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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549

FORM 10-K

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 is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.    ý

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

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

INTERNATIONAL SPECIALTY HOLDINGS INC.

Form 10-K
for the fiscal year ended December 31, 2004

Table of Contents

PART I

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

Item 1. Business.

General

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

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

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

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

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

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

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In February 2004, we acquired the assets and business of Red Carnation Gums Limited, a United Kingdom-based manufacturer of emulsifiers, stabilizers and gelling systems for the food and oral care markets;



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In March 2004, we acquired the assets and business of Germany-based Biochema Schwaben, a formulator of preservatives and biocides with applications in the industrial and personal care markets. These products are used primarily in the printing, paints and coatings, polymer emulsions, skin care and hair care markets;



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Also in March 2004, we acquired the assets and business of Hallcrest Limited and its United States affiliate, a United Kingdom-based manufacturer and marketer of custom microencapsulation and liquid crystal technologies for the personal care, home care, oral care and food industries; and



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In October 2004, we acquired Niro S/A's pharma technologies business which provides contract formulation, scale-up and manufacturing services with a focus on the use of spray drying technology for bioavailability enhancement to the pharmaceutical industry. In connection with this acquisition, we also entered into an alliance agreement with Niro that involves the development and marketing of spray drying and formulation technologies to enhance the bioavailability of pharmaceutical active ingredients. Through this strategic alliance, the two companies will work together to further develop and market the technology as a means to improve the bioavailability of drug actives and bring added value to the pharmaceutical industry.

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

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

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

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Business Segments

Specialty Chemicals

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

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



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



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Performance Chemicals—whose products are sold to the aerospace, defense, paints and coatings, detergent, electronics, oil field, agricultural and powder metallurgy markets and various industrial markets; and



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Fine Chemicals—whose products are sold to the pharmaceutical, biotechnology, agricultural, imaging and various other consumer markets.

        Sales of our specialty chemicals represented approximately 58%, 68% and 71% of our revenues in the years ending December 31, 2004, 2003 and 2002, respectively. For more information about our specialty chemicals business segment sales, see "Management's Discussion and Analysis of Financial Condition and Results of Operations—Results of Operations" and Note 18 to our consolidated financial statements included in this annual report on Form 10-K. Most of our specialty chemical products fall within the following categories:

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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 and fine chemicals product lines.



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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 product lines.



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polyvinyl pyrrolidone (PVP) polymers and copolymers—represents our largest product group. These polymers and copolymers are marketed by all of our product lines. Our Plasdone®, Polyclar® and Gafquat® product lines, which are used as tablet binders, beverage clarifiers and hair fixative resins, respectively, are included in this group.



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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 chemicals product lines, with the majority of our sales to the food industry.

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

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

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

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

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



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emollients, which provide skin softness;



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moisturizers, which enhance the skin's water balance;



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



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



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toothpastes; and



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denture adhesives.

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

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

        Our hair care ingredients, marketed under the Gantrez®, Gafquat®, and PVP/VA family of products, include a number of specially formulated fixative resins which provide hairsprays, mousses and gels with their holding power, as well as thickeners and stabilizers for shampoos and conditioners. Utilizing our combined expertise in hair care and sunscreen applications, we developed the world's first high-performance hair protectant, Escalol® HP-610, to prevent sun damage to hair. We also developed a polymer, Aquaflex® FX-64, for use in styling products and low VOC hair sprays, which provides a soft feeling with a long lasting hold for both aerosol and pump spray applications.

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

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

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

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prescription and over-the-counter tablets;



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injectable prescription drugs and serums;

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cough syrups; and



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antiseptics.

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

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

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

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coatings;



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agriculture;



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imaging;



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detergents;



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electronics; and



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metalworking.

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

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

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

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

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

International Operations.

        We conduct our international operations through 48 subsidiaries and 50 sales offices located in Europe, Canada, Latin America and the Asia-Pacific region. We also use the services of local distributors to reach markets that might otherwise be unavailable to us.

        International sales of our specialty chemicals in 2004, 2003 and 2002 were approximately 55%, 52% and 47%, respectively, of our total sales of the specialty chemicals segment for those periods. For more information about our international sales, see Note 19 to our consolidated financial statements included in this annual report on Form 10-K. International sales are subject to exchange rate fluctuation risks. For a discussion of our policy regarding the management of these risks, see "Management's Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Financial Condition." Other countries in which we have sales are subject to additional risks, including high rates of inflation, exchange controls, government expropriation and general instability.

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

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

Industrial Chemicals

Products and Markets.

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

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

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intermediates—includes butanediol, butenediol, butynediol, and propargyl alcohol for use in numerous industrial applications. Our principal intermediate product is butanediol, which is utilized by us in the manufacture of many of our complex, value-added chemical products. Butanediol is sold in the merchant market to industrial companies for use in manufacturing polyesters, urethanes and polybutylene terephthalate (PBT) plastics.



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solvents—includes our M-pyrol® brand of N-methyl pyrrolidone (NMP), for use in electronic chemicals, agricultural chemicals, cleaning and stripping applications and as a reaction solvent

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for engineering plastics, 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 as a solvent for PVC pipe cements, vinyl top coatings and a reaction solvent for pharmaceuticals.

        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:

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

International Operations.

        We conduct our international operations through 48 subsidiaries and 50 sales offices located in Europe, Canada, Latin America and the Asia-Pacific region. We also use the services of local distributors to reach markets that might otherwise be unavailable to us.

        International sales of our industrial chemicals in 2004, 2003 and 2002 were approximately 80%, 83% and 83%, respectively, of our total sales of the industrial chemicals segment for those periods. For more information about our international sales, see Note 19 to our consolidated financial statements included in this annual report on Form 10-K. International sales are subject to exchange rate fluctuation risks. For a discussion of our policy regarding the management of these risks, see "Management's Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Financial Condition." Other countries in which we have sales are subject to additional risks, including high rates of inflation, exchange controls, government expropriation and general instability.

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

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

Synthetic Elastomers

Products and Markets.

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

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

Marketing and Sales.

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

Mineral Products

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

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

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both functional and aesthetic improvements. These shingles require, on average, approximately 60% more granules than traditional three-tab, lightweight roofing shingles.

        Sales to Building Materials Corporation of America, or BMCA, an affiliate, and its subsidiaries constituted approximately 73% of our mineral products net sales in 2004.

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

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 four manufacturing facilities strategically located throughout the United States. From our offices located in Hagerstown, Maryland, we provide logistical support and operate a customer design center to engineer product applications according to our customers' requirements. Our technical services and manufacturing teams provide support and consultation services upon specific requirements by our customers.

Raw Materials

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

        The principal raw materials used in the manufacture of our acetylene-based products are acetylene, formaldehyde and methylamine. Most of the raw materials for consumption in the United States are obtained from third party sources pursuant to supply agreements. Acetylene, a significant raw material used in the production of most of our specialty chemicals, is obtained by us for domestic use from unaffiliated suppliers pursuant to supply contracts. We reduced our acetylene requirements at our Texas City facility by approximately fifty percent by shifting production of acetylene-consuming products to our Calvert City, Kentucky manufacturing facility. We also entered into a long-term supply agreement for the remaining Texas City facility requirements with a local acetylene producer. Under this agreement, we are obligated to purchase specified quantities of acetylene through the end of 2013. Pricing under the contract is on a fixed basis with escalators related to changes in the Producer Price Index.

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

        We believe that the diversity of our acetylene supply sources and our use of a number of acetylene production technologies provide us with a reliable supply of acetylene. In the event of a substantial interruption in the supply of acetylene from current sources, we cannot assure that we would be able to obtain as much acetylene from other sources as would be necessary to meet our supply requirements. To date, we have not experienced an interruption of our acetylene supply that has had a material adverse effect on our sales of specialty chemicals.

        Due to the nature of the manufacturing process, electricity and hydrocarbon feedstocks, primarily butane, are critical raw materials for the production of acetylene at our operations in Marl, Germany.

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

        In the event of a substantial interruption in the supply of electricity and hydrocarbon feedstocks to ISP Marl, we cannot assure that we would be able to obtain as much acetylene from other sources as would be necessary to meet our supply requirements.

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

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

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

        Our mineral products business owns three quarries and leases one quarry with rock deposits that have specific performance characteristics, including weatherability, the ability to reflect UV light, abrasion-resistance, non-staining characteristics and the ability to absorb pigments. These quarries each have proven reserves, based on current production levels, of more than twenty years. We pay royalties to a non-affiliated third party based on the amount of rock deposits we extract annually from our Ione, California quarry.

Competition

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

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

        Butanediol, which we produce primarily for use as a raw material, is also manufactured by a limited number of companies throughout the world for both their captive use or to supply the merchant market. We believe that there are three competitors of significance for merchant market butanediol,

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

        With regard to our mineral products, we believe there are two major competitors in the North American market, 3M Company and Reed Minerals. We believe that competition has been limited by the substantial capital expenditures associated with the construction of new mineral processing and coloring plants and the acquisition of suitable rock reserves; the limited availability of proven rock sources; the complexity associated with the construction of a mineral processing and coloring plant, together with the technical know-how required to operate such a plant; the need to obtain, prior to commencing operations, reliable data over a substantial period of time regarding the weathering of granules in order to assure the quality and durability of the product; and the difficulty in obtaining the necessary permits to mine and operate a quarry.

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

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

Research and Development

        Our worldwide research and development expenditures were $26.3, $25.3 and $26.0 million in 2004, 2003 and 2002, respectively.

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

Environmental Services

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

Intellectual Property

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

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

11

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

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

Environmental Compliance

        Since 1970, a wide variety of federal, state and local environmental laws and regulations relating to environmental matters have been adopted and amended. The environmental laws and regulations deal with air and water emissions or discharges into the environment, as well as the generation, storage, treatment, transportation and disposal of solid and hazardous waste, and the remediation of any releases of hazardous substances and materials to the environment. These laws and regulations affect us because of the nature of our operations and that of our predecessor and certain of the substances that are or have been used, produced or discharged at our or our predecessor's plants or at other locations. We have made capital expenditures of approximately $4.6 million in 2004, $7.0 million in 2003 and $3.6 million in 2002 in order to comply with these laws and regulations. These expenditures are included as additions to property, plant and equipment.

        We believe that our manufacturing facilities comply in all material respects with applicable environmental laws and regulations, and, while we cannot predict whether more burdensome requirements will be adopted by governmental authorities in the future, nor can we predict with certainty future capital expenditures or operating costs for environmental compliance, we do not believe they will have a material effect on our business, liquidity, results of operations, cash flows, financial position or competitive position.

Employees

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

ISP Investco

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

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Other Information

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

Item 2.    Properties.

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

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

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*

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 and continue to be satisfactorily maintained, are in good condition, are suitable for their respective operations and generally provide sufficient capacity to meet production requirements. Each plant has adequate transportation facilities for both raw materials and finished products. In 2004, we made capital expenditures in the amount of $86.8 million relating to plant, property and equipment.

Item 3.    Legal Proceedings.

Environmental Claims and Proceedings

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

14

laws, in which recovery is sought for the cost of cleanup of contaminated sites or in which remedial obligations are imposed, a number of which are in the early stages or have been dormant for protracted periods. We refer to these claims in this report as "Environmental Claims."

        We estimate that our liability in respect of all Environmental Claims, including those relating to our closed Linden, New Jersey plant described below, and certain other environmental compliance expenses, as of December 31, 2004 is approximately $19.9 million, before reduction for insurance recoveries included in our balance sheet of $28.1 million that relate to both past expenses and estimated future liabilities, which we refer to as "estimated recoveries." While we cannot predict whether adverse decisions or events can occur in the future, in the opinion of management, the resolution of such matters should not be material to our business, liquidity, results of operations, cash flows or financial position. However, adverse decisions or events, particularly as to the liability and the financial responsibility of our insurers and of the other parties involved at each site and their insurers, could cause us to increase our estimate of our liability or decrease our estimate of insurance recoveries in respect of those matters. It is not currently possible to estimate the amount or range of any additional liability.

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

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

        In June 1989, we entered into a Consent Order with the New Jersey Department of Environmental Protection requiring the development of a remediation plan for our closed Linden, New Jersey plant and the maintenance of financial assurances, currently $7.5 million, to guarantee our performance. This Consent Order does not address any potential natural resource damage claims which we do not believe will be material. In April 1993, the New Jersey Department of Environmental Protection issued orders which require the prevention of discharge of contaminated groundwater and stormwater from the site and the elimination of other potential exposure concerns. We believe, although we cannot be certain, that, taking into account our plans for development of the site, we can comply with the New Jersey Department of Environmental Protection order at a cost of approximately $10.6 million. See Item 1, "Business—Environmental Services."

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

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

        None.

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PART II

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

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

        In 2004 and 2003, we did not declare or pay any dividends to ISP. See Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations" and Note 13 to our consolidated financial statements included in this annual report on Form 10-K for information regarding restrictions on the payment of dividends and contributions set forth on pages F-2 to F-26 and page F-53, respectively. Any decision to pay dividends or make capital contributions, and the timing and amount thereof, is dependent upon, among other things, our results of operations, financial condition, cash requirements, prospects and other factors deemed relevant by our Board of Directors.

Item 6.    Selected Financial Data.

        See page F-27.

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

        See page F-2.

Item 7A.    Quantitative and Qualitative Disclosures About Market Risk.

        See Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Financial Condition—Market Sensitive Instruments and Risk Management" on page F-23.

Item 8.    Financial Statements and Supplementary Data.

See Index on page F-1 and Financial Statements and Supplementary Data on pages F-29 to F-76.

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

        Not applicable.

Item 9A.    Controls and Procedures.

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

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

Item 9B.    Other Information.

        None.

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PART III

Item 10. Directors and Executive Officers of the Registrant.

Executive Officers of the Registrant

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

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

        Samuel J. Heyman—Mr. Heyman has been a director and Chairman of the Board of IS Holdings since December 2001 and of ISP since its formation. Mr. Heyman also has been a director of G-I Holdings for more than five years and was President and Chief Executive Officer of G-I Holdings and some of its subsidiaries for more than five years until September 2000. In January 2001, G-I Holdings filed a voluntary petition for reorganization under Chapter 11 of the U.S. Bankruptcy Code due to its asbestos-related claims. Mr. Heyman was a director and Chairman of the Board of BMCA from its formation to September 2000 and served as Chief Executive Officer of BMCA and some of its subsidiaries from June 1999 to September 2000. He is also the Chief Executive Officer, Manager and General Partner of a number of closely held real estate development companies and partnerships whose investments include commercial real estate and a portfolio of publicly traded securities.

        Sunil Kumar—Mr. Kumar has been President and Chief Executive Officer of IS Holdings since June 2001, and of ISP Chemco and ISP for more than five years. He has been a director of IS Holdings and ISP Chemco since June 2001, and a director of ISP for more than five years. He was a director and Vice-Chairman of the Board of G-I Holdings from January 1999 to June 1999. In January 2001, G-I Holdings filed a voluntary petition for reorganization under Chapter 11 of the U.S. Bankruptcy Code due to its asbestos-related claims.

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

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Chemco and its subsidiaries for more than five years to May 2003. He has also been a director of ISP Chemco's subsidiaries for more than five years. Mr. Weinberg has been Chief Executive Officer, President, General Counsel and Secretary of G-I Holdings since September 2000 and was Executive Vice President, General Counsel and Secretary of G-I Holdings from May 1998 to September 2000. Mr. Weinberg has served as a director of G-I Holdings for more than five years. In January 2001, G-I Holdings filed a voluntary petition for reorganization under Chapter 11 of the U.S. Bankruptcy Code due to its asbestos-related claims. Mr. Weinberg also has been Executive Vice President, General Counsel and Secretary of BMCA and its subsidiaries for more than five years.

        Susan B. Yoss—Ms. Yoss has been Executive Vice President—Finance and Treasurer of IS Holdings since June 2001 and ISP since September 2000. She has also been Executive Vice President—Finance of ISP Chemco since May 2003. She was previously Executive Vice President—Finance and Treasurer of ISP Chemco and its subsidiaries from September 2000 to April 2003. She was also Senior Vice President and Treasurer of ISP and its subsidiaries from July 1999 to September 2000. She also has been Senior Vice President of BMCA and its subsidiaries for more than five years and was Treasurer of those same companies from July 1999 to August 2001. Ms. Yoss also has served as Senior Vice President, Chief Financial Officer and Treasurer of G-I Holdings for more than five years. In January 2001, G-I Holdings filed a voluntary petition for reorganization under Chapter 11 of the U.S. Bankruptcy Code due to its asbestos-related claims.

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

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

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

Audit Committee Financial Expert

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

Code of Ethics

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

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Item 11.    Executive Compensation.

Summary Compensation Table

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

(1)

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

(2)

Included in "All Other Compensation" for Mr. Kumar are: $14,850, $14,500 and $14,500 representing ISP's contribution under its 401(k) plan in 2004, 2003 and 2002, respectively; $6,227, $4,902 and $4,902 for the premiums paid by ISP for a life insurance policy in 2004, 2003 and 2002, respectively; $2,423, $2,160 and $2,160 for the premiums paid by ISP for a long-term disability policy in 2004, 2003 and 2002, respectively; and for 2004, 2003 and 2002, $761,689, $761,691 and $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 ISP's 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. In accordance with the terms of ISP's going private transaction completed in February 2003, Mr. Kumar was eligible to receive $2,575,000, subject to vesting restrictions, in exchange for surrendering and cancellation of these restricted shares of ISP's common stock. In May, 2003, Mr. Kumar agreed to the cancellation of these cash payments in exchange for a grant of incentive units under ISP's 2003 Executive Long-Term Incentive Plan, which we refer to as the 2003 ELTI Plan. In addition, $29,120 and $30,000 of the amount shown in "All Other Compensation" reflects the value of an automobile allowance provided by ISP in 2004 and 2003 respectively and $8,000 reflecting the value of tax planning services provided by ISP during 2003. The amount included in "LTIP Payouts" for Mr. Kumar represents the value received in connection with the exercise of incentive units in 2003 under ISP's 2000 Long-Term Incentive Plan,

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which we refer to as the 2000 LTI Plan. See "Long-Term Incentive Plans" and "Certain Relationships and Related Transactions-Certain Other Transactions."

(3)

Included in "All Other Compensation" for Ms. Yoss are: $14,600, $14,250 and $14,250 representing ISP's contribution under its 401(k) plan in 2004, 2003 and 2002, respectively; $2,850, $2,850 and $1,824 for the premiums paid by ISP for a life insurance policy in 2004, 2003 and 2002, respectively; $2,550, $2,160 and $2,160 for the premiums paid by ISP for a long-term disability policy in 2004, 2003 and 2002, respectively. See "Long-Term Incentive Plans."

(4)

Included in "All Other Compensation" for Mr. Weinberg are: $14,600, $14,250 and $14,250 representing ISP's contribution under its 401(k) plan in 2004, 2003 and 2002, respectively; $2,850, $1,824 and $1,824 for the premiums paid by ISP for a life insurance policy in 2004, 2003 and 2002, respectively; and $2,550, $2,160 and $2,160 for the premiums paid by ISP for a long-term disability policy in 2004, 2003 and 2002, 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, he received, subject to his continued employment through each vesting date, 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 ISP's going private transaction completed in February 2003, these options were canceled. Mr. Weinberg received $486,430 and $573,005 of these cash payments in 2003 and 2002, respectively, which amounts are included in "All Other Compensation" for Mr. Weinberg for each of those years. See "Long-Term Incentive Plans."

(5)

Included in "All Other Compensation" for Mr. Post are: $14,600, $14,250 and $14,250 representing ISP's contribution under its 401(k) plan in 2004, 2003 and 2002, respectively; $4,884, $2,571 and $2,426 for the premiums paid by ISP for a life insurance policy in 2004, 2003 and 2002, respectively; and $2,539, $1,956 and $1,848 for the premiums paid by ISP for a long-term disability policy in 2004, 2003 and 2002, respectively. Included in "Other Annual Compensation" for Mr. Post is a relocation allowance of $18,160 and a tax gross-up of $2,710 in 2002. The amount included in "LTIP Payouts" for Mr. Post represents the value received in connection with the exercise of incentive units in 2003 under the 2000 LTI Plan. See "Long-Term Incentive Plans."

(6)

Included in "Other Annual Compensation" for Mr. Olsen are relocation allowances of $10,340, $7,746 and $7,746 in 2004, 2003 and 2002 respectively. Included in "All Other Compensation" for Mr. Olsen are $14,600, $14,250 and $14,250 ISP's contribution under ISP's 401(k) plan in 2004, 2003 and 2002, respectively; $1,714, $1,650 and $1,574 for the premiums paid by ISP for a life insurance policy in 2004, 2003 and 2002, respectively; and $2,397, $1,959 and $1,873 for the premiums paid by ISP for a long-term disability policy in 2004, 2003 and 2002, respectively. In addition, $6,000 and $6,500 of the amount shown in "All Other Compensation" reflects the value of an automobile allowance provided to Mr. Olsen by ISP in 2004 and 2003 respectively.

(7)

Under a non-qualified deferred compensation plan, which we refer to as the ISP EDC Plan, a participant may defer up to 25% of his or her base salary, up to 100% of his or her bonus and up to 100% of the income from the exercise of long-term incentive units in a plan year. Amounts are deferred through payroll deduction and contributed by ISP to a grantor trust, pursuant to a deferral agreement that is filed by the participant before the beginning of each plan year. Messrs. Kumar and Olsen each elected to participate in the ISP EDC Plan in 2004. See "Deferred Compensation Plan."

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Long-Term Incentive Plans

ISP 2000 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 2004 under the 2000 LTI Plan.

2000 LTI Plan—Awards in 2004

(1)

The 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 Committee appointed by 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. The 2000 LTI Plan expires ten years from its effective date, unless terminated sooner by the Committee.

(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. The Committee, in its sole discretion, may grant incentive units with any vesting schedule other than that normally provided in the 2000 LTI Plan. 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) is based on ISP's total stockholders' equity (adjusted to exclude accumulated comprehensive income and losses and goodwill impairment losses) as determined on such Valuation Date. A "Valuation Date" is the last business day of each fiscal quarter of ISP. The 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.

(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 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)

Represents incentive units granted with a lower Initial Value that are 20% vested on the date of such grant and vest in 20% increments each anniversary following the date of such grant.

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ISP 2003 Executive 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 2004 under the 2003 ELTI Plan.

2003 ELTI Plan—Awards in 2004

(1)

The 2003 ELTI Plan provides long-term compensation to executives, key management personnel and certain other employees based on ISP's "Book Value" (as defined). The number of incentive units granted is determined by the Committee appointed by 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. The 2003 LTI Plan expires ten years from its effective date, unless terminated sooner by the Committee.

(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 incentive units under the 2000 LTI Plan. The Committee, in its sole discretion, may grant incentive units with any vesting schedule other than that normally provided in the 2003 ELTI Plan. 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 ten 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) is based on ISP's total stockholders' equity (adjusted to exclude accumulated comprehensive income and losses) as determined on such Valuation Date. A "Valuation Date" is the last business day of each fiscal quarter of ISP. The 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 2003 ELTI Plan.

(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 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)

Represents incentive units granted with a lower Initial Value that are 20% vested on the date of such grant and vest in 20% increments each anniversary following the date of such grant.

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Deferred Compensation Plan

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

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

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

Compensation of Directors

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

Compensation Committee Interlocks and Insider Participations

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

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

Securities Authorized for Issuance Under Equity Compensation Plans

        Not applicable.

Security Ownership of Certain Beneficial Owners and Management

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

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

23

Item 13.    Certain Relationships and Related Transactions.

Management Agreement

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

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

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

Tax Sharing Agreements

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

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

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

24

Sales to Affiliates

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

Affiliate Borrowings

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

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

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

Certain Other Transactions

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

25

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

Item 14.    Principal Accountant Fees and Services.

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

Audit and Non-Audit Fees
(Dollars in Thousands)

(1)

Audit fees relate to professional services rendered by KPMG in connection with the audit of our annual financial statements, quarterly review of financial statements included in our Forms 10-Q and audit services provided in connection with other statutory and regulatory filings.

(2)

Audit-related fees include professional services rendered by KPMG related to consultation on accounting standards or transactions including ISP's going private transaction, and audits of employee benefit plans.

(3)

Tax fees include professional services rendered by KPMG in connection with tax compliance, preparation of foreign tax returns, rendering advice with regard to tax audits and other tax consulting. We do not engage KPMG to perform personal tax services for our executive officers.

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

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

26

PART IV

Item 15.    Exhibits, Financial Statement Schedules.

        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:

27

28

29

*

filed herewith

+

management and/or compensation plan or arrangement.

30

SIGNATURES

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

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

31

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

Overview

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

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

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

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

F-2

Critical Accounting Policies

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

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 and adjusts credit limits or the allowance for doubtful accounts based on this periodic review. If the financial condition of our customers were to deteriorate, resulting in an impairment of their ability to make payments, our ability to collect on accounts could be negatively impacted, in which case additional allowances may be required.

Inventories

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

Short-Term Investments

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

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

F-3

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

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

Income Taxes

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

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

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

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

F-4

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

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 subsidize such benefits for certain employees and certain retirees. The costs and obligations related to these benefits reflect our assumptions related to general economic conditions (particularly interest rates), expected return on plan assets, and rate of compensation increases for employees. We set the discount rate assumption annually for our retirement-related benefit plans at the measurement dates to reflect the yield of high-quality fixed-income debt instruments. The expected long-term rate of return on assets is derived from a detailed periodic study conducted by our actuaries and our financial management. The study includes a review of anticipated future long-term performance of individual asset categories. While the study gives appropriate consideration to recent plan performance and historical returns, the assumption is primarily a long-term prospective rate. We revised the expected long-term rate of return assumption for our domestic hourly retirement plan in 2003 to 9.5%, a reduction from its previous level of 11.0%. A 25 basis points increase or decrease in the discount rate would result in a plus or minus $0.1 million annual impact on pension expense and a plus or minus $0.9 million impact on the projected benefit obligation. A 25 basis points increase or decrease in the expected long-term rate of return on assets would result in a plus or minus $0.1 million annual impact on pension expense.

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

Results of Operations

2004 Compared With 2003 (Restated)

Overview

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

F-5

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

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

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

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

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

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

F-6

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

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

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

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

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

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

F-7

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

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

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

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

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

        Other Expense, net.    Other expense, net, comprises foreign exchange gains/losses resulting from the revaluation of foreign currency-denominated accounts receivable and payable as a result of changes in exchange rates, and other nonoperating items of expense. Other expense, net, was $6.8 million in 2004 compared with $2.4 million in 2003. The higher expense in 2004 was due primarily to unfavorable foreign exchange.

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

Business Segment Review

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

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Non-GAAP Financial Measures

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

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

(1)

Non-GAAP adjustments for the year 2004 include a $1.2 million other operating gain from the sale of land, offset by a $0.5 million other operating charge for severance arising from the consolidation of production capacity related to the foods product line. Non-GAAP adjustments for the year 2003 included a $2.1 million other operating charge for the write-off of fixed assets at our Texas City, Texas facility related to a manufacturing process for a discontinued product within the industrial chemicals segment. Non-GAAP adjustments for the year 2003 also included an other operating charge of $1.5 million for stock option payments related to ISP's going private transaction.

Specialty Chemicals

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

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

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

Industrial Chemicals

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

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

Synthetic Elastomers

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

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

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Mineral Products

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

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

Results of Operations

2003 (Restated) Compared With 2002

Overview

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

        Other Expense, net.    Other expense, net, comprises foreign exchange gains/losses resulting from the revaluation of foreign currency-denominated accounts receivable and payable as a result of changes in exchange rates, and other nonoperating items of expense. Other expense, net, was $2.4 million in 2003 compared with $6.9 million in 2002. The lower expense in 2003 was due primarily to favorable foreign exchange as a result of the weaker U.S. dollar, mainly in Europe, partially offset by $0.9 million higher environmental liability provisions related to discontinued operations.

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

Business Segment Review

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

Non-GAAP Financial Measures

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

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

(1)

Non-GAAP adjustments for the year 2003 included a $2.1 million other operating charge for the write-off of fixed assets at our Texas City, Texas facility related to a manufacturing process for a discontinued product within the industrial chemicals segment. Non-GAAP adjustments for the year 2003 also included an other operating charge of $1.5 million for stock option payments related to ISP's going private transaction. The non-GAAP adjustments for the year 2002 included a $7.6 million write-off of deferred costs related to our Linden, New Jersey property. This charge was not allocated to the current operating business segments because the Linden property is a non-operating property. In addition, the non-GAAP adjustments for the year 2002 included other operating gains of $12.2 million, consisting of a gain of $2.8 million for a contract termination related to the sale of our company's FineTech business, a $5.5 million gain from the sale of the FineTech business and a $3.9 million gain on a contract settlement.

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Specialty Chemicals

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

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

Industrial Chemicals

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

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

Synthetic Elastomers

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

Mineral Products

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

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

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

Liquidity and Financial Condition

Cash Flows and Cash Position

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

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

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

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

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

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

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

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

Current Maturities of Long-Term Debt

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

Debt Instruments, Financial Covenants and Restrictions and Available Credit Facilities

        During 2001, ISP Chemco and three of its wholly owned subsidiaries jointly issued, in three separate transactions, a total of $405.0 million aggregate principal amount of 10¹/4% Senior Subordinated Notes due 2011, which we refer to as the "2011 Notes." The 2011 Notes are guaranteed by substantially all of ISP Chemco's domestic subsidiaries. The 2011 Notes were issued under an indenture which, among other things, places limitations on the ability of ISP Chemco and its subsidiaries, except our accounts receivable subsidiary and certain immaterial subsidiaries, to incur additional debt, issue preferred stock, incur liens, and pay dividends or make certain other restricted payments and restricted investments.

        In June 2001, in a related transaction, ISP Chemco and those same three subsidiaries which issued the 2011 Notes also entered into the $450.0 million Senior Credit Facilities. As discussed above, in April 2004, ISP Chemco and those same three subsidiaries amended and restated the Senior Credit Facilities in order to extend the term, increase future flexibility and reduce the effective interest rate on borrowings. The Senior Credit Facilities provide a $250.0 million term loan with a maturity in March 2011, which replaced the $225.0 million term loan that was due to mature in June 2008. In addition, in April 2004, the $225.0 million revolving credit facility under the Senior Credit Facilities, which was to terminate in June 2006, was reduced to $200.0 million, including a borrowing capacity not in excess of $50.0 million for letters of credit, and the maturity was extended to April 15, 2009. As of December 31, 2004, no borrowings and $8.8 million of letters of credit were outstanding under the revolving credit facility. All borrowings under the Senior Credit Facilities are based on either an alternate base rate (based on the banks' base rate or on the federal funds rate) or on the Eurodollar rate plus a margin based on the ratio of ISP Chemco's total consolidated debt to EBITDA (as defined

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in the Senior Credit Facilities). The average interest rate at December 31, 2004 on borrowings under the Senior Credit Facilities was 4.25%. The Senior Credit Facilities require compliance with various financial covenants, including a total debt leverage maintenance ratio, a senior debt leverage maintenance ratio and an interest coverage ratio. In addition, the Senior Credit Facilities limit the ability of ISP Chemco and its subsidiaries, except its accounts receivable subsidiary and certain immaterial subsidiaries, to incur additional debt, issue preferred stock, incur liens, and pay dividends or make certain other restricted payments and restricted investments. ISP Chemco and substantially all of its domestic subsidiaries are designated as obligors under the Senior Credit Facilities. The obligations of the obligors under the Senior Credit Facilities are secured by a first-priority security interest in 100% of the capital stock of ISP Chemco's domestic subsidiaries and 66% of the capital stock of some of ISP Chemco's foreign subsidiaries, and substantially all of the real and personal property of the obligors, except for our accounts receivable subsidiary and certain immaterial subsidiaries.

        On December 13, 2001, we issued $200.0 million principal amount of 10⁵/8% Senior Secured Notes due 2009, which we refer to as the "2009 Notes." The 2009 Notes are secured by a first priority lien on all of the outstanding capital stock of ISP Chemco. The 2009 Notes are structurally subordinated to all liabilities of our subsidiaries. The 2009 Notes were issued under an indenture which, among other things, limits our ability and the ability of our subsidiaries, except our unrestricted subsidiaries, to incur additional debt, enter into transactions with affiliates, issue preferred stock, incur liens, and pay dividends or make certain other restricted payments and restricted investments. ISP Synthetic Elastomers LP and ISP Investco LLC, our wholly owned subsidiaries, the subsidiaries of ISP Investco, our accounts receivable subsidiary and certain immaterial subsidiaries have been designated as unrestricted subsidiaries under the indenture related to the 2009 Notes.

        The borrowings of certain of our subsidiaries are subject to the application of certain financial covenants contained in the Senior Credit Facilities and in the indenture governing the 2011 Notes. Our borrowings are also subject to the application of some financial covenants contained in the indenture governing the 2009 Notes. As of December 31, 2004, we and those subsidiaries were in compliance with those covenants, and the application of those covenants would not have restricted available borrowings under the Senior Credit Facilities. See Note 13 to consolidated financial statements.

        The Senior Credit Facilities and the indenture governing the 2011 Notes contain additional affirmative and negative covenants affecting ISP Chemco and some of its subsidiaries, including restrictions on transactions with affiliates, sale-leaseback transactions, and mergers and transfers of all or substantially all of those subsidiaries' assets. The indenture governing the 2009 Notes also contains additional affirmative and negative covenants similar to those contained in the indenture governing the 2011 Notes affecting us and some of our subsidiaries. These limitations do not apply to ISP Synthetic Elastomers LP and ISP Investco LLC, which are unrestricted subsidiaries. As of December 31, 2004, under the most restrictive of these limitations, we could have paid restricted payments of up to $74.0 million. Restricted payments are dividends, acquisitions of our equity or other capital stock, payments on subordinated debt or most investments in third parties. Despite those limitations, we expect our availability under those covenants to make restricted payments, tax sharing payments and other permitted cash payments will allow us to satisfy our cash obligations under the notes. Additionally, in the event the holders of the 2009 Notes were to foreclose on ISP Chemco's capital stock following an event of default under those notes, the sale of the capital stock would constitute a change of control of ISP Chemco. Under the indenture governing the 2011 Notes, if a change of control of ISP Chemco occurs, ISP Chemco is obligated to make an offer to repurchase the 2011 Notes from their respective holders. The terms of the Senior Credit Facilities, however, prohibit the

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repayment of the 2011 Notes in that event unless and until such time as the indebtedness under the Senior Credit Facilities is repaid in full. Failure to make such repayment upon a change of control would result in a default under the 2011 Notes. A change of control of ISP Chemco would also result in a default under the Senior Credit Facilities. In the event of a default under the indenture governing the 2011 Notes or under the Senior Credit Facilities, the holders of the 2011 Notes or the lenders under the Senior Credit Facilities, as the case may be, could elect to accelerate the maturity of the 2011 Notes or the loans under the Senior Credit Facilities. Those events could have a material adverse effect on our financial condition and results of operations.

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

Related Party Transactions

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

        Pursuant to a management agreement, which we refer to as the "Management Agreement," we, through a subsidiary, provide certain general management, administrative, legal, telecommunications, information and facilities services to BMCA and the ISP parent company. Charges by us for providing such services aggregated $5.7, $6.3 and $6.2 million for 2004, 2003 and 2002, respectively, and are reflected as reductions of "Selling, general and administrative" expense. Such charges consist of management fees and other reimbursable expenses attributable to, or incurred by us for the benefit of the respective parties, which are based on an estimate of the costs we incur to provide such services. The Management Agreement is expected to be amended to extend the term of the agreement, effective January 1, 2005, through December 31, 2005. We and BMCA also allocate a portion of the management fees payable by BMCA under the Management Agreement to separate lease payments for the use of BMCA's headquarters.

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

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Commercial Commitments

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

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

Capital Expenditures

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

Income Taxes

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

Inflation

        Inflation generally affects our company by increasing the cost of labor, raw materials and energy costs. We do not believe that inflation has had a significant adverse effect on our results of operations during the past three years. However, there can be no assurance that our business will not be affected by inflation in the future.

Operating Lease Obligation

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

Environmental Matters and Other Contingencies

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

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Contractual Obligations

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

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

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

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

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

Market-Sensitive Instruments and Risk Management

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

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

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

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

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

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

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New Accounting Standards

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

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

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

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

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

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

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

* * *

Forward-looking Statements

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

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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.