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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, 2004                 
|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(State or other jurisdiction of
incorporation or organization)                                                      |  | 87-0533091(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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Securities
registered pursuant to Section 12(b) of the Act:None

Securities
registered pursuant to Section 12(g) of the Act:None

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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 16, 2004, 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  FORM 10-Q FOR THE QUARTERLY PERIOD  ENDED JUNE 30, 2004

TABLE OF CONTENTS



|                                |         |                                                                          
|------------------------------- | ------- | -------------------------------------------------------------------------
|PART I    FINANCIAL INFORMATION
|                                | ITEM 1. |                                                                          
|                                |         | Consolidated Balance Sheets                                              
|                                |         | Consolidated Statements of Operations and Comprehensive Loss             
|                                |         | Consolidated Statements of Member's Equity                               
|                                |         | Consolidated Statements of Cash Flows                                    
|                                |         | Notes to Consolidated Financial Statements                               
|                                | ITEM 2. |                                                                          
|                                |         | Supplemental Discussion of Results of Operations for the Restricted Group
|                                | ITEM 3. |                                                                          
|                                | ITEM 4. |                                                                          
|PART II    OTHER INFORMATION   
|                                | ITEM 1. |                                                                          
|                                | ITEM 6. |                                                                          

i

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PART I.    FINANCIAL INFORMATION

ITEM 1.    FINANCIAL STATEMENTS

HUNTSMAN LLC AND SUBSIDIARIES        CONSOLIDATED BALANCE SHEETS (UNAUDITED)        (Dollars in Millions)

|                                        |                                                                                                          | June 30,
2004                         |         | December 31,
2003 |        
|--------------------------------------- | -------------------------------------------------------------------------------------------------------- | ------------------------------------- | ------- | ----------------- | -------
|ASSETS                                  |                                                                                                          |                                       |         |                   |        
|Current assets:                         |                                                                                                          |                                       |         |                   |        
|                                        | Cash and cash equivalents                                                                                |                                       | $       | 116.3             |        
|                                        | Accounts and notes receivables (net of allowance for doubtful accounts of $17.5 and $19.7, respectively) |                                       |         | 1,067.8           |        
|                                        | Inventories                                                                                              |                                       |         | 869.8             |        
|                                        | Prepaid expenses                                                                                         |                                       |         | 21.0              |        
|                                        | Deferred income taxes                                                                                    |                                       |         | 3.0               |        
|                                        | Other current assets                                                                                     |                                       |         | 88.2              |        
|                                        |                                                                                                          |                                       |         |                   |        
|                                        |                                                                                                          | Total current assets                  |         |                   | 2,166.1
|Property, plant and equipment, net      |                                                                                                          |                                       | 4,361.8 |                   |        
|Investment in unconsolidated affiliates |                                                                                                          |                                       | 162.2   |                   |        
|Intangible assets, net                  |                                                                                                          |                                       | 262.2   |                   |        
|Goodwill                                |                                                                                                          |                                       | 3.3     |                   |        
|Deferred income taxes                   |                                                                                                          |                                       | 12.0    |                   |        
|Other noncurrent assets                 |                                                                                                          |                                       | 628.7   |                   |        
|                                        |                                                                                                          |                                       |         |                   |        
|                                        |                                                                                                          | Total assets                          |         | $                 | 7,596.3
|                                        |                                                                                                          |                                       |         |                   |        
|LIABILITIES AND MEMBER'S EQUITY         |                                                                                                          |                                       |         |                   |        
|Current liabilities:                    |                                                                                                          |                                       |         |                   |        
|                                        | Accounts payable, including overdraft of $12.4 and $7.5, respectively                                    |                                       | $       | 832.9             |        
|                                        | Accrued liabilities                                                                                      |                                       |         | 597.3             |        
|                                        | Deferred income taxes                                                                                    |                                       |         | 14.5              |        
|                                        | Current portion of long-term debt                                                                        |                                       |         | 41.7              |        
|                                        |                                                                                                          |                                       |         |                   |        
|                                        |                                                                                                          | Total current liabilities             |         |                   | 1,486.4
|Long-term debt                          |                                                                                                          |                                       | 5,209.1 |                   |        
|Long-term debtaffiliates               |                                                                                                          |                                       | 423.9   |                   |        
|Deferred income taxes                   |                                                                                                          |                                       | 235.0   |                   |        
|Other noncurrent liabilities            |                                                                                                          |                                       | 429.8   |                   |        
|                                        |                                                                                                          |                                       |         |                   |        
|                                        |                                                                                                          | Total liabilities                     |         |                   | 7,784.2
|                                        |                                                                                                          |                                       |         |                   |        
|Minority interests                      |                                                                                                          |                                       | 57.8    |                   |        
|                                        |                                                                                                          |                                       |         |                   |        
|Commitments and contingencies (Note 15) |                                                                                                          |                                       |         |                   |        
|Member's equity (deficit):              |                                                                                                          |                                       |         |                   |        
|                                        | Member's equity, 10,000,000 units                                                                        |                                       |         | 1,095.2           |        
|                                        | Accumulated deficit                                                                                      |                                       |         | (1,367.3          | )      
|                                        | Accumulated other comprehensive income                                                                   |                                       |         | 26.4              |        
|                                        |                                                                                                          |                                       |         |                   |        
|                                        |                                                                                                          | Total member's (deficit) equity       |         |                   | (245.7 
|                                        |                                                                                                          |                                       |         |                   |        
|                                        |                                                                                                          | Total liabilities and member's equity |         | $                 | 7,596.3
|                                        |                                                                                                          |                                       |         |                   |        

See accompanying notes to consolidated financial statements.

1

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

|                                                                     |                                       | Three Months Ended June 30, |         | Six Months Ended June 30, |        
|-------------------------------------------------------------------- | ------------------------------------- | --------------------------- | ------- | ------------------------- | -------
|
|REVENUES:                                                            |                                       |                             |         |                           |        
|                                                                     | Trade sales                           |                             | $       | 2,470.8                   |        
|                                                                     | Related party sales                   |                             |         | 17.2                      |        
|                                                                     |                                       |                             |         |                           |        
|                                                                     |                                       | Total revenues              |         |                           | 2,488.0
|Cost of goods sold                                                   |                                       |                             | 2,207.9 |                           |        
|                                                                     |                                       |                             |         |                           |        
|Gross profit                                                         |                                       |                             | 280.1   |                           |        
|EXPENSES:                                                            |                                       |                             |         |                           |        
|                                                                     | Selling, general and administrative   |                             |         | 127.6                     |        
|                                                                     | Research and development              |                             |         | 14.6                      |        
|                                                                     | Other operating (income) expense      |                             |         | 21.0                      |        
|                                                                     | Restructuring and plant closing costs |                             |         | 150.5                     |        
|                                                                     |                                       |                             |         |                           |        
|                                                                     |                                       | Total expenses              |         |                           | 313.7  
|                                                                     |                                       |                             |         |                           |        
|Operating (loss) income                                              |                                       |                             | (33.6   | )                         |        
|Interest expense, net                                                |                                       |                             | (133.3  | )                         |        
|Loss on accounts receivable securitization program                   |                                       |                             | (3.0    | )                         |        
|Equity in income (losses) of investment in unconsolidated affiliates |                                       |                             | 1.0     |                           |        
|Other expense                                                        |                                       |                             | (2.1    | )                         |        
|                                                                     |                                       |                             |         |                           |        
|Loss before income tax and minority interests                        |                                       |                             | (171.0  | )                         |        
|Income tax benefit (expense)                                         |                                       |                             | (6.4    | )                         |        
|                                                                     |                                       |                             |         |                           |        
|Loss before minority interest                                        |                                       |                             | (177.4  | )                         |        
|Minority interest in subsidiaries' loss                              |                                       |                             | 47.5    |                           |        
|                                                                     |                                       |                             |         |                           |        
|NET LOSS                                                             |                                       |                             | (129.9  | )                         |        
|Other comprehensive (loss) income                                    |                                       |                             | (11.8   | )                         |        
|                                                                     |                                       |                             |         |                           |        
|COMPREHENSIVE LOSS                                                   |                                       | $                           | (141.7  | )                         | $      
|                                                                     |                                       |                             |         |                           |        

See
accompanying notes to consolidated financial statements.

See
"Note 1General" concerning the consolidation of HIH, effective as of May 1, 2003, and its effect on comparability of amounts.

2

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HUNTSMAN LLC AND SUBSIDIARIES        CONSOLIDATED STATEMENTS OF MEMBER'S EQUITY (DEFICIT) (UNAUDITED)        (Dollars and Units in Millions)

|                           |  | Member's equity |  |   |         |  |   |          |  
|-------------------------- |  | --------------- |  | - | ------- |  | - | -------- | -
|
|
|Balance, December 31, 2003 |  | 10.0            |  | $ | 1,095.2 |  | $ | (1,182.5 | )
|Net loss                   |  |                |  |   |        |  |   | (184.8   | )
|Other comprehensive loss   |  |                |  |   |        |  |   |         |  
|                           |  |                 |  |   |         |  |   |          |  
|Balance, June 30, 2004     |  | 10.0            |  | $ | 1,095.2 |  | $ | (1,367.3 | )
|                           |  |                 |  |   |         |  |   |          |  

See
accompanying notes to consolidated financial statements

3

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

|                                                                                |                                                                         | Six months ended June 30,       |                                                    
|------------------------------------------------------------------------------- | ----------------------------------------------------------------------- | ------------------------------- | ---------------------------------------------------
|
|CASH FLOW FROM OPERATING ACTIVITIES:                                            |                                                                         |                                 |                                                    
|Net loss                                                                        |                                                                         | $                               | (184.8                                             
|Adjustments to reconcile net loss to net cash provided by operating activities: |                                                                         |                                 |                                                    
|                                                                                | Equity in (income) losses of investment in unconsolidated affiliates    |                                 |                                                    
|                                                                                | Depreciation and amortization                                           |                                 |                                                    
|                                                                                | Provision for loss on accounts receivable                               |                                 |                                                    
|                                                                                | Noncash restructuring, plant closing, and asset impairment charges      |                                 |                                                    
|                                                                                | Net cost of debt repayment                                              |                                 |                                                    
|                                                                                | Net cash interest on affiliate debt                                     |                                 |                                                    
|                                                                                | Loss on disposal of plant and equipment                                 |                                 |                                                    
|                                                                                | Noncash interest expense                                                |                                 |                                                    
|                                                                                | Deferred income tax expense (benefit)                                   |                                 |                                                    
|                                                                                | Gain on foreign currency transactions                                   |                                 |                                                    
|                                                                                | Minority interests in subsidiaries                                      |                                 |                                                    
|                                                                                | Changes in operating assets and liabilities:                            |                                 |                                                    
|                                                                                |                                                                         | Accounts and notes receivables  |                                                    
|                                                                                |                                                                         | Change in receivables sold, net |                                                    
|                                                                                |                                                                         | Inventories                     |                                                    
|                                                                                |                                                                         | Prepaid expenses                |                                                    
|                                                                                |                                                                         | Other current assets            |                                                    
|                                                                                |                                                                         | Other noncurrent assets         |                                                    
|                                                                                |                                                                         | Accounts payable                |                                                    
|                                                                                |                                                                         | Accrued liabilities             |                                                    
|                                                                                |                                                                         | Other noncurrent liabilities    |                                                    
|                                                                                |                                                                         |                                 |                                                    
|                                                                                |                                                                         |                                 | Net cash provided by (used in) operating activities
|                                                                                |                                                                         |                                 |                                                    
|CASH FLOW FROM INVESTING ACTIVIES:                                              |                                                                         |                                 |                                                    
|                                                                                | Capital expenditures                                                    |                                 |                                                    
|                                                                                | Net cash received from unconsolidated affiliates                        |                                 |                                                    
|                                                                                | Investment in unconsolidated affiliate                                  |                                 |                                                    
|                                                                                | Advances to unconsolidated affiliates                                   |                                 |                                                    
|                                                                                |                                                                         |                                 |                                                    
|                                                                                |                                                                         |                                 | Net cash used in investing activities              
|                                                                                |                                                                         |                                 |                                                    
|CASH FLOW FROM FINANCING ACTIVIES:                                              |                                                                         |                                 |                                                    
|                                                                                | Net borrowings under revolving loan facilities                          |                                 |                                                    
|                                                                                | Net borrowings on overdraft                                             |                                 |                                                    
|                                                                                | Capital contribution by minority shareholder                            |                                 |                                                    
|                                                                                | Issuance of senior unsecured notes                                      |                                 |                                                    
|                                                                                | Repayment of long-term debt                                             |                                 |                                                    
|                                                                                | Debt issuance costs                                                     |                                 |                                                    
|                                                                                |                                                                         |                                 |                                                    
|                                                                                |                                                                         |                                 | Net cash provided by financing activities          
|                                                                                |                                                                         |                                 |                                                    
|                                                                                | Effect of exchange rate changes on cash                                 |                                 |                                                    
|                                                                                |                                                                         |                                 |                                                    
|                                                                                | Increase (decrease) in cash and cash equivalents                        |                                 |                                                    
|                                                                                | Cash and cash equivalents at beginning of period                        |                                 |                                                    
|                                                                                | Cash and cash equivalents of HIH at May 1, 2003 (date of consolidation) |                                 |                                                    
|                                                                                |                                                                         |                                 |                                                    
|                                                                                | Cash and cash equivalents at end of period                              |                                 | $                                                  
|                                                                                |                                                                         |                                 |                                                    
|Supplemental cash flow information:                                             |                                                                         |                                 |                                                    
|                                                                                |                                                                         | Cash paid for interest          |                                                    
|                                                                                |                                                                         | Cash paid for income taxes      |                                                    

Supplemental non-cash activities:

On May 9, 2003, HMP, the indirect parent of the Company, exercised an option that it held to purchase ICI's 30% membership interest in HIH. At that time,
HMP purchased the remaining approximate 9% membership interest in HIH owned by certain institutional investors. As such, effective May 1, 2003, HIH became a consolidated subsidiary of the
Company. As of May 1, 2003, HIH's total assets of $5,163.9 million (including cash of $62.2 million), total liabilities of $4,889.2 million and minority interest of
$1.0 million were consolidated into the Company. In addition, the Company recorded minority interest of $111.1 million to reflect HMP's 40% interest in HIH. See
"Note 1General."

See
accompanying notes to consolidated financial statements.

4

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

1.     General

Description of Business

Huntsman LLC (the "Company," including its subsidiaries, unless the context otherwise requires) is a leading manufacturer and marketer of a wide range of chemical
products that are sold to diversified consumer and industrial end markets. The Company has 47 primary manufacturing facilities located in North America, Europe, Asia, Australia, South America and
Africa and sells its products globally through its five principal business segments: Polyurethanes, Performance Products, Polymers, Pigments and Base Chemicals.

Company

The Company is a Utah limited liability company and all of its units of interest are owned by HMP Equity Holdings Corporation ("HMP"). HMP is a Delaware
corporation and is owned 100% by
Huntsman Group Inc., a Delaware corporation ("HGI"), subject to warrants that, if exercised, would entitle the holders to acquire up to 12% of the common stock of HMP. HGI is owned 100% by
Huntsman Holdings, LLC, a Delaware limited liability company ("Huntsman Holdings"). The voting membership interests of Huntsman Holdings are owned 50.2% by the Huntsman family, 47.8% by
MatlinPatterson Global Opportunities Partners, L.P. ("MatlinPatterson"), 1.8% by Consolidated Press Holdings Limited and its subsidiaries ("Consolidated Press") and 0.2% by senior management. In
addition, Huntsman Holdings has issued certain non-voting preferred units to Huntsman Holdings Preferred Member LLC, which, in turn, is owned 93.7%, indirectly, by MatlinPatterson, 3.6% by
Consolidated Press, 1.8% by the Huntsman Cancer Foundation, 0.6% by senior management and 0.3% by the Huntsman family. Huntsman Holdings has also issued certain non-voting preferred units
to the Huntsman family, MatlinPatterson and Consolidated Press that track the performance of an affiliate, Huntsman Advanced Materials LLC ("AdMat"). AdMat's results of operations are not included in
the Company's consolidated financial statements. The Huntsman family has board and operational control of the Company.

Prior
to its conversion into a Utah limited liability company on September 9, 2002, the Company, then named Huntsman Corporation, was a Utah corporation. As part of the conversion
to a limited liability company, the holders of shares of preferred and common stock exchanged their shares in the Company for units of membership interest. Because these exchange transactions were
between related entities, the exchange was recorded at the historical carrying value of the stock and no gain or loss was recognized.

Prior
to September 30, 2002, the Company was owned by members of the Huntsman family and by certain affiliated entities. On September 30, 2002, the Company and its
subsidiary, Huntsman Polymers Corporation ("Huntsman Polymers"), completed debt for equity exchanges (the "Restructuring"). Pursuant to the Restructuring, the Huntsman family contributed all of their
equity interests in the Company and its subsidiaries, including minority interests acquired from Consolidated Press and the interests described in the second following paragraph, to Huntsman Holdings
in exchange for equity interests in Huntsman Holdings. MatlinPatterson and Consolidated Press exchanged approximately $679 million in principal amount of the Company's outstanding subordinated
notes and Huntsman Polymers' 113/4% senior unsecured notes (the "Huntsman Polymers Notes") they held into equity interests in Huntsman Holdings. There was also approximately
$84 million in accrued interest that was cancelled as a result of the exchange. The net book value of the $763 million of principal and accrued

5

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interest
exchanged for equity, after considering debt issuance costs, was $753 million. Huntsman Holdings now indirectly owns all the equity of the Company.

In
connection with the Restructuring, the effective cancellation of debt was recorded as a capital contribution by the Company because MatlinPatterson and Consolidated Press received
equity of Huntsman Holdings, the Company's indirect parent, in exchange. The fair value of the equity received approximated the carrying value of the debt exchanged. No gain was recorded on the
Restructuring.

As
discussed above, on September 30, 2002, the Company effectively acquired the following interests from Huntsman Holdings:



The
Company accounted for the acquisition of the minority interests from Huntsman Holdings as an equity contribution with a value of $71.1 million (including cash of $7.9 million and net
of debt assumed of $35.3 million).

The
Company owns 60% of the membership interests of Huntsman International Holdings LLC ("HIH"), and, prior to May 9, 2003, HMP owned approximately 1% of the membership interests
of HIH. On May 9, 2003, HMP completed the acquisition of the 30% of the HIH membership interests held by Imperial Chemical Industries PLC ("ICI") and the remaining approximately 9% of the HIH
membership interests held by certain institutional investors (the "HIH Consolidation Transaction"). HIH is a global manufacturer and marketer of polyurethanes, amines, surfactants, titanium dioxide
("TiO2") and basic petrochemicals. HIH and its subsidiaries are non-guarantor, unrestricted subsidiaries of the Company pursuant to the Company's various debt agreements. HIH and its
subsidiaries, including Huntsman International LLC ("HI"), are separately financed from the Company, their debt is non-recourse to the Company, and the Company is not obligated to make
cash contributions to, or investments in, HIH and its subsidiaries.

Prior
to May 1, 2003, the Company accounted for its investment in HIH using the equity method of accounting due to the significant management participation rights formerly granted
to ICI pursuant to the HIH limited liability company agreement. As a consequence of HMP's 100% direct and indirect ownership of HIH and the resulting termination of ICI's management participation
rights, the Company is considered to have a controlling financial interest in HIH. Accordingly, the Company no longer accounts for HIH using the equity method of accounting, but effective
May 1, 2003 HIH's results of operations are consolidated with the Company's results of operations, with HMP's 40% interest in HIH recorded as a minority interest. Consequently, results of HIH
through April 30, 2003 are recorded using the equity method of accounting, and results of HIH beginning May 1, 2003 are recorded on a consolidated basis. As a result, the summary
historical financial data for periods ending prior to May 1, 2003 are not comparable to financial periods ending on or after May 1, 2003.

6

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The
following table is a summary of the net assets of HIH as of May 1, 2003 (dollars in millions):

Current assets

$
1,364.5Property, plant and equipment, net


3,082.2Other noncurrent assets


740.4Total assets

$
5,187.1Current liabilities

$
885.0Long term debt (including current portion)


3,638.1Other noncurrent liabilities


366.1Total liabilities

$
4,889.2


Interim Financial Statements

The unaudited consolidated financial statements of the Company were prepared in accordance with accounting principles generally accepted in the United States of
America ("GAAP") and in management's opinion, 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 shown, have been made. Results for interim periods are not necessarily indicative of those to be expected for the full year. These financial statements should be read in
conjunction with the audited consolidated financial statements and notes to consolidated financial statements included in the Company's special financial report on Form 10-K for the
year ended December 31, 2003.

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

2.     Recently Issued Financial Accounting Standards

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 complete replacement of FIN 46 (FIN 46R), to clarify certain complexities. The Company is required to adopt this standard on
January 1, 2005 and is currently evaluating its impact but does not expect the impact to be significant.

In
May 2004, the FASB issued FASB Staff Position No. 106-2 ("FSP 106-2"),"Accounting and Disclosure Requirements Related to
the Medicare Prescription Drug, Improvement and Modernization Act of 2003"(the "Act"), which superceded FSP 106-1 of the same name, which was issued in
January 2004 and permitted a sponsor of a post-retirement health care plan that provides a prescription drug benefit to make a one-time election to defer accounting for
the effects of the Act until more authoritative guidance on the accounting for the federal subsidy was issued. FSP 106-2 provides guidance on how to account for future subsidies available
beginning in 2006 to employers who provide prescription drug

7

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benefits
that are "actuarially equivalent" to those that will be provided under Medicare. Sponsors that provide actuarially equivalent benefits must account for the subsidy as a reduction in the
accumulated postretirement benefit obligation and any reduction of the sponsor's share of future costs should be reflected in service cost in the period of implementation. The Company is currently
evaluating whether the drug benefit provided by its postretirement plans would be considered actuarially equivalent. If the Company determines its plans are actuarially equivalent, FSP
106-2 will be effective during the quarter ended September 30, 2004.

3.     Inventories

Inventories consist of the following (dollars in millions):

June 30,
2004

December 31,
2003Raw materials and supplies

$
225.6

$
257.2Work in progress


32.7


32.7Finished goods


653.2


619.8Total


911.5


909.7LIFO reserves


(41.2
)

(15.5
)Lower of cost or market reserves


(0.5
)

(1.3
)Net

$
869.8

$
892.9


In
the normal course of operations, the Company at times exchanges raw materials and finished goods with other companies for the purpose of reducing transportation costs. The net open
exchange positions are valued at the Company's cost. Net amounts deducted from or added to inventory under open exchange agreements, which represent the net amounts payable or receivable by the
Company under open exchange agreements, were approximately $9.9 million payable and $8.2 million payable (46,700,196 and 26,910,072 pounds, respectively) at June 30, 2004 and
December 31, 2003, respectively.

4.     Property, Plant and Equipment

The cost and accumulated depreciation of property, plant and equipment consist of the following (dollars in millions):

June 30,
2004

December 31,
2003Land

$
101.5

$
100.7Buildings


382.8


383.4Plant and equipment


5,942.8


6,004.2Construction in progress


261.6


249.0Total


6,688.7


6,737.3Less accumulated depreciation


(2,326.9
)

(2,165.2
)Net

$
4,361.8

$
4,572.1


8

---



5.     Investments in Unconsolidated Affiliates

The Company's ownership percentage and investments in unconsolidated affiliates, primarily manufacturing joint ventures, consist of the following (dollars in
millions):

June 30,
2004

December 31,
2003Equity Method:Polystyrene Australia Pty Ltd. (50%)

$
3.5

$
3.6Sasol-Huntsman GmbH and Co. KG (50%)


13.8


13.2Louisiana Pigment Company, L.P. (50%)


122.1


130.4Rubicon, LLC (50%)


1.1


1.0BASF Huntsman Shanghai Isocyanate Inventment BV (50%)(1)


17.9


6.1Others


1.3


1.2Total equity method investment


159.7


155.5Cost Method:Gulf Advanced Chemicals Industry Corporation (4%)


2.5


2.5Total cost method investment


2.5


2.5Total investment

$
162.2

$
158.0


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6.     Intangible Assets

The gross carrying amount and accumulated amortization of intangible assets consist of the following (dollars in millions):

June 30, 2004

December 31, 2003Gross
Carrying
Amount

Accumulated
Amortization

Net

Gross
Carrying
Amount

Accumulated
Amortization

NetPatents, trademarks, and technology

$
409.6

$
163.3

$
246.3

$
405.0

$
143.7

$
261.3Licenses and other agreements


18.3


10.5


7.8


18.3


9.5


8.8Non-compete agreements


49.6


42.2


7.4


49.6


38.5


11.1Other intangibles


2.5


1.8


0.7


2.4


1.7


0.7Total

$
480.0

$
217.8

$
262.2

$
475.3

$
193.4

$
281.9


Amortization expense for intangible assets for the six month period ended June 30, 2004 and 2003, is $16.5 million and
$1.2 million, respectively. Estimated future amortization expense for intangible assets over the next five years is as follows (dollars in millions):

Year Ended
December 31

Estimated Amortization
Expense2004

$
38.02005


37.52006


29.32007


29.32008


29.3


9

---



7.     Other Noncurrent Assets

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

June 30,
2004

December 31,
2003Prepaid pension assets

$
256.1

$
254.4Debt issuance costs


125.6


83.5Capitalized turnaround expense


121.1


83.9Receivables from affiliates


11.4


25.2Spare parts inventory


45.5


100.5Other noncurrent assets


69.0


64.0Total

$
628.7

$
611.5


8.     Accrued Liabilities

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

June 30,
2004

December 31,
2003Payroll, severance and related costs

$
101.0

$
124.1Interest


121.7


103.9Volume and rebates accruals


75.8


89.5Income taxes


43.2


51.7Taxes (property and VAT)


62.6


61.8Pension liabilities


24.8


21.3Restructuring and plant closing costs


86.3


22.6Environmental accruals


10.6


8.6Interest and commodity hedging accruals


1.8


11.3Other miscellaneous accruals


69.5


90.9Total

$
597.3

$
585.7


9.     Other Noncurrent Liabilities

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

June 30,
2004

December 31,
2003Pension liabilities

$
300.6

$
246.5Other postretirement benefits


82.5


78.8Environmental accruals


22.3


26.3Restructuring and plant closing costs





2.7Fair value of interest derivative


4.8


9.5Other noncurrent liabilities


19.6


92.4Total

$
429.8

$
456.2


10.   Restructuring and Plant Closing Costs

As of June 30, 2004 and December 31, 2003, the Company had reserves for restructuring and plant closing costs of $86.3 million and
$25.3 million, respectively. During the six months ended June 30, 2004, the Company, on a consolidated basis, recorded additional reserves of $78.1 million, including

10

---



reserves
for workforce reductions, demolition and decommissioning and facility closure costs. During the 2004 period, the Company made cash payments against these reserves of $17.1 million.

As
of June 30, 2004, accrued restructuring and plant closing costs by type of cost consist of the following (dollars in millions):

Workforce
reductions

Demolition
and
decommissioning

Non-cancelable
lease costs

Facility
closure
costs

TotalAccrued liabilities as of December 31, 2003

$
22.5

$
2.6

$
0.2

$


$
25.3Charges


56.8


5.5





15.8


78.1Payments(1)


(16.7
)

(0.2
)

(0.2
)




(17.1
)Accrued liabilities as of June 30, 2004

$
62.6

$
7.9

$


$
15.8

$
86.3


---

Details with respect to the Company's reserves for restructuring and plant closing costs are provided below by segments (dollars in millions):

Polyurethanes

Performance
Products

Pigments

Polymers

Base
Chemicals

TotalAccrued liability as of December 31, 2003

$
15.8

$
2.4

$
4.3

$
2.8

$


$
25.3Charges


22.9


20.9


27.0


5.1


2.2


78.1Payments(1)


(10.6
)

(0.5
)

(5.6
)

(0.4
)




(17.1
)Accrued liability as of June 30, 2004

$
28.1

$
22.8

$
25.7

$
7.5

$
2.2

$
86.3


---

As
of December 31, 2003, the Polyurethanes segment reserve consisted of $15.8 million related to the restructuring activities at the Rozenburg, Netherlands site (as
announced in 2003), the workforce reductions throughout the Polyurethanes segment (as announced in 2003), and the closure of the Shepton Mallet, U.K. site (as announced in 2002). During the six months
ended June 30, 2004, the Polyurethanes segment recorded additional restructuring charges of $22.9 million and made cash payments of $10.6 million. In the first quarter 2004, the
Polyurethanes segment recorded restructuring expenses of $4.8 million, all of which are payable in cash. In the second quarter 2004, the Polyurethanes segment announced restructuring charges of
$18.1 million, all of which are payable in cash, including the closure of its West Deptford, New Jersey site. These restructuring activities are expected to result in additional restructuring
charges of approximately $15 million through 2005 and result in workforce reductions of approximately 160 employees, of which 48 positions have been reduced during the six months ended
June 30, 2004. As of June 30, 2004, the Polyurethanes segment restructuring reserve totaled $28.1 million.

As
of December 31, 2003, the Performance Products segment reserve consisted of $2.4 million related to the closure of a number of plants at its Whitehaven, U.K. facility,
the closure of an administrative office in London, U.K., the rationalization of its surfactants technical center in Oldbury, U.K., and the restructuring of its facility in Barcelona, Spain. During the
six months ended June 30, 2004, the Performance Products segment accrued restructuring charges of $20.9 million, of which $5.1 million are payable in cash, and made cash payments
of $0.5 million related to these restructuring activities. There are no material additional charges expected related to these restructuring activities. On July 1, 2004, the Company
announced the closure of its Guelph, Ontario, Canada Performance Products manufacturing facility. Production will be moved to the Company's other larger, more efficient facilities. These restructuring
activities are not expected to result in additional charges. Workforce

11

---



reductions
of approximately 66 positions are anticipated. The Performance Products segment reserve totaled $22.8 million as of June 30, 2004.

As
of December 31, 2003, the Polymers segment reserve consisted of $2.8 million related to its demolition and decommissioning of the Odessa, Texas styrene manufacturing
facility and noncancelable lease costs. During the six months ended June 30, 2004, the Polymers segment recorded restructuring expenses related to the closure of an Australian manufacturing
unit of $5.1 million, of which $1.5 million are payable in cash, and made cash payments of $0.4 million related to these restructuring activities. These restructuring activities
are expected to result in additional charges of less than $1.0 million through 2005 and in workforce reductions of approximately 23 positions, of which 13 positions have been reduced in the six
months ended June 30, 2004. The Polymers segment reserve totaled $7.5 million as of June 30, 2004.

As
of June 30, 2004 and December 31, 2003, the Pigments segment reserve consisted of $25.7 and $4.3 million, respectively. During the six months ended
June 30, 2004, the Pigments segment recorded additional restructuring charges of $108.1 million and made cash payments of $5.6 million. In the first quarter 2004, the Pigments
segment recorded restructuring expenses of $3.9 million, all of which are payable in cash. In the second quarter 2004, the Pigments segment recorded restructuring expenses of
$104.2 million, of which $81.1 million is not payable in cash. In April 2004, the Company announced that, following a review of the Pigments business, it will idle approximately
55,000 tonnes, or about 10%, of its total TiO2 production capacity in the fourth quarter of 2004. As a result of this decision, the Company has recorded a restructuring charge of
$17.0 million, a $77.2 million asset impairment charge and a $3.9 million charge for the write off of spare parts inventory and other assets. Concerning the impairment charge, the
Company determined that the value of the related long-lived assets was impaired and recorded the non-cash charge to earnings for the impairment of these assets. The fair value
of these assets for purposes of measuring the impairment was determined using the present value of expected cash flows. During the second quarter of 2004, the Company recorded additional charges of
$10.0 million in regard to previously announced restructuring activities which primarily relate to workforce reductions. These restructuring activities are expected to result in additional
restructuring charges of approximately $13 million through 2005 and result in workforce reductions of approximately 475 employees, of which 46 positions have been reduced during the six months
ended June 30, 2004. As of June 30, 2004, the Pigments segment restructuring reserve totaled $25.7 million.

As
of June 30, 2004 and December 31, 2003, the Base Chemicals segment reserve consisted of $2.2 and nil, respectively, related to workforce reductions arising from the
announced change in work shift schedules at the Wilton, U.K. facility. During the six months ended June 30, 2004, the Base Chemicals segment recorded restructuring charges of
$2.2 million, all of which is payable in cash. These restructuring activities are expected to result in additional charges of approximately $4.3 million and in workforce reductions of
approximately 68 positions.

12

---



11.   Debt

Debt outstanding consists of the following (dollars in millions):

|                                          |                                                                  | June 30,
2004 |         | December 31,
2003
|----------------------------------------- | ---------------------------------------------------------------- | ------------- | ------- | -----------------
|Huntsman LLC Debt (excluding HIH and HI): |                                                                  |               |         |                  
|HLLC credit facilities:                   |                                                                  |               |         |                  
|                                          | Term Loan A                                                      |               | $       | 606.3            
|                                          | Term Loan B                                                      |               |         | 96.1             
|                                          | Revolving loan facility                                          |               |         | 86.5             
|Other debt:                               |                                                                  |               |         |                  
|                                          | HLLC senior secured notes                                        |               |         | 450.9            
|                                          | Huntsman Polymers senior unsecured notes                         |               |         |                 
|                                          | HLLC senior unsecured fixed rate notes                           |               |         | 300.0            
|                                          | HLLC senior unsecured floating rate notes                        |               |         | 100.0            
|                                          | HLLC senior subordinated fixed rate notes                        |               |         | 44.2             
|                                          | HLLC senior subordinated floating rate notes                     |               |         | 15.1             
|                                          | Huntsman Specialty Chemicals Corporation subordinated note       |               |         | 100.3            
|                                          | Huntsman Australia Holdings Corporation (HAHC) credit facilities |               |         | 36.8             
|                                          | Huntsman Chemical Company Australia (HCCA) credit facilities     |               |         | 14.4             
|                                          | Subordinated note and accrued interestaffiliate                 |               |         | 38.0             
|                                          | Term note payable to a bank                                      |               |         | 9.4              
|                                          | Other                                                            |               |         | 6.4              
|                                          |                                                                  |               |         |                  
|Total HLLC debt, excluding HIH and HI     |                                                                  |               | 1,904.4 |                  
|HI debt:                                  |                                                                  |               |         |                  
|HI credit facilities:                     |                                                                  |               |         |                  
|                                          | Term B loan                                                      |               |         | 620.1            
|                                          | Term C loan                                                      |               |         | 620.1            
|                                          | Revolving loan facility                                          |               |         | 37.0             
|Other debt:                               |                                                                  |               |         |                  
|                                          | HI Senior notes                                                  |               |         | 456.6            
|                                          | HI Senior subordinated notes                                     |               |         | 1,150.4          
|                                          | Other debt                                                       |               |         | 36.5             
|                                          |                                                                  |               |         |                  
|Total HI debt                             |                                                                  |               | 2,920.7 |                  
|HIH debt:                                 |                                                                  |               |         |                  
|                                          | Senior discount notes                                            |               |         | 463.7            
|                                          | Senior subordinated discount notesaffiliate                     |               |         | 385.9            
|                                          |                                                                  |               |         |                  
|Total HIH debt                            |                                                                  |               | 849.6   |                  
|Total HIH consolidated debt               |                                                                  |               | 3,770.3 |                  
|                                          |                                                                  |               |         |                  
|Total debt                                |                                                                  | $             | 5,674.7 |                  
|                                          |                                                                  |               |         |                  
|Current portion                           |                                                                  | $             | 41.7    |                  
|Long-term portionexcluding affiliates    |                                                                  |               | 5,209.1 |                  
|                                          |                                                                  |               |         |                  
|Total long-term debtexcluding affiliates |                                                                  |               | 5,250.8 |                  
|Long-term debtaffiliates                 |                                                                  |               | 423.9   |                  
|                                          |                                                                  |               |         |                  
|Total debt                                |                                                                  | $             | 5,674.7 |                  
|                                          |                                                                  |               |         |                  

13

---



Huntsman LLC Debt (Excluding HIH and HI)



As of June 30, 2004, the Company's senior secured credit facilities (the "HLLC Credit Facilities") consist of a $275 million revolving credit
facility maturing in 2006 (the "HLLC Revolving Facility") and two term loan facilities maturing in 2007 in the amount of $606.3 million ("Term Loan A") and
$96.1 million ("Term Loan B" and, collectively with Term Loan A, the "HLLC Term Facilities"). Term Loan A has scheduled quarterly maturities commencing March 2006, with the final balance
due at maturity. The total outstanding balance of Term Loan B is due at maturity.

On
June 22, 2004, the Company applied $362.9 million from the proceeds from its offering of the HLLC Unsecured Notes (as defined below) to Term Loan B. See
"Senior Unsecured Notes (HLLC Unsecured Notes)" below. In addition, as discussed in "Senior Secured Notes (2003 HLLC Secured Notes)" below, in 2003, the Company repaid a
total of $331.8 million on Term Loan A and $65.0 million on the HLLC Revolving Facility, without reducing commitments. The next scheduled quarterly amortization payment under the HLLC
Credit Facilities is due March 2006.

The
HLLC Revolving Facility is secured by a first lien on substantially all the assets of the Company, HSCHC, Huntsman Specialty Chemicals Corporation ("Huntsman Specialty") and the
Company's domestic restricted subsidiaries, which does not include HIH or HI. The HLLC Term Facilities are secured by a second lien on substantially the same assets that secure the HLLC Revolving
Facility. The HLLC Credit Facilities are also guaranteed by HSCHC and Huntsman Specialty and by the Company's domestic restricted subsidiaries (collectively, the "HLLC Guarantors"). Neither HIH nor HI
are HLLC Guarantors. As of June 30, 2004 and December 31, 2003, the weighted average interest rates on the HLLC Credit Facilities were 5.8% and 7.3%, respectively, excluding the impact
of interest rate hedges.

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 the Company's option, at a rate equal to (i) a LIBOR-based eurocurrency rate plus an applicable margin ranging from 2.75% to 3.50% as based on the Company's most
recent ratio of total debt to "EBITDA" (as defined in the HLLC Revolving Facility credit agreement), or (ii) a prime-based rate plus an applicable margin ranging from 1.75% to 2.50%, also based
on the Company's most recent ratio of total debt to EBITDA. As of June 30, 2004, the interest rate on the HLLC Revolving Facility was LIBOR plus 3.50%.

As
of June 30, 2004, borrowings under the HLLC Term Facilities bear interest, at the Company's option, at a rate equal to (i) a LIBOR-based eurocurrency rate plus an
applicable margin of 4.0% and 9.0% for Term Loan A and Term Loan B, respectively, or (ii) a prime-based rate plus an applicable margin of 3.00% and 8.0% for Term Loan A and Term Loan B,
respectively. On June 23, 2004, in accordance with the HLLC Credit Facilities agreement, the applicable margin for Term Loan A decreased 0.75% (75 basis points) in conjunction with the
repayment of $362.9 million on Term Loan B. This agreement also provides for quarterly escalating interest rates on Term Loan B of up to maximum LIBOR and prime based margins of 9.75% and
8.75%, respectively by July 2004.

The
HLLC Credit Facilities provide for financial covenants including a minimum interest coverage ratio, a minimum fixed charge ratio and maximum debt to EBITDA ratio, as defined, and
limits on capital expenditures, in addition to restrictive covenants customary to financings of these types, including limitations on liens, debt and the sale of assets. On May 6, 2004, the
Company amended certain financial covenants in the HLLC Credit Facilities. The amendment applies to both the HLLC Revolving Facility and the HLLC Term Facilities and provides for, among other things,
the amendment of certain financial covenants through the fourth quarter 2005. The amendment provided for an increase in the maximum leverage ratio, and a decrease in the minimum interest coverage
ratio and the fixed charge coverage ratio. The amendment also amended the mandatory prepayment provisions

14

---



contained
in the HLLC Credit Facilities to permit the Company, after certain levels of repayment of Term Loan B, to use subordinate debt or equity proceeds to repay a portion of the outstanding
indebtedness of certain of its Australian subsidiaries. As noted in "Other Debt" below, on June 24, 2003, the Company used $25 million of the proceeds from the offering of
the HLLC Unsecured Notes to repay existing indebtedness at Huntsman Chemical Company Australia Pty. ("HCCA").

Management
believes that the Company is in compliance with the covenants of the HLLC Credit Facilities as of June 30, 2004.



On September 30, 2003, the Company sold $380 million aggregate principal amount of 115/8% senior secured notes due 2010 at a discount
to yield 117/8% in a private offering (the "September 2003 Offering"). The proceeds from the offering were used to repay $65.0 million on the HLLC Revolving Facility,
without reducing commitments, and $296.6 million on Term Loan A. On December 3, 2003 the Company sold an additional $75.4 million aggregate principal amount of its senior secured
notes (collectively with the notes sold in the September 2003 Offering, the "2003 HLLC Secured Notes") at a discount to yield 11.72% (the "December 2003 Offering"). The proceeds of this
offering were used to repay $35.2 million on Term Loan A. The remaining proceeds of this offering were temporarily applied to reduce outstanding borrowings under the HLLC Revolving Facility,
and the Company, on January 28, 2004, used $37.5 million of the net cash proceeds to redeem the Huntsman Polymers Notes (representing principal of $36.8 million plus accrued
interest). The Huntsman Polymers Notes would have been due in December 2004 and were redeemed at 100% of their aggregate principal amount. The 2003 HLLC Secured Notes bear interest at a rate of
115/8% per annum and interest is payable semi-annually on April 15 and October 15. The 2003 HLLC Secured Notes mature on October 15, 2010 and are
secured by a second lien on substantially all the assets of the Company, HSCHC, Huntsman Specialty and the Company's domestic restricted subsidiaries (which do not include HIH or HI). The 2003 HLLC
Secured Notes are effectively subordinated to all the Company's obligations under the HLLC Revolving Facility and rankpari passuwith the HLLC Term
Facilities. The 2003 HLLC Secured Notes are also guaranteed by the HLLC Guarantors. In accordance with the Company's contractual obligation to register the 2003 HLLC Secured Notes, the Company's
registration
statement on Form S-4/A filed with the U.S. Securities and Exchange Commission became effective on February 13, 2004 and the exchange offer of unregistered 2003 HLLC Secured
Notes for registered 2003 HLLC Secured Notes was completed on March 29, 2004.

The
2003 HLLC 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, and
prior to October 15, 2007 at a redemption price equal to the greater of (1) 105.813% of the principal amount thereof plus all required interest payments due on such notes through
October 15, 2007, discounted to the redemption date using the treasury rates, plus 0.50%, plus, in each case, accrued and unpaid interest to the date of redemption, or (2) 100% of the
principal amount thereof.

The
indenture governing the 2003 HLLC 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 the Company to offer to repurchase the 2003 HLLC Secured Notes upon a change of control. Management believes that the Company is in compliance with the
covenants of the 2003 HLLC Secured Notes as of June 30, 2004.



On June 22, 2004, the Company sold $300 million of 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 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

15

---



the
HLLC Unsecured Fixed Rate Notes, the "HLLC Unsecured Notes"). The interest rate on the HLLC Unsecured Floating Rate Notes as of June 30, 2004 was 8.80%. The proceeds from the offering were
used to repay $362.9 million on Term Loan B and $25 million to repay existing indebtedness at HCCA. See "Other Debt" below. The HLLC Unsecured Notes are unsecured
obligations of the Company 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, and
prior to July 15, 2008 at a redemption price equal to the greater of (1) 105.75% of the principal amount thereof plus all required interest payments due on such notes through
July 15, 2008, discounted to the redemption date using the treasury rates, plus 0.50%, plus, in each case, accrued and unpaid interest to the date of redemption, or (2) 100% of the
principal amount thereof. 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, and prior to July 15, 2006 at a redemption price equal to the greater of (1) 104.0% of the
principal amount thereof plus all required interest payments due on such notes through July 15, 2006, discounted to the redemption date using the treasury rates, plus 0.50%, plus, in each case,
accrued and unpaid interest to the date of redemption, or (2) 100% of the principal amount thereof.

The
indenture governing the HLLC Unsecured Notes contains covenants relating to the incurrence of debt, limitations on distributions, asset sales and affiliate transactions, among other
things. The indenture also requires the Company to offer to repurchase the HLLC Unsecured Notes upon a change of control. Management believes that the Company is in compliance with the covenants of
the HLLC Unsecured Notes as of June 30, 2004.



The Company's 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, 2004 are unsecured subordinated obligations of the Company and are junior in right of payment to all existing and future secured or unsecured senior indebtedness of the Company and
effectively junior to any secured indebtedness of the Company to the extent of the collateral securing 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 the option of the Company 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 4.5% and 4.4% as of June 30, 2004 and
December 31, 2003, respectively.

On
January 28, 2004, the Company used $37.5 million of the net cash proceeds from the December 2003 Offering to redeem the Huntsman Polymers Notes (representing
principal of $36.8 million plus accrued interest). The Huntsman Polymers Notes were unsecured senior obligations of Huntsman Polymers; they had an original maturity of December 2004, a
fixed interest rate of 113/4%, and an outstanding balance of $36.8 million as of December 31, 2003. The Huntsman Polymers Notes would have been due in December 2004
and were redeemed at 100% of their aggregate principal amount.

Prior
to the Restructuring completed September 30, 2002, the indentures governing the HLLC Notes and Huntsman Polymers Notes contained certain restrictive covenants. Concurrently
with the closing of the Restructuring, previously executed amendments to the indentures became effective and virtually all the restrictive covenants contained in the indentures were eliminated.

16

---





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, 2004 and December 31, 2003, the
unamortized discount on the note is $6.3 million and $6.9 million, respectively.

Certain
of the Company's Australian subsidiaries maintain credit facilities that are non-recourse to the Company. HCCA, in its capacity as trustee of the HCA Trust, holds the
Company's Australian styrenics assets. HCCA maintains a credit facility (the "HCCA Facility"), consisting of a term facility. On June 24, 2004, the Company used $25 million of proceeds
from the offering of the HLLC Unsecured Notes to repay a portion of the HCCA Facility, including repaying in full the working capital facility and reducing the term facility to $14.4 million
(A$20.9 million). In connection with this repayment, a preexisting payment default was cured and the remaining term facility was amended. The outstanding loan amount matures and is due on
July 31, 2005. The HCCA Facility contains no financial covenants, and borrowings under the HCCA Facility bear interest at a base rate plus a spread of 1.25%, plus an additional 0.5% line use
fee. As of June 30, 2004, the weighted average interest rate for the HCCA Facility was 6.8%. The HCCA Facility is secured by effectively all the assets of the HCA Trust. Management believes
that HCCA is in compliance with the covenants of the HCCA Facility as of June 30, 2004.

Huntsman
Australia Holdings Corporation ("HAHC") and certain of its subsidiaries hold the Company's Australian surfactants assets. HAHC and certain of its subsidiaries are parties to
credit facilities established in December 1998 (the "HAHC Facilities"). As of June 30, 2004, borrowings under the HAHC Facilities total A$53.2 million ($36.8 million) and
bear interest at a base rate plus a spread of 2%. As of June 30, 2004, the weighted average interest rate for the HAHC Facilities was 7.5%. Principal payments are due semiannually through
December 2005. The HAHC Facilities are collateralized by effectively all of the assets of the HAHC subsidiaries in addition to a stock pledge of the shares of one of its U.S. subsidiaries. The
HAHC Facilities are subject to financial covenants, including a debt service ratio, a leverage ratio, an interest coverage ratio and limits on capital expenditures, in addition to restrictive
covenants customary to financings of this type, including limitations on liens, debt and the sale of assets. As of June 30, 2004, HAHC was current on all scheduled amortization and interest
payments under the HAHC Facilities but was not in compliance with certain financial covenants in the agreements governing the HAHC Facilities. The outstanding debt balances due under the HAHC
Facilities have been classified in current portion of long-term debt.

On
July 2, 2001, the Company entered into a 15% note payable with an affiliated entity in the amount of $25.0 million. The note is due and payable on the earlier of the
tenth anniversary of the issuance
date or the date of the repayment in full in cash of all indebtedness of the Company under its senior secured credit facilities. Interest is not paid in cash, but is accrued at a designated rate of
15% per annum, compounded annually. As of June 30, 2004 and December 31, 2003, accrued interest added to the principal balance was $13.0 million and $10.5 million,
respectively.

HI Debt

The HIH and HI debt transactions and balances prior to the HIH Consolidation Transaction, effective May 1, 2003, are not included in the accompanying
financial statements.

17

---





As of June 30, 2004, HI had senior secured credit facilities (the "HI Credit Facilities") which consisted of a revolving loan facility of up to
$400 million that was scheduled to mature on June 30, 2005, a $620.1 million term loan B facility that was scheduled to mature on June 30, 2007, and a $620.1 million
term loan C facility that was scheduled to mature on June 30, 2008. On July 13, 2004, HI amended and restated the HI Credit Facilities. The HI Credit Facilities as amended and restated
now consist of a revolving loan facility of up to $375 million with a maturity of September 2008 (the "HI Revolving Facility"), which includes a $50 million multicurrency
revolving loan facility available in euros, GBP Sterling and U.S. dollars, and a term loan B facility consisting of a $1,305 million term portion and a €50 million
(approximately $61.6 million) term portion (the "HI Term Facility"). At the closing of the amendment and restatement of the HI Credit Facilities, of the $126.6 million of net proceeds,
$82.4 million was applied to repay all outstanding borrowings on the HI Revolving Facility and the balance, net of fees, increased cash and cash equivalents. The increased liquidity is
available for general corporate purposes and to provide a portion of funds for the potential construction of a polyethylene production facility at HI's Wilton, U.K. facility. Scheduled amortization of
the HI Term Facility is 1% per annum, commencing June 30, 2005, with the remaining unpaid balance due at maturity. The maturity of the HI Term Facility is December 31, 2010; provided
that the maturity will be accelerated to December 31, 2008 if HI has not refinanced all of the outstanding HI Senior Notes (as defined below) and HI Subordinated Notes (as defined below) on or
before December 31, 2008 on terms satisfactory to the administrative agent under the HI Credit Facilities.

Interest
rates for the amended and restated HI Credit Facilities are based upon, at HI's option, either a eurocurrency rate (LIBOR) or a base rate (prime) plus the applicable spread. The
applicable spreads vary based on a pricing grid, in the case of eurocurrency-based loans, from 2.25% to 3.25% per annum depending on the loan facility and whether specified conditions have been
satisfied, and, in the case of
base rate loans, from 1.00% to 2.00% per annum. As of June 30, 2004 and December 31, 2003 (which was prior to the amendment and restatement of the HI Credit Facilities), the average
interest rates on the HI Credit Facilities were 5.4% and 5.6%, respectively, excluding the impact of interest rate hedges. Pursuant to the amendment and restatement, the current applicable interest
rate spreads were reduced by 0.25% (25 basis points) on the HI Revolving Facility and by 0.875% (87.5 basis points) on the HI Term Facility.

HI's
obligations under the HI Credit Facilities are supported by guarantees of the Company, substantially all of HI's domestic subsidiaries and certain foreign subsidiaries, as well as
pledges of substantially all their assets, including 65% of the voting stock of certain non-U.S. subsidiaries.

The
HI Credit Facilities contain covenants relating to the incurrence of debt, purchase and sale of assets, limitations on investments, affiliate transactions, change in control
provisions, capital expenditures and maintenance of certain financial ratios. The amendment and restatement provided for, among other things, the amendment of certain financial covenants, including
changes to the maximum leverage ratio, the minimum interest coverage ratio, and an increase in the permitted amount of annual consolidated capital expenditures from $250 million to
$300 million, with a provision for carryover to subsequent years. In addition, the mandatory prepayment level in connection with HI's accounts receivable securitization program was increased
from $310 million to $325 million. For more information, see "Note 13Securitization of Accounts Receivable." Management believes that, as of June 30, 2004, HI
was in compliance with the covenants of the HI Credit Facilities.



In March 2002, HI issued $300 million 97/8% Senior Notes (collectively with the 2003 HI Senior Notes (defined below), the "HI Senior
Notes"). Interest on the HI Senior Notes is payable semi-annually and the HI Senior Notes mature on March 1, 2009. The HI Senior Notes are unsecured and are fully and
unconditionally guaranteed on a joint and several basis by the HI Guarantors. The HI

18

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Senior
Notes are redeemable, in whole or in part, at any time by HI on or prior to March 1, 2006 at 100% of the face value plus a "make whole" premium, as defined in the applicable indenture.
After March 1, 2006, the HI Senior Notes may be redeemed by HI, in whole or in part, at a redemption price that declines from 104.937% to 100% after March 1, 2008. On April 11,
2003, HI sold an additional $150 million in aggregate principal amount of 97/8% Senior Notes due 2009 (the "2003 HI Senior Notes"). The 2003 HI Senior Notes were priced at
105.25%.

HI
also has outstanding $600 million and €450 million ($550.4 million as of June 30, 2004) 101/8% Senior Subordinated Notes
(the "HI Subordinated Notes"). Interest on the HI Subordinated Notes is payable semi-annually and the HI Subordinated Notes mature on July 1, 2009. The HI Subordinated Notes are
unsecured and are fully and unconditionally guaranteed on a joint and several basis by substantially all of HI's domestic subsidiaries and certain foreign subsidiaries (collectively, the "HI
Guarantors"). The HI Subordinated Notes are redeemable, in whole or in part, at any time by HI prior to July 1, 2004 at 100% of the face value plus a "make whole" premium, as defined in the
applicable indenture. On or after July 1, 2004 the HI Subordinated Notes may be redeemed by HI at 105.063% of the principal amount thereof, declining ratably to par on and after July 1,
2007.

The
HI Senior Notes and the HI Subordinated Notes contain covenants relating to the incurrence of debt, limitations on distributions, asset sales and affiliate transactions, among other
things. They also contain a change of control provision requiring HI to offer to repurchase the HI Senior Notes and the HI Subordinated Notes upon a change of control. Management believes that HI is
in compliance with the covenants of the HI Senior Notes and the HI Subordinated Notes as of June 30, 2004.



HI maintains a $25 million multicurrency overdraft facility for its European subsidiaries (the "HI European Overdraft Facility"), all of which was
available as of June 30, 2004. As of December 31, 2003, HI had approximately $7.5 million outstanding under the HI European Overdraft Facility included within trade payables. The
HI European Overdraft Facility is used for daily working capital needs.

Included
within other debt is debt associated with one of HI's Chinese MDI joint ventures. In January 2003, HI entered into a joint venture agreement with Shanghai Chlor-Alkali
Chemical Company, Ltd. to build MDI production facilities near Shanghai, China. HI owns 70% of the joint venture, Huntsman Polyurethanes Shanghai Ltd. ("HPS"), which is a consolidated
affiliate. On September 19, 2003, HPS obtained secured financing for the construction of the production facilities. HPS obtained term loans for the construction of its plant in the maximum
principal amount of approximately $82.4 million, a working capital credit line in the amount of approximately $35.1 million, and a facility for funding value added tax ("VAT") payments
in the amount of approximately $0.6 million. As of June 30, 2004, there were $4.0 million outstanding in U.S. dollar borrowings and 10.0 million in RMB borrowings
($1.2 million) under these facilities. The interest rate on these facilities is LIBOR plus 0.48% for U.S. dollar borrowings and 90% of the Peoples Bank of China rate for RMB borrowings. As of
June 30, 2004, the interest rate for U.S. dollar borrowings was approximately 2.1% and 5.2% for RMB borrowings. The loans are secured by substantially all the assets of HPS and will be repaid
in 16 semi-annual installments, beginning no later than June 30, 2007. The financing is non-recourse to HI, but is guaranteed during the construction phase by affiliates
of HPS, including Huntsman Holdings. Huntsman Holdings unconditionally guarantees 70% of any amounts due and unpaid by HPS under the loans described above (except for the VAT facility which is not
guaranteed). Huntsman Holdings' guarantees remain in effect until HPS has (i) commenced production at least 70% of capacity for at least 30 days, and (ii) achieved a debt service
cover ratio of at least 1:1.

19

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HIH Debt

On June 30, 1999, HIH issued senior discount notes ("HIH Senior Discount Notes") and senior subordinated discount notes (the "HIH Senior Subordinated
Discount Notes" and, collectively with the HIH Senior Discount Notes, the "HIH Discount Notes") to ICI with initial stated values of $242.7 million and $265.3 million, respectively. The
HIH Discount Notes are due December 31, 2009. Interest on the HIH Discount Notes is paid in kind. The HIH Discount Notes contain limits on the incurrence of debt, restricted payments, liens,
transactions with affiliates, and merger and sales of assets. Management believes that HIH is in compliance with the covenants of the HIH Discount Notes as of June 30, 2004.

Interest
on the HIH Senior Discount Notes accrues at 133/8% per annum. The HIH Senior Discount Notes are redeemable prior to July 2004 for an amount equal to the
net present value of 106.688% of the projected July 1, 2004 accreted value and thereafter at stipulated redemption prices declining to 100% of accreted value in 2007.

The
HIH Senior Subordinated Discount Notes have a stated rate of 8% that originally was to reset to a market rate in June 2002 and can be redeemed at 100% of accreted value at any
time until June 30, 2004. On December 21, 2001, the terms of the HIH Senior Subordinated Discount Notes were modified, including deferring the reset date until September 2004, at
which time the interest rate will reset to a market rate. For financial reporting purposes, the HIH Senior Subordinated Discount Notes were initially recorded at their estimated fair value of
$223 million based upon prevailing market rates at June 30, 1999. The modification of the terms resulted in a significant decrease in the present value of the debt and, as a result, the
debt was treated effectively as an extinguishment and reissuance of the debt. The debt was recorded using a 16% interest rate, the estimated market rate for the debt as of December 20, 2001. In
connection with the financial restructuring of Huntsman LLC on September 30, 2002, MatlinPatterson contributed its interest in the HIH Senior Subordinated Discount Notes to HMP. On
May 9, 2003, HMP completed the purchase of the HIH Senior Subordinated Discount Notes from ICI. As of June 30, 2004, the HIH Senior Subordinated Discount Notes are held by HMP.

As
of June 30, 2004 and December 31, 2003, the HIH Senior Discount Notes included $221.0 million and $191.9 million of accrued interest, respectively. As of
June 30, 2004 and December 31, 2003, the HIH Senior Subordinated Discount Notes included $127.4 million and $112.3 million of accrued interest, respectively, and
$6.8 million and $19.2 million of discount, respectively.

|           |  | Years Ended
|---------- |  | -----------
|
|Total debt |  | $          

12.   Derivatives and Hedging Activities

Interest Rate Hedging

Through the Company's borrowing activities, it is exposed to interest rate risk. Such risk arises due to the structure of the HLLC Credit Facilities and the
Company's debt portfolio, including the duration of the portfolio and the mix of fixed and floating interest rates. The HI Credit Facilities require that a certain portion of debt be at fixed rates
through either interest rate hedges or through other means that provide a similar effect. 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.

20

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As
of June 30, 2004 and December 31, 2003, the Company had entered into various types of interest rate contracts to manage its interest rate risk on its
long-term debt as indicated below (dollars in millions):

June 30, 2004

December 31, 2003Interest rate swapsNotional amount

$
295.0

$
447.5Fair value


(5.2
)

(14.4
)Weighted average pay rate


4.66
%

5.49
%Maturing


2004 - 2007


2004 - 2007Interest rate collarsNotional amount

$
100.0

$
150.0Fair value


(1.0
)

(4.8
)Weighted average cap rate


7.13
%

7.00
%Weighted average floor rate


6.25
%

6.25
%Maturing


2004


2004


Under
interest rate swaps, the Company agrees 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
Company purchases interest rate cap and interest rate collar agreements to reduce the impact of changes in interest rates on its floating-rate long-term debt.
The cap agreements entitle the Company to receive from the counterparties (major banks) the amounts, if any, by which the Company's interest payments on certain of its floating-rate
borrowings exceed a certain rate. The floor agreements require the Company to pay to the counterparties (major banks) the amount, if any, by which the Company's interest payments on certain of its
floating-rate borrowings are less than a certain rate.

The
majority of the interest rate contracts have been designated as cash flow hedges of future interest payments on the Company's variable rate debt. The fair value of these interest
rate contracts designated as hedges as of June 30, 2004 and December 31, 2003 was a loss of approximately $4.5 million and $13.0 million, respectively, which is recorded in
other accrued liabilities and in accumulated other comprehensive income (loss) to the extent of the effective portions of the hedging instruments. Gains and losses related to these contracts will be
reclassified from other comprehensive income (loss) into earnings in the periods in which the related hedged interest payments are made. As of June 30, 2004, losses of approximately
$7.1 million are expected to be reclassified into earnings over the remainder of 2004. Gains and losses on these agreements, including amounts recorded related to hedge ineffectiveness, are
reflected as interest expense in the statement of operations. Income of $0.3 million and $0.7 million was recorded in interest expense in the six months ended June 30, 2004 and
2003, respectively.

As
of June 30, 2004 and December 31, 2003, swap agreement liabilities with a fair value of $1.7 million and $6.2 million, respectively, have not been
designated as hedges for financial reporting purposes. The change in the liability resulted in interest income of $3.9 million.

The
Company is exposed to credit losses in the event of nonperformance by a counterparty to the derivative financial instruments. The Company anticipates, however, that the
counterparties will be able to fully satisfy obligations under the contracts.

21

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Commodity Price Hedging

As of June 30, 2004 and December 31, 2003, there were no cash flow commodity price hedging contracts recorded in other current assets and other
comprehensive income.

As
of June 30, 2004 there were no commodity price hedging contracts designated as fair value hedges. As of December 31, 2003, commodity price hedging contracts designated
as fair value hedges are included in the balance sheet as $0.8 million in accrued liabilities and $0.5 million in inventory.

Commodity
price contracts not designated as hedges as defined by SFAS No. 133 are reflected in the balance sheet as $0.5 million and $0.3 million in other current
assets and accrued liabilities, respectively, as of June 30, 2004, and as $0.5 million and $0.3 million in other current assets and accrued liabilities, respectively, as of
December 31, 2003.

During
the six months ended June 30, 2004 and the six months ended June 30, 2003, the Company recorded an increase of $3.3 million and a reduction of
$2.6 million, respectively, in cost of goods sold related to net gains and losses from settled contracts, net gains and losses in fair value price hedges, and the change in fair value on
commodity price hedges not designated as hedges as defined in SFAS No. 133. During the six months ended June 30, 2003, the Company recorded a reduction of $0.9 million in
cost of goods sold related to net gains and losses from settled contracts, net gains and losses in fair value price hedges, and the change in fair value on commodity price hedging contracts not
designated as hedges as defined in SFAS No. 133.

Foreign Currency Rate Hedging

The Company may enter into foreign currency derivative instruments to minimize the short-term impact of movements in foreign currency rates. These
contracts are not designated as hedges for financial reporting purposes and are recorded at fair value. As of June 30, 2004 and December 31, 2003 and for the six months ended
June 30, 2004 and 2003, the fair value, change in fair value, and realized gains (losses) of outstanding foreign currency rate hedging contracts was not material.

Net Investment Hedging

Currency effects of net investment hedges produced a gain of $19.0 million and a loss of $48.8 million in other comprehensive income (loss) (foreign
currency translation adjustments) for the six months ended June 30, 2004 and 2003, respectively. As of June 30, 2004 and December 31, 2003, there was a cumulative net loss of
approximately $107.3 million and $126.3 million, respectively.

13.   Securitization of Accounts Receivable

On December 21, 2000, HI initiated an accounts receivable securitization program under which it grants an undivided interest in certain of its trade
receivables to a qualified off-balance sheet entity (the "Receivables Trust") at a discount. This undivided interest serves as security for the issuance of commercial paper and medium term
notes by the Receivables Trust. At June 30, 2004, the Receivables Trust had outstanding approximately $195 million in U.S. dollar equivalents in medium term notes and approximately
$114 million in commercial paper. Under the terms of the agreements, HI and its subsidiaries continue to service the receivables in exchange for a 1% fee of the outstanding receivables, and HI
is subject to recourse provisions.

HI's
retained interest in receivables (including servicing assets) subject to the program was approximately $184 million and $154 million as of June 30, 2004 and
December 31, 2003, respectively. The value of the retained interest is subject to credit and interest rate risk. For the six months ended June 30, 2004 and 2003, new sales of accounts
receivable sold into the program totaled approximately $2,379.6 million and $2,054.6 million, respectively, and cash collections from receivables sold into the program that were
reinvested totaled approximately $2,335.1 million and $2,035.1 million, respectively.

22

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Servicing
fees received during the six months ended June 30, 2004 and 2003 were approximately $2.6 million and $2.4 million, respectively.

HI
incurs losses on the accounts receivable securitization program for the discount on receivables sold into the program and fees and expenses associated with the program. HI also
retains responsibility for the economic gains and losses on forward contracts mandated by the terms of the program to hedge the currency exposures on the collateral supporting the
off-balance sheet debt issued. Gains and losses on forward contracts included as a component of the loss on accounts receivable securitization program are a loss of $1.4 million and
a loss of $17.0 million for the six months ended June 30, 2004 and 2003, respectively. As of June 30, 2004 and December 31, 2003, the fair value of the open forward
currency contracts is $0.1 million and $6.8 million, respectively, which is included as a component of the residual interest that is included as a component of trade receivables on HI's
balance sheet. On April 16, 2004 HI amended the commercial paper facility. Pursuant to the amendment, the maturity of the commercial paper facility was extended to March 31, 2007. In
addition, the amendment permits the issuance of euro-denominated commercial paper.

The
key economic assumptions used in valuing the residual interest at June 30, 2004 are presented below:

Weighted average life (in months)

3Credit losses (annual rate)

Less than 1
%Discount rate (annual rate)

2
%


A
10% and 20% adverse change in any of the key economic assumptions would not have a material impact on the fair value of the retained interest. Total receivables over 60 days
past due as of June 30, 2004 and December 31, 2003 were $12.9 million and $15.6 million, respectively.

14.   Other Comprehensive Income (Loss)

The components of other comprehensive income (loss) consist of the following (dollars in millions):

|                                                               |  | Accumulated income (loss) |       | Income (loss) |  
|-------------------------------------------------------------- |  | ------------------------- | ----- | ------------- | -
|
|Foreign currency translation adjustments                       |  | $                         | 146.8 |               | $
|Unrealized loss on nonqualified plan investments               |  |                           | 0.7   |               |  
|Unrealized gain (loss) on derivative instruments               |  |                           | (7.9  | )             |  
|Minimum pension liability, net of tax                          |  |                           | (95.2 | )             |  
|Minimum pension liability unconsolidated affiliate             |  |                           | (5.6  | )             |  
|Unrealized gain (loss) on securities                           |  |                           | 0.1   |               |  
|Other comprehensive income (loss) of minority interest         |  |                           | (22.4 | )             |  
|Other comprehensive income (loss) of unconsolidated affiliates |  |                           | 9.9   |               |  
|                                                               |  |                           |       |               |  
|Total                                                          |  | $                         | 26.4  |               | $
|                                                               |  |                           |       |               |  

15.   Commitments and Contingencies

The Company has various purchase commitments extending through 2017 for materials, supplies and services 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

23

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purchase
price for substantially all of these contracts is variable based upon market prices, subject to annual negotiations. The Company has also entered into a limited number of contracts which
require minimum payments, even if no volume is purchased. These contracts approximate $35 million annually through 2005, declining to approximately $16 million after 2011. Historically,
the Company has not made any minimum payments under its take or pay contracts.

The
Company is a party to various 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 discussed in "Note 16Legal Matters," based in part on the indemnities provided to the Company by Imperial
Chemical Industries PLC ("ICI") and Huntsman Specialty in connection with the transfer of business to the Company and insurance coverage, management does not believe that the outcome of any of these
matters will have a material adverse effect on the Company's business, financial condition, results of operations or cash flows.

16.   Legal Matters

HI has settled certain claims during and prior to the second quarter of 2004 relating to discoloration of unplasticised poly vinyl chloride ("u-PVC")
products allegedly caused by HI's TiO2 ("Discoloration Claims"). Substantially all of the TiO2 that was the subject of these claims was manufactured prior to HI's acquisition of its TiO2 business from
ICI in 1999. Net of amounts HI has received from insurers and pursuant to contracts of indemnity, HI has paid approximately £8 million ($14.9 million) in costs and settlement
amounts for Discoloration Claims.

Certain
insurers have denied coverage with respect to certain Discoloration Claims. HI brought suit against these insurers to recover the amounts it believes are due to it. A judgment in
this suit is expected at the end of the third quarter or beginning of the fourth quarter 2004.

During
the second quarter 2004, HI recorded a charge in the amount of $14.9 million with respect to Discoloration Claims. HI expects that it will incur additional costs with
respect to Discoloration Claims, potentially including additional settlement amounts. However, HI does not believe that it has material ongoing exposure for additional Discoloration Claims, after
giving effect to its rights under contracts of indemnity, including the rights of indemnity it has against ICI. Nevertheless, HI can provide no assurance that its costs with respect to Discoloration
Claims will not have a material adverse impact on its financial condition, results of operations or cash flows.

The
Company is 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, and based in part on the indemnities provided to the Company in connection with the transfer of
businesses to it and its insurance coverage, the Company does not believe that the outcome of any of these matters will have a material adverse effect on its financial condition or results of
operations.

17.   Environmental Matters



The Company is 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, the Company is subject to
frequent environmental inspections and monitoring by governmental enforcement authorities. In addition, the Company's 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 fines and civil or criminal sanctions, as well

24

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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 the Company's
operations, or require it to change its equipment or operations, and any such changes could have a material adverse effect on the Company's business, financial condition, results of operations or cash
flows. Accordingly, environmental or regulatory matters may cause the Company to incur significant unanticipated losses, costs or liabilities.



The Company may incur future costs for capital improvements and general compliance under environmental and safety laws, including costs to acquire, maintain and
repair pollution control equipment. The Company estimates that, on a consolidated basis, capital expenditures for environmental and safety matters during 2004 will be approximately $64 million,
including approximately $34 million for HIH. However, 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, the Company cannot provide assurance that material capital expenditures beyond those currently anticipated will not be required under
environmental and safety laws.

The
Company has established financial reserves relating to anticipated environmental restoration and remediation programs, as well as certain other anticipated environmental liabilities.
Management believes these reserves are sufficient for known requirements. Liabilities are recorded when potential liabilities are either known or considered probable and can be reasonably estimated.
The Company's liability estimates are based upon available facts, existing technology and past experience. On a consolidated basis, a total of approximately $32 million has been accrued related
to environmental related liabilities as of June 30, 2004, including approximately $16 million related to HIH. However, no assurance can be given that all potential liabilities arising
out of the Company's present or past operations or ownership have been identified or fully assessed or that future environmental liabilities will not be material to the Company.



Given the nature of the Company's business, violations of environmental laws may result in restrictions imposed on its operating activities, substantial fines,
penalties, damages or other costs, any of which could have a material adverse effect on the Company's business, financial condition, results of operations or cash flows. The Company is aware of the
following matters and believes (1) the reserves related to these matters to be sufficient for known requirements, and (2) the ultimate resolution of these matters will not have a
material impact on its results of operations or financial position:

On
June 29, 2004, management at the Port Neches, Texas facilities was notified by the Texas Commission on Environmental Quality ("TCEQ") of potential Clean Air Act violations
relating to the operation of cooling towers at two of the plants. The Company was invited by TCEQ to provide information that might mitigate the various alleged violations. The Company responded in
writing to TCEQ during the week of July 19, 2004. It is likely that penalties will be proposed by the agency for some or all of the alleged violations.

By
letter dated July 13, 2004, the TCEQ notified the Company that it is contemplating an enforcement action against the Company for nuisance odors near the Port Neches, Texas
plant on May 28, 2004. The notice advises the Company to begin taking actions immediately to address the outstanding alleged violation. The plant is currently investigating the matter.

By
letter dated July 20, 2004, the TCEQ notified the Company that it is contemplating an enforcement action based upon 29 separate alleged violations for various upset events at
the Port Neches facilities. The notice advises the Company to begin taking actions immediately to address the outstanding alleged violations. The plant is currently investigating the allegations.

25

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On
October 1, 2003, the U.S. Environmental Protection Agency ("EPA") sent the Company an information request under section 114 of the federal Clean Air Act. The request
seeks information regarding all upset releases of air contaminants from the Port Arthur, Texas plant for the period from August 1999 to August 2003. Four other companies with plants
located in Port Arthur also received similar requests. The Company responded in a timely manner to the request. Whether this request will result in an enforcement action being initiated against the
Company is unknown at this time.

On
June 25, 2003, a group of more than 500 plaintiffs filed a lawsuit in state district court in Beaumont, Texas against six local chemical plants and refineries, including the
Company. The lawsuit alleges that the refineries and chemical plants discharge chemicals into the air that cause health problems for area residents. The claim does not specify a dollar amount, but
seeks damages for heath impacts as well as property value losses. The suit is based on emissions data from reports that these plants filed with the TCEQ.

On
October 6, 2002, a leak of sulphuric acid from two tanks located near the Whitehaven, U.K. plant was discovered. About 342 to 347 tonnes of acid were released onto the ground
and into the soil near the tanks. Although the Company took immediate steps to contain the spillage and recover acid, a quantity of acid reached a nearby beach via a geological fault. The Company did
not own the tanks from which the acid leaked; however, it did own the acid in the tanks. The U.K. Health and Safety Executive issued three Improvement Notices requiring corrective action with which
the Company is complying. The U.K. Environment Agency ("EA") on or about April 27, 2004, served a summons providing notice to Huntsman Surface Sciences UK Limited that a criminal prosecution
has been initiated against it as a result of the spill based on alleged violations of the Water Resources Act and Environmental Protection Act. A similar prosecution was initiated against the owner of
the tanks, Rhodia, S.A. Both companies agreed to plead guilty to one charge. Huntsman Surface Sciences UK Limited was fined £40,000 and assessed £8,000 in prosecution costs on
August 5, 2004.

The
Company has been named as a "premises defendant" in a number of asbestos exposure lawsuits. These suits often involve multiple plaintiffs and multiple defendants, and, generally, the
complaint in the action does not indicate which plaintiffs are making claims against a specific defendant, where the alleged injuries were incurred or what injuries each plaintiff claims. These facts
must be learned through discovery. There are currently 39 asbestos exposure cases pending against the Company. Among the cases currently pending, management is aware of three claims of mesothelioma.
The Company does not have sufficient information at the present time to estimate any liability in these cases. Although the Company cannot provide specific assurances, based on its understanding of
similar cases, management believes that the Company's ultimate liability in these cases will not be material to its financial position or results of operations.

The
Company has incurred, and may in the future incur, liability to investigate and clean up waste or contamination at current or former facilities or facilities operated by third
parties at which it may have disposed of waste or other materials. Similarly, the Company may incur costs for the cleanup of wastes that were disposed of prior to the purchase of its businesses. Under
some environmental laws, the Company may be jointly and severally liable for the costs of environmental contamination on or from its properties and at off-site locations where it disposed
of or arranged for the disposal or treatment of hazardous wastes and may incur liability for damages to natural resources. For example, under the Comprehensive Environmental Response, Compensation and
Liability Act of 1980, as amended ("CERCLA"), and similar state laws, a current owner or operator of real property may be liable for such costs regardless of whether the owner or operator owned or
operated the real property at the time of the release of the hazardous substances and regardless of whether the release or disposal was in compliance with law at the time it occurred. In addition,
under the Resource Conservation and Recovery Act of 1976, as amended ("RCRA"), and similar state laws, as the holder of permits to treat or store hazardous wastes, the Company may, under some
circumstances, be required to remediate contamination at or from its properties regardless of when the contamination occurred. For example,

26

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the
Odessa, Port Arthur, and Port Neches facilities in Texas are the subject of ongoing RCRA remediation. Based on current information and past costs relating to these matters, the Company does not
believe such matters will have a material adverse effect. There can be no assurance, however, that any such matters will not have a material adverse effect on the Company.

The
Company is aware that there is or may be soil or groundwater contamination at some of its other facilities resulting from past operations. Based on available information and the
indemnification rights (including indemnities provided by ICI, Nova Chemicals Corporation, The Rohm and Haas Company, Rhodia, S.A., Shell, Texaco and Dow Chemical, for the facilities that each of them
transferred to the Company), the Company believes that the costs to investigate and remediate known contamination will not have a material adverse effect on its financial condition, results of
operations or cash flows; however, the Company cannot give any assurance that such indemnities will fully cover the costs of investigation and remediation, that it will not be required to contribute
to such costs or that such costs will not be material.

In
addition, the Company has been notified by third parties of claims against it or its subsidiaries for cleanup liabilities at certain former facilities and other third party sites,
including Belpre, Ohio (a former facility); Georgetown Canyon, Idaho (an alleged former property on which phosphorus mining was conducted); Aerex Refinery, Bloomfield, New Mexico (an alleged former
property); Turtle Bayou Superfund Site, Texas (an alleged off-site disposal location); the Martin Aaron Superfund Site, Camden, New Jersey (an off-site disposal and
reconditioning facility which ICI is alleged to have used); the Gulf Nuclear Sites in Odessa and near Houston, Texas (off-site waste handling sites); Star Lake Superfund Site, Texas
(located near the Port Neches facility); the San Angelo Electric Service Company Site, San Angelo, Texas (an alleged PCB-handling site); the North Maybe Canyon Mine near Soda Springs,
Idaho (an alleged former property on which phosphorus was mined); and the Malone Services Site, Texas City, Texas (an off-site disposal location). With respect to the Belpre, Georgetown
Canyon, Aerex, and North Maybe Canyon sites, which are under investigation, the Company is unable to determine whether such liabilities may be material to it because it does not have information
sufficient to evaluate the claims. With respect to the remaining matters, based on current information and past experience, the Company does not believe such matters will have a material adverse
effect on it.

Based
upon currently available information, the Company does not anticipate that any of the potential liabilities referenced above will materially adversely affect its financial position
or results of operations.



In a March 30, 2004 Federal Register, the EPA announced that it will designate the Beaumont-Port Arthur, Texas area as in "serious"
non-attainment with the one-hour ozone national ambient air quality standard. The Company currently believes that this change in status will not require additional controls
and/or work practices to meet the as yet undefined regulatory requirements for nitrogen oxides and volatile organic compounds. Although no assurance can be given, the Company believes that any
additional capital required to comply with the new rules based on this area reclassification, above its existing operating plans for plants in Port Arthur and Port Neches, Texas, will not be material.

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. The U.K. was the first EU member government to request IPPC permit applications from the Company. In the U.K., sites at Wilton, North
Tees, and Whitehaven have all submitted applications and received certification of their permits. The site at Llanelli has submitted a report to the Environmental Agency and a draft permit has been
received and is currently under review for comment. The Grimsby site will accelerate its IPPC

27

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submission
to 2004 (rather than 2005) to address site operational changes, while the Greatham site is preparing to submit its application in 2005. The Company is not yet in a position to know with
certainty what the other U.K. IPPC permits will require, and it is possible that the costs of compliance could be material; however, the Company believes, based upon its experience to date, that the
costs of compliance with IPPC permitting in the U.K. will not be material to its financial condition or results of operations. Additionally, the IPPC directive has recently been implemented in France,
and similar to its operations in the U.K., the Company does not anticipate having to make material capital expenditures to comply. In the French program, sites must submit ten-year reviews
of their environmental, health and safety plans and performance, and the Calais, St Mihiel and Lavera sites are developing the necessary documents.

With
respect to its facilities in EU jurisdictions other than the U.K. and France, IPPC implementing legislation is not yet in effect, or the Company has not yet been required to seek
IPPC permits. In Spain and Italy the IPPC directive has not yet been fully implemented. However, regional authorities in both countries have initiated discussions with local chemical producers; and
the sites at Barcelona, Scarlino, Patrica, and Castiglione have all started to develop programs for IPPC submissions. In the Netherlands and Germany, existing legislation covers most, if not all, of
the IPPC requirements, thus no significant work is anticipated for the sites in those countries (Rozenburg, Osnabrück and Deggendorf.). The Petfurdo site in Hungary has started to
prepare its IPPC report, as required under the rules agreed upon for EU accession.

On
October 29, 2003, the European Commission adopted a proposal for a new EU regulatory framework for chemicals. Under this proposed new system called "REACH"
(Registration,Evaluation andAuthorisation of CHemicals),
enterprises 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 the Company. 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 the Company are unclear at this time because the parameters of the program are still being actively debated.
Nevertheless, it is possible that REACH, if implemented, would be costly to the Company.



The use of MTBE is controversial in the United States and elsewhere and may be substantially curtailed or eliminated in the future by legislation or regulatory
action. The presence of MTBE in some groundwater supplies in California and other 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, the California Air Resources Board adopted regulations that prohibit the addition of MTBE to gasoline as of January 1, 2004. Certain other states have also taken
actions to restrict or eliminate the current or future use of MTBE. States which have taken action to prohibit or restrict the use of MTBE accounted for over 40% of the U.S. market for MTBE prior to
the taking of such action. In connection with its ban, the State of California requested that the EPA waive the federal oxygenated fuels requirements of the federal Clean Air Act for gasoline sold in
California. The EPA denied the State's request on June 12, 2001. Certain of the state bans, including California's ban, have been challenged in court as unconstitutional (in light of the Clean
Air Act). On June 4, 2003, a federal court

28

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of
appeals rejected such a challenge to California's ban, ruling that the ban is not pre-empted by the Clean Air Act.

The
energy bill pending in the U.S. Congress would eliminate the oxygenated fuels requirements in the Clean Air Act and phase out or curtail MTBE use. To date, no such legislation has
become law. However, such legislation is being considered by Congress and if it were to become law it could result in a federal ban on the use of MTBE in gasoline. In addition, on March 20,
2000, the EPA announced its intention, through an advanced notice of proposed rulemaking, to phase out the use of MTBE under authority of the federal Toxic Substances Control Act. In its notice, the
EPA also called on the U.S. Congress to restrict the use of MTBE under the Clean Air Act.

In
Europe, the EU issued a final risk assessment report on MTBE on September 20, 2002. While no ban of MTBE was recommended, several risk reduction measures relating to storage
and handling of MTBE-containing fuel were recommended. Separate from EU action, Denmark entered into a voluntary agreement with refiners to reduce the sale of MTBE in Denmark. Under the
agreement, use of MTBE in 92- and 95-octane gasoline in Denmark ceased by May 1, 2002; however, MTBE is still an additive in a limited amount of 98-octane
gasoline sold in about 100 selected service stations in Denmark.

Any
phase-out or other future regulation of MTBE in other states, nationally or internationally may result in a significant reduction in demand for the Company's MTBE and
result in a material loss in revenues or material costs or expenditures. In the event that there should be a phase-out of MTBE in the United States, the Company believes it will be able to
export MTBE to Europe or elsewhere or use its co-product TBA to produce saleable products other than MTBE. If the Company opts to produce products other than MTBE, necessary modifications
to its 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
addition, while the Company has not been named as a defendant in any litigation concerning the environmental effects of MTBE, it cannot provide assurances that it will not be involved
in any such litigation or that such litigation will not have a material adverse effect on its business, financial condition, results of operations or cash flows. In 2003, the U.S. House of
Representatives passed a version of an energy bill that contained limited liability protection for producers of MTBE. The Senate's version of the bill did not have liability protection. This issue was
one of the reasons that a compromise energy bill was not passed. Whether a compromise will be reached on this legislation in 2004, and whether any compromise will provide liability protection for
producers, are unknown. In any event, the liability protection provision in the House bill applied only to defective product claims; it would not preclude other types of lawsuits.



The TCEQ and the Company settled outstanding allegations of environmental regulatory violations at the Port Neches, Texas, facilities on May 29, 2003. The
settlement imposes penalties totaling $352,250 and requires enhanced air monitoring around the C4 plant, an air compliance audit performed by an outside consultant at that plant, and application for
an air emissions permit for the joint wastewater treatment plant that services all of the Port Neches facilities. Although management does not anticipate it, it is possible that the terms of a joint
wastewater treatment plant air permit, which will likely be issued as a result of the settlement, may cause the Company to incur costs that could be material.

29

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The State of Texas settled an air enforcement case with the Company relating to the Port Arthur plant on May 13, 2003. Under the settlement, the Company is 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 $375,000 in attorney's fees to the Texas
Attorney General. Thus, as of May 17, 2004, the Company has paid $1.8 million toward the penalty and $375,000 for the attorney's fees; the monitoring projects are underway and on
schedule. It is not anticipated that this settlement will have a material adverse effect on the Company's financial position.

18.   Operating Segment Information

The Company derives its revenues, earnings and cash flows from the manufacture and sale of a wide variety of differentiated and commodity chemical products. The
Company has five reportable operating segments: Polyurethanes, Performance Products, Polymers, Pigments and Base Chemicals. The major products of each reportable operating segment are as follows:

|Segment              |  | Products                                                                                                                                                       
|-------------------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------
|Polyurethanes        |  | MDI, TDI, TPU, polyols, aniline, PO and MTBE                                                                                                                   
|Performance Products |  | Amines, surfactants, linear alkylbenzene, maleic anhydride, other performance chemicals and glycols                                                            
|Polymers             |  | Ethylene (produced at the Odessa, Texas facilities primarily for internal use), polyethylene, polypropylene, expandable polystyrene, styrene and other polymers
|Pigments             |  | TiO2                                                                                                                                                           
|Base Chemicals       |  | Olefins (primarily ethylene and propylene), butadiene, MTBE, benzene, cyclohexane and paraxylene                                                               

Sales
between segments are generally recognized at external market prices.

The
Company uses EBITDA to measure the financial performance of its global business units and for reporting the results of its operating segments. This measure includes all operating
items relating to the businesses. The EBITDA of operating segments excludes items that principally apply to the Company as a whole. The Company believes that EBITDA is useful in helping investors
assess the

30

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results
of its business operations. The revenues and EBITDA for each of the Company's reportable operating segments are as follows (dollars in millions):

|                  |                                | Three Months Ended June 30, |       | Six Months Ended June 30, |        
|----------------- | ------------------------------ | --------------------------- | ----- | ------------------------- | -------
|
|Revenues:         |                                |                             |       |                           |        
|                  | Polyurethanes                  |                             | $     | 733.8                     |        
|                  | Performance Products           |                             |       | 451.2                     |        
|                  | Polymers                       |                             |       | 324.2                     |        
|                  | Pigments                       |                             |       | 278.2                     |        
|                  | Base Chemicals                 |                             |       | 911.2                     |        
|                  | Eliminations                   |                             |       | (210.6                    | )      
|                  |                                |                             |       |                           |        
|                  |                                | Total                       |       | $                         | 2,488.0
|                  |                                |                             |       |                           |        
|Segment EBITDA(1) |                                |                             |       |                           |        
|                  | Polyurethanes                  |                             | $     | 100.0                     |        
|                  | Performance Products           |                             |       | 16.0                      |        
|                  | Polymers                       |                             |       | 0.2                       |        
|                  | Pigments                       |                             |       | (83.5                     | )      
|                  | Base Chemicals                 |                             |       | 81.2                      |        
|                  | Corporate and other(2)         |                             |       | 10.3                      |        
|                  |                                |                             |       |                           |        
|                  |                                | Total                       |       | $                         | 124.2  
|                  |                                |                             |       |                           |        
|Segment EBITDA(1) |                                | $                           | 124.2 |                           | $      
|                  | Interest income (expense), net |                             |       | (132.9                    | )      
|                  | Income tax benefit (expense)   |                             |       | (6.8                      | )      
|                  | Depreciation and amortization  |                             |       | (114.4                    | )      
|                  |                                |                             |       |                           |        
|                  |                                | Net loss                    |       | $                         | (129.9 
|                  |                                |                             |       |                           |        

---

31

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19.   Employee Benefit Plans

Components of the net periodic benefit costs for the three months and six months ended June 30, 2004 and 2003, are as follows (dollars in millions):

| |                                       | Defined Benefit Plans |   | Other Postretirement
Benefit Plans |  
| | ------------------------------------- | --------------------- | - | ---------------------------------- | -
|
| | Service cost                          |                       | $ | 10.3                               |  
| | Interest cost                         |                       |   | 18.3                               |  
| | Expected return on assets             |                       |   | (17.9                              | )
| | Amortization of transition obligation |                       |   | 0.4                                |  
| | Amortization of prior service cost    |                       |   | 0.3                                |  
| | Amortization of actuarial loss        |                       |   | 4.0                                |  
| |                                       |                       |   |                                    |  
| | Net periodic benefit cost             |                       | $ | 15.4                               |  
| |                                       |                       |   |                                    |  

| |                                       | Defined Benefit Plans |   | Other Postretirement
Benefit Plans |  
| | ------------------------------------- | --------------------- | - | ---------------------------------- | -
|
| | Service cost                          |                       | $ | 14.1                               |  
| | Interest cost                         |                       |   | 24.4                               |  
| | Expected return on assets             |                       |   | (22.3                              | )
| | Amortization of transition obligation |                       |   | 0.8                                |  
| | Amortization of prior service cost    |                       |   | 0.6                                |  
| | Amortization of actuarial loss        |                       |   | 4.6                                |  
| |                                       |                       |   |                                    |  
| | Net periodic benefit cost             |                       | $ | 22.2                               |  
| |                                       |                       |   |                                    |  

The
Company's employees participate in a trusteed, non-contributory defined benefit pension plan (the "Plan") that covers substantially all full-time employees of
the Company and certain of its affiliates. The Plan provides benefits based on years of service and final average salary. However, effective July 1, 2004, the existing Plan formula for
employees not covered by a collective bargaining agreement was converted to a cash balance design. For represented employees, participation in the cash balance design is subject to the terms of
negotiated contracts, and as of July 1, 2004, one collectively bargained unit had negotiated to participate. For participating employees, benefits accrued as of June 30, 2004 under the
prior formula were converted to opening cash balance accounts. The new cash balance benefit formula provides annual pay credits from 4% to 12% of eligible pay, depending on age and service, plus
accrued interest. Participants in the plan on July 1, 2004 may be eligible for additional annual pay credits from 1% to 8%, depending on their age and service as of that date, for up to five
years.

20.   Condensed Consolidating Financial Statements

The following condensed consolidating financial statements present, in separate columns, financial information for the following: Huntsman LLC (on a parent only
basis), with its investment in subsidiaries recorded under the equity method; the HLLC Guarantors, on a combined, and where appropriate, consolidated basis, with its investment in the
non-guarantors recorded under the equity

32

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method;
and the non-guarantors on a combined, and where appropriate, consolidated basis. Additional columns present eliminating adjustments and consolidated totals as of June 30,
2004 and December 31, 2003. There are no contractual restrictions limiting transfers of cash from the HLLC Guarantors to the Company, other than Huntsman Specialty. Each of the HLLC Guarantors
is 100% owned by the Company and has fully and unconditionally guaranteed the 2003 HLLC Secured Notes and the HLLC Notes on a joint and several basis. The Company has not presented separate financial
statements and other disclosures for each of the HLLC Guarantors because management believes that such information is not material to investors.

33

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HUNTSMAN LLC AND SUBSIDIARIES        CONDENSED CONSOLIDATING BALANCE SHEETS AS OF JUNE 30, 2004 (UNAUDITED)        (Dollars in Millions)

|                                               |                                      | Parent
Company                        |         | Guarantors |         | Non-
guarantors |        | Eliminations |         | Consolidated
Huntsman
LLC |        
|---------------------------------------------- | ------------------------------------ | ------------------------------------- | ------- | ---------- | ------- | --------------- | ------ | ------------ | ------- | ------------------------- | -------
|ASSETS                                         |                                      |                                       |         |            |         |                 |        |              |         |                           |        
|Current assets:                                |                                      |                                       |         |            |         |                 |        |              |         |                           |        
|                                               | Cash and cash equivalents            |                                       | $       | 1.4        |         | $               | 14.9   |              | $       | 100.0                     |        
|                                               | Receivables-net                      |                                       |         | 61.7       |         |                 | 353.9  |              |         | 729.3                     |        
|                                               | Inventories                          |                                       |         | 39.6       |         |                 | 191.4  |              |         | 638.8                     |        
|                                               | Prepaid expenses                     |                                       |         | 0.1        |         |                 | 0.7    |              |         | 20.2                      |        
|                                               | Deferred income tax                  |                                       |         |           |         |                 |       |              |         | 3.0                       |        
|                                               | Other current assets                 |                                       |         | 0.3        |         |                 | (0.2   | )            |         | 88.1                      |        
|                                               |                                      |                                       |         |            |         |                 |        |              |         |                           |        
|                                               |                                      | Total current assets                  |         |            | 103.1   |                 |        | 560.7        |         |                           | 1,579.4
|Property, plant and equipment, net             |                                      |                                       | 98.6    |            |         | 1,048.1         |        |              | 3,194.3 |                           |        
|Investment in unconsolidated affiliates        |                                      |                                       | (736.4  | )          |         | 318.6           |        |              | 180.4   |                           |        
|Intangible assets, net                         |                                      |                                       | 2.2     |            |         | 9.2             |        |              | 254.9   |                           |        
|Goodwill                                       |                                      |                                       |        |            |         | 3.3             |        |              |        |                           |        
|Deferred income tax                            |                                      |                                       | 0.7     |            |         | 13.8            |        |              |        |                           |        
|Other noncurrent assets                        |                                      |                                       | 2,219.7 |            |         | 180.3           |        |              | 458.1   |                           |        
|                                               |                                      |                                       |         |            |         |                 |        |              |         |                           |        
|                                               |                                      | Total assets                          |         | $          | 1,687.9 |                 | $      | 2,134.0      |         | $                         | 5,667.1
|                                               |                                      |                                       |         |            |         |                 |        |              |         |                           |        
|LIABILITIES AND MEMBER'S EQUITY                |                                      |                                       |         |            |         |                 |        |              |         |                           |        
|Current liabilities:                           |                                      |                                       |         |            |         |                 |        |              |         |                           |        
|                                               | Trade accounts payable               |                                       | $       | 53.2       |         | $               | 219.3  |              | $       | 637.5                     |        
|                                               | Accrued liabilities                  |                                       |         | 62.7       |         |                 | 86.6   |              |         | 448.0                     |        
|                                               | Deferred income tax                  |                                       |         | 0.7        |         |                 | 13.8   |              |         |                          |        
|                                               | Current portion of long-term debt    |                                       |         | 2.0        |         |                 | 1.2    |              |         | 52.9                      |        
|                                               |                                      |                                       |         |            |         |                 |        |              |         |                           |        
|                                               |                                      | Total current liabilities             |         |            | 118.6   |                 |        | 320.9        |         |                           | 1,138.4
|Long-term debt                                 |                                      |                                       | 1,737.0 |            |         | 2,219.3         |        |              | 3,891.5 |                           |        
|Other noncurrent liabilities                   |                                      |                                       | 77.9    |            |         | 146.8           |        |              | 205.1   |                           |        
|Deferred income taxes                          |                                      |                                       |        |            |         |                |        |              | 237.5   |                           |        
|                                               |                                      |                                       |         |            |         |                 |        |              |         |                           |        
|                                               |                                      | Total liabilities                     |         |            | 1,933.5 |                 |        | 2,687.0      |         |                           | 5,472.5
|                                               |                                      |                                       |         |            |         |                 |        |              |         |                           |        
|Minority interest in consolidated subsidiaries |                                      |                                       |        |            |         | 59.0            |        |              | 6.1     |                           |        
|                                               |                                      |                                       |         |            |         |                 |        |              |         |                           |        
|Member's equity (deficit:)                     |                                      |                                       |         |            |         |                 |        |              |         |                           |        
|                                               | Member's equity                      |                                       |         | 1,095.2    |         |                 | 56.4   |              |         | 565.5                     |        
|                                               | Subsidiary preferred stock           |                                       |         |           |         |                 | 72.0   |              |         |                          |        
|                                               | Subsidiary common stock              |                                       |         |           |         |                 | 214.4  |              |         | 116.5                     |        
|                                               | Accumulated deficit                  |                                       |         | (1,367.1   | )       |                 | (983.0 | )            |         | (547.3                    | )      
|                                               | Accumulated other comprehensive loss |                                       |         | 26.3       |         |                 | 28.2   |              |         | 53.8                      |        
|                                               |                                      |                                       |         |            |         |                 |        |              |         |                           |        
|                                               |                                      | Total member's (deficit) equity       |         |            | (245.6  | )               |        | (612.0       | )       |                           | 188.5  
|                                               |                                      |                                       |         |            |         |                 |        |              |         |                           |        
|                                               |                                      | Total liabilities and member's equity |         | $          | 1,687.9 |                 | $      | 2,134.0      |         | $                         | 5,667.1
|                                               |                                      |                                       |         |            |         |                 |        |              |         |                           |        

34

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HUNTSMAN LLC AND SUBSIDIARIES        CONDENSED CONSOLIDATING BALANCE SHEETS AS OF DECEMBER 31, 2003        (Dollars in Millions)

|                                               |                                      | Parent
Company                        |         | Guarantors |         | Non-
guarantors |         | Eliminations |         | Consolidated
Huntsman
LLC |        
|---------------------------------------------- | ------------------------------------ | ------------------------------------- | ------- | ---------- | ------- | --------------- | ------- | ------------ | ------- | ------------------------- | -------
|ASSETS                                         |                                      |                                       |         |            |         |                 |         |              |         |                           |        
|Current assets:                                |                                      |                                       |         |            |         |                 |         |              |         |                           |        
|                                               | Cash and cash equivalents            |                                       | $       | 1.7        |         | $               | 10.0    |              | $       | 116.1                     |        
|                                               | Receivables-net                      |                                       |         | 125.3      |         |                 | 553.5   |              |         | 580.4                     |        
|                                               | Inventories                          |                                       |         | 36.5       |         |                 | 203.1   |              |         | 653.3                     |        
|                                               | Prepaid expenses                     |                                       |         | 1.5        |         |                 | 23.3    |              |         | 23.8                      |        
|                                               | Deferred income tax                  |                                       |         |           |         |                 |        |              |         | 3.0                       |        
|                                               | Other current assets                 |                                       |         |           |         |                 | 0.2     |              |         | 86.8                      |        
|                                               |                                      |                                       |         |            |         |                 |         |              |         |                           |        
|                                               |                                      | Total current assets                  |         |            | 165.0   |                 |         | 790.1        |         |                           | 1,463.4
|Property, plant and equipment, net             |                                      |                                       | 104.6   |            |         | 1,064.6         |         |              | 3,381.0 |                           |        
|Investment in unconsolidated affiliates        |                                      |                                       | (523.3  | )          |         | 457.8           |         |              | 176.3   |                           |        
|Intangible assets, net                         |                                      |                                       | 2.4     |            |         | 10.5            |         |              | 273.1   |                           |        
|Goodwill                                       |                                      |                                       |        |            |         | 3.3             |         |              |        |                           |        
|Deferred income tax                            |                                      |                                       | 0.7     |            |         | 13.8            |         |              |        |                           |        
|Other noncurrent assets                        |                                      |                                       | 2,164.3 |            |         | 121.1           |         |              | 467.8   |                           |        
|                                               |                                      |                                       |         |            |         |                 |         |              |         |                           |        
|                                               | Total assets                         |                                       | $       | 1,913.7    |         | $               | 2,461.2 |              | $       | 5,761.6                   |        
|                                               |                                      |                                       |         |            |         |                 |         |              |         |                           |        
|LIABILITIES AND MEMBER'S EQUITY                |                                      |                                       |         |            |         |                 |         |              |         |                           |        
|Current liabilities:                           |                                      |                                       |         |            |         |                 |         |              |         |                           |        
|                                               | Trade accounts payable               |                                       | $       | 22.5       |         | $               | 179.9   |              | $       | 522.8                     |        
|                                               | Accounts payable-affiliates          |                                       |         | 153.5      |         |                 | 165.1   |              |         | 42.4                      |        
|                                               | Accrued liabilities                  |                                       |         | 81.8       |         |                 | 105.7   |              |         | 406.6                     |        
|                                               | Deferred income tax                  |                                       |         | 0.7        |         |                 | 13.8    |              |         |                          |        
|                                               | Current portion of long-term debt    |                                       |         | 1.3        |         |                 | 37.7    |              |         | 95.0                      |        
|                                               |                                      |                                       |         |            |         |                 |         |              |         |                           |        
|                                               |                                      | Total current liabilities             |         |            | 259.8   |                 |         | 502.2        |         |                           | 1,066.8
|Long-term debt                                 |                                      |                                       | 1,622.9 |            |         | 2,157.0         |         |              | 3,812.7 |                           |        
|Other noncurrent liabilities                   |                                      |                                       | 81.5    |            |         | 147.9           |         |              | 229.4   |                           |        
|Deferred income taxes                          |                                      |                                       |        |            |         |                |         |              | 237.3   |                           |        
|                                               |                                      |                                       |         |            |         |                 |         |              |         |                           |        
|                                               |                                      | Total liabilities                     |         |            | 1,964.2 |                 |         | 2,807.1      |         |                           | 5,346.2
|                                               |                                      |                                       |         |            |         |                 |         |              |         |                           |        
|Minority interest in consolidated subsidiaries |                                      |                                       |        |            |         | 60.9            |         |              | 3.6     |                           |        
|                                               |                                      |                                       |         |            |         |                 |         |              |         |                           |        
|Member's equity (deficit:)                     |                                      |                                       |         |            |         |                 |         |              |         |                           |        
|                                               | Member's equity                      |                                       |         | 1,095.2    |         |                 |        |              |         | 565.5                     |        
|                                               | Subsidiary preferred stock           |                                       |         |           |         |                 | 72.0    |              |         |                          |        
|                                               | Subsidiary common stock              |                                       |         |           |         |                 | 270.8   |              |         | 116.3                     |        
|                                               | Accumulated deficit                  |                                       |         | (1,182.5   | )       |                 | (790.9  | )            |         | (338.1                    | )      
|                                               | Accumulated other comprehensive loss |                                       |         | 36.8       |         |                 | 41.3    |              |         | 68.1                      |        
|                                               |                                      |                                       |         |            |         |                 |         |              |         |                           |        
|                                               |                                      | Total member's (deficit) equity       |         |            | (50.5   | )               |         | (406.8       | )       |                           | 411.8  
|                                               |                                      |                                       |         |            |         |                 |         |              |         |                           |        
|                                               |                                      | Total liabilities and member's equity |         | $          | 1,913.7 |                 | $       | 2,461.2      |         | $                         | 5,761.6
|                                               |                                      |                                       |         |            |         |                 |         |              |         |                           |        

35

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HUNTSMAN LLC AND SUBSIDIARIES        CONSOLIDATING STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS  FOR THE THREE MONTHS JUNE 30, 2004 (UNAUDITED)        (Dollars in Millions)

|                                                                                      |                                 | Parent Company |        | Guarantors |   | Non-Guarantors |       | Eliminations |         | Consolidated
Huntsman LLC |  
|------------------------------------------------------------------------------------- | ------------------------------- | -------------- | ------ | ---------- | - | -------------- | ----- | ------------ | ------- | ------------------------- | -
|REVENUES:                                                                             |                                 |                |        |            |   |                |       |              |         |                           |  
|                                                                                      | Trade sales                     |                | $      | 99.5       |   | $              | 720.7 |              | $       | 1,650.6                   |  
|                                                                                      | Related party sales             |                |        |           |   |                | 55.2  |              |         | 74.8                      |  
|                                                                                      | Expenses billed to subsidiaries |                |        | 7.1        |   |                | (1.4  | )            |         | (5.7                      | )
|                                                                                      |                                 |                |        |            |   |                |       |              |         |                           |  
|                                                                                      | Total revenues                  |                |        | 106.6      |   |                | 774.5 |              |         | 1,719.7                   |  
|Cost of goods sold                                                                    |                                 |                | 91.6   |            |   | 741.2          |       |              | 1,484.2 |                           |  
|                                                                                      |                                 |                |        |            |   |                |       |              |         |                           |  
|Gross profit                                                                          |                                 |                | 15.0   |            |   | 33.3           |       |              | 235.5   |                           |  
|EXPENSES:                                                                             |                                 |                |        |            |   |                |       |              |         |                           |  
|Selling, general and administrative                                                   |                                 |                | 8.0    |            |   | 29.4           |       |              | 93.4    |                           |  
|Research and development                                                              |                                 |                |       |            |   | 4.8            |       |              | 9.8     |                           |  
|Other operating income (expense)                                                      |                                 |                | (1.4   | )          |   | (2.5           | )     |              | 24.9    |                           |  
|Restructuring and plant closing costs                                                 |                                 |                |       |            |   | 0.2            |       |              | 150.3   |                           |  
|                                                                                      |                                 |                |        |            |   |                |       |              |         |                           |  
|                                                                                      | Total expenses                  |                |        | 6.6        |   |                | 31.9  |              |         | 278.4                     |  
|                                                                                      |                                 |                |        |            |   |                |       |              |         |                           |  
|Operating income (loss)                                                               |                                 |                | 8.4    |            |   | 1.4            |       |              | (42.9   | )                         |  
|Interest income (expense), net                                                        |                                 |                | 8.6    |            |   | (47.4          | )     |              | (94.5   | )                         |  
|Loss on accounts receivable securitization program                                    |                                 |                |       |            |   |               |       |              | (3.0    | )                         |  
|Equity in (losses) income of investment in unconsolidated affiliates and subsidiaries |                                 |                | (140.6 | )          |   | (90.3          | )     |              | 1.0     |                           |  
|Other (expense) income                                                                |                                 |                | (6.0   | )          |   | 0.4            |       |              | 3.5     |                           |  
|                                                                                      |                                 |                |        |            |   |                |       |              |         |                           |  
|Loss before income taxes and minority interest                                        |                                 |                | (129.6 | )          |   | (135.9         | )     |              | (135.9  | )                         |  
|Income tax expense                                                                    |                                 |                | (0.2   | )          |   |               |       |              | (6.2    | )                         |  
|                                                                                      |                                 |                |        |            |   |                |       |              |         |                           |  
|Loss before minority interest                                                         |                                 |                | (129.8 | )          |   | (135.9         | )     |              | (142.1  | )                         |  
|Minority interest in subsidiaries' loss                                               |                                 |                |       |            |   | 0.7            |       |              |        |                           |  
|                                                                                      |                                 |                |        |            |   |                |       |              |         |                           |  
|Net (loss) income                                                                     |                                 |                | (129.8 | )          |   | (135.2         | )     |              | (142.1  | )                         |  
|Other comprehensive loss                                                              |                                 |                | (11.8  | )          |   | (14.0          | )     |              | (13.2   | )                         |  
|                                                                                      |                                 |                |        |            |   |                |       |              |         |                           |  
|Comprehensive loss                                                                    |                                 | $              | (141.6 | )          | $ | (149.2         | )     | $            | (157.3  | )                         | $
|                                                                                      |                                 |                |        |            |   |                |       |              |         |                           |  

36

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HUNTSMAN LLC AND SUBSIDIARIES        CONSOLIDATING STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)  FOR THE THREE MONTHS ENDED JUNE 30, 2003 (UNAUDITED)        (Dollars in Millions)

|                                                                                      |                                 | Parent
Company |       | Guarantors |   | Non-
Guarantors |       | Eliminations |        | Consolidated
Huntsman LLC |  
|------------------------------------------------------------------------------------- | ------------------------------- | -------------- | ----- | ---------- | - | --------------- | ----- | ------------ | ------ | ------------------------- | -
|REVENUES:                                                                             |                                 |                |       |            |   |                 |       |              |        |                           |  
|                                                                                      | Trade sales                     |                | $     | 70.3       |   | $               | 534.1 |              | $      | 939.4                     |  
|                                                                                      | Related party sales             |                |       |           |   |                 | 74.1  |              |        | 26.3                      |  
|                                                                                      | Expenses billed to subsidiaries |                |       | 22.5       |   |                 | (13.2 | )            |        | 5.5                       |  
|                                                                                      |                                 |                |       |            |   |                 |       |              |        |                           |  
|Total revenues                                                                        |                                 |                | 92.8  |            |   | 595.0           |       |              | 971.2  |                           |  
|Cost of goods sold                                                                    |                                 |                | 72.4  |            |   | 574.4           |       |              | 844.5  |                           |  
|                                                                                      |                                 |                |       |            |   |                 |       |              |        |                           |  
|Gross profit                                                                          |                                 |                | 20.4  |            |   | 20.6            |       |              | 126.7  |                           |  
|EXPENSES:                                                                             |                                 |                |       |            |   |                 |       |              |        |                           |  
|Selling, general and administrative                                                   |                                 |                | (19.0 | )          |   | 35.2            |       |              | 74.7   |                           |  
|Research and development                                                              |                                 |                |      |            |   | 5.0             |       |              | 8.6    |                           |  
|Other operating income                                                                |                                 |                | (1.6  | )          |   | (4.6            | )     |              | (9.9   | )                         |  
|Restructuring and plant closing costs                                                 |                                 |                |      |            |   | 0.9             |       |              | 21.5   |                           |  
|                                                                                      |                                 |                |       |            |   |                 |       |              |        |                           |  
|Operating income (loss)                                                               |                                 |                | 41.0  |            |   | (15.9           | )     |              | 31.8   |                           |  
|Interest expense, net                                                                 |                                 |                | (0.6  | )          |   | (36.3           | )     |              | (66.8  | )                         |  
|Loss on accounts receivable securitization program                                    |                                 |                |      |            |   |                |       |              | (8.5   | )                         |  
|Equity in income (losses) of investment in unconsolidated affiliates and subsidiaries |                                 |                | (88.5 | )          |   | (29.3           | )     |              | 0.4    |                           |  
|Other income (expense)                                                                |                                 |                |      |            |   |                |       |              |       |                           |  
|                                                                                      |                                 |                |       |            |   |                 |       |              |        |                           |  
|Loss before income taxes and minority interest                                        |                                 |                | (48.1 | )          |   | (81.5           | )     |              | (43.1  | )                         |  
|Income tax benefit                                                                    |                                 |                |      |            |   |                |       |              | 6.3    |                           |  
|                                                                                      |                                 |                |       |            |   |                 |       |              |        |                           |  
|Loss before minority interest                                                         |                                 |                | (48.1 | )          |   | (81.5           | )     |              | (36.8  | )                         |  
|Minority interest in subsidiaries' loss                                               |                                 |                |      |            |   | 0.4             |       |              |       |                           |  
|                                                                                      |                                 |                |       |            |   |                 |       |              |        |                           |  
|Net loss                                                                              |                                 |                | (48.1 | )          |   | (81.1           | )     |              | (36.8  | )                         |  
|Other comprehensive income (loss)                                                     |                                 |                | 51.8  |            |   | 47.3            |       |              | (64.6  | )                         |  
|                                                                                      |                                 |                |       |            |   |                 |       |              |        |                           |  
|Comprehensive income (loss)                                                           |                                 | $              | 3.7   |            | $ | (33.8           | )     | $            | (101.4 | )                         | $
|                                                                                      |                                 |                |       |            |   |                 |       |              |        |                           |  

37

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HUNTSMAN LLC AND SUBSIDIARIES        CONSOLIDATING STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS  FOR THE SIX MONTHS JUNE 30, 2004 (UNAUDITED)        (Dollars in Millions)

|                                                                                      |                                 | Parent
Company |        | Guarantor |   | Non-
Guarantors |         | Eliminations |         | Consolidated
Huntsman LLC |  
|------------------------------------------------------------------------------------- | ------------------------------- | -------------- | ------ | --------- | - | --------------- | ------- | ------------ | ------- | ------------------------- | -
|REVENUES:                                                                             |                                 |                |        |           |   |                 |         |              |         |                           |  
|                                                                                      | Trade sales                     |                | $      | 187.6     |   | $               | 1,425.0 |              | $       | 3,205.8                   |  
|                                                                                      | Related party sales             |                |        |          |   |                 | 109.9   |              |         | 112.3                     |  
|                                                                                      | Expenses billed to subsidiaries |                |        | 14.2      |   |                 | (13.6   | )            |         | (0.6                      | )
|                                                                                      |                                 |                |        |           |   |                 |         |              |         |                           |  
|Total revenues                                                                        |                                 |                | 201.8  |           |   | 1,521.3         |         |              | 3,317.5 |                           |  
|Cost of goods sold                                                                    |                                 |                | 171.8  |           |   | 1,447.0         |         |              | 2,920.8 |                           |  
|Gross profit                                                                          |                                 |                | 30.0   |           |   | 74.3            |         |              | 396.7   |                           |  
|EXPENSES:                                                                             |                                 |                |        |           |   |                 |         |              |         |                           |  
|Selling, general and administrative                                                   |                                 |                | 17.1   |           |   | 54.9            |         |              | 186.7   |                           |  
|Research and development                                                              |                                 |                |       |           |   | 9.4             |         |              | 23.0    |                           |  
|Other operating income (expense)                                                      |                                 |                | (1.5   | )         |   | (4.3            | )       |              | 20.2    |                           |  
|Restructuring and plant closing costs                                                 |                                 |                |       |           |   | 0.2             |         |              | 159.0   |                           |  
|                                                                                      |                                 |                |        |           |   |                 |         |              |         |                           |  
|                                                                                      | Total Expenses                  |                |        | 15.6      |   |                 | 60.2    |              |         | 388.9                     |  
|Operating income (loss)                                                               |                                 |                | 14.4   |           |   | 14.1            |         |              | 7.8     |                           |  
|Interest income (expense), net                                                        |                                 |                | 8.0    |           |   | (90.2           | )       |              | (195.3  | )                         |  
|Gain on accounts receivable securitization program                                    |                                 |                |       |           |   |                |         |              | (6.5    | )                         |  
|Equity in (losses) income of investment in unconsolidated affiliates and subsidiaries |                                 |                | (201.3 | )         |   | (128.7          | )       |              | 1.7     |                           |  
|Other (expense) income                                                                |                                 |                | (7.9   | )         |   | 0.4             |         |              | 3.6     |                           |  
|                                                                                      |                                 |                |        |           |   |                 |         |              |         |                           |  
|Loss before income taxes and minority interest                                        |                                 |                | (186.8 | )         |   | (204.4          | )       |              | (188.7  | )                         |  
|Income tax benefit (expense)                                                          |                                 |                | 2.1    |           |   |                |         |              | (9.6    | )                         |  
|                                                                                      |                                 |                |        |           |   |                 |         |              |         |                           |  
|Loss before minority interest                                                         |                                 |                | (184.7 | )         |   | (204.4          | )       |              | (198.3  | )                         |  
|Minority interest in subsidiaries' loss                                               |                                 |                |       |           |   | 1.5             |         |              | 72.1    |                           |  
|                                                                                      |                                 |                |        |           |   |                 |         |              |         |                           |  
|Net loss                                                                              |                                 |                | (184.7 | )         |   | (202.9          | )       |              | (126.2  | )                         |  
|Other comprehensive (loss) income                                                     |                                 |                | (10.5  | )         |   | (13.1           | )       |              | (12.3   | )                         |  
|                                                                                      |                                 |                |        |           |   |                 |         |              |         |                           |  
|Comprehensive (loss) income                                                           |                                 | $              | (195.2 | )         | $ | (216.0          | )       | $            | (138.5  | )                         | $
|                                                                                      |                                 |                |        |           |   |                 |         |              |         |                           |  

38

---



HUNTSMAN LLC AND SUBSIDIARIES        CONSOLIDATING STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS  FOR THE SIX MONTHS ENDED JUNE 30, 2003 (UNAUDITED)        (Dollars in Millions)

|                                                                     |                                 | Parent company |        | Guarantors |   | Non-
guarantors |         | Eliminations |         | Consolidated
Huntsman LLC |  
|-------------------------------------------------------------------- | ------------------------------- | -------------- | ------ | ---------- | - | --------------- | ------- | ------------ | ------- | ------------------------- | -
|REVENUES:                                                            |                                 |                |        |            |   |                 |         |              |         |                           |  
|                                                                     | Trade sales and services        |                | $      | 158.3      |   | $               | 1,161.9 |              | $       | 1,025.0                   |  
|                                                                     | Related party sales             |                |        |           |   |                 | 133.9   |              |         | 34.7                      |  
|                                                                     | Expenses billed to subsidiaries |                |        | 28.0       |   |                 | (26.6   | )            |         | (1.4                      | )
|                                                                     |                                 |                |        |            |   |                 |         |              |         |                           |  
|Total revenues                                                       |                                 |                | 186.3  |            |   | 1,269.2         |         |              | 1,058.3 |                           |  
|Cost of goods sold                                                   |                                 |                | 142.3  |            |   | 1,234.3         |         |              | 928.6   |                           |  
|                                                                     |                                 |                |        |            |   |                 |         |              |         |                           |  
|Gross profit                                                         |                                 |                | 44.0   |            |   | 34.9            |         |              | 129.7   |                           |  
|EXPENSES:                                                            |                                 |                |        |            |   |                 |         |              |         |                           |  
|Selling, general and administrative                                  |                                 |                | 20.5   |            |   | 45.7            |         |              | 78.3    |                           |  
|Research and development                                             |                                 |                |       |            |   | 10.1            |         |              | 9.2     |                           |  
|Other operating income                                               |                                 |                | (2.5   | )          |   | (8.4            | )       |              | (9.1    | )                         |  
|Restructuring and plant closing costs                                |                                 |                |       |            |   | 0.9             |         |              | 21.5    |                           |  
|                                                                     |                                 |                |        |            |   |                 |         |              |         |                           |  
|                                                                     | Total Expenses:                 |                |        | 18.0       |   |                 | 48.3    |              |         | 99.9                      |  
|                                                                     |                                 |                |        |            |   |                 |         |              |         |                           |  
|Operating income (loss)                                              |                                 |                | 26.0   |            |   | (13.4           | )       |              | 29.8    |                           |  
|Interest income (expense), net                                       |                                 |                | 2.3    |            |   | (71.2           | )       |              | (69.3   | )                         |  
|Loss on sale of accounts receivable                                  |                                 |                |       |            |   |                |         |              | (8.5    | )                         |  
|Equity in (losses) income of investment in unconsolidated affiliates |                                 |                | (167.7 | )          |   | (63.2           | )       |              | 0.9     |                           |  
|Other income (expense)                                               |                                 |                | 0.1    |            |   | 0.4             |         |              | (0.8    | )                         |  
|                                                                     |                                 |                |        |            |   |                 |         |              |         |                           |  
|Loss before income taxes and minority interest                       |                                 |                | (139.3 | )          |   | (147.4          | )       |              | (47.9   | )                         |  
|Income tax benefit                                                   |                                 |                |       |            |   |                |         |              | 6.3     |                           |  
|                                                                     |                                 |                |        |            |   |                 |         |              |         |                           |  
|Loss before minority interest                                        |                                 |                | (139.3 | )          |   | (147.4          | )       |              | (41.6   | )                         |  
|Minority interest in subsidiaries' loss                              |                                 |                |       |            |   |                |         |              |        |                           |  
|                                                                     |                                 |                |        |            |   |                 |         |              |         |                           |  
|Net loss                                                             |                                 |                | (139.3 | )          |   | (147.4          | )       |              | (41.6   | )                         |  
|Other comprehensive income (loss)                                    |                                 |                | 59.2   |            |   | 53.5            |         |              | (61.9   | )                         |  
|                                                                     |                                 |                |        |            |   |                 |         |              |         |                           |  
|Comprehensive loss                                                   |                                 | $              | (80.1  | )          | $ | (93.9           | )       | $            | (103.5  | )                         | $
|                                                                     |                                 |                |        |            |   |                 |         |              |         |                           |  

39

---





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

|                                                    |  | Parent
Company |        | Guarantors |   | Non-
Guarantors |   | Eliminations |       | Consolidated
Huntsman LLC |  
|--------------------------------------------------- |  | -------------- | ------ | ---------- | - | --------------- | - | ------------ | ----- | ------------------------- | -
|Net cash (used in) provided by operating activities |  | $              | (58.0  | )          | $ | 48.6            |   | $            | 49.0  |                           | $
|                                                    |  |                |        |            |   |                 |   |              |       |                           |  
|Investing activities:                               |  |                |        |            |   |                 |   |              |       |                           |  
|Capital expenditures                                |  |                | (1.5   | )          |   | (26.7           | ) |              | (61.7 | )                         |  
|Investment in unconsolidated affiliate              |  |                |       |            |   |                |   |              | (11.8 | )                         |  
|Net borrowings (repayments) of intercompany debt    |  |                | (50.4  | )          |   | 23.2            |   |              | 34.4  |                           |  
|                                                    |  |                |        |            |   |                 |   |              |       |                           |  
|Net cash used in investing activities               |  |                | (51.9  | )          |   | (3.5            | ) |              | (39.1 | )                         |  
|                                                    |  |                |        |            |   |                 |   |              |       |                           |  
|Financing activities:                               |  |                |        |            |   |                 |   |              |       |                           |  
|Net borrowings under revolving loan facilities      |  |                | 74.3   |            |   |                |   |              | 15.0  |                           |  
|Net borrowings on overdraft                         |  |                |       |            |   |                |   |              | (7.5  | )                         |  
|Capital contribution by minority shareholder        |  |                |       |            |   |                |   |              | 2.7   |                           |  
|Issuance of senior unsecured notes                  |  |                | 400.0  |            |   |                |   |              |      |                           |  
|Repayment of long-term debt                         |  |                | (351.6 | )          |   | (37.0           | ) |              |      |                           |  
|Debt issuance costs                                 |  |                | (12.1  | )          |   |                |   |              |      |                           |  
|                                                    |  |                |        |            |   |                 |   |              |       |                           |  
|Net cash provided by (used in) financing activities |  |                | 110.6  |            |   | (37.0           | ) |              | 10.2  |                           |  
|                                                    |  |                |        |            |   |                 |   |              |       |                           |  
|Effect of exchange rate changes on cash             |  |                | (1.2   | )          |   | (3.1            | ) |              | (36.1 | )                         |  
|                                                    |  |                |        |            |   |                 |   |              |       |                           |  
|Increase (decrease) in cash and cash equivalents    |  |                | (0.5   | )          |   | 5.0             |   |              | (16.0 | )                         |  
|Cash and cash equivalents at beginning of period    |  |                | 1.8    |            |   | 10.0            |   |              | 116.0 |                           |  
|                                                    |  |                |        |            |   |                 |   |              |       |                           |  
|Cash and cash equivalents at end of period          |  | $              | 1.3    |            | $ | 15.0            |   | $            | 100.0 |                           | $
|                                                    |  |                |        |            |   |                 |   |              |       |                           |  

40

---



HUNTSMAN LLC AND SUBSIDIARIES        CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS  FOR THE SIX MONTHS ENDED JUNE 30, 2003 (UNAUDITED)        (Dollars in Millions)

|                                                                            |  | Parent company |       | Guarantors |   | Non
guarantors |   | Eliminations |       | Consolidated
Huntsman LLC |  
|--------------------------------------------------------------------------- |  | -------------- | ----- | ---------- | - | -------------- | - | ------------ | ----- | ------------------------- | -
|Net cash provided by (used in) operating activities                         |  | $              | (71.9 | )          | $ | 14.3           |   | $            | 47.4  |                           | $
|                                                                            |  |                |       |            |   |                |   |              |       |                           |  
|Investing activities:                                                       |  |                |       |            |   |                |   |              |       |                           |  
|Capital expenditures for plant and equipment                                |  |                | (7.0  | )          |   | (25.1          | ) |              | (26.8 | )                         |  
|Net cash received from unconsolidated affiliates                            |  |                |      |            |   |               |   |              | 0.3   |                           |  
|Advances to unconsolidated affiliates                                       |  |                |      |            |   |               |   |              | (0.8  | )                         |  
|Notes receivable                                                            |  |                | (24.1 | )          |   |               |   |              |      |                           |  
|                                                                            |  |                |       |            |   |                |   |              |       |                           |  
|Net cash used in investing activities                                       |  |                | (31.1 | )          |   | (25.1          | ) |              | (27.3 | )                         |  
|                                                                            |  |                |       |            |   |                |   |              |       |                           |  
|Financing activities:                                                       |  |                |       |            |   |                |   |              |       |                           |  
|Net borrowings on revolving loan facilities                                 |  |                | 112.3 |            |   |               |   |              | 4.0   |                           |  
|Repayment of long-term debt                                                 |  |                | (0.7  | )          |   | (0.6           | ) |              | (20.6 | )                         |  
|Capital contribution by minority shareholder                                |  |                |      |            |   |               |   |              | 1.8   |                           |  
|Net borrowings from parent                                                  |  |                |      |            |   | 12.1           |   |              | 12.0  |                           |  
|Debt issuance costs                                                         |  |                | (12.8 | )          |   |               |   |              |      |                           |  
|                                                                            |  |                |       |            |   |                |   |              |       |                           |  
|Net cash provided by (used in) financing activities                         |  |                | 98.8  |            |   | 11.5           |   |              | (2.8  | )                         |  
|                                                                            |  |                |       |            |   |                |   |              |       |                           |  
|Effect of exchange rate changes on cash                                     |  |                |      |            |   |               |   |              | 11.4  |                           |  
|                                                                            |  |                |       |            |   |                |   |              |       |                           |  
|Increase (decrease) in cash and cash equivalents                            |  |                | (4.2  | )          |   | 0.7            |   |              | 28.7  |                           |  
|Cash and cash equivalents, including restricted cash at beginning of period |  |                | 6.3   |            |   | 10.1           |   |              | 15.0  |                           |  
|Cash and cash equivalents of HIH at May 1, 2003 (date of consolidation)     |  |                |      |            |   |               |   |              | 62.2  |                           |  
|                                                                            |  |                |       |            |   |                |   |              |       |                           |  
|Cash and cash equivalents at end of period                                  |  | $              | 2.1   |            | $ | 10.8           |   | $            | 105.9 |                           | $
|                                                                            |  |                |       |            |   |                |   |              |       |                           |  

41

---





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 "HLLC," "Company," "our," "us" or "we" may be used to refer to Huntsman LLC and, unless the context otherwise requires,
its subsidiaries. In this report, the term "Huntsman Polymers" refers to Huntsman Polymers Corporation and, unless the context otherwise requires, its subsidiaries, the term "Huntsman Specialty"
refers to Huntsman Specialty Chemicals Corporation, the term "HI" refers to Huntsman International LLC and, unless the context otherwise requires, its subsidiaries, the term "HIH" refers to Huntsman
International Holdings LLC and, unless the context otherwise requires, its subsidiaries, the term "HMP" refers to HMP Equity Holdings Corporation, the term "HGI" refers to Huntsman Group Inc.,
the term "Huntsman Holdings" refers to Huntsman Holdings, LLC, the term "AdMat" refers to Huntsman Advanced Materials LLC and, unless the context otherwise requires, its subsidiaries, the term
"MatlinPatterson" refers to MatlinPatterson Global Opportunities Partners, L.P. and its affiliates, the term "Consolidated Press" refers to Consolidated Press Holdings Limited and its subsidiaries and
the term "ICI" refers to Imperial Chemical Industries PLC and its subsidiaries. The term "restricted group" refers to Huntsman LLC and its restricted subsidiaries under the indentures governing
Huntsman LLC's outstanding notes and under its senior secured credit facilities (the "HLLC Credit Facilities"). The restricted group does not include HIH, HI or their subsidiaries.

In
the "Supplemental Discussion of Results of Operations for the Restricted Group for the Three and Six Months Ended June 30, 2004" below and in certain other places in this
report that deal with our restricted group, the terms "we," "our," "us," "HLLC" and "Huntsman LLC" refer to Huntsman LLC and its restricted subsidiaries (and not its unrestricted subsidiaries).

Explanatory Note

In order to present data that is useful for comparative purposes, the information set forth below under the heading "Results of Operations (Pro Forma)" has been
prepared as if HIH was a consolidated subsidiary as of January 1, 2003. HIH became a consolidated subsidiary as of May 1, 2003. To complete the pro forma information, we have
consolidated the operations and elimination entries of related parties for HIH for the three and six months ended June 30, 2003. We believe the use of pro forma results for the periods covered
in this report provides a more meaningful comparison of our results between the applicable periods. These results do not necessarily reflect the results that would have been obtained if we had
consolidated on the date indicated or that may be expected in the future.

This
Management's Discussion and Analysis of Financial Condition and Results of Operations is followed by a supplemental discussion captioned "Supplemental Discussion of Results of
Operations for the Restricted Group for the Three and Six Months Ended June 30, 2004" that provides information with respect to our restricted group, excluding HIH.

42

---



Overview

We are a global manufacturer and marketer of differentiated and commodity chemicals. We produce a wide range of products for a variety of global industries,
including the chemical, plastics, automotive, aviation, footwear, paints and coatings, construction, technology, agriculture, healthcare, consumer products, textile, furniture, appliance and packaging
industries. We operate at facilities located in North America, Europe, Asia, Australia, South America and Africa. We report our operations through five segments: Polyurethanes, Performance Products,
Polymers, Pigments and Base Chemicals. The major products of each reportable operating segment are as follows:

|Segment              |  | Products                                                                                                                                                       
|-------------------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------
|Polyurethanes        |  | MDI, TDI, TPU, polyols, aniline, PO and MTBE                                                                                                                   
|Performance Products |  | Amines, surfactants, linear alkylbenzene, maleic anhydride, other performance chemicals and glycols                                                            
|Polymers             |  | Ethylene (produced at our Odessa, Texas facilities primarily for internal use), polyethylene, polypropylene, expandable polystyrene, styrene and other polymers
|Pigments             |  | Titanium dioxide ("TiO2")                                                                                                                                      
|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 Polyurethanes and Performance Products businesses mainly produce differentiated
products and our Polymers, Pigments and Base Chemicals businesses mainly produce commodity chemicals. Among our commodity products, our Pigments business, while cyclical, tends to follow different
trends and is not influenced by the same factors as our petrochemical-based commodity products. In addition, there are a limited number of significant competitors in our Pigments business, relatively
high barriers to entry and strong customer loyalty. Certain products in our Polymers segment also follow different trends than petrochemical commodities as a result of our niche marketing strategy for
such products that focuses on supplying customized formulations. Nevertheless, each of our five operating segments is impacted to some degree by economic conditions, prices of raw materials and global
supply and demand pressures.

Historically,
the demand for many of our Polyurethanes products has been relatively resistant to changes in global economic conditions as industry growth in product demand has been
strongly influenced by continuing product substitution, innovation and new product development. The stability of demand has also benefited from the wide variety of end markets for our Polyurethanes
products. Historically, sales volumes of MDI, a Polyurethanes segment product, have grown at rates in excess of global GDP growth and margins for MDI have been relatively stable. The global market for
PO, also a Polyurethanes product, is influenced by supply and demand imbalances. PO demand is largely driven by growth in the polyurethane industry, and, as a result, growth rates for PO have
generally exceeded GDP growth rates. As a co-product of our PO manufacturing process, we also produce MTBE. MTBE is an oxygenate that is blended with gasoline to reduce harmful vehicle
emissions and to
enhance the octane rating of gasoline. See "Liquidity and Capital ResourcesEnvironmental MattersMTBE Developments" below for more information on the legal and
regulatory developments that may curtail or eliminate the use of MTBE in gasoline in the future.

In
comparison to our commodity businesses, the demand for many of the products we produce in our Performance Products segment historically has also been relatively resistant to changes
in global economic conditions. Like our Polyurethanes segment, Performance Products growth in general is strongly influenced by product substitution, innovation and new product development. Also,
demand stability benefits from a broad range of end markets. A significant portion of our Performance Products is sold into consumer end use applications including household detergents, personal care
products and

43

---



cosmetics.
As such, historically, demand for these products has been relatively stable and tends to be less susceptible to changes in global economic conditions. In the past year, weak economic
conditions in Europe, high raw material and energy costs, significant overcapacity in surfactants and the strength of the major European currencies versus the U.S. dollar (which negatively impacts the
competitiveness of European exports), has had a negative impact on the surfactants portion of our Performance Products segment.

Our
Polymers business is comprised of two regionally-focused businesses, one in North America and one in Australia. In North America, we convert internally produced building block
chemicals, such as ethylene and propylene, into polyethylene, polypropylene, expandable polystyrene and amorphous polyalphaolefins ("APAO"). We pursue a niche marketing strategy for certain of our
Polymers products by focusing on those customers that require customized polymer formulations and that are willing to pay for customized formulations. Our Australian Polymers business produces
styrene, most of which is used internally to produce polystyrene, expandable polystyrene and other associated materials. This business primarily serves the Australian and New Zealand markets.

Historically,
growth in demand for TiO2 pigments has generally been linked with GDP growth rates and has trended somewhat below overall GDP growth rates as strong growth in
the developing world economies has been tempered by modest growth in the developed world economies. Pigment prices have historically reflected industry-wide operating rates, but have
typically lagged behind movements in these rates by up to twelve months due to the effects of product stocking and destocking by customers and suppliers, contract arrangements and cyclicality. The
industry experiences some seasonality in its sales because sales of paints in Europe and North America, the largest end use for TiO2, are generally highest in the spring and summer months
in those regions. This results in greater sales volumes in the first half of the year because the proportion of our TiO2 products sold in Europe and North America is greater than that sold
in the southern hemisphere. Profitability in our Pigments segment has been negatively impacted by the strength of the major European currencies versus the U.S. dollar because with over 70% of our
Pigments' production capacity located in Europe, approximately 60% of our production costs are denominated in European currencies, while only approximately 40-50% of our products are sold
in European currencies.

Our
Base Chemicals business produces olefins (such as ethylene and propylene), butadiene, aromatics (including benzene, cyclohexane and paraxylene) and MTBE. Our Base Chemicals products
are largely made from a variety of crude oil and natural gas based feedstocks. Ethylene and propylene are the two most common petrochemical building blocks and are used in a wide variety of
applications, including packaging film, polyester fiber, plastic containers and polyvinyl chloride, as well as carpets and cleaning compounds. Our aromatics products are used to produce other
intermediate chemicals, as well as in synthetic fibers, resins and rubber. A substantial portion of our Base Chemicals product portfolio is integrated into the supply chain for our Performance
Products segment where these building block materials are upgraded into higher value differentiated products and then sold to third parties.

Many
of the markets for Base Chemicals products, particularly ethylene, propylene, paraxylene and cyclohexane, and Polymers products, particularly polyethylene, polypropylene and
styrene, are cyclical and sensitive to changes in the balance between supply and demand, the price of raw materials, and the level of general economic activity. Historically, these markets have
experienced alternating periods of tight supply and rising prices and profit margins, followed by periods of capacity additions resulting in over-capacity and falling prices and profit
margins. Demand for the majority of our commodity chemicals products has generally grown at rates that are approximately equal to or slightly greater than GDP growth. Market conditions during recent
years generally have been characterized by a broad-based weakening in demand, overcapacity, volatile raw material costs and periods of reduced profit margins. We believe that weak economic conditions
have resulted in a contraction in production capacity. If this contraction in industry capacity is sustained and if demand growth returns to the rates which have been achieved historically, we believe
that industry profitability will improve.

44

---



Recent Developments

HI Amendment and Restatement

On July 13, 2004, HI completed an amendment and restatement of its senior secured credit facilities (the "HI Credit Facilities"). Pursuant to the amendment
and restatement, the HI revolving credit facility (the "HI Revolving Facility") was reduced from $400 million to $375 million and its maturity was extended from June 2006 to
September 2008. The HI Revolving Facility includes a $50 million multicurrency revolving loan facility available in euros, GBP Sterling and U.S. dollars. In addition, HI's existing term
loans B and C, totaling $1,240.2 million, were repaid and replaced with a new term loan B consisting of a $1,305 million term portion and a €50 million
(approximately $61.6 million) term portion (the "HI Term Facility"). The additional proceeds from the HI Term Facility borrowings of approximately $126.6 million were applied to repay
the $82.4 million outstanding
borrowings as of July 13, 2004 on the HI Revolving Facility, and the remaining proceeds, net of fees incurred in the transaction, increased cash on our balance sheet. Pursuant to the amendment
and restatement of the HI Credit Facilities, the additional liquidity is available for general corporate purposes and to provide a portion of the funds for the potential construction of a polyethylene
production facility at our Wilton, U.K. facility. Current interest rates on the HI Revolving Facility and the HI Term Facility decreased from a LIBOR interest rate spread of 3.50% to 3.25% and 4.125%
to 3.25%, respectively. Scheduled amortization of the HI Term Facility is 1% per annum, commencing June 30, 2005, with the remaining unpaid balance due at maturity. The maturity of the HI Term
Facility is December 31, 2010; provided that the maturity will be accelerated to December 31, 2008 if HI has not refinanced all the outstanding HI Senior Notes (as defined below) and HI
Subordinated Notes (as defined below) on or before December 31, 2008 on terms satisfactory to the administrative agent under the HI Credit Facilities.

The
amendment and restatement of the HI Credit Facilities also provides for the amendment of certain financial covenants. These amendments, among other things, included changes to the
maximum leverage ratio, the minimum interest coverage ratio, and provided for an increase in the permitted amount of annual consolidated capital expenditures from $250 million to
$300 million, with a provision for carryover to subsequent years. In addition, the mandatory prepayment level in connection with HI's accounts receivable securitization program was increased
from $310 million to $325 million. For more information, see "Liquidity and Capital ResourcesOff-Balance Sheet Arrangements" below.

HLLC Credit Facilities Amendment and HLLC Senior Unsecured Note Offering

On May 6, 2004, we amended certain financial covenants in our senior secured credit facilities (the "HLLC Credit Facilities"). The amendment applies to
both our revolving facility (the "HLLC Revolving Facility") and our term loan facilities (the "HLLC Term Facilities") and provides for, among other things, the amendment and of certain financial
covenants through the fourth quarter 2005. The amendment provides for an increase in the maximum leverage ratio, and a decrease in the minimum interest coverage ratio and the fixed charge coverage
ratio. The amendment also amends the mandatory prepayment provisions contained in the HLLC Credit Facilities to permit us, after certain levels of repayment of our term loan B ("Term
Loan B") to use subordinated debt or equity proceeds to repay a portion of the outstanding indebtedness of our Australian subsidiaries.

On
June 22, 2004, we sold $300 million of 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 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 Unsecured Notes"). The net proceeds from the offering were used to repay $362.9 million on Term Loan B, which as
of July 1, 2004 bears an interest rate of LIBOR plus 9.75%, reducing its balance to $96.1 million, and $25 million to repay existing indebtedness at Huntsman Chemical Company
Australia Pty. ("HCCA") (see "Liquidity and Capital ResourcesDebt"

45

---



below).
Also, in accordance with the HLLC Term Facilities credit agreement, upon repayment of the $362.9 million on Term Loan B, the applicable margin on our term loan A ("Term Loan A")
decreased 0.75% (75 basis points) from LIBOR plus 4.75% to LIBOR plus 4.00%.

Results of Operations (Historical)

Three and Six Months Ended June 30, 2004 Compared to Three and Six Months Ended June 30, 2003 (Unaudited) (Dollars in Millions)

|                                                                                           |  | Three Months
Ended
June 30,
2004 |         | Three Months
Ended
June 30,
2003 |   | Six Months
Ended
June 30,
2004 |   | Six Months
Ended
June 30,
2003 |        
|------------------------------------------------------------------------------------------ |  | -------------------------------- | ------- | -------------------------------- | - | ------------------------------ | - | ------------------------------ | -------
|Revenues                                                                                   |  | $                                | 2,488.0 |                                  | $ | 1,577.2                        |   | $                              | 4,842.7
|Cost of goods sold                                                                         |  |                                  | 2,207.9 |                                  |   | 1,410.1                        |   |                                | 4,349.1
|                                                                                           |  |                                  |         |                                  |   |                                |   |                                |        
|Gross profit                                                                               |  |                                  | 280.1   |                                  |   | 167.1                          |   |                                | 493.6  
|Selling, general and administrative, research and development, and other operating expense |  |                                  | 163.2   |                                  |   | 102.9                          |   |                                | 299.1  
|Restructuring and plant closing costs                                                      |  |                                  | 150.5   |                                  |   | 22.4                           |   |                                | 159.2  
|                                                                                           |  |                                  |         |                                  |   |                                |   |                                |        
|Operating income                                                                           |  |                                  | (33.6   | )                                |   | 41.8                           |   |                                | 35.3   
|Interest expense, net                                                                      |  |                                  | (133.3  | )                                |   | (103.7                         | ) |                                | (277.5 
|Loss on sale of accounts receivable                                                        |  |                                  | (3.0    | )                                |   | (8.5                           | ) |                                | (6.5   
|Equity income (loss) on investments in unconsolidated affiliates                           |  |                                  | 1.0     |                                  |   | (4.1                           | ) |                                | 1.7    
|Other income (expense)                                                                     |  |                                  | (2.1    | )                                |   |                               |   |                                | (3.9   
|                                                                                           |  |                                  |         |                                  |   |                                |   |                                |        
|Loss before income tax benefit and minority interests                                      |  |                                  | (171.0  | )                                |   | (74.5                          | ) |                                | (250.9 
|Income tax (expense) benefit                                                               |  |                                  | (6.4    | )                                |   | 6.3                            |   |                                | (7.5   
|Minority interests in subsidiaries' loss (income)                                          |  |                                  | 47.5    |                                  |   | 15.8                           |   |                                | 73.6   
|                                                                                           |  |                                  |         |                                  |   |                                |   |                                |        
|Net loss                                                                                   |  | $                                | (129.9  | )                                | $ | (52.4                          | ) | $                              | (184.8 
|                                                                                           |  |                                  |         |                                  |   |                                |   |                                |        
|Interest expense, net                                                                      |  |                                  | 133.3   |                                  |   | 103.7                          |   |                                | 277.5  
|Income tax (benefit) expense                                                               |  |                                  | 6.4     |                                  |   | (6.3                           | ) |                                | 7.5    
|Depreciation and amortization                                                              |  |                                  | 114.4   |                                  |   | 79.6                           |   |                                | 224.5  
|                                                                                           |  |                                  |         |                                  |   |                                |   |                                |        
|EBITDA(1)                                                                                  |  | $                                | 124.2   |                                  | $ | 124.6                          |   | $                              | 324.7  
|                                                                                           |  |                                  |         |                                  |   |                                |   |                                |        

---

46

---





Included
in EBITDA are the following items:

|                                                   |                                        | Three Months
Ended
June 30, 2004 |       | Three Months
Ended
June 30, 2003 |   | Six Months
Ended
June 30, 2004 |       | Six Months
Ended
June 30, 2003 |      
|-------------------------------------------------- | -------------------------------------- | -------------------------------- | ----- | -------------------------------- | - | ------------------------------ | ----- | ------------------------------ | -----
|Foreign exchange gainsunallocated                 |                                        | $                                | (5.4  | )                                | $ | 24.3                           |       | $                              | 8.0  
|Loss on accounts receivable securitization program |                                        |                                  | (3.0  | )                                |   | (8.6                           | )     |                                | (6.5 
|Early extinguishment of debt                       |                                        |                                  | (2.5  | )                                |   |                               |       |                                | (4.2 
|Asset write down                                   |                                        |                                  |      |                                  |   |                               |       |                                |     
|Legal settlement, net of recoveries                |                                        |                                  | (14.9 | )                                |   |                               |       |                                | (14.9
|Restructuring and reorganization:                  |                                        |                                  |       |                                  |   |                                |       |                                |      
|                                                   | Polyurethanes                          |                                  | $     | (18.1                            | ) | $                              | (1.4  | )                              | $    
|                                                   | Performance Products                   |                                  |       | (20.9                            | ) |                                | (20.1 | )                              |      
|                                                   | Pigments                               |                                  |       | (104.2                           | ) |                                |      |                                |      
|                                                   | Polymers                               |                                  |       | (5.1                             | ) |                                | (0.9  | )                              |      
|                                                   | Base Chemicals                         |                                  |       | (2.2                             | ) |                                |      |                                |      
|                                                   |                                        |                                  |       |                                  |   |                                |       |                                |      
|                                                   | Total restructuring and reorganization |                                  | $     | (150.5                           | ) | $                              | (22.4 | )                              | $    
|                                                   |                                        |                                  |       |                                  |   |                                |       |                                |      

Pro Forma Financial Information

In order to present data that is useful for comparative purposes, the following has been prepared as if HIH was a consolidated subsidiary as of January 1,
2003. HIH became a consolidated subsidiary as of May 1, 2003. To complete the pro forma information we have consolidated the additional operations and elimination entries of related parties for
HIH for the three and six months ended June 30, 2003. We believe the use of pro forma results for the periods covered in this report provides a more meaningful comparison of our results between
the applicable periods. These results do not necessarily reflect the results that would have been obtained if we had consolidated HIH on the date indicated or that may be expected in the future.

47

---



Results of Operations (Pro Forma)

Three and Six Months Ended June 30, 2004 Compared to Three and Six Months Ended June 30, 2003 (Pro Forma) (Unaudited) (Dollars in Millions)

|                                                                                           |  | Three Months
Ended
June 30, |         |   |   | Six Months
Ended
June 30, |   |     |   
|------------------------------------------------------------------------------------------ |  | --------------------------- | ------- | - | - | ------------------------- | - | --- | --
|
|
|Revenues                                                                                   |  | $                           | 2,488.0 |   | $ | 1,984.9                   |   | 25  | % 
|Cost of goods sold                                                                         |  |                             | 2,207.9 |   |   | 1,777.8                   |   | 24  | % 
|                                                                                           |  |                             |         |   |   |                           |   |     |   
|Gross profit                                                                               |  |                             | 280.1   |   |   | 207.1                     |   | 35  | % 
|Selling, general and administrative, research and development, and other operating expense |  |                             | 163.2   |   |   | 118.3                     |   | 38  | % 
|Restructuring and plant closing costs                                                      |  |                             | 150.5   |   |   | 22.4                      |   | 572 | % 
|                                                                                           |  |                             |         |   |   |                           |   |     |   
|Operating income                                                                           |  |                             | (33.6   | ) |   | 66.4                      |   | NM  |   
|Interest expense, net                                                                      |  |                             | (133.3  | ) |   | (127.7                    | ) | 4   | % 
|Loss on sale of accounts receivable                                                        |  |                             | (3.0    | ) |   | (11.3                     | ) | NM  |   
|Equity income (loss) on investments in unconsolidated affiliates                           |  |                             | 1.0     |   |   | 0.3                       |   | 233 | % 
|Other (expense) income                                                                     |  |                             | (2.1    | ) |   | 0.1                       |   | NM  |   
|                                                                                           |  |                             |         |   |   |                           |   |     |   
|Loss before income tax benefit and minority interests                                      |  |                             | (171.0  | ) |   | (72.2                     | ) | 137 | % 
|Income tax benefit (expense)                                                               |  |                             | (6.4    | ) |   | 0.8                       |   | NM  |   
|Minority interests in subsidiaries' loss (income)                                          |  |                             | 47.5    |   |   | 18.8                      |   | 153 | % 
|                                                                                           |  |                             |         |   |   |                           |   |     |   
|Net loss                                                                                   |  | $                           | (129.9  | ) | $ | (52.6                     | ) | 147 | % 
|                                                                                           |  |                             |         |   |   |                           |   |     |   
|Interest expense, net                                                                      |  |                             | 133.3   |   |   | 127.7                     |   | 4   | % 
|Income tax (benefit) expense                                                               |  |                             | 6.4     |   |   | (0.8                      | ) | NM  |   
|Depreciation and amortization                                                              |  |                             | 114.4   |   |   | 101.2                     |   | 13  | % 
|                                                                                           |  |                             |         |   |   |                           |   |     |   
|EBITDA(1)                                                                                  |  | $                           | 124.2   |   | $ | 175.5                     |   | (29 | )%
|                                                                                           |  |                             |         |   |   |                           |   |     |   

---

NMNot
meaningful

48

---





Included
in EBITDA are the following items:

Three Months
Ended
June 30, 2004

Three Months
Ended
June 30, 2003

Six Months
Ended
June 30, 2004

Six Months
Ended
June 30, 2003Foreign exchange gains (losses)unallocated

$
(5.4
)
$
39.7

$
8.0

$
56.9Loss on accounts receivable securitization program


(3.0
)

(11.3
)

(6.5
)

(20.5
)Early extinguishment of debt


(2.5
)




(4.2
)

Asset write down











(2.8
)Legal settlement, net of recoveries


(14.9
)




(14.9
)

Restructuring and reorganization:Polyurethanes

$
(18.1
)
$
(1.4
)
$
(22.9
)
$
(18.5
)Performance Products


(20.9
)

(20.1
)

(20.9
)

(20.1
)Pigments


(104.2
)




(108.1
)

Polymers


(5.1
)

(0.9
)

(5.1
)

(0.9
)Base Chemicals


(2.2
)




(2.2
)

Total restructuring and reorganization

$
(150.5
)
$
(22.4
)
$
(159.2
)
$
(39.5
)


Three Months Ended June 30, 2004 Compared to Three Months Ended June 30, 2003 (Pro Forma)

For the three months ended June 30, 2004, we had a net loss of $129.9 on revenues of $2,488.0 compared to a net loss of $52.6 million on revenues of
$1,984.9 million for the same period in 2003. The increase of $77.3 million in net loss was the result of the following items:



49

---





50

---







The following table sets forth the revenues and EBITDA for each of our operating segments (dollars in millions):

|                     |       | Three months ended June 30, |        |        
|-------------------- | ----- | --------------------------- | ------ | -------
|
|Revenues             |       |                             |        |        
|Polyurethanes        |       | $                           | 733.9  |        
|Performance Products |       |                             | 451.2  |        
|Polymers             |       |                             | 324.2  |        
|Pigments             |       |                             | 278.2  |        
|Base Chemicals       |       |                             | 911.2  |        
|Eliminations         |       |                             | (210.7 | )      
|                     |       |                             |        |        
|                     | Total |                             | $      | 2,488.0
|                     |       |                             |        |        
|Segment EBITDA       |       |                             |        |        
|Polyurethanes        |       | $                           | 100.0  |        
|Performance Products |       |                             | 16.0   |        
|Polymers             |       |                             | 0.2    |        
|Pigments             |       |                             | (83.4  | )      
|Base Chemicals       |       |                             | 81.2   |        
|Corporate and other  |       |                             | 10.2   |        
|                     |       |                             |        |        
|                     | Total |                             | $      | 124.2  
|                     |       |                             |        |        

NMNot
meaningful

Polyurethanes

For the three months ended June 30, 2004, Polyurethanes revenues increased by $168.0 million, or 30%, to $733.9 million from
$565.8 million for the same period in 2003. MDI sales revenue increased by 27%, due to a 17% increase in sales volumes, supported by 8% higher average selling prices. MDI sales volumes
increased by 38%, 18% and 10% in Asia, Europe and the Americas, respectively. Higher MDI volumes reflect recent improvement in the global economy. The increase in MDI average selling prices resulted
from improved market demand and the strength of the major European currencies versus the U.S. dollar. Polyol sales revenue increased by 11% as average selling prices increased by 7% and sales volumes
increased by 4%. Total PO/MTBE products sales revenues increased by 64%. However, PO revenues, excluding tolling, decreased by 3% due to a 9% decrease in volumes which was partly offset by a 6%
increase in average selling prices. PO tolling revenue decreased by 9% due to a 10% reduction in average selling prices. MTBE sales revenue increased by 53% due to a 32% increase in average selling
prices in response to stronger crude oil and gasoline markets, on relatively unchanged sales volumes.

For
the three months ended June 30, 2004, Polyurethanes segment EBITDA increased by $51.9 million to $100.0 million from $48.1 million for the same period in
2003. Increased segment EBITDA resulted mainly from increased sales volumes and higher average selling prices which contributed $70.8 million, partly offset by increased raw material and energy
costs of $7.7 million. We also recorded $18.1 million in restructuring charges in connection with the cost reduction efforts at our Everberg, Belgium, West Deptford, New Jersey and
Rozenburg, Netherlands sites. In the second quarter of 2003, we recorded restructuring charges in the amount of $1.4 million. SG&A and fixed manufacturing costs decreased $3.3 million
and $1.2 million, respectively, as lower costs resulting from our ongoing restructuring efforts were partially offset by the effects of the strength of the major European currencies versus the
U.S. dollar.

51

---



Performance Products

For the three months ended June 30, 2004, Performance Products revenues increased by $46.0 million, or 11%, to $451.2 million from
$405.2 million for the same period in 2003. Overall, average selling prices increased by 11%, while sales volumes increased by 1%. Ethylene glycol revenues increased by 38% as average selling
prices increased by 34% in response to higher raw material and energy costs and improved market conditions. Ethylene glycol sales volumes increased by 3% due to improved market demand. MAn revenues
increased by 33% on an increase in sales volumes of 36%, primarily due to strong demand in the housing and recreational markets. Surfactants revenues increased by 6%, resulting from a 9% increase in
average selling prices, partially offset by a 2% decrease in volumes. Average selling prices for our surfactants rose in response to higher raw material and energy costs, improved product mix and the
strength of European and Australian currencies versus the U.S. dollar. The reduction in surfactants sales volumes was due to reduced customer demand in certain product lines, increased competition in
the marketplace and reduced production at our Chocolate Bayou, Texas facility. Amine revenues increased by 4%, resulting from a 7% increase in average selling prices in response to higher raw material
and energy costs and due to an improved product mix, while volumes decreased by 4% following the cessation of production of intermediate material for an affiliate.

For
the three months ended June 30, 2004, Performance Products segment EBITDA increased by $6.5 million to $16.0 million from $9.5 million for the same period
in 2003. In the three months ended June 30, 2004, we recorded a $20.3 million charge for the closure of our Guelph, Canada facility, and in the same period in 2003 we recorded a
$20.1 million charge for the closure of a number of units at our Whitehaven, U.K. surfactants facility. Average selling prices increased $43.7 million, more than offsetting a
$32.7 million increase in raw material and energy costs. Lower sales volumes, particularly in our surfactants business reduced EBITDA by $3.1 million. Fixed manufacturing costs increased
by $4.6 million due to the strength of the major European currencies versus the U.S. dollar, partially offset by benefits from our cost reduction programs, especially in our surfactants
operations.

Polymers

For the three months ended June 30, 2004, Polymers revenues increased by $54.6 million, or 20%, to $324.2 million from $269.6 million
for the same period in 2003. Overall sales volumes increased by 11% and average selling prices increased by 9%. Polyethylene revenues increased by 9%, resulting from a 4% increase in average selling
prices, primarily in response to higher underlying raw material and energy costs, and a 5% increase in sales volumes. Polypropylene revenues increased by 15%, resulting from a 11% increase in average
selling prices, primarily in response to higher raw material costs, and a 3% increase in sales volumes due to improved customer demand. APAO revenues increased by 8%, as sales volumes increased 9%
largely as the result of increased sales in the export market, offset by a 1% decrease in average selling prices due to product mix. Expandable polystyrene revenue increased by 47%, resulting from a
45% increase in sales volumes due to stronger customer demand and a 1% increase in average selling prices, primarily in response to higher underlying raw material and energy costs. Australian
styrenics revenues increased by 24%, resulting from an 18% increase in average selling prices, primarily due to the strengthening of the Australian dollar and in response to an increase in raw
material costs and a 5% increase in sales volumes.

For
the three months ended June 30, 2004, Polymers segment EBITDA decreased by $22.5 million to $0.2 million from $22.7 million for the same period in 2003.
The decrease in EBITDA is primarily due to $48.9 million in increased raw material and energy costs, partially offset by $26.0 million resulting from higher prices and
$7.3 million resulting from higher sales volumes. The turnaround and inspection ("T&I") at our Odessa, Texas plant had a substantial unfavorable impact on EBITDA for the 2004 period thereby
increasing both direct and indirect manufacturing costs. In addition, fixed manufacturing costs were higher by $2.7 million, including $1.8 million of maintenance costs associated

52

---



with
the T&I at our Odessa plant. Also, we recorded a restructuring charge of $5.1 million in the three months ended June 30, 2004 related to the closure of an Australian manufacturing
unit.

Pigments

For the three months ended June 30, 2004, Pigment revenues increased by $22.8 million, or 9%, to $278.2 million from $255.4 million
for the same period in 2003. Sales volumes increased by 9%, with volumes increasing by 13%, 7% and 8% in North America, Asia and Europe, respectively, due to improved customer demand. Average selling
prices remained at similar levels compared to the same period in 2003, as an underlying decrease of 5% in local currency prices was largely offset by the effect of strength of the major European
currencies versus the U.S. dollar. Average selling prices as measured in local currencies rose by 2% in Asia, but fell by 9% in Europe and 3% in North America.

For
the three months ended June 30, 2004, Pigments segment EBITDA decreased by $114.3 million to a loss of $83.4 million from income of $30.9 million for the
same period in 2003. The decrease in segment EBITDA is mainly due to restructuring and plant closing costs of $104.2 million and charges of $14.9 million relating to the payment of costs
and settlement amounts for Discoloration Claims recorded in the 2004 period. EBITDA was impacted by $9.9 million due primarily to higher sales volumes, offset by $10.1 million in higher
raw material and energy costs, primarily due to the strength of the major European currencies versus the U.S. dollar. In addition, manufacturing costs were $3.9 million lower, mainly due to an
increase in the amount of manufacturing costs absorbed in inventories, partially offset by the strength of the major European currencies versus the U.S. dollar. SG&A costs were $1.0 million
lower mainly as a result of ongoing cost reduction initiatives.

Base Chemicals

For the three months ended June 30, 2004, Base Chemicals revenues increased $269.8 million, or 42%, to $911.2 million from
$641.4 million for the same period in 2003. Overall, average selling prices increased by 21% and sales volumes increased by 17%. Ethylene revenues increased by 36% due to a 19% increase in
average selling prices and a 15% increase in sales volumes. Propylene revenues increased by 25% due to a 16% increase in average selling prices and an 8% increase in sales volumes. Cyclohexane
revenues increased by 53% as average selling prices increased 27% and sales volumes increased 20%. Benzene revenues were 56% higher due to a 27% increase in sales volume and a 24% increase in average
selling prices. Sales volumes were higher on stronger demand in Europe and in the U.S. A T&I at our U.S. olefins facility in the second quarter of 2003 negatively impacted sales volumes for the 2003
period. Average selling prices increased mainly in response to improved market conditions, higher raw material prices and the strength of the major European currencies versus the U.S. dollar.

For
the three months ended June 30, 2004, Base Chemicals segment EBITDA increased by $46.5 million to $81.2 million from $34.7 million for the same period in
2003. Increased EBITDA is primarily the result of a $168.5 million increase resulting from higher average selling prices and a $7.8 million increase resulting from increased sales
volumes, partially offset by a $132.9 million increase in raw material and energy costs. EBITDA also increased due to a $3.5 million decrease in SG&A costs. SG&A was lower as a result of
a $2.8 million benefit from cost savings initiatives, $1.8 million from the non-recurring write off of customer debt in the 2003 period and $1.4 million in foreign
currency gains, offset by $2.2 million in restructuring and plant closing costs spent in 2004.

Corporate and Other

Corporate and other items includes unallocated corporate overhead, unallocated foreign exchange gains and losses, loss on the sale of accounts receivable, other
non-operating income and expense and minority interest in subsidiaries' loss. For the three months ended June 30, 2004, EBITDA from corporate and other items decreased by
$19.5 million to income of $10.2 million from income of $29.7 million for the same period in 2003. Lower EBITDA resulted primarily from a $45.1 million

53

---



negative
impact from unallocated foreign currency gains and losses in the three months ended June 30, 2004 as compared to the comparable period in 2003. This decrease was partially offset by a
decrease of $28.7 million in minority interest in subsidiaries' loss and reduced losses on our accounts receivable securitization program, which decreased by $8.3 million to a loss of
$3.0 million in the three months ended June 30, 2004 as compared to a loss of $11.3 million in the same period of 2003. Losses on the accounts receivable securitization program
include the discount on receivables sold into the program, fees and expenses associated with the program and gains (losses) on foreign currency hedge contracts mandated by the terms of the program to
hedge currency exposures on the collateral supporting the off-balance sheet debt issued. The decreased loss on the accounts receivable securitization program was primarily due to reduced
losses on foreign exchange hedge contracts mandated by our accounts receivable securitization program. EBITDA from corporate and other items also decreased by $2.5 million as a result of net
losses on early extinguishment of debt.

Six Months Ended June 30, 2004 Compared to Six Months Ended June 30, 2003 (Pro Forma)

For the six months ended June 30, 2004, we had a net loss of $184.8 on revenues of $4,842.7 compared to a net loss of $121.9 million on revenues of
$4,049.6 million for the same period in 2003. The increase of $62.9 million in net loss was the result of the following items:



54

---





The
following table sets forth the revenues and EBITDA for each of our operating segments (dollars in millions):

|                     |       | Six months ended June 30, |         |         |  
|-------------------- | ----- | ------------------------- | ------- | ------- | -
|
|
|Revenues             |       |                           |         |         |  
|Polyurethanes        |       | $                         | 1,373.4 |         | $
|Performance Products |       |                           | 906.0   |         |  
|Polymers             |       |                           | 638.7   |         |  
|Pigments             |       |                           | 533.1   |         |  
|Base Chemicals       |       |                           | 1,770.3 |         |  
|Eliminations         |       |                           | (378.8  | )       |  
|                     |       |                           |         |         |  
|                     | Total |                           | $       | 4,842.7 |  
|                     |       |                           |         |         |  
|Segment EBITDA       |       |                           |         |         |  
|Polyurethanes        |       | $                         | 172.8   |         | $
|Performance Products |       |                           | 51.4    |         |  
|Polymers             |       |                           | 19.1    |         |  
|Pigments             |       |                           | (75.8   | )       |  
|Base Chemicals       |       |                           | 134.5   |         |  
|Corporate and other  |       |                           | 22.7    |         |  
|                     |       |                           |         |         |  
|                     | Total |                           | $       | 324.7   |  
|                     |       |                           |         |         |  

---

NMNot
meaningful

55

---



Polyurethanes

For the six months ended June 30, 2004, Polyurethanes revenues increased by $252.8 million, or 23%, to $1,373.5 million from
$1,120.7 million for the same period in 2003. MDI sales revenue increased by 27%, due to a 17% increase in sales volumes, and a 9% increase in average selling prices. MDI sales volumes rose by
49%, 30% and 11% in Asia, Europe and the Americas, respectively, due to improved customer demand resulting from stronger global economic conditions. MDI average selling prices increased by 9% as a
result of improved market conditions and in response to increased raw material costs and the strength of the major European currencies versus the U.S. dollar. Polyol sales revenue increased by 12% as
average selling prices increased by 9% and sales volumes increased by 3%. PO/MTBE product sales revenues increased by 27%. PO revenues, excluding tolling, decreased 1% on a 4% decrease in volumes due
to a T&I which took place in the first quarter 2004, partly offset by a 3% increase in average selling prices. MTBE sales revenue increased by 14% due to a 13% increase in selling prices due to
stronger crude oil and gasoline markets and a 1% increase in sales volumes.

For
the six months ended June 30, 2004, Polyurethanes segment EBITDA increased by $84.5 million to $172.8 million from $88.3 million for the same period in
2003. Increased segment EBITDA resulted mainly from a $127.0 million increase in revenue due to higher sales volumes and higher average selling prices, partly offset by $39.3 million in
increased raw material and energy costs. We also recorded $22.9 million in restructuring charges in 2004 in connection with cost reduction efforts at our Everberg, Belgium, West Deptford, New
Jersey and Rozenburg, Netherlands sites. In the first half of 2003, we recorded restructuring charges in the amount of $18.5 million. For the six months ended June 30, 2004, fixed
manufacturing costs increased $1.2 million and SG&A costs decreased $2.7 million, as savings from our ongoing restructuring activities were more than sufficient to offset the impact of
the strength of the major European currencies versus the U.S. dollar.

Performance Products

For the six months ended June 30, 2004, Performance Products revenues increased by $79.5 million, or 10%, to $906.0 million from
$826.5 million for the same period in 2003. Overall, average selling prices increased by 13%, while sales volumes fell by 2%. Ethylene glycol revenues increased by 4% as average selling prices
rose by 24% in response to higher raw material and energy costs and improved market
conditions, partially offset by a 17% decrease in sales volumes due to reduced production in the first quarter 2004 attributable to maintenance activities at one of our ethylene oxide units. MAn
revenues increased by 30%, mainly due to a 25% increase in sales volumes, primarily due to strong demand in the housing and recreational markets. Surfactants revenues increased by 8%, resulting from
an 11% increase in average selling prices, partially offset by a decrease of 3% in sales volumes. Average selling prices for our surfactants rose in response to higher raw material and energy costs,
improved product mix and the strength of European and Australian currencies versus the U.S. dollar. The reduction in surfactants sales volumes was primarily due to reduced customer demand in certain
product lines, increased competition in the marketplace and reduced production at our Chocolate Bayou, Texas facility and decreased export business as a result of the strength of the major European
currencies versus the U.S. dollar. Amine revenues increased by 10%, resulting from a 6% increase in average selling prices in response to higher raw material and energy costs and due to an improved
product mix, while sales volumes increased by 1%, mainly due to an increase in ethanolamines sales volumes.

For
the six months ended June 30, 2004, Performance Products segment EBITDA increased by $2.7 million to $51.4 million from $48.7 million for the same period
in 2003. In the six months ended June 30, 2004, we recorded a $20.3 million charge for the closure of our Guelph, Canada facility, and in the same period in 2003 we recorded a
$20.1 million charge for the closure of a number of units at our Whitehaven, U.K. facility. Average selling prices increased EBITDA by $95.3 million, more than offsetting a
$78.8 million increase in raw material and energy costs. Lower sales volumes, particularly in our surfactants business, reduced EBITDA by $11.7 million. Fixed manufacturing costs
increased by

56

---



$1.6 million,
as additional maintenance expenditures, particularly at our Jefferson County and Chocolate Bayou, Texas facilities, and $7.2 million of additional expense resulting from
the strength of the major European currencies versus the U.S. dollar largely offset by cost reduction programs, especially in our surfactants operations.

Polymers

For the six months ended June 30, 2004, Polymers revenues increased by $80.3 million, or 14%, to $638.7 million from $558.4 million
for the same period in 2003. Overall, Polymers segment average selling prices increased by 7% and sales volumes increased by 7%. Polyethylene revenues increased by 4%, resulting from a 6% increase in
average selling prices, primarily in response to higher underlying raw material and energy costs, and a 2% decrease in sales volumes. Lower sales volumes largely resulted from lower polyethylene sales
in the first quarter 2004 to build inventory for the planned T&I at our Odessa facility, as well as the delayed restart of our LLDPE plant. Polypropylene revenue increased by 16%, resulting from a 12%
increase in average selling prices, primarily in response to higher underlying raw material and energy costs, and a 4% increase in sales volumes as demand strengthened in this market. APAO revenues
increased by 13%, as sales volumes increased 14% largely as the result of increased sales in the export market, offset by a 1% decrease in average selling prices due to product mix. Expandable
polystyrene revenue increased by 16%, resulting from a 7% increase in average selling prices, primarily in response to higher underlying raw material and energy costs, while sales volumes increased by
9% due to stronger customer demand. Australian styrenics revenues
increased by 17%, resulting from an 18% increase in average selling prices, primarily due to the strengthening of the Australian dollar versus the U.S. dollar and in response to increases in raw
material costs, partially offset by a 1% decrease in sales volumes.

For
the six months ended June 30, 2004, Polymers segment EBITDA decreased by $17.0 million to $19.1 million from $36.1 million for the same period in 2003.
The decrease in EBITDA is primarily the result of a $60.6 million increase in raw material and energy prices, largely offset by a $51.4 million increase in selling prices and a
$4.5 million increase in sales volumes. The T&I at our Odessa, Texas plant had a substantial unfavorable impact on EBITDA for the 2004 period thereby increasing both direct and indirect
manufacturing costs. In addition, fixed manufacturing costs were higher by $7.8 million, including $1.8 million resulting from the T&I at our Odessa plant. Also, we recorded a
restructuring charge of $5.1 million in 2004 related to the closure of an Australian manufacturing unit.

Pigments

For the six months ended June 30, 2004, Pigments segment revenues increased by $31.6 million, or 6%, to $533.1 million from
$501.5 million for the same period in 2003. Sales volumes increased by 4%, with volumes increasing by 9%, 7% and 2% in Asia, North America and Europe, respectively, due to stronger customer
demand, primarily in the second quarter. Average selling prices increased by 2%, primarily due to the strength of the major European currencies versus the U.S. dollar. Average selling prices in local
currencies rose by 2% in Asia but fell by 8% in Europe and by 3% in North America.

Pigments
segment EBITDA for the six months ended June 30, 2004 decreased by $135.6 million to a loss of $75.8 million from income of $59.8 million for the
same period in 2003. The decrease in segment EBITDA is mainly due to restructuring and plant closing costs of $108.1 million and charges of $14.9 million relating to the payment of costs
and settlement amounts for Discoloration Claims recorded in the 2004 period. EBITDA increased $9.6 million as a result of higher sales volumes and $9.0 million due to higher average
selling prices, offset by $17.3 million in higher raw material and energy costs, primarily due to the strength of the major European currencies versus the U.S. dollar. Fixed manufacturing costs
increased by $10.6 million and SG&A costs increased by $3.2 million mainly due to the impact of the strength of the major European currencies versus the U.S. dollar, offset by cost
reductions as a result of our ongoing cost savings initiatives.

57

---



Base Chemicals

For the six months ended June 30, 2004, Base Chemicals revenues increased $431.5 million, or 32%, to $1,770.3 million from
$1,338.8 million for the same period in 2003. Overall, average selling prices increased 18% and sales volumes increased 12%. Ethylene revenues increased by 52% due to sales volume and average
selling price increases of 32% and 15% respectively. Propylene revenues increased by 26% due to a 16% increase in average selling prices and an 8% increase in sales volumes. Cyclohexane revenues
increased by 105% due to a 56% increase in average selling prices and a 31% increase in sales volumes. Benzene revenues increased by 42% due to a 22% increase in average selling prices and a 16%
increase in sales volumes. Sales volumes were higher on stronger demand in Europe and in the U.S. and as a result of the scheduled T&I at our U.S. olefins facility which occurred in the second quarter
2003. Average selling prices increased mainly in response to improved market conditions, higher raw material prices and the strength of the major European currencies versus the U.S. dollar.

For
the six months ended June 30, 2004, Base Chemicals segment EBITDA increased by $81.5 million to $134.5 million from $53.0 million for the same period in
2003. Increased EBITDA is primarily the result of a $252.2 million increase as a result of higher average selling prices and a $19.7 million increase as a result of increased sales
volumes, partially offset by a $176.3 million increase in raw material and energy costs. Fixed manufacturing costs increased by $8.1 million and SG&A costs increased by
$6.2 million. Fixed manufacturing costs were higher by $9.9 million due to the strength of the major European currencies versus the U.S. dollar, offset by repair expenses incurred in the
2003 period. SG&A costs were higher as a result of $4.0 million of non-recurring income items in the 2003 period, $2.2 million in restructuring charges in the 2004 period and
as a result of the effects of the strength of the major European currencies versus the U.S. dollar. The SG&A increase was offset by $2.8 million in cost savings resulting from our
on-going cost reduction initiatives and by a $1.8 million write off of customer debt in the 2003 period.

Corporate and Other

Corporate and other items includes unallocated corporate overhead, unallocated foreign exchange gains and losses, loss on the sale of accounts receivable, other
non-operating income and expense and minority interest in subsidiaries' loss. For the six months ended June 30, 2004, EBITDA from unallocated items decreased by $15.1 million
to income of $22.7 million from income of $37.8 million for the same period in 2003. Lower EBITDA resulted primarily from a $48.9 million negative impact from unallocated foreign
currency gains and losses in the six months ended June 30, 2004 as compared to the comparable period in 2003. This decrease was partially offset by a decrease of $31.8 million in
minority interest in subsidiaries' loss and reduced losses on our accounts receivable securitization program, which decreased by $14.0 million to a loss of $6.5 million in the six months
ended June 30, 2004 as compared to a loss of $20.5 million in the same period of 2003. Losses on the accounts receivable securitization program include the discount on receivables sold
into the program, fees and expenses associated with the program and gains (losses) on foreign currency hedge contracts mandated by the terms of the program to hedge currency exposures on the
collateral supporting the off-balance sheet debt issued. The decreased loss on the accounts receivable securitization program was primarily due to reduced losses on foreign exchange hedge
contracts mandated by our accounts receivable securitization program. EBITDA from corporate and other items also decreased by $4.2 as a result of net losses on early extinguishment of debt.

58

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Liquidity and Capital Resources (Pro Forma)  Pro Forma Statement of Cash Flows (Dollars in Millions)

Six months ended June 30,2004

2003Historical

Pro FormaCash flows from operating activities:Net loss

$
(184.8
)
$
(121.9
)Adjustments to reconcile net loss to net cash used in operating activities:Depreciation and amortization


224.5


201.9Noncash interest expense


70.3


60.9Foreign currency transactions (gains) losses


(9.3
)

18.7Other adjustments to reconcile net loss


38.0


(108.7
)Net changes in operating assets and liabilities


(99.1
)

(162.3
)Net cash provided by (used in) operating activities


39.6


(111.4
)Investing activities:Capital expenditures


(89.9
)

(90.8
)Other investing activities


(4.6
)

(0.8
)Net cash used in investing activities


(94.5
)

(91.6
)Financing activities:Net borrowings under revolving loan facilities


89.3


250.5Repayment of long term debt


(388.6
)

(199.6
)Other financing activities


383.1


147.9Net cash provided by financing activities


83.8


198.8Effect of exchange rate changes on cash


(40.4
)

16.2Increase (decrease) in cash and cash equivalents


(11.5
)

12.0Cash and cash equivalents at beginning of period


127.8


106.8Cash and cash equivalents at end of period

$
116.3

$
118.8


Cash

Net cash provided in operating activities for the six months ended June 30, 2004 increased to $39.6 million from $111.4 million used in
operating activities for the same period in 2003. The variance is attributable to improved gross profit, as discussed above, in addition to a smaller increase in net working capital in the 2004
period.

Net
cash used in investing activities for the six months ended June 30, 2004 increased to $94.5 million from $91.6 million for the 2003 period. The increase in cash
used was largely attributable to an investment made in one of our Chinese MDI joint ventures.

Net
cash provided by financing activities for the six months ended June 30, 2004 decreased to $83.8 million, as compared to $198.8 million for the same period in
2003. The decrease in cash provided by financing activities is mainly a result of reduced borrowings to fund operating cash requirements as explained above.

59

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Debt and Liquidity

Because HIH is financed separately it is not included in our restricted group, its debt is non-recourse to our restricted group and it is not a
guarantor of our debt. The following discussion of our debt and liquidity contains separate discussions with respect to our restricted group and HIH. We have included this disaggregated information
because we believe it provides investors with material and meaningful information with respect to our liquidity position and debt obligations.



As of June 30, 2004, the HLLC Credit Facilities consisted of the HLLC Revolving Facility of up to $275 million that matures on June 30, 2006,
the Term Loan A of $606.3 million and the Term Loan B of $96.1 million. On June 22, 2004, we sold $400 million of HLLC Unsecured Notes (as discussed below). The net
proceeds from the offering were used to repay $362.9 million on our Term Loan B, reducing its balance from 459.0 million to $96.1 million, and to repay $25 million of the
outstanding indebtedness of HCCA (as discussed below).

As
of June 30, 2004, our restricted group had outstanding variable rate borrowings of approximately $1.0 billion and the weighted average interest rate of these borrowings
was approximately 6.2%. This weighted average rate does not consider the effects of interest rate hedging activities. Borrowings under the HLLC Revolving Facility bear interest, at our option, at a
rate equal to a LIBOR-based eurocurrency rate plus an applicable margin ranging from 2.75% to 3.50% as based on our most recent ratio of total debt to "EBITDA" (as defined in the HLLC Revolving
Facility credit agreement), or a prime-based rate plus an applicable margin ranging from 1.75% to 2.50%, also based on the Company's most recent ratio of total debt to EBITDA. As of June 30,
2004, the interest rate on the HLLC Revolving Facility was LIBOR plus 3.50%. As of June 30, 2004, Term Loan A bore interest at LIBOR plus 4.00% for eurocurrency loans. Prior to June 22,
2004, the applicable interest rate margin for eurocurrency loans on Term Loan A was 4.75%. In accordance with the credit agreement governing the HLLC Term Facilities, the margin was reduced by 0.75%
(75 basis points) upon partial repayment of Term Loan B. With respect to Term Loan B, the interest rate margin for eurocurrency loans increased by 0.75% (75 basis points) on April 1, 2004 to
9.00%, and on July 1, 2004 the interest rate margin for eurocurrency loans increased by an additional 0.75% (75 basis points) to its maximum of 9.75%. As of June 30, 2004, the interest
rate for Term Loan B was LIBOR plus 9.0%. The next scheduled quarterly amortization payment under the HLLC Credit Facilities is due March 2006.

We
depend upon the HLLC Revolving Facility to provide liquidity for our operations and working capital needs. As of June 30, 2004, our restricted group had $86.5 million of
outstanding borrowings and approximately $16 million of outstanding letters of credit under our $275 million HLLC Revolving Facility. At our restricted group, we had $31.1 million
of cash on our balance sheet as of June 30, 2004. Accordingly, as of June 30, 2004, our restricted group had cash and unused borrowing capacity of approximately $204 million.

The
HLLC Credit Facilities contain financial covenants, including a minimum interest coverage ratio, a minimum fixed charge ratio and a maximum debt to EBITDA ratio, as defined therein,
and limits on capital expenditures, in addition to restrictive covenants customary to financings of this type, including limitations on liens, debt and the sale of assets. On May 6, 2004, we
amended certain financial covenants in the HLLC Credit Facilities. The amendment applies to both the HLLC Revolving Facility and the HLLC Term Facilities and provides for, among other things, the
amendment of certain financial covenants through the fourth quarter 2005. The amendment provided for an increase in the maximum leverage ratio, and a decrease in the minimum interest coverage ratio
and the fixed charge coverage ratio. The amendment also amends the mandatory prepayment provisions contained in the HLLC Credit Facilities to permit us, after certain levels of repayment of our Term
Loan B, to use subordinate debt or equity proceeds to repay a portion of the outstanding indebtedness of certain of our Australian subsidiaries.

60

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On
June 22, 2004, we sold the HLLC Unsecured Notes, including $300 million of the HLLC Unsecured Fixed Rate Notes that bear interest at 11.5% and mature on July 15,
2012 and $100 million of the HLLC Unsecured Floating Rate Notes that bear interest at a rate equal to LIBOR plus 7.25% and mature on July 15, 2011. As noted above, the net proceeds from
the offering were used to repay $362.9 million on Term Loan B and to repay $25 million of the outstanding indebtedness of HCCA.

On
September 30, 2003, we sold $380 million aggregate principal amount of our 115/8% 2003 HLLC Senior Secured Notes at a discount to yield 11.875%. On
December 3, 2003 we sold an additional $75.4 million aggregate principal amount of the 2003 HLLC Secured Notes at a discount to yield 11.72%.

Certain
of our restricted group's Australian subsidiaries maintain credit facilities that are non-recourse to the Company. HCCA, in its capacity as trustee of the Huntsman
Chemical Australia Unit Trust (the "HCA Trust"), holds our Australian styrenics assets. HCCA maintains a credit facility (the "HCCA Facility"), consisting of a term facility. On June 24, 2004,
we used $25 million of proceeds from the offering of the HLLC Unsecured Notes to repay a portion of the HCCA Facility, including repaying in full the working capital facility and reducing the
term facility to $14.4 million (A$20.9 million). In connection with this repayment, a preexisting payment default was cured and the remaining term facility was amended. The outstanding
loan amount matures and is due on July 31, 2005. The HCCA Facility contains no financial covenants, and borrowings under the HCCA Facility bear interest at a base rate plus a spread of 1.25%,
plus an additional 0.5% line use fee. As of
June 30, 2004, the weighted average interest rate for the HCCA Facility was 6.8%. The HCCA Facility is secured by effectively all the assets of the HCA Trust. Management believes that HCCA is
in compliance with the covenants of the HCCA Facility as of June 30, 2004.

Huntsman
Australia Holdings Corporation ("HAHC") and certain of its subsidiaries hold our Australian surfactants assets. HAHC and certain of its subsidiaries are parties to credit
facilities established in December 1998 (the "HAHC Facilities"). As of June 30, 2004, borrowings under the HAHC Facilities total A$53.2 million ($36.8 million), and bear
interest at a base rate plus a spread of 2%. As of June 30, 2004, the weighted average interest rate for the HAHC Facilities was 7.5%. Principal payments are due semiannually through
December 2005. The HAHC Facilities are subject to financial covenants, including a leverage ratio, an interest coverage ratio and limits on capital expenditures, in addition to restrictive
covenants customary to financings of this type, including limitations on liens, debt and the sale of assets. As of June 30, 2004, HAHC was current on all scheduled amortization and interest
payments under the HAHC Facilities, but it was not in compliance with certain financial covenants in the agreements governing the HAHC Facilities. The outstanding debt balances due under the HAHC
Facilities have been classified in current portion of long-term debt.

We
believe the current liquidity of our restricted group, 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. Except as noted above regarding our
non-recourse Australian HAHC Facilities, we believe that we are currently in compliance with the covenants contained in the agreements governing all of our other debt obligations. We
review our financial covenants on a regular basis and will seek amendments to such covenants if necessary.



As of June 30, 2004, the HI Credit Facilities consisted of a revolving loan facility of up to $400 million that was scheduled to mature on
June 30, 2005, a $620.1 million term loan B facility that was scheduled to mature on June 30, 2007, and a $620.1 million term loan C facility that was scheduled to mature
on June 30, 2008. On July 13, 2004, HI completed an amendment and restatement of the HI Credit Facilities. Pursuant to the amendment and restatement, the HI Revolving Facility was
reduced from $400 million to $375 million and its maturity was extended from June 2006 to September 2008.

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The
HI Revolving Facility includes a $50 million multicurrency revolving loan facility available in euros, GBP Sterling and U.S. dollars. In addition, HI's existing term loans B and C, totaling
$1,240.2 million, were repaid and replaced with the new HI Term Facility consisting of a $1,305 million term portion and a €50 million (approximately
$61.6 million) term portion. The additional proceeds from the HI Term Facility borrowings of approximately $126.6 million were applied to repay the $82.4 million of outstanding
borrowings as of July 13, 2004 on the HI Revolving Facility, and the remaining proceeds, net of fees incurred in the transaction, increased cash on our balance sheet. Pursuant to the amendment
and restatement of the HI Credit Facilities, the additional liquidity is available for general corporate purposes and to provide a portion of the funds for the potential construction of a polyethylene
production facility at our Wilton, U.K. facility.

Current
interest rates on the HI Revolving Facility and the HI Term Facility decreased from a LIBOR spread of 3.50% to 3.25% and 4.125% to 3.25%, respectively. Scheduled amortization of
the HI Term Facility is 1% per annum, commencing June 30, 2005, with the remaining unpaid balance due at maturity. The maturity of the HI Term Facility is December 31, 2010; provided
that the maturity will be accelerated to December 31, 2008 if HI has not refinanced all of the outstanding HI Senior Notes (as defined below) and HI Subordinated Notes (as defined below) on or
before December 31, 2008 on terms satisfactory to the administrative agent under the HI Credit Facilities.

The
amendment and restatement of the HI Credit Facilities also provides for the amendment of certain financial covenants. These amendments, among other things, included changes to the
maximum leverage ratio, the minimum interest coverage ratio, and provided for an increase in the permitted amount of annual consolidated capital expenditures from $250 million to
$300 million, with a provision for carryover to subsequent years. In addition, the mandatory prepayment level in connection with HI's accounts receivable securitization program was increased
from $310 million to $325 million. For more information, see "Liquidity and Capital ResourcesOff-Balance Sheet Arrangements" below.

As
of June 30, 2004, HI had outstanding variable rate borrowings, including amounts outstanding under our off-balance sheet accounts receivable securitization program,
of approximately
$1.6 billion. The weighted average interest rate of these borrowings was approximately 4.9%. This weighted average rate does not consider the effects of interest rate hedging activities.

HI
depends upon the HI Revolving Facility ($375 million as of the July 13, 2004) to provide liquidity for its operations and working capital needs. As of June 30,
2004, HI had $37.0 million of outstanding borrowings and approximately $5 million of outstanding letters of credit under the HI Revolving Facility, and HI had $85.2 million in
cash. HI also maintains $25.0 million of short-term overdraft facilities, of which the entire amount was available at June 30, 2004. HI's total cash and unused borrowing
capacity as of June 30, 2004 was approximately $468 million. Giving effect to the amendment and restatement of the HI Credit Facilities on July 13, 2004, as of June 30,
2004 there would be no borrowings outstanding on the HI Revolving Facility, cash on the balance sheet would be approximately $160 million, and HI's total cash and unused borrowing capacity
would be approximately $555 million. Pursuant to the amendment and restatement of the HI Credit Facilities, the $375 million HI Revolving Facility now matures in September 2008.

In
March 2002, HI issued $300 million of its 97/8% senior notes due 2009 (collectively with the senior notes discussed in the following sentence, the "HI
Senior Notes"). On April 11, 2003, HI sold an additional $150 million in aggregate principal amount of HI Senior Notes. The HI Senior Notes are unsecured and are fully and
unconditionally guaranteed on a joint and several basis by substantially all of HI's domestic subsidiaries and certain of its foreign subsidiaries (collectively, the "HI Guarantors"). HI also has
outstanding $600 million and €450 million 101/8% senior subordinated notes due 2009 (the "HI Subordinated Notes"). The HI Subordinated Notes are unsecured
and are fully and unconditionally guaranteed on a joint and several basis by the HI Guarantors.

62

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HI
also depends upon an accounts receivable securitization program arranged by JP Morgan, under which interests in certain of its trade receivables are transferred to a qualified
off-balance sheet entity (the "Receivables Trust"). The Receivables Trust is not our affiliate. The acquisitions of these receivables by the Receivables Trust are financed through the
issuance of commercial paper and/or medium term notes. The debt associated with the commercial paper and medium term notes is not reflected on HI's balance sheet. The accounts receivable
securitization program is an important source of liquidity to our Company.

A
portion of the medium term notes (€90.5 million) is denominated in euros and is subject to fluctuation in currency rates versus the U.S. dollar. The total
outstanding balance of medium term notes is approximately $195 million in U.S. dollar equivalents as of June 30, 2004. In addition to medium term notes, the Receivables Trust also
maintains an annual commitment with a third party to issue commercial paper for an amount up to $125 million. As of June 30, 2004, the total outstanding balance of such commercial paper
was approximately $114 million. On April 16, 2004, HI amended the commercial paper facility. Pursuant to the amendment, the maturity of the commercial paper facility was extended to
March 31, 2007. In addition, the amendment permits the issuance of euro-denominated commercial paper. The medium term notes mature in June 2006.

Subject
to the annual seasonality of HI's accounts receivable, HI estimates that the total liquidity resources from the accounts receivable securitization program may range between
$280 million to $325 million at certain periods during a calendar year. The weighted average interest rates on the medium term notes and commercial paper was approximately 2.5% as of
June 30, 2004. Losses on the accounts receivable securitization program in the six months ended June 30, 2004 were $6.5 million. Losses on the accounts receivable securitization
program include the discount on receivables sold into the program, fees and expenses associated with the program and gains (losses) on foreign currency hedge contracts mandated by the terms of the
program to hedge currency exposures on the collateral supporting the off-balance sheet debt issued. For the six months ended June 30, 2004, losses on the accounts receivable
securitization program include losses of $1.4 million on foreign currency hedge contracts mandated by the accounts receivable securitization program. HI believes that the multicurrency
commercial paper facility discussed above has enabled it to better naturally hedge the off-balance sheet debt to the underlying collateral supporting such debt and thereby reduce the
impact on, and need for, foreign currency hedges as experienced in prior periods under the accounts receivable securitization program.

The
HI Credit Facilities require a mandatory prepayment to the extent that the proceeds from the securitization program exceed $325 million. Prior to the amendment and restatement
of the HI Credit Facilities, such limit was $310 million. To date, proceeds from the accounts receivable securitization program have not exceeded this limit. While HI does not anticipate it, if
at any time it were unable to sell sufficient receivables into the program to support the volume of commercial paper and medium term notes issued under the program, HI would be required to inject cash
into the program as collateral. Under such circumstance, and depending on the timing of such circumstance, the requirement to provide cash collateral to the program could have a negative effect on our
liquidity.

On
June 30, 1999, HIH issued senior discount notes ("HIH Senior Discount Notes") and the HIH Senior Subordinated Discount Notes (collectively with the HIH Senior Discount Notes,
the "HIH Discount Notes") to ICI with initial stated values of $242.7 million and $265.3 million, respectively. The HIH Discount Notes are due December 31, 2009. Interest on the
HIH Discount Notes is paid in kind. Interest on the HIH Senior Discount Notes accrues at 133/8% per annum. The HIH Senior Subordinated Discount Notes have a stated rate of 8% that
originally was to reset to a market rate in June 2002 and can be redeemed at 100% of accreted value at any time until June 30, 2004. On December 21, 2001, the terms of the HIH
Senior Subordinated Discount Notes were modified, including deferring the reset date until September 2004, at which time the interest rate will reset to a market rate. The HIH Discount Notes
contain limits on the incurrence of debt, restricted payments,

63

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liens,
transactions with affiliates, and merger and sales of assets. In connection with the financial restructuring of Huntsman LLC on September 30, 2002, MatlinPatterson contributed its
interest in the HIH Senior Subordinated Discount Notes to HMP. On May 9, 2003, HMP completed the purchase of the HIH Senior Subordinated Discount Notes from ICI. As of June 30, 2004, the
HIH Senior Subordinated Discount Notes are held by HMP.

As
of June 30, 2004 and December 31, 2003, the HIH Senior Discount Notes included $221.0 million and $191.9 million of accrued interest, respectively. As of
June 30, 2004 and December 31, 2003, the HIH Senior Subordinated Discount Notes included $127.4 million and $112.3 million of accrued interest, respectively, and
$6.8 million and $19.2 million of discount, respectively.

We
believe both HIH and HI are currently in compliance with the covenants contained in the agreements governing their debt obligations.

Short-term and Long-term Liquidity

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. Except as noted above regarding our
non-recourse HAHC Credit Facilities, we believe that we are currently in compliance with the covenants contained in the agreements governing all of our other debt obligations. We review
our financial covenants on a regular basis and will seek amendments to such covenants if necessary.

Certain Credit Support Issues

HIH and HI, which are unrestricted subsidiaries, have not guaranteed or provided any other credit support to our restricted group's obligations under the HLLC
Credit Facilities, the HLLC Notes or the 2003 HLLC Secured Notes, and Huntsman LLC has not guaranteed or provided any other credit support to the obligations of HI under the HI Credit Facilities, or
to the obligations of HI and HIH under their outstanding high-yield notes. Because of restrictions contained in the financing arrangements of HIH and HI, these subsidiaries are presently
unable to make any "restricted payments" to our Company, including dividends, distributions or other payments in respect of equity interests or payments to purchase, redeem or otherwise acquire or
retire for value any of their equity interests, subject to exceptions contained in such financing arrangements. Events of default under the HI Credit Facilities, or under the high-yield
notes of HIH and HI or the exercise of any remedy by the lenders thereunder will not cause any cross-defaults or cross-accelerations under the HLLC Credit Facilities, the HLLC Notes or the 2003 HLLC
Secured Notes. Additionally, any events of default under the HLLC Credit Facilities, the HLLC Notes or the 2003 HLLC Secured Notes, or the exercise of any remedy by the lenders thereunder, will not
cause any cross-defaults or cross-accelerations under the outstanding high-yield notes of HIH or HI or the HI Credit Facilities, except insofar as foreclosure on the stock of Huntsman
Specialty Chemical Holdings Corporation, the stock of Huntsman Specialty or the HIH Membership Interests pledged to secure our obligations under the HLLC Credit Facilities or the 2003 HLLC Secured
Notes, would constitute a "change of control" and an event of default under the HI Credit Facilities and would give certain put rights to the holders of the high-yield notes of HI or HIH.

On
May 9, 2003, HMP issued 15% senior secured discount notes due 2008 with an accreted value of $423 million (the "HMP Senior Discount Notes"). Interest is paid in kind.
The HMP Senior Discount Notes are secured by a first priority lien on the HIH Senior Subordinated Discount Notes acquired by HMP in connection with the HIH Consolidation Transaction, the 10% direct
and 30% indirect equity interests held by HMP in HIH, HMP's common stock outstanding as of May 9, 2003, and HMP's 100% equity interest in the Company. A payment default under the HMP Senior
Discount Notes or any other default that would permit the holders to accelerate the unpaid balance thereunder

64

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would
also constitute a default under the HLLC Credit Facilities. Foreclosure on the stock of HMP or the equity interest in the Company would constitute a "change of control" and an event of default
under the HLLC Credit Facilities and the HI Credit Facilities, and would give certain put rights to the holders of the HLLC Notes, the 2003 HLLC Secured Notes, and the high-yield notes of
HI and HIH.

Off-Balance Sheet Arrangements

On December 21, 2000, we initiated an accounts receivable securitization program under which we grant an undivided interest in certain of our trade
receivables to a qualified off-balance sheet entity (the "Receivables Trust") at a discount. This undivided interest serves as security for the issuance of commercial paper and medium term
notes by the Receivables Trust. At June 30, 2004, the Receivables Trust had outstanding approximately $195 million in U.S. dollar equivalents in medium term notes and approximately
$114 million in commercial paper. Under the terms of the agreements, we, together with our subsidiaries, continue to service the receivables in exchange for a 1% fee of the outstanding
receivables, and we are subject to recourse provisions.

Our
retained interest in receivables (including servicing assets) subject to the program was approximately $184.0 and $154.4 million as of June 30, 2004 and
December 31, 2003, respectively. The value of the retained interest is subject to credit and interest rate risk. For the six months ended June 30, 2004 and 2003, new sales of accounts
receivable sold into the program totaled approximately $2,379.6 million and $2,054.6 million, respectively, and cash collections from receivables sold into the program that were
reinvested totaled approximately $2,335.1 million and $2,035.1 million, respectively. Servicing fees received during the six months ended June 30, 2004 and 2003 were approximately
$2.6 million and $2.4 million, respectively.

We
incur losses on the accounts receivable securitization program for the discount on receivables sold into the program and fees and expenses associated with the program. We also retain
responsibility for the economic gains and losses on forward contracts mandated by the terms of the program to hedge the currency exposures on the collateral supporting the off-balance
sheet debt issued. Gains and losses on forward contracts included as a component of the loss on accounts receivable securitization program are a loss of $1.4 million and a loss of
$17.0 million for the six months ended
June 30, 2004 and 2003, respectively. As of June 30, 2004 and December 31, 2003, the fair value of the open forward currency contracts is $0.1 million and
$6.8 million, respectively, which is included as a component of the residual interest reflected on our balance sheet. On April 16, 2004 we amended the commercial paper facility. Pursuant
to the amendment, the maturity of the commercial paper facility was extended to March 31, 2007. In addition, the amendment permits the issuance of euro-denominated commercial paper.

The
key economic assumptions used in valuing the residual interest at June 30, 2004 are presented below:

Weighted average life (in months)

3Credit losses (annual rate)

Less than 1%Discount rate (annual rate)

2%


A
10% and 20% adverse change in any of the key economic assumptions would not have a material impact on the fair value of the retained interest. Total receivables over 60 days past due as of
June 30, 2004 and December 31, 2003 were $12.9 million and $15.6 million, respectively.

Contractual Obligations and Commercial Commitments

We have various purchase commitments for materials and supplies entered into in the ordinary course of business. Those commitments extend up to 13 years
and the purchase price is generally based on market prices subject to certain minimum price provisions.

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Restructuring and Plant Closing Costs

As of June 30, 2004 and December 31, 2003, we had reserves for restructuring and plant closing costs of $86.3 million and
$25.3 million, respectively. During the six months ended June 30, 2004, our Company, on a consolidated basis, recorded additional reserves of $78.1 million, including reserves for
workforce reductions, demolition and decommissioning and facility closure costs. During the 2004 period, we made cash payments against these reserves of $17.1 million.

As
of June 30, 2004, accrued restructuring and plant closing costs by type of cost consist of the following (dollars in millions):

Workforce
reductions

Demolition
and
decommissioning

Non-cancelable
lease costs

Facility
closure
costs

TotalAccrued liabilities as of December 31, 2003

$
22.5

$
2.6

$
0.2

$


$
25.3Charges


56.8


5.5





15.8


78.1Payments(1)


(16.7
)

(0.2
)

(0.2
)




(17.1
)Accrued liabilities as of June 30, 2004

$
62.6

$
7.9

$


$
15.8

$
86.3


---

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

Polyurethanes

Performance
Products

Pigments

Polymers

Base
Chemicals

TotalAccrued liability as of December 31, 2003

$
15.8

$
2.4

$
4.3

$
2.8

$


$
25.3Charges


22.9


20.9


27.0


5.1


2.2


78.1Payments(1)


(10.6
)

(0.5
)

(5.6
)

(0.4
)




(17.1
)Accrued liability as of June 30, 2004

$
28.1

$
22.8

$
25.7

$
7.5

$
2.2

$
86.3


---

As of December 31, 2003, our Polyurethanes segment reserve consisted of $15.8 million related to the restructuring activities at our
Rozenburg, Netherlands site (as announced in 2003), the workforce reductions throughout our Polyurethanes segment (as announced in 2003), and the closure of our Shepton Mallet, U.K. site (as announced
in 2002). During the six months ended June 30, 2004, our Polyurethanes segment recorded additional restructuring charges of $22.9 million and made cash payments of $10.6 million.
In the first quarter 2004, our Polyurethanes segment recorded restructuring expenses of $4.8 million, all of which are payable in cash. In the second quarter 2004, our Polyurethanes segment
announced restructuring charges of $18.1 million, all of which are payable in cash, including the closure of our West Deptford, New Jersey site. These restructuring activities are expected to
result in additional restructuring charges of approximately $15 million through 2005 and result in workforce reductions of approximately 160 employees, of which 48 positions have been reduced
during the six months ended June 30, 2004. As of June 30, 2004, our Polyurethanes segment restructuring reserve totaled $28.1 million.

As
of December 31, 2003, our Performance Products segment reserve consisted of $2.4 million related to the closure of a number of plants at our Whitehaven, U.K. facility,
the closure of an administrative office in London, U.K., the rationalization of our surfactants technical center in Oldbury, U.K., and the restructuring of our facility in Barcelona, Spain. During the
six months ended June 30, 2004, our Performance Products segment accrued restructuring charges of $20.9 million, of which $5.1 million are payable in cash, and made cash payments
of $0.5 million related to these restructuring activities. There are no material additional charges expected related to these restructuring activities. On

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July 1,
2004, we announced the closure of our Guelph, Ontario, Canada Performance Products manufacturing facility. Production will be moved to our other larger, more efficient facilities. These
restructuring activities are not expected to result in additional charges. Workforce reductions of approximately 66 positions are anticipated. The Performance Products segment reserve totaled
$22.8 million as of June 30, 2004.

As
of December 31, 2003, our Polymers segment reserve consisted of $2.8 million related to the demolition and decommissioning of our Odessa, Texas styrene manufacturing
facility and noncancelable lease costs. During the six months ended June 30, 2004, our Polymers segment recorded restructuring expenses related to the closure of an Australian manufacturing
unit of $5.1 million, of which $1.5 million are payable in cash, and made cash payments of $0.4 million related to these restructuring activities. These restructuring activities
are expected to result in additional charges of less than $1.0 million through 2005 and in workforce reductions of approximately 23 positions, of which 13 positions have been reduced in the six
months ended June 30, 2004. Our Polymers segment reserve totaled $7.5 million as of June 30, 2004.

As
of June 30, 2004 and December 31, 2003, our Pigments segment reserve consisted of $25.7 and $4.3 million, respectively. During the six months ended
June 30, 2004, our Pigments segment recorded additional restructuring charges of $108.1 million and made cash payments of $5.6 million. In the first quarter 2004, our Pigments
segment recorded restructuring expenses of $3.9 million, all of which are payable in cash. In the second quarter 2004, our Pigments segment recorded restructuring expenses of
$104.2 million, of which $81.1 million is not payable in cash. In April 2004, we announced that, following a review of our Pigments business, we will idle approximately 55,000
tonnes, or about 10%, of our total TiO2 production capacity in the fourth quarter of 2004. As a result of this decision, we have recorded a restructuring charge of $17.0 million, a
$77.2 million asset impairment charge and a $3.9 million charge for the write off of spare parts inventory and other assets. Concerning the impairment charge, we determined that the
value of the related long-lived assets was impaired and recorded the non-cash charge to earnings for the impairment of these assets. The fair value of these assets for purposes
of measuring the impairment was determined using the present value of expected cash flows. During the second quarter of 2004, we recorded additional charges of $10.0 million in regard to
previously announced restructuring activities, which primarily relate to workforce reductions. These restructuring activities are expected to result in additional restructuring charges of
approximately $13 million through 2005 and result in workforce reductions of approximately 475 employees, of which 46 positions have been reduced during the six months ended June 30,
2004. As of June 30, 2004, our Pigments segment restructuring reserve totaled $25.7 million.

As
of June 30, 2004 and December 31, 2003, our Base Chemicals segment reserve consisted of $2.2 and nil, respectively, related to workforce reductions arising from the
announced change in work shift schedules at our Wilton, U.K. facility. During the six months ended June 30, 2004, our Base Chemicals segment recorded restructuring charges of
$2.2 million, all of which is payable in cash. These restructuring activities are expected to result in additional charges of approximately $4.3 million and in workforce reductions of
approximately 68 positions.

Investing Activities

Capital expenditures for the six months ended June 30, 2004 were $89.9 million as compared to $90.8 million for the same period in 2003 on a
pro forma basis. During the 2004 period, we had increased capital expenditures relating to planned T&Is at our PO and ethyleneamines facilities and increased capital expenditures associated with one
of our Chinese MDI joint ventures. In addition, we made an investment of $11.8 million in our other Chinese MDI joint venture during the six months ended June 30, 2004. Offsetting these
increases were expenditures in the 2003 period for our North American SAP system. We expect to spend between $230 and $240 million during 2004 on capital projects, of which approximately
$70 million pertains to Huntsman LLC excluding HIH, and between

67

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$160
to $170 million pertains to HIH, which would include any expenditures for the proposed LDPE facility at Wilton, U.K. in the event board and other approvals are sought and obtained in
connection with this project. In addition, we expect to spend approximately $25 million (approximately $13 million of which will be recorded as capital expenditures and approximately
$12 million of which has been recorded as an investment) during 2004 to fund our Chinese MDI joint ventures. We expect to fund up to a total of approximately $85 million to the Chinese
MDI joint ventures over the next several years (approximately $35 million to be recorded as capital expenditures and approximately $50 million to be recorded as investments).

We
believe that the cost position of our Wilton, U.K. olefins facility uniquely positions it to be the site of a polyethylene production facility. While we export approximately
one-third of our ethylene production each year to continental Europe, incurring significant shipping and handling costs, the U.K. annually imports approximately 1.9 billion pounds
of polyethylene. We believe this provides an opportunity to capitalize on the low-cost operating environment and extensive petrochemical infrastructure and logistics at Wilton, and we are
engaged in a feasibility study with respect to the possible construction of a world-scale LDPE facility at our Wilton site. The potential LDPE facility under study would have the capacity to produce
approximately 900 million pounds of LDPE annually and is estimated to cost $300 million to construct. We have had preliminary discussions with governmental authorities concerning
potential assistance and other matters in connection with the potential project, and we may seek the necessary board and other approvals for the project this year. If such approvals are granted this
year, the facility could be operational in the first half of 2007.

In
connection with our agreements with our Rubicon and Louisiana Pigment joint ventures, we are obligated to fund our proportionate share of capital expenditures. During the six months
ended June 30, 2004 and 2003, we invested $1.7 million and $1.5 million, respectively, in Rubicon. With respect to Louisiana Pigment, during the six months ended June 30,
2004 and 2003, we received $8.3 million and invested $0.7 million, respectively.

Environmental 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 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 fines and
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 change our equipment or operations, and any such changes could have a material adverse effect on our business, financial condition, results of
operations or cash flows. Accordingly, environmental or regulatory matters may cause our Company to incur significant unanticipated losses, costs or liabilities.

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We may incur future costs for capital improvements and general compliance under environmental and safety laws, including costs to acquire, maintain and repair
pollution control equipment. We estimate that, on a consolidated basis, capital expenditures for environmental and safety matters during 2004 will be approximately $64 million, including
approximately $34 million for HIH. However, 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 material capital expenditures beyond those currently anticipated will not be required under environmental and safety laws.

We
have established financial reserves relating to anticipated environmental restoration and remediation programs, as well as certain other anticipated environmental liabilities.
Management believes these reserves are sufficient for known requirements. 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, a total of approximately $32 million has been accrued related to
environmental related liabilities as of June 30, 2004, including approximately $16 million related to HIH. However, no assurance can be given that all potential liabilities arising out
of our present or past operations or ownership have been identified or fully assessed or that future environmental liabilities will not be material to our Company.



Given the nature of our business, violations of environmental laws may result in restrictions imposed on our operating activities, substantial fines, penalties,
damages or other costs, any of which could have a material adverse effect on our business, financial condition, results of operations or cash flows. We are aware of the following matters and believe
(1) the reserves related to these matters to be sufficient for known requirements, and (2) the ultimate resolution of these matters will not have a material impact on our results of
operations or financial position:

On
June 29, 2004, management at our Port Neches, Texas facilities was notified by the Texas Commission on Environmental Quality ("TCEQ") of potential Clean Air Act violations
relating to the
operation of cooling towers at two of our plants. We were invited by TCEQ to provide information that might mitigate the various alleged violations. We responded in writing to TCEQ during the week of
July 19, 2004. It is likely that penalties will be proposed by the agency for some or all of the alleged violations.

By
letter dated July 13, 2004, the TCEQ notified us that it is contemplating an enforcement action against us for nuisance odors near our Port Neches, Texas plant on
May 28, 2004. The notice advises us to begin taking actions immediately to address the outstanding alleged violation. The plant is currently investigating the matter.

By
letter dated July 20, 2004, the TCEQ notified us that it is contemplating an enforcement action based upon 29 separate alleged violations for various upset events at the Port
Neches facilities. The notice advises us to begin taking actions immediately to address the outstanding alleged violations. The plant is currently investigating the allegations.

On
October 1, 2003, the U.S. Environmental Protection Agency ("EPA") sent us an information request under section 114 of the federal Clean Air Act. The request seeks
information regarding all upset releases of air contaminants from the Port Arthur, Texas plant for the period from August 1999 to August 2003. Four other companies with plants located in
Port Arthur also received similar requests. We responded in a timely manner to the request. Whether this request will result in an enforcement action being initiated against us is unknown at this
time.

On
June 25, 2003, a group of more than 500 plaintiffs filed a lawsuit in state district court in Beaumont, Texas against six local chemical plants and refineries, including our
Company. The lawsuit

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alleges
that the refineries and chemical plants discharge chemicals into the air that cause health problems for area residents. The claim does not specify a dollar amount, but seeks damages for health
impacts as well as property value losses. The suit is based on emissions data from reports that these plants filed with the TCEQ.

On
October 6, 2002, a leak of sulphuric acid from two tanks located near our Whitehaven, U.K. plant was discovered. About 342 to 347 tonnes of acid were released onto the ground
and into the soil near the tanks. Although we took immediate steps to contain the spillage and recover acid, a quantity of acid reached a nearby beach via a geological fault. We did not own the tanks
from which the acid leaked; however, we did own the acid in the tanks. The U.K. Health and Safety Executive issued three Improvement Notices requiring corrective action with which we are complying.
The U.K. Environment Agency ("EA") on or about April 27, 2004, served a summons providing notice to Huntsman Surface Sciences UK Limited that a criminal prosecution has been initiated against
it as a result of the spill based on alleged violations of the Water Resources Act and Environmental Protection Act. A similar prosecution was initiated against the owner of the tanks, Rhodia, S.A.
Both companies agreed to plead
guilty to one charge. Huntsman Surface Sciences UK Limited was fined £40,000 and assessed £8,000 in prosecution costs on August 5, 2004.

We
have been named as a "premises defendant" in a number of asbestos exposure lawsuits. These suits often involve multiple plaintiffs and multiple defendants, and, generally, the
complaint in the action does not indicate which plaintiffs are making claims against a specific defendant, where the alleged injuries were incurred or what injuries each plaintiff claims. These facts
must be learned through discovery. There are currently 39 asbestos exposure cases pending against us. Among the cases currently pending, management is aware of three claims of mesothelioma. We do not
have sufficient information at the present time to estimate any liability in these cases. Although we cannot provide specific assurances, based on our understanding of similar cases, our management
believes that our ultimate liability in these cases will not be material to our financial position or results of operations.

We
have incurred, and 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 environmental
laws, we may be jointly and severally liable for the costs of environmental contamination on or from our properties and at off-site locations where we disposed of or arranged for the
disposal or treatment of hazardous wastes and may incur liability for damages to natural resources. For example, under the Comprehensive Environmental Response, Compensation and Liability Act of 1980,
as amended ("CERCLA"), and similar state laws, a current owner or operator of real property may be liable for such costs regardless of whether the owner or operator owned or operated the real property
at the time of the release of the hazardous substances and regardless of whether the release or disposal was in compliance with law at the time it occurred. In addition, under the Resource
Conservation and Recovery Act of 1976, as amended ("RCRA"), and similar state laws, as the holder of permits to treat or store hazardous wastes, we may, under some circumstances, be required to
remediate contamination at or from our properties regardless of when the contamination occurred. For example, our Odessa, Port Arthur, and Port Neches facilities in Texas are the subject of ongoing
RCRA remediation. Based on current information and past costs relating to these matters, we do not believe such matters will have a material adverse effect. There can be no assurance, however, that
any such matters will not have a material adverse effect on us.

We
are aware that there is or may be soil or groundwater contamination at some of our other facilities resulting from past operations. Based on available information and the
indemnification rights (including indemnities provided by ICI, Nova Chemicals Corporation, The Rohm and Haas Company, Rhodia, S.A., Shell, Texaco and Dow Chemical, for the facilities that each of them
transferred to us), we believe that the costs to investigate and remediate known contamination will not have a material adverse effect on our financial condition, results of operations or cash flows;
however, we cannot give

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any
assurance that such indemnities will fully cover the costs of investigation and remediation, that we will not be required to contribute to such costs or that such costs will not be material.

In
addition, we have been notified by third parties of claims against us or our subsidiaries for cleanup liabilities at certain former facilities and other third party sites, including
Belpre, Ohio (a former facility); Georgetown Canyon, Idaho (an alleged former property on which phosphorus mining was conducted); Aerex Refinery, Bloomfield, New Mexico (an alleged former property);
Turtle Bayou Superfund Site, Texas (an alleged off-site disposal location); the Martin Aaron Superfund Site, Camden, New Jersey (an off-site disposal and reconditioning
facility which ICI is alleged to have used); the Gulf Nuclear Sites in Odessa and near Houston, Texas (off-site waste handling sites); Star Lake Superfund Site, Texas (located near the
Port Neches facility); the San Angelo Electric Service Company Site, San Angelo, Texas (an alleged PCB-handling site); the North Maybe Canyon Mine near Soda Springs, Idaho (an alleged
former property on which phosphorus was mined); and the Malone Services Site, Texas City, Texas (an off-site disposal location). With respect to the Belpre, Georgetown Canyon, Aerex, and
North Maybe Canyon sites, which are under investigation, we are unable to determine whether such liabilities may be material to us because we do not have information sufficient to evaluate the claims.
With respect to the remaining matters, based on current information and our past experience, we do not believe such matters will have a material adverse effect on us.

Based
upon currently available information, we do not anticipate that any of the potential liabilities referenced above will materially adversely affect our financial position or results
of operations.



In a March 30, 2004 Federal Register, the EPA announced that it will designate the Beaumont-Port Arthur, Texas area as in "serious"
non-attainment with the one-hour ozone national ambient air quality standard. We currently believe that this change in status will not require additional controls and/or work
practices to meet the as yet undefined regulatory requirements for nitrogen oxides and volatile organic compounds. Although no assurance can be given, we believe that any additional capital required
to comply with the new rules based on this area reclassification, above our existing operating plans for our plants in Port Arthur and Port Neches, Texas, will not be material.

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. The U.K. was the first EU member government to request IPPC permit applications from us. In the U.K., our sites at Wilton, North
Tees, and Whitehaven have all submitted applications and received certification of their permits. Our site at Llanelli has submitted a report to the Environmental Agency and a draft permit has been
received and is currently under review for comment. Our Grimsby site will accelerate its IPPC submission to 2004 (rather than 2005) to address site operational changes, while our Greatham site is
preparing to submit its application in 2005. We are not yet in a position to know with certainty what the other U.K. IPPC permits will require, and it is possible that the costs of compliance could be
material; however, we believe, based upon our experience to date, that the costs of compliance with IPPC permitting in the U.K. will not be material to our financial condition or results of
operations. Additionally, the IPPC
directive has recently been implemented in France, and similar to our operations in the U.K., we do not anticipate having to make material capital expenditures to comply. In the French program, sites
must submit ten-year reviews of their environmental, health and safety plans and performance, and our Calais, St Mihiel and Lavera sites are developing the necessary documents.

With
respect to our facilities in EU jurisdictions other than the U.K. and France, IPPC implementing legislation is not yet in effect, or we have not yet been required to seek IPPC
permits. In Spain and Italy the IPPC directive has not yet been fully implemented. However, regional authorities in both countries have initiated discussions with local chemical producers; and our
sites at Barcelona,

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Scarlino,
Patrica, and Castiglione have all started to develop programs for IPPC submissions. In the Netherlands and Germany, existing legislation covers most, if not all, of the IPPC requirements,
thus no significant work is anticipated for the sites in those countries (Rozenburg, Osnabrück and Deggendorf.). Our Petfurdo site in Hungary has started to prepare its IPPC report, as
required under the rules agreed upon for EU accession.

On
October 29, 2003, the European Commission adopted a proposal for a new EU regulatory framework for chemicals. Under this proposed new system called "REACH"
(Registration,Evaluation andAuthorisation of CHemicals),
enterprises 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 our Company. 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. Nevertheless, it is
possible that REACH, if implemented, would be costly to us.



The use of MTBE is controversial in the United States and elsewhere and may be substantially curtailed or eliminated in the future by legislation or regulatory
action. The presence of MTBE in some groundwater supplies in California and other 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, the California Air Resources Board adopted regulations that prohibit the addition of MTBE to gasoline as of January 1, 2004. Certain other states have also taken
actions to restrict or eliminate the current or future use of MTBE. States which have taken action to prohibit or restrict the use of MTBE accounted for over 40% of the U.S. market for MTBE prior to
the taking of such action. In connection with its ban, the State of California requested that the EPA waive the federal oxygenated fuels requirements of the federal Clean Air Act for gasoline sold in
California. The EPA denied the State's request on June 12, 2001. Certain of the state bans, including California's ban, have been challenged in court as unconstitutional (in light of the Clean
Air Act). On June 4, 2003, a federal court of appeals rejected such a challenge to California's ban, ruling that the ban is not pre-empted by the Clean Air Act.

The
energy bill pending in the U.S. Congress would eliminate the oxygenated fuels requirements in the Clean Air Act and phase out or curtail MTBE use. To date, no such legislation has
become law. However, such legislation is being considered by Congress and if it were to become law it could result in a federal ban on the use of MTBE in gasoline. In addition, on March 20,
2000, the EPA announced its intention, through an advanced notice of proposed rulemaking, to phase out the use of MTBE under authority of the federal Toxic Substances Control Act. In its notice, the
EPA also called on the U.S. Congress to restrict the use of MTBE under the Clean Air Act.

In
Europe, the EU issued a final risk assessment report on MTBE on September 20, 2002. While no ban of MTBE was recommended, several risk reduction measures relating to storage
and handling of MTBE-containing fuel were recommended. Separate from EU action, Denmark entered into a voluntary agreement with refiners to reduce the sale of MTBE in Denmark. Under the
agreement, use of MTBE in 92- and 95-octane gasoline in Denmark ceased by May 1, 2002; however, MTBE is still an

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additive
in a limited amount of 98-octane gasoline sold in about 100 selected service stations in Denmark.

Any
phase-out or other future regulation of MTBE in other states, nationally or internationally may result in a significant reduction in demand for our MTBE and result in a
material loss in revenues or material costs or expenditures. In the event that there should be a phase-out of MTBE in the United States, we believe we will be able to export MTBE to Europe
or elsewhere or use its co-product TBA to produce saleable products other than MTBE. We believe that our low production costs at the PO/MTBE facility will put us in a favorable position
relative to other higher cost sources (primarily, on-purpose manufacturing). 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
addition, while we have not been named as a defendant in any litigation concerning the environmental effects of MTBE, 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 business, financial condition, results of operations or cash flows. In 2003, the U.S. House of Representatives
passed a version of an energy bill that contained limited liability protection for producers of MTBE. The Senate's version of the bill did not have liability protection. This issue was one of the
reasons that a compromise energy bill was not passed. Whether a compromise will be reached on this legislation in 2004, and whether any compromise will provide liability protection for producers, are
unknown. In any event, the liability protection provision in the House bill applied only to defective product claims; it would not preclude other types of lawsuits.



The TCEQ and our Company settled outstanding allegations of environmental regulatory violations at our Port Neches, Texas, facilities on May 29, 2003. The
settlement imposes penalties totaling $352,250 and requires enhanced air monitoring around our C4 plant, an air compliance audit performed by an outside consultant at that plant, and application for
an air emissions permit for the joint wastewater treatment plant that services all of the Port Neches facilities. Although management does not anticipate it, it is possible that the terms of a joint
wastewater treatment plant air permit, which will likely be issued as a result of the settlement, may cause us to incur costs that could be material.

The
State of Texas settled an air enforcement case with us relating to our Port Arthur plant on May 13, 2003. 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 $375,000 in attorney's fees to the Texas Attorney
General. Thus, as of May 17, 2004, we have paid $1.8 million toward the penalty and $375,000 for the attorney's fees; the monitoring projects are underway and on schedule. It is not
anticipated that this settlement will have a material adverse effect on our financial position.

Recently Issued Financial Accounting Standards

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 complete replacement of FIN 46 (FIN 46R), to clarify certain complexities. We are required to adopt this standard on January 1,
2005 and are currently evaluating its impact but do not expect the impact to be significant.

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In
May 2004, the FASB issued FASB Staff Position No. 106-2 ("FSP 106-2"),"Accounting and Disclosure Requirements Related to
the Medicare Prescription Drug, Improvement and Modernization Act of 2003"(the "Act"), which superceded FSP 106-1 of the same name, which was issued in
January 2004 and permitted a sponsor of a post-retirement health care plan that provides a prescription drug benefit to make a one-time election to defer accounting for
the effects of the Act until more authoritative guidance on the accounting for the federal subsidy was issued. FSP 106-2 provides guidance on how to account for future subsidies available
beginning in 2006 to employers who provide prescription drug benefits that are "actuarially equivalent" to those that will be provided under Medicare. Sponsors that provide actuarially equivalent
benefits must account for the subsidy as a reduction in the accumulated postretirement benefit obligation and any reduction of the sponsor's share of future costs should be reflected in service cost
in the period of implementation. We are currently evaluating whether the drug benefit provided by our postretirement plans would be considered actuarially equivalent. If we determine our plans are
actuarially equivalent, FSP 106-2 will be effective during the quarter ended September 30, 2004.

Critical Accounting Policies

There have been no changes in the second quarter 2004 with respect to our critical accounting policies as presented in our Registration Statement on
Form S-4 (file no. 333-112279) and in the 2003 Annual Reports on Form 10-K of our subsidiaries HIH and HI.

Changes in Financial Condition

The following information summarizes our working capital position as of June 30, 2004 and December 31, 2003 (dollars in millions):

|                     |                                   | June 30,
2004             |       | December 31,
2003 |         | Difference |       | %
Change |     
|-------------------- | --------------------------------- | ------------------------- | ----- | ----------------- | ------- | ---------- | ----- | -------- | ----
|Current assets:      |                                   |                           |       |                   |         |            |       |          |     
|                     | Cash and cash equivalents         |                           | $     | 116.3             |         | $          | 127.8 |          | $   
|                     | Accounts and notes receivables    |                           |       | 1,067.8           |         |            | 925.1 |          |     
|                     | Inventories                       |                           |       | 869.8             |         |            | 892.9 |          |     
|                     | Prepaid expenses                  |                           |       | 21.0              |         |            | 40.3  |          |     
|                     | Deferred income taxes             |                           |       | 3.0               |         |            | 3.0   |          |     
|                     | Other current assets              |                           |       | 88.2              |         |            | 87.0  |          |     
|                     |                                   |                           |       |                   |         |            |       |          |     
|                     |                                   | Total current assets      |       |                   | 2,166.1 |            |       | 2,076.1  |     
|                     |                                   |                           |       |                   |         |            |       |          |     
|Current liabilities: |                                   |                           |       |                   |         |            |       |          |     
|                     | Accounts payable                  |                           |       | 832.9             |         |            | 752.1 |          |     
|                     | Accrued liabilities               |                           |       | 597.3             |         |            | 585.7 |          |     
|                     | Deferred income taxes             |                           |       | 14.5              |         |            | 14.5  |          |     
|                     | Current portion of long-term debt |                           |       | 41.7              |         |            | 134.0 |          |     
|                     |                                   |                           |       |                   |         |            |       |          |     
|                     |                                   | Total current liabilities |       |                   | 1,486.4 |            |       | 1,486.3  |     
|                     |                                   |                           |       |                   |         |            |       |          |     
|Working capital      |                                   | $                         | 679.7 |                   | $       | 589.8      |       | $        | 89.9
|                     |                                   |                           |       |                   |         |            |       |          |     

As of June 30, 2004, our working capital increased by $89.9 million as a result of the net impact of the following significant
changes:



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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," or "anticipates," 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 to reflect
events or circumstances after the date made or to reflect the occurrence of unanticipated events.

There
are a number of risks and uncertainties that could cause our actual results to differ materially from the forward-looking statements contained in or contemplated by this report.
The following are among the factors that could cause actual results to differ materially from the forward-looking statements. There may be other factors, including those discussed elsewhere in this
report, that may cause our actual results to differ materially from the forward-looking statements. Any forward-looking statements should be considered in light of the risk factors specified in our
Registration Statement on Form S-4 (file no. 333-112279) and in the 2003 Annual Reports on Form 10-K of our subsidiaries HIH and HI.



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SUPPLEMENTAL DISCUSSION OF RESULTS OF OPERATIONS FOR THE RESTRICTED GROUP FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2004

Explanatory Note

Notwithstanding that HIH is a consolidated subsidiary for purposes of United States generally accepted accounting principles ("GAAP"), it is financed separately
from Huntsman LLC, its debt is non-recourse to Huntsman LLC and it is not a guarantor of Huntsman LLC's debt. The indentures and other agreements governing Huntsman LLC's outstanding notes
and the HLLC Credit Facilities contain financial covenants and other provisions that relate to Huntsman LLC's restricted group and exclude HIH. Accordingly, the following section contains certain
supplemental non-GAAP information with respect to Huntsman LLC and its subsidiaries, excluding HIH and its subsidiaries. Huntsman LLC, excluding HIH, represents the restricted group
excluding Huntsman Specialty's equity income (loss) in its ownership interest in HIH. We believe this supplemental non-GAAP information provides investors with material and meaningful
information with respect to the financial results of the business and operations which provide the primary source of cash flow to meet our debt obligations and which are subject to the restrictive
covenants in the agreements governing our debt.

The
following condensed consolidating financial statements present, in separate columns, financial information of the following: Huntsman LLC restricted group (on a consolidated basis as
if Huntsman LLC did not have operational control of HIH as of June 30, 2004); HIH (on a consolidated basis).

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HUNTSMAN LLC AND SUBSIDIARIES        CONDENSED CONSOLIDATING BALANCE SHEETS AS OF JUNE 30, 2004 (UNAUDITED)        (Dollars in Millions)

|                                |                                         | Huntsman
LLC
(restricted
group)       |   | HIH      |         | Eliminations |         | Consolidated
Huntsman
LLC |     
|------------------------------- | --------------------------------------- | ------------------------------------- | - | -------- | ------- | ------------ | ------- | ------------------------- | ----
|ASSETS                          |                                         |                                       |   |          |         |              |         |                           |     
|Current Assets:                 |                                         |                                       |   |          |         |              |         |                           |     
|                                | Cash and cash equivalents               |                                       | $ | 31.1     |         | $            | 85.2    |                           | $   
|                                | Accounts and notes receivables, net     |                                       |   | 488.2    |         |              | 658.1   |                           |     
|                                | Inventories                             |                                       |   | 286.7    |         |              | 583.1   |                           |     
|                                | Prepaid expenses                        |                                       |   | 1.0      |         |              | 20.0    |                           |     
|                                | Deferred income taxes                   |                                       |   |         |         |              | 3.0     |                           |     
|                                | Other current assets                    |                                       |   | 4.3      |         |              | 83.9    |                           |     
|                                |                                         |                                       |   |          |         |              |         |                           |     
|                                |                                         | Total current Assets                  |   |          | 811.3   |              |         | 1,433.3                   |     
|                                | Property, plant and equipment, net      |                                       |   | 1,264.7  |         |              | 3,076.3 |                           |     
|                                | Investment in unconsolidated affiliates |                                       |   | 116.9    |         |              | 142.3   |                           |     
|                                | Goodwill and intangible assets, net     |                                       |   | 35.5     |         |              | 230.0   |                           |     
|                                | Deferred income taxes                   |                                       |   | 12.0     |         |              |        |                           |     
|                                | Other noncurrent assets                 |                                       |   | 193.3    |         |              | 435.4   |                           |     
|                                |                                         |                                       |   |          |         |              |         |                           |     
|                                |                                         | Total Assets                          |   | $        | 2,433.7 |              | $       | 5,317.3                   |     
|                                |                                         |                                       |   |          |         |              |         |                           |     
|LIABILITIES AND MEMBER'S EQUITY |                                         |                                       |   |          |         |              |         |                           |     
|Current Liabilities:            |                                         |                                       |   |          |         |              |         |                           |     
|                                | Accounts payable                        |                                       | $ | 322.2    |         | $            | 589.2   |                           | $   
|                                | Accrued liabilities                     |                                       |   | 233.7    |         |              | 363.6   |                           |     
|                                | Deferred income taxes                   |                                       |   | 14.5     |         |              |        |                           |     
|                                | Current portion of long-term debt       |                                       |   | 40.0     |         |              | 1.7     |                           |     
|                                |                                         |                                       |   |          |         |              |         |                           |     
|                                |                                         | Total current liabilities             |   |          | 610.4   |              |         | 954.5                     |     
|                                | Long-term debt                          |                                       |   | 1,864.4  |         |              | 3,768.6 |                           |     
|                                | Deferred income taxes                   |                                       |   |         |         |              | 235.0   |                           |     
|                                | Other noncurrent liabilities            |                                       |   | 202.1    |         |              | 227.7   |                           |     
|                                |                                         |                                       |   |          |         |              |         |                           |     
|                                |                                         | Total liabilities                     |   |          | 2,676.9 |              |         | 5,185.8                   |     
|                                |                                         |                                       |   |          |         |              |         |                           |     
|Minority interests              |                                         |                                       |  |          |         | 6.1          |         |                           | 51.7
|                                |                                         |                                       |   |          |         |              |         |                           |     
|Member's equity (deficit):      |                                         |                                       |   |          |         |              |         |                           |     
|                                | Member's equity                         |                                       |   | 1,095.2  |         |              |        |                           |     
|                                | Subsidiary members' equity              |                                       |   |         |         |              | 565.5   |                           |     
|                                | Accumulated deficit                     |                                       |   | (1,364.7 | )       |              | (498.4  | )                         |     
|                                | Accumulated other comprehensive income  |                                       |   | 26.3     |         |              | 58.3    |                           |     
|                                |                                         |                                       |   |          |         |              |         |                           |     
|                                |                                         | Total member's (deficit) equity       |   |          | (243.2  | )            |         | 125.4                     |     
|                                |                                         |                                       |   |          |         |              |         |                           |     
|                                |                                         | Total liabilities and member's equity |   | $        | 2,433.7 |              | $       | 5,317.3                   |     
|                                |                                         |                                       |   |          |         |              |         |                           |     

77

---



HUNTSMAN LLC AND SUBSIDIARIES        CONDENSED CONSOLIDATING BALANCE SHEETS DECEMBER 31, 2003        (Dollars in Millions)

|                                |                                         | Huntsman
LLC
(restricted
group)       |   | HIH      |         | Eliminations |         | Consolidated
Huntsman
LLC |      
|------------------------------- | --------------------------------------- | ------------------------------------- | - | -------- | ------- | ------------ | ------- | ------------------------- | -----
|ASSETS                          |                                         |                                       |   |          |         |              |         |                           |      
|Current Assets:                 |                                         |                                       |   |          |         |              |         |                           |      
|                                | Cash and cash equivalents               |                                       | $ | 30.0     |         | $            | 97.8    |                           | $    
|                                | Accounts and notes receivables, net     |                                       |   | 428.7    |         |              | 564.4   |                           |      
|                                | Inventories                             |                                       |   | 296.0    |         |              | 596.9   |                           |      
|                                | Prepaid expenses                        |                                       |   | 25.0     |         |              | 23.6    |                           |      
|                                | Deferred income taxes                   |                                       |   |         |         |              | 3.0     |                           |      
|                                | Other current assets                    |                                       |   | 3.4      |         |              | 83.6    |                           |      
|                                |                                         |                                       |   |          |         |              |         |                           |      
|                                |                                         | Total current Assets                  |   |          | 783.1   |              |         | 1,369.3                   |      
|                                | Property, plant and equipment, net      |                                       |   | 1,294.0  |         |              | 3,256.2 |                           |      
|                                | Investment in unconsolidated affiliates |                                       |   | 235.0    |         |              | 138.7   |                           |      
|                                | Intangible assets, net                  |                                       |   | 34.9     |         |              | 247.0   |                           |      
|                                | Goodwill                                |                                       |   | 3.3      |         |              |        |                           |      
|                                | Deferred income tax                     |                                       |   | 12.0     |         |              |        |                           |      
|                                | Other noncurrent assets                 |                                       |   | 168.4    |         |              | 445.7   |                           |      
|                                |                                         |                                       |   |          |         |              |         |                           |      
|                                |                                         | Total Assets                          |   | $        | 2,530.7 |              | $       | 5,456.9                   |      
|                                |                                         |                                       |   |          |         |              |         |                           |      
|LIABILITIES AND MEMBER'S EQUITY |                                         |                                       |   |          |         |              |         |                           |      
|Current Liabilities:            |                                         |                                       |   |          |         |              |         |                           |      
|                                | Accounts payable                        |                                       | $ | 258.8    |         | $            | 561.3   |                           | $    
|                                | Accrued liabilities                     |                                       |   | 204.6    |         |              | 389.5   |                           |      
|                                | Deferred income taxes                   |                                       |   | 14.5     |         |              |        |                           |      
|                                | Current portion of long-term debt       |                                       |   | 132.2    |         |              | 1.8     |                           |      
|                                |                                         |                                       |   |          |         |              |         |                           |      
|                                |                                         | Total current liabilities             |   |          | 610.1   |              |         | 952.6                     |      
|                                | Long-term debt                          |                                       |   | 1,699.9  |         |              | 3,359.9 |                           |      
|                                | Long-term debt affiliate                |                                       |   | 35.5     |         |              | 358.3   |                           |      
|                                | Deferred income taxes                   |                                       |   |         |         |              | 234.8   |                           |      
|                                | Other noncurrent liabilities            |                                       |   | 234.3    |         |              | 224.5   |                           |      
|                                |                                         |                                       |   |          |         |              |         |                           |      
|                                |                                         | Total liabilities                     |   |          | 2,579.8 |              |         | 5,130.1                   |      
|                                |                                         |                                       |   |          |         |              |         |                           |      
|Minority interests              |                                         |                                       |  |          |         | 3.6          |         |                           | 130.9
|                                |                                         |                                       |   |          |         |              |         |                           |      
|Member's equity (deficit):      |                                         |                                       |   |          |         |              |         |                           |      
|                                | Member's equity                         |                                       |   | 1,095.2  |         |              |        |                           |      
|                                | Subsidiary members' equity              |                                       |   |         |         |              | 565.5   |                           |      
|                                | Accumulated deficit                     |                                       |   | (1,181.1 | )       |              | (314.3  | )                         |      
|                                | Accumulated other comprehensive income  |                                       |   | 36.8     |         |              | 72.0    |                           |      
|                                |                                         |                                       |   |          |         |              |         |                           |      
|                                |                                         | Total member's (deficit) equity       |   |          | (49.1   | )            |         | 323.2                     |      
|                                |                                         |                                       |   |          |         |              |         |                           |      
|                                |                                         | Total liabilities and member's equity |   | $        | 2,530.7 |              | $       | 5,456.9                   |      
|                                |                                         |                                       |   |          |         |              |         |                           |      

78

---





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

|                                                         |                                       | Huntsman LLC
(restricted
group) |        | HIH   |       | Eliminations |         | Consolidated
Huntsman LLC |       
|-------------------------------------------------------- | ------------------------------------- | ------------------------------- | ------ | ----- | ----- | ------------ | ------- | ------------------------- | ------
|Revenues:                                                |                                       |                                 |        |       |       |              |         |                           |       
|                                                         | Trade sales                           |                                 | $      | 914.4 |       | $            | 1,556.4 |                           | $     
|                                                         | Related party sales                   |                                 |        | 54.5  |       |              | 67.3    |                           |       
|                                                         |                                       |                                 |        |       |       |              |         |                           |       
|                                                         |                                       | Total revenues                  |        |       | 968.9 |              |         | 1,623.7                   |       
|Cost of goods sold                                       |                                       |                                 | 916.7  |       |       | 1,392.3      |         |                           | (101.1
|                                                         |                                       |                                 |        |       |       |              |         |                           |       
|Gross profit (loss)                                      |                                       |                                 | 52.2   |       |       | 231.4        |         |                           | (3.5  
|Expenses:                                                |                                       |                                 |        |       |       |              |         |                           |       
|                                                         | Selling, general and administrative   |                                 |        | 37.8  |       |              | 92.8    |                           |       
|                                                         | Research and development              |                                 |        | 5.8   |       |              | 8.8     |                           |       
|                                                         | Other operating (income) expense      |                                 |        | (3.8  | )     |              | 24.8    |                           |       
|                                                         | Restructuring and plant closing costs |                                 |        | 25.6  |       |              | 124.9   |                           |       
|                                                         |                                       |                                 |        |       |       |              |         |                           |       
|Total expenses                                           |                                       |                                 | 65.4   |       |       | 251.3        |         |                           | (3.0  
|                                                         |                                       |                                 |        |       |       |              |         |                           |       
|Operating loss                                           |                                       |                                 | (13.2  | )     |       | (19.9        | )       |                           | (0.5  
|Interest expense, net                                    |                                       |                                 | (42.1  | )     |       | (91.2        | )       |                           |      
|Loss on accounts receivable securitization program       |                                       |                                 |       |       |       | (3.0         | )       |                           |      
|Equity in earnings (losses) of unconsolidated affiliates |                                       |                                 | (70.3  | )     |       |             |         |                           | 71.3  
|Other expense                                            |                                       |                                 | (2.1   | )     |       |             |         |                           |      
|                                                         |                                       |                                 |        |       |       |              |         |                           |       
|Loss before income tax and minority interests            |                                       |                                 | (127.7 | )     |       | (114.1       | )       |                           | 70.8  
|Income tax expense                                       |                                       |                                 | (1.7   | )     |       | (4.7         | )       |                           |      
|Minority interest in subsidiaries' loss                  |                                       |                                 |       |       |       |             |         |                           | 47.5  
|                                                         |                                       |                                 |        |       |       |              |         |                           |       
|Net loss                                                 |                                       |                                 | (129.4 | )     |       | (118.8       | )       |                           | 118.3 
|Other comprehensive income (loss)                        |                                       |                                 | (11.8  | )     |       | (15.5        | )       |                           | 15.5  
|                                                         |                                       |                                 |        |       |       |              |         |                           |       
|Comprehensive loss                                       |                                       | $                               | (141.2 | )     | $     | (134.3       | )       | $                         | 133.8 
|                                                         |                                       |                                 |        |       |       |              |         |                           |       

79

---



HUNTSMAN LLC AND SUBSIDIARIES        CONSOLIDATING STATEMENTS OF OPERATIONS AND COMPREHENSIVE (LOSS) INCOME        THREE MONTHS ENDED JUNE 30, 2003 (UNAUDITED)        (Dollars in
Millions)

|                                                         |                                                                  | Huntsman LLC
(restricted group)(1) |       | HIH(1) |       | Total(1) |         | HIH(2)  |         | Eliminations |         | Huntsman LLC(1) |       
|-------------------------------------------------------- | ---------------------------------------------------------------- | ---------------------------------- | ----- | ------ | ----- | -------- | ------- | ------- | ------- | ------------ | ------- | --------------- | ------
|Revenues:                                                |                                                                  |                                    |       |        |       |          |         |         |         |              |         |                 |       
|                                                         | Trade sales                                                      |                                    | $     | 703.8  |       | $        | 1,280.2 |         | $       | 1,984.0      |         | $               | (429.7
|                                                         | Related party sales                                              |                                    |       | 67.0   |       |          | 27.2    |         |         | 94.2         |         |                 | (6.1  
|                                                         |                                                                  |                                    |       |        |       |          |         |         |         |              |         |                 |       
|                                                         |                                                                  | Total revenues                     |       |        | 770.8 |          |         | 1,307.4 |         |              | 2,078.2 |                 |       
|Cost of goods sold                                       |                                                                  |                                    | 717.6 |        |       | 1,150.0  |         |         | 1,867.6 |              |         | (392.7          | )     
|                                                         |                                                                  |                                    |       |        |       |          |         |         |         |              |         |                 |       
|Gross profit (loss)                                      |                                                                  |                                    | 53.2  |        |       | 157.4    |         |         | 210.6   |              |         | (43.1           | )     
|Expenses:                                                |                                                                  |                                    |       |        |       |          |         |         |         |              |         |                 |       
|                                                         | Selling, general and administrative                              |                                    |       | 36.9   |       |          | 94.4    |         |         | 131.3        |         |                 | (25.8 
|                                                         | Research and development                                         |                                    |       | 5.6    |       |          | 12.4    |         |         | 18.0         |         |                 | (4.4  
|                                                         | Other operating (income) expense                                 |                                    |       | (4.9   | )     |          | (23.3   | )       |         | (28.2        | )       |                 | 12.1  
|                                                         | Restructuring, plant closing costs, and asset impairment charges |                                    |       | 0.9    |       |          | 21.5    |         |         | 22.4         |         |                 |      
|                                                         |                                                                  |                                    |       |        |       |          |         |         |         |              |         |                 |       
|Total expenses                                           |                                                                  |                                    | 38.5  |        |       | 105.0    |         |         | 143.5   |              |         | (18.1           | )     
|                                                         |                                                                  |                                    |       |        |       |          |         |         |         |              |         |                 |       
|Operating income (loss)                                  |                                                                  |                                    | 14.7  |        |       | 52.4     |         |         | 67.1    |              |         | (25.0           | )     
|Interest (expense) income, net                           |                                                                  |                                    | (39.0 | )      |       | (88.7    | )       |         | (127.7  | )            |         | 24.0            |       
|Loss on sale of accounts receivable                      |                                                                  |                                    |      |        |       | (11.3    | )       |         | (11.3   | )            |         | 2.8             |       
|Equity in earnings (losses) of unconsolidated affiliates |                                                                  |                                    | (27.7 | )      |       | 0.1      |         |         | (27.6   | )            |         |                |       
|Other income (expense)                                   |                                                                  |                                    | 0.2   |        |       | (0.2     | )       |         |        |              |         |                |       
|                                                         |                                                                  |                                    |       |        |       |          |         |         |         |              |         |                 |       
|(Loss) income before income tax and minority interests   |                                                                  |                                    | (51.8 | )      |       | (47.7    | )       |         | (99.5   | )            |         | 1.8             |       
|Income tax benefit                                       |                                                                  |                                    |      |        |       | 0.8      |         |         | 0.8     |              |         | 5.5             |       
|Minority interest in subsidiaries' loss                  |                                                                  |                                    |      |        |       |         |         |         |        |              |         |                |       
|                                                         |                                                                  |                                    |       |        |       |          |         |         |         |              |         |                 |       
|Net (loss) income                                        |                                                                  |                                    | (51.8 | )      |       | (46.9    | )       |         | (98.7   | )            |         | 7.3             |       
|Other comprehensive income (loss)                        |                                                                  |                                    | 51.8  |        |       | 70.6     |         |         | 122.4   |              |         | (19.1           | )     
|                                                         |                                                                  |                                    |       |        |       |          |         |         |         |              |         |                 |       
|Comprehensive (loss) income                              |                                                                  | $                                  | (0.0  | )      | $     | 23.7     |         | $       | 23.7    |              | $       | (11.8           | )     
|                                                         |                                                                  |                                    |       |        |       |          |         |         |         |              |         |                 |       

---

80

---





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

|                                                         |                                       | Huntsman LLC
(restricted group) |         | HIH     |         | Eliminations |         | Consolidated Huntsman LLC |       
|-------------------------------------------------------- | ------------------------------------- | ------------------------------- | ------- | ------- | ------- | ------------ | ------- | ------------------------- | ------
|Revenues:                                                |                                       |                                 |         |         |         |              |         |                           |       
|                                                         | Trade sales                           |                                 | $       | 1,800.5 |         | $            | 3,017.9 |                           | $     
|                                                         | Related party sales                   |                                 |         | 108.2   |         |              | 103.9   |                           |       
|                                                         |                                       |                                 |         |         |         |              |         |                           |       
|                                                         |                                       | Total revenues                  |         |         | 1,908.7 |              |         | 3,121.8                   |       
|Cost of goods sold                                       |                                       |                                 | 1,787.5 |         |         | 2,742.3      |         |                           | (180.7
|                                                         |                                       |                                 |         |         |         |              |         |                           |       
|Gross profit (loss)                                      |                                       |                                 | 121.2   |         |         | 379.5        |         |                           | (7.1  
|Expenses:                                                |                                       |                                 |         |         |         |              |         |                           |       
|                                                         | Selling, general and administrative   |                                 |         | 72.5    |         |              | 185.8   |                           |       
|                                                         | Research and development              |                                 |         | 11.4    |         |              | 21.0    |                           |       
|                                                         | Other operating (income) expenses     |                                 |         | (5.2    | )       |              | 19.6    |                           |       
|                                                         | Restructuring and plant closing costs |                                 |         | 25.6    |         |              | 133.6   |                           |       
|                                                         |                                       |                                 |         |         |         |              |         |                           |       
|Total expenses                                           |                                       |                                 | 104.3   |         |         | 360.0        |         |                           | (6.0  
|                                                         |                                       |                                 |         |         |         |              |         |                           |       
|Operating income                                         |                                       |                                 | 16.9    |         |         | 19.5         |         |                           | (1.1  
|Interest expense, net                                    |                                       |                                 | (88.9   | )       |         | (188.6       | )       |                           |      
|Loss on accounts receivable securitization program       |                                       |                                 |        |         |         | (6.5         | )       |                           |      
|Equity in earnings (losses) of unconsolidated affiliates |                                       |                                 | (108.8  | )       |         |             |         |                           | 110.5 
|Other expense                                            |                                       |                                 | (3.7    | )       |         | (0.2         | )       |                           |       
|                                                         |                                       |                                 |         |         |         |              |         |                           |       
|Loss before income tax and minority interests            |                                       |                                 | (184.5  | )       |         | (175.8       | )       |                           | 109.4 
|Income tax benefit (expense)                             |                                       |                                 | 0.8     |         |         | (8.3         | )       |                           | (7.5  
|Minority interest in subsidiaries' income                |                                       |                                 |        |         |         |             |         |                           | 73.6  
|                                                         |                                       |                                 |         |         |         |              |         |                           |       
|Net loss                                                 |                                       |                                 | (183.7  | )       |         | (184.1       | )       |                           | 183.0 
|Other comprehensive loss                                 |                                       |                                 | (10.5   | )       |         | (13.7        | )       |                           | 13.8  
|                                                         |                                       |                                 |         |         |         |              |         |                           |       
|Comprehensive loss                                       |                                       | $                               | (194.2  | )       | $       | (197.8       | )       | $                         | 196.8 
|                                                         |                                       |                                 |         |         |         |              |         |                           |       

81

---



HUNTSMAN LLC AND SUBSIDIARIES        CONSOLIDATING STATEMENTS OF OPERATIONS AND COMPREHENSIVE (LOSS) INCOME        SIX MONTHS ENDED JUNE 30, 2003 (UNAUDITED)        (Dollars in Millions)

|                                                         |                                                                  | Huntsman
LLC
(restricted
group)(1) |         | HIH(1)  |         | Total(1) |         | HIH(2)  |         | Eliminations |         | Huntsman LLC(1) |         
|-------------------------------------------------------- | ---------------------------------------------------------------- | ---------------------------------- | ------- | ------- | ------- | -------- | ------- | ------- | ------- | ------------ | ------- | --------------- | --------
|Revenues:                                                |                                                                  |                                    |         |         |         |          |         |         |         |              |         |                 |         
|                                                         | Trade sales                                                      |                                    | $       | 1,483.7 |         | $        | 2,555.4 |         | $       | 4,039.1      |         | $               | (1,704.8
|                                                         | Related party sales                                              |                                    |         | 118.9   |         |          | 49.7    |         |         | 168.6        |         |                 | (28.6   
|                                                         |                                                                  |                                    |         |         |         |          |         |         |         |              |         |                 |         
|                                                         |                                                                  | Total revenue                      |         |         | 1,602.6 |          |         | 2,605.1 |         |              | 4,207.7 |                 |         
|Cost of goods sold                                       |                                                                  |                                    | 1,508.8 |         |         | 2,309.3  |         |         | 3,818.1 |              |         | (1,551.9        | )       
|                                                         |                                                                  |                                    |         |         |         |          |         |         |         |              |         |                 |         
|Gross profit (loss)                                      |                                                                  |                                    | 93.8    |         |         | 295.8    |         |         | 389.6   |              |         | (181.5          | )       
|Expenses:                                                |                                                                  |                                    |         |         |         |          |         |         |         |              |         |                 |         
|                                                         | Selling, general and administrative                              |                                    |         | 75.5    |         |          | 185.5   |         |         | 261.0        |         |                 | (116.9  
|                                                         | Research and development                                         |                                    |         | 11.3    |         |          | 24.6    |         |         | 35.9         |         |                 | (16.6   
|                                                         | Other operating (income) expense                                 |                                    |         | (8.5    | )       |          | (40.4   | )       |         | (48.9        | )       |                 | 28.9    
|                                                         | Restructuring, plant closing costs, and asset impairment charges |                                    |         | 0.9     |         |          | 38.6    |         |         | 39.5         |         |                 | (17.1   
|                                                         |                                                                  |                                    |         |         |         |          |         |         |         |              |         |                 |         
|Total expenses                                           |                                                                  |                                    | 79.2    |         |         | 208.3    |         |         | 287.5   |              |         | (121.7          | )       
|                                                         |                                                                  |                                    |         |         |         |          |         |         |         |              |         |                 |         
|Operating income (loss)                                  |                                                                  |                                    | 14.6    |         |         | 87.5     |         |         | 102.1   |              |         | (59.8           | )       
|Interest (expense) income, net                           |                                                                  |                                    | (73.5   | )       |         | (177.9   | )       |         | (251.4  | )            |         | 113.2           |         
|(Loss) gain on sale of accounts receivable               |                                                                  |                                    |        |         |         | (20.5    | )       |         | (20.5   | )            |         | 12.0            |         
|Equity in (losses) earnings of unconsolidated affiliates |                                                                  |                                    | (61.7   | )       |         |         |         |         | (61.7   | )            |         |                |         
|Other (expense) income                                   |                                                                  |                                    | (0.1    | )       |         | (2.4     | )       |         | (2.5    | )            |         | 2.2             |         
|                                                         |                                                                  |                                    |         |         |         |          |         |         |         |              |         |                 |         
|(Loss) income before income tax and minority interest    |                                                                  |                                    | (120.7  | )       |         | (113.3   | )       |         | (234.0  | )            |         | 67.6            |         
|Income tax benefit (expense)                             |                                                                  |                                    |        |         |         | 8.7      |         |         | 8.7     |              |         | (2.4            | )       
|Minority interest in subsidiaries' loss                  |                                                                  |                                    |        |         |         |         |         |         |        |              |         |                |         
|                                                         |                                                                  |                                    |         |         |         |          |         |         |         |              |         |                 |         
|Net (loss) income                                        |                                                                  |                                    | (120.7  | )       |         | (104.6   | )       |         | (225.3  | )            |         | 65.2            |         
|Other comprehensive income (loss)                        |                                                                  |                                    | 59.2    |         |         | 75.7     |         |         | 134.9   |              |         | (24.2           | )       
|                                                         |                                                                  |                                    |         |         |         |          |         |         |         |              |         |                 |         
|Comprehensive (loss) income                              |                                                                  | $                                  | (61.5   | )       | $       | (28.9    | )       | $       | (90.4   | )            | $       | 41.0            |         
|                                                         |                                                                  |                                    |         |         |         |          |         |         |         |              |         |                 |         

---

82

---





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

|                                                 |  | Huntsman
LLC
(restricted
groups) |        | HIH |   | Eliminations |   | Consolidated
Huntsman LLC |  
|------------------------------------------------ |  | -------------------------------- | ------ | --- | - | ------------ | - | ------------------------- | -
|Net cash provided by operating activities        |  | $                                | 2.1    |     | $ | 37.5         |   | $                         | 
|                                                 |  |                                  |        |     |   |              |   |                           |  
|Investing activities:                            |  |                                  |        |     |   |              |   |                           |  
|Capital expenditures                             |  |                                  | (29.5  | )   |   | (60.4        | ) |                           | 
|Investment in unconsolidated affiliate           |  |                                  |       |     |   | (11.8        | ) |                           | 
|Net cash received from unconsolidated affiliates |  |                                  | 0.1    |     |   | 7.1          |   |                           | 
|                                                 |  |                                  |        |     |   |              |   |                           |  
|Net cash used in investing activities            |  |                                  | (29.4  | )   |   | (65.1        | ) |                           | 
|                                                 |  |                                  |        |     |   |              |   |                           |  
|Financing activities:                            |  |                                  |        |     |   |              |   |                           |  
|Net borrowings under revolving loan facilities   |  |                                  | 74.3   |     |   | 15.0         |   |                           | 
|Net borrowings on overdraft                      |  |                                  |       |     |   | (7.5         | ) |                           | 
|Shares issued to minorities for cash             |  |                                  |       |     |   | 2.7          |   |                           | 
|Issuance of senior unsecured notes               |  |                                  | 400.0  |     |   |             |   |                           | 
|Repayment of long term debt                      |  |                                  | (388.6 | )   |   |             |   |                           | 
|Debt issuance costs                              |  |                                  | (12.1  | )   |   |             |   |                           | 
|                                                 |  |                                  |        |     |   |              |   |                           |  
|Net cash provided by financing activities        |  |                                  | 73.6   |     |   | 10.2         |   |                           | 
|                                                 |  |                                  |        |     |   |              |   |                           |  
|Effect of exchange rate changes on cash          |  |                                  | (42.5  | )   |   | 2.1          |   |                           |  
|                                                 |  |                                  |        |     |   |              |   |                           |  
|Increase (decrease) in cash and cash equivalents |  |                                  | 3.8    |     |   | (15.3        | ) |                           | 
|Cash and cash equivalents at beginning of period |  |                                  | 30.0   |     |   | 97.8         |   |                           | 
|                                                 |  |                                  |        |     |   |              |   |                           |  
|Cash and cash equivalents at end of period       |  | $                                | 33.8   |     | $ | 82.5         |   | $                         | 
|                                                 |  |                                  |        |     |   |              |   |                           |  

83

---



HUNTSMAN LLC AND SUBSIDIARIES        CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOW        SIX MONTHS ENDED JUNE 30, 2003 (UNAUDITED)        (Dollars in Millions)

|                                                                        |  | Huntsman
LLC
(restricted
group)(1) |       | HIH(1) |   | Total(1) |   | HIH(2) |        | Eliminations(2) |   | Huntsman
LLC(1) |  
|----------------------------------------------------------------------- |  | ---------------------------------- | ----- | ------ | - | -------- | - | ------ | ------ | --------------- | - | --------------- | -
|Net cash (used in) provided by operating activities                     |  | $                                  | (63.4 | )      | $ | (48.0    | ) | $      | (111.4 | )               | $ | 100.8           |  
|                                                                        |  |                                    |       |        |   |          |   |        |        |                 |   |                 |  
|Investing activities:                                                   |  |                                    |       |        |   |          |   |        |        |                 |   |                 |  
|Capital expenditures                                                    |  |                                    | (36.8 | )      |   | (54.0    | ) |        | (90.8  | )               |   | 31.9            |  
|Net cash received from unconsolidated affiliates                        |  |                                    |      |        |   | 0.7      |   |        | 0.7    |                 |   | 0.3             |  
|Advances to unconsolidated affiliates                                   |  |                                    |      |        |   | (1.5     | ) |        | (1.5   | )               |   |                |  
|                                                                        |  |                                    |       |        |   |          |   |        |        |                 |   |                 |  
|Net cash (used in) provided by investing activities                     |  |                                    | (36.8 | )      |   | (54.8    | ) |        | (91.6  | )               |   | 32.2            |  
|                                                                        |  |                                    |       |        |   |          |   |        |        |                 |   |                 |  
|Financing activities:                                                   |  |                                    |       |        |   |          |   |        |        |                 |   |                 |  
|Net borrowings under revolving loan facilities                          |  |                                    | 112.3 |        |   | 138.2    |   |        | 250.5  |                 |   | (134.2          | )
|Issuance of senior notes                                                |  |                                    |      |        |   | 157.9    |   |        | 157.9  |                 |   | (157.9          | )
|Repayment of long term debt                                             |  |                                    | (4.3  | )      |   | (195.3   | ) |        | (199.6 | )               |   | 177.7           |  
|Shares of subsidiaries issued to minorities for cash                    |  |                                    |      |        |   | 2.8      |   |        | 2.8    |                 |   | (1.0            | )
|Debt issuance costs                                                     |  |                                    | (12.8 | )      |   |         |   |        | (12.8  | )               |   |                |  
|                                                                        |  |                                    |       |        |   |          |   |        |        |                 |   |                 |  
|Net cash provided by (used in) financing activities                     |  |                                    | 95.2  |        |   | 103.6    |   |        | 198.8  |                 |   | (115.4          | )
|                                                                        |  |                                    |       |        |   |          |   |        |        |                 |   |                 |  
|Effect of exchange rate changes on cash                                 |  |                                    | 6.0   |        |   | 10.2     |   |        | 16.2   |                 |   | (4.4            | )
|                                                                        |  |                                    |       |        |   |          |   |        |        |                 |   |                 |  
|Increase in cash and cash equivalents                                   |  |                                    | 1.0   |        |   | 11.0     |   |        | 12.0   |                 |   | 13.2            |  
|Cash and cash equivalents at beginning of period                        |  |                                    | 31.4  |        |   |         |   |        | 31.4   |                 |   |                |  
|Cash and cash equivalents of HIH at May 1, 2003 (date of consolidation) |  |                                    |      |        |   | 75.4     |   |        | 75.4   |                 |   | (13.2           | )
|                                                                        |  |                                    |       |        |   |          |   |        |        |                 |   |                 |  
|Cash and cash equivalents at end of period                              |  | $                                  | 32.4  |        | $ | 86.4     |   | $      | 118.8  |                 | $ |                |  
|                                                                        |  |                                    |       |        |   |          |   |        |        |                 |   |                 |  

---

84

---





Results of Operations (Excluding HIH)

Three and Six Months Ended June 30, 2004 Compared to Three and Six Months Ended June 30, 2003 (Unaudited) (Dollars in Millions)

|                                                                                          |  | Three Months
Ended
June 30,
2004 |       | Three Months
Ended
June 30,
2003 |   | %
Change |   | Six Months
Ended
June 30,
2004 |    | Six Months
Ended
June 30,
2003 |         | %
Change |  
|----------------------------------------------------------------------------------------- |  | -------------------------------- | ----- | -------------------------------- | - | -------- | - | ------------------------------ | -- | ------------------------------ | ------- | -------- | -
|Revenues                                                                                  |  | $                                | 968.9 |                                  | $ | 770.8    |   | 26                             | %  | $                              | 1,908.7 |          | $
|Cost of goods sold                                                                        |  |                                  | 916.7 |                                  |   | 717.6    |   | 28                             | %  |                                | 1,787.5 |          |  
|                                                                                          |  |                                  |       |                                  |   |          |   |                                |    |                                |         |          |  
|Gross profit                                                                              |  |                                  | 52.2  |                                  |   | 53.2     |   | (2                             | )% |                                | 121.2   |          |  
|Selling, general and administrative research and development, and other operating expense |  |                                  | 39.8  |                                  |   | 37.6     |   | 6                              | %  |                                | 78.7    |          |  
|Restructuring and plant closing costs                                                     |  |                                  | 25.6  |                                  |   | 0.9      |   | NM                             |    |                                | 25.6    |          |  
|                                                                                          |  |                                  |       |                                  |   |          |   |                                |    |                                |         |          |  
|Operating (loss) income                                                                   |  |                                  | (13.2 | )                                |   | 14.7     |   | NM                             |    |                                | 16.9    |          |  
|Interest expense, net                                                                     |  |                                  | (42.1 | )                                |   | (39.0    | ) | 8                              | %  |                                | (88.9   | )        |  
|Equity losses of investments in unconsolidated affiliates                                 |  |                                  | 1.0   |                                  |   | 0.3      |   | NM                             |    |                                | 1.7     |          |  
|Other (expense) income                                                                    |  |                                  | (2.1  | )                                |   | 0.2      |   | NM                             |    |                                | (3.7    | )        |  
|                                                                                          |  |                                  |       |                                  |   |          |   |                                |    |                                |         |          |  
|Loss before income tax and minority interests                                             |  |                                  | (56.4 | )                                |   | (23.8    | ) | 137                            | %  |                                | (74.0   | )        |  
|Income tax (expense) benefit                                                              |  |                                  | (1.7  | )                                |   |         |   | NM                             |    |                                | 0.8     |          |  
|                                                                                          |  |                                  |       |                                  |   |          |   |                                |    |                                |         |          |  
|Net loss                                                                                  |  | $                                | (58.1 | )                                | $ | (23.8    | ) | 144                            | %  | $                              | (73.2   | )        | $
|                                                                                          |  |                                  |       |                                  |   |          |   |                                |    |                                |         |          |  
|Interest expense, net                                                                     |  |                                  | 42.1  |                                  |   | 39.0     |   | 8                              | %  |                                | 88.9    |          |  
|Income tax expense (benefit)                                                              |  |                                  | 1.7   |                                  |   |         |   | NM                             |    |                                | (0.8    | )        |  
|Depreciation and amortization                                                             |  |                                  | 34.1  |                                  |   | 31.9     |   | 7                              | %  |                                | 66.6    |          |  
|                                                                                          |  |                                  |       |                                  |   |          |   |                                |    |                                |         |          |  
|EBITDA(1)                                                                                 |  | $                                | 19.8  |                                  | $ | 47.1     |   | (58                            | )% | $                              | 81.5    |          | $
|                                                                                          |  |                                  |       |                                  |   |          |   |                                |    |                                |         |          |  

---

NMNot
meaningful

85

---







Three Months
Ended
June 30, 2004

Three Months
Ended
June 30, 2003

Six Months
Ended
June 30, 2004

Six Months
Ended
June 30, 2003Foreign exchange gainsunallocated

$


$
5.0

$


$
7.8Early extinguishment of debt


(2.5
)




(4.2
)

Restructuring and reorganization:Performance Products

$
(20.5
)
$


$
(20.5
)
$
Polymers


(5.1
)

(0.9
)

(5.1
)

(0.9
)Base Chemicals











Total restructuring and reorganization

$
(25.6
)
$
(0.9
)
$
(25.6
)
$
(0.9
)


Three Months Ended June 30, 2004 Compared to Three Months Ended June 30, 2003

For the three months ended June 30, 2004 we had a net loss of $58.1 million on revenues of $968.9 million, compared to a net loss of
$23.8 million on revenues of $770.8 million for the three months ended June 30, 2003. The increase of $34.3 million in net loss was the result of the following items:



86

---





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

Huntsman LLC (Excluding HIH)

Three Months Ended
June 30,%
Change2004

2003RevenuesPerformance Products

$
284.9

$
272.4

5
%Polymers


324.2


269.6

20
%Base Chemicals


430.3


285.9

51
%Eliminations


(70.5
)

(57.1
)
23
%Total

$
968.9

$
770.8

26
%Segment EBITDAPerformance Products

$
13.6

$
31.1

(56
)%Polymers


0.2


22.7

(99
)%Base Chemicals


23.4


(2.6
)
NMCorporate and other


(17.4
)

(4.1
)
NMTotal

$
19.8

$
47.1

(58
)%


---

NMnot
meaningful.

Performance Products

For the three months ended June 30, 2004, Performance Products revenues increased by $12.5 million, or 5%, to $284.9 million from
$272.4 million in the same period in 2003. Overall average selling prices increased by 5% and sales volumes fell by 1%. Ethylene glycol revenues increased by 38% as average selling prices
increased by 34% in response to higher raw material and energy costs and improved market conditions. Ethylene glycol sales volumes increased by 3% due to improved market demand. MAn revenues increased
by 33% due to an increase in sales volumes of 36%, primarily due to strong demand in the housing and recreational end markets. Our surfactants revenues increased 3% primarily
due to a 10% increase in average selling prices, partially offset by a 6% decrease in sales volumes. Surfactants average selling prices increased mainly in response to higher raw material and energy
prices and improved product and customer mix. Surfactants sales volumes declined due to reduced customer demand in certain product lines, reduced production at our Chocolate Bayou, Texas facility and
increased competition in the marketplace. Amines revenues fell by 10% on a 14% decrease in sales volumes primarily due to the initiation of tolling agreements with affiliates in mid-2003.
Amines average selling prices increased by 5% in response to higher raw material and energy costs, partially offset by the adverse effects of changes in product mix.

For
the three months ended June 30, 2004, Performance Products segment EBITDA decreased by $17.5 million from $31.1 million for the three months ended
June 30, 2003 to $13.6 million. The results for the three months ended June 30, 2004 include a charge of $20.3 million relating to the announced closure of our Guelph,
Canada surfactants facility. Excluding this charge, EBITDA increased by $2.8 million compared to the 2003 period. Increases in average selling prices of $29.6 million exceeded increases
in raw material costs of $19.3 million, a $5.5 million impact from lower sales volumes and a

87

---



$1.9 million
increase in fixed costs, of which $0.9 million was due to the strength of certain foreign currencies versus the U.S. dollar.

Polymers

For the three months ended June 30, 2004, Polymers revenues increased by $54.6 million, or 20%, to $324.2 million from $269.6 million
for the same period in 2003. Overall sales volumes increased by 11% and average selling prices increased by 13%. Polyethylene revenues increased by 9%, resulting from a 4% increase in average selling
prices, primarily in response to higher underlying raw material and energy costs, and a 5% increase in sales volumes. Polypropylene revenues increased by 9%, resulting from a 11% increase in average
selling prices, primarily in response to higher raw material costs, and a 3% increase in sales volumes due to improved customer demand. APAO revenues increased by 8%, as sales volumes increased 9%
largely as the result of increased sales in the export market, offset by a 1% decrease in average selling prices due to product mix. Expandable polystyrene revenue increased by 47%, resulting from a
45% increase in sales volumes due to stronger customer demand and a 1% increase in average selling prices, primarily in response to higher underlying raw material and energy costs. Australian
styrenics revenues increased by 24%, resulting from an 18% increase in average selling prices, primarily due to the strengthening of the Australian dollar and in response to an increase in raw
material costs and a 5% increase in sales volumes.

For
the three months ended June 30, 2004, Polymers segment EBITDA decreased by $22.5 million to $0.2 million from $22.7 million for the same period in 2003.
The decrease in EBITDA is primarily due to $48.9 million in increased raw material and energy costs, partially offset by $26.0 million resulting from higher prices and
$7.3 million resulting from higher sales volumes. The T&I at our Odessa, Texas plant had a substantial unfavorable impact on EBITDA for the 2004 period thereby increasing both direct
and indirect manufacturing costs. In addition, fixed manufacturing costs were higher by $2.7 million, including $1.8 million of maintenance costs associated with the T&I at our Odessa
plant. Also, we recorded a restructuring charge of $5.1 million in the three months ended June 30, 2004 related to the closure of an Australian manufacturing unit.

Base Chemicals

For the three months ended June 30, 2004, Base Chemicals revenues increased by $144.4 million, or 51%, to $430.3 million from
$285.9 million for the same period in 2003. Overall, average selling prices increased by 27% and sales volumes increased by 17%. Olefin revenues increased by 60% due to sales volume and average
selling price increases of 25% and 7%, respectively. Cyclohexane revenues increased by 249% due to sales volume and average selling price increases of 146% and 42%, respectively. The scheduled second
quarter 2003 T&I at our Port Arthur, Texas olefins facility, as well as stronger demand in 2004, contributed to the volume increases for both olefins and cyclohexane. MTBE revenues increased by 48%
due to a 46% increase in average selling prices on relatively flat sales volumes. Butadiene revenues increased by 14% due to a 17% increase in average selling prices, partially offset by a 3% decrease
in sales volumes. Improved market condition and higher underlying feedstock costs are the main reasons for sale price increases in all of our Base Chemicals products.

For
the three months ended June 30, 2004, Base Chemicals segment EBITDA increased by $26.0 million to a profit of $23.4 million from a loss of $2.6 million
for the same period 2003. The increase in EBITDA is primarily the result of an $81.7 million increase due to higher average selling prices and a $5.3 million increase due to higher sales
volumes, partially offset by a $67.0 million increase in raw material and energy costs. Also contributing to the higher EBITDA are decreases of $2.9 million in fixed manufacturing costs
and $2.4 million in SG&A expenses.

88

---



Corporate and Other

Corporate and other items includes unallocated corporate overhead, unallocated foreign exchange gains and losses and other non-operating income and
expense. For the three months ended June 30, 2004, EBITDA from unallocated items decreased by $13.3 million to a loss of $17.4 million from a loss of $4.1 million for the
same period in 2003. This decrease is due to a $5.0 million decrease in unallocated foreign currency gains and net charges of $2.5 million related to early repayment of debt.

Six Months Ended June 30, 2004 Compared to Six Months Ended June 30, 2003

For the six months ended June 30, 2004 we had a net loss of $73.2 million on revenues of $1,908.7 million, compared to a net loss of
$58.1 million on revenues of $1,602.6 million for the six months ended June 30, 2003. The decrease of $15.1 million in net loss was the result of the following items:



89

---





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

Huntsman LLC (Excluding HIH)

Six Months Ended June 30,%
Change2004

2003RevenuesPerformance Products

$
586.3

$
551.3

6
%Polymers


638.7


558.4

14
%Base Chemicals


815.6


621.1

31
%Eliminations


(131.9
)

(128.2
)
3
%Total

$
1,908.7

$
1,602.6

19
%Segment EBITDAPerformance Products

$
47.1

$
67.9

(31
)%Polymers


19.1


36.1

(47
)%Base Chemicals


45.2


(10.8
)
NMCorporate and other


(29.9
)

(13.7
)
120
%Total

$
81.5

$
79.5

2
%


---

NMnot
meaningful.

Performance Products

For the six months ended June 30, 2004, Performance Products revenues increased by $35.0 million, or 6%, to $586.3 million from
$551.3 million in the same period in 2003. Overall average selling prices increased by 8% and sales volumes decreased by 3%. Ethylene glycol revenues increased by 4% as average selling prices
rose by 24% in response to higher raw material and energy costs and improved market conditions, partially offset by a 17% decrease in sales volumes due to reduced production in the first quarter of
2004 attributable to maintenance activities at one of our ethylene oxide units. MAn revenues increased by 30%, mainly due to a 25% increase in sales volumes, primarily due to strong demand in the
housing and recreational end markets. Our surfactants revenues increased 7% primarily due to a 9% increase in average selling prices, partially offset by a 2% decrease in sales volumes. Average
selling prices of surfactants increased mainly in response to higher raw material and energy costs and an improved product and customer mix. Surfactants sales volumes declined due to reduced customer
demand in certain product lines, reduced production at our Chocolate Bayou, Texas facility in the second quarter 2004 and increased competition in the marketplace. Amines revenues were
unchanged compared with the same period in 2003. Amines sales volumes were 6% lower primarily due to the initiation of tolling agreements with affiliates in mid-2003. Amines average
selling prices increased by 6% in response to higher raw material costs, offset by the adverse effect of changes in product mix.

For
the six months ended June 30, 2004, Performance Products segment EBITDA decreased by $20.8 million from $67.9 million for the six months ended June 30,
2003 to $47.1 million. The results for the six months ended June 30, 2004 include a charge of $20.3 million relating to the announced closure of our Guelph, Canada surfactants
facility. Average selling price increases of $59.3 million were offset by raw material cost increases of $39.3 million, a $13.3 million impact from lower sales volumes and a
$6.9 million increase in fixed manufacturing and SG&A costs. The increase in fixed manufacturing and SG&A costs resulted mainly from higher maintenance expenditures, particularly at our
Jefferson County and Chocolate Bayou, Texas facilities, and from the impact of the strengthening of certain foreign currencies versus the U.S. dollar.

90

---



Polymers

For the six months ended June 30, 2004, Polymers revenues increased by $80.3 million, or 14%, to $638.7 million from $558.4 million
for the same period in 2003. Overall, Polymers segment average selling prices increased by 7% and sales volumes increased by 7%. Polyethylene revenues increased by 4%, resulting from a 6% increase in
average selling prices, primarily in response to higher underlying raw material and energy costs, and a 2% decrease in sales volumes. Lower sales volumes largely resulted from lower polyethylene sales
in the first quarter 2004 to build inventory for the planned T&I at our Odessa facility, as well as the delayed restart of our LLDPE plant. Polypropylene revenue increased by 16%, resulting from a 12%
increase in average selling prices, primarily in response to higher underlying raw material and energy costs, and a 4% increase in sales volumes as demand strengthened in this market. APAO revenues
increased by 13%, as sales volumes increased 14% largely as the result of increased sales in the export market, offset by a 1% decrease in average selling prices due to product mix. Expandable
polystyrene revenue increased by 16%, resulting from a 7% increase in average selling prices, primarily in response to higher underlying raw material and energy costs, while sales volumes increased by
9% due to stronger customer demand. Australian styrenics revenues increased by 17%, resulting from an 18% increase in average selling prices, primarily due to the strengthening of the Australian
dollar versus the U.S. dollar and in response to increases in raw material costs, partially offset by a 1% decrease in sales volumes.

For
the six months ended June 30, 2004, Polymers segment EBITDA decreased by $17.0 million to $19.1 million from $36.1 million for the same period in 2003.
The decrease in EBITDA is primarily the result of a $60.6 million increase in raw material and energy prices, largely offset by a $51.4 million increase in selling prices and a
$4.5 million increase in sales volumes. The T&I at our Odessa, Texas plant had a substantial unfavorable impact on EBITDA for the 2004 period thereby increasing both
direct and indirect manufacturing costs. In addition, fixed manufacturing costs were higher by $7.8 million, including $1.8 million resulting from the T&I at our Odessa plant. Also, we
recorded a restructuring charge of $5.1 million in 2004 related to the closure of an Australian manufacturing unit.

Base Chemicals

For the six months ended June 30, 2004, Base Chemicals revenues increased by $194.5 million, or 31%, to $815.6 million from
$621.1 million for the same period in 2003. Overall, average selling prices increased by 19% and sales volumes increased by 10%. Olefin revenues increased by 36% due to average selling price
and sales volume increases of 23% and 10%, respectively. Cyclohexane revenues increased by 83% due to sales volume and average selling price increases of 39% and 31%, respectively. The scheduled
second quarter 2003 T&I at our Port Arthur, Texas olefins facility, as well as stronger customer demand in 2004, contributed to the sales volume increases for both olefins and cyclohexane. MTBE
revenues increased by 51% due to average selling price increases of 36% and sales volume increases of 11%. Butadiene revenues increased by 10% due to 9% increase in average selling prices and a 2%
increase in sales volumes. Butadiene sales volumes increased as a result of improved market demand during first quarter 2004. Improved market condition and higher underlying feedstock and energy costs
are the main reasons for sales price increases in all of our Base Chemicals products.

For
the six months ended June 30, 2004, Base Chemicals segment EBITDA increased by $56.0 million to a profit of $45.2 million from a loss of $10.8 million for
the same period in 2003. The increase in EBITDA is primarily the result of a $127.6 million increase due to higher average selling prices and a $4.4 million increase due to higher sales
volume, offset by an $81.7 million increase in raw material and energy costs. Also contributing to the higher EBITDA are decreases of $2.5 million in fixed costs and $2.4 million
in SG&A expenses.

91

---



Corporate and Other

Corporate and other items includes unallocated corporate overhead, unallocated foreign exchange gains and losses and other non-operating income and
expense. For the six months ended June 30, 2004, EBITDA from unallocated items decreased by $15.5 million to a loss of $29.2 million from a loss of $13.7 million for the
same period in 2003. This decrease is primarily due to a $7.8 million decrease in unallocated foreign currency gains and a net loss of $4.2 million on early repayment of debt.

Liquidity and Capital Resources (Excluding HIH)

Cash

Net cash provided by operating activities for the six months ended June 30, 2004 was $2.1 million as compared to net cash used in operating
activities of $63.4 million for the six months ended June 30, 2003. This increase is primarily attributable to improved gross profit, as discussed above, in addition to a smaller
increase in net working capital for the six months ended June 30, 2004 as compared to the same period in 2003.

Capital
expenditures for the six months ended June 30, 2004 were $29.5 million as compared to approximately $36.8 million for the same period in 2003. Higher capital
expenditures in the 2003 period were largely attributable to increased capital expenditures in connection with our North American SAP system implemented during 2003.

Net
cash provided by financing activities for the six months ended June 30, 2004 was $73.6 million as compared to $95.2 million in the six months ended
June 30, 2003. This decrease is primarily attributable to reduced net borrowings to fund operating cash needs as explained above.

Debt and Liquidity

As of June 30, 2004, the HLLC Credit Facilities consisted of the HLLC Revolving Facility of up to $275 million that matures on June 30, 2006,
the Term Loan A facility of $606.3 million and the Term Loan B facility of $96.1 million. On June 22, 2004, we sold $400 million of HLLC Unsecured Notes (as discussed
below). The net proceeds from the offering were used to repay $362.9 million on our Term Loan B, reducing its balance from 459.0 million to $96.1 million, and to repay
$25 million of the outstanding indebtedness of HCCA (as discussed below).

As
of June 30, 2004, our restricted group had outstanding variable rate borrowings of approximately $1.0 billion and the weighted average interest rate of these borrowings
was approximately 6.2%. This weighted average rate does not consider the effects of interest rate hedging activities. Borrowings under the HLLC Revolving Facility bear interest, at our option, at a
rate equal to a LIBOR-based eurocurrency rate plus an applicable margin ranging from 2.75% to 3.50% as based on our most recent ratio of total debt to "EBITDA" (as defined in the HLLC Revolving
Facility credit agreement), or a prime-based rate plus an applicable margin ranging from 1.75% to 2.50%, also based on the Company's most recent ratio of total debt to EBITDA. As of June 30,
2004, the interest rate on the HLLC Revolving Facility was LIBOR plus 3.50%. As of June 30, 2004, Term Loan A bore interest at LIBOR plus 4.00% for eurocurrency loans. Prior to June 22,
2004, the applicable interest rate margin for eurocurrency loans on Term Loan A was 4.75%. In accordance with the credit agreement governing the HLLC Term Facilities, the margin was reduced by 0.75%
(75 basis points) upon partial repayment of Term Loan B. With respect to Term Loan B, the interest rate margin for eurocurrency loans increased by 0.75% (75 basis points) on April 1, 2004 to
9.00%, and on July 1, 2004 the interest rate margin for eurocurrency loans increased by an additional 0.75% (75 basis points) to its maximum of 9.75%. As of June 30, 2004, the interest
rate for Term Loan B was LIBOR plus 9.0%. The next scheduled quarterly amortization payment under the HLLC Credit Facilities is due March 2006.

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We
depend upon the HLLC Revolving Facility to provide liquidity for our operations and working capital needs. As of June 30, 2004, our restricted group had $86.5 million of
outstanding borrowings and approximately $16 million of outstanding letters of credit under our $275 million HLLC Revolving Facility. At our restricted group, we had $31.1 million
of cash on our balance sheet as of June 30, 2004. Accordingly, as of June 30, 2004, our restricted group had cash and unused borrowing capacity of approximately $204 million.

The
HLLC Credit Facilities contain financial covenants, including a minimum interest coverage ratio, a minimum fixed charge ratio and a maximum debt to EBITDA ratio, as defined therein,
and limits on capital expenditures, in addition to restrictive covenants customary to financings of this type, including limitations on liens, debt and the sale of assets. On May 6, 2004, we
amended certain financial covenants in the HLLC Credit Facilities. The amendment applies to both the HLLC Revolving Facility and the HLLC Term Facilities and provides for, among other things, the
amendment of certain financial covenants through the fourth quarter 2005. The amendment provided for an increase in the maximum leverage ratio, and a decrease in the minimum interest coverage ratio
and the fixed charge coverage ratio. The amendment also amends the mandatory prepayment provisions contained in the HLLC Credit Facilities to permit us, after certain levels of repayment of our Term
Loan B, to use subordinate debt or equity proceeds to repay a portion of the outstanding indebtedness of certain of our Australian subsidiaries.

On
June 22, 2004, we sold the HLLC Unsecured Notes, including $300 million of the HLLC Unsecured Fixed Rate Notes that bear interest at 11.5% and mature on July 15,
2012 and $100 million of the HLLC Unsecured Floating Rate Notes that bear interest at a rate equal to LIBOR plus 7.25% and mature on July 15, 2011. As noted above, the net proceeds from
the offering were used to repay $362.9 million on Term Loan B and to repay $25 million of the outstanding indebtedness of HCCA.

On
September 30, 2003, we sold $380 million aggregate principal amount of our 115/8% 2003 HLLC Senior Secured Notes at a discount to yield 11.875%. On
December 3, 2003 we sold an additional $75.4 million aggregate principal amount of the 2003 HLLC Secured Notes at a discount to yield 11.72%.

Certain
of our restricted group's Australian subsidiaries maintain credit facilities that are non-recourse to the Company. HCCA, in its capacity as trustee of the HCA Trust,
holds our Australian styrenics assets. HCCA maintains the HCCA Facility, consisting of a term facility. On June 24, 2004, we used $25 million of proceeds from the offering of the HLLC
Unsecured Notes to repay a portion of the HCCA Facility, including repaying in full the working capital facility and reducing the term facility to $14.4 million (A$20.9 million). In
connection with this repayment, a preexisting payment default was cured and the remaining term facility was amended. The outstanding loan amount matures and is due on July 31, 2005. The HCCA
Facility contains no financial covenants, and borrowings under the HCCA Facility bear interest at a base rate plus a spread of 1.25%, plus an additional 0.5% line use fee. As of June 30, 2004,
the weighted average interest rate for the HCCA Facility was 6.8%. The HCCA Facility is secured by effectively all the assets of the HCA Trust. Management believes that HCCA is in compliance with the
covenants of the HCCA Facility as of June 30, 2004.

HAHC
and certain of its subsidiaries hold our Australian surfactants assets. HAHC and certain of its subsidiaries are parties to the HAHC Facilities, established in December 1998.
As of June 30, 2004, borrowings under the HAHC Facilities total A$53.2 million ($36.8 million), and bear interest at a base rate plus a spread of 2%. As of June 30, 2004,
the weighted average interest rate for the HAHC Facilities was 7.5%. Principal payments are due semiannually through December 2005. The HAHC Facilities are subject to financial covenants,
including a leverage ratio, an interest coverage ratio and limits on capital expenditures, in addition to restrictive covenants customary to financings of this type, including limitations on liens,
debt and the sale of assets. As of June 30, 2004, HAHC was current on all scheduled amortization and interest payments under the HAHC Facilities, but it was not in

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compliance
with certain financial covenants in the agreements governing the HAHC Facilities. The outstanding debt balances due under the HAHC Facilities have been classified in current portion of
long-term debt.

We
believe the current liquidity of our restricted group, 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. Except as noted above regarding our
non-recourse Australian HAHC Facilities, we believe that we are currently in compliance with the covenants contained in the agreements governing all of our other debt obligations. We
review our financial covenants on a regular basis and will seek amendments to such covenants if necessary.

Certain Credit Support Issues

HIH and HI, which are unrestricted subsidiaries, have not guaranteed or provided any other credit support to our restricted group's obligations under the HLLC
Credit Facilities, the HLLC Notes or the 2003 HLLC Secured Notes, and Huntsman LLC has not guaranteed or provided any other credit support to the obligations of HI under the HI Credit Facilities, or
to the obligations of HI and HIH under their outstanding high-yield notes. Because of restrictions contained in the financing arrangements of HIH and HI, these subsidiaries are presently
unable to make any "restricted payments" to our Company, including dividends, distributions or other payments in respect of equity interests or payments to purchase, redeem or otherwise acquire or
retire for value any of their equity interests, subject to exceptions contained in such financing arrangements. Events of default under the HI Credit Facilities, or under the high-yield
notes of HIH and HI or the exercise of any remedy by the lenders thereunder will not cause any cross-defaults or cross-accelerations under the HLLC Credit Facilities, the HLLC Notes or the 2003 HLLC
Secured Notes. Additionally, any events of default under the HLLC Credit Facilities, the HLLC Notes or the 2003 HLLC Secured Notes, or the exercise of any remedy by the lenders thereunder, will not
cause any cross-defaults or cross-accelerations under the outstanding high-yield notes of HIH or HI or the HI Credit Facilities, except insofar as foreclosure on the stock of Huntsman
Specialty Chemical Holdings Corporation, the stock of Huntsman Specialty or the HIH Membership Interests pledged to secure our obligations under the HLLC Credit Facilities or the 2003 HLLC Secured
Notes, would constitute a "change of control" and an event of default under the HI Credit Facilities and would give certain put rights to the holders of the high-yield notes of HI or HIH.

On
May 9, 2003, HMP issued the HMP Senior Discount Notes. Interest is paid in kind. The HMP Senior Discount Notes are secured by a first priority lien on the HIH Senior
Subordinated Discount Notes acquired by HMP in connection with the HIH Consolidation Transaction, the 10% direct and 30% indirect equity interests held by HMP in HIH, HMP's common stock outstanding as
of May 9, 2003, and HMP's 100% equity interest in the Company. A payment default under the HMP Senior Discount Notes or any other default that would permit the holders to accelerate the unpaid
balance thereunder would also constitute a default under the HLLC Credit Facilities. Foreclosure on the stock of HMP or the equity interest in the Company would constitute a "change of control" and an
event of default under the HLLC Credit Facilities and the HI Credit Facilities, and would give certain put rights to the holders of the HLLC Notes, the 2003 HLLC Secured Notes, and the
high-yield notes of HI and HIH.

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Changes in Financial Condition (Excluding HIH)

The following information summarizes our net working capital position as of June 30, 2004 and December 31, 2003 (dollars in millions):

|                     |                                   | June 30, 2004             |       | December 31, 2003 |       | Difference |       | % Change |     
|-------------------- | --------------------------------- | ------------------------- | ----- | ----------------- | ----- | ---------- | ----- | -------- | ----
|Current assets:      |                                   |                           |       |                   |       |            |       |          |     
|                     | Cash and cash equivalents         |                           | $     | 31.1              |       | $          | 30.0  |          | $   
|                     | Accounts and notes receivables    |                           |       | 488.2             |       |            | 428.7 |          |     
|                     | Inventories                       |                           |       | 286.7             |       |            | 296.0 |          |     
|                     | Prepaid expenses                  |                           |       | 1.0               |       |            | 25.0  |          |     
|                     | Other current assets              |                           |       | 4.3               |       |            | 3.4   |          |     
|                     |                                   |                           |       |                   |       |            |       |          |     
|                     |                                   | Total current assets      |       | $                 | 811.3 |            | $     | 783.1    |     
|                     |                                   |                           |       |                   |       |            |       |          |     
|Current liabilities: |                                   |                           |       |                   |       |            |       |          |     
|                     | Accounts payable                  |                           | $     | 322.2             |       | $          | 258.8 |          | $   
|                     | Accrued liabilities               |                           |       | 233.7             |       |            | 204.6 |          |     
|                     | Deferred income taxes             |                           |       | 14.5              |       |            | 14.5  |          |     
|                     | Current portion of long-term debt |                           |       | 40.0              |       |            | 132.2 |          |     
|                     |                                   |                           |       |                   |       |            |       |          |     
|                     |                                   | Total current liabilities |       | $                 | 610.4 |            | $     | 610.1    |     
|                     |                                   |                           |       |                   |       |            |       |          |     
|Working capital      |                                   | $                         | 200.9 |                   | $     | 173.0      |       | $        | 27.9
|                     |                                   |                           |       |                   |       |            |       |          |     

At
June 30, 2004 our net working capital position was $200.9 million as compared to $173.0 million at December 31, 2003, resulting in an increase of
$27.9 million. The changes in working capital can be explained as follows:



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ITEM 3.    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We are exposed to market risk, including changes in interest rates, currency exchange rates and certain commodity prices. Our exposure to foreign currency market
risk is somewhat limited since our sales prices are typically denominated in euros or U.S. dollars. From time to time, we may enter into foreign currency derivative instruments to minimize the
short-term impact of movements in foreign currency rates. 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 set on a quarterly basis in line with industry practice. 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.

Our
cash flows and earnings are subject to fluctuations due to exchange rate variation. Short-term exposures to changing foreign currency exchange rates at certain foreign
subsidiaries are generally first netted with exposures of other subsidiaries and the remaining exposures then, from time to time, may be managed through financial market transactions, principally
through the purchase of forward foreign exchange contracts (with maturities of nine months or less) with various financial institutions, to reflect the currency denomination of our cash flows. We do
not hedge our currency exposures in a manner that would entirely eliminate the effect of changes in exchange rates on our cash flows and earnings. As of June 30, 2004, we had no outstanding
forward foreign exchange contracts. Our hedging activity from time to time comprises selling forward surpluses of non-dollar receivables for U.S. dollars. In addition, HI's accounts
receivable securitization program requires that we enter into certain forward foreign currency hedges intended to hedge currency exposures on the collateral supporting the off-balance
sheet debt issued in the program.

Under
the terms of the HLLC Credit Facilities, we are required to hedge a significant portion of our floating rate debt. As of June 30, 2004, Huntsman LLC (excluding HIH) had
entered into approximately $184.0 million notional amount of interest rate swap transactions, which have remaining terms ranging from approximately eighteen to thirty-six 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 approximately 3.78% to
approximately 6.55%. 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.

Pursuant
to the amendment and restatement of the HI Credit Facilities on July 13, 2004, HI is no longer required to hedge a portion of its floating rate debt. This is primarily
because HI in recent years has replaced much of its floating rate debt with fixed rate debt in the form of the HI Senior Notes that serves as a natural hedge for a portion of HI's floating rate debt.
As of June 30, 2004, HI had outstanding approximately $211 million notional amount of interest rate swap, cap and collar transactions, which have remaining terms of three months or less.
The majority of these transactions hedge against movements in U.S. dollar interest rates. The U.S. dollar swap transactions obligate us to pay a fixed amount of approximately 5.89%. The U.S. dollar
collar transactions carry floors ranging from 5.0% to 5.25% and caps ranging from 7.00% to 7.25%. We have also entered into a euro-denominated swap transaction that obligates us to pay a
fixed rate of approximately 4.31%.

Assuming
a 1.0% (100 basis point) increase in interest rates, without giving effect to interest rate hedges, the effect on the annual interest expense would be an increase of
approximately $23 million (approximately $13 million pertaining to HIH and $10 million pertaining to Huntsman LLC (excluding HIH)). This increase would be reduced by approximately
$4 million, on an annualized basis (approximately $2 million pertaining to each HIH and Huntsman LLC (excluding HIH)), as a result of the effects of the interest rate swap transactions
described above.

In
order to reduce overall raw material cost volatility, from time to time we enter into various commodity contracts to hedge our purchase of commodity products. We do not hedge our
commodity

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exposure
in a manner that would eliminate the effects of changes in commodity prices on our cash flows and earnings. At June 30, 2004, we had forward purchase and sale contracts for 45,000
tonnes and 40,000 tonnes (naphtha and other hydrocarbons), respectively, which do not qualify for hedge accounting. Assuming a 10% increase or a 10% decrease in the price per tonne of naphtha, the
impact on the forward purchase contracts would result in losses and gains of approximately $0.3 million, respectively.

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, 2004. Based on this
evaluation, our chief executive officer and chief financial officer have concluded that, as of June 30, 2004, our disclosure controls and procedures were (1) designed to ensure that
material information relating to our Company, including our consolidated subsidiaries, is made known to the chief executive officer and chief financial officer by others within those entities,
particularly during the period in which this report was being prepared, and
(2) effective, in that they provide reasonable assurance that information required to be disclosed by our Company in the reports that we file or submit under the Exchange Act are recorded,
processed, summarized and reported within the time periods specified in the applicable rules and forms.

No
change in our internal control over financial reporting occurred during the three months ended June 30, 2004 that has materially affected, or is 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).

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PART II. OTHER INFORMATION

ITEM 1.    LEGAL PROCEEDINGS

HI has settled certain claims during and prior to the second quarter of 2004 relating to discoloration of unplasticised poly vinyl chloride ("u-PVC")
products allegedly caused by HI's TiO2 ("Discoloration Claims"). Substantially all of the TiO2 that was the subject of these claims was manufactured prior to HI's acquisition
of its TiO2 business from ICI in 1999. Net of amounts HI has received from insurers and pursuant to contracts of indemnity, HI has paid approximately £8 million
($14.9 million) in costs and settlement amounts for Discoloration Claims.

Certain
insurers have denied coverage with respect to certain Discoloration Claims. HI brought suit against these insurers to recover the amounts it believes are due to it. A judgment in
this suit is expected at the end of the third quarter or beginning of the fourth quarter 2004.

During
the second quarter 2004, HI recorded a charge in the amount of $14.9 million with respect to Discoloration Claims. HI expects that it will incur additional costs with
respect to Discoloration Claims, potentially including additional settlement amounts. However, HI does not believe that it has material ongoing exposure for additional Discoloration Claims, after
giving effect to its rights under contracts of indemnity, including the rights of indemnity it has against ICI. Nevertheless, HI can provide no assurance that its costs with respect to Discoloration
Claims will not have a material adverse impact on its financial condition, results of operations or cash flows.

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, and based in part on the indemnities provided to us in connection with the transfer of businesses to us
and our insurance coverage, we do not believe that the outcome of any of these matters will have a material adverse effect on our financial condition or results of operations. See
"Part IItem 2Management's Discussion and Analysis of Financial Condition and Results of OperationsEnvironmental Matters" for a discussion of
environmental proceedings.

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ITEM 6.    EXHIBITS AND REPORTS ON FORM 8-K

|4.1  |  | Indenture, dated as of June 22, 2004, among Huntsman LLC, the Guarantors party thereto and HSBC Bank USA, as Trustee, relating to the 111/2% Senior Notes due 2012 and Senior Floating Rate
Notes due 2011                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|---- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|4.2  |  | Form of Restricted Fixed Rate Note due 2012 (included as Exhibit A-1 to Exhibit 4.1)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|4.3  |  | Form of Restricted Floating Rate Note due 2011 (included as Exhibit A-2 to Exhibit 4.1)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|4.4  |  | Form of guarantee relating to the 111/2% Senior Notes due 2012 and Senior Floating Rate Notes due 2011 (included as Exhibit E to Exhibit 4.1)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|4.5  |  | Exchange and Registration Rights Agreement, dated as of June 22, 2004, among Huntsman LLC, the Guarantors as defined therein, and the Purchasers as defined therein, relating to $300,000,000 111/2% Senior Notes due 2012
and $100,000,000 Senior Floating Rate Notes due 2011                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|10.1 |  | Amended and Restated Credit Agreement, dated as of July 13, 2004, among Huntsman International LLC, as the borrower, Huntsman International Holdings LLC, as the guarantor, Deutsche Bank Trust Company Americas, as administrative agent, Deutsche
Bank Securities Inc., as co-lead arranger and joint book runner, Citigroup Global Marketers Inc., as co-syndication agent, co-lead arranger and joint book runner, JP Morgan Securities Inc., as co-documentation agent and joint book
runner, UBS Securities LLC, as co-syndication agent, Credit Suisse First Boston, as co-documentation agent, Merrill Lynch, Pierce Fenner & Smith Inc., as co-documentation agent, and various lending institutions party thereto
(incorporated by reference to Exhibit 10.1 to the quarterly report on Form 10-Q of Huntsman International LLC for the three months ended June 30, 2004)
|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 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|32.2 |  | Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  

During
the three months ended June 30, 2004, we furnished a current report on Form 8-K on the following specified dates:



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SIGNATURE

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.

|                      |  | HUNTSMAN LLC                                                                                                              
|--------------------- |  | --------------------------------------------------------------------------------------------------------------------------
|                      |  | /s/J. KIMO ESPLIN                                                                                                         
|                      |  | J. Kimo Esplin Executive Vice President and Chief Financial Officer
(Authorized Signatory and Principal Financial Officer)
|Date: August 16, 2004 |  |                                                                                                                           
|                      |  | /s/L. RUSSELL HEALY                                                                                                       
|                      |  | L. Russell Healy Vice President and Controller (Authorized Signatory and
Principal Accounting Officer)                    
|Date: August 16, 2004 |  |                                                                                                                           

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EXHIBIT INDEX

|Number |  | Description of Exhibits                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|------ |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|4.1    |  | Indenture, dated as of June 22, 2004, among Huntsman LLC, the Guarantors party thereto and HSBC Bank USA, as Trustee, relating to the 111/2% Senior Notes due 2012 and Senior Floating Rate Notes
due 2011                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|4.2    |  | Form of Restricted Fixed Rate Note due 2012 (included as Exhibit A-1 to Exhibit 4.1)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|4.3    |  | Form of Restricted Floating Rate Note due 2011 (included as Exhibit A-2 to Exhibit 4.1)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|4.4    |  | Form of guarantee relating to the 111/2% Senior Notes due 2012 and Senior Floating Rate Notes due 2011 (included as Exhibit E to Exhibit 4.1)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|4.5    |  | Exchange and Registration Rights Agreement, dated as of June 22, 2004, among Huntsman LLC, the Guarantors as defined therein, and the Purchasers as defined therein, relating to $300,000,000 111/2% Senior Notes due 2012 and
$100,000,000 Senior Floating Rate Notes due 2011                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|10.1   |  | Amended and Restated Credit Agreement, dated as of July 13, 2004, among Huntsman International LLC, as the borrower, Huntsman International Holdings LLC, as the guarantor, Deutsche Bank Trust Company Americas, as administrative agent, Deutsche
Bank Securities Inc., as co-lead arranger and joint book runner, Citigroup Global Marketers Inc., as co-syndication agent, co-lead arranger and joint book runner, JP Morgan Securities Inc., as co-documentation agent and joint book
runner, UBS Securities LLC, as co-syndication agent, Credit Suisse First Boston, as co-documentation agent, Merrill Lynch, Pierce Fenner & Smith Inc., as co-documentation agent, and various lending institutions party thereto
(incorporated by reference to Exhibit 10.1 to the quarterly report on Form 10-Q of Huntsman International LLC for the three months ended June 30, 2004)
|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 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|32.2   |  | Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  

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