UNITED STATES
SECURITIES AND EXCHANGE COMMISSIONWASHINGTON, DC 20549

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FORM 10-K

|ý                                                   | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE    
|--------------------------------------------------- | --------------------------------------------------------
|SECURITIES EXCHANGE ACT OF 1934                    
|For the fiscal year ended December 31, 2004        
|or                                                 
|o                                                   | 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 333-82822

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INTERNATIONAL SPECIALTY HOLDINGS INC.(Exact Name of Registrant as Specified in Its Charter)

|Delaware(State or Other Jurisdiction
of Incorporation or Organization)                     |  | 22-3807354(IRS Employer Identification No.)
|------------------------------------------------------------------------------------------ |  | -------------------------------------------
|300 Delaware Avenue
Suite 303
Wilmington, Delaware(Address of Principal Executive Offices) |  | 19801(Zip Code)                            

Registrant's Telephone Number, Including Area Code: (302) 427-5715
Securities registered pursuant to Section 12(b) of the Act: None
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 ý    No o

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

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

As of March 30, 2005, 100 shares of common stock, par value $.001 per share of the registrant were outstanding. There is no trading market for the common
stock of the registrant. As of March 30, 2005, no shares of the registrant were held by non-affiliates.



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INTERNATIONAL SPECIALTY HOLDINGS INC.    Form 10-K  for the fiscal year ended December 31, 2004    Table of Contents

|PART I   |  |                                                                                                              |  |   
|-------- |  | ------------------------------------------------------------------------------------------------------------ |  | --
|Item 1.  |  | Business                                                                                                     |  | 1 
|Item 2.  |  | Properties                                                                                                   |  | 13
|Item 3.  |  | Legal Proceedings                                                                                            |  | 14
|Item 4.  |  | Submission of Matters to a Vote of Security Holders                                                          |  | 15
|PART II  |  |                                                                                                              |  |   
|Item 5.  |  | Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities |  | 16
|Item 6.  |  | Selected Financial Data                                                                                      |  | 16
|Item 7.  |  | Management's Discussion and Analysis of Financial Condition and Results of Operations                        |  | 16
|Item 7A. |  | Quantitative and Qualitative Disclosures About Market Risk                                                   |  | 16
|Item 8.  |  | Financial Statements and Supplementary Data                                                                  |  | 16
|Item 9.  |  | Changes in and Disagreements With Accountants on Accounting and Financial Disclosure                         |  | 16
|Item 9A. |  | Controls and Procedures                                                                                      |  | 16
|Item 9B. |  | Other Information                                                                                            |  | 16
|PART III |  |                                                                                                              |  |   
|Item 10. |  | Directors and Executive Officers of the Registrant                                                           |  | 17
|Item 11. |  | Executive Compensation                                                                                       |  | 19
|Item 12. |  | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters               |  | 23
|Item 13. |  | Certain Relationships and Related Transactions                                                               |  | 24
|Item 14. |  | Principal Accountant Fees and Services                                                                       |  | 26
|PART IV  |  |                                                                                                              |  |   
|Item 15. |  | Exhibits, Financial Statement Schedules                                                                      |  | 27

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PART I

The Business section and other parts of this annual report on Form 10-K contain both historical and forward-looking
statements that involve risks and uncertainties. Many of the forward-looking statements are located in "Management's Discussion and Analysis of Financial Condition and Results of Operations." These
forward-looking statements are only predictions and generally can be identified by words such as "anticipates," "expects," "believes," "intends," "plans," "predicts," "foresees" and other related
terms. Similarly, statements that describe our objectives, plans or goals are also 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. Forward-looking statements are not guarantees of future performance and our actual results may differ
significantly from the results discussed in the forward-looking statements. The forward-looking statements included herein are made only as of the date of this annual report on
Form 10-K. We assume no obligation to revise or update any forward-looking statements for any reason, except as required by law.

Item 1.Business.

General

International Specialty Holdings Inc. is a leading multinational manufacturer and supplier of chemicals and mineral products for a wide variety of personal
care, pharmaceutical, food, beverage, biocides, plastics, tire and rubber and other applications that enhance product performance. We produce more than four hundred specialty chemicals which we market
and sell to over six thousand customers in more than ninety countries worldwide. We are a wholly owned subsidiary of International Specialty Products Inc., or ISP, and were incorporated in
June 2001 in connection with an internal corporate restructuring by ISP. The business of our parent, ISP, primarily consists of owning all of our issued and outstanding capital stock. We own
all of the issued and outstanding capital stock of ISP Chemco Inc. and ISP Investco LLC and the partnership interests of ISP Synthetic Elastomers LP. ISP Chemco operates ISP's businesses
exclusively through its direct and indirect subsidiaries. ISP Investco was formed in 2001 for the purpose of holding all of ISP's investment assets and related liabilities. ISP Synthetic Elastomers LP
operates our synthetic rubber business. Samuel J. Heyman, ISP's and our Chairman, is the beneficial owner (as defined in Rule 13d-3 under the Exchange Act) of 100% of ISP's common
stock and our common stock. Unless otherwise indicated by the context, "we," "us," "our," and "IS Holdings" refers to International Specialty Holdings Inc. and its consolidated subsidiaries and
"ISP" refers to International Specialty Products Inc. and its consolidated subsidiaries.

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

During
the last five years, our goal has been to move toward increasing our focus on our consumer-oriented, service intensive and highly technical businesses while consolidating,
downsizing or otherwise improving certain of our low margin industrial businesses. We report four business segments: specialty chemicals, industrial chemicals, synthetic elastomers and mineral
products. Our more recent focus has been to add new product platforms that utilize our expertise in polymer manufacturing, research and development and process technology. For example, in
August 2004, ISP contributed its synthetic elastomers business to us which business has expanded and complemented our global specialty chemicals portfolio. Another important objective is to
seek additional sources of high quality supply of key raw materials in support of the increasing demand for specialty chemical products. We also supplement our internal resources with strategic
alliances and continually strive to lower our costs through operating efficiencies and plant consolidations.

Providing
high levels of technical service to our customers is an important attribute of our business. To enhance support provided by our technical service team, we have added technical
service laboratories to our current global network of applications. In this regard, we opened a new technical service laboratory in India and added two centers through our recent acquisitions in the
United Kingdom and Germany.

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Strategic
alliances have allowed us to leverage our core strengths in marketing, sales and technical services to obtain access to new technologies and expand the breadth and utility of
our product offerings. Product offerings resulting from these strategic alliances include skin conditioners and other skin care products, pharmaceutical over-the counter, nutritional and
oral care applications, personal care products, and a line of polymers.

We
continually explore possible acquisitions where we seek to acquire complementary technologies or products, expand our customer base and leverage our sales and distribution
infrastructure and existing client relationships. During 2004, we made four strategic acquisitions, including three in Europe, which contributed to the growth of our business:



Additionally,
in August 2004, ISP contributed its synthetic elastomers business to us that was initially acquired by ISP in July 2003 when it purchased the assets of the
synthetic rubber business of Ameripol Synpol Corporation. Our synthetic rubber business is operated by ISP Synthetic Elastomers and is located in Port Neches, Texas.

We
expanded our Freetown, Massachusetts manufacturing facility's production capabilities to allow for the manufacture of some specialty chemical products for our personal care product
line and to offer custom manufacturing capability to the pharmaceutical, biotechnology, agricultural and chemical process industries. We are also in the process of expanding our Texas City, Texas
manufacturing facility in order to produce an expanded line of our pharmaceutical excipients. We anticipate that this plant expansion will be completed during the fourth quarter of 2005.

During
the last five years, we have invested over $300 million in maintaining and upgrading our manufacturing plants including equipment modifications and
de-bottlenecking solutions which have significantly increased our manufacturing efficiency and capacity. We have also streamlined and consolidated our operations to increase efficiency and
reduce our operating costs.

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Business Segments

Specialty Chemicals



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 segment is organized based upon the markets for our products. Accordingly, we manage our specialty chemicals segment through the following product lines:



Sales
of our specialty chemicals represented approximately 58%, 68% and 71% of our revenues in the years ending December 31, 2004, 2003 and 2002, respectively. For more
information about our specialty chemicals business segment sales, see "Management's Discussion and Analysis of Financial Condition and Results of OperationsResults of Operations" and
Note 18 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:



The
balance of our specialty chemical products are marketed by our performance chemicals and fine chemicals product lines. In addition, our sunscreens, preservatives, biofunctionals and
emollients are each marketed by our personal care product line.

Personal Care.Our personal care product line markets numerous specialty chemicals that serve as critical ingredients in the
formulation of many well-known skin care, hair care, oral care, toiletry and

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cosmetic
products. For example, our polyvinylpyrrolidone polymers, which are derived from acetylene, are critical components in hair styling gels. If this polymer were removed, hold, stiffness and
styling would be lost.

Our
skin care and oral care ingredients include or are used in:



Our
Escalol® 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 Ceraphyl® 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® Plus, a patented product that offers broad-spectrum anti-microbial activity, and Suttocide®
A, a preservative gentle enough for infant care products.

Our
Bio-Functional Ingredients platform offers unique, clinically-proven and consumer-perceivable benefits that contribute to healthier skin. Vital ET is a
Vitamin E phosphate complex that has outstanding efficacy as an anti-inflammatory and anti-erythemal agent that offers particular benefits in our sun care formulations. Another
innovative addition to the skin care market is X-Tend 226, a proprietary polar ester with high solubility capacity for oxybenzone and avobenzone.

Our
hair care ingredients, marketed under the Gantrez®, Gafquat®, 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 hair care and sunscreen
applications, we developed the world's first high-performance hair protectant, Escalol® HP-610, to prevent sun damage to hair. We also developed a polymer,
Aquaflex® FX-64, for use in styling products and low VOC hair sprays, which provides a soft feeling with a long lasting hold for both aerosol and pump spray applications.

Our
oral care ingredients include our Gantrez® bioadhesive polymers which serve as critical ingredients in denture adhesives and tartar control toothpastes. In denture
adhesives, Gantrez® provides the strength and duration of the hold of the denture to the gums. In tartar control toothpastes, Gantrez® inhibits enzyme activity in the mouth to
increase the effectiveness of the product's tartar control.

Pharmaceutical, Food and Beverage.Our specialty chemicals for the pharmaceutical, food and beverage market 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:



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Our
Plasdone® and Polyplasdone® polymers for tablet binders and tablet disintegrants are established excipients for use in the production of wet granulated and
direct compression tablets. New products in our pharmaceutical portfolio include CAVAMAX® cyclodextrins that are used in a variety of applications. The molecules form complexes with
medicinal drugs to provide benefits including increased drug bioavailability, controlled drug release, taste and odor masking and drug stability.

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® and Manucol® tradenames, are used as stabilizers in
many well-known consumer products and prevent the separation of oil emulsions. We recently introduced Textureze systems that bring individual components together to optimize
the stability, texture, structure and taste of finished food products. The systems are application-specific and have been designed to assist in the preparation of bakery fillings, salad dressings,
dairy products and
spreads. Our acetylene-based specialty polymers, marketed under the Polyclar® tradename, serve the beverage market by assuring the clarity and extending the shelf life of beer, wine and
fruit juices.

Performance Chemicals.Our performance chemicals product line 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:



ViviPrint
is our 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
performance chemicals product line also includes our biocides business which is comprised of a broad range of preservatives and fungicides for various product applications, including
paint and coatings under the Fungitrol® and Nuosept® product lines.

Our
advanced materials include the Ferronyl® brand of dietary iron supplement, which is marketed to the pharmaceutical industry and also includes high-purity
carbonyl iron powders, sold under the Micropowder® name, for use in the aerospace, defense, electronics and powder metallurgy industries.

Fine Chemicals.Our fine chemicals product line 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.

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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 them with our products, technology and capabilities. We primarily sell our specialty chemicals directly to our customers through our in-house global distribution network. We sell a limited
portion of our specialty chemicals through distributors. We conduct our domestic marketing and sales efforts from our headquarters in Wayne, New Jersey and regional offices strategically located
throughout the United States.



We conduct our international operations through 48 subsidiaries and 50 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 2004, 2003 and 2002 were approximately 55%, 52% and 47%, respectively, of our total sales of the specialty chemicals segment for those
periods. For more information about our international sales, see Note 19 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 "Management's Discussion and Analysis of Financial Condition and
Results of OperationsLiquidity and 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
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 international long-lived assets, see Note 19 to our consolidated financial statements included in this annual report on
Form 10-K.

Industrial Chemicals



We manufacture a broad spectrum of industrial chemicals having numerous applications. 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 products specifically developed to meet customer requirements.

Sales
of industrial chemicals represented approximately 16%, 18% and 18% of our revenues in the years ended December 31, 2004, 2003 and 2002, respectively. For more information
about industrial chemicals sales, see "Management's Discussion and Analysis of Financial Condition and Results of OperationsResults of Operations" and Note 18 to our consolidated
financial statements included in this annual report on Form 10-K. Most of our industrial chemical products fall within the following categories:



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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:



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.



We market our industrial chemicals using a worldwide marketing and sales force, typically chemists or chemical engineers, who work closely with our customers to
familiarize them with our products, technology and capabilities. We primarily sell our industrial chemicals directly to our customers through our global in-house distribution network. We sell a
limited portion of our industrial chemicals through distributors. We conduct our domestic marketing and sales efforts from our headquarters in Wayne, New Jersey and regional offices strategically
located throughout the United States.



We conduct our international operations through 48 subsidiaries and 50 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 industrial chemicals in 2004, 2003 and 2002 were approximately 80%, 83% and 83%, respectively, of our total sales of the industrial chemicals segment for those
periods. For more information about our international sales, see Note 19 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 "Management's Discussion and Analysis of Financial Condition and
Results of OperationsLiquidity and 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. We lease the property where this manufacturing
facility and plant are located pursuant to a long-term ground lease. Both production facilities are located at Infracor's Chemiepark site in Marl, Germany, and each relies upon Infracor 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.

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For
information about the locations of our international long-lived assets, see Note 19 to our consolidated financial statements included in this annual report on
Form 10-K.

Synthetic Elastomers



ISP Synthetic Elastomers LP, which we refer to as ISP Elastomers, manufactures both cold and hot types of emulsion styrene butadiene rubber, which is known as
ESBR. Our Port Neches, Texas manufacturing facility has approximately 400 million pounds per year of ESBR capacity in a wide variety of grades. These grades include: cold emulsion types; hot
emulsion types; cold oil extended products; high styrene resin masterbatches and carbon black masterbatches. We believe that this capability to produce multiple grades of ESBR provides ISP Elastomers
with the ability to offer one of the broadest lines of styrene butadiene products in the industry. Our cold emulsion ESBR products are used in the manufacture of new and retread tires, automotive,
mechanical goods, gaskets and industrial rubber products. Our hot emulsion ESBR products are used in the manufacture of, among other things, adhesives, aerosol spray adhesives and sealants.

For
information about the amount of sales of our synthetic elastomers products, see "Management's Discussion and Analysis of Financial Condition and Results of
OperationsResults of
Operations" and Note 18 to our consolidated financial statements included in this annual report on Form 10-K.



These ESBR products are sold to a wide cross section of the rubber industry through direct sales by our dedicated sales team and a network of national
distributors. Additionally, we have developed an international sales team to service our customers in the European, Asian and Latin American regions.

Mineral Products



We manufacture mineral products consisting of semi-ceramic-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 believe that we are the second largest of three major suppliers of colored roofing granules in the United States in terms of production capacity and sales
revenue. For information about the amount of sales of our mineral products, see "Management's Discussion and Analysis of Financial Condition and Results of Operations" and Note 18 to our
consolidated financial statements included in this annual report on Form 10-K.

We
believe that approximately 80% of the asphalt shingles currently produced by the roofing industry are sold for the re-roofing/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 believe 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

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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, an affiliate, and its subsidiaries constituted approximately 73% of our mineral products net sales in 2004.

See
"Certain Relationships" and Note 12 to our consolidated financial statements included in this annual report on Form 10-K. See also "Management's Discussion
and Analysis of Financial Condition and Results of Operations-Liquidity and Financial Condition."



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 four manufacturing facilities strategically located throughout the United States. From our offices located in
Hagerstown, Maryland, 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

Because of the multi-step processes required to manufacture many of our chemical products, we believe that our raw materials costs represent a smaller
percentage of the cost of goods sold than for many other chemical companies. As a result, we believe that fluctuations in the price of
raw materials, including energy and packaging, have less of an impact on our 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 products are acetylene, formaldehyde 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 unaffiliated suppliers pursuant to supply contracts. We reduced our acetylene requirements at our Texas City facility by approximately fifty percent by shifting production of
acetylene-consuming products to our Calvert City, Kentucky manufacturing facility. We also entered into a long-term supply agreement for the remaining Texas City facility requirements with
a local acetylene producer. Under this agreement, we are obligated to purchase specified quantities of acetylene through the end of 2013. Pricing under the contract is on a fixed basis with escalators
related to changes in the Producer Price Index.

We
also have an acetylene supply contract for our requirements of acetylene delivery via pipeline to our Calvert City, Kentucky manufacturing facility. The current term of this contract
expires at the end of 2009 and allows us, at our sole option, to extend the agreement for two additional terms of five years each. Pricing under the contract is on a fixed basis with escalators
related to changes in the Producer Price Index.

We
believe that the diversity of our acetylene supply sources and our use of a number of acetylene production technologies provide us with a reliable supply of acetylene. In the event of
a substantial interruption in the supply of acetylene from current sources, 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.

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.

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The
Marl facility obtains the majority of its critical supplies and services from Infracor including electricity and butane via a long term supplies and services agreement.

In
the event of a substantial interruption in the supply of electricity and hydrocarbon feedstocks to ISP Marl, 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.

We
use natural gas and raw materials derived from petroleum in many of our manufacturing processes. We experienced no significant problems in the purchase of these raw materials during
2004, although we experienced upward pressure on certain raw material pricing. Availability of other raw materials, including methanol and methylamine, remained adequate during 2004. Although it is
impossible to predict future shortages of raw materials or the impact any such shortages would have, we believe that in the event of a supply interruption we could obtain adequate supplies of raw
materials from alternate sources.

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 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.

At
our synthetic elastomers facility in Port Neches, Texas, our principal raw materials used in the manufacture of our products are styrene and butadiene which are obtained through
various supply agreements from third-party suppliers. ISP Elastomers has a supply contract with a multi-national supplier for its requirements of 1,3 butadiene delivered via pipeline to its Port
Neches, Texas facility. Under this agreement, ISP Elastomers is required to purchase specified quantities of butadiene through the end of 2006. Pricing for butadiene under this contract is based on
the U.S. Gulf Coast Marker Price announced at the beginning of each calendar month during the term of the contract.

Our
mineral products business owns three quarries and leases one quarry with 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. These quarries each have proven reserves, based on current production levels, of
more than twenty years. We pay royalties to a non-affiliated third party based on the amount of rock deposits we extract annually from our Ione, California quarry.

Competition

We believe that we are the second largest seller, based on revenues, worldwide of specialty chemicals derived from acetylene, other than butanediol and
tetrahydrofuran, and we believe that we are the second largest seller, based on revenues, worldwide 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, biocides 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,

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BASF
Corporation, BP p.l.c. and Lyondell Chemical Company. Tetrahydrofuran and N-methyl pyrrolidone are manufactured by a number of companies throughout the world. We are one of a number
of manufacturers that compete in the emulsified styrene butadiene rubber market.

With
regard to our mineral products, we believe there are two major competitors in the North American market, 3M Company and Reed Minerals. We believe that competition has been limited
by the substantial capital expenditures associated with the construction of new mineral processing and coloring plants and the acquisition of suitable rock reserves; the limited availability of proven
rock sources; 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; 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 the
difficulty in obtaining the necessary permits to mine and operate a quarry.

Competition
in the markets for our specialty chemicals, industrial chemicals, synthetic elastomers 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.

Financial
information concerning our industry segments and foreign and domestic operations required by Item 1 is included in Notes 18 and 19 to our consolidated financial statements
included in this annual report on Form 10-K.

Research and Development

Our worldwide research and development expenditures were $26.3, $25.3 and $26.0 million in 2004, 2003 and 2002, 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; Chatham, New Jersey; Columbus, Ohio; Freetown, Massachusetts; Texas City, Texas; San Diego, California; and Girvan, Scotland, as well as at technical centers
in Columbia, Maryland, Brazil, Canada, China, Germany, India, Mexico, Singapore and the United Kingdom. Our mineral products research and development facility, together with our customer design and
color center, is located in Hagerstown, Maryland.

Environmental Services

We received approval from the New Jersey Turnpike Authority for a direct access ramp extension from the New Jersey Turnpike to our Linden, New Jersey property.
With the planned New Jersey Turnpike access, it is likely that development alternatives such as warehousing will provide greater economic benefits than our previously considered development
alternative of construction of a hazardous waste treatment, storage and disposal facility at this site. See Item 3, "Legal ProceedingsEnvironmental Claims and Proceedings."

Intellectual Property

We hold a number of patents, trademarks and licenses obtained over a number of years and expiring at various times consistent with our business needs. Generally,
we seek statutory protection for strategic or financially important intellectual property, including patents, trademarks and licenses developed in connection with our businesses. Certain intellectual
property, where appropriate, is protected by contracts, licenses, confidentiality or other similar agreements.

We
own numerous United States and foreign patents (and their respective counterparts), the more important of which cover those technologies and inventions embodied in current products,
or which are

11

---



used
in the manufacture of those products. While we believe our patent portfolio is important to our business operations and, in the aggregate, constitutes a valuable asset, no single patent, or group
of patents, is critical to the success of our businesses. We also, from time to time, grant licenses under our patents and technology and receive licenses under the patents and technology of others.

In
addition, we own numerous registered trademarks in the United States and in many foreign countries that apply to our product offerings and businesses. Most works of authorship, such
as computer programs, catalogs, product brochures and sales literature, carry appropriate notices indicating our claim to copyright protection under United States law and where appropriate,
international treaties.

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. 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. These laws and regulations affect us because of the nature of our operations and that 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 have made capital expenditures of
approximately $4.6 million in 2004, $7.0 million in 2003 and $3.6 million in 2002 in order to comply with these laws and regulations. These expenditures are included as additions
to property, plant and equipment.

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, nor can we predict with certainty future capital expenditures or operating costs for environmental compliance, we do not believe
they will have a material effect on our business, liquidity, results of operations, cash flows, financial position or competitive position.

Employees

At December 31, 2004, we employed approximately 2,800 people worldwide. Approximately 785 employees in the United States were subject to seven union
contracts. We believe that our relations with our employees and their unions are satisfactory.

ISP Investco

We conduct our investments business through ISP Investco and its subsidiaries. In August 2004, we changed our investing strategy. Although from time to
time we may continue to make investments in public companies, we no longer intend to pursue our prior investment strategy which included
investments primarily in international and domestic securities of companies involved in acquisition and reorganization transactions. On a going-forward basis, our investment strategy will be to enter
into stable value investments that, although they may result in a lower overall rate of return, our management believes that these types of investments will not experience the volatility historically
realized in our equity investments.

12

---



Other Information

We have not established and do not maintain an internet website. However, we do make our annual report on Form 10-K and recent quarterly
reports on Form 10-Q that are filed with the Securities and Exchange Commission available electronically via ISP's internet website at www.ispcorp.com. Any materials that we have filed with the SEC
may be read and copied by the public at the SEC's Public Reference Room located at 450
Fifth Street, N.W., Washington, DC 20549 or by telephoning the SEC at 1-800-SEC-0330. These reports are also available electronically on the SEC's EDGAR website at www.sec.gov. Alternatively, if you
wish to receive a paper copy of our reports or any of the exhibits filed with or furnished to the SEC, they may be
obtained by writing to: the Corporate Secretary, International Specialty Holdings Inc., c/o ISP Management Company, Inc., 1361 Alps Road, Wayne, New Jersey 07470.

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.

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 LineDomesticAlabama, Huntsville

Plant*

Specialty ChemicalsCaliforniaIone

Plant, Quarry*

Mineral ProductsSan Diego

Plant*

Specialty ChemicalsKentucky, Calvert City

Plant

Specialty Chemicals/Industrial ChemicalsMarylandColumbia

Research Center*

Specialty ChemicalsHagerstown

Research Center, Design Center, Sales Office

Mineral ProductsMassachusetts, Freetown

Plant, Research Center

Specialty ChemicalsMissouri, Annapolis

Plant, Quarry

Mineral ProductsNew JerseyChatham

Plant, Research Center

Specialty ChemicalsWayne

World Headquarters, Corporate Administrative Offices, Research Center

Specialty ChemicalsNew York, New York City

Corporate Administrative Offices

N/AOhio, Columbus

Plant, Research Center, Sales Office

Specialty ChemicalsPennsylvania, Blue Ridge Summit

Plant, Quarry

Mineral ProductsTexasPort Neches

Plant, Sales Office

Synthetic ElastomersTexas City

Plant, Research Center, Sales Office

Specialty Chemicals/Industrial Chemicals


13

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Wisconsin, Pembine

Plant, Quarry

Mineral ProductsInternationalBelgium, Sint-Niklaas

Sales Office, Distribution Center

Specialty ChemicalsBrazilCabreuva

Plant, Research Center, Sales Office

Specialty ChemicalsSao Paulo

Latin America Headquarters*, Sales Office*, Distribution Center*

Specialty ChemicalsCanadaLeaside, Ontario

Plant, Research Center, Sales Office, Warehouse

Specialty ChemicalsMississauga, Ontario

Sales Office*, Distribution Center*

Specialty ChemicalsEnglandBasildon

Plant*, Research Center*, Sales Office*

Specialty ChemicalsPoole

Plant*, Research Center*, Sales Office*, Warehouse*

Specialty ChemicalsTadworth

Western Europe Headquarters*, Research Center*, Sales Office*

Specialty ChemicalsGermanyCologne

Eastern Europe Headquarters*, Research Center*, Sales Office*

Specialty ChemicalsMarl

Plants**, Sales Office**

Industrial ChemicalsMemmingen

Plant*, Sales Office*, Research Center*

Specialty ChemicalsIndiaHyderabad

Research Center*

Specialty ChemcialsNagpur

Plant**

Specialty ChemicalsJapan, Tokyo

Sales Office*

Specialty ChemicalsScotland, Girvan

Plant

Specialty ChemicalsMexico, Mexico City

Research Center*, Sales Office*

Specialty ChemicalsSingapore

Sales Office*, Distribution Center*, Asia-Pacific Headquarters*, Warehouse*

Specialty Chemicals


---

We believe that our plants and facilities, which are of varying ages and are of different construction types, have been and continue to be
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 2004, we made capital expenditures in the amount of $86.8 million relating to plant, property and equipment.

Item 3.Legal Proceedings.

Environmental Claims and Proceedings

We are, together with other companies, a party to a variety of proceedings and lawsuits involving environmental matters under the Comprehensive Environmental
Response, Compensation and Liability Act, commonly known as Superfund, the Resource Conservation and Recovery Act and similar state

14

---



laws,
in which recovery is sought for the cost of cleanup of contaminated sites or in which 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, 2004 is approximately $19.9 million, before reduction for insurance recoveries included in our balance sheet of $28.1 million that relate
to both past expenses and estimated future liabilities, which we refer to 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 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 or decrease our estimate of insurance recoveries 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 it is probable that we will receive the estimated recoveries discussed above. We believe we are
entitled to the estimated recoveries, although our insurers have not affirmed a legal obligation under the policies to provide indemnity for these claims. In addition, the recoveries could be in
excess of the current estimated liability for all Environmental Claims, although there can be no assurance in this regard.

In
June 1997, G-I Holdings Inc. commenced litigation on behalf of itself and its predecessors, successors, subsidiaries and related corporate entities,
including ISP, in the Superior
Court of New Jersey-Somerset County, seeking amounts substantially in excess of the estimated recoveries. This action was removed in February 2001 to the United States Bankruptcy Court for the
District of New Jersey in connection with the filing of G-I Holdings' Chapter 11 petition. In November 2002, all parties consented to have the action remanded to the Superior Court
of New Jersey-Somerset County, where it remains pending. While ISP believes that the claims are meritorious, it cannot be certain that it will prevail in its efforts to obtain amounts equal to, or in
excess of, the estimated recoveries. Unless otherwise indicated by the context, "G-I Holdings" refers to G-I Holdings Inc. and any and all of its predecessors, including
GAF Corporation and GAF Fiberglass Corporation.

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
which we do not believe will be material. 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 $10.6 million. See Item 1, "BusinessEnvironmental Services."

See
Notes 7 and 20 to our consolidated financial statements included in this annual report on Form 10-K for additional information about legal proceedings.

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

None.

15

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PART II

Item 5.Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.

All of our common stock is owned by ISP. Accordingly, there is no public trading market for our common stock.

In
2004 and 2003, we did not declare or pay any dividends to ISP. 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 and contributions set forth
on pages F-2 to F-26 and page F-53, respectively. Any decision to pay dividends or make capital contributions, 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.

Item 6.Selected Financial Data.

See page F-27.

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-23.

Item 8.Financial Statements and Supplementary Data.



Item 9.Changes in and Disagreements With Accountants on Accounting and Financial Disclosure.

Not
applicable.

Item 9A.Controls and Procedures.

Disclosure Controls and Procedures:Our management, with the participation of the Chief Executive Officer and Chief Financial
Officer, conducted an evaluation of the effectiveness of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the
Securities Exchange Act of 1934, as amended (the "Exchange Act")) as of the end of the period covered by this report. Based on this evaluation, the Chief Executive Officer and Chief Financial Officer
have concluded that, as of the end of such period, our disclosure controls and procedures are effective in recording, processing, summarizing and reporting, on a timely basis, information required to
be disclosed by us in the reports filed, furnished or submitted under the Exchange Act.

Internal Control Over Financial Reporting:There were no significant changes in our internal control over financial reporting
identified in management's evaluation during the fourth quarter of fiscal year 2004 that have materially affected or are reasonably likely to materially affect our internal control over financial
reporting.

Item 9B.Other Information.

None.

16

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PART III

Item 10.Directors and Executive Officers of the Registrant.

Executive Officers of the Registrant

The following are the name, age and respective positions of our directors and executive officers.

|Name                  |  | Age |  | Position                                                         
|--------------------- |  | --- |  | -----------------------------------------------------------------
|Samuel J. Heyman      |  | 66  |  | Chairman of the Board and Director                               
|Sunil Kumar           |  | 55  |  | Chief Executive Officer, President and Director                  
|Richard A. Weinberg   |  | 45  |  | Executive Vice President, General Counsel, Secretary and Director
|Susan B. Yoss         |  | 46  |  | Executive Vice PresidentFinance and Treasurer                   
|Salvatore J. Guccione |  | 42  |  | Senior Vice President and Chief Financial Officer                
|Stephen R. Olsen      |  | 42  |  | Senior Vice President, Sales and MarketingNorth America         
|Steven E. Post        |  | 50  |  | Senior Vice PresidentOperations for Specialty Chemicals         

The
following is a description of the backgrounds, including business experience over the past five years, for each of our directors and executive officers. There are no family
relationships that exist between any of our directors or executive officers. Under our bylaws, our officers are elected by the Board of Directors and hold office until their respective successors are
duly elected and qualified.

Samuel J. HeymanMr. Heyman has been a director and Chairman of the Board of IS Holdings since December 2001 and
of ISP since its formation. 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. 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.

Sunil KumarMr. Kumar has been President and Chief Executive Officer of IS Holdings since June 2001, and of ISP
Chemco and ISP for more than five years. He has been a director of IS Holdings and ISP Chemco since June 2001, and a director of ISP for more than five years. He 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.

Richard A. WeinbergMr. Weinberg has been Executive Vice President, General Counsel and Secretary of IS Holdings since
June 2001 and a director since December 2001. He has also been Executive Vice President, General Counsel and Secretary of ISP for more than five years and has been a director since
December 2003. He has been Executive Vice President and Secretary of ISP Chemco and its subsidiaries since May 2003 and a director since August 2002 and June 1998 to
June 2001, respectively. He was previously Executive Vice President, General Counsel and Secretary of ISP

17

---



Chemco
and its subsidiaries for more than five years to May 2003. He has also been a director of ISP Chemco's subsidiaries for more than five years. Mr. Weinberg has been Chief Executive
Officer, President, 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. Mr. Weinberg has served as a director of G-I Holdings for more than five years. 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 for more than five years.

Susan B. YossMs. Yoss has been Executive Vice PresidentFinance and Treasurer of IS Holdings since
June 2001 and ISP since September 2000. She has also been Executive Vice PresidentFinance of ISP Chemco since May 2003. She was previously Executive Vice
PresidentFinance and Treasurer of ISP Chemco and its subsidiaries from September 2000 to April 2003. She was also Senior Vice President and Treasurer of ISP and its
subsidiaries from July 1999 to September 2000. She also has been Senior Vice President of BMCA and its subsidiaries for more than five years and was Treasurer of those same companies
from July 1999 to August 2001. Ms. Yoss also has served as Senior Vice President, Chief Financial Officer and Treasurer of
G-I Holdings for more than five years. 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.

Salvatore J. GuccioneMr. Guccione has been Senior Vice President and Chief Financial Officer of IS Holdings, ISP and
ISP Chemco and its subsidiaries and a director of ISP Chemco since December 2004. Prior to joining ISP, he was Executive Vice President, Corporate Strategy and Development for Cambrex
Corporation, a specialty chemical and life sciences company, from December 2002 to December 2004, Senior Vice President and Chief Financial Officer from June 2001 to
December 2002, Senior Vice President, Corporate Development from January 2001 to June 2001 and Vice President, Corporate Development from December 1995 to
January 2001.

Stephen R. OlsenMr. Olsen has been Senior Vice President, Sales and MarketingNorth America of IS
Holdings, ISP and ISP Chemco and some of its subsidiaries since August 2004. He was previously Senior Vice PresidentCorporate Development and Strategy of IS Holdings, ISP,
ISP Chemco and some of its subsidiaries from September 2000 to August 2004 and was a director of ISP Chemco from June 2001 until September 2002. He was
President and Chief Operating Officer of LL Building Products Inc., one of BMCA's subsidiaries, from June 1999 to September 2000.

Steven E. PostMr. Post has been Senior Vice PresidentOperations for Specialty Chemicals of IS Holdings,
ISP and ISP Chemco and some of its subsidiaries since June 2001 and has been President of ISP Alginates Inc. for more than five years. He was a director of ISP Chemco from
June 2001 until September 2002.

Audit Committee Financial Expert

We are not issuers of securities as that term is defined in the Securities Exchange Act of 1934 and do not have any securities listed on a national exchange or
association. Based on the foregoing, our Board of Directors does not, nor is it required to have an audit committee and therefore is not required to determine anyone to be an audit committee financial
expert.

Code of Ethics

All of our employees, including our principal executive officer, principal financial officer, principal accounting officer and the persons performing similar
functions, are required to abide by our code of ethics and business conduct policies to ensure that our business is conducted in a consistently legal and ethical manner. We intend to disclose any
changes in or waivers from our code of ethics by filing a
current report on Form 8-K with the Securities and Exchange Commission. We will provide to any person, without charge, upon request, a copy of our code of ethics by writing to: the
Corporate Secretary, International Specialty Holdings Inc., c/o ISP Management Company, Inc., 1361 Alps Road, Wayne, New Jersey 07470.

18

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Item 11.Executive Compensation.

Summary Compensation Table

The following table sets forth the cash and non-cash compensation for each of the last three fiscal years awarded to or earned by our Chief Executive
Officer in 2004 and the four other most highly compensated executive officers who were employed by us or our subsidiaries as of December 31, 2004.

Annual Compensation(7)

Long-Term Compensation(7)Name and Principal Position

Year

Salary($)

Bonus($)(1)

Other Annual
Compensation($)

Restricted
Stock
Award(s)($)

LTIP
Payouts($)

All Other
Compensation($)Sunil Kumar

2004

$
524,725

$
850,000

$
0

$
0

$
0

$
814,309
(2)President and

2003


506,978


909,006


0


0


813,375
(2)

821,253
(2)Chief Executive Officer

2002


489,260


623,295


0


2,112,500
(2)

0


819,086
(2)Susan B. Yoss

2004

$
310,243

$
500,000

$
0

$
0

$
0

$
20,000
(3)Executive Vice President

2003


299,735


375,000


0


0


0


19,260
(3)Finance and Treasurer

2002


289,230


375,000


0


0


0


19,288
(3)Richard A. Weinberg

2004

$
358,473

$
380,000

$
0

$
0

$
0

$
20,000
(4)Executive Vice President,

2003


346,345


365,000


0


0


0


509,720
(4)General Counsel and Secretary

2002


334,235


365,000


0


0


0


592,370
(4)Steven E. Post

2004

$
253,685

$
250,000

$
0

$
0

$
0

$
22,023
(5)Senior Vice President

2003


227,603


130,000


0


0


271,125
(5)

18,777
(5)Operations for Specialty Chemicals

2002


214,240


100,000


20,870
(5)

0


0


18,524
(5)Stephen R. Olsen

2004

$
235,323

$
200,000

$
10,340
(6)
$
0

$
0

$
24,711
(6)Senior Vice President,

2003


227,095


130,000


7,746
(6)

0


0


24,859
(6)Sales and Marketing

2002


217,360


100,000


7,746
(6)

0


0


20,620
(6)North America


---

19

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20

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Long-Term Incentive Plans



The following table sets forth information on awards granted to the executive officers named in the Summary Compensation Table above during 2004 under the 2000
LTI Plan.

2000 LTI PlanAwards in 2004

Estimated Future Payouts Under
Non-Stock Price-Based PlansNumber of
Shares, Units
or Other
Rights(1)

Performance or
Other Period
Until Maturation
or Payout(2)NameThreshold($)(3)

Target($)(4)

Maximum($)(4)Sunil Kumar





$




Susan B. Yoss

25,000
(5)


$
0.00



Richard A. Weinberg





$




Steven E. Post

50,000



$
12.50



Stephen R. Olsen

50,000



$
12.50






---

21

---





The following table sets forth information on awards granted to the executive officers named in the Summary Compensation Table above during 2004 under the 2003
ELTI Plan.

2003 ELTI PlanAwards in 2004

Estimated Future Payouts Under
Non-Stock Price-Based PlansNumber of
Shares, Units
or Other
Rights(1)

Performance or
Other Period
Until Maturation
or Payout(2)NameThreshold($)(3)

Target($)(4)

Maximum($)(4)Sunil Kumar





$




Susan B. Yoss

25,000
(5)


$
0.00



Richard A. Weinberg





$




Steven E. Post





$




Stephen R. Olsen





$







---

22

---



Deferred Compensation Plan

ISP maintains the ISP EDC Plan for a select group of management, including the named executive officers and other key employees. The ISP EDC Plan allows
participants, who are selected by the administrative committee that manages and administers the plan, which is referred to in the plan as the Deferred Compensation Committee, to elect annually to
defer, through payroll deduction, up to 25% of their annual base salary, up to 100% of their annual bonus and up to 100% of the income from
their exercise of long-term incentive units for each plan year, which is referred to in the plan as the Annual Deferral Amount. Annual Deferral Amounts are contributed by ISP to a grantor
trust.

A
participant is required to file a deferral agreement prior to the beginning of the plan year to which it relates and once filed may not be amended or revoked after the beginning
of the respective plan year. Each participant may determine how his or her Annual Deferral Amount will be deemed to be invested by choosing among several investment funds or indices designated by the
Deferred Compensation Committee. The entire Annual Deferral Amounts of each participant are always fully vested and non-forfeitable. The participant's account may be distributed to the
participant upon termination of employment for any reason, including the participant's death or disability. Under certain circumstances, which include a change in control or unforeseeable emergency, a
distribution to a participant may be made other than for termination of employment, death or disability.

Effective
January 1, 2005, the ISP EDC Plan is potentially subject to new restrictions on the timing of elections, the time and form of distributions, the acceleration of
benefits, and other matters under section 409A of the Internal Revenue Code, which was enacted on October 22, 2004 as part of the American Jobs Creation Act of 2004. Therefore, as of
January 1, 2005, deferral of long term incentive compensation will no longer be permitted in the ISP EDC Plan until the United States Department of the Treasury and Internal Revenue Service
issue interpretive guidance that is satisfactory to permit such deferrals as determined by the Deferred Compensation Committee. See Note (7), "Summary Compensation Table."

Compensation of Directors

Our directors do not receive any additional compensation for their service as directors.

Compensation Committee Interlocks and Insider Participations

We do not have a separate compensation committee. Compensation policies are established by our board of directors, each member of which is also one of our
executive officers. See Item 13, "Certain Relationships and Related Transactions."

Item 12.Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.



Not applicable.



As of March 30, 2005, 100% of our outstanding shares of common stock were owned of record by ISP. As of that date, Mr. Samuel J. Heyman beneficially
owned (as defined in Rule 13d-3 of the Exchange Act) 100% of the capital stock of ISP.

No
other person known to us (including named executive officers) owns beneficially more than 5% of our common stock outstanding on that date and, other than Mr. Heyman, no
directors or executive officers beneficially owns any capital stock of ISP. The business address for Mr. Heyman is 1361 Alps Road, Wayne, New Jersey 07470.

23

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Item 13.Certain Relationships and Related Transactions.

Management Agreement

Pursuant to a management agreement, we provide, through a subsidiary, certain general management, administrative, legal, telecommunications, information and
facilities services to BMCA and ISP. Charges by us for providing such services aggregated $5.7 million in 2004. The management agreement charges consist of management fees and other
reimbursable expenses attributable to or incurred by us, for the benefit of BMCA and are based on an estimate of the costs we incur to provide those services. We 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.

Some
of our executive officers perform services for our affiliates pursuant to the management agreement, and we are reimbursed therefor by virtue of the management fees and other
reimbursable expenses payable under the management agreement.

Although,
due to the unique nature of the services provided under the management agreement, comparisons with third party arrangements are difficult, we believe that the terms of the
management agreement, taken as a whole, are no less favorable to us than could be obtained from an unaffiliated third party.

Tax Sharing Agreements

ISP and certain of its subsidiaries were parties to tax sharing agreements with members of the consolidated tax group for federal income tax purposes that
included G-I Holdings, which we refer to as 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, ISP and certain of 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 ISP for periods subsequent to January 1, 1997. ISP 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.

Effective
January 1, 2001, ISP entered into a tax sharing agreement with two of its subsidiaries one of which is us (individually, "subsidiary" or collectively, "subsidiaries")
with respect to payment of federal income taxes and certain related matters. The tax sharing agreement is substantially similar to the 1997 tax sharing agreement described hereinafter. During the term
of the 1997 tax sharing agreement, which will extend for as long as ISP or any of its domestic subsidiaries, as the case may be, are included in a consolidated federal income tax return filed by ISP
or a successor entity, a subsidiary is obligated to pay to ISP an amount equal to the amount of federal income taxes the subsidiary would have incurred if, subject to specific exceptions, the
subsidiary (on behalf of itself and its domestic subsidiaries) filed its own consolidated income tax return. The 1997 tax sharing agreement provides for analogous principles
to be applied to any consolidated, combined or unitary state or local income taxes. Under the 1997 tax sharing agreement, ISP makes all decisions with respect to all matters relating to the
subsidiary's obligations with respect to federal and state taxes. The provisions of the 1997 tax sharing agreement take into account both the federal income taxes such subsidiary would have incurred
if the subsidiary filed its own separate federal income tax return and the fact that the subsidiary is a member of the ISP Group (as defined) for federal income tax purposes.

In
connection with the issuance in December 2001 of $200 million principal amount of 105/8% Senior Secured Notes due 2009, which we refer to as the 2009
Notes, we entered into a tax sharing agreement with ISP which is substantially the same as the January 1, 2001 tax sharing agreement.

24

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Sales to Affiliates

In May 2003, we entered into a long-term requirements contract where BMCA and its subsidiaries purchase from us all of their colored roofing
granules and algae-resistant granules requirements, except for the requirements of certain of their roofing plants that are supplied by third parties. The contract includes pricing discounts based on
volume purchase targets that have lowered gross margins for our mineral products segment. In 2004, BMCA and its subsidiaries purchased in the aggregate a total of $98.2 million of mineral
products from us, representing 8.2% of our total net sales and 73.1% of our net sales of mineral products.

Affiliate Borrowings

From time to time and as permitted, there are intercompany borrowings and repayments between or among us, our subsidiaries, affiliates and our parent, ISP. In
March 2003, ISP entered into an intercompany borrowing arrangement with ISP Investco and one of its subsidiaries where ISP Investco and its subsidiary loaned ISP a total of $94.0 million
of their unrestricted funds to enable ISP to pay certain costs and expenses related to ISP's going private transaction. This intercompany borrowing arrangement was made through a series of notes with
interest of 1.65% per year and maturity dates ranging from six months to three years. In December 2003, ISP repaid $35.0 million of the total amount borrowed, representing full payment
of the amount borrowed from ISP Investco's subsidiary. Also in December 2003, ISP Investco entered into a new intercompany borrowing arrangement with ISP for an amount of up to
$35.0 million. This borrowing arrangement has a term of ten years and accrues interest at a fixed rate of 5.12% per annum. The outstanding balance due from ISP to ISP Investco at
December 31, 2004 aggregated $94.8 million.

In
August 2004, we entered into a loan agreement with ISP pursuant to which we will allow ISP to borrow from time to time up to the principal amount of $350.0 million with
interest at the rate of 3.74% per annum on the then outstanding principal balance, which we refer to as the ISP Loan. Commencing in 2005, payment of interest is due in arrears on the outstanding
principal balance on each January 31 and July 31. This facility will terminate in August 2007, unless terminated earlier by either party. We may, at our sole option, reduce the
amounts outstanding at any time during the term of the ISP Loan. In a related transaction, in August 2004, ISP entered into a loan agreement as the lender with Heyvestco LLC, an entity
controlled by Samuel J. Heyman on terms substantially the same as the ISP Loan, which we refer to as the Heyvestco Loan. Repayment of the loan by Heyvestco to ISP is guaranteed by an investment
partnership that is also controlled by Mr. Heyman, which entity holds assets sufficient to satisfy the amounts then outstanding under the Heyvestco Loan. The Heyvestco Loan terminates in
August 2007, unless terminated earlier by the lender or borrower. As of December 31, 2004 there were no borrowings outstanding under the ISP Loan or the Heyvestco Loan.

See
"Management's Discussion and Analysis of Financial Condition and Results of Operations-Liquidity and Financial Condition" and Note 12 to our consolidated financial statements
included in this annual report on Form 10-K for additional information regarding related party transactions.

Certain Other Transactions

In connection with becoming President and Chief Executive Officer of ISP in June 1999, Mr. Kumar was granted the right to purchase, and did
purchase, 318,599 shares of ISP common stock for an aggregate purchase price of $3,046,762. Under the purchase agreement, ISP loaned to Mr. Kumar the funds required to purchase the shares,
which loan was evidenced by a recourse promissory note in the principal amount of $3,046,762. The loan was converted to a demand note bearing interest at the lowest applicable federal rate for
short-term instruments. The principal amount of the loan was payable in four installments on each June 11 of the years 2001, 2002 and 2003 and on January 11, 2004, the first
three of which were in the amount of $761,691 and the last of which was for the balance of the remaining outstanding principal amount. Under the terms of the demand note, since

25

---



Mr. Kumar
remained continuously employed by ISP and its subsidiaries through each installment payment date, the principal amount due on such installment payment date was forgiven and the note
has been extinguished.

Item 14.Principal Accountant Fees and Services.

The
following table presents fees for professional services rendered by our independent registered public accounting firm, KPMG LLP, for the fiscal years ended December 31, 2004
and 2003.

Audit and Non-Audit Fees(Dollars in Thousands)

Year Ended
December 31,2004

2003Audit Fees(1)

$
702

$
677Audit-related Fees(2)


69


50Tax Fees(3)


394


413All Other Fees





Total

$
1,165

$
1,140


---

Policy on Pre-Approval of Audit and Non-Audit Services Performed by the Independent Auditors

Our Board of Directors approves, prior to the engagement, consistent with the Sarbanes-Oxley Act of 2002 and the requirements of the Securities and Exchange
Commission, any audit, audit-related and permitted non-audit services reasonably likely to be required by us from KPMG during the coming fiscal year. The Board may delegate the approval of
unanticipated (but otherwise permitted) non-audit services during the coming fiscal year to our principal financial or accounting officer as required.

26

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PART IV

Item 15.Exhibits, Financial Statement Schedules.

The following documents are filed as part of this report:



27

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|Exhibit
Number |  | Description                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|-------------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|3.1            |  | Certificate of Incorporation of International Specialty Holdings Inc. (incorporated by reference to Exhibit 3.1 to Amendment No. 2 to the Registration Statement on Form S-4 of International Specialty
Holdings Inc. (Registration No. 333-82822) (the "IS Holdings S-4"))                                                                                                                                                                                                                                                                                                                              
|3.2            |  | By-laws of International Specialty Holdings Inc. (incorporated by reference to Exhibit 3.2 to the IS Holdings S-4)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|4.1            |  | Indenture, dated as of December 13, 2001, between International Specialty Holdings Inc., as issuer and Wilmington Trust Company, as trustee (incorporated by reference to Exhibit 4.4 to ISP's Annual Report on Form
10-K for the fiscal year ended December 31, 2001 (the "ISP 2001 Form 10-K")).                                                                                                                                                                                                                                                                                                       
|4.2            |  | Form of Notes (included in Exhibit 4.1) (incorporated by reference to Exhibit 4.4 to the ISP 2001 Form 10-K).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|4.3            |  | 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
(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 S-4")).                                                                                                                                                                                                               
|4.4            |  | Amendment No. 1, dated as of November 13, 2001, to 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 (incorporated by reference to Exhibit 4.2 to the Registration Statement on Form S-4 of ISP Chemco Inc. (Registration No. 333-75574) (the "Second ISP Chemco
S-4").                                                                                                                                                       
|4.5            |  | Supplemental Indenture dated as of April 2, 2004 to 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 (incorporated by reference to Exhibit 4.1 to ISP Chemco Inc.'s Form 10-Q for the Quarterly Period ended April 4, 2004 (the "ISP Chemco 10-Q")).                                                                                                                                                                        
|10.1           |  | 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
Second ISP Chemco S-4).                                                                                                                                                                                                                                                                                                                                                              
|10.2           |  | 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).                                                                 
|10.3           |  | 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 ISP's Annual Report on Form 10-K for the fiscal year ended December 31, 1999 (the "ISP 1999 Form 10-K")).
|               |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          

28

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|10.4  |  | Amendment No. 2 to the Amended and Restated Management Agreement, dated as of January 1, 2001 by and among G-I 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 ISP's Annual Report on Form 10-K for the
fiscal year ended December 31, 2000 (the "ISP 2000 Form 10-K")).                                                                                                                                     
|----- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.5  |  | Amendment No. 3 to the Amended and Restated Management Agreement, dated as of June 27, 2001 by and among G-I 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 Chemco S-4).                                                                                                                                                                                                                              
|10.6  |  | Amendment No. 4 to the Amended and Restated Management Agreement, dated as of January 1, 2002 by and among G-I 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 10.5 to ISP's Annual Report on Form 10-K for the fiscal year ended December 31, 2001 (the "ISP 2001
Form 10-K")).                                                                                                                                   
|10.7  |  | Amendment No. 5 to the Amended and Restated Management Agreement, dated as of January 1, 2003 by and among G-I 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 10.1 to the IS Holdings Form 10-Q for the Quarterly Period ended March 30, 2003).                                                                                                                                                                   
|10.8  |  | Amendment No. 6 to the Amended and Restated Management Agreement, dated as of January 1, 2004 by and among G-I Holdings Inc., Merick Inc., International Specialty Products Inc., ISP Investco LLC, ISP Synthetic
Elastomers LP, 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 10.1 to the IS Holdings Form 10-Q
for the Quarterly Period ended April 4, 2004).                                                                                                                                       
|10.9  |  | 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 (Registration No. 333-17827).                                                                                                                                                                                                                                                                                                                               
|10.10 |  | 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)
).+                                                                                                                                                                                                                                                                                                                                                                                                                           
|10.11 |  | Amended and Restated Credit Agreement, dated as of April 2, 2004, 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, JPMorgan Chase 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 ("Credit Agreement") (incorporated by reference to Exhibit 10.2 to the ISP Chemco 10-Q).
|      |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          

29

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|10.12 |  | Letter Agreement dated as of April 15, 2004 to the Credit Agreement by and among ISP Chemco Inc., ISP Chemicals Inc., ISP Minerals Inc. and ISP Technologies Inc. as borrowers, the subsidiary guarantors party thereto, the
lenders party thereto and JPMorgan Chase Bank, as administrative agent (incorporated by reference to Exhibit 10.3 to the ISP Chemco 10-Q).                                                                                                                                                                                                                                              
|----- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.13 |  | 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 (the "Pledge and Security Agreement") (incorporated by reference to Exhibit 10.3 to the Chemco S-4).
|10.14 |  | Amendment No. 1 dated as of April 2, 2004 to the Pledge and Security Agreement (incorporated by reference to Exhibit 10.4 to the ISP Chemco 10-Q).                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|10.15 |  | International Specialty Products Inc. 2000 Long-Term Incentive Plan (incorporated by reference to Exhibit 10.1 to the IS Holdings Form 10-Q for the Quarterly Period ended June 29, 2003).+                                                                                                                                                                                                                                                                                                                                                                                                                          
|10.16 |  | International Specialty Products Inc. 2003 Executive Long-Term Incentive Plan (incorporated by reference to Exhibit 10.2 to the IS Holdings Form 10-Q for the Quarterly Period ended June 29, 2003).+                                                                                                                                                                                                                                                                                                                                                                                                                
|18*   |  | Preferability Letter from KPMG LLP                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|21*   |  | Subsidiaries of International Specialty Holdings Inc.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|31.1* |  | Rule 13a-14(a)/Rule 15d-14(a) Certification of the Chief Executive Officer.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|31.2* |  | Rule 13a-14(a)/Rule 15d-14(a) Certification of the Chief Financial Officer.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|32.1* |  | Section 1350 Certification of the Chief Executive Officer and Chief Financial Officer.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               

---

30

---





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 HOLDINGS INC.
|-------------------- |  | -------------------------------------
|Date: March 30, 2005 |  | By:                                  

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

|Signature                                     |  | Title                                                                           |  | Date          
|--------------------------------------------- |  | ------------------------------------------------------------------------------- |  | --------------
|                                              |  |                                                                                 |  |               
|/s/SAMUEL J. HEYMANSamuel J. Heyman           |  | Chairman of the Board and Director                                              |  | March 30, 2005
|/s/SUNIL KUMARSunil Kumar                     |  | Chief Executive Officer, President and Director (Principal Executive Officer)   |  | March 30, 2005
|/s/SALVATORE J. GUCCIONESalvatore J. Guccione |  | Senior Vice President and Chief Financial Officer (Principal Financial Officer) |  | March 30, 2005
|/s/KENNETH M. MCHUGHKenneth M. McHugh         |  | Vice President and Controller (Principal Accounting Officer)                    |  | March 30, 2005
|/s/RICHARD A. WEINBERGRichard A. Weinberg     |  | Director                                                                        |  | March 30, 2005

31

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INTERNATIONAL SPECIALTY HOLDINGS INC.

FORM 10-K

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

PageManagement's Discussion and Analysis of Financial Condition and Results of Operations

F-2Selected Financial Data

F-27Report of Independent Registered Public Accounting Firm

F-28Consolidated Statements of Operations for the three years ended December 31, 2004

F-29Consolidated Balance Sheets as of December 31, 2004 and 2003

F-30Consolidated Statements of Cash Flows for the three years ended December 31, 2004

F-31Consolidated Statements of Shareholder's Equity for the three years ended December 31, 2004

F-33Notes to Consolidated Financial Statements

F-34Supplementary Data (Unaudited):Quarterly Financial Data (Unaudited)

F-76SCHEDULESConsolidated Financial Statement Schedule:
Schedule IIValuation and Qualifying Accounts

S-1


F-1

---





INTERNATIONAL SPECIALTY HOLDINGS INC.        MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL  CONDITION AND RESULTS OF OPERATIONS

Overview

International Specialty Holdings Inc., a wholly owned subsidiary of International Specialty Products Inc., which we refer to as "ISP", was formed on
June 5, 2001 in connection with a corporate restructuring. Unless otherwise indicated by the context, "we," "us" and "our" refer to International Specialty Holdings Inc. and its
consolidated subsidiaries.

We
are a leading multinational manufacturer and supplier of chemicals and mineral products for a wide variety of personal care, pharmaceutical, food, beverage, biocides, plastics, tire
and rubber and other applications that enhance product performance. We produce more than four hundred specialty chemicals which we market and sell to over six thousand customers in more than ninety
countries worldwide. During the last five years, our goal has been to move toward increasing our focus on our consumer-oriented, service intensive and highly technical businesses while consolidating,
downsizing or otherwise improving certain of our low margin industrial businesses. We report four business segments: specialty chemicals; industrial chemicals; synthetic elastomers; and mineral
products. Our more recent focus has been to add new product platforms that utilize our expertise in polymer manufacturing, research and development, and process technology. For example, in August
2004, ISP contributed its synthetic elastomers business to us (see below and Note 1 to consolidated financial statements), which business has expanded and complemented our global specialty
chemicals portfolio. Another important objective is to seek additional sources of high quality supply of key raw materials in support of the increasing demand for specialty chemical products. We also
supplement our internal resources with strategic alliances and constantly strive to lower our costs through operating efficiencies and plant consolidations.

We
continually explore possible acquisitions where we seek to acquire complementary technologies or products, expand our customer base and leverage our sales and distribution
infrastructure and existing client relationships. For example, we acquired our industrial biocides business that includes a product line of fungicides, preservatives, algaecides and biocides to expand
our performance chemicals product
line. During 2003, ISP acquired our synthetic elastomers business and contributed this business to us in August 2004 (see below). The synthetic elastomers business manufactures and sells
emulsified styrene butadiene rubber and related products. This business was acquired to add a new product platform that expands and complements our global specialty chemicals portfolio, utilizes our
expertise in polymer manufacturing, research and development and process technology, and leverages our international sales and distribution infrastructure. During 2004, we completed four acquisitions,
including three in Europe, to further enhance our global specialty chemicals business. In addition, strategic alliances have allowed us to leverage our core strength in marketing, sales and technical
services to obtain access to new technologies and expand the breadth and utility of our product offerings.

Our
net sales for 2004 were $1,193.6 million, an increase of 30% from sales of $918.6 million in 2003. Our operating income, after excluding certain other operating gains
and charges in each year (see "Non-GAAP Financial Measures" below), increased by 24% in 2004 to $159.7 million from $129.1 million in 2003. The consolidated financial
statements as of and for the year ended December 31, 2003 have been restated to include the assets and liabilities and the results of operations of the synthetic elastomers business, which ISP
acquired in July 2003 and contributed to our capital in August 2004 (see "Results of Operations2004 Compared With 2003" below and Note 1 to consolidated financial
statements).

F-2

---



Critical Accounting Policies

The preparation of our consolidated financial statements in conformity with U.S. generally accepted accounting principles requires our management to make
estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent liabilities. On an on-going basis, we evaluate
our estimates, including but not limited to those related to doubtful accounts, inventory valuation, investments, goodwill and intangible assets, income taxes, environmental liabilities, pensions and
other postemployment benefits, and contingent liabilities. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the
results of which form the basis for making judgments about the carrying values of assets and liabilities. Actual results may differ from these estimates under different assumptions or conditions. We
do not anticipate any changes in management estimates that would have a material impact on our operations, liquidity or capital resources. We believe the following critical accounting policies are the
most important to the portrayal of our financial condition and results of operations and require our management's more significant judgments and estimates in the preparation of our consolidated
financial statements.



We maintain allowances for doubtful accounts for estimated losses resulting from the inability of our customers to make required payments. Management continuously
assesses the financial condition of our customers and the markets in which these customers participate and adjusts credit limits or the allowance for doubtful accounts based on this periodic review.
If the financial condition of our customers were to deteriorate, resulting in an impairment of their ability to make payments, our ability to collect on accounts could be negatively impacted, in which
case additional allowances may be required.



Inventories are valued at the lower of cost or market. The LIFO (last-in, first-out) method is utilized to determine cost for
substantially all domestic acetylene-based finished goods and work-in-process and the raw materials to produce these products. Also, in 2004, the Company changed its method of
valuing inventory for the synthetic elastomers business from the FIFO (first-in, first out) method to the LIFO method (see Notes 1 and 9 to consolidated financial statements). All other
inventories are valued on the FIFO method. We write down our inventories for estimated obsolescence or unmarketable inventories equal to the difference between the cost of inventories and their
estimated market value based upon assumptions about future demand and market conditions. If actual market conditions are less favorable than those projected by management, additional inventory
write-downs may be required.



Our investment strategy is to seek stable returns on our available cash. While from time to time, we may invest in securities of companies that we consider to be
undervalued, our primary strategy is to invest our cash in stable value investments that, although no assurances may be made, we believe will preserve principal and not experience significant moves in
volatility. With respect to our equity positions, we are exposed to the risk of market loss.

Our
short-term investments are reported at fair value. For securities classified as "trading," unrealized holding gains and losses are reflected in the results of operations.
For securities classified as

F-3

---



"available-for-sale,"
unrealized holding gains and losses, net of income tax effect, are included in a separate component of shareholder's equity, "Accumulated other
comprehensive income." The determination of cost in computing realized and unrealized gains and losses is based on the specific identification method. We periodically review
available-for-sale securities for other than temporary impairment when the cost basis of a security exceeds the market value. Declines in the value of these investments or
adverse changes in market conditions could result in impairment charges in the future.



Through December 31, 2001, we amortized goodwill and certain other intangible assets on a straight-line basis over the expected useful lives of
the underlying assets. In accordance with the provisions of Statement of Financial Accounting Standards, which we refer to as "SFAS," No. 142, "Goodwill and Other Intangible Assets," effective
January 1, 2002, goodwill is no longer being amortized over its estimated useful life. However, goodwill is subject to at least an annual assessment for impairment and more frequently if
circumstances indicate a possible impairment. Other intangible assets are being amortized over their useful lives. The useful life of an intangible asset is based on management's assumptions regarding
the expected use of the asset and other assumptions. If events or circumstances indicate that the life of an intangible asset has changed, it could result in higher future amortization charges or
recognition of an impairment loss.



The objective of accounting for income taxes is to recognize the amount of taxes payable or refundable for the current year and deferred tax liabilities and
assets for the future tax consequences of events that have been recognized in our financial statements or tax returns. We account for our income taxes under the asset and liability method. Deferred
tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their
respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates that are expected to apply to taxable income in the years
in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that
includes the enactment date.

In
the determination of our current year tax provision, we assume that all foreign earnings are remitted to the United States, net of applicable foreign tax credits, and since upon
remittance such earnings are taxable, we provide federal income taxes on income from our foreign subsidiaries. Since significant judgment is required to assess the future tax consequences of events
that have been recognized in our financial statements or tax returns, we consider such estimates to be critical to the preparation of our financial statements.

We
believe that our current assumptions and other considerations used to estimate the current year effective rate and deferred tax positions are appropriate. However, if the actual
outcome of future tax consequences differs from our estimates and assumptions, the resulting change to the provision for income taxes could have a material adverse impact on our consolidated financial
statements. A 1% change in the effective tax rate would change the 2004 income tax provision by $0.9 million.



We accrue environmental costs when it is probable that we have incurred a liability and the expected amount can be reasonably estimated. The amount accrued
reflects our assumptions about

F-4

---



remedial
requirements at the contaminated site, the nature of the remedy, the outcome of discussions with regulatory agencies and other potential responsible parties at multi-party sites, and the
number and financial viability of other potentially responsible parties. Adverse decisions or events, particularly as to increases in remedial costs, discovery of new contamination, assertion of
natural resource damages, plans for development of our 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 liability or decrease our estimate of insurance recoveries in respect of those matters. It is not currently possible to estimate the
amount or range of any additional liability. We recognize receivables for estimated environmental insurance recoveries that relate to both past expenses and estimated future liabilities. After
considering the relevant legal issues and other pertinent factors, we believe that we will receive the estimated insurance recoveries and that the insurance recoveries could be in excess of the
current estimated liability for all environmental claims, although there can be no assurance in this regard. Significant judgment is involved in estimating environmental liabilities and related
insurance recoveries. See Note 20 to consolidated financial statements for further discussion with respect to environmental liabilities and estimated insurance recoveries.



We maintain defined benefit plans that provide eligible employees with retirement benefits. In addition, while we generally do not provide postretirement medical
and life insurance benefits, we subsidize such benefits for certain employees and certain retirees. The costs and obligations related to these benefits reflect our assumptions related to general
economic conditions (particularly interest rates), expected return on plan assets, and rate of compensation increases for employees. We set the discount rate assumption annually for our
retirement-related benefit plans at the measurement dates to reflect the yield of high-quality fixed-income debt instruments. The expected long-term rate of return on assets is
derived from a detailed periodic study conducted by our actuaries and our financial management. The study includes a review of anticipated future long-term performance of individual asset
categories. While the study gives appropriate consideration to recent plan performance and historical returns, the assumption is primarily a long-term prospective rate. We revised the
expected long-term rate of return assumption for our domestic hourly retirement plan in 2003 to 9.5%, a reduction from its previous level of 11.0%. A 25 basis points increase or decrease
in the discount rate would result in a plus or minus $0.1 million annual impact on pension expense and a plus or minus $0.9 million impact on the projected benefit obligation. A 25 basis
points increase or decrease in the expected long-term rate of return on assets would result in a plus or minus $0.1 million annual impact on pension expense.

Projected
health care benefits additionally reflect our assumptions about health care cost trends. The cost of providing plan benefits also depends on demographic assumptions including
retirements, mortality, turnover, and plan participation. If actual experience differs from these assumptions, the cost of providing these benefits could increase or decrease.

Results of Operations



Effective July 28, 2003, our parent company, ISP, acquired certain assets of the synthetic rubber business of Ameripol Synpol Corporation, through a wholly
owned limited partnership, ISP Synthetic Elastomers LP. Effective August 30, 2004, ISP contributed the synthetic elastomers business to our

F-5

---



capital.
Accordingly, our consolidated financial statements as of and for the year ended December 31, 2003 have been restated to include the assets and liabilities and the results of operations
of the synthetic elastomers business from the date of its acquisition by ISP. The synthetic elastomers business is being reported as a separate business segment (see Notes 1 and 18 to consolidated
financial statements). Both ISP and the synthetic elastomers business are under common control; accordingly, the contribution of the synthetic elastomers business was recognized at cost.

We
recorded net income of $60.7 million for the year 2004 compared with net income of $39.8 million in 2003. The improved results for 2004 were attributable to higher
operating income. Net income for the year 2003 included a $1.0 million after-tax charge for the cumulative effect of a change in accounting principle from the adoption of SFAS
No. 143, "Accounting for Asset Retirement Obligations."

Net Sales.Net sales by business segment for the years 2004 and 2003 were:

Year Ended December 31,2004

2003(Millions)Specialty chemicals

$
695.3

$
623.4Industrial chemicals


193.8


165.5Synthetic elastomers


170.1


25.7Mineral products


134.4


104.0Net sales

$
1,193.6

$
918.6


Net
sales for 2004 were $1,193.6 million compared with $918.6 million in 2003. The $275.0 million (30%) increase in sales resulted primarily from a full year's sales
from the synthetic elastomers business ($170.1 million) compared with $25.7 million in 2003 after the date of its acquisition by ISP. Higher unit volumes in all other business segments
($97.4 million), as well as the favorable impact of the weaker U.S. dollar ($32.2 million), primarily in Europe, also contributed substantially to the sales increase in 2004. On a
geographic region basis, sales increased by 38% in North America, mainly as a result of the synthetic elastomers business, 17% in Europe, 37% in Asia-Pacific and 21% in Latin America.

Gross Margin.Our gross margin in 2004 was 30.8% compared with 33.5% in 2003. The decrease in our gross margin in 2004 was
attributable to higher manufacturing costs in the specialty chemicals and mineral products segments, the adverse impact of the stronger Euro on European-based manufacturing costs and unfavorable
pricing and mix in the specialty chemicals segment, partially offset by the favorable impact of the weaker U.S. dollar and favorable pricing in the industrial and mineral products segments. In
addition, the gross margin was negatively impacted by a $5.0 million pre-tax provision for the adoption of the LIFO inventory method for valuing inventory for the synthetic
elastomers business.

Selling, General and Administrative.Selling, general and administrative expenses increased 16% in 2004 to
$206.9 million from $178.3 million in 2003, however, as a percent of sales, decreased to 17.3% in 2004 from 19.4% in 2003, due mainly to the inclusion of operating expenses for the
synthetic elastomers business, for which operating expenses represented only 5.4% of sales. The increase in selling, general and administrative expenses in 2004 was due primarily to higher selling and
distribution costs related to acquisitions and growth initiatives.

F-6

---



Other operating gains and (charges), net.Other operating gains, net, totaled $0.7 million in 2004. In the fourth
quarter of 2004, we sold an excess parcel of unutilized land for $1.3 million, recognizing a gain of $1.2 million from the sale. Also, in the fourth quarter of 2004, we decided to
transfer certain production assets in our foods product line from a leased facility in England to our manufacturing facility in
Girvan, Scotland. In connection with this consolidation of production capacity, we accrued $0.5 million for related severance costs. Additional costs for closing the facility in England and
transferring the equipment will be charged to operations as incurred in 2005.

Other
operating charges in 2003 totaled $3.6 million and included a $1.5 million charge for compensation expense for stock option payments related to ISP's going private
transaction (see Note 16 to consolidated financial statements). In addition, in December 2003, we decided to discontinue the manufacturing process at our Texas City, Texas facility for a
product within the industrial chemicals segment. Accordingly, we recorded a $2.1 million charge for the write-off of production assets related to that manufacturing process. Sales
related to this discontinued product were not material.

Operating Income.Operating income (loss) by business segment for the years 2004 and 2003 was:

Year Ended December 31,2004

2003(Millions)Specialty chemicals

$
140.2

$
125.9Industrial chemicals


(3.5
)

(11.5
)Synthetic elastomers


7.4


(3.3
)Mineral products


16.6


13.9Total segment operating income


160.7


125.0Unallocated corporate office items


(0.3
)

0.5Operating income

$
160.4

$
125.5


Operating
income for the year 2004 was $160.4 million compared with $125.5 million in 2003. The year 2004 includes a $5.0 million pre-tax provision for
the adoption of the LIFO inventory method for valuing inventory for the synthetic elastomers business. The effect of this accounting change was to decrease operating income and net income for the year
2004 by $5.0 and $3.3 million, respectively.

Excluding
the other operating gains and (charges), net, discussed above, operating income on a comparable basis was $159.7 million in 2004, a $30.6 million (24%) increase
compared with $129.1 million in 2003 (see "Non-GAAP Financial Measures" below). The higher operating income in 2004 was a result of improved performance in each business segment.

The
specialty chemicals segment achieved operating income of $140.2 million for 2004 compared with $125.9 million in 2003. On a comparable basis, excluding the
aforementioned gains and charges pertaining to specialty chemicals, operating income for the segment improved 10% to $139.5 million compared with $127.0 million in 2003. The improved
results were primarily attributable to the favorable impact of higher unit volumes in all product lines, partially offset by higher manufacturing costs, increased operating expenses, mainly higher
selling expenses, and unfavorable pricing. Operating income for the specialty chemicals segment in 2004 was also favorably impacted by the weaker U.S. dollar and by the contribution to income from the
three specialty chemicals niche acquisitions in Europe in the first quarter of 2004 (see Note 17 to consolidated financial statements).

F-7

---





The industrial chemicals segment recorded an operating loss of $3.5 million in 2004 compared with an operating loss of $11.5 million in 2003.
Excluding the aforementioned other operating charges in 2003 pertaining to industrial chemicals, the operating loss in 2003 was $9.2 million. The improved performance in 2004 was attributable
to favorable pricing, manufacturing efficiencies and higher unit volumes, partially offset by the adverse impact of the stronger Euro on European-based manufacturing costs.

The
synthetic elastomers business, in its first full year of operation, posted operating income of $7.4 million in 2004 compared with an operating loss of $3.3 million in
2003 after the date of its acquisition in July 2003.

Operating
income for the mineral products segment was $16.6 million in 2004 compared with $13.9 million in 2003. On a comparable basis, excluding other operating charges in
2003 pertaining to mineral products, operating income was $14.1 million for 2003. The 18% improvement over the year 2003 was due to the impact of higher unit volumes and favorable pricing,
partially offset by increased manufacturing costs and higher freight and distribution expenses.

Interest Expense.Interest expense for 2004 was $77.2 million, a $0.7 million (1%) increase from the
$76.5 million recorded in 2003. The slightly higher interest expense was attributable to higher average borrowings ($2.2 million impact), mainly due to higher term loan borrowings under
our senior credit facilities (see "Liquidity and Financial Condition" below). Partially offsetting the effect of higher borrowing levels was the impact ($1.5 million) of lower
average interest rates.

Investment Income.Investment income in 2004 was $16.7 million compared with $14.9 million in 2003. Investment
income in 2004 included a $5.5 million other than temporary impairment charge related to an available-for-sale equity security held in our investment portfolio. The
increased investment income resulted from higher net realized portfolio gains in 2004, offset by net realized and unrealized losses on trading securities.

Other Expense, net.Other expense, net, comprises 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 items of expense. Other expense, net, was $6.8 million in 2004 compared with $2.4 million in 2003. The higher expense in 2004 was due primarily to
unfavorable foreign exchange.

Income Taxes.In 2004, we recorded a provision for income taxes of $32.3 million. Our effective tax rate for 2004 was
34.7%, which was consistent with an effective tax rate of 33.7% for 2003.

Business Segment Review

A discussion of operating results for each of our business segments follows. We operate our business through four reportable business segments: specialty
chemicals; industrial chemicals; synthetic elastomers; and mineral products. The operating income for each business segment discussed below is adjusted for the non-GAAP financial measures
in the table below. See Notes 18 and 19 to consolidated financial statements for additional business segment and geographic information.

F-8

---





The business segment review below and the discussion of operating income above contain information regarding non-GAAP financial measures contained
within the meaning of Item 10 of Regulation S-K promulgated by the Securities and Exchange Commission. As used herein, "GAAP" refers to U.S. generally accepted accounting
principles. We use non-GAAP financial measures to eliminate the effect of certain other operating gains and charges on reported operating income. Management believes that these financial
measures are useful to bondholders and financial institutions because such measures exclude transactions that are unusual due to their nature or infrequency and therefore allow bondholders and
financial institutions to more readily compare our company's performance from period to period. Management uses this information in monitoring and evaluating our company's performance and the
performance of individual business segments. The non-GAAP financial measures included herein have been reconciled to the most directly comparable GAAP financial measure as is required
under Item 10 of Regulation S-K regarding the use of such financial measures. These non-GAAP financial measures should be considered in addition to, and not as a

F-9

---



substitute,
or superior to, operating income or other measures of financial performance in accordance with U.S. generally accepted accounting principles.

|                                               |                                                          | Year Ended December 31, |      
|---------------------------------------------- | -------------------------------------------------------- | ----------------------- | -----
|
|
|Reconciliation of non-GAAP financial measures: |                                                          |                         |      
|Operating income per GAAP                      |                                                          | $                       | 160.4
|Non-GAAP adjustments:                          |                                                          |                         |      
|                                               | Add: Other operating (gains) charges (1)                 |                         |      
|                                               |                                                          |                         |      
|Operating income as adjusted                   |                                                          | $                       | 159.7
|                                               |                                                          |                         |      
|Supplemental Business Segment Information:     |                                                          |                         |      
|Operating income (loss):                       |                                                          |                         |      
|                                               | Operating income per GAAPSpecialty Chemicals            |                         | $    
|                                               | Non-GAAP adjustments (1)                                 |                         |      
|                                               |                                                          |                         |      
|                                               | Operating incomeSpecialty Chemicals as adjusted.        |                         | $    
|                                               |                                                          |                         |      
|                                               | Operating loss per GAAPIndustrial Chemicals             |                         | $    
|                                               | Non-GAAP adjustments (1)                                 |                         |      
|                                               |                                                          |                         |      
|                                               | Operating lossIndustrial Chemicals                      |                         | $    
|                                               |                                                          |                         |      
|                                               | Operating income (loss) per GAAPSynthetic Elastomers    |                         | $    
|                                               | Non-GAAP adjustments (1)                                 |                         |      
|                                               |                                                          |                         |      
|                                               | Operating income (loss)Synthetic Elastomers as adjusted |                         | $    
|                                               |                                                          |                         |      
|                                               | Operating income per GAAPMineral Products               |                         | $    
|                                               | Non-GAAP adjustments (1)                                 |                         |      
|                                               |                                                          |                         |      
|                                               | Operating income  Mineral Products as adjusted          |                         | $    
|                                               |                                                          |                         |      
|                                               | Total segment operating income as adjusted               |                         | $    
|                                               | Unallocated corporate office per GAAP                    |                         |      
|                                               |                                                          |                         |      
|                                               | Operating income as adjusted                             |                         | $    
|                                               |                                                          |                         |      

---



Sales for the specialty chemicals segment in 2004 were $695.3 million compared with $623.4 million in 2003. The $71.9 million (12%) increase
in sales was primarily attributable to higher unit volumes ($56.9 million), mainly in the personal care, performance chemicals and food product lines, and included the contribution to sales
($21.0 million) of the three specialty chemicals acquisitions in Europe

F-10

---



in
the first quarter of 2004. The favorable effect of the weaker U.S. dollar ($24.0 million), primarily in Europe, also benefited sales. Favorable personal care unit volumes were primarily due
to higher sales of skin care and oral care products in Europe and North America. Higher performance chemicals unit volumes mainly resulted from increased sales from our biocides product line, which is
comprised of a broad range of preservatives and fungicides for various product applications, including paint and coatings. Unit volumes in the food product line benefited from the first quarter 2004
acquisitions and the full year impact from the May 2003 Germinal acquisition in South America.

Operating
income for the specialty chemicals segment was $140.2 million for the year 2004 compared with $125.9 million in 2003. On a comparable basis, excluding the
aforementioned other operating gains and (charges), net, pertaining to specialty chemicals, operating income for the segment increased by 10% for the year 2004 to $139.5 million compared with
$127.0 million in 2003. The improved results were primarily attributable to the favorable impact of higher unit volumes in all product lines (totaling $32.0 million), partially offset by
higher manufacturing costs (totaling $13.8 million), increased operating expenses ($11.8 million), mainly higher selling expenses due to acquisitions and growth initiatives, and
unfavorable pricing ($9.0 million). Operating income for the specialty chemicals segment in 2004 was also favorably impacted by the weaker U.S. dollar ($15.3 million) and by the
contribution to income from the three specialty chemicals niche acquisitions in Europe in the first quarter of 2004.



Sales for the industrial chemicals segment in 2004 were $193.8 million compared with $165.5 million in 2003. The $28.3 million (17%) increase
in sales was due to higher unit volumes ($15.4 million), primarily sales of intermediate and solvent products (tetrahydrofuran and N-methyl pyrrolidone) in Asia-Pacific
and North America. Increased sales of industrial products also benefited from favorable pricing ($4.7 million) and the favorable effect of the weaker U.S. dollar ($8.2 million).

The
industrial chemicals segment recorded an operating loss of $3.5 million in 2004 compared with an operating loss of $11.5 million in 2003. Excluding the aforementioned
other operating charges in 2003 pertaining to industrial chemicals, the operating loss in 2003 was $9.2 million. The improved performance in 2004 was attributable to favorable pricing
($4.7 million), manufacturing efficiencies ($3.3 million) and higher unit volumes ($2.1 million), partially offset by the adverse impact of the stronger Euro on European-based
manufacturing costs.



The synthetic elastomers business was acquired by our parent company, ISP, in July 2003 and ISP contributed this business to our company effective
August 30, 2004. The synthetic elastomers business manufactures and sells emulsified styrene butadiene rubber and related products. Since the date of its acquisition, we have expended nearly
$20 million for capital improvements for this business.

Sales
for the synthetic elastomers business segment, in its first full year of operation, were $170.1 million in 2004 compared with $25.7 million in the year 2003 after the
date of its acquisition by ISP. The synthetic elastomers business recorded operating income of $7.4 million for the year 2004 compared with an operating loss of $3.3 million in 2003 when
the business was in its start-up phase.

F-11

---





Sales for the mineral products segment for 2004 were $134.4 million compared with $104.0 million in 2003. The $30.4 million (29%) increase
was mainly attributable to higher unit volumes ($25.1 million) as a result of industry-wide growth and included 26% higher sales to Building Materials Corporation of America, an
affiliate, which we refer to as "BMCA."

Operating
income for the mineral products segment was $16.6 million in 2004 compared with $13.9 million in 2003. On a comparable basis, excluding other operating charges in
2003 pertaining to mineral products, operating income was $14.1 million for 2003. The 18% improvement over the year 2003 was due to the impact of higher unit volumes ($4.6 million) and
favorable pricing ($5.2 million), partially offset by increased manufacturing costs and higher freight and distribution expenses (totaling $7.3 million).

Results of Operations



We recorded net income of $39.8 million for the year 2003 compared with a net loss of $104.7 million in 2002. The results for 2003 included a
$1.0 million after-tax cumulative effect of a change in accounting principle from the adoption of SFAS No. 143, "Accounting for Asset Retirement Obligations." The results for
2002 included a $155.4 million goodwill impairment charge, effective January 1, 2002, for the cumulative effect of a change in accounting principle related to the adoption of SFAS
No. 142, "Goodwill and Other Intangible Assets."

Income
before the cumulative effect of changes in accounting principles was $40.8 million in 2003 compared with $50.7 million in 2002. The results for 2003 included
$3.6 million of other operating charges, including a $2.1 million charge for the write-off of production assets related to a discontinued product in the industrial chemicals
business segment and a $1.5 million charge for stock option payments related to ISP's going private transaction in the first quarter of 2003 (see Note 16 to consolidated financial
statements). The results for 2002 included $12.2 million of other operating gains related to the sale of our FineTech business and to the termination and settlement of contracts and a
$7.6 million other operating charge for the write-off of deferred costs related to our Linden, New Jersey property (see Note 5 to consolidated financial statements). The year
2002 also included a $7.2 million pre-tax charge for the early retirement of debt.

Net Sales.Net sales by business segment for the years 2003 and 2002 were:

Year Ended December 31,2003

2002(Millions)Specialty chemicals

$
623.4

$
600.8Industrial chemicals


165.5


149.4Synthetic elastomers


25.7


Mineral products


104.0


95.1Net sales

$
918.6

$
845.3


F-12

---



Net
sales for 2003 were $918.6 million compared with $845.3 million in 2002. The $73.3 million (9%) increase in sales resulted from the synthetic elastomers business
($25.7 million), acquired during the third quarter of 2003, higher unit volumes in the industrial chemicals and mineral products segments (totaling $24.0 million) and in the
pharmaceutical, food, beverage and personal care product lines of the specialty chemicals segment (totaling $19.0 million) and from the favorable impact of the weaker U.S. dollar, primarily in
Europe ($40.8 million). These sales gains were partially offset by lower pricing in industrial chemicals, mineral products and personal care (totaling $13.9 million) and lower volumes in
the fine chemicals and performance chemicals product lines of the specialty chemicals segment (totaling $22.3 million). On a geographic region basis, sales increased by 16% in Europe, 9% in
Asia-Pacific, 7% in Latin America and 5% in North America.

Gross Margin.Our gross margin in 2003 was 33.5% compared with 34.8% in 2002. The gross margin for the specialty chemicals
segment increased by 3.7% in 2003 compared with 2002 as a result of higher volumes, manufacturing efficiencies and the favorable impact of the weaker U.S. dollar. The overall reduction in gross margin
was attributable to the unfavorable effect of the lower pricing in the industrial chemicals and mineral products segments and unfavorable manufacturing costs in mineral products.

Selling, General and Administrative.Selling, general and administrative expenses increased 4% in 2003 to
$178.3 million from $170.9 million in 2002, however, as a percent of sales, decreased to 19.4% in 2003 from 20.2% in 2002. The increase in selling, general and administrative expenses in
2003 related primarily to higher selling and distribution costs as a result of the higher sales levels, the inclusion of operating expenses for the synthetic elastomers business and the impact of the
weaker U.S. dollar, and also to higher administrative and general expenses due to increased compensation-related costs.

Other operating gains and (charges), net.Other operating charges in 2003 totaled $3.6 million and included a
$1.5 million charge for compensation expense for stock option payments related to ISP's going private transaction (see Note 16 to consolidated financial statements). In addition, in
December 2003, we decided to discontinue the manufacturing process at our Texas City, Texas facility for a product within the industrial chemicals segment. Accordingly, we recorded a
$2.1 million charge for the write-off of production assets related to that manufacturing process. Sales related to this discontinued product were not material.

Other
operating gains in 2002 included $12.2 million of other operating gains, including a $5.5 million gain on the sale of our FineTech business and $6.8 million of
gains from the termination and settlement of contracts. Offsetting these gains was a $7.6 million other operating charge for the write-off of deferred costs related to our Linden,
New Jersey property. The write-off related to deferred costs associated with the study and exploration of developing a hazardous waste treatment, storage and disposal facility at the
Linden site. This alternative use scenario became less likely with the progress made on other development opportunities at this site. See also Note 5 to consolidated financial statements.

F-13

---



Operating Income.Operating income (loss) by business segment for the years 2003 and 2002 was:

Year Ended December 31,2003

2002(Millions)Specialty chemicals

$
125.9

$
107.9Industrial chemicals


(11.5
)

5.9Synthetic elastomers


(3.3
)

Mineral products


13.9


20.9Total segment operating income


125.0


134.7Unallocated corporate office items


0.5


0.5Write-off of deferred costs





(7.6
)Operating income

$
125.5

$
127.6


Operating
income in 2003 was $125.5 million compared with $127.6 million in 2002. Excluding the other operating gains and (charges), net, discussed above, operating income
on a comparable basis was $129.1 million in 2003, a $6.1 million (5%) increase compared with $123.0 million in 2002 (see "Non-GAAP Financial Measures" below).

Operating
income for the specialty chemicals segment was $125.9 million for 2003 compared with $107.9 million in 2002. On a comparable basis, excluding the aforementioned
gains and charges pertaining to specialty chemicals, operating income for the segment improved 33% to $127.0 million compared with $95.7 million in 2002. The improved results were
primarily attributable to the personal care, pharmaceutical and beverage product lines (up a combined $36.2 million), mainly due to manufacturing efficiencies (totaling $8.9 million),
lower operating expenses (totaling $6.6 million) and higher volumes (a $4.7 million favorable impact). The weaker U.S. dollar in Europe also had a substantial positive impact on
operating income for the specialty chemicals segment in 2003 ($20.0 million).

The
industrial chemicals segment recorded an operating loss of $11.5 million in 2003. Excluding the aforementioned other operating charges in 2003 pertaining to industrial
chemicals, the operating loss in 2003 was $9.2 million compared with operating income of $5.9 million in 2002. The results were mainly attributable to lower pricing, higher operating
expenses and to the adverse impact of the stronger Euro and higher energy costs.

The
synthetic elastomers business recorded an operating loss of $3.3 million in 2003 after the date of its acquisition when the business was in its start-up phase.

Operating
income for the mineral products segment was $13.9 million in 2003. On a comparable basis, excluding other operating charges in 2003 pertaining to mineral products,
operating income was $14.1 million for 2003 compared with $20.9 million in 2002. The 33% decline from 2002 was due to unfavorable manufacturing costs and, to a lesser extent, unfavorable
pricing, partially offset by higher volumes.

Interest Expense.Interest expense for 2003 was $76.5 million, an $8.4 million (10%) decrease from the
$84.9 million recorded in 2002. The lower interest expense was primarily attributable to lower average borrowings ($5.5 million impact) and, to a lesser extent, lower average interest
rates ($2.9 million impact).

F-14

---



Investment Income.Investment income in 2003 was $14.9 million compared with $48.1 million
in 2002. Investment
income in 2002 included a $39.0 million other than temporary impairment charge for certain available-for-sale securities held in our investment portfolio. The lower
investment income also resulted from realized portfolio losses in 2003, partially offset by higher unrealized gains.

Other Expense, net.Other expense, net, comprises 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 items of expense. Other expense, net, was $2.4 million in 2003 compared
with $6.9 million in 2002. The lower expense in 2003 was due primarily to favorable foreign exchange as a result of the weaker U.S. dollar, mainly in Europe, partially offset by
$0.9 million higher environmental liability provisions related to discontinued operations.

Income Taxes.In 2003, we recorded a provision for income taxes of $20.7 million. Our effective tax rate for 2003 was
33.7%, which was consistent with an effective tax rate of 34.0% for 2002.

Business Segment Review

A discussion of operating results for each of our business segments follows. We operate our business through four reportable business segments: specialty
chemicals; industrial chemicals; synthetic elastomers; and mineral products. The operating income for each business segment discussed below is adjusted for the non-GAAP financial measures
in the table below. See Notes 18 and 19 to consolidated financial statements for additional business segment and geographic information.



The business segment review below and the discussion of operating income above contain information regarding non-GAAP financial measures contained
within the meaning of Item 10 of Regulation S-K promulgated by the Securities and Exchange Commission. As used herein, "GAAP" refers to U.S. generally accepted accounting
principles. We use non-GAAP financial measures to eliminate the effect of certain other operating gains and charges on reported operating income. Management believes that these financial
measures are useful to bondholders and financial institutions because such measures exclude transactions that are unusual due to their nature or infrequency and therefore allow bondholders and
financial institutions to more readily compare our company's performance from period to period. Management uses this information in monitoring and evaluating our company's performance and the
performance of individual business segments. The non-GAAP financial measures included herein have been reconciled to the most directly comparable GAAP financial measure as is required
under Item 10 of Regulation S-K regarding the use of such financial measures. These non-GAAP financial measures should be considered in addition to, and not as a

F-15

---



substitute,
or superior to, operating income or other measures of financial performance in accordance with U.S. generally accepted accounting principles.

|                                               |                                                          | Year Ended December 31, |      
|---------------------------------------------- | -------------------------------------------------------- | ----------------------- | -----
|
|
|Reconciliation of non-GAAP financial measures: |                                                          |                         |      
|Operating income per GAAP                      |                                                          | $                       | 125.5
|Non-GAAP adjustments:                          |                                                          |                         |      
|                                               | Add: Other operating (gains) charges (1)                 |                         |      
|                                               |                                                          |                         |      
|Operating income as adjusted                   |                                                          | $                       | 129.1
|                                               |                                                          |                         |      
|Supplemental Business Segment Information:     |                                                          |                         |      
|Operating income:                              |                                                          |                         |      
|                                               | Operating income per GAAPSpecialty Chemicals            |                         | $    
|                                               | Non-GAAP adjustments (1)                                 |                         |      
|                                               |                                                          |                         |      
|                                               | Operating incomeSpecialty Chemicals as adjusted.        |                         | $    
|                                               |                                                          |                         |      
|                                               | Operating income (loss) per GAAPIndustrial Chemicals    |                         | $    
|                                               | Non-GAAP adjustments (1)                                 |                         |      
|                                               |                                                          |                         |      
|                                               | Operating income (loss)Industrial Chemicals as adjusted |                         | $    
|                                               |                                                          |                         |      
|                                               | Operating loss per GAAPSynthetic Elastomers             |                         | $    
|                                               | Non-GAAP adjustments                                     |                         |      
|                                               |                                                          |                         |      
|                                               | Operating lossSynthetic Elastomers as adjusted          |                         | $    
|                                               |                                                          |                         |      
|                                               | Operating income per GAAPMineral Products               |                         | $    
|                                               | Non-GAAP adjustments (1)                                 |                         |      
|                                               |                                                          |                         |      
|                                               | Operating incomeMineral Products as adjusted            |                         | $    
|                                               |                                                          |                         |      
|                                               | Total segment operating income as adjusted               |                         | $    
|                                               | Unallocated corporate office per GAAP                    |                         |      
|                                               |                                                          |                         |      
|                                               | Operating income as adjusted                             |                         | $    
|                                               |                                                          |                         |      

---

F-16

---





Sales for the specialty chemicals segment in 2003 were $623.4 million compared with $600.8 million in 2002. The $22.6 million (4%) increase
in sales was attributable to the favorable effect of the weaker U.S. dollar ($29.0 million) and higher unit volumes in the pharmaceutical, food, beverage and personal care product lines
(totaling $19.0 million). Partially offsetting these sales increases were lower unit volumes in the fine chemicals and performance chemicals product lines (totaling $22.3 million),
partially as a result of the loss of sales due to the termination of the supply and license agreement in 2002 with Polaroid ($9.1 million), and unfavorable pricing ($3.8 million),
primarily in the personal care product line. Favorable pharmaceutical volumes were primarily attributable to strong growth in the oral care market in North America and the excipients markets
(Plasdones for tablet binders and Polyplasdones for tablet disintegrants), while higher food volumes resulted primarily from the acquisition of Germinal S.A. in May 2003. Increased personal
care volumes resulted from strong sales of sunscreens in North America and Europe, while higher beverage volumes were due to growth in Europe and Asia-Pacific.

Operating
income for the specialty chemicals segment increased by 33% for the year 2003 to $127.0 million compared with $95.7 million in 2002. The improved results were
primarily attributable to the personal care, pharmaceutical and beverage product lines (up a combined $36.2 million), mainly due to manufacturing efficiencies (totaling $8.9 million),
lower operating expenses (totaling $6.6 million) and higher volumes (a $4.7 million favorable impact), partially offset by unfavorable pricing ($3.8 million in total for the
specialty chemicals segment). The weaker U.S. dollar in Europe also had a substantial positive impact on operating income for the specialty chemicals segment in 2003 ($20.0 million). The
improved results for this segment were adversely impacted by lower volumes in the fine chemicals product line ($6.2 million), mainly due to the loss of sales to Polaroid.



Sales for the industrial chemicals segment in 2003 were $165.5 million compared with $149.4 million in 2002. The 11% increase in sales was
attributable to higher unit volumes ($10.8 million) and the favorable effect of the weaker U.S. dollar ($11.8 million), partially offset by the continuing adverse effect of unfavorable
pricing ($6.4 million).

The
industrial chemicals segment recorded an operating loss of $9.2 million in 2003 compared with operating income of $5.9 million in 2002. The results for this business
were adversely impacted by the stronger Euro on European-based manufacturing costs ($6.6 million). The unfavorable results also included higher energy costs and operating expenses
($8.0 million) and unfavorable pricing ($6.4 million), partially offset by manufacturing efficiencies ($4.9 million) and the impact of higher volumes ($1.6 million).



The synthetic elastomers business recorded sales of $25.7 million and an operating loss of $3.3 million in 2003 after the date of its acquisition by
ISP when the business was in its start-up phase.



Sales for the mineral products segment for 2003 were $104.0 million compared with $95.1 million in 2002. The 9% increase was due to higher unit
volumes ($13.3 million) and included 20% higher

F-17

---



third
party sales and 6% higher sales to BMCA. The sales growth was partially offset by lower pricing ($4.4 million) due to unfavorable customer contract pricing.

Operating
income for 2003 was $14.1 million compared with $20.9 million in 2002. The $6.8 million (33%) decrease in operating income was due to unfavorable
manufacturing costs ($7.5 million), primarily as a result of higher energy costs and to the unfavorable pricing ($4.4 million).

Liquidity and Financial Condition



During 2004, our net cash flow before financing activities was $153.8 million, including $225.0 million of cash generated from operations, the
reinvestment of $116.5 million for capital programs and acquisitions, and $44.0 million of cash generated from net sales of available-for-sale securities.

Operating Activities.Net cash generated from operating activities totaled $225.0 million for the year 2004 compared
with $188.8 million in 2003. The cash flow from operations in 2004 primarily represented our net income of $60.7 million plus net non-cash charges and credits to income
totaling $84.6 million, which included depreciation expense, deferred taxes and net gains on securities. Cash provided from operations also included a cash inflow of $124.9 million from
net sales of trading securities. Partially offsetting these cash inflows was a $19.9 million cash outflow from an increase in receivables from related parties and a cash investment of
$35.1 million in additional working capital, including a $30.1 million increase in receivables as a result of higher sales and a net decrease of $25.9 million in income taxes
payable, partially offset by a $19.1 million increase in payables and accrued liabilities and a $3.0 million decrease in inventories.

Investing Activities.Net cash used in investing activities in 2004 totaled $71.2 million, principally attributable to
the reinvestment of $116.5 million for capital programs and acquisitions. During 2004, we completed four niche acquisitions, including three in Europe in the first quarter of 2004, to further
enhance our global specialty chemicals business (see Note 17 to consolidated financial statements). Cash generated from net sales of available-for-sale securities from
our investment portfolio in 2004 totaled $44.0 million.

Financing Activities.Net cash provided by financing activities in 2004 totaled $26.5 million and included
$31.2 million of cash proceeds from a refinancing of ISP Chemco Inc.'s, which we refer to as "ISP Chemco," senior secured credit facilities (see discussion below). Financing activities
for the year 2004 also included a $1.1 million increase in short-term borrowings and a $0.7 million cash
inflow from a net reduction in loans to our parent company, offset by $4.4 million of repayments of long-term debt and $2.1 million of debt issuance costs related to the
financing activities described below.

On
April 2, 2004, ISP Chemco, one of our direct, wholly owned subsidiaries, and three of its wholly owned subsidiaries amended and restated its June 2001
$450.0 million senior secured credit facilities, which we refer to as the "Senior Credit Facilities" in order to extend the term, increase future flexibility and reduce the effective interest
rate on borrowings. The Senior Credit Facilities provide a $250.0 million term loan with a maturity in March 2011, which replaced the $225.0 million term loan that was due to
mature in June 2008. In connection therewith, ISP Chemco borrowed an additional $31.2 million to bring the outstanding balance of the term loan to $250.0 million. The Senior
Credit Facilities reduced the margin-based interest rate for term loan borrowings and amended financial covenant ratios, including the elimination of the minimum adjusted net worth covenant.

F-18

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On
April 15, 2004, the $225.0 million revolving credit facility under the Senior Credit Facilities, which was to terminate in June 2006, was reduced to
$200.0 million, including a borrowing capacity not in excess of $50.0 million for letters of credit, and the maturity was extended to April 15, 2009. In addition, the margin-based
interest rate for revolving credit borrowings was reduced.

On
April 13, 2004, ISP Synthetic Elastomers LP entered into a $25.0 million financing agreement, which we refer to as the "Credit Facility," which can be increased to
$35.0 million at our option. The initial borrowings under the Credit Facility were primarily used to partially repay intercompany advances and for working capital purposes. The Credit Facility
has a maturity date of April 13, 2009, subject to certain conditions, and is secured by a lien upon substantially all of the assets of ISP Synthetic Elastomers LP. Availability under the Credit
Facility is based upon Eligible Accounts Receivable, Eligible Inventory and other limitations, as defined in the Credit Facility, and includes a borrowing capacity not in excess of
$10.0 million for letters of credit. The Credit Facility bears interest at a floating rate based upon the Prime Rate or LIBOR, each as defined in the Credit Facility. There were no borrowings
outstanding under the Credit Facility at December 31, 2004.

As
a result of the foregoing factors, cash and cash equivalents increased by $181.2 million during 2004 to $338.8 million.



As of December 31 2004, our current maturities of long-term debt, scheduled to be repaid during 2005, totaled $4.4 million, including
$2.5 million related to the term loan under the Senior Credit Facilities.



During 2001, ISP Chemco and three of its wholly owned subsidiaries jointly issued, in three separate transactions, a total of $405.0 million aggregate
principal amount of 101/4% Senior Subordinated Notes due 2011, which we refer to as the "2011 Notes." 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, places limitations on 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
June 2001, in a related transaction, ISP Chemco and those same three subsidiaries which issued the 2011 Notes also entered into the $450.0 million Senior Credit
Facilities. As discussed above, in April 2004, ISP Chemco and those same three subsidiaries amended and restated the Senior Credit Facilities in order to extend the term, increase future
flexibility and reduce the effective interest rate on borrowings. The Senior Credit Facilities provide a $250.0 million term loan with a maturity in March 2011, which replaced the
$225.0 million term loan that was due to mature in June 2008. In addition, in April 2004, the $225.0 million revolving credit facility under the Senior Credit Facilities,
which was to terminate in June 2006, was reduced to $200.0 million, including a borrowing capacity not in excess of $50.0 million for letters of credit, and the maturity was
extended to April 15, 2009. As of December 31, 2004, no borrowings and $8.8 million of letters of credit were outstanding under the revolving credit facility. 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

F-19

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in
the Senior Credit Facilities). The average interest rate at December 31, 2004 on borrowings under the Senior Credit Facilities was 4.25%. The Senior Credit Facilities require compliance with
various financial covenants, including a total debt leverage maintenance ratio, a senior debt leverage maintenance ratio and an interest coverage ratio. 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, we issued $200.0 million principal amount of 105/8% Senior Secured Notes due 2009, which we refer to as the "2009 Notes." 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 our subsidiaries. The 2009 Notes
were issued under an indenture which, among other things, limits our ability and the ability of our subsidiaries, except our unrestricted subsidiaries, to incur additional debt, enter into
transactions with affiliates, issue preferred stock, incur liens, and pay dividends or make certain other restricted payments and restricted investments. ISP Synthetic Elastomers LP and ISP Investco
LLC, our wholly owned subsidiaries, the subsidiaries of ISP Investco, our accounts receivable subsidiary and certain immaterial subsidiaries have been designated as unrestricted subsidiaries under the
indenture related to the 2009 Notes.

The
borrowings of certain of our subsidiaries are subject to the application of certain financial covenants contained in the Senior Credit Facilities and in the indenture governing the
2011 Notes. Our borrowings are also subject to the application of some financial covenants contained in the indenture governing the 2009 Notes. As of December 31, 2004, we and those
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 indenture governing the 2011 Notes contain additional affirmative and negative covenants affecting ISP Chemco and some of its subsidiaries, including
restrictions on transactions with affiliates, sale-leaseback transactions, and mergers and transfers of all or substantially all of those subsidiaries' assets. The indenture governing the
2009 Notes also contains additional affirmative and negative covenants similar to those contained in the indenture governing the 2011 Notes affecting us and some of our subsidiaries. These limitations
do not apply to ISP Synthetic Elastomers LP and ISP Investco LLC, which are unrestricted subsidiaries. As of December 31, 2004, under the most restrictive of these limitations, we could
have paid restricted payments of up to $74.0 million. Restricted payments are dividends, acquisitions of our equity or other capital stock, payments on subordinated debt or most investments in
third parties. Despite those limitations, we expect our availability under those covenants to make restricted payments, tax sharing payments and other permitted cash payments will allow us to satisfy
our cash obligations under the notes. 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

F-20

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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 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.



In August 2004, we entered into a loan agreement with ISP pursuant to which we will allow ISP to borrow from time to time up to $350.0 million with
interest at the rate of 3.74% per annum on the outstanding principal balance. Commencing in 2005, payment of interest is due in arrears on the outstanding principal balance on each January 31
and July 31. This facility will terminate in August 2007, unless terminated earlier. ISP has also agreed to enter into a loan agreement as the lender with an entity controlled by Samuel
J. Heyman, ISP's and our Chairman, on terms substantially the same as the loan agreement between us and ISP. While, as of December 31, 2004, there were no borrowings outstanding under either
facility, during the year 2004 there was an outstanding balance as of any one
time of as much as $27.4 million. Subsequent to December 31, 2004, we have loaned a total of $200.0 million to ISP pursuant to this loan agreement.

Pursuant
to a management agreement, which we refer to as the "Management Agreement," we, through a subsidiary, provide certain general management, administrative, legal,
telecommunications, information and facilities services to BMCA and the ISP parent company. Charges by us for providing such services aggregated $5.7, $6.3 and $6.2 million for 2004, 2003 and
2002, 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 us for the benefit of the respective parties, which are based on an estimate of the costs we incur to provide such services. The Management Agreement is expected to be amended to extend
the term of the agreement, effective January 1, 2005, through December 31, 2005. We 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.

In
May 2003, we entered into a long-term contract with BMCA to supply BMCA and its subsidiaries substantially all of their colored roofing granules and algae-resistant
granules requirements, except for the requirements of certain of their roofing plants that are supplied by third parties. The contract includes pricing discounts based on volume purchase targets that
have lowered gross margins for the mineral products segment.

F-21

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Our commercial commitments as of December 31, 2004 are as follows:

Amount of Commitment Per PeriodTotal

Less than
1 Year

1-3
Years

4-5
Years

After
5 Years(Millions)Senior Credit Facilities:Term loan

$
248.1

$
2.5

$
5.0

$
5.0

$
235.6Revolving credit facilities














Standby letters of credit


8.8


8.8








Short-term debt and lines of credit


1.1


1.1











The
Senior Credit Facilities are comprised of a $250.0 million term loan maturing in March 2011 and a $200.0 million revolving credit facility which will terminate
in April 2009. The revolving credit facility includes a borrowing capacity not in excess of $50.0 million for letters of credit.



Capital expenditures are expected to be approximately $140 million in 2005.



For information with respect to income taxes, see Note 7 to consolidated financial statements.



Inflation generally affects our company by increasing the cost of labor, raw materials and energy costs. We do not believe that inflation has had a significant
adverse 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 entered into an operating lease in 1998 for an equipment sale-leaseback transaction related to equipment at our Freetown, Massachusetts facility.
The lease had an initial term of four years and, at our option, up to three one-year renewal periods. The third and final renewal option was exercised during the first quarter of 2004. The
lease provided for a substantial guaranteed payment by us, adjusted at the end of each renewal period, and included purchase and return options at fair market values determined at the inception of the
lease. We had the right to exercise a purchase option with respect to the leased equipment, or the equipment could be returned to the lessor and sold to a third party. We exercised the purchase option
in the first quarter of 2005 for a purchase price of $33.6 million.



We, together with other companies, are a party to a variety of proceedings and lawsuits involving environmental matters and other contingencies. See
Note 20 to consolidated financial statements and Item 3, "Legal Proceedings" for further information.

F-22

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We had a contract with a multinational supplier to supply a substantial amount of our acetylene needs to our Texas City, Texas facility. As a result of the
expiration of this contract in March 2004, we took the following actions. We reduced our acetylene requirements at the Texas City plant by 50% through shifting production of acetylene-consuming
products to our Calvert City, Kentucky plant. We also entered into a long-term supply contract for the remaining Texas City plant requirements with a local producer. Under this contract,
we are obligated to purchase specified quantities of acetylene through the end of 2013. Pricing under this contract is on a fixed basis with escalators related to changes in the Producer Price Index.

We
also have an acetylene supply contract for our requirements of acetylene delivery via pipeline to our Calvert City facility. The current term of this contract expires
December 31, 2009 and allows us, at our sole option, to extend the agreement for two additional terms of five years each. We are required by the contract to pay a monthly
non-cancelable facility fee. Pricing under the contract is on a fixed basis with escalators related to changes in the Producer Price Index.

The
annual unconditional purchase obligation related to the long-term acetylene supply contract at the Texas City plant, together with the non-cancelable facility
fee associated with the Calvert City plant acetylene contract is $5.1 million and is included in the table of contractual obligations shown below.

The
synthetic elastomers business has a 1,3 butadiene supply contract with a multi-national supplier for its requirements of butadiene via pipeline to its Port Neches, Texas facility.
Under this agreement, the synthetic elastomers business is required to purchase specified quantities of butadiene through the end of 2006. Pricing for butadiene under this contract varies based on the
U.S. Gulf Coast Marker Price announced at the beginning of each calendar month during the term of the contract. The total
unconditional purchase obligation related to this supply contract for the years 2005 and 2006 is approximately $3.8 million and is included in the table of contractual obligations shown below,
together with other contractual obligations related to debt and leases.

In
March 2005, we entered into a long-term supply contract with an international company for the purchase of a product in our specialty chemicals business that we
currently manufacture. As a result, the utilization of one of our specialty chemicals facilities could be adversely impacted and we will be performing a review in the first quarter of 2005 for
possible asset impairment related to this facility.

|                                       |  | Payments Due by Period
|-------------------------------------- |  | ----------------------
|
|
|Long-term debt                         |  | $                     
|Fixed interest expense on senior notes |  |                       
|Unconditional purchase obligations     |  |                       
|Operating leases                       |  |                       
|Capital lease obligations              |  |                       



Our current investment strategy is to seek stable returns on our available cash. While from time to time, we may invest in securities of companies that we
consider to be undervalued, our primary strategy is to invest our cash in stable value investments that, although no assurances can be made, we believe

F-23

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will
preserve principal and not experience significant moves in volatility. With respect to our equity positions, we are exposed to the risk of market loss.

Prior
to August 2004, our investment strategy had been to seek returns in excess of money market rates on our available cash while minimizing market risks. We invested primarily
in international and domestic securities of companies involved in acquisition or reorganization transactions. When the terms of a proposed acquisition provided for the target's shareholders to receive
stock or other securities of the acquirer, we generally employed hedging strategies to protect against a decline in the value of such securities prior to the completion of the acquisition. One such
strategy was to sell short a pre-determined amount of the acquirer's stock at the same time a long position was established in the target's shares. We would cover our short position with
the acquirer's stock received. This strategy would lock in a profit equal to the initial deal spread at the time we had employed this hedging strategy. As a result of this change in investment
strategy, we anticipate that in 2005 investment income will be lower than historical experience. See Notes 2 and 4 to consolidated financial statements.

|                                     |  | December 31, 2004 |     | December 31, 2003
|------------------------------------ |  | ----------------- | --- | -----------------
|
|
|Interest rate financial instruments  |  | $                 | 9.0 |                  
|Equity-related financial instruments |  |                   |    |                  

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

From
time to time, we enter into equity-related financial instruments, including total return equity swaps, as a means to manage our exposure to market fluctuations on our
short-term investments and as a substitute for physical transactions in equity securities. With these financial instruments, we participate in market fluctuations of the underlying
security without dispositive control of the shares or voting rights on the shares. This provides us with a means of capturing the performance of the underlying security, often at low transaction
costs. These contracts are subject to strict internal controls, including maximum exposure levels and counterparty risk. The counterparties to these contracts are major financial institutions with
high credit standings. We control risk through credit approvals, limits and monitoring procedures. We do not anticipate nonperformance by counterparties to these contracts. We have exposure to equity
price risk as a result of our investment in equity securities and equity derivatives. Equity price risk results from changes in the level or volatility of equity prices which affect the value of
equity securities or instruments that derive their value from such securities or indexes.

As
of December 31, 2004, the Company did not hold any equity-related derivative financial instruments. As of December 31, 2003, the notional value of equity-related long
contracts was $282.1 million and the notional value of equity-related short contracts was $201.7 million. These contracts were
marked-to-market each month, with unrealized gains and losses included in the results of operations. The unrealized gains on equity-related long contracts at
December 31, 2003 were $35.6 million and the unrealized gains on equity-related short contracts were $1.5 million. The unrealized gains and losses referred to above were based on
quotations as reported by various stock exchanges and major broker/dealers.

F-24

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In May 2004, the Financial Accounting Standards Board, which we refer to as "FASB," issued FASB Staff Position, which we refer to as "FSP" No.
FAS 106-2 to provide guidance on accounting for the effects of the Medicare Prescription Drug, Improvement and Modernization Act of 2003 (the "Act") for employers that sponsor
postretirement health care plans which provide prescription drug benefits. The FSP requires those employers to provide certain disclosures in their financial statements regarding the effect of the Act
and the related subsidy on postretirement health obligations and net periodic postretirement benefit cost. We adopted the provisions of FSP FAS No. 106-2 effective for the quarterly
period beginning July 5, 2004. The impact on our financial statements was insignificant.

In
November 2004, the FASB issued SFAS No. 151, "Inventory Costs," an amendment of ARB No. 43, Chapter 4, which discussed the general principles applicable to the
pricing of inventory. SFAS No. 151 amends ARB No. 143, Chapter 4, to clarify that abnormal amounts of idle facility expense, freight, handling costs, and spoilage should be recognized as
current-period charges. In addition, SFAS No. 151 requires that allocation of fixed production overheads to the costs of conversion be based on the normal capacity of the production facilities.
SFAS No. 151 will be effective for inventory costs incurred during fiscal years beginning after June 15, 2005. We do not expect the adoption of SFAS No. 151 to have a material
effect on our consolidated financial statements.

In
December 2004, the FASB issued SFAS No. 153, "Exchanges of Nonmonetary Assets," an amendment of Accounting Principles Board ("APB") No. 29. SFAS No. 153
eliminates the exception from fair value measurement for nonmonetary exchanges of similar productive assets and replaces it with an exception for exchanges that do not have commercial substance. A
nonmonetary exchange has commercial substance if the entity's future cash flows are expected to significantly change as a result of the exchange. SFAS No. 153 will be effective for nonmonetary
asset exchanges occurring in fiscal reporting periods beginning after June 15, 2005. We do not expect the adoption of SFAS No. 153 to have an immediate effect on our consolidated
financial statements.

In
December 2004, the FASB issued a revised SFAS No. 123, which we refer to as "SFAS 123R," "Share-Based Payment." SFAS 123R requires that the cost resulting
from all share-based payment transactions be recognized in the financial statements. SFAS 123R establishes fair value as the measurement objective in accounting for share-based payment
arrangements and requires all entities to apply a fair-value-based measurement method in accounting for share-based payment transactions with employees. As discussed in Note 2 to
consolidated financial statements, "Summary of Significant Accounting PoliciesStock-based Employee Compensation" and in Note 16 to consolidated financial statements, ISP completed
a going private transaction in February 2003 and stock-based compensation plans were terminated and payments were made in accordance with the terms of the merger agreement. In addition, we
currently account for incentive units granted to our eligible employees pursuant to ISP's 2000 Long-Term Incentive Plan and 2003 Executive Long-Term Incentive Plan under the
accounting prescribed by FASB Interpretation No. 28, "Accounting for Stock Appreciation Rights and Other Variable Stock Option and Award Plans." Since compensation expense related to such
incentive units is currently included in our actual Consolidated Statements of Operations, we do not expect SFAS 123R to have an impact on our consolidated financial statements.

In
December 2004, the FASB issued FSP Nos. FAS 109-1 and FAS 109-2, each as a result of the passage in October 2004 of the American
Jobs Creation Act of 2004, which we refer to as the "Act." FSP No. FAS 109-1 relates to a provision in the Act that provides a tax deduction of up to 9 percent

F-25

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(when
fully phased-in) on qualified production activities. The FASB indicated in FSP No. FAS 109-1 that this deduction should be accounted for as a special
deduction in accordance with SFAS No. 109, "Accounting for Income Taxes," rather than as a tax rate reduction. This FSP is effective upon issuance. We do not expect the adoption of this FSP to
have a material effect on our 2005 consolidated financial statements.

FSP
No. FAS 109-2 relates to a provision in the Act that introduces a special one-time dividends received deduction on the repatriation of certain foreign
earnings to a U.S. taxpayer, provided certain criteria are met. This FSP will not have an impact on our consolidated financial statements.

*
* *

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 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-26

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INTERNATIONAL SPECIALTY HOLDINGS INC.  SELECTED FINANCIAL DATA

Set forth below are selected consolidated financial data. We were formed on June 5, 2001, and the financial data presented below have been prepared on a
basis which retroactively reflects our formation for all periods presented.

|                |                                                                                      | Year Ended December 31,
|--------------- | ------------------------------------------------------------------------------------ | -----------------------
|
|
|Operating Data: |                                                                                      |                        
|                | Net sales                                                                            |                        
|                | Operating income                                                                     |                        
|                | Interest expense                                                                     |                        
|                | Income before income taxes and cumulative effect of changes in accounting principles |                        
|                | Income before cumulative effect of changes in accounting principles                  |                        
|                | Net income (loss)                                                                    |                        
|Other Data:     |                                                                                      |                        
|                | Depreciation                                                                         |                        
|                | Amortization of goodwill and intangible assets                                       |                        
|                | Capital expenditures and acquisitions                                                |                        

|                    |                                        | December 31,
|------------------- | -------------------------------------- | ------------
|
|
|Balance Sheet Data: |                                        |             
|                    | Total working capital                  |             
|                    | Total assets                           |             
|                    | Long-term debt less current maturities |             
|                    | Shareholder's equity                   |             

---

F-27

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To
the Board of Directors
International Specialty Holdings Inc.:

We
have audited the accompanying consolidated balance sheets of International Specialty Holdings Inc. and subsidiaries as of December 31, 2004 and 2003, and the related consolidated
statements of operations, shareholder's equity, and cash flows for each of the years in the three-year period ended December 31, 2004. In connection with our audits of the
consolidated financial statements, we also have audited consolidated financial statement schedule II on page S-1. These consolidated financial statements and consolidated financial
statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements and consolidated financial statement
schedule based on our audits.

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

In
our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of International Specialty Holdings Inc. and
subsidiaries as of December 31, 2004 and 2003, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31,
2004, in conformity with U.S. generally accepted accounting principles. Also in our opinion, the related consolidated financial statement schedule, when considered in relation to the basic
consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.

As
discussed in Note 9 to the consolidated financial statements, the Company changed its method of valuing inventory for the synthetic elastomers business from the first-in,
first-out method to the last-in, first-out method in 2004. As discussed in Note 11 to the consolidated financial statements, the Company adopted Statement of
Financial Accounting Standards No. 142,Goodwill and Other Intangible Assets, as of January 1, 2002.

/s/ KPMG LLPShort Hills, New Jersey
March 30, 2005


F-28

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INTERNATIONAL SPECIALTY HOLDINGS INC.        CONSOLIDATED STATEMENTS OF OPERATIONS  (Thousands)

|                                                                                                 |  | Year Ended December 31, |          
|------------------------------------------------------------------------------------------------ |  | ----------------------- | ---------
|
|Net sales                                                                                        |  | $                       | 1,193,620
|Cost of products sold                                                                            |  |                         | (825,948 
|Selling, general and administrative                                                              |  |                         | (206,888 
|Other operating gains and (charges), net                                                         |  |                         | 688      
|Amortization of intangible assets                                                                |  |                         | (1,109   
|                                                                                                 |  |                         |          
|Operating income                                                                                 |  |                         | 160,363  
|Interest expense                                                                                 |  |                         | (77,238  
|Investment income, net                                                                           |  |                         | 16,708   
|Charge for early retirement of debt                                                              |  |                         |         
|Other expense, net                                                                               |  |                         | (6,849   
|                                                                                                 |  |                         |          
|Income before income taxes and cumulative effect of changes in accounting principles             |  |                         | 92,984   
|Income taxes                                                                                     |  |                         | (32,278  
|                                                                                                 |  |                         |          
|Income before cumulative effect of changes in accounting principles                              |  |                         | 60,706   
|Cumulative effect of changes in accounting principles, net of income tax benefit of $600 in 2003 |  |                         |         
|                                                                                                 |  |                         |          
|Net income (loss)                                                                                |  | $                       | 60,706   
|                                                                                                 |  |                         |          

---

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

F-29

---



INTERNATIONAL SPECIALTY HOLDINGS INC.        CONSOLIDATED BALANCE SHEETS        (Dollars in Thousands, except Per Share Amounts)

|                                                                                                                    |                                                                                                             | December 31,               |          
|------------------------------------------------------------------------------------------------------------------- | ----------------------------------------------------------------------------------------------------------- | -------------------------- | ---------
|
|ASSETS                                                                                                              |                                                                                                             |                            |          
|Current Assets:                                                                                                     |                                                                                                             |                            |          
|                                                                                                                    | Cash and cash equivalents                                                                                   |                            | $        
|                                                                                                                    | Investments in trading securities                                                                           |                            |          
|                                                                                                                    | Investments in available-for-sale securities                                                                |                            |          
|                                                                                                                    | Accounts receivable, trade, less allowance of $7,444 and $5,938 at
December 31, 2004 and 2003, respectively |                            |          
|                                                                                                                    | Accounts receivable, other                                                                                  |                            |          
|                                                                                                                    | Receivables from related parties                                                                            |                            |          
|                                                                                                                    | Inventories                                                                                                 |                            |          
|                                                                                                                    | Deferred income tax assets                                                                                  |                            |          
|                                                                                                                    | Prepaid expenses                                                                                            |                            |          
|                                                                                                                    |                                                                                                             |                            |          
|                                                                                                                    |                                                                                                             | Total Current Assets       |          
|Property, plant and equipment, net                                                                                  |                                                                                                             |                            | 631,590  
|Goodwill, net of accumulated amortization of $180,486                                                               |                                                                                                             |                            | 337,794  
|Intangible assets, net of accumulated amortization of $2,259 and $1,150 at
December 31, 2004 and 2003, respectively |                                                                                                             |                            | 18,677   
|Long-term loans receivable from parent company                                                                      |                                                                                                             |                            | 94,834   
|Other assets                                                                                                        |                                                                                                             |                            | 68,900   
|                                                                                                                    |                                                                                                             |                            |          
|Total Assets                                                                                                        |                                                                                                             | $                          | 1,922,757
|                                                                                                                    |                                                                                                             |                            |          
|LIABILITIES AND SHAREHOLDER'S EQUITY                                                                                |                                                                                                            
|Current Liabilities:                                                                                                |                                                                                                             |                            |          
|                                                                                                                    | Short-term debt                                                                                             |                            | $        
|                                                                                                                    | Current maturities of long-term debt                                                                        |                            |          
|                                                                                                                    | Accounts payable                                                                                            |                            |          
|                                                                                                                    | Accrued liabilities                                                                                         |                            |          
|                                                                                                                    | Income taxes payable                                                                                        |                            |          
|                                                                                                                    |                                                                                                             |                            |          
|                                                                                                                    |                                                                                                             | Total Current Liabilities  |          
|                                                                                                                    |                                                                                                             |                            |          
|Long-term debt less current maturities                                                                              |                                                                                                             |                            | 851,760  
|                                                                                                                    |                                                                                                             |                            |          
|Deferred income tax liabilities                                                                                     |                                                                                                             |                            | 129,394  
|                                                                                                                    |                                                                                                             |                            |          
|Other liabilities                                                                                                   |                                                                                                             |                            | 90,619   
|                                                                                                                    |                                                                                                             |                            |          
|Commitments and Contingencies                                                                                       |                                                                                                             |                            |          
|Shareholder's Equity:                                                                                               |                                                                                                             |                            |          
|                                                                                                                    | Common stock, $.001 par value per share; 100 shares issued and outstanding                                  |                            |          
|                                                                                                                    | Additional paid-in capital                                                                                  |                            |          
|                                                                                                                    | Accumulated deficit                                                                                         |                            |          
|                                                                                                                    | Accumulated other comprehensive income                                                                      |                            |          
|                                                                                                                    |                                                                                                             |                            |          
|                                                                                                                    |                                                                                                             | Total Shareholder's Equity |          
|                                                                                                                    |                                                                                                             |                            |          
|Total Liabilities and Shareholder's Equity                                                                          |                                                                                                             | $                          | 1,922,757
|                                                                                                                    |                                                                                                             |                            |          

---

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

F-30

---





INTERNATIONAL SPECIALTY HOLDINGS INC.        CONSOLIDATED STATEMENTS OF CASH FLOWS        (Thousands)

|                                                                  |                                                                                                    | Year Ended December 31,                                  |        
|----------------------------------------------------------------- | -------------------------------------------------------------------------------------------------- | -------------------------------------------------------- | -------
|
|Cash flows from operating activities:                             |                                                                                                    |                                                          |        
|                                                                  | Net income (loss)                                                                                  |                                                          | $      
|                                                                  | Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: |                                                          |        
|                                                                  |                                                                                                    | Cumulative effect of changes in accounting principles    |        
|                                                                  |                                                                                                    | Gain on sale of assets                                   |        
|                                                                  |                                                                                                    | Write-off of fixed assets and deferred costs             |        
|                                                                  |                                                                                                    | Depreciation                                             |        
|                                                                  |                                                                                                    | Amortization of intangible assets                        |        
|                                                                  |                                                                                                    | Deferred income taxes                                    |        
|                                                                  |                                                                                                    | Net gains on securities and other short-term investments |        
|                                                                  | (Increase) decrease in working capital items                                                       |                                                          |        
|                                                                  | Purchases of trading securities                                                                    |                                                          |        
|                                                                  | Proceeds from sales of trading securities                                                          |                                                          |        
|                                                                  | Proceeds (repayments) from sale of accounts receivable.                                            |                                                          |        
|                                                                  | (Increase) decrease in other assets                                                                |                                                          |        
|                                                                  | Increase (decrease) in other liabilities                                                           |                                                          |        
|                                                                  | Change in receivable from/payable to related parties                                               |                                                          |        
|                                                                  | Other, net                                                                                         |                                                          |        
|                                                                  |                                                                                                    |                                                          |        
|Net cash provided by (used in) operating activities               |                                                                                                    |                                                          | 225,031
|                                                                  |                                                                                                    |                                                          |        
|Cash flows from investing activities:                             |                                                                                                    |                                                          |        
|                                                                  | Capital expenditures and acquisitions                                                              |                                                          |        
|                                                                  | Proceeds from sale of assets                                                                       |                                                          |        
|                                                                  | Purchases of available-for-sale securities                                                         |                                                          |        
|                                                                  | Proceeds from sales of available-for-sale securities                                               |                                                          |        
|                                                                  | Proceeds from sales of other short-term investments                                                |                                                          |        
|                                                                  |                                                                                                    |                                                          |        
|Net cash provided by (used in) investing activities               |                                                                                                    |                                                          | (71,198
|                                                                  |                                                                                                    |                                                          |        
|Cash flows from financing activities:                             |                                                                                                    |                                                          |        
|                                                                  | Increase (decrease) in short-term debt                                                             |                                                          |        
|                                                                  | Proceeds from issuance of debt                                                                     |                                                          |        
|                                                                  | Decrease in borrowings under revolving credit facility.                                            |                                                          |        
|                                                                  | Repayments of long-term debt                                                                       |                                                          |        
|                                                                  | Call premium on redemption of debt                                                                 |                                                          |        
|                                                                  | Increase in loans to parent company                                                                |                                                          |        
|                                                                  | Decrease in loans to parent company                                                                |                                                          |        
|                                                                  | Decrease in restricted cash                                                                        |                                                          |        
|                                                                  | Debt issuance costs                                                                                |                                                          |        
|                                                                  | Dividends and distributions to parent company                                                      |                                                          |        
|                                                                  | Capital contribution from parent company                                                           |                                                          |        
|                                                                  |                                                                                                    |                                                          |        
|Net cash provided by (used in) financing activities               |                                                                                                    |                                                          | 26,474 
|                                                                  |                                                                                                    |                                                          |        
|Effect of exchange rate fluctuations on cash and cash equivalents |                                                                                                    |                                                          | 850    
|                                                                  |                                                                                                    |                                                          |        
|Net change in cash and cash equivalents                           |                                                                                                    |                                                          | 181,157
|Cash and cash equivalents, beginning of year                      |                                                                                                    |                                                          | 157,637
|                                                                  |                                                                                                    |                                                          |        
|Cash and cash equivalents, end of year                            |                                                                                                    | $                                                        | 338,794
|                                                                  |                                                                                                    |                                                          |        

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

F-31

---



|                                                                    |                                                                                | Year Ended December 31,                                              |  
|------------------------------------------------------------------- | ------------------------------------------------------------------------------ | -------------------------------------------------------------------- | -
|
|Supplemental Cash Flow Information:                                 |                                                                                |                                                                      |  
|Effect on cash from (increase) decrease in working capital items**: |                                                                                |                                                                      |  
|                                                                    | Accounts receivable                                                            |                                                                      | $
|                                                                    | Inventories                                                                    |                                                                      |  
|                                                                    | Deferred income tax assets                                                     |                                                                      |  
|                                                                    | Prepaid expenses                                                               |                                                                      |  
|                                                                    | Accounts payable                                                               |                                                                      |  
|                                                                    | Accrued liabilities                                                            |                                                                      |  
|                                                                    | Income taxes                                                                   |                                                                      |  
|                                                                    |                                                                                |                                                                      |  
|                                                                    |                                                                                | Net effect on cash from (increase) decrease in
working capital items |  
|                                                                    |                                                                                |                                                                      |  
|Cash paid during the period for:                                    |                                                                                |                                                                      |  
|                                                                    | Interest (net of amount capitalized)                                           |                                                                      | $
|                                                                    | Income taxes paid (including taxes paid pursuant to the
Tax Sharing Agreement) |                                                                      |  
|Acquisitions:                                                       |                                                                                |                                                                      |  
|                                                                    | Fair market value of assets acquired                                           |                                                                      | $
|                                                                    | Purchase price of acquisitions                                                 |                                                                      |  
|                                                                    |                                                                                |                                                                      |  
|                                                                    | Liabilities assumed                                                            |                                                                      | $
|                                                                    |                                                                                |                                                                      |  

---

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

F-32

---





INTERNATIONAL SPECIALTY HOLDINGS INC.  CONSOLIDATED STATEMENTS OF SHAREHOLDER'S EQUITY  (Thousands)

|                            |                                                                | Common Stock
and Additional
Paid-In Capital                                                            |         | Accumulated
Other
Comprehensive
Income (Loss) |   | Accumulated
Deficit |   | Comprehensive
Income (Loss) |         
|--------------------------- | -------------------------------------------------------------- | ------------------------------------------------------------------------------------------------------ | ------- | --------------------------------------------- | - | ------------------- | - | --------------------------- | --------
|Balance, December 31, 2001  |                                                                | $                                                                                                      | 646,342 |                                               | $ | (61,102             | ) | $                           | (22,651 
|                            | Comprehensive income (loss), year ended December 31, 2002:     |                                                                                                        |         |                                               |   |                     |   |                             |         
|                            |                                                                | Net loss                                                                                               |         |                                               |  |                     |   |                            |         
|                            |                                                                |                                                                                                        |         |                                               |   |                     |   |                             |         
|                            |                                                                | Other comprehensive income (loss), net of tax:                                                         |         |                                               |   |                     |   |                             |         
|                            |                                                                | Unrealized holding gains, net of income taxes of $1,536                                                |         |                                               |  |                     |   | 7,680                       |         
|                            |                                                                | Less: Reclassification adjustment for losses included in net loss, net of income tax benefit of $9,635 |         |                                               |  |                     |   | (11,563                     | )       
|                            |                                                                |                                                                                                        |         |                                               |   |                     |   |                             |         
|                            |                                                                | Change in unrealized losses on available-for-sale securities                                           |         |                                               |  |                     |   | 19,243                      |         
|                            |                                                                |                                                                                                        |         |                                               |   |                     |   |                             |         
|                            |                                                                | Change in unrealized losses on derivative hedging instruments  cash flow hedges:                      |         |                                               |   |                     |   |                             |         
|                            |                                                                | Net derivative losses, net of income tax benefit of $12                                                |         |                                               |  |                     |   | (22                         | )       
|                            |                                                                | Less: Reclassification adjustment for losses included in net loss, net of income tax benefit of $534   |         |                                               |  |                     |   | (986                        | )       
|                            |                                                                |                                                                                                        |         |                                               |   |                     |   |                             |         
|                            |                                                                | Change in unrealized losses on derivative hedging instruments `                                        |         |                                               |  |                     |   | 964                         |         
|                            |                                                                |                                                                                                        |         |                                               |   |                     |   |                             |         
|                            |                                                                | Translation adjustment                                                                                 |         |                                               |  |                     |   | 17,604                      |         
|                            |                                                                | Additional minimum pension liability adjustment, net of tax effect of $3,173                           |         |                                               |  |                     |   | (5,404                      | )       
|                            |                                                                |                                                                                                        |         |                                               |   |                     |   |                             |         
|                            | Comprehensive loss                                             |                                                                                                        |         |                                               |   |                     |   |                             |         
|                            |                                                                |                                                                                                        |         |                                               |   |                     |   |                             |         
|                            | Dividends and distributions to parent company                  |                                                                                                        |         | (17,331                                       | ) |                     |  |                             |         
|                            | Capital contribution from parent company                       |                                                                                                        |         | 11,687                                        |   |                     |  |                             |         
|                            | Compensation related to ISP stock options issued as incentives |                                                                                                        |         | 118                                           |   |                     |  |                             |         
|                            |                                                                |                                                                                                        |         |                                               |   |                     |   |                             |         
|Balance, December 31, 2002  |                                                                | $                                                                                                      | 640,816 |                                               | $ | (28,695             | ) | $                           | (127,368
|                            | Comprehensive income, year ended December 31, 2003:            |                                                                                                        |         |                                               |   |                     |   |                             |         
|                            |                                                                | Net income*                                                                                            |         |                                               |  |                     |   |                            |         
|                            |                                                                |                                                                                                        |         |                                               |   |                     |   |                             |         
|                            |                                                                | Other comprehensive income, net of tax:                                                                |         |                                               |   |                     |   |                             |         
|                            |                                                                | Unrealized holding gains, net of income taxes of $7,246                                                |         |                                               |  |                     |   | 12,851                      |         
|                            |                                                                | Less: Reclassification adjustment for gains included in net income, net of income taxes of $1,040      |         |                                               |  |                     |   | 1,056                       |         
|                            |                                                                |                                                                                                        |         |                                               |   |                     |   |                             |         
|                            |                                                                | Change in unrealized losses on available-for-sale securities                                           |         |                                               |  |                     |   | 11,795                      |         
|                            |                                                                |                                                                                                        |         |                                               |   |                     |   |                             |         
|                            |                                                                | Translation adjustment                                                                                 |         |                                               |  |                     |   | 19,124                      |         
|                            |                                                                | Additional minimum pension liability adjustment, net of tax effect of $421                             |         |                                               |  |                     |   | (716                        | )       
|                            |                                                                |                                                                                                        |         |                                               |   |                     |   |                             |         
|                            | Comprehensive income*                                          |                                                                                                        |         |                                               |   |                     |   |                             |         
|                            |                                                                |                                                                                                        |         |                                               |   |                     |   |                             |         
|                            | Capital contribution from parent company                       |                                                                                                        |         | 1,451                                         |   |                     |  |                             |         
|                            |                                                                |                                                                                                        |         |                                               |   |                     |   |                             |         
|Balance, December 31, 2003* |                                                                | $                                                                                                      | 642,267 |                                               | $ | 1,508               |   | $                           | (87,561 
|                            | Comprehensive income, year ended December 31, 2004:            |                                                                                                        |         |                                               |   |                     |   |                             |         
|                            |                                                                | Net income                                                                                             |         |                                               |  |                     |   |                            |         
|                            |                                                                |                                                                                                        |         |                                               |   |                     |   |                             |         
|                            |                                                                | Other comprehensive income, net of tax:                                                                |         |                                               |   |                     |   |                             |         
|                            |                                                                | Unrealized holding gains, net of income taxes of $5,464                                                |         |                                               |  |                     |   | 10,790                      |         
|                            |                                                                | Less: Reclassification adjustment for gains included in net income, net of income taxes of $4,782      |         |                                               |  |                     |   | 8,430                       |         
|                            |                                                                |                                                                                                        |         |                                               |   |                     |   |                             |         
|                            |                                                                | Change in unrealized losses on available-for-sale securities                                           |         |                                               |  |                     |   | 2,360                       |         
|                            |                                                                |                                                                                                        |         |                                               |   |                     |   |                             |         
|                            |                                                                | Translation adjustment                                                                                 |         |                                               |  |                     |   | 10,948                      |         
|                            |                                                                | Additional minimum pension liability adjustment, net of tax effect of $1,459                           |         |                                               |  |                     |   | (2,484                      | )       
|                            |                                                                |                                                                                                        |         |                                               |   |                     |   |                             |         
|                            | Comprehensive income                                           |                                                                                                        |         |                                               |   |                     |   |                             |         
|                            |                                                                |                                                                                                        |         |                                               |   |                     |   |                             |         
|Balance, December 31, 2004  |                                                                | $                                                                                                      | 642,267 |                                               | $ | 12,332              |   | $                           | (26,855 
|                            |                                                                |                                                                                                        |         |                                               |   |                     |   |                             |         

---

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

F-33

---



INTERNATIONAL SPECIALTY HOLDINGS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1.    Organization

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. ("ISP").

International
Specialty Holdings Inc. (the "Company"), a wholly owned subsidiary of ISP, was formed on June 5, 2001 in connection with a corporate restructuring. ISP Opco
Holdings Inc., which changed its name on June 5, 2001 to ISP Chemco Inc. ("ISP Chemco"), a wholly owned subsidiary of the Company, was formed on June 24, 1998 in connection
with the Merger and 100 shares of its common stock were issued to ISP. At the time of the Merger, substantially all of the assets and liabilities of Old ISP were transferred to ISP Chemco.

Effective
July 28, 2003, ISP acquired certain assets of the synthetic rubber business of Ameripol Synpol Corporation, through a wholly owned limited partnership, ISP Synthetic
Elastomers LP ("ISP Synthetic Elastomers"). The synthetic elastomers business manufactures and sells emulsified styrene butadiene rubber and related products. Effective August 30, 2004, ISP
contributed the synthetic elastomers business to the capital of the Company. Accordingly, the Company's consolidated financial statements include the results of the synthetic elastomers business from
the date of its acquisition by ISP. Both ISP and the synthetic elastomers business are under common control; accordingly, the contribution of the synthetic elastomers business was recognized at cost.
The synthetic elastomers business is being reported as a separate business segment (see Note 18). The consolidated financial statements have been restated to include the assets and liabilities
as of December 31, 2003 and the results of operations of the synthetic elastomers business from July 28, 2003. As of December 31, 2003 and August 30, 2004, the effective
date of the contribution, consolidated total assets increased by $18.3 and $46.5 million, respectively. For the year ended December 31, 2003, the synthetic elastomers business recorded
sales of $25.7 million and a net loss of $2.6 million. The Consolidated Statement of Operations for the year ended December 31, 2004 includes sales of $170.1 million
related to the synthetic elastomers business segment.

The
Company is engaged principally in the manufacture and sale of a wide range of specialty and industrial chemicals, synthetic elastomers and mineral products. See Notes 18 and 19 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



All subsidiaries are consolidated and intercompany transactions have been eliminated.



The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make certain estimates and
assumptions relating to the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported
amounts of revenues and expenses during the period. Significant items subject to such estimates and assumptions include: the carrying amount of property, plant and equipment; valuation allowances for
investments, receivables, inventories and deferred income tax assets; goodwill and intangible assets; environmental liabilities; assets and

F-34

---



obligations
related to employee benefits; and other contingencies. Actual results could differ from those estimates. In the opinion of management, the consolidated 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 does not anticipate any changes in
management estimates that would have a material impact on operations, liquidity or capital resources.



The Company's revenue recognition policy is in accordance with U.S. generally accepted accounting principles, which require the recognition of sales when there is
evidence of a sales agreement, the delivery of goods has occurred, the sales price is fixed or determinable and the collectibility of revenue is reasonably assured. Normal terms for sales of specialty
and industrial chemicals and synthetic elastomers are 30 days net. Normal terms for sales of mineral products include a 1% discount if payment is made not later than the 15th of the month
following date of sale. There are no special conditions for sales to third party distributors.



The fair value of cash and cash equivalents, including money market funds, receivables, short-term debt, accounts payable and accrued liabilities
approximate their carrying value due to their short-term nature. Investments in equity securities have readily determinable fair values and are classified as investments in trading
securities or investments in available-for-sale securities. Trading securities are recorded at fair value with the change in fair value recorded in the Consolidated Statements
of Operations as investment income. Available-for-sale securities are recorded at fair value, with the change in fair value recorded, net of income tax effect, as a component
of "Accumulated other comprehensive income." See Note 4 for a discussion of the Company's short-term investments. See Note 13 for a discussion of the Company's
long-term debt. The following table summarizes the notional and fair values of the Company's other financial instruments.

December 31, 2004

December 31, 2003Notional
Amount

Fair
Value

Notional
Amount

Fair
Value(Millions)Interest rate financial instruments

$
9.0

$
0.1

$
23.0

$
Equity-related financial instruments








483.8


37.1




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



Trading and available-for-sale securities are recorded at fair value. For securities classified as trading (including short positions),
unrealized holding gains and losses are reflected in the results of operations. For securities classified as available-for-sale, unrealized holding gains (losses), net of
income tax effect, are included in a separate component of shareholder's equity, "Accumulated other comprehensive income," and amounted to $1.0 and $(1.4) million as of December 31, 2004 and
2003,

F-35

---



respectively
(see Note 4). The Company periodically reviews available-for-sale securities for other than temporary impairment when the cost basis of a security exceeds
the market value. The impairment is charged to earnings and a new cost basis for the security is established. Dividend and interest income is recognized when earned.



Inventories are stated at the lower of cost or market. The LIFO (last-in, first-out) method is utilized to determine cost for
substantially all domestic acetylene-based finished goods and work-in-process and the raw materials to produce these products. Also, in 2004, the Company changed its method of
valuing inventory for the synthetic elastomers business from the FIFO (first-in, first-out) method to the LIFO method (see Note 9). All other inventories are valued on
the FIFO method.



Property, plant and equipment is stated at cost less accumulated depreciation. Depreciation is computed 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. Repairs in excess of $25,000 are capitalized if the repair both relates to major equipment components and extends the useful life of an
asset beyond its original estimated useful life. Certain interest charges are capitalized during the period of construction as part of the cost of property, plant and equipment. Capitalized interest
charges amounted to $578,000, $284,000 and $157,000 for 2004, 2003 and 2002, respectively.



Plant turnarounds are scheduled periodically to complete plant maintenance and replenish catalyst that is utilized in the chemical processes and which has a
limited life. Costs related to these turnarounds are charged to operations in the year they are incurred.



Goodwill, which arose principally from both the 1989 management-led buyout of the predecessor company to the Company's former parent company,
G-I Holdings Inc., ("G-I Holdings") and as a result of the Merger (see Note 1), was being amortized on the
straight-line method over a period of approximately 40 years prior to January 1, 2002. With the adoption of Statement of Financial Accounting Standards ("SFAS")
No. 142, "Goodwill and Other Intangible Assets," effective as of January 1, 2002, goodwill is no longer subject to amortization over its estimated useful life. However, goodwill is
subject to at least an annual assessment for impairment and more frequently if circumstances indicate a possible impairment. See also Note 11.



Intangible assets with a finite life are amortized on a straight-line basis over the estimated useful lives of the assets and reviewed for impairment
in accordance with SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets" (see below). Intangible assets with indefinite useful lives are not amortized, but
are instead tested for impairment at least annually in accordance with the

F-36

---



provisions
of SFAS No. 142. The useful lives of all intangible assets are evaluated each reporting period to determine if a revision is warranted. See "Valuation of Long-Lived
Assets" below and also Note 11.



Effective January 1, 2002, the Company adopted SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets." At least
annually, and more often if events or circumstances warrant such a review, the Company reviews the recoverability of long-lived assets to be held and used, including amortizable intangible
assets, and identifies and measures any potential impairments. The carrying value of a long-lived asset to be held and used is considered impaired when the anticipated undiscounted cash
flows from such an asset are less than the carrying value of the asset. If that occurs, a loss would be recognized based on the amount by which the carrying value exceeds the fair value of the
long-lived asset.



Debt issuance costs are amortized to expense over the life of the related debt. Unamortized debt issuance costs of $14.4 and $14.9 million are included in
"Other assets" in the Consolidated Balance Sheets at December 31, 2004 and 2003, respectively.



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, 2004 and 2003, was $19.9 and $24.3 million, respectively,
before reduction for estimated insurance recoveries included in the Consolidated Balance Sheets of $28.1 million at each date. The gross environmental liability is included within "Accrued
liabilities" and "Other liabilities," and the estimated insurance recoveries are included within "Other assets." See Note 20 for further discussion with respect to environmental liabilities and
estimated insurance recoveries.



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 shareholder's equity, "Accumulated other comprehensive income," and amounted to $20.0
and $9.0 million as of December 31, 2004 and 2003, respectively. Exchange gains/ (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 expense, net, and amounted to $2.3, $5.6 and $2.2 million in 2004, 2003 and 2002,
respectively.



Comprehensive income (loss) includes net income (loss), unrealized gains and losses from investments in available-for-sale securities,
unrealized gains and losses from derivative hedging instruments, foreign currency translation adjustments and additional minimum pension liability

F-37

---



adjustments.
The Company has chosen to disclose comprehensive income (loss) in the Consolidated Statements of Shareholder's Equity.

Changes
in the components of "Accumulated other comprehensive income (loss)," net of tax, for the years 2004, 2003 and 2002 are as follows:

|                           |  | Unrealized
Gains (Losses)
on Available-
for-Sale
Securities |         | Unrealized
Losses on
Derivative
Hedging
Instruments |   | Cumulative
Foreign
Currency
Translation
Adjustment |   | Additional
Minimum
Pension
Liability
Adjustment |         | Accumulated
Other
Comprehensive
Income (Loss) |  
|-------------------------- |  | ----------------------------------------------------------- | ------- | --------------------------------------------------- | - | -------------------------------------------------- | - | ----------------------------------------------- | ------- | --------------------------------------------- | -
|
|Balance, December 31, 2001 |  | $                                                           | (32,443 | )                                                   | $ | (964                                               | ) | $                                               | (27,695 | )                                             | $
|Change for the year 2002   |  |                                                             | 19,243  |                                                     |   | 964                                                |   |                                                 | 17,604  |                                               |  
|                           |  |                                                             |         |                                                     |   |                                                    |   |                                                 |         |                                               |  
|Balance, December 31, 2002 |  | $                                                           | (13,200 | )                                                   | $ |                                                   |   | $                                               | (10,091 | )                                             | $
|Change for the year 2003   |  |                                                             | 11,795  |                                                     |   |                                                   |   |                                                 | 19,124  |                                               |  
|                           |  |                                                             |         |                                                     |   |                                                    |   |                                                 |         |                                               |  
|Balance, December 31, 2003 |  | $                                                           | (1,405  | )                                                   | $ |                                                   |   | $                                               | 9,033   |                                               | $
|Change for the year 2004   |  |                                                             | 2,360   |                                                     |   |                                                   |   |                                                 | 10,948  |                                               |  
|                           |  |                                                             |         |                                                     |   |                                                    |   |                                                 |         |                                               |  
|Balance, December 31, 2004 |  | $                                                           | 955     |                                                     | $ |                                                   |   | $                                               | 19,981  |                                               | $
|                           |  |                                                             |         |                                                     |   |                                                    |   |                                                 |         |                                               |  



Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating
loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are
expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. The Company
records a provision for income taxes and/or foreign withholding taxes on the cumulative earnings of foreign subsidiaries, net of any available foreign tax credits. The Company and its subsidiaries are
included in a consolidated Federal income tax return filed by ISP and have entered into tax sharing agreements with ISP and ISP Chemco (see Note 7).



Shipping and handling costs included in "Selling, general and administrative" expenses amounted to $43.7, $32.4 and $31.2 million for 2004, 2003 and 2002,
respectively.



Research and development costs are charged to operations as incurred and amounted to $26.3, $25.3 and $26.0 million for 2004, 2003 and 2002, respectively.
Such amounts are included in "Selling, general and administrative" expenses in the accompanying Consolidated Statements of Operations.

F-38

---







In December 2002, the Financial Accounting Standards Board ("FASB") issued SFAS No. 148, "Accounting for Stock-Based
CompensationTransition and Disclosure," an amendment of SFAS No. 123, "Accounting for Stock-Based Compensation" (see also Note 3). SFAS No. 148 provides alternative
methods of transition for an entity that voluntarily changes to the fair value based method of accounting for stock-based employee compensation. In addition, SFAS No. 148 amends the disclosure
requirements of SFAS No. 123 for both annual and interim reporting periods by requiring disclosures in a tabular format to reconcile net income as reported to pro forma net income as if the
fair value method was used. However, as discussed in Note 16, with the completion of the going private transaction by ISP in February 2003, the Company's stock-based compensation plans
were terminated and payments were made in accordance with the terms of the merger agreement. Therefore, the provisions of SFAS No. 148 are no longer applicable to the Company as it relates to
those plans. In addition, the Company currently accounts for incentive units granted to eligible Company employees pursuant to ISP's 2000 Long-Term Incentive Plan and 2003 Executive
Long-Term Incentive Plan under the accounting prescribed by FASB Interpretation No. ("FIN") 28, "Accounting for Stock Appreciation Rights and Other Variable Stock Option and Award Plans,"
which requires an entity to measure compensation as the amount by which the Book Value (as defined) of the incentive units covered by the grant exceeds the option price or value specified of such
incentive units at the date of grant. Changes, either increases or decreases, in the value of those incentive units between the date of grant and the measurement date result in a change in the measure
of compensation for the right or award. The Company expects to continue to account for its long-term incentive units under the accounting prescribed by FIN 28. Since compensation expense
related to such incentive units is included in the actual Consolidated Statements of Operations, the Company's pro forma net income under SFAS No. 123 would be the same as actual net income.



Derivatives held by the Company not designated as hedging instruments have included total return equity swaps and interest rate swaps. These derivatives are
marked-to-market each period, with unrealized gains and losses included in results of operations. The total return equity swaps were held for investment income purposes. The
Company enters into interest rate swaps in order to economically hedge interest rate risk associated with investments in securities for which the market value is correlated with interest rate changes.



Certain amounts in the 2003 and 2002 consolidated financial statements have been reclassified to conform to the 2004 presentation.

Note 3.    New Accounting Standards

In May 2004, the FASB issued FASB Staff Position ("FSP") No. FAS 106-2 to provide guidance on accounting for the effects of the Medicare
Prescription Drug, Improvement and Modernization Act of 2003 (the "Act") for employers that sponsor postretirement health care plans which provide prescription drug benefits. The FSP requires those
employers to provide certain disclosures in their financial statements regarding the effect of the Act and the related subsidy on postretirement health

F-39

---



obligations
and net periodic postretirement benefit cost. The Company adopted the provisions of FSP FAS No. 106-2 effective for the quarterly period beginning July 5, 2004.
The impact on the Company's financial statements was insignificant.

In
November 2004, the FASB issued SFAS No. 151, "Inventory Costs," an amendment of ARB No. 43, Chapter 4, which discussed the general principles applicable to the
pricing of inventory. SFAS No. 151 amends ARB No. 143, Chapter 4, to clarify that abnormal amounts of idle facility expense, freight, handling costs, and spoilage should be recognized as
current-period charges. In addition, SFAS No. 151 requires that allocation of fixed production overheads to the costs of conversion be based on the normal capacity of the production facilities.
SFAS No. 151 will be effective for inventory costs incurred during fiscal years beginning after June 15, 2005. The Company does not expect the adoption of SFAS No. 151 to have a
material effect on the Company's consolidated financial statements.

In
December 2004, the FASB issued SFAS No. 153, "Exchanges of Nonmonetary Assets," an amendment of Accounting Principles Board ("APB") No. 29. SFAS No. 153
eliminates the exception from fair value measurement for nonmonetary exchanges of similar productive assets and replaces it with an exception for exchanges that do not have commercial substance. A
nonmonetary exchange has commercial substance if the entity's future cash flows are expected to significantly change as a result of the exchange. SFAS No. 153 will be effective for nonmonetary
asset exchanges occurring in fiscal reporting periods beginning after June 15, 2005. The Company does not expect the adoption of SFAS No. 153 to have an immediate effect on the Company's
consolidated financial statements.

In
December 2004, the FASB issued a revised SFAS No. 123 ("SFAS 123R"), "Share-Based Payment." SFAS 123R requires that the cost resulting from all share-based
payment transactions be recognized in the financial statements. SFAS 123R establishes fair value as the measurement objective in accounting for share-based payment arrangements and requires all
entities to apply a fair-value-based measurement method in accounting for share-based payment transactions with employees. As discussed in Note 2, "Summary of Significant Accounting
PoliciesStock-based Employee Compensation" and in Note 16, ISP completed a going private transaction in February 2003 and stock-based compensation plans were terminated and
payments were made in accordance with the terms of the merger agreement. In addition, the Company currently accounts for incentive units granted to eligible Company employees pursuant to ISP's 2000
Long-Term Incentive Plan and 2003 Executive Long-Term Incentive Plan under the accounting prescribed by FIN 28 (see Note 2). Since compensation expense related to such
incentive units is currently included in the actual Consolidated Statement of Operations, the Company does not expect SFAS 123R to have an impact on the Company's consolidated financial
statements.

In
December 2004, the FASB issued FSP Nos. FAS 109-1 and FAS 109-2, each as a result of the passage in October 2004 of the American
Jobs Creation Act of 2004 (the "Act"). FSP No. FAS 109-1 relates to a provision in the Act that provides a tax deduction of up to 9 percent (when fully phased-in)
on qualified production activities. The FASB indicated in FSP No. FAS 109-1 that this deduction should be accounted for as a special deduction in accordance with SFAS
No. 109, "Accounting for Income Taxes," rather than as a tax rate reduction. This FSP is effective upon issuance. The Company does not expect the adoption of this FSP to have a material effect
on its 2005 consolidated financial statements.

FSP
No. FAS 109-2 relates to a provision in the Act that introduces a special one-time dividends received deduction on the repatriation of certain foreign
earnings to a U.S. taxpayer, provided certain criteria are met. This FSP will not have an impact on the Company's consolidated financial statements.

F-40

---



Note 4.    Short-term Investments and Investment Income

Investment income totaled $16.7, $14.9 and $48.1 million in 2004, 2003 and 2002, respectively. Investment income in 2004 and 2002 included $5.5 and
$39.0 million, respectively, of other than temporary impairment charges for certain available-for-sale securities held in the Company's investment portfolio. The
determination of cost in computing realized and unrealized gains and losses is based on the specific identification method.

Investment
income is comprised of the following:

Year Ended December 31,2004

2003

2002(Thousands)Sales of available-for sale securities:Gross realized gains

$
21,205

$
14,345

$
24,869Gross realized losses


(2,482
)

(12,249
)

(7,061
)Write-down of available-for-sale securities to fair value


(5,511
)




(39,047
)Realized and unrealized gains (losses), net, on trading securities and other short-term investments


(1,311
)

15,171


67,637Interest and dividend income


8,279


4,982


6,368Investment-related expenses


(3,472
)

(7,328
)

(4,622
)Investment income

$
16,708

$
14,921

$
48,144


Included
in "Accumulated other comprehensive income" at December 31, 2004 and 2003 are unrealized holding gains and losses on available-for-sale
securities, as follows:

December 31,2004

2003(Thousands)Equity securities:Equity securities with net gains

$
1,977

$
12Equity securities with net losses


(509
)

(1,585
)Total unrealized pre-tax gains (losses)


1,468


(1,573
)Tax effect


(513
)

168Unrealized gains (losses) on available-for-sale securities

$
955

$
(1,405
)


The
following table summarizes the status of the Company's investments in equity securities for which the market value is below cost at December 31, 2004:

|             |  | Market below Cost
12 Months or Longer |       | Market below Cost
Less than 12 Months |   | Total
|------------ |  | ------------------------------------- | ----- | ------------------------------------- | - | -----
|
|
|Common Stock |  | $                                     | 6,976 |                                       | $ | 505  

F-41

---



Included
in available-for-sale securities is an investment in a certain common stock with a market value that has been below its cost basis for less than twelve
months. As of December 31, 2004, the market value of the equity security was $0.5 million less than its cost basis. Subsequent to the balance sheet date, the Company sold this common
stock at a gain. Based on this, the related unrealized loss at December 31, 2004 was not other than temporary.

The
total market value of available-for-sale securities at December 31, 2004 and 2003, comprised solely of equity securities, was $14.5 and
$42.2 million, respectively.

At
December 31, 2004, the Company did not hold any equity securities classified as trading. For equity securities classified as trading at December 31, 2003, the market
value of equity securities held long was $96.0 million and $115.4 million for short positions in common stocks. At December 31, 2003, these
equity securities held long had an unrealized gain of $11.2 million, while short positions in common stock held at December 31, 2003 had an unrealized loss of $6.8 million.

During
2003, the Company entered into interest rate swaps with a notional value of $23.0 million in order to economically hedge interest rate risk associated with investments in
securities for which the market value is correlated with interest rate changes. The interest rate swaps are marked-to-market each month, with unrealized gains and losses
included in the results of operations. The notional value of interest rate swaps outstanding at December 31, 2004 was $9.0 million. At December 31, 2004 and 2003, the unrealized
gains related to the interest rate swaps was $93,000 and $48,000, respectively.

The
Company enters into equity-related financial instruments, including total return equity swaps, as a means to manage its exposure to market fluctuations on its short-term
investments and as a substitute for physical transactions in equity securities. With these financial instruments, the Company participates in market fluctuations of the underlying security without
dispositive control of the shares or voting rights on the shares. This provides the Company with a means of capturing the performance of the underlying security, often at low transaction costs. These
contracts are subject to strict internal controls, including maximum exposure levels and counterparty risk. The counterparties to these contracts are major financial institutions with high credit
standings. The Company controls risk through credit approvals, limits and monitoring procedures. The Company does not anticipate nonperformance by counterparties to these contracts. With respect to
such contracts, the Company is exposed to the risk of market loss.

As
of December 31, 2004, the Company did not hold any equity-related derivative financial instruments. As of December 31, 2003, the notional value of equity-related long
contracts was $282.1 million and the notional value of equity-related short contracts was $201.7 million. These contracts were marked-to-market each month, with
unrealized gains and losses included in the results of operations. The unrealized gains on equity-related long contracts at December 31, 2003 were $35.6 million and the unrealized gains
on equity-related short contracts were $1.5 million. The unrealized gains and losses referred to above were based on quotations as reported by various stock exchanges and major broker/dealers.

F-42

---



Note 5.    Other Operating Gains and (Charges), Net

Other operating gains and (charges), net, are comprised of the following:

Year Ended December 31,2004

2003

2002(Thousands)Gain on sale of assets

$
1,189

$


$
5,468Provision for facility shutdown severance costs


(501
)




Write-off of fixed assets





(2,148
)

Compensation expense on settlement of ISP stock options





(1,451
)

Write-off of deferred costs








(7,567
)Gain on contract termination








2,832Gain on contract settlement








3,928Gain on insurance claim








716Other operating gains and (charges), net

$
688

$
(3,599
)
$
5,377


In
the fourth quarter of 2004, the Company sold an excess parcel of unutilized land for $1.3 million and recognized a gain of $1.2 million from the sale. Also, in the
fourth quarter of 2004, the Company decided to transfer certain production assets in its foods product line from a leased facility in England to its manufacturing facility in Girvan, Scotland. In
connection with this consolidation of production capacity, the Company accrued $0.5 million for related severance costs. Additional costs for closing the facility in England and transferring
the equipment will be charged to operations as incurred in 2005.

In
December 2003, the Company decided to discontinue the manufacturing process at its Texas City, Texas facility for a product within the Industrial Chemicals business segment. As
a result, the Company recorded a $2.1 million charge for the write-off of production assets related to that manufacturing process. Sales of this product in 2003 and 2002 were
immaterial.

As
a result of ISP completing the going private transaction described in Note 16, the Company's stock-based compensation plans were terminated and payments were made in accordance
with the terms of the merger agreement. Accordingly, holders of approximately 2.7 million vested, in-the-money stock options outstanding and exercisable on
February 28, 2003 received a cash amount equal to the excess of $10.30 over the exercise price of such stock options, and compensation expense aggregating $1.5 million was recorded in
the first quarter of 2003.

The
Company has received approval from the New Jersey Turnpike Authority for a direct access ramp extension from the New Jersey Turnpike to the Company's Linden, New Jersey property.
With the planned New Jersey Turnpike access, it is likely that development alternatives such as warehousing will provide greater economic benefits than the Company's previously considered development
alternative of construction of a hazardous waste treatment, storage and disposal facility at this site. As a result of the Company's change in development strategy for the Linden property, in 2002,
the Company wrote off $7.6 million of deferred costs related to the development of the hazardous waste facility. The remaining Linden assets, which are being held for intended future sale, had
a net book value of $20.9 million at December 31, 2004, primarily the cost of the land. The Company has capitalized $5.4 million of costs related to the preparation of the Linden
property for sale.

F-43

---



In
December 2001, the Company entered into a letter agreement to sell its pharmaceutical fine chemicals business to Pharmaceutical Resources Incorporated ("PRI"), including its
Haifa, Israel-based FineTech, Ltd. research facility and its Columbus, Ohio manufacturing facility. In February 2002, the Company received a $250,000 payment from PRI in consideration of
extending the negotiations pursuant to the letter agreement. In March 2002, the Company announced that the sale would not be consummated due to the failure of PRI to proceed with the
transaction in a timely manner. Under the terms of the letter agreement, the Company received a $3.0 million break-up fee. Accordingly, the Company recognized a first quarter 2002
pre-tax gain of $2.8 million, representing the total cash received in February and March of 2002 of $3.2 million less related expenses of $0.4 million. Following
negotiations with PRI, in April 2002, the Company sold the Haifa-based
research facility and intellectual property to PRI for $32.0 million. The Company recorded an additional second quarter 2002 pre-tax gain, after expenses, of $5.5 million
related to this sale.

In
the second quarter of 2002, the Company received $4.0 million in settlement of a manufacturing and supply contract with a customer of the fine chemicals business. After related
expenses, a pre-tax gain of $3.9 million was recognized.

Note 6.    Other Expense, Net

Other expense, net, comprises 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 expenses that are not associated with ongoing operations or that are caused by events not reflective of the Company's normal business activities. Other
expense, net, is comprised of the following:

Year Ended December 31,2004

2003

2002(Thousands)Foreign exchange gains (losses)

$
2,331

$
5,573

$
2,222Financing costs on sale of accounts receivable (see Note 8)


(1,165
)

(865
)

(995
)Environmental provision relating to discontinued operations


(2,356
)

(2,109
)

(1,184
)Legal fees and related costs


(1,988
)

(2,370
)

(3,131
)Miscellaneous other nonoperating expenses


(3,671
)

(2,625
)

(3,808
)Other expense, net

$
(6,849
)
$
(2,396
)
$
(6,896
)


F-44

---



Note 7.    Income Taxes

The provision for income taxes is based on income before income taxes and cumulative effect of changes in accounting principles, as reported for financial
statement purposes, and is comprised of the following:

Year Ended December 31,2004

2003

2002(Thousands)United States

$
49,138

$
(10,118
)
$
16,503Foreign


43,846


71,656


60,269Income before income taxes and cumulative effect of changes in accounting principles

$
92,984

$
61,538

$
76,772


Income
tax (provision) benefit consists of the following:

Year Ended December 31,2004

2003

2002(Thousands)Federal:Current

$
2,162

$
(2,807
)
$
8,072Deferred


(27,991
)

(5,822
)

(24,418
)Total Federal


(25,829
)

(8,629
)

(16,346
)Foreign:Current


(2,934
)

(8,682
)

(9,752
)Deferred


(1,999
)

(2,564
)

692Total foreign


(4,933
)

(11,246
)

(9,060
)State and local:Current


(1,198
)

(1,015
)

(535
)Deferred


(318
)

180


(148
)Total state and local


(1,516
)

(835
)

(683
)Income tax provision

$
(32,278
)
$
(20,710
)
$
(26,089
)


F-45

---



The differences between the income tax provision computed by applying the statutory Federal income tax rate (35%) to income before income taxes and cumulative effect of changes in
accounting principles, and the income tax provision reflected in the Consolidated Statements of Operations are as follows:

Year Ended December 31,2004

2003

2002(Thousands)Statutory tax provision

$
(32,544
)
$
(21,538
)
$
(26,870
)Impact of:Foreign operations


(8,515
)

(7,786
)

(2,868
)State and local taxes, net of Federal benefits


(985
)

(543
)

(444
)Extraterritorial income exclusion benefit


4,200


4,550


4,200Percentage depletion


2,909


2,100


1,403Other, net


2,657


2,507


(1,510
)Income tax provision

$
(32,278
)
$
(20,710
)
$
(26,089
)


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

December 31,2004

2003(Thousands)Deferred tax liabilities related to:Property, plant and equipment

$
162,319

$
149,201Mark-to-market adjustments


7,411


Other


2,150


1,846Total deferred tax liabilities


171,880


151,047Deferred tax assets related to:Expenses not yet deducted for tax purposes


(33,949
)

(33,022
)Deferred foreign tax credits


(15,135
)

(17,231
)Mark-to-market adjustments


(2,204
)

(15,636
)Additional minimum pension liability adjustments


(5,053
)

(3,594
)Other


(2,331
)

(18,761
)Total deferred tax assets


(58,672
)

(88,244
)Net deferred tax liability


113,208


62,803Deferred tax assets, net, reclassified to current assets


16,186


25,701Noncurrent deferred tax liability

$
129,394

$
88,504


Based
upon the level of historical taxable income and projections for future taxable income over the period in which the Company's deferred tax assets are deductible,
management believes that it is more likely than not that the Company will realize the benefits of these deductible differences at December 31, 2004 and 2003.

Effective
January 1, 2001, the Company entered into tax sharing agreements with ISP and ISP Chemco with respect to the payment of Federal income taxes and certain related matters.
The tax sharing agreements are substantially similar to the 1997 Tax Sharing Agreement described below. ISP Chemco and its domestic subsidiaries are a party to a Tax Sharing Agreement with ISP with
respect to the payment of Federal income taxes and certain related matters dated as of January 1, 1997 (the

F-46

---



"1997
Tax Sharing Agreement"). During the term of the 1997 Tax Sharing Agreement, which extends as long as ISP Chemco or any of its domestic subsidiaries, as the case may be, are included in a
consolidated Federal income tax return filed by ISP or a successor entity, ISP Chemco is obligated to pay to ISP an amount equal to those Federal income taxes ISP Chemco would have incurred if,
subject to certain exceptions, ISP Chemco (on behalf of itself and its domestic subsidiaries) filed its own consolidated Federal income tax return. These exceptions include, among others, that ISP
Chemco may utilize certain favorable tax attributes, i.e., losses, deductions and credits (except for a certain amount of foreign tax credits and, in general, net operating losses), only at the time
such attributes reduce the Federal income tax liability of ISP and its consolidated subsidiaries (the "ISP Group"); and that ISP Chemco may carry back or carry forward its favorable tax attributes
only after taking into account current tax attributes of the ISP Group. In general, subject to the foregoing limitations, unused tax attributes carry forward for use in reducing amounts payable by ISP
Chemco to ISP in future years. Subject to certain exceptions, actual payment for such attributes will be made by ISP to ISP Chemco only when ISP receives an actual refund of taxes from the Internal
Revenue Service (the "IRS") or, under certain circumstances, the earlier of the dates of the filing of Federal income tax returns of ISP Chemco for taxable years of ISP Chemco following the last
taxable year in which it was a member of the ISP Group. Foreign tax credits not utilized by ISP Chemco in computing its tax sharing payments will be refunded by ISP to ISP Chemco, if such credits
expire unutilized, upon the termination of the statute of limitations for the year of expiration.

The
1997 Tax Sharing Agreement provides for analogous principles to be applied to any consolidated, combined or unitary state or local taxes. Under the 1997 Tax Sharing Agreement, ISP
makes all decisions with respect to all matters relating to taxes of the ISP Group. The provisions of the 1997 Tax Sharing Agreement take into account both the Federal income taxes ISP Chemco would
have incurred if it filed its own separate Federal income tax return and the fact that ISP Chemco is a member of the ISP Group for Federal income tax purposes.

The
predecessor of ISP and certain of its domestic subsidiaries were parties to tax sharing agreements with members of a consolidated group for Federal income tax purposes that included
G-I Holdings Inc. (the "G-I Holdings Group") in certain prior years. Until January 1, 1997, ISP and its domestic subsidiaries were included in the consolidated
Federal income tax returns of the G-I Holdings Group and, accordingly, would be severally liable for any tax liability of the G-I Holdings Group in respect of those prior
years. Those tax sharing agreements are no longer applicable with respect to the tax liabilities of ISP for periods subsequent to January 1, 1997, because neither the Company nor any of its
domestic subsidiaries are members of the G-I Holdings Group for periods after January 1, 1997. 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.

On
September 15, 1997, G-I Holdings received a notice from 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 Rhône-Poulenc Surfactants and Specialties, L.P. (the
"surfactants partnership"), a partnership in which G-I Holdings held an interest. On September 21, 2001, the IRS filed a proof of claim with respect to such deficiency in the
G-I Holdings bankruptcy against G-I Holdings and ACI Inc., a subsidiary of G-I Holdings which also held an interest in the surfactants partnership and also
has filed a voluntary petition for reorganization under Chapter 11 of the U.S. Bankruptcy Code. If the proof of claim is sustained, ISP and/or certain of its subsidiaries together with G-I
Holdings and several current and

F-47

---



former
subsidiaries of G-I Holdings would be severally liable for taxes and interest in the amount of approximately $294 million, computed as of December 31, 2004. On
May 7, 2002, G-I Holdings, together with ACI Inc., filed an objection to the proof of claim, which objection will be heard by the United States District Court for the
District of New Jersey overseeing the G-I Holdings bankruptcy. G-I Holdings has advised the Company that it believes that it will prevail in this tax matter involving 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. See Note 20"Commitments and Contingencies."

Note 8.    Sale of Accounts Receivable

In November 2004, the Company amended its October 2001 agreement for the sale of its domestic receivables, which was to terminate in
October 2004 and was extended to November 2004. The amended agreement has a termination date of November 2009 and provides for up to $40.0 million in cash to be made
available to the Company, which can be increased to $50.0 million at the Company's option, based on a planned continuous sale program to a third party. The agreement permits the Company to sell
certain domestic trade receivables on a non-recourse basis in exchange for cash. The Company continues to service, administer and collect the trade receivables. At December 31, 2004
and 2003, the cash made available to the Company for the sale of receivables was $32.8 and $30.2 million, respectively. The program is accounted for as a sale under the provisions of SFAS
No. 140, "Accounting for Transfers and Servicing of Financial Assets and Extinguishment of Liabilities." 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, is included in other expense, net, and amounted to $1.2, $0.9 and $1.0 million in
2004, 2003 and 2002, respectively.

Note 9.    Inventories

Inventories are comprised of the following:

December 31,2004

2003(Thousands)Finished goods

$
118,870

$
126,227Work-in-process


34,668


36,415Raw materials and supplies


54,522


42,631Inventories

$
208,060

$
205,273


At
December 31, 2004 and 2003, $76.7 and $58.6 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 $9.0 and $4.2 million higher at December 31, 2004 and 2003, respectively.

During
2004, the Company changed its method of valuing inventory for the synthetic elastomers business from the FIFO method to the LIFO method. The Company believes the LIFO method is
preferable because it results in a better matching of current costs with current revenues and minimizes the effect of price level changes on inventory valuations for the synthetic elastomers
inventory. The effect of this accounting change was to decrease operating income and net income for the year 2004 by $5.0 and $3.3 million, respectively. Calculation of the effect of this
change in accounting principle for the year 2003 is not practicable, nor are the pro forma effects of retroactive application of the LIFO

F-48

---



method
to the year 2003, because the Company acquired the synthetic elastomers business in July 2003 (see Note 1) and the business was in its startup phase during 2003.

Note 10.    Property, Plant and Equipment

Property, plant and equipment is comprised of the following:

December 31,2004

2003(Thousands)Land and land improvements

$
91,095

$
88,805Buildings and building equipment


143,914


132,566Machinery and equipment


876,832


802,618Construction in progress


46,331


44,614Total


1,158,172


1,068,603Less accumulated depreciation


(526,582
)

(468,726
)Property, plant and equipment, net

$
631,590

$
599,877


See
Note 20 for information regarding capital leases.

Note 11.    Goodwill and Intangible Assets

The Company adopted SFAS No. 142, "Goodwill and Other Intangible Assets," effective as of January 1, 2002. In accordance with the provisions of SFAS
No. 142, goodwill is no longer amortized but is subject to at least an annual assessment for impairment. Accordingly, the Company completed a transitional impairment test, effective
January 1, 2002, and recognized a goodwill impairment loss of $155.4 million as the cumulative effect of a change in accounting principle. The write-off represented the
goodwill associated with certain reporting units included in the Company's Specialty Chemicals and Industrial Chemicals business segments. The method of determining the loss followed the requirements
of SFAS No. 142, under which the fair value of each reporting unit was compared with its carrying amount. An independent appraisal firm used both a present value technique and an analysis of
comparable publicly traded chemical companies to determine fair value. The two methods were then correlated by the appraiser based on the relevance and reliability of the two approaches. While the
present value technique was only one of the two methods utilized, for that method the independent appraisal firm started with the Company's internal budgets and projections already reviewed and
utilized by ISP's Board of Directors. An appropriate terminal value was determined based on the final year's anticipated operating results. Inasmuch as the present value technique looks at future cash
flows, interest expense was included in the anticipated cash flows. The independent appraiser utilized a discount rate based on the chemical industry's weighted average cost of capital.

The
Company's annual tests for impairment were conducted in the fourth quarters of 2004 and 2003 based upon the October 3, 2004 and September 28, 2003 balance sheets,
respectively, and followed the same approach. These tests did not result in any additional impairment charges.

F-49

---



The
following schedule reconciles the changes in the carrying amount of goodwill, by business segment, for the years ended December 31, 2004 and 2003 (see Note 17 for
discussion of acquisitions):

|                                                  |  | Specialty
Chemicals |         | Industrial
Chemicals |   | Synthetic
Elastomers |  | Mineral
Products |   | Total
Goodwill |  
|------------------------------------------------- |  | ------------------- | ------- | -------------------- | - | -------------------- |  | ---------------- | - | -------------- | -
|
|Balance, December 31, 2002                        |  | $                   | 274,167 |                      | $ |                     |  | $                |  |                | $
|Acquisition                                       |  |                     | 5,537   |                      |   |                     |  |                  |  |                |  
|Translation adjustment                            |  |                     | (142    | )                    |   |                     |  |                  |  |                |  
|                                                  |  |                     |         |                      |   |                      |  |                  |   |                |  
|Balance, December 31, 2003                        |  | $                   | 279,562 |                      | $ |                     |  | $                |  |                | $
|Acquisitions and contingent consideration payment |  |                     | 6,212   |                      |   |                     |  |                  |  |                |  
|Translation adjustment                            |  |                     | 481     |                      |   |                     |  |                  |  |                |  
|                                                  |  |                     |         |                      |   |                      |  |                  |   |                |  
|Balance, December 31, 2004                        |  | $                   | 286,255 |                      | $ |                     |  | $                |  |                | $
|                                                  |  |                     |         |                      |   |                      |  |                  |   |                |  

The
following is information as of December 31, 2004 and 2003 related to the Company's acquired intangible assets:

|                                               |                        |                                     |             | December 31, 2004 |        | December 31, 2003 |       
|---------------------------------------------- | ---------------------- | ----------------------------------- | ----------- | ----------------- | ------ | ----------------- | ------
|
|
|Intangible assets subject to amortization:     |                        |                                     |             |                   |        |                   |       
|                                               | Patents                |                                     | 5-20 years  |                   | $      | 669               |       
|                                               | Formulations           |                                     | 5-10 years  |                   |        | 2,740             |       
|                                               | Unpatented technology  |                                     | 10-15 years |                   |        | 1,350             |       
|                                               | Customer base          |                                     | 10-15 years |                   |        | 2,348             |       
|                                               | Non-compete agreements |                                     | 2-5  years  |                   |        | 3,419             |       
|                                               | EPA registrations      |                                     | 5 years     |                   |        | 166               |       
|                                               |                        |                                     |             |                   |        |                   |       
|                                               |                        | Total amortizable intangible assets |             |                   |        |                   | 10,692
|                                               |                        |                                     |             |                   |        |                   |       
|Intangible assets not subject to amortization: |                        |                                     |             |                   |        |                   |       
|                                               | Trademarks             |                                     |             |                   |        | 5,596             |       
|                                               | EPA registrations      |                                     |             |                   |        | 4,648             |       
|                                               |                        |                                     |             |                   |        |                   |       
|Total unamortizable intangible assets          |                        |                                     |             |                   | 10,244 |                   |       
|                                               |                        |                                     |             |                   |        |                   |       
|                                               |                        | Total intangible assets             |             |                   |        | $                 | 20,936
|                                               |                        |                                     |             |                   |        |                   |       

(Thousands)Aggregate amortization expense:Year ended December 31, 2004

$
1,109Year ended December 31, 2003


575Year ended December 31, 2002


824Estimated amortization expense:Year ending December 31,2005

$
1,3362006


1,3362007


1,0722008


1,0722009


774


F-50

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Note 12.    Related Party Transactions

In connection with ISP's going private transaction described in Note 16, ISP borrowed a total of $94.0 million pursuant to five loan agreements,
dated March 3, 2003, with the Company's wholly owned subsidiary, ISP Investco LLC ("ISP Investco"), and its indirect, wholly owned subsidiary, ISP Ireland. The loans accrue interest at a fixed
rate of 1.65% per annum. Three of the loans, with ISP Ireland, were for principal amounts of up to $20.0 million, $10.0 million and $5.0 million, with maturity dates of six, nine
and twelve months, respectively, and could be extended beyond their maturity dates for periods of time equal to their original terms. The remaining two loans, with ISP Investco, are for amounts up to
$30.0 million and $40.0 million, with maturity dates of three years and can be extended beyond the maturity dates for an equal period of time. The three loans with ISP Ireland were
repaid in December 2003. ISP Investco then entered into a new loan agreement in December 2003 with ISP for an amount of up to $35.0 million. This loan has a term of
10 years and accrues interest at a fixed rate of 5.12% per annum. The balance of all such loans outstanding at December 31, 2004 and 2003 aggregated $94.8 and $95.5 million,
respectively.

In
August 2004, the Company entered into a loan agreement with ISP pursuant to which the Company will allow ISP to borrow from time to time up to $350.0 million with
interest at the rate of 3.74% per annum on the outstanding principal balance. Commencing in 2005, payment of interest is due in arrears on the outstanding principal balance on each January 31
and July 31. This facility will terminate in August 2007, unless terminated earlier. ISP has also agreed to enter into a loan agreement as the lender with an entity controlled by Samuel
J. Heyman, ISP's and the Company's Chairman, on terms substantially the same as the loan agreement between the Company and ISP. While, as of December 31, 2004 there were no borrowings
outstanding under either facility, during the year 2004 there was an outstanding balance as of any one time of as much as $27.4 million. Subsequent to December 31, 2004, the Company has
loaned a total of $200.0 million to ISP pursuant to this loan agreement.

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

December 31,2004

2003(Thousands)ISP parent company

$
16,993

$
1,285Building Materials Corporation of America ("BMCA")


13,217


9,035Other


(226
)

(226
)Receivables from related parties, net

$
29,984

$
10,094


F-51

---



In May 2003, the Company entered into a new, long-term contract with BMCA, an indirect subsidiary of G-I Holdings and an affiliate of the Company, to
supply BMCA and its subsidiaries substantially all of their colored roofing granules and algae-resistant granules requirements, except for the requirements of certain of their roofing plants that are
supplied by third parties. The contract includes pricing discounts based on volume purchase targets that have lowered gross margins for the Mineral Products segment. In 2004, BMCA and its subsidiaries
purchased a total of $98.2 million of mineral products from the Company, representing 8.2% of the Company's total net sales and 73.1% of the Company's net sales of mineral products. Sales by
the Company to BMCA and its subsidiaries totaled $77.7 and $73.2 million for 2003 and 2002, respectively. The receivable from BMCA and its subsidiaries for sales of mineral products as of
December 31, 2004 and 2003 was $12.8 and $8.6 million, respectively.

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 and the ISP parent company. Charges by the Company for providing such services aggregated $5.7, $6.3 and $6.2 million for 2004, 2003 and 2002,
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 from such affiliates for management fees
at each of December 31, 2004 and 2003 was $0.5 million. The Management Agreement is expected to be amended to extend the term of the agreement, effective January 1, 2005, through
December 31, 2005. 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.

In
September 1999, ISP granted its President and Chief Executive Officer the right to purchase, and such officer purchased, 318,599 shares of ISP's common stock held in treasury
for a purchase price of $9.563 per share, or an aggregate of $3.0 million. Pursuant to the purchase agreement, ISP loaned such officer $3.0 million to purchase the shares of common
stock, which loan was evidenced by a recourse demand note with interest at the lowest applicable federal rate. The principal amount of the note was payable in four installments from June 2001
through January 2004. However, as this officer remained continuously employed by the Company through each installment date, the principal amount due on each installment date was forgiven. As
the loan was forgiven, compensation expense was recorded, including $762,000 in each of the years 2004, 2003 and 2002.

F-52

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Note 13.    Long-term Debt and Lines of Credit

Long-term debt is comprised of the following:

December 31,2004

2003(Thousands)Senior Credit Facilities:Term loan maturing in March 2011

$
248,125

$
219,375Revolving credit facility





101/4% Senior Subordinated Notes due 2011


403,315


403,056105/8% Senior Secured Notes due 2009


200,000


200,0005% term loan due 2006


3,821


5,181Obligations under capital leases (Note 20)


294


764Other


566


Total long-term debt


856,121


828,376Less current maturities


(4,361
)

(4,072
)Long-term debt less current maturities

$
851,760

$
824,304


During
2001, ISP Chemco and three of its wholly owned subsidiaries jointly issued, in three separate transactions, $405.0 million aggregate principal amount of
101/4% Senior Subordinated Notes due 2011 (the "2011 Notes"). The net proceeds of these transactions totaled $397.2 million, after discount and fees. The net proceeds were placed
in a restricted cash escrow account and were distributed to the Company's parent, ISP, to retire ISP's 93/4% Senior Notes due 2002 and a portion of ISP's 9% Senior Notes due 2003 (the
"2003 Notes"). In January 2002, ISP redeemed the remaining $307.9 million aggregate principal amount of the 2003 Notes, utilizing the restricted cash escrow account balance at
December 31, 2001. The 2003 Notes were redeemed at a redemption price of 101.5% of the principal amount plus accrued and unpaid interest to the redemption date. As a result, the Company
recorded a $7.2 million pre-tax charge in 2002 for the early retirement of debt. The pre-tax charge was comprised of $4.6 million of call premium,
$0.2 million of remaining discount amortization and the write-off of $2.3 million of unamortized debt issuance costs.

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, places limits on 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
June 2001, in a related transaction, ISP Chemco and its three wholly owned subsidiaries that issued the 2011 Notes also entered into $450.0 million of new senior secured
credit facilities, the initial borrowings under which were used to repay amounts outstanding under the Company's previous credit facility. The senior credit facilities were comprised of a
$225.0 million term loan with a maturity of seven years and a $225.0 million revolving credit facility that was to terminate in June 2006.

On
April 2, 2004, ISP Chemco and its three wholly owned subsidiaries amended and restated its June 2001 $450.0 million senior secured credit facilities (the "Senior
Credit Facilities"). The amended Senior Credit Facilities provide a $250.0 million term loan with a maturity in March 2011, which replaced the $225.0 million term loan that was
due to mature in June 2008. In connection therewith,

F-53

---



the
Company borrowed an additional $31.2 million to bring the outstanding balance of the term loan to $250.0 million. All borrowings under the amended 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, 2004 on borrowings under the Senior Credit Facilities was 4.25%. Commitment fees are charged to the
Company at a rate per annum equal to 0.50% of the average daily unused amount of the revolving credit facility. Commitment fees totaling $1.1 million are included in interest expense for each
of 2004, 2003 and 2002.

On
April 15, 2004, the $225.0 million revolving credit facility under the Senior Credit Facilities, which was to terminate in June 2006, was reduced to
$200.0 million, including a borrowing capacity not in excess of $50.0 million for letters of credit, and the maturity was extended to April 15, 2009. In addition, the margin-based
interest rate for revolving credit borrowings was reduced. As of December 31, 2004, no borrowings and $8.8 million of letters of credit were outstanding under the revolving credit
facility.

The
Senior Credit Facilities require compliance with various financial covenants, including a total debt leverage maintenance ratio, a senior debt leverage maintenance ratio and an
interest coverage ratio. The amended Senior Credit Facilities reduced the margin-based interest rate for term loan borrowings and amended financial covenant ratios, including the elimination of the
minimum adjusted net worth covenant. At December 31, 2004, the Company was in compliance with these covenants. In addition, the Senior Credit Facilities limit the ability of ISP Chemco and its
subsidiaries, except the Company's 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, the Company issued $200.0 million principal amount of 105/8% Senior Secured Notes due 2009 (the "2009 Notes"). The net proceeds from
this issuance were approximately $194.3 million, of which $125.7 million was placed in a restricted cash escrow account and used to redeem the remaining 2003 Notes. 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 the Company's subsidiaries. The 2009 Notes
were issued under an indenture which, among other things, limits the ability of the Company and its subsidiaries, except its unrestricted subsidiaries, to incur additional debt, enter into
transactions with affiliates, issue preferred stock, incur liens, and pay dividends or make certain other restricted payments and restricted investments. ISP Synthetic Elastomers and ISP Investco, the
subsidiaries of ISP Investco, the Company's accounts receivable subsidiary and certain immaterial subsidiaries have been designated as unrestricted subsidiaries under the indenture related to the 2009
Notes.

Borrowings
by the Company, 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 Notes and the 2011 Notes. As of December 31, 2004, the Company was in compliance with

F-54

---



such
covenants, and the application of such covenants would not have restricted available borrowings under the Senior Credit Facilities. As of December 31, 2004, under the most restrictive of
these limitations, the Company could have paid dividends and other restricted payments of up to $74.0 million.

The
Senior Credit Facilities and the indenture governing the 2011 Notes contain additional affirmative and negative covenants affecting ISP Chemco and some of its subsidiaries, including
restrictions on transactions with affiliates, sale-leaseback transactions and mergers and transfers of all or substantially all of those subsidiaries' assets. The indenture governing the
2009 Notes also contains additional affirmative and negative covenants similar to those contained in the indenture governing the 2011 Notes affecting the Company and some of its subsidiaries. These
limitations do not apply to ISP Synthetic Elastomers and ISP Investco, which are unrestricted subsidiaries. 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 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.

On
April 13, 2004, ISP Synthetic Elastomers entered into a $25.0 million Financing Agreement (the "Credit Facility"), which can be increased to $35.0 million at the
Company's option. The initial borrowings under the Credit Facility were primarily used to partially repay intercompany advances and for working capital purposes. The Credit Facility has a maturity
date of April 13, 2009, subject to certain conditions, and is secured by a lien upon substantially all of the assets of ISP Synthetic Elastomers. Availability under the Credit Facility is based
upon Eligible Accounts Receivable, Eligible Inventory and other limitations, as defined in the Credit Facility, and includes a borrowing capacity not in excess of $10.0 million for letters of
credit. The Credit Facility bears interest at a floating rate based upon the Prime Rate or LIBOR, each as defined in the Credit Facility. There were no borrowings outstanding under the Credit Facility
at December 31, 2004.

In
August 2003, ISP Synthetic Elastomers obtained a three-year $5.6 million term loan secured by certain equipment. There are monthly payments of principal and
interest with a fixed annual interest rate of 5%. There are no restrictive covenants related to this loan. At December 31, 2004, the outstanding principal amount was $3.8 million.

The
Company believes that the fair value of its non-public variable rate indebtedness approximates the carrying 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

F-55

---



obtained
estimates of fair values from an independent source believed to be reliable. The estimated fair value of the 2011 Notes and the 2009 Notes as of December 31, 2004 and 2003 was as
follows:

December 31, 2004

December 31, 2003Carrying
Amount

Fair
Value

Carrying
Amount

Fair
Value(Thousands)101/4% Senior Subordinated Notes due 2011

$
403,315

$
456,270

$
403,056

$
451,423105/8% Senior Secured Notes due 2009


200,000


222,000


200,000


218,000


The
aggregate maturities of long-term debt as of December 31, 2004 for the next five years and thereafter are as follows:

(Thousands)2005

$
4,3612006


5,0492007


2,6612008


2,6192009


202,500Thereafter


638,931


In
the above table, maturities for each of the years 2005 to 2009 include $2.5 million of maturities relating to the term loan under the Senior Credit Facilities. Maturities in
2009 include the $200.0 million 105/8% Senior Secured Notes.

At
December 31, 2004, the Company's foreign subsidiaries had total available short-term lines of credit aggregating $2.9 million, of which $2.8 million
were unused. The weighted-average interest rate on short-term borrowings at December 31, 2004 was 6.6%. Short-term borrowings at December 31, 2003 were
$0.1 million.

Included
in accrued liabilities at each of December 31, 2004 and 2003 is $23.4 million of accrued interest payable on debt.

Under
the indenture for the 2009 Notes discussed above, ISP Synthetic Elastomers (see Note 1) and ISP Investco have been designated as unrestricted subsidiaries for purposes of
covenants relating to the 2009 Notes. The following table details, as required by the indenture governing the 2009 Notes, the impact of ISP Investco on the Company's results of operations for the
years 2004, 2003 and 2002. For further information related to sales, operating income and total assets of ISP Synthetic Elastomers, see Note 18.

Year Ended December 31,2004

2003

2002(Millions)Interest expense

$
(2.4
)
$
(1.7
)
$
(2.9
)Investment income, net


16.6


14.8


48.1Miscellaneous other income





0.2


0.3


F-56

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Note 14.    Asset Retirement Obligations

The Company adopted SFAS No. 143, "Accounting for Asset Retirement Obligations," effective January 1, 2003. SFAS No. 143 established
accounting and reporting standards for legal obligations associated with the retirement of long-lived assets that result from the acquisition, construction, development and the normal
operation of a long-lived asset. The Company holds long-lived assets that have legal obligations associated with their retirement, including deep wells that require capping,
minerals quarries that require reclamation and other plant assets subject to certain environmental regulations. SFAS No. 143 requires that the fair value of a liability for an asset retirement
obligation ("ARO") be recognized in the period in which it is incurred. If the obligation is settled for other than the carrying amount of the liability, the Company would then recognize a gain or
loss on settlement. As a result of adopting SFAS No. 143, effective January 1, 2003, the Company recognized an after-tax charge of $1.0 million ($1.6 million
before an income tax benefit of $0.6 million) as the cumulative effect of a change in accounting principle, and recorded an ARO of $1.9 million and a net increase in property, plant and
equipment of $0.3 million.

The
change in the ARO during the year ended December 31, 2004 is as follows. The balance at December 31, 2003 has been restated to include AROs related to the synthetic
elastomers business that were recognized at the time the synthetic elastomers business was acquired by ISP in 2003 (see Note 1).

(Thousands)ARO liability balance, December 31, 2003

$
3,377Liabilities incurred, year ended December 31, 2004


30ARO liability accretion


198Payments


(348
)ARO liability balance, December 31, 2004

$
3,257


If
SFAS No. 143 had been applied during all periods affected, the net loss on a pro forma basis for the year ended December 31, 2002 would have been $104.9 million,
including an additional $0.2 million due to additional depreciation and liability accretion from AROs. The net income for the year ended December 31, 2003 would have increased on a pro
forma basis by $1.0 million to $40.8 million due to the elimination of the cumulative effect of the change in accounting principle recorded on January 1, 2003 on the adoption of
SFAS No. 143.

Note 15.    Benefit Plans

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



The Company provides a defined contribution plan for eligible salaried and hourly employees. The Company contributes up to 7% of participants' compensation 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 $8.3, $7.6 and $7.6 million for 2004, 2003 and 2002, respectively.

F-57

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The Company provides a noncontributory defined benefit retirement plan for certain hourly employees in the United States (the "Hourly Retirement Plan"). At
several locations, new employees may not participate and benefits have been frozen for most participants. Benefits under this plan are based on stated amounts for each year of service. The Company's
policy is to fund this plan consistent with the minimum funding requirements of ERISA.

ISP
Marl GmbH, a wholly owned German 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
|----------------------------------------------- |  | ---------------------- | ------ | -------------
|
|
|
|Service cost                                    |  | $                      | 233    |              
|Interest cost                                   |  |                        | 2,105  |              
|Expected return on plan assets                  |  |                        | (2,929 | )            
|Amortization of actuarial losses                |  |                        | 562    |              
|Amortization of unrecognized prior service cost |  |                        | 243    |              
|                                                |  |                        |        |              
|Net periodic pension cost (income)              |  | $                      | 214    |              
|                                                |  |                        |        |              

The
following tables set forth, for the years 2004 and 2003, 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. The Company uses a December 31 measurement date for its retirement plans and
postretirement medical and life insurance plan.

F-58

---





|                                                                                       |                                                | Hourly Retirement Plan |       | ISP Marl Plan |  
|-------------------------------------------------------------------------------------- | ---------------------------------------------- | ---------------------- | ----- | ------------- | -
|
|
|
|Change in benefit obligation:                                                          |                                                |                        |       |               |  
|                                                                                       | Benefit obligation at beginning of year        |                        | $     | 34,303        |  
|                                                                                       | Service cost                                   |                        |       | 233           |  
|                                                                                       | Interest cost                                  |                        |       | 2,105         |  
|                                                                                       | Effect of changes in exchange rates            |                        |       |              |  
|                                                                                       | Actuarial losses (gains)                       |                        |       | 1,296         |  
|                                                                                       | Benefits paid                                  |                        |       | (1,745        | )
|                                                                                       |                                                |                        |       |               |  
|                                                                                       | Benefit obligation at end of year              |                        | $     | 36,192        |  
|                                                                                       |                                                |                        |       |               |  
|Change in plan assets:                                                                 |                                                |                        |       |               |  
|                                                                                       | Fair value of plan assets at beginning of year |                        | $     | 31,830        |  
|                                                                                       | Actual return on plan assets                   |                        |       | 3,136         |  
|                                                                                       | Employer contributions                         |                        |       |              |  
|                                                                                       | Benefits paid                                  |                        |       | (1,745        | )
|                                                                                       |                                                |                        |       |               |  
|                                                                                       | Fair value of plan assets at end of year       |                        | $     | 33,221        |  
|                                                                                       |                                                |                        |       |               |  
|Reconciliation of funded status:                                                       |                                                |                        |       |               |  
|                                                                                       | Funded status                                  |                        | $     | (2,971        | )
|                                                                                       | Transition obligation                          |                        |       |              |  
|                                                                                       | Unrecognized prior service cost                |                        |       | 1,581         |  
|                                                                                       | Unrecognized actuarial (gains) losses          |                        |       | 10,241        |  
|                                                                                       |                                                |                        |       |               |  
|Net amount recognized in Consolidated Balance Sheets as (accrued) prepaid benefit cost |                                                | $                      | 8,851 |               | $
|                                                                                       |                                                |                        |       |               |  
|Amounts recognized in Consolidated Balance Sheets:                                     |                                                |                        |       |               |  
|                                                                                       | (Accrued) prepaid benefit cost                 |                        | $     |              |  
|                                                                                       | Accrued minimum pension liability              |                        |       | (2,971        | )
|                                                                                       | Intangible asset                               |                        |       | 1,581         |  
|                                                                                       | Accumulated other comprehensive loss           |                        |       | 10,241        |  
|                                                                                       |                                                |                        |       |               |  
|Net amount recognized in Consolidated Balance Sheets as (accrued) prepaid benefit cost |                                                | $                      | 8,851 |               | $
|                                                                                       |                                                |                        |       |               |  
|Change in amounts in other comprehensive loss:                                         |                                                |                        |       |               |  
|                                                                                       | Increase in additional minimum liability       |                        | $     | 285           |  
|                                                                                       | Decrease in intangible asset                   |                        |       | 242           |  
|                                                                                       | Decrease in other comprehensive income         |                        |       | (527          | )

The
accumulated benefit obligation for all defined benefit pension plans was $40.4 million and $37.3 million at December 31, 2004 and 2003,
respectively.

F-59

---



Information
on actual and future expected benefit payments related to the Hourly Retirement Plan and ISP Marl Plan follows:

Hourly
Retirement Plan

ISP Marl Plan(Thousands)Actual benefit payments:2002

$
1,527

$
242003


1,672


622004


1,745


65Future expected benefit payments:2005

$
2,119

$
752006


2,234


832007


2,346


912008


2,486


1512009


2,620


1582010 through 2014


13,749


1,433


Year Ended December 31,2005
(Expected)

2004
(Actual)

2003
(Actual)

2002
(Actual)(Thousands)Employer contributions:Required

$


$


$


$
398Additional discretionary











228Total

$


$


$


$
626


Hourly Retirement Plan

ISP Marl PlanDecember 31,

December 31,2004

2003

2004

2003Weighted-average assumptions:Discount rate:As of January 1 (for determining net periodic pension cost and projected benefit obligation for years ended December 31)

6.25
%
6.75
%
6.5
%
6.5
%As of December 31 (for determining projected benefit obligation at December 31)

6.0
%
6.25
%
5.52
%
6.5
%Expected long-term rate of return on assets

9.5
%
9.5
%


Rate of compensation increase

N/A

N/A

2.5
%
3.0
%


F-60

---



The
following table highlights the sensitivity of the Company's pension obligations and expense to changes in assumptions related to the Hourly Retirement Plan:

Impact on Pension Expense

Impact on Projected Benefit Obligation(Thousands)Change in assumption:25 basis points increase in discount rate

$
-50

$
-94025 basis points decrease in discount rate


+50


+94025 basis points increase in rate of return on assets


-80


N/A25 basis points decrease in rate of return on assets


+80


N/A


The
Company sets the discount rate assumption annually for its retirement-related benefit plans at the measurement dates to reflect the yield of high-quality fixed-income
debt instruments. The expected long-term rate of return on assets is derived from a detailed periodic study conducted by the Company's actuaries and the Company's financial management. The
study includes a review of anticipated future long-term performance of individual asset categories. While the study gives appropriate consideration to recent plan performance and
historical returns, the assumption is primarily a long-term, prospective rate. The Company revised its expected long-term rate of return on assets assumption for the Hourly
Retirement Plan in 2003 to 9.5%, a reduction from its previous level of 11.0%.

At
December 31, 2004 and 2003, the asset allocations for the Hourly Retirement Plan, by asset category, are as follows:

Plan Assets at December 31,2004
Actual

2003
Actual

2005
Target %Asset Category:Equity securities

28
%
39
%
25-45%Fixed income securities

66
%
45
%
40-70%Cash and equivalents

5
%
15
%
0-10%Other

1
%
1
%
0-10%Total

100
%
100
%


With
the assets in the Hourly Retirement Plan, the Company invests primarily in market-neutral absolute-return strategies which serve to minimize volatility while providing consistent
positive returns and preserving capital. These investments include both equity and fixed income securities and may incorporate the use of options, futures and other financial instruments.
Implementation of this policy involves investments with outside managers who have expertise in these strategies.



The Company generally does not provide postretirement medical and life insurance benefits, although it subsidizes such benefits for certain employees and certain
retirees.

F-61

---



The
net periodic postretirement benefit cost (income) included the following components:

Year Ended December 31,2004

2003

2002(Thousands)Service cost

$


$
129

$
116Interest cost


353


622


626Amortization of actuarial (gains) losses


(148
)

27


25Amortization of unrecognized prior service cost


(298
)

(284
)

(284
)Net periodic postretirement benefit cost (income)

$
(93
)
$
494

$
483


The
following table sets forth, for the years 2004 and 2003, 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:

Year Ended December 31,2004

2003(Thousands)Change in benefit obligation:Benefit obligation at beginning of year

$
8,581

$
9,750Service cost





129Interest cost


353


622Plan amendments


(195
)

Participant contributions


345


365Actuarial gains


(2,640
)

(1,499
)Benefits paid


(794
)

(786
)Benefit obligation at end of year

$
5,650

$
8,581Change in plan assets:Fair value of plan assets at beginning of year

$


$
Employer contributions


449


421Participant contributions


345


365Benefits paid


(794
)

(786
)Fair value of plan assets at end of year

$


$
Reconciliation of funded status:Funded status

$
(5,650
)
$
(8,581
)Unrecognized prior service cost


(1,487
)

(1,590
)Unrecognized actuarial (gains) losses


(2,293
)

199Net amount recognized in Consolidated Balance Sheets as accrued benefit cost

$
(9,430
)
$
(9,972
)


F-62

---



The Company's postretirement medical and life insurance plan is unfunded. Benefits are paid from the Company's general assets as they are incurred. The Company expects to contribute
$727,000 to the plan in 2005. Information on actual and future expected benefit payments related to the postretirement medical and life insurance plan follows:

(Thousands)Actual benefit payments:2002

$
7452003


7862004


794Future expected benefit payments:2005

$
7272006


7032007


6672008


6212009


5722010 through 2014


2,171


For
purposes of calculating the accumulated postretirement benefit obligation, the following assumptions were made. Retirees (under and over age 65) as of December 31, 2004
who were formerly salaried and hourly non-union employees (with certain exceptions) were assumed to receive a Company subsidy of $1,000 per year. With respect to retirees (under and over
age 65) as of December 31, 2004 who
were formerly hourly union employees, most such retirees were assumed to receive a Company subsidy ranging from $1,000 to $2,500 per year depending on the negotiated plan design and subsidy level.

|                              |                | December 31,                                                                                                                                 | 
|----------------------------- | -------------- | -------------------------------------------------------------------------------------------------------------------------------------------- | 
|
|Weighted-average assumptions: |                |                                                                                                                                              | 
|                              | Discount rate: |                                                                                                                                              | 
|                              |                | As of January 1 (for determining net periodic postretirement benefit cost and postretirement benefit obligation for years ended December 31) | 
|                              |                | As of December 31 (for determining postretirement benefit obligation at December 31)                                                         | 

|                                      |                        | December 31,                                                                      | 
|------------------------------------- | ---------------------- | --------------------------------------------------------------------------------- | 
|
|Assumed health care cost trend rates: |                        |                                                                                   | 
|                                      | Retirees under age 65: |                                                                                   | 
|                                      |                        | Health care cost trend rate assumed for the following year                        | 
|                                      |                        | Rate to which the cost trend rate is assumed to decline (the ultimate trend rate) | 
|                                      |                        | Year that the rate reaches the ultimate trend rate                                | 
|                                      | Retirees over age 65:  |                                                                                   | 
|                                      |                        | Health care cost trend rate assumed for the following year                        | 
|                                      |                        | Health care cost trend rate assumed for all years                                 | 
|                                      |                        | Rate to which the cost trend rate is assumed to decline (the ultimate trend rate) | 
|                                      |                        | Year that the rate reaches the ultimate trend rate                                | 

F-63

---



The
health care cost trend rate assumption has an effect on the amounts reported. A one-percentage-point change in assumed health care cost trend rates would have the
following effects:

Year Ended December 31,2004

2003(Thousands)One-percentage-point increase:Increase in the accumulated postretirement benefit obligation as of December 31

$
204

$
8Increase in aggregate service and interest cost


12


One-percentage-point decrease:Decrease in the accumulated postretirement benefit obligation as of December 31


(148
)

(8
)Decrease in aggregate service and interest cost


(8
)




Other Benefit Plans

The Company has a deferred compensation plan that permits eligible executives to defer up to 25% of their salary, 100% of bonuses and 100% of income from the
exercise of long-term incentive units (see Note 16). Effective January 1, 2005, in accordance with section 409A of the Internal Revenue Code, deferrals of income from
the exercise of long-term incentive units will no longer be permitted until the U.S. Treasury and the IRS issue interpretive guidance that is satisfactory to permit such deferrals. Amounts
deferred, through payroll deduction, are contributed by the Company to a grantor trust, of which the Company is the grantor. The employees direct the investment of the amounts held in trust into
various available funds. Distributions to participants, less any applicable tax withholding, are made upon the termination, retirement or death of the participant. The balance in the trust of
$11.4 million and $7.7 million at December 31, 2004 and 2003, respectively, is included in "Other assets" in the Consolidated Balance Sheets, with the liability of equal amounts
included in "Other liabilities." The investments held in the grantor trust are reflected at fair value in the Consolidated Balance Sheets and are marked-to-market each period,
with unrealized holding gains and losses included in the results of operations.

The
Company also provides a nonqualified defined benefit retirement plan for certain current and former executives. The retirement benefit payable under the plan, which accrues in
accordance with a ten-year vesting schedule, consists of an annual payment commencing at age 65 equal to 25% of a covered participant's last full year's salary. The plan is not a funded
plan, but rather retirement benefits are paid from the general assets of the Company. Expense recorded for this plan was $0.8, $0.8 and $1.0 million for 2004, 2003 and 2002, respectively. The
liability related to this plan was $13.0 and $9.4 million, respectively, at December 31, 2004 and 2003 and is included within "Other liabilities." The increase in the liability in 2004
resulted from a decrease in the discount rate used to compute the benefit obligation to 6.0% in 2004 from the 8.0% used in prior years. As a result, an additional minimum pension liability of
$3.4 million, before income tax benefit of $1.3 million, was recorded and charged against "Accumulated other comprehensive income."

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

F-64

---



$114.4 million
at December 31, 2004. These policies had a cash surrender value of $52.2 and $48.7 million at December 31, 2004 and 2003, respectively, and policy loans of
$49.8 and $46.6 million, respectively. The net cash surrender value at December 31, 2004 and 2003 was $2.4 and $2.1 million, respectively, and is included in "Other assets."

Note 16.    Going Private Transaction by ISP and Stock-based Employee Compensation

On February 28, 2003, at a Special Meeting of Stockholders of ISP, a majority of the holders of the shares of ISP common stock outstanding and entitled to
vote at that meeting and a majority of the minority holders (being those shares not owned beneficially by Mr. Samuel J. Heyman, Chairman of ISP, or the officers and directors of ISP) of shares
of common stock outstanding and entitled to vote at that meeting approved the Agreement and Plan of Merger dated as of November 8, 2002 of International Specialty Products Holdings Inc.
with and into ISP and pursuant to which holders of ISP common stock received $10.30 per share in cash for each share of ISP common stock owned (except as otherwise provided in the merger agreement).
Mr. Heyman formed International Specialty Products Holdings, Inc. for purposes of entering into this transaction and was deemed to be the sole "beneficial owner" (as defined in
Rule 13d-3 under the Securities Exchange Act of 1934) of all of International Specialty Products Holdings Inc.'s common stock and, at the time of the Special Meeting,
approximately 81% of ISP's common stock. As a result, ISP's common stock is no longer publicly traded and its common stock was delisted from the New York Stock Exchange and deregistered with the
Securities and Exchange Commission. Mr. Heyman may now be deemed to beneficially own (as defined in Rule 13d-3 under the Securities Exchange Act of 1934) 100% of ISP's common stock.

As
a result of ISP completing the going private transaction, the Company's stock-based compensation plans were terminated and payments were made in accordance with the terms of the
merger agreement. Accordingly, holders of approximately 2.7 million vested, in-the-money stock options outstanding and exercisable on February 28, 2003 received a
cash amount equal to the excess of $10.30 over the exercise price of such stock options, aggregating $1.5 million. Compensation expense of $1.5 million related to the payment for stock
option terminations was recorded in the first quarter of 2003 and is included in "Other operating gains and (charges), net" (see Note 5). In addition, outstanding restricted common stock awards
were replaced with long-term incentive units of comparable vesting and a value equivalent to the previous awards based on the buyout price of $10.30 per award. The total consideration for
the going private transaction of approximately $138.0 million was paid out of the Company's funds. ISP borrowed a total of $94.0 million pursuant to five loan agreements, dated
March 3, 2003, with the Company's wholly owned subsidiary, ISP Investco, and its indirect, wholly owned subsidiary, ISP Ireland (see Note 12). In addition, ISP Investco paid down
$43.8 million of its intercompany payables to ISP. In accordance with the SEC's Staff Accounting Bulletin No. 54, "Application of "Push Down" Basis of Accounting in Financial Statements
of Subsidiaries Acquired by Purchase," ISP has not applied push down accounting for the going private transaction to its subsidiaries.

In
February 2000, ISP adopted the 2000 Long-Term Incentive Plan (the "2000 LTI Plan"), which authorizes the grant of incentive units ("Incentive Units") to eligible
Company employees. The 2000 LTI Plan provides long-term compensation to employees and key management personnel based on ISP's "Book Value" (as defined). The 2000 LTI Plan is administered
by a committee (the "Committee") appointed by the Board of Directors of ISP from among the employees of ISP. The Committee in its sole discretion determines the number of Incentive Units to be granted
to each

F-65

---



employee.
Generally, Incentive Units vest cumulatively, in 20% increments over five years, or in 10% increments every six months over five years. The Committee, in its sole discretion, may grant
Incentive Units with any other vesting schedule. Incentive Units expire on the earlier of: (i) the sixth anniversary of the date the Incentive Unit was granted; (ii) one year after the
employee's termination of employment with the Company due to death, long-term disability or retirement; or (iii) 90 days after the employee's termination of employment for
reasons other than mentioned above and not due to good cause. Upon the exercise of an Incentive Unit, the employee will receive in cash the excess, if any, of the "Final Value" of such Incentive Units
(which Final Value shall equal the value of the Incentive Units as described below as of the latest calculation date) over the value calculated on the date of grant. The value of Incentive Units is
determined at the end of each fiscal quarter based on ISP's total Stockholder's Equity (excluding accumulated other comprehensive income and losses and goodwill impairment losses and including
goodwill amortization expense in a manner similar to the periods prior to adopting SFAS No. 142). This value on the date of grant is compared to the value as remeasured at the end of each
quarter in order to determine compensation expense. The 2000 LTI Plan will terminate ten years after its effective date of February 2000, unless terminated sooner by the Committee. Compensation
expense related to the 2000 LTI Plan was $6.3, $6.6 and $2.7 million in 2004, 2003 and 2002, respectively. The liability related to the 2000 LTI Plan was $16.9 and $11.6 million at
December 31, 2004 and 2003, respectively, and is included in "Other liabilities."

In
May 2003, ISP adopted the 2003 Executive Long-Term Incentive Plan (the "2003 ELTI Plan"), which provides long-term compensation to executives, key
management personnel and certain other employees based on ISP's "Book Value" (as defined). The 2003 ELTI Plan is administered by the Committee which, in its sole discretion, determines the number of
Incentive Units to be granted to any one or more eligible employees. Incentive Units normally vest cumulatively, in 20% increments over five years provided, however, that the Committee may in its sole
discretion grant Incentive Units with any other vesting schedule. Incentive Units expire on the earlier of: (i) the tenth anniversary of the date the Incentive Unit was granted; (ii) one
year after the employee's termination of employment with the Company due to death, long-term disability or retirement; or (iii) 90 days after the employee's termination of
employment for reasons other than mentioned above and not due to good cause. Upon the exercise of an Incentive Unit, the employee will receive in cash the excess, if any, of the "Final Value" of such
Incentive Units (which Final Value shall equal the value of the Incentive Units as described below as of the latest calculation date) over the value calculated on the date of grant. The value of
Incentive Units is determined at the end of each fiscal quarter based on ISP's total Stockholder's Equity (excluding accumulated other comprehensive income and losses). This value on the date of grant
is compared to the value as remeasured at the end of each quarter in order to determine compensation expense. The 2003 ELTI Plan will terminate ten years after its effective date of May 15,
2003, unless terminated sooner by the Committee. Compensation expense related to the 2003 ELTI Plan was $3.2 and $4.8 million in 2004 and 2003, respectively. The liability related to the 2003
ELTI Plan was $8.0 and $4.8 million at December 31, 2004 and 2003, respectively, and is included in "Other liabilities."

F-66

---



The
following is a summary of activity for Incentive Units related to the 2000 LTI and 2003 ELTI Plans:

Year Ended December 31,2004

2003

2002(Thousands of Incentive Units)Incentive Units outstanding, January 1

7,855

4,460

4,207Granted

854

4,152

796Exercised

(274
)
(391
)
(132
)Forfeited

(281
)
(366
)
(411
)Incentive Units outstanding, December 31

8,154

7,855

4,460


Note 17.    Acquisitions

During
2004, the Company completed four acquisitions, including three in Europe, to further enhance the Company's global specialty chemicals business. The acquisitions included United
Kingdom-based Red Carnation Gums Limited and Hallcrest Limited, Germany-based Biochema Schwaben, and Niro's Pharma Technologies business. The aggregate purchase price of the assets and businesses
acquired totaled $28.4 million. Acquisitions in 2003 included the synthetic elastomers business (see Note 1) and Germinal S.A., a supplier of food ingredients in southern Latin America.
In 2002, the Company acquired the roofing granules manufacturing operations in Ione, California of Reed Minerals and an adjacent quarry operation and certain mining assets from Hanson Aggregates
Mid-Pacific, Inc.

Note 18.    Business Segment Information

The Company is a leading multinational manufacturer of a broad spectrum of specialty and industrial chemicals, emulsified styrene butadiene rubber and related
products, and mineral products. Effective August 30, 2004, ISP contributed the synthetic elastomers business to the capital of the Company. Accordingly, the Company's consolidated financial
statements include the results of the synthetic elastomers business from July 28, 2003, the date of its acquisition by ISP (see Note 1). The synthetic elastomers business is being
reported as a separate business segment.

Specialty Chemicals.The Specialty Chemicals business segment is comprised of the personal care, pharmaceutical, food,
beverage, performance chemicals and fine chemicals product lines.

Personal
care products serve as critical ingredients in the formulation of many well-known skin care, hair care, oral care, toiletry and cosmetic products. Skin care
ingredients include sunscreen actives, waterproofing agents, preservatives, biofunctionals, 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. Gantrez bioadhesive polymers serve as critical ingredients in denture adhesives and tartar
control toothpastes.

Pharmaceutical,
food and beverage products are sold to these 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 and antiseptics. In the food and beverage markets, the Company's alginates and
acetylene-derived polymers serve as critical

F-67

---



ingredients
in the manufacture of numerous consumer products, including bakery fillings, salad dressings, dairy products, cheese sauces, fruit fillings, beer and health drinks. The Company's alginates
products are used as stabilizers in many well-known consumer products and prevent the separation of oil emulsions. The Company's specialty polymers serve the beverage market by assuring
the clarity and extending the shelf life of beer, wine and fruit juices.

The
performance chemicals product line includes products sold to the aerospace, defense, paints and coatings, detergent, electronics, oil field, agricultural and powder metallurgy
markets and various industrial markets. The performance chemicals product line includes the biocides business which is comprised of a broad range of preservatives and fungicides for various product
applications, including paints and coatings.

The
Company manufactures a broad range of highly specialized fine chemicals which are sold to the pharmaceutical, biotechnology, agricultural, imaging and various other consumer markets.

Industrial Chemicals.The Company's Industrial Chemicals business segment markets several intermediate and solvent products,
such as butanediol, tetrahydrofuran (THF) and N-methyl pyrrolidone (NMP), for use in a variety of industries including high performance plastics, lubricating oil and chemical processing,
electronics cleaning, and coatings.

Synthetic Elastomers.The Company's Synthetic Elastomers business segment manufactures and markets various types of
emulsified styrene butadiene rubber. The products produced are used as key polymeric ingredients in a wide variety of rubber applications including, among other things, new and retread tires,
automotive, mechanical goods, gaskets and industrial rubber products. These products are sold to a wide cross section of the rubber industry through a network of national distributors.

Mineral Products.The Company manufactures semi-ceramic-coated colored roofing granules, algae resistant granules
and headlap granules, which are produced from rock deposits that are mined and crushed at the Company's quarries and sold primarily to the United States roofing industry for use in the manufacture 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 and expense 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 Specialty
Chemicals and Industrial Chemicals business segments as many of the Company's plant assets are utilized by both segments. Therefore, the following asset-related segment data are presented only for the
combined Specialty Chemicals and Industrial Chemicals business segments and for the Synthetic Elastomers and Mineral Products business segments.

F-68

---





Sales of mineral products to BMCA and its subsidiaries in 2004, 2003 and 2002 accounted for 73.1%, 74.7% and 77.0%, respectively, of the Company's net sales of
mineral products, representing 8.2%, 8.7% and 8.7%, respectively, of the Company's total net sales. No other customer accounted for more than 5% of the Company's total net sales in 2004, 2003 or 2002.

|                                                                                     |                                    | Year Ended December 31,        |        
|------------------------------------------------------------------------------------ | ---------------------------------- | ------------------------------ | -------
|
|
|Net sales(1):                                                                        |                                    |                                |        
|                                                                                     | Specialty Chemicals                |                                | $      
|                                                                                     | Industrial Chemicals               |                                |        
|                                                                                     | Synthetic Elastomers               |                                |        
|                                                                                     | Mineral Products(2)                |                                |        
|                                                                                     |                                    |                                |        
|Net sales                                                                            |                                    | $                              | 1,193.6
|                                                                                     |                                    |                                |        
|Operating income (loss)(1)(3):                                                       |                                    |                                |        
|                                                                                     | Specialty Chemicals                |                                | $      
|                                                                                     | Industrial Chemicals               |                                |        
|                                                                                     | Synthetic Elastomers               |                                |        
|                                                                                     | Mineral Products                   |                                |        
|                                                                                     |                                    |                                |        
|                                                                                     |                                    | Total segment operating income |        
|Unallocated corporate office items                                                   |                                    |                                | (0.3   
|Write-off of deferred costs (4)                                                      |                                    |                                |       
|                                                                                     |                                    |                                |        
|                                                                                     |                                    | Total operating income         |        
|Interest expense, investment income and other expense, net                           |                                    |                                | (67.4  
|                                                                                     |                                    |                                |        
|Income before income taxes and cumulative effect of changes in accounting principles |                                    | $                              | 93.0   
|                                                                                     |                                    |                                |        
|Assets:                                                                              |                                    |                                |        
|                                                                                     | Specialty and Industrial Chemicals |                                | $      
|                                                                                     | Synthetic Elastomers               |                                |        
|                                                                                     | Mineral Products                   |                                |        
|                                                                                     | General Corporate(5)               |                                |        
|                                                                                     |                                    |                                |        
|                                                                                     |                                    | Total assets                   |        
|                                                                                     |                                    |                                |        
|Capital expenditures and acquisitions:                                               |                                    |                                |        
|                                                                                     | Specialty and Industrial Chemicals |                                | $      
|                                                                                     | Synthetic Elastomers               |                                |        
|                                                                                     | Mineral Products                   |                                |        
|                                                                                     |                                    |                                |        
|                                                                                     |                                    | Total                          |        
|                                                                                     |                                    |                                |        
|                                                                                     |                                    |                                |        

F-69

---



|Depreciation and amortization of intangible assets: |                                    |       |   |      |      |   |      |      |   |     
|--------------------------------------------------- | ---------------------------------- | ----- | - | ---- | ---- | - | ---- | ---- | - | ----
|                                                    | Specialty and Industrial Chemicals |       | $ | 55.2 |      | $ | 52.4 |      | $ | 50.1
|                                                    | Synthetic Elastomers               |       |   | 2.3  |      |   | 0.8  |      |   |    
|                                                    | Mineral Products                   |       |   | 9.9  |      |   | 8.8  |      |   | 8.2 
|                                                    |                                    |       |   |      |      |   |     
|                                                    |                                    | Total |   | $    | 67.4 |   | $    | 62.0 |   | $   
|                                                    |                                    |       |   |      |      |   |     

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Note 19.    Geographic Information

Financial information set forth below for foreign operations represent 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.

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|           |                                          | Year Ended December 31,       
|---------- | ---------------------------------------- | ------------------------------
|
|
|Net sales: |                                          |                               
|           | North America:                           |                               
|           |                                          | United States                 
|           |                                          | Canada                        
|           |                                          |                               
|           |                                          |                               
|           |                                          |                               
|           | Europe:                                  |                               
|           |                                          | Germany                       
|           |                                          | United Kingdom                
|           |                                          | France                        
|           |                                          | Italy                         
|           |                                          | Spain                         
|           |                                          | Switzerland                   
|           |                                          | Belgium                       
|           |                                          | Netherlands                   
|           |                                          | Israel                        
|           |                                          | Other European countries      
|           |                                          |                               
|           |                                          |                               
|           |                                          |                               
|           | Asia-Pacific:                            |                               
|           |                                          | China                         
|           |                                          | Japan                         
|           |                                          | South Korea                   
|           |                                          | Australia                     
|           |                                          | India                         
|           |                                          | Taiwan                        
|           |                                          | Other Asia-Pacific countries  
|           |                                          |                               
|           |                                          |                               
|           |                                          |                               
|           | Latin America:                           |                               
|           |                                          | Brazil                        
|           |                                          | Mexico                        
|           |                                          | Other Latin American countries
|           |                                          |                               
|           |                                          |                               
|           |                                          |                               
|           | Total net sales                          |                               
|           |                                          |                               
|           | Property, plant and equipment, net:      |                               
|           |                                          | United States                 
|           |                                          | Germany                       
|           |                                          | United Kingdom                
|           |                                          | All other foreign countries   
|           |                                          |                               
|           | Total property, plant and equipment, net |                               
|           |                                          |                               

---

F-71

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Approximately
50% of the Company's sales in 2004 were in foreign countries, which are subject to currency exchange rate fluctuation 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 20.    Commitments and Contingencies



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.

ISP
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 ISP 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 ISP held by them as well as an unspecified amount of
damages. The defendants in such actions have advised ISP 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 ISP. See Note 13 for a discussion of the Senior Credit Facilities.



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 in which 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, 2004 and 2003, was approximately $19.9 and $24.3 million, respectively. As of December 31, 2004 and 2003, $11.7 and
$13.2 million, respectively, of the liability estimate represents the present value of long-term future post closure costs discounted at a risk free rate of 5%. On an undiscounted
basis, this portion of the liability is $19.6 and $22.3 million, respectively. Environmental insurance recoveries are included in the Consolidated Balance Sheets at December 31, 2004 and
2003 (discussed below) of $28.1 million at each date that relate to both past expenses and estimated future liabilities ("estimated recoveries"). While the Company cannot predict

F-72

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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 or decrease its estimate of insurance recoveries 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 estimated 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 the estimated recoveries, 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 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, which the Company does not believe will be material. 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 $10.6 million. Portions of this estimate have been calculated on a present value basis as discussed above.



The Company had a contract with a multinational supplier to supply a substantial amount of its acetylene needs to the Texas City, Texas facility. As a result of
the expiration of this contract in March 2004, the Company took the following actions. The Company reduced its acetylene requirements at the Texas City plant by 50% through shifting production
of acetylene-consuming products to the Calvert City, Kentucky plant. The Company also entered into a long-term supply contract for the remaining Texas City plant requirements with a local
producer. Under this contract, the Company is obligated to purchase specified quantities of acetylene through the end of 2013. Pricing under this contract is on a fixed basis with escalators related
to changes in the Producer Price Index.

The
Company also has an acetylene supply contract for its requirements of acetylene delivery via pipeline to its Calvert City facility. The current term of this contract expires
December 31, 2009 and allows the Company, at its sole option, to extend the agreement for two additional terms of five years each. The Company is required by the contract to pay a monthly
non-cancelable facility fee. Pricing under the contract is on a fixed basis with escalators related to changes in the Producer Price Index.

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The annual unconditional purchase obligation related to the long-term acetylene supply contract at the Texas City plant, together with the
non-cancelable facility fee associated with the Calvert City plant acetylene contract is $5.1 million.

ISP
Elastomers has a 1,3 butadiene supply contract with a multi-national supplier for its requirements of butadiene via pipeline to its Port Neches, Texas facility. Under this agreement,
ISP Synthetic Elastomers is required to purchase specified quantities of butadiene through the end of 2006. Pricing for butadiene under this contract varies based on the U.S. Gulf Coast Marker Price
announced at the beginning of each calendar month during the term of the contract. The total unconditional purchase obligation related to this supply contract for the years 2005 and 2006 is
approximately $3.8 million.

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,
2004 and 2003 in the amount of $1.0 and $1.2 million, respectively. The Company entered into an operating lease in 1998 for a sale-leaseback transaction related to equipment at its
Freetown, Massachusetts facility. The lease had an initial term of four years and, at the Company's option, up to three one-year renewal periods. The third and final renewal option was
exercised during the first quarter of 2004. The lease provided for a substantial guaranteed payment by the Company, adjusted at the end of each renewal period, and included purchase and return options
at fair market values determined at the inception of the lease. The Company had the right to exercise a purchase option with respect to the leased equipment, or the equipment could be returned to the
lessor and sold to a third party. The Company exercised the purchase option in the first quarter of 2005 for a purchase price of $33.6 million.

The
Company also has operating leases for transportation, production and data processing equipment and for various buildings and offices. Rental expense on operating leases was $13.7,
$12.8 and $14.3 million for 2004, 2003 and 2002, respectively. Future minimum lease payments for properties which were held under long-term noncancelable leases and future
obligations under unconditional purchase contracts discussed above as of December 31, 2004 were as follows:

|                                            |  | Capital
Leases |     | Operating
Leases |   | Unconditional
Purchase
Obligations
|------------------------------------------- |  | -------------- | --- | ---------------- | - | ----------------------------------
|
|2005                                        |  | $              | 278 |                  | $ | 5,110                             
|2006                                        |  |                | 10  |                  |   | 4,629                             
|2007                                        |  |                | 10  |                  |   | 4,014                             
|2008                                        |  |                |    |                  |   | 3,033                             
|2009                                        |  |                |    |                  |   | 2,768                             
|Later years                                 |  |                |    |                  |   | 16,581                            
|                                            |  |                |     |                  |   |                                   
|Total minimum payments                      |  |                | 298 |                  | $ | 36,135                            
|                                            |  |                |     |                  |   |                                   
|Less interest included above                |  |                | (4  | )                |   |                                   
|                                            |  |                |     |                  |   |                                   
|Present value of net minimum lease payments |  | $              | 294 |                  |   |                                   
|                                            |  |                |     |                  |   |                                   

F-74

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Other Matters

In March 2005, the Company entered into a long-term supply contract with an international company for the purchase of product in the specialty chemicals business
that the Company currently manufactures. As a result, the utilization of one of the Company's specialty chemicals facilities could be adversely impacted and the Company will be performing a review in
the first quarter of 2005 for possible asset impairment related to this facility.

The
Company has received approval from the New Jersey Turnpike Authority for a direct access ramp extension from the New Jersey Turnpike to the Company's Linden, New Jersey property.
With the planned New Jersey Turnpike access, it is likely that development alternatives such as warehousing will provide greater economic benefits than the Company's previously considered development
alternative of construction of a hazardous waste treatment, storage and disposal facility at this site. See also Note 5.

See
Note 7 for information regarding additional contingencies.

F-75

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INTERNATIONAL SPECIALTY HOLDINGS INC.        SUPPLEMENTARY DATA (UNAUDITED)        Quarterly Financial Data (Unaudited)

|                                                                                          |  | 2004 by Quarter |       | 2003 by Quarter* |  
|----------------------------------------------------------------------------------------- |  | --------------- | ----- | ---------------- | -
|
|
|Net sales                                                                                 |  | $               | 300.4 |                  | $
|Cost of products sold                                                                     |  |                 | 199.1 |                  |  
|                                                                                          |  |                 |       |                  |  
|Gross profit                                                                              |  | $               | 101.3 |                  | $
|                                                                                          |  |                 |       |                  |  
|Operating income                                                                          |  | $               | 50.4  |                  | $
|                                                                                          |  |                 |       |                  |  
|Income (loss) before income taxes and cumulative effect of change in accounting principle |  | $               | 45.4  |                  | $
|Income tax (provision) benefit                                                            |  |                 | (15.5 | )                |  
|                                                                                          |  |                 |       |                  |  
|Income (loss) before cumulative effect of change in accounting principle                  |  |                 | 29.9  |                  |  
|Cumulative effect of change in accounting principle, net of income tax benefit            |  |                 |      |                  |  
|                                                                                          |  |                 |       |                  |  
|Net income (loss)                                                                         |  | $               | 29.9  |                  | $
|                                                                                          |  |                 |       |                  |  

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F-76

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SCHEDULE II

INTERNATIONAL SPECIALTY HOLDINGS INC.        VALUATION AND QUALIFYING ACCOUNTS        Year Ended December 31, 2004

|Description                                                                 |                                        | Balance
January 1,
2004(a) |   | Charged to
Costs and
Expenses |  | Deductions |       | Balance
December 31,
2004
|--------------------------------------------------------------------------- | -------------------------------------- | -------------------------- | - | ----------------------------- |  | ---------- | ----- | -------------------------
|
|Valuation and Qualifying Accounts Deducted from Assets to Which They Apply: |                                        |                            |   |                               |  |            |       |                          
|                                                                            | Allowance for doubtful accounts        |                            | $ | 5,938                         |  | $          | 1,717 |                          
|                                                                            | Reserve for inventory market valuation |                            |   | 22,691                        |  |            | 1,766 |                          

Year Ended December 31, 2003(a)

|Description                                                                 |                                        | Balance
January 1,
2003 |   | Charged to
Costs and
Expenses |  | Deductions |       | Balance
December 31,
2003
|--------------------------------------------------------------------------- | -------------------------------------- | ----------------------- | - | ----------------------------- |  | ---------- | ----- | -------------------------
|
|Valuation and Qualifying Accounts Deducted from Assets to Which They Apply: |                                        |                         |   |                               |  |            |       |                          
|                                                                            | Allowance for doubtful accounts        |                         | $ | 6,022                         |  | $          | 307   |                          
|                                                                            | Reserve for inventory market valuation |                         |   | 25,184                        |  |            | 4,868 |                          

Year Ended December 31, 2002

|Description                                                                 |                                        | Balance
January 1,
2002 |   | Charged to
Costs and
Expenses |  | Deductions |       | Balance
December 31,
2002
|--------------------------------------------------------------------------- | -------------------------------------- | ----------------------- | - | ----------------------------- |  | ---------- | ----- | -------------------------
|
|Valuation and Qualifying Accounts Deducted from Assets to Which They Apply: |                                        |                         |   |                               |  |            |       |                          
|                                                                            | Allowance for doubtful accounts        |                         | $ | 5,472                         |  | $          | 657   |                          
|                                                                            | Reserve for inventory market valuation |                         |   | 28,032                        |  |            | 2,984 |                          

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Notes:

S-1

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