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 JULY 1, 2001

                                       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  10,  2001,  65,474,070  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.
<TABLE>

                  CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
                      (THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<CAPTION>


                                       SECOND QUARTER ENDED     SIX MONTHS ENDED
                                       --------------------    ------------------
                                         JULY 2,    JULY 1,     JULY 2,   JULY 1,
                                          2000       2001        2000      2001
                                       ---------   ---------  ---------  ---------
<S>                                    <C>         <C>        <C>        <C>
Net sales............................  $ 200,257   $ 203,294  $ 398,198  $ 406,491
                                       ---------   ---------  ---------  ---------
Costs and Expenses:
  Cost of products sold..............    126,966     122,332    256,400    255,595
  Selling, general and administrative     39,488      41,331     78,350     81,308
  Goodwill amortization..............      4,047       4,048      8,095      8,096
                                       ---------   ---------  ---------  ---------
     Total costs and expenses .......    170,501     167,711    342,845    344,999
                                       ---------   ---------  ---------  ---------
Operating income.....................     29,756      35,583     55,353     61,492
Interest expense.....................    (21,193)    (18,677)   (40,915)   (37,728)
Gain on contract settlement .........        -           -        3,450        -
Other income (expense), net..........      6,634     (16,746)     9,097     11,753
                                       ---------   ---------  ---------  ---------
Income before income taxes...........     15,197         160     26,985     35,517
Income taxes.........................     (5,338)        (60)    (9,454)   (12,462)
                                       ---------   ---------  ---------   --------
Income before cumulative effect of
   accounting change.................      9,859         100     17,531     23,055

Cumulative effect of change in
   accounting principle, net of
   income tax benefit of $216........         -           -          -        (440)
                                       ---------   ---------  ---------   --------
Net income...........................  $   9,859   $     100  $  17,531   $ 22,615
                                       =========   =========  =========   ========
</TABLE>











                                       1
<PAGE>





                      INTERNATIONAL SPECIALTY PRODUCTS INC.
<TABLE>

           CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) - (CONTINUED)
                      (THOUSANDS, EXCEPT PER SHARE AMOUNTS)

<CAPTION>


                                        SECOND QUARTER ENDED    SIX MONTHS ENDED
                                        --------------------  --------------------
                                         July 2,    July 1,    July 2,     July 1,
                                          2000       2001       2000         2001
                                        --------  ---------   --------    --------
<S>                                    <C>         <C>        <C>         <C>

Earnings per common share:
  Basic:
    Income before cumulative effect
       of accounting change..........  $     .14   $      -   $     .25   $    .35
    Cumulative effect of accounting
       change........................         -           -          -        (.01)
                                       ---------   ---------  ---------   --------
    Net income.......................  $     .14   $      -   $     .25   $    .34
                                       =========   =========  =========   ========
  Diluted:
    Income before cumulative effect
       of accounting change..........  $     .14   $      -   $     .25   $    .35
    Cumulative effect of accounting
       change........................         -           -          -        (.01)
                                       ---------   ---------  ---------   --------
    Net income.......................  $     .14   $      -   $     .25   $    .34
                                       =========   =========  =========   ========


 Weighted average number of common
    and common equivalent shares
    outstanding:

  Basic..............................     68,846      66,148     68,847     66,238
                                       =========   =========   ========   ========
  Diluted............................     68,846      66,263     68,847     66,314
                                       =========   =========   ========   ========

</TABLE>









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



                                       2
<PAGE>


                      INTERNATIONAL SPECIALTY PRODUCTS INC.

                           CONSOLIDATED BALANCE SHEETS
                                                                 JULY 1,
                                                  DECEMBER 31,    2001
                                                      2000     (UNAUDITED)
                                                  ------------ -----------
                                                         (THOUSANDS)
ASSETS
Current Assets:
  Cash and cash equivalents...................... $   18,181  $   28,454
  Investments in trading securities..............    303,103      21,739
  Investments in available-for-sale securities...    222,327     318,271
  Other short-term investments...................     19,129       2,209
  Restricted cash................................         -      197,251
  Accounts receivable, trade, net................     89,173      94,720
  Accounts receivable, other.....................     19,596      24,846
  Receivable from related parties, net...........     11,624      16,174
  Inventories....................................    150,948     181,984
  Other current assets...........................     36,928      34,101
                                                  ----------  ----------
     Total Current Assets........................    871,009     919,749
Property, plant and equipment, net...............    562,973     555,059
Goodwill, net....................................    494,386     489,201
Other assets.....................................     31,916      58,973
                                                  ----------  ----------
Total Assets..................................... $1,960,284  $2,022,982
                                                  ==========  ==========


LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
  Short-term debt................................ $  143,682  $   39,150
  Current maturities of long-term debt...........    224,419     202,374
  Accounts payable...............................     58,238      57,754
  Accrued liabilities............................     91,309      88,473
  Income taxes...................................     13,610      12,674
                                                  ----------  ----------
    Total Current Liabilities....................    531,258     400,425
                                                  ----------  ----------
Long-term debt less current maturities...........    524,780     823,518
                                                  ----------  ----------
Deferred income taxes............................    151,181     114,636
                                                  ----------  ----------
Other liabilities................................     61,730      62,308
                                                  ----------  ----------
Stockholders' Equity:
  Preferred stock, $.01 par value per share;
    20,000,000 shares authorized:
    no shares issued.............................        -           -
  Common stock, $.01 par value per share;
    300,000,000 shares authorized:  69,546,456
    shares issued ...............................        695         695
  Additional paid-in capital.....................    485,629     487,054
  Unearned compensation - restricted stock awards     (1,287)     (1,072)
  Treasury stock, at cost - 3,135,192 and
    3,495,811 shares, respectively...............    (19,631)    (23,027)
  Retained earnings..............................    213,928     236,543
  Accumulated other comprehensive income(loss)...     12,001     (78,098)
                                                  ----------  ----------
    Total Stockholders' Equity...................    691,335     622,095
                                                  ----------  ----------
Total Liabilities and Stockholders' Equity....... $1,960,284  $2,022,982
                                                  ==========  ==========


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)

                                                             SIX MONTHS ENDED
                                                           -------------------
                                                            JULY 2,   JULY 1,
                                                             2000      2001
                                                           --------  ---------
                                                               (THOUSANDS)

Cash and cash equivalents, beginning of period...........  $ 23,309  $ 18,181
                                                           --------  --------
Cash provided by operating activities:
    Net income...........................................    17,531    22,615
    Adjustments to reconcile net income to net cash
      provided by operating activities:
      Cumulative effect of change in accounting principle        -        440
      Depreciation.......................................    25,027    26,141
      Goodwill amortization..............................     8,095     8,096
      Deferred income taxes..............................      (323)    7,276
      Unrealized (gains) losses on trading securities
        and other short-term investments.................   (20,870)    1,819
  Increase in working capital items......................   (27,360)  (44,451)
  Purchases of trading securities........................   (36,889) (323,198)
  Proceeds from sales of trading securities..............    52,544   500,119
  Increase in net receivable from related parties........    (3,077)   (4,550)
  Change in cumulative translation adjustment............    (6,709)   (8,976)
  Other, net.............................................    10,117     9,014
                                                           --------  --------
Net cash provided by operating activities................    18,086   194,345
                                                           --------  --------
Cash provided by (used in) investing activities:
  Capital expenditures and acquisitions .................   (22,241)  (44,079)
  Purchases of available-for-sale securities ............  (123,293) (130,671)
  Proceeds from sales of available-for-sale securities...   115,511    19,768
  Proceeds from sales of other short-term investments....       -      12,765
                                                           --------  --------
Net cash used in investing activities....................   (30,023) (142,217)
                                                           --------  --------
Cash provided by (used in) financing activities:
  Proceeds (repayments) from sale of accounts receivable.    (5,648)   (2,918)
  Increase (decrease) in short-term debt.................    26,101  (104,532)
  Proceeds from issuance of debt.........................       -     426,864
  Decrease in borrowings under revolving
    credit facilities....................................    (6,200) (122,000)
  Repayments of long-term debt...........................   (10,358)  (28,236)
  Increase in restricted cash............................       -    (197,251)
  Financing fees and expenses............................       -     (10,389)
  Repurchases of common stock............................    (2,685)   (4,123)
  Other, net.............................................       530       730
                                                           --------  --------
Net cash provided by (used in) financing activities......     1,740   (41,855)
                                                           --------  --------
Net change in cash and cash equivalents..................   (10,197)   10,273
                                                           --------  --------
Cash and cash equivalents, end of period.................  $ 13,112  $ 28,454
                                                           ========  ========

                                       4
<PAGE>


                      INTERNATIONAL SPECIALTY PRODUCTS INC.

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


                                                        SIX MONTHS ENDED
                                                       -------------------
                                                         JULY 2,   JULY 1,
                                                          2000      2001
                                                       --------- ---------
                                                           (THOUSANDS)

Supplemental Cash Flow Information:
  Cash paid during the period for:
    Interest (net of amount capitalized).............   $ 40,708  $ 36,893
    Income taxes.....................................     10,265     4,696


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























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



                                       5
<PAGE>



                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


     The consolidated financial statements for International  Specialty Products
Inc. (the  "Company")  reflect,  in the opinion of management,  all  adjustments
necessary  to present  fairly the  financial  position of the Company at July 1,
2001, and the results of operations and cash flows for the periods ended July 2,
2000 and July 1, 2001. All adjustments are of a normal recurring  nature.  These
financial  statements  should be read in conjunction  with the annual  financial
statements  and notes thereto  included in the  Company's  Annual Report on Form
10-K for the fiscal year ended December 31, 2000 (the "Form 10-K").


NOTE 1.  FINANCING TRANSACTIONS AND RESTRUCTURING

     On June 27, 2001, ISP Chemco Inc.("ISP Chemco"),  an indirect  wholly-owned
subsidiary of the Company,  and three  wholly-owned  subsidiaries  of ISP Chemco
issued $205.0 million aggregate  principal amount of 10.25% Senior  Subordinated
Notes due 2011.  The net proceeds of $197.3  million,  after  discount and fees,
were placed in an escrow account and will be used to retire the Company's  9.75%
Senior Notes due 2002 on or prior to their  maturity.  On July 31,  2001,  these
four subsidiaries issued an additional $100.0 million aggregate principal amount
of 10.25% Senior Subordinated Notes due 2011. These notes have the same terms as
the  senior  subordinated  notes  issued in June.  The net  proceeds  were $98.9
million,  including  $0.9 million of accrued  interest from June 27, 2001 to the
date of  issuance,  of which $98.0  million was placed in an escrow  account and
will be used to retire a portion of the Company's 9% Senior Notes due 2003 on or
prior to their maturity.  All of the notes were guaranteed by substantially  all
of ISP  Chemco's  other  domestic  subsidiaries.  The notes were issued under an
indenture which, among other things,  places limits on the ability of ISP Chemco
and its subsidiaries to incur  additional  debt,  issue preferred  stock,  incur
liens,  and  pay  dividends  or  make  certain  other  restricted  payments  and
restricted investments.

     In a related  transaction,  ISP  Chemco  and its three  subsidiaries  which
issued the notes also entered into $450.0  million of new senior  secured credit
facilities (the "Senior Credit Facilities"),  the initial borrowings under which
were used to repay  amounts  outstanding  under the  Company's  previous  credit
facility.  The Senior Credit  Facilities  are comprised of a $225.0 million term
loan with a  maturity  of seven  years  and a $225.0  million  revolving  credit
facility  which will  terminate in five years.  The  revolving  credit  facility
includes a  borrowing  capacity  not in excess of $50.0  million  for letters of
credit.  All  borrowings  under the Senior  Credit  Facilities  will be 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 Senior  Credit  Facilities  require  compliance  with  various
financial covenants, including a total debt leverage maintenance ratio, a senior
debt leverage maintenance ratio, an interest coverage ratio and a

                                       6
<PAGE>
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)


NOTE 1.  FINANCING TRANSACTIONS AND RESTRUCTURING - (CONTINUED)

minimum adjusted net worth. As of  July 1, 2001, $74.0 million of borrowings and
$5.6 million of letters of credit  were outstanding  under  the revolving credit
facility.

     In connection  with the above  transactions,  the Company also  completed a
restructuring  of its business in order to separate its  investment  assets from
its  specialty  chemicals  business.  As part of the  restructuring,  ISP Chemco
transferred  all of its  investment  assets to a newly formed  subsidiary of the
Company,  Newco  Holdings Inc.,  which is a parent company of ISP Chemco.  Newco
Holdings, in turn, transferred those assets to its newly formed subsidiary,  ISP
Investco LLC. The  restructuring  was designed to simplify and  rationalize  the
Company's  operating  structure  and  to  position  ISP  Chemco  as a  pure-play
specialty  chemicals  company.  As a result of the  restructuring,  ISP Chemco's
assets  consist  solely of those  related to the Company's  specialty  chemicals
business.


NOTE 2.  ACQUISITION

     On June 7, 2001,  the Company  completed the  acquisition  of FineTech Ltd.
("FineTech"), a pharmaceutical research company based in Haifa, Israel. FineTech
specializes in the design of proprietary synthetic routes and methodologies used
in the  production  of highly  complex and valuable  organic  compounds  for the
pharmaceutical  industry.  The  acquisition was accounted for under the purchase
method of  accounting.  Accordingly,  the  purchase  price was  allocated to the
estimated fair value of the identifiable net assets acquired, and the excess was
recorded as  goodwill.  The results of FineTech  are  included in the  Company's
results from the date of acquisition  and are not expected to be material to the
Company's results of operations for the year 2001. FineTech recorded revenues of
$3.5 million in the year 2000.


NOTE 3.  CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE

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

                                       7
<PAGE>
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

NOTE 3.  CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE - (CONTINUED)

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


NOTE 4.  HEDGING AND DERIVATIVES

     As  discussed in Note 1, in June 2001,  ISP Chemco  entered into the $450.0
million  Senior Credit  Facilities,  which  include a $225.0  million term loan.
Borrowings against this term loan will be based on either an alternate base rate
or on the eurodollar rate plus a margin based on the ratio of ISP Chemco's total
consolidated  debt to EBITDA.  The Company has  designated  interest rate swaps,
with a notional amount of $100 million, as a hedge of its exposure to changes in
the eurodollar  rate. The interest rate swaps are structured to receive interest
based on the eurodollar rate and pay interest on a fixed rate basis. A cash flow
hedging  relationship has been established whereby the interest rate swaps hedge
the risk of changes in the  eurodollar  rate  related to  forecasted  borrowings
against the term loan.  The  interest  rate swaps hedge  forecasted  exposure to
changes in the eurodollar rate through July 2002.

     During the first six months of 2001, a $0.5 million  charge  related to the
reduction in the fair market value of the interest  rate swaps was  reclassified
and charged against interest expense.  As of July 1, 2001, the  reclassification
charge to earnings  related to interest  accruals over the next twelve months is
estimated to be $1.3 million.

     Derivatives  held by the  Company  not  designated  as hedging  instruments
include total return equity swaps and forward foreign exchange instruments.  The
total  return  equity swaps are held for  investment  income  purposes.  Foreign
exchange  forward  contracts are held to offset  exposure to changes in exchange
rates affecting intercompany loans.





                                       8
<PAGE>


           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)


NOTE 5.  COMPREHENSIVE INCOME
<TABLE>
<CAPTION>
                                              Second Quarter Ended   Six Months Ended
                                              --------------------   ----------------
                                                July 2,    July 1,    July 2,  July 1,
                                                 2000       2001       2000     2001
                                               -------   --------    -------  --------
                                                               (Thousands)
<S>                                            <C>        <C>       <C>       <C>
Net income...................................  $  9,859   $   100   $ 17,531  $ 22,615
                                               --------   -------   --------  --------
Other comprehensive income (loss), net of tax:
  Change in unrealized gains (losses) on
    available-for-sale securities:
  Unrealized holding gains (losses) arising
    during the period, net of income tax
    (provision) benefit of $3,055, $18,869,
    $(17,364) and $41,736.....................   (4,342)  (38,580)    35,896   (80,887)
  Less: reclassification adjustment for
    losses included in net income,
    net of income tax benefit of $333,
    $594, $1,769 and $311.....................     (715)   (1,098)    (3,715)     (574)
                                               --------   -------   --------  --------
  Total change for the period.................   (3,627)  (37,482)    39,611   (80,313)
                                               --------   -------   --------  --------
  Change in unrealized losses on derivative
    hedging instruments - cash flow hedges:
  Net derivative losses, net of tax effect
    of $133 and $627..........................        -     (246)        -      (1,160)
  Less: reclassification adjustment for
    losses included in net income, net of
    tax effect of $161 and $189...............        -     (299)        -        (350)
                                               --------  -------    --------  --------
  Total change for the period.................        -       53         -        (810)
Foreign currency translation adjustment.......     (427)  (3,883)    (6,709)    (8,976)
                                               --------  -------   --------   --------
Total other comprehensive income (loss).......   (4,054) (41,312)    32,902    (90,099)
                                               -------- --------   --------   --------
Comprehensive income (loss)................... $  5,805 $(41,212)  $ 50,433   $(67,484)
                                               ======== ========   ========   ========
</TABLE>

     Changes in the components of "Accumulated other comprehensive income
(loss)" for the six months ended July 1, 2001 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   Income (Loss)
                               ----------        ----------   ----------   -----------
                                                        (Thousands)
<S>                            <C>               <C>          <C>          <C>
Balance, December 31, 2000..   $   34,020        $      -     $ (22,019)   $  12,001
Change for the period.......      (80,313)           (810)       (8,976)     (90,099)
                               ----------        --------     ---------    ---------
Balance, July 1, 2001.......   $  (46,293)       $   (810)    $ (30,995)   $ (78,098)
                               ==========        ========     =========    =========
</TABLE>

                                       9
<PAGE>

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

NOTE 6.  BUSINESS SEGMENT INFORMATION
<TABLE>
<CAPTION>

                                               Second Quarter Ended      Six Months Ended
                                               ---------------------   --------------------
                                                July 2,     July 1,      July 2,    July 1,
                                                 2000        2001         2000       2001
                                               ---------   ---------   ---------  ---------
                                                               (Thousands)
<S>                                            <C>         <C>          <C>       <C>
Net sales:
  Personal Care.............................   $  46,861   $  48,812   $  95,467  $ 105,055
  Pharmaceutical, Food and Beverage.........      59,129      58,418     118,973    115,817
  Performance Chemicals, Fine Chemicals and
    Industrial..............................      76,091      74,474     147,021    145,597
                                               ---------   ---------   ---------   --------
    Total Specialty Chemicals...............     182,081     181,704     361,461    366,469
  Mineral Products (1)......................      18,176      21,590      36,737     40,022
                                               ---------   ---------   ---------  ---------
Net sales...................................   $ 200,257   $ 203,294   $ 398,198  $ 406,491
                                               =========   =========   =========  =========

Operating income(2):
  Personal Care.............................   $   6,919   $   9,086   $  15,510  $  21,257
  Pharmaceutical, Food and Beverage.........      12,465      13,794      25,150     26,633
  Performance Chemicals, Fine Chemicals and
    Industrial..............................       7,743       9,966       9,458      9,902
                                               ---------   ---------    --------  ---------
    Total Specialty Chemicals...............      27,127      32,846      50,118     57,792
  Mineral Products..........................       2,674       2,782       5,303      3,356
                                               ---------   ---------    --------   --------
  Total segment operating income............      29,801      35,628      55,421     61,148
  Unallocated corporate office..............         (45)        (45)        (68)       344
                                               ---------   ---------   ---------   --------
Total operating income......................      29,756      35,583      55,353     61,492
Interest expense and other, net.............     (14,559)    (35,423)    (28,368)   (25,975)
                                               ---------   ---------   ---------  ---------
Income before income taxes..................   $  15,197   $     160   $  26,985  $  35,517
                                               =========   =========   =========  =========
</TABLE>

(1)  Includes  sales to Building Materials Corporation of America, an affiliate,
     and its  subsidiaries, of $15.5 and $16.6 million for the second quarter of
     2000 and  2001, respectively, and $31.8 million for each of the first six
     months of 2000  and 2001.

(2)  Operating income for the second quarter and first  six  months  of 2000 for
     the three Specialty Chemicals business segments have  been  reclassified to
     conform to  the  2001  presentation, based  on  a  reallocation  of certain
     manufacturing costs.


                                       10
<PAGE>



           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

NOTE 7.  INVENTORIES

     Inventories comprise the following:

                                       December 31,     July 1,
                                           2000          2001
                                       ------------   ----------
                                              (Thousands)
     Finished goods................     $ 93,356      $ 109,256
     Work-in-process...............       29,022         40,611
     Raw materials and supplies....       28,570         32,117
                                        --------      ---------
     Inventories...................     $150,948      $ 181,984
                                        ========      =========

     At  December  31,  2000  and  July  1,  2001,   $38.7  and  $56.5  million,
respectively,  of domestic inventories were valued using the LIFO method. If the
FIFO inventory method had been used for these inventories,  they would have been
$0.1 million lower at December 31, 2000 and $5.2 million higher at July 1, 2001.


NOTE 8.  RESTRUCTURING RESERVES

     In December  2000,  the Company shut down its  Seadrift,  Texas  butanediol
manufacturing facility and shut down production of butanediol at its Texas City,
Texas  manufacturing  facility in the first  quarter of 2001.  Accordingly,  the
Company  recorded a one-time  restructuring  charge against  operating income in
2000 of $2.5 million,  including an accrual of $2.1 million for cash costs to be
incurred in 2001 for severance and for decommissioning and remediation costs. In
the first six months of 2001,  $1.8 million of such costs were  charged  against
this  reserve,  leaving a reserve  balance of $0.3  million as of the end of the
second quarter of 2001.

     In connection  with the  relocation of certain of the Company's  production
lines for  Personal  Care  products  to the  Company's  Freetown,  Massachusetts
facility, the Company shut down its manufacturing  operation in Belleville,  New
Jersey in the  first  quarter  of 2001.  Accordingly,  the  Company  recorded  a
restructuring  charge against  operating income in 2000 of $11.9 million,  which
included a $10.4  million  write-off  of  production  assets.  The total  charge
included  an accrual of $1.5  million  for cash  costs to be  incurred  in 2001,
mainly for severance and other  shutdown-related  costs. In the first six months
of 2001,  $0.8 million of costs were charged  against this reserve,  principally
for severance costs,  leaving a reserve balance of $0.7 million as of the end of
the second quarter of 2001.


                                       11
<PAGE>

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

NOTE 9. 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.

     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 such  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.

     Certain  subsidiaries of the Company were members of the consolidated group
(the "G-I Holdings  Group") that included G-I Holdings Inc. ("G-I  Holdings") in
1990 and,  accordingly,  would be severally  liable for any tax liability of the
G-I  Holdings  Group in respect of such year.  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.  The claim of the IRS for  interest and  penalties,  after taking into
account the effect on the use of net  operating  losses and foreign tax credits,
could result in G-I Holdings  incurring  liabilities  significantly in excess of
the  deferred  tax  liability  of $131.4  million  that it  recorded  in 1990 in
connection with this matter. G-I Holdings has advised the Company


                                       12
<PAGE>

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

NOTE 9. CONTINGENCIES - (CONTINUED)

that it believes  that  it  will  prevail  in this matter, 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. 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,  interest  and  penalties
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 10.  NEW ACCOUNTING STANDARDS

     On June 30, 2001, the FASB issued SFAS No. 141, "Business Combinations" and
SFAS No. 142, "Goodwill and Other Intangible Assets".  SFAS No. 141 requires all
business  combinations  initiated  after June 30, 2001 to be accounted for using
the  purchase  method  of  accounting  and  eliminates  the  pooling  method  of
accounting. SFAS No. 141 will not have an impact on the Company's business since
the Company has historically  accounted for all business  combinations using the
purchase  method of  accounting.  With the  adoption of SFAS No. 142,  effective
January 1, 2002,  goodwill  will no longer be subject to  amortization  over its
estimated useful life.  However,  goodwill will be subject to at least an annual
assessment  for  impairment  and more  frequently  if  circumstances  indicate a
possible  impairment.   Companies  must  perform  a  fair-value-based   goodwill
impairment test. In addition,  under SFAS No. 142, an acquired  intangible asset
should be  separately  recognized  if the benefit of the  intangible 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.  Early  adoption  of SFAS No.  142 is not
permitted.  On an annualized basis, effective January 1, 2002, the Company's net
income will increase by  approximately  $16.2 million ($.24 diluted earnings per
share), unless any impairment charges are necessary.





                                       13
<PAGE>



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


RESULTS OF OPERATIONS - SECOND QUARTER 2001 COMPARED WITH
                        SECOND QUARTER 2000

     The  Company  recorded  second  quarter  2001 net  income  of $0.1  million
compared with net income of $9.9 million  ($.14  diluted  earnings per share) in
the second quarter of 2000. The results were  attributable  to higher  operating
income and lower interest expense, offset by investment losses in the quarter.

     Net sales for the second quarter of 2001 were $203.3 million  compared with
$200.3  million for the same  period in 2000.  The  increase  in sales  resulted
primarily  from higher unit volumes in the  Personal  Care,  Pharmaceutical  and
Mineral  Products  businesses and improved  pricing in the Industrial  business,
partially  offset by lower unit volumes in the  Industrial,  Alginates  and Fine
Chemicals  businesses and by the adverse  effect of the stronger U.S.  dollar in
Europe.

     Operating  income for the second  quarter  of 2001  improved  nearly 20% to
$35.6 million  compared with $29.8 million for the second  quarter of 2000.  The
increase was attributable to improvements in operating  profits in all Specialty
Chemicals  business  segments,  reflecting  higher gross  margins as a result of
favorable  manufacturing  costs in the Personal  Care,  Pharmaceutical  and Fine
Chemicals businesses and improved pricing in the Industrial business,  partially
offset by the adverse effect of the stronger U.S. dollar in Europe.

     Interest  expense for the second  quarter of 2001 was $18.7 million  versus
$21.2  million  for the same period last year.  The  decrease  was due mainly to
lower average borrowings and, to a lesser extent,  lower average interest rates.
Other expense, net, for the quarter was $16.7 million compared with other income
of $6.6 million in last year's second  quarter,  with the decrease the result of
investment losses.


Business Segment Review

     A  discussion  of  operating  results  for each of the  Company's  business
segments follows.  The Company operates its Specialty Chemicals business through
three reportable business segments, in addition to the Mineral Products segment.


Personal Care

     Sales in the second quarter of 2001 were $48.8 million  compared with $46.9
million  for the same period last year,  while  operating  income for the second
quarter of 2001  increased  to $9.1  million  from $6.9  million in last


                                       14
<PAGE>


year's quarter. The  4% increase  in  sales  resulted primarily from higher unit
volumes in the North  American and Latin  America hair care  markets,  partially
offset by the adverse  effect of the  stronger  U.S.  dollar in Europe.  The 31%
improvement  in operating  income  mainly  reflected  higher gross  margins as a
result of favorable  manufacturing  costs and, to a lesser  extent,  a favorable
product mix.

Pharmaceutical, Food and Beverage ("PFB")

     Sales for the PFB segment were $58.4 million for the second quarter of 2001
compared  with $59.1  million for the second  quarter of 2000,  while  operating
income  increased to $13.8 million versus $12.5 million last year. Sales for the
Pharmaceutical  and Beverage  business  increased by 6% in the second quarter of
2001,  reflecting  higher  Pharmaceutical  unit volumes in the  antiseptics  and
excipients  markets.  Sales for the Alginates  business  decreased by 20% due to
lower unit volumes in the North American food market.

     Operating income for the Pharmaceutical and Beverage business increased 31%
in the second  quarter of 2001 compared with the same period in 2000,  while the
operating  margin  improved  from 24% in the second  quarter of 2000 to 29.5% in
this year's  quarter.  The  improvement  reflected  the higher unit  volumes and
higher gross  margins as a result of favorable  manufacturing  costs.  Operating
income for the Alginates business decreased by 50% in the second quarter of 2001
due to the lower unit volumes and  unfavorable  manufacturing  costs  related to
lower production volumes.

Performance Chemicals, Fine Chemicals and Industrial

     Sales in the second quarter of 2001 were $74.5 million  compared with $76.1
million  in  the  second  quarter  of  2000.  The  lower  sales  were  primarily
attributable to a 16% sales decrease for the Fine Chemicals business, reflecting
unit volume  decreases  related to  contract  sales to  Polaroid,  with sales to
Polaroid  expected to continue to  decline.  Sales for the  Industrial  business
decreased  by 2%, as improved  pricing was offset by lower unit  volumes and the
unfavorable  impact  ($1.9  million)  of the  stronger  U.S.  dollar in  Europe.
Performance  Chemicals sales increased by 8% due to higher unit volumes in North
America and Europe.

     Operating  income  for  the  Performance  Chemicals,   Fine  Chemicals  and
Industrial  segment improved 29% for the second quarter of 2001 to $10.0 million
versus $7.7 million for the same period last year, principally reflecting higher
Industrial  operating income due to improved  pricing.  Operating income for the
Fine  Chemicals  business  improved  9% despite  the lower  sales as a result of
favorable  manufacturing costs,  partially offset by an unfavorable product mix.
While sales for the  Performance  Chemicals  business  increased  for the second
quarter of 2001,  operating  profits fell due to lower gross margins as a result
of an unfavorable product mix in Europe.

                                       15
<PAGE>

Mineral Products

     Sales for the Mineral  Products segment for the second quarter of 2001 were
$21.6 million  compared with $18.2 million for the second  quarter of 2000.  The
19% higher sales were  attributable  to a $2.4 million  (89%)  increase in trade
sales and $1.0 million (7%) higher sales to Building  Materials  Corporation  of
America, an affiliate, both due to higher unit volumes. Operating income for the
second  quarter of 2001 was $2.8  million  compared  with $2.7  million  for the
second  quarter of 2000,  as the  impact of higher  unit  volumes  was offset by
higher  operating  expenses  due mainly to an increased  provision  for doubtful
accounts, and also a lower gross margin due to unfavorable pricing.

RESULTS OF OPERATIONS - FIRST SIX MONTHS 2001 COMPARED WITH
                        FIRST SIX MONTHS 2000

     For the first six months of 2001, the Company  recorded net income of $22.6
million  ($.34  diluted  earnings per share)  compared  with $17.5 million ($.25
diluted earnings per share) in the first six months of 2000. The results for the
first six  months of 2001  include an  after-tax  charge of $0.4  million  ($.01
diluted  earnings per share),  representing  the  cumulative  effect of adopting
Statement of Financial  Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging  Activities."  Excluding the effect of such charge and a
one-time  gain of $3.5  million  in the first six months of 2000 from a contract
settlement,  net income for the first six months of 2001 was $23.1 million ($.35
diluted  earnings per share) versus $15.3  million  ($.22  diluted  earnings per
share) in the same period last year. On a comparable basis, the improved results
were  attributable to higher operating and investment  income and lower interest
expense.

     Net sales for the first six  months of 2001 were  $406.5  million  compared
with $398.2  million for the same period in 2000. The increase in sales resulted
primarily  from  higher  unit  volumes  in the  Personal  Care,  Pharmaceutical,
Performance  Chemicals and Mineral  Products  businesses and improved pricing in
the  Industrial  business,  partially  offset  by  lower  unit  volumes  in  the
Industrial, Alginates and Fine Chemicals businesses and by the adverse effect of
the stronger U.S. dollar in Europe.

     Operating  income  for the  first  six  months  of 2001 was  $61.5  million
compared with $55.4  million for the first six months of 2000.  The 11% increase
in operating  income was primarily  attributable  to  improvements  in operating
profits in the Personal Care and Pharmaceutical businesses resulting from higher
unit volumes and  favorable  manufacturing  costs,  and improved  pricing in the
Industrial  business,  partially  offset by lower unit volumes in the Industrial
and Alginates  businesses,  higher energy costs in the Mineral Products business
segment and by the adverse effect of the stronger U.S. dollar in Europe.

     Interest  expense for the first six months of 2001 was $37.7 million versus
$40.9  million  for the same period last year.  The  decrease  was due

                                       16
<PAGE>


mainly  to  lower  average  borrowings  and, to  a lesser extent,  lower average
interest  rates.  Other income,  net, for the first six months was $11.8 million
compared with $9.1 million for the same period last year,  with the increase due
to higher investment income.

Business Segment Review

     A  discussion  of  operating  results  for each of the  Company's  business
segments follows.  The Company operates its Specialty Chemicals business through
three reportable business segments, in addition to the Mineral Products segment.

Personal Care

     Sales in the first six months of 2001 were  $105.1  million  compared  with
$95.5  million  for the same period last year,  while  operating  income for the
first six months of 2001  increased to $21.3  million from $15.5  million in the
same  period last year.  The 10%  increase  in sales  resulted  from higher unit
volumes in the North American and European hair care markets,  partially  offset
by the adverse effect of the stronger U.S. dollar in Europe.  Operating  profits
improved  37% as a result of the higher  unit  volumes  and due to higher  gross
margins which were attributable to favorable manufacturing costs.

Pharmaceutical, Food and Beverage ("PFB")

     Sales for the PFB segment  were $115.8  million for the first six months of
2001  compared  with  $119.0  million  for the first six  months of 2000,  while
operating  income  increased to $26.6  million  versus $25.2  million last year.
Sales for the  Pharmaceutical and Beverage business increased by 5% in the first
six months of 2001, primarily  reflecting higher  Pharmaceutical unit volumes in
the  antiseptics  and  excipients  markets.  Sales  for the  Alginates  business
decreased   by  22%  due  to  lower  unit   volumes,   primarily  in  the  food,
pharmaceutical and industrial markets.

     Operating income for the Pharmaceutical and Beverage business increased 25%
in the first six months of 2001 compared with the same period in 2000, while the
operating  margin  improved  from 24% in the first six months of 2000 to 28% for
the same period this year. The improvement reflected the higher unit volumes and
higher gross  margins as a result of favorable  manufacturing  costs.  Operating
income for the  Alginates  business  decreased by 56% in the first six months of
2001 due to the lower unit volumes and unfavorable  manufacturing  costs related
to lower production volumes.

Performance Chemicals, Fine Chemicals and Industrial

     Sales in the first six months of 2001 were  $145.6  million  compared  with
$147.0  million in the first six months of 2000.  The lower sales were primarily
attributable  to a 4% sales  decline  in the  Industrial  business  due to lower
volumes and the unfavorable impact ($3.5 million) of the stronger

                                       17
<PAGE>



U.S.  dollar  in  Europe,  offset  by  improved   pricing.  Sales for  the  Fine
Chemicals  business decreased by 9%, reflecting unit volume decreases related to
contract  sales to  Polaroid,  with sales to  Polaroid  expected  to continue to
decline.  Sales for the Performance  Chemicals business increased by 10%, mainly
reflecting volume increases in the North American agricultural market.

     Operating  income  for  the  Performance  Chemicals,   Fine  Chemicals  and
Industrial segment increased 5% for the first six months of 2001 to $9.9 million
compared with $9.5 million for the same period last year.  The improved  results
were attributable to higher Industrial operating income due to improved pricing.
Offsetting  the improved  Industrial  results  were 33% and 10% lower  operating
income  for  the   Performance   Chemicals   and  Fine   Chemicals   businesses,
respectively.  The unfavorable  results for the Performance  Chemicals  business
were attributable to an unfavorable  product mix and higher operating  expenses,
which offset the impact of the higher unit volumes.  The lower operating  income
for the Fine Chemicals  business also  reflected an unfavorable  product mix and
higher operating expenses.

Mineral Products

     Sales for the  Mineral  Products  segment  for the first six months of 2001
were $40.0 million compared with $36.7 million for the first six months of 2000.
The higher sales were  attributable  to a $3.3 million  (68%)  increase in trade
sales due to higher unit volumes.  Sales to Building  Materials  Corporation  of
America,  an  affiliate,  remained  level  for the  period at $31.8  million  as
compared with last year.  Operating  income for the first six months of 2001 was
$3.4  million  compared  with $5.3  million  for the  first six  months of 2000,
reflecting  lower gross  margins due to  unfavorable  pricing and higher  energy
costs, and also higher operating  expenses due mainly to an increased  provision
for doubtful accounts.

Liquidity and Financial Condition

     During the first six months of 2001,  the  Company's  net cash flow  before
financing  activities  was  $52.1  million,  including  $194.3  million  of cash
generated  from  operations,  the  reinvestment  of $44.1  million  for  capital
programs  and the  acquisition  of  FineTech  Ltd.  (see Note 2 to  Consolidated
Financial  Statements) and the use of $98.1 million of cash for net purchases of
available-for-sale securities and other short-term investments.

     Cash generated from  operations in the first six months of 2001 reflected a
$176.9  million  net cash  inflow  related to net sales of  trading  securities.
Excluding this cash flow, cash provided from  operations  totaled $17.4 million.
Cash invested in additional  working  capital  totaled $44.5 million  during the
first six months of 2001,  primarily  reflecting  a $31.0  million  increase  in
inventories,  mainly  due to higher  production  levels  in line with  increased
sales, a $6.9 million  increase in receivables due to higher sales in the second
quarter of 2001 compared with the fourth quarter


                                       18
<PAGE>


of 2000, and a $7.2 million net decrease in payables and accrued liabilities.

     Net cash used in financing  activities  during the first six months of 2001
totaled $41.9  million,  reflecting the debt  financing  transactions  discussed
below,  financing  fees and expenses of $10.4  million  related to the financing
transactions,  repayments of long-term  debt totaling $28.2 million and a $104.5
million decrease in short-term  borrowings.  In addition,  financing  activities
included a $4.1 million  cash outlay for  repurchases  of 474,400  shares of the
Company's common stock pursuant to the Company's  repurchase program. On May 15,
2001, the Company's Board of Directors  approved the repurchase of an additional
2.5 million shares of its common stock pursuant to its share repurchase program.
At July 1, 2001, 2,412,462 shares of common stock remained to be purchased under
the Company's repurchase program.

     On June 27, 2001, ISP Chemco Inc.("ISP Chemco"),  an indirect  wholly-owned
subsidiary of the Company,  and three  wholly-owned  subsidiaries  of ISP Chemco
issued $205.0 million aggregate  principal amount of 10.25% Senior  Subordinated
Notes due 2011.  The net proceeds of $197.3  million,  after  discount and fees,
were placed in an escrow account and will be used to retire the Company's  9.75%
Senior Notes due 2002 on or prior to their  maturity.  On July 31,  2001,  these
four subsidiaries issued an additional $100.0 million aggregate principal amount
of 10.25% Senior Subordinated Notes due 2011. These notes have the same terms as
the  senior  subordinated  notes  issued in June.  The net  proceeds  were $98.9
million,  including  $0.9 million of accrued  interest from June 27, 2001 to the
date of  issuance,  of which $98.0  million was placed in an escrow  account and
will be used to retire a portion of the Company's 9% Senior Notes due 2003 on or
prior to their maturity.  All of the notes were guaranteed by substantially  all
of ISP  Chemco's  other  domestic  subsidiaries.  The notes were issued under an
indenture which, among other things,  places limits on the ability of ISP Chemco
and its subsidiaries to incur  additional  debt,  issue preferred  stock,  incur
liens,  and  pay  dividends  or  make  certain  other  restricted  payments  and
restricted investments.

     In a related  transaction,  ISP  Chemco  and its three  subsidiaries  which
issued the notes also entered into $450.0  million of new senior  secured credit
facilities (the "Senior Credit Facilities"),  the initial borrowings under which
were used to repay  amounts  outstanding  under the  Company's  previous  credit
facility.  The Senior Credit  Facilities  are comprised of a $225.0 million term
loan with a  maturity  of seven  years  and a $225.0  million  revolving  credit
facility  which will  terminate in five years.  The  revolving  credit  facility
includes a  borrowing  capacity  not in excess of $50.0  million  for letters of
credit.  All  borrowings  under the Senior  Credit  Facilities  will be 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 Senior  Credit  Facilities  require  compliance  with  various
financial covenants, including a total debt leverage maintenance ratio, a senior
debt  leverage  maintenance  ratio,  an  interest  coverage  ratio and a minimum
adjusted net worth.  As of July 1, 2001,  $74.0 million of  borrowings  and

                                       19
<PAGE>


$5.6 million of letters of credit were outstanding  under the  revolving  credit
facility.

     As a result of the foregoing factors,  cash and cash equivalents  increased
by $10.3 million during the first six months of 2001 to $28.5 million, excluding
$342.2 million of trading and available-for-sale securities and other short-term
investments.

     In December  2000,  the Company shut down its  Seadrift,  Texas  butanediol
manufacturing facility and shut down production of butanediol at its Texas City,
Texas  manufacturing  facility in the first  quarter of 2001.  Accordingly,  the
Company  recorded a one-time  restructuring  charge against  operating income in
2000 of $2.5 million,  including an accrual of $2.1 million for cash costs to be
incurred in 2001 for severance and for decommissioning and remediation costs. In
the first six months of 2001,  $1.8 million of costs were  charged  against this
reserve,  leaving a reserve  balance of $0.3 million as of the end of the second
quarter of 2001.

     In connection  with the  relocation of certain of the Company's  production
lines for  Personal  Care  products  to the  Company's  Freetown,  Massachusetts
facility, the Company shut down its manufacturing  operation in Belleville,  New
Jersey in the  first  quarter  of 2001.  Accordingly,  the  Company  recorded  a
restructuring  charge against  operating income in 2000 of $11.9 million,  which
included a $10.4  million  write-off  of  production  assets.  The total  charge
included  an accrual of $1.5  million  for cash  costs to be  incurred  in 2001,
mainly for severance and other  shutdown-related  costs. In the first six months
of 2001,  $0.8 million of costs were charged  against this reserve,  principally
for severance costs,  leaving a reserve balance of $0.7 million as of the end of
the second quarter of 2001.

     See Note 9 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 the Company's
objectives,  plans or goals also are forward-looking  statements.  The Company's
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  Quarterly  Report on Form 10-Q and the Company
undertakes no obligation to publicly update such  forward-looking  statements

                                       20
<PAGE>


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 the Form  10-K for a  discussion  of
"Market-Sensitive  Instruments  and Risk  Management."  As of December 31, 2000,
equity-related  financial  instruments  employed by the Company to reduce market
risk included long contracts valued at $40.1 million. At July 1, 2001, the value
of long contracts was $2.6 million.  Such instruments are marked-to-market  each
month,  with unrealized  gains and losses included in the results of operations.
As such,  there is no economic  cost to the Company at July 1, 2001 to terminate
these instruments and therefore the fair market value is zero.



















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                                     PART II


                                OTHER INFORMATION




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

     At the Company's Annual Meeting of Stockholders  held on May 15, 2001, each
nominated director was reelected, with at least 63,133,426 votes in favor of and
not more than 535,296 votes  withheld  from,  each nominee;  the adoption of the
Company's 2000 Stock Option Plan for Non-Employee  Directors was approved,  with
62,744,740 votes in favor, 900,319 votes against and 23,663 abstentions; and the
proposed  amendment to the Company's 2000 Long Term Incentive Plan was approved,
with 61,202,362 votes in favor, 2,451,170 votes against and 15,190 abstentions.



ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K

(a)  The registrant filed a report on  Form 8-K, dated  June 28, 2001, reporting
     events under Item 5 thereof.














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                                   SIGNATURES


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


                             INTERNATIONAL SPECIALTY PRODUCTS INC.




DATE:  August 15, 2001           BY:   /s/Randall R. Lay
       ---------------                 -----------------

                                       Randall R. Lay
                                       Executive Vice President and
                                         Chief Financial Officer
                                       (Principal Financial and
                                         Accounting Officer)








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