Use these links to rapidly review the documentHUNTSMAN LLC QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2005 TABLE OF CONTENTS



UNITED STATES
SECURITIES AND EXCHANGE COMMISSIONWASHINGTON, D.C. 20549

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Form 10-Q

|(Mark One)                                   |  |                                                                                         
|-------------------------------------------- |  | ----------------------------------------------------------------------------------------
|ý                                            |  | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 
|For the quarterly period ended June 30, 2005
|OR                                          
|o                                            |  | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from            to

Commission file number 333-112279

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HUNTSMAN LLC(Exact name of registrant as specified in its charter)

|Utah                                                           |  | 87-0533091                          
|-------------------------------------------------------------- |  | ------------------------------------
|(State or other jurisdiction of
incorporation or organization) |  | (I.R.S. Employer
Identification No.)

500 Huntsman Way
Salt Lake City, Utah 84108
(801) 584-5700(Address of principal executive offices and telephone number)

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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 whether the registrant is an accelerated filer (as defined in Exchange Act
Rule 12b-2). YES o NO ý

On August 10, 2005, 10,000,000 units of membership interest of the registrant were outstanding. There is no established trading market for the registrant's units
of membership interest. All of the registrant's units of membership interest are held by an affiliate.



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HUNTSMAN LLC  QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTERLY PERIOD  ENDED JUNE 30, 2005    TABLE OF CONTENTS



|        |  |                                                                                                     |  | Page
|------- |  | --------------------------------------------------------------------------------------------------- |  | ----
|PART I  |  | FINANCIAL INFORMATION                                                                               |  | 3   
|ITEM 1. |  | Financial Statements                                                                                |  | 3   
|        |  | Condensed Consolidated Balance Sheets (unaudited)                                                   |  | 3   
|        |  | Condensed Consolidated Statements of Operations and Comprehensive Income (Loss)
        (unaudited) |  | 4   
|        |  | Condensed Consolidated Statement of Member's Equity (Deficit) (unaudited)                           |  | 5   
|        |  | Condensed Consolidated Statements of Cash Flows (unaudited)                                         |  | 6   
|        |  | Notes to Condensed Consolidated Financial Statements (unaudited)                                    |  | 7   
|ITEM 2. |  | Management's Discussion and Analysis of Financial Condition and Results of Operations               |  | 39  
|ITEM 3. |  | Quantitative and Qualitative Disclosures About Market Risk                                          |  | 63  
|ITEM 4. |  | Controls and Procedures                                                                             |  | 63  
|PART II |  | OTHER INFORMATION                                                                                   |  | 64  
|ITEM 1. |  | Legal Proceedings                                                                                   |  | 64  
|ITEM 6. |  | Exhibits                                                                                            |  | 66  

2

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PART I. FINANCIAL INFORMATION        ITEM 1. FINANCIAL STATEMENTS        HUNTSMAN LLC AND SUBSIDIARIES        CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)        (Dollars
in Millions)

|                                               |                                                                                                       | June 30,
2005                                   |         | December 31,
2004(1) |        
|---------------------------------------------- | ----------------------------------------------------------------------------------------------------- | ----------------------------------------------- | ------- | -------------------- | -------
|ASSETS                                         |                                                                                                       |                                                 |         |                      |        
|Current assets:                                |                                                                                                       |                                                 |         |                      |        
|                                               | Cash and cash equivalents                                                                             |                                                 | $       | 14.2                 |        
|                                               | Restricted cash                                                                                       |                                                 |         | 13.5                 |        
|                                               | Accounts and notes receivable (net of allowance for doubtful accounts of $9.0 and $7.7, respectively) |                                                 |         | 494.8                |        
|                                               | Accounts receivable from affiliates                                                                   |                                                 |         | 78.5                 |        
|                                               | Inventories                                                                                           |                                                 |         | 356.2                |        
|                                               | Prepaid expenses                                                                                      |                                                 |         | 1.8                  |        
|                                               | Deferred income taxes                                                                                 |                                                 |         | 0.5                  |        
|                                               | Other current assets                                                                                  |                                                 |         | 1.9                  |        
|                                               |                                                                                                       |                                                 |         |                      |        
|                                               |                                                                                                       | Total current assets                            |         |                      | 961.4  
|Property, plant and equipment, net             |                                                                                                       |                                                 | 1,211.2 |                      |        
|Investment in unconsolidated affiliates        |                                                                                                       |                                                 | 197.9   |                      |        
|Intangible assets, net                         |                                                                                                       |                                                 | 30.7    |                      |        
|Goodwill                                       |                                                                                                       |                                                 | 3.3     |                      |        
|Deferred income taxes                          |                                                                                                       |                                                 | 8.3     |                      |        
|Receivables from affilitates                   |                                                                                                       |                                                 | 9.5     |                      |        
|Other noncurrent assets                        |                                                                                                       |                                                 | 162.2   |                      |        
|                                               |                                                                                                       |                                                 |         |                      |        
|                                               |                                                                                                       | Total assets                                    |         | $                    | 2,584.5
|                                               |                                                                                                       |                                                 |         |                      |        
|LIABILITIES AND MEMBER'S EQUITY (DEFICIT)      |                                                                                                       |                                                 |         |                      |        
|Current liabilities:                           |                                                                                                       |                                                 |         |                      |        
|                                               | Accounts payable                                                                                      |                                                 | $       | 319.7                |        
|                                               | Accounts payable to affiliates                                                                        |                                                 |         | 15.4                 |        
|                                               | Accrued liabilities                                                                                   |                                                 |         | 199.5                |        
|                                               | Deferred income taxes                                                                                 |                                                 |         | 8.3                  |        
|                                               | Current portion of long-term debt                                                                     |                                                 |         | 4.6                  |        
|                                               |                                                                                                       |                                                 |         |                      |        
|                                               |                                                                                                       | Total current liabilities                       |         |                      | 547.5  
|Long-term debt                                 |                                                                                                       |                                                 | 1,554.6 |                      |        
|Long-term debt to affiliates                   |                                                                                                       |                                                 |        |                      |        
|Deferred income taxes                          |                                                                                                       |                                                 | 0.4     |                      |        
|Other noncurrent liabilities                   |                                                                                                       |                                                 | 269.2   |                      |        
|                                               |                                                                                                       |                                                 |         |                      |        
|                                               |                                                                                                       | Total liabilities                               |         |                      | 2,371.7
|                                               |                                                                                                       |                                                 |         |                      |        
|Commitments and contingencies (Note 15 and 16) |                                                                                                       |                                                 |         |                      |        
|Member's equity (deficit):                     |                                                                                                       |                                                 |         |                      |        
|                                               | Member's equity, 10,000,000 units                                                                     |                                                 |         | 1,428.4              |        
|                                               | Accumulated deficit                                                                                   |                                                 |         | (1,230.3             | )      
|                                               | Accumulated other comprehensive income                                                                |                                                 |         | 14.7                 |        
|                                               |                                                                                                       |                                                 |         |                      |        
|                                               |                                                                                                       | Total member's equity (deficit)                 |         |                      | 212.8  
|                                               |                                                                                                       |                                                 |         |                      |        
|                                               |                                                                                                       | Total liabilities and member's equity (deficit) |         | $                    | 2,584.5
|                                               |                                                                                                       |                                                 |         |                      |        

---

See accompanying notes to unaudited condensed consolidated financial statements.

3

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HUNTSMAN LLC AND SUBSIDIARIES        CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND  COMPREHENSIVE INCOME (LOSS) (UNAUDITED)        (Dollars in Millions)

|                                                                     |                                       | Three months ended
June 30, |         | Six months ended
June 30, |        
|-------------------------------------------------------------------- | ------------------------------------- | --------------------------- | ------- | ------------------------- | -------
|
|Revenues:                                                            |                                       |                             |         |                           |        
|                                                                     | Trade sales                           |                             | $       | 1,095.8                   |        
|                                                                     | Related party sales                   |                             |         | 72.9                      |        
|                                                                     |                                       |                             |         |                           |        
|                                                                     |                                       | Total revenues              |         |                           | 1,168.7
|Cost of goods sold                                                   |                                       |                             | 1,054.8 |                           |        
|                                                                     |                                       |                             |         |                           |        
|Gross profit                                                         |                                       |                             | 113.9   |                           |        
|Expenses:                                                            |                                       |                             |         |                           |        
|                                                                     | Selling, general and administrative   |                             |         | 46.5                      |        
|                                                                     | Research and development              |                             |         | 5.5                       |        
|                                                                     | Other operating income                |                             |         | (0.5                      | )      
|                                                                     | Restructuring and plant closing costs |                             |         | 0.9                       |        
|                                                                     |                                       |                             |         |                           |        
|                                                                     |                                       | Total expenses              |         |                           | 52.4   
|                                                                     |                                       |                             |         |                           |        
|Operating income (loss)                                              |                                       |                             | 61.5    |                           |        
|Interest expense, net                                                |                                       |                             | (37.7   | )                         |        
|Equity in income (losses) of investment in unconsolidated affiliates |                                       |                             | 35.0    |                           |        
|Other expense                                                        |                                       |                             | (1.6    | )                         |        
|                                                                     |                                       |                             |         |                           |        
|Income (loss) before income taxes                                    |                                       |                             | 57.2    |                           |        
|Income tax (expense) benefit                                         |                                       |                             | (0.8    | )                         |        
|                                                                     |                                       |                             |         |                           |        
|Net income (loss)                                                    |                                       |                             | 56.4    |                           |        
|Other comprehensive loss                                             |                                       |                             | (42.0   | )                         |        
|                                                                     |                                       |                             |         |                           |        
|Comprehensive income (loss)                                          |                                       | $                           | 14.4    |                           | $      
|                                                                     |                                       |                             |         |                           |        

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See
accompanying notes to unaudited condensed consolidated financial statements.

4

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HUNTSMAN LLC AND SUBSIDIARIES        CONDENSED CONSOLIDATED STATEMENT OF MEMBER'S EQUITY (DEFICIT)        (UNAUDITED)        (Dollars in Millions)

|                           |  | Member's equity |  |   |         |  |   |          |  
|-------------------------- |  | --------------- |  | - | ------- |  | - | -------- | -
|
|
|Balance, December 31, 2004 |  | 10,000,000      |  | $ | 1,095.2 |  | $ | (1,359.3 | )
|Net income                 |  |                |  |   |        |  |   | 129.0    |  
|Other comprehensive loss   |  |                |  |   |        |  |   |         |  
|Contribution from parent   |  |                |  |   | 333.2   |  |   |         |  
|                           |  |                 |  |   |         |  |   |          |  
|Balance, June 30, 2005     |  | 10,000,000      |  | $ | 1,428.4 |  | $ | (1,230.3 | )
|                           |  |                 |  |   |         |  |   |          |  

See
accompanying notes to unaudited condensed consolidated financial statements.

5

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HUNTSMAN LLC AND SUBSIDIARIES        CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)        (Dollars in Millions)

|                                                                                                   |                                | Six months ended
June 30, |       
|-------------------------------------------------------------------------------------------------- | ------------------------------ | ------------------------- | ------
|
|Operating Activities:                                                                              |                                |                           |       
|Net income (loss)                                                                                  |                                | $                         | 129.0 
|Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: |                                |                           |       
|Equity in (income) losses of investment in unconsolidated affiliates                               |                                |                           | (69.9 
|Depreciation and amortization                                                                      |                                |                           | 63.0  
|Provision for (recovery of) losses on accounts receivable                                          |                                |                           | 1.4   
|Loss on disposal of assets                                                                         |                                |                           | 1.0   
|Loss on early extinguishment of debt                                                               |                                |                           | 38.6  
|Noncash interest expense                                                                           |                                |                           | 4.4   
|Noncash interest expense on affiliate debt                                                         |                                |                           |      
|Noncash restructuring and plant closing costs                                                      |                                |                           |      
|Deferred income taxes                                                                              |                                |                           |      
|Unrealized loss on foreign currency transactions                                                   |                                |                           | 0.8   
|Changes in operating assets and liabilities:                                                       |                                |                           |       
|                                                                                                   | Accounts and notes receivables |                           |       
|                                                                                                   | Inventories                    |                           |       
|                                                                                                   | Prepaid expenses               |                           |       
|                                                                                                   | Other current assets           |                           |       
|                                                                                                   | Other noncurrent assets        |                           |       
|                                                                                                   | Accounts payable               |                           |       
|                                                                                                   | Accrued liabilities            |                           |       
|                                                                                                   | Other noncurrent liabilities   |                           |       
|                                                                                                   |                                |                           |       
|Net cash provided by (used in) operating activities                                                |                                |                           | 158.8 
|                                                                                                   |                                |                           |       
|Investing Activities:                                                                              |                                |                           |       
|Capital expenditures                                                                               |                                |                           | (34.5 
|Net cash received from unconsolidated affiliates                                                   |                                |                           | 1.7   
|Change in restricted cash                                                                          |                                |                           | (4.6  
|                                                                                                   |                                |                           |       
|Net cash used in investing activities                                                              |                                |                           | (37.4 
|                                                                                                   |                                |                           |       
|Financing Activities:                                                                              |                                |                           |       
|Net (repayment) borrowings under revolving loan facilities                                         |                                |                           | (53.0 
|Repayment of long-term debt                                                                        |                                |                           | (366.5
|Issuance of senior unsecured notes                                                                 |                                |                           |      
|Net borrowings from affiliate                                                                      |                                |                           |      
|Cost of early extinguishment of debt                                                               |                                |                           | (31.7 
|Debt issuance costs paid                                                                           |                                |                           | (0.2  
|Capital contribution from parent                                                                   |                                |                           | 333.2 
|                                                                                                   |                                |                           |       
|Net cash (used in) provided by financing activities                                                |                                |                           | (118.2
|                                                                                                   |                                |                           |       
|Effect of exchange rate changes on cash                                                            |                                |                           | (0.7  
|                                                                                                   |                                |                           |       
|Increase (decrease) in cash and cash equivalents                                                   |                                |                           | 2.5   
|Cash and cash equivalents at beginning of period                                                   |                                |                           | 11.7  
|                                                                                                   |                                |                           |       
|Cash and cash equivalents at end of period                                                         |                                | $                         | 14.2  
|                                                                                                   |                                |                           |       
|Supplemental cash flow information:                                                                |                                |                           |       
|                                                                                                   | Cash paid for interest         |                           | $     
|                                                                                                   | Cash paid for income taxes     |                           |       

---

See accompanying notes to unaudited condensed consolidated financial statements.

6

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HUNTSMAN LLC AND SUBSIDIARIES    NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS    (UNAUDITED)

1.     GENERAL

Certain Definitions

For convenience in this report, the terms "Company," "our," "us" or "we" may be used to refer to Huntsman LLC and, unless the context otherwise requires, its
subsidiaries. In this report, "HI" refers to Huntsman International LLC, "HIH" refers to Huntsman International Holdings LLC, "Huntsman Specialty" refers to Huntsman Specialty Chemicals Corporation,
"HMP" refers to HMP Equity Holdings Corporation, "Huntsman Holdings" refers to Huntsman Holdings, LLC, "Huntsman Corporation" refers to Huntsman Corporation and its predecessors, and, unless the
context otherwise requires, their subsidiaries, "AdMat" refers to Huntsman Advanced Materials LLC and, unless the context otherwise requires, its subsidiaries, and "MatlinPatterson" refers to
MatlinPatterson Global Opportunities Partners L.P. and its affiliates.

Company

We are a Utah limited liability company and all of our units of interest are owned by Huntsman Corporation.

Prior
to February 16, 2005, we were owned by HMP. On February 16, 2005, Huntsman Corporation completed an initial public offering of common and preferred stock. Net
proceeds to Huntsman Corporation from the offering were approximately $1,500 million, substantially all of which has been used to repay outstanding indebtedness of certain of Huntsman
Corporation's subsidiaries, including HMP, our Company and HIH. In connection with the offering, Huntsman Corporation and certain affiliates engaged in a series of reorganization transactions such
that we are now a direct, 100% owned subsidiary of Huntsman Corporation.

HIH
is a global manufacturer and marketer of polyurethanes, amines, surfactants, titanium dioxide ("TiO2") and basic petrochemicals. HIH and its subsidiaries, including HI,
are separately financed from us, their debt is non-recourse to us, and we are not obligated to make cash contributions to, or investments in, HIH and its subsidiaries. Prior to
February 16, 2005, we owned 60% of the membership interests of HIH. In connection with the Huntsman Corporation reorganization transactions, our ownership of HIH was reduced to 42% effective
February 16, 2005 from 60% as of December 31, 2004. For financial reporting purposes this was considered a reorganization of entities under common control, and, beginning in
March 2005, we no longer consolidate HIH with our results of operations and have reclassified our financial statements to reflect our membership interest in HIH using the equity method for all
periods presented.

Proposed Merger into Huntsman International LLC and Proposed New Credit Facility

In July 2005, we obtained the required consents from the holders of our senior secured notes (the "HLLC Senior Secured Notes") and our senior notes (the
"HLLC Senior Notes") to amend certain provisions in the indentures governing these notes. The amendments will facilitate the proposed merger of our Company with and into HI. The amendments include,
among other things, the increase in the amount of secured indebtedness we can incur. In addition, with respect to the HLLC Senior Secured Notes, the amendment also provides for the elimination of
stock pledges of subsidiaries as collateral under the applicable indentures.

The
proposed merger of our Company with and into HI will help simplify the financing and reporting structure of Huntsman Corporation and is expected to facilitate other organizational

7

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efficiencies.
We have recently completed the syndication of the proposed new secured credit facility for the merged company. The proposed secured credit facility is expected to be comprised of a
$1.85 billion term loan due 2012 and a $650 million revolving loan facility due 2011. Initial interest rate margins under the proposed secured credit facility are contemplated to be at
LIBOR plus 1.75%. Proceeds from the new credit facility will be used to repay outstanding borrowings under our existing senior secured credit facilities, HI's senior secured credit facilities and
certain other debt. We expect to complete the merger and related financing in the third quarter of 2005. However, there can be no assurances that the new facility will be obtained. If the credit
facility is not obtained, the proposed merger will not occur.

The
following tables provide a summary of our structure before and after the proposed merger:

GRAPHIC

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Business

We are a manufacturer and marketer of a wide range of chemical products that are sold to diversified consumer and industrial end markets. We have manufacturing
facilities located in North America, Europe and Australia and sell our products globally through our three principal operating segments: Performance Products, Polymers and Base Chemicals.

Principles of Consolidation

Our condensed consolidated financial statements include the accounts of our wholly-owned and majority-owned subsidiaries and any variable interest entities for
which we are the primary beneficiary.

Interim Financial Statements

Our unaudited interim condensed consolidated financial statements were prepared in accordance with accounting principles generally accepted in the United States
of America ("GAAP") and in management's opinion, reflect all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of results of operations, financial
position and cash flows for the periods presented. Results for interim periods are not necessarily indicative of those to be expected for the full year. These condensed consolidated financial
statements should be read in conjunction with the audited condensed consolidated financial statements and notes to condensed consolidated financial statements included in our Annual Report on
Form 10-K for the year ended December 31, 2004. Information in this report for dates and periods prior to December 31, 2004 differs from amounts previously presented
due to the reorganization transaction as discussed in "Company" above.

8

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Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets
and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.

Reclassifications

Certain amounts in the condensed consolidated financial statements for prior periods have been reclassified to conform with the current presentation.

2.     RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

In January 2003, the Financial Accounting Standards Board ("FASB") issued Financial Interpretation No. ("FIN") 46, "Consolidation
of Variable Interest Entities." FIN 46 addresses the requirements for business enterprises to consolidate related entities, for which they do not have controlling interests
through voting or other rights, if they are determined to be the primary beneficiary as a result of variable economic interests. Transfers to a qualifying special purpose entity are not subject to
this interpretation. In December 2003, the FASB issued a replacement of FIN 46 (FIN 46R), to clarify certain complexities. We adopted this financial interpretation on January 1, 2005, as
required. The impact of FIN 46R was not significant.

In
November 2004, the FASB issued Statement of Financial Accounting Standards ("SFAS") No. 151, "Inventory Costsan amendment of ARB
No. 43." SFAS No. 151 requires abnormal amounts of idle facility expense, freight, handling costs, and wasted material to be recognized as current-period charges.
It also requires that allocation of fixed production overhead to the costs of conversion be based on the normal capacity of the production facilities. The requirements of the standard will be
effective for inventory costs incurred during fiscal years beginning after June 15, 2005. We are reviewing SFAS No. 151 to determine the statement's impact on our consolidated financial
statements.

In
December 2004, the FASB issued SFAS No. 153,"Exchanges of Nonmonetary Assetsan amendment of APB Opinion
No. 29."SFAS No. 153 addresses the measurement of exchanges of nonmonetary assets and eliminates the exception from fair value measurement for nonmonetary
exchanges of similar productive assets in APB Opinion No. 29 and replaces it with an exception for exchanges that do not have commercial substance. SFAS No. 153 specifies that a
nonmonetary exchange has commercial substance if the future cash flows of the entity are expected to change significantly as a result of the exchange. The provisions of this standard are effective for
nonmonetary exchanges occurring in fiscal periods beginning after June 15, 2005. We will apply this standard prospectively.

In
December 2004, the FASB issued SFAS No. 123R,"Share Based Payment."SFAS No. 123R requires entities to measure
the cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award. That cost will be recognized over the period during
which the employee is required to provide services in exchange for the award. This standard eliminates the alternative to use the intrinsic value method of accounting for share-based payments as
previously provided in APB Opinion No. 25,"Accounting for Stock Issued to Employees."We adopted SFAS No. 123R effective
January 1, 2005, and have applied this standard prospectively to share-based awards issued to our employees in connection with Huntsman Corporation's initial public offering. In connection with
Huntsman Corporation's initial public offering of common and preferred stock on February 16, 2005, certain of our employees received Huntsman Corporation stock options and restricted stock.
Accordingly, we were allocated share-based compensation expense of $2.1 and $2.7 million during the three months ended June 30, 2005 and during the six months ended June 30,

9

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2005.
We did not have share-based awards prior to the awards issued in connection with Huntsman Corporation's initial public offering.

In
March 2005, the FASB issued FIN 47,"Accounting for Conditional Asset Retirement Obligations."FIN 47 clarifies the term conditional asset retirement
obligationused in SFAS No. 143,"Accounting for Asset Retirement
Obligations,"and clarifies when an entity would have sufficient information to reasonably estimate the fair value of an asset retirement obligation. FIN 47 is effective no
later than the end of December 2005. We are reviewing FIN 47 to determine its impact on our financial statements.

In
March 2005, the Emerging Issues Task Force issued a preliminary consensus on issue 04-13, "Accounting for Purchases and Sales of Inventory
with the Same Counterparty," that, if ratified by the FASB, would require companies to recognize an exchange of finished goods for raw materials or
work-in-process within the same line of business at fair value. All other exchanges of inventory would be reflected at the recorded amount. We are evaluating the impact of this
preliminary consensus to determine its impact on our results of operations.

In
May 2005, the FASB issued SFAS No. 154, "Accounting Changes and Error Correctionsa replacement of APB Opinion No. 20 and FASB
Statement No. 3." SFAS No. 154 requires retrospective application to prior periods' financial statements of changes in accounting principle, unless it is
impracticable to determine either the period-specific effects or the cumulative effect of the change or unless specific transition provisions are proscribed in the accounting pronouncements. SFAS
No. 154 does not change the accounting guidance for reporting a correction of an error in previously issued financial statements or a change in accounting estimate. SFAS No. 154 is
effective for accounting changes and error corrections made after December 31, 2005. We will apply this standard prospectively.

3.     INVENTORIES

Inventories consisted of the following (dollars in millions):

June 30,
2005

December 31,
2004Raw materials and supplies

$
113.0

$
106.0Work in progress


16.8


16.7Finished goods


307.2


297.5Total


437.0


420.2LIFO reserves


(80.8
)

(81.0
)Lower of cost or market reserves





(0.4
)Net

$
356.2

$
338.8


As
of June 30, 2005 and December 31, 2004, approximately 55.8% and 56.2%, respectively, of inventories were recorded using the last-in, first-out
cost method ("LIFO"). At June 30, 2005 and December 31, 2004, the excess of current cost over the stated LIFO value was $80.8 million and $81.0 million, respectively.

In
the normal course of operations, we at times exchange raw materials and finished goods with other companies for the purpose of reducing transportation costs. No gains or losses are
recognized on these exchanges and the net open exchange positions are valued at our cost. Net amounts deducted from or added to inventory under open exchange agreements, which represent the net
amounts payable or receivable by us under open exchange agreements, were approximately $2.1 million payable and $6.4 million payable (0.1 million and 10.8 million pounds)
at June 30, 2005 and December 31, 2004, respectively.

10

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4.     PROPERTY, PLANT AND EQUIPMENT

The cost and accumulated depreciation of property, plant and equipment were as follows (dollars in millions):

June 30,
2005

December 31,
2004Land

$
66.3

$
65.9Buildings


235.6


233.9Plant and equipment


2,043.6


2,009.0Construction in progress


64.4


65.7Total


2,409.9


2,374.5Less accumulated depreciation


(1,198.7
)

(1,142.4
)Net

$
1,211.2

$
1,232.1


Depreciation
expense was $28.0 million and $55.8 million, and $29.8 million and $58.6 million for three and six months ended June 30, 2005 and 2004,
respectively.

Property,
plant and equipment includes gross assets acquired under capital leases of $4.9 million at both June 30, 2005 and December 31, 2004, respectively; related
amounts included in accumulated depreciation were $1.7 million and $1.5 million at June 30, 2005 and December 31, 2004, respectively.

5.     INVESTMENT IN UNCONSOLIDATED AFFILIATES

Our ownership percentage and investment in unconsolidated affiliates were as follows (dollars in millions):

June 30,
2005

December 31,
2004Equity Method:Polystyrene Australia Pty Ltd.(50%)

$
3.4

$
4.7Sasol-Huntsman GmbH and Co. KG (50%)


19.9


17.5HIH (42% and 60%, respectively)


172.1


171.3Total


195.4


193.5Cost Method:Gulf Advanced Chemicals Industry Corporation (4%)


2.5


2.5Total Investment

$
197.9

$
196.0


11

---



The
following is summarized statement of operations information for HIH for the three and six months ended June 30, 2005 and 2004 (dollars in millions):

Three months ended
June 30,

Six months ended
June 30,2005

2004

2005

2004Revenues

$
1,930.2

$
1,605.5

$
3,878.5

$
3,085.6Cost of goods sold


1,599.8


1,373.1


3,189.1


2,704.4Gross profit


330.4


232.4


689.4


381.2Operating expenses


122.5


251.3


258.8


360.0Operating income (loss)


207.9


(18.9
)

430.6


21.2Interest expense, net


(53.3
)

(91.2
)

(137.3
)

(188.6
)Other non-operating expense


(4.2
)

(3.0
)

(43.1
)

(6.7
)Income (loss) before income taxes


150.4


(113.1
)

250.2


(174.1
)Income tax expense


(33.2
)

(4.7
)

(56.7
)

(8.3
)Loss from discontinued operations


(40.4
)

(0.9
)

(43.0
)

(1.7
)Minority interest in earnings








(0.1
)

Net income (loss)

$
76.8

$
(118.7
)
$
150.4

$
(184.1
)


6.     INTANGIBLE ASSETS

The gross carrying amount and accumulated amortization of intangible assets were as follows (dollars in millions):

|                                    |  | June 30, 2005 |      | December 31, 2004
|----------------------------------- |  | ------------- | ---- | -----------------
|
|Patents, trademarks, and technology |  | $             | 38.2 |                  
|Licenses and other agreements       |  |               | 14.2 |                  
|Other intangibles                   |  |               |     |                  
|                                    |  |               |      |                  
|Total                               |  | $             | 52.4 |                  
|                                    |  |               |      |                  

Amortization
expense was $1.3 million and $2.2 million, and $1.4 million and $3.0 million for the three and six months ended June 30, 2005 and 2004,
respectively.

7.     OTHER NONCURRENT ASSETS

Other noncurrent assets consisted of the following (dollars in millions):

June 30,
2005

December 31,
2004Prepaid pension costs

$
1.3

$
1.2Debt issuance costs, net


20.7


28.9Capitalized turnaround costs, net


37.7


43.9Catalyst assets, net


11.9


15.2Spare parts inventory, net


48.4


46.3Other noncurrent assets


42.2


43.7Total

$
162.2

$
179.2


12

---



Amortization
expense of catalyst assets was $2.7 million and $5.0 million, and $2.6 million and $4.8 million for the three and six months ended
June 30, 2005 and 2004, respectively.

8.     ACCRUED LIABILITIES

Accrued liabilities consisted of the following (dollars in millions):

June 30,
2005

December 31,
2004Payroll, severance and related costs

$
28.5

$
28.2Interest


26.7


38.7Volume rebate accruals


24.8


30.3Income taxes


10.8


9.0Taxes (other than income tax)


19.1


27.6Restructuring and plant closing costs


7.2


11.2Environmental accruals


2.0


2.0Other accrued liabilities


80.4


86.7Total

$
199.5

$
233.7


9.     OTHER NONCURRENT LIABILITIES

Other noncurrent liabilities consisted of the following (dollars in millions):

June 30,
2005

December 31,
2004Pension liabilities

$
143.5

$
142.6Other postretirement benefits


68.2


66.3Environmental accruals


10.2


11.9Restructuring and plant closing costs


2.7


2.3Other noncurrent liabilities


44.6


48.8Total

$
269.2

$
271.9


13

---



10.   RESTRUCTURING AND PLANT CLOSING COSTS

As of June 30, 2005, accrued restructuring and plant closing costs by type of cost and activity consisted of the following (dollars in millions):

|                                            |  | Workforce
reductions(1) |      | Demolition and
decommissioning |   | Non-cancelable
lease costs |   | Other
restructuring
costs |      | Total(2) |  
|------------------------------------------- |  | ----------------------- | ---- | ------------------------------ | - | -------------------------- | - | ------------------------- | ---- | -------- | -
|Accrued liabilities as of December 31, 2004 |  | $                       | 11.0 |                                | $ | 2.5                        |   | $                         |     |          | $
|2005 charges for 2004 activities            |  |                         | 0.3  |                                |   | 0.1                        |   |                           |     |          |  
|Reversal of reserves no longer required     |  |                         |     |                                |   |                           |   |                           |     |          |  
|2005 payments for 2004 activities           |  |                         | (3.9 | )                              |   | (0.1                       | ) |                           | (0.5 | )        |  
|Foreign currency effect on reserve balance  |  |                         | (0.1 | )                              |   |                           |   |                           |     |          |  
|                                            |  |                         |      |                                |   |                            |   |                           |      |          |  
|Accrued liabilities as of June 30, 2005     |  | $                       | 7.3  |                                | $ | 2.5                        |   | $                         | (0.5 | )        | $
|                                            |  |                         |      |                                |   |                            |   |                           |      |          |  

---

June 30,
2005

December 31,
2004Accrued liabilities by activities were as follows:2001 activities

$
2.8

$
2.82004 activities


6.5


10.0Foreign currency effect on reserve balance


0.6


0.7Total

$
9.9

$
13.5


14

---



Details
with respect to our reserves for restructuring and plant closing costs are provided below by segments and activity (dollars in millions):

|                                                                             |                                              | Performance
Products |      | Polymers |   | Base
Chemicals |   | Total |     
|---------------------------------------------------------------------------- | -------------------------------------------- | -------------------- | ---- | -------- | - | -------------- | - | ----- | ----
|Accrued liabilities as of December 31, 2004                                  |                                              | $                    | 7.7  |          | $ | 5.8            |   | $     |    
|2005 charges for 2004 activities                                             |                                              |                      | 1.4  |          |   | 2.9            |   |       | 0.5 
|Reversal of reserves no longer required                                      |                                              |                      | (0.1 | )        |   |               |   |       | (0.4
|2005 payments for 2004 activities                                            |                                              |                      | (3.4 | )        |   | (4.4           | ) |       |    
|Foreign currency effect on reserve balance                                   |                                              |                      | (0.1 | )        |   |               |   |       |    
|                                                                             |                                              |                      |      |          |   |                |   |       |     
|Accrued liabilities as of June 30, 2005                                      |                                              | $                    | 5.5  |          | $ | 4.3            |   | $     | 0.1 
|Current portion of restructuring reserve                                     |                                              | $                    | 5.2  |          | $ | 1.9            |   | $     | 0.1 
|Long-term portion of restructuring reserve                                   |                                              |                      | 0.3  |          |   | 2.4            |   |       |    
|Estimated additional future cash charges for current restructuring projects: |                                             
|                                                                             | Estimated additional charges within one year |                      | $    | 5.6      |   | $              |  |       | $   
|                                                                             | Estimated additional charges beyond one year |                      | $    |         |   | $              |  |       | $   

As
of June 30, 2005 and December 31, 2004, we had reserves for restructuring and plant closing costs of $9.9 million and $13.5 million, respectively. During
the six months ended June 30, 2005 we recorded net charges of $4.3 million (all of which is payable in cash) for workforce reductions, non-cancelable lease costs, and other
restructuring costs associated with closure or curtailment of activities at our smaller, less efficient manufacturing facilities. During the first six months of 2005, we made cash payments against
these reserves of $7.8 million.

As
of December 31, 2004, our Performance Products segment reserve consisted of $7.7 million related to various restructuring programs, mainly in connection with the closure
of our Guelph, Ontario, St. Louis, Missouri and Austin, Texas facilities. During the six months ended June 30, 2005, our Performance Products segment recorded net restructuring charges of
$1.3 million related to 2004 activities and made cash payments of $3.4 million. These restructuring activities are expected to result in additional charges of approximately
$6 million through 2006.

As
of December 31, 2004, our Polymers segment reserve consisted of $5.8 million related primarily to the closure of a phenol manufacturing unit in Australia and
restructuring activities at our Odessa, Texas and Mansonville, Canada facilities. During the six months ended June 30, 2005, our Polymers segment recorded restructuring charges of
$2.9 million related to these activities, all of which are payable in cash, and made cash payments of $4.4 million. These restructuring activities are not expected to result in any
material additional restructuring charges. During the six months ended June 30, 2005, our Polymers segment made workforce reductions of 7 positions.

During
the six months ended June 30, 2005, our Base Chemicals segment recorded restructuring charges of $0.5 million and reversed $0.4 million of accruals related to
the relocation of our corporate offices to The Woodlands, Texas and the consolidation of our U.S. purchasing functions which were no longer required.

15

---



11.   LONG-TERM DEBT

Long-term debt outstanding as of June 30, 2005 and December 31, 2004 was as follows (dollars in millions):

June 30,
2005

December 31,
2004Senior secured credit facilities:Term Loan B

$
665.0

$
715.0Revolving facility


63.0


125.0Other debt:Huntsman LLC senior secured notes


293.4


451.1Huntsman LLC senior unsecured fixed rate notes


198.0


300.0Huntsman LLC senior unsecured floating rate notes


100.0


100.0Huntsman LLC senior subordinated fixed rate notes


44.2


44.2Huntsman LLC senior subordinated floating rate notes


15.1


15.1Huntsman Specialty Chemicals Corporation subordinated note


102.0


101.2Huntsman Australia Holdings Pty Ltd (HCA) credit facilities


47.2


43.2Huntsman Corporation Chemical Company Australia (HCCA) credit facilities


19.0


16.0Subordinated note and accrued interestaffiliate





40.9Term note payable to a bank


8.6


9.0Other


3.7


17.5Total debt

$
1,559.2

$
1,978.2Current portion of long-term debt

$
4.6

$
25.3Long-term debt


1,554.6


1,912.0Long-term debtaffiliate





40.9Total debt

$
1,559.2

$
1,978.2


Senior Secured Credit Facilities (HLLC Credit Facilities)

On October 14, 2004, we completed a $1,065 million refinancing of our senior secured credit facilities (as refinanced, the "HLLC Credit
Facilities"). On June 27, 2005, we made a $50 million voluntary prepayment under the term facility portion of the HLLC Credit Facilities. Following this prepayment, the HLLC Credit
Facilities consist of a $350 million revolving credit facility due October 2009 (the "HLLC Revolving Facility") and a $665 million term loan B facility due March 2010 (the
"HLLC Term Facility"). Proceeds of the refinancing were used to repay in full the outstanding borrowings under our prior senior secured credit facilities. The HLLC Term Facility has scheduled annual
amortization payments of $6.7 million commencing December 31, 2006, with the remaining balance due at maturity.

The
HLLC Revolving Facility is secured by a first priority lien on substantially all of our current and intangible assets and those of our domestic restricted subsidiaries; and is
secured by a second priority lien on substantially all of our property, plant and equipment and those of our restricted domestic subsidiaries and our indirect equity interest in HIH. The HLLC Term
Facility is secured by a first priority lien on substantially all of our property, plant and equipment and that of our restricted domestic subsidiaries and our indirect equity interest in HIH; and by
a second priority lien on substantially all of our current and intangible assets and those of our restricted domestic subsidiaries. The HLLC Credit Facilities are also guaranteed by Huntsman Specialty
Chemicals Holdings

16

---



Corporation
and Huntsman Specialty and by our domestic restricted subsidiaries (collectively, the "HLLC Guarantors"). Neither HIH nor HI is our restricted subsidiary and they are not HLLC Guarantors.

The
HLLC Revolving Facility is subject to a borrowing base of accounts receivable and inventory and is available for general corporate purposes. Borrowings under the HLLC Revolving
Facility bear interest, at our option, at a rate equal to (i) a LIBOR-based eurocurrency rate plus an applicable margin of 2.25%, or (ii) a prime-based rate plus an applicable margin of
1.25%. The HLLC Revolving Facility allows us to borrow up to $50 million secured by letters of credit; however, the $350 million revolving credit facility is reduced
dollar-for-dollar by any letters of credit outstanding.

As
of June 30, 2005, the weighted average interest rate on our senior credit facilities was 6.3%, excluding the impact of interest rate hedges. As of June 30, 2005, the
HLLC Revolving Facility and HLLC Term Facility bear interest at LIBOR plus 2.25% per year and LIBOR plus 3.0% per year, respectively. In accordance with the HLLC Term Facility agreement, as a result
of Huntsman Corporation's initial public offering of common and preferred stock and the use of offering proceeds for the permanent reduction of indebtedness by us, the HLLC Term Facility interest rate
margin decreased from LIBOR plus 3.50% to LIBOR plus 3.0%. The agreements governing the HLLC Credit Facilities contain customary financial covenants; covenants relating to the incurrence of debt, the
purchase and sale of assets, limitations on investments and affiliate transactions; change of control provisions; events of default provisions; and acceleration provisions. Management believes that we
are in compliance with the covenants of the HLLC Credit Facilities.

Senior Secured Notes (2003 Secured Notes)

On September 30, 2003, we sold $380 million aggregate principal amount of 11.625% senior secured notes due October 15, 2010 at an issue price
of 98.8% (the "September 2003 Offering"). On December 3, 2003, we sold an additional $75.4 million aggregate principal amount of senior secured notes (collectively with the notes
sold in the September 2003 Offering, the "HLLC Senior Secured Notes") at an issue price of 99.5%. Interest on the HLLC Senior Secured Notes is payable semiannually on April 15 and
October 15. The effective interest rate is 11.9%. The HLLC Senior Secured Notes are effectively subordinated to all our obligations under the HLLC Revolving Facility and rank pari passuwith the
HLLC Term Facility. The HLLC Senior Secured Notes are guaranteed by the HLLC Guarantors.

The
HLLC Senior Secured Notes are redeemable after October 15, 2007 at 105.813% of the principal amount thereof, declining ratably to par on and after October 15, 2009. At
any time prior to October 15, 2006, we may redeem up to 35% of the original aggregate principal amount of the HLLC Senior Secured Notes at a redemption price of 111.625% with the net cash
proceeds of a qualified equity offering. As a result of Huntsman Corporation's initial public offering of common and preferred stock, we redeemed 35%, or approximately $159.4 million, of the
aggregate principal amount of the HLLC Senior Secured Notes on February 28, 2005 and paid a call premium of approximately $18.5 million. Following this partial redemption of the HLLC
Senior Secured Notes, there remain approximately $296.0 million in aggregate principal amount of the HLLC Senior Secured Notes outstanding.

The
indenture governing the HLLC Senior Secured Notes contains covenants relating to the incurrence of debt, limitations on distributions, asset sales and affiliate transactions, among
other things. The indenture also requires us to offer to repurchase the HLLC Senior Secured Notes upon a change of control. Management believes that we are in compliance with the covenants of the HLLC
Senior Secured Notes. For information with respect to the consent solicitation of holders of the HLLC Senior Secured Notes and the HLLC Senior Notes, see
"Note 1GeneralProposed Merger Into Huntsman International LLC and Proposed New Credit Facility."

17

---



Senior Unsecured Notes (HLLC Senior Notes)

On June 22, 2004, we sold $300 million of our senior unsecured fixed rate notes that bear interest at 11.5% and mature on July 15, 2012 (the
"HLLC Unsecured Fixed Rate Notes") and $100 million of our senior unsecured floating rate notes that bear interest at a rate equal to LIBOR plus 7.25% and mature on July 15, 2011 (the
"HLLC Unsecured Floating Rate Notes," and together with the HLLC Unsecured Fixed Rate Notes, the "HLLC Senior Notes"). The interest rate on the HLLC Unsecured Floating Rate Notes as of June 30,
2005 was approximately 10.4%. Interest on the HLLC Unsecured Fixed Rate Notes is paid each January 15 and July 15 and is paid on the HLLC Unsecured Floating Rate Notes on the 15th of
January, April, July and October. The proceeds from the offering of the HLLC Senior Notes were used to repay $362.9 million on our prior term loan B facility and $25 million to repay
indebtedness at HCCA. See "Other Debt" below. The HLLC Senior Notes are our unsecured obligations and are guaranteed by the HLLC Guarantors.

The
HLLC Unsecured Fixed Rate Notes are redeemable after July 15, 2008 at 105.75% of the principal amount thereof, declining ratably to par on and after July 15, 2010. The
HLLC Unsecured Floating Rate Notes are redeemable after July 15, 2006 at 104.0% of the principal amount thereof, declining ratably to par on and after July 15, 2008. At any time prior to
July 15, 2007, we may redeem up to 40% of the original aggregate principal amount of the HLLC Unsecured Fixed Rate Notes at a redemption price of 111.5% with proceeds of a qualified equity
offering. At any time prior to July 15, 2006, we may redeem up to 40% of the aggregate original principal amount of the HLLC Unsecured Floating Rate Notes with the proceeds of a qualified
equity offering at a redemption price equal to the par value plus LIBOR plus 7.25%. As a result of Huntsman Corporation's initial public offering of common and preferred stock, we redeemed 34%, or
approximately $102.0 million of combined aggregate principal amount of the HLLC Unsecured Fixed Rate Notes on March 14 and March 17, 2005 with combined call premiums of
approximately $11.7 million. Following this partial redemption, there remain approximately $198.0 million in aggregate principal amount of the HLLC Unsecured Fixed Rate Notes
outstanding.

The
indenture governing the HLLC Senior Notes contains covenants relating to the incurrence of debt and limitations on distributions, asset sales and affiliate transactions, among other
things. The indenture also requires us to offer to repurchase the HLLC Senior Notes upon a change of control. Management believes that we are in compliance with the covenants of the HLLC Senior Notes.
For information with respect to the consent solicitation of holders of the HLLC Senior Secured Notes and the HLLC Senior Notes, see "Note 1GeneralProposed Merger Into
Huntsman International LLC and Proposed New Credit Facility."

Senior Subordinated Fixed And Floating Rate Notes (HLLC Notes)

Our 9.5% fixed and variable subordinated notes due 2007 (the "HLLC Notes") with an outstanding principal balance of $59.3 million as of June 30,
2005 are our unsecured subordinated obligations and are junior in right of payment to all of our existing and future secured or unsecured senior indebtedness and effectively junior to any of our
secured indebtedness to the extent that collateral secures such
indebtedness. Interest is payable on the HLLC Notes semiannually on January 1 and July 1 at an annual rate of 9.5% on the fixed rate notes and LIBOR plus 3.25% on the floating rate
notes. The HLLC Notes are redeemable at our option after July 2002 at a price declining from 104.75% to 100% of par value as of July 1, 2005. The weighted average interest rate on the
floating rate notes was approximately 6.0% as of June 30, 2005. As a result of previously executed amendments to the indentures, virtually all the restrictive covenants contained in the
indentures have been eliminated.

On
August 2, 2005, we issued a notice of redemption for all of the outstanding HLLC Notes in accordance with the amended and restated indenture governing the HLLC Notes.
Accordingly, at the

18

---



time
of the merger of the Company with and into HI, we will deliver funds to the trustee sufficient to redeem the HLCC notes in full on September 1, 2005.

Other Debt

Huntsman Specialty's subordinated note, in the aggregate principal amount of $75.0 million, accrued interest until April 15, 2002 at 7% per annum.
Pursuant to the note agreement, effective April 15, 2002, all accrued interest was added to the principal of the note for a total principal amount of $106.6 million. Such principal
balance will be payable in a single installment on April 15, 2008. Interest has been payable quarterly in cash, commencing July 15, 2002. For financial reporting purposes, the note was
initially recorded at its estimated fair value of $58.2 million, based on prevailing market rates as of the effective date. As of June 30, 2005 and December 31, 2004, the
unamortized discount on the note was $4.6 million and $5.4 million, respectively. We have also given notice that we intend to redeem these notes in full, at completion of the proposed
merger of the Company with and into HI.

Huntsman
Corporation Australia Pty Ltd. ("HCA"), our indirect Australian subsidiary that holds its Australian surfactants assets, maintains credit facilities (the "HCA
Facilities"). As of June 30, 2005, borrowings under the HCA Facilities totaled A$62.4 million ($47.2 million), which include A$41.0 million ($31.1 million) on the
term loan facility and A$21.4 million ($16.1 million) on the revolving credit line. On August 31, 2004, HCA refinanced the previously existing debt facilities with an
A$30.0 million ($23.1 million) revolving credit line supported by a borrowing base of eligible accounts receivable and inventory and an A$44.0 million ($33.9 million) term
facility.

Huntsman
Chemical Company Australia Pty Ltd. ("HCCA") and certain Australian affiliates hold our Australian styrenics assets. On August 31, 2004, HCCA refinanced the
previously existing debt facilities of HCCA with an A$30.0 million ($23.1 million) revolving credit line supported by a borrowing base of eligible accounts receivable (the "HCCA
Facility"). As of June 30, 2005, borrowings under the HCCA Facility totaled A$24.9 million ($19.0 million).

The
HCA Facilities and the HCCA Facility are secured by a lien on substantially all their respective assets, bear interest at a rate of 2.9% above the Australian base rate, mature in
August 2007 and are non-recourse to us. As of June 30, 2005, the interest rate on the HCA Facilities and the HCCA Facility was approximately 8.6%. On June 24, 2004, we
used $25 million of proceeds from the offering of the HLLC Senior Unsecured Notes to repay a portion of the previously existing debt facilities of HCCA. Management believes that HCA and HCCA
are in compliance with the covenants of the HCA Facilities and the HCCA Facility.

On
July 2, 2001, we entered into a 15% note payable (the "Affiliate Note") with an affiliated entity in the amount of $25.0 million. Interest on the Affiliate Note was not
paid in cash, but accrued at a designated effective rate of 15% per annum, compounded annually. On February 16, 2005, the Affiliate Note was satisfied in full from proceeds of Huntsman
Corporation's initial public offering. As of December 31, 2004 and February 16, 2005, accrued interest added to the principal balance was $15.9 million and $16.6 million,
respectively.

19

---



Scheduled Maturities

The scheduled maturities of debt by year are as follows (dollars in millions):

Year ending December 31:2005

$
2.32006


18.62007


127.62008


109.32009


70.3Later years


1,231.1Total

$
1,559.2


In
connection with the repayment of indebtedness from the proceeds of Huntsman Corporation's initial public offering of common stock and preferred stock, we recorded a loss on early
extinguishment of debt in the six months ended June 30, 2005 of $38.6 million.

12.   DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

We are exposed to market risks, such as changes in interest rates, foreign exchange rates and commodity pricing risks. From time to time, we enter into
transactions, including transactions involving derivative instruments, to manage interest rate exposure, but do not currently hedge for movements in commodities or foreign exchange rates. We manage
interest rate exposure through a program designed to reduce the impact of fluctuations in variable interest rates and to meet the requirements of certain credit agreements.

Interest Rate Hedging

Through our borrowing activities, we are exposed to interest rate risk. Such risk arises due to the structure of our debt portfolio, including the duration of the
portfolio and the mix of fixed and floating interest rates. Actions taken to reduce interest rate risk include managing the mix and rate characteristics of various interest bearing liabilities as well
as entering into interest rate swaps, collars and options.

As
of June 30, 2005 and December 31, 2004, we had entered into various types of interest rate contracts to manage our interest rate risk on our long-term debt
as indicated below (dollars in millions):

June 30, 2005

December 31, 2004Pay fixed swapsNotional amount

$
183.7

$
184.3Fair value


(2.5
)

(3.2
)Weighted average pay rate


4.44
%

4.44
%Maturing


2005-2007


2005-2007


20

---



We purchase both interest rate swaps and interest rate collars to reduce the impact of changes in interest rates on our floating-rate long-term debt. Under
interest rate swaps, we agree with other parties to exchange, at specified intervals, the difference between fixed-rate and floating-rate interest amounts calculated by
reference to an agreed notional principal amount. The collars entitle us to receive from the counterparties (major banks) the amounts, if any, by which our interest payments on certain of our
floating-rate borrowings exceed a certain rate, and require us to pay to the counterparties (major banks) the amount, if any, by which our interest payments on certain of our
floating-rate borrowings are less than a certain rate.

Interest
rate contracts with a fair value of $2.5 million and $3.2 million were recorded as a component of other noncurrent liabilities as of June 30, 2005 and
December 31, 2004, respectively. The fair value of cash flow hedges and interest rate contracts not designated as hedges was $0.8 million and $1.7 million, respectively, as of
June 30, 2005, and $2.0 million and $1.2 million, respectively, as of December 31, 2004. The changes in the fair value of cash flow hedges resulted in a $0.6 million
increase and a $1.0 million decrease, and a $0.6 million increase and a $0.4 million decrease in interest expense for the three and six months ended June 30, 2005 and 2004,
respectively. The change to the fair value of cash flow hedges resulted in a $0.9 million increase and a $3.7 million increase, and a $1.9 million increase and a
$2.8 million increase in other comprehensive income for the three and six months ended June 30, 2005 and 2004, respectively. The changes in the fair value of interest rate contracts not
designated as hedges resulted in a $1.6 million increase and a $2.3 million decrease, and a $0.6 million increase and a $1.5 million decrease in interest expense for the
three and six months ended June 30, 2005 and 2004, respectively.

We
are exposed to credit losses in the event of nonperformance by a counterparty to the derivative financial instruments. We anticipate, however, that the counterparties will be able to
fully satisfy obligations under the contracts. Market risk arises from changes in interest rates.

13.   EMPLOYEE BENEFIT PLANS

Components of the net periodic benefit costs for the three and six months ended June 30, 2005 and 2004 were as follows (dollars in millions):

Defined Benefit Plans

Other Postretirement Benefit PlansThree months ended
June 30,

Three months ended
June 30,2005

2004

2005

2004Service cost

$
6.1

$
3.8

$
0.7

$
0.6Interest cost


6.0


6.1


1.6


1.6Expected return on assets


(4.8
)

(4.3
)




Amortization of transition obligation


0.3


0.3





Amortization of prior service cost


(0.8
)

0.2


(0.5
)

(0.4
)Amortization of actuarial cost


1.2


0.9


0.9


0.8Net periodic benefit cost

$
8.0

$
7.0

$
2.7

$
2.6


21

---



|                                      |                           | Defined Benefit Plans |      | Other Postretirement Benefit Plans |  
|------------------------------------- | ------------------------- | --------------------- | ---- | ---------------------------------- | -
|
|
|Service cost                          |                           | $                     | 12.2 |                                    | $
|Interest cost                         |                           |                       | 12.0 |                                    |  
|Expected return on assets             |                           |                       | (9.6 | )                                  |  
|Amortization of transition obligation |                           |                       | 0.6  |                                    |  
|Amortization of prior service cost    |                           |                       | (1.6 | )                                  |  
|Amortization of actuarial cost        |                           |                       | 2.4  |                                    |  
|                                      |                           |                       |      |                                    |  
|                                      | Net periodic benefit cost |                       | $    | 16.0                               |  
|                                      |                           |                       |      |                                    |  

14.   OTHER COMPREHENSIVE INCOME (LOSS)

Other comprehensive income (loss) consisted of the following (dollars in millions):

|                                                               |  | Accumulated Other Comprehensive Income (Loss) |       | Other Comprehensive Income (Loss) |   | Other Comprehensive Income (Loss) |  
|-------------------------------------------------------------- |  | --------------------------------------------- | ----- | --------------------------------- | - | --------------------------------- | -
|
|
|Foreign currency translation adjustments                       |  | $                                             | 15.2  |                                   | $ | 21.4                              |  
|Unrealized gain (loss) on nonqualified plan investments        |  |                                               | 0.8   |                                   |   | 0.9                               |  
|Unrealized (loss) gain on derivative instruments               |  |                                               | (3.3  | )                                 |   | (4.8                              | )
|Minimum pension liability                                      |  |                                               | (42.1 | )                                 |   | (42.1                             | )
|Other comprehensive income (loss) of unconsolidated affiliates |  |                                               | 44.1  |                                   |   | 108.0                             |  
|                                                               |  |                                               |       |                                   |   |                                   |  
|Total                                                          |  | $                                             | 14.7  |                                   | $ | 83.4                              |  
|                                                               |  |                                               |       |                                   |   |                                   |  

Items
of other comprehensive income (loss) have been recorded net of tax of nil because of valuation allowances. The tax effect is determined based on the jurisdiction where the income
or loss was recognized.

15.   COMMITMENTS AND CONTINGENCIES

Purchase Commitments

We have various purchase commitments extending through 2023 for materials and supplies entered into in the ordinary course of business. The purchase commitments
are contracts that require minimum volume purchases. Certain contracts allow for changes in minimum required purchase volumes in the event of a temporary or permanent shutdown of a facility. The
contractual purchase price for substantially all of these contracts require minimum payments, even if no volume is purchased. These contracts approximate $14 million annually through 2005,
decreasing to approximately $9 million after 2008. Historically, we have not made any minimum payments under our take or pay contracts without taking product.

22

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Legal Matters

We have been a party to various lawsuits brought by persons alleging personal injuries and/or property damage based upon alleged exposure to toxic air emissions.
For example, since June 2003, a number of lawsuits have been filed in state district court in Jefferson County, Texas against several local chemical plants and refineries, including our
subsidiary, Huntsman Petrochemical Corporation. Generally, these lawsuits have alleged that the refineries and chemical plants located in the vicinity of the plaintiffs' homes discharged chemicals
into the air that interfere with use and enjoyment of property and cause health problems and/or property damages. None of these lawsuits have included the amount of damages being sought. The following
table presents information about the number of claims asserting damages based upon alleged exposure to toxic air emissions for the period indicated. Claims include all claims for which service has
been received by us, and each such claim represents a plaintiff who is pursuing a claim against us.

Six months ended
June 30, 2005Claims filed during period

2,104Claims resolved during period

2,988Claims unresolved at end of period

0


All
claims filed as of June 30, 2005 have been resolved through dismissal and/or settlement.

In
addition, we have been named as a "premises defendant" in a number of asbestos exposure cases, typically a claim by a non-employee of exposure to asbestos while at a
facility. These cases typically involve multiple plaintiffs bringing actions against multiple defendants, and the complaint does not indicate which plaintiffs are making claims against which
defendants, where or how the alleged injuries occurred, or what injuries each plaintiff claims. These facts, which are central to any estimate of probable loss, can be learned only through discovery.

Where
the alleged exposure occurred prior to our ownership or operation of the relevant "premises," the prior owners and operators generally have contractually agreed to retain liability
for, and to indemnify us against, asbestos exposure claims. This indemnification is not subject to any time or dollar amount limitations. Upon service of a complaint in one of these cases, we tender
it to the prior owner or operator. None of the complaints in these cases state the amount of damages being sought. The prior owner or operator accepts responsibility for the conduct of the defense of
the cases and payment of any amounts due to the claimants. In our ten-year experience with tendering these cases, we have not made any payment with respect to any tendered asbestos cases.
We believe that the prior owners or operators have the intention and ability to continue to honor their indemnities, although we cannot assure you that they will continue to do so or that we will not
be liable for these cases if they do not.

The
following table presents for the period indicated certain information about cases for which service has been received that we have tendered to the prior owner or operator, all of
which have been accepted.

Six months ended
June 30, 2005Tendered during the period

84Resolved during the period

21Unresolved at end of the period

461


We
have never made any payments with respect to these cases. As of June 30, 2005, we had an accrued liability of $12.5 million relating to these cases and a corresponding
receivable of $12.5 million relating to our indemnity protection with respect to these cases. We cannot assure you that our liability

23

---



will
not exceed our accruals or that our liability associated with these cases would not be material to our financial condition, results of operations or liquidity.

Certain
cases in which we are a "premises defendant" are not subject to indemnification by prior owners or operators. The following table presents for the period indicated certain
information about these cases. Cases include all cases for which service has been received by us.

Six months ended
June 30, 2005Filed during period

38Resolved during period

1Unresolved at end of period

66


We
paid gross settlement costs for asbestos exposure cases that are not subject to indemnification of approximately $5,000 during the six months ended June 30, 2005.

As
of June 30, 2005, we had accrued reserves of $1.2 million relating to these cases. We cannot assure you that our liability will not exceed our accruals or that our
liability associated with these cases would not be material to our financial condition, results of operations or liquidity.

We
are a party to various other proceedings instituted by private plaintiffs, governmental authorities and others arising under provisions of applicable laws, including various
environmental, products liability and other laws. Except as otherwise disclosed in this report, we do not believe that the outcome of any of these matters will have a material adverse effect on our
financial condition, results of operations or liquidity. See "Note 16Environmental, Health and Safety Matters" for a discussion of environmental proceedings.

16.   ENVIRONMENTAL, HEALTH AND SAFETY MATTERS

General

We are subject to extensive federal, state, local and foreign laws, regulations, rules and ordinances relating to pollution, protection of the environment and the
generation, storage, handling, transportation, treatment, disposal and remediation of hazardous substances and waste materials. In the ordinary course of business, we are subject to frequent
environmental inspections and monitoring and occasional investigations by governmental enforcement authorities. In addition, our production facilities require operating permits that are subject to
renewal, modification and, in certain circumstances, revocation. Actual or alleged violations of environmental laws or permit requirements could result in restrictions or prohibitions on plant
operations, substantial civil or criminal sanctions, as well as, under some environmental laws, the assessment of strict liability and/or joint and several liability. Moreover, changes in
environmental regulations could inhibit or interrupt our operations, or require us to modify our facilities or operations. Accordingly, environmental or regulatory matters may cause us to incur
significant unanticipated losses, costs or liabilities.

Environmental, Health and Safety Systems

We are committed to achieving and maintaining compliance with all applicable environmental, health and safety ("EHS") legal requirements, and we have developed
policies and management systems that are intended to identify the multitude of EHS legal requirements applicable to our operations, enhance compliance with applicable legal requirements, ensure the
safety of our employees, contractors, community neighbors and customers and minimize the production and emission of wastes and other pollutants. Although EHS legal requirements are constantly changing
and are frequently difficult to comply with, these EHS management systems are designed to assist us in our compliance goals while also fostering efficiency and improvement and minimizing overall risk
to us.

24

---



EHS Capital Expenditures

We may incur future costs for capital improvements and general compliance under EHS laws, including costs to acquire, maintain and repair pollution control
equipment. For the six months ended June 30, 2005 and 2004, our capital expenditures for EHS matters totaled $6.1 million and $15.9 million, respectively. Since capital
expenditures for these matters are subject to evolving regulatory requirements and depend, in part, on the timing, promulgation and enforcement of specific requirements, we cannot provide assurance
that our recent expenditures will be indicative of future amounts required under EHS laws.

Governmental Enforcement Proceedings

On occasion, we receive notices of violation, enforcement and other complaints from regulatory agencies alleging non-compliance with applicable EHS
law. By way of example, we are aware of the individual matters set out below, which we believe to be the most significant presently pending matters and unasserted claims. Although we may incur costs
or penalties in connection with the governmental proceedings discussed below, based on currently available information and our past experience, we believe that the ultimate resolution of these matters
will not have a material impact on our results of operations, financial position or liquidity.

In
May 2003, the State of Texas settled an air enforcement case with us relating to our Port Arthur plant. Under the settlement, we are required to pay a civil penalty of
$7.5 million over more than four years, undertake environmental monitoring projects totaling about $1.5 million in costs, and pay
$0.4 million in attorney's fees to the Texas Attorney General. As of June 30, 2005, we have paid $3.5 million toward the penalty and $0.4 million for the attorney's fees.
The monitoring projects are underway and on schedule. We do not anticipate that this settlement will have a material adverse effect on our results of operations, financial position or liquidity.

In
the third quarter of 2004, our Jefferson County, Texas facilities received notification from the Texas Commission on Environmental Quality ("TCEQ") of potential air emission
violations relating to the operation of cooling towers at three of our plants and alleged upset air emissions. TCEQ proposed penalties of $0.2 million for the alleged upset violations and
$0.1 million for the alleged cooling tower violations. In the second quarter of 2005, TCEQ proposed a penalty of $0.1 million related to alleged upset emissions at our Port Neches
facilities in late 2004 and early 2005. Additionally, based on allegations of separate upset-related violations at our Port Neches facilities occurring from mid-2004 to early 2005, the
TCEQ has proposed a separate penalty of $0.1 million. Negotiations are anticipated between us and TCEQ with respect to the resolution of these alleged violations. We do not believe that the
resolution of these matters will have a material adverse impact on our results of operations, financial position or liquidity.

By
letter dated March 17, 2005, the TCEQ notified us that it intends to pursue an enforcement action as a result of various upset emission events occurring at our Port Arthur
facility between August 2003 and the end of 2004. TCEQ alleged that each upset event is a separate violation of its air emission rules and proposed a civil penalty of $0.1 million. In a
similar vein, the TCEQ issued a Notice of Enforcement to us on February 16, 2005 for alleged violations at our Port Neches plants arising out of upset emission events on various dates in 2004.
TCEQ has not yet proposed a penalty in this second matter, although we anticipate that it will. We will seek to negotiate a settlement with TCEQ on all of the alleged violations. We do not believe
that the resolution of these matters will result in the imposition of costs material to our results of operations, financial position or liquidity.

See
Note 15 Commitments and ContingenciesLegal Matters for a discussion of environmental lawsuits brought by private party plaintiffs.

25

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Remediation Liabilities

We have incurred, and we may in the future incur, liability to investigate and clean up waste or contamination at our current or former facilities or facilities
operated by third parties at which we may have disposed of waste or other materials. Similarly, we may incur costs for the cleanup of wastes that were disposed of prior to the purchase of our
businesses. Under some circumstances, the scope of our liability may extend to damages to natural resources. Specifically, under the U.S. Comprehensive Environmental Response, Compensation and
Liability Act of 1980, as amended ("CERCLA"), and
similar state laws, a current or former owner or operator of real property may be liable for remediation costs regardless of whether the release or disposal of hazardous substances was in compliance
with law at the time it occurred, and a current owner or operator may be liable regardless of whether it owned or operated the facility at the time of the release. In addition, under the U.S. Resource
Conservation and Recovery Act of 1976, as amended ("RCRA"), and similar state laws, we may be required to remediate contamination originating from our properties as a condition to our hazardous waste
permit. For example, our Odessa, Port Arthur, and Port Neches facilities in Texas are the subject of ongoing remediation requirements under RCRA authority. In many cases, our potential liability
arising from historical contamination is based on operations and other events occurring prior to our ownership of the relevant facility. In these situations, we frequently obtained an indemnity
agreement from the prior owner addressing remediation liabilities arising from pre-closing conditions. We have successfully exercised our rights under these contractual covenants for a
number of sites, and where applicable, mitigated our ultimate remediation liability. We cannot assure you, however, that all of such matters will be subject to indemnity or that our existing
indemnities will be sufficient to cover our liabilities for such matters.

We
have been notified by third parties of claims against us or our subsidiaries for cleanup liabilities at approximately 12 former facilities and other third party sites, including but
not limited to sites listed under CERCLA. Based on current information and past experience at other CERCLA sites, we do not expect any of these third-party claims to result in material liability to
us.

One
of these sites, the North Maybe Canyon CERCLA site, includes an abandoned phosphorous mine located in a U.S. National Forest in Idaho. The North Maybe Canyon mine may have been
operated by one of our predecessors for approximately two out of the eight years (1964 to 1972) during which it held mining leases in the area. In 2004, we received from the Forest Service a notice of
potential liability for the mine under CERCLA. According to information from the U.S. government, North Maybe Canyon was actively mined for a total of about 20 years. The current owner, NuWest
Industries, Inc., a subsidiary of Agrium, Inc., operated the mine for at least six of those years. Under an administrative order with the Forest Service and other governmental agencies,
NuWest is currently undertaking an investigation of the site, with a specific focus on the release of selenium-contaminated surface water into streams in the area. By letter dated May 27, 2005,
the Forest Service put us (as well as NuWest and Wells Cargo, Inc.) on notice that it is demanding payment of its incurred costs in the amount of $0.1 million. The letter also indicated
that the Forest Service wishes to initiate negotiations on a response action at the site with the objective of putting a Consent Decree in place obligating NuWest, Wells Cargo and us to conduct and
fund that action. We are currently investigating the factual issues concerning anticipated allocation and response action issues. We have initiated contact with the Forest Service and the other
potentially responsible persons ("PRPs") to determine whether to pursue negotiations. We do not currently have sufficient information to estimate actual remediation costs or our actual liability, if
any, for investigation and cleanup of the North Maybe Canyon site.

At
another of these sites, the Seaboard Chemical Corporation facility in Jamestown, North Carolina, a removal action under CERCLA was first initiated in 1992. In December 1995,
we, along with hundreds of other PRPs, entered into an administrative order on consent with the State requiring the PRP group to conduct a remedial investigation/feasibility study ("RI/FS"). The
initial RI/FS was submitted to the State in mid-1999. Based on the investigative work, the PRP group proposed a

26

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remediation
plan for the site in early 2005. That plan has now been accepted by the State and a draft consent order for implementation is being negotiated. Additionally, the PRPs developed allocation
numbers based on relative waste contribution, with our share set at 2.84%. Based on the total estimated cost of remediation, we have established an accrual of $0.3 million.

Environmental Reserves

We have established financial reserves relating to anticipated environmental cleanup obligations, site reclamation and closure costs and known penalties.
Liabilities are recorded when potential liabilities are either known or considered probable and can be reasonably estimated. Our liability estimates are based upon available facts, existing technology
and past experience. On a consolidated basis, we have accrued approximately $12.2 million and $13.9 million for environmental liabilities as of June 30, 2005 and
December 31, 2004, respectively. Of these amounts, approximately $2.0 million are classified as accrued liabilities on our consolidated balance sheets as of each of June 30, 2005
and December 31, 2004, and approximately $10.2 million and $11.9 million are classified as other noncurrent liabilities on our consolidated balance sheets as of June 30,
2005 and December 31, 2004, respectively. In certain cases, our remediation liabilities are payable over periods of up to 30 years. We may incur losses for environmental remediation in
excess of the amounts accrued; however, we are not able to estimate the amount or range of such losses.

Regulatory Developments

Under the European Union ("EU") Integrated Pollution Prevention and Control Directive ("IPPC"), EU member governments are to adopt rules and implement a
cross-media (air, water and waste) environmental permitting program for individual facilities. While the EU countries are at varying stages in their respective implementation of the IPPC permit
program, we have submitted all necessary IPPC permit applications required to date, and in some cases received completed permits from the applicable government agency. We expect to submit all other
IPPC applications and related documents on a timely basis as the various countries implement the IPPC permit program. Although we do not know with certainty what each IPPC permit will require, we
believe, based upon our experience with the permits received to date, that the costs of compliance with the IPPC permit program will not be material to our results of operations, financial position or
liquidity.

In
October 2003, the European Commission adopted a proposal for a new EU regulatory framework for chemicals. Under this proposed new system called "REACH" (Registration,
Evaluation and Authorization of Chemicals), companies that manufacture or import more than one ton of a chemical substance per year would be required to register such manufacture or import in a
central database. The REACH initiative, as proposed, would require risk assessment of chemicals, preparations (e.g., soaps and paints) and articles (e.g., consumer products) before those materials
could be manufactured or imported into EU countries. Where warranted by a risk assessment, hazardous substances would require authorizations for their use. This regulation could impose risk control
strategies that would require capital expenditures by us. As proposed, REACH would take effect in three primary stages over the eleven years following the final effective date (assuming final
approval). The impacts of REACH on the chemical industry and on us are unclear at this time because the parameters of the program are still being actively debated.

MTBE Developments

We currently market approximately 95% of our MTBE to customers located in the U.S. for use as a gasoline additive. The presence of MTBE in some groundwater
supplies in California and other U.S. states (primarily due to gasoline leaking from underground storage tanks) and in surface water (primarily from recreational watercraft) has led to public concern
about MTBE's potential to contaminate drinking water supplies. Heightened public awareness regarding this issue has resulted in

27

---



state,
federal and foreign initiatives to rescind the federal oxygenate requirements for reformulated gasoline or restrict or prohibit the use of MTBE in particular. For example, California, New York
and Connecticut have adopted rules that prohibit the use of MTBE in gasoline sold in those states. Overall, states that have taken some action to prohibit or restrict the use of MTBE in gasoline
account for a substantial portion of the "pre-ban" U.S. MTBE market. Thus far, attempts by others to challenge these state bans in federal court under the reformulated gasoline provisions
of the federal Clean Air Act have been unsuccessful.

In
August 2005, the Energy Policy Act of 2005 was signed into law. The new law will likely have an adverse impact on our MTBE business in the U.S., although a full evaluation of
the law's provisions is underway and the extent of potential impacts, if any, is unclear. The new legislation mandates increased use of renewable fuels and eliminates the oxygenate requirement for
reformulated gasoline established by the 1990 Clean Air Act Amendments, and the combination of these two provisions could substantially reduce the market for MTBE in the U.S. However, unlike
previously proposed federal legislation, the new law does not purport to ban the use of MTBE as a motor vehicle fuel additive. Thus, we do not believe it will prevent us from either manufacturing MTBE
in our plants or offering MTBE for sale in the U.S. A significant reduction in demand for our MTBE could result in a material loss in revenues or material costs or expenditures. As an alternative to
selling our MTBE in the U.S., we believe we will be able to export MTBE to Europe, Asia or Latin America, although this may produce a lower level of cash flow than the sale of MTBE in the U.S. We may
also elect to use all or a
portion of our precursor TBA to produce saleable products other than MTBE. If we opt to produce products other than MTBE, necessary modifications to our facilities may require significant capital
expenditures and the sale of the other products may produce a materially lower level of cash flow than the sale of MTBE.

In
September 2002, the EU issued a final risk assessment report on MTBE. No ban of MTBE was recommended for Europe, although several risk reduction measures relating to storage
and handling of MTBE-containing fuel were recommended.

A
number of lawsuits have been filed, primarily against gasoline manufacturers, marketers and distributors, by persons seeking to recover damages allegedly arising from the presence of
MTBE in groundwater. We have not been named as a defendant in any litigation concerning the environmental effects of MTBE. However, we cannot provide assurances that we will not be involved in any
such litigation or that such litigation will not have a material adverse effect on our results of operations, financial position or liquidity.

17.   OTHER EXPENSE

Other expense consisted of the following (dollars in millions):

Three Months Ended
June 30,

Six Months Ended
June 30,2005

2004

2005

2004Loss on early extinguishment of debt

$
(0.3
)
$
(2.3
)
$
(38.6
)
$
(4.2
)Other, net


(1.3
)

0.2


(1.5
)

0.5Total other expense

$
(1.6
)
$
(2.1
)
$
(40.1
)
$
(3.7
)


18.   INCOME TAXES

We had income tax expense of $0.8 million and nil for the three and six months ended June 30, 2005, respectively, and income tax expense of
$1.6 million and benefit of $0.8 million for the three and six months ended June 30, 2004, respectively. We use the asset and liability method of accounting for

28

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income
taxes. Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial and tax reporting purposes. We evaluate
the resulting deferred tax assets to determine whether it is more likely than not that they will be realized. Valuation allowances have been established against our entire domestic and certain of our
non-U.S. deferred tax assets due to the uncertainty of realization. Valuation allowances are reviewed each period on a tax jurisdiction by jurisdiction basis to analyze whether a change in
circumstances has occurred to provide enough positive or negative evidence to support a change in judgment about the realizability of the related deferred tax asset.

19.   OPERATING SEGMENT INFORMATION

We derive our revenues, earnings and cash flows from the manufacture and sale of a wide variety of differentiated and commodity chemical products. We have three
reportable operating segments: Performance Products, Polymers and Base Chemicals.

The
major products of each reportable operating segment are as follows:

|Segment              |  | Products                                                                                                                                                       
|-------------------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------
|Performance Products |  | Amines, surfactants, linear alkylbenzene, maleic anhydride, other performance chemicals, glycols and technology licenses                                       
|Polymers             |  | Ethylene (produced at the Odessa, Texas facilities primarily for internal use), polyethylene, polypropylene, expandable polystyrene, styrene and other polymers
|Base Chemicals       |  | Olefins (primarily ethylene and propylene), butadiene, MTBE, benzene, cyclohexane and paraxylene                                                               

29

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Sales
between segments are generally recognized at external market prices and eliminate upon consolidation (dollars in millions).

|                  |                               | Three months ended |       | Six months ended |        
|----------------- | ----------------------------- | ------------------ | ----- | ---------------- | -------
|
|Revenues:         |                               |                    |       |                  |        
|                  | Performance Products          |                    | $     | 356.2            |        
|                  | Polymers                      |                    |       | 408.2            |        
|                  | Base Chemicals                |                    |       | 482.2            |        
|                  | Eliminations                  |                    |       | (77.9            | )      
|                  |                               |                    |       |                  |        
|                  |                               | Total              |       | $                | 1,168.7
|                  |                               |                    |       |                  |        
|Segment EBITDA(1) |                               |                    |       |                  |        
|                  | Performance Products          |                    | $     | 60.3             |        
|                  | Polymers                      |                    |       | 32.5             |        
|                  | Base Chemicals                |                    |       | 20.9             |        
|                  | Corporate and other(2)        |                    |       | 13.2             |        
|                  |                               |                    |       |                  |        
|                  |                               | Total              |       | $                | 126.9  
|                  |                               |                    |       |                  |        
|Segment EBITDA(1) |                               | $                  | 126.9 |                  | $      
|                  | Interest expense, net         |                    |       | (37.7            | )      
|                  | Income tax (expense) benefit  |                    |       | (0.8             | )      
|                  | Depreciation and amortization |                    |       | (32.0            | )      
|                  |                               |                    |       |                  |        
|                  |                               | Net income (loss)  |       | $                | 56.4   
|                  |                               |                    |       |                  |        

---

20.   CONDENSED CONSOLIDATING FINANCIAL STATEMENTS

The following are condensed consolidating financial statements which present, in separate columns: the parent company with our investments in subsidiaries using
the equity method; the Guarantors on a combined, or where appropriate, consolidated basis, carrying the investments in the Non-Guarantors under the equity method; and the
Non-Guarantors on a consolidated basis. Additional columns present eliminating adjustments and consolidated totals as of June 30, 2005 and December 31, 2004 and for the three
and six months ended June 30, 2005 and 2004. There are no restrictions limiting transfers of cash from guarantor to non-guarantor subsidiaries to us. The combined Guarantors are our
wholly-owned subsidiaries and have fully and unconditionally guaranteed $296.0 million of the 2003 Secured Notes on a joint and several basis.

30

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HUNTSMAN LLC AND SUBSIDIARIES        CONDENSED CONSOLIDATING BALANCE SHEETS        AS OF JUNE 30, 2005 (Unaudited)        (Dollars in Millions)

|                                          |                                                 | Parent Company                  |         | Guarantors |         | Non-
guarantors |         | Eliminations |       | Consolidated
Huntsman LLC |      
|----------------------------------------- | ----------------------------------------------- | ------------------------------- | ------- | ---------- | ------- | --------------- | ------- | ------------ | ----- | ------------------------- | -----
|ASSETS                                    |                                                 |                                 |         |            |         |                 |         |              |       |                           |      
|Current assets:                           |                                                 |                                 |         |            |         |                 |         |              |       |                           |      
|                                          | Cash and cash equivalents                       |                                 | $       | 2.2        |         | $               | 0.7     |              | $     | 11.3                      |      
|                                          | Restricted cash                                 |                                 |         | 0.6        |         |                 | 12.9    |              |       |                          |      
|                                          | Accounts and notes receivable, net              |                                 |         | 75.9       |         |                 | 354.3   |              |       | 64.6                      |      
|                                          | Accounts receivable from affiliates             |                                 |         | 285.1      |         |                 | 378.8   |              |       | 33.2                      |      
|                                          | Inventories                                     |                                 |         | 44.4       |         |                 | 239.9   |              |       | 71.9                      |      
|                                          | Prepaid expenses                                |                                 |         | 0.2        |         |                 | 0.9     |              |       | 0.7                       |      
|                                          | Deferred income tax                             |                                 |         |           |         |                 | (0.2    | )            |       | 0.7                       |      
|                                          | Other current assets                            |                                 |         |           |         |                 |        |              |       | 10.7                      |      
|                                          |                                                 |                                 |         |            |         |                 |         |              |       |                           |      
|                                          |                                                 | Total current assets            |         |            | 408.4   |                 |         | 987.3        |       |                           | 193.1
|Property, plant and equipment, net        |                                                 |                                 | 101.7   |            |         | 1,002.4         |         |              | 107.1 |                           |      
|Investment in unconsolidated affiliates   |                                                 |                                 | (627.3  | )          |         | 407.5           |         |              | 31.8  |                           |      
|Intangible assets, net                    |                                                 |                                 | 1.8     |            |         | 10.2            |         |              | 18.7  |                           |      
|Goodwill                                  |                                                 |                                 |        |            |         |                |         |              | 3.3   |                           |      
|Deferred income tax                       |                                                 |                                 | 0.4     |            |         | 7.9             |         |              |      |                           |      
|Receivables from affiliates               |                                                 |                                 | 2,168.0 |            |         | 104.6           |         |              | 15.9  |                           |      
|Other noncurrent assets                   |                                                 |                                 | 41.5    |            |         | 114.3           |         |              | 10.0  |                           |      
|                                          |                                                 |                                 |         |            |         |                 |         |              |       |                           |      
|                                          |                                                 | Total assets                    |         | $          | 2,094.5 |                 | $       | 2,634.2      |       | $                         | 379.9
|                                          |                                                 |                                 |         |            |         |                 |         |              |       |                           |      
|LIABILITIES AND MEMBER'S EQUITY (DEFICIT) |                                                 |                                 |         |            |         |                 |         |              |       |                           |      
|Current liabilities:                      |                                                 |                                 |         |            |         |                 |         |              |       |                           |      
|                                          | Accounts payable                                |                                 | $       | 37.4       |         | $               | 234.4   |              | $     | 47.9                      |      
|                                          | Accounts payable to affiliates                  |                                 |         | 291.8      |         |                 | 282.8   |              |       | 59.4                      |      
|                                          | Accrued liabilities                             |                                 |         | 77.0       |         |                 | 106.9   |              |       | 24.4                      |      
|                                          | Deferred income tax                             |                                 |         | 0.4        |         |                 | 7.8     |              |       | 0.1                       |      
|                                          | Current portion of long-term debt               |                                 |         | 0.1        |         |                 | 1.2     |              |       | 3.3                       |      
|                                          |                                                 |                                 |         |            |         |                 |         |              |       |                           |      
|                                          |                                                 | Total current liabilities       |         |            | 406.7   |                 |         | 633.1        |       |                           | 135.1
|Long-term debt                            |                                                 |                                 | 1,378.6 |            |         | 2,250.2         |         |              | 204.3 |                           |      
|Deferred income taxes                     |                                                 |                                 |        |            |         | (0.6            | )       |              | 1.0   |                           |      
|Other noncurrent liabilities              |                                                 |                                 | 96.4    |            |         | 166.2           |         |              | 7.2   |                           |      
|                                          |                                                 |                                 |         |            |         |                 |         |              |       |                           |      
|                                          |                                                 | Total liabilities               |         |            | 1,881.7 |                 |         | 3,048.9      |       |                           | 347.6
|                                          |                                                 |                                 |         |            |         |                 |         |              |       |                           |      
|                                          | Minority interest in consolidated subsidiaries  |                                 |         |           |         |                 | 91.3    |              |       |                          |      
|Member's equity (deficit):                |                                                 |                                 |         |            |         |                 |         |              |       |                           |      
|                                          | Member's equity                                 |                                 |         | 1,428.4    |         |                 | 270.9   |              |       | 104.2                     |      
|                                          | Subsidiary preferred stock                      |                                 |         |           |         |                 | 73.4    |              |       | 1.4                       |      
|                                          | Accumulated deficit                             |                                 |         | (1,230.3   | )       |                 | (890.4  | )            |       | (52.8                     | )    
|                                          | Accumulated other comprehensive income (loss)   |                                 |         | 14.7       |         |                 | 40.1    |              |       | (20.5                     | )    
|                                          |                                                 |                                 |         |            |         |                 |         |              |       |                           |      
|                                          |                                                 | Total member's equity (deficit) |         |            | 212.8   |                 |         | (506.0       | )     |                           | 32.3 
|                                          |                                                 |                                 |         |            |         |                 |         |              |       |                           |      
|                                          | Total liabilities and member's equity (deficit) |                                 | $       | 2,094.5    |         | $               | 2,634.2 |              | $     | 379.9                     |      
|                                          |                                                 |                                 |         |            |         |                 |         |              |       |                           |      

31

---



HUNTSMAN LLC AND SUBSIDIARIES        CONDENSED CONSOLIDATING BALANCE SHEETS        AS OF DECEMBER 31, 2004 (Unaudited)        (Dollars in Millions)

|                                               |                                                 | Parent Company                  |         | Guarantors |         | Non-
guarantors |          | Eliminations |       | Consolidated Huntsman LLC |      
|---------------------------------------------- | ----------------------------------------------- | ------------------------------- | ------- | ---------- | ------- | --------------- | -------- | ------------ | ----- | ------------------------- | -----
|ASSETS                                         |                                                 |                                 |         |            |         |                 |          |              |       |                           |      
|Current assets:                                |                                                 |                                 |         |            |         |                 |          |              |       |                           |      
|                                               | Cash and cash equivalents                       |                                 | $       | (0.1       | )       | $               | 3.5      |              | $     | 8.3                       |      
|                                               | Restricted cash                                 |                                 |         | 0.3        |         |                 | 8.6      |              |       |                          |      
|                                               | Accounts and notes receivables, net             |                                 |         | 62.1       |         |                 | 402.3    |              |       | 75.9                      |      
|                                               | Accounts receivable from affiliates             |                                 |         | 76.5       |         |                 | 178.9    |              |       | 3.1                       |      
|                                               | Inventories                                     |                                 |         | 41.1       |         |                 | 218.9    |              |       | 78.8                      |      
|                                               | Prepaid expenses                                |                                 |         | 1.5        |         |                 | 27.3     |              |       | 1.2                       |      
|                                               | Deferred income tax                             |                                 |         |           |         |                 |         |              |       | 0.7                       |      
|                                               | Other current assets                            |                                 |         |           |         |                 | 0.1      |              |       | 1.5                       |      
|                                               |                                                 |                                 |         |            |         |                 |          |              |       |                           |      
|                                               |                                                 | Total current assets            |         |            | 181.4   |                 |          | 839.6        |       |                           | 169.5
|Property, plant and equipment, net             |                                                 |                                 | 98.6    |            |         | 1,025.8         |          |              | 107.7 |                           |      
|Investment in unconsolidated affiliates        |                                                 |                                 | (685.5  | )          |         | 400.9           |          |              | 43.0  |                           |      
|Intangible assets, net                         |                                                 |                                 | 2.0     |            |         | 8.0             |          |              | 22.4  |                           |      
|Goodwill                                       |                                                 |                                 |        |            |         |                |          |              | 3.3   |                           |      
|Deferred income tax                            |                                                 |                                 | 0.4     |            |         | 7.8             |          |              |      |                           |      
|Receivable from affiliates                     |                                                 |                                 | 2,208.8 |            |         | 73.8            |          |              | 27.2  |                           |      
|Other noncurrent assets                        |                                                 |                                 | 50.2    |            |         | 124.5           |          |              | 9.8   |                           |      
|                                               |                                                 |                                 |         |            |         |                 |          |              |       |                           |      
|                                               |                                                 | Total assets                    |         | $          | 1,855.9 |                 | $        | 2,480.4      |       | $                         | 382.9
|                                               |                                                 |                                 |         |            |         |                 |          |              |       |                           |      
|LIABILITIES AND MEMBER'S (DEFICIT) EQUITY      |                                                 |                                 |         |            |         |                 |          |              |       |                           |      
|Current liabilities:                           |                                                 |                                 |         |            |         |                 |          |              |       |                           |      
|                                               | Accounts payable                                |                                 | $       | 34.8       |         | $               | 223.3    |              | $     | 60.2                      |      
|                                               | Accounts payable to affiliates                  |                                 |         | 9.2        |         |                 | 172.8    |              |       | 33.7                      |      
|                                               | Accrued liabilities                             |                                 |         | 92.8       |         |                 | 133.2    |              |       | 15.8                      |      
|                                               | Deferred income tax                             |                                 |         | 0.4        |         |                 | 7.8      |              |       |                          |      
|                                               | Current portion of long-term debt               |                                 |         | 20.7       |         |                 | 1.2      |              |       | 3.4                       |      
|                                               |                                                 |                                 |         |            |         |                 |          |              |       |                           |      
|                                               |                                                 | Total current liabilities       |         |            | 157.9   |                 |          | 538.3        |       |                           | 113.1
|Long-term debt                                 |                                                 |                                 | 1,784.1 |            |         | 2,259.8         |          |              | 206.2 |                           |      
|Deferred income taxes                          |                                                 |                                 | (0.4    | )          |         |                |          |              | 1.4   |                           |      
|Other noncurrent liabilities                   |                                                 |                                 | 95.0    |            |         | 170.4           |          |              | 7.1   |                           |      
|                                               |                                                 |                                 |         |            |         |                 |          |              |       |                           |      
|                                               |                                                 | Total liabilities               |         |            | 2,036.6 |                 |          | 2,968.5      |       |                           | 327.8
|                                               |                                                 |                                 |         |            |         |                 |          |              |       |                           |      
|Minority interest in consolidated subsidiaries |                                                 |                                 |        |            |         | 65.8            |          |              |      |                           |      
|Member's (deficit) equity:                     |                                                 |                                 |         |            |         |                 |          |              |       |                           |      
|                                               | Member's equity                                 |                                 |         | 1,095.2    |         |                 |         |              |       |                          |      
|                                               | Subsidiary preferred stock                      |                                 |         |           |         |                 | 70.6     |              |       | 1.4                       |      
|                                               | Subsidiary common stock                         |                                 |         |           |         |                 | 56.4     |              |       | 77.2                      |      
|                                               | Additional paid in capital                      |                                 |         |           |         |                 | 214.4    |              |       | 39.1                      |      
|                                               | Accumulated deficit                             |                                 |         | (1,359.3   | )       |                 | (1,004.3 | )            |       | (46.4                     | )    
|                                               | Accumulated other comprehensive income (loss)   |                                 |         | 83.4       |         |                 | 109.0    |              |       | (16.2                     | )    
|                                               |                                                 |                                 |         |            |         |                 |          |              |       |                           |      
|                                               |                                                 | Total member's (deficit) equity |         |            | (180.7  | )               |          | (553.9       | )     |                           | 55.1 
|                                               |                                                 |                                 |         |            |         |                 |          |              |       |                           |      
|                                               | Total liabilities and member's (deficit) equity |                                 | $       | 1,855.9    |         | $               | 2,480.4  |              | $     | 382.9                     |      
|                                               |                                                 |                                 |         |            |         |                 |          |              |       |                           |      

32

---





HUNTSMAN LLC AND SUBSIDIARIES        CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)        THREE MONTHS ENDED JUNE 30, 2005 (Unaudited)        (Dollars
in Millions)

|                                                                             |                                | Parent
Company |       | Guarantors |   | Non-guarantors |       | Eliminations |       | Consolidated
Huntsman LLC |  
|---------------------------------------------------------------------------- | ------------------------------ | -------------- | ----- | ---------- | - | -------------- | ----- | ------------ | ----- | ------------------------- | -
|Revenues:                                                                    |                                |                |       |            |   |                |       |              |       |                           |  
|                                                                             | Trade sales                    |                | $     | 120.7      |   | $              | 877.7 |              | $     | 97.4                      |  
|                                                                             | Related party sales            |                |       |           |   |                | 73.9  |              |       | 19.3                      |  
|                                                                             | Expense billed to subsidiaries |                |       | 9.8        |   |                | (9.4  | )            |       | (0.4                      | )
|                                                                             |                                |                |       |            |   |                |       |              |       |                           |  
|Total Revenues                                                               |                                |                | 130.5 |            |   | 942.2          |       |              | 116.3 |                           |  
|Cost of goods sold                                                           |                                |                | 104.3 |            |   | 857.3          |       |              | 113.3 |                           |  
|                                                                             |                                |                |       |            |   |                |       |              |       |                           |  
|Gross Profit                                                                 |                                |                | 26.2  |            |   | 84.9           |       |              | 3.0   |                           |  
|Selling, general and administrative                                          |                                |                | 17.1  |            |   | 23.4           |       |              | 6.2   |                           |  
|Research and development                                                     |                                |                | 0.1   |            |   | 4.8            |       |              | 0.6   |                           |  
|Other operating expense (income)                                             |                                |                | 0.9   |            |   | (1.5           | )     |              | 0.1   |                           |  
|Restructuring and plant closing (credits) costs                              |                                |                | (0.2  | )          |   | 1.1            |       |              |      |                           |  
|                                                                             |                                |                |       |            |   |                |       |              |       |                           |  
|Operating income (loss)                                                      |                                |                | 8.3   |            |   | 57.1           |       |              | (3.9  | )                         |  
|Interest income (expense), net                                               |                                |                | 12.4  |            |   | (46.2          | )     |              | (3.9  | )                         |  
|Equity in income of investment in unconsolidated affiliates and subsidiaries |                                |                | 36.8  |            |   | 36.6           |       |              | 2.8   |                           |  
|Other expense                                                                |                                |                | (0.3  | )          |   |               |       |              | (1.3  | )                         |  
|                                                                             |                                |                |       |            |   |                |       |              |       |                           |  
|Income (loss) before income taxes and minority interest                      |                                |                | 57.2  |            |   | 47.5           |       |              | (6.3  | )                         |  
|Income tax (expense) benefit                                                 |                                |                | (0.8  | )          |   | 0.1            |       |              | (0.1  | )                         |  
|                                                                             |                                |                |       |            |   |                |       |              |       |                           |  
|Income (loss) before minority interest                                       |                                |                | 56.4  |            |   | 47.6           |       |              | (6.4  | )                         |  
|Minority interest in subsidiaries' income                                    |                                |                |      |            |   | (9.5           | )     |              |      |                           |  
|                                                                             |                                |                |       |            |   |                |       |              |       |                           |  
|Net income (loss)                                                            |                                |                | 56.4  |            |   | 38.1           |       |              | (6.4  | )                         |  
|Other comprehensive loss                                                     |                                |                | (42.0 | )          |   | (41.9          | )     |              | (2.9  | )                         |  
|                                                                             |                                |                |       |            |   |                |       |              |       |                           |  
|Comprehensive income (loss)                                                  |                                | $              | 14.4  |            | $ | (3.8           | )     | $            | (9.3  | )                         | $
|                                                                             |                                |                |       |            |   |                |       |              |       |                           |  

33

---



HUNTSMAN LLC AND SUBSIDIARIES        CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)        THREE MONTHS ENDED JUNE 30, 2004 (Unaudited)        (Dollars
in Millions)

|                                                                                      |                                | Parent
Company |        | Guarantors |   | Non-guarantors |       | Eliminations |       | Consolidated
Huntsman LLC |  
|------------------------------------------------------------------------------------- | ------------------------------ | -------------- | ------ | ---------- | - | -------------- | ----- | ------------ | ----- | ------------------------- | -
|Revenues:                                                                             |                                |                |        |            |   |                |       |              |       |                           |  
|                                                                                      | Trade sales                    |                | $      | 99.5       |   | $              | 720.6 |              | $     | 94.3                      |  
|                                                                                      | Related party sales            |                |        |           |   |                | 55.2  |              |       | 7.5                       |  
|                                                                                      | Expense billed to subsidiaries |                |        | 7.5        |   |                | (7.2  | )            |       | (0.3                      | )
|                                                                                      |                                |                |        |            |   |                |       |              |       |                           |  
|Total Revenues                                                                        |                                |                | 107.0  |            |   | 768.6          |       |              | 101.5 |                           |  
|Cost of goods sold                                                                    |                                |                | 91.7   |            |   | 741.2          |       |              | 91.8  |                           |  
|                                                                                      |                                |                |        |            |   |                |       |              |       |                           |  
|Gross Profit                                                                          |                                |                | 15.3   |            |   | 27.4           |       |              | 9.7   |                           |  
|Selling, general and administrative                                                   |                                |                | 8.4    |            |   | 34.4           |       |              | (4.8  | )                         |  
|Research and development                                                              |                                |                |       |            |   | 4.8            |       |              | 1.0   |                           |  
|Other operating (income) expense                                                      |                                |                | (1.4   | )          |   | (2.5           | )     |              | 0.1   |                           |  
|Restructuring and plant closing costs                                                 |                                |                |       |            |   | 0.2            |       |              | 25.4  |                           |  
|                                                                                      |                                |                |        |            |   |                |       |              |       |                           |  
|Operating income (loss)                                                               |                                |                | 8.3    |            |   | (9.5           | )     |              | (12.0 | )                         |  
|Interest income (expense), net                                                        |                                |                | 8.6    |            |   | (47.4          | )     |              | (3.3  | )                         |  
|Equity in (losses) income of investment in unconsolidated affiliates and subsidiaries |                                |                | (140.5 | )          |   | (90.3          | )     |              | 1.0   |                           |  
|Other (expense) income                                                                |                                |                | (6.1   | )          |   | 0.4            |       |              | 3.6   |                           |  
|                                                                                      |                                |                |        |            |   |                |       |              |       |                           |  
|Loss before income taxes and minority interest                                        |                                |                | (129.7 | )          |   | (146.8         | )     |              | (10.7 | )                         |  
|Income tax expense                                                                    |                                |                | (0.1   | )          |   |               |       |              | (1.5  | )                         |  
|                                                                                      |                                |                |        |            |   |                |       |              |       |                           |  
|Loss before minority interest                                                         |                                |                | (129.8 | )          |   | (146.8         | )     |              | (12.2 | )                         |  
|Minority interest in subsidiaries' loss                                               |                                |                |       |            |   | 0.7            |       |              |      |                           |  
|                                                                                      |                                |                |        |            |   |                |       |              |       |                           |  
|Net (loss) income                                                                     |                                |                | (129.8 | )          |   | (146.1         | )     |              | (12.2 | )                         |  
|Other comprehensive (loss) income                                                     |                                |                | (11.9  | )          |   | (14.0          | )     |              | 2.3   |                           |  
|                                                                                      |                                |                |        |            |   |                |       |              |       |                           |  
|Comprehensive (loss) income                                                           |                                | $              | (141.7 | )          | $ | (160.1         | )     | $            | (9.9  | )                         | $
|                                                                                      |                                |                |        |            |   |                |       |              |       |                           |  

34

---





HUNTSMAN LLC AND SUBSIDIARIES        CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)        SIX MONTHS ENDED JUNE 30, 2005 (Unaudited)        (Dollars in
Millions)

|                                                                             |                                | Parent
Company |       | Guarantors |   | Non-guarantors |         | Eliminations |       | Consolidated
Huntsman LLC |  
|---------------------------------------------------------------------------- | ------------------------------ | -------------- | ----- | ---------- | - | -------------- | ------- | ------------ | ----- | ------------------------- | -
|Revenues:                                                                    |                                |                |       |            |   |                |         |              |       |                           |  
|                                                                             | Trade sales                    |                | $     | 243.5      |   | $              | 1,785.9 |              | $     | 194.5                     |  
|                                                                             | Related party sales            |                |       |           |   |                | 150.2   |              |       | 38.6                      |  
|                                                                             | Expense billed to subsidiaries |                |       | 19.6       |   |                | (18.7   | )            |       | (0.9                      | )
|                                                                             |                                |                |       |            |   |                |         |              |       |                           |  
|Total Revenues                                                               |                                |                | 263.1 |            |   | 1,917.4        |         |              | 232.2 |                           |  
|Cost of goods sold                                                           |                                |                | 213.7 |            |   | 1,702.1        |         |              | 221.2 |                           |  
|                                                                             |                                |                |       |            |   |                |         |              |       |                           |  
|Gross Profit                                                                 |                                |                | 49.4  |            |   | 215.3          |         |              | 11.0  |                           |  
|Selling, general and administrative                                          |                                |                | 28.9  |            |   | 44.5           |         |              | 12.0  |                           |  
|Research and development                                                     |                                |                | 0.1   |            |   | 9.3            |         |              | 1.2   |                           |  
|Other operating expense (income)                                             |                                |                | 0.4   |            |   | (3.0           | )       |              | 0.4   |                           |  
|Restructuring and plant closing (credits) costs                              |                                |                | (0.2  | )          |   | 4.4            |         |              | 0.1   |                           |  
|                                                                             |                                |                |       |            |   |                |         |              |       |                           |  
|Operating income (loss)                                                      |                                |                | 20.2  |            |   | 160.1          |         |              | (2.7  | )                         |  
|Interest income (expense), net                                               |                                |                | 21.3  |            |   | (91.9          | )       |              | (7.8  | )                         |  
|Equity in income of investment in unconsolidated affiliates and subsidiaries |                                |                | 126.4 |            |   | 75.7           |         |              | 5.1   |                           |  
|Other expense                                                                |                                |                | (38.4 | )          |   |               |         |              | (1.7  | )                         |  
|                                                                             |                                |                |       |            |   |                |         |              |       |                           |  
|Income (loss) before income taxes and minority interest                      |                                |                | 129.5 |            |   | 143.9          |         |              | (7.1  | )                         |  
|Income tax (expense) benefit                                                 |                                |                | (0.5  | )          |   |               |         |              | 0.5   |                           |  
|                                                                             |                                |                |       |            |   |                |         |              |       |                           |  
|Income (loss) before minority interest                                       |                                |                | 129.0 |            |   | 143.9          |         |              | (6.6  | )                         |  
|Minority interest in subsidiaries' income                                    |                                |                |      |            |   | (26.1          | )       |              |      |                           |  
|                                                                             |                                |                |       |            |   |                |         |              |       |                           |  
|Net income (loss)                                                            |                                |                | 129.0 |            |   | 117.8          |         |              | (6.6  | )                         |  
|Other comprehensive loss                                                     |                                |                | (68.7 | )          |   | (68.7          | )       |              | (3.6  | )                         |  
|                                                                             |                                |                |       |            |   |                |         |              |       |                           |  
|Comprehensive income (loss)                                                  |                                | $              | 60.3  |            | $ | 49.1           |         | $            | (10.2 | )                         | $
|                                                                             |                                |                |       |            |   |                |         |              |       |                           |  

35

---



HUNTSMAN LLC AND SUBSIDIARIES        CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)        SIX MONTHS ENDED JUNE 30, 2004 (Unaudited)        (Dollars in
Millions)

|                                                                                    |                                | Parent
Company |        | Guarantors |   | Non-guarantors |         | Eliminations |       | Consolidated
Huntsman LLC |  
|----------------------------------------------------------------------------------- | ------------------------------ | -------------- | ------ | ---------- | - | -------------- | ------- | ------------ | ----- | ------------------------- | -
|Revenues:                                                                           |                                |                |        |            |   |                |         |              |       |                           |  
|                                                                                    | Trade sales                    |                | $      | 187.6      |   | $              | 1,425.0 |              | $     | 187.9                     |  
|                                                                                    | Related party sales            |                |        |           |   |                | 109.9   |              |       | 8.4                       |  
|                                                                                    | Expense billed to subsidiaries |                |        | 14.2       |   |                | (13.6   | )            |       | (0.6                      | )
|                                                                                    |                                |                |        |            |   |                |         |              |       |                           |  
|Total Revenues                                                                      |                                |                | 201.8  |            |   | 1,521.3        |         |              | 195.7 |                           |  
|Cost of goods sold                                                                  |                                |                | 171.8  |            |   | 1,447.0        |         |              | 178.5 |                           |  
|                                                                                    |                                |                |        |            |   |                |         |              |       |                           |  
|Gross Profit                                                                        |                                |                | 30.0   |            |   | 74.3           |         |              | 17.2  |                           |  
|Selling, general and administrative                                                 |                                |                | 17.1   |            |   | 54.9           |         |              | 0.9   |                           |  
|Research and development                                                            |                                |                |       |            |   | 9.4            |         |              | 2.0   |                           |  
|Other operating (expense) income                                                    |                                |                | (1.5   | )          |   | (4.3           | )       |              | 0.6   |                           |  
|Restructuring and plant closing costs                                               |                                |                |       |            |   | 0.2            |         |              | 25.4  |                           |  
|                                                                                    |                                |                |        |            |   |                |         |              |       |                           |  
|Operating income (loss)                                                             |                                |                | 14.4   |            |   | 14.1           |         |              | (11.7 | )                         |  
|Interest income (expense), net                                                      |                                |                | 8.0    |            |   | (90.2          | )       |              | (6.7  | )                         |  
|Equity in (loss) income of investment in unconsolidated affiliates and subsidiaries |                                |                | (201.4 | )          |   | (128.7         | )       |              | 1.7   |                           |  
|Other (expense) income                                                              |                                |                | (7.9   | )          |   | 0.4            |         |              | 3.8   |                           |  
|                                                                                    |                                |                |        |            |   |                |         |              |       |                           |  
|Loss before income taxes and minority interest                                      |                                |                | (186.9 | )          |   | (204.4         | )       |              | (12.9 | )                         |  
|Income tax benefit (expense)                                                        |                                |                | 2.1    |            |   |               |         |              | (1.3  | )                         |  
|                                                                                    |                                |                |        |            |   |                |         |              |       |                           |  
|Loss before minority interest                                                       |                                |                | (184.8 | )          |   | (204.4         | )       |              | (14.2 | )                         |  
|Minority interest in subsidiaries' loss                                             |                                |                |       |            |   | 1.5            |         |              |      |                           |  
|                                                                                    |                                |                |        |            |   |                |         |              |       |                           |  
|Net (loss) income                                                                   |                                |                | (184.8 | )          |   | (202.9         | )       |              | (14.2 | )                         |  
|Other comprehensive (loss) income                                                   |                                |                | (10.5  | )          |   | (13.1          | )       |              | 1.4   |                           |  
|                                                                                    |                                |                |        |            |   |                |         |              |       |                           |  
|Comprehensive (loss) income                                                         |                                | $              | (195.3 | )          | $ | (216.0         | )       | $            | (12.8 | )                         | $
|                                                                                    |                                |                |        |            |   |                |         |              |       |                           |  

36

---





HUNTSMAN LLC AND SUBSIDIARIES        CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS        SIX MONTHS ENDED JUNE 30, 2005 (Unaudited)        (Dollars in Millions)

|                                                                                                   |                                                             | Parent Company                 |        | Guarantors |        | Non-
Guarantors |       | Eliminations |      | Consolidated Huntsman LLC |     
|-------------------------------------------------------------------------------------------------- | ----------------------------------------------------------- | ------------------------------ | ------ | ---------- | ------ | --------------- | ----- | ------------ | ---- | ------------------------- | ----
|Operating activities:                                                                              |                                                             |                                |        |            |        |                 |       |              |      |                           |     
|Net income (loss)                                                                                  |                                                             | $                              | 129.0  |            | $      | 117.8           |       | $            | (6.6 | )                         | $   
|Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: |                                                             |                                |        |            |        |                 |       |              |      |                           |     
|                                                                                                   | Equity in income of investment in unconsolidated affiliates |                                |        | (126.4     | )      |                 | (75.7 | )            |      | (5.1                      | )   
|                                                                                                   | Minority interest in subsidiaries                           |                                |        |           |        |                 | 26.1  |              |      |                          |     
|                                                                                                   | Depreciation and amortization                               |                                |        | 7.0        |        |                 | 48.0  |              |      | 8.0                       |     
|                                                                                                   | Provision for losses on accounts receivable                 |                                |        |           |        |                 | 1.4   |              |      |                          |     
|                                                                                                   | Loss on disposal of assets                                  |                                |        | 0.1        |        |                 | 0.9   |              |      |                          |     
|                                                                                                   | Loss on early extingishment of debt                         |                                |        | 38.6       |        |                 |      |              |      |                          |     
|                                                                                                   | Noncash interest (income) expense                           |                                |        | (89.7      | )      |                 | 88.5  |              |      | 5.6                       |     
|                                                                                                   | Loss (gain) on currency revaluation                         |                                |        |           |        |                 | 1.4   |              |      | (0.6                      | )   
|                                                                                                   | Changes in operating assets and liabilities:                |                                |        |            |        |                 |       |              |      |                           |     
|                                                                                                   |                                                             | Accounts and notes receivables |        |            | (222.4 | )               |       | (153.5       | )    |                           | (7.0
|                                                                                                   |                                                             | Inventories                    |        |            | (3.4   | )               |       | (21.0        | )    |                           | 5.2 
|                                                                                                   |                                                             | Prepaid expenses               |        |            | 1.3    |                 |       | 26.4         |      |                           | 0.6 
|                                                                                                   |                                                             | Other current assets           |        |            |       |                 |       |             |      |                           | (0.6
|                                                                                                   |                                                             | Other noncurrent assets        |        |            | (0.5   | )               |       | 1.9          |      |                           | 1.8 
|                                                                                                   |                                                             | Accounts payable               |        |            | 286.0  |                 |       | 120.5        |      |                           | (5.0
|                                                                                                   |                                                             | Accrued liabilities            |        |            | (15.8  | )               |       | (27.0        | )    |                           | 0.7 
|                                                                                                   |                                                             | Other noncurrent liabilities   |        |            | 7.6    |                 |       | (5.1         | )    |                           | (0.2
|                                                                                                   |                                                             |                                |        |            |        |                 |       |              |      |                           |     
|Net cash provided by (used in) operating activities                                                |                                                             |                                | 11.4   |            |        | 150.6           |       |              | (3.2 | )                         |     
|                                                                                                   |                                                             |                                |        |            |        |                 |       |              |      |                           |     
|Investing activities:                                                                              |                                                             |                                |        |            |        |                 |       |              |      |                           |     
|Capital expenditures                                                                               |                                                             |                                | (9.9   | )          |        | (19.6           | )     |              | (5.0 | )                         |     
|Net cash received from unconsolidated affiliates                                                   |                                                             |                                |       |            |        |                |       |              | 1.7  |                           |     
|Change in restricted cash                                                                          |                                                             |                                | (0.4   | )          |        | (4.2            | )     |              |     |                           |     
|                                                                                                   |                                                             |                                |        |            |        |                 |       |              |      |                           |     
|Net cash used in investing activities                                                              |                                                             |                                | (10.3  | )          |        | (23.8           | )     |              | (3.3 | )                         |     
|                                                                                                   |                                                             |                                |        |            |        |                 |       |              |      |                           |     
|Financing activities:                                                                              |                                                             |                                |        |            |        |                 |       |              |      |                           |     
|Net (repayment) borrowings under revolving loan facilities                                         |                                                             |                                | (62.1  | )          |        |                |       |              | 9.1  |                           |     
|Repayment of long-term debt                                                                        |                                                             |                                | (365.0 | )          |        | (0.6            | )     |              | (0.9 | )                         |     
|Net borrowings (repayments) of debt to affiliate                                                   |                                                             |                                | 127.4  |            |        | (129.0          | )     |              | 1.6  |                           |     
|Cost of early extinguishment of debt                                                               |                                                             |                                | (31.7  | )          |        |                |       |              |     |                           |     
|Debt issuance costs paid                                                                           |                                                             |                                | (0.2   | )          |        |                |       |              |     |                           |     
|Capital contribution from parent                                                                   |                                                             |                                | 333.2  |            |        |                |       |              |     |                           |     
|                                                                                                   |                                                             |                                |        |            |        |                 |       |              |      |                           |     
|Net cash provided by (used in) financing activities                                                |                                                             |                                | 1.6    |            |        | (129.6          | )     |              | 9.8  |                           |     
|                                                                                                   |                                                             |                                |        |            |        |                 |       |              |      |                           |     
|Effect of exchange rate changes on cash                                                            |                                                             |                                | (0.4   | )          |        |                |       |              | (0.3 | )                         |     
|                                                                                                   |                                                             |                                |        |            |        |                 |       |              |      |                           |     
|Increase (decrease) in cash and cash equivalents                                                   |                                                             |                                | 2.3    |            |        | (2.8            | )     |              | 3.0  |                           |     
|Cash and cash equivalents at beginning of period                                                   |                                                             |                                | (0.1   | )          |        | 3.5             |       |              | 8.3  |                           |     
|                                                                                                   |                                                             |                                |        |            |        |                 |       |              |      |                           |     
|Cash and cash equivalents at end of period                                                         |                                                             | $                              | 2.2    |            | $      | 0.7             |       | $            | 11.3 |                           |     
|                                                                                                   |                                                             |                                |        |            |        |                 |       |              |      |                           |     

37

---



HUNTSMAN LLC AND SUBSIDIARIES        CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS        SIX MONTHS ENDED JUNE 30, 2004 (Unaudited)        (Dollars in Millions)

|                                                                                                   |                                                                      | Parent Company                 |        | Guarantors |        | Non-
Guarantors |       | Eliminations |       | Consolidated Huntsman LLC |      
|-------------------------------------------------------------------------------------------------- | -------------------------------------------------------------------- | ------------------------------ | ------ | ---------- | ------ | --------------- | ----- | ------------ | ----- | ------------------------- | -----
|Operating activities:                                                                              |                                                                      |                                |        |            |        |                 |       |              |       |                           |      
|Net (loss) income                                                                                  |                                                                      | $                              | (184.8 | )          | $      | (202.9          | )     | $            | (14.2 | )                         | $    
|Adjustments to reconcile net (loss) income to net cash (used in) provided by operating activities: |                                                                      |                                |        |            |        |                 |       |              |       |                           |      
|                                                                                                   | Equity in losses (income) of investment in unconsolidated affiliates |                                |        | 201.4      |        |                 | 128.7 |              |       | (1.7                      | )    
|                                                                                                   | Minority interest in subsidiaries                                    |                                |        |           |        |                 | (1.5  | )            |       |                          |      
|                                                                                                   | Depreciation and amortization                                        |                                |        | 7.6        |        |                 | 48.7  |              |       | 10.3                      |      
|                                                                                                   | (Recovery of) provision for losses on accounts receivable            |                                |        | (0.3       | )      |                 | (0.9  | )            |       | 0.5                       |      
|                                                                                                   | Loss on disposal of assets                                           |                                |        |           |        |                 | 0.5   |              |       | 0.2                       |      
|                                                                                                   | Loss (gain) on early extingishment of debt                           |                                |        | 6.1        |        |                 | 1.7   |              |       | (3.6                      | )    
|                                                                                                   | Noncash interest expense                                             |                                |        | 2.7        |        |                 | 0.8   |              |       |                          |      
|                                                                                                   | Noncash interest expense on affilate debt                            |                                |        |           |        |                 |      |              |       | 0.3                       |      
|                                                                                                   | Noncash restructuring and plant closing costs                        |                                |        |           |        |                 |      |              |       | 21.5                      |      
|                                                                                                   | Deferred income taxes                                                |                                |        |           |        |                 |      |              |       | (0.9                      | )    
|                                                                                                   | Net changes in operating assets and liabilities:                     |                                |        |            |        |                 |       |              |       |                           |      
|                                                                                                   |                                                                      | Accounts and notes receivables |        |            | 63.9   |                 |       | 200.5        |       |                           | (54.9
|                                                                                                   |                                                                      | Inventories                    |        |            | (3.1   | )               |       | 11.6         |       |                           | 3.8  
|                                                                                                   |                                                                      | Prepaid expenses               |        |            | 2.9    |                 |       | 22.6         |       |                           | 0.1  
|                                                                                                   |                                                                      | Other current assets           |        |            | (0.2   | )               |       | 0.4          |       |                           | (1.8 
|                                                                                                   |                                                                      | Other noncurrent assets        |        |            |       |                 |       | (25.4        | )     |                           | 0.2  
|                                                                                                   |                                                                      | Accounts payable               |        |            | (122.9 | )               |       | (125.7       | )     |                           | 33.1 
|                                                                                                   |                                                                      | Accrued liabilities            |        |            | (19.3  | )               |       | (19.2        | )     |                           | 14.7 
|                                                                                                   |                                                                      | Other noncurrent liabilities   |        |            | (0.6   | )               |       | 8.6          |       |                           | (10.1
|                                                                                                   |                                                                      |                                |        |            |        |                 |       |              |       |                           |      
|Net cash (used in) provided by operating activities                                                |                                                                      |                                | (46.6  | )          |        | 48.5            |       |              | (2.5  | )                         |      
|                                                                                                   |                                                                      |                                |        |            |        |                 |       |              |       |                           |      
|Investing activities:                                                                              |                                                                      |                                |        |            |        |                 |       |              |       |                           |      
|Capital expenditures                                                                               |                                                                      |                                | (1.5   | )          |        | (26.7           | )     |              | (1.3  | )                         |      
|Change in restricted cash                                                                          |                                                                      |                                | 0.3    |            |        | (3.3            | )     |              |      |                           |      
|                                                                                                   |                                                                      |                                |        |            |        |                 |       |              |       |                           |      
|Net cash used in investing activities                                                              |                                                                      |                                | (1.2   | )          |        | (30.0           | )     |              | (1.3  | )                         |      
|                                                                                                   |                                                                      |                                |        |            |        |                 |       |              |       |                           |      
|Financing activities:                                                                              |                                                                      |                                |        |            |        |                 |       |              |       |                           |      
|Net borrowings on revolving loan facilities                                                        |                                                                      |                                | 74.3   |            |        |                |       |              |      |                           |      
|Repayment of long-term debt                                                                        |                                                                      |                                | (362.9 | )          |        | (37.0           | )     |              | (30.4 | )                         |      
|Issuance of senior unsecured notes                                                                 |                                                                      |                                | 400.0  |            |        |                |       |              |      |                           |      
|Net (repayments) borrowings from affiliate                                                         |                                                                      |                                | (50.4  | )          |        | 23.2            |       |              | 27.3  |                           |      
|Debt issuance costs paid                                                                           |                                                                      |                                | (12.1  | )          |        |                |       |              |      |                           |      
|                                                                                                   |                                                                      |                                |        |            |        |                 |       |              |       |                           |      
|Net cash provided by (used in) financing activities                                                |                                                                      |                                | 48.9   |            |        | (13.8           | )     |              | (3.1  | )                         |      
|                                                                                                   |                                                                      |                                |        |            |        |                 |       |              |       |                           |      
|Effect of exchange rate changes on cash                                                            |                                                                      |                                | (1.2   | )          |        | (3.1            | )     |              | 3.5   |                           |      
|                                                                                                   |                                                                      |                                |        |            |        |                 |       |              |       |                           |      
|(Decrease) increase in cash and cash equivalents                                                   |                                                                      |                                | (0.1   | )          |        | 1.6             |       |              | (3.4  | )                         |      
|Cash and cash equivalents at beginning of period                                                   |                                                                      |                                | 0.9    |            |        | 0.4             |       |              | 18.2  |                           |      
|                                                                                                   |                                                                      |                                |        |            |        |                 |       |              |       |                           |      
|Cash and cash equivalents at end of period                                                         |                                                                      | $                              | 0.8    |            | $      | 2.0             |       | $            | 14.8  |                           | $    
|                                                                                                   |                                                                      |                                |        |            |        |                 |       |              |       |                           |      

38

---





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

Forward-looking Statements

Some of the statements contained in this report are forward-looking in nature. In some cases, you can identify forward-looking statements by terminology such as
"believes," "expects," "may," "will," "should," "anticipates" or "intends" or the negative of such terms or other comparable terminology, or by discussions of strategy. You are cautioned that our
business and operations are subject to a variety of risks and uncertainties, and, consequently, our actual results may materially differ from those projected by any forward-looking statements. Some of
the risks and uncertainties are discussed below in "Cautionary Statement for Forward-Looking Information" and elsewhere in this report.

Certain Defined Terms

For convenience in this report, the terms "Company," "our," "us" or "we" may be used to refer to Huntsman LLC and, unless the context otherwise requires, its
subsidiaries. In this report, "HI" refers to Huntsman International LLC, "HIH" refers to Huntsman International Holdings LLC, "Huntsman Specialty" refers to Huntsman Specialty Chemicals Corporation,
"HMP" refers to HMP Equity Holdings Corporation, "Huntsman Holdings" refers to Huntsman Holdings, LLC, "Huntsman Corporation" refers to Huntsman Corporation and its predecessors, and, unless the
context otherwise requires, their subsidiaries, "AdMat" refers to Huntsman Advanced Materials LLC and, unless the context otherwise requires, its subsidiaries, and "MatlinPatterson" refers to
MatlinPatterson Global Opportunities Partners L.P. and its affiliates.

Overview

We are a global manufacturer and marketer of differentiated and commodity chemical products. Our products are used in a wide range of applications, including
those in the adhesives, automotive, construction products, durable and non-durable consumer products, medical, packaging, paints and coatings, power generation, refining and synthetic
fiber industries. We operate at facilities located in North America, Europe and Australia. Our business is organized around our three operating segments: Performance Products, Polymers and Base
Chemicals. The major products of each operating segment are as follows:

|Segment              |  | Products                                                                                                                                                       
|-------------------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------
|Performance Products |  | Amines, surfactants, linear alkylbenzene, maleic anhydride, other performance chemicals, glycols and technology licenses                                       
|Polymers             |  | Ethylene (produced at our Odessa, Texas facilities primarily for internal use), polyethylene, polypropylene, expandable polystyrene, styrene and other polymers
|Base Chemicals       |  | Olefins (primarily ethylene and propylene), butadiene, MTBE, benzene, paraxylene and cyclohexane                                                               

Our
products are divided into two broad categoriesdifferentiated and commodity chemicals. Our Performance Products segment produces differentiated products, and our Polymers
and Base Chemicals segments produce commodity chemicals. Among our commodity products, certain products in our Polymers segment follow different trends than petrochemical commodities as a result of
our niche marketing strategy for such products that focuses on supplying customized formulations. Nevertheless,

39

---



each
of our three operating segments is impacted to some degree by economic conditions, prices of raw materials and global supply and demand pressures.

In
our Performance Products segment, demand for our performance specialties has generally continued to grow at rates in excess of gross domestic product ("GDP") growth rates as overall
demand is significantly influenced by new product and application development. Overall demand for most of our performance intermediates has generally been stable. On average, maleic anhydride demand
grows at a slightly higher rate than GDP; however, given its dependence on the construction market, maleic anhydride growth rates can be cyclical.

The
profitability of our Polymers and Base Chemicals segments has historically been cyclical in nature. The industry has recently operated in a down cycle that resulted from significant
new capacity additions, weak demand reflecting soft global economic conditions and high crude oil and natural gas-based raw material costs. Despite continued high feedstock costs, the
profitability of our Base Chemicals segment has improved in 2005 as demand has strengthened and average selling prices and profit margins have increased in most of our product lines.

Recent Developments

Proposed Merger into Huntsman International LLC and Proposed New Credit Facility

In July 2005, we obtained the required consents from the holders of our senior secured notes (the "HLLC Senior Secured Notes") and our senior notes (the "HLLC
Senior Notes") to amend certain provisions in the indentures governing these notes. The amendments will facilitate the proposed merger of our Company with and into HI. The amendments include, among
other things, the increase in the amount of secured indebtedness we can incur. In addition, with respect to the HLLC Senior Secured Notes, the amendment also provides for the elimination of stock
pledges of subsidiaries as collateral under the applicable indentures.

The
proposed merger of our Company with and into HI will help simplify the financing and reporting structure of Huntsman Corporation and is expected to facilitate other organizational
efficiencies. We have recently completed the syndication of the proposed new secured credit facility for the merged company. The proposed secured credit facility is expected to be comprised of a
$1.85 billion term loan due 2012 and a $650 million revolving loan facility due 2011. Initial interest rate margins under the proposed secured credit facility are contemplated to be at
LIBOR plus 1.75%. Proceeds from the new credit facility will be used to repay outstanding borrowings under our existing senior secured credit facilities, HI's senior secured credit facilities and
certain other debt. We expect to complete the merger and related financing in the third quarter of 2005. However, there can be no assurances that the new facility will be obtained. If the credit
facility is not obtained, the proposed merger will not occur.

40

---



The
following tables provide a summary of our structure before and after the proposed merger:

GRAPHIC

---

Redemption of HLLC Senior Notes and Huntsman Specialty's Subordinate Note

On August 2, 2005, we issued a notice of redemption for our 9.5% fixed and variable subordinated notes due 2007 (the "HLLC Notes") with an outstanding
principal balance of $59.3 million as of June 30, 2005 in accordance with the amended and restated indenture governing the HLLC Notes. Accordingly, at the time of the merger of the
Company with and into HI, we will deliver funds to the trustee sufficient to redeem the HLCC Notes in full on September 1, 2005. We have also given notice that we intend to redeem the
$106.6 million outstanding principal amount of Hunstman Specialty 's subordinated note, in full, at completion of the proposed merger of the Company with and into HI.

41

---



Results of Operations

The following sets forth the consolidated results of operations for the three and six months ended June 30, 2005 and 2004.

|                                                       |  | Three months ended
June 30, |         |   |   | Six months ended
June 30, |   |     |   
|------------------------------------------------------ |  | --------------------------- | ------- | - | - | ------------------------- | - | --- | --
|
|
|Revenues                                               |  | $                           | 1,168.7 |   | $ | 969.0                     |   | 21  | % 
|Cost of goods sold                                     |  |                             | 1,054.8 |   |   | 916.8                     |   | 15  | % 
|                                                       |  |                             |         |   |   |                           |   |     |   
|Gross profit                                           |  |                             | 113.9   |   |   | 52.2                      |   | 118 | % 
|Operating expenses                                     |  |                             | 51.5    |   |   | 39.8                      |   | 29  | % 
|Restructuring and plant closing costs                  |  |                             | 0.9     |   |   | 25.6                      |   | (96 | )%
|                                                       |  |                             |         |   |   |                           |   |     |   
|Operating income (loss)                                |  |                             | 61.5    |   |   | (13.2                     | ) | NM  |   
|Interest expense, net                                  |  |                             | (37.7   | ) |   | (42.1                     | ) | (10 | )%
|Equity in income (losses) of unconsolidated affiliates |  |                             | 35.0    |   |   | (70.8                     | ) | NM  |   
|Other expense                                          |  |                             | (1.6    | ) |   | (2.1                      | ) | (24 | )%
|                                                       |  |                             |         |   |   |                           |   |     |   
|Income (loss) before income taxes                      |  |                             | 57.2    |   |   | (128.2                    | ) | NM  |   
|Income tax (expense) benefit                           |  |                             | (0.8    | ) |   | (1.6                      | ) | (50 | )%
|                                                       |  |                             |         |   |   |                           |   |     |   
|Net income (loss)                                      |  |                             | 56.4    |   |   | (129.8                    | ) | NM  |   
|Interest expense, net                                  |  |                             | 37.7    |   |   | 42.1                      |   | (10 | )%
|Income tax expense (benefit)                           |  |                             | 0.8     |   |   | 1.6                       |   | (50 | )%
|Depreciation and amortization                          |  |                             | 32.0    |   |   | 34.0                      |   | (6  | )%
|                                                       |  |                             |         |   |   |                           |   |     |   
|EBITDA(1)                                              |  | $                           | 126.9   |   | $ | (52.1                     | ) | NM  |   
|                                                       |  |                             |         |   |   |                           |   |     |   

---

NMNot
meaningful.

Included
in EBITDA are the following items of (expense) income:

Three months ended
June 30,

Six months ended
June 30,2005

2004

2005

2004Early extinguishment of debt

$
(0.3
)
$
(2.3
)
$
(38.6
)
$
(4.2
)Restructuring and plant closing costs:Performance Products

$
(0.3
)
$
(20.5
)
$
(1.3
)
$
(20.5
)Polymers


(1.0
)

(5.1
)

(2.9
)

(5.1
)Base Chemicals


0.4





(0.1
)

Total restructuring and plant closing costs


(0.9
)

(25.6
)

(4.3
)

(25.6
)Total items of (expense) income included in EBITDA

$
(1.2
)
$
(27.9
)
$
(42.9
)
$
(29.8
)


---

42

---





We
believe that net income (loss) is the performance measure calculated and presented in accordance with GAAP that is most directly comparable to EBITDA and that cash provided by (used
in) operating activities is the liquidity measure calculated and presented in accordance with GAAP that

43

---



is
most directly comparable to EBITDA. The following table reconciles EBITDA to our net loss and to our cash provided by (used in) operations:

Six Months Ended June 30,Percent
change2005

2004EBITDA

$
270.4

$
(30.1
)
NMDepreciation and amortization


(63.0
)

(66.6
)
(5
)%Interest expense, net


(78.4
)

(88.9
)
(12
)%Income tax benefit





0.8

NMNet income (loss)


129.0


(184.8
)
NMProvision for (recovery of) losses on accounts receivable


1.4


(0.7
)
NMEquity in (income) losses of investment in unconsolidated affiliates


(69.9
)

109.9

NMDepreciation and amortization


63.0


66.6

(5
)%Non-cash interest expense


4.4


3.5

26
%Deferred income tax





(0.9
)
NMLoss on early extinguishment of debt


38.6


4.2

NMOther, net


1.8


22.5

(92
)%Changes in operating assets and liabilities


(9.5
)

(20.9
)
(55
)%Net cash provided by (used in) operating activites

$
158.8

$
(0.6
)
NM


---

NMNot
meaningful

Three months ended June 30, 2005 Compared to Three months ended June 30, 2004

For the three months ended June 30, 2005 we had net income of $56.4 million on revenues of $1,168.7 million compared to a net loss of
$129.8 million on revenues of $969.0 million for the three months ended June 30, 2004. The increase of $186.2 million in net income was the result of the following items:



44

---





The
following table sets forth the revenues and EBITDA for each of our operating segments:

Three months ended
June 30,Percent
Change2005

2004Revenues:Performance Products

$
356.2

$
284.8

25
%Polymers


408.2


324.2

26
%Base Chemicals


482.2


430.3

12
%Eliminations


(77.9
)

(70.3
)
11
%Total

$
1,168.7

$
969.0

21
%Segment EBITDAPerformance Products

$
60.3

$
13.6

343
%Polymers


32.5


0.2

NMBase Chemicals


20.9


23.3

(10
)%Corporate and other


13.2


(89.2
)
NMTotal

$
126.9

$
(52.1
)
NM


---

NMNot
meaningful



For the three months ended June 30, 2005, Performance Products revenues increased by $71.4 million, or 25%, as compared to the same period in 2004,
primarily as a result of higher average selling prices for all major product lines, offset somewhat by lower sales volumes of certain products. Overall, average selling prices increased by 31% in
response to higher raw material and energy costs and improved market conditions. Sales volumes decreased by 5%, principally due to lower sales of certain surfactants and continuing weak market
conditions for LAB.

For
the three months ended June 30, 2005, Performance Products segment EBITDA increased by $46.7 million, or 343%, to $60.3 million as compared to
$13.6 million for the same period in 2004. The increase in segment EBITDA resulted primarily from higher contribution margins as average selling prices increased more than raw material and
energy costs. In addition, we recorded restructuring

45

---



charges
of $0.3 million and $20.5 million in the three months ended June 30, 2005 and 2004, respectively. For further discussion of restructuring activities, see
"Liquidity and Capital ResourcesRestructuring and Plant Closing Costs" below.



For the three months ended June 30, 2005, Polymers revenues increased by $84.0 million, or 26%, as compared to the same period in 2004, due mainly
to 31% higher average selling prices, offset somewhat by 4% lower sales volumes. Average selling prices were higher primarily due to tighter market conditions and in response to higher raw material
and energy costs. Sales volumes decreased principally due to lower demand for certain products and the closure of a phenol production plant in Australia.

For
the three months ended June 30, 2005, Polymers segment EBITDA increased by $32.3 million to $32.5 million from $0.2 million for the same period in 2004.
This increase resulted primarily from higher contribution margins, as average selling prices increased more than raw material and energy costs, and also from lower restructuring costs. During the
three months ended June 30, 2005 and 2004, our Polymers segment recorded restructuring and plant closing charges of $1.0 million and $5.1 million, respectively. For further
discussion of restructuring activities, see "Liquidity and Capital ResourcesRestructuring and Plant Closing Costs" below.



For the three months ended June 30, 2005, Base Chemicals revenues increased by $51.9 million, or 12%, as compared to the same period in 2004, due
principally to a 26% increase in average selling prices, partially offset by an 11% decrease in sales volumes. Average selling prices increased primarily in response to higher raw material and energy
costs. Segment sales volume decreases were driven by lower internal consumption due to planned maintenance outages at certain of our downstream derivative business units.

For
the three months ended June 30, 2005, Base Chemicals segment EBITDA decreased by $2.4 million, or 10%, as compared to the same period in 2004, resulting primarily from
lower contribution margins as raw material costs and turnaround and maintenance costs increased more than average selling prices. During the three months ended June 30, 2005, the Base Chemicals
segment recorded restructuring and plant closing credits of $0.4 million. For further discussion of restructuring activities, see "Liquidity and Capital
ResourcesRestructuring and Plant Closing Costs" below.



Corporate and other items include unallocated corporate overhead, unallocated foreign exchange gains and losses and other non-operating income and
expense. For the three months ended June 30, 2005, EBITDA from corporate and other items improved by $102.4 million to income of $13.2 million from a loss of $89.2 million
for the same period in 2004. The increase in EBITDA from corporate and other items was primarily as a result of a change in equity in earnings of unconsolidated affiliates of $105.8 million,
partially offset by higher audit, consulting and personnel costs associated with financial reporting and increased long-term compensation costs.

Six Months Ended June 30, 2005 Compared to Six Months Ended June 30, 2004

For the six months ended June 30, 2005 we had net income of $129.0 million on revenues of $2,373.2 million compared to a net loss of
$184.8 million on revenues of $1,908.7 million for the six

46

---



months
ended June 30, 2004. The increase of $313.8 million in net income was the result of the following items:



47

---





The
following table sets forth the revenues and EBITDA for each of our operating segments:

Six months ended
June 30,Percent
Change2005

2004Revenues:Performance Products

$
694.4

$
586.3

18
%Polymers


821.8


638.7

29
%Base Chemicals


1,023.0


815.6

25
%Eliminations


(166.0
)

(131.9
)
26
%Total

$
2,373.2

$
1,908.7

24
%Segment EBITDAPerformance Products

$
127.0

$
47.1

170
%Polymers


77.4


19.1

305
%Base Chemicals


80.3


45.2

78
%Corporate and other


(14.3
)

(141.5
)
(90
)%Total

$
270.4

$
(30.1
)
NM


---

NMNot
meaningful



For the six months ended June 30, 2005, Performance Products revenues increased by $108.1 million, or 18%, as compared to the same period in 2004,
primarily as a result of higher average selling prices for all major product lines, offset somewhat by lower sales volumes in certain product lines. Overall, average selling prices increased by 25% in
response to higher raw material and energy costs and improved market conditions. Sales volumes declined by 6%, principally due to lower sales of certain surfactants and continuing weak market
conditions for LAB.

For
the six months ended June 30, 2005, Performance Products segment EBITDA increased by $79.9 million, or 170%, as compared to the same period in 2004. Increased segment
EBITDA resulted primarily from higher contribution margins as average selling prices increased more than raw material and energy costs. In addition, we recorded restructuring charges of
$1.3 million and $20.5 million in the six months ended June 30, 2005 and 2004, respectively. For further discussion of restructuring activities, see "Liquidity and
Capital ResourcesRestructuring and Plant Closing Costs" below.



For the six months ended June 30, 2005, Polymers revenues increased by $183.1 million, or 29%, as compared to the same period in 2004, due mainly to
36% higher average selling prices, offset somewhat by 5% lower sales volumes. Average selling prices were higher primarily due to tighter market conditions and higher raw material and energy costs.
Sales volumes decreased principally due to lower demand for certain products and the closure of a phenol production plant in Australia.

For
the six months ended June 30, 2005, Polymers segment EBITDA increased by $58.3 million, or 305% as compared to the same period in 2004. Increased segment EBITDA
resulted primarily from higher contribution margins as average selling prices increased more than raw material and energy costs. During the six months ended June 30, 2005 and 2004, our Polymers
segment recorded restructuring and plant closing charges of $2.9 million and $5.1 million, respectively. For further discussion of restructuring activities, see "Liquidity
and Capital ResourcesRestructuring and Plant Closing Costs" below.

48

---







For the six months ended June 30, 2005, Base Chemicals revenues increased by $207.4 million, or 25%, as compared to the same period in 2004, due
principally to a 33% increase in average selling prices and a 6% decrease in sales volumes. Average selling prices increased primarily in response to higher raw material and energy costs. Segment
sales volume decreases were driven by lower internal consumption due to planned maintenance outages at certain of our downstream business units.

For
the six months ended June 30, 2005, Base Chemicals segment EBITDA increased by $35.1 million, or 78%, as compared to the same period in 2004, resulting primarily from
higher contribution margins as average selling prices increased more than raw material and energy costs.



Corporate and other items include unallocated corporate overhead, unallocated foreign exchange gains and losses and other non-operating income and
expense. For the six months ended June 30, 2005, EBITDA from corporate and other items improved by $127.2 million to a loss of $14.3 million from a loss of $141.5 million
for the same period in 2004. Increased EBITDA from corporate and other items improved primarily as a result of a change in equity in earnings of unconsolidated affiliates of $179.8 million,
partially offset by a $34.4 million increase in loss on early extinguishment of debt.

Liquidity and Capital Resources

Cash

Net cash provided by operating activities for the six months ended June 30, 2005 was $158.8 million as compared to net cash used in operating
activities of $0.6 million for the six months ended June 30, 2004. This increase is primarily attributable to an increase in net income of $313.8 million and a decrease in net
operating assets and liabilities of $11.4 million. In addition, we had a favorable variance of $34.4 million in loss on early extinguishment of debt, partially offset by an unfavorable
variance of $179.8 million in equity in losses of investments in unconsolidated affiliates and an unfavorable variance in non-cash restructuring and plant closing costs of
$21.5 million.

Capital
expenditures for the six months ended June 30, 2005 were $34.5 million as compared to $29.5 million for the same period in 2004.

Net
cash used in financing activities for the six months ended June 30, 2005 was $118.2 million as compared to cash provided by financing activities of $32.0 million
for the six months ended June 30, 2004. This variance is primarily related to net repayments of $53.0 million on the revolving loan facilities resulting from positive cash flow from
operations during the 2005 period as compared to $74.3 million of borrowings required in the comparable period in 2004 due to negative cash flow from operations in the 2004 period. Furthermore,
during the second quarter of 2005, we voluntarily prepaid $50 million on our senior secured term loan. In addition, as a result of Huntsman Corporation's initial public offering, we received
$333.2 million in capital contributions that were used to repay indebtedness. During the 2004 period, we issued $400 million in senior unsecured notes, the net proceeds of which were
used to repay indebtedness.

49

---



Changes in Financial Condition

The following information summarizes our net working capital position as of June 30, 2005 and December 31, 2004 (dollars in millions):

|                     |                                             | June 30,
2005             |       | December 31,
2004 |       | Difference |       | Percent
Change |     
|-------------------- | ------------------------------------------- | ------------------------- | ----- | ----------------- | ----- | ---------- | ----- | -------------- | ----
|Current assets:      |                                             |                           |       |                   |       |            |       |                |     
|                     | Cash, cash equivalents, and restricted cash |                           | $     | 27.7              |       | $          | 20.6  |                | $   
|                     | Accounts and notes receivables, net         |                           |       | 573.3             |       |            | 604.7 |                |     
|                     | Inventories                                 |                           |       | 356.2             |       |            | 338.8 |                |     
|                     | Prepaid expenses                            |                           |       | 1.8               |       |            | 21.9  |                |     
|                     | Deferred income taxes                       |                           |       | 0.5               |       |            | 0.7   |                |     
|                     | Other current assets                        |                           |       | 1.9               |       |            | 1.6   |                |     
|                     |                                             |                           |       |                   |       |            |       |                |     
|                     |                                             | Total current assets      |       |                   | 961.4 |            |       | 988.3          |     
|                     |                                             |                           |       |                   |       |            |       |                |     
|Current liabilities: |                                             |                           |       |                   |       |            |       |                |     
|                     | Accounts payable                            |                           |       | 335.1             |       |            | 340.0 |                |     
|                     | Accrued liabilities                         |                           |       | 199.5             |       |            | 233.7 |                |     
|                     | Deferred income taxes                       |                           |       | 8.3               |       |            | 8.2   |                |     
|                     | Current portion of long-term debt           |                           |       | 4.6               |       |            | 25.3  |                |     
|                     |                                             |                           |       |                   |       |            |       |                |     
|                     |                                             | Total current liabilities |       |                   | 547.5 |            |       | 607.2          |     
|                     |                                             |                           |       |                   |       |            |       |                |     
|Working capital      |                                             | $                         | 413.9 |                   | $     | 381.1      |       | $              | 32.8
|                     |                                             |                           |       |                   |       |            |       |                |     

At
June 30, 2005 our net working capital position was $413.9 million as compared to $381.1 million at December 31, 2004, resulting in an increase of
$32.8 million. The changes in working capital can be explained as follows:



Debt and Liquidity



On October 14, 2004, we completed a $1,065 million refinancing of our senior secured credit facilities (as refinanced, the "HLLC Credit
Facilities"). On June 27, 2005, we made a $50 million voluntary prepayment under the term facility portion of the HLLC Credit Facilities. Following this prepayment, the HLLC Credit
Facilities consist of a $350 million revolving credit facility due October 2009 (the "HLLC Revolving Facility") and a $665 million term loan B facility due March 2010 (the
"HLLC Term Facility"). Proceeds of the refinancing were used to repay in full the outstanding

50

---



borrowings
under our prior senior secured credit facilities. The HLLC Term Facility has scheduled annual amortization payments of $6.7 million, with the remaining balance due at maturity
commencing December 31, 2006.

The
HLLC Revolving Facility is secured by a first priority lien on substantially all of our current and intangible assets and those of our domestic restricted subsidiaries; and is
secured by a second priority lien on substantially all of our property, plant and equipment and that of our restricted domestic subsidiaries and our indirect equity interest in HIH. The HLLC Term
Facility is secured by a first priority lien on substantially all of our property, plant and equipment and that of our restricted domestic subsidiaries and our indirect equity interest in HIH; and by
a second priority lien on substantially all of our current and intangible assets and those of our restricted domestic subsidiaries. The HLLC Credit Facilities are also guaranteed by Huntsman Specialty
Chemicals Holdings Corporation and Huntsman Specialty and by our domestic restricted subsidiaries (collectively, the
"HLLC Guarantors"). Neither HIH nor HI is our restricted subsidiary and they are not HLLC Guarantors.

The
HLLC Revolving Facility is subject to a borrowing base of accounts receivable and inventory and is available for general corporate purposes. Borrowings under the HLLC Revolving
Facility bear interest, at our option, at a rate equal to (i) a LIBOR-based eurocurrency rate plus an applicable margin of 2.25%, or (ii) a prime-based rate plus an applicable margin of
1.25%. The HLLC Revolving Facility allows us to borrow up to $50 million secured by letters of credit; however, the $350 million revolving credit facility is reduced
dollar-for-dollar by any letters of credit outstanding.

As
of June 30, 2005, the weighted average interest rates on our senior credit facilities was 6.3%, excluding the impact of interest rate hedges. As of June 30, 2005, the
HLLC Revolving Facility and HLLC Term Facility bear interest at LIBOR plus 2.25% per year and LIBOR plus 3.0% per year, respectively. In accordance with the HLLC Term Facility agreement, as a result
of Huntsman Corporation's initial public offering of common and preferred stock and the use of offering proceeds for the permanent reduction of indebtedness by us, the HLLC Term Facility interest rate
margin decreased from LIBOR plus 3.50% to LIBOR plus 3.0%. The agreements governing the HLLC Credit Facilities contain customary financial covenants; covenants relating to the incurrence of debt, the
purchase and sale of assets, limitations on investments and affiliate transactions; change of control provisions; events of default provisions; and acceleration provisions. Management believes that we
are in compliance with the covenants of the HLLC Credit Facilities.



On September 30, 2003, we sold $380 million aggregate principal amount of 11.625% senior secured notes due October 15, 2010 at an issue price
of 98.8% (the "September 2003 Offering"). On December 3, 2003, we sold an additional $75.4 million aggregate principal amount of senior secured notes (collectively with the notes
sold in the September 2003 Offering, the "HLLC Senior Secured Notes") at an issue price of 99.5%. Interest on the HLLC Senior Secured Notes is payable semiannually on April 15 and
October 15. The effective interest rate is 11.9%. The HLLC Senior Secured Notes are effectively subordinated to all our obligations under the HLLC Revolving Facility and rank pari passuwith the
HLLC Term Facility. The HLLC Senior Secured Notes are guaranteed by the HLLC Guarantors.

The
HLLC Senior Secured Notes are redeemable after October 15, 2007 at 105.813% of the principal amount thereof, declining ratably to par on and after October 15, 2009. At
any time prior to October 15, 2006, we may redeem up to 35% of the original aggregate principal amount of the HLLC Senior Secured Notes at a redemption price of 111.625% with net cash proceeds
of a qualified equity offering. As a result of Huntsman Corporation's initial public offering of common and preferred stock, we redeemed 35%, or approximately $159.4 million, of the aggregate
principal amount of the HLLC

51

---



Senior
Secured Notes on February 28, 2005 and paid a call premium of approximately $18.5 million. Following this partial redemption of the HLLC Senior Secured Notes, there remain
approximately $296.0 million in aggregate principal amount of the HLLC Senior Secured Notes outstanding.

The
indenture governing the HLLC Senior Secured Notes contains covenants relating to the incurrence of debt, limitations on distributions, asset sales and affiliate transactions, among
other things. The indenture also requires us to offer to repurchase the HLLC Senior Secured Notes upon a change of control. Management believes that we are in compliance with the covenants of the HLLC
Senior Secured Notes. For information with respect to the consent solicitation of holders of the HLLC Senior Secured Notes and the HLLC Senior Notes, see "Recent
DevelopmentsProposed Merger Into Huntsman International LLC and Proposed New Credit Facility."



On June 22, 2004, we sold $300 million of our senior unsecured fixed rate notes that bear interest at 11.5% and mature on July 15, 2012 (the
"HLLC Unsecured Fixed Rate Notes") and $100 million of our senior unsecured floating rate notes that bear interest at a rate equal to LIBOR plus 7.25% and mature on July 15, 2011 (the
"HLLC Unsecured Floating Rate Notes," and together with the HLLC Unsecured Fixed Rate Notes, the "HLLC Senior Notes"). The interest rate on the HLLC Unsecured Floating Rate Notes as of June 30,
2005 was approximately 10.4%. Interest on the HLLC Unsecured Fixed Rate Notes is paid each January 15 and July 15 and is paid on the HLLC Unsecured Floating Rate Notes on the 15th of
January, April, July and October. The proceeds from the offering of the HLLC Senior Notes were used to repay $362.9 million on our prior term loan B facility and $25 million to repay
indebtedness at HCCA. See "Other Debt" below. The HLLC Senior Notes are our unsecured obligations and are guaranteed by the HLLC Guarantors.

The
HLLC Unsecured Fixed Rate Notes are redeemable after July 15, 2008 at 105.75% of the principal amount thereof, declining ratably to par on and after July 15, 2010. The
HLLC Unsecured Floating Rate Notes are redeemable after July 15, 2006 at 104.0% of the principal amount thereof, declining ratably to par on and after July 15, 2008. At any time prior to
July 15, 2007, we may redeem up to 40% of the original aggregate principal amount of the HLLC Unsecured Fixed Rate Notes at a redemption price of 111.5% with proceeds of a qualified equity
offering. At any time prior to July 15, 2006, we may
redeem up to 40% of the original aggregate principal amount of the HLLC Unsecured Floating Rate Notes with the proceeds of a qualified equity offering at a redemption price equal to the par value plus
LIBOR plus 7.25%. As a result of Huntsman Corporation's initial public offering of common and preferred stock, we redeemed 34%, or approximately $102.0 million of combined aggregate principal
amount of the HLLC Unsecured Fixed Rate Notes on March 14 and March 17, 2005 with combined call premiums of approximately $11.7 million. Following this partial redemption, there
remain approximately $198.0 million in aggregate principal amount of the HLLC Unsecured Fixed Rate Notes outstanding.

The
indenture governing the HLLC Senior Notes contains covenants relating to the incurrence of debt and limitations on distributions, asset sales and affiliate transactions, among other
things. The indenture also requires us to offer to repurchase the HLLC Senior Notes upon a change of control. Management believes that we are in compliance with the covenants of the HLLC Senior Notes.
For information with respect to the consent solicitation of holders of the HLLC Senior Secured Notes and the HLLC Senior Notes, see "Recent DevelopmentsProposed Merger Into
Huntsman International LLC and Proposed New Credit Facility."



As of June 30, 2005, the HLLC Notes had an outstanding principal balance of $59.3 million. The HLLC Notes are our unsecured subordinated obligations
and are junior in right of payment to all of

52

---



our
existing and future secured or unsecured senior indebtedness and effectively junior to any of our secured indebtedness to the extent that collateral secures such indebtedness. Interest is payable
on the HLLC Notes semiannually on January 1 and July 1 at an annual rate of 9.5% on the fixed rate notes and LIBOR plus 3.25% on the floating rate notes. The HLLC Notes are redeemable at
our option after July 2002 at a price declining from 104.75% to 100% of par value as of July 1, 2005. The weighted average interest rate on the floating rate notes was approximately 6.0%
as of June 30, 2005. As a result of previously executed amendments to the indentures, virtually all the restrictive covenants contained in the indentures have been eliminated.

On
August 2, 2005, we issued a notice of redemption for all of the outstanding HLLC Notes in accordance with the amended and restated indenture governing the HLLC Notes.
Accordingly, at the time of the merger of the Company with and into HI, we will deliver funds to the trustee sufficient to redeem the HLCC Notes, in full, on September 1, 2005.



Huntsman Specialty's subordinated note, in the aggregate principal amount of $75.0 million, accrued interest until April 15, 2002 at 7% per annum.
Pursuant to the note agreement, effective April 15, 2002, all accrued interest was added to the principal of the note for a total principal amount of $106.6 million. Such principal
balance will be payable in a single installment on April 15, 2008. Interest has been payable quarterly in cash, commencing July 15, 2002. For financial reporting purposes, the note was
initially recorded at its estimated fair value of $58.2 million, based on prevailing market rates as of the effective date. As of June 30, 2005 and December 31, 2004, the
unamortized discount on the note was $4.6 million and $5.4 million, respectively. We have given notice that we intend to redeem these notes, in full, at completion of the proposed merger
of the Company with and into HI.

Huntsman
Corporation Australia Pty Ltd. ("HCA"), our indirect Australian subsidiary that holds its Australian surfactants assets, maintains credit facilities (the "HCA
Facilities"). As of June 30, 2005, borrowings under the HCA Facilities totaled A$62.4 million ($47.2 million), which include A$41.0 million ($31.1 million) on the
term loan facility and A$21.4 million ($16.1 million) on the revolving credit line. On August 31, 2004, HCA refinanced the previously existing debt facilities with an
A$30.0 million ($23.1 million) revolving credit line supported by a borrowing base of eligible accounts receivable and inventory and an A$44.0 million ($33.9 million) term
facility.

Huntsman
Chemical Company Australia Pty Ltd. ("HCCA") and certain Australian affiliates hold our Australian styrenics assets. On August 31, 2004, HCCA refinanced the
previously existing debt facilities of HCCA with an A$30.0 million ($23.1 million) revolving credit line supported by a borrowing base of eligible accounts receivable (the "HCCA
Facility"). As of June 30, 2005, borrowings under the HCCA Facility totaled A$24.9 million ($19.0 million).

The
HCA Facilities and the HCCA Facility are secured by a lien on substantially all their respective assets, bear interest at a rate of 2.9% above the Australian base rate, mature in
August 2007 and are non-recourse to us. As of June 30, 2005, the interest rate on the HCA Facilities and the HCCA Facility was approximately 8.6%. On June 24, 2004, we
used $25 million of proceeds from the offering of the HLLC Senior Unsecured Notes to repay a portion of the previously existing debt facilities of HCCA. Management believes that HCA and HCCA
are in compliance with the covenants of the HCA Facilities and the HCCA Facility.

On
July 2, 2001, we entered into a 15% note payable (the "Affiliate Note") with an affiliated entity in the amount of $25.0 million. Interest on the Affiliate Note was not
paid in cash, but accrued at a designated effective rate of 15% per annum, compounded annually. On February 16, 2005, the Affiliate Note was satisfied in full from proceeds of Huntsman
Corporation's initial public offering. As of

53

---



December 31,
2004 and February 16, 2005, accrued interest added to the principal balance was $15.9 million and $16.6 million, respectively.



We depend upon the HLLC Revolving Facility to provide liquidity for our operations and working capital needs. As of June 30, 2005, we had
$63.0 million of outstanding borrowings and approximately $16.8 million of outstanding letters of credit under our $350 million HLLC Revolving Facility. We had
$27.7 million of cash on our balance sheet as of June 30, 2005. As of June 30, 2005, we had cash and unused borrowing capacity of approximately $298 million. During the six
months ended June 30, 2005, we repaid $62.1 million on the HLLC Revolving Facility and $50.0 million on the HLLC Term Facility from operating cash flows.

We
believe our current liquidity, together with funds generated by our businesses, is sufficient to meet the short-term and long-term needs of our businesses,
including funding operations, making capital expenditures and servicing our debt obligations in the ordinary course. We believe that we are in compliance with the covenants contained in our credit
agreements and the indentures governing our notes.

Off-Balance Sheet Arrangements

We issue certain letters of credit and guarantees of certain short-term debt facilities and other obligations for some of our consolidated
subsidiaries. The maximum exposure under these letters of credit and guarantees is $16.8 million as of June 30, 2005. We do not expect any material amounts to be drawn on these
instruments.

Other
than certain operating leases that are material, which have been entered into in the normal course of business, we do not have any off-balance sheet financing
arrangements such as synthetic leases or securitization agreements. As such, we are not materially exposed to any financing, liquidity, market or credit risk that may arise if we had engaged in such
financing arrangements.

Restructuring

As of June 30, 2005, accrued restructuring and plant closing costs by type of cost and activity consisted of the following (dollars in millions):

|                                            |  | Workforce
reductions(1) |      | Demolition and
decommissioning |   | Non-cancelable
lease costs |   | Other
restructuring
costs |      | Total(2) |  
|------------------------------------------- |  | ----------------------- | ---- | ------------------------------ | - | -------------------------- | - | ------------------------- | ---- | -------- | -
|Accrued liabilities as of December 31, 2004 |  | $                       | 11.0 |                                | $ | 2.5                        |   | $                         |     |          | $
|2005 charges for 2004 activities            |  |                         | 0.3  |                                |   | 0.1                        |   |                           |     |          |  
|Reversal of reserves no longer required     |  |                         |     |                                |   |                           |   |                           |     |          |  
|2005 payments for 2004 activities           |  |                         | (3.9 | )                              |   | (0.1                       | ) |                           | (0.5 | )        |  
|Foreign currency effect on reserve balance  |  |                         | (0.1 | )                              |   |                           |   |                           |     |          |  
|                                            |  |                         |      |                                |   |                            |   |                           |      |          |  
|Accrued liabilities as of June 30, 2005     |  | $                       | 7.3  |                                | $ | 2.5                        |   | $                         | (0.5 | )        | $
|                                            |  |                         |      |                                |   |                            |   |                           |      |          |  

---

54

---





June 30,
2005

December 31,
2004Accrued liabilities by activities were as follows:2001 activities

$
2.8

$
2.82004 activities


6.5


10.0Foreign currency effect on reserve balance


0.6


0.7Total

$
9.9

$
13.5


Details
with respect to our reserves for restructuring and plant closing costs are provided below by segments and activity (dollars in millions):

|                                                                             |  | Performance
Products |       | Polymers |   | Base
Chemicals |   | Total |     
|---------------------------------------------------------------------------- |  | -------------------- | ----- | -------- | - | -------------- | - | ----- | ----
|Accrued liabilities as of December 31, 2004                                  |  | $                    | 7.7   |          | $ | 5.8            |   | $     |    
|2005 charges for 2004 activities                                             |  |                      | 1.4   |          |   | 2.9            |   |       | 0.5 
|Reversal of reserves no longer required                                      |  |                      | (0.1) |          |   |               |   |       | (0.4
|2005 payments for 2004 activities                                            |  |                      | (3.4) |          |   | (4.4           | ) |       |    
|Foreign currency effect on reserve balance                                   |  |                      | (0.1) |          |   |               |   |       |    
|                                                                             |  |                      |       |          |   |                |   |       |     
|Accrued liabilities as of June 30, 2005                                      |  | $                    | 5.5   |          | $ | 4.3            |   | $     | 0.1 
|Current portion of restructuring reserve                                     |  | $                    | 5.2   |          | $ | 1.9            |   | $     | 0.1 
|Long-term portion of restructuring reserve                                   |  |                      | 0.3   |          |   | 2.4            |   |       |    
|Estimated additional future cash charges for current restructuring projects: | 
|Estimated additional charges within one year                                 |  | $                    | 5.6   |          | $ |               |   | $     |    
|Estimated additional charges beyond one year                                 |  | $                    |      |          | $ |               |   | $     |    

As
of June 30, 2005 and December 31, 2004, we had reserves for restructuring and plant closing costs of $9.9 million and $13.5 million, respectively. During
the six months ended June 30, 2005 we recorded net charges of $4.3 million (all of which is payable in cash) for workforce reductions, non-cancelable lease costs, and other
restructuring costs associated with closure or curtailment of activities at our smaller, less efficient manufacturing facilities. During the first six months of 2005, we made cash payments against
these reserves of $7.8 million.

As
of December 31, 2004, our Performance Products segment reserve consisted of $7.7 million related to various restructuring programs, mainly in connection with the closure
of our Guelph, Ontario, St. Louis, Missouri and Austin, Texas facilities. During the six months ended June 30, 2005, our Performance Products segment recorded net restructuring charges of
$1.3 million related to 2004 activities and made cash payments of $3.4 million. These restructuring activities are expected to result in additional charges of approximately
$6 million through 2006.

As
of December 31, 2004, our Polymers segment reserve consisted of $5.8 million related primarily to the closure of a phenol manufacturing unit in Australia and
restructuring activities at our Odessa, Texas and Mansonville, Canada facilities. During the six months ended June 30, 2005, our Polymers segment recorded restructuring charges of
$2.9 million related to these activities, all of which are payable in cash, and made cash payments of $4.4 million. These restructuring activities are not expected to result in any
material additional restructuring charges. During the six months ended June 30, 2005, our Polymers segment made workforce reductions of 7 positions.

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During
the six months ended June 30, 2005, our Base Chemicals segment recorded restructuring charges of $0.5 million and reversed $0.4 million of accruals related to
the relocation of our corporate offices to The Woodlands, Texas and the consolidation of our U.S. purchasing functions which were no longer required.

Capital Expenditures

Capital expenditures for the six months ended June 30, 2005 were $34.5 million compared with $29.5 million in the comparable period of 2004.
During 2005, we expect to spend approximately $100 million on capital expenditures.

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Environmental, Health and Safety Matters



We are subject to extensive federal, state, local and foreign laws, regulations, rules and ordinances relating to pollution, protection of the environment and the
generation, storage, handling, transportation, treatment, disposal and remediation of hazardous substances and waste materials. In the ordinary course of business, we are subject to frequent
environmental inspections and monitoring and occasional investigations by governmental enforcement authorities. In addition, our production facilities require operating permits that are subject to
renewal, modification and, in certain circumstances, revocation. Actual or alleged violations of environmental laws or permit requirements could result in restrictions or prohibitions on plant
operations, substantial civil or criminal sanctions, as well as, under some environmental laws, the assessment of strict liability and/or joint and several liability. Moreover, changes in
environmental regulations could inhibit or interrupt our operations, or require us to modify our facilities or operations. Accordingly, environmental or regulatory matters may cause us to incur
significant unanticipated losses, costs or liabilities.



We are committed to achieving and maintaining compliance with all applicable environmental, health and safety ("EHS") legal requirements, and we have developed
policies and management systems that are intended to identify the multitude of EHS legal requirements applicable to our operations, enhance compliance with applicable legal requirements, ensure the
safety of our employees, contractors, community neighbors and customers and minimize the production and emission of wastes and other pollutants. Although EHS legal requirements are constantly changing
and are frequently difficult to comply with, these EHS management systems are designed to assist us in our compliance goals while also fostering efficiency and improvement and minimizing overall risk
to us.



We may incur future costs for capital improvements and general compliance under EHS laws, including costs to acquire, maintain and repair pollution control
equipment. For the six months ended June 30, 2005 and 2004, our capital expenditures for EHS matters totaled $6.1 million and $15.9 million, respectively. Since capital
expenditures for these matters are subject to evolving regulatory requirements and depend, in part, on the timing, promulgation and enforcement of specific requirements, we cannot provide assurance
that our recent expenditures will be indicative of future amounts required under EHS laws.



On occasion, we receive notices of violation, enforcement and other complaints from regulatory agencies alleging non-compliance with applicable EHS
law. By way of example, we are aware of the individual matters set out below, which we believe to be the most significant presently pending matters and unasserted claims. Although we may incur costs
or penalties in connection with the governmental proceedings discussed below, based on currently available information and our past experience, we believe that the ultimate resolution of these matters
will not have a material impact on our results of operations, financial position or liquidity.

In
May 2003, the State of Texas settled an air enforcement case with us relating to our Port Arthur plant. Under the settlement, we are required to pay a civil penalty of
$7.5 million over more than four years, undertake environmental monitoring projects totaling about $1.5 million in costs, and pay $0.4 million in attorney's fees to the Texas
Attorney General. As of June 30, 2005, we have paid $3.5 million toward the penalty and $0.4 million for the attorney's fees. The monitoring projects are

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underway
and on schedule. We do not anticipate that this settlement will have a material adverse effect on our results of operations, financial position or liquidity.

In
the third quarter of 2004, our Jefferson County, Texas facilities received notification from the Texas Commission on Environmental Quality ("TCEQ") of potential air emission
violations relating to the operation of cooling towers at three of our plants and alleged upset air emissions. TCEQ proposed penalties of $0.2 million for the alleged upset violations and
$0.1 million for the alleged cooling tower violations. In the second quarter of 2005, TCEQ proposed a penalty of $0.1 million related to alleged upset emissions at our Port Neches
facilities in late 2004 and early 2005. Additionally, based on
allegations of separate upset-related violations at our Port Neches facilities occurring from mid-2004 to early 2005, the TCEQ has proposed a separate penalty of $0.1 million.
Negotiations are anticipated between us and TCEQ with respect to the resolution of these alleged violations. We do not believe that the resolution of these matters will have a material adverse impact
on our results of operations, financial position or liquidity.

By
letter dated March 17, 2005, the TCEQ notified us that it intends to pursue an enforcement action as a result of various upset emission events occurring at our Port Arthur
facility between August 2003 and the end of 2004. TCEQ alleged that each upset event is a separate violation of its air emission rules and proposed a civil penalty of $0.1 million. In a
similar vein, the TCEQ issued a Notice of Enforcement to us on February 16, 2005 for alleged violations at our Port Neches plants arising out of upset emission events on various dates in 2004.
TCEQ has not yet proposed a penalty in this second matter, although we anticipate that it will. We will seek to negotiate a settlement with TCEQ on all of the alleged violations. We do not believe
that the resolution of these matters will result in the imposition of costs material to our results of operations, financial position or liquidity.

See
Note 15 Commitments and ContingenciesLegal Matters for a discussion of environmental lawsuits brought by private party plaintiffs.



We have incurred, and we may in the future incur, liability to investigate and clean up waste or contamination at our current or former facilities or facilities
operated by third parties at which we may have disposed of waste or other materials. Similarly, we may incur costs for the cleanup of wastes that were disposed of prior to the purchase of our
businesses. Under some circumstances, the scope of our liability may extend to damages to natural resources. Specifically, under the U.S. Comprehensive Environmental Response, Compensation and
Liability Act of 1980, as amended ("CERCLA"), and similar state laws, a current or former owner or operator of real property may be liable for remediation costs regardless of whether the release or
disposal of hazardous substances was in compliance with law at the time it occurred, and a current owner or operator may be liable regardless of whether it owned or operated the facility at the time
of the release. In addition, under the U.S. Resource Conservation and Recovery Act of 1976, as amended ("RCRA"), and similar state laws, we may be required to remediate contamination originating from
our properties as a condition to our hazardous waste permit. For example, our Odessa, Port Arthur, and Port Neches facilities in Texas are the subject of ongoing remediation requirements under RCRA
authority. In many cases, our potential liability arising from historical contamination is based on operations and other events occurring prior to our ownership of the relevant facility. In these
situations, we frequently obtained an indemnity agreement from the prior owner addressing remediation liabilities arising from pre-closing conditions. We have successfully exercised our
rights under these contractual covenants for a number of sites, and where applicable, mitigated our ultimate remediation liability. We cannot assure you, however, that all of such matters will be
subject to indemnity or that our existing indemnities will be sufficient to cover our liabilities for such matters.

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We
have been notified by third parties of claims against us or our subsidiaries for cleanup liabilities at approximately 12 former facilities and other third party sites, including but
not limited to sites listed under CERCLA. Based on current information and past experience at other CERCLA sites, we do not expect any of these third-party claims to result in material liability to
us.

One
of these sites, the North Maybe Canyon CERCLA site, includes an abandoned phosphorous mine located in a U.S. National Forest in Idaho. The North Maybe Canyon mine may have been
operated by one of our predecessors for approximately two out of the eight years (1964 to 1972) during which it held mining leases in the area. In 2004, we received from the Forest Service a notice of
potential liability for the mine under CERCLA. According to information from the U.S. government, North Maybe Canyon was actively mined for a total of about 20 years. The current owner, NuWest
Industries, Inc., a subsidiary of Agrium, Inc., operated the mine for at least six of those years. Under an administrative order with the Forest Service and other governmental agencies,
NuWest is currently undertaking an investigation of the site, with a specific focus on the release of selenium-contaminated surface water into streams in the area. By letter dated May 27, 2005,
the Forest Service put us (as well as NuWest and Wells Cargo, Inc.) on notice that it is demanding payment of its incurred costs in the amount of $0.1 million. The letter also indicated
that the Forest Service wishes to initiate negotiations
on a response action at the site with the objective of putting a Consent Decree in place obligating NuWest, Wells Cargo and us to conduct and fund that action. We are currently investigating the
factual issues concerning anticipated allocation and response action issues. We have initiated contact with the Forest Service and the other potentially responsible persons ("PRPs") to determine
whether to pursue negotiations. We do not currently have sufficient information to estimate actual remediation costs or our actual liability, if any, for investigation and cleanup of the North Maybe
Canyon site.

At
another of these sites, the Seaboard Chemical Corporation facility in Jamestown, North Carolina, a removal action under CERCLA was first initiated in 1992. In December 1995,
we, along with hundreds of other PRPs, entered into an administrative order on consent with the state requiring the PRP group to conduct a remedial investigation/feasibility study ("RI/FS"). The
initial RI/FS was submitted to the State in mid-1999. Based on the investigative work, the PRP group proposed a remediation plan for the site in early 2005. That plan has now been accepted
by the State and a draft consent order for implementation is being negotiated. Additionally, the PRPs developed allocation numbers based on relative waste contribution, with our share set at 2.84%.
Based on the total estimated cost of remediation, we have established an accrual of $0.3 million.



We have established financial reserves relating to anticipated environmental cleanup obligations, site reclamation and closure costs and known penalties.
Liabilities are recorded when potential liabilities are either known or considered probable and can be reasonably estimated. Our liability estimates are based upon available facts, existing technology
and past experience. On a consolidated basis, we have accrued approximately $12.2 million and $13.9 million for environmental liabilities as of June 30, 2005 and
December 31, 2004, respectively. Of these amounts, approximately $2.0 million are classified as accrued liabilities on our consolidated balance sheets as of each of June 30, 2005
and December 31, 2004, and approximately $10.2 million and $11.9 million are classified as other noncurrent liabilities on our consolidated balance sheets as of June 30,
2005 and December 31, 2004, respectively. In certain cases, our remediation liabilities are payable over periods of up to 30 years. We may incur losses for environmental remediation in
excess of the amounts accrued; however, we are not able to estimate the amount or range of such losses.



Under the European Union ("EU") Integrated Pollution Prevention and Control Directive ("IPPC"), EU member governments are to adopt rules and implement a
cross-media (air, water and

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waste)
environmental permitting program for individual facilities. While the EU countries are at varying stages in their respective implementation of the IPPC permit program, we have submitted all
necessary IPPC permit applications required to date, and in some cases received completed permits from the applicable government agency. We expect to submit all other IPPC applications and related
documents on a timely basis as the various countries implement the IPPC permit program. Although we do not know with certainty what each IPPC permit will require, we believe, based upon our experience
with the permits received to date, that the costs of compliance with the IPPC permit program will not be material to our results of operations, financial position or liquidity.

In
October 2003, the European Commission adopted a proposal for a new EU regulatory framework for chemicals. Under this proposed new system called "REACH" (Registration,
Evaluation and Authorization of Chemicals), companies that manufacture or import more than one ton of a chemical substance per year would be required to register such manufacture or import in a
central database. The REACH initiative, as proposed, would require risk assessment of chemicals, preparations (e.g., soaps and paints) and articles (e.g., consumer products) before those materials
could be manufactured or imported into EU countries. Where warranted by a risk assessment, hazardous substances would require authorizations for their use. This regulation could impose risk control
strategies that would require capital expenditures by us. As proposed, REACH would take effect in three primary stages over the eleven years following the final effective date (assuming final
approval). The impacts of REACH on the chemical industry and on us are unclear at this time because the parameters of the program are still being actively debated.



We currently market approximately 95% of our MTBE to customers located in the U.S. for use as a gasoline additive. The presence of MTBE in some groundwater
supplies in California and other U.S. states (primarily due to gasoline leaking from underground storage tanks) and in surface water (primarily from recreational watercraft) has led to public concern
about MTBE's potential to contaminate drinking water supplies. Heightened public awareness regarding this issue has resulted in state, federal and foreign initiatives to rescind the federal oxygenate
requirements for reformulated gasoline or restrict or prohibit the use of MTBE in particular. For example, California, New York and Connecticut have adopted rules that prohibit the use of MTBE in
gasoline sold in those states. Overall, states that have taken some action to prohibit or restrict the use of MTBE in gasoline account for a
substantial portion of the "pre-ban" U.S. MTBE market. Thus far, attempts by others to challenge these state bans in federal court under the reformulated gasoline provisions of the federal
Clean Air Act have been unsuccessful.

In
August 2005, the Energy Policy Act of 2005 was signed into law. The new law will likely have an adverse impact on our MTBE business in the U.S., although a full evaluation of
the law's provisions is underway and the extent of potential impacts, if any, is unclear. The new legislation mandates increased use of renewable fuels and eliminates the oxygenate requirement for
reformulated gasoline established by the 1990 Clean Air Act Amendments, and the combination of these two provisions could substantially reduce the market for MTBE in the U.S. However, unlike
previously proposed federal legislation, the new law does not purport to ban the use of MTBE as a motor vehicle fuel additive. Thus, we do not believe it will prevent us from either manufacturing MTBE
in our plants or offering MTBE for sale in the U.S. A significant reduction in demand for our MTBE could result in a material loss in revenues or material costs or expenditures. As an alternative to
selling our MTBE in the U.S., we believe we will be able to export MTBE to Europe, Asia or Latin America, although this may produce a lower level of cash flow than the sale of MTBE in the U.S. We may
also elect to use all or a portion of our precursor TBA to produce saleable products other than MTBE. If we opt to produce products other than MTBE, necessary modifications to our facilities may
require significant capital

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expenditures
and the sale of the other products may produce a materially lower level of cash flow than the sale of MTBE.

In
September 2002, the EU issued a final risk assessment report on MTBE. No ban of MTBE was recommended for Europe, although several risk reduction measures relating to storage
and handling of MTBE-containing fuel were recommended.

A
number of lawsuits have been filed, primarily against gasoline manufacturers, marketers and distributors, by persons seeking to recover damages allegedly arising from the presence of
MTBE in groundwater. We have not been named as a defendant in any litigation concerning the environmental effects of MTBE. However, we cannot provide assurances that we will not be involved in any
such litigation or that such litigation will not have a material adverse effect on our results of operations, financial position or liquidity.

Recently Issued Accounting Pronouncements

In January 2003, the Financial Accounting Standards Board ("FASB") issued Financial Interpretation No. ("FIN") 46, "Consolidation
of Variable Interest Entities." FIN 46 addresses the requirements for business enterprises to consolidate related entities, for which they do not have controlling interests
through voting or other rights, if they are determined to be the primary beneficiary as a result of
variable economic interests. Transfers to a qualifying special purpose entity are not subject to this interpretation. In December 2003, the FASB issued a replacement of FIN 46 (FIN 46R), to
clarify certain complexities. We adopted this financial interpretation on January 1, 2005, as required. The impact of FIN 46R was not significant.

In
November 2004, the FASB issued Statement of Financial Accounting Standards ("SFAS") No. 151, "Inventory Costsan amendment of ARB
No. 43." SFAS No. 151 requires abnormal amounts of idle facility expense, freight, handling costs, and wasted material to be recognized as current-period charges.
It also requires that allocation of fixed production overhead to the costs of conversion be based on the normal capacity of the production facilities. The requirements of the standard will be
effective for inventory costs incurred during fiscal years beginning after June 15, 2005. We are reviewing SFAS No. 151 to determine the statement's impact on our consolidated financial
statements.

In
December 2004, the FASB issued SFAS No. 153,"Exchanges of Nonmonetary Assetsan amendment of APB Opinion
No. 29."SFAS No. 153 addresses the measurement of exchanges of nonmonetary assets and eliminates the exception from fair value measurement for nonmonetary
exchanges of similar productive assets in APB Opinion No. 29 and replaces it with an exception for exchanges that do not have commercial substance. SFAS No. 153 specifies that a
nonmonetary exchange has commercial substance if the future cash flows of the entity are expected to change significantly as a result of the exchange. The provisions of this standard are effective for
nonmonetary exchanges occurring in fiscal periods beginning after June 15, 2005. We will apply this standard prospectively.

In
December 2004, the FASB issued SFAS No. 123R,"Share Based Payment."SFAS No. 123R requires entities to measure
the cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award. That cost will be recognized over the period during
which the employee is required to provide services in exchange for the award. This standard eliminates the alternative to use the intrinsic value method of accounting for share-based payments as
previously provided in APB Opinion No. 25,"Accounting for Stock Issued to Employees."We adopted SFAS No. 123R effective
January 1, 2005, and have applied this standard prospectively to share-based awards issued to our employees in connection with Huntsman Corporation's initial public offering. In connection with
Huntsman Corporation's initial public offering of common and preferred stock on February 16, 2005, certain of our employees received Huntsman Corporation stock options and restricted stock.
Accordingly, we were allocated share-based compensation expense of $2.1 and

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$2.7 million
during the three months ended June 30, 2005 and during the six months ended June 30, 2005. We did not have share-based awards prior to the awards issued in connection
with Huntsman Corporation's initial public offering.

In
March 2005, the FASB issued FIN 47,"Accounting for Conditional Asset Retirement Obligations."FIN 47 clarifies the term conditional asset retirement
obligationused in SFAS No. 143,"Accounting for Asset Retirement
Obligations,"and clarifies when an entity would have sufficient information to reasonably
estimate the fair value of an asset retirement obligation. FIN 47 is effective no later than the end of December 2005. We are reviewing FIN 47 to determine its impact on our financial
statements.

In
March 2005, the Emerging Issues Task Force issued a preliminary consensus on issue 04-13, "Accounting for Purchases and Sales of Inventory
with the Same Counterparty," that, if ratified by the FASB, would require companies to recognize an exchange of finished goods for raw materials or
work-in-process within the same line of business at fair value. All other exchanges of inventory would be reflected at the recorded amount. We are evaluating the impact of this
preliminary consensus to determine its impact on our results of operations.

In
May 2005, the FASB issued SFAS No. 154, "Accounting Changes and Error Correctionsa replacement of APB Opinion No. 20 and FASB
Statement No. 3." SFAS No. 154 requires retrospective application to prior periods' financial statements of changes in accounting principle, unless it is
impracticable to determine either the period-specific effects or the cumulative effect of the change or unless specific transition provisions are proscribed in the accounting pronouncements. SFAS
No. 154 does not change the accounting guidance for reporting a correction of an error in previously issued financial statements or a change in accounting estimate. SFAS No. 154 is
effective for accounting changes and error corrections made after December 31, 2005. We will apply this standard prospectively.

Critical Accounting Policies

There have been no changes in the six months ended June 30, 2005 with respect to our critical accounting policies as presented in Management's Discussion
and Analysis of Financial Condition and Results of Operations for the year ended December 31, 2004 included in our 2004 Annual Report on Form 10-K.

Cautionary Statement for Forward-Looking Information

Certain information set forth in this report contains "forward-looking statements" within the meaning of the federal securities laws. Forward-looking statements
include statements concerning our plans, objectives, goals, strategies, future events, future revenues or performance, capital expenditures, financing needs, plans or intentions relating to
acquisitions and other information that is not historical information. In some cases, forward-looking statements can be identified by terminology such as "believes," "expects," "may," "will,"
"should," "anticipates," or "intends" or the negative of such terms or other comparable terminology, or by discussions of strategy. We may also make additional forward-looking statements from time to
time. All such subsequent forward-looking statements, whether written or oral, by us or on our behalf, are also expressly qualified by these cautionary statements.

All
forward-looking statements, including without limitation, management's examination of historical operating trends, are based upon our current expectations and various assumptions.
Our expectations, beliefs and projections are expressed in good faith and we believe there is a reasonable basis for them, but, there can be no assurance that management's expectations, beliefs and
projections will result or be achieved. All forward-looking statements apply only as of the date made. We undertake no obligation to publicly update or revise forward-looking statements which may be
made to reflect events or circumstances after the date made or to reflect the occurrence of unanticipated events.

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There
are a number of risks and uncertainties, including those discussed elsewhere in this report, that could cause our actual results to differ materially from the forward-looking
statements contained in or contemplated by this report. Any forward-looking statements should be considered in light of all such factors and the risks specified in our Annual Report on
Form 10-K.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We are exposed to market risk, including changes in currency exchange rates, interest rates and certain commodity prices. To manage the volatility relating to
these exposures, from time to time, we enter into various derivative transactions. We hold and issue derivative financial instruments for economic hedging purposes only.

Interest Rates

As of June 30, 2005, we had entered into approximately $183.7 million notional amount of interest rate swap transactions, which have remaining terms
ranging from approximately six to twenty-four months. The majority of these transactions hedge against movements in U.S. dollar interest rates. The U.S. dollar swap transactions obligate us to pay
fixed amounts ranging from 3.8% to 6.6% of the notional amount in exchange for LIBOR-based floating amounts. We do not hedge our interest rate exposure in a manner that would eliminate the effects of
changes in market interest rates on our cash flow and earnings.

As
of June 30, 2005, the estimated fair value of our consolidated debt was approximately $1.7 billion and the weighted average interest rate of our combined borrowings was
approximately 8.5%. As of June 30, 2005, we had combined outstanding variable rate borrowings of approximately $0.9 billion. The weighted
average interest rate of these borrowings was approximately 6.9%. This weighted average rate does not consider the effects of interest rate hedging activities. Assuming a 1.0% increase in interest
rates, without giving effect to interest rate hedges, the effect on the annual interest expense would be an increase of approximately $9 million. This increase would be reduced by approximately
$1.8 million on an annualized basis, as a result of the effects of the interest rate swap transactions described above.

Commodity Prices

Our exposure to changing commodity prices is somewhat limited since the majority of our raw materials are acquired at posted or market related prices, and sales
prices for finished products are generally at market related prices which are largely set on a monthly or quarterly basis in line with industry practice.

Currency Exchange

Our cash flows and earnings are subject to fluctuations due to exchange rate variation. However, our sales prices are typically denominated in U.S. dollars. As a
result, the impact of fluctuations in exchange rates is not material to our cash flows and earnings.

ITEM 4. CONTROLS AND PROCEDURES

Our management, with the participation of our chief executive officer and chief financial officer, has evaluated the effectiveness of our disclosure controls and
procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (the "Exchange Act")) as of June 30, 2005. Based on this
evaluation, our chief executive officer and chief financial officer have concluded that, as of June 30, 2005, our disclosure controls and procedures were effective, in that they ensure that
information required to be disclosed by us in the reports that we file or submit under the Exchange Act is (1) recorded, processed, summarized and reported within the time periods specified in
the

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Commission's
rules and forms, and (2) accumulated and communicated to our management, including our chief executive officer and chief financial officer, as appropriate to allow timely decisions
regarding required disclosure.

No
changes to our internal control over financial reporting occurred during the three months ended June 30, 2005 that have materially affected, or are reasonably likely to
materially affect, our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act). Huntsman Corporation and its
subsidiaries, including our Company, have engaged Ernst & Young LLP to assist management in its evaluation of our internal controls in preparation for the periodic management evaluations and
annual auditor attestation reports regarding the effectiveness of our "internal control over financial reporting" that will be required when the SEC's rules under Section 404 of the
Sarbanes-Oxley Act of 2002 become applicable to us beginning with our Annual Report on Form 10-K for the year ending December 31, 2006 to be filed in the first quarter of
2007. We cannot give any assurance, however, that our internal controls will be effective when Section 404 becomes applicable to us. Ineffective internal controls could cause investors to lose
confidence in our reported financial information and could result in a lower trading price for our securities.

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

We have been a party to various lawsuits brought by persons alleging personal injuries and/or property damage based upon alleged exposure to toxic air emissions.
For example, since June 2003, a number of lawsuits have been filed in state district court in Jefferson County, Texas against several local chemical plants and refineries, including our
subsidiary, Huntsman Petrochemical Corporation. Generally, these lawsuits have alleged that the refineries and chemical plants located in the vicinity of the plaintiffs' homes discharged chemicals
into the air that interfere with use and enjoyment of property and cause health problems and/or property damages. None of these lawsuits have included the amount of damages being sought. The following
table presents information about the number of claims asserting damages based upon alleged exposure to toxic air emissions for the period indicated. Claims include all claims for which service has
been received by us, and each such claim represents a plaintiff who is pursuing a claim against us.

Six months ended
June 30, 2005Claims filed during period

2,104Claims resolved during period

2,988Claims unresolved at end of period

0


All
claims filed as of June 30, 2005 have been resolved through dismissal and/or settlement.

In
addition, we have been named as a "premises defendant" in a number of asbestos exposure cases, typically a claim by a non-employee of exposure to asbestos while at a
facility. These cases typically involve multiple plaintiffs bringing actions against multiple defendants, and the complaint does not indicate which plaintiffs are making claims against which
defendants, where or how the alleged injuries occurred, or what injuries each plaintiff claims. These facts, which are central to any estimate of probable loss, can be learned only through discovery.

Where
the alleged exposure occurred prior to our ownership or operation of the relevant "premises," the prior owners and operators generally have contractually agreed to retain liability
for, and to indemnify us against, asbestos exposure claims. This indemnification is not subject to any time or dollar amount limitations. Upon service of a complaint in one of these cases, we tender
it to the prior owner or operator. None of the complaints in these cases state the amount of damages being sought. The prior owner or operator accepts responsibility for the conduct of the defense of
the cases

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and
payment of any amounts due to the claimants. In our ten-year experience with tendering these cases, we have not made any payment with respect to any tendered asbestos cases. We believe
that the prior owners or operators have the intention and ability to continue to honor their indemnities, although we cannot assure you that they will continue to do so or that we will not be liable
for these cases if they do not.

The
following table presents for the period indicated certain information about cases for which service has been received that we have tendered to the prior owner or operator, all of
which have been accepted.

Six months ended
June 30, 2005Tendered during the period

84Resolved during the period

21Unresolved at end of the period

461


We
have never made any payments with respect to these cases. As of June 30, 2005, we had an accrued liability of $12.5 million relating to these cases and a corresponding
receivable of $12.5 million relating to our indemnity protection with respect to these cases. We cannot assure you that our liability will not exceed our accruals or that our liability
associated with these cases would not be material to our financial condition, results of operations or liquidity.

Certain
cases in which we are a "premises defendant" are not subject to indemnification by prior owners or operators. The following table presents for the period indicated certain
information about these cases. Cases include all cases for which service has been received by us.

Six months ended
June 30, 2005Filed during period

38Resolved during period

1Unresolved at end of period

66


We
paid gross settlement costs for asbestos exposure cases that are not subject to indemnification of approximately $5,000 during the six months ended June 30, 2005.

As
of June 30, 2005, we had accrued reserves of $1.2 million relating to these cases. We cannot assure you that our liability will not exceed our accruals or that our
liability associated with these cases would not be material to our financial condition, results of operations or liquidity.

We
are a party to various other proceedings instituted by private plaintiffs, governmental authorities and others arising under provisions of applicable laws, including various
environmental, products liability and other laws. Except as otherwise disclosed in this report, we do not believe that the outcome of any of these matters will have a material adverse effect on our
financial condition, results of operations or liquidity. See "Part I Financial Information, Item 1. Notes to Condensed Consolidated Financial Statements (Unaudited)
Note 16Environmental, Health and Safety Matters" for a discussion of environmental proceedings.

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ITEM 6. EXHIBITS

|4.1  |  | Supplemental Indenture, dated as of July 11, 2005, among Huntsman LLC, the Guarantors named therein and HSBC Bank USA, National Association, as Trustee, relating to the 111/2% HLLC Senior
Notes due 2012 and HLLC Senior Floating Rate Notes due 2011 (incorporated by reference to Exhibit 4.1 to the current report on Form 8-K of Huntsman LLC filed July 15, 2005)
|---- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|4.2  |  | Supplemental Indenture, dated of July 13, 2005, among Huntsman LLC, the Guarantors named therein and HSBC Bank USA, National Association, as Trustee, relating to the 115/8% HLLC Senior Secured Notes due 2010
(incorporated by reference to Exhibit 4.2 to the current report on Form 8-K of Huntsman LLC filed July 15, 2005)                                        
|31.1 |  | Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002                                                                                                                                                                                                                                                                      
|31.2 |  | Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002                                                                                                                                                                                                                                                                      
|32.1 |  | Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002                                                                                                                                                                                                                                                                      
|32.2 |  | Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002                                                                                                                                                                                                                                                                      

66

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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.

|Dated: August 10, 2005 |  | HUNTSMAN LLC                                                                                                                               
|---------------------- |  | -------------------------------------------------------------------------------------------------------------------------------------------
|                       |  | /s/J. KIMO ESPLINJ. Kimo Esplin Executive Vice President and Chief Financial Officer (Authorized Signatory and Principal Financial Officer)
|                       |  | /s/L. RUSSELL HEALYL. Russell Healy Vice President and Controller (Authorized Signatory and Principal Accounting Officer)                  

67

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EXHIBIT INDEX

|Number |  | Description of Exhibits                                                                                                                                                                                                                                                                                                                                                 
|------ |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|4.1    |  | Supplemental Indenture, dated as of July 11, 2005, among Huntsman LLC, the Guarantors named therein and HSBC Bank USA, National Association, as Trustee, relating to the 111/2% HLLC Senior
Notes due 2012 and HLLC Senior Floating Rate Notes due 2011 (incorporated by reference to Exhibit 4.1 to the current report on Form 8-K of Huntsman LLC filed July 15, 2005)
|4.2    |  | Supplemental Indenture, dated of July 13, 2005, among Huntsman LLC, the Guarantors named therein and HSBC Bank USA, National Association, as Trustee, relating to the 115/8% HLLC Senior Secured Notes due 2010
(incorporated by reference to Exhibit 4.2 to the current report on Form 8-K of Huntsman LLC filed July 15, 2005)                                        
|31.1   |  | Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002                                                                                                                                                                                                                                                                      
|31.2   |  | Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002                                                                                                                                                                                                                                                                      
|32.1   |  | Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002                                                                                                                                                                                                                                                                      
|32.2   |  | Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002                                                                                                                                                                                                                                                                      

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