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

FORM 10-Q

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

For the quarterly period ended SEPTEMBER 28, 2003

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

Commission File Number 333-82822

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

DELAWARE 22-3807354
(State or Other Jurisdiction of (IRS Employer
Incorporation or Organization) Identification No.)

300 DELAWARE AVENUE, SUITE 303, WILMINGTON, DELAWARE 19801
(Address of principal executive offices) (Zip Code)

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

NONE
(Former Name, Former Address and Former Fiscal Year,
if Changed Since Last Report)

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

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

As of November 11, 2003, 100 shares of the registrant's common stock (par
value $.001 per share) were outstanding. There is no trading market for the
common stock of the registrant. No shares of the registrant were held by
non-affiliates.

PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS

INTERNATIONAL SPECIALTY HOLDINGS INC.

CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

THIRD QUARTER ENDED NINE MONTHS ENDED
--------------------- --------------------
SEPT. 29, SEPT. 28, SEPT. 29, SEPT. 28,
2002 2003 2002 2003
--------- ---------- --------- ---------
(THOUSANDS)

Net sales............................ $ 208,363 $ 215,125 $ 642,211 $ 677,229
Cost of products sold................ (132,105) (140,506) (416,137) (440,314)
Selling, general and administrative.. (40,478) (42,303) (126,590) (131,055)
Other operating gains and
(charges), net..................... - - 12,228 (1,451)
Amortization of intangible assets.... (125) (144) (680) (432)
--------- --------- --------- ---------
Operating income..................... 35,655 32,172 111,032 103,977
Interest expense..................... (20,566) (18,815) (64,594) (57,756)
Investment income (loss), net........ 1,396 (5,407) 26,745 21,477
Charge for early retirement of debt.. - - (7,159) -
Other expense, net................... (4,378) (2,026) (6,555) (2,114)
--------- --------- --------- ---------
Income before income taxes and
cumulative effect of changes in
accounting principles.............. 12,107 5,924 59,469 65,584
Income taxes......................... (3,761) (2,039) (19,832) (22,338)
--------- --------- --------- ---------
Income before cumulative effect of
changes in accounting principles... 8,346 3,885 39,637 43,246

Cumulative effect of changes in
accounting principles, net of
income tax benefit of $600 in 2003. - - (155,400) (1,021)
--------- --------- --------- ---------
Net income (loss).................... $ 8,346 $ 3,885 $(115,763) $ 42,225
========= ========= ========= =========

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

INTERNATIONAL SPECIALTY HOLDINGS INC.

CONSOLIDATED BALANCE SHEETS (UNAUDITED)

DECEMBER 31, SEPT. 28,
2002 2003
------------ ----------
(THOUSANDS)

ASSETS
Current Assets:
Cash and cash equivalents.......................... $ 35,060 $ 96,131
Investments in trading securities.................. 253,660 86,469
Investments in available-for-sale securities....... 274,639 230,337
Accounts receivable, trade, less allowance of
$6,022 and $6,104 at December 31, 2002 and
September 28, 2003, respectively................ 79,780 94,690
Accounts receivable, other......................... 16,934 23,810
Short-term loans receivable from parent company.... - 25,061
Receivables from related parties................... 12,518 26,257
Inventories........................................ 176,217 182,895
Deferred income taxes.............................. 34,687 31,151
Prepaid expenses................................... 9,912 8,582
---------- ----------
Total Current Assets............................. 893,407 805,383
Property, plant and equipment, net................... 565,713 569,902
Goodwill, net of accumulated amortization of $180,486 325,706 331,101
Intangible assets, net............................... 9,442 9,010
Long-term loans receivable from parent company....... - 70,234
Other assets......................................... 48,045 52,523
---------- ----------
Total Assets......................................... $1,842,313 $1,838,153
========== ==========
LIABILITIES AND SHAREHOLDER'S EQUITY
Current Liabilities:
Short-term debt.................................... $ 125,802 $ 86,144
Current maturities of long-term debt............... 2,732 2,726
Accounts payable................................... 54,655 56,475
Accrued liabilities................................ 95,925 83,681
Payable to parent company.......................... 43,773 1,784
Income taxes payable............................... 37,260 34,810
---------- ----------
Total Current Liabilities........................ 360,147 265,620
---------- ----------
Long-term debt less current maturities............... 823,008 821,655
---------- ----------
Deferred income taxes................................ 70,678 93,307
---------- ----------
Other liabilities.................................... 103,727 110,443
---------- ----------
Shareholder's Equity:
Common stock, $.001 par value per share;
100 shares issued and outstanding................ - -
Additional paid-in capital......................... 640,816 642,267
Accumulated deficit................................ (127,368) (85,143)
Accumulated other comprehensive loss............... (28,695) (9,996)
---------- ----------
Total Shareholder's Equity....................... 484,753 547,128
---------- ----------
Total Liabilities and Shareholder's Equity........... $1,842,313 $1,838,153
========== ==========

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

INTERNATIONAL SPECIALTY HOLDINGS INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

NINE MONTHS ENDED
-------------------
SEPT. 29, SEPT. 28,
2002 2003
-------- ---------
(THOUSANDS)

Cash and cash equivalents, beginning of period............... $ 77,863 $ 35,060
-------- --------
Cash provided by (used in) operating activities:
Net income (loss).......................................... (115,763) 42,225
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Cumulative effect of changes in accounting principles.. 155,400 1,021
Gain on sale of assets................................. (5,468) -
Depreciation........................................... 42,203 44,897
Amortization of intangible assets...................... 680 432
Deferred income taxes.................................. 10,804 21,030
Unrealized (gains) losses on trading securities........ (1,489) 5,185
Increase in working capital items.......................... 25,666 (37,116)
Purchases of trading securities............................ (456,059) (273,709)
Proceeds from sales of trading securities.................. 302,682 439,707
Proceeds (repayments) from sale of accounts receivable..... 3,932 (2,560)
Change in receivable from/payable to related parties....... 8,821 (55,728)
Change in cumulative translation adjustment................ 9,469 6,368
Other, net................................................. 2,129 (4,124)
-------- --------
Net cash provided by (used in) operating activities.......... (16,993) 187,628
-------- --------
Cash provided by (used in) investing activities:
Capital expenditures and acquisitions...................... (42,551) (49,667)
Net proceeds from sale of assets........................... 27,271 -
Purchases of available-for-sale securities................. (205,050) (66,259)
Proceeds from sales of available-for-sale securities....... 229,024 121,382
Proceeds from sales of other short-term investments........ 2,299 -
-------- --------
Net cash provided by investing activities.................... 10,993 5,456
-------- --------
Cash provided by (used in) financing activities:
Increase (decrease) in short-term debt..................... 89,047 (39,658)
Decrease in borrowings under revolving credit facility..... (85,250) -
Repayments of long-term debt............................... (308,045) (1,554)
Loans to parent company.................................... - (95,295)
Call premium on redemption of debt......................... (4,621) -
Decrease in restricted cash................................ 307,866 -
Debt issuance costs........................................ (1,613) -
Dividends and distributions to parent company.............. (16,850) -
Capital contribution from parent company................... 11,687 1,451
-------- --------
Net cash used in financing activities........................ (7,779) (135,056)
-------- --------
Effect of exchange rate changes on cash...................... 636 3,043
-------- --------
Net change in cash and cash equivalents...................... (13,143) 61,071
-------- --------
Cash and cash equivalents, end of period..................... $ 64,720 $ 96,131
======== ========

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

INTERNATIONAL SPECIALTY HOLDINGS INC.

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

NINE MONTHS ENDED
--------------------
SEPT. 29, SEPT. 28,
2002 2003
--------- ---------
(THOUSANDS)

Supplemental Cash Flow Information:

Cash paid during the period for:
Interest (net of amount capitalized)................. $ 72,045 $ 60,932
Income taxes (including taxes paid pursuant to the
Tax Sharing Agreement)............................ 5,351 3,732

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

Acquisition of Germinal S.A., net of $436
cash acquired:
Fair market value of assets acquired................. $ 7,685
Purchase price of acquisition........................ 7,252
--------
Liabilities assumed.................................. $ 433
========

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

INTERNATIONAL SPECIALTY HOLDINGS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

The consolidated financial statements for International Specialty Holdings
Inc. (the "Company") reflect, in the opinion of management, all adjustments
necessary to present fairly the financial position of the Company and its
consolidated subsidiaries at September 28, 2003, and the results of operations
and cash flows for the three and nine month periods ended September 29, 2002 and
September 28, 2003. All adjustments are of a normal recurring nature. These
consolidated financial statements should be read in conjunction with the annual
consolidated financial statements and notes thereto included in the Company's
Annual Report on Form 10-K for the fiscal year ended December 31, 2002 (the
"2002 Form 10-K").

NOTE 1. CHARGE FOR EARLY RETIREMENT OF DEBT

On January 14, 2002, the Company's parent company, International Specialty
Products Inc. ("ISP"), redeemed the remaining $307.9 million aggregate principal
amount of its 9% Senior Notes due 2003 (the "2003 Notes"). As a result, the
Company recorded an extraordinary loss on the early retirement of debt of $4.7
million ($7.2 million before income tax benefit of $2.5 million). In April 2002,
the Financial Accounting Standards Board ("FASB") issued Statement of Financial
Accounting Standards ("SFAS") No. 145, "Rescission of FASB Statements No. 4, 44,
and 64, Amendment of FASB Statement No. 13, and Technical Corrections." SFAS No.
145 eliminates the requirement of SFAS No. 4 that gains and losses on the early
extinguishments of debt be recorded as an extraordinary item unless such gains
and losses meet the criteria of Accounting Principles Board Opinion No. 30 for
classification as extraordinary. The Company adopted SFAS No. 145 effective
January 1, 2003 and, as a result, the Consolidated Statement of Operations for
the first nine months of 2002 was restated to reclassify the pre-tax
extraordinary charge of $7.2 million on the early retirement of debt to a
separate line item of pre-tax income. The tax benefit of $2.5 million related to
the extraordinary charge has been reclassified and is included in "Income
taxes."

NOTE 2. ASSET RETIREMENT OBLIGATIONS

The Company adopted SFAS No. 143, "Accounting for Asset Retirement
Obligations," effective January 1, 2003. SFAS No. 143 establishes accounting and
reporting standards for legal obligations associated with the retirement of
long-lived assets that result from the acquisition, construction, development
and the normal operation of a long-lived asset. The Company holds long-lived
assets that have legal obligations associated with their retirement. These
assets include deep wells that require capping, minerals quarries that require
reclamation and other plant assets subject to certain environmental regulations.
SFAS No. 143 requires that the fair value of a liability for an asset retirement
obligation ("ARO") be recognized in the period in which it is incurred. Upon
initial recognition of such liability, an entity must capitalize the asset
retirement cost by increasing the carrying amount of the related long-lived
asset and subsequently depreciating the asset retirement cost over the useful
life of the related asset. Subsequent to the initial measurement of the ARO, the
obligation will be adjusted at the end of each period to reflect the passage of
time and changes in the estimated future cash flows underlying the obligation.
If the obligation is settled for other than the carrying amount of the
liability, the Company would then recognize a gain or loss on settlement. As a
result of adopting SFAS No. 143, effective January 1, 2003, the Company
recognized an after-tax charge of $1.0 million ($1.6 million before an income
tax benefit of $0.6 million) as the cumulative effect of a change in

INTERNATIONAL SPECIALTY HOLDINGS INC.

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

NOTE 2. ASSET RETIREMENT OBLIGATIONS -- (CONTINUED)

accounting principle, and recorded an ARO of $1.9 million and a net increase in
property, plant and equipment of $0.3 million. The ongoing expense on an annual
basis resulting from the initial adoption of SFAS No. 143 is approximately $0.2
million.

The change in the ARO during the nine months ended September 28, 2003 is as
follows:

(Thousands)
ARO liability recognized as of January 1, 2003............ $ 1,871
Liabilities incurred, nine months ended September 28, 2003 22
ARO liability accretion................................... 135
--------
ARO liability balance, September 28, 2003................. $ 2,028
========

The pro forma ARO would have been $1.7 million on January 1, 2002 and $1.8
million on September 29, 2002 if SFAS No. 143 had been applied during all
periods affected.

For the nine months ended September 29, 2002, the net loss on a pro forma
basis would have been $115.9 million, including an additional $0.1 million due
to additional depreciation and liability accretion from AROs. The net income for
the nine months ended September 28, 2003 would have increased on a pro forma
basis by $1.0 million to $43.2 million due to the elimination of the cumulative
effect of the change in accounting principle recorded on January 1, 2003 on the
adoption of SFAS No. 143. For the third quarter of 2002, the pro forma net
income would have been $40 thousand lower, while for the third quarter of 2003,
actual and pro forma net income are the same.

NOTE 3. NEW ACCOUNTING STANDARDS

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

INTERNATIONAL SPECIALTY HOLDINGS INC.

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

NOTE 3. NEW ACCOUNTING STANDARDS -- (CONTINUED)

transition for an entity that voluntarily changes to the fair value based method
of accounting for stock-based employee compensation. In addition, SFAS No. 148
amends the disclosure requirements of SFAS No. 123 for both annual and interim
reporting periods by requiring disclosures in a tabular format to reconcile net
income as reported to pro forma net income as if the fair value method was used.
Certain of the disclosure modifications required for fiscal years ending after
December 15, 2002 were disclosed in the Company's 2002 Form 10-K. However, as
discussed in Note 4, with the completion of the going private transaction by ISP
in February 2003, the Company's stock-based compensation plans were terminated
and payments were made in accordance with the terms of the merger agreement.
Therefore, the provisions of SFAS No. 148 are no longer applicable to the
Company as it relates to those plans. In addition, the Company currently
accounts for incentive units granted to eligible Company employees pursuant to
ISP's 2000 Long-Term Incentive Plan and 2003 Executive Long-Term Incentive Plan
under the accounting prescribed by FASB Interpretation No. ("FIN") 28,
"Accounting for Stock Appreciation Rights and Other Variable Stock Option and
Award Plans," which requires an entity to measure compensation as the amount by
which the Book Value (as defined) of the incentive units covered by the grant
exceeds the option price or value specified of such incentive units at the date
of grant. Changes, either increases or decreases, in the Book Value of those
incentive units between the date of grant and the measurement date result in a
change in the measure of compensation for the right or award. The Company
expects to continue to account for its long-term incentive units under the
accounting prescribed by FIN 28 and has adopted the additional disclosure
provisions of SFAS No. 148. Since compensation expense related to such incentive
units is included in the actual Consolidated Statements of Operations, the
Company's pro forma net income under SFAS No. 123 would have been the same as
actual net income.

In November 2002, the FASB issued FIN 45, "Guarantor's Accounting and
Disclosure Requirements for Guarantees, Including Indirect Guarantees of
Indebtedness of Others." FIN 45 clarifies the requirements for a guarantor's
accounting for and disclosures of certain guarantees issued and outstanding. The
provisions of FIN 45 apply to guarantee contracts that contingently require the
guarantor to make payments (in cash, financial instruments, other assets, shares
of stock or provision of services) to the guaranteed party for guarantees such
as a financial standby letter of credit, a market value guarantee on either a
financial or nonfinancial asset owned by the guaranteed party and a guarantee of
the collection of the scheduled contractual cash flows from financial assets
held by a special-purpose entity. FIN 45 also applies to indemnification
contracts and indirect guarantees of indebtedness of others. The requirements of
FIN 45 for the initial recognition and measurement of the liability for a
guarantor's obligations are to be applied only on a prospective basis to
guarantees issued or modified after December 31, 2002. The Company currently
does not have any guarantees, indemnification contracts or indirect guarantees
of indebtedness of others that would be subject to the initial recognition and
measurement provisions of FIN 45. The 10 1/4% Senior Subordinated Notes due 2011
of ISP Chemco Inc. ("ISP Chemco"), the Company's wholly owned subsidiary, that
were issued in November 2001, are guaranteed by all of ISP Chemco's domestic
subsidiaries, other than certain immaterial subsidiaries and the Company's
accounts receivable financing subsidiary.

INTERNATIONAL SPECIALTY HOLDINGS INC.

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

NOTE 3. NEW ACCOUNTING STANDARDS -- (CONTINUED)

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

In April 2003, the FASB issued SFAS No. 149, "Amendment of Statement 133 on
Derivative Instruments and Hedging Activities." SFAS No. 149 amends and
clarifies financial accounting and reporting for derivative instruments and
hedging activities under SFAS No. 133. SFAS No. 149 is effective for contracts
entered into or modified after June 30, 2003 and for hedging relationships
designated after June 30, 2003. The adoption of SFAS No. 149 will not have an
immediate impact on the Company's consolidated financial statements.

NOTE 4. GOING PRIVATE TRANSACTION BY ISP

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

INTERNATIONAL SPECIALTY HOLDINGS INC.

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

NOTE 4. GOING PRIVATE TRANSACTION BY ISP -- (CONTINUED)

As a result of ISP completing the going private transaction, the
Company's stock-based compensation plans were terminated and payments were made
in accordance with the terms of the merger agreement. As a result, holders of
approximately 2.7 million vested, in-the-money stock options outstanding and
exercisable on February 28, 2003 received a cash amount equal to the excess of
$10.30 over the exercise price of such stock options, aggregating $1.5 million
(see Note 6). In addition, outstanding restricted common stock awards were
replaced with long-term incentive units of comparable vesting and a value
equivalent to the previous awards based on the buyout price of $10.30 per award.

The total consideration for the going private transaction of approximately
$138.0 million was paid out of the Company's funds. ISP borrowed a total of
$94.0 million pursuant to five loan agreements, dated March 3, 2003, with the
Company's wholly owned subsidiary, ISP Investco LLC ("ISP Investco"), and its
indirect, wholly owned subsidiary, ISP Ireland. The loans have various maturity
dates to March 2006. The balance of such loans as of September 28, 2003 is $95.3
million, of which $25.1 million is due within one year and the remaining $70.2
million is due in March 2006. The loans accrue interest at a fixed rate of 1.65%
per annum. In addition, ISP Investco paid down $43.8 million of its intercompany
payables to ISP. In accordance with the SEC's Staff Accounting Bulletin No. 54,
"Application of "Push Down" Basis of Accounting in Financial Statements of
Subsidiaries Acquired by Purchase," ISP has not applied push down accounting for
the going private transaction to its subsidiaries.

NOTE 5. 2003 EXECUTIVE LONG-TERM INCENTIVE PLAN

In May 2003, ISP adopted the 2003 Executive Long-Term Incentive Plan (the
"Plan"), which authorizes the grant of incentive units ("Incentive Units") to
eligible employees of the Company. The Plan is administered by a committee (the
"Committee") appointed by the Board of Directors of ISP from among the employees
of ISP. The Committee, in its sole discretion, determines the number of
Incentive Units to be granted to each eligible employee. The Plan will terminate
ten years after its effective date of May 15, 2003.

NOTE 6. OTHER OPERATING GAINS AND CHARGES

As a result of ISP completing the going private transaction discussed in
Note 4, compensation expense of $1.5 million related to the payment for stock
option terminations was recorded in the first quarter of 2003 and is included in
"Other operating gains and (charges), net" for the first nine months of 2003.
First quarter 2002 results included an other operating gain of $2.8 million for
a contract termination related to the sale of the Company's FineTech business.
The Company recorded an additional second quarter 2002 pre-tax gain, after
expenses, of $5.5 million related to this sale. In the second quarter of 2002,
the Company received $4.0 million in settlement of a manufacturing and supply
contract with a customer of the fine chemicals business. After related expenses,
a pre-tax gain of $3.9 million was recognized. For additional information,
reference is made to Note 6 to Consolidated Financial Statements contained in
the 2002 Form 10-K.

INTERNATIONAL SPECIALTY HOLDINGS INC.

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

NOTE 7. GOODWILL AND INTANGIBLE ASSETS

On June 30, 2001, the FASB issued SFAS No. 142, "Goodwill and Other
Intangible Assets." With the adoption of SFAS No. 142, goodwill is no longer
subject to amortization over its estimated useful life. However, goodwill is
subject to at least an annual assessment for impairment and more frequently if
circumstances indicate a possible impairment. The Company adopted SFAS No. 142
effective as of January 1, 2002. Accordingly, during the second quarter of 2002,
the Company completed a transitional impairment test, effective January 1, 2002,
and recognized a goodwill impairment loss of $155.4 million as the cumulative
effect of a change in accounting principle.

The following schedule reconciles the changes in the carrying amount of
goodwill, by business segment, for the nine months ended September 28, 2003. See
Note 9 for a discussion of a change in the composition of the Company's business
segments, effective January 1, 2003. Also, see Note 11 for a discussion of the
acquisition of Germinal S.A.

Specialty Industrial Mineral Total
Chemicals Chemicals Products Goodwill
--------- ---------- -------- ---------
(Thousands)

Balance, December 31, 2002........ $ 274,167 $ - $ 51,539 $ 325,706
Acquisition of Germinal S.A. ..... 5,537 - - 5,537
Translation adjustment............ (142) - - (142)
--------- ---------- --------- ---------
Balance, September 28, 2003....... $ 279,562 $ - $ 51,539 $ 331,101
========= ========== ========= =========

Intangible assets at December 31, 2002 and September 28, 2003 relate to
the Company's biocides business, which was acquired on December 31, 2001. The
following is information as of December 31, 2002 and September 28, 2003 related
to the Company's acquired intangible assets:

December 31, 2002 September 28, 2003
Range of ---------------------------- ----------------------------
Amortizable Gross Carrying Accumulated Gross Carrying Accumulated
Lives Amount Amortization Amount Amortization
----------- -------------- ------------ -------------- ------------
(Dollars in Thousands)

Intangible assets subject to amortization:
Patents..................................... 5-20 years $ 669 $ (57) $ 669 $ (99)
Non-compete agreements...................... 2- 5 years 1,571 (485) 1,571 (850)
EPA registrations........................... 5 years 167 (33) 167 (58)
---------- ---------- ---------- ----------
Total amortized intangible assets......... 2,407 (575) 2,407 (1,007)
---------- ---------- ---------- ----------
Intangible assets not subject to amortization:
Trademarks.................................. 2,962 - 2,962 -
EPA registrations........................... 4,648 - 4,648 -
---------- ---------- ---------- ----------
Total unamortized intangible assets....... 7,610 - 7,610 -
---------- ---------- ---------- ----------
Total intangible assets....................... $ 10,017 $ (575) $ 10,017 $ (1,007)
========== ========== ========== ==========

Estimated amortization expense:
Year ending December 31, (Thousands)
-----------
2003................................................ $ 575
2004................................................ 290
2005................................................ 290
2006................................................ 290
2007................................................ 26

INTERNATIONAL SPECIALTY HOLDINGS INC.

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

NOTE 8. COMPREHENSIVE INCOME (LOSS)

Third Quarter Ended Nine Months Ended
-------------------- -------------------
Sept, 29, Sept, 28, Sept. 29, Sept. 28,
2002 2003 2002 2003
-------- -------- ------- ---------
(Thousands)

Net income (loss)............................ $ 8,346 $ 3,885 $(115,763) $ 42,225
-------- -------- --------- ---------
Other comprehensive income (loss), net of tax:
Change in unrealized gains (losses) on
available-for-sale securities:
Unrealized holding gains (losses) arising
during the period, net of income tax
(provision) benefit of $8,449, $(5,513),
$(3,625) and $(5,693), respectively..... (13,831) 10,392 13,119 8,725
Less: reclassification adjustment for
gains (losses) included in net income,
net of income tax (provision) benefit of
$13,419, $684, $10,737 and $(168),
respectively............................ (25,843) (1,658) (16,342) (563)
-------- -------- --------- ---------
Total change for the period................. 12,012 12,050 29,461 9,288
-------- -------- --------- ---------
Change in unrealized losses on derivative
hedging instruments - cash flow hedges:
Net derivative losses, net of income tax
benefit of $0, $0, $12 and $0,
respectively............................ - - (22) -
Less: reclassification adjustment for
losses included in net income, net of
income tax benefit of $0, $0, $534
and $0, respectively.................... - - (986) -
-------- -------- --------- ---------
Total change for the period................. - - 964 -
-------- -------- --------- ---------
Foreign currency translation adjustment....... (1,127) (239) 10,105 9,411
-------- -------- --------- ---------
Total other comprehensive income.............. 10,885 11,811 40,530 18,699
-------- -------- --------- ---------
Comprehensive income (loss)................... $ 19,231 $ 15,696 $ (75,233) $ 60,924
======== ======== ========= =========

INTERNATIONAL SPECIALTY HOLDINGS INC.

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

NOTE 8. COMPREHENSIVE INCOME (LOSS) -- (CONTINUED)

Changes in the components of "Accumulated other comprehensive loss" for the
nine months ended September 28, 2003 are as follows:

Unrealized Cumulative Additional
Gains (Losses) Foreign Minimum Accumulated
On Available- Currency Pension Other
for-Sale Translation Liability Comprehensive
Securities Adjustment Adjustment Income (Loss)
------------- ------------ ------------ -------------
(Thousands)

Balance, December 31, 2002... $ (13,200) $ (10,091) $ (5,404) $ (28,695)
Change for the period........ 9,288 9,411 - 18,699
--------- --------- --------- ---------
Balance, September 28, 2003.. $ (3,912) $ (680) $ (5,404) $ (9,996)
========= ========= ========= =========

NOTE 9. BUSINESS SEGMENT INFORMATION

Third Quarter Ended Nine Months Ended
--------------------- -------------------
Sept. 29, Sept. 28, Sept. 29, Sept. 28,
2002 2003 2002 2003
--------- --------- -------- ---------
(Thousands)

Net sales (1):
Specialty Chemicals....................... $ 149,309 $ 153,464 $ 455,591 $ 470,378
Industrial Chemicals...................... 34,500 35,047 112,363 128,574
Mineral Products (2)...................... 24,554 26,614 74,257 78,277
--------- --------- --------- ---------
Net sales................................... $ 208,363 $ 215,125 $ 642,211 $ 677,229
========= ========= ========= =========

Operating income (1):
Specialty Chemicals....................... $ 27,838 $ 29,760 $ 87,123 $ 96,697
Industrial Chemicals...................... 2,119 (1,221) 5,183 (5,342)
Mineral Products.......................... 5,540 3,496 18,428 12,233
--------- --------- --------- --------
Total segment operating income............ 35,497 32,035 110,734 103,588
Unallocated corporate office.............. 158 137 298 389
--------- --------- --------- ---------
Total operating income...................... 35,655 32,172 111,032 103,977
Interest expense, investment income (loss)
and other, net ......................... (23,548) (26,248) (51,563) (38,393)
--------- --------- --------- ---------
Income before income taxes and cumulative
effect of changes in accounting principles $ 12,107 $ 5,924 $ 59,469 $ 65,584
========== ========= ========= =========

(1) Effective January 1, 2003, the Company changed the composition of its
reportable segments to be consistent with the current structure of the
Company's businesses. Over the last several years, the Company has
increased its focus on its higher margin consumer-oriented businesses.
Consistent with that business focus, the Company now reports three business
segments: Specialty Chemicals, Industrial Chemicals and Mineral Products.
The Company's Specialty Chemicals segment consists of the personal care,
pharmaceutical, food, beverage, performance chemicals and fine chemicals
product lines. Sales and operating income by business segment for the third
quarter and nine months ended September 29, 2002 have been restated to
conform to the 2003 presentation.

INTERNATIONAL SPECIALTY HOLDINGS INC.

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

NOTE 9. BUSINESS SEGMENT INFORMATION -- (CONTINUED)

(2) Includes sales to Building Materials Corporation of America, an affiliate,
and its subsidiaries, of $19.1 and $19.5 million for the third quarter of
2002 and 2003, respectively, and $57.9 and $59.2 for the first nine months
of 2002 and 2003, respectively.

NOTE 10. INVENTORIES

Inventories comprise the following:

December 31, Sept. 28,
2002 2003
------------ --------
(Thousands)
Finished goods................ $113,912 $116,060
Work-in-process............... 32,407 33,817
Raw materials and supplies.... 29,898 33,018
-------- --------
Inventories................... $176,217 $182,895
======== ========

At December 31, 2002 and September 28, 2003, $62.0 and $64.5 million,
respectively, of domestic inventories were valued using the LIFO method. If the
FIFO inventory method had been used for these inventories, the value of
inventories would have been $2.8 and $4.5 million higher at December 31, 2002
and September 28, 2003, respectively.

NOTE 11. ACQUISITION

In May 2003, the Company acquired 100% of the stock of Germinal S.A.,
a supplier of food ingredients to the meat and dairy industry in southern Latin
America, for $7.3 million in cash, net of $0.4 million cash acquired. Germinal
has a manufacturing facility at its headquarters in Cabreuva, Brazil. In
accordance with SFAS No. 141, "Business Combinations," the purchase price was
allocated on a preliminary basis to the estimated fair value of the identifiable
assets acquired, primarily property plant and equipment, and the excess of $5.5
million was recorded as goodwill. The Company is in the process of evaluating
the fair value of the net assets acquired and, therefore, the purchase price
allocation is subject to refinement. The results of the Germinal business are
included in the Company's results of operations from the date of acquisition and
are not expected to have a material impact on the Company's results of
operations for the year 2003.

INTERNATIONAL SPECIALTY HOLDINGS INC.

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

NOTE 12. CONTINGENCIES

Environmental Litigation

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

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

For further information regarding environmental matters, reference is made
to Note 20 to Consolidated Financial Statements contained in the 2002 Form 10-K.

Tax Claim Against G-I Holdings Inc.

The predecessor of ISP and certain of its domestic subsidiaries were
parties to tax sharing agreements with members of a consolidated group for
Federal income tax purposes that included G-I Holdings Inc., (the "G-I Holdings
Group") in certain prior years. Until January 1, 1997, ISP and its domestic
subsidiaries were included in the consolidated Federal income tax returns of the
G-I Holdings Group and, accordingly, would be severally liable for any tax
liability of the G-I Holdings Group in respect of those prior years. Those tax
sharing agreements are no longer applicable with respect to the tax liabilities
of ISP for periods subsequent to January 1, 1997, because neither the Company
nor any of its domestic subsidiaries are members of the G-I Holdings Group for
periods after January 1, 1997. In January 2001, G-I Holdings filed a voluntary
petition for reorganization under Chapter 11 of the U.S. Bankruptcy Code due to
its asbestos-related bodily injury claims relating to the inhalation of asbestos
fiber.

On September 15, 1997, G-I Holdings received a notice from the Internal
Revenue Service (the "IRS") of a deficiency in the amount of $84.4 million
(after taking into account the use of net operating losses and foreign tax
credits otherwise available for use in later years) in connection with the
formation in 1990 of Rhone-Poulenc Surfactants and Specialties, L.P. (the
"surfactants partnership"), a partnership in which G-I Holdings held an
interest. G-I Holdings has advised the Company that it believes that it will
prevail in the tax matter arising out of the surfactants partnership, although
there can be no assurance in this regard. The

INTERNATIONAL SPECIALTY HOLDINGS INC.

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

NOTE 12. CONTINGENCIES -- (CONTINUED)

Company believes that the ultimate disposition of this matter will not have a
material adverse effect on its business, financial position or results of
operations. On September 21, 2001, the IRS filed a proof of claim with respect
to such deficiency against G-I Holdings and one of its subsidiaries, ACI Inc.,
that also had filed for protection under Chapter 11 of the Bankruptcy Code, in
the G-I Holdings bankruptcy. If such proof of claim is sustained, ISP and/or
certain of its subsidiaries together with G-I Holdings and several current and
former subsidiaries of G-I Holdings would be severally liable for taxes and
interest in an amount of approximately $279 million, computed as of September
28, 2003. On May 7, 2002, G-I Holdings filed an objection to that proof of
claim. Such objection will be heard by the United States District Court for the
District of New Jersey which oversees the G-I Holdings bankruptcy court. For
additional information relating to G-I Holdings, reference is made to Notes 9
and 20 to Consolidated Financial Statements contained in the 2002 Form 10-K.

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

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

RESULTS OF OPERATIONS -- THIRD QUARTER 2003 COMPARED WITH
THIRD QUARTER 2002

We recorded third quarter 2003 net income of $3.9 million compared with net
income of $8.3 million in the third quarter of 2002. The lower results for the
third quarter of 2003 were attributable to investment losses of $5.4 million and
$3.5 million lower operating income, partially offset by $2.4 million lower
other expense, net, and $1.8 million lower interest expense.

Effective January 1, 2003, we changed the composition of our reportable
segments to be consistent with the current structure of our businesses. Over the
last several years, we have increased our focus on our higher margin
consumer-oriented businesses. Consistent with that business focus, we now report
three business segments: Specialty Chemicals, Industrial Chemicals and Mineral
Products. Our Specialty Chemicals segment consists of the personal care,
pharmaceutical, food, beverage, performance chemicals and fine chemicals product
lines. Sales and operating income by business segment for the third quarter and
nine months ended September 29, 2002 have been restated to conform to the 2003
presentation.

Net sales for the third quarter of 2003 were $215.1 million compared with
$208.4 million for the third quarter of 2002. The $6.7 million (3%) increase in
sales resulted from higher unit volumes in the Mineral Products segment ($4.0
million) and in the pharmaceutical and food product lines (totaling $4.8
million) and the favorable impact of the weaker U.S. dollar in Europe ($8.1
million). These sales gains were partially offset by lower pricing in Industrial
Chemicals and Mineral Products (totaling $4.0 million) and lower unit volumes in
the fine chemicals product line ($4.2 million).

The gross margin for the third quarter of 2003 was 34.7% compared with
36.6% in the third quarter of 2002. The reduced margin resulted primarily from
the impact of the unfavorable pricing in Industrial Chemicals and Mineral
Products and unfavorable manufacturing costs in Mineral Products and fine
chemicals (totaling $7.7 million), partially offset by higher unit volumes and
the favorable impact of the weaker U.S. dollar.

Operating income was $32.2 million in the third quarter of 2003 compared
with $35.7 million in the third quarter of 2002. Operating income for the
Specialty Chemicals segment improved 7% to $29.8 million compared with $27.8
million in the third quarter of 2002. The improved results for Specialty
Chemicals were primarily attributable to the personal care and pharmaceutical
product lines, mainly due to manufacturing efficiencies and the favorable impact
of the weaker U.S. dollar, partially offset by losses in the fine chemicals
product line.

The Industrial Chemicals segment recorded an operating loss of $1.2 million
in the third quarter of 2003 compared with operating income of $2.1 million in
the third quarter of 2002. The Industrial Chemicals manufacturing operations are
principally based in Europe and costs for this business have been adversely
impacted by the stronger Euro. In addition, the results for the third quarter of
2003 were impacted by lower pricing due to current industry supply/demand
imbalance.

Operating income for the Mineral Products segment decreased by $2.0 million
(36%) to $3.5 million in the third quarter of 2003 because of unfavorable
manufacturing costs, primarily higher energy costs, as well as lower pricing.

Selling, general and administrative expenses for the third quarter of 2003
increased by 4% to $42.3 million from $40.5 million in the same period last year
as a result of higher selling and administrative costs, mainly due to the weaker
U.S. dollar. Selling, general and administrative expenses as a percentage of
sales were 19.7% compared with 19.4% in last year's third quarter.

Interest expense for the third quarter of 2003 was $18.8 million versus
$20.6 million for the same period last year. The $1.8 million (9%) decrease was
primarily due to lower average borrowings ($1.4 million impact) and, to a lesser
extent, lower average interest rates ($0.4 million impact). Investment losses in
the third quarter of 2003 totaled $5.4 million compared with investment income
of $1.4 million in the same period last year, with the decrease resulting mainly
from unrealized losses on securities. Other expense, net, for the third quarter
of 2003 was $2.0 million compared with $4.4 million in last year's third
quarter, with the lower expense due primarily to favorable foreign exchange.

Business Segment Review

A discussion of operating results for each of our business segments
follows. We operate our business through three reportable business segments:
Specialty Chemicals; Industrial Chemicals; and Mineral Products. As discussed
above, we changed the composition of our reportable segments, effective January
1, 2003. Sales and operating income by business segment for the third quarter of
2002 have been restated to conform to the 2003 presentation. See also Note 9 to
consolidated financial statements.

Specialty Chemicals

Sales in the third quarter of 2003 were $153.5 million compared with
$149.3 million for the same period last year, while operating income for the
third quarter of 2003 was $29.8 million compared with $27.8 million in last
year's third quarter. The 3% increase in sales was attributable to higher unit
volumes in the pharmaceutical and food product lines (totaling $4.8 million),
and the favorable effect of the weaker U.S. dollar in Europe ($5.9 million).
Partially offsetting these sales increases were lower unit volumes in the fine
chemicals product line ($4.2 million) and lower pricing ($1.0 million),
primarily in the personal care product line, and lower unit volumes in the
personal care and performance chemicals product lines

(totaling $2.3 million). Higher pharmaceutical volumes were primarily
attributable to strong growth in the excipients markets (Plasdones for tablet
binders and Polyplasdones for tablet disintegrants), as well as the denture
adhesives market, while higher food volumes resulted from the Germinal
acquisition in May 2003 (see Note 11 to consolidated financial statements).

Operating income for the Specialty Chemicals segment increased by 7%
for the third quarter of 2003 to $29.8 million compared with $27.8 million in
last year's third quarter. The improvement resulted primarily from the favorable
effect of the weaker U.S. dollar ($4.7 million) and the impact of favorable
manufacturing efficiencies and lower operating expenses in the personal care and
pharmaceutical product lines (totaling $4.4 million), partially offset by
unfavorable pricing ($1.0 million) and losses incurred in the fine chemicals
product line because of the adverse impact of unfavorable manufacturing costs
($6.6 million).

Industrial Chemicals

Sales in the third quarter of 2003 were $35.0 million compared with
$34.5 million in the third quarter of 2002. The increase in sales was
attributable to the favorable effect of the weaker U.S. dollar ($2.2 million),
partially offset by lower pricing.

The Industrial Chemicals segment recorded an operating loss of $1.2 million
in the third quarter of 2003 compared with operating income of $2.1 million in
the third quarter of 2002. The Industrial Chemicals manufacturing operations are
principally based in Europe and costs for this business have been adversely
impacted by the stronger Euro. In addition, the results for the third quarter of
2003 were impacted by the lower pricing ($2.0 million) due to current industry
supply/demand imbalance.

Mineral Products

Sales for the Mineral Products segment for the third quarter of 2003
were $26.6 million compared with $24.6 million for the third quarter of 2002, as
higher unit volumes ($4.0 million) were partially offset by lower pricing ($2.0
million).

Operating income for the third quarter of 2003 was $3.5 million compared
with $5.5 million for the third quarter of 2002. The $2.0 million (36%) decrease
in operating income was due to unfavorable manufacturing costs, primarily as a
result of higher energy costs, as well as lower pricing.

RESULTS OF OPERATIONS -- FIRST NINE MONTHS 2003 COMPARED WITH
FIRST NINE MONTHS 2002

We have restated our previously issued consolidated financial statements
for the first nine months of 2002. See Note 1 and Note 9 to consolidated
financial statements for further information.

For the first nine months of 2003, we recorded net income of $42.2 million
compared with a net loss of $115.8 million in the first nine months of 2002.
First nine months 2003 results include a $1.0

million after-tax charge for the cumulative effect of a change in accounting
principle from the adoption of Statement of Financial Accounting Standards,
which we refer to as "SFAS," No. 143, "Accounting for Asset Retirement
Obligations." First nine months 2002 results 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
$43.2 million for the first nine months of 2003 compared with $39.6 million in
the first nine months of 2002. The improved results for the first nine months of
2003 were attributable to $6.8 million lower interest expense and $4.4 million
lower other expense, net, partially offset by $7.1 million lower operating
income and $5.3 million lower investment income. In addition, the results for
the first nine months of 2002 included a $7.2 million pre-tax charge for the
early retirement of debt and other operating gains of $12.2 million, while first
nine months 2003 results include an other operating charge of $1.5 million for
stock option payments related to a going private transaction by our parent
company, International Specialty Products Inc., which we refer to as ISP. The
other operating gains of $12.2 million in the first nine months of 2002 included
a $2.8 million gain from a contract termination related to the sale of our
company's FineTech business, a $5.5 million gain on the sale of the FineTech
business and a $3.9 million gain on a contract settlement.

Net sales for the first nine months of 2003 were $677.2 million compared
with $642.2 million for the first nine months of 2002. The $35.0 million (5.5%)
increase in sales resulted primarily from higher unit volumes in the Industrial
Chemicals and Mineral Products segments (totaling $17.8 million) and in the
pharmaceutical, food and beverage product lines (totaling $14.2 million) and the
favorable impact of the weaker U.S. dollar in Europe ($31.6 million). These
sales gains were partially offset by lower pricing in Industrial Chemicals,
Mineral Products and the personal care product line (totaling $9.9 million) and
lower volumes ($16.2 million) in the fine chemicals product line, mainly as a
result of the loss of sales to Polaroid, which is operating under bankruptcy
court protection.

The gross margin for the first nine months of 2003 was 35.0% compared with
35.2% in the first nine months of 2002. Lower gross margins for the Mineral
Products and Industrial Chemicals segments were adversely impacted by higher
energy costs and lower pricing. The gross margin for the Specialty Chemicals
segment increased to 43.1% for the first nine months of 2003 from 39.3% for the
first nine months of 2002. The improvement was primarily attributable to
manufacturing efficiencies and the favorable impact of the weaker U.S. dollar.

Operating income for the first nine months of 2003 was $104.0 million
compared with $111.0 million for the first nine months of 2002. Excluding the
other operating gains and charges in each period mentioned above, operating
income on a comparable basis was $105.5 million and $98.8 million for the first
nine months of 2003 and 2002, respectively (see reconciliation below of non-GAAP
financial measures). The higher comparable operating income for the first nine

months of 2003 includes improved results in the Specialty Chemicals segment,
partially offset by losses in the Industrial Chemicals segment and lower results
in the Mineral Products segment.

On a comparable basis, excluding the aforementioned other operating gains
and charges, operating income for the Specialty Chemicals segment improved 31%
to $97.8 million compared with $74.9 million in last year's first nine months.
The improved results were primarily attributable to the personal care,
pharmaceutical and beverage product lines, mainly due to manufacturing
efficiencies, higher unit volumes, lower operating expenses and the favorable
impact of the weaker U.S. dollar, partially offset by lower pricing. The
improved results in Specialty Chemicals were adversely impacted by the lack of
sales to Polaroid.

The Industrial Chemicals segment recorded an operating loss of $5.3 million
in the first nine months of 2003 compared with operating income of $5.2 million
in the first nine months of 2002. The results were mainly attributable to lower
pricing and to the adverse impact of the stronger Euro on European-based
manufacturing costs and higher energy costs, partially offset by manufacturing
efficiencies.

Operating income for the Mineral Products segment decreased by $6.2 million
(34%) to $12.2 million in the first nine months of 2003 due to unfavorable
manufacturing costs, primarily as a result of higher energy costs, as well as
lower pricing.

Selling, general and administrative expenses for the first nine months of
2003 increased by 3.5% to $131.1 million from $126.6 million in the same period
last year as a result of higher administrative and distribution costs, mainly
due to the weaker U.S. dollar. Selling, general and administrative expenses as a
percentage of sales were reduced to 19.4% compared with 19.7% in last year's
first nine months.

Interest expense for the first nine months of 2003 was $57.8 million
compared with $64.6 million for the same period last year. The $6.8 million
(11%) decrease was primarily due to lower average interest rates ($3.8 million
impact), as well as lower average borrowings ($3.0 million impact). Investment
income in the first nine months of 2003 was $21.5 million compared with $26.7
million in the same period last year, with the decrease resulting mainly from
unrealized losses on securities, partially offset by higher realized gains.
Other expense, net, for the first nine months of 2003 was $2.1 million compared
with $6.6 million in last year's first nine months, with the lower expense due
primarily to favorable foreign exchange.

Business Segment Review

A discussion of operating results for each of our business segments
follows. We operate our business through three reportable business segments:
Specialty Chemicals; Industrial Chemicals; and Mineral Products. As discussed
above, we changed the composition of our reportable segments, effective January
1, 2003. Sales and operating income by business segment for the first nine
months of 2002 have been restated to conform to the 2003 presentation. See also
Note 9 to consolidated financial statements.

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 accounting principles
generally accepted in the United States of America. 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 investors and financial institutions because such measures exclude
transactions that are unusual due to their nature or infrequency and therefore
allow investors 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 measures should be considered in addition to, and not
as a substitute, or superior to, operating income or other measures of financial
performance in accordance with generally accepted accounting principles.

First Nine Months
----------------------
2002 2003
--------- ---------
(Millions)
Reconciliation of non-GAAP financial measures:

Operating income per GAAP............................... $ 111.0 $ 104.0
Non-GAAP adjustments:
Less: Other operating (gains) charges(1)........... (12.2) 1.5
--------- ---------
Operating income, as adjusted........................... $ 98.8 $ 105.5
========= =========

Supplemental Business Segment Information:

Operating income:
Operating income per GAAP - Specialty Chemicals.... $ 87.1 $ 96.7
Non-GAAP adjustments (1)........................... (12.2) 1.1
--------- ---------
Operating income - Specialty Chemicals as adjusted. $ 74.9 $ 97.8
========= =========

Operating income per GAAP - Industrial Chemicals... $ 5.2 $ (5.3)
Non-GAAP adjustments (1)........................... - 0.2
--------- ---------
Operating income - Industrial Chemicals as adjusted $ 5.2 $ (5.1)
========= =========

Operating income per GAAP - Mineral Products....... $ 18.4 $ 12.2
Non-GAAP adjustments (1)........................... - 0.2
--------- ---------
Operating income - Mineral Products as adjusted.... $ 18.4 $ 12.4
========= =========

Total segment operating income as adjusted......... $ 98.5 $ 105.1
Unallocated corporate office per GAAP.............. 0.3 0.4
--------- ---------
Operating income, as adjusted...................... $ 98.8 $ 105.5
========= =========

(1) Non-GAAP adjustments in the first nine months of 2003 represent an other
operating charge of $1.5 million for stock option payments related to ISP's
going private transaction, which is also presented by business segment. In
the first nine months of 2002, non-GAAP adjustments included other
operating gains of $2.8 million for a contract termination related to the
sale of our company's FineTech business, a gain of $5.5 million on the
sale of the FineTech business and a $3.9 million gain from the settlement
of a manufacturing and supply agreement with a customer of the fine
chemicals product line. All non-GAAP adjustments for the first nine months
of 2002 related to the Specialty Chemicals business segment.

Specialty Chemicals

Sales in the first nine months of 2003 were $470.4 million compared
with $455.6 million for the same period last year, while operating income for
the first nine months of 2003 increased by 11% to $96.7 million from $87.1
million in last year's first nine months. The 3% increase in sales was
attributable to the favorable effect of the weaker U.S. dollar ($22.3 million)
and higher unit volumes in the pharmaceutical, food and beverage product lines
(totaling $14.2 million). Partially offsetting these sales increases were lower
unit volumes ($16.2 million) in the fine chemicals product line, primarily as a
result of the loss of sales due to the termination of the supply and license
agreement with Polaroid ($7.3 million), and unfavorable pricing ($4.2 million),
primarily in the personal care product line in both the skin care (sunscreens
markets)and hair care (styling gel/lotion markets). Favorable pharmaceutical
volumes were primarily attributable to strong growth in the excipients markets
(Plasdones for tablet binders and Polyplasdones for tablet disintegrants), as
well as the denture adhesives market, while higher food volumes resulted from
the Germinal acquisition in May 2003 (see Note 11 to consolidated financial
statements).

Excluding the other operating gains and charges discussed above,
operating income for the Specialty Chemicals segment increased by 31% for the
first nine months of 2003 to $97.8 million compared with $74.9 million in last
year's first nine months. The improvement resulted primarily from manufacturing
efficiencies ($7.2 million), the favorable effect of the weaker U.S. dollar
($15.5 million), the impact of higher unit volumes in the pharmaceutical, food
and beverage product lines (totaling $5.8 million) and lower operating expenses
($2.6 million), partially offset by unfavorable pricing ($4.2 million). The
improved results for this segment were adversely impacted by the lower volumes
in the fine chemicals product line ($5.2 million), mainly due to the loss of
sales to Polaroid.

Industrial Chemicals

Sales in the first nine months of 2003 were $128.6 million compared
with $112.4 million in the first nine months of 2002. The 14% increase in sales
was attributable to higher unit volumes ($11.7 million) and the favorable effect
of the weaker U.S. dollar ($9.3 million), partially offset by the continuing
adverse effect of unfavorable pricing ($4.9 million).

The Industrial Chemicals segment recorded an operating loss of $5.3 million
in the first nine months of 2003, compared with operating income of $5.2 million
in the first nine months of 2002. The unfavorable results for this business have
been adversely impacted by the stronger Euro on European-based manufacturing
costs. The unfavorable results also included higher energy costs and operating
expenses ($7.4 million) and unfavorable pricing ($4.9 million), partially offset
by manufacturing efficiencies ($4.9 million) and the impact of higher volumes
($2.2 million).

There is ongoing pressure on our pricing and revenue related to
commodity type butanediol and related solvents and intermediates. A key
competitor in this market completed construction of additional production

capacity in Europe for these products during the third quarter of 2002. Another
competitor is expected to complete construction of additional capacity in Asia
during the fourth quarter of 2003. With the opening of these two facilities, the
increase in the supply of these products to the merchant market is resulting in
increased downward pressure on pricing.

Mineral Products

Sales for the Mineral Products segment for the first nine months of
2003 were $78.3 million compared with $74.3 million for the first nine months of
2002. The 5% increase was due to higher unit volumes ($6.1 million) and included
$2.7 million (16%) in higher third party sales and $1.3 million (2%) in higher
sales to Building Materials Corporation of America, an affiliate, which we refer
to as BMCA.

Operating income for the first nine months of 2003 was $12.2 million
compared with $18.4 million for the first nine months of 2002. The $6.2 million
(34%) decrease in operating income was due to unfavorable manufacturing costs,
primarily as a result of higher energy costs and, to a lesser extent,
unfavorable pricing ($2.1 million).

LIQUIDITY AND FINANCIAL CONDITION

Cash Flow and Cash Position

During the first nine months of 2003, our net cash flow before
financing activities was $193.1 million and included $187.6 million of cash
generated from operations, the reinvestment of $49.7 million for capital
programs and the acquisition of Germinal S.A. (see Note 11 to consolidated
financial statements) and $55.1 million of cash generated from net sales of
available-for-sale securities.

Cash generated from operations in the first nine months of 2003 of
$187.6 million included a $166.0 million net cash inflow related to net sales of
trading securities. Cash utilized for related party transactions totaled $55.7
million (see discussion below of the going private transaction of our parent,
ISP). Cash invested in additional working capital items totaled $37.1 million
during the first nine months of 2003, including an $18.7 million increase in
receivables as a result of higher sales, a $6.3 million increase in inventories
and a $13.5 million decrease in payables and accrued liabilities, primarily
related to payments of accrued interest.

Net cash used in financing activities during the first nine months of
2003 totaled $135.1 million, primarily as a result of a $39.7 million decrease
in short-term borrowings and loans to ISP totaling $95.3 million. During the
first quarter of 2003, ISP completed a going private transaction whereby holders
of ISP common stock received $10.30 per share in cash for each share of ISP
common stock owned. The total consideration for the going private transaction of
approximately $138.0 million was paid out of our funds. Pursuant to five loan
agreements with our wholly owned subsidiary, ISP Investco LLC, which we refer to
as ISP Investco, and its wholly owned subsidiary, ISP Ireland, ISP borrowed a
total of $94.0 million. The loans have various maturity dates to March 2006

and accrue interest at a fixed rate of 1.65% per annum. In addition, in
connection with the going private transaction, ISP Investco paid down $43.8
million of its intercompany payables to ISP. Cash provided from financing
activities also includes a $1.5 million capital contribution from ISP for the
payment of stock option terminations related to ISP's going private transaction.

As a result of the foregoing factors, cash and cash equivalents
increased by $61.1 million during the first nine months of 2003 to $96.1
million. In addition, the consolidated balance sheet includes $316.8 million of
trading and available-for-sale securities.

Current Maturities of Long-Term Debt

As of September 28, 2003, our current maturities of long-term debt,
scheduled to be repaid during the twelve month period ended September 2004,
totaled $2.7 million, including $2.3 million related to the term loan under our
senior credit facilities.

Freetown Facility

As part of our acquisition of our Freetown, Massachusetts plant in 1998, we
entered into a multi-year agreement to supply the imaging dyes and polymers used
by Polaroid in its instant film business. In October 2001, Polaroid filed for
protection under Chapter 11 of the U.S. Bankruptcy Code. In the third quarter of
2002, the majority of Polaroid's assets were acquired by a new owner, and the
new owner did not assume our long-term supply contract with Polaroid. These
events negatively impacted the sale of our fine chemicals products and reduced
the utilization of our Freetown plant. We have since increased the utilization
of the Freetown facility, primarily from additional production of personal care
products.

An operating lease related to equipment at the Freetown facility was
entered into as part of a 1998 sale-leaseback transaction. The lease had an
initial term of four years and, at our option, up to three one-year renewal
periods. The first renewal term commenced during the first quarter of 2002. The
lease provides for a substantial guaranteed payment by us, adjusted at the end
of each renewal period, and includes purchase and return options at fair market
values determined at the inception of the lease. We have the right to exercise a
purchase option with respect to the leased equipment, or the equipment can be
returned to the lessor and sold to a third party. We are obligated to pay a
maximum guaranteed payment amount upon the return of the equipment, currently
$32.6 million, reduced by 50% of any proceeds from the subsequent sale of the
equipment in excess of $4.8 million.

Contractual Obligations

We have a contract with a multinational supplier to supply a substantial
amount of our acetylene needs to our Texas City, Texas facility. This supplier
generates this raw material as a by-product from the manufacture of ethylene.
Pricing under the contract is on a fixed basis and we are obligated to purchase
a specified amount of acetylene under the contract. This supplier has closed its
operation that was the primary source of acetylene for our Texas City facility.
The supplier has an obligation to provide product to us until the end of March
2004 and has confirmed that it will meet this obligation through that date by
delivering product from another of its facilities. We have identified

several alternative sources of supply of acetylene for the Texas City facility
for the period after March 2004. The annualized, incremental cost of acetylene
from these sources is estimated to be less than $2.0 million. Although we
believe that these alternative sources of supply will be sufficient for our
projected needs, there can be no assurance in this regard.

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

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, which, if the highest
discount levels are reached over the term of the contract, could adversely
impact gross margins for the Mineral Products segment. Our supply arrangements
with BMCA and its subsidiaries are at prices and on terms that we believe are no
less favorable to it than could be obtained from an unaffiliated third party.

New Accounting Standards

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

In December 2002, the FASB issued SFAS No. 148, "Accounting for
Stock-Based Compensation - Transition and Disclosure," an amendment of SFAS No.
123, "Accounting for Stock-Based Compensation." SFAS No. 148 provides
alternative methods of transition for an entity that voluntarily changes to the
fair value based method of accounting for stock-based employee compensation. In
addition, SFAS No. 148 amends the disclosure requirements of SFAS No. 123 for
both annual and interim reporting periods by requiring disclosures in a tabular
format to reconcile net income as reported to pro forma net income as if the
fair value method was used. Certain of the disclosure modifications required for
fiscal years ending after December 15, 2002 were disclosed in our 2002 Form
10-K. However, as discussed above, with the completion of the going private
transaction by ISP in February 2003, our stock-based compensation plans were
terminated and payments were made in accordance with the terms of the merger

agreement. Therefore, the provisions of SFAS No. 148 are no longer applicable to
us as it relates to those plans. 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, which we refer to as FIN 28,
"Accounting for Stock Appreciation Rights and Other Variable Stock Option and
Award Plans," which requires an entity to measure compensation as the amount by
which the Book Value of the incentive units covered by the grant exceeds the
option price or value specified of such incentive units at the date of grant.
Changes, either increases or decreases, in the Book Value of those incentive
units between the date of grant and the measurement date result in a change in
the measure of compensation for the right or award. We expect to continue to
account for our long-term incentive units under the accounting prescribed by FIN
28 and have adopted the additional disclosure provisions of SFAS No. 148. Since
compensation expense related to such incentive units is included in the actual
consolidated statements of operations, our pro forma net income under SFAS No.
123 would have been the same as actual net income.

In November 2002, the FASB issued FIN 45, "Guarantor's Accounting and
Disclosure Requirements for Guarantees, Including Indirect Guarantees of
Indebtedness of Others." FIN 45 clarifies the requirements for a guarantor's
accounting for and disclosures of certain guarantees issued and outstanding. The
provisions of FIN 45 apply to guarantee contracts that contingently require the
guarantor to make payments (in cash, financial instruments, other assets, shares
of stock or provision of services) to the guaranteed party for guarantees such
as a financial standby letter of credit, a market value guarantee on either a
financial or nonfinancial asset owned by the guaranteed party and a guarantee of
the collection of the scheduled contractual cash flows from financial assets
held by a special-purpose entity. FIN 45 also applies to indemnification
contracts and indirect guarantees of indebtedness of others. The requirements of
FIN 45 for the initial recognition and measurement of the liability for a
guarantor's obligations are to be applied only on a prospective basis to
guarantees issued or modified after December 31, 2002. We currently do not have
any guarantees, indemnification contracts or indirect guarantees of indebtedness
of others that would be subject to the initial recognition and measurement
provisions of FIN 45. The 10 1/4% Senior Subordinated Notes due 2011 of ISP
Chemco Inc., our wholly owned subsidiary, that were issued in November 2001, are
guaranteed by all of ISP Chemco's domestic subsidiaries, other than certain
immaterial subsidiaries and our accounts receivable financing subsidiary.

interest in a variable interest entity created before February 1, 2003
shall apply the provisions of FIN 46 to that entity no later than the beginning
of the first interim or annual reporting period ending after December 15, 2003,
if such entity has not issued financial statements reporting that variable
interest entity in accordance with FIN 46. We do not have an interest in a
variable interest entity. Therefore, the adoption of FIN 46 does not currently
have an impact on our consolidated financial statements.

In April 2003, the FASB issued SFAS No. 149, "Amendment of Statement 133
on Derivative Instruments and Hedging Activities." SFAS No. 149 amends and
clarifies financial accounting and reporting for derivative instruments and
hedging activities under SFAS No. 133. SFAS No. 149 is effective for contracts
entered into or modified after June 30, 2003 and for hedging relationships
designated after June 30, 2003. The adoption of SFAS No. 149 will not have an
immediate impact on our consolidated financial statements.

See Note 12 to Consolidated Financial Statements for information
regarding contingencies.

* * *

Forward-looking Statements

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

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK

Reference is made to Management's Discussion and Analysis of Financial
Condition and Results of Operations in our Annual Report on Form 10-K for the
fiscal year ended December 31, 2002 for a discussion of "Market-Sensitive
Instruments and Risk Management." As of December 31, 2002, equity-related
financial instruments employed by us to reduce market risk included long
contracts valued at $3.9 million and short contracts valued at $0.4 million. At
September 28, 2003, the value of long contracts was $103.1 million and the value
of short contracts was $71.7 million. Such instruments are marked-to-market each
month, with unrealized gains and losses included in the results of operations.
The unrealized losses on equity-related long contracts at December 31, 2002 and
September 28, 2003 was $(145,000) and $(1,615,000), respectively, and the
unrealized gains on equity-related short contracts was $6,000 and $2,882,000 at
December 31, 2002 and September 28, 2003, respectively.

ITEM 4. 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 have not been any
changes in our internal control over financial reporting during the fiscal
quarter to which this report relates that have materially affected, or are
reasonably likely to materially affect, our internal control over financial
reporting.

PART II

OTHER INFORMATION

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(a) Exhibits:

Exhibit Number
--------------
31.1 Certification of CEO pursuant to Section 302 of the Sarbanes-
Oxley Act of 2002.

31.2 Certification of CFO pursuant to Section 302 of the Sarbanes-
Oxley Act of 2002.

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

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

(1) The Company filed a report on Form 8-K, dated August 1, 2003,
reporting an event under Items 7 and 12 thereof. The information
set forth in Item 12 of that Form 8-K was furnished to the
Securities and Exchange Commission and not "filed" pursuant to
Section 18 of the Securities Exchange Act of 1934, as amended.

SIGNATURES
----------

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

INTERNATIONAL SPECIALTY HOLDINGS INC.

DATE: November 11, 2003 BY: /s/Neal E. Murphy
----------------- -----------------

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

DATE: November 11, 2003 BY: /s/Kenneth M. McHugh
----------------- --------------------

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