS

    Certain amounts in the 1999 and 2000 Consolidated  Financial Statements have
been reclassified to conform to the 2001 presentation.


NOTE 3.  SHORT-TERM INVESTMENTS

    At December  31,  1999,  the Company held an  investment  of $149.5  million
(based on market value) in Life  Technologies,  Inc.  ("Life  Technologies"),  a
75%-owned   subsidiary  of  Dexter  Corporation   ("Dexter").   Such  investment
represented   approximately  14%  of  the  outstanding   common  stock  of  Life
Technologies  at December 31, 1999. At December 31, 1999,  the Company also held
an investment of $91.4 million  (based on market value) in Dexter,  representing
approximately 10% of the outstanding common stock of Dexter at that date. Dexter
and Life Technologies were acquired by Invitrogen Corporation  ("Invitrogen") in
a merger  completed  in  September  2000.  The Company sold its shares of Dexter
common  stock  prior to the  merger and also sold all of the  Invitrogen  common
stock that it received in the merger for its Life Technologies shares, resulting
in net gains, after expenses,  in 2000 of $127.6 million. The total gain related
to these investments was approximately $150 million, prior to expenses, of which
a total of $16.4 million was recognized in 1998 and 1999.

    The total market value of available-for-sale securities at December 31, 2001
was $239.3 million,  consisting of $226.9 million of equity securities and $12.4
million  of debt  securities  with  maturities  of  between  five and ten years.
Included  in  available-for-sale  securities  at  December  31, 2001 is a $107.2
million  investment  in  Hercules  Incorporated  ("Hercules").  Such  investment
represented  approximately  9.9% of the outstanding  common stock of Hercules at
December 31, 2001.

                                      F-24

<PAGE>


                      INTERNATIONAL SPECIALTY PRODUCTS INC.


                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-- (CONTINUED)


NOTE 3.  SHORT-TERM INVESTMENTS -- (CONTINUED)

     "Other income (expense), net," includes total investment income (losses) of
$16.1,  $157.1 and  $(9.4)  million in 1999,  2000 and 2001,  respectively.  The
investment  income (losses) consist of $17.9,  $163.3 and $(10.3) million of net
realized and certain  unrealized  gains (losses) on securities in 1999, 2000 and
2001, respectively,  and $(1.8), $(6.2) and $0.9 million,  respectively,  of net
interest,  dividends and investment-related expenses. In 2001, investment losses
include   a   write-down   to  fair   value  of  $29.1   million   for   certain
available-for-sale  securities  sold shortly after the balance  sheet date.  The
determination  of cost in computing  realized and unrealized gains and losses is
based on the specific identification method.

    As of December 31, 2000 and 2001,  the market value of the Company's  equity
securities  held long was  $486.8  and  $296.0  million,  respectively,  and the
Company had $251.2 and $57.5 million, respectively, of short positions in common
stocks, based on market value. The Company enters into equity-related  financial
instruments  as a means to manage its  exposure  to market  fluctuations  on its
short-term  investments.  As of  December  31,  2000  and  2001,  the  value  of
equity-related long contracts was $40.1 and $13.5 million, respectively, and the
value of equity-related  short contracts was $0 and $7.2 million,  respectively,
both of which are marked-to-market  each month, with unrealized gains and losses
included in the results of operations.  The market values  referred to above are
based  on  quotations   as  reported  by  various  stock   exchanges  and  major
broker/dealers.  With respect to its  investments in securities,  the Company is
exposed to the risk of market loss.


NOTE 4.  (PROVISION) BENEFIT FOR RESTRUCTURING

    In January 1999, the Company announced a restructuring program that included
the shutdown of its  butanediol  production  unit at its Calvert City,  Kentucky
manufacturing   facility,  the  write-down  to  fair  value  of  the  butanediol
production  assets  at  its  Texas  City  and  Seadrift,   Texas   manufacturing
facilities,  the write-off of fixed asset costs related to a terminated European
expansion project and the  consolidation of offices in its European  operations.
Accordingly,  the Company recorded a one-time  provision for  restructuring  and
impairment loss against operating income in 1998 totaling $73.0 million.

    In 1999,  the Company  reversed  $1.9  million of such  previously  recorded
restructuring  reserves,  representing  an  excess  demolition  reserve  of $0.8
million and $1.1 million of other  reserves,  mainly for raw  material  contract
terminations,  which were no longer required.  This program was completed in the
third quarter of 2000. In the third quarter of 1999,  the Company  implemented a
staff  reduction  program  impacting   corporate  and  worldwide  executive  and
administrative  staff  positions.  As a  result,  a total of 79  positions  were
eliminated  in 1999  through  normal  attrition  or  termination,  for which the
Company recorded a pre-tax provision for severance of $2.3 million. This program
was completed in the second quarter of 2000.

    As part of the 1998  restructuring  program,  the Company wrote down to fair
value the  butanediol  production  assets at its Texas City and Seadrift,  Texas
manufacturing  facilities. In December 2000, the Company shut down production at
the Seadrift  facility and shut down  production of butanediol at the Texas City
facility  in the first  quarter of 2001.  Accordingly,  the  Company  recorded a
one-time  restructuring charge against operating income in 2000 of $2.5 million,
as detailed  below.  Also, in connection  with the  relocation of certain of the
Company's production lines for personal care products to the Company's Freetown,
Massachusetts  facility,  the Company shut down its  manufacturing  operation in
Belleville,  New Jersey in the first quarter of 2001.  Accordingly,  the Company
recorded  a  restructuring  charge  against  operating  income  in 2000 of $11.9
million, as detailed below.


                                      F-25

<PAGE>

                      INTERNATIONAL SPECIALTY PRODUCTS INC.


            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-- (CONTINUED)





NOTE 4.  (PROVISION) BENEFIT FOR RESTRUCTURING -- (CONTINUED)

    The components of the $14.4 million  provision for restructuring in 2000 are
as follows:

                                                                    TEXAS CITY/
                                                      BELLEVILLE     SEADRIFT
                                                     ------------   -----------
                                                             (MILLIONS)
    Write-off of production assets .................      $10.4        $0.4
    Accrual for severance costs ....................        0.9         0.7
    Accrual for decommissioning and remediation ....       --           1.4
    Accrual for other related costs ................        0.6          --
                                                       ---------      ------
    Total provision ................................      $11.9        $2.5
                                                       =========      ======

    Of the total $14.4 million restructuring provision, $3.6 million represented
cash costs to be  incurred,  including  severance  costs of $0.9  million for 33
plant  management,  supervisors and operators to be terminated at the Belleville
plant and severance  costs of $0.7 million for 10  supervisors  and operators at
the Texas City and Seadrift  plants.  As a result of the  write-off of property,
plant  and  equipment,   the  Company's  depreciation  expense  was  lowered  by
approximately $1.4 million per year.

    In 2001, $1.1 million of costs were charged  against the Belleville  reserve
and $0.4 million of this reserve was reversed,  representing an excess severance
reserve and reserve for other related  costs.  This program was completed in the
fourth quarter of 2001. In 2001,  $2.0 million of costs were charged against the
Texas  City/Seadrift  reserve and $0.1  million of this  reserve  was  reversed,
representing  an excess  severance  reserve.  This program was  completed in the
fourth quarter of 2001.


NOTE 5.  GAINS ON CONTRACT AND INSURANCE SETTLEMENTS

    In the first  quarter of 2000,  the Company  received  $3.5 million from the
settlement of a pre-1997 contract  termination dispute relating to the Company's
Mineral Products segment.  In 2001, the Company recorded a $1.6 million gain for
an  anticipated  receipt of an  insurance  settlement  related to an  industrial
accident in 2001 at one of the Company's manufacturing facilities.


NOTE 6.  DISPOSITION OF ASSETS

    On April 2, 1999,  the Company sold its  pearlescent  pigments  business,  a
non-core product line that was part of the Personal Care business segment, which
resulted in a pre-tax gain of $8.5 million.  The  pearlescent  pigments  product
line accounted for $4.9 million of the Company's net sales in 1998. As a result,
the sale did not have a material  impact on the Company's  results of operations
for the year 1999.


NOTE 7.  DISCONTINUED OPERATION

    On October  1,  1999,  the  Company  sold the stock of its  Filter  Products
subsidiaries to Hayward Industrial Products,  Inc. for a purchase price of $62.0
million.  The gain on the sale was $23.5  million,  after  income taxes of $12.7
million.  Accordingly,  the Filter  Products  business  segment is reported as a
discontinued operation in the Consolidated Financial Statements.


                                      F-26
<PAGE>



                      INTERNATIONAL SPECIALTY PRODUCTS INC.


            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-- (CONTINUED)





NOTE 7.  DISCONTINUED OPERATION -- (CONTINUED)

     Summary operating results for the Filter Products business are as follows:

                                                           YEAR ENDED
                                                           DECEMBER 31,
                                                               1999
                                                           -----------
                                                           (THOUSANDS)
    Net sales ............................................. $28,730
                                                           ========
    Income before income taxes ............................ $ 2,726
    Income taxes ..........................................    (957)
                                                           --------
    Net income ............................................ $ 1,769
                                                           ========


NOTE 8.  INCOME TAXES

    Income tax (provision)  benefit from continuing  operations  consists of the
following:


<TABLE>
<CAPTION>
                                                        YEAR ENDED DECEMBER 31,
                                                  ------------------------------------
                                                    1999         2000           2001
                                                 -------       ---------       -------
                                                              (THOUSANDS)
<S>                                               <C>          <C>           <C>
Federal:
  Current .................................      $ (1,342)     $ (3,296)       $ (930)
  Deferred ................................       (10,403)      (35,258)        8,794
                                                 --------      --------        -------
    Total Federal .........................       (11,745)      (38,554)        7,864
                                                 --------      --------        -------

Foreign:
  Current .................................       (16,830)      (17,466)       (7,318)
  Deferred ................................         5,185         9,076           416
                                                 -------        -------        ------
    Total foreign .........................       (11,645)       (8,390)       (6,902)
                                                 --------       -------        ------
State and local:
  Current .................................        (2,586)       (3,455)         (840)
  Deferred ................................          (846)         (470)         (472)
                                                 --------       -------        ------
    Total state and local .................        (3,432)       (3,925)       (1,312)
                                                 --------       -------        ------
Income tax provision ......................      $(26,822)     $(50,869)       $ (350)
                                                 ========      ========        ======
</TABLE>


    The  differences  between the income tax provision  computed by applying the
statutory  Federal  income  tax  rate to  pre-tax  income,  and the  income  tax
provision reflected in the Consolidated Statements of Income are as follows:

<TABLE>
<CAPTION>
                                                        YEAR ENDED DECEMBER 31,
                                                  ------------------------------------
                                                    1999         2000           2001
                                                 -------       ---------       -------
                                                              (THOUSANDS)
<S>                                               <C>          <C>           <C>
Statutory tax provision .......................  $(26,746)    $(50,741)       $  (335)
Impact of:
  Foreign operations ..........................     4,388        5,768          5,787
  State and local taxes, net of Federal benefits   (2,231)      (2,552)          (853)
  Nondeductible goodwill amortization ..........   (5,723)      (5,668)        (5,826)
  Percentage depletion .........................    1,943        1,521            659
  Other, net ..................................     1,547          803            218
                                                ---------       --------      --------
Income tax provision ..........................  $(26,822)    $(50,869)        $ (350)
                                                ==========    =========       =========
</TABLE>

                                      F-27

<PAGE>


                      INTERNATIONAL SPECIALTY PRODUCTS INC.


            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-- (CONTINUED)





NOTE 8.  INCOME TAXES -- (CONTINUED)

    The components of the net deferred tax liability are as follows:

<TABLE>
<CAPTION>
                                                             DECEMBER 31,
                                                      --------------------------
                                                        2000             2001
                                                      --------        ----------
                                                            (THOUSANDS)
<S>                                                   <C>             <C>
Deferred tax liabilities related to:
  Property, plant and equipment ...................   $101,959        $107,818
  Other ...........................................     78,212          30,102
                                                      --------        --------
    Total deferred tax liabilities ................    180,171         137,920
                                                      --------        --------
Deferred tax assets related to:
  Expenses not yet deducted for tax purposes ......    (23,742)        (22,478)
  Carryover AMT and R&D credits ...................    (11,970)        (14,391)
  Other ...........................................    (22,672)        (24,683)
                                                      --------        --------
    Total deferred tax assets .....................    (58,384)        (61,552)
                                                      --------        --------
Net deferred tax liability ........................    121,787          76,368
Deferred tax assets reclassified to other
 current assets ...................................     29,394          32,929
                                                      --------        --------
Noncurrent deferred tax liability .................   $151,181        $109,297
                                                      ========        ========
</TABLE>

    The  Company  and certain of its  subsidiaries  were  parties to tax sharing
agreements  with  members  of the  consolidated  group for  Federal  income  tax
purposes that included G-I Holdings Inc., (the "G-I Holdings Group"), in certain
prior years and, accordingly, would be severally liable for any tax liability of
the G-I Holdings  Group in respect of those prior years.  Until January 1, 1997,
the  Company  and its  subsidiaries  were  members  of the G-I  Holdings  Group.
Therefore,  such tax sharing agreements are no longer applicable with respect to
the tax liabilities of the Company and its subsidiaries  for periods  subsequent
to  January  1,  1997.  The  Company  and  certain  of its  subsidiaries  remain
obligated,  however,  with  respect  to tax  liabilities  imposed or that may be
imposed for periods prior to such date.  Among other  things,  those tax sharing
agreements provide for the sharing of the G-I Holdings Group's  consolidated tax
liability  based on each member's  share of the tax as if such member filed on a
separate  basis.  Accordingly,  a payment  of tax would be made to G-I  Holdings
equal to the Company's allocable share of the G-I Holdings Group's  consolidated
tax liability.

    On  September  15, 1997,  G-I  Holdings  received a notice from the Internal
Revenue  Service  (the  "IRS") of a  deficiency  in the amount of $84.4  million
(after  taking  into  account  the use of net  operating  losses and foreign tax
credits  otherwise  available  for use in later  years) in  connection  with the
formation  in 1990 of  Rhone-Poulenc  Surfactants  and  Specialties,  L.P.  (the
"surfactants  partnership"),  a  partnership  in  which  G-I  Holdings  held  an
interest.  G-I Holdings  has advised the Company  that it believes  that it will
prevail in the tax matter arising out of the surfactants  partnership,  although
there can be no assurance in this regard. The Company believes that the ultimate
disposition  of this  matter  will not have a  material  adverse  effect  on its
business,  financial  position or results of operations.  On September 21, 2001,
the IRS filed a proof of claim  with  respect  to such  deficiency  against  G-I
Holdings in the G-I Holdings  bankruptcy.  If such proof of claim is  sustained,
the  Company  and/or  some of the  Company's  subsidiaries,  together  with  G-I
Holdings and several  current and former  subsidiaries  of G-I Holdings would be
severally  liable for such  taxes and  interest  in the amount of  approximately
$250.0  million  should G-I  Holdings be unable to satisfy  such  liability.  In
January 2001, G-I Holdings filed a voluntary petition for  reorganization  under
Chapter 11 of the U.S. Bankruptcy Code due to its asbestos-related bodily injury
claims relating to the inhalation of asbestos fiber. See Note 19.


                                      F-28
<PAGE>


                      INTERNATIONAL SPECIALTY PRODUCTS INC.


            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-- (CONTINUED)



NOTE 9.  ACQUISITIONS

    On October 15, 1999, the Company acquired substantially all of the assets of
the Kelco  Alginates  division  of  Monsanto  Company,  including  manufacturing
facilities in San Diego, California and Girvan, Scotland, a research facility in
Tadworth,  England and equity  investments  in three  seaweed  processing  joint
ventures in Ireland,  Iceland and Tasmania.  The alginates business manufactures
sodium alginate,  propylene glycol alginate and other alginate derivatives.  The
results of the alginates  business,  including  sales of $12.8 million for 1999,
are  included  in the  Company's  financial  statements  from  the  date  of its
acquisition and were not material to 1999 operations.

    On June 7, 2001, the Company  completed the acquisition of substantially all
of the assets of FineTech Ltd. ("FineTech"),  a pharmaceutical  research company
based in Haifa,  Israel.  FineTech  specializes  in the  design  of  proprietary
synthetic routes and methodologies  used in the production of highly complex and
valuable organic compounds for the pharmaceutical  industry. The acquisition was
accounted for under the purchase method of accounting. Accordingly, the purchase
price was  allocated  to the  estimated  fair value of the  identifiable  assets
acquired,  including  $9.5  million  of  intangible  assets,  and the excess was
recorded as goodwill,  pending management's  valuation of the fair values of the
net assets acquired as of the date of  acquisition.  The results of the FineTech
business, including sales of $2.2 million in 2001, are included in the Company's
results  from  the  date  of its  acquisition  and  were  not  material  to 2001
operations.

    On December 31, 2001, the Company's  wholly owned  subsidiary,  ISP (Canada)
Inc.  completed the acquisition of the industrial  biocides  business of Degussa
Corporation.   The  industrial  biocides  business   manufactures   FUNGITROL(R)
fungicides, NUOSEPT(R) preservativES,  NUOCIDE(R) fungicides and algaecides, and
BIOTREND(R)  biocides.  The  acquisition  was  accounted  for under the purchase
method of  accounting.  Accordingly,  the  purchase  price was  allocated to the
estimated fair value of the identifiable assets acquired, including $6.3 million
of  intangible  assets,  and  the  excess  was  recorded  as  goodwill,  pending
management's  valuation of the fair values of the net assets  acquired as of the
date of  acquisition.  The results of the industrial  biocides  business will be
included  in the  Company's  results  from  the  date of its  acquisition.  This
business had sales of approximately $27 million in 2001.


NOTE 10.  SALE OF ACCOUNTS RECEIVABLE

    In October  2001,  the Company  entered into a new agreement for the sale of
its domestic  receivables,  under which the company  sells  certain of its trade
accounts  receivable  without  recourse.  This  agreement  replaces the previous
agreement which  terminated in October 2001. The new agreement has a termination
date of October  2004 and  provides  for up to $40.0  million in cash to be made
available to the Company based on eligible receivables  outstanding from time to
time. The excess of accounts  receivable sold over the net proceeds  received is
included in  "Accounts  receivable,  other." The  effective  cost to the Company
varies with LIBOR or  commercial  paper  rates and is included in "Other  income
(expense),  net" and amounted to $2.5,  $2.3 and $1.9 million in 1999,  2000 and
2001, respectively.


NOTE 11.  INVENTORIES

    Inventories comprise the following:

                                                  DECEMBER 31,
                                          ---------------------------
                                            2000               2001
                                          --------           --------
                                                  (THOUSANDS)
Finished goods ........................   $ 93,356           $119,124
Work-in-process .......................     29,022             37,332
Raw materials and supplies ............     28,570             34,126
                                          --------           --------
Inventories ...........................   $150,948           $190,582
                                          ========           ========

                                      F-29
<PAGE>



                      INTERNATIONAL SPECIALTY PRODUCTS INC.


            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-- (CONTINUED)


NOTE 11.  INVENTORIES -- (CONTINUED)

    At December 31, 2000 and 2001,  $38.7 and $60.1  million,  respectively,  of
domestic  inventories  were valued using the LIFO method.  If the FIFO inventory
method  had been used to value  these  inventories,  they  would  have been $0.1
million lower at December 31, 2000 and $3.7 million higher at December 31, 2001.


NOTE 12.  PROPERTY, PLANT AND EQUIPMENT

    Property, plant and equipment, net, comprises the following:



                                                        DECEMBER 31,
                                                  --------------------------
                                                   2000              2001
                                                  --------          --------
                                                        (THOUSANDS)
Land and land improvements .................    $ 78,236           $ 80,594
Buildings and building equipment ...........     105,279            111,347
Machinery and equipment ....................     630,751            689,132
Construction in progress ...................      60,326             45,592
                                               ----------          --------
  Total ....................................     874,592            926,665
Less accumulated depreciation ..............    (311,619)          (365,821)
                                               ----------          --------
Property, plant and equipment, net .........   $ 562,973           $560,844
                                               ==========          ========

    See Note 19 for information regarding capital leases.


NOTE 13.  LONG-TERM DEBT AND LINES OF CREDIT

    Long-term debt comprises the following:




                                                          DECEMBER 31,
                                                  ----------------------------
                                                      2000             2001
                                                  -----------       ----------
                                                           (THOUSANDS)
9 3/4% Senior Notes due February 2002 ...........    $199,871       $       --
9% Senior Notes due October 2003 ................     324,638          307,858
Senior Credit Facilities: .......................
  Term loan expiring June 2008 ..................          --          223,875
  Revolving credit facility .....................     196,000           95,250
10 5/8% Senior Secured Notes due 2009 ...........          --          200,000
10 1/4% Senior Subordinated Notes due 2011 ......          --          402,536
Obligation on mortgaged property, due January 2001     28,125               --
Obligations under capital leases (Note 19) ......         533              271
Other ...........................................          32               32
                                                    ---------       ----------
  Total long-term debt ..........................     749,199        1,229,822
Less current maturities .........................    (224,419)        (310,265)
                                                    ---------       ----------
Long-term debt less current maturities ..........    $524,780       $  919,557
                                                    =========       ==========

    On June 27,  2001,  ISP Chemco and three of its  wholly  owned  subsidiaries
jointly  issued  $205.0  million  aggregate  principal  amount of 10 1/4% Senior
Subordinated  Notes due 2011 (the  "2011  Notes").  The net  proceeds  of $197.3
million,  after  discount  and fees,  were  placed in a  restricted  cash escrow
account and used to retire the Company's 9 3/4% Senior Notes due 2002 (the "2002
Notes").  During the third quarter of 2001, the Company retired $19.9 million of
the 2002 Notes,  and the remaining $180.0 million of the 2002 Notes were retired
on or prior to October 15,  2001.  On July 31,  2001,  ISP Chemco and those same
three wholly owned  subsidiaries  jointly  issued an additional  $100.0  million
aggregate principal amount of the 2011 Notes. These notes have the same


                                      F-30
<PAGE>


                      INTERNATIONAL SPECIALTY PRODUCTS INC.


                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-- (CONTINUED)





NOTE 13.  LONG-TERM DEBT AND LINES OF CREDIT -- (CONTINUED)

terms as the 2011  Notes  issued  in June  2001.  The net  proceeds  were  $98.9
million,  including  $0.9 million of accrued  interest from June 27, 2001 to the
date of issuance, of which $98.0 million were placed in a restricted cash escrow
account and used to retire a portion of the  Company's  9% Senior Notes due 2003
(the "2003 Notes").

    On  November  13,  2001,  ISP  Chemco  and those  same  three  wholly  owned
subsidiaries  jointly issued an additional  $100.0 million  aggregate  principal
amount of the 2011  Notes.  These  notes  have the same  terms as the 2011 Notes
issued in June 2001 except with  respect to  interest  accrual and  registration
rights.  The net proceeds of $101.0  million  were placed in a  restricted  cash
escrow  account  and used to retire a portion  of the 2003  Notes.  The  Company
retired $16.9 million  aggregate  principal amount of the 2003 Notes in 2001. On
January 14, 2002, the Company  redeemed the remaining  $307.9 million  aggregate
principal  amount of the 2003  Notes.  The  Company  will  record  an  after-tax
extraordinary  charge of $4.7 million in the first quarter of 2002 in connection
with this redemption.

    The 2011 Notes are guaranteed by substantially  all of ISP Chemco's domestic
subsidiaries.  The 2011 Notes were issued under an indenture which,  among other
things,  limits  the  ability of ISP  Chemco  and its  subsidiaries,  except its
accounts  receivable  subsidiary and certain immaterial  subsidiaries,  to incur
additional debt,  issue preferred stock,  incur liens, and pay dividends or make
certain other restricted payments and restricted investments.

    In a related transaction, ISP Chemco and its three subsidiaries which issued
the 2011 Notes also entered  into $450.0  million of new senior  secured  credit
facilities (the "Senior Credit Facilities"),  the initial borrowings under which
were used to repay  amounts  outstanding  under the  Company's  previous  credit
facility.  The Senior Credit  Facilities  are comprised of a $225.0 million term
loan with a  maturity  of seven  years  and a $225.0  million  revolving  credit
facility  which will  terminate in five years.  The  revolving  credit  facility
includes a  borrowing  capacity  not in excess of $50.0  million  for letters of
credit. All borrowings under the Senior Credit Facilities are based on either an
alternate base rate (based on the banks' base rate or on the federal funds rate)
or on the eurodollar rate plus a margin based on the ratio of ISP Chemco's total
consolidated  debt to EBITDA (as defined in the Senior Credit  Facilities).  The
average interest rate at December 31, 2001 on borrowings under the Senior Credit
Facilities  was 5.3%.  The Senior  Credit  Facilities  require  compliance  with
various financial covenants,  including a total debt leverage maintenance ratio,
a senior debt  leverage  maintenance  ratio,  an interest  coverage  ratio and a
minimum   adjusted  net  worth.  At  December  31,  2001,  ISP  Chemco  and  its
subsidiaries  were in compliance with these covenants.  As of December 31, 2001,
$95.3  million  of  borrowings  and $5.6  million  of  letters  of  credit  were
outstanding under the revolving credit facility. In addition,  the Senior Credit
Facilities  limit the  ability of ISP Chemco  and its  subsidiaries,  except its
accounts  receivable  subsidiary and certain immaterial  subsidiaries,  to incur
additional debt,  issue preferred stock,  incur liens, and pay dividends or make
certain other  restricted  payments and restricted  investments.  ISP Chemco and
substantially all of its domestic  subsidiaries are designated as obligors under
the Senior Credit  Facilities.  The obligations of the obligors under the Senior
Credit  Facilities are secured by a first-priority  security interest in 100% of
the capital stock of ISP Chemco's  domestic subsidiaries  and 66% of the capital
stock of some of ISP Chemco's foreign subsidiaries, and substantially all of the
real and personal  property of the obligors,  except for the Company's  accounts
receivable subsidiary and certain immaterial subsidiaries.

    On December 13, 2001,  Holdings  issued $200.0 million  principal  amount of
10 5/8% Senior Secured Notes due 2009 (the "2009  Notes"). The net proceeds from
this issuance were  approximately  $194.3 million,  of which $125.7 million were
placed in a restricted cash escrow account and used to retire the remaining 2003
Notes on January 14, 2002.  The 2009 Notes are secured by a first  priority lien
on all of the  outstanding  capital  stock of ISP  Chemco.  The 2009  Notes  are
structurally subordinated to all liabilities of Holdings' subsidiaries. The 2009
Notes were issued  under an  indenture  which,  among other  things,  limits the
ability of Holdings and its subsidiaries,  except unrestricted subsidiaries,  to
incur additional debt, issue preferred stock, incur liens, and pay dividends or


                                      F-31
<PAGE>



                      INTERNATIONAL SPECIALTY PRODUCTS INC.


                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-- (CONTINUED)





NOTE 13.  LONG-TERM DEBT AND LINES OF CREDIT -- (CONTINUED)

make certain other restricted payments and restricted investments. ISP Investco,
its  subsidiaries,  the Company's  accounts  receivable  subsidiary  and certain
immaterial subsidiaries have been designated as unrestricted  subsidiaries under
the indenture related to the 2009 Notes.

    In October 1996,  the Company  issued $325 million  principal  amount of the
2003 Notes. As discussed above, the Company redeemed the remaining 2003 Notes on
January 14, 2002.

    Borrowings by the Company's  subsidiaries,  including those under the Senior
Credit Facilities, are subject to the application of certain financial covenants
contained in such agreement and in the indentures  relating to the 2009 and 2011
Notes.  As of December 31, 2001, the Company's  subsidiaries  were in compliance
with  such  covenants,  and the  application  of such  covenants  would not have
restricted available borrowings under the Senior Credit Facilities.

    The Senior Credit Facilities and the indentures  governing the 2009 and 2011
Notes contain additional  affirmative and negative  covenants  affecting some of
the  Company's   subsidiaries,   including  restrictions  on  transactions  with
affiliates,  sale-leaseback  transactions,  mergers  and  transfers  of  all  or
substantially all of those subsidiaries' assets. Additionally,  in the event the
holders  of the 2009 Notes  were to  foreclose  on ISP  Chemco's  capital  stock
following an event of default  under those notes,  the sale of the capital stock
would  constitute  a change  of  control  of ISP  Chemco.  Under  the  indenture
governing  the 2011  Notes,  if a change of control of ISP  Chemco  occurs,  ISP
Chemco is  obligated  to make an offer to  repurchase  the 2011 Notes from their
respective holders. The terms of the Senior Credit Facilities, however, prohibit
the repayment of the 2011 Notes in that event, unless and until such time as the
indebtedness  under the Senior Credit  Facilities is repaid in full.  Failure to
make such repayment upon a change of control would result in a default under the
2011  Notes.  A change of control of ISP Chemco  would also  result in a default
under  the  Senior  Credit  Facilities.  In the  event of a  default  under  the
indenture  governing the 2011 Notes or under the Senior Credit  Facilities,  the
holders of the 2011 Notes or the lenders under the Senior Credit Facilities,  as
the case may be, could elect to accelerate the maturity of all the 2011 Notes or
the loans under the Senior Credit Facilities. Those events could have a material
adverse effect on the Company's financial condition and results of operations.

    At December 31, 2000, the Company had a $28.1 million mortgage obligation on
its headquarters property. This mortgage was repaid in January 2001. Interest on
the mortgage was at a floating rate based on LIBOR.

    The Company  believes  that the fair value of its  non-public  variable rate
indebtedness  approximates  the book  value  of such  indebtedness  because  the
interest  rates on such  indebtedness  are at floating  short-term  rates.  With
respect to the  Company's  publicly  traded  debt  securities,  the  Company has
obtained  estimates  of fair values from an  independent  source  believed to be
reliable. The estimated fair value of the 2002 Notes as of December 31, 2000 was
$165.9  million,  the estimated  fair value of the 2003 Notes as of December 31,
2000 and 2001 was $246.7 and $312.5  million,  respectively,  and the  estimated
fair  value of the 2009  Notes and the 2011 Notes as of  December  31,  2001 was
$200.3 and $418.6 million, respectively.

    The aggregate  maturities of long-term  debt as of December 31, 2001 for the
next five years are as follows:

                                                               (THOUSANDS)
                                                           -------------------
    2002 ................................................      $310,265
    2003 ...............................................          2,390
    2004 ...............................................          2,253
    2005 ...............................................          2,252
    2006 ...............................................        149,812


                                      F-32
<PAGE>



                      INTERNATIONAL SPECIALTY PRODUCTS INC.


            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-- (CONTINUED)



NOTE 13.  LONG-TERM DEBT AND LINES OF CREDIT -- (CONTINUED)

    In the above table,  maturities  in 2002 include the $307.9  million of 2003
Notes which were redeemed on January 14, 2002,  based on their accreted value as
of December 31, 2001. Maturities in 2006 include the $95.3 million of borrowings
outstanding under the revolving credit facility,  based on the expiration of the
revolving credit facility in June 2006, and $54.6 million of maturities relating
to the term loan under the Senior Credit Facilities.  Maturities for each of the
years 2002 through 2005 include $2.3 million of maturities relating to such term
loan.

    At December 31, 2001, the Company's foreign subsidiaries had total available
short-term lines of credit aggregating $2.8 million,  of which $2.7 million were
unused.  Short-term  borrowings  at December 31, 2000 were $143.7  million.  The
weighted-average   interest  rate  on  those  borrowings  was  7.0%.  Short-term
borrowings at December 31, 2001 were not significant.

NOTE 14.  BENEFIT PLANS

    Eligible,  full-time employees of the Company are covered by various benefit
plans, as described below.


  DEFINED CONTRIBUTION PLAN

    The Company provides a defined contribution plan for eligible employees. The
Company contributes up to 7% of participants' compensation (any portion of which
can be contributed,  at the  participants'  option, in the form of the Company's
common stock), and also contributes fixed amounts,  ranging from $50 to $750 per
year depending on age, to the accounts of participants  who are not covered by a
Company-provided    postretirement   medical   benefit   plan.   The   aggregate
contributions by the Company were $8.1, $7.7 and $7.3 million for 1999, 2000 and
2001, respectively.


  DEFINED BENEFIT PLANS

    The Company provides a noncontributory  defined benefit  retirement plan for
certain hourly  employees in the United States (the "Hourly  Retirement  Plan").
Benefits  under this plan are based on stated  amounts for each year of service.
The Company's funding policy is consistent with the minimum funding requirements
of ERISA.

    ISP  Marl  GmbH,  a wholly  owned  subsidiary  of the  Company,  provides  a
noncontributory  defined  benefit  retirement  plan for its hourly and  salaried
employees  (the "ISP Marl Plan").  Benefits under this plan are based on average
earnings over each employee's career with the Company.

    The Company's net periodic  pension cost (income) for the Hourly  Retirement
Plan and the ISP Marl Plan included the following components:


                             HOURLY RETIREMENT PLAN         ISP MARL PLAN
                            ------------------------   ------------------------
                              YEAR ENDED DECEMBER 31,    YEAR ENDED DECEMBER 31,
                            ------------------------   ------------------------
                             1999     2000     2001     1999     2000     2001
                            ------   ------   ------   ------    -----    ----
                                                 (THOUSANDS)
Service cost .............  $  310  $   247  $   247     $176     $ 99     $133
Interest cost ............   1,678    1,811    1,932      236      132      220
Expected return on
  plan assets ............  (2,314)  (2,633)  (3,084)      --       --       --
Amortization of
  actuarial losses .......     215       40       36       12       --       --
Amortization of
 unrecognized
  prior service cost .....     174      190      190       11        7        8
                            ------  -------  -------    -----     ----     ----
Net periodic pension
   cost (income) .........  $   63  $  (345) $  (679)    $435     $238     $361
                            ======  =======  =======    =====     ====     ====

                                      F-33

<PAGE>

                      INTERNATIONAL SPECIALTY PRODUCTS INC.


                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-- (CONTINUED)





NOTE 14.  BENEFIT PLANS -- (CONTINUED)

    The following tables set forth, for the years 2000 and 2001, reconciliations
of the beginning and ending  balances of the benefit  obligation,  fair value of
plan assets,  funded status and amounts  recognized in the Consolidated  Balance
Sheets related to the Hourly Retirement Plan and the ISP Marl Plan:

                                     HOURLY RETIREMENT PLAN    ISP MARL PLAN
                                     ---------------------  -------------------
                                           DECEMBER 31,        DECEMBER 31,
                                       ------------------   --------------------
                                         2000      2001       2000        2001
                                       --------  --------   --------     ------
                                                      (THOUSANDS)
Change in benefit obligation:
  Benefit obligation at
    beginning of year ................   $23,429  $25,406    $ 3,796    $ 3,165
  Service cost .......................       247      247         99        133
  Interest cost ......................     1,811    1,932        132        220
  Plan amendments ....................       236       --         --         --
  Actuarial (gains) losses ...........     1,028    1,707       (862)       128
  Benefits paid ......................    (1,345)  (1,416)        --         --
                                       ---------- --------   -------    -------
  Benefit obligation at end of year       25,406   27,876      3,165      3,646
                                       ---------  --------   -------    -------
Change in plan assets:
  Fair value of plan assets
  at beginning of year ...............    23,661   28,132        --          --
  Actual return on plan assets .......     3,959    2,467        --          --
  Employer contributions .............     1,857    1,308        --          --
  Benefits paid ......................    (1,345)  (1,416)       --          --
                                       ---------  --------   -------    -------
  Fair value of plan assets at
    end of year ......................    28,132   30,491        --          --
                                       ---------  --------   -------    -------
Reconciliation of funded status:
  Funded status ......................     2,726    2,615     (3,165)    (3,646)
  Transition obligation ..............        --       --         96        123
  Unrecognized prior service cost ....     1,109      919         --         --
  Unrecognized actuarial (gains) losses    2,299    4,587        (64)       110
                                       --------- --------    -------    -------
Net amount recognized in
 Consolidated Balance Sheets
  as (accrued) prepaid benefit cost ..   $ 6,134  $ 8,121    $(3,133)   $(3,413)
                                       ========= ========    =======    =======

    In  determining  the  projected  benefit  obligation,  the  weighted-average
assumed discount rate was 7.50% and 7.25% for 2000 and 2001,  respectively,  for
the Hourly  Retirement  Plan,  and was 6.5% for each year for the ISP Marl Plan.
The  expected  long-term  rate of  return on  assets,  used in  determining  net
periodic pension cost (income) for the Hourly  Retirement Plan, was 11% for 2000
and 2001 and was 7% for each year for the ISP Marl Plan.

    The Company also provides a nonqualified defined benefit retirement plan for
certain key  employees.  Expense  accrued for this plan was $0.9,  $1.2 and $0.7
million for 1999, 2000 and 2001, respectively.

    In connection with the Company's  Supplemental Executive Retirement Plan and
postretirement  medical and life  insurance  plan, the Company owns certain life
insurance  policies  with a face value of $98.9  million at December  31,  2001.
These policies had a cash surrender value of $38.3 and $41.4 million at December
31, 2000 and 2001,  respectively,  and policy loans of $36.8 and $39.7  million,
respectively.  The net cash  surrender  value at December  31, 2000 and 2001 was
$1.5 and $1.7 million, respectively, and is included in "Other assets."

                                      F-34

<PAGE>


                      INTERNATIONAL SPECIALTY PRODUCTS INC.


            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-- (CONTINUED)





NOTE 14.  BENEFIT PLANS -- (CONTINUED)


  POSTRETIREMENT MEDICAL AND LIFE INSURANCE

    The  Company  generally  does not  provide  postretirement  medical and life
insurance  benefits,  although it subsidizes such benefits for certain employees
and certain retirees. Such subsidies were reduced as of January 1, 2000.

    The  net  periodic   postretirement  benefit  cost  included  the  following
components:

                                                    YEAR ENDED DECEMBER 31,
                                                  ---------------------------
                                                    1999     2000      2001
                                                  -------  --------   -------
                                                           (THOUSANDS)
Service cost ...................................   $   7     $ 109     $ 123
Interest cost ..................................     608       576       679
Amortization of actuarial loss ................       --        --        64
Amortization of unrecognized prior service cost     (179)     (284)     (284)
                                                   -----     -----     -----
Net periodic postretirement benefit cost ......    $ 436     $ 401     $ 582
                                                   =====     =====     =====

    The following table sets forth, for the years 2000 and 2001, reconciliations
of the beginning and ending balances of the postretirement  benefit  obligation,
funded status and amounts recognized in the Consolidated  Balance Sheets related
to postretirement medical and life insurance benefits:

                                                               DECEMBER 31,
                                                           ---------------------
                                                             2000         2001
                                                           -------      --------
                                                               (THOUSANDS)
Change in benefit obligation:
  Benefit obligation at beginning of year ..............   $ 7,640      $ 8,168
  Service cost .........................................       109          123
  Interest cost ........................................       576          679
  Effect of plan amendments ............................    (1,750)          --
  Actuarial losses .....................................     2,051        1,356
  Benefits paid, net of participant contributions ......      (458)        (565)
                                                           -------      -------
  Benefit obligation at end of year ....................     8,168        9,761
                                                           -------      -------

Change in plan assets:
  Fair value of plan assets at beginning of year .......        --           --
  Employer contributions ...............................       458          565
  Benefits paid, net of participant contributions ......      (458)        (565)
                                                           -------      -------
 Fair value of plan assets at end of year .............         --           --
                                                           -------      -------

Reconciliation of funded status:
  Funded status ........................................    (8,168)      (9,761)
  Unrecognized prior service cost ......................    (2,440)      (2,157)
  Unrecognized actuarial losses ........................       842        2,135
                                                           -------      -------
    Net amount recognized in Consolidated
     Balance Sheets as accrued
      benefit cost .....................................   $(9,766)     $(9,783)
                                                           =======      =======

    For  purposes  of  calculating   the  accumulated   postretirement   benefit
obligation,  the following  assumptions  were made.  Retirees as of December 31,
2001 who were formerly salaried employees (with certain exceptions) were assumed
to receive a Company  subsidy of $400 to $1,000 per year.  For retirees over age
65, this subsidy may be replaced by  participation  in a managed  care  program.
With respect to retirees who were formerly hourly



                                      F-35

<PAGE>


                      INTERNATIONAL SPECIALTY PRODUCTS INC.


            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-- (CONTINUED)





NOTE 14.  BENEFIT PLANS -- (CONTINUED)

employees,  most such  retirees  are  subject to a $5,000  per  person  lifetime
maximum benefit.  Subject to such lifetime  maximum,  a 9% and 6% annual rate of
increase in the  Company's per capita cost of providing  postretirement  medical
benefits  was  assumed  for  2001  for  such  retirees  under  and  over age 65,
respectively.  To the extent that the lifetime  maximum  benefits  have not been
reached,  the foregoing rates were assumed to decrease  gradually to an ultimate
rate of 5% and 6%,  respectively,  by the year  2009 and  remain  at that  level
thereafter.  The weighted-average  assumed discount rate used in determining the
accumulated  postretirement  benefit obligation was 7.50% and 7.25% for 2000 and
2001, respectively.

    The  health  care cost trend rate  assumption  has an effect on the  amounts
reported. To illustrate,  increasing the assumed health care cost trend rates by
one percentage point in each year would increase the accumulated  postretirement
benefit  obligation  as of December  31, 2000 and 2001 by $156,000  and $25,000,
respectively,  and the aggregate of the service and interest cost  components of
the net  periodic  postretirement  benefit  cost for the years  2000 and 2001 by
$11,000 and $2,000,  respectively.  A decrease of one  percentage  point in each
year would  decrease the  accumulated  postretirement  benefit  obligation as of
December  31,  2000 and 2001 by  $138,000  and  $22,000,  respectively,  and the
aggregate  of the service  and  interest  cost  components  of the net  periodic
postretirement  benefit  cost for the years 2000 and 2001 by $10,000 and $2,000,
respectively.


NOTE 15.  STOCK OPTION AND AWARD PLANS, LONG TERM INCENTIVE PLAN AND
STOCK APPRECIATION RIGHTS

    The 1991  Incentive  Plan for Key Employees and  Directors,  as amended (the
"1991  Plan"),  authorized  the  grant of  options  to  purchase  a  maximum  of
13,000,000  shares of the Company's common stock. The Compensation  Committee of
the Board of Directors  (the  "Committee")  determined  the  exercise  price and
vesting  schedule of options  granted under the 1991 Plan. In 1995 through 1999,
the Company  granted  options to certain  employees  to purchase an aggregate of
3,217,020  shares of the Company's  common stock at exercise prices ranging from
$.625 to $5.625 below the fair market value of such shares on the date of grant.
The  difference  between the  exercise  price and the fair market  value of such
shares on the date of grant is being recognized as compensation expense over the
vesting  period of 2 1/2 to 5 years.  Compensation  expense for such options was
$0.8,  $0.5 and $0.6  million in 1999,  2000 and 2001,  respectively.  All other
employee options granted under the 1991 Plan have a term of nine years,  have an
exercise  price  equal to the fair  market  value of such  shares on the date of
grant and become  exercisable at a rate  determined by the Committee at the time
of grant.  Special  vesting  rules  apply to  options  granted  to  non-employee
directors.  The 1991 Plan expired in accordance with its terms in June 2000, and
no additional options will be granted under the 1991 Plan.

    Effective July 1, 2000,  the Company  adopted the 2000 Stock Option Plan for
Non-Employee  Directors (the "2000 Plan"), which was approved by stockholders in
May 2001. The 2000 Plan authorizes the grant of options to purchase a maximum of
200,000  shares  of the  Company's  common  stock.  Under  the 2000  Plan,  each
non-employee  director is granted a non-qualified stock option to purchase 5,000
shares of common stock (the "Initial Option") on the date such person becomes an
eligible  director  and an  additional  non-qualified  option to purchase  3,000
shares of common stock (an "Additional  Option") on each anniversary of the date
of grant of the Initial  Option.  The term of each option granted is nine years.
Initial Options are subject to a three-year  vesting  period,  commencing on the
first anniversary of the date of grant, and Additional  Options are subject to a
one-year vesting period,  becoming  exercisable in full on the first anniversary
of the date of grant.  The  exercise  price of the  options is equal to the fair
market  value of such  shares on the date of grant.  During  2000 and 2001,  the
Company  granted 15,000 and 19,000 options,  respectively,  pursuant to the 2000
Plan, of which 28,000 options were outstanding at December 31, 2001.



                                      F-36
<PAGE>





                      INTERNATIONAL SPECIALTY PRODUCTS INC.


            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-- (CONTINUED)





NOTE 15.  STOCK OPTION AND AWARD PLANS, LONG TERM INCENTIVE PLAN AND
STOCK APPRECIATION RIGHTS -- (CONTINUED)

    The  Company has elected  the  disclosure-only  provisions  of SFAS No. 123,
"Accounting  for Stock-Based  Compensation,"  and applies APB Opinion No. 25 and
related  interpretations  in  accounting  for the 1991  Plan  and the 2000  Plan
(collectively,   the   "Plans").   If  the  Company  had  elected  to  recognize
compensation  cost  based on the fair  value of awards  under the Plans at grant
dates,  the Company's  pro forma net income (loss) for the years 1999,  2000 and
2001 would have been  $71.2,  $91.8 and $(1.3)  million,  respectively,  and pro
forma basic earnings  (loss) per share would have been $1.04,  $1.35 and $(.02),
respectively.  The SFAS No. 123  method of  accounting  has not been  applied to
options  granted  prior  to  January  1,  1995,  and  the  resulting  pro  forma
compensation expense may not be indicative of pro forma expense in future years.

    The fair value of the Company's  stock options used to compute pro forma net
income and  earnings  per share is the  estimated  present  value at the date of
grant  using  the   Black-Scholes   option-pricing   model  with  the  following
weighted-average assumptions:  risk-free interest rate of 6%; expected life of 6
years; expected volatility of 24%; and dividend yield of 0%.

    The following is a summary of transactions pertaining to the Plans:

                           YEAR ENDED         YEAR ENDED         YEAR ENDED
                        DECEMBER 31, 1999  DECEMBER 31, 2000  DECEMBER 31, 2001
                      -------------------- ----------------  -------------------
                                WEIGHTED           WEIGHTED           WEIGHTED
                                 AVERAGE            AVERAGE            AVERAGE
                        SHARES  EXERCISE   SHARES  EXERCISE   SHARES  EXERCISE
                        (000'S)   PRICE    (000'S)   PRICE    (000'S)   PRICE
                       -------  --------  -------  --------  --------  --------
Outstanding, January 1   6,989   $12.06     8,028   $10.93     4,625   $10.50
Granted ..............   3,468     9.47        20     6.12        19     8.68
Exercised ............    (292)    7.03       (87)    6.40      (208)    7.17
Exchanged for Incentive
  Plan Units..........      --       --    (2,033)   10.94        --       --
Forfeited ............  (2,137)   12.78    (1,303)   11.62      (570)   11.71
                       -------            -------            ------
Outstanding,
 December 31 .........   8,028    10.93     4,625    10.50     3,866    10.49
                       =======            =======            =======
Options exercisable,
  December 31 ........   3,162    10.81     2,669    10.24     3,158    10.48
                       =======            =======            =======

    Based on calculations  using the  Black-Scholes  option-pricing  model,  the
weighted-average  fair value of options granted in 1999, 2000 and 2001 under the
Plans for which the exercise  price equaled the fair market value of such shares
on the date of grant was  $2.91,  $1.81 and $4.06 per share,  respectively,  and
such  weighted-average  fair  value of  options  granted  in 1999 for  which the
exercise price was less than the fair market value of such shares on the date of
grant was $5.64;  all options  granted in 2000 and 2001 were at exercise  prices
equal to the fair market value at the date of grant.



                                      F-37

<PAGE>


                      INTERNATIONAL SPECIALTY PRODUCTS INC.


            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-- (CONTINUED)





NOTE 15.  STOCK OPTION AND AWARD PLANS, LONG TERM INCENTIVE PLAN AND
STOCK APPRECIATION RIGHTS -- (CONTINUED)

    The  following is a summary of the status of stock options  outstanding  and
exercisable under the Plans as of December 31, 2001:

                                  STOCK OPTIONS               STOCK OPTIONS
                                   OUTSTANDING                 EXERCISABLE
                         --------------------------------   -------------------
                                               WEIGHTED
                                    WEIGHTED    AVERAGE               WEIGHTED
                                     AVERAGE   REMAINING               AVERAGE
RANGE OF                   SHARES   EXERCISE  CONTRACTUAL   SHARES    EXERCISE
EXERCISE PRICES            (000'S)    PRICE      LIFE       (000'S)     PRICE
---------------          --------- ---------- -----------   -------   ---------
$ 3.781 - $ 5.875 ......     270     $ 4.69    3.65 years      153     $ 4.83
$ 5.876 - $ 8.938 ......     882       7.47    2.01 years      866       7.46
$ 8.939 - $13.313 ......   2,031      10.84    5.29 years    1,609      11.00
$13.314 - $18.625 ......     683      15.64    5.45 years      530      15.50
                          ------                            ------
Total .................    3,866      10.49    4.45 years    3,158      10.48
                          ======                            ======

    In February 2000, the Company adopted the 2000 Long Term Incentive Plan (the
"Incentive  Plan"),  which  authorizes the grant of incentive units  ("Incentive
Units") to eligible Company employees. The Incentive Plan is administered by the
Committee, which in its sole discretion determines the number of Incentive Units
to be granted to each employee. Generally, Incentive Units vest cumulatively, in
20% increments over five years, or in 10% increments  every six months over five
years.  The value of  Incentive  Units is  determined  at the end of each fiscal
quarter  based  on  total  Stockholders'  Equity  (excluding  accumulated  other
comprehensive income and losses) divided by total common shares outstanding. The
Incentive  Plan will  terminate  five years after its effective date of February
2000, unless terminated sooner by the Committee.

    In 2000, employees exchanged an aggregate of 2,032,994 stock options granted
under the 1991 Plan  (discussed  above) for an aggregate of 1,508,062  Incentive
Units.  An additional  2,052,725  Incentive  Units were granted  during 2000. At
December  31,  2000,  3,342,049  Incentive  Units  were  outstanding.  In  2001,
1,272,751 Incentive Units were granted,  and as of December 31, 2001,  4,206,614
Incentive Units were outstanding.  Compensation expense for such Incentive Units
was $2.0 and $3.8 million in 2000 and 2001, respectively.

    In 2000  and  2001,  the  Company  issued  restricted  stock  awards  to two
executives for 230,000 and 20,000 shares, respectively,  of the Company's common
stock pursuant to individual plan agreements. Such shares were issued subject to
certain conditions with respect to transfer and other restrictions as prescribed
by the plans.  The  restricted  shares vest over a period of four to five years.
Upon the issuance of the restricted shares, unearned compensation, equivalent to
the market  price of the shares on the date of grant,  in the amount of $1.3 and
$0.2 million in 2000 and 2001, respectively, was charged to Stockholders' Equity
and is being amortized to compensation expense as the shares vest.  Compensation
expense in 2001 related to these  restricted  shares was $0.3  million.  Also in
2000 and 2001, the Company  granted two executives  stock bonus awards  totaling
75,000 and 13,055 shares,  respectively,  of the Company's  common stock and, in
connection with such awards and the vesting of the restricted stock awards, also
made loans totaling $167,000 and $160,000,  respectively,  to such executives to
enable them to satisfy  certain  withholding  tax  obligations.  These loans are
evidenced by recourse  promissory  notes that bear interest at the rate of 6.45%
per annum.  The loans in 2000 for $167,000  were repaid on April 15,  2001.  The
loans in 2001 for $160,000  were  converted to demand notes with interest at the
Applicable  Federal  Rate for  Short  Term  Instruments.  The value of the stock
awards on the date of issuance,  totaling $455,000 and $100,000,  was charged to
compensation expense in 2000 and 2001,  respectively.  The excess of the cost of
the treasury stock issued over the market value of the shares on the date of the
awards, totaling $275,000 and $18,000,  respectively,  and the loans of $167,000
and $160,000, were reflected as reductions of "Additional paid-in capital."


                                      F-38
<PAGE>



                      INTERNATIONAL SPECIALTY PRODUCTS INC.


            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-- (CONTINUED)





NOTE 15.  STOCK OPTION AND AWARD PLANS, LONG TERM INCENTIVE PLAN AND
STOCK APPRECIATION RIGHTS - (CONTINUED)

    ISP Holdings issued options in 1996 to certain employees to purchase 138,983
shares of ISP  Holdings'  redeemable  convertible  preferred  stock  ("Preferred
Stock"),  exercisable  at a price of $111.44 per share.  Each share of Preferred
Stock was convertible,  at the holder's  option,  into shares of common stock of
ISP Holdings at a formula price based on the sum of the determined  initial Book
Value (as defined)  plus  interest on such Book Value at a specified  rate.  The
options  vested  over seven  years,  subject to earlier  vesting  under  certain
circumstances including in connection with a change of control.

    ISP Holdings also issued stock appreciation  rights ("SARs") in 1996 related
to 27,748 shares of ISP Holdings'  common stock.  The SARs represented the right
to receive a cash payment based upon the  appreciation in value of the specified
number of shares of common stock of ISP Holdings over the sum of the  determined
initial Book Value (as  defined) per share of common stock of ISP Holdings  plus
interest  on such  Book  Value  at a  specified  rate.  The SARs  vested  over a
five-year  period,  subject  to  earlier  vesting  under  certain  circumstances
including in connection with a change of control.

    As a result of the Merger (see Note 1), ISP Holdings' Preferred Stock option
and SAR programs were  terminated,  and the Company charged $7.9 million against
operating income for cash payments made in 1998 for amounts vested at that time.
Additional  expense is being recorded over the remaining vesting period from the
date of the Merger through 2003, including $0.9 million in 1999, $0.4 million in
2000 and $0 in 2001.


NOTE 16.  RELATED PARTY TRANSACTIONS

    Included in the Consolidated Balance Sheets are the following net receivable
balances with related parties,  which arise from operating  transactions between
the Company and its affiliates,  including the sales of mineral products and the
management agreement, as discussed below:

                                                              DECEMBER 31,
                                                        ----------------------
                                                             2000     2001
                                                        ---------- -----------
                                                               (THOUSANDS)
Building Materials Corporation of America ("BMCA") ...     $10,253   $9,301
G-I Holdings ........................................        1,610        2
Other ...............................................         (239)    (294)
                                                         ---------- -----------
Receivable from related parties, net ................      $11,624   $9,009
                                                         ========== ===========

    As  discussed  in Notes 8 and 19, in  January  2001,  G-I  Holdings  filed a
voluntary  petition for reorganization  under Chapter 11 of the U.S.  Bankruptcy
Code  due to its  asbestos-related  claims.  As a  result,  the  Company,  as of
December  31, 2000,  established  a reserve for  doubtful  receivables  from G-I
Holdings of $2.7 million,  representing  $0.6 million of unpaid  management fees
(see below) and $2.1 million of other  payments which the Company made on behalf
of G-I Holdings.

    BMCA,  an  indirect  subsidiary  of G-I  Holdings  and an  affiliate  of the
Company,  and its  subsidiaries  purchase all of their colored roofing  granules
requirements  from the Company  under a  requirements  contract,  except for the
requirements  of certain of their  roofing  plants which are supplied by a third
party.  Effective  January 1, 2002, this contract was extended by the parties to
expire on December  31, 2002.  In 2001,  BMCA and its  subsidiaries  purchased a
total of $63.4 million of mineral products from the Company,  representing  8.1%
of the Company's total net sales and 78.6% of the Company's net sales of mineral
products.  Sales by the Company to BMCA and its  subsidiaries  totaled $57.3 and
$59.3 million for 1999 and 2000, respectively.  The receivable from BMCA and its
subsidiaries  for sales of mineral products as of December 31, 2000 and 2001 was
$7.7 and $8.8 million, respectively.

                                      F-39

<PAGE>



                      INTERNATIONAL SPECIALTY PRODUCTS INC.


            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-- (CONTINUED)





NOTE 16.  RELATED PARTY TRANSACTIONS -- (CONTINUED)

    Pursuant  to  a  management  agreement  (the  "Management  Agreement"),  the
Company,   through  a   subsidiary,   provides   certain   general   management,
administrative,  legal, telecommunications,  information and facilities services
to BMCA.  Charges by the Company for providing  such services  aggregated  $6.1,
$6.1 and $6.8 million for 1999, 2000 and 2001,  respectively,  and are reflected
as reductions of "Selling,  general and  administrative"  expense.  Such charges
consist of management fees and other reimbursable  expenses  attributable to, or
incurred by the Company for the benefit of, the  respective  parties,  which are
based on an estimate of the costs the Company  incurs to provide such  services.
The  receivable  for such  management  fees as of December 31, 2000 and 2001 was
$1.5 and $0.5 million, respectively. The Management Agreement also provides that
the Company pay to a subsidiary  of G-I Holdings  lease  payments for the use of
one of the Company's  sales offices.  Effective  January 1, 2001, the Management
Agreement was amended to extend the term of the agreement  through  December 31,
2002,  to provide for the automatic  extension of the  agreement for  successive
quarterly  periods unless the agreement is terminated by a party,  and to adjust
the  management  fees payable  thereunder.  The Company and BMCA also allocate a
portion of the management fees payable by BMCA under the Management Agreement to
separate  lease  payments  for  the use of  BMCA's  headquarters.  Based  on the
services  provided by the Company in 2001 under the  Management  Agreement,  the
aggregate amount payable to the Company under the Management Agreement for 2002,
net of the lease payments to the  subsidiary of G-I Holdings,  is expected to be
approximately $6.0 million.

    In September  1999,  the Company  granted its President and Chief  Executive
Officer the right to purchase, and such officer purchased, 318,599 shares of its
common  stock held in treasury for a purchase  price of $9.563 per share,  or an
aggregate of $3.047  million.  Pursuant to the purchase  agreement,  the Company
loaned such officer $3.047 million to purchase the shares of common stock, which
loan is  evidenced  by a recourse  demand note with  interest at the  Applicable
Federal Rate for Short Term  Instruments.  The  principal  amount of the note is
payable in four  installments from June 2001 through January 2004.  However,  if
this  officer  remains  continuously   employed  by  the  Company  through  each
installment  date,  the principal  amount due on such  installment  date will be
forgiven.  As the loan is  forgiven,  compensation  expense  is being  recorded,
including $762,000 in the year 2001. The loan balance outstanding,  $2.3 million
at December  31,  2001,  is  reflected  as a reduction  of  "Additional  paid-in
capital". The difference between the market value of the shares issued of $9.563
per  share  and the  average  cost per share in  treasury  of $9.73  per  share,
amounting to $53,000,  was also reflected as a reduction of "Additional  paid-in
capital."


NOTE 17.  BUSINESS SEGMENT INFORMATION

    The Company is a leading  multinational  manufacturer of a broad spectrum of
specialty  chemicals and mineral  products.  In addition to the Mineral Products
business segment,  the Company operates its Specialty Chemicals business through
three reportable  business segments,  organized based upon the markets for their
products and the internal management of the Company, as follows:

    PERSONAL CARE products serve as critical  ingredients in the  formulation of
many well-known skin care, hair care, toiletry and cosmetic products.  Skin care
ingredients  include sunscreen  actives,  waterproofing  agents,  preservatives,
emollients and moisturizers. Hair care ingredients include a number of specially
formulated  fixative  resins  for  hairsprays,  mousses  and  gels,  as  well as
thickeners and stabilizers for shampoos and conditioners.

    PHARMACEUTICAL,   FOOD  AND  BEVERAGE  products  are  sold  to  these  three
government-regulated  industries.  In the  pharmaceutical  market, the Company's
products serve as key ingredients in prescription and over-the-counter  tablets,
injectable prescription drugs and serums, cough syrups, antiseptics, toothpastes
and  denture  adhesives.  The  Company's  food  products  are  comprised  of the
alginates  business  which was  acquired  in  October  1999  (see  Note 9).  The
Company's alginates products are used as stabilizers in many well-known consumer
products. The Company's specialty polymers serve the beverage market by assuring
the clarity and extending the shelf life of beer, wine and fruit juices.



                                      F-40
<PAGE>


                      INTERNATIONAL SPECIALTY PRODUCTS INC.


            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-- (CONTINUED)





NOTE 17.  BUSINESS SEGMENT INFORMATION -- (CONTINUED)

    PERFORMANCE  CHEMICALS,   FINE  CHEMICALS  AND  INDUSTRIAL.   The  Company's
Performance Chemicals business includes  acetylene-based  polymers,  vinyl ether
monomers,  and advanced  materials for  consumer,  agricultural  and  industrial
applications.  The  Company's  acetylene-based  chemistry  produces  a number of
performance  polymers  for use in a wide  range of markets  including  coatings,
agriculture,  imaging,  detergents,  electronics and  metalworking.  The Company
manufactures a broad range of highly  specialized  fine chemicals which are sold
to  the  pharmaceutical,   biotechnology,   agricultural  and  imaging  markets,
including bulk pharmaceuticals, pharmaceutical intermediates, and pheromones for
use in insect  population  measurement  and control.  The  Company's  Industrial
business markets several intermediate and solvent products,  such as butanediol,
tetrahydrofuran  (THF) and N-methyl  pyrrolidone (NMP), which are sold primarily
to industrial markets for use in high performance plastics,  lubricating oil and
chemical processing, electronics cleaning, and coatings.

    MINERAL PRODUCTS.  The Company manufactures  ceramic-coated  colored roofing
granules that are sold primarily to the North American  roofing industry for use
in the production of asphalt roofing shingles.

    The  following  segment data are presented  based on the Company's  internal
management  reporting  system for the four  reportable  business  segments.  The
Company evaluates segment performance based on operating income.  Therefore, the
measure of profit or loss that is reported  to  management  for each  segment is
operating income.  Interest expense, other income items and income taxes are not
allocated to the business segments for management  reporting.  At this time, the
Company's internal management reporting system does not report assets by segment
for  the  three  specialty   chemicals   reportable   segments  (Personal  Care;
Pharmaceutical, Food and Beverage; and Performance Chemicals, Fine Chemicals and
Industrial),  as many of the  Company's  plant assets are utilized by several of
the segments.  Therefore, the following asset-related segment data are presented
only for Specialty Chemicals and Mineral Products.

    Sales of Mineral  Products to BMCA and its  subsidiaries  in 1999,  2000 and
2001 accounted for 65.7%,  82.5% and 78.6%,  respectively,  of the Company's net
sales of Mineral Products,  representing 7.3%, 7.6% and 8.1%,  respectively,  of
the Company's total net sales.  No other customer  accounted for more than 5% of
the Company's total net sales in 1999, 2000 or 2001.


                                      F-41


<PAGE>


                      INTERNATIONAL SPECIALTY PRODUCTS INC.


            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-- (CONTINUED)





NOTE 17.  BUSINESS SEGMENT INFORMATION -- (CONTINUED)
<TABLE>
<CAPTION>
                                                                                             YEAR ENDED DECEMBER 31,
                                                                              -------------------------------------------------
                                                                                    1999          2000                2001
                                                                              -------------  -------------       -------------
                                                                                                     (MILLIONS)
<S>                                                                            <C>             <C>             <C>
Net sales:
  Personal Care .......................................................       $      187.1   $      189.0        $      196.2
  Pharmaceutical, Food and Beverage ...................................              177.3          232.8               234.6
  Performance Chemicals, Fine Chemicals
     and Industrial ...................................................              335.7          290.2               275.7
                                                                              ------------   ------------        ------------
    Total Specialty Chemicals .........................................              700.1          712.0               706.5
  Mineral Products(1) .................................................               87.3           71.9                80.7
                                                                              ------------   ------------        ------------
Net sales .............................................................       $      787.4   $      783.9        $      787.2
                                                                              ============   ============        ============
Operating income(2):
  Personal Care(3) ....................................................       $       47.1   $       33.2        $       34.0
  Pharmaceutical, Food and Beverage ...................................               40.7           48.0                48.5
  Performance Chemicals, Fine Chemicals and Industrial ................               44.0            4.4                18.5
                                                                              ------------   ------------        ------------
    Total Specialty Chemicals .........................................              131.8           85.6               101.0
  Mineral Products ....................................................               16.1            9.4                10.7
                                                                              ------------   ------------        ------------
    Total segment operating income ....................................              147.9           95.0               111.7
  Unallocated corporate office (expenses) income ......................               (1.5)           0.8                 0.4
  (Provision) benefit for restructuring(4) ............................               (0.4)         (14.4)                0.5
                                                                              -------------  ------------        ------------
Total operating income ................................................              146.0           81.4               112.6
Interest expense and other income (expense), net ......................              (69.5)          63.6              (111.6)
                                                                              ------------   ------------        ------------
Income from continuing operations before income taxes .................       $       76.5   $      145.0        $        1.0
                                                                              =============  ============        ============
Assets:
  Specialty Chemicals .................................................       $    1,182.0   $    1,173.3        $    1,251.3
  Mineral Products ....................................................              153.3          152.9               147.5
  General Corporate(5) ................................................              500.0          634.1               773.8
                                                                              -------------  ------------        ------------
Total assets ..........................................................       $    1,835.3   $    1,960.3        $    2,172.6
                                                                              ============   ============        ============
Capital expenditures and acquisitions:
  Specialty Chemicals .................................................       $      101.5   $       53.8        $       95.9
  Mineral Products ....................................................                7.5            4.6                 5.5
                                                                              ------------   ------------        ------------
Total .................................................................       $      109.0   $       58.4        $      101.4
                                                                              ============   ============        ============
Depreciation and amortization of goodwill and intangibles:
  Specialty Chemicals .................................................       $       53.1   $       55.9        $       59.1
  Mineral Products ....................................................               11.4           11.0                10.7
  Unallocated corporate office ........................................                0.4            0.6                 0.5
                                                                              ------------   ------------        ------------
Total .................................................................       $       64.9   $       67.5        $       70.3
                                                                              ============   ============        ============
</TABLE>

-------

(1)  Includes  sales to BMCA and its  subsidiaries  of  $57.3,  $59.3  and $63.4
     million for 1999, 2000 and 2001, respectively.

(2)  Operating  income  for  1999 and 2000  for the  three  Specialty  Chemicals
     business   segments   has  been   reclassified   to  conform  to  the  2001
     presentation, based on a reallocation of certain manufacturing costs.



                                      F-42
<PAGE>


                      INTERNATIONAL SPECIALTY PRODUCTS INC.


            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-- (CONTINUED)





NOTE 17.  BUSINESS SEGMENT INFORMATION -- (CONTINUED)


(3) Personal Care operating  income for the year 1999 includes a pre-tax gain of
    $8.5 million from the sale of the  pearlescent  pigments  product line.  See
    Note 6.

(4) Of the $14.4 million  provision  for  restructuring  in 2000,  $11.9 million
    relates to the Personal  Care business  segment and $2.5 million  relates to
    the Performance  Chemicals,  Fine Chemicals and Industrial business segment.
    Of the $0.5 million reversal of restructuring reserves in 2001, $0.4 million
    relates to the Personal  Care business  segment and $0.1 million  relates to
    the Performance Chemicals, Fine Chemicals and Industrial business segment.

(5) General  Corporate assets primarily  represent the Company's  investments in
    trading and  available-for-sale  securities and other short-term investments
    which,  in 2001,  are held in a  separate  wholly  owned  subsidiary  of the
    Company,  ISP  Investco  Inc.,  for general  corporate  purposes and are not
    allocated to business  segments.  The year 2001 also includes $307.9 million
    of  restricted  cash  which was used to redeem the  remaining  2003 Notes on
    January 14, 2002 (see Note 13).


NOTE 18.  GEOGRAPHIC INFORMATION

    Financial  information  set forth  below for foreign  operations  represents
sales and long-lived  assets  (property,  plant and equipment) of  foreign-based
subsidiaries.  Net sales are  attributed  to countries  based on the location of
customers and reflect the Company's internal management reporting system.

                                                     YEAR ENDED DECEMBER 31,
                                               --------------------------------
                                                   1999      2000      2001
                                                ---------  ---------  ---------
                                                           (MILLIONS)
Net sales:
  North America:
    United States ..............................     $410.5   $389.5   $376.9
    Canada .....................................       16.9     21.1     22.0
                                                -----------  --------  --------
      Total North America ......................      427.4    410.6    398.9
                                                ------------ --------  --------
  Europe:
    Germany ....................................       89.0     73.0     78.6
    United Kingdom .............................       39.8     35.6     33.3
    France .....................................       17.3     19.7     21.5
    Italy ......................................       15.9     14.1     15.8
    Spain ......................................       11.4     11.2     13.0
    Belgium ....................................        5.6     10.5     13.1
    Switzerland ................................        7.7      9.3     11.3
    Other European countries ...................       47.4     54.0     54.0
                                                ------------ --------- --------
      Total Europe .............................      234.1    227.4    240.6
                                                ------------ --------- --------
  Asia-Pacific:
    Japan ......................................       24.7     26.3     27.2
    South Korea ................................        9.3     13.9     16.0
    China ......................................       12.7     15.9      9.2
    Australia ..................................       11.5     10.9     10.2
    Taiwan .....................................        9.6     11.7      8.8
    Other Asia-Pacific countries ...............       21.1     21.6     26.8
                                                ------------ --------- -------
      Total Asia-Pacific .......................       88.9    100.3     98.2
                                                ------------ --------- -------
                                      F-43

<PAGE>

                      INTERNATIONAL SPECIALTY PRODUCTS INC.


            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-- (CONTINUED)





NOTE 18.  GEOGRAPHIC INFORMATION -- (CONTINUED)

                                                     YEAR ENDED DECEMBER 31,
                                                   --------------------------
                                                     1999     2000     2001
                                                   --------  -------   ------
                                                           (MILLIONS)
  Latin America:
    Mexico ....................................        12.3     19.6     19.4
    Brazil ....................................        12.7     16.6     16.4
    Other Latin American countries ............        12.0      9.4     13.7
                                                   --------  -------   ------
      Total Latin America .....................        37.0     45.6     49.5
                                                   --------  -------   ------
Total net sales ...............................      $787.4   $783.9   $787.2
                                                   ========  =======   ======
Property, plant and equipment, net:
  United States ...............................      $496.1   $495.1   $493.9
  Germany .....................................        48.0     43.7     36.9
  United Kingdom ..............................        11.3     11.3     12.1
  All other foreign countries .................        14.8     12.9     17.9
                                                   --------  -------   ------
Total property, plant and equipment, net ......      $570.2   $563.0   $560.8
                                                   ========  =======   ======

    Approximately  52% of the Company's sales in 2001 were in foreign  countries
which are subject to currency exchange rate fluctuation  risks. See Note 2 for a
discussion of the Company's policy to manage these risks.  Certain  countries in
which the Company  has sales are subject to  additional  risks,  including  high
rates of inflation,  exchange  controls,  government  expropriation  and general
instability.


NOTE 19.  COMMITMENTS AND CONTINGENCIES


  ASBESTOS LITIGATION AGAINST G-I HOLDINGS

    In January 2001, G-I Holdings filed a voluntary  petition for reorganization
under Chapter 11 of the U.S. Bankruptcy Code due to its asbestos-related  bodily
injury claims relating to the inhalation of asbestos fiber ("Asbestos  Claims").
Neither the  Company  nor the assets or  operations  of the  Company,  which was
operated as a division of a corporate  predecessor of G-I Holdings prior to July
1986,  have been involved in the manufacture or sale of asbestos  products.  The
Company  believes  that it should  have no legal  responsibility  for damages in
connection with Asbestos Claims.

    The Company has been advised by its Chairman of the Board, Samuel J. Heyman,
that in 2000,  three actions were commenced by creditors or potential  creditors
of G-I  Holdings,  two of which  were  filed  against  Mr.  Heyman and the third
against Mr. Heyman and certain other  stockholders  of G-I Holdings.  Two of the
actions commenced in 2000 were effectively stayed and the third was dismissed as
a result of the G-I Holdings Chapter 11 filing.  In September 2001, the Official
Committee of Unsecured  Creditors of G-I Holdings filed a substantially  similar
action  against Mr. Heyman.  The actions  allege,  among other things,  that the
distribution  by G-I Holdings of the capital  stock of the Company to Mr. Heyman
and  certain  G-I  Holdings  stockholders  in  January  1997  was  without  fair
consideration  and a fraudulent  conveyance.  These  actions  seek,  among other
things,  to set aside such distribution and to require Mr. Heyman and such other
stockholders  to return to G-I Holdings the capital stock of the Company held by
them as well as an unspecified amount of damages. The defendants in such actions
have advised the Company that they believe  these  actions are without merit and
that the defendants intend to vigorously oppose them.  However,  if such actions
were  successful,  the plaintiffs  could seek to undo such  distribution,  which
could result in a change of control of the Company. See Note 13 for a discussion
of the Senior Credit Facilities.

                                      F-44


<PAGE>

                      INTERNATIONAL SPECIALTY PRODUCTS INC.


            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-- (CONTINUED)





NOTE 19.  COMMITMENTS AND CONTINGENCIES -- (CONTINUED)


  ENVIRONMENTAL LITIGATION

    The  Company,  together  with  other  companies,  is a party to a variety of
proceedings  and  lawsuits  involving   environmental  matters   ("Environmental
Claims"),  under  the  Comprehensive  Environmental  Response  Compensation  and
Liability Act, Resource Conservation and Recovery Act and similar state laws, in
which  recovery  is sought  for the cost of  cleanup  of  contaminated  sites or
remedial  obligations are imposed, a number of which Environmental Claims are in
the early stages or have been dormant for protracted periods.

    The Company  estimates that its liability with respect to all  Environmental
Claims  (including  those  relating  to its  closed  Linden,  New  Jersey  plant
described below), and certain other  environmental  compliance  expenses,  as of
December  31,  2001,  is  approximately  $26.6  million,  before  reduction  for
insurance  recoveries  reflected on the  Company's  Consolidated  Balance  Sheet
(discussed  below)  of $21.7  million  that  relate to both  past  expenses  and
estimated future liabilities ("estimated recoveries").  While the Company cannot
predict  whether  adverse  decisions  or events can occur in the future,  in the
opinion of the Company's management,  the resolution of the Environmental Claims
should not be material to the business,  liquidity,  results of operations, cash
flows or  financial  position of the  Company.  However,  adverse  decisions  or
events,  particularly  as to  increases  in  remedial  costs,  discovery  of new
contamination,  assertion of natural resource damages,  plans for development of
the  Linden,   New  Jersey  property,   and  the  liability  and  the  financial
responsibility  of the Company's  insurers and of the other parties  involved at
each site and their  insurers,  could cause the Company to increase its estimate
of its liability in respect of those  matters.  It is not currently  possible to
estimate the amount or range of any additional liability.

    After considering the relevant legal issues and other pertinent factors, the
Company  believes  that it will receive the  estimated  recoveries  and that the
recoveries  could  be in  excess  of the  current  estimated  liability  for all
Environmental  Claims,  although  there can be no assurance in this regard.  The
Company  believes it is entitled to  substantially  full  defense and  indemnity
under  its  insurance  policies  for most  Environmental  Claims,  although  the
Company's  insurers have not affirmed a legal  obligation  under the policies to
provide indemnity for those claims.

    In June 1997,  G-I  Holdings  commenced  litigation  against the insurers on
behalf of itself and its  predecessors,  successors,  subsidiaries  and  related
corporate  entities  seeking  amounts  substantially  in excess of the estimated
recoveries.  While the Company believes that its claims are  meritorious,  there
can be no  assurance  that the  Company  will  prevail in its  efforts to obtain
amounts equal to, or in excess of, the estimated recoveries.

    In June 1989,  the Company  entered into a Consent Order with the New Jersey
Department of Environmental  Protection ("NJDEP") requiring the development of a
remediation plan for its closed Linden,  New Jersey plant and the maintenance of
financial  assurances  (currently  $7.5  million)  to  guarantee  the  Company's
performance.  This Consent Order does not address any potential natural resource
damage claims for which an estimate cannot currently be made. In April 1993, the
NJDEP issued  orders which require the  prevention of discharge of  contaminated
groundwater  and stormwater from the site and the elimination of other potential
exposure concerns.  The Company believes,  although it cannot be certain,  that,
taking into account its plans for  development  of the site,  it can comply with
the NJDEP order at a cost of approximately $17.0 million.


  LEASE COMMITMENTS

    Leases for certain  equipment at the Company's  mineral  products plants are
accounted  for as  capital  leases  and are  included  in  "Property,  plant and
equipment,  net," at  December  31, 2000 and 2001 in the amount of $0.9 and $0.4
million,   respectively.   The  Company   also  has   operating   leases  for  a
sale-leaseback transaction related to its Freetown,  Massachusetts manufacturing
facility, which was entered into in 1998, and for transportation, production and
data processing equipment and for various buildings and offices.  Rental expense
on operating

                                      F-45

<PAGE>

                      INTERNATIONAL SPECIALTY PRODUCTS INC.


            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-- (CONTINUED)





NOTE 19.  COMMITMENTS AND CONTINGENCIES -- (CONTINUED)

leases was $17.3, $17.9 and $17.4 million for 1999, 2000 and 2001, respectively.
Future  minimum lease payments for  properties  which were held under  long-term
noncancelable leases as of December 31, 2001 were as follows:

                                                       CAPITAL  OPERATING
                                                       LEASES    LEASES
                                                  ------------- ----------
                                                          (THOUSANDS)
    2002 .........................................       $140   $10,585
    2003 .........................................        144     9,739
    2004 .........................................          4     8,542
    2005 .........................................          1     7,251
    2006 .........................................         --     1,223
    Later years ..................................         --     7,009
                                                      --------- ---------
    Total minimum payments .......................        289   $44,349
                                                                =========
    Less interest included above .................        (18)
                                                      --------
    Present value of net minimum lease payments ..       $271
                                                      ========


  OTHER MATTERS

    The  Company  has  received  site  designation  for  the  construction  of a
hazardous  waste  treatment,  storage and disposal  facility at its Linden,  New
Jersey property and has received approval from the New Jersey Turnpike Authority
for a direct access ramp extension from the New Jersey  Turnpike to the site. If
the Company is  successful  in securing the  necessary  permits to construct and
operate the hazardous  waste  facility and decides to proceed with this project,
the Company  would  develop and operate the  facility in a separate  subsidiary,
either on its own or in a joint  venture  with a suitable  partner.  The Company
estimates that the cost of constructing the facility will be approximately  $100
million and, if approved,  the facility is anticipated to be in operation  three
years after  commencement of  construction.  The Company  anticipates  utilizing
internally generated cash and/or seeking project or other independent  financing
for this  project.  Accordingly,  the Company  would not expect such facility to
impact  materially  its  liquidity  or capital  resources.  The  Company is also
investigating  other  development  opportunities  at this site consistent with a
plan by the County of Union to re-develop the Tremley Point area of Linden.  The
Company  expects that  related  planning and  evaluation  efforts will  continue
through 2002. The net book value of the Linden property at December 31, 2001 was
$15.8 million.

    See Note 8 for information regarding additional contingencies.


                                      F-46
<PAGE>


                      INTERNATIONAL SPECIALTY PRODUCTS INC.

                         SUPPLEMENTARY DATA (UNAUDITED)

                      QUARTERLY FINANCIAL DATA (UNAUDITED)

<TABLE>
<CAPTION>
                                         2000 BY QUARTER                       2001 BY QUARTER
                            -------------------------------------   --------------------------------------
                             FIRST     SECOND  THIRD       FOURTH      FIRST    SECOND     THIRD    FOURTH
                             -----     ------  -----      -------     ------    ------    -------   ------
                                                (MILLIONS, EXCEPT PER SHARE AMOUNTS)
<S>                          <C>       <C>      <C>        <C>       <C>       <C>       <C>        <C>
Net sales .................. $197.9    $200.3   $195.9     $189.8    $203.2    $203.3     $188.6    $192.1
Cost of products sold ......  129.4     127.0    129.7      128.8     133.3     122.3      114.9     130.3
                             ------   -------   ------     ------    ------    ------     ------    ------
Gross profit ............... $ 68.5   $  73.3   $ 66.2     $ 61.0    $ 69.9    $ 81.0     $ 73.7    $ 61.8
                             ======   =======   ======     ======    ======    ======     ======    ======
Operating income(1) ........ $ 25.6   $  29.8   $ 23.9     $  2.1    $ 25.9    $ 35.6     $ 30.5    $ 20.6
                             ======   =======   ======     ======    ======    ======     ======    ======
 Income (loss) before
  income taxes ............  $ 11.8   $  15.2   $ 41.5     $ 76.5    $ 35.4    $  0.2     $ (2.9)   $(31.7)
Income tax (provision)
  benefit .................    (4.1)     (5.4)   (14.5)     (26.9)    (12.4)     (0.1)       1.0      11.1
                             ------   -------   ------      -----     -----    ------     ------    ------
 Income (loss) before
  cumulative effect of
  change in accounting
  principle ...............     7.7       9.8     27.0       49.6      23.0       0.1       (1.9)   (20.6)
Cumulative effect of change
  in accounting principle,
  net of income tax benefit      --        --       --         --      (0.4)      --        --          --
                              -----   -------    -----      -----     -----     -----     ------    ------
Net income (loss) .........   $ 7.7   $   9.8    $27.0     $ 49.6    $ 22.6     $ 0.1     $ (1.9)   $(20.6)
                              =====   =======    =====     ======    ======     =====     ======    ======
Earnings per common
  share(2):
  Basic:
    Income (loss) before
      cumulative effect
      of accounting change .  $ .11   $   .14    $ .40     $ .74     $ .35       $--       $(.03)  $  (.32)
    Cumulative effect of
      accounting change ...      --        --       --        --      (.01)       --         --       --
                              -----   -------    -----     -----     -----       -----     -----   -------
    Net income (loss) .....   $ .11   $   .14    $ .40     $ .74     $ .34       $--       $(.03)  $  (.32)
                              =====   =======    =====     =====     =====       =====     =====   =======
  Diluted:
    Income (loss) before
      cumulative effect
      of accounting change    $ .11   $   .14    $ .40     $ .74     $ .34       $--       $(.03)  $  (.32)
    Cumulative effect
      of accounting
      change ..............     --        --        --       --       (.01)       --         --         --
                              -----     -----    -----     -----     -----       -----    ------   ------
    Net income (loss) .....   $ .11     $ .14    $ .40     $ .74     $ .34       $--      $ (.03)  $  (.32)
                              =====     =====    =====     =====     =====       =====    ======   =======
</TABLE>


-------
(1)  Operating  income for the fourth  quarter of 2000  reflects a provision for
     restructuring  of  $14.4  million.  See  Note 4 to  Consolidated  Financial
     Statements.

(2)  Earnings per share are calculated  separately for each quarter and the full
     year. Accordingly, annual earnings per share will not necessarily equal the
     total of the quarters.

                                      F-47

<PAGE>


                                                                     SCHEDULE II
                      INTERNATIONAL SPECIALTY PRODUCTS INC.
                        VALUATION AND QUALIFYING ACCOUNTS

                          YEAR ENDED DECEMBER 31, 1999
                                   (THOUSANDS)

                             BALANCE    CHARGED TO                   BALANCE
                             JANUARY 1,  COSTS AND                  DECEMBER 31,
                               1999      EXPENSES    DEDUCTIONS         1999
                            ----------  -----------  -----------   -------------
DESCRIPTION
Valuation and Qualifying
  Accounts Deducted
  From Assets
  to Which They Apply:
    Allowance for doubtful
    accounts ............... $ 2,494   $ 2,026      $ 1,109(a)       $ 3,411
    Reserve for inventory
     market  valuation. ....  21,360     5,063       11,275(a)        15,148
    Reserves for
     restructuring
      and staff reduction .    9,342    2,273(c)     10,291(d)         1,324

                          YEAR ENDED DECEMBER 31, 2000
                                   (THOUSANDS)
<TABLE>
<CAPTION>
                             BALANCE    CHARGED TO                             BALANCE
                             JANUARY 1,  COSTS AND                           DECEMBER 31,
                               2000      EXPENSES    DEDUCTIONS   OTHER          2000
                            ----------  -----------  ----------- --------  -------------
<S>                         <C>          <C>         <C>           <C>     <C>
DESCRIPTION
Valuation and Qualifying
  Accounts Deducted From
   Assets to
    which They Apply:
    Allowance for doubtful
    accounts .............   $ 3,411   $ 1,934        $ 434(a)      $  --     $ 4,911
    Reserve for inventory
      market valuation ...    15,148    11,902        8,535(a)      3,798(b)   22,313
    Reserves for restructuring
      and staff reduction .    1,324     3,613        1,324            --       3,613
</TABLE>

                          YEAR ENDED DECEMBER 31, 2001
                                   (THOUSANDS)

                             BALANCE    CHARGED TO                   BALANCE
                             JANUARY 1,  COSTS AND                  DECEMBER 31,
                               2001      EXPENSES    DEDUCTIONS        2001
                            ----------  -----------  -----------   -------------
DESCRIPTION
Valuation and Qualifying
  Accounts Deducted From
   Assets to
    which They Apply:
    Allowance for doubtful
     accounts ............   $ 4,911     $ 2,474     $ 1,913(a)      $ 5,472
    Reserve for inventory
      market valuation ...    22,313      10,427       4,708(a)       28,032
    Reserves for restructuring
      and staff reduction .    3,613         --        3,613(e)          --

----------

(a)  Represents write-off of uncollectible  accounts net of recoveries,  and the
     effects of foreign currency translation.

(b)  Represents balance acquired in acquisitions.

(c)  Reflects a reserve  established for a staff reduction  program in 1999 (see
     Note 4 to Consolidated Financial Statements).

(d)  Includes  $1,863 of excess reserves which were reversed and credited to the
     Consolidated  Statement  of Income  (see Note 4 to  Consolidated  Financial
     Statements).

(e)  Includes  $471 of excess  reserves  which were reversed and credited to the
     Consolidated  Statement  of Income  (see Note 4 to  Consolidated  Financial
     Statements).

                                       S-1