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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

Form 10-K

For the fiscal year ended December 31, 2002

or

For the transition period from                            to                             

Commission file number 333-82822

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

Registrant's telephone number, including area code: (302) 427-5715
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: None

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

        Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o

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

        As of March 27, 2003, 100 shares of common stock, par value $.001 per share of the registrant were outstanding. There is no trading market for the common stock of the registrant. As of March 27, 2003, no shares of the registrant were held by non-affiliates.

PART I

Item 1. Business

General

        International Specialty Holdings Inc., formerly known as Newco Holdings Inc., is a leading multinational manufacturer of specialty chemicals and mineral products. We are a wholly owned subsidiary of International Specialty Products Inc., or ISP, and were incorporated in June 2001 in connection with an internal corporate restructuring by ISP. The business of our parent, ISP, primarily consists of owning all of our issued and outstanding capital stock. We own all of the issued and outstanding capital stock of ISP Chemco Inc., formerly known as ISP Opco Holdings Inc., and ISP Investco LLC. ISP Chemco operates ISP's specialty chemicals business, exclusively through its direct and indirect subsidiaries. ISP Investco was formed in 2001 for the purpose of holding all of ISP's investment assets and related liabilities. As a result of a going private transaction that was completed on February 28, 2003, ISP's common stock is no longer publicly traded and Mr. Samuel J. Heyman, the Chairman of ISP, is now the beneficial owner (as defined in Rule 13d-3 under the Exchange Act) of 100% of ISP's common stock and our common stock. Following the completion of the going private transaction, ISP's common stock has been delisted from the New York Stock Exchange and its registration with the Securities and Exchange Commission has been terminated. Unless otherwise indicated by the context, "we," "us," "our," and "IS Holdings" refers to International Specialty Holdings Inc. and its consolidated subsidiaries and "ISP" refers to International Specialty Products Inc. and its consolidated subsidiaries.

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

        Over the last five years, we have moved toward increasing our focus on our consumer-oriented and service intensive businesses while consolidating and downsizing our low margin butanediol business and controlling costs.

        We have increased our consumer-oriented focus through new, more profitable product offerings, enhanced technical capabilities and penetration into new markets. We also have supplemented our internal resources with strategic alliances and complementary acquisitions. We improved our costs through operating efficiencies and plant consolidations.

        New product offerings include a hair care product that provides faster drying time and greater hold for styling flexibility and a solvent that improves the stability and absorption of pharmaceutical products. We have also introduced a patented, water-based microemulsion that more effectively disperses the active agricultural ingredient for easier application and improved environmental safety in crop spraying.

        To enhance support provided by our technical service team, we have added technical service laboratories to our current global network of applications. In this regard we have expanded our Singapore facility and opened a new laboratory in Brazil.

        Strategic alliances have allowed us to leverage our core strengths in marketing, sales and technical services to obtain access to new technologies and expand the breadth and utility of our product offerings. Through an alliance with another specialty chemical manufacturer, we were able to use our strengths in combination with our partner's proprietary technology to bring to market a line of skin conditioners that re-hydrate the skin and provide protection from the drying effects of the sun and environment.

        We continually explore possible acquisitions through which we seek to acquire complementary technologies or products, expand our customer base and leverage our sales and distribution infrastructure and existing client relationships. For example, we acquired our alginates business and now provide naturally derived food thickeners and stabilizers to a variety of markets that complement our existing products and technology, such as the pharmaceutical ingredients, food and beverage markets.

        In December 2001, we acquired the industrial biocides business of Creanova Inc., a subsidiary of the Degussa Corporation, which manufactures well-known fungicides, preservatives, algaecides and biocides. This acquisition adds a new growth platform for our performance chemicals business and expands our strategic emphasis on more profitable specialty chemicals for the coatings industry.

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

        During the last five years, we have invested approximately $150 million in upgrading our manufacturing plants with equipment modifications and de-bottlenecking solutions which have significantly increased our manufacturing efficiency and capacity. We have also streamlined and consolidated our operations to increase efficiency and reduce our operating costs. For example, we shut down our high cost butanediol production at our Calvert City plant in 1999, at the Seadrift, Texas plant in 2000 and at the Texas City plant in 2001. In addition, we shifted butanediol production following these shutdowns to our lower cost Marl, Germany facility.

Specialty Chemicals

Products and Markets

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

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

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



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



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

        In each of the years ending December 31, 2000, 2001 and 2002, sales of specialty chemicals represented approximately 90% of our revenues. For information about the amount of sales by each of our specialty chemicals business segments, see "Management's Discussion and Analysis of Financial Condition and Results of Operations—Results of Operations" and note 18 to our consolidated financial statements. Most of our specialty chemical products fall within the following categories:

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vinyl ether monomers—includes several products for use in specialty and radiation-cured coatings. Our vinyl ether monomers are marketed by the performance chemicals group of our performance chemicals, fine chemicals and industrial business segment.



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vinyl ether copolymers—includes our Gantrez® line of products. These products serve as a bioadhesive resin in consumer products such as tartar-control toothpaste, denture adhesives and facial pore strips. Vinyl ether copolymers are marketed by our personal care and pharmaceutical, food and beverage business segments.



•

polyvinyl pyrrolidone (PVP) polymers and copolymers—represents our largest product group. These polymers and copolymers are marketed by all of our business segments. Our Plasdone®,

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Polyclar® and Gafquat® product lines, which are used as tablet binders, beverage clarifiers and hair fixative resins, respectively, are included in this group.

•

intermediates—includes butanediol, butenediol, butynediol, and propargyl alcohol for use in numerous industrial applications. Intermediates are marketed by our performance chemicals, fine chemicals and industrial business segment. Our largest selling intermediate product is butanediol, which is utilized by industrial companies to manufacture spandex fibers and polybutylene terephthalate (PBT) plastics for use in automobiles.



•

solvents—includes our M-pyrol® brand of N-methyl pyrrolidone (NMP), for use in metal degreasing and paint stripping, BLO® brand of gamma-butyrolactone, for use by electronics companies in the manufacture of semiconductors and micro-processing chips, and tetrahydrofuran (THF), which is used in the manufacture and installation of PVC pipe. Solvents are also marketed by our performance chemicals, fine chemicals and industrial business segment.



•

alginates—includes sodium alginate, propylene glycol alginate and other alginate derivatives for use as thickeners, stabilizers and viscosity modifiers. These products are marketed by our personal care; pharmaceutical, food and beverage; and performance chemical businesses, with the majority of our sales to the food industry.

        The balance of our specialty chemical products are marketed by our performance chemicals, fine chemicals and industrial business segment. In addition, our sunscreens, preservatives and emollients, are each marketed by our personal care business segment.

        Personal Care.    Our personal care business segment markets numerous specialty chemicals that serve as critical ingredients in the formulation of many well-known skin care, hair care, toiletry and cosmetic products. For example, our polyvinylpyrrolidone polymers, which are derived from acetylene, are critical components in hair styling gels. If this polymer were removed, hold, stiffness and styling would be lost.

        Our skin care ingredients include:

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



•

emollients, which provide skin softness;



•

moisturizers, which enhance the skin's water balance;



•

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



•

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

        Our Escalol® sunscreen actives serve as the primary active ingredient in many of the most popular sunscreens today and increasingly find applications in many other products such as lipsticks and facial creams. Our Ceraphyl® line of emollients and moisturizers provides a variety of popular bath products with their softening and moisturizing characteristics. We produce a growing number of specialty preservatives, including Germall® Plus, a patented product that offers broad-spectrum anti-microbial activity, and Suttocide® A, a preservative gentle enough for infant care products.

        Our hair care ingredients, marketed under the Gantrez®, Gafquat®, and PVP/VA family of products, include a number of specially formulated fixative resins which provide hairsprays, mousses and gels with their holding power, as well as thickeners and stabilizers for shampoos and conditioners. Utilizing our combined expertise in hair care and sunscreen applications, we developed the world's first high performance hair protectant, Escalol®HP-610, to prevent sun damage to hair. We also developed a

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new polymer, Aquaflex® FX-64, for use in styling products and low VOC hair sprays where it provides a soft feeling with a long lasting hold for both aerosol and pump spray applications.

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

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

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prescription and over-the-counter tablets;



•

injectable prescription drugs and serums;



•

cough syrups;



•

antiseptics;



•

toothpastes; and



•

denture adhesives.

        Our Plasdone® and Polyplasdone® polymers for tablet binders and tablet disintegrants are established excipients for use in the production of wet granulated tablets. Our Gantrez® bioadhesive polymers serve as critical ingredients in denture adhesives and tartar control toothpastes. In denture adhesives, Gantrez® provides the strength and duration of the hold of the denture to the gums. In tartar control toothpastes, Gantrez® inhibits enzyme activity in the mouth to increase the effectiveness of the product's tartar control.

        Our advanced materials product line includes the Ferronyl® brand of dietary iron supplement, which is marketed to the pharmaceutical industry.

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

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

•

coatings;



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agriculture;



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imaging;



•

detergents;



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electronics; and



•

metalworking.

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

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

        As mentioned above, in December 2001, we acquired the industrial biocides business of Creanova Inc., a subsidiary of the Degussa Corporation. This business manufactures well-known fungicides, preservatives, algaecides and biocides. This acquisition adds a new growth platform for our performance chemicals business and expands our strategic emphasis on more profitable specialty chemicals for the coatings industry.

        Our fine chemicals business focuses on the production of a variety of highly specialized products sold to the pharmaceutical, biotechnology, agricultural and imaging markets. We also offer custom manufacturing services for these industries.

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

•

high performance plastics;



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lubricating oil and chemical processing;



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electronics cleaning; and



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coatings.

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

Marketing and Sales

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

International Operations

        We conduct our international operations through 44 subsidiaries and 49 sales offices located in Europe, Canada, Latin America and the Asia-Pacific region. We also use the services of local distributors to reach markets that might otherwise be unavailable to us.

        International sales of our specialty chemicals in 2000, 2001 and 2002 were approximately 50%, 52% and 51% of our total sales for those periods, respectively. For more information about our international sales, see Note 19 to our consolidated financial statements. International sales are subject to exchange rate fluctuation risks. For a discussion of our policy regarding the management of these risks, see "Management's Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Financial Condition." Other countries in which we have sales are subject to additional risks, including high rates of inflation, exchange controls, government expropriation and general instability.

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

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

        For information about the locations of our international long-lived assets, see Note 19 to our consolidated financial statements.

Raw Materials

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

        The principal raw materials used in the manufacture of our acetylene-based specialty chemicals are acetylene, formaldehyde and methylamine. Most of the raw materials for consumption in the United States are obtained from third party sources pursuant to supply agreements. Acetylene, a significant raw material used in the production of most of our specialty chemicals, is obtained by us for domestic use from three unaffiliated suppliers pursuant to supply contracts. We have a contract with a multinational supplier to supply a substantial amount of our acetylene needs to our Texas City facility. Pricing under the contract is on a fixed basis and we are obligated to purchase a specified amount of acetylene under the contract. This supplier has announced the closure of its facility by the end of June, 2003. As a result, we have identified several alternative sources of supply of acetylene for the Texas City location. The cost of acetylene from these sources will be higher than that paid to the current supplier. Although we believe that these alternative sources of supply would be sufficient for our projected needs, there can be no assurance in this regard.

        We also have a contract with another supplier for the delivery of additional amounts of acetylene to our Texas City facility. We are obligated to purchase a specified amount of acetylene under this contract, which expires June 30, 2003. We have secured an alternative source to this agreement and have entered into a five-year contract under which we are obligated to purchase specified quantities of acetylene. Pricing is fixed with escalators tied to the Producer Price Index.

        Our third acetylene supply contract is for acetylene delivery via pipeline to our Calvert City facility. The acetylene is made from calcium carbide generation. The current term of this contract expires December 31, 2009 and allows us, at our sole option, to extend the agreement for two additional terms of five years each. Pricing under the contract is adjusted related to changes in the Producer Price Index. The contract cannot be terminated except for cause. The supplier is obligated to

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supply as much acetylene as we need at that facility. A significantly larger supply of acetylene than we currently purchase can be obtained under the contract.

        Due to the nature of the manufacturing process, electricity and hydrocarbon feedstocks, primarily butane, are critical raw materials for the production of acetylene at our operations in Marl, Germany. The Marl facility obtains the majority of its critical supplies and services from Degussa including electricity and butane via a long term supplies and services agreement. Under the agreement, ISP may, at its option, cancel purchases from Degussa in favor of more competitive sourcing. Degussa, however, may not discontinue providing critical supplies or services to ISP. Pricing for the supplies and services are negotiated periodically between the parties.

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

        The principal raw material used in the manufacture of alginates consists of select species of seaweed. We process seaweed in both wet and dry forms. We use our own specially designed vessels to harvest, under government license, wet seaweed from leased kelp beds in the Pacific Ocean to supply our San Diego, California facility. Our Girvan, Scotland facility processes primarily dry seaweed purchased from our joint ventures in Iceland, Ireland and Tasmania, as well as from independent suppliers in South America. We believe that the species of seaweed required to manufacture alginates will remain readily available and that we will have adequate access to this seaweed to provide us with adequate supplies of this raw material for the foreseeable future.

        Availability of other raw materials, including methanol and methylamine, remained adequate during 2002. We believe that, in the event of a supply interruption, we could obtain adequate supplies of raw materials from alternate sources.

        We use natural gas and raw materials derived from petroleum in many of our manufacturing processes and, consequently, the price and availability of natural gas and petroleum could be material to our operations. During 2002, supplies of natural gas and petroleum remained adequate.

Mineral Products

        Products and Markets.    We manufacture mineral products consisting of semi-ceramic-coated colored roofing granules, algae resistant granules and headlap granules, which are produced from rock deposits that are mined and crushed at our quarries. We utilize a proprietary process to produce our colored and algae resistant roofing granules. We sell our mineral roofing granules primarily to the United States roofing industry for use in the manufacture of asphalt roofing shingles. The granules help to provide weather resistance, decorative coloring, heat deflection and increased weight in the shingle. We believe that we are the second largest of only three major suppliers of colored roofing granules in the United States in terms of production capacity and sales revenue. For information about the amount of sales of our mineral products, see "Management's Discussion and Analysis of Financial Condition and Results of Operations" and Note 18 to our consolidated financial statements.

        We believe that approximately 80% of the asphalt shingles currently produced by the roofing industry are sold for the re-roofing/replacement market, in which demand is driven not by the pace of new home construction but by the needs of homeowners to replace existing roofs. Homeowners generally replace their roofs either because they are worn, thereby creating concerns as to weather-tightness, or because of the homeowners' desire to upgrade the appearance of their homes. We believe

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that the balance of the roofing industry's asphalt shingle production historically has been sold primarily for use in new housing construction. Sales of our colored mineral granules have benefited from a trend toward the increased use of heavyweight, three-dimensional laminated roofing shingles which results in both functional and aesthetic improvements. These shingles require, on average, approximately 60% more granules than traditional three-tab, lightweight roofing shingles.

        Sales to Building Materials Corporation of America, or BMCA, our affiliate, and its subsidiaries constituted approximately 77% of our mineral products net sales in 2002.

        See "Certain Relationships" and Note 17 to consolidated financial statements. See also "Management's Discussion and Analysis of Financial Condition and Results of Operations- 2002 compared with 2001".

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

        Raw Materials.    We own three quarries and lease one quarry with rock deposits that have specific performance characteristics, including weatherability, the ability to reflect UV light, abrasion-resistance, non-staining characteristics and the ability to absorb pigments. These quarries each have proven reserves, based on current production levels, of more than 20 years. We have a royalty arrangement based on the amount of rock deposits extracted annually from our Ione, California quarry.

Competition

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

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

        Butanediol, which we produce primarily for use as a raw material, is also manufactured by a limited number of companies throughout the world for both their captive use or to supply the merchant market. We believe that there are three competitors of significance for merchant market butanediol. BASF Corporation and Lyondell Corporation supply the merchant market from their plants in the United States and in Europe. Lyondell constructed a manufacturing facility in Europe capable of butanediol production that opened in the third quarter of 2002. British Petroleum currently supplies the merchant market from their single manufacturing plant in the United States. Tetrahydrofuran and N-methyl pyrrolidone are manufactured by a number of companies throughout the world.

        With regard to our mineral products, our primary competitors are the 3M Company and Reed Minerals. In April 2002, we acquired the Ione, California roofing granule manufacturing operations of Reed Minerals. We believe that competition has been limited by the substantial capital expenditures associated with the construction of new mineral processing and coloring plants and the acquisition of suitable rock reserves; the limited availability of proven rock sources; the complexity associated with the construction of a mineral processing and coloring plant, together with the technical know-how required

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to operate such a plant; the need to obtain, prior to commencing operations, reliable data over a substantial period of time regarding the weathering of granules in order to assure the quality and durability of the product; and the difficulty in obtaining the necessary permits to mine and operate a quarry.

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

        Financial information concerning our industry segments and foreign and domestic operations required by Item 1 is included in Notes 18 and 19 to our Consolidated Financial Statements included in this Annual Report on Form 10-K.

Research and Development

        Our worldwide research and development expenditures were $25.6, $25.4 and $26.0 million in 2000, 2001 and 2002, respectively.

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

Environmental Services

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

Patents and Trademarks

        As of December 31, 2002, we owned or licensed approximately 400 domestic and 580 foreign patents or patent applications and owned or licensed approximately 155 domestic and 2,005 foreign trademark registrations or applications related to our business. While we believe the patent protection covering some of our products is material to those products, we do not believe that any single patent, patent application or trademark is material to our business or operations. We believe that the duration of the existing patents and patent licenses is consistent with our business needs.

Environmental Compliance

        Since 1970, a wide variety of federal, state and local environmental laws and regulations relating to environmental matters have been adopted and amended. By reason of the nature of our operations and the operations of our predecessor and certain of the substances that are or have been used, produced or discharged at our or our predecessor's plants or at other locations, we are affected by these environmental laws and regulations. We have made capital expenditures of approximately $5.0 million in 2000, $6.3 million in 2001, and approximately $3.6 million in the year ended December 31, 2002, in order to comply with these laws and regulations. These expenditures are included in additions to

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property, plant and equipment. We anticipate that aggregate capital expenditures relating to environmental compliance in 2003 and 2004 will be approximately $7.0 and $6.0 million, respectively.

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

Employees

        At December 31, 2002, we employed approximately 2,500 people worldwide. Approximately 730 employees in the United States were subject to seven union contracts. We believe that our relations with our employees and their unions are satisfactory.

ISP Investco

        We conduct our investments business through ISP Investco and its subsidiaries. We invest primarily in international and domestic securities of companies involved in acquisition or reorganization transactions. Those investments include common stock short positions that are offset against long positions in securities that are expected, under certain circumstances, to be exchanged or converted into the short positions. From time to time we also invest in securities of companies that we consider to be undervalued.

Other Developments

        On March 20, 2003, the Hercules Shareholders' Committee for New Management, which we refer to as the "Committee", notified Hercules Incorporated of its intent to present at Hercules' 2003 Annual Meeting of Shareholders, and solicit proxies in favor of, the election of an additional slate of four directors committed to maximizing value for all Hercules stockholders. The Committee is comprised of (i) ISP; (ii) four current members of the Hercules Board of Directors, that includes our Chairman, Samuel J. Heyman and our President and Chief Executive Officer, Sunil Kumar; and (iii) the four nominees for the Hercules Board of Directors. On March 20, 2003, the Committee filed with the Securities and Exchange Commission a preliminary proxy statement in connection with Hercules' Annual Meeting. ISP beneficially owns approximately 9.1% of the outstanding shares of Hercules' common stock. See Note 21 to Consolidated Financial Statements.

Other Information

        We have not established and do not maintain an internet website and consequently, we do not make our annual, quarterly and current reports and other information that are filed with or furnished to the Securities and Exchange Commission available via an internet website. These reports are available electronically on the Securities and Exchange Commission's EDGAR website at www.sec.gov. If you wish to receive a hard copy of our reports or any of the exhibits filed with or furnished to the Securities and Exchange Commission, they may be obtained, upon payment of reasonable expenses, by writing to: the Corporate Secretary, International Specialty Holdings Inc., c/o ISP Management Company, Inc., 1361 Alps Road, Wayne, New Jersey 07470.

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Item 2. Properties

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

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

*

Leased property

**

Long-term ground lease

        We believe that our plants and facilities, which are of varying ages and are of different construction types, have been satisfactorily maintained, are in good condition, are suitable for their respective operations and generally provide sufficient capacity to meet production requirements. Each plant has adequate transportation facilities for both raw materials and finished products. In 2002, we made capital expenditures in the amount of $50.5 million relating to plant, property and equipment.

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Item 3. Legal Proceedings

Environmental Claims and Proceedings

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

        We estimate that our liability in respect of all Environmental Claims, including those relating to our closed Linden, New Jersey plant described below, and certain other environmental compliance expenses, as of December 31, 2002, is $22.4 million, before reduction for insurance recoveries reflected on our balance sheet of $24 million that relate to both past expenses and estimated future liabilities to which we refer as "estimated recoveries." While we cannot predict whether adverse decisions or events can occur in the future, in the opinion of management, the resolution of such matters should not be material to our business, liquidity, results of operations, cash flows or financial position. However, adverse decisions or events, particularly as to increases in remedial costs, discovery of new contamination, assertion of natural resource damages, plans for development of the Linden, New Jersey property, and the liability and the financial responsibility of our insurers and of the other parties involved at each site and their insurers, could cause us to increase our estimate of our liability in respect of those matters. It is not currently possible to estimate the amount or range of any additional liability.

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

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

        In June 1989, we entered into a Consent Order with the New Jersey Department of Environmental Protection requiring the development of a remediation plan for our closed Linden, New Jersey plant and the maintenance of financial assurances, currently $7.5 million, to guarantee our performance. This Consent Order does not address any potential natural resource damage claims for which an estimate cannot currently be made. In April 1993, the New Jersey Department of Environmental Protection issued orders which require the prevention of discharge of contaminated groundwater and stormwater from the site and the elimination of other potential exposure concerns. We believe, although we cannot be certain, that, taking into account our plans for development of the site, we can comply with the New Jersey Department of Environmental Protection order at a cost of approximately $13.0 million. See Item 1, "Business—Environmental Services".

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Stockholder litigation against ISP

        In July 2002, six purported class action suits were filed on behalf of ISP stockholders in the Court of Chancery of the State of Delaware against ISP and members of its board of directors. These six suits have been consolidated. In July 2002, a seventh purported class action was filed on behalf of ISP stockholders in the United States District Court, District of New Jersey, against ISP and members of its board of directors. The New Jersey claim was subsequently amended to assert derivative claims as well. The plaintiffs in the Delaware and New Jersey litigations seek to represent the same class of ISP stockholders. The Delaware and New Jersey complaints allege, among other things, that the defendants have breached fiduciary and other duties in connection with a going private transaction that was recently completed. These complaints variously seek an award of unspecified damages and attorneys' fees, the unwinding of any transaction and other unspecified equitable relief.

        In November 2002, the parties to the stockholder litigation pending in Delaware agreed on and executed a memorandum of understanding to reflect a proposed settlement of the Delaware litigation. The parties to the Delaware litigation also agreed, subject to the conditions described below, to enter into a settlement agreement, cooperate in public disclosures related to the settlement and use best efforts to gain approval of the settlement by the Delaware courts. Without any admission of fault by the defendants, the memorandum of understanding contemplates a dismissal of all claims with prejudice and a release in favor of all defendants of any and all claims related to the going private transaction, including the claims in the New Jersey litigation, that have been or could have been asserted by the plaintiffs and all members of a plaintiff class. The memorandum of understanding further provides that the increased cash merger consideration of $.30 per share paid pursuant to the going private transaction constituted fair, adequate and reasonable consideration for the settlement of all claims asserted or that could have been asserted. We refer to these claims as the "settled claims".

        The proposed settlement of the Delaware litigation is subject to numerous conditions, including the completion of confirmatory discovery, execution of a settlement agreement containing a provision permitting defendants to terminate the settlement if, prior to final court approval, any action other than the New Jersey litigation is pending in any state or federal court which raises any settled claims, a determination by defendants prior to final court approval that the dismissal of the litigation in accordance with the settlement agreement will result in the release with prejudice of the settled claims, final approval of the settlement by the Delaware courts and completion of the going private transaction. If the parties to the Delaware litigation do not proceed with the proposed settlement, or in the event the proposed settlement ultimately is not approved by the Delaware courts, the Delaware and New Jersey litigations could proceed and the plaintiffs could seek the relief sought in their complaints, including rescission of the going private transaction or an award of damages in favor of the ISP stockholders in any plaintiff class that might be certified.

        We believe that the proposed settlement of the Delaware litigation will become final, although there are no assurances in this regard, and any and all settled claims against the defendants in the New Jersey litigation will be released and the defendants will move for a dismissal of the New Jersey litigation based on the final order in the Delaware litigation.

        For more information about legal proceedings, see Note 20 to our Consolidated Financial Statements included in this annual report.

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

        None.

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PART II

Item 5. Market for Registrant's Common Equity and Related Stockholder Matters

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

        In 2001 and 2002, we declared and paid dividends of $35.0 and $17.3 million, respectively, to ISP. See Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations" and Note 14 to our Consolidated Financial Statements included in this Annual Report on Form 10-K for information regarding restrictions on the payment of dividends set forth on pages F-2 to F-20 and page F-51, respectively. Any decision to pay dividends, and the timing and amount thereof, is dependent upon, among other things, our results of operations, financial condition, cash requirements, prospects and other factors deemed relevant by our Board of Directors.

Item 6. Selected Financial Data

        See page F-21.

Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations

        See page F-2.

Item 7A. Quantitative and Qualitative Disclosures about Market Risk

        See Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Financial Condition—Market Sensitive Instruments and Risk Management" on page F-18.

Item 8. Financial Statements and Supplementary Data

        See Index on page F-1 and Financial Statements and Supplementary Data on pages F-25 to F-72.

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

        On June 20, 2002, we dismissed Arthur Andersen LLP as our independent public accountants and appointed KPMG LLP as our new independent public accountants. The decision to dismiss Arthur Andersen and to retain KPMG was recommended and approved by our Board of Directors.

        Arthur Andersen's reports on our consolidated financial statements for each of the fiscal years ended December 31, 2001 and 2000 did not contain any adverse opinion or disclaimer of opinion, nor were they qualified or modified as to uncertainty, audit scope or accounting principles.

        During the fiscal years ended December 31, 2001 and 2000 and the subsequent interim period through June 20, 2002, there were no disagreements between us and Arthur Andersen on any matter of accounting principles or practices, financial statement disclosure, or auditing scope of procedure, which disagreements, if not resolved to Arthur Andersen's satisfaction, would have caused them to make reference to the subject matter of the disagreement in connection with their report.

        None of the reportable events described in Item 304(a)(1)(v) of Regulation S-K occurred during the fiscal years ended December 31, 2001 and 2000 or during the subsequent interim period through June 20, 2002.

        We provided Arthur Andersen with a copy of the foregoing disclosures. A copy of Arthur Andersen's letter, dated June 21, 2002, stating that they found no basis for disagreement with such statements was attached as an exhibit to our current report on Form 8-K filed with the Commission on June 24, 2002.

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        During the fiscal years ended December 31, 2001 and 2000 and the subsequent interim period through June 20, 2002, we did not consult with KPMG regarding any of the matters or events set forth in Item 304(a)(2)(i) and (ii) of Regulation S-K.

PART III

Item 10. Directors and Executive Officers of the Registrant

Executive Officers of the Registrant

        The following table sets forth the name, age, position and other information with respect to our directors and executive officers. Under our By-laws, each director and executive officer continues in office until our next annual meeting of stockholders and until his or her successor is elected and qualified.

15

16

17

Item 11. Executive Compensation

Summary Compensation Table

        The following table sets forth the cash and non-cash compensation for each of the last three fiscal years awarded to or earned by our Chief Executive Officer in 2002 and the four other most highly compensated executive officers who were employed by us or our subsidiaries as of December 31, 2002.

(1)

Bonus amounts are payable pursuant to ISP's Executive Incentive Compensation Program.

(2)

Included in "All Other Compensation" for Mr. Kumar are: $14,500, $12,400 and $12,400, representing ISP's contribution under its 401(k) plan in 2002, 2001 and 2000, respectively; $4,902, $4,902 and $5,130 for the premiums paid by ISP for a life insurance policy in 2002, 2001 and 2000, respectively; $2,160, $2,160 and $2,160 for the premiums paid by ISP for a long-term disability policy in 2002, 2001 and 2000, respectively; and for 2001 and 2002, $761,691 representing the forgiven portion of the principal amount of the installment loan provided by ISP to Mr. Kumar in 1999 for the purchase of 318,599 shares of common stock in accordance with the terms of the Note referred to in Item 13. "Certain Relationships and Related Transactions-Certain Other Transactions". Mr. Kumar was granted 250,000 restricted shares of ISP's common stock effective as of January 14, 2002. The value of these shares as set forth under "Restricted Stock Awards" was based on the market value of such shares on the date of grant. As of December 31, 2002, the aggregate value of such shares was $2,552,500. In accordance with the terms of the going private transaction approved by ISP stockholders on February 28, 2003, Mr. Kumar will receive $2,575,000, subject to vesting restrictions, in exchange for surrendering and cancellation of these restricted shares of ISP's common stock. In addition, $33,000 of the amount shown in "All Other Compensation" reflects the value of an automobile allowance and life insurance premium reimbursement provided by ISP on Mr. Kumar's behalf in 2002.

(3)

Included in "All Other Compensation" for Mr. Weinberg are: $14,250, $12,150 and $12,150, representing ISP's contribution under its 401(k) plan in 2002, 2001 and 2000, respectively; $1,824, $1,824 and $1,938 for the premiums paid by ISP for a life insurance policy in 2001, 2001 and 2000, respectively; and $2,160, $2,160 and $2,160 for the premiums paid by ISP for a long-term disability policy in 2002, 2001 and 2000, respectively. On July 15, 1998, International Specialty Products Inc., which we refer to as Old ISP merged with and into ISP, then known as ISP Holdings Inc. In connection with the merger of Old ISP into ISP Holdings, the options to purchase shares of redeemable convertible preferred stock of ISP Holdings, which we refer to as the ISP Holdings Options, including ISP Holdings Options held by Mr. Weinberg, were terminated. In consideration of the termination of the ISP Holdings Options held by Mr. Weinberg, Mr. Weinberg received, subject to his continued employment through each

18

vesting date (the last of which will occur in December 2003), options to purchase 378,056 shares of common stock under ISP's 1991 Incentive Plan for Key Employees and Directors, which we refer to as the 1991 Incentive Plan and the right to receive cash payments of $3,238,358 in the aggregate. In accordance with the terms of the going private transaction approved by the stockholders of ISP on February 28, 2003, these options have been canceled. Mr. Weinberg received $573,005, $474,132 and $523,120 of these cash payments in 2002, 2001 and 2000, respectively, which amounts are included in "All Other Compensation" for Mr. Weinberg for such years. Also included in "All Other Compensation" is $100,001, representing the market value of a stock award to Mr. Weinberg in 2001.

(4)

Included in "All Other Compensation" for Ms. Yoss are: $14,250, $12,150 and $12,150 representing ISP's contribution under its 401(k) plan in 2002, 2001 and 2000, respectively; $1,824, $1,824 and $1,881 for the premiums paid by ISP for a life insurance policy in 2002, 2001 and 2000, respectively; $2,160, $2,160 and $2,160 for the premiums paid by ISP for a long-term disability policy in 2002, 2001 and 2000, respectively. Ms. Yoss was granted 150,000 restricted shares of ISP common stock effective as of September 26, 2000. The value of these shares as set forth under "Restricted Stock Awards" was based on the market value of such shares on the date of grant. As of December 31, 2002, the aggregate value of these restricted shares was $1,531,500. In accordance with the going private transaction approved by ISP stockholders on February 28, 2003, Ms. Yoss will receive $1,545,000, subject to vesting restrictions, in exchange for the surrender and cancellation of these restricted shares of ISP's common stock.

(5)

Included in "All Other Annual Compensation" for Mr. Cope are relocation allowances of $21,717, $27,339 and $19,765 in 2002, 2001 and 2000, respectively. Included in "All Other Compensation" for Mr. Cope are: $14,500, $12,400 and 12,400 representing ISP's contribution under its 401(k) plan in 2002, 2001 and 2000, respectively; $6,043, $5,789 and $5,808 for the premiums paid by ISP for a life insurance policy in 2002, 2001 and 2000, respectively; and $2,008, $2,160 and $1,851 for the premiums paid by ISP for a long-term disability policy in 2002, 2001 and 2000, respectively.

(6)

Included in "All Other Annual Compensation" for Mr. Olsen are relocation allowances of $7,746, $70,126 and $5,000 in 2002, 2001 and 2000, respectively. Included in "All Other Compensation" for Mr. Olsen are $14,250, $12,000 and $12,000, representing ISP's contribution under ISP's 401(k) plan in 2002, 2001 and 2000, respectively; $1,574, $931 and $850 for the premiums paid by ISP for a life insurance policy in 2002, 2001 and 2000, respectively; and $1,873, $1,780 and $1,519 for the premiums paid by ISP for a long-term disability policy in 2002, 2001 and 2000, respectively. Mr. Olsen was granted 80,000 shares of restricted common stock effective as of October 2, 2000 and an additional grant of 20,000 shares of restricted common stock effective as of December 31, 2001. The value of these shares as set forth under "Restricted Stock Awards" was based on the market value of such shares on the date of each grant. As of December 31, 2002, the aggregate value of these shares was $1,021,000. In accordance with the going private transaction approved by ISP stockholders on February 28, 2003, Mr. Olsen will receive $1,030,000, subject to vesting restrictions, in exchange for the surrender and cancellation of these restricted shares of ISP's common stock.

Options and Stock Appreciation Rights

        The following table summarizes information with respect to the value of exercised and unexercised options to acquire shares of ISP common stock held by the executive officers named in the Summary Compensation Table above at December 31, 2002. No stock options were granted to these executive officers during 2002.

Aggregated Option Exercises in 2002 and Value of ISP Common Stock Options at December 31, 2002(1)

(1)

All stock options represent options to purchase shares of ISP common stock and were granted under the 1991 Incentive Plan. The 1991 Incentive Plan provided that the vesting of options will be accelerated automatically if at

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any time following an event of change of control in ISP, ISP terminates without cause the optionee's employment, the optionee's employment is terminated as a result of death or permanent disability or the optionee terminates employment for good reason. The 1991 Incentive Plan expired in June 2000 in accordance with its terms. In accordance with the terms of the going private transaction approved by the stockholders of ISP on February 28, 2003, these options have been canceled.

(2)

Options for 100,000, 95,140, 55,605, 0 and 37,700 shares of ISP's common stock were in-the-money for Messrs. Kumar, Weinberg, Cope, Olsen and Ms. Yoss, respectively, at December 31, 2002.

(3)

The value realized reflects the difference between the market value of the shares underlying the options exercised on the date of exercise and the exercise price of such options.

Long-Term Incentive Plan

        The following table sets forth information on awards granted to the executive officers named in the Summary Compensation Table above during 2002 under ISP's 2000 Long-Term Incentive Plan, which we refer to as the ISP 2000 LTI Plan".

Long-Term Incentive Plan—Awards in 2002

(1)

ISP's 2000 LTI Plan provides long-term compensation to employees and key management personnel based on ISP's "Book Value" (as defined). The number of incentive units granted is determined by the Compensation Committee of ISP's Board of Directors in its sole discretion, subject to a maximum number of incentive units that may be received by any eligible employee in any calendar year.

(2)

Generally, incentive units vest cumulatively in twenty percent (20%) increments on each anniversary of the date such incentive units were granted to the employee or received in exchange for stock options. The Compensation Committee, in its sole discretion, may grant incentive units with any vesting schedule other than that normally provided in the 2000 LTI Plan. Messrs. Kumar and Weinberg each received incentive units with accelerated vesting schedules. Vesting will end upon the termination of an employee's employment with ISP or any of its subsidiaries for any reason. Incentive units generally are exercisable for a period of six years from the date of grant. In the event of a change in control in ISP all incentive units will become fully and immediately vested and payable in cash.

(3)

Set forth under the "Threshold" column is the "Initial Value" (as defined) per unit at which the respective incentive units were granted. The value of an incentive unit as of any "Valuation Date" (as defined) generally is equal to ISP's total stockholders' equity (adjusted to exclude accumulated comprehensive income and losses and goodwill impairment losses), divided by the total number of outstanding shares of ISP common stock as determined on such Valuation Date. A "Valuation Date" is the last business day of each fiscal quarter of ISP. The Compensation Committee, in its sole discretion, may grant incentive units with an Initial Value (i.e., the value of an Incentive unit on the date of grant) that is less than the Initial Value of such incentive units as normally determined under the 2000 LTI Plan. Messrs. Kumar, Weinberg and Cope each were granted incentive units with a lower Initial Value.

(4)

Upon exercise of an incentive unit, a participant will receive in cash, the excess, if any, of the value of such incentive unit as of the Valuation Date on or, in the event of an exercise between Valuation Dates, immediately preceding the

20

exercise date (the "Final Value"), over the Initial Value of such incentive unit (subject to all appropriate withholdings). Accordingly, the dollar value of future payouts is not readily ascertainable.

(5)

Messrs. Kumar and Weinberg each received a grant of 75,000 and 50,000 incentive units, respectively, with Initial Values of $0.00 on December 31, 2002. These incentive units vest in 10% increments every six months following the date of each grant.

(6)

Mr. Cope received a grant of 3,000 incentive units with an Initial Value of $5.65 on September 30, 2002. These incentive units vest in 20% increments every anniversary following the date of each grant.

Compensation of Directors

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

Compensation Committee Interlocks and Insider Participations

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

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

        As of March 27, 2003, 100% of our outstanding shares of common stock were owned of record by ISP.

        The following table sets forth information with respect to the ownership of our common stock, as of March 27, 2003, by each other person known to us to own beneficially more than 5% of either class of the common stock outstanding on that date and by all of our directors and executive officers as a group.

(1)

The business address for Mr. Heyman is 1361 Alps Road, Wayne, New Jersey 07470.

(2)

The number of shares shown as being beneficially owned (as defined in Rule 13d-3 of the Exchange Act) by Mr. Heyman attributes ownership of the shares of our common stock owned by ISP. As of March 27, 2003, Mr. Heyman beneficially owned (as defined in Rule 13d-3 of the Exchange Act) approximately 100% of the capital stock of ISP.

Item 13. Certain Relationships and Related Transactions

Management Agreement

        Pursuant to a management agreement, we provide, through a subsidiary, certain general management, administrative, legal, telecommunications, information and facilities services to BMCA, our affiliate and to ISP. Charges by us for providing such services aggregated $6.2 million in 2002. The management agreement charges consist of management fees and other reimbursable expenses attributable to, or incurred by us for the benefit of BMCA and are based on an estimate of the costs we incur to provide those services. We and BMCA also allocate a portion of the management fees payable by BMCA under the management agreement to separate lease payments for the use of

21

BMCA's headquarters. The management agreement is expected to be amended to extend the term of the agreement, effective January 1, 2003, through December 31, 2003. Based on the services provided by us in 2002 under the management agreement, the aggregate amount payable to us under the management agreement for 2003 is expected to be approximately $6.4 million.

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

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

Tax Sharing Agreement

        ISP and certain of its subsidiaries were parties to tax sharing agreements with members of the consolidated tax group for federal income tax purposes that included G-I Holdings (the "G-I Holdings Group"), in certain prior years and, accordingly, would be severally liable for any tax liability of the G-I Holdings Group in respect of those prior years. Until January 1, 1997, ISP and certain of its subsidiaries were members of the G-I Holdings Group. Therefore, such tax sharing agreements are no longer applicable with respect to the tax liabilities of ISP for periods subsequent to January 1, 1997. ISP and certain of its subsidiaries remain obligated, however, with respect to tax liabilities imposed or that may be imposed for periods prior to such date.

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

Sales to Affiliates

        BMCA and its subsidiaries purchase from us all of their colored roofing granules requirements under a requirements contract, except for the requirements of certain of their roofing plants that are supplied by third parties. We continue to operate under the terms of this contract, pending negotiation and execution of a new requirements contract with BMCA and its subsidiaries. In 2002, BMCA and its subsidiaries purchased a total of $73.2 million of mineral products from us, representing 8.7% of our total net sales and 77% of our net sales of mineral products. Our supply arrangements with BMCA and its subsidiaries are at prices and on terms that we believe are no less favorable to it than could be obtained from an unaffiliated third party.

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Certain Other Transactions

        In connection with becoming President and Chief Executive Officer of ISP in June 1999, Mr. Kumar was granted the right to purchase, and did purchase, 318,599 shares of ISP common stock for an aggregate purchase price of $3,046,762. Under the purchase agreement, ISP loaned to Mr. Kumar the funds to purchase the shares, which loan was evidenced by a recourse promissory note in the principal amount of $3,046,762. The loan was converted to a demand note and bears interest at the lowest applicable federal rate for short-term instruments. The principal amount of the loan is payable, unless ISP has previously declared the loan to be due and payable, in four installments on each June 11 of the years 2001, 2002 and 2003 and on January 11, 2004, the first three of which are in the amount of $761,691 each and the last of which is for the balance of the then outstanding principal amount. If, however, Mr. Kumar remains continuously employed by ISP or any of its subsidiaries through each installment payment date, the principal amount due on such installment payment date will be forgiven. In addition, upon the occurrence of certain events, including a change of control of ISP, the principal amount of the loan then outstanding shall be immediately forgiven. If Mr. Kumar's employment with ISP is otherwise terminated for any reason whatsoever, the entire principal balance outstanding, together with all interest accrued, will be immediately due and payable at ISP's election.

        In January 2001, July 2001, January 2002 and July 2002, we made loans to Ms. Yoss in the principal amounts of $44,282, $78,855, $71,349 and $57,461, respectively, to enable her to satisfy certain withholding tax obligations in connection with her award of 150,000 shares of restricted common stock of ISP, 18,750 shares of which vested on each of January 1, 2001, July 1, 2001, January 1, 2002, July 1, 2002 and January 1, 2003. The remaining shares were to vest in 12.5% increments every six months thereafter until full vesting on July 1, 2004, subject to specified terms and conditions. Each loan bears interest at the lowest applicable federal rate, as it may be adjusted from time to time. Each loan is due and payable in full, together with accrued interest, on demand and, in any event, not later than April 15, 2003. In accordance with ISP's going private transaction completed on February 28, 2003, the remaining unvested shares were cancelled in exchange for the right to receive cash payments in accordance with the remaining vesting schedule.

        ISP Investco invests primarily in international and domestic securities of companies involved in acquisition or reorganization transactions. ISP Investco generally makes these investments at the same time and price that certain investment partnerships controlled by Mr. Heyman and his family are making similar investments. Management of this investment activity is provided by personnel of the Heyman investment partnerships, including Mr. Heyman, assisted by certain of our personnel, at no cost or charge to either party.

        As a result of a going private transaction that was completed on February 28, 2003, ISP's common stock is no longer publicly traded and Mr. Heyman is now the beneficial owner (as defined in Rule 13d-3 under the Exchange Act) of 100% of ISP's common stock and our common stock. Following the completion of the going private transaction, ISP's common stock has been delisted from the New York Stock Exchange and its registration with the Securities and Exchange Commission has been terminated.

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Item 14. Controls and Procedures

        Our Chief Executive Officer and Chief Financial Officer are responsible for the design, maintenance and effectiveness of disclosure controls and procedures (as defined in Rules 13a-14(c) and 15d-14(c) of the Securities Exchange Act of 1934).

        We have formed a Disclosure Controls Committee to review and revise as required, our disclosure controls and procedures. Such controls and procedures include quarterly meetings of executives and controllers throughout IS Holdings to ensure that information required to be disclosed by us in the periodic reports we file or submit under the Exchange Act is accurate and to allow timely decisions to be made regarding such disclosure. The effectiveness of the disclosure controls and procedures have been evaluated by the Chief Executive Officer and Chief Financial Officer within 90 days of the filing date of this report. Based on this evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that the disclosure controls and procedures are adequate and effective.

        There have been no significant changes in internal controls or in other factors that could significantly affect these internal controls subsequent to the date of the evaluation in connection with the preparation of this Annual Report on Form 10-K.

PART IV

Item 15. Exhibits, Financial Statement Schedules and Reports on Form 8-K

        The following documents are filed as part of this report:

(a)

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



(a)

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



(a)

(3) Exhibits:

24

25

*-

filed herewith

(b)

Reports on Form 8-K

No reports on Form 8-K were filed in the fourth quarter of 2002.

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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.

Date: March 27, 2003

        Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below on March 27, 2003, by the following persons on behalf of the registrant and in the capacities indicated.

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CERTIFICATION

I, Sunil Kumar, certify that:

1.

I have reviewed this Annual Report on Form 10-K of International Specialty Holdings Inc.;

2.

Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;

3.

Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report;

4.

The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

a)

designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;

b)

evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the "Evaluation Date"); and

c)

presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

5.

The registrant's other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent function):

a)

all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and

b)

any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and

6.

The registrant's other certifying officer and I have indicated in this annual report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

Date: March 27, 2003

28

CERTIFICATION

I, Neal E. Murphy, certify that:

1.

I have reviewed this Annual Report on Form 10-K of International Specialty Holdings Inc.;

2.

Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;

3.

Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report;

4.

The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

a)

designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;

b)

evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the "Evaluation Date"); and

c)

presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

5.

The registrant's other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent function):

a)

all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and

b)

any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and

6.

The registrant's other certifying officer and I have indicated in this annual report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

Date: March 27, 2003

29

INTERNATIONAL SPECIALTY HOLDINGS INC.

FORM 10-K

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

F-1

INTERNATIONAL SPECIALTY HOLDINGS INC.

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

        International Specialty Holdings Inc., a wholly owned subsidiary of International Specialty Products Inc., which we refer to as "ISP", was formed on June 5, 2001 in connection with a corporate restructuring (see Note 1 to consolidated financial statements). The consolidated financial statements included elsewhere in this Annual Report on Form 10-K have been prepared on a basis that retroactively reflects our formation for all periods presented. The net income presented up to the date that we were formed has been reflected as dividends and/or distributions to ISP. Unless otherwise indicated by the context, "we," "us" and "our" refer to International Specialty Holdings 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. We believe the following critical accounting policies are the most important to the portrayal of our financial condition and results of operations and require our management's more significant judgments and estimates in the preparation of our consolidated financial statements.

Allowance for Doubtful Accounts

        We maintain allowances for doubtful accounts for estimated losses resulting from the inability of our customers to make required payments. Management continuously assesses the financial condition of our customers and the markets in which these customers participate. If the financial condition of our customers were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required.

Inventories

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

F-2

Short-Term Investments

        Our investment strategy is to seek returns in excess of money market rates on our available cash while minimizing market risks. There can be no assurance that we will be successful in implementing such a strategy. We invest primarily in international and domestic securities of companies involved in acquisition or reorganization transactions. From time to time, we invest in securities of companies that we consider to be undervalued. With respect to our equity positions, we are exposed to the risk of market loss.

        Our short-term investments are reported at fair value. For securities classified as "trading" (including short positions), unrealized holding gains and losses are reflected in the results of operations. For securities classified as "available-for-sale," unrealized holding gains and losses, net of income tax effect, are included in a separate component of shareholder's equity, "Accumulated other comprehensive loss." The determination of cost in computing realized and unrealized gains and losses is based on the specific identification method. We periodically review available-for-sale securities for other than temporary impairment when the cost basis of a security exceeds the market value. Declines in the value of these investments or adverse changes in market conditions could result in impairment charges in the future.

Goodwill and Other Intangible Assets

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

Environmental Liability

        We accrue environmental costs when it is probable that we have incurred a liability and the expected amount can be reasonably estimated. The amount accrued reflects our assumptions about remedial requirements at the contaminated site, the nature of the remedy, the outcome of discussions with regulatory agencies and other potential responsible parties at multi-party sites, and the number and financial viability of other potentially responsible parties. Adverse decisions or events, particularly as to increases in remedial costs, discovery of new contamination, assertion of natural resource damages, plans for development of our Linden, New Jersey property, and the liability and the financial responsibility of our insurers and of the other parties involved at each site and their insurers, could cause us to increase our estimate of liability in respect of those matters. It is not currently possible to estimate the amount or range of any additional liability.

Pension and Other Postemployment Benefits

        We maintain defined benefit plans that provide eligible employees with retirement benefits. In addition, while we generally do not provide postretirement medical and life insurance benefits, we

F-3

subsidize such benefits for certain employees and certain retirees. The costs and obligations related to these benefits reflect our assumptions related to general economic conditions (particularly interest rates), expected return on plan assets, and rate of compensation increases for employees. Projected health care benefits additionally reflect our assumptions about health care cost trends. The cost of providing plan benefits also depends on demographic assumptions including retirements, mortality, turnover, and plan participation. If actual experience differs from these assumptions, the cost of providing these benefits could increase or decrease.

Results of Operations

2002 Compared With 2001

        We recorded a net loss of $104.7 million in 2002 compared with net income of $3.3 million in 2001. In accordance with the adoption of Statement of Financial Accounting Standards No. 142, "Goodwill and Other Intangible Assets," we completed a transitional test for impairment of goodwill and, accordingly, recorded a $155.4 million charge, effective January 1, 2002, for the cumulative effect of a change in accounting principle. The write-off represents the goodwill associated with the reporting units included in 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.

        Year 2002 results also include an after-tax extraordinary charge of $4.7 million on the early retirement of debt. The results for 2001 included an after-tax charge of $0.4 million for the cumulative effect of adopting SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities." Results for 2001 also included $16.5 million of goodwill amortization, prior to the adoption of SFAS No. 142. Excluding the charges referred to above and the goodwill amortization in 2001, "income before extraordinary item and cumulative effect of change in accounting principle" in 2002 was $55.4 million compared with $20.2 million in 2001. The improved results in 2002 were attributable to investment income of $48.1 million compared with $2.5 million of investment losses in 2001, $5.4 million of other operating gains and charges, net, in 2002, $4.0 million lower interest expense, and $9.2 million lower other expense, net.

        Net sales for 2002 were $845.3 million compared with $787.2 million in 2001. The $58.1 million (7%) increase in sales resulted primarily from the contribution to sales from the biocides business ($31.4 million), which was acquired on December 31, 2001, and higher unit volumes in the mineral products, pharmaceutical, personal care and industrial businesses (totaling $46.9 million). The weaker U.S. dollar in Europe also had a favorable impact ($9.5 million) on net sales. Partially offsetting these sales gains was lower pricing in the industrial, fine chemicals and personal care businesses (totaling $26.3 million) and lower volumes in the fine chemicals business ($4.4 million). On a geographic region basis, sales increased by 10% in North America, 5% in Europe, 8% in Latin America and 3% in Asia-Pacific.

        Gross margins in 2002 declined to 34.8% from 36.4% in 2001. The reduction in gross margins resulted primarily from the lower pricing in the industrial, fine chemicals and personal care businesses and from unfavorable results in the fine chemicals business due to the Polaroid bankruptcy in the fourth quarter of 2001. See "—Liquidity and Financial Condition" for more information about the implications of the Polaroid bankruptcy.

        Operating income in 2002 was $127.6 million compared with $113.2 million in 2001. Operating income in 2002 included $5.4 million of other operating gains and charges, net, while operating income

F-4

in 2001 reflected an other operating gain of $1.6 million from an insurance claim and a $0.5 million gain from the reversal of excess restructuring reserves established in 2000. The $5.4 million of other operating gains and charges, net, in 2002 was comprised of a gain of $5.5 million from the sale of the FineTech business, $6.8 million of gains from the termination and settlement of contracts and $0.7 million from an insurance claim, partially offset by a $7.6 million write-off of deferred costs related to our Linden, New Jersey property. The write-off relates to deferred costs associated with the study and exploration of developing a hazardous waste treatment, storage and disposal facility at the Linden site. This alternative use scenario has become less likely with the progress made on other development opportunities at this site. See also Note 6 to consolidated financial statements.

        Excluding the other operating gains and charges, net, and $16.5 million of goodwill amortization in 2001, operating income on a comparable basis was $122.2 million in 2002, a $5.5 million (4%) decrease versus $127.7 million in 2001. The lower comparable operating results were primarily attributable to lower pricing in the industrial and personal care businesses (totaling $22.4 million), unfavorable volumes, pricing and mix in the fine chemicals business ($19.0 million) and higher manufacturing costs in the personal care business ($5.5 million). Partially offsetting these adverse factors was the contribution to income from the biocides business and the impact of higher volumes in the pharmaceutical, personal care and mineral products businesses (totaling $20.0 million) and favorable manufacturing efficiencies in the fine chemicals, performance chemicals, mineral products and industrial businesses (totaling $14.0 million). The weaker U.S. dollar in Europe also had a positive impact on operating income in 2002 ($8.2 million).

        Selling, general and administrative expenses increased 8% in 2002 to $170.9 million from $158.1 million in 2001, however, as a percent of sales, remained almost level at 20.2% in 2002 versus 20.1% in 2001. The increase in selling, general and administrative expenses in 2002 related primarily to the newly acquired biocides business, in addition to higher selling and distribution costs as a result of the higher sales levels.

        Interest expense for 2002 was $84.9 million, a $4.0 million (4.5%) decrease from the $88.9 million recorded in 2001. The lower interest expense was attributable to lower average borrowings ($6.6 million impact), partially offset by higher average interest rates ($2.6 million impact).

        Investment income in 2002 was $48.1 million compared with investment losses of $2.5 million in 2001. Investment results for 2002 and 2001 reflect $39.0 and $27.6 million, respectively, of other than temporary impairment charges for certain available-for-sale securities held in our investment portfolio.

        Other expense, net, comprises foreign exchange gains/losses resulting from the revaluation of foreign currency-denominated accounts receivable and payable as a result of changes in exchange rates, and other nonoperating items of expense. Other expense, net, was $6.9 million in 2002 compared with $16.1 million in 2001. The lower expense in 2002 was due primarily to favorable foreign exchange as a result of the weaker U.S. dollar, mainly in Europe.

Business Segment Review

        A discussion of the operating results for each of our business segments follows. We operate our specialty chemicals business through three reportable business segments, in addition to the mineral products segment. See Notes 18 and 19 to consolidated financial statements for additional business

F-5

segment and geographic information. Each business segment was favorably impacted in 2002 by the absence of goodwill amortization. Goodwill amortization in 2001 by business segment was as follows:

Personal Care

        Sales for the personal care business segment in 2002 were $206.2 million compared with $196.4 million in 2001. The 5% increase in sales resulted from higher volumes in both skin care and hair care products ($11.4 million), partially offset by lower pricing ($4.1 million). Sales were also favorably impacted by the weaker U.S. dollar in Europe ($2.5 million). The volume increase resulted from strong growth in the skin care preservative/waterproofing market. The volume growth in hair care products was driven by strong sales in the styling gel/lotion market. The increased sales in 2002 occurred primarily in North America and Europe.

        Operating income was $35.3 million in 2002 versus $34.4 million in 2001. The $0.9 million increase reflected the favorable impact of the higher volumes ($5.4 million) and the weaker U.S. dollar in Europe ($2.2 million) as well as the elimination of goodwill amortization ($4.9 million). These favorable factors were largely offset by lower pricing ($4.1 million), unfavorable manufacturing and inventory costs ($5.5 million) and higher operating expenses ($2.1 million).

Pharmaceutical, Food and Beverage

        Sales for the pharmaceutical, food and beverage business segment were $240.9 million, a $13.9 million (6%) increase over 2001 sales of $227.0 million. The sales growth was due to $14.3 million higher sales in the pharmaceutical business resulting from higher volumes ($12.0 million) and the favorable effect of the U.S. dollar in Europe ($2.0 million). The favorable volumes reflected strong growth in the excipients market (Plasdones for tablet binders and Polyplasdones for tablet disintegrants) and the oral care market. Beverage sales increased by $0.7 million (2%) in 2002 due to the favorable foreign exchange effect and higher volumes. Sales of food products declined $1.1 million (3.5%) due to lower pricing and volumes.

        Operating income increased $7.5 million (15%) to $57.4 million in 2002 from $49.9 million in 2001. The favorable effects of higher pharmaceutical volumes ($6.0 million), the weaker U.S. dollar in Europe ($2.6 million), the absence of goodwill amortization ($4.1 million) and favorable manufacturing efficiencies in the food business ($2.2 million) contributed to the increased operating income. Partially offsetting these factors was unfavorable pricing and mix ($3.2 million) and higher operating expenses ($4.8 million).

Performance Chemicals, Fine Chemicals and Industrial

        Sales for the performance chemicals, fine chemicals and industrial business segment were $303.1 million in 2002 compared with $283.1 million in 2001. The $20.0 million (7%) increase in 2002 includes the contribution to sales from the biocides business ($31.4 million) acquired at the end of

F-6

2001. Excluding the sales from the biocides business, sales in 2002 decreased by $11.4 million (4%), primarily reflecting $8.3 million (18%) lower fine chemicals sales.

        Operating income for this business segment was $21.1 million in 2002 compared with $17.2 million in 2001. Excluding the contribution to income from the biocides business in 2002 and other operating gains (see discussion above) of $12.9 and $1.7 million in 2002 and 2001, respectively, operating income for the segment on a comparable basis was $2.9 million in 2002 compared with $15.5 million in 2001.

        Sales for the performance chemicals business, excluding the biocides business, increased by $1.3 million (1.5%) in 2002. The higher sales were due to the favorable effect of the weaker U.S. dollar in Europe ($1.0 million) and higher volumes ($0.3 million). Operating income for the performance chemicals business increased by $3.1 million, reflecting favorable manufacturing efficiencies ($3.7 million), due to lower raw material costs, and the absence of goodwill amortization ($1.3 million), partially offset by higher operating expenses ($2.3 million).

        Sales for the fine chemicals business declined by $8.3 million (18%) in 2002 principally due to lower volumes related to the loss of contract sales to Polaroid as a result of Polaroid's bankruptcy. Higher volumes ($10.9 million) of bulk pharmaceuticals and pharmaceutical intermediates partially offset the loss of Polaroid sales. Sales of fine chemicals were also adversely impacted by lower pricing ($3.9 million). The operating results for the fine chemicals business, excluding $12.2 million of the other operating gains, net, previously discussed, decreased by $11.3 million in 2002, reflecting the impact of lower volumes ($7.3 million) and unfavorable pricing and mix ($11.7 million), partially offset by favorable manufacturing efficiencies ($5.4 million), lower operating expenses ($1.8 million) and the absence of goodwill amortization ($0.4 million).

        Sales for the industrial business decreased by $4.4 million (3%) in 2002 as a result of unfavorable pricing ($18.3 million), partially offset by higher volumes ($10.8 million) and the favorable effect of the weaker U.S. dollar in Europe ($3.1 million). Average market selling prices of butanediol decreased in 2002 compared with 2001 levels due to weakening demand and due to new capacity coming on stream in Europe. Operating income for the industrial business declined by $5.5 million (48%) in 2002 as a result of the lower pricing, partially offset by favorable manufacturing efficiencies ($1.8 million) due to lower raw material and energy costs, the favorable effect of the weaker U.S. dollar ($2.6 million), the absence of goodwill amortization ($2.8 million) and lower operating expenses.

Mineral Products

        Sales for the mineral products business segment were $95.1 million in 2002, a $14.5 million (18%) increase compared with sales of $80.7 million in 2001, while operating income increased by $10.2 million in 2002 to $20.9 million compared with $10.7 million in 2001. Sales to Building Materials Corporation of America, an affiliate, increased by $9.8 million (15%), while third party sales increased by $4.7 million (27%). The sales growth was predominantly due to higher volumes ($13.1 million) as a result of increased demand for roofing granules for laminate shingles and an increase in overall market demand. The higher operating income reflected the impact of the increased volumes ($3.3 million), favorable manufacturing efficiencies ($3.1 million) due to favorable fuel pricing and the absence of goodwill amortization ($3.1 million).

F-7

Results of Operations

2001 Compared With 2000

        We recorded net income in 2001 of $3.3 million compared with $84.4 million in 2000. The lower results were attributable to investment losses of $2.5 million in 2001 compared with investment income of $144.4 million in 2000, as well as $4.7 million in higher interest expense, partially offset by $30.9 million of improved operating income. The results for 2001 included an after-tax charge of $0.4 million for the cumulative effect of adopting Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities." Also included in the results for 2001 are a $1.6 million other operating gain on an insurance claim and a $0.5 million reversal of excess restructuring reserves established in 2000.

        The results for 2000 included a $14.4 million provision for restructuring and $6.1 million in other nonoperating gains from contract and insurance settlements. Excluding the effect of such items in each year, net income for 2001 was $2.4 million compared with net income of $89.8 million in 2000.

        Sales for 2001 were $787.2 million compared with $783.9 million in 2000. The increase in sales resulted from higher volumes in the pharmaceutical and beverage, personal care, and mineral products businesses (totaling $33.5 million) and improved pricing and mix in the industrial business ($22.4 million), offset by lower volumes in the industrial, alginates and fine chemicals businesses (totaling $45.3 million) and by the adverse effect of the stronger U.S. dollar ($10.8 million), primarily in Europe.

        Operating income for the year 2001 was $113.2 million compared with $82.3 million in 2000. Excluding nonrecurring items in each year, as discussed above, operating income on a comparable basis for 2001 was $111.2 million, a 15% increase compared with $96.7 million in 2000. The improvement in operating income resulted primarily from higher volumes and favorable manufacturing costs in the pharmaceutical and beverage and the fine chemicals businesses (totaling $21.7 million), and improved pricing and favorable manufacturing costs in the industrial and mineral products businesses (totaling $41.0 million). These gains were partially offset by the impact of lower volumes in the industrial, alginates and performance chemicals businesses (totaling $14.1 million), unfavorable manufacturing costs in the alginates and performance chemicals businesses (totaling $9.8 million) and by the adverse effect of the stronger U.S. dollar ($6.2 million), primarily in Europe. Operating income in 2001 increased in Europe, Asia-Pacific and Latin America. Excluding the nonrecurring items in each year, operating income decreased in the U.S. by $10.3 million in 2001.

        Interest expense for 2001 was $88.9 million, a $4.7 million (6%) increase over the $84.3 million recorded in 2000, with the increase due to higher average borrowings, primarily reflecting the debt financing transactions discussed below in "Liquidity and Financial Condition," partially offset by the impact of lower average interest rates ($2.9 million).

        Investment losses in 2001 were $2.5 million, which included a $27.6 million write-down to fair market value of certain available-for-sale securities which were sold shortly after the balance sheet date. Investment income in 2000 was $144.4 million and included net gains of $123.5 million from the sale of our investments in Dexter Corporation and Life Technologies, Inc. (see Note 5 to consolidated financial statements).

F-8

        Other expense, net, comprises foreign exchange gains/losses resulting from the revaluation of foreign currency-denominated accounts receivable and payable as a result of changes in exchange rates, and other nonoperating items of income and expense. Other expense, net, was $16.1 million in 2001 compared with $18.4 million in 2000. Other expense in 2000 reflected a $2.2 million write-off of receivables from G-I Holdings Inc., a former indirect parent company, which filed a voluntary petition in January 2001 for reorganization under Chapter 11 of the U.S. Bankruptcy Code (see Note 20 to consolidated financial statements).

Business Segment Review

        A discussion of the operating results for each of our business segments follows. We operate our specialty chemicals business through three reportable business segments, in addition to the mineral products segment. See Notes 18 and 19 to consolidated financial statements for additional business segment and geographic information. Net sales and operating income for the years 2000 and 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 2002, the sales and operating income of the alginates business represented the food business of the pharmaceutical, food and beverage business segment.

Personal Care

        Sales for the personal care business segment in 2001 were $196.4 million compared with $189.2 million in 2000, while operating income in 2001 was $34.0 million compared with $33.2 million in 2000. The 4% increase in sales resulted primarily from higher volumes ($8.6 million), mainly in the North American and European hair care markets, reflecting strong mass market sales of hair gels and styling aids, and, to a lesser extent, favorable pricing and mix ($1.9 million). These sales gains were partially offset by lower volumes in the North American skin care market ($3.7 million), reflecting increased competition in the sunscreen and preservative markets, and were also impacted by the adverse effect of the stronger U.S. dollar ($3.3 million), primarily in Europe.

        The increase in operating income in 2001 was attributable to the favorable volumes and pricing and to favorable manufacturing costs (totaling $9.4 million), offset by an unfavorable mix and higher operating expenses (totaling $6.0 million) and the unfavorable effect of the stronger U.S. dollar ($2.3 million), primarily in Europe.

Pharmaceutical, Food and Beverage

        Sales for the pharmaceutical, food and beverage segment were $227.0 million in 2001 compared with $223.3 million in 2000. Sales for the pharmaceutical and beverage business increased by $14.8 million (9%), reflecting volume growth ($14.7 million) across all regions and, to a lesser extent, favorable pricing and mix ($3.0 million), partially offset by the impact of the stronger U.S. dollar ($2.9 million). The sales growth in pharmaceutical and beverage was primarily the result of strong sales in the excipients and beverage markets, partially offset by lower sales in the oral care market. Sales for the alginates food business decreased in 2001 by $11.1 million due to lower volumes ($9.9 million) and unfavorable pricing and mix ($1.2 million) across all regions due to competitive pressures.

F-9

        Operating income for the pharmaceutical, food and beverage segment was $49.9 million in 2001 compared with $47.8 million in 2000. Operating income for the pharmaceutical and beverage business increased 37% in 2001 due to the higher volumes and pricing and to lower manufacturing costs which reflected cost savings from lower natural gas prices. Partially offsetting these improvements was the adverse impact of the stronger U.S. dollar ($2.2 million), primarily in Europe. Operating results for the alginates food business decreased by $11.4 million from 2000, resulting from the lower unit volumes, unfavorable manufacturing costs related to lower production volumes and the impact of unfavorable pricing.

Performance Chemicals, Fine Chemicals and Industrial

        Sales for the performance chemicals, fine chemicals and industrial segment were $283.1 million for 2001, a decrease of $16.4 million (5%) compared with $299.5 million in 2000, while operating income increased by $12.5 million to $17.1 million in 2001 compared with $4.6 million in 2000. Although all three businesses experienced sales declines in 2001, the decrease in sales was principally attributable to 8% lower industrial sales.

        Sales for the performance chemicals business decreased by $2.5 million (3%) in 2001. The decline in sales resulted from lower volumes ($2.2 million) and the adverse impact of the stronger U.S. dollar in Europe ($1.4 million), offset by favorable pricing and mix ($1.1 million). Operating results for the performance chemicals business decreased by $9.6 million in 2001 due mainly to an unfavorable product mix and higher manufacturing costs and, to a lesser extent, the impact of the lower volumes and the stronger U.S. dollar ($2.5 million).

        Sales for the fine chemicals business decreased by $0.7 million (1.5%) in 2001, while operating income increased by $4.4 million. The lower sales reflected lower volumes related to contract sales to Polaroid, offset by sales of $2.2 million from the FineTech business, which was acquired in the second quarter of 2001 (see Notes 6 and 10 to consolidated financial statements), and by volume increases from other fine chemicals products ($3.5 million). The higher operating income for fine chemicals in 2001 resulted from a significantly improved gross margin due to favorable manufacturing costs, and the favorable impact of the FineTech acquisition, partially offset by increased operating expense ($3.2 million). The gross margin in 2000 for fine chemicals was adversely impacted by higher energy costs and lower plant utilization.

        Sales for the industrial business decreased by $13.3 million (8%) in 2001, with the decrease resulting from lower volumes ($32.5 million) and the adverse impact of the stronger U.S. dollar in Europe ($3.1 million), partially offset by improved pricing and mix ($22.4 million). Operating income for the industrial business improved by $17.7 million in 2001, resulting from the improved pricing and favorable manufacturing costs, reflecting favorable methanol and raw material pricing, partially offset by the impact of unfavorable volumes ($9.7 million) and the impact of the stronger U.S. dollar ($0.8 million).

Mineral Products

        Sales for the mineral products segment in 2001 were $80.7 million, an $8.8 million (12%) increase compared with sales of $71.9 million in 2000, while operating income increased by $1.3 million (14%) to $10.7 million in 2001. The higher sales resulted from a $4.7 million (38%) increase in third party sales and a $4.1 million (7%) increase in sales to Building Materials Corporation of America, an affiliate. The higher operating income in 2001 reflected the improved volume and favorable

F-10

manufacturing efficiencies, partially offset by higher natural gas prices and higher operating expenses ($0.7 million) due mainly to an increased provision for doubtful accounts.

Liquidity and Financial Condition

        During 2002, our net cash outflow before financing activities was $61.6 million, including $45.3 million of cash used for operations, the reinvestment of $61.9 million for capital programs and an acquisition (see Note 10 to consolidated financial statements), $27.3 million of proceeds from the sale of the FineTech business (see Note 6 to consolidated financial statements) and $18.3 million of cash generated from net sales of available-for-sale securities and other short-term investments.

        Cash from operations for 2002 reflected a $255.6 million cash outflow for net purchases of trading securities. Excluding this cash outflow, cash provided from operations for 2002 totaled $210.3 million. Cash generated from a decrease in working capital totaled $21.6 million in 2002, reflecting a $15.2 million decrease in inventories, a $5.3 million decrease in accounts receivable and a $2.3 million net increase in payables and accrued liabilities. The lower inventories resulted from our inventory reduction program that was largely completed in the first half of 2002, while the lower receivables were primarily attributable to a settlement of receivables related to the Polaroid bankruptcy.

        In December 2001, we entered into a letter agreement to sell our pharmaceutical fine chemicals business to Pharmaceutical Resources Incorporated, which we refer to as "PRI," including our Haifa, Israel-based FineTech, Ltd. research facility 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 6 to consolidated financial statements). Following negotiations with PRI, in April 2002, we sold the Haifa-based research facility and intellectual property to PRI for $32 million, resulting in an additional second quarter pre-tax gain, after expenses, of $5.5 million related to this sale. The net cash proceeds from the sale of the FineTech business totaled $27.3 million.

        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.

        Net cash provided by financing activities in 2002 totaled $17.1 million, primarily reflecting a $125.7 million increase in short-term borrowings, partially offset by a $95.3 million paydown of borrowings under our revolving credit facility and a $4.6 million call premium on the redemption of debt. On January 14, 2002, ISP redeemed the remaining $307.9 million aggregate principal amount of its 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 discussed below. In addition, financing activities included $17.3 million of distributions to ISP, primarily to pay for fees and expenses related to the debt financing transactions in 2001 that are discussed below. These distributions were offset by an $11.7 million capital contribution from ISP.

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        As a result of the foregoing factors, cash and cash equivalents decreased by $42.8 million during 2002 to $35.1 million. In addition, the consolidated balance sheet reflects $528.3 million of trading and available-for-sale securities at December 31, 2002.

        As of December 31 2002, our current maturities of long-term debt, scheduled to be repaid during 2003, totaled $2.7 million, including $2.3 million related to the term loan under the Senior Credit Facilities.

        During 2001, ISP Chemco Inc., which we refer to as "ISP Chemco," one of our direct, wholly owned subsidiaries, and three of its wholly owned subsidiaries jointly issued, in three separate transactions, a total of $405 million aggregate principal amount of 10¹/4% Senior Subordinated Notes due 2011, which we refer to as the "2011 Notes." The net proceeds from the issuances of the 2011 Notes were used to retire ISP's 9³/4% Senior Notes due 2002 and the 2003 Notes. The 2011 Notes are guaranteed by substantially all of ISP Chemco's domestic subsidiaries. The 2011 Notes were issued under an indenture which, among other things, places limitations on the ability of ISP Chemco and its subsidiaries, except its accounts receivable subsidiary and certain immaterial subsidiaries, to incur additional debt, issue preferred stock, incur liens, and pay dividends or make certain other restricted payments and restricted investments.

        In June 2001, in a related transaction, ISP Chemco and those same three subsidiaries which issued the 2011 Notes also entered into $450.0 million of new senior secured credit facilities, which we refer to as the "Senior Credit Facilities," the initial borrowings under which were used to repay amounts outstanding under our previous credit facility. The Senior Credit Facilities are comprised of a $225.0 million term loan with a maturity of seven years and a $225.0 million revolving credit facility which will terminate in five years. The revolving credit facility includes a borrowing capacity not in excess of $50.0 million for letters of credit. As of December 31, 2002, no borrowings and $9.4 million of letters of credit were outstanding under the revolving credit facility. All borrowings under the Senior Credit Facilities are based on either an alternate base rate (based on the banks' base rate or on the federal funds rate) or on the Eurodollar rate plus a margin based on the ratio of ISP Chemco's total consolidated debt to EBITDA (as defined in the Senior Credit Facilities). The average interest rate at December 31, 2002 on borrowings under the Senior Credit Facilities was 4.7%. 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. In addition, the Senior Credit Facilities limit the ability of ISP Chemco and its subsidiaries, except its accounts receivable subsidiary and certain immaterial subsidiaries, to incur additional debt, issue preferred stock, incur liens, and pay dividends or make certain other restricted payments and restricted investments. ISP Chemco and substantially all of its domestic subsidiaries are designated as obligors under the Senior Credit Facilities. The obligations of the obligors under the Senior Credit Facilities are secured by a first-priority security interest in 100% of the capital stock of ISP Chemco's domestic subsidiaries and 66% of the capital stock of some of ISP Chemco's foreign subsidiaries, and substantially all of the real and personal property of the obligors, except for our accounts receivable subsidiary and certain immaterial subsidiaries.

        On December 13, 2001, we issued $200.0 million principal amount of 10⁵/8% Senior Secured Notes due 2009, which we refer to as the "2009 Notes." The net proceeds from this issuance were approximately $194.3 million of which $125.7 million was placed in a restricted cash escrow account and used to redeem the remaining 2003 Notes on January 14, 2002. The 2009 Notes are secured by a first priority lien on all of the outstanding capital stock of ISP Chemco. The 2009 Notes are structurally

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subordinated to all liabilities of our subsidiaries. The 2009 Notes were issued under an indenture which, among other things, limits our ability and the ability of our subsidiaries, except our unrestricted subsidiaries, to incur additional debt, enter into transactions with affiliates, issue preferred stock, incur liens, and pay dividends or make certain other restricted payments and restricted investments. ISP Investco LLC, one of our wholly owned subsidiaries, the subsidiaries of ISP Investco, our accounts receivable subsidiary and certain immaterial subsidiaries have been designated as unrestricted subsidiaries under the indenture related to the 2009 Notes.

        The borrowings of certain of our subsidiaries are subject to the application of certain financial covenants contained in the Senior Credit Facilities and in the indenture governing the 2011 Notes. Our borrowings are also subject to the application of some financial covenants contained in the indenture governing the 2009 Notes. As of December 31, 2002, we and those subsidiaries were in compliance with those covenants, and the application of those covenants would not have restricted available borrowings under the Senior Credit Facilities. See Note 14 to consolidated financial statements.

        The Senior Credit Facilities and the indenture governing the 2011 Notes contain additional affirmative and negative covenants affecting ISP Chemco and some of its subsidiaries, including restrictions on transactions with affiliates, sale-leaseback transactions, and mergers and transfers of all or substantially all of those subsidiaries' assets. The indenture governing the 2009 Notes also contains additional affirmative and negative covenants similar to those contained in the indenture governing the 2011 Notes affecting us and some of our subsidiaries. These limitations do not apply to ISP Investco LLC, an unrestricted subsidiary. As of December 31, 2002, under the most restrictive of these limitations, we could have paid restricted payments of up to $61.2 million. See Note 14 to consolidated financial statements. Restricted payments are dividends, acquisitions of our equity or other capital stock, payments on subordinated debt or most investments in third parties. Despite those limitations, we expect our availability under those covenants to make restricted payments, tax sharing payments and other permitted cash payments will allow us to satisfy our cash obligations under the notes. Additionally, in the event the holders of the 2009 Notes were to foreclose on ISP Chemco's capital stock following an event of default under those notes, the sale of the capital stock would constitute a change of control of ISP Chemco. Under the indenture governing the 2011 Notes, if a change of control of ISP Chemco occurs, ISP Chemco is obligated to make an offer to repurchase the 2011 Notes from their respective holders. The terms of the Senior Credit Facilities, however, prohibit the repayment of the 2011 Notes in that event unless and until such time as the indebtedness under the Senior Credit Facilities is repaid in full. Failure to make such repayment upon a change of control would result in a default under the 2011 Notes. A change of control of ISP Chemco would also result in a default under the Senior Credit Facilities. In the event of a default under the indenture governing the 2011 Notes or under the Senior Credit Facilities, the holders of the 2011 Notes or the lenders under the Senior Credit Facilities, as the case may be, could elect to accelerate the maturity of the 2011 Notes or the loans under the Senior Credit Facilities. Those events could have a material adverse effect on our financial condition and results of operations.

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

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        Our commercial commitments as of December 31, 2002 are as follows:

        The Senior Credit Facilities are comprised of a $225.0 million term loan maturing in 2008 and a $225.0 million revolving credit facility which will terminate in 2006. The revolving credit facility includes a borrowing capacity not in excess of $50.0 million for letters of credit.

        Capital expenditures are expected to be approximately $59.0 million in 2003, primarily for maintenance and compliance expenditures.

        For information with respect to income taxes, see Note 9 to consolidated financial statements.

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

        On July 8, 2002, ISP announced that its Board of Directors had received a letter from Samuel J. Heyman, ISP's Chairman of the Board, proposing that the Board consider a going private transaction whereby holders of shares of ISP'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 ISP's outstanding shares. ISP's Board of Directors formed a Special Committee of independent Directors to evaluate this proposal. On November 7, 2002, ISP announced that the Special Committee and Mr. Heyman reached agreement on such transaction whereby holders of shares of ISP's common stock (other than Mr. Heyman) would receive $10.30 in cash per share. The agreement followed a determination by the Special Committee that the transaction consideration is fair to ISP's public shareholders.

        On February 28, 2003, a Special Meeting of Stockholders of ISP was held seeking approval of the proposal. The Agreement and Plan of Merger was approved by both a majority of the holders of the shares of common stock outstanding and entitled to vote at ISP's Special Meeting and a majority of the minority holders (being those shares not owned beneficially by Mr. Heyman or the officers and directors of ISP) of shares of common stock outstanding and entitled to vote at ISP's Special Meeting. Subsequently, ISP's common stock is no longer publicly traded and ISP delisted its common stock on the New York Stock Exchange and deregistered its common stock with the Securities and Exchange Commission. Mr. Heyman may now be deemed to beneficially own (as defined in Rule 13d-3 under the Securities Exchange Act of 1934) 100% of ISP's common stock. The total consideration for such shares of approximately $134.4 million was paid out of our available funds.

        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,

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and in the third quarter of 2002, the majority of Polaroid's assets were acquired by a new owner. As a result, we no longer have a long-term supply contract with Polaroid. These events have negatively impacted the sale of our fine chemicals products and reduced the utilization of our Freetown plant.

        We have an operating lease for a sale-leaseback transaction related to equipment at 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 first renewal term commenced during 2002. The lease provides for a substantial guaranteed payment by us, adjusted 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 equipment, or the equipment 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 equipment, currently $35.8 million, reduced by 50% of any proceeds from the subsequent sale of the equipment 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 equipment since, as an operating lease, the Freetown equipment 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 option at the end of any future renewal period or at the termination of the lease in 2005, we would then perform a review for possible impairment of the Freetown assets based on the provisions of Statement of Financial Accounting Standards No. 144, discussed below. We are working toward increasing the utilization of the Freetown plant and have transferred production of certain personal care products to this facility.

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

        We have a contract with a multinational supplier to supply a substantial amount of our acetylene needs to our Texas City, Texas facility. This supplier generates this raw material as a by-product from the manufacture of ethylene. Pricing under the contract is on a fixed basis and we are obligated to purchase a specified amount of acetylene under the contract. This supplier has announced the closure of its facility by the end of June 2003. As a result, we have identified several alternative sources of supply of acetylene for the Texas City facility. The cost of acetylene from these sources will be higher than that paid to the current supplier. Although we believe that these alternative sources of supply will be sufficient for our projected needs, there can be no assurance in this regard.

        We also have a contract with another supplier for the delivery of additional amounts of acetylene to our Texas City facility. We are obligated to purchase a specified amount of acetylene under this contract, which expires June 30, 2003. We have secured an alternative source to this agreement and have entered into a five-year contract under which we are obligated to purchase specified quantities of acetylene. Pricing is fixed with escalators tied to the Producer Price Index.

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        The future cost of these non-cancelable take-or-pay contracts is included in the table of contractual obligations shown below, together with other contractual obligations related to debt and leases.

        We anticipate ongoing pressure on our pricing and revenue related to commodity type butanediol and related solvents and intermediates. A key competitor in this market completed construction of additional production capacity in Europe for these products during the third quarter of 2002. Another competitor is expected to complete construction of additional capacity in Asia during the third quarter of 2003. With the opening of these two facilities, the increase in the supply of these products to the merchant market is anticipated to result in increasing downward pressure on pricing.

        In June 2001, the Financial Accounting Standards Board, which we refer to as "FASB," issued Statement of Financial Accounting Standards, which we refer to as "SFAS," No. 142, "Goodwill and Other Intangible Assets." With the adoption of SFAS No. 142, effective as of January 1, 2002, goodwill is no longer subject to amortization over its estimated useful life. However, goodwill is subject to at least an annual assessment for impairment and more frequently if circumstances indicate a possible impairment. We adopted SFAS No. 142 effective as of January 1, 2002 (see Note 4 to consolidated financial statements).

        In June 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. Subsequent to the initial measurement of the asset retirement obligation, the obligation will be adjusted at the end of each period to reflect the passage of time and changes in the estimated future cash flows underlying the obligation. If the obligation is settled for other than the carrying amount of the liability, we would then recognize a gain or loss on settlement. SFAS No. 143 is effective for fiscal years beginning after June 15, 2002. The after-tax transition charge of adopting SFAS No. 143 is expected to be less than $2.0 million and will be recorded as the cumulative effect of a change in accounting principle, effective January 1, 2003. The on-going expense on an annual basis resulting from the initial adoption of SFAS No. 143 is estimated to be less than $1.0 million.

        In August 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets." SFAS No. 144 was effective as of January 1, 2002 and addresses financial accounting and reporting for the impairment of long-lived assets and for long-lived assets to be disposed of. In accordance with SFAS No. 144, long-lived assets, such as property, plant and equipment, and purchased intangibles subject to amortization, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.

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Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to estimated undiscounted future cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated future cash flows, an impairment charge is recognized for the amount by which the carrying amount of the asset exceeds the fair value of the asset.

        SFAS No. 144 also establishes accounting and reporting standards for long-lived assets to be disposed of by sale and broadens the provisions of Accounting Principles Board Opinion No. 30 for accounting for discontinued operations to include a component of an entity rather than a segment of a business. A component of an entity comprises operations and cash flows that can be clearly distinguished from the rest of the entity. In accordance with SFAS No. 144, assets to be disposed of would be separately presented in the balance sheet and reported at the lower of the carrying amount or fair value less costs to sell, and are no longer depreciated. The assets and liabilities of a disposed group classified as held for sale would be presented separately in the appropriate asset and liability sections of the balance sheet. While we have no current plans to do so, if we decide in the future to dispose of a component of our company that meets the criteria of SFAS No. 144, that component would be reported as a discontinued operation. SFAS No. 144 had no impact on our consolidated financial statements in 2002.

        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 Accounting Principles Board Opinion No. 30 for classification as extraordinary. The rescission of SFAS No. 4 is effective for fiscal years beginning after May 15, 2002. SFAS No. 145 also amends SFAS No. 13 to require sale-leaseback accounting for certain lease modifications that have economic effects similar to sale-leaseback transactions. The provisions of SFAS No. 145 related to SFAS No. 13 were effective for transactions occurring after May 15, 2002. We intend to adopt SFAS No. 145 effective January 1, 2003, which will result in the first quarter 2002 Consolidated Statement of Operations being restated to reclassify the pre-tax extraordinary charge of $7.1 million on the early extinguishment of debt to other expense, net.

        In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal Activities." SFAS No. 146 addresses financial accounting and reporting for costs associated with exit or disposal activities and supercedes Emerging Issues Task Force Issue No. 94-3, "Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring)." SFAS No. 146 requires that a liability for a cost associated with an exit or disposal activity be recognized when the liability is incurred, and concludes that an entity's commitment to an exit plan does not by itself create a present obligation that meets the definition of a liability. SFAS No. 146 also establishes that fair value is the objective for initial measurement of the liability. SFAS No. 146 is effective for exit or disposal activities that are initiated after December 31, 2002. As we have no plans at this time for any exit or disposal activities, the adoption of SFAS No. 146 will not have any immediate effect on our consolidated financial statements.

        In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based Compensation—Transition and Disclosure," an amendment of SFAS No. 123, "Accounting for Stock-Based Compensation." SFAS No. 148 provides alternative methods of transition for an entity that voluntarily changes to the fair value method of accounting for stock-based employee compensation. In addition, SFAS No. 148 amends disclosure requirements of SFAS No. 123 by requiring disclosure in the "Summary of Significant Accounting Policies" (see Note 2 to consolidated financial statements) of the method used—either the intrinsic value method or the fair value method—to account for stock-based

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employee compensation and by requiring disclosures in a tabular format to reconcile net income as reported to pro forma net income as if the fair value method was used. Certain of the disclosure modifications are required for fiscal years ending after December 15, 2002. We have disclosed the information required by SFAS No. 148 in Note 2 to consolidated financial statements. As discussed above, our parent, ISP, completed a going private transaction in the first quarter of 2003. As a result, our stock-based employee compensation plans were terminated, and the provisions of SFAS No. 148 will no longer be applicable to us.

        In November 2002, the FASB issued FASB Interpretation No. 45, which we refer to as "FIN 45," "Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others." FIN 45 clarifies the requirements for a guarantor's accounting for and disclosures of certain guarantees issued and outstanding. The provisions of FIN 45 apply to guarantee contracts that contingently require the guarantor to make payments (in cash, financial instruments, other assets, shares of stock or provision of services) to the guaranteed party for guarantees such as a financial standby letter of credit, a market value guarantee on either a financial or nonfinancial asset owned by the guaranteed party, and a guarantee of the collection of the scheduled contractual cash flows from financial assets held by a special-purpose entity. FIN 45 also applies to indemnification contracts and indirect guarantees of indebtedness of others. The requirements of FIN 45 for the initial recognition and measurement of the liability for a guarantor's obligations are to be applied only on a prospective basis to guarantees issued or modified after December 31, 2002. A subsidiary's guarantee of the debt of its parent (as disclosed in Note 14 to consolidated financial statements) is not subject to the initial recognition and measurement provisions of FIN 45 but is subject to its disclosure requirements. We currently do not have any guarantees, indemnification contracts or indirect guarantees of indebtedness of others that would be subject to the initial recognition and measurement provisions of FIN 45. As discussed above, ISP Chemco's 2011 Notes are guaranteed by all of ISP Chemco's domestic subsidiaries, other than certain immaterial subsidiaries and our accounts receivable financing subsidiary.

        In January 2003, the FASB issued FIN 46, "Consolidation of Variable Interest Entities." In accordance with FIN 46, a variable interest entity will be consolidated if either the total equity investment at risk is not sufficient to permit the entity to finance its activities without additional subordinated financial support from other parties, or as a group, the holders of the equity investment at risk lack any one of the following three characteristics of a controlling financial interest: (1) the direct or indirect ability to make decisions about an entity's activities; (2) the obligation to absorb the expected losses of the entity if they occur; (3) the right to receive the expected residual returns of the entity if they occur. All companies with variable interests in variable interest entities created after January 31, 2003 shall apply the provisions of FIN 46 immediately. A public entity with a variable interest in a variable interest entity created before February 1, 2003 shall apply the provisions of FIN 46 to that entity no later than the beginning of the first interim or annual reporting period beginning after June 15, 2003. We do not have an interest in a variable interest entity. Therefore, FIN 46 will not have an impact on our consolidated financial statements.

Market-Sensitive Instruments and Risk Management

        Our investment strategy is to seek returns in excess of money market rates on our available cash while minimizing market risks. There can be no assurance that we will be successful in implementing such a strategy. We invest primarily in international and domestic securities of companies involved in acquisition or reorganization transactions. When the terms of a proposed acquisition provide for the target's shareholders to receive stock or other securities of the acquirer, we generally employ hedging

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strategies to protect against a decline in the value of such securities prior to the completion of the acquisition. One such strategy is to sell short a pre-determined amount of the acquirer's stock at the same time a long position is established in the target's shares. We will cover our short position with the acquirer's stock received. This strategy will lock in a profit equal to the initial deal spread at the time we employed this hedging strategy. From time to time, we also invest in securities of companies that we consider to be undervalued. With respect to our equity positions, we are exposed to the risk of market loss. See Notes 2 and 5 to consolidated financial statements.

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

        We enter into forward foreign exchange instruments in order to hedge a portion of both our borrowings denominated in foreign currency and transactions related to the operations of our foreign subsidiaries. Forward contract agreements require us and the counterparty to exchange fixed amounts of U.S. dollars for fixed amounts of foreign currency on specified dates. All forward contracts are in major currencies with highly liquid markets and mature within one year. Hedging strategies are approved by senior management before they are implemented.

        As of December 31, 2001 and 2002, the U.S. dollar equivalent notional value of outstanding forward foreign exchange contracts was $17.7 and $10.0 million, respectively. All foreign exchange contracts outstanding as of December 31, 2001 and 2002 were entered into as a hedge of intercompany loans, representing 100% of our foreign currency exposure with respect to such loans.

        We enter into equity-related financial instruments, including total return equity swaps, as a means to manage our exposure to market fluctuations on our short-term investments and to achieve our stated investment strategy. These contracts are subject to strict internal controls, including maximum exposure levels and counterparty risk. The counterparties to these contracts are major financial institutions with high credit standings. We control risk through credit approvals, limits and monitoring procedures. We do not anticipate nonperformance by counterparties to these contracts. We have exposure to equity price risk as a result of our investment in equity securities and equity derivatives. Equity price risk results from changes in the level or volatility of equity prices which affect the value of equity securities or instruments that derive their value from such securities or indexes.

        As of December 31, 2001 and 2002, the value of equity-related long contracts was $12.7 and $3.9 million, respectively, and the value of equity-related short contracts was $7.2 and $0.4 million, respectively. These contracts are marked-to-market each month, with unrealized gains and losses included in the results of operations. The unrealized gains (losses) on equity-related long contracts at December 31, 2001 and 2002 was $243,000 and $(145,000), respectively, and the unrealized gains on equity-related short contracts were $45,000 and $6,000, respectively.

        In 1998, the FASB issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities," as amended by SFAS No. 138. SFAS No. 133 and SFAS No. 138 established accounting and

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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 and SFAS No. 138 require that changes in a derivative's fair value be recognized currently in earnings unless specific hedge accounting criteria are met, which for qualifying hedges, allow a derivative's gains and losses to offset related results on the hedged item in the statement of operations.

        We adopted SFAS No. 133 and SFAS No. 138 as of January 1, 2001. Accounting for interest rate swaps and foreign exchange forward contracts held by us was affected by implementation of these standards. The earnings impact of the transition adjustments related to the initial adoption of the standards was an after-tax loss of $0.4 million, which was recorded in the first quarter of 2001 as the cumulative effect of a change in accounting principle.

        The Senior Credit Facilities include a $225.0 million term loan. We designated interest rate swaps, with a total notional amount of $100 million, as a hedge of our exposure to changes in the Eurodollar rate under the term loan. The interest rate swaps were structured to receive interest based on the Eurodollar rate and pay interest on a fixed rate basis. The interest rate swaps were designated to have a cash flow hedging relationship whereby the interest rate swaps hedged the risk of changes in the Eurodollar rate related to borrowings against the term loan through July 2002. The interest rate swaps were deemed to be highly effective throughout the term of their designation as a cash flow hedge. Those swaps matured in June and July of 2002. During 2002, $1.5 million related to the interest rate swaps was reclassified and charged against interest expense.

*    *    *

Forward-looking Statements

        This Annual Report on Form 10-K contains both historical and forward-looking statements. All statements other than statements of historical fact are, or may be deemed to be, forward-looking statements within the meaning of section 27A of the Securities Act of 1933 and section 21E of the Securities Exchange Act of 1934. These forward-looking statements are only predictions and generally can be identified by use of statements that include phrases such as "believe," "expect," "anticipate," "intend," "plan," "foresee" or other words or phrases of similar import. Similarly, statements that describe our objectives, plans or goals also are forward-looking statements. Our operations are subject to certain risks and uncertainties that could cause actual results to differ materially from those contemplated by the relevant forward-looking statement. The forward-looking statements included herein are made only as of the date of this Annual Report on Form 10-K and we undertake no obligation to publicly update such forward-looking statements to reflect subsequent events or circumstances. No assurances can be given that projected results or events will be achieved.

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INTERNATIONAL SPECIALTY HOLDINGS INC.

SELECTED FINANCIAL DATA

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

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INDEPENDENT AUDITORS' REPORT

To the Board of Directors of International Specialty Holdings Inc.:

        We have audited the accompanying consolidated balance sheet of International Specialty Holdings Inc. and subsidiaries as of December 31, 2002, and the related consolidated statements of operations, shareholder's equity, and cash flows for the year then ended, as listed in the accompanying index. In connection with our audit of the 2002 consolidated financial statements, we also have audited the 2002 consolidated financial statement schedule as listed in the accompanying index. These consolidated financial statements and consolidated financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements and consolidated financial statement schedule based on our audit. The 2000 and 2001 consolidated financial statements of International Specialty Holdings Inc. and subsidiaries as listed in the accompanying index were audited by other auditors who have ceased operations. Those auditors expressed an unqualified opinion on those consolidated financial statements and consolidated financial statement schedule, before the revision described in Note 4 and before the restatement described in Note 18 to the consolidated financial statements, in their report dated February 27, 2002.

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

        In our opinion, the 2002 consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of International Specialty Holdings Inc. and subsidiaries as of December 31, 2002, and the results of their operations and their cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the related 2002 consolidated financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.

        As discussed in Note 4 to the consolidated financial statements, the Company adopted Statement of Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets, as of January 1, 2002.

F-22

        As discussed above, the 2000 and 2001 consolidated financial statements of International Specialty Holdings Inc. and subsidiaries as listed in the accompanying index were audited by other auditors who have ceased operations. As described in Note 4, these consolidated financial statements have been revised to include the transitional disclosures required by Statement of Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets, which was adopted by the Company as of January 1, 2002. As described in Note 18, the Company changed the composition of its reportable segments in 2002, and the amounts in the 2000 and 2001 consolidated financial statements relating to reportable segments have been restated to conform to the 2002 composition of reportable segments. We audited the adjustments that were applied to restate the disclosures for reportable segments reflected in the 2000 and 2001 consolidated financial statements. In our opinion, such transitional disclosures for 2000 and 2001 in Note 4 are appropriate and such segment adjustments in Note 18 are appropriate and have been properly applied. However, we were not engaged to audit, review, or apply any procedures to the 2000 and 2001 consolidated financial statements of International Specialty Holdings Inc. and subsidiaries other than with respect to such transitional disclosures and such segment adjustments and, accordingly, we do not express an opinion or any other form of assurance on the 2000 and 2001 consolidated financial statements taken as a whole.

/s/ KPMG LLP

Short Hills, New Jersey

February 14, 2003, except as
        to the first paragraph of Note 21, which is as of
        February 28, 2003 and the second paragraph of Note 21,
        which is as of March 20, 2003

F-23

INFORMATION REGARDING PREDECESSOR INDEPENDENT PUBLIC ACCOUNTANTS' REPORT

        The following report is a copy of a previously issued report by Arthur Andersen LLP ("Andersen"). The report has not been reissued by Andersen nor has Andersen consented to its inclusion in this Annual Report on Form 10-K. The 2000 and 2001 financial statements have been revised to include transitional disclosures to reflect the effects of the Company's adoption of Statement of Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets and have been restated to conform to the 2002 composition of reportable segments. The Andersen report refers to the consolidated balance sheet as of December 31, 2000 and the consolidated statements of income, shareholder's equity and cash flows for the year ended December 31, 1999, which are no longer included in the accompanying financial statements. The Andersen report refers to page numbers in the Company's Form S-4 Registration Statement No. 333-82822.

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To International Specialty Holdings Inc.:

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

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

        In our opinion, the financial statements referred to above, appearing on pages F-3 to F-41 of this Prospectus, present fairly, in all material respects, the financial position of International Specialty Holdings Inc. and subsidiaries as of December 31, 2000 and 2001, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2001, in conformity with accounting principles generally accepted in the United States.

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

ARTHUR ANDERSEN LLP

Roseland, New Jersey
February 27, 2002

F-24

INTERNATIONAL SPECIALTY HOLDINGS INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

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

F-25

INTERNATIONAL SPECIALTY HOLDINGS INC.

CONSOLIDATED BALANCE SHEETS

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

F-26

INTERNATIONAL SPECIALTY HOLDINGS INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS