UNITED STATES

                      SECURITIES AND EXCHANGE COMMISSION

                            WASHINGTON, D.C. 20549

                                  FORM 10-Q

(Mark One)
  /X/           QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
                  OF THE SECURITIES EXCHANGE ACT OF 1934

               For The Quarterly Period Ended June 30, 2002

                                    OR

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

                     Commission File Number 000-29764

                   INTERNATIONAL SPECIALTY PRODUCTS INC.
           (Exact name of registrant as specified in its charter)


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

 300 Delaware Avenue, Suite 303, Wilmington, Delaware            19801
(Address of principal executive offices)                       (Zip Code)

Registrant's telephone number, including area code         (302) 427-5715

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

     As of August 9, 2002, 64,942,382 shares of International Specialty Products
Inc. common stock (par value $.01 per share) were outstanding.



<PAGE>






                        PART I - FINANCIAL INFORMATION
                         ITEM 1 - FINANCIAL STATEMENTS

                     INTERNATIONAL SPECIALTY PRODUCTS INC.

               CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
                     (Thousands, except per share amounts)

<TABLE>
<CAPTION>

                                      Second Quarter Ended     Six Months Ended
                                      ---------------------  --------------------
                                        July 1,    June 30,   July 1,    June 30,
                                         2001        2002      2001        2002
                                      ---------   ---------  ---------  ---------
<S>                                   <C>         <C>        <C>        <C>

Net sales............................ $ 203,294   $ 214,724  $ 406,491  $ 433,848
                                      ---------   ---------  ---------  ---------
Costs and Expenses:
  Cost of products sold..............  (122,332)   (138,655)  (255,595)  (284,032)
  Selling, general and administrative   (41,331)    (43,857)   (81,308)   (86,366)
  Gain on sale of assets.............         -       5,468          -      5,468
  Gains on settlement of contracts...         -       3,928          -      6,760
  Amortization of goodwill and
    intangibles......................    (4,048)       (153)    (8,096)      (555)
                                      ---------   ---------  ---------  ---------
     Total costs and expenses .......  (167,711)   (173,269)  (344,999)  (358,725)
                                      ---------   ---------  ---------  ---------
Operating income.....................    35,583      41,455     61,492     75,123
Interest expense.....................   (18,677)    (21,189)   (37,728)   (44,035)
Investment income (loss), net of
  investment-related expenses of
  $1,529, $1,358, $2,560 and $2,498,
  respectively.......................   (13,884)     10,001     20,793     25,240
Other expense, net...................    (2,862)       (222)    (9,040)    (2,177)
                                      ---------   ---------  ---------  ---------
Income before income taxes...........       160      30,045     35,517     54,151
Income taxes.........................       (60)    (10,192)   (12,462)   (18,375)
                                      ---------   ---------  ---------  ---------
Income before extraordinary item and
   cumulative effect of accounting
   change............................       100      19,853     23,055     35,776

Extraordinary item - loss on early
  retirement of debt, net of income
  tax benefit of $2,434..............         -           -          -     (4,725)

Cumulative effect of change in
  accounting principle, net of
  income tax benefit of $216 in 2001.         -           -       (440)  (155,400)
                                      ---------   ---------  ---------  ---------
Net income (loss).................... $     100   $  19,853  $  22,615  $(124,349)
                                      =========   =========  =========  =========

</TABLE>





                                       1
<PAGE>










                     INTERNATIONAL SPECIALTY PRODUCTS INC.

        CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) - (CONTINUED)
                     (Thousands, except per share amounts)
<TABLE>
<CAPTION>


                                       Second Quarter Ended     Six Months Ended
                                      ----------------------  --------------------
                                        July 1,    June 30,     July 1,   June 30,
                                         2001        2002        2001       2002
                                      ----------  ----------  ---------   --------
<S>                                   <C>          <C>         <C>        <C>
Earnings per common share:
  Basic:
    Income before extraordinary item
      and cumulative effect of
      accounting change..............  $      -    $     .31   $    .35   $   .55
    Extraordinary item...............         -           -          -       (.07)
    Cumulative effect of accounting
       change........................         -           -        (.01)    (2.40)
                                       ---------   ---------  ---------   -------
    Net income (loss)................  $      -    $     .31  $     .34   $ (1.92)
                                       =========   =========  =========   =======
  Diluted:
    Income before extraordinary item
      and cumulative effect of
      accounting change..............  $      -    $     .31  $     .35   $   .55
    Extraordinary item...............         -           -          -       (.07)
    Cumulative effect of accounting
       change........................         -           -        (.01)    (2.40)
                                       ---------   ---------  ---------   -------
    Net income (loss)................  $      -    $     .31  $     .34   $ (1.92)
                                       =========   =========  =========   =======


 Weighted average number of common
  and common equivalent shares
  outstanding:

  Basic..............................     66,148      64,822     66,238    64,829
                                       =========   =========   ========   =======
  Diluted............................     66,263      64,888     66,314    64,901
                                       =========   =========   ========   =======

</TABLE>






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




                                       2

<PAGE>


                     INTERNATIONAL SPECIALTY PRODUCTS INC.
                          CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>

                                                                       June 30,
                                                         December 31,     2002
                                                             2001     (Unaudited)
                                                         ------------ -----------
                                                                (Thousands)
<S>                                                      <C>          <C>

ASSETS
Current Assets:
  Cash and cash equivalents..........................    $   79,509   $  122,828
  Investments in trading securities..................        54,437       98,024
  Investments in available-for-sale securities.......       239,273      180,174
  Other short-term investments.......................         2,299            -
  Restricted cash....................................       307,866            -
  Accounts receivable, trade, net....................        86,574      100,554
  Accounts receivable, other.........................        20,357       27,384
  Receivable from related parties, net...............         9,009       15,599
  Inventories........................................       190,582      167,299
  Deferred income tax benefits.......................        32,929       35,591
  Other current assets...............................         8,635        8,685
                                                         ----------   ----------
    Total Current Assets.............................     1,031,470      756,138
Property, plant and equipment, net...................       560,844      565,981
Goodwill, net........................................       502,607      330,911
Intangible assets, net...............................        15,167        8,160
Other assets.........................................        62,480       61,483
                                                         ----------   ----------
Total Assets.........................................    $2,172,568   $1,722,673
                                                         ==========   ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
  Short-term debt....................................    $      143   $    1,624
  Current maturities of long-term debt...............       310,265        2,319
  Accounts payable...................................        49,088       50,317
  Accrued liabilities................................        97,659       85,940
  Income taxes.......................................         9,799       12,474
                                                         ----------   ----------
    Total Current Liabilities........................       466,954      152,674
                                                         ----------   ----------
Long-term debt less current maturities...............       919,557      861,693
                                                         ----------   ----------
Deferred income taxes................................       109,297      131,454
                                                         ----------   ----------
Other liabilities....................................        72,703       67,777
                                                         ----------   ----------
Stockholders' Equity:
  Preferred stock, $.01 par value per share;
    20,000,000 shares authorized:
    no shares issued.................................             -            -
  Common stock, $.01 par value per share; 300,000,000
    shares authorized: 69,546,456 shares issued......           695          695
  Additional paid-in capital.........................       487,156      488,274
  Unearned compensation - restricted stock awards....        (1,166)      (3,170)
  Treasury stock, at cost - 4,831,939 and
    4,722,913 shares, respectively...................       (35,621)     (35,013)
  Retained earnings..................................       214,095       89,746
  Accumulated other comprehensive loss...............       (61,102)     (31,457)
                                                         ----------   ----------
    Total Stockholders' Equity.......................       604,057      509,075
                                                         ----------   ----------
Total Liabilities and Stockholders' Equity...........    $2,172,568   $1,722,673
                                                         ==========   ==========

</TABLE>

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

                                       3
<PAGE>


                     INTERNATIONAL SPECIALTY PRODUCTS INC.
               CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>

                                                                Six Months Ended
                                                               -------------------
                                                                July 1,   June 30,
                                                                 2001       2002
                                                               --------  ---------
                                                                   (Thousands)
<S>                                                            <C>       <C>
Cash and cash equivalents, beginning of period...............  $ 18,181  $ 79,509
                                                               --------  --------
Cash provided by (used in) operating activities:
  Net income (loss)..........................................    22,615  (124,349)
  Adjustments to reconcile net income (loss) to net cash
    provided by operating activities:
      Extraordinary item.....................................         -     4,725
      Cumulative effect of change in accounting principle....       440   155,400
      Gain on sale of assets.................................         -    (5,468)
      Depreciation...........................................    26,141    27,925
      Amortization of goodwill and intangibles...............     8,096       555
      Deferred income taxes..................................     7,276    12,447
      Unrealized (gains) losses on trading securities
        and other short-term investments.....................     1,819    (9,554)
  Increase in working capital items..........................   (44,451)   (1,087)
  Purchases of trading securities............................  (323,198) (325,455)
  Proceeds from sales of trading securities..................   500,119   276,504
  Proceeds (repayments) from sale of accounts receivable.....    (2,918)   (3,883)
  Increase in net receivable from related parties............    (4,550)   (6,434)
  Change in cumulative translation adjustment................    (8,101)   10,678
  Other, net.................................................     9,014    (4,921)
                                                               --------  --------
Net cash provided by operating activities....................   192,302     7,083
                                                               --------  --------
Cash provided by (used in) investing activities:
  Capital expenditures and acquisitions......................   (44,079)  (30,666)
  Net proceeds from sale of assets...........................         -    27,271
  Purchases of available-for-sale securities.................  (130,671) (128,518)
  Proceeds from sales of available-for-sale securities.......    19,768   229,369
  Proceeds from sales of other short-term investments........    12,765     2,299
                                                               --------  --------
Net cash provided by (used in) investing activities..........  (142,217)   99,755
                                                               --------  --------
Cash provided by (used in) financing activities:
  Increase (decrease) in short-term debt.....................  (104,532)    1,481
  Proceeds from issuance of debt.............................   426,864         -
  Decrease in borrowings under revolving credit facility.....  (122,000)  (56,850)
  Repayments of long-term debt...............................   (28,236) (309,309)
  Call premium on redemption of debt.........................         -    (4,621)
  (Increase) decrease in restricted cash.....................  (197,251)  307,866
  Financing fees and expenses................................   (10,389)   (1,412)
  Repurchases of common stock................................    (4,123)   (1,506)
  Other, net.................................................       730       278
                                                               --------  --------
Net cash used in financing activities........................   (38,937)  (64,073)
                                                               --------  --------
Effect of exchange rate changes on cash......................      (875)      554
                                                               --------  --------
Net change in cash and cash equivalents......................    10,273    43,319
                                                               --------  --------
Cash and cash equivalents, end of period.....................  $ 28,454  $122,828
                                                               ========  ========

</TABLE>


                                       4
<PAGE>


                     INTERNATIONAL SPECIALTY PRODUCTS INC.

        CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)-- (CONTINUED)


                                                            Six Months Ended
                                                           -------------------
                                                            July 1,   June 30,
                                                             2001      2002
                                                           --------- ---------
                                                               (Thousands)

Supplemental Cash Flow Information:
  Cash paid during the period for:
    Interest (net of amount capitalized).................   $ 36,893  $ 45,962
    Income taxes.........................................      4,696     4,065

Acquisition of FineTech Ltd.:
    Fair market value of assets acquired.................   $ 23,547
    Purchase price of acquisition........................     22,450
                                                            --------
    Liabilities assumed..................................   $  1,097
                                                            ========

Acquisition of mineral products facility:
    Fair market value of assets acquired.................             $ 11,421
    Purchase price of acquisition........................               11,421
                                                                      --------
    Liabilities assumed..................................             $      -
                                                                      ========
























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



                                       5

<PAGE>




                     INTERNATIONAL SPECIALTY PRODUCTS INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)



     The consolidated financial statements for International  Specialty Products
Inc. and its consolidated  subsidiaries (the "Company")  reflect, in the opinion
of  management,  all  adjustments  necessary  to present  fairly  the  financial
position of the Company and its consolidated  subsidiaries at June 30, 2002, and
the results of operations  and cash flows for the periods ended July 1, 2001 and
June  30,  2002.  All  adjustments  are  of a  normal  recurring  nature.  These
consolidated  financial statements should be read in conjunction with the annual
consolidated  financial  statements and notes thereto  included in the Company's
Annual  Report on Form 10-K for the fiscal  year ended  December  31,  2001 (the
"Form 10-K").


NOTE 1.  RETIREMENT OF DEBT

     On January 14, 2002,  the Company  redeemed the  remaining  $307.9  million
aggregate  principal  amount of its 9% Senior Notes due 2003 (the "2003 Notes").
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 an  extraordinary  loss on the early retirement of debt of $4.7
million ($7.1 million  before income tax benefit of $2.4  million),  or $.07 per
diluted share.  The  extraordinary  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  deferred  financing fees. The redemption was funded
utilizing a restricted cash escrow account which had been established in 2001 in
connection with the issuances of long-term debt.


NOTE 2.  RECENT ACCOUNTING DEVELOPMENT

     On June 30,  2001,  the FASB  issued  SFAS No.  142,  "Goodwill  and  Other
Intangible  Assets".  With the  adoption of SFAS No. 142,  goodwill is no longer
subject to amortization over its estimated useful life.  However,  goodwill will
be subject to at least an annual  assessment for impairment and more  frequently
if  circumstances  indicate  a possible  impairment.  Companies  must  perform a
fair-value-based  goodwill impairment test. In addition,  under SFAS No. 142, an
acquired intangible asset should be separately  recognized if the benefit of the
intangible is obtained  through  contractual  or other legal  rights,  or if the
intangible  asset can be sold,  transferred,  licensed,  rented,  or  exchanged.
Intangible assets will be amortized over their useful lives. The Company adopted
SFAS No. 142 effective as of January 1, 2002. 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 Statement of Operations  for the first quarter of
2002 has been  restated  to reflect  this loss.  The  write-off  represents  the
goodwill associated with the Company's Performance Chemicals, Fine Chemicals and
Industrial  business  segment and was based upon the Company's  estimate of fair
value  for  these  businesses,   considering  expected  future  cash  flows  and
profitability. The Company intends to complete its annual test for impairment by
the end of the year 2002.


                                       6
<PAGE>


                         INTERNATIONAL SPECIALTY PRODUCTS INC.

         NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - (CONTINUED)

NOTE 2.  RECENT ACCOUNTING DEVELOPMENT - (CONTINUED)

     Following is a reconciliation showing "Income before extraordinary item and
cumulative  effect of accounting  change," "Net income" and related earnings per
share, as reported for the second quarters and six months ended July 1, 2001 and
June 30, 2002, and as adjusted to exclude amortization of goodwill.


                                      Second Quarter Ended   Six Months Ended
                                      --------------------  ------------------
                                        July 1,   June 30,   July 1,  June 30,
                                         2001       2002      2001      2002
                                      --------  ---------  --------  --------
                                       (Thousands, except per share amounts)
Income before extraordinary item
  and cumulative effect of
  accounting change, as reported..... $     100  $ 19,853  $23,055  $  35,776
Add back: goodwill amortization......     4,048        -     8,096         -
                                      ---------  --------  -------  ---------
Income before extraordinary item and
  cumulative effect of accounting
  change, as adjusted................ $   4,148  $ 19,853  $31,151  $  35,776
                                      =========  ========  =======  =========

Net income (loss), as reported....... $     100  $ 19,853  $22,615  $(124,349)
Add back: goodwill amortization......     4,048        -     8,096         -
                                      ---------  --------  -------  ---------

Net income (loss), as adjusted....... $   4,148  $ 19,853  $30,711  $(124,349)
                                      =========  ========  =======  =========

Earnings per common share:
  Basic:
    Net income (loss), as reported .. $      -   $    .31 $    .34  $   (1.92)
    Goodwill amortization ...........       .06         -      .12          -
                                      ---------  -------- --------  ---------
    Net income (loss), as adjusted... $     .06  $    .31 $    .46  $   (1.92)
                                      =========  ========  =======  =========

  Diluted:
    Net income (loss), as reported .. $      -   $    .31 $    .34  $   (1.92)
    Goodwill amortization ...........       .06         -      .12          -
                                      ---------   -------  -------  ---------
    Net income (loss), as adjusted... $     .06   $   .31 $    .46  $   (1.92)
                                      =========   =======  =======  =========






                                       7
<PAGE>


                     INTERNATIONAL SPECIALTY PRODUCTS INC.

         NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - (CONTINUED)


NOTE 3.  GAIN ON SALE OF ASSETS

     In April 2002,  the Company  sold its Haifa,  Israel-based  FineTech,  Ltd.
business to Pharmaceutical  Resources, Inc. ("PRI") for $32 million. The Company
recorded a second quarter pre-tax gain, after expenses,  of $5.5 million related
to this transaction. Also see Note 4.


NOTE 4.  GAINS ON SETTLEMENT OF CONTRACTS

     In December 2001, the Company  entered into a letter  agreement to sell its
pharmaceutical  fine  chemicals  business,  including  its  Haifa,  Israel-based
FineTech Ltd. business and its Columbus,  Ohio manufacturing facility to PRI. 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 $3.25
million less related expenses of $0.4 million.

     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 5.  ACQUISITION

     In April 2002,  the Company  acquired  the roofing  granules  manufacturing
operations  in  Ione,   California  of  Reed  Minerals,  a  division  of  Harsco
Corporation.  In a related  transaction,  the Company also acquired the adjacent
quarry operations and certain mining assets from Hanson Aggregates  Mid-Pacific,
Inc. The total purchase price of the acquisitions was $11.4 million.









                                       8
<PAGE>


                     INTERNATIONAL SPECIALTY PRODUCTS INC.

         NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - (CONTINUED)


NOTE 6.  COMPREHENSIVE INCOME (LOSS)

<TABLE>
<CAPTION>


                                               Second Quarter Ended   Six Months Ended
                                               --------------------   -----------------
                                                July 1,    June 30,   July 1,  June 30,
                                                  2001       2002       2001      2002
                                                -------    -------- ---------  --------
                                                                (Thousands)
<S>                                             <C>        <C>      <C>       <C>
Net income (loss)............................   $    100   $19,853  $ 22,615  $(124,349)
                                                --------   -------  --------  ---------
Other comprehensive income (loss), net of tax:
  Change in unrealized losses on
    available-for-sale securities:
  Unrealized holding gains (losses) arising
    during the period, net of income tax
    (provision) benefit of $18,869, $4,079,
    $41,736 and $(12,074), respectively.......   (38,580)   (6,831)  (80,887)    26,950
  Less: reclassification adjustment for gains
    (losses) included in net income, net of
    of income tax (provision) benefit of $594,
    $(483), $311 and $(2,682), respectively...    (1,098)    1,195      (574)     9,501
                                                --------   -------  --------  ---------
  Total change for the period.................   (37,482)   (8,026)  (80,313)    17,449
                                                --------   -------  --------  ---------
  Change in unrealized losses on derivative
    hedging instruments - cash flow hedges:
  Net derivative losses, net of income tax
    benefit of $133, $11, $627
    and $12, respectively.....................      (246)      (20)   (1,160)       (22)
  Less: reclassification adjustment for
    losses included in net income, net of
    income tax benefit of $161, $316, $189
    and $534, respectively....................      (299)     (611)     (350)      (986)
                                                --------   -------  --------  ---------
  Total change for the period.................        53       591      (810)       964
                                                --------   -------  --------  ---------
Foreign currency translation adjustment.......    (3,883)   11,211    (8,976)    11,232
                                                --------   -------  --------  ---------
Total other comprehensive income (loss).......   (41,312)    3,776   (90,099)    29,645
                                                --------   -------  --------  ---------
Comprehensive income (loss)...................  $(41,212)  $23,629  $(67,484) $ (94,704)
                                                ========   =======  ========  =========

</TABLE>


     Changes in the components of "Accumulated other comprehensive loss" for the
six months ended June 30, 2002 are as follows:
<TABLE>
<CAPTION>


                               Unrealized      Unrealized    Cumulative
                               Gains (Losses)  Losses on     Foreign       Accumulated
                               On Available-   Derivative    Currency      Other
                               for-Sale        Hedging       Translation   Comprehensive
                               Securities      Instruments   Adjustment    Loss
                               ------------    -----------   -----------   -------------
                                   (Thousands)
<S>                            <C>             <C>            <C>          <C>
Balance, December 31, 2001..   $    (32,443)   $   (964)      $ (27,695)   $ (61,102)
Change for the period.......         17,449         964          11,232       29,645
                               ------------    --------       ---------    ---------
Balance, June 30, 2002......   $    (14,994)   $      -       $ (16,463)   $ (31,457)
                               ============    ========       =========    ==========
</TABLE>

                                       9
<PAGE>

                    INTERNATIONAL SPECIALTY PRODUCTS INC.

         NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - (CONTINUED)


NOTE 7.  BUSINESS SEGMENT INFORMATION
<TABLE>
<CAPTION>

                                               Second Quarter Ended      Six Months Ended
                                               ---------------------   --------------------
                                                July 1,     June 30,      July 1,  June 30,
                                                 2001         2002         2001      2002
                                               ---------   ---------    --------  ---------
                                                               (Thousands)
<S>                                            <C>         <C>          <C>        <C>
Net sales (1):
  Personal Care.............................   $  48,851   $  51,821    $ 105,112  $ 105,117
  Pharmaceutical, Food and Beverage.........      56,293      58,351      111,800    118,770
  Performance Chemicals, Fine Chemicals and
    Industrial..............................      76,560      78,877      149,557    160,258
                                               ---------   ---------    ---------  ---------
    Total Specialty Chemicals...............     181,704     189,049      366,469    384,145
  Mineral Products (2)......................      21,590      25,675       40,022     49,703
                                               ---------   ---------    ---------  ---------
Net sales...................................   $ 203,294   $ 214,724    $ 406,491  $ 433,848
                                               =========   =========    =========  =========

Operating income(1):
  Personal Care.............................   $   9,093   $  10,574    $  21,283  $  18,093
  Pharmaceutical, Food and Beverage.........      14,021      12,911       26,924     26,439
  Performance Chemicals, Fine Chemicals and
    Industrial (3)..........................       9,732      10,762        9,585     17,817
                                               ---------   ---------    ---------   --------
    Total Specialty Chemicals...............      32,846      34,247       57,792     62,349
  Mineral Products..........................       2,782       7,219        3,356     12,888
                                               ---------   ---------    ---------   --------
  Total segment operating income............      35,628      41,466       61,148     75,237
  Unallocated corporate office..............         (45)        (11)         344       (114)
                                               ---------   ---------    ---------  ---------
Total operating income......................      35,583      41,455       61,492     75,123
Interest expense, investment income (loss)
  and other expense, net....................     (35,423)    (11,410)     (25,975)   (20,972)
                                               ---------   ---------    ---------  ---------
Income before income taxes..................   $     160   $  30,045    $  35,517  $  54,151
                                              ==========   =========    =========  =========
</TABLE>

(1)  Net sales and operating income for the second quarter and the first six
     months of 2001 for the three Specialty Chemicals business segments have
     been restated to conform to the 2002 presentation. In 2002, the Company
     realigned its Alginates business based on the markets for its products.
     Sales and operating income for the Alginates business are now included in
     the Personal Care, Pharmaceutical, Food and Performance Chemicals
     businesses. Prior to 2001, the sales and operating income of the Alginates
     business represented the Food business of the Pharmaceutical, Food and
     Beverage business segment.

(2)  Includes sales to Building Materials Corporation of America, an affiliate,
     and its subsidiaries, of $16.6 and $19.7 million for the second quarter of
     2001 and 2002, respectively, and $31.8 and $38.8 million for the first six
     months of 2001 and 2002, respectively.

(3)  Operating income for the Performance Chemicals, Fine Chemicals and
     Industrial business segment for the second quarter and six months of 2002
     includes a gain of $5.5 million from the sale of the FineTech business (see
     Note 3) and a $3.9 million gain from the settlement of a manufacturing and
     supply contract (see Note 4). For the six months of 2002, operating income
     for the Performance Chemicals, Fine Chemicals and Industrial business
     segment also includes a first quarter gain of $2.8 million from the
     termination of a contract related to the sale of the FineTech business (see
     Note 4).



                                       10
<PAGE>
                    INTERNATIONAL SPECIALTY PRODUCTS INC.

         NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - (CONTINUED)


NOTE 8.  HEDGING AND DERIVATIVES

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

     At June 30,  2002,  the fair  value of the  interest  rate swaps was $(1.1)
million  and  is  included  within   "Accrued   liabilities"  on  the  Company's
Consolidated  Balance Sheet.  During the first six months of 2002,  $1.9 million
related to the interest rate swaps was reclassified and charged against interest
expense.  Of the original  $100  million  notional  amount of the interest  rate
swaps,  $50 million  matured in June 2002, and the remaining $50 million matured
in July  2002.  Accordingly,  the fair  market  value of  these  swaps  has been
recognized in earnings.


NOTE 9.  INVENTORIES

     Inventories comprise the following:

                                       December 31,   June 30,
                                           2001         2002
                                       ------------   --------
                                              (Thousands)
     Finished goods................     $120,797      $105,545
     Work-in-process...............       36,960        32,574
     Raw materials and supplies....       32,825        29,180
                                        --------      --------
     Inventories...................     $190,582      $167,299
                                        ========      ========

     At  December  31,  2001  and  June  30,  2002,  $60.1  and  $53.2  million,
respectively,  of domestic inventories were valued using the LIFO method. If the
FIFO  inventory  method  had  been  used for  these  inventories,  the  value of
inventories  would have been $3.7 and $2.2  million  higher at December 31, 2001
and June 30, 2002, respectively.



                                       11
<PAGE>

                    INTERNATIONAL SPECIALTY PRODUCTS INC.

         NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - (CONTINUED)


NOTE 10.  CONTINGENCIES

Environmental Litigation

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

     While the Company cannot predict  whether  adverse  decisions or events can
occur in the future, in the opinion of the Company's management,  the resolution
of the Environmental  Claims should not be material to the business,  liquidity,
results of operations, cash flows or financial position of the Company. However,
adverse  decisions or events,  particularly  as to increases in remedial  costs,
discovery of new contamination,  assertion of natural resource damages,  and the
liability and the financial  responsibility of the Company's insurers and of the
other parties involved at each site and their insurers,  could cause the Company
to increase its estimate of its liability in respect of those matters. It is not
currently possible to estimate the amount or range of any additional liability.

     For further information regarding environmental matters,  reference is made
to Note 19 to Consolidated Financial Statements contained in the Form 10-K.

Tax Claim Against G-I Holdings Inc.

     The Company and certain of its subsidiaries  were 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 and,  accordingly,  would be severally
liable for any tax liability of the G-I Holdings Group in respect of those prior
years.  Effective  as of January 1, 1997,  neither  the  Company  nor any of its
subsidiaries are members of the G-I Holdings Group.

     On  September  15, 1997,  G-I Holdings  received a notice from the Internal
Revenue  Service  (the  "IRS") of a  deficiency  in the amount of $84.4  million
(after  taking  into  account  the use of net  operating  losses and foreign tax
credits  otherwise  available  for use in later  years) in  connection  with the
formation  in 1990 of  Rhone-Poulenc  Surfactants  and  Specialties,  L.P.  (the
"surfactants  partnership"),  a  partnership  in  which  G-I  Holdings  held  an
interest.  G-I Holdings  has advised the Company  that it believes  that it will
prevail in the tax matter arising out of the surfactants  partnership,  although
there can be no assurance in this regard. The Company believes that the ultimate
disposition  of this  matter  will not have a  material  adverse  effect  on its
business,  financial  position or results of operations.  On September 21, 2001,
the IRS filed a


                                       12
<PAGE>

                    INTERNATIONAL SPECIALTY PRODUCTS INC.

         NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - (CONTINUED)

NOTE 10. CONTINGENCIES - (CONTINUED)

proof of  claim  with  respect  to such  deficiency  against G-I Holdings in the
G-I Holdings bankruptcy. On May 7, 2002, G-I Holdings filed an objection to that
proof of claim. If such proof of claim is sustained,  the Company and/or some of
the Company's  subsidiaries,  together with G-I Holdings and several current and
former  subsidiaries of G-I Holdings,  would be severally  liable for such taxes
and interest in the amount of  approximately  $250.0 million should G-I Holdings
be unable to satisfy such  liability.  In January  2001,  G-I  Holdings  filed a
voluntary  petition for reorganization  under Chapter 11 of the U.S.  Bankruptcy
Code due to its asbestos-related bodily injury claims relating to the inhalation
of  asbestos  fiber.  For  additional  information  relating  to  G-I  Holdings,
reference  is made to Notes 8, 16 and 19 to  Consolidated  Financial  Statements
contained in the Form 10-K.


NOTE 11.  NEW ACCOUNTING PRONOUNCEMENTS

     In  August  2001,  the FASB  issued  SFAS No.  143,  "Accounting  for Asset
Retirement  Obligations."  SFAS No. 143  establishes  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.  SFAS No. 143 requires  that the fair
value of a liability  for an asset  retirement  obligation  be recognized in the
period in which it is incurred.  Upon initial recognition of such liability,  an
entity must  capitalize  the asset  retirement  cost by increasing  the carrying
amount of the related  long-lived asset and subsequently  depreciating the asset
retirement  cost over the  useful  life of the  related  asset.  SFAS No. 143 is
effective  for fiscal  years  beginning  after June 15, 2002,  although  earlier
application is encouraged. The Company does not expect that the adoption of SFAS
No. 143 will have a material impact on its  consolidated  results of operations,
financial position or cash flows.

     In April 2002, the FASB issued SFAS No. 145, "Rescission of FASB Statements
No.  4,  44,  and  64,  Amendment  of  FASB  Statement  No.  13,  and  Technical
Corrections."  SFAS No. 145 eliminates the  requirement of SFAS No. 4 that gains
and losses on the early  extinguishments of debt be recorded as an extraordinary
item  unless  such  gains  and  losses  meet  the  criteria  of APB  No.  30 for
classification as  extraordinary.  The rescission of SFAS No. 4 is effective for
fiscal  years  beginning  after May 15,  2002,  although  early  application  is
encouraged. The Company intends to adopt SFAS No. 145 effective January 1, 2003,
which will likely  result in the  Company's  first  quarter 2002 pre-tax loss of
$7.1 million on the early  extinguishment  of debt being  reclassified  to other
expense, net.


NOTE 12.  SUBSEQUENT EVENT

     On July 8, 2002,  the Company  announced  that its Board of  Directors  had
received a letter from Samuel J.  Heyman,  the  Chairman of the Board,


                                       13
<PAGE>


                    INTERNATIONAL SPECIALTY PRODUCTS INC.

         NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - (CONTINUED)


 NOTE 12. SUBSEQUENT EVENT - (CONTINUED)

proposing  that  the  Board  consider  a transaction  whereby  holders of shares
of the Company's common stock (other than those shares beneficially owned by Mr.
Heyman)  would  receive $10 in cash per share.  Such shares total  approximately
12.5 million shares, or approximately 19% of the Company's  outstanding  shares.
The total  consideration for such shares of approximately  $125 million would be
paid out of available Company funds. The Board of Directors has formed a special
committee of independent Directors to evaluate this proposal.


























                                       14
<PAGE>



            ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                       CONDITION AND RESULTS OF OPERATIONS


     Unless  otherwise  indicated by the  context,  "we," "us," "our," and "ISP"
refer  to   International   Specialty   Products   Inc.  and  its   consolidated
subsidiaries.


CRITICAL ACCOUNTING POLICIES

     The preparation of our consolidated financial statements in conformity with
accounting  principles  generally  accepted  in the  United  States  of  America
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,  environmental  liabilities,  goodwill  and  intangible
assets, pensions and other postemployment  benefits, and contingent liabilities.
We base our estimates on historical  experience and on various other assumptions
that are believed 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.  See Note 2 to Consolidated  Financial Statements in the Form
10-K for our significant accounting policies.

     The only update to our critical accounting policies since December 31, 2001
relates to the  amortization  of goodwill.  In accordance with the provisions of
Statement  of  Financial  Accounting  Standards  No.  142,  "Goodwill  and Other
Intangible  Assets,"  goodwill is no longer  amortized over its estimated useful
life,  but  rather  will  be  subject  to at  least  an  annual  assessment  for
impairment.  We  adopted  SFAS No.  142 on  January  1,  2002.  Accordingly,  we
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.  We will  perform  our  annual  test for
impairment before the end of the year 2002.


RESULTS OF OPERATIONS - SECOND QUARTER 2002 COMPARED WITH
                        SECOND QUARTER 2001

     We recorded  second  quarter 2002 net income of $19.9 million ($.31 diluted
earnings per share)  compared  with $0.1 million in the second  quarter of 2001.
Second quarter 2002 results  include pre-tax gains of $5.5 million from the sale
of our FineTech  business and $3.9  million from a contract  settlement.  Second
quarter  2001  results  reflected  $4.0  million of goodwill  amortization.  Net
income, adjusted to exclude the nonrecurring gains in the second quarter of 2002
and goodwill  amortization in the second quarter of 2001,  would have been


                                       15
<PAGE>



$13.7  million  ($.21  diluted  earnings  per share) in  the  second  quarter of
2002 versus $4.1 million ($.06 diluted earnings per share) in the second quarter
of 2001.  On a  comparable  basis,  the results  for the second  quarter of 2002
reflected  $23.9 million higher  investment  income and $2.6 million lower other
expense, net, partially offset by $7.5 million lower operating income (excluding
the nonrecurring gains) and $2.5 million higher interest expense.

     Net sales for the second quarter of 2002 were $214.7 million  compared with
$203.3  million  for the same  period in 2001.  The 6%  increase in sales in the
second quarter of 2002 resulted  primarily from the  contribution  to sales from
the biocides  business ($9.9 million),  which was acquired on December 31, 2001,
higher unit volumes in the Mineral Products,  Personal Care,  Pharmaceutical and
Industrial businesses (totaling $12.1 million),  and the favorable impact of the
weaker U.S.  dollar in Europe  ($1.3  million),  partially  offset by lower unit
volumes in the Fine Chemicals and  Performance  Chemicals  businesses  (totaling
$9.5 million) and lower pricing in the Industrial business ($3.0 million).

     Gross margins for the second quarter of 2002 were 35.4% compared with 39.8%
in the second quarter of 2001. The decline in margins resulted  primarily from a
reduction in the Fine  Chemicals  business due to the  Polaroid  bankruptcy  and
price declines in the Industrial business.

     Operating  income for the second quarter of 2002 was $41.5 million compared
with $35.6 million for the second  quarter of 2001.  Excluding the  nonrecurring
gains  totaling  $9.4 million in the second  quarter of 2002 and $4.0 million of
goodwill  amortization in the second quarter of 2001, operating income was $32.1
million  for the second  quarter of 2002  compared  with $39.6  million  for the
second quarter of 2001. On a comparable  basis, the decrease in operating income
in the second quarter of 2002 was attributable to lower operating results in the
Fine Chemicals and Industrial  businesses  (totaling $10.0  million),  partially
offset by  improvements  in  operating  profits in the Mineral  Products and the
Personal Care business segments  (totaling $5.9 million).  Selling,  general and
administrative  expenses  for the second  quarter of 2002  increased 6% to $43.9
million from $41.3  million in the same period last year,  primarily  due to the
biocides  acquisition and to higher selling and  distribution  costs,  but those
expenses as a percentage of sales were 20.4%  compared with 20.3% in last year's
second quarter.

     Interest  expense for the second  quarter of 2002 was $21.2 million  versus
$18.7  million  for the same period last year.  The  increase  was due to higher
average interest rates, partially offset by lower average borrowings. Investment
income in the second quarter of 2002 was $10.0 million  compared with investment
losses of $13.9  million in the same period last year,  which  mainly  reflected
unrealized losses.  Other expense,  net, for the second quarter of 2002 was $0.2
million compared with other expense,  net, of $2.9 million in last year's second
quarter,  with the lower expense due to the impact of the weaker U.S.  dollar in
Europe and Asia.

                                       16
<PAGE>



Business Segment Review

     A  discussion  of  operating  results  for  each of our  business  segments
follows.  We operate our Specialty  Chemicals  business through three reportable
business  segments,  in addition to the Mineral Products segment.  Each business
segment was favorably  impacted in the second  quarter of 2002 by the absence of
goodwill  amortization.  Goodwill  amortization in the second quarter of 2001 by
business segment was as follows:

                                          (Millions)
                                          ----------
   Personal Care                             $1.2
   Pharmaceutical, Food and Beverage          1.0
   Performance Chemicals, Fine Chemicals
      and Industrial                          1.0
   Mineral Products                           0.8


Personal Care

     Sales in the second quarter of 2002 were $51.8 million  compared with $48.9
million  for the same period last year,  while  operating  income for the second
quarter of 2002  increased  to $10.6  million  from $9.1  million in last year's
quarter.  The 6% increase in sales  resulted  from  higher  unit  volumes  ($2.9
million),  mainly in hair care products in North America.  The higher  operating
income  resulted  from the  favorable  goodwill  impact in addition to favorable
volume and mix ($2.2  million),  partially  offset by unfavorable  manufacturing
costs ($1.6 million).

Pharmaceutical, Food and Beverage

     Sales for the Pharmaceutical,  Food and Beverage segment were $58.4 million
for the second  quarter of 2002, a 4% increase  compared  with $56.3 million for
the second quarter of 2001. Sales for the  Pharmaceutical  business increased by
6% in the second quarter of 2002, reflecting higher unit volumes ($1.7 million),
primarily in the excipients market in Europe.

     Operating  income for the  Pharmaceutical,  Food and  Beverage  segment was
$12.9  million in the second  quarter of 2002 compared with $14.0 million in the
same period last year. The earnings decline primarily  resulted from unfavorable
manufacturing  costs  ($2.2  million)  and  higher  administrative  and  selling
expenses,  which more than offset the favorable  impact of the  increased  sales
volumes.

Performance Chemicals, Fine Chemicals and Industrial

     Sales in the second quarter of 2002 were $78.9 million  compared with $76.6
million in the second quarter of 2001. The 3% higher sales were  attributable to
the biocides  business ($9.9 million),  which was acquired on December 31, 2001,
and also to higher Industrial volumes ($4.1 million). These sales increases were
offset by 10% lower  Performance  Chemicals  sales  due to lower  volumes  ($2.6
million),  56%  lower  Fine  Chemicals  sales  reflecting  the  lack of sales to
Polaroid,

                                       17
<PAGE>


and   lower  Industrial  pricing   ($3.0  million).   Market  selling  prices of
butanediol  decreased in the second  quarter of 2002  compared with average 2001
levels due to weakening  demand and in  anticipation  of new capacity  coming on
stream in Europe later in 2002.

     Operating  income  for  the  Performance  Chemicals,   Fine  Chemicals  and
Industrial segment was $10.8 million in the second quarter of 2002 compared with
$9.7  million  for the second  quarter of 2001.  Excluding  the $9.4  million of
nonrecurring gains discussed earlier, operating income for the second quarter of
2002 was $1.4 million.  The reduction in operating  income was  attributable  to
losses from the Fine Chemicals business due to the loss of sales to Polaroid and
lower  Industrial  profits due to the impact of unfavorable  pricing and product
mix ($6.5 million), partially offset by the increased Industrial volumes and the
contribution to income from the biocides business.

Mineral Products

     Sales for the Mineral  Products segment for the second quarter of 2002 were
$25.7 million  compared with $21.6 million for the second  quarter of 2001.  The
$4.1  million  (19%)  increase  reflected  $3.1  million  (19%)  higher sales to
Building Materials Corporation of America, an affiliate,  and $1.0 million (20%)
higher third party sales.  The  increased  sales  reflected  higher unit volumes
($3.4  million)  resulting  from  an  increased  demand  for  roofing  granules.
Operating  income for the second quarter of 2002 was $7.2 million  compared with
$2.8 million for the second quarter of 2001, reflecting favorable  manufacturing
efficiencies as well as the impact of the higher volumes.


RESULTS OF OPERATIONS - FIRST SIX MONTHS 2002 COMPARED WITH
                        FIRST SIX MONTHS 2001

     For the first six months of 2002, we recorded a net loss of $124.3  million
($1.92  per  diluted  share)  compared  with net income of $22.6  million  ($.34
diluted  earnings per share) in the first six months of 2001. In accordance with
the adoption of SFAS No. 142, we completed a transitional test for impairment of
goodwill, and, accordingly,  recorded a $155.4 million ($2.40 per diluted share)
charge,  effective  January 1, 2002,  for the  cumulative  effect of a change in
accounting principle.  The write-off represents the goodwill associated with our
Performance  Chemicals,  Fine Chemicals and Industrial  business segment and was
based upon our estimate of fair value for these businesses, considering expected
future cash flows and profitability.

     First six months 2002 results also include a $5.5 million pre-tax gain from
the sale of the FineTech  business,  $6.8 million of pre-tax gains from contract
settlements  and an after-tax  extraordinary  charge of $4.7  million  ($.07 per
diluted  share) on the early  retirement of debt.  First six months 2001 results
included  $8.1 million of goodwill  amortization,  prior to the adoption of SFAS
No. 142, and an after-tax  charge of $0.4 million  ($.01 per diluted  share) for
the cumulative effect of adopting SFAS No. 133, "Accounting for


                                       18
<PAGE>


Derivative  Instruments  and Hedging  Activities."  Excluding  such  charges and
nonrecurring gains discussed above,  adjusted "Income before  extraordinary item
and cumulative effect of accounting change" for the first six months of 2002 was
$27.7  million  ($.43  diluted  earnings per share)  compared with $31.2 million
($.47  diluted  earnings  per  share)  for the  first six  months of 2001.  On a
comparable  basis,  the lower  results  for the  first  six  months of 2002 were
attributable to $6.7 million lower operating income  (excluding the nonrecurring
gains)  and $6.3  million  higher  interest  expense,  partially  offset by $4.4
million higher investment income and $6.9 million lower other expense, net.

     Net sales for the first six  months of 2002 were  $433.8  million  compared
with $406.5 million for the same period in 2001. The 7% increase in sales in the
first six months of 2002 resulted  primarily from the contribution to sales from
the biocides business ($17.7 million),  which was acquired on December 31, 2001,
and by higher unit  volumes in the Mineral  Products,  Pharmaceutical,  Personal
Care and Industrial  businesses  (totaling $20.4 million),  partially  offset by
lower unit volumes in the  Performance  Chemicals and Fine Chemicals  businesses
(totaling  $4.1  million),  and lower pricing in the  Industrial  business ($4.8
million).

     Gross  margins  for the first six months of 2002 were 34.5%  compared  with
37.1% in the first six months of 2001. The decline in margins resulted primarily
from a reduction in the Fine Chemicals business due to the Polaroid  bankruptcy,
unfavorable manufacturing costs, and price declines in the Industrial business.

     Operating  income  for the  first  six  months  of 2002 was  $75.1  million
compared  with $61.5  million  for the first six months of 2001.  Excluding  the
$12.2 million of nonrecurring pre-tax gains on the sale of the FineTech business
and the  settlements  of  contracts  in the  first  six  months of 2002 and $8.1
million of  goodwill  amortization  in the first six  months of 2001,  operating
income was $62.9  million for the first six months of 2002  compared  with $69.6
million  for the  first six  months of 2001.  On a  comparable  basis,  the $6.7
million  decrease  in  operating  income  in the  first  six  months of 2002 was
primarily  attributable to lower results in the Fine  Chemicals,  Personal Care,
Pharmaceutical,  Food and Beverage, and Industrial businesses,  partially offset
by a  significant  improvement  in  operating  profits in the  Mineral  Products
business  segment and the  contribution  to income from the  biocides  business.
Selling,  general  and  administrative  expenses  increased  6% in the first six
months of 2002 to $86.4 million from $81.3 million in the same period last year,
primarily due to the biocides  acquisition  and higher selling and  distribution
costs,  but those  expenses as a percentage  of sales were 19.9%  compared  with
20.0% last year.

     Interest  expense for the first six months of 2002 was $44.0 million versus
$37.7 million for the same period last year. The increase was due principally to
higher average  interest rates and, to a lesser extent,  slightly higher average
borrowings.  Investment income in the first six months of 2002 was $25.2 million
compared with $20.8 million in the same period last year.  Other  expense,  net,



                                       19
<PAGE>



for  the  first six  months  of  2002  was  $2.2  million  compared  with  other
expense,  net, of $9.0 million in last year's period, with the lower expense due
to the  impact of a weaker  U.S.  dollar in Europe  and Asia and a $2.0  million
higher provision for environmental liability in last year's first six months.

Business Segment Review

     A  discussion  of  operating  results  for  each of our  business  segments
follows.  We operate our Specialty  Chemicals  business through three reportable
business  segments,  in addition to the Mineral Products segment.  Each business
segment was favorably impacted in the first six months of 2002 by the absence of
goodwill amortization.  Goodwill amortization in the first six months of 2001 by
business segment was as follows:

                                          (Millions)
                                          ----------
   Personal Care                             $2.4
   Pharmaceutical, Food and Beverage          2.1
   Performance Chemicals, Fine Chemicals
      and Industrial                          2.1
   Mineral Products                           1.5


Personal Care

     Sales in the first six months of 2002 were $105.1  million,  level with the
same period last year,  while operating  income for the first six months of 2002
decreased  to $18.1  million  from $21.3  million in the same  period last year.
Sales reflected  higher unit volumes in hair care products offset by unfavorable
pricing and unfavorable  foreign  exchange.  The lower operating income resulted
from lower gross margins due to unfavorable manufacturing costs.

Pharmaceutical, Food and Beverage

     Sales for the Pharmaceutical, Food and Beverage segment were $118.8 million
for the first six months of 2002, a 6% increase compared with $111.8 million for
the first six months of 2001. Sales for the Pharmaceutical business increased by
12% in the first quarter of 2002, reflecting higher unit volumes ($8.4 million),
primarily in the excipients  markets in Europe and North America.  Sales for the
Beverage and alginates food businesses decreased by 8% and 6%, respectively, due
to lower unit volumes (totaling $2.1 million) in North America, Europe and Latin
America.

     Operating  income for the  Pharmaceutical,  Food and  Beverage  segment was
$26.4 million in the first six months of 2002 compared with $26.9 million in the
same  period  last  year.  Operating  income  for  the  Pharmaceutical  business
increased  6% in the first six months of 2002  compared  with the same period in
2001. The  improvement  reflected the higher unit volumes,  partially  offset by
unfavorable manufacturing costs ($1.4 million), an unfavorable product mix ($1.4
million)  and  higher   administrative  and  selling  expenses  ($2.8  million).
Operating results for the Beverage and alginates food businesses  decreased by a
total of $2.4 million in the first six

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<PAGE>


months  of  2002  due  to  unfavorable   manufacturing  costs   and   the  lower
volumes.

Performance Chemicals, Fine Chemicals and Industrial

     Sales in the first six months of 2002 were  $160.3  million  compared  with
$149.6  million  in the first  six  months of 2001.  The 7%  higher  sales  were
attributable  to the biocides  business ($17.7  million),  which was acquired on
December 31, 2001.  Sales for the  Performance  Chemicals,  Fine  Chemicals  and
Industrial businesses,  excluding biocides, decreased by a total of $7.0 million
(5%) due to  unfavorable  volumes  (totaling  $4.1  million) in the  Performance
Chemicals and Fine Chemicals  businesses  and lower pricing in Industrial  ($4.8
million),  partially offset by higher Industrial volumes ($1.6 million).  Market
selling prices of butanediol  decreased in the first six months of 2002 compared
with  average  2001 levels due to weakening  demand and in  anticipation  of new
capacity coming on stream in Europe later in 2002.  Sales for the Fine Chemicals
business were unfavorably impacted due to the loss of Polaroid sales as a result
of Polaroid's bankruptcy.

     Operating  income  for  the  Performance  Chemicals,   Fine  Chemicals  and
Industrial  segment was $17.8  million in the first six months of 2002  compared
with $9.6 million for the first six months of 2001.  Excluding  the $5.5 million
gain on the  sale of the  FineTech  business  and the $6.8  million  of gains on
contract settlements, operating income for the first six months of 2002 was $5.6
million.  The decline in operating  profits was primarily  attributable to lower
results in the Fine Chemicals and  Performance  Chemicals  businesses  (totaling
$6.7 million) due to the unfavorable volumes and manufacturing costs,  partially
offset by the  contribution  to income  from the  biocides  business.  Operating
profits  for the  Industrial  business  were  slightly  lower  for the first six
months, as the impact of lower pricing and an unfavorable  product mix (totaling
$9.4 million) was mostly offset by favorable  manufacturing  efficiencies due to
consolidation  of our  butanediol  production  at our  Marl,  Germany  facility,
together with lower methanol and natural gas prices.

Mineral Products

     Sales for the  Mineral  Products  segment  for the first six months of 2002
were $49.7 million compared with $40.0 million for the first six months of 2001.
The $9.7 million  (24%)  increase  reflected  $7.0 million (22%) higher sales to
Building Materials Corporation of America, an affiliate,  and $2.7 million (33%)
higher third party sales.  The  increased  sales  reflected  higher unit volumes
($9.7  million)  resulting  from  an  increased  demand  for  roofing  granules.
Operating  income  for the first six months of 2002 was $12.9  million  compared
with  $3.4   million  for  the  same  period  in  2001,   reflecting   favorable
manufacturing efficiencies and lower natural gas costs, as well as the impact of
the higher volumes.


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<PAGE>


LIQUIDITY AND FINANCIAL CONDITION

     During the first six months of 2002,  our net cash inflow before  financing
activities was $106.8  million,  reflecting  $7.1 million of cash generated from
operations,  the  reinvestment  of $30.7  million for capital  programs  and the
acquisition of a Mineral Products  manufacturing  facility, net cash proceeds of
$27.3 million from the sale of the FineTech  business and $103.2 million of cash
generated from net sales of  available-for-sale  securities and other short-term
investments.

     Cash generated  from  operations in the first six months of 2002 included a
$58.5 million net cash outflow  related to  investments  in trading  securities.
Excluding  this cash  outflow,  cash  provided  from  operations  totaled  $65.6
million. Cash invested in additional working capital totaled $1.1 million during
the first six months of 2002, reflecting a $17.7 million increase in receivables
and a $7.4 million net decrease in payables and accrued  liabilities,  primarily
due to  payments  of  accrued  interest,  partially  offset  by a $24.1  million
decrease in  inventories.  The higher  receivables  resulted  from $22.6 million
higher sales in the second quarter of 2002 versus the fourth quarter of 2001 and
the reduced  inventories  resulted from our inventory reduction program that was
substantially completed in the first half of 2002.

     Net cash used in financing  activities  during the first six months of 2002
totaled  $64.1  million,  primarily  reflecting  a  $56.9  million  decrease  in
borrowings  under our bank  revolving  credit  facility  and a $4.6 million call
premium on the  redemption  of debt.  On  January  14,  2002,  we  redeemed  the
remaining $307.9 million  aggregate  principal amount of our 9% Senior Notes due
2003,  which we refer to as the "2003  Notes." 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.  The  redemption  was  funded  utilizing  a
restricted cash escrow account which had been  established in 2001 in connection
with the issuances of long-term debt. In addition, financing activities included
a $1.5 million cash outlay for repurchases of 177,600 shares of our common stock
pursuant to our repurchase  program.  At June 30, 2002, 771,462 shares of common
stock remained available for purchase under our repurchase program.

     As a result of the foregoing factors,  cash and cash equivalents  increased
by $43.3  million  during  the  first  six  months  of 2002 to  $122.8  million,
excluding $278.2 million of trading and available-for-sale securities.

     On July 8, 2002,  we announced  that our Board of Directors  had received a
letter from Samuel J.  Heyman,  the  Chairman of the Board,  proposing  that the
Board  consider a  transaction  whereby  holders  of shares of our common  stock
(other than those shares  beneficially owned by Mr. Heyman) would receive $10 in
cash per  share.  Such  shares  total  approximately  12.5  million  shares,  or
approximately 19% of our outstanding  shares.  The total  consideration for such
shares of  approximately  $125 million would be paid out of our available funds.
The Board of Directors


                                       22
<PAGE>


has  formed  a  special   committee  of  independent  Directors to evaluate this
proposal.

     In April 2002, we sold our Haifa,  Israel-based FineTech,  Ltd. business to
Pharmaceutical  Resources  Incorporated,  which we refer  to as  "PRI,"  for $32
million.  We recorded a second quarter  pre-tax gain,  after  expenses,  of $5.5
million  related to this  sale.  In  December  2001,  we  entered  into a letter
agreement to sell our  pharmaceutical  fine chemicals business to PRI, including
the  Haifa-based  business and our Columbus,  Ohio  manufacturing  facility.  In
February  2002,  we received a $250,000  payment  from PRI in  consideration  of
extending the negotiations  pursuant to the letter agreement.  In March 2002, we
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, we received a $3.0 million break-up fee, which was recorded as income
in the first quarter of 2002 (see Note 4 to Consolidated Financial Statements).

     In April 2002, we acquired the roofing granules manufacturing operations in
Ione,  California  of Reed  Minerals,  a division  of Harsco  Corporation.  In a
related transaction, we also acquired the adjacent quarry operations and certain
mining assets from Hanson Aggregates Mid-Pacific,  Inc. The total purchase price
of the acquisitions was $11.4 million.

     As part of our acquisition of our Freetown, Massachusetts plant in 1998, we
entered into a multi-year agreement to supply the imaging dyes and polymers used
by Polaroid in its instant film  business.  In October 2001,  Polaroid filed for
protection  under  Chapter 11 of the U.S.  Bankruptcy  Code.  In April 2002,  an
announcement  was made  regarding  the  possible  sale of  Polaroid  that  could
negatively impact our ongoing  relationship with Polaroid and the utilization of
our Freetown  plant. As a result of the Polaroid  announcement,  the sale of the
FineTech  business  and the  retention of the  Columbus  facility (as  discussed
above),  we  currently  have  excess  production  capacity at the  Freetown  and
Columbus facilities. We are in the process of evaluating the optimal utilization
of these facilities. An impairment of long-lived assets at our Columbus facility
is not  required  at this time based  upon our  estimates  of future  cash flows
related to those assets.

     We have an operating lease for a sale-leaseback  transaction related to the
Freetown facility, which was entered into in 1998. The lease had an initial term
of four years and, at our option,  up to three  one-year  renewal  periods.  The
lease  provides for a  substantial  guaranteed  payment by us at the end of each
renewal  period and includes  purchase and return  options at fair market values
determined  at the  inception  of the  lease.  We have the right to  exercise  a
purchase  option with  respect to the leased  facility,  or the  facility can be
returned  to the lessor and sold to a third  party.  We are  obligated  to pay a
maximum  guaranteed  payment  amount upon the return of the facility,  currently
$35.8 million,  reduced by 50% of any proceeds from the  subsequent  sale of the
facility  in  excess  of  $5.2  million.  Under  generally  accepted  accounting
principles,   we  cannot  recognize  this  future  obligation  or  recognize  an
impairment loss relative to the Freetown  facility since, as an operating lease,
the Freetown facility is not carried as a long-lived asset on our balance sheet.
However,  given the current  utilization of the Freetown facility as a result of
the Polaroid bankruptcy, if we should exercise the purchase

                                       23
<PAGE>


option  at  the  end  of  any future renewal period or at the termination of the
lease in 2005,  we would  anticipate  having to recognize a material  impairment
charge.

     In  August  2001,  the FASB  issued  SFAS No.  143,  "Accounting  for Asset
Retirement  Obligations."  SFAS No. 143  establishes  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.  SFAS No. 143 requires  that the fair
value of a liability  for an asset  retirement  obligation  be recognized in the
period in which it is incurred.  Upon initial recognition of such liability,  an
entity must  capitalize  the asset  retirement  cost by increasing  the carrying
amount of the related  long-lived asset and subsequently  depreciating the asset
retirement  cost over the  useful  life of the  related  asset.  SFAS No. 143 is
effective  for fiscal  years  beginning  after June 15, 2002,  although  earlier
application is encouraged. The Company does not expect that the adoption of SFAS
No. 143 will have a material impact on its  consolidated  results of operations,
financial position or cash flows.

     In April 2002, the FASB issued SFAS No. 145, "Rescission of FASB Statements
No.  4,  44,  and  64,  Amendment  of  FASB  Statement  No.  13,  and  Technical
Corrections."  SFAS No. 145 eliminates the  requirement of SFAS No. 4 that gains
and losses on the early  extinguishments of debt be recorded as an extraordinary
item  unless  such  gains  and  losses  meet  the  criteria  of APB  No.  30 for
classification as  extraordinary.  The rescission of SFAS No. 4 is effective for
fiscal  years  beginning  after May 15,  2002,  although  early  application  is
encouraged.  We intend to adopt SFAS No. 145  effective  January 1, 2003,  which
will likely result in our first quarter 2002 pre-tax loss of $7.1 million on the
early extinguishment of debt being reclassified to other expense, net.

     See Note 10 to Consolidated  Financial Statements for information regarding
contingencies.



                                   * * *

Forward-looking Statements

     This   Quarterly   Report  on  Form  10-Q  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

                                       24
<PAGE>


the   date  of  this  Quarterly  Report  on  Form  10-Q  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.



               ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES
                              ABOUT MARKET RISK


     Reference  is made to  Management's  Discussion  and  Analysis of Financial
Condition  and Results of  Operations  in our Annual Report on Form 10-K for the
fiscal year ended  December 31,  2001,  for a  discussion  of  "Market-Sensitive
Instruments  and Risk  Management."  As of  December  31,  2001,  equity-related
financial  instruments  employed  by us to  reduce  market  risk  included  long
contracts valued at $13.5 million and short contracts valued at $7.2 million. At
June 30, 2002,  the value of long  contracts  was $1.2 million and there were no
short contracts  outstanding.  Such instruments are marked-to-market each month,
with  unrealized  gains and losses  included in the results of  operations.  The
unrealized gain on  equity-related  long contracts at December 31, 2001 and June
30, 2002 was $176,000  and $72,000,  respectively,  and the  unrealized  gain on
equity-related short contracts was $45,000 at December 31, 2001.





















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<PAGE>


                                   PART II


                              OTHER INFORMATION


ITEM 1.  LEGAL PROCEEDINGS

     On July 8, 2002 , the Company  announced  that its Board of  Directors  had
received a letter from Samuel J. Heyman,  the  Chairman of the Board,  proposing
that the Board consider a transaction whereby holders of shares of the Company's
common stock (other than those shares  beneficially  owned by Mr.  Heyman) would
receive $10 in cash per share. Subsequent to the July 8, 2002 announcement,  six
purported  class  actions  were filed in  Chancery  Court in New Castle  County,
Delaware, and one purported class action was filed in the United States District
Court for the  District of New Jersey  against  the  Company and the  individual
members of the Board of Directors.  These various actions allege  generally that
the  defendants   breached  their  fiduciary  duties  to  the  Company's  public
shareholders  with  respect to the  proposed  transaction  and seek to enjoin or
rescind the transaction and obtain unspecified  damages and attorneys' fees. The
Company  believes  these  actions are without  merit and  intends,  and has been
advised that the individual  directors also intend, to vigorously defend against
them.


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

     At the Company's Annual Meeting of Stockholders  held on May 16, 2002, each
nominated  director was reelected with at least 60,731,980 votes in favor of and
not more than 606,417 votes withheld from, each nominee.


ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K

(a)  Exhibits:

     Exhibit Number
     --------------

     99.1  Certification of CEO and CFO pursuant to 18 U.S.C. Section
           1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley
           Act of 2002.


(b)  Reports on Form 8-K filed during the current quarter:

     During the three-month period ending June 30, 2002, the Company filed a
     Report on Form 8-K under Item 4 - Changes in Registrant's Certifying
     Accountant, dated June 20, 2002 and filed June 24, 2002.


                                       26
<PAGE>




                                  SIGNATURES



     Pursuant to the  requirements  of the Securities  Exchange Act of 1934, the
registrant  has duly  caused  this  report  to be  signed  on its  behalf by the
undersigned thereunto duly authorized.


                             INTERNATIONAL SPECIALTY PRODUCTS INC.




DATE:  August 13, 2002        BY:   /s/Neal E. Murphy
       ---------------              -----------------

                                    Neal E. Murphy
                                    Senior Vice President and
                                      Chief Financial Officer
                                    (Principal Financial Officer)


DATE:  August 13, 2002        BY:   /s/Kenneth M. McHugh
       ---------------              --------------------

                                    Kenneth M. McHugh
                                    Vice President and Controller
                                    (Principal Accounting Officer)





















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