**UNITED STATESSECURITIES AND EXCHANGE COMMISSION**

**WASHINGTON, D.C. 20549**

 

**Form 10-K**

 

| **(Mark One)**                                                                                                                             | ** ** | ** **                                                                                              |
|--------------------------------------------------------------------------------------------------------------------------------------------|------------|---------------------------------------------------------------------------------------------------------|
| **ý**                                                                                                                                 | ** ** | **ANNUAL REPORT PURSUANT TO SECTION 13 OR  15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**     |
|                                                                                                                                       | ** ** | ** **                                                                                              |
| **For the fiscal year ended  December 31, 2005**                                                                                      |
| ** **                                                                                                                                 | ** ** | ** **                                                                                              |
| **OR**                                                                                                                                     |
| ** **                                                                                                                                 |
| **o**                                                                                                                                      | ** ** | **TRANSITION REPORT PURSUANT TO SECTION 13 OR  15(d) OF THE SECURITIES EXCHANGE ACT OF 1934** |
| ** **                                                                                                                                 |
| **For the transition period from         to        ** |

 

**Commission file number 333-85141**

 

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**HUNTSMAN INTERNATIONAL LLC**

(Exact name of registrant as specified in its charter)

 
| **Delaware**                                                    |   | **87-0630358**                         |
|-----------------------------------------------------------------|--------|----------------------------------------|
| (State or other jurisdiction of  incorporation or organization) |   | (I.R.S. Employer   Identification No.) |

 

**500 Huntsman Way**

**Salt Lake City, Utah 84108**

**(801) 584-5700**

(Address of principal executive office and telephone number)

 

**Securities registered pursuant to Section 12(b) ofthe Exchange Act: None**

 

**Securities registered pursuant to Section 12(g) ofthe Exchange Act: None**

 

Indicateby check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405of the Securities Act. YES o  NO ý

 

Indicateby check mark if the Registrant is not required to file reports pursuant to Section 13or Section 15(d) of the ExchangeAct. YES o  NO ý

 

Indicateby check mark whether the Registrant (1) has filed all reports required tobe filed by Section 13 or 15(d) of the Exchange Act during thepreceding 12 months (or for such shorter period that the Registrant wasrequired to file such reports), and (2) has been subject to such filingrequirements for the past 90 days. YES ý  NO o

 

Indicateby check mark if disclosure of delinquent filers pursuant to Item 405 ofRegulation S-K is not contained herein, and will not be contained, to thebest of the Registrant’s knowledge, in definitive proxy or informationstatements incorporated by reference in Part III of this Form 10-K orany amendment to this Form 10-K.  ý

 

Indicateby check mark whether the Registrant is a large accelerated filer, anaccelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2of the Exchange Act. (Check one):

 

| Large accelerated filer o |   | Accelerated filer o |   | Non-accelerated filer ý |
|---------------------------|--------|---------------------|--------|------------------------------|

 

Indicateby check mark whether the Registrant is a shell company (as defined in Rule 12b-2of the Exchange Act). YES o  NO ý

 

On June 30,2005, the last business day of the Registrant’s second fiscal quarter, all ofthe Registrant’s units of membership interest were held by an affiliate.Accordingly, the market value of units of membership interest held bynon-affiliates is zero.

 

On March 17,2006, 2,058 units of membership interest of the Registrant were outstanding.

 

**Documents Incorporated by Reference:  None**

 

**The Registrant meets the conditions set forth in GeneralInstruction I(1)(a) and (b) of Form 10-K and is therefore filingthis form with a reduced disclosure format.**

 

 

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** **

**HUNTSMAN INTERNATIONAL LLC**

**2005 ANNUAL REPORT ON FORM 10-K**

**TABLE OF CONTENTS**

 
| ** **    | ** **    | ** **                                                                                                          | ** ** |
|---------------|---------------|---------------------------------------------------------------------------------------------------------------------|------------|
| PART I   |          |                                                                                                                |
|          | ITEM 1.       | BUSINESS                                                                                                            |       |
|          | ITEM 1A.      | RISK FACTORS                                                                                                        |       |
|          | ITEM 1B.      | UNRESOLVED STAFF COMMENTS                                                                                           |       |
|          | ITEM 2.  | PROPERTIES                                                                                                          |       |
|          | ITEM 3.  | LEGAL PROCEEDINGS                                                                                                   |       |
|          | ITEM 4.  | SUBMISSION OF MATTERS TO A  VOTE OF SECURITY HOLDERS                                                                |       |
| PART II  |          |                                                                                                                |
|          | ITEM 5.  | MARKET FOR REGISTRANT’S  COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY  SECURITIES |       |
|          | ITEM 6.  | SELECTED FINANCIAL DATA                                                                                             |       |
|          | ITEM 7.  | MANAGEMENT’S NARRATIVE  ANALYSIS OF RESULTS OF OPERATIONS                                                      |       |
|          | ITEM 7A. | QUANTITATIVE  AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                                                         |       |
|          | ITEM 8.  | FINANCIAL  STATEMENTS AND SUPPLEMENTARY DATA                                                                        |       |
|          | ITEM 9.  | CHANGES IN  AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE                               |       |
|          | ITEM 9A. | CONTROLS AND  PROCEDURES                                                                                            |       |
|          | ITEM 9B. | OTHER INFORMATION                                                                                                   |       |
| PART III |          |                                                                                                                |
|          | ITEM 10. | DIRECTORS  AND EXECUTIVE OFFICERS OF THE REGISTRANT                                                                 |       |
|          | ITEM 11. | EXECUTIVE  COMPENSATION                                                                                             |       |
|          | ITEM 12. | SECURITY  OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER  MATTERS                    |       |
|          | ITEM 13. | CERTAIN  RELATIONSHIPS AND RELATED TRANSACTIONS                                                                     |       |
|          | ITEM 14. | PRINCIPAL  ACCOUNTANT FEES AND SERVICES                                                                             |       |
| PART IV  |          |                                                                                                                |
|          | ITEM 15. | EXHIBITS AND  FINANCIAL STATEMENT SCHEDULES                                                                         |       |

 

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** **

**HUNTSMAN INTERNATIONAL LLC**

**2005 ANNUAL REPORT ON FORM 10-K**

 

Certaininformation set forth in this report contains “forward-looking statements”within the meaning of the federal securities laws. Forward-looking statementsinclude statements concerning our plans, objectives, goals, strategies, futureevents, future revenues or performance, capital expenditures, financing needs,plans or intentions relating to acquisitions and other information that is nothistorical information. In some cases, forward-looking statements can beidentified by terminology such as “believes,” “expects,” “may,” “will,” “should,”“anticipates,” or “intends” or the negative of such terms or other comparableterminology, or by discussions of strategy. We may also make additional forward-lookingstatements from time to time. All such subsequent forward-looking statements, whetherwritten or oral, by us or on our behalf, are also expressly qualified by thesecautionary statements.

 

Allforward-looking statements, including without limitation, management’sexamination of historical operating trends, are based upon our current expectationsand various assumptions. Our expectations, beliefs and projections areexpressed in good faith and we believe there is a reasonable basis for them,but, there can be no assurance that management’s expectations, beliefs andprojections will result or be achieved. All forward-looking statements applyonly as of the date made. We undertake no obligation to publicly update orrevise forward-looking statements which may be made to reflect events orcircumstances after the date made or to reflect the occurrence of unanticipatedevents.

 

Thereare a number of risks and uncertainties that could cause our actual results todiffer materially from the forward-looking statements contained in orcontemplated by this report. Any forward-looking statements should beconsidered in light of the risks set forth in “Part I. Item 1A. RiskFactors” and elsewhere in this report.

 

Thisreport may include information with respect to market share, industryconditions and forecasts that we obtained from internal industry research,publicly available information (including industry publications and surveys),and surveys and market research provided by consultants. The publicly availableinformation and the reports, forecasts and other research provided byconsultants generally state that the information contained therein has beenobtained from sources believed to be reliable, but there can be no assurance asto the accuracy and completeness of such information. We have not independentlyverified any of the data from third-party sources, nor have we ascertained theunderlying economic assumptions relied upon therein. Similarly, our internalresearch and forecasts are based upon our management’s understanding ofindustry conditions, and such information has not been verified by anyindependent sources.

 

Forconvenience in this report, the terms “Company,” “our,” “us” or “we” may beused to refer to Huntsman International LLC and, unless the context otherwiserequires, its subsidiaries. In this report, “Huntsman Corporation” refers toHuntsman Corporation, and, unless the context otherwise requires, itssubsidiaries, “HIH” refers to Huntsman International Holdings LLC, “HuntsmanLLC” or “HLLC” refers to Huntsman LLC, and, unless the context otherwiserequires, its subsidiaries, “AdMat Holdings” refers to Huntsman AdvancedMaterials Holdings LLC and, unless the context otherwise requires, itssubsidiaries, “AdMat” refers to Huntsman Advanced Materials LLC and, unless thecontext otherwise requires, its subsidiaries, “HMP” refers to HMP EquityHoldings Corporation, “Huntsman Holdings” refers to Huntsman Holdings, LLC, “HuntsmanFamily Holdings” refers to Huntsman Family Holdings Company LLC and “MatlinPatterson”refers to MatlinPatterson Global Opportunities Partners L.P. and its affiliates.

 

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** **

**PART I**

 

**ITEM 1. BUSINESS**

 

**History**

 

We area Delaware limited liability company and all of our membership interests areowned by Huntsman Corporation. We were formed in 1999 in connection with a transactionbetween HIH, Huntsman Specialty Chemicals Corporation (“Huntsman Specialty”)and Imperial Chemical Industries PLC (“ICI”). In that transaction, on June 30,1999, HIH acquired ICI’s polyurethane chemicals, selected petrochemicals andtitanium dioxide (“TiO2” or “Tioxide”) businesses and HuntsmanSpecialty’s propylene oxide (“PO”) business. HIH also acquired the 20%ownership interest of BP Chemicals Limited in an olefins facility located atWilton, U.K. and certain related assets. HIH then transferred the acquiredbusinesses to us and to our subsidiaries.

 

On August 16,2005, we completed a merger in which Huntsman LLC, another wholly-ownedsubsidiary of Huntsman Corporation, merged with and into us and we continued inexistence as the surviving entity (the “HLLC Merger”). At the same time, HIHwas also merged into our Company. Prior to the HLLC Merger, all of ourmembership interests were owned by HIH, and HIH was owned 58% by HuntsmanCorporation and 42% by Huntsman LLC.

 

On December 20,2005, Huntsman Corporation acquired all of the outstanding interests of AdMatHoldings and contributed all of the outstanding equity of AdMat Holdings to us(the “AdMat Minority Interest Transaction”).  As a result, AdMat Holdings,AdMat and its subsidiaries have become our subsidiaries.  We did not payany consideration to Huntsman Corporation in connection with the AdMat MinorityInterest Transaction other than the issuance of additional equity to HuntsmanCorporation.

 

In theAdMat Minority Interest Transaction, the equity interests of all holders inAdMat Holdings, other than Huntsman Corporation, were converted into the rightto receive an aggregate of $125.0 million in cash (the “Minority Payment”). In connection with the AdMat Minority Interest Transaction, we satisfiedsubstantially all of the Minority Payment obligation and repaid all outstandingindebtedness of AdMat under its secured credit facility and senior securednotes, using cash on hand and the proceeds of an increase in the term loanunder our senior secured credit facility. For more information, see “Note 14. Long-Term Debt” to ourConsolidated Financial Statements included elsewhere in this report.

 

HuntsmanCorporation effected the HLLC Merger and the AdMat Minority InterestTransaction to simplify its consolidated group’s financing and public reportingstructure, to reduce its cost of financing and to facilitate otherorganizational efficiencies. The HLLC Merger and the AdMat Minority InterestTransaction were accounted for as an exchange of shares between entities undercommon control similar to the pooling method. Our consolidated financialstatements presented herein reflect the financial position, results ofoperations and cash flows as if HIH, Huntsman LLC, AdMat Holdings and ourCompany were combined for all periods for which they were under common control.

 

Priorto the HLLC Merger and the AdMat Minority Interest Transaction, we operated ourbusinesses through four segments: Polyurethanes, Performance Products, Pigments and Base Chemicals.  Huntsman LLC was a manufacturer and marketerof a wide range of chemical products with manufacturing facilities located inNorth America, Europe and Australia and it operated its business through threesegments: Performance Products, Polymers and Base Chemicals.  AdMat and its subsidiaries are manufacturersand marketers of advanced epoxy, acrylic and polyurethane-based products usedin a wide variety of industrial and consumer applications and operate in asingle Advanced Materials segment. We have combined Huntsman LLC’s PerformanceProducts and Base Chemicals segments with our Performance Products and BaseChemicals segments and have added Huntsman LLC’s Polymers segment and AdMat’sAdvanced Materials segment, and we now operate our business through six segments:Polyurethanes, Advanced Materials, Performance Products, Pigments, Polymers andBase Chemicals.

 

Oursix segments can be divided into two broad categories: differentiated andcommodity. We produce differentiated products primarily in our Polyurethanes,Advanced Materials and Performance Products segments. These products servediverse end markets and are generally characterized by historical growth inexcess of GDP growth, resulting from product substitution and new productdevelopment, proprietary manufacturing processes and product formulations and ahigh degree of customer loyalty. Demand for these products tends to be drivenby the value-added attributes that they create in our customers’ end-useapplications. While the demand for these differentiated products is alsoinfluenced by worldwide economic conditions and GDP growth, our differentiatedproducts have tended to produce more stable profit margins and higher demandgrowth rates than our commodity products.

 

In ourcommodity chemical businesses, we produce titanium dioxide derived fromtitanium-bearing ores in our Pigments segment and petrochemical-based olefins,aromatics and polyolefins products in our Polymers and Base Chemicals segments.Since the coatings industry consumes a substantial portion of titanium dioxideproduction, seasonal demand patterns in the coatings industry drive theprofitability of our Pigments segment; profitability is also driven byindustry-wide operating 

 

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rates, with a lag of up to twelve months due to the effects of stockingand destocking by customers and suppliers. The profitability of our Polymersand Base Chemicals segments has historically been cyclical in nature. Theindustry has recently operated in an up cycle that resulted primarily fromstrong demand reflecting global economic conditions and the fact that therehave been no recent North American or European capacity additions. However,volatile crude oil and natural gas-based raw materials costs and a recentweakening in demand could negatively impact the future profitability of ourPolymers and Base Chemicals segments.

 

**RecentDevelopments**

 

***PotentialSpin Off or Sale of Base Chemicals and Polymers Businesses***

 

OnFebruary 24, 2006, Huntsman Corporation announced that it is evaluatingstrategic options for its business. This evaluation may lead to the sale ofcertain of our Base Chemicals or Polymers assets or a spin off of thesesegments and is consistent with the announced potential divestment discussed in“—Pending Sale of U.S. Butadiene and MTBE Business” below. Currently, HuntsmanCorporation is in the early stages of this evaluation and there can be noassurance that we will ultimately sell any assets or spin off our BaseChemicals and Polymers segments.

 

***Pending Saleof U.S. Butadiene and MTBE Business***

 

On February 24,2006, Huntsman Corporation announced that it signed a letter of intent to sellthe assets of our U.S. butadiene and MTBE business operated in our BaseChemicals segment, which includes a manufacturing facility located at PortNeches, Texas, to Texas Petrochemicals, L.P. for a sales price of $275 million,subject to customary adjustments. We expect the transaction to close in mid-2006.The manufacturing facility has a capacity of approximately 900 million poundsof butadiene per year and approximately 11,000 barrels per day of MTBE. Thebusiness has approximately 240 employees, 2005 revenues of approximately $626million and 2005 EBITDA of approximately $43 million.

 

Our PO/MTBE facilitiesat Port Neches, Texas (operated in our Polyurethanes segment) and ouroxides/olefins facilities at Port Neches, Texas, along with our facilities innearby Port Arthur, Texas are not included in the sale.

 

***Pending******Acquisition of Textile Effects Business***

 

On February 20,2006, Huntsman Corporation announced that it has entered into a definitiveagreement to acquire the global Textile Effects (“TE”) business of CibaSpecialty Chemicals Inc. for CHF 332 million ($253 million). The purchase pricewill be reduced (i) by approximately CHF 75 million ($57 million) inassumed debt and unfunded pension and other post employment liabilities and (ii) upto approximately CHF 40 million ($31 million) in unspent restructuring costs.The final purchase price is subject to a working capital and net debtadjustment. The transaction is subject to customary terms and conditions, andis expected to occur by the end of the third quarter of 2006.

 

The TE business hasheadquarters in Basel, Switzerland, and manufactures a broad range of chemicaland dye products that enhance the performance properties and color of finishedtextiles and materials. The TE business serves over 10,000 customers in 80countries and is the leading global supplier of comprehensive solutions for thetextile industry. The TE business has approximately 4,200 employees andoperates eleven primary manufacturing facilities located in eight countries.The TE business had approximately CHF 1.3 billion ($1 billion) in revenues andapproximately CHF 115 million ($92 million) in EBITDA in 2005.  From the date of the acquisition of the TEbusiness through approximately the first half of 2008, we would expect to incurrestructuring costs totaling approximately $50 million and to make capitalexpenditures totaling approximately $100 million associated with the TEbusiness.

 

***DiscussionsConcerning the Potential Sale of Huntsman Corporation***

 

On January 31, 2006, Huntsman Corporation, ourparent, confirmed that, in late 2005, it received an indication of interestregarding the acquisition of all of its outstanding common shares. In responseto this indication of interest, the board of directors of Huntsman Corporationengaged financial and legal advisors to assist it in evaluating the potentialsale of Huntsman Corporation and other alternatives to enhance stockholdervalue, including to continue executing its business plan. The board also formeda special committee with authority to make a recommendation. As part of thisprocess, Huntsman Corporation contacted, obtained proposals from, and helddiscussions with a limited number of potential acquirers or merger partners.After careful review of the proposals received, other prospects andalternatives available at the time, as well as thorough discussions with theparties, the board of directors of Huntsman Corporation and its specialcommittee concluded that none of the proposals were in the best interests ofHuntsman Corporation stockholders.

 

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***Impact of 2005 U.S. Gulf Coast Storms***

 

Whilethe 2005 U.S. Gulf Coast storms did not cause serious structural damage to ourfacilities, they did cause operational disruptions for us and certain of oursuppliers and customers. Some of our products were temporarily negativelyimpacted by restrictions on the availability of certain raw materials and ourbusiness was adversely impacted by logistics and transportation disruptions.Certain of our operations were suspended for much of the fourth quarter of2005.

 

Energycosts, as well as the costs of many of our key feedstocks, spiked tounprecedented levels during the third and fourth quarters of 2005. In responseto these increased costs and tight supply conditions, we increased prices formany of our products. Nevertheless, we estimate that these events had a directnegative effect on our EBITDA for the six months ended December 31, 2005of approximately $167 million, approximately $140 million of which wasincurred in the fourth quarter of 2005. The following table shows the estimatednegative impact on our EBITDA by segment for the six months ended December 31,2005 (dollars in millions):

 

**Estimated EBITDA* Impact**

 
| **Segment**           | ** ** | **Six Months Ended  December 31, 2005** | ** ** |
|-----------------------|------------|----------------------------------------------|------------|
| Polyurethanes         |       | $                                            | 29.9       |   |
| Advanced  Materials   |       | 2.3                                          |       |
| Performance  Products |       | 54.3                                         |       |
| Pigments              |       | 3.2                                          |       |
| Polymers              |       | —                                       |       |
| Base Chemicals        |       | 77.3                                         |       |
| **Total**             | ** ** | **$**                                        | **167.0**  | ** ** |

 

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*                                         Fora discussion of EBITDA and a reconciliation of EBITDA to net income and cashprovided by operating activities, see “Part II.Item 7. Management’s Narrative Analysis of Results of Operations—Resultsof Operations.”

 

Relatedto the continuing effects of the storms, in late January 2006, one of oursuppliers suffered two boiler failures that resulted in damages to certain ofour facilities in Jefferson County, Texas. This damage caused unplanned outagesand repair costs that we estimate will have a negative impact of approximately$15 million on our results of operations in the first quarter of 2006. Otherthan this incident, we do not expect any significant continuing impacts from the2005 U.S. Gulf Coast storms in 2006.

 

We arein the process of preparing claims for possible recovery of damages under ourinsurance policies for property damage and business interruption resulting fromthe 2005 U.S. Gulf Coast storms (including for the 2006 incident discussedabove at our Jefferson County, Texas facility). While we can provide noassurances that we will recover these damages (or the amount of recovery, ifany), we anticipate obtaining at least a partial recovery, net of insurancedeductibles, by the end of 2006.

 

**Overview**

 

We areamong the world’s largest global manufacturers of differentiated and commoditychemical products. We manufacture a broad range of chemical products andformulations, which are marketed in more than 100 countries to a diversifiedgroup of consumer and industrial customers. Our products are used in a widerange of applications, including those in the adhesives, aerospace, automotive,construction products, durable and non-durable consumer products, electronics,medical, packaging, paints and coatings, power generation, refining andsynthetic fiber industries. We are a leading global producer in many of our keyproduct lines, including MDI, amines, surfactants, epoxy-based polymerformulations, maleic anhydride and titanium dioxide. Our administrative,research and development and manufacturing operations are primarily conductedat the 67 facilities that we own or lease. Our facilities are located in 24countries and we employ approximately 10,800 associates worldwide. Ourbusinesses benefit from significant integration, large production scale andproprietary manufacturing technologies, which allow us to maintain a low-costposition.

 

**OurProducts and Segments**

 

Ourbusiness is organized around our six segments: Polyurethanes, AdvancedMaterials, Performance Products, Pigments, Polymers and Base Chemicals. Thesesegments can be divided into two broad categories: differentiated andcommodity. We produce differentiated products primarily in our Polyurethanes,Advanced Materials and Performance Products segments. These products servediverse end markets and are generally characterized by historical growth inexcess of GDP growth, resulting from product substitution and new productdevelopment, proprietary manufacturing processes and product formulations and ahigh degree of customer loyalty. Demand for these products tends to be drivenby the value-added attributes 

 

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that they create in our customers’ end-use applications. While thedemand for these differentiated products is also influenced by worldwideeconomic conditions and GDP growth, our differentiated products have tended toproduce more stable profit margins and higher demand growth rates than ourcommodity products.

 

In ourcommodity chemical businesses, we produce titanium dioxide derived fromtitanium-bearing ores in our Pigments segment and petrochemical-based olefins,aromatics and polyolefins products in our Polymers and Base Chemicals segments.Since the coatings industry consumes a substantial portion of titanium dioxideproduction, seasonal demand patterns in the coatings industry drive theprofitability of our Pigments segment; profitability is also driven byindustry-wide operating rates, with a lag of up to twelve months due to theeffects of stocking and destocking by customers and suppliers. Theprofitability of our Polymers and Base Chemicals segments has historically beencyclical in nature. The industry has recently operated in an up cycle thatresulted primarily from strong demand reflecting global economic conditions andthe fact that there have been no recent North American or European capacityadditions. However, volatile crude oil and natural gas-based raw materialscosts and a recent weakening in demand could negatively impact the future profitabilityof our Polymers and Base Chemicals segments.

 

| **2005  Segment Revenues*** |       | **2005  Segment EBITDA*** |
|-----------------------------|------------|---------------------------|
|                             | ** ** |                           |

 
|        | Differentiated |
|--------|----------------|
|   | Commodity      |

 

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*                                         Percentageallocations in the segment revenues chart above reflect the allocation of allinter-segment revenue eliminations to our Base Chemicals segment. Percentageallocations in the segment EBITDA chart above do not give effect to $410.3 millionof corporate and other unallocated items and exclude $123.6 million ofrestructuring, impairment and plant closing costs. For a detailed discussion ofour revenues, total assets and EBITDA by segment, see “Note 26. OperatingSegment Information” to our Consolidated Financial Statements includedelsewhere in this report. For a discussion of EBITDA and a reconciliation ofEBITDA to net income and cash provided by operating activities, see “Part II.Item 7. Management’s Narrative Analysis of Results of Operations—Resultsof Operations.”

 

Thefollowing table identifies the key products, their principal end markets andapplications and representative customers of each of our segments:

 

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| **Segment**           | ** ** | **Products**                                                                                                                                                       | ** ** | **End Markets and Applications**                                                                                                                                                           | ** ** | **Representative Customers**                                                                                |
|-----------------------|------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-------------------------------------------------------------------------------------------------------------|
| Polyurethanes         |       | MDI, PO, polyols,  PG, TPU, aniline and MTBE(1)                                                                                                                    |       | automotive  interiors, refrigeration and appliance insulation, construction products,  footwear, furniture cushioning, adhesives, specialized engineering  applications and fuel additives |       | BMW, Electrolux,  Firestone, GE, Haier, Lear, Louisiana Pacific, Shell, Weyerhauser                         |
|                  |       |                                                                                                                                                               |       |                                                                                                                                                                                       |       |                                                                                                        |
| Advanced  Materials   |       | epoxy resin  compounds and formulations; cross-linking, matting and curing agents; epoxy,  acrylic and polyurethane-based adhesives and tooling resin formulations |       | adhesives,  aerospace, electrical power transmission, consumer electronics, civil  engineering, wind power generation and automotive                                                       |       | ABB, Akzo, BASF,  Boeing, Bosch, Cytec, Hexcel, Rohm & Haas, Sherwin Williams                      |
|                  |       |                                                                                                                                                               |       |                                                                                                                                                                                       |       |                                                                                                        |
| Performance  Products |       | amines,  surfactants, linear alkylbenzene, maleic anhydride, other performance  chemicals, glycols, and technology licenses                                        |       | detergents,  personal care products, agrochemicals, lubricant and fuel additives,  adhesives, paints and coatings, construction, marine and automotive products  and PET fibers and resins |       | ChevronTexaco, Colgate, Ecolab, Henkel, Monsanto,  Procter & Gamble, Unilever, Lubrizol, Reichhold |
|                  |       |                                                                                                                                                               |       |                                                                                                                                                                                       |       |                                                                                                        |
| Pigments              |       | titanium dioxide                                                                                                                                                   |       | paints and  coatings, plastics, paper, printing inks, fibers and ceramics                                                                                                                  |       | Akzo, Atofina, Clariant, ICI, Jotun, PolyOne                                                                |
|                  |       |                                                                                                                                                               |       |                                                                                                                                                                                       |       |                                                                                                        |
| Polymers              |       | LDPE and LLDPE,  polypropylene, EPS, styrene and APAO                                                                                                              |       | flexible and  rigid packaging, adhesives and automotive, medical and construction products                                                                                                 |       | Ashland, Kerr,  Kimberly Clark, Pliant, Polymer Group, PolyOne, Sealed Air                                  |
|                  |       |                                                                                                                                                               |       |                                                                                                                                                                                       |       |                                                                                                        |
| Base Chemicals        |       | ethylene,  propylene, butadiene,(2) benzene, cyclohexane, paraxylene and MTBE(2)                                                                                   |       | packaging film,  polyester and nylon fibers, PVC, cleaning compounds, polymer resins, SBR  rubber and fuel additives                                                                       |       | Bayer, BP,  Bridgestone/Firestone, Dow, DuPont SA, Invista, Goodyear, Nova, Shell, Solvay                   |

 

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(1)                                  The PO/MTBEoperations in our Polyurethanes segment are not included in the announced saleof our U.S. butadiene and MTBE business (operated in our Base Chemicalssegment).  See “—Recent Developments—PendingSale of U.S. Butadiene and MTBE Business”above.

 

(2)                                  We haveannounced the sale of our U.S. butadiene and MTBE business operated in our BaseChemicals segment; this transaction is expected to close in mid-2006.  See “—Recent Developments—Pending Saleof U.S. Butadiene and MTBE Business” above.

 

**AvailableInformation**

 

Wemaintain an Internet website at http://www.huntsman.com. Our annual reports on Form 10-K,quarterly reports on Form 10-Q, current reports on Form 8-K andamendments to these reports are available free of charge through our website assoon as reasonably practicable after we file this material with the SEC. Wealso provide electronic or paper copies of our SEC filings free of charge uponrequest.

 

**ITEM 1A.RISK FACTORS**

 

*Any of the following risks could materially andadversely affect our business, results of operations and financial condition.*

 

***We have a history of losses and mayincur losses in the future.***

 

We incurred net losses in four of the last fivefiscal years. We will need to continue to generate additional revenues and/orsignificantly reduce costs, including interest expense, in order to avoidadditional net losses in future periods. If we do achieve profitability, we maynot sustain or increase profitability on a quarterly or annual basis.

 

***Demand for many of our products iscyclical, and we may experience prolonged depressed market conditions for suchproducts.***

 

Historically, the markets for many of our products,particularly our commodity products, have experienced alternating periods oftight supply, causing prices and profit margins to increase, followed byperiods of capacity additions, resulting in oversupply and declining prices andprofit margins. Currently, several of our markets continue to experienceconditions of oversupply, and the pricing of our products in these markets isdepressed. Future growth in demand for these products may not be sufficient toalleviate any existing or future conditions of excess industry capacity, andsuch conditions may be sustained or further aggravated by anticipated orunanticipated capacity additions or other events.

 

We derive a substantial portion of our revenue fromsales of commodity products. Due to the commodity nature of these products,competition in these markets is based primarily on price and to a lesser extenton performance, product quality, product deliverability and customer service.As a result, we may not be able to protect our market position for theseproducts by product differentiation and may not be able to pass on costincreases to our customers. Historically, the prices for our commodity productshave been cyclical and sensitive to relative changes in supply and demand, theavailability and price of feedstocks and general economic conditions. Our otherproducts may be subject to these same factors, but, typically, the impact ofthese factors is greatest on our commodity products.

 

***Significant price volatility orinterruptions in supply of our raw materials may result in increased costs thatwe may be unable to pass on to our customers, which could reduce ourprofitability.***

 

                The prices of the raw materialsthat we purchase from third parties are cyclical and volatile. We purchase asubstantial portion of these raw materials from third party suppliers, and thecost of these raw materials represents a substantial portion of our operatingexpenses. The prices for a number of these raw materials generally follow pricetrends of, and vary with market conditions for, crude oil and natural gasfeedstocks, which are highly volatile and cyclical. In recent periods we haveexperienced significantly higher crude oil prices, which have resulted inincreased raw material prices.

 

Although we frequently enter into supply agreementsto acquire these raw materials, these agreements typically provide for marketbased pricing and provide us only limited protection against price volatility.While we attempt to match cost increases with corresponding product priceincreases, we are not always able to raise product prices immediately or atall. Timing differences between raw material prices, which may change daily,and contract product prices, which in many cases are negotiated only monthly orless often, have had and may continue to have a negative effect onprofitability. If any of our suppliers is unable to meet its obligations underpresent supply agreements, we may be forced to pay higher prices to obtain thenecessary raw materials from other sources and we may not be able to increaseprices for our finished products to recoup the higher raw materials cost. Inaddition, if any of the raw materials that we use become unavailable within thegeographic area from which they are now sourced, then we may not be able toobtain suitable and cost effective substitutes. Any underlying cost increasethat we are not able to pass on to our customers or any interruption in supplyof raw materials could increase our costs or decrease our revenues, which couldreduce our profitability.

 

5

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***Naturalor other disasters could disrupt our business and result in loss of revenue orin higher expenses.***

 

Anynatural disaster or other serious disruption at any of our facilities due tohurricane, fire, earthquake, flood, terrorist attack or any other natural orman-made disaster could impair our ability to use our facilities and have amaterial adverse impact on our revenues and increase our costs and expenses.Substantially all of our revenues are derived from products manufactured atfacilities, including among others, our U.S. Gulf Coast facilities, which areexposed to the risk of natural disasters. If there is a natural disaster orother serious disruption at any of these facilities, it could impair ourability to adequately supply our customers and negatively impact our operatingresults. In addition, many of our current and potential customers areconcentrated in specific geographic areas. A natural disaster in one of theseregions could have a material adverse impact on our U.S. and foreignoperations, operating results and financial condition.

 

***Our available cash and access toadditional capital may be limited by our substantial leverage, which couldrestrict our ability to grow our businesses.***

 

We reduced our indebtedness net of cash, includingoutstanding borrowings under our off-balance sheet accounts receivablesecuritization program, during 2005 by approximately $1.6 billion, but westill have a substantial amount of indebtedness outstanding. As of December 31,2005, we had total consolidated outstanding indebtedness of approximately$4.5 billion (including the current portion of long-term debt). We mayincur substantial additional debt from time to time for a variety of purposes.Our outstanding debt could have important consequences for our businesses, including:

 

•                  a high degree of debt will make us morevulnerable to a downturn in our businesses, our industry or the economy ingeneral as a significant percentage of our cash flow from operations will berequired to make payments on our indebtedness, making it more difficult toreact to changes in our business and in market or industry conditions;

 

•                  a substantial portion of our future cash flowfrom operations may be required to be dedicated to the payment of principal andinterest on indebtedness, thereby reducing the funds available for otherpurposes, including the growth of our businesses;

 

•                  our ability to obtain additional financing maybe constrained due to our existing level of debt; and

 

•                  part of our indebtedness is, and any futuredebt may be, subject to variable interest rates, which makes us vulnerable toincreases in interest rates.

 

Our existing debt instruments contain restrictivecovenants that may limit our ability to utilize our cash flow to operate ourbusinesses by restricting our ability to, among other things, make prepaymentsof certain debt, receive dividends from our subsidiaries, make investments andmerge or consolidate and transfer or sell assets.

 

As of December 31, 2005, the current portion ofour long term debt totaled $44.6 million. We estimate that our annualinterest expense for 2006 will be approximately $375 million. As of December 31,2005, we had combined outstanding variable rate borrowings of approximately$2.3 billion. Assuming a 1% increase in interest rates, without givingeffect to interest rate hedges, our annual interest rate expense would increaseby approximately $23 million.

 

If we are unable to generate sufficient cash flow orare otherwise unable to obtain the funds required to meet payments of principaland interest on our indebtedness, or if we otherwise fail to comply with thevarious covenants in the instruments governing our indebtedness, we could be indefault under the terms of those instruments. In the event of a default, aholder of the indebtedness could elect to declare all the funds borrowed underthose instruments to be due and payable together with accrued and unpaidinterest, the lenders under our credit facilities could elect to terminatetheir commitments thereunder and we or one or more of our subsidiaries could beforced into bankruptcy or liquidation. Any of the foregoing consequences couldrestrict our ability to grow our business.

 

6

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***A downgrade in the ratings of thesecurities of our Company or our subsidiaries could result in increasedinterest and other financial expenses related to future borrowings of ourCompany or our subsidiaries and could restrict our access to additional capitalor trade credit.***

 

Standard and Poor’s Ratings Services and Moody’sInvestors Service maintain credit ratings for us and our parent, HuntsmanCorporation. Each of these ratings is currently below investment grade. Anydecision by these or other ratings agencies to downgrade such ratings in thefuture could result in increased interest and other financial expensesrelating to our future borrowings and could restrict our ability to obtainadditional financing on satisfactory terms. In addition, any downgrade couldrestrict our access to, and negatively impact the terms of, trade creditextended by our suppliers of raw materials.

 

***Existing or future litigation orlegislative initiatives restricting the use of MTBE in gasoline may subject usor our products to environmental liability, materially reduce our sales and/ormaterially increase our costs.***

 

Weproduce MTBE, an oxygenate that is blended with gasoline to reduce vehicle airemissions and to enhance the octane rating of gasoline. The use of MTBE hasbecome controversial in the U.S. and elsewhere and has been curtailed and maybe eliminated in the future by legislation or regulatory action. For example,about 25 states have adopted rules that prohibit or restrict the use ofMTBE in gasoline sold in those states. Those states account for a substantialportion of the “pre-ban” U.S. MTBE market. In addition, the Energy Policy Actof 2005 is beginning to have an adverse impact on our MTBE business in theU.S., since it mandates increased use of renewable fuels and eliminates theoxygenate requirement for reformulated gasoline established by the 1990 CleanAir Act Amendments. Although the extent of the potential impact of the new lawis still unclear, there have been indications that certain gasoline refinersand distributors may stop using MTBE and that certain pipeline companies maystop shipping gasoline containing MTBE. A significant loss in demand for ourMTBE in the U.S. could result in a material loss in revenues or material costsor expenditures. Moreover, additional phase-outs or other future regulation ofMTBE may result in a reduction in demand for our MTBE in the U.S.

 

In2005, we marketed approximately 95% of our MTBE to customers located in theU.S. for use as a gasoline additive. Most of our 2005 sales of MTBE to U.S.customers were made pursuant to long-term agreements. During 2006 (andconcluding by the first quarter of 2007), our long-term MTBE sales agreementswill terminate. We anticipate that our 2006 sales of MTBE in the U.S. willdecrease substantially as compared to 2005 levels. Nevertheless, we expect tocontinue to sell a portion of our MTBE into the U.S. market, although notpursuant to any new long-term agreements. We have entered into sales agreementsto sell a significant percentage of our MTBE into the Latin American market,and we currently believe that we could also sell MTBE relatively efficiently inEurope and Asia. Nevertheless, as a result of varying market prices andtransportation costs, sales of MTBE in markets outside the U.S. may producelower margins than the sale of MTBE in the U.S. We may also elect to use all ora portion of our precursor TBA to produce saleable products other than MTBE. Ifwe opt to produce products other than MTBE, necessary modifications to ourfacilities will require us to make significant capital expenditures and thesale of such other products may produce a lower level of cash flow than thesale of MTBE.

 

Anumber of lawsuits have been filed, primarily against gasoline manufacturers,marketers and distributors, by persons seeking to recover damages allegedly arisingfrom the presence of MTBE in groundwater. While we have not been named as adefendant in any litigation concerning the environmental effects of MTBE, wecannot provide assurances that we will not be involved in any such litigationor that such litigation will not have a material adverse effect on ourbusiness, results of operations and financial condition.

 

***Our results of operations may beadversely affected by fluctuations in currency exchange rates and internationalbusiness risks.***

 

Some of our subsidiaries conduct a significantportion of their business outside the U.S. These operations outside the U.S.are subject to risks normally associated with international operations. Theserisks include the need to convert currencies which may be received for ourproducts into currencies in which our subsidiaries purchase raw

 

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materialsor pay for services, which could result in a gain or loss depending onfluctuations in exchange rates. In addition, we translate our local currencyfinancial results into U.S. dollars based on average exchange rates prevailingduring the reporting period or the exchange rate at the end of that period.During times of a strengthening U.S. dollar, our reported international sales andearnings may be reduced because the local currency may translate into fewerU.S. dollars. Because we currently have significant operations located in theUnited Kingdom and continental Europe, we are primarily exposed to fluctuationsin the pound sterling, the euro and the Swiss franc. Furthermore, we anticipateincreased exposure to the Chinese renminbi following completion of theconstruction of our MDI production facilities in China through our Chinesejoint ventures, currently expected in 2006.

 

Other risks of international operations include tradebarriers, tariffs, exchange controls, national and regional labor strikes,social and political risks, general economic risks and required compliance witha variety of foreign laws, including tax laws. Furthermore, in foreignjurisdictions where process of law may vary from country to country, we mayexperience difficulty in enforcing agreements. In jurisdictions wherebankruptcy laws and practices may vary, we may experience difficulty collectingforeign receivables through foreign legal systems. The occurrence of theserisks could disrupt the businesses of our international subsidiaries, whichcould significantly affect their ability to make distributions to us.

 

***The industries in which we competeare highly competitive, and we may not be able to compete effectively with ourcompetitors that have greater financial resources, which could reduce thetrading price of our securities.***

 

The industries in which we operate are highlycompetitive. Among our competitors are some of the world’s largest chemicalcompanies and major integrated petroleum companies that have their own rawmaterial resources. Some of these companies may be able to produce productsmore economically than we can. In addition, some of our competitors havegreater financial resources, which may enable them to invest significantcapital into their businesses, including expenditures for research anddevelopment. If any of our current or future competitors develops proprietarytechnology that enables them to produce products at a significantly lower cost,our technology could be rendered uneconomical or obsolete. Moreover, certain ofour businesses use technology that is widely available. Accordingly, barriersto entry, apart from capital availability, are low in certain commodity productsegments of our business, and the entrance of new competitors into the industrymay reduce our ability to capture improving profit margins in circumstanceswhere capacity utilization in the industry is increasing. Further,petroleum-rich countries have become more significant participants in thepetrochemical industry and may expand this role significantly in the future.Increased competition in any of our businesses could compel us to reduce theprices of our products, which could result in reduced profit margins and/orloss of market share and reduce the trading price of our securities.

 

***Our operations involve risks that mayincrease our operating costs, which could reduce our profitability.***

 

Althoughwe take precautions to enhance the safety of our operations and minimize therisk of disruptions, our operations are subject to hazards inherent in themanufacturing and marketing of differentiated and commodity chemical products.These hazards include chemical spills, pipeline leaks and ruptures, storagetank leaks, discharges or releases of toxic or hazardous substances or gasesand other hazards incident to the manufacturing, processing, handling,transportation and storage of dangerous chemicals.  We are also potentially subject to otherhazards, including natural disasters and severe weather; explosions and fires;transportation problems, including interruptions, spills and leaks; mechanicalfailures; unscheduled downtimes; labor difficulties; remediation complications;and other risks.

 

Manyof these hazards can cause bodily injury and loss of life, severe damage to ordestruction of property and equipment and environmental damage, and may resultin suspension of operations and the imposition of civil or criminal penaltiesand liabilities. Furthermore, we are subject to present and future claims withrespect to workplace exposure, exposure of contractors on our premises as wellas other persons located nearby, workers' compensation and other matters.

 

We maintain property, business interruption andcasualty insurance policies which we believe are in accordance with customaryindustry practices, but we are not fully insured against all potential hazardsand risks incident to our business. We maintain property damage and businessinterruption insurance policies with aggregate limits of $1 billion peroccurrence and products liability and sudden and accidental insurance policieswith aggregate per occurrence and annual limits of $600 million. We alsomaintain insurance policies covering other types of risks, including pollutionlegal liability insurance. Each of these insurance policies is subject tocustomary exclusions, deductibles and coverage limits. As a result of marketconditions, premiums and deductibles for certain insurance policies canincrease substantially and, in some instances, certain insurance may becomeunavailable or available

 

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onlyfor reduced amounts of coverage. If we were to incur a significant liabilityfor which we were not fully insured, it could materially increase our operatingcosts and therefore reduce our profitability.

 

In addition, we are subject to various claims andlitigation in the ordinary course of business. In conjunction with many of ourpast acquisitions, we have obtained indemnity agreements from the prior ownersaddressing liabilities that may arise from operations and events prior to ourownership. We are a party to several pending lawsuits and proceedings. It ispossible that a judgment could be rendered against us in these cases or othersin which we could be uninsured or not covered by indemnity and beyond theamounts that we currently have reserved or anticipate incurring for suchmatters. See “Item 1. Business—Environmental, Health and Safety Matters” and “Item3. Legal Proceedings.”

 

***We are subject to many environmentaland safety regulations that may result in unanticipated costs or liabilities,which could reduce our profitability.***

 

We are subject to extensive federal, state, local andforeign 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 andwaste materials. Actual or alleged violations of environmental laws or permitrequirements could result in restrictions or prohibitions on plant operations,substantial civil or criminal sanctions, as well as, under some environmentallaws, the assessment of strict liability and/or joint and several liability.Moreover, changes in environmental regulations could inhibit or interrupt ouroperations, or require us to modify our facilities or operations. Accordingly,environmental or regulatory matters may cause us to incur significantunanticipated losses, costs or liabilities, which could reduce ourprofitability. See “Item 1. Business—Environmental, Health and Safety Matters”and “Item 3. Legal Proceedings.”

 

In addition, we could incur significant expendituresin order to comply with existing or future environmental or safety laws.Capital expenditures and costs relating to environmental or safety matters willbe subject to evolving regulatory requirements and will depend on the timing ofthe promulgation and enforcement of specific standards which imposerequirements on our operations. Capital expenditures and costs beyond thosecurrently anticipated may therefore be required under existing or futureenvironmental or safety laws.

 

Furthermore, we may be liable for the costs of investigatingand cleaning up environmental contamination on or from our properties or atoff-site locations where we disposed of or arranged for the disposal ortreatment of hazardous materials or from disposal activities that pre-dated ourpurchase of our businesses. We may therefore incur additional costs andexpenditures beyond those currently anticipated to address all such known andunknown situations under existing and future environmental laws. See “Item 1.Business—Environmental, Health and Safety Matters” and “Item 3. LegalProceedings.”

 

***We can provide no assurance that our internal control over ourfinancial reporting will be effective when Section 404 of the Sarbanes-OxleyAct of 2002 becomes applicable to us.***

 

UnderSection 404 of the Sarbanes-Oxley Act of 2002 and the rules issued thereunder,our management is required to conduct an evaluation of the effectiveness of ourinternal control over financial reporting as of each year-end, beginningDecember 31, 2006. From that point, we will be required to include in ourannual report on Form 10-K a report on our management’s assessment of theeffectiveness of our internal control over financial reporting.  Our independent registered public accountingfirm will also issue an audit report on management’s assessment and on ourinternal control over financial reporting.

 

Wehave undertaken significant efforts in preparation for the requirements ofSection 404. However, given the complexities and inherent risks associated withthe operation of internal control over financial reporting, we can provide noassurance that our internal control over financial reporting will be effectivewhen Section 404 becomes applicable to us. Moreover, we can provide no assurance as to any matters that might bereported in our management’s assessment of our internal control over financialreporting or our independent registered public accounting firm’s auditreport.  Ineffective internal controlover financial reporting could cause investors to lose confidence in ourreported financial information and could result in a lower trading price forour securities. 

 

***Our business is dependent on ourintellectual property. If our patents are declared invalid or our trade secretsbecome known to our competitors, our ability to compete may be impaired.***

 

Proprietary protection of our processes, apparatusesand other technology is important to our business. Consequently, we may have torely on judicial enforcement of our patents and other proprietary rights. Whilea presumption of validity exists with respect to patents issued to us in theU.S., there can be no assurance that any of our patents will not be challenged,invalidated, circumvented or rendered unenforceable. Furthermore, if anypending patent application filed by us does not result in an issued patent, orif patents are issued to us, but such patents do not provide meaningfulprotection of our intellectual property, then our ability to compete may beadversely affected. Additionally, our competitors or other third parties mayobtain patents that restrict or preclude our ability to lawfully produce orsell our products in a competitive manner, which could result in significantlylower revenues, reduced profit margins and/or loss of market share.

 

We also rely upon unpatented proprietary know-how andcontinuing technological innovation and other trade secrets to develop andmaintain our competitive position. While it is our policy to enter intoconfidentiality agreements with our employees and third parties to protect ourintellectual property, these confidentiality agreements may be breached, maynot provide meaningful protection for our trade secrets or proprietaryknow-how, or adequate remedies may not be available in the event of anunauthorized use or disclosure of our trade secrets and know-how. In addition,others could obtain knowledge of our trade secrets through independentdevelopment or

 

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otheraccess by legal means. The failure of our patents or confidentiality agreementsto protect our processes, apparatuses, technology, trade secrets or proprietaryknow-how could result in significantly lower revenues, reduced profit marginsand/or loss of market share.

 

***Loss of key members of our managementcould disrupt our business.***

 

We depend on the continued employment and performanceof our senior executives and other key members of management. If any of theseindividuals resigns or becomes unable to continue in his present role and isnot adequately replaced, our business operations and our ability to implementour growth strategies could be materially disrupted. We generally do not haveemployment agreements with, and we do not maintain any “key man” life insurancefor, any of our executive officers.

 

***Terrorist attacks, such as theattacks that occurred on September 11, 2001, the continuing militaryaction in Iraq, general instability in various OPEC member nations, the threatof other attacks or acts of war in the U.S. and abroad and increased securityregulations related to our industry could adversely affect our business.***

 

The attacks of September 11, 2001, andsubsequent events, including the continuing military action in Iraq, havecaused instability in the U.S. and other financial markets and have led, andmay continue to lead, to further armed hostilities, prolonged military actionin Iraq, or further acts of terrorism in the U.S. or abroad, which could causefurther instability in financial markets. Current regional tensions andconflicts in various OPEC member nations, including the continuing militaryaction in Iraq, have caused, and may cause further, increases in raw materialcosts, particularly natural gas and crude oil based feedstocks, which are usedin our operations. The uncertainty surrounding the continuing military action inIraq and the threat of further armed hostilities or acts of terrorism mayimpact any or all of our physical facilities and operations, which are locatedin North America, Europe, Australia, Asia, Africa, South America and the MiddleEast, or those of our customers. Furthermore, terrorist attacks, subsequentevents and future developments in any of these areas may result in reduceddemand from our customers for our products. In addition, local, state andfederal governments have begun a regulatory process that could lead to newregulations impacting the security of chemical plant locations and thetransportation of hazardous chemicals, which could result in higher operatingcosts. These developments will subject our worldwide operations to increasedrisks and, depending on their magnitude, could result in significantunanticipated costs, lower revenues and/or reduced profit margins.

 

***Future acquisitions, partnerships andjoint ventures may require significant resources and/or result in significantunanticipated losses, costs or liabilities.***

 

In the future we may seek to grow our Company andbusinesses by making acquisitions or entering into partnerships and jointventures. Any future acquisition, partnership or joint venture may require thatwe make a significant cash investment, issue stock or incur substantial debt.In addition, acquisitions, partnerships or investments may require significantmanagerial attention, which may be diverted from our other operations. Thesecapital, equity and managerial commitments may impair the operation of ourbusinesses. Furthermore, any future acquisitions of businesses or facilitiescould entail a number of additional risks, including:

 

•      problemswith effective integration of operations;

 

•      theinability to maintain key pre-acquisition business relationships;

 

•      increasedoperating costs;

 

•      exposureto unanticipated liabilities; and

 

•      difficultiesin realizing projected efficiencies, synergies and cost savings.

 

Wehave incurred indebtedness to finance past acquisitions. We may finance futureacquisitions with additional indebtedness and/or by issuing additional equitysecurities. As a result, we could face the financial risks associated withincurring additional indebtedness such as reducing our liquidity and access tofinancing markets and increasing the amount of cash flow required to servicesuch indebtedness.

 

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**ITEM 1B.UNRESOLVED STAFF COMMENTS**

 

As of December 31,2005, we did not have any unresolved comments with the staff of the SEC.

 

**ITEM 2.PROPERTIES**

 

We ownor lease chemical manufacturing and research facilities in the locationsindicated in the list below which we currently believe are adequate for ourshort-term and anticipated long-term needs. We own or lease office space andstorage facilities throughout the U.S. and many foreign countries. Ourprincipal executive offices are located at 500 Huntsman Way, Salt Lake City,Utah 84108. The following is a list of our material owned or leased propertieswhere manufacturing, research and main office facilities are located.

 
| **Location**                   | ** ** | **Business Segment**                                    | ** ** | **Description of Facility**                                                                                  |
|--------------------------------|------------|---------------------------------------------------------|------------|--------------------------------------------------------------------------------------------------------------|
| Salt Lake City,  Utah          |       | —                                                  |       | Executive  Offices                                                                                           |
| The Woodlands,  Texas(1)       |       | —                                                  |       | Operating  Headquarters, Global Technology Center                                                            |
| Geismar,  Louisiana(2)         |       | Polyurethanes                                           |       | MDI,  Nitrobenzene(5), Aniline(5) and Polyols Manufacturing Facilities and  Polyurethanes Systems House |
| Rozenburg,  Netherlands(1)     |       | Polyurethanes                                           |       | MDI  Manufacturing Facility, Polyols Manufacturing Facilities and Polyurethanes  Systems House               |
| Auburn Hills,  Michigan(1)     |       | Polyurethanes                                           |       | Polyurethane  Research Facility                                                                              |
| Deerpark,  Australia           |       | Polyurethanes                                           |       | Polyurethane  Systems House                                                                                  |
| Cartagena,  Colombia           |       | Polyurethanes                                           |       | Polyurethane  Systems House                                                                                  |
| Deggendorf,  Germany           |       | Polyurethanes                                           |       | Polyurethane  Systems House                                                                                  |
| Ternate, Italy                 |       | Polyurethanes                                           |       | Polyurethane  Systems House                                                                                  |
| Shanghai,  China(1)            |       | Polyurethanes                                           |       | Polyurethane  Systems House                                                                                  |
| Thane  (Maharashtra), India(1) |       | Polyurethanes                                           |       | Polyurethane  Systems House                                                                                  |
| Samuprakam,  Thailand(1)       |       | Polyurethanes                                           |       | Polyurethane  Systems House                                                                                  |
| Kuan Yin,  Taiwan(1)           |       | Polyurethanes                                           |       | Polyurethane  Systems House                                                                                  |
| Tlalnepantla,  Mexico          |       | Polyurethanes                                           |       | Polyurethane  Systems House                                                                                  |
| Mississauga,  Ontario(1)       |       | Polyurethanes                                           |       | Polyurethane  Systems House                                                                                  |
| Everberg,  Belgium             |       | Polyurethanes                                           |       | Polyurethane  Research Facility/Performance Products Regional HQ                                             |
| Gateway West,  Singapore(1)    |       | Polyurethanes                                           |       | Polyurethane  Commercial Center                                                                              |
| Derry, New  Hampshire(1)       |       | Polyurethanes                                           |       | TPU Research  Facility                                                                                       |
| Ringwood,  Illinois(1)         |       | Polyurethanes                                           |       | TPU  Manufacturing Facility                                                                                  |
| Osnabrück,  Germany       |       | Polyurethanes                                           |       | TPU  Manufacturing Facility                                                                                  |
| Port Neches,  Texas(3)         |       | Polyurethanes,  Performance Products and Base Chemicals |       | Olefins,  Aromatics, EO, EG, Surfactants, Amines and PO Manufacturing Facilities                             |
| Wilton, U.K.                   |       | Polyurethanes and  Base Chemicals                       |       | Olefins and  Aromatics Manufacturing Facilities and Aniline and Nitrobenzene Manufacturing  Facilities       |
| Bergkamen,  Germany(4)         |       | Advanced  Materials                                     |       | Synthesis  Facility                                                                                          |
| Monthey,  Switzerland          |       | Advanced  Materials                                     |       | Resins and  Synthesis Facility                                                                               |
| Pamplona, Spain                |       | Advanced  Materials                                     |       | Resins and  Synthesis Facility                                                                               |
| McIntosh,  Alabama             |       | Advanced  Materials                                     |       | Resins and  Synthesis Facility                                                                               |
| Chennai,  India(3)             |       | Advanced  Materials                                     |       | Resins and  Synthesis Facility                                                                               |
| Bad Saeckingen,  Germany(1)    |       | Advanced  Materials                                     |       | Formulating  Facility                                                                                        |
| Duxford, U.K.                  |       | Advanced  Materials                                     |       | Formulating  Facility                                                                                        |
| Sadat City,  Egypt             |       | Advanced  Materials                                     |       | Formulating  Facility                                                                                        |
| Taboão da Serra,  Brazil  |       | Advanced  Materials                                     |       | Formulating  Facility                                                                                        |
| Panyu,  China(1)(4)            |       | Advanced  Materials                                     |       | Formulating  Facility                                                                                        |
| East Lansing,  Michigan        |       | Advanced  Materials                                     |       | Formulating  Facility                                                                                        |
| Istanbul,  Turkey(1)           |       | Advanced  Materials                                     |       | Formulating  Facility                                                                                        |
| Los Angeles,  California       |       | Advanced  Materials                                     |       | Formulating  Facility                                                                                        |
| Conroe, Texas                  |       | Performance  Products                                   |       | Amines Manufacturing  Facility                                                                               |
| Dayton, Texas                  |       | Performance  Products                                   |       | Surfactant  Manufacturing Facility                                                                           |
| Chocolate Bayou,  Texas(1)(5)  |       | Performance  Products                                   |       | LAB  Manufacturing Facility                                                                                  |
| Pensacola,  Florida(1)(5)      |       | Performance  Products                                   |       | Maleic Anhydride  Manufacturing Facility                                                                     |
| Petfurdo,  Hungary(1)          |       | Performance  Products                                   |       | Amines  Manufacturing Facility                                                                               |
| Botany,  Australia             |       | Performance  Products                                   |       | Surfactant  Manufacturing Facility                                                                           |
| Llanelli, U.K.                 |       | Performance  Products                                   |       | Amines  Manufacturing Facility                                                                               |
| St. Mihiel,  France            |       | Performance  Products                                   |       | Surfactant  Manufacturing Facility                                                                           |
| Lavera,  France(1)             |       | Performance  Products                                   |       | Surfactant  Manufacturing Facility                                                                           |
| Castiglione,  Italy            |       | Performance  Products                                   |       | Surfactant  Manufacturing Facility                                                                           |
| Patrica/Frosinone,  Italy      |       | Performance  Products                                   |       | Surfactant  Manufacturing Facility                                                                           |
| Barcelona,  Spain(1)           |       | Performance  Products                                   |       | Surfactant  Manufacturing Facility                                                                           |

 

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| Whitehaven,  U.K.(1)(6)     |   | Performance  Products |   | Surfactant  Manufacturing Facility                                        |
|-----------------------------|--------|-----------------------|--------|---------------------------------------------------------------------------|
| Freeport, Texas(1)          |   | Performance  Products |   | Amines  Manufacturing Facility                                            |
| Greatham, U.K.              |   | Pigments              |   | Titanium Dioxide  Manufacturing Facility                                  |
| Grimsby, U.K.               |   | Pigments              |   | Titanium Dioxide  Manufacturing Facility                                  |
| Calais, France              |   | Pigments              |   | Titanium Dioxide  Manufacturing Facility                                  |
| Huelva, Spain               |   | Pigments              |   | Titanium Dioxide  Manufacturing Facility                                  |
| Scarlino, Italy             |   | Pigments              |   | Titanium Dioxide  Manufacturing Facility                                  |
| Teluk Kalung,  Malaysia     |   | Pigments              |   | Titanium Dioxide  Manufacturing Facility                                  |
| Lake Charles,  Louisiana(7) |   | Pigments              |   | Titanium Dioxide  Manufacturing Facility                                  |
| Umbogintwini,  South Africa |   | Pigments              |   | Titanium Dioxide  Manufacturing Facility                                  |
| Billingham, U.K.            |   | Pigments              |   | Titanium Dioxide  Research and Technical Facility                         |
| Peru, Illinois              |   | Polymers              |   | EPS  Manufacturing Facility                                               |
| Marysville, Michigan        |   | Polymers              |   | Polypropylene  Manufacturing Facility                                     |
| Longview,  Texas(1)         |   | Polymers              |   | Polypropylene  Manufacturing Facility                                     |
| Odessa, Texas               |   | Polymers              |   | Polyethylene  Manufacturing Facility                                      |
| Mansonville,  Quebec        |   | Polymers              |   | EPS  Manufacturing Facility                                               |
| West Footscray,  Australia  |   | Polymers              |   | Styrenics  Manufacturing Facility                                         |
| Port Arthur,  Texas         |   | Base Chemicals        |   | Olefins and  Aromatics Manufacturing Facility                             |
| Sour Lake, Texas            |   | Base Chemicals        |   | Various finished  raw materials pipelines and storage facilities          |
| North Tees, U.K.(1)         |   | Base Chemicals        |   | Aromatics  Manufacturing Facility and Logistics & Storage Assets |

 

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(1)                                  Leasedland and/or building.

 

(2)                                  TheGeismar facility is owned as follows: we own 100% of the MDI and polyolfacilities, and Rubicon LLC, a consolidated manufacturing joint venture withChemtura Corporation in which we own a 50% interest, owns the aniline andnitrobenzene facilities. Rubicon LLC is a separate legal entity that operatesboth the assets that we own jointly with Chemtura Corporation and our wholly-ownedassets at Geismar.

 

(3)                                  76%-ownedmanufacturing joint venture with Tamilnadu Petroproducts Limited.

 

(4)                                  95%-ownedmanufacturing joint venture with Guangdong Panyu Shilou Town EconomicDevelopment Co. Ltd.

 

(5)                                  Theseplants are operated by Solutia under long-term operating agreements. Solutiaand certain of its affiliates have filed a voluntary petition for relief underChapter 11 of the U.S. Bankruptcy Code. We expect that Solutia will continue tooperate these plants, although no assurance can be given at this time. Duringthe course of the bankruptcy proceeding, it is possible that Solutia may rejectany of the agreements under which it operates the plants. It is also possiblethat Solutia’s reorganization under Chapter 11 may fail and that it wouldproceed to a liquidation under Chapter 7. If Solutia were to discontinueoperation of any of these plants, it may be difficult to arrange foruninterrupted operation.

 

(6)                                  Wehave substantially reduced our operations at this site during 2005.

 

(7)                                  50%-ownedmanufacturing joint venture with Kronos Louisiana, Inc., a subsidiary ofKronos Worldwide, Inc.

 

**ITEM 3.LEGAL PROCEEDINGS**

 

**DiscolorationClaims**

 

Certainclaims have been filed against us relating to discoloration of unplasticizedpolyvinyl chloride products allegedly caused by our titanium dioxide (“DiscolorationClaims”). Substantially all of the titanium dioxide that is the subject ofthese claims was manufactured prior to our acquisition of our titanium dioxidebusiness from ICI in 1999. Net of amounts we have received from insurers andpursuant to contracts of indemnity, we have paid approximately $16 millionin costs and settlement amounts for Discoloration Claims as of December 31,2005.

 

Thefollowing table presents information about the number of Discoloration Claimsfor the periods indicated. Claims include all claims for which service has beenreceived by us, and each such claim represents a plaintiff who is pursuing aclaim against us.

 

12

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| ** **                         | ** ** | **Year ended  December 31, 2005** | ** ** | **Year ended  December 31, 2004** | ** ** | **Year ended  December 31, 2003** | ** ** |
|------------------------------------|------------|----------------------------------------|------------|----------------------------------------|------------|----------------------------------------|------------|
| Claims filed during period         |       | 0                                      |       | 1                                      |       | 1                                      |       |
| Claims resolved during period      |       | 1                                      |       | 2                                      |       | 2                                      |       |
| Claims unresolved at end of period |       | 2                                      |       | 3                                      |       | 4                                      |       |

 

Duringthe year ended December 31, 2004, we settled claims for approximately$45 million, approximately $30 million of which was paid by ourinsurers or ICI and approximately $15 million of which was paid by us.During 2004, we recorded charges of $15.1 million relating to DiscolorationClaims. During the year ended December 31, 2005, we settled a claim forapproximately $1 million, all of which was paid by ICI. The two DiscolorationClaims unresolved as of December 31, 2005 asserted aggregate damages ofapproximately $63 million. An appropriate liability has been accrued forthese claims. Based on our understanding of the merits of these claims and ourrights under contracts of indemnity and insurance, we do not believe that thenet impact on our financial condition, results of operations or liquidity willbe material.

 

Whileadditional Discoloration Claims may be made in the future, we cannot reasonablyestimate the amount of loss related to such claims. Although we may incuradditional costs as a result of future claims (including settlement costs),based on our history with Discoloration Claims to date, the fact thatsubstantially all of the titanium dioxide that has been the subject of theseDiscoloration Claims was manufactured and sold more than six years ago, and thefact that we have rights under contract to indemnity, including from ICI, we donot believe that any unasserted Discoloration Claims will have a materialimpact on our financial condition, results of operations, or liquidity. Basedon this conclusion and our inability to reasonably estimate our expected costswith respect to these unasserted claims, we have made no accruals in ourfinancial statements as of December 31, 2005 for costs associated withunasserted Discoloration Claims.

 

**CibaSettlement**

 

Vantico,acquired by us in June 2003, concluded that certain of the products of itsformer Electronics division may have infringed patents owned by Taiyo and itentered into a license agreement in October 2001 with Taiyo to obtain theright to use the Taiyo patents. This license agreement required payment ofapproximately $4 million in back royalties and agreement to pay periodicroyalties for future use. We believe that Ciba Specialty ChemicalsHoldings Inc. (“Ciba”) is liable under the indemnity provisions of certainagreements in connection with the leveraged buy-out transaction in 2000involving Ciba and Vantico for certain payments made under the licenseagreement and related costs and expenses, and we initiated an arbitrationproceeding against Ciba. In July 2004, we entered into a settlementagreement with Ciba with respect to this matter. In general, the settlementagreement provided that Ciba would pay us $11.1 million in 2004. Wereceived additional consideration in the form of modifications to certainoperating agreements between us and Ciba. In August 2004, we receivedpayment of the $11.1 million settlement.

 

**EnvironmentalLitigation**

 

Wehave been a party to various lawsuits brought by persons alleging personalinjuries and/or property damage based upon alleged exposure to toxic airemissions. For example, since June 2003, a number of lawsuits have beenfiled in state district court in Jefferson County, Texas against several localchemical plants and refineries, including our subsidiary, HuntsmanPetrochemical Corporation. Generally, these lawsuits have alleged that therefineries and chemical plants located in the vicinity of the plaintiffs’ homesdischarged chemicals into the air that interfere with use and enjoyment ofproperty and cause health problems and/or property damages. None of theselawsuits have included the amount of damages being sought. The following tablepresents information about the number of claims asserting damages based uponalleged exposure to toxic air emissions for the periods indicated. Claimsinclude all claims for which service has been received by us, and each suchclaim represents a plaintiff who is pursuing a claim against us.

 
| ** **                         | ** ** | **Year ended  December 31, 2005** | ** ** | **Year ended  December 31, 2004** | ** ** | **Year ended  December 31, 2003** | ** ** |
|------------------------------------|------------|----------------------------------------|------------|----------------------------------------|------------|----------------------------------------|------------|
| Claims filed during period         |       | 2,104                                  |       | 214                                    |       | 721                                    |       |
| Claims resolved during period      |       | 2,988                                  |       |   51                         |       |   0                          |       |
| Claims unresolved at end of period |       | 0                                      |       | 884                                    |       | 721                                    |       |

 

All claims filed as of December 31,2005 have been resolved through dismissal and/or settlement.

 

13

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Inaddition, we have been named as a “premises defendant” in a number of asbestosexposure cases, typically a claim by a non-employee of exposure to asbestoswhile at a facility. In the past, these cases typically have involved multipleplaintiffs bringing actions against multiple defendants, and the complaint hasnot indicated which plaintiffs were making claims against which defendants,where or how the alleged injuries occurred, or what injuries each plaintiffclaimed. These facts, which would be central to any estimate of probable loss,generally have been learned only through discovery. Recent changes in Texastort procedures have required many pending cases to be split into multiplecases, one for each claimant, increasing the number of pending cases reportedbelow for the year ended December 31, 2005. Nevertheless, the complaintsin these cases provide little additional information. We do not believe thatthe increased number of cases reflects an increase in the number of underlyingclaims.

 

Wherethe alleged exposure occurred prior to our ownership or operation of therelevant “premises,” the prior owners and operators generally havecontractually agreed to retain liability for, and to indemnify us against,asbestos exposure claims. This indemnification is not subject to any time ordollar amount limitations. Upon service of a complaint in one of these cases,we tender it to the prior owner or operator. None of the complaints in thesecases state the amount of damages being sought. The prior owner or operatoraccepts responsibility for the conduct of the defense of the cases and paymentof any amounts due to the claimants. In our eleven-year experience withtendering these cases, we have not made any payment with respect to anytendered asbestos cases. We believe that the prior owners or operators have theintention and ability to continue to honor their indemnities, although wecannot assure you that they will continue to do so or that we will not beliable for these cases if they do not.

 

Thefollowing table presents for the periods indicated certain information aboutcases for which service has been received that we have tendered to the priorowner or operator, all of which have been accepted.

 
| ** **                  | ** ** | **Year ended  December 31, 2005** | ** ** | **Year ended  December 31, 2004** | ** ** | **Year ended  December 31, 2003** | ** ** |
|-----------------------------|------------|----------------------------------------|------------|----------------------------------------|------------|----------------------------------------|------------|
| Tendered during period      |       | 284                                    |       |  94                               |       |                                   |       |
| Resolved during period      |       | 106                                    |       |  65                               |       |                                   |       |
| Unresolved at end of period |       | 576                                    |       | 398                                    |       | 369                                    |       |

 

Wehave never made any payments with respect to these cases. As of December 31,2005, we had an accrued liability of $12.5 million relating to these casesand a corresponding receivable of $12.5 million relating to our indemnityprotection with respect to these cases. We cannot assure you that our liabilitywill not exceed our accruals or that our liability associated with these caseswould not be material to our financial condition, results of operations orliquidity.

 

Certaincases in which we are a “premises defendant” are not subject to indemnificationby prior owners or operators. The following table presents for the periodsindicated certain information about these cases. Cases include all cases forwhich service has been received by us.

 
| ** **                  | ** ** | **Year ended  December 31, 2005** | ** ** | **Year ended  December 31, 2004** | ** ** | **Year ended  December 31, 2003** | ** ** |
|-----------------------------|------------|----------------------------------------|------------|----------------------------------------|------------|----------------------------------------|------------|
| Filed during period         |       | 55                                     |       | 23                                     |       |                                   |       |
| Resolved during period      |       | 56                                     |       | 42                                     |       |                                   |       |
| Unresolved at end of period |       | 34                                     |       | 29                                     |       | 48                                     |       |

 

We paid gross settlement costs for asbestos exposurecases that are not subject to indemnification of $0.1 million,$1.0 million and $0.2 million in 2005, 2004 and 2003, respectively.  The cases for the year ended December 31,2005 include cases filed against Rubicon LLC, which became our consolidatedsubsidiary on January 1, 2005, as follows: one case filed during theperiod, one case resolved during the period and six cases unresolved at the endof the period.

 

As of December 31,2005, we had an accrual of $0.9 million relating to these cases. We cannotassure you that our liability will not exceed our accruals or that ourliability associated with these cases would not be material to our financialcondition, results of operations or liquidity.

 

**AntitrustMatters**

 

Wehave been named as a defendant in putative class action antitrust suitsalleging a conspiracy to fix prices in the MDI, TDI, and polyether polyolsindustries that are now consolidated as the “Polyether Polyols Cases” inmultidistrict litigation known as In re Urethane Antitrust Litigation,MDL No. 1616, Civil No. 2:04-md-01616-JWL-DJW, United States DistrictCourt, District of Kansas, initial order transferring and consolidating casesfiled August 23, 2004. Other defendants named in the Polyether PolyolsCases are Bayer, BASF, Dow, and Lyondell. Bayer has announced that it has enteredinto a settlement agreement with the plaintiffs.

 

14

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Theseconsolidated cases are in the early stages of class certification discovery.The pleadings of the plaintiffs do not provide specifics about any allegedillegal conduct of the defendants and we are not aware of any evidence ofillegal conduct by us or any of our employees. For these reasons, we cannotestimate the possible loss or range of loss relating to these claims, andtherefore we have not accrued a liability for these claims. Nevertheless, wecould incur losses due to these claims in the future and those losses could bematerial.

 

Inaddition, on February 16, 2006, the Antitrust Division of the U.S.Department of Justice served us with a grand jury subpoena requesting theproduction of documents relating to sales and pricing of TDI, MDI, polyetherpolyols and related systems. Bayer and Lyondell have announced that they havealso been served with subpoenas in this matter. We intend to cooperate fully inthis matter.

 

**TaxDispute**

 

In connection with the auditof our income tax returns for the years ended 1998 through 2001, we received aNotice of Proposed Adjustment from the Internal Revenue Service and in late 2005,we initiated an administrative appeal before the Internal Revenue Service. Thepotential liability and the potential reduction to our net operating losseshave been reserved in our financial statements. For more information on thismatter, including the potential net adjustment to our net operating losses, see“Note 18. Income Taxes” to our Consolidated Financial Statements includedelsewhere in this report.

 

**OtherProceedings**

 

We area party to various other proceedings instituted by private plaintiffs,governmental authorities and others arising under provisions of applicablelaws, including various environmental, products liability and other laws.Except as otherwise disclosed in this report, we do not believe that theoutcome of any of these matters will have a material adverse effect on ourfinancial condition, results of operations or liquidity. See “Item 1.Business—Environmental, Health and Safety Matters” for a discussion ofenvironmental proceedings.

 

**ITEM 4.SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS**

 

Omittedin accordance with General Instruction I of Form 10-K.

 

15

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** **

**PART II**

 

**ITEM 5.MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUERPURCHASES OF EQUITY SECURITIES**

 

**MarketInformation**

 

As ofthe date of this report, there was no established public trading market for anyclass of our membership interests.

 

**Holders**

 

As ofthe date of this report, Huntsman Corporation was the only holder of record ofour membership interests.

 

**Distributions**

 

Oursenior secured credit facilities restrict our ability to pay dividends or otherdistributions on our equity interests, including prohibiting us from makingdistributions to Huntsman Corporation for the purpose of paying principal,interest or premium on any outstanding notes of Huntsman Corporation. Theindentures governing our outstanding notes also place certain restrictions onour ability to pay dividends and make other distributions.

 

Therestrictions contained in the indentures governing our notes may prevent usfrom making any “restricted payments,” including (i) any dividends,distributions or other payments to holders of our equity interests or (ii) paymentsto purchase, redeem or otherwise acquire or retire for value any of our equityinterests, subject to certain exceptions contained in such indentures.

 

**ITEM 6.SELECTED FINANCIAL DATA**

 

Omittedin accordance with General Instruction I of Form 10-K.

 

16

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** **

**ITEM 7.MANAGEMENT’S NARRATIVE ANALYSIS OF RESULTS OF OPERATIONS**

 

**Results of Operations**

 

Thefollowing sets forth the condensed consolidated results of operations for theyears ended December 31, 2005, 2004 and 2003 (dollars in millions):

 
| ** **                                                                                                    | ** ** | **Year ended December 31,** | ** ** | **Percent Change** | ** ** |
|---------------------------------------------------------------------------------------------------------------|------------|----------------------------------|------------|--------------------|------------|
| ** **                                                                                                    | ** ** | **2005**                         | ** ** | **2004**           | ** ** | **2003** | ** ** | **2005 vs. 2004** | ** ** | **2004 vs. 2003** | ** ** |
| ** **                                                                                                    | ** ** | ** **                       | ** ** | ** **         | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| **Revenues**                                                                                                  |       | $                                | 12,961.6   |               | $          | 11,426.4 |   | $ | 7,646.3 |   | 13 | % | 49 | % |
| **Cost of goods sold**                                                                                        |       | 11,190.4                         |       | 10,025.1           |       | 6,836.2 |   | 12 | % | 47 | % |
| **Gross profit**                                                                                              |       | 1,771.2                          |       | 1,401.3            |       | 810.1 |   | 26 | % | 73 | % |
| Operating expenses                                                                                            |       | 815.4                            |       | 667.6              |       | 518.4 |   | 22 | % | 29 | % |
| Restructuring, impairment and plant closing costs                                                             |       | 123.6                            |       | 299.3              |       | 55.0 |   | (59 | )% | 444 | % |
|                                                                                                          |       |                             |       |               |       |   |   |   |   |   |   |
| **Operating income**                                                                                          |       | 832.2                            |       | 434.4              |       | 236.7 |   | 92 | % | 84 | % |
|                                                                                                          |       |                             |       |               |       |   |   |   |   |   |   |
| Interest expense, net                                                                                         |       | (425.6                           | )          | (592.6             | )          | (480.5 | ) | (28 | )% | 23 | % |
| Loss on accounts receivable securitization program                                                            |       | (10.7                            | )          | (15.6              | )          | (32.4 | ) | (31 | )% | (52 | )% |
| Equity in income of unconsolidated affiliates                                                                 |       | 8.2                              |       | 4.0                |       | 1.7 |   | 105 | % | 135 | % |
| Other expense                                                                                                 |       | (167.5                           | )          | (25.8              | )          | (0.7 | ) | 549 | % | NM |   |
|                                                                                                          |       |                             |       |               |       |   |   |   |   |   |   |
| **Income  (loss) from continuing operations before income taxes, minority interests and  accounting changes** |       | 236.6                            |       | (195.6             | )          | (275.2 | ) | NM |   | (29 | )% |
| Income tax (expense) benefit                                                                                  |       | (42.8                            | )          | 22.9               |       | (41.0 | ) | NM |   | NM |   |
| Minority interest (expense) income                                                                            |       | (1.7                             | )          | (7.2               | )          | 1.5 |   | (76 | )% | NM |   |
| **Income (loss) from continuing operations**                                                                  |       | 192.1                            |       | (179.9             | )          | (314.7 | ) | NM |   | (43 | )% |
| Loss from  discontinued operations (including loss on disposal of $36.4 in 2005), net of  tax                 |       | (43.9                            | )          | (7.8               | )          | (2.6 | ) | 463 | % | 200 | % |
| Cumulative  effect of changes in accounting principle, net of tax of $3.3                                     |       | (27.5                            | )          | —             |       | — |   | NM |   | NM |   |
| **Net income (loss)**                                                                                         |       | 120.7                            |       | (187.7             | )          | (317.3 | ) | NM |   | (41 | )% |
|                                                                                                          |       |                             |       |               |       |   |   |   |   |   |   |
| Interest expense, net                                                                                         |       | 425.6                            |       | 592.6              |       | 480.5 |   | (28 | )% | 23 | % |
| Income tax expense (benefit) (1)                                                                              |       | 39.5                             |       | (22.9              | )          | 41.0 |   | NM |   | NM |   |
| Depreciation and amortization                                                                                 |       | 473.9                            |       | 499.0              |       | 394.2 |   | (5 | )% | 27 | % |
| **EBITDA (2)**                                                                                                |       | $                                | 1,059.7    |               | $          | 881.0 |   | $ | 598.4 |   | 20 | % | 47 | % |
|                                                                                                          |       |                             |       |               |       |   |   |   |   |   |   |   |   |   |
| Net cash provided by operating activities                                                                     |       | $                                | 988.3      |               | $          | 181.6 |   | $ | 215.9 |   | 444 | % | (16 | )% |
| Net cash used in investing activities                                                                         |       | (316.3                           | )          | (223.0             | )          | (617.1 | ) | 42 | % | (64 | )% |
| Net cash (used in) provided by financing activities                                                           |       | (780.7                           | )          | 83.4               |       | 507.4 |   | NM |   | (84 | )% |

 

NM—Not meaningful

 

17

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Includedin EBITDA are the following items of (expense) income:

 
| ** **                                                    | ** ** | **Year ended December 31,** | ** ** |
|---------------------------------------------------------------|------------|----------------------------------|------------|
| ** **                                                    | ** ** | **2005**                         | ** ** | **2004** | ** ** | **2003** | ** ** |
| ** **                                                    | ** ** | **(in millions)**           | ** ** |
| Loss on early extinguishment of debt                          |       | $                                | (167.3     | ) | $ | (25.6 | ) | $ | — |   |
| Legal and contract settlement expense, net                    |       | —                           |       | (6.6 | ) | (2.0 | ) |
| Loss on accounts receivable securitization program            |       | (10.7                            | )          | (15.6 | ) | (32.4 | ) |
| Asset write down                                              |       | —                           |       | — |   | (5.8 | ) |
| Loss from discontinued operations                             |       | (43.9                            | )          | (7.8 | ) | (2.6 | ) |
| Cumulative effect of changes in accounting principle          |       | (30.8                            | )          | — |   | — |   |
|                                                          |       |                             |       |   |   |   |   |
| Restructuring, impairment and plant closing (costs)  credits: |       |                             |       |   |   |   |   |
| Polyurethanes                                                 |       | (13.4                            | )          | (36.9 | ) | (28.1 | ) |
| Advanced  Materials                                           |       | (0.5                             | )          | (9.0 | ) | — |   |
| Performance  Products                                         |       | (10.0                            | )          | (97.5 | ) | (22.1 | ) |
| Pigments                                                      |       | (30.1                            | )          | (123.3 | ) | (6.5 | ) |
| Polymers                                                      |       | (51.6                            | )          | (13.6 | ) | (0.8 | ) |
| Base Chemicals                                                |       | (16.8                            | )          | (16.7 | ) | 2.5 |   |
| Corporate and  other                                          |       | (1.2                             | )          | (2.3 | ) | — |   |
| Total restructuring,  impairment and plant closing costs      |       | (123.6                           | )          | (299.3 | ) | (55.0 | ) |
|                                                          |       |                             |       |   |   |   |   |
| **Total**                                                     |       | $                                | (376.3     | ) | $ | (354.9 | ) | $ | (97.8 | ) |

 

----

(1)                                  Includesa tax benefit of $3.3 million in 2005 on the cumulative effect of changes inaccounting principle.

 

(2)                                  EBITDAis defined as net income (loss) before interest, income taxes, depreciation andamortization. We believe that EBITDA enhances an investor’s understanding ofour financial performance and our ability to satisfy principal and interestobligations with respect to our indebtedness. However, EBITDA should not beconsidered in isolation or viewed as a substitute for net income, cash flowfrom operations or other measures of performance as defined by generallyaccepted accounting principles in the U.S. (“GAAP”). Moreover, EBITDA as usedherein is not necessarily comparable to other similarly titled measures ofother companies due to potential inconsistencies in the method of calculation.Our management uses EBITDA to assess financial performance and debt servicecapabilities. In assessing financial performance, our management reviews EBITDAas a general indicator of economic performance compared to prior periods.Because EBITDA excludes interest, income taxes, depreciation and amortization,EBITDA provides an indicator of general economic performance that is notaffected by debt restructurings, fluctuations in interest rates or effectivetax rates, or levels of depreciation and amortization. Accordingly, ourmanagement believes this type of measurement is useful for comparing generaloperating performance from period to period and making certain relatedmanagement decisions. EBITDA is also used by securities analysts, lenders andothers in their evaluation of different companies because it excludes certainitems that can vary widely across different industries or among companieswithin the same industry. For example, interest expense can be highly dependenton a company’s capital structure, debt levels and credit ratings. Therefore,the impact of interest expense on earnings can vary significantly amongcompanies. In addition, the tax positions of companies can vary because oftheir differing abilities to take advantage of tax benefits and because of thetax policies of the various jurisdictions in which they operate. As a result,effective tax rates and tax expense can vary considerably among companies.Finally, companies employ productive assets of different ages and utilizedifferent methods of acquiring and depreciating such assets. This can result inconsiderable variability in the relative costs of productive assets and thedepreciation and amortization expense among companies. Our management alsobelieves that our investors use EBITDA as a measure of our ability to serviceindebtedness as well as to fund capital expenditures and working capitalrequirements. Nevertheless, our management recognizes that there are materiallimitations associated with the use of EBITDA in the evaluation of our Companyas compared to net income, which reflects overall financial performance,including the effects of interest, income taxes, depreciation and amortization.EBITDA excludes interest expense. Because we have borrowed money in order tofinance our operations, interest expense is a necessary element of our costsand ability to generate revenue. Therefore, any measure that excludes interestexpense has material limitations. EBITDA also excludes taxes. Because thepayment of taxes is a necessary element of our operations, any measure thatexcludes tax expense has material limitations. Finally, EBITDA excludesdepreciation and amortization expense. Because we use capital assets,depreciation and amortization expense is a necessary element of our costs andability to generate revenue. Therefore, any measure that excludes depreciationand amortization expense has material limitations. Our management compensatesfor the limitations of using EBITDA by using it to supplement GAAP results toprovide a more complete understanding of the factors and trends affecting thebusiness than GAAP results alone. Our management also uses other metrics toevaluate capital structure, tax planning and capital investment decisions. Forexample, our management uses credit ratings and net debt ratios to 

 

18

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evaluatecapital structure, effective tax rate by jurisdiction to evaluate tax planning,and payback period and internal rate of return to evaluate capital investments.Our management also uses trade working capital to evaluate its investment inaccounts receivable and inventory, net of accounts payable.

 

Webelieve that net income (loss) is the performance measure calculated andpresented in accordance with GAAP that is most directly comparable to EBITDAand that cash provided by operating activities is the liquidity measurecalculated and presented in accordance with GAAP that is most directlycomparable to EBITDA. The following table reconciles EBITDA to our net income(loss) and to our cash provided by operations:

 
| ** **                                                        | ** ** | **Year Ended December 31,** | ** ** | **Percent Change** | ** ** |
|-------------------------------------------------------------------|------------|----------------------------------|------------|--------------------|------------|
| ** **                                                        | ** ** | **2005**                         | ** ** | **2004**           | ** ** | **2003** | ** ** | **2005 vs 2004** | ** ** | **2004 vs 2003** | ** ** |
|                                                              |       | **(in millions)**           |       |               |       |   |   |
| EBITDA(2)                                                         |       | $                                | 1,059.7    |               | $          | 881.0 |   | $ | 598.4 |   | 20 | % | 47 | % |
| Depreciation and amortization                                     |       | (473.9                           | )          | (499.0             | )          | (394.2 | ) | (5 | )% | 27 | % |
| Interest expense, net                                             |       | (425.6                           | )          | (592.6             | )          | (480.5 | ) | (28 | )% | 23 | % |
| Income tax (expense) benefit (1)                                  |       | (39.5                            | )          | 22.9               |       | (41.0 | ) | NM |   | NM |   |
| Net income (loss)                                                 |       | 120.7                            |       | (187.7             | )          | (317.3 | ) | NM |   | (41 | )% |
| Cumulative  effect of changes in accounting principle, net of tax |       | 27.5                             |       | —             |       | — |   | NM |   | NM |   |
| Equity in income of unconsolidated affiliates                     |       | (8.2                             | )          | (4.0               | )          | (1.7 | ) | 105 | % | 135 | % |
| Depreciation and amortization                                     |       | 473.9                            |       | 499.0              |       | 394.2 |   | (5 | )% | 27 | % |
| Loss on early extinguishment of debt                              |       | 167.3                            |       | 25.6               |       | — |   | 554 | % | NM |   |
| Noncash interest (including interest on affiliate  debt)          |       | 47.2                             |       | 145.5              |       | 132.1 |   | (68 | )% | 10 | % |
| Noncash  restructuring, impairment and plant closing costs        |       | 64.1                             |       | 138.0              |       | 12.2 |   | (54 | )% | NM |   |
| Deferred income taxes                                             |       | 16.2                             |       | (58.3              | )          | 9.3 |   | NM |   | NM |   |
| Net unrealized  losses (gains) on foreign currency transactions   |       | 23.1                             |       | (111.7             | )          | (78.4 | ) | NM |   | 42 | % |
| Loss on disposal of discontinued operations                       |       | 36.4                             |       | —             |       | — |   | NM |   | NM |   |
| Other, net                                                        |       | 15.4                             |       | 9.0                |       | 3.5 |   | 71 | % | 157 | % |
| Changes in operating assets and liabilites                        |       | 4.7                              |       | (273.8             | )          | 62.0 |   | NM |   | NM |   |
| Net cash provided by operating activities                         |       | $                                | 988.3      |               | $          | 181.6 |   | $ | 215.9 |   | 444 | % | (16 | )% |

 

----

NM—Not meaningful

 

**YearEnded December 31, 2005 Compared with the Year Ended December 31,2004**

 

Forthe year ended December 31, 2005, we had net income of $120.7 millionon revenues of $12,961.6 million compared to a net loss of$187.7 million on revenues of $11,426.4 million for 2004. Theimprovement of $308.4 million in net income was the result of the followingitems:

 

•                  Revenues for the year ended December 31,2005 increased by $1,535.2 million, or 13%, as compared with 2004 dueprincipally to higher average selling prices in all of our operating segments,primarily in response to higher raw materials and energy costs. For furtherinformation regarding changes in selling prices and sales volumes from theprior period, see the discussion by operating segment below.

 

•                  Gross profit for the year ended December 31,2005 increased by $369.9 million, or 26%, as compared with 2004. Thisincrease in gross profit, which occurred in our Polyurethanes, Pigments andPolymers segments, was mainly due to higher margins as average selling pricesincreased more than raw material and energy costs in 2005 as compared with2004.  The decrease in gross profit inour Advanced Materials, Performance Products and Base Chemicals segmentsresulted primarily from the impact of the U.S. Gulf Coast storms which resultedin loss of sales, repair costs and higher raw material costs.

 

•                  Operating expenses for the year endedDecember 31, 2005 increased by $147.8 million, or 22%, as compared with2004, primarily due to higher foreign currency losses.

 

•                  Restructuring, impairment and plantclosing costs for the year ended December 31, 2005 decreased to$123.6 million from $299.3 million in 2004. For further discussion ofrestructuring activities, see “Note 10. Restructuring, Impairment andPlant Closing Costs” to our Consolidated Financial Statements includedelsewhere in this report.

 

•                  Net interest expense for the yearended December 31, 2005 decreased by $167.0 million, or 28%, as comparedwith 2004, primarily due to lower average debt balances resulting from therepayment of debt from the proceeds of Huntsman Corporation’s initial publicoffering on February 16, 2005 and operating cash flows, and from loweraverage interest rates despite higher underlying interest rates on variablerate borrowings.

 

19

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•                  Other expense for the year ended December 31,2005 increased by $141.7 million to $167.5 million from $25.8 million for 2004.The increase was due primarily to a $141.7 million increase in loss on earlyextinguishment of debt.

 

•                  Income tax expense increased by $65.7million to $42.8 million for the year ended December 31, 2005 as comparedwith a benefit of $22.9 million for 2004. Increased tax expense was largely due to increased pre-tax income.  Our tax obligations are affected by the mixof income and losses in the tax jurisdictions in which we operate.  The change in income tax expense includeschanges in our mix of income and losses, as well as non-recurring items ofexpense and benefit recognized each year.

 

•                  The loss from discontinued operationsrepresents the operating results of our TDI business that was sold on July 6,2005. The loss from discontinued operations of $43.9 million for the year endedDecember 31, 2005 includes a loss on disposal of $36.4 million recorded inthe second quarter of 2005.

 

•                  During the fourth quarter of 2005, weadopted Financial Accounting Standards Board Interpretation No. 47, *“Accounting for Conditional Asset Retirement Obligations,”*and recorded a charge for the cumulative effect of accounting change, net oftax, of $31.7 million. Also in the fourth quarter of 2005, we accelerated thedate for actuarial measurement of our pension and postretirement benefitobligations from December 31 to November 30 in order to improveinternal control procedures by allowing more time to review the completenessand accuracy of the actuarial benefit obligation measurements and recorded acredit for the cumulative effect of accounting change, net of tax, of $4.2million.

 

Thefollowing table sets forth the revenues and EBITDA for each of our operatingsegments (dollars in millions):

 
| ** **           | ** ** | **Year ended December 31,** | ** ** | **Percent** | ** ** |
|----------------------|------------|----------------------------------|------------|-------------|------------|
| ** **           | ** ** | **2005**                         | ** ** | **2004**    | ** ** | **Change** | ** ** |
| **Revenues**         |       |                             |       |        |       |   |   |
| Polyurethanes        |       | $                                | 3,396.3    |        | $          | 2,818.0 |   | 21 | % |
| Advanced Materials   |       | 1,185.3                          |       | 1,162.4     |       | 2 | % |
| Performance Products |       | 1,960.9                          |       | 1,927.8     |       | 2 | % |
| Pigments             |       | 1,052.8                          |       | 1,048.1     |       | — |   |
| Polymers             |       | 1,702.0                          |       | 1,451.8     |       | 17 | % |
| Base Chemicals       |       | 4,462.1                          |       | 3,859.0     |       | 16 | % |
| Eliminations         |       | (797.8                           | )          | (840.7      | )          | (5 | )% |
| **Total**            |       | $                                | 12,961.6   |        | $          | 11,426.4 |   | 13 | % |
|                 |       |                             |       |        |       |   |   |
| **Segment EBITDA**   |       |                             |       |        |       |   |   |
| Polyurethanes        |       | $                                | 676.3      |        | $          | 364.0 |   | 86 | % |
| Advanced Materials   |       | 154.1                            |       | 151.0       |       | 2 | % |
| Performance Products |       | 157.3                            |       | 91.0        |       | 73 | % |
| Pigments             |       | 115.3                            |       | (30.0       | )          | NM |   |
| Polymers             |       | 102.7                            |       | 77.6        |       | 32 | % |
| Base Chemicals       |       | 264.3                            |       | 276.2       |       | (4 | )% |
| Corporate and other  |       | (410.3                           | )          | (48.8       | )          | 741 | % |
| **Total**            |       | $                                | 1,059.7    |        | $          | 881.0 |   | 20 | % |
|                      |            |                                  |            |             |            |  |  |  |  |  |  |  |  |

 

NM—Not meaningful

 

20

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***Polyurethanes***

 

Forthe year ended December 31, 2005, Polyurethanes segment revenues increasedby $578.3 million, or 21%, as compared with 2004, primarily as a result ofincreased MDI and MTBE revenues. MDI revenues increased by 25% due to 29%higher average selling prices. The increase in MDI selling prices was driven byimproved market conditions, stronger growth in higher value applications, andin response to higher raw material and energy costs. MDI sales volumes were 3%lower principally due to product availability limitations and the effects ofunplanned outages related to the U.S. Gulf Coast storms. MTBE revenuesincreased by 28% as a result of 38% higher average selling prices. The increasein MTBE average selling prices was principally due to strong demand and tightsupplies in the market. MTBE sales volumes decreased by 8% primarily due toloss of production related to unplanned outages for maintenance and the U.S.Gulf Coast storms.

 

Forthe year ended December 31, 2005, Polyurethanes segment EBITDA increasedby $312.3 million, or 86%, as compared with 2004. Segment EBITDA increasedprimarily as a result of higher contribution margins, with average sellingprices more than offsetting increases in raw material and energy costs. Marginimprovements were partially offset by higher losses from discontinued operationsand the negative impact of the U.S. Gulf Coast storms. During the years ended December 31,2005 and 2004, our Polyurethanes segment recorded a loss from discontinuedoperations of its TDI business of $43.9 million and $7.8 million, respectively.In addition, our Polyurethanes segment recorded restructuring, impairment andplant closing costs of $13.4 million in the year ended December 31,2005 as compared with $36.9 million in 2004. For further discussion ofrestructuring activities, see “Note 10. Restructuring, Impairment andPlant Closing Costs” to our Consolidated Financial Statements includedelsewhere in this report.

 

***Advanced Materials***

 

AdvancedMaterials revenues for the year ended December 31, 2005 increased by$22.9 million, or 2%, as compared with 2004, primarily attributable to an8% increase in average selling prices, with sales volumes down 6%. Averageselling prices were higher due to price increase initiatives in certain marketsin response to higher raw material costs and due to a higher value product mix.Our ongoing portfolio re-alignment activities resulted in higher sales volumesin some of our markets, which were more than offset by lower sales volumes ofbasic epoxy resins in the coatings, construction and adhesives markets andreduced volumes of electronic laminates products.

 

AdvancedMaterials segment EBITDA for the year ended December 31, 2005 increased by$3.1 million, or 2%, as compared with 2004. Segment EBITDA improved on higherrevenues and an improved product mix, resulting from increased sales volumes ofhigher margin adhesives and power and composite engineering applications. Theseimprovements more than offset higher raw material costs caused principally bydecreased supplies of materials and higher energy prices related to the U.S.Gulf Coast storms and a reduction of $8.7 million in legal and contractsettlement gains. In addition, our Advanced Materials segment recordedrestructuring, impairment and plant closing costs of $0.5 million and$9.0 million during the years ended December 31, 2005 and 2004,respectively. For further discussion of restructuring activities, see “Note 10.Restructuring, Impairment and Plant Closing Costs” to our ConsolidatedFinancial Statements included elsewhere in this report.

 

***Performance Products***

 

Forthe year ended December 31, 2005, Performance Products revenues increasedby $33.1 million, or 2%, as compared with 2004, primarily as a result ofhigher average selling prices for all major product lines, offset by lowersales volumes in certain product lines. Overall, average selling pricesincreased by 19% in response to higher raw material and energy costs andimproved market conditions for certain products. Sales volumes declined by 15%principally due to the loss of production volume in the U.S. related to theGulf Coast storms and the unplanned outage at our PO facility, together withlower sales of glycols and certain surfactants.

 

Forthe year ended December 31, 2005, Performance Products segment EBITDAincreased by $66.3 million, or 73%, as compared with 2004, resultingprimarily from lower restructuring, impairment and plant closing costs andhigher margins, partially offset by lower sales volumes and the negative impactof the U.S. Gulf Coast storms. During the years ended December 31, 2005and 2004, the Performance Products segment recorded restructuring and plantclosing charges of $10.0 million and $97.5 million, respectively. Forfurther discussion of restructuring activities, see “Note 10.Restructuring, Impairment and Plant Closing Costs” to our ConsolidatedFinancial Statements included elsewhere in this report.

 

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***Pigments***

 

Forthe year ended December 31, 2005, Pigments revenues remained relativelyunchanged at $1,052.8 million, as compared with revenues of$1,048.1 million in 2004, resulting principally from a 6% increase inaverage selling prices, offset in part by a 5% reduction in sales volumes.Sales volumes were lower due to the restructuring of our Grimsby, U.K. and Umbogintwini,South Africa facilities during 2004 and due to lower end-use demand across allregions. Average selling prices increased in all regions and benefited fromprice increase initiatives implemented during late 2004 and 2005.

 

Pigments segment EBITDA for theyear ended December 31, 2005 increased by $145.3 million to$115.3 million from negative $30.0 million for 2004. During the yearsended December 31, 2005 and 2004, our Pigments segment recordedrestructuring, impairment and plant closing charges of $30.1 million and$123.3 million, respectively. For further discussion of restructuringactivities, see “Note 10. Restructuring, Impairment and Plant Closing Costs” toour Consolidated Financial Statements included elsewhere in this report. Thisincrease in segment EBITDA during 2005 was due primarily to the combination oflower restructuring, impairment and plant closing costs, $15.1 million of lowerlegal settlement costs related to Discoloration Claims and higher marginsduring 2005.

 

***Polymers***

 

Forthe year ended December 31, 2005, Polymers revenues increased by$250.2 million, or 17%, as compared with 2004, due mainly to 22% higheraverage selling prices, offset somewhat by lower sales volumes. Average sellingprices were higher primarily due to tighter market conditions and in responseto an increase in raw material and energy costs. Sales volumes decreased by 4%as a result of soft demand in our Australian styrenics business and rawmaterials supply shortages in our polypropylene business.

 

Forthe year ended December 31, 2005, Polymers segment EBITDA increased by$25.1 million, or 32%, as compared to 2004. This increase in segmentEBITDA resulted from higher contribution margins, as average selling pricesincreased more than raw material and energy costs, and was partially offset byhigher restructuring, impairment and plant closing costs. During the year endedDecember 31, 2005 and 2004, our Polymers segment recorded restructuring,impairment and plant closing charges of $51.6 million and$13.6 million, respectively. For further discussion of restructuringactivities, see “Note 10. Restructuring, Impairment and Plant ClosingCosts” to our Consolidated Financial Statements included elsewhere in thisreport.

 

***Base Chemicals***

 

Forthe year ended December 31, 2005, Base Chemicals revenues increased by$603.1 million, or 16%, as compared with 2004. This increase was due mainly toa 22% increase in average selling prices, partially offset by a 5% decrease insales volumes. Higher average selling prices were primarily due to improvedmarket conditions and in response to higher raw material and energy costs. Thesales volume decrease was driven principally by a loss of production volume inthe U.S. related to the Gulf Coast storms.

 

For the year ended December 31, 2005, BaseChemicals segment EBITDA decreased by $11.9 million, or 4%, as comparedwith 2004. This decrease in segment EBITDA was primarily due to slightly lowercontribution margins as higher average selling prices were more than offset byhigher raw materials and energy costs. The increase in raw materials and energycosts during 2005 were caused principally by decreased supplies of materialsand energy sources related to the U.S. Gulf Coast storms. EBITDA was also lowerresulting from lost production in the U.S. related to the Gulf Coast storms.During the year ended December 31, 2005 and 2004, our Base Chemicalssegment recorded restructuring charges of $16.8 million and$16.7 million, respectively. For further discussion of restructuringactivities, see “Note 10. Restructuring, Impairment and Plant ClosingCosts” to our Consolidated Financial Statements included elsewhere in thisreport.

*** ***

***Corporate and Other***

 

Corporateand other items includes unallocated corporate overhead, foreign exchange gainsand losses, loss on the sale of accounts receivable, loss on the earlyextinguishment of debt, other non-operating income and expense and minorityinterest in subsidiaries’ (income) loss. For the year ended December 31,2005, EBITDA from corporate and other items decreased by $361.5 million toa loss of $410.3 million from a loss of $48.8 million for 2004. Thedecrease in 2005 period EBITDA resulted primarily from a $141.7 millionincrease in losses on early extinguishment of debt, a $148.7 millionincrease in unallocated foreign currency losses, $28.3 million higherincentive compensation and a charge of $30.8 million for the cumulativeeffect of changes in accounting principle.

 

**YearEnded December 31, 2004 Compared with the Year Ended December 31,2003**

 

Our businesshas undergone significant changes as a result of a number of transactions.Effective May 1, 2003, as a result of transactions among Huntsman LLC, HIHand ICI, the financial results of Huntsman LLC and HIH were consolidated 

 

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(the “HLLC Consolidation Transaction”). Effective June 30, 2003,as a result of our affiliate’s acquisition of the Advanced Materials businessthrough the acquisition of Vantico S.A. (the “AdMat Transaction”), we haveconsolidated the financial results of AdMat. Because of these transactions, thefinancial information for the year ended December 31, 2004 is notcomparable to the financial data for the year ended December 31, 2003.

 

Forthe year ended December 31, 2004, we had a net loss of $187.7 millionon revenues of $11,426.4 million compared to a net loss of$317.3 million on revenues of $7,646.3 million for 2003. The decreaseof $129.6 million in net loss was the result of the following items:

 

•                  Revenues for the year ended December 31, 2004increased by $3,780.1 million, or 49%, to $11,426.4 million from$7,646.3 million during 2003. Approximately 23% of this increase was dueto our consolidation with Huntsman LLC following the HLLC ConsolidationTransaction effective May 1, 2003 and our affiliate’s ownership of AdMateffective June 30, 2003 following the AdMat Transaction, in each case forthe entire period in 2004. The remaining approximately 26% of the increase wasdue to higher average selling prices in all our operating segments and highersales volumes in our Polyurethanes, Advanced Materials, Pigments, Polymers andBase Chemicals segments. For details of the changes in selling prices and salesvolumes from the prior year, please see our discussion by operating segment below.

 

•                  Gross profit for the year ended December 31, 2004increased by $591.2 million, or 73%, to $1,401.3 million from$810.1 million in 2003. Approximately 29% of this increase was due to ourconsolidation of Huntsman LLC following the HLLC Consolidation Transactioneffective May 1, 2003 and our affiliate’s ownership of AdMat effective June 30,2003 following the AdMat Transaction, in each case for the entire period in2004. The remaining approximately 44% of the increase was due to highercontribution margins as average selling prices increased more than raw materialand energy costs in 2004 as compared with 2003.

 

•                  Operating expenses for the year ended December 31,2004 increased by $149.2 million, or 29%, to $667.6 million from$518.4 million in 2003. The majority of this increase was due to ourconsolidation with Huntsman LLC following the HLLC Consolidation Transactioneffective May 1, 2003 and our affiliate’s ownership of AdMat effective June 30,2003 following the AdMat Transaction, in each case for the entire period in2004. Excluding the effect of the HLLC Consolidation Transaction and the AdMatTransaction, operating expenses decreased approximately 5%.

 

•                  Restructuring, impairment and plant closing costs for theyear ended December 31, 2004 increased by $244.3 million to$299.3 million from $55.0 million in 2003. This increase was in partdue to our consolidation with HLLC for the entire period in 2004 following theHLLC Consolidation Transaction effective May 1, 2003. For furtherdiscussion of restructuring activities, see “Note 10. Restructuring,Impairment and Plant Closing Costs” to our Consolidated Financial Statementsincluded elsewhere in this report.

 

•                  Net interest expense for the year ended December 31,2004 increased by $112.1 million, or 23%, to $592.6 million from$480.5 million for 2003. Approximately 17% of this increase was due to ourconsolidation with Huntsman LLC following the HLLC Consolidation Transactioneffective May 1, 2003 and our affiliate’s ownership of AdMat effective June 30,2003 following the AdMat Transaction, in each case for the entire period in2004. In addition, the increase was due to additional debt and higher interestrates on our borrowings in 2004 as compared to 2003 and the compounding ofinterest on the HMP Senior Discount Notes and the HLLC Senior Discount Notes,the accrued interest of which was added to the principal balance and not paidin cash.

 

•                  Loss on our accounts receivable securitization programdecreased $16.8 million, or 52%, to a loss of $15.6 million for theyear ended December 31, 2004 as compared to a loss of $32.4 millionfor 2003. This decrease was mainly attributable to reduced losses on foreigncurrency hedging contracts in 2004 as compared with 2003, primarily as a resultof an amendment to our accounts receivable securitization program permittingEuro-denominated debt, thereby reducing the need for foreign currency hedgecontracts. Losses on the accounts receivable securitization program include thediscount on receivables sold into the program, fees and expenses associatedwith the program and gains (losses) on foreign currency hedge contractsmandated by the terms of the program to hedge currency exposures on thecollateral supporting the off-balance sheet debt issued.

 

•                  Other expense of $25.8 million in 2004 relates to the losson early extinguishment of debt.

 

•                  Income tax benefit was $22.9 millionfor the year ended December 31, 2004 as compared to income tax expense of$41.0 million for the year ended December 31, 2003.  Our tax obligationsare affected by the mix of income and losses in the tax jurisdictions in whichwe operate.  Increased tax benefit waslargely due to changes in pre-tax income in certain tax jurisdictions.  During 2004, additional pre-tax losses wererecorded in jurisdictions where tax benefits were provided and additionalpre-tax income was recorded in jurisdictions where tax expense was notprovided, net of valuation allowance.  Inaddition, during the year ended December 31, 2004 we recognizednon-recurring benefits in Spain, France, and Holland of approximately $28.3million associated with enacted changes in tax rates, the settlement of taxauthority examinations and the reversal of previously established valuationallowances.

 

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Thefollowing table sets forth the revenues and EBITDA for each of our operatingsegments (dollars in millions):

 
| ** **           | ** ** | **Year Ended December 31,** | ** ** | **Percent** | ** ** |
|----------------------|------------|----------------------------------|------------|-------------|------------|
| ** **           | ** ** | **2004**                         | ** ** | **2003**    | ** ** | **Change** | ** ** |
|                 |       |                             |       |        |       |   |   |
| **Revenues**         |       |                             |       |        |       |   |   |
| Polyurethanes        |       | $                                | 2,818.0    |        | $          | 2,235.2 |   | 26 | % |
| Advanced Materials   |       | 1,162.4                          |       | 517.8       |       | 124 | % |
| Performance Products |       | 1,927.8                          |       | 1,348.3     |       | 43 | % |
| Pigments             |       | 1,048.1                          |       | 1,010.0     |       | 4 | % |
| Polymers             |       | 1,451.8                          |       | 774.4       |       | 87 | % |
| Base Chemicals       |       | 3,859.0                          |       | 2,207.3     |       | 75 | % |
| Eliminations         |       | (840.7                           | )          | (446.7      | )          | 88 | % |
| **Total**            |       | $                                | 11,426.4   |        | $          | 7,646.3 |   | 49 | % |
|                 |       |                             |       |        |       |   |   |
| **Segment EBITDA**   |       |                             |       |        |       |   |   |
| Polyurethanes        |       | $                                | 364.0      |        | $          | 233.4 |   | 56 | % |
| Advanced Materials   |       | 151.0                            |       | 29.4        |       | 414 | % |
| Performance Products |       | 91.0                             |       | 80.9        |       | 12 | % |
| Pigments             |       | (30.0                            | )          | 105.4       |       | NM |   |
| Polymers             |       | 77.6                             |       | 57.8        |       | 34 | % |
| Base Chemicals       |       | 276.2                            |       | 79.4        |       | 248 | % |
| Corporate and other  |       | (48.8                            | )          | 12.1        |       | NM |   |
| **Total**            |       | $                                | 881.0      |        | $          | 598.4 |   | 47 | % |

 

NM—Not Meaningful

 

***Polyurethanes***

 

Forthe year ended December 31, 2004, Polyurethanes revenues increased by$582.8 million, or 26%, as compared to 2003, primarily from higher averageselling prices and higher sales volumes for MDI. MDI revenues increased by 31%,resulting from 17% higher average selling prices and 12% higher sales volumes.The increase in MDI average selling prices resulted principally from improvedmarket demand coupled with tighter supply, the strength of the major Europeancurrencies versus the U.S. dollar and in response to higher raw material andenergy costs. Higher MDI volumes reflect further extension of markets for MDIand recent improvements in global economic conditions.

 

Forthe year ended December 31, 2004, Polyurethanes segment EBITDA increasedby $130.6 million, or 56%, as compared to 2003.  Restructuring, impairment and plant closingcosts of $36.9 million and $28.1 million for the years ended December 31,2004 and 2003, respectively, were included in segment EBITDA. For furtherdiscussion of restructuring activities, see “Note 10. Restructuring, Impairmentand Plant Closing Costs” to our Consolidated Financial Statements includedelsewhere in this report. Excluding restructuring charges, segment EBITDAincreased by $139.4 million in 2004, resulting mainly from higher contributionmargins as average selling pries increased more than raw material and energycosts.

 

***Advanced Materials***

 

AdvancedMaterials revenues for the year ended December 31, 2004 increased by$644.6 million, or 124%, from 2003. Approximately 83% of the increase wasattributable to our affiliate’s ownership of AdMat for the entire period in2004 following the AdMat Transaction that was effective June 30, 2003. Approximately17% of the increase in revenues for 2004 as compared to 2003 was due to anincrease in average selling prices and sales volumes. Average selling priceswere higher due to improved demand in certain markets in response to higher rawmaterial costs and, in part, to the strength of the major European currenciesversus the U.S. dollar.

 

Forthe year ended December 31, 2004, Advanced Materials segment EBITDAincreased by $121.6 million to $151.0 million from $29.4 millionfor the same period of 2003. Approximately 7% of the increase was attributableto our affiliate’s ownership of AdMat for the entire period in 2004 followingthe AdMat Transaction that was effective June 30, 2003. Approximately 93%of the increase in segment EBITDA was primarily due to higher contributionmargins as average selling prices increased more than raw material costs.During the year ended December 31, 2004, our Advanced Materials segmentrecorded restructuring charges of $9.0 million. For further discussion ofrestructuring activities, see “Note 10. Restructuring, Impairment and PlantClosing Costs” to our Consolidated Financial Statements included elsewhere inthis report.

 

24

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***Performance Products***

 

Forthe year ended December 31, 2004, Performance Products revenues increasedby $579.5 million, or 43%, from 2003. Approximately 29% of this increasewas due to our consolidation with Huntsman LLC for the entire period in 2004 asa result of the HLLC Consolidation Transaction effective May 1, 2003. Theremaining increase in revenues resulted primarily from higher average sellingprices for all products, offset somewhat by lower sales volumes in certainproduct lines. Overall, average selling prices increased by approximately 17%in response to higher raw material and energy costs, improved market conditionsand the strength of the major European currencies versus the U.S. dollar. Salesvolumes declined by 2% primarily due to lower sales volumes of amines andsurfactants. The reduction in surfactants sales volumes was due principally toincreased competition in the marketplace.

 

Forthe year ended December 31, 2004, Performance Products segment EBITDAincreased by $10.1 million, or 12%, to $91.0 million from$80.9 million for 2003. The increase in EBITDA resulted primarily from theconsolidation with HLLC for the entire period in 2004 as a result of the HLLCConsolidation Transaction, despite higher restructuring charges. During theyears ended December 31, 2004 and 2003, the Performance Products segmentrecorded restructuring charges of $97.5 million and $22.1 million,respectively. For further discussion of restructuring activities, see “Note 10.Restructuring, Impairment and Plant Closing Costs” to our ConsolidatedFinancial Statements included elsewhere in this report.

 

***Pigments***

 

Forthe year ended December 31, 2004, Pigments revenues increased by$38.1 million, or 4%, as compared to 2003, resulting principally from 4% higheraverage selling prices. Average selling prices benefited primarily from thestrengthening of the major European currencies versus the U.S. dollar.

 

Pigmentssegment EBITDA for the year ended December 31, 2004 decreased by$135.4 million to a loss of $30.0 million from income of$105.4 million in 2003.  Thedecrease is mainly the result of an increase in restructuring, impairment andplant closing costs of $116.8 million and charges of $15.1 millionrelating to the payment of costs and settlement amounts relating toDiscoloration Claims recorded in 2004. The remaining decrease in segment EBITDAof $3.5 million resulted principally from a $14.5 million reduction inEBITDA primarily in response to the strengthening of the major Europeancurrencies versus the U.S. dollar, offset somewhat by lower fixed costsresulting from cost reduction initiatives. During 2004 and 2003, our Pigmentssegment recorded restructuring, impairment and plant closing costs of$123.3 million and $6.5 million, respectively. For further discussionof restructuring activities, see “Note 10. Restructuring, Impairment and PlantClosing Costs” to our Consolidated Financial Statements included elsewhere inthis report.

 

***Polymers***

 

Forthe year ended December 31, 2004, Polymers revenues increased by$677.4 million, or 87%, to $1,451.8 million from $774.4 millionfor 2003 due mainly to the consolidation with HLLC for the entire 2004 periodas a result of the HLLC Consolidation Transaction and to approximately 22%higher average selling prices and approximately 3% higher sales volumes. Higheraverage selling prices were primarily in response to higher raw material andenergy costs while sales volumes increased principally as a result of strongercustomer demand.

 

Forthe year ended December 31, 2004, Polymers segment EBITDA increased by$19.8 million to $77.6 million from $57.8 million for 2003. Theincrease in segment EBITDA was primarily due to the consolidation with HLLC forthe entire 2004 period as a result of the HLLC Consolidation Transactiondespite a $13.6 million restructuring charge related to the closure of anAustralian manufacturing unit in 2004. Higher contribution margins resulted asaverage selling prices increased more than raw material costs. In addition, ourPolymers segment recorded restructuring, impairment and plant closing costs of$13.6 million and $0.8 million for the years ended December 31, 2004 and2003, respectively. For further discussion of restructuring activities, see “Note10. Restructuring, Impairment and Plant Closing Costs” to our ConsolidatedFinancial Statements included elsewhere in this report.

 

***Base Chemicals***

 

Forthe year ended December 31, 2004, Base Chemicals revenues increased$1,651.7 million, or 75%, from 2003. Approximately 24% of this increasewas due to our consolidation with Huntsman LLC for the entire period in 2004 asa result of the HLLC Consolidation Transaction effective May 1, 2003. Theremaining increase in revenue is due to approximately 40% higher averageselling prices and approximately 6% higher sales volumes. Higher averageselling prices were primarily in response to higher raw material and energycosts. Sales volumes increases were principally the result of increased demand.

 

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For the yearended December 31, 2004, Base Chemicals segment EBITDA increased by$196.8 million, or 248%, to $276.2 million from $79.4 millionfor 2003. Only 42% of this increase was due to our consolidation with HuntsmanLLC for the entire period in 2004 as a result of the HLLC ConsolidationTransaction effective May 1, 2003. Excluding the impact of the HLLCConsolidation Transaction, segment EBITDA increased primarily as a result ofhigher contribution margins as average selling prices increased more than rawmaterial and energy costs. In addition, our Base Chemicals segment recordedrestructuring, impairment and plant closing costs of $16.7 million for theyear ended December 31, 2004 compared with a restructuring credit of $2.5million in 2003. For further discussion of restructuring activities, see “Note10. Restructuring, Impairment and Plant Closing Costs” to our ConsolidatedFinancial Statements included elsewhere in this report.

 

***Corporate and Other***

 

Corporate and other items includesunallocated corporate overhead, unallocated foreign exchange gains and losses,loss on the sale of accounts receivable, loss on the early extinguishment ofdebt, other non-operating income and expense and minority interest insubsidiaries’ (income) loss. For the year ended December 31, 2004, EBITDAfrom corporate and other items decreased by $60.9 million to a loss of$48.8 million from income of $12.1 million for 2003, primarily due tohigher expenses associated with the early extinguishment of debt and ourconsolidation of HLLC for the entire period in 2004 as a result of the HLLCConsolidation Transaction effective May 1, 2003.

 

**ITEM 7A. QUANTITATIVE AND QUALITATIVEDISCLOSURES ABOUT MARKET RISK**

 

We are exposed to market risk, including changes in currency exchangerates, interest rates and certain commodity prices. To manage the volatilityrelating to these exposures, from time to time, we enter into variousderivative transactions. We hold and issue derivative financial instruments foreconomic hedging purposes only.

 

**Currency Exchange Rates**

 

Our cash flows and earnings are subject to fluctuations due to exchangerate variation. Our sales prices are typically denominated in euros or U.S.dollars. From time to time, we may enter into foreign currency derivativeinstruments to minimize the short-term impact of movements in foreign currencyrates. Where practicable, we generally net multicurrency cash balances amongour subsidiaries to help reduce exposure to foreign currency exchange rates.Certain other exposures may be managed from time to time through financialmarket transactions, principally through the purchase of spot or forwardforeign exchange contracts (generally with maturities of nine months or less).We do not hedge our currency exposures in a manner that would eliminate theeffect of changes in exchange rates on our cash flows and earnings. Our accountsreceivable securitization program in certain circumstances requires that weenter into forward foreign currency hedges intended to hedge currencyexposures. As of December 31, 2005, our outstanding forward foreign exchangecontracts were insignificant.

 

A significant portion of our debt is denominated in euros. We alsofinance certain of our non-U.S. subsidiaries with intercompany loans that are,in some cases, denominated in currencies other than the entities’ functionalcurrency. We manage the net foreign currency exposure created by this debtthrough various means, including cross-currency swaps, the designation ofcertain intercompany loans that are not expected to be repaid in theforeseeable future as permanent loans (“Permanent Loans”) and the designationof debt and swaps as hedges.

 

Foreign currency transaction gains and losses on intercompany loansthat are not designated as Permanent Loans are recorded in earnings. Foreigncurrency transaction gains and losses on Permanent Loans are recorded in othercomprehensive income. From time to time, we review such designation ofintercompany loans, and, during the year ended December 31, 2005, we haveincreased the net amount of our Permanent Loans. This has resulted in lessvolatility reported in foreign currency gains and losses reflected in earnings.

 

We have outstanding cross-currency interest rate swaps of fixed ratedebt. We entered into these swaps with various financial institutions in orderto more effectively hedge our overall underlying euro long-term net asset andeuro cash flow exposures. In one of the swap transactions, we agreed to swap$175 million of 7.375% fixed rate debt for €132.4 million of 6.63%fixed rate debt. As a result, we will pay fixed rate interest at an annual rateof 6.63% on €132.4 million of principal and will receive fixed rateinterest at an annual rate of 7.375% on $175 million of principal throughJanuary 1, 2010. At maturity on January 1, 2010, we are required topay principal of €132.4 million and will receive principal of$175 million. Interest installments are paid semiannually on January 1and July 1 of each year beginning July 1, 2005 through maturity. Theswap is classified as a net investment hedge under U.S. GAAP.

 

In another swap transaction, we agreed to swap $31.3 million of11.0% fixed rate debt for €25.0 million of 9.4% fixed rate debt. As aresult, we will pay fixed rate interest at an annual rate of 9.4% on€25.0 million of principal and will receive fixed rate interest of 11.0%on $31.3 million of principal through July 15, 2007. At maturity,July 15, 2007, we are required to pay principal of €25.0 million andwill receive principal of $31.3 million. Interest installments are paid 

 

26

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semiannually on January 15 andJuly 15 of each year, beginning July 15, 2005 through maturity. The swapis not designated as a hedge for reporting purposes under U.S. GAAP.

 

From time to time, we review our non-U.S. dollar denominated debt andswaps to determine the appropriate amounts designated as hedges. As of December31, 2005, excluding the cross-currency interest rate swaps discussed above, wehave designated approximately €330 million of our euro-denominated debt asa hedge of our net investments.

 

**Interest Rates**

 

Through our borrowing activities, we areexposed to interest rate risk. Such risk arises due to the structure of the ourdebt portfolio, including the duration of the portfolio and the mix of fixedand floating interest rates. Actions taken to reduce interest rate risk includemanaging the mix and rate characteristics of various interest bearingliabilities as well as entering into interest rate swaps, collars and options.

 

We may purchase both interest rate swaps andinterest rate collars to reduce the impact of changes in interest rates on ourfloating-rate long-term debt. Under interest rate swaps, we agree with otherparties to exchange, at specified intervals, the difference between fixed-rateand floating-rate interest amounts calculated by reference to an agreednotional principal amount. When we enter into collars, the collars entitle usto receive from the counterparties (major banks) the amounts, if any, by whichour interest payments on certain of our floating-rate borrowings exceed acertain rate, and require us to pay to the counterparties (major banks) theamount, if any, by which our interest payments on certain of our floating-rateborrowings are less than a certain rate.

 

Interest rate contracts were recorded as acomponent of other non-current liabilities as of December 31, 2005 and2004. The effective portion of the changes in the fair value of the swaps arerecorded in accumulated other comprehensive loss, with any ineffectivenessrecorded in interest expense.

 

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

 
| ** **                 | ** ** | **2005**  | ** ** | **2004**  | ** ** |
|----------------------------|------------|-----------|------------|-----------|------------|
| Notional  amount           |       | $         | 83.3       |      | $          | 184.3 |   |
| Fair value                 |       |      |       |      |       |
| Cash flow hedges           |       | —    |       | (2.0      | )          |
| Non-designated derivatives |       | 0.4       |       | (1.2      | )          |
| Maturity                   |       | 2006-2010 |       | 2005-2007 |       |
|                            |            |           |            |           |            |  |  |

 

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

 

**Commodity Prices**

 

Our exposure to changing commodity prices issomewhat limited since the majority of our raw materials are acquired at postedor market related prices, and sales prices for finished products are generallyat market related prices which are largely set on a monthly or quarterly basisin line with industry practice. In order to reduce overall raw material costvolatility, from time to time we enter into various commodity contracts tohedge our purchase of commodity products. We do not hedge our commodityexposure in a manner that would eliminate the effects of changes in commodityprices on our cash flows and earnings. At December 31, 2005, we had in placeforward purchase and sales contracts for 15,000 tonnes and 35,000 tonnes,respectively, of naphtha and other hydrocarbons, which do not qualify for hedgeaccounting.

 

**ITEM 8. FINANCIAL STATEMENTS ANDSUPPLEMENTARY DATA**

 

Our Consolidated Financial Statementsrequired by this item are included on the pages immediately following the Indexto Consolidated Financial Statements appearing on page F-1.

 

**ITEM 9. CHANGES IN AND DISAGREEMENTS WITHACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE**

 

There have been no changes in our independentaccountants, Deloitte & Touche LLP, or disagreements with them onmatters of accounting or financial disclosure.

 

27

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** **

**ITEM 9A. CONTROLS AND PROCEDURES**

 

Our management, with the participation of our chief executive officerand chief financial officer, has evaluated the effectiveness of our disclosure controlsand procedures (as defined in Rules 13a-15(e) and 15d-15(e) under theSecurities Exchange Act of 1934 (the “Exchange Act”)) as of December 31, 2005.Based on this evaluation, our chief executive officer and chief financialofficer have concluded that, as of December 31, 2005, our disclosure controlsand procedures were effective, in that they ensure that information required tobe disclosed by us in the reports that we file or submit under the Exchange Actis (1) recorded, processed, summarized and reported within the time periodsspecified in the Commission’s rules and forms, and (2) accumulated andcommunicated to our management, including our chief executive officer and chieffinancial officer, as appropriate to allow timely decisions regarding requireddisclosure.

 

No changes to our internal control overfinancial reporting occurred during the quarter ended December 31, 2005 thathave materially affected, or are reasonably likely to materially affect, ourinternal control over financial reporting (as defined in Rules 13a-15(f) and15d-15(f) under the Exchange Act). In 2005, we engaged Ernst & Young LLP toassist our management in its documentation and evaluation of our internalcontrols in preparation for the periodic management evaluations and annualauditor attestation reports regarding the effectiveness of our “internalcontrol over financial reporting” that will be required when the SEC’s rulesunder Section 404 of the Sarbanes-Oxley Act of 2002 become applicable to usbeginning with our Annual Report on Form 10-K for the year ending December 31,2006 to be filed in the first quarter of 2007. We cannot give any assurance,however, that our internal controls over financial reporting will be effectivewhen Section 404 becomes applicable to us. Ineffective internal controls overfinancial reporting could cause investors to lose confidence in our reportedfinancial information and could result in a lower trading price for oursecurities.

 

**ITEM 9B. OTHER INFORMATION**

 

None.

 

28

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** **

**PART III**

 

**ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OFTHE REGISTRANT**

 

Omitted in accordance with GeneralInstruction I of Form 10-K.

 

**ITEM 11. EXECUTIVE COMPENSATION**

 

Omitted in accordance with General Instruction Iof Form 10-K.

 

**ITEM 12. SECURITY OWNERSHIP OF CERTAINBENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS**

 

Omitted in accordance with General Instruction Iof Form 10-K.

 

**ITEM 13. CERTAIN RELATIONSHIPS AND RELATEDTRANSACTIONS**

 

Omitted in accordance with GeneralInstruction I of Form 10-K.

 

**ITEM 14. PRINCIPAL ACCOUNTANT FEES ANDSERVICES**

 

The followingtable shows the aggregate fees billed to our parent Huntsman Corporation byDeloitte & Touche LLP, the member firms of Deloitte Touche Tohmatsuand their respective affiliates (collectively, “Deloitte & Touche”) ineach of the last two fiscal years for the services indicated (dollars inmillions):

 
| ** **         | ** ** | **2005** | ** ** | **2004** | ** ** |
|--------------------|------------|----------|------------|----------|------------|
| Audit Fees         |       | $        | 12.9       |     | $          | 14.4 |   |
| Audit-Related Fees |       | 0.9      |       | 0.6      |       |
| Tax Fees           |       | 4.5      |       | 4.4      |       |
| All Other Fees     |       | —   |       | 0.3      |       |
| Total              |       | $        | 18.3       |     | $          | 19.7 |   |

 

*AuditFees.*Feesfor audit services include fees associated with annual audits, the filing of HuntsmanCorporation’s registration statement on Form S-1 in connection with its initialpublic offering, reviews of annual reports on Form 10-K and quarterly reportson Form 10-Q, statutory audits required internationally, services related tocomfort letters and consents and assistance with other filings and publicoffering documents filed with the SEC.

 

*Audit-RelatedFees**.*Feesfor audit-related services principally include due diligence in connection withacquisitions and accounting consultations, compliance with financingarrangements and consultations on financial accounting and reporting issues.

 

*TaxFees.*Feesfor tax services include tax compliance, tax advice and tax planning including,but not limited to, international tax compliance and advice, federal and statetax advice, mergers and acquisitions tax advice and assistance with thepreparation of foreign tax returns (including expatriate tax returnpreparation).

 

*AllOther Fees.*Allother fees include fees for services not included in audit fees, audit-relatedfees and tax fees, such as purchase and implementation of internal controltracking software during 2004.

 

## **AuditCommittee Pre-Approval Policies and Procedures**

## ** **

The HuntsmanCorporation Audit Committee (the “Audit Committee”) has, by resolution, adoptedpolicies and procedures regarding the pre-approval of the performance byDeloitte & Touche of certain audit and non-audit services.Deloitte & Touche may not perform any service enumerated inSection 201(a) of the Sarbanes-Oxley Act of 2002, except as may otherwisebe provided by law or regulation. Deloitte & Touche may not performany service unless the approval of the Audit Committee is obtained prior to theperformance of the services, except as may otherwise be provided by law orregulation. The Audit Committee has pre-approved, by category, the performanceby Deloitte & Touche of certain audit and accounting services, certaintax services, and, provided that fees do not exceed $250,000 per individualproject, certain other tax services and audit-related services. The AuditCommittee has delegated to the committee chairperson the power to pre-approveservices beyond those previously described, provided that no services may beapproved that are prohibited pursuant to Section 201(a) of theSarbanes-Oxley Act of 2002 or that appear reasonably likely to compromise theindependence of Deloitte & Touche. Any pre-approval granted by thechairperson is reviewed by the Audit Committee at its next regularly scheduledmeeting. In addition, the Audit Committee receives an annual report detailingthe prior year’s expenditures consistent with the SEC’s accountant fee disclosurerequirements.

 

29

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**PART IV**

 

**ITEM 15. EXHIBITS AND FINANCIAL STATEMENTSCHEDULES**

 

(a)           Documents filed withthis report.

 

1.             ConsolidatedFinancial Statements:

 

See Index to Consolidated FinancialStatements on page F-1

 

2.             Financial StatementSchedules:

 

Other than as stated on the Index toConsolidated Financial Statements on page F-1 with respect toSchedule II, financial statement schedules are omitted because they arenot required or are not applicable or the required information is shown in thefinancial statements or notes thereto.

 

3.             Exhibits:

 

The exhibits to this report are listed on theExhibit Index below.

 

(b)           Description ofexhibits.

 
| **Number** | ** ** | **Description**                                                                                                                                                                                                                                                                             |
|------------|------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 2.1        |       | Agreement and Plan of Merger dated August 16, 2005 relating to  our merger with Huntsman LLC (incorporated by reference to Exhibit 2.1  to our current report on Form 8-K filed August 22, 2005).                                                                       |
|       |       |                                                                                                                                                                                                                                                                                        |
| 2.2        |       | Share and Asset Purchase Agreement by and between our Company, Ciba  Specialty Chemicals Holding Inc. and RM 2526 Vermogensverwaltungs GmbH dated  as of February 18, 2006 (incorporated by reference to Exhibit 2.1 to our  current report on Form 8-K filed February 24, 2006). |
|       |       |                                                                                                                                                                                                                                                                                        |
| 3.1        |       | Certificate of Formation of our Company (incorporated by reference to  Exhibit 3.1 to our registration statement on Form S-4 (File  No. 333– 85141))                                                                                                                    |
|       |       |                                                                                                                                                                                                                                                                                        |
| 3.2        |       | Second Amended and Restated Limited Liability Company Agreement of our  Company dated December 20, 2001 (incorporated by reference to  Exhibit 3.2 to amendment no. 1 to our annual report on Form 10-K/A  for the year ended December 31, 2001)                        |
|       |       |                                                                                                                                                                                                                                                                                        |
| 3.3        |       | Certificate of Amendment to Certificate of Formation of our Company  (incorporated by reference to Exhibit 3.9 to our annual report on  Form 10-K for the year ended December 31, 2000)                                                                                      |

 

30

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| 4.1    |   | Indenture, dated as of June 30, 1999, among our Company (f/k/a  Huntsman ICI Chemicals LLC), the Guarantors party thereto and Bank One, N.A.,  as Trustee, relating to the 10 1/8% Senior Subordinated Notes due 2009  (incorporated by reference to Exhibit 4.1 to our registration statement  on Form S-4 (File No. 333-85141)) |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                                                                                                                  |
| 4.2    |   | Form of 10 1/8% Senior Subordinated Note due 2009  denominated in dollars (included as Exhibit A-3 to Exhibit 4.1)                                                                                                                                                                                                                |

 

31

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| 4.3    |   | Form of 10 1/8% Senior Subordinated Note due 2009  denominated in euros (included as Exhibit A-4 to Exhibit 4.1)                                                                                                                                                                                                                                               |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                                                                                                                                               |
| 4.4    |   | Form of Guarantee relating to the 10 1/8% Senior Subordinated  Notes due 2009 (included as Exhibit E of Exhibit 4.1)                                                                                                                                                                                                                                                |
|   |   |                                                                                                                                                                                                                                                                                                                                                                               |
| 4.5    |   | First Amendment, dated January 5, 2000, to Indenture, dated as  of June 30, 1999, among our Company (f/k/a Huntsman ICI Chemicals LLC),  as Issuer, each of the Guarantors named therein and Bank One, N.A., as  Trustee (incorporated by reference to Exhibit 4.6 to our registration  statement on Form S-4 (File No. 333-85141))                       |
|   |   |                                                                                                                                                                                                                                                                                                                                                                               |
| 4.6    |   | Indenture, dated as of March 13, 2001, among our Company, as  Issuer, the Guarantors named therein and The Bank of New York, as Trustee,  relating to 10 1/8% Senior Subordinated Notes due 2009 (incorporated by  reference to Exhibit 4.6 to amendment no. 1 to our annual report on  Form 10-K/A for the year ended December 31, 2001)                      |
|   |   |                                                                                                                                                                                                                                                                                                                                                                               |
| 4.7    |   | Form of 10 1/8% Senior Subordinated Note due 2009 denominated  in dollars (included as Exhibit A-3 to Exhibit 4.6)                                                                                                                                                                                                                                             |
|   |   |                                                                                                                                                                                                                                                                                                                                                                               |
| 4.8    |   | Form of 10 1/8% Senior Subordinated Note due 2009  denominated in euros (included as Exhibit A-4 to Exhibit 4.6)                                                                                                                                                                                                                                               |
|   |   |                                                                                                                                                                                                                                                                                                                                                                               |
| 4.9    |   | Form of Guarantee relating to the 10 1/8% Senior Subordinated  Notes due 2009 (included as Exhibit E of Exhibit 4.6)                                                                                                                                                                                                                                                |
|   |   |                                                                                                                                                                                                                                                                                                                                                                               |
| 4.10   |   | First Supplemental Indenture, dated as of January 11, 2002,  among our Company, as Issuer, the Guarantors named therein and The Bank of  New York, as Trustee, relating to 10 1/8% Senior Subordinated Notes due 2009  (incorporated by reference to Exhibit 4.7 to amendment no. 1 to our  annual report on Form 10-K/A for the year ended December 31, 2001) |
|   |   |                                                                                                                                                                                                                                                                                                                                                                               |
| 4.11   |   | Indenture, dated as of March 21, 2002, among our Company, as  Issuer, the Guarantors named therein and Wells Fargo Bank Minnesota, National  Association, as Trustee, relating to the 9 7/8% Senior Notes due 2009  (incorporated by reference to Exhibit 4.8 to amendment no. 1 to our  annual report on Form 10-K/A for the year ended December 31, 2001)    |
|   |   |                                                                                                                                                                                                                                                                                                                                                                               |
| 4.12   |   | Form of 9 7/8% Senior Note due 2009 denominated in dollars  (included as Exhibit A-3 to Exhibit 4.11)                                                                                                                                                                                                                                                          |
|   |   |                                                                                                                                                                                                                                                                                                                                                                               |
| 4.13   |   | Form of 9 7/8% Senior Note due 2009 denominated in euros  (included as Exhibit A-4 to Exhibit 4.11)                                                                                                                                                                                                                                                            |
|   |   |                                                                                                                                                                                                                                                                                                                                                                               |
| 4.14   |   | Form of Guarantee relating to the 9 7/8% Senior Notes due 2009  (included as Exhibit E of Exhibit 4.11)                                                                                                                                                                                                                                                             |
|   |   |                                                                                                                                                                                                                                                                                                                                                                               |
| 4.15   |   | Amended and Restated Guarantee, dated as of April 11, 2003,  among the Guarantors named therein and Wells Fargo Bank Minnesota, National  Association, as Trustee, relating to the 9 7/8% Senior Notes due 2009  (incorporated by reference to Exhibit 4.15 to our registration statement  on Form S-4 (File No. 333-106482))                                  |
|   |   |                                                                                                                                                                                                                                                                                                                                                                               |
| 4.16   |   | Indenture, dated as of December 17, 2004, among our Company, as  Issuer, the Guarantors named therein and Wells Fargo Bank, National  Association, as Trustee, relating to 7 3/8% Senior                                                                                                                                                                                      |

 

32

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|   |   | Subordinated Notes due 2015 and 7 1/2% Senior Subordinated Notes due  2015 (incorporated by reference to Exhibit 4.1 to our current report on  Form 8-K dated December 17, 2004 (File No. 333-85141))                                                                                                                                                                                                                                                                                                                                                           |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
| 4.17   |   | Form of 7 3/8% Senior Subordinated Notes due 2015 denominated in  dollars (included as Exhibit A-1 to Exhibit 4.16)                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
| 4.18   |   | Form of 7 1/2% Senior Subordinated Notes due 2015 denominated in  euros (included as Exhibit A-2 to Exhibit 4.16)                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
| 4.19   |   | Form of Guarantee (included as Exhibit E to  Exhibit 4.16)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
| 4.20   |   | Exchange and Registration Rights Agreement, dated as of  December 17, 2004, among our Company, the Guarantors as defined therein,  and the Purchasers as defined therein, relating to the 7 3/8% Senior  Subordinated Notes due 2015 and the 7 1/2% Senior Subordinated Notes due 2015  (incorporated by reference to Exhibit 4.2 to our current report on  Form 8-K dated December 17, 2004 (File No. 333-85141))                                                                                                                                         |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
| 4.21   |   | Supplemental Indenture dated August 16, 2005 to Indenture dated  as of June 30, 1999, as amended, among our Company, the Guarantors named  therein, and Wells Fargo Bank, National Association (as successor by  consolidation to Wells Fargo Bank Minnesota, National Association), as  trustee, relating to our Company’s dollar and euro denominated 10 1/8% senior  subordinated notes due 2009 (incorporated by reference to Exhibit 4.1 to  our current report on Form 8-K filed August 22, 2005).                                              |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
| 4.22   |   | Supplemental Indenture dated August 16, 2005 to Indenture dated  as of March 13, 2001, as amended, among our Company, the Guarantors  named therein, and The Bank of New York, as trustee, relating to our  Company’s euro denominated 10 1/8% senior subordinated notes due 2009  (incorporated by reference to Exhibit 4.2 to our current report on  Form 8-K filed August 22, 2005).                                                                                                                                                               |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
| 4.23   |   | Supplemental Indenture dated August 16, 2005 to Indenture dated  as of March 21, 2002 among our Company, the Guarantors named therein,  and Wells Fargo Bank, National Association (as successor by consolidation to  Wells Fargo Bank Minnesota, National Association), as trustee, relating  to our Company’s 9 7/8% senior notes due 2009 (incorporated by reference to  Exhibit 4.3 to our current report on Form 8-K filed August 22,  2005).                                                                                               |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
| 4.24   |   | Supplemental Indenture dated August 16, 2005 to Indenture dated  as of December 17, 2004 among our Company, the Guarantors named therein,  and Wells Fargo Bank, National Association (as successor by consolidation to  Wells Fargo Bank Minnesota, National Association), as trustee, relating to our  Company’s dollar denominated 7 3/8% senior subordinated notes due 2015 and  euro denominated 7 1/2% senior subordinated notes due 2015 (incorporated by  reference to Exhibit 4.4 to our current report on Form 8-K filed  August 22, 2005). |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
| 4.25   |   | Indenture dated September 30, 2003 among Huntsman LLC, the Guarantors  named therein, and HSBC Bank USA, National Association, as trustee, relating  to our Company’s 11 5/8% senior secured notes due 2010, originally issued by  Huntsman LLC (incorporated by reference to Exhibit 4.36 to Huntsman LLC’s  registration statement on Form S-4 (File No. 333-112279)).                                                                                                                                                                              |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
| 4.26   |   | Supplemental Indenture dated July 13, 2005 to Indenture dated  September 30, 2003 among Huntsman LLC, the Guarantors named therein and  HSBC Bank USA, National Association, as trustee, relating to our Company’s  11 5/8% senior secured notes due 2010, originally issued by Huntsman LLC  (incorporated by reference to Exhibit 4.2 to the current report on  Form 8-K of Huntsman LLC filed July 15, 2005).                                                                                                                                 |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
| 4.27   |   | Supplemental Indenture dated August 16, 2005 to Indenture dated  September 30, 2003 among our Company, the Guarantors named therein and  HSBC Bank USA, National Association, as trustee, relating to our Company’s 11  5/8% senior secured notes due 2010, originally issued by Huntsman LLC  (incorporated by reference to Exhibit 4.7 to our current report on  Form 8-K filed August 22, 2005).                                                                                                                                                   |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
| 4.28   |   | Indenture dated June 22, 2004 among HLLC, the Guarantors named  therein, and HSBC Bank USA, National Association, as trustee, relating to the  11 1/2% senior notes due 2012 and senior floating rate notes due 2011,  originally issued by Huntsman LLC (incorporated by reference to  Exhibit 4.1 to the quarterly report on Form 10-Q of Huntsman LLC  for the quarter ended June 30, 2004).                                                                                                                                                                 |

 

33

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| 4.29       |   | Supplemental Indenture dated July 11, 2005 to Indenture dated  June 22, 2004 among Huntsman LLC, the Guarantors named therein and HSBC  Bank USA, National Association, as trustee, relating to our Company’s 11 1/2%  senior notes due 2012 and senior floating rate notes due 2011 (incorporated  by reference to Exhibit 4.1 to the current report on Form 8-K of  HLLC filed July 15, 2005).                                                                                                                                                                       |
|------------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|       |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
| 4.30       |   | Supplemental Indenture dated August 16, 2005 to Indenture dated  June 22, 2004 among our Company, the Guarantors named therein and HSBC  Bank USA, National Association, as trustee, relating to our Company’s 11 1/2%  senior notes due 2012 and senior floating rate notes due 2011, originally  issued by Huntsman LLC (incorporated by reference to Exhibit 4.10 to our  current report on Form 8-K filed August 22, 2005).                                                                                                                                        |
|       |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
| 4.31       |   | Supplemental Indenture dated December 20, 2005 to Indenture  dated as of June 30, 1999, as amended, among our Company, the guarantors  named therein, and Wells Fargo Bank, National Association (as successor by  consolidation to Wells Fargo Bank Minnesota, National Association), as  trustee, relating to our Company’s dollar and euro denominated 10 1/8% senior  subordinated notes due 2009 (incorporated by reference to Exhibit 4.1 to our  current report on Form 8-K filed on December 27, 2005).                                                                       |
|       |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
| 4.32       |   | Supplemental Indenture dated December 20, 2005 to Indenture  dated as of March 13, 2001, as amended, among our Company, the Guarantors  named therein, and The Bank of New York, as trustee, relating to our  Company’s euro denominated 10 1/8% senior subordinated notes due 2009  (incorporated by reference to Exhibit 4.2 to our current report on Form 8-K  filed on December 27, 2005).                                                                                                                                                                                        |
|       |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
| 4.33       |   | Supplemental Indenture dated December 20, 2005 to Indenture  dated as of March 21, 2002, as amended, among our Company, the Guarantors  named therein, and Wells Fargo Bank, National Association (as successor by  consolidation to Wells Fargo Bank Minnesota, National Association), as  trustee,  relating to our Company’s 9 7/8% senior notes due 2009  (incorporated by reference to Exhibit 4.3 to our current report on Form 8-K  filed on December 27, 2005).                                                                                                          |
|       |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
| 4.34  |   | Supplemental Indenture dated December 20, 2005 to Indenture  dated as of December 17, 2004, as amended, among our Company, the Guarantors  named therein, and Wells Fargo Bank, National Association (as successor by  consolidation to Wells Fargo Bank Minnesota, National Association), as  trustee, relating to our Company’s dollar denominated 7 3/8% senior  subordinated notes due 2015 and euro denominated 7 1⁄2% senior subordinated  notes due 2015 (incorporated by reference to Exhibit 4.4 to our current  report on Form 8-K filed on December 27, 2005).          |
|       |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
| 4.35       |   | Supplemental Indenture dated December 20, 2005 to Indenture  dated September 30, 2003 among our Company (as successor by merger to  Huntsman LLC), the Guarantors named therein and HSBC Bank USA, National  Association, as trustee, relating to our Company’s 11 5/8% senior  secured notes due 2010 (incorporated by reference to Exhibit 4.5 to our  current report on Form 8-K filed on December 27, 2005).                                                                                                                                                                 |
|       |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
| 4.36       |   | Supplemental Indenture dated December 20, 2005 to Indenture  dated June 22, 2004, as amended, among our Company (as successor by  merger to Huntsman LLC), the Guarantors named therein, and HSBC Bank USA,  National Association, as trustee, relating to our 11 1/2% senior notes due  2012 and senior floating rate notes due 2011 (incorporated by reference to  Exhibit 4.6 to our current report on Form 8-K filed on December 27, 2005).                                                                                                                                            |
|       |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
| 10.1       |   | Contribution Agreement, dated as of April 15, 1999, by and among  Imperial Chemical Industries PLC, Huntsman Specialty Chemicals Corporation,  Huntsman International Holdings LLC (f/k/a Huntsman ICI Holdings LLC) and our  Company (f/k/a Huntsman ICI Chemicals LLC) as amended by the first Amending  Agreement, dated June 4, 1999, the second Amending Agreement, dated  June 30, 1999, and the third Amending Agreement, dated June 30,  1999 (incorporated by reference to Exhibit 10.1 to our registration  statement on Form S-4 (File No. 333-85141)) |
|       |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
| 10.2       |   | Purchase and Sale Agreement (PO/MTBE Business), dated March 21,  1997, among Texaco, Texaco Chemical Inc. and Huntsman Specialty Chemicals  Corporation (incorporated by reference to Exhibit 10.2 to our  registration statement on Form S-4 (File No. 333-85141))                                                                                                                                                                                                                                                                                                              |
|       |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
| 10.3       |   | Operating and Maintenance Agreement, dated as of March 21, 1997,  by and between Huntsman Specialty Chemicals Corporation and Huntsman  Petrochemical Corporation (incorporated by reference to Exhibit 10.3 to  our registration statement on Form S-4 (File No. 333-85141))                                                                                                                                                                                                                                                                                                    |

 

34

----

 
| 10.8   |   | Contribution Agreement, among our Company, as Contributor and  Originator, and Huntsman Receivables Finance LLC, as the Company, dated as of  December 20, 2000 (incorporated by reference to Exhibit 10.17 to  our annual report on Form 10-K for the year ended December 31,  2000)                                                                                                                                                                                                                                                                                                                                                                 |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
| 10.9   |   | Huntsman Master Trust Pooling Agreement, dated as of  December 21, 2000, among Huntsman Receivables Finance LLC, as Company,  Huntsman (Europe) BVBA, as Master Servicer, and Chase Manhattan Bank  (Ireland) Plc, as Trustee (incorporated by reference to Exhibit 10.18 to  our annual report on Form 10-K for the year ended December 31,  2000)                                                                                                                                                                                                                                                                                                   |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
| 10.10  |   | Huntsman Master Trust, Series 2000-1 Supplement, dated as of  December 21, 2000, to Pooling Agreement dated as of December 21,  2000, among Huntsman Receivables Finance LLC, as Company, Huntsman (Europe),  BVBA, as Master Servicer, The Chase Manhattan Bank, as Funding Agent, Park  Avenue Receivables Corp., as Series 2000-1 Initial Purchaser, the  several financial institutions party thereto from time to time as  Series 2000-1 APA Banks, and Chase Manhattan Bank (Ireland) Plc, as  Trustee (incorporated by reference to Exhibit 10.19 to our annual report  on Form 10-K for the year ended December 31, 2000) |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
| 10.11  |   | Servicing Agreement, dated as of December 21, 2000, among  Huntsman Receivables Finance LLC, as the Company, Huntsman (Europe) BVBA, as  Master Servicer, Tioxide Americas Inc., Huntsman ICI Holland B.V., Tioxide  Europe Limited, our Company, Huntsman Petrochemicals (U.K.) Limited, Huntsman  Propylene Oxide Ltd., Huntsman International Fuels L.P., as Local Servicers,  Chase Manhattan Bank (Ireland) Plc, as Trustee, Pricewaterhousecoopers, as  Liquidation Servicer, and our Company, as Servicer Guarantor (incorporated by  reference to Exhibit 10.20 to our annual report on Form 10-K for  the year ended December 31, 2000)      |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
| 10.12  |   | U.S. Receivables Purchase Agreement, our Company, as Purchaser, and  Tioxide Americas Inc., Huntsman Propylene Oxide Ltd. and Huntsman  International Fuels, L.P., each as a Seller and an Originator (incorporated  by reference to Exhibit 10.21 to our annual report on Form 10-K for  the year ended December 31, 2000)                                                                                                                                                                                                                                                                                                                                |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
| 10.13  |   | Dutch Receivables Purchase Agreement, dated as of December 21,  2000, between our Company, as Purchaser, Huntsman ICI Holland B.V., as  Originator, Huntsman ICI (Europe) B.V.B.A., as Master Servicer (incorporated  by reference to Exhibit 10.22 to our annual report on Form 10-K for  the year                                                                                                                                                                                                                                                                                                                                                        |

 

35

----

 
|   |   | ended December 31, 2000)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
| 10.14  |   | U.K. Receivables Purchase Agreement, dated as of December 20,  2000, between our Company, as Purchaser, Tioxide Europe Limited and Huntsman  Petrochemicals (U.K.) Limited, as Originators, and Huntsman (Europe)  B.V.B.A., as Master Servicer (incorporated by reference to Exhibit 10.23  to our annual report on Form 10-K for the year ended December 31,  2000)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
| 10.17  |   | Amendment Agreement, dated December 20, 2001, between Imperial  Chemical Industries PLC, Huntsman Specialty Chemicals Corporation, Huntsman  International Holdings LLC and our Company, to amend the Contribution  Agreement dated as of April 15, 1999 (incorporated by reference to  Exhibit 10.26 to our registration statement on Form S-4 (File  No. 333-106482))                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
| 10.18  |   | Second Amendment, dated as of October 21, 2002, between Huntsman  Receivables Finance LLC, Huntsman (Europe), BVBA, and J.P. Morgan (Ireland)  PLC, to Series 2000-1 Supplement, dated as of December 21, 2000 (incorporated  by reference to Exhibit 10.27 to our annual report on Form 10-K for  the year ended December 31, 2002)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
| 10.19  |   | First Amendment to Series 2001-1 Supplement, dated as of  October 21, 2002, among Huntsman Receivables Finance LLC, Huntsman (Europe)  BVBA and J.P. Morgan Bank (Ireland) PLC (incorporated by reference to  Exhibit 10.28 to our annual report on Form 10-K for the year ended  December 31, 2002)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
| 10.20  |   | First Amendment to Amended and Restated Pooling Agreement, dated as  of October 21, 2002, among Huntsman Receivables Finance LLC, Huntsman  (Europe) BVBA and J.P. Morgan Bank (Ireland) PLC (incorporated by reference  to Exhibit 10.29 to our annual report on Form 10-K for the year  ended December 31, 2002)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
| 10.21  |   | Amended and Restated Servicing Agreement, dated as of  October 21, 2002, among Huntsman Receivables Finance LLC, as the  Company, Huntsman (Europe) BVBA, as Master Servicer, Tioxide Americas Inc.,  Huntsman Holland B.V., Tioxide Europe Limited, our Company, Huntsman  Petrochemicals (UK) Limited, Huntsman Propylene Oxide Ltd., Huntsman  International Fuels L.P., Tioxide Europe SRL, Huntsman Surface Sciences  Italia SRL, Huntsman Patrica S.R.L., Tioxide Europe S.L., Huntsman Surface  Sciences Ibérica, S.L., Tioxide Europe SAS, Huntsman Surface Sciences  (France) S.A.S., Huntsman Surface Sciences UK Ltd, Huntsman Ethyleneamines  Ltd., as Local Servicers, J.P. Morgan Bank (Ireland) PLC, as Trustee,  Pricewaterhousecoopers, as Liquidation Servicer, and our Company, as Servicer  Guarantor (incorporated by reference to Exhibit 10.30 to our annual  report on Form 10-K for the year ended December 31, 2002) |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
| 10.22  |   | Amended and Restated U.S. Receivables Purchase Agreement, dated as of  October 21, 2002, among our Company, as Purchaser, and Tioxide Americas  Inc., Huntsman Propylene Oxide Ltd., Huntsman International Fuels L.P., and  Huntsman Ethyleneamines Ltd., each as a Seller and an Originator  (incorporated by reference to Exhibit 10.31 to our annual report on  Form 10-K for the year ended December 31, 2002)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
| 10.23  |   | Amended and Restated UK Receivables Purchase Agreement, dated as of  October 21, 2002, among our Company, as Purchaser, Huntsman Surface  Sciences UK Limited, Tioxide Europe Limited, and Huntsman Petrochemicals (UK)  Limited, as Originators, Huntsman (Europe) B.V.B.A, as Master Servicer  (incorporated by reference to Exhibit 10.32 to our annual report on  Form 10-K for the year ended December 31, 2002)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |

 

36

----

 
|   |   | December 31, 2002)                                                                                                                                                                                                                                                                                                                                                                                                                      |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                         |
| 10.25  |   | Deed of Amendment to Contribution Agreement, dated as of  November 27, 2002, among Imperial Chemical Industries PLC, Huntsman  Specialty Chemicals Corporation, Huntsman International Holdings, LLC, and our  Company (incorporated by reference to Exhibit 10.34 to our annual report  on Form 10-K for the year ended December 31, 2002)                                                                              |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                         |
| 10.27  |   | Business Consulting Agreement, dated as of June 3, 2003, between  our Company and Jon M. Huntsman (incorporated by reference to  Exhibit 10.41 to our registration statement on Form S-4 (File  No. 333-106482))                                                                                                                                                                                                         |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                         |
| 10.30  |   | Credit Agreement dated August 16, 2005 among our Company,  Deutsche Bank AG New York Branch as Administrative Agent and the other  financial institutions named therein (incorporated by reference to Exhibit 10.1  to our current report on Form 8-K filed August 22, 2005)                                                                                                                                             |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                         |
| 10.31  |   | Intercreditor Agreement dated August 16, 2005 among Deutsche  Bank AG New York Branch as collateral agent and administrative agent under  the above referenced credit agreement, and HSBC Bank USA, National  Association as trustee under the indenture governing our Company’s 11 5/8%  senior secured notes (incorporated by reference to Exhibit 10.2 to our  current report on Form 8-K filed August 22, 2005) |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                         |
| 10.32  |   | Collateral Security Agreement dated August 16, 2005 among our  Company, Deutsche Bank AG New York Branch and other financial institutions  named therein (incorporated by reference to Exhibit 10.3 to our current  report on Form 8-K filed August 22, 2005)                                                                                                                                                            |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                         |
| 10.33  |   | Second Amendment to Amended and Restated Pooling Agreement dated  August 16, 2005 among Huntsman Receivables Finance LLC, Huntsman  (Europe), BVBA and J.P. Morgan Bank (incorporated by reference to  Exhibit 10.4 to our current report on Form 8-K filed  August 22, 2005)                                                                                                                                            |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                         |
| 10.34  |   | Fourth Amendment to 2000-1 Supplement dated August 16, 2005  among Huntsman Receivables Finance LLC, Huntsman (Europe), BVBA and J.P.  Morgan (Ireland) Plc (incorporated by reference to Exhibit 10.5 to our  current report on Form 8-K filed August 22, 2005)                                                                                                                                                         |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                         |
| 10.35  |   | Consent and First Amendment to Credit Agreement dated  December 20, 2005 among our Company, Deutsche Bank AG New York Branch as  Administrative Agent and the other financial institutions named therein  (incorporated by reference to Exhibit 10.1 to our current report on Form 8-K  filed on December 27, 2005)                                                                                                                     |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                         |
| 10.36  |   | Collateral Security Agreement Supplement No. 1 dated  December 20, 2005 among our Company, Deutsche Bank AG New York Branch,  Huntsman Advanced Materials Holdings LLC, Huntsman Advanced Materials LLC and  Huntsman Advanced Materials Americas, Inc (incorporated by reference to  Exhibit 10.2 to our current report on Form 8-K filed on December 27, 2005)                                                              |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                         |
| 10.37  |   | Amended and Restated Huntsman Supplemental Executive Retirement Plan  (incorporated by reference to Exhibit 10.1 to our current report on Form 8-K  filed on December 30, 2005)                                                                                                                                                                                                                                                              |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                         |
| 10.38  |   | Huntsman Supplemental Executive MPP Plan (incorporated by reference  to Exhibit 10.2 to our current                                                                                                                                                                                                                                                                                                                                          |

 

37

----

 
|   |   | report on Form 8-K filed on December 30, 2005)                                                                                                                                                 |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                           |
| 10.39  |   | Amended and Restated Huntsman Supplemental Savings Plan (incorporated  by reference to Exhibit 10.3 to our current                                                                             |
|   |   | report on Form 8-K filed on December 30, 2005)                                                                                                                                                 |
|   |   |                                                                                                                                                                                           |
| 10.40* |   | Fifth Amendment to Series 2000-1 Supplement, dated March 14, 2006,  among Huntsman Receivables Finance LLC, Huntsman (Europe), BVBA, JPMorgan  Chase Bank, N.A. and J.P. Morgan (Ireland) plc. |
|   |   |                                                                                                                                                                                           |
| 18.1*  |   | Preferability Letter from Deloitte & Touche LLP                                                                                                                                            |
|   |   |                                                                                                                                                                                           |
| 21.1   |   | Omitted pursuant to General Instruction I of Form 10-K                                                                                                                                    |
|   |   |                                                                                                                                                                                           |
| 31.1*  |   | Certification of Chief Executive Officer  pursuant to Section 302 of the Sarbanes-Oxley Act of 2002                                                                                            |
| 31.2*  |   | Certification of Chief Financial Officer  pursuant to Section 302 of the Sarbanes-Oxley Act of 2002                                                                                            |
| 32.1*  |   | Certification of Chief Executive Officer  pursuant to Section 906 of the Sarbanes-Oxley Act of 2002                                                                                            |
| 32.2*  |   | Certification of Chief Financial Officer  pursuant to Section 906 of the Sarbanes-Oxley Act of 2002                                                                                            |

 

----

*              Filed herewith.

 

38

----

** **

**SIGNATURES**

 

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

 

Dated: March 17, 2006

 
|   | HUNTSMAN INTERNATIONAL LLC |
|--------|----------------------------|
|   |                       |
|   |                       |
|   | By:                        |   /s/ J. KIMO ESPLIN |
|   |                       | J. Kimo Esplin *Executive Vice President and Chief  Financial Officer* |

 

Pursuant to the requirements of theSecurities Exchange Act of 1934, this report has been signed below by thefollowing persons on behalf of the Registrant and in the capacities indicatedon the 17th day of March 2006.

 

 
|   /s/ JON M. HUNTSMAN                                                                      |   |   /s/ PETER R. HUNTSMAN                                                                 |
|------------------------------------------------------------------------------------------------------|--------|---------------------------------------------------------------------------------------------------|
| Jon M. Huntsman*Chairman of the Board and Manager*                                                   |   | Peter R. Huntsman*President, Chief Executive Officer and  Manager**(Principal Executive Officer)* |
|                                                                                                 |   |                                                                                              |
|                                                                                                 |   |                                                                                              |
|   /s/ J. KIMO ESPLIN                                                                       |   |   /s/ SAMUEL D. SCRUGGS                                                                 |
| J. Kimo Esplin*Executive Vice President and Chief**Financial Officer**(Principal Financial Officer)* |   | Samuel D. Scruggs*Executive Vice President, General Counsel,  Secretary  and Manager*             |
|                                                                                                 |   |                                                                                              |
|   /s/ L. RUSSELL HEALY                                                                     |   |                                                                                              |
| L. Russell Healy*Vice President and Controller**(Principal Accounting Officer)*                      |   |                                                                                              |

 

SUPPLEMENTAL INFORMATION TO BE FURNISHED WITH REPORTS FILED PURSUANT TOSECTION 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 BY REGISTRANTS WHICH HAVENOT REGISTERED SECURITIES PURSUANT TO SECTION 12 OF THE SECURITIES EXCHANGE ACTOF 1934

 

The registrant has not sent to its securityholders any annual report to security holders covering the registrant’s lastfiscal year or any proxy statement, form of proxy or other proxy solicitingmaterial sent to more than 10 of the registrant’s security holders with respectto any annual or other meeting of security holders.

 

39

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** **

**HUNTSMANINTERNATIONAL LLC AND SUBSIDIARIES**

 

**INDEXTO CONSOLIDATED FINANCIAL STATEMENTS**

 
| Responsibility for the Consolidated  Financial Statements                                                          |   |
|--------------------------------------------------------------------------------------------------------------------|--------|
| Report of Independent Registered Public  Accounting Firm                                                           |   |
| Consolidated Balance Sheets as of December  31, 2005 and 2004                                                      |   |
| Consolidated Statements of Operations and  Comprehensive Loss for the Years Ended December 31, 2005, 2004 and 2003 |   |
| Consolidated Statements of Members’ Equity  for the Years Ended December 31, 2005, 2004 and 2003              |   |
| Consolidated Statements of Cash Flows for  the Years Ended December 31, 2005, 2004 and 2003                        |   |
| Notes to Consolidated Financial Statements                                                                         |   |
| Schedule to Consolidated Financial  Statements, Schedule II-Valuation and Qualifying Accounts                      |   |

 

F-1

----

 

**RESPONSIBILITY FOR THE CONSOLIDATED FINANCIALSTATEMENTS**

 

Huntsman International LLC (“Company”)management is responsible for the preparation, accuracy and integrity of theconsolidated financial statements and other financial information included inthis Annual Report. This responsibility includes preparing the statements inaccordance with accounting principles generally accepted in the United Statesof America and necessarily includes estimates based upon management’s bestjudgment.

 

To help ensure the accuracy and integrity ofCompany financial data, management maintains internal controls which aredesigned to provide reasonable assurance that transactions are executed asauthorized, that they are accurately recorded and that assets are properlysafeguarded. It is essential for all Company employees to conduct theirbusiness affairs in keeping with the highest ethical standards as outlined inour code of conduct policy, “Business Conduct Guidelines.” Careful selection ofemployees, and appropriate divisions of responsibility also help us to achieveour control objectives.

 

The consolidated balance sheets of HuntsmanInternational LLC and subsidiaries as of December 31, 2005 and 2004, andthe related consolidated statements of operations and comprehensive loss,members’ equity, and cash flows for the years ended December 31, 2005,2004 and 2003 have been audited by the Company’s independent registered publicaccounting firm, Deloitte & Touche LLP. Their report is shown on pageF-3.

 

The Board of Managers oversees the adequacyof the Company’s control environment. Representatives of the Audit Committeemeet periodically with representatives of Deloitte & Touche LLP,internal financial management and the internal auditor to review accounting,control, auditing and financial reporting matters. The independent registeredpublic accounting firm and the internal auditor also have full and free accessto meet privately with the Audit Committee.

 

F-2

----

 

**REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**

 

To the Board of Managers and Members of

Huntsman International LLC and subsidiaries

 

We have audited the accompanying consolidated balance sheets ofHuntsman International LLC and subsidiaries (the “Company”) as of December 31,2005 and 2004, and the related consolidated statements of operations and comprehensiveloss, members’ equity, and cash flows for each of the three years in the periodended December 31, 2005. Our audits also included the financial statementschedule listed in the index on page F-1. These financial statements andfinancial statement schedule are the responsibility of the Company’s management.Our responsibility is to express an opinion on the financial statements andfinancial statement schedule based on our audits.

 

We conducted our audits in accordance with the standards of the PublicCompany Accounting Oversight Board (United States). Those standards requirethat we plan and perform the audit to obtain reasonable assurance about whetherthe financial statements are free of material misstatement. The Company is notrequired to have, nor were we engaged to perform, an audit of its internalcontrol over financial reporting. Our audits included consideration of internalcontrol over financial reporting as a basis for designing audit procedures thatare appropriate in the circumstances, but not for the purpose of expressing anopinion on the effectiveness of the Company’s internal control over financialreporting. Accordingly, we express no such opinion. An audit also includesexamining, on a test basis, evidence supporting the amounts and disclosures inthe financial statements, assessing the accounting principles used andsignificant estimates made by management, as well as evaluating the overallfinancial statement presentation. We believe that our audits provide areasonable basis for our opinion.

 

In our opinion, such consolidated financial statements present fairly,in all material respects, the financial position of Huntsman International LLCand subsidiaries as of December 31, 2005 and 2004, and the results of theiroperations and their cash flows for each of the three years in the period endedDecember 31, 2005, in conformity with accounting principles generally acceptedin the United States of America. Also, in our opinion, such financial statementschedule, when considered in relation to the basic consolidated financialstatements taken as a whole, presents fairly in all material respects theinformation set forth therein.

 

As discussed in Note 1 to the consolidated financial statements, theconsolidated financial statements reflect the financial position and results ofoperations and cash flows as if Huntsman International Holdings LLC, HuntsmanLLC, Huntsman Advanced Materials Holdings LLC and Huntsman International LLCwere combined for all periods for which these companies were under commoncontrol.

 

As discussed in Note 2 to the consolidated financial statements, theCompany adopted FASB Interpretation No. 46R, *Consolidationof Variable Interest Entities*, on January 1, 2005, and FASBInterpretation No. 47, *Accounting for ConditionalAsset Retirement Obligations*, on December 31, 2005.

 

As discussed in Note 2 to the consolidated financial statements, theCompany changed the measurement date for its pension and other postretirementbenefit plans from December 31 to November 30 during 2005.

 
| /s/ DELOITTE & TOUCHE LLP |   |
|------------------------------------|--------|

 

Houston, Texas

March 15, 2006

 

F-3

----

** **

**HUNTSMAN INTERNATIONAL LLC AND SUBSIDIARIES**

**CONSOLIDATEDBALANCE SHEETS**

**(Dollarsin Millions)**

 
| ** **                                                                                                | ** ** | **December 31,** | ** ** | **December 31,** | ** ** |
|-----------------------------------------------------------------------------------------------------------|------------|------------------|------------|------------------|------------|
| ** **                                                                                                | ** ** | **2005**         | ** ** | **2004**         | ** ** |
|                                                                                                      |       |             |       |             |       |
| **ASSETS**                                                                                                |       |             |       |             |       |
|                                                                                                      |       |             |       |             |       |
| **Current  assets:**                                                                                      |       |             |       |             |       |
| Cash and cash equivalents                                                                                 |       | $                | 132.5      |             | $          | 243.5 |   |
| Restricted cash                                                                                           |       | —           |       | 8.9              |       |
| Accounts and notes receivables (net of  allowance for doubtful accounts of $33.7 and $25.8, respectively) |       | 1,475.2          |       | 1,585.8          |       |
| Accounts receivable from affiliates                                                                       |       | 10.4             |       | 10.4             |       |
| Inventories, net                                                                                          |       | 1,309.2          |       | 1,253.9          |       |
| Prepaid expenses                                                                                          |       | 45.9             |       | 45.1             |       |
| Deferred income taxes                                                                                     |       | 31.2             |       | 11.9             |       |
| Other current assets                                                                                      |       | 69.9             |       | 24.9             |       |
| **Total current assets**                                                                                  |       | 3,074.3          |       | 3,184.4          |       |
|                                                                                                      |       |             |       |             |       |
| Property,  plant and equipment, net                                                                       |       | 4,336.7          |       | 4,817.3          |       |
| Investment  in unconsolidated affiliates                                                                  |       | 175.6            |       | 170.9            |       |
| Intangible  assets, net                                                                                   |       | 222.0            |       | 253.2            |       |
| Goodwill                                                                                                  |       | 91.2             |       | 3.3              |       |
| Deferred  income taxes                                                                                    |       | 94.2             |       | 42.7             |       |
| Receivables  from affiliates                                                                              |       | 3.0              |       | 23.6             |       |
| Other  noncurrent assets                                                                                  |       | 636.0            |       | 679.0            |       |
| **Total assets**                                                                                          |       | $                | 8,633.0    |             | $          | 9,174.4 |   |
|                                                                                                      |       |             |       |             |       |
| **LIABILITIES  AND MEMBERS’ EQUITY**                                                                 |       |             |       |             |       |
|                                                                                                      |       |             |       |             |       |
| **Current  liabilities:**                                                                                 |       |             |       |             |       |
| Accounts payable                                                                                          |       | $                | 1,092.7    |             | $          | 962.1 |   |
| Accounts payable to affiliates                                                                            |       | 8.7              |       | 34.3             |       |
| Accrued liabilities                                                                                       |       | 732.3            |       | 779.2            |       |
| Deferred income taxes                                                                                     |       | 2.4              |       | 14.5             |       |
| Current portion of long-term debt                                                                         |       | 44.6             |       | 37.5             |       |
| **Total current liabilities**                                                                             |       | 1,880.7          |       | 1,827.6          |       |
|                                                                                                      |       |             |       |             |       |
| Long-term  debt                                                                                           |       | 4,413.3          |       | 5,799.6          |       |
| Long-term  debt to affiliates                                                                             |       | —           |       | 454.6            |       |
| Deferred  income taxes                                                                                    |       | 216.9            |       | 180.2            |       |
| Other  noncurrent liabilities                                                                             |       | 770.0            |       | 712.3            |       |
| **Total liabilities**                                                                                     |       | 7,280.9          |       | 8,974.3          |       |
| **Minority  interests**                                                                                   |       | 20.4             |       | 36.7             |       |
|                                                                                                      |       |             |       |             |       |
| **Commitments  and contingencies (Notes 19 and 20)**                                                      |       |             |       |             |       |
|                                                                                                      |       |             |       |             |       |
| **Members’  equity:**                                                                                |       |             |       |             |       |
| Members’ equity, 1,443 and 1,000 units,  respectively                                                |       | 2,794.0          |       | 1,524.1          |       |
| Accumulated deficit                                                                                       |       | (1,384.0         | )          | (1,504.7         | )          |
| Accumulated other comprehensive (loss)  income                                                            |       | (78.3            | )          | 144.0            |       |
| **Total members’ equity**                                                                            |       | 1,331.7          |       | 163.4            |       |
| **Total liabilities and members’ equity**                                                            |       | $                | 8,633.0    |             | $          | 9,174.4 |   |

 

See accompanying notes toconsolidated financial statements.

 

F-4

----

 

**HUNTSMAN INTERNATIONAL LLC AND SUBSIDIARIES**

**CONSOLIDATEDSTATEMENTS OF OPERATIONS AND**

**COMPREHENSIVELOSS**

**(Dollarsin Millions)**

 
| ** **                                                                                                   | ** ** | **Year Ended December 31,** | ** ** |
|--------------------------------------------------------------------------------------------------------------|------------|-----------------------------|------------|
| ** **                                                                                                   | ** ** | **2005**                    | ** ** | **2004** | ** ** | **2003** | ** ** |
|                                                                                                         |       |                        |       |   |   |   |   |
| **Revenues:**                                                                                                |       |                        |       |   |   |   |   |
| Trade sales, services and fees                                                                               |       | $                           | 12,857.6   |   | $ | 11,378.5 |   | $ | 7,491.4 |   |
| Related party sales                                                                                          |       | 104.0                       |       | 47.9 |   | 154.9 |   |
| **Total revenues**                                                                                           |       | 12,961.6                    |       | 11,426.4 |   | 7,646.3 |   |
| **Cost of  goods sold**                                                                                      |       | 11,190.4                    |       | 10,025.1 |   | 6,836.2 |   |
|                                                                                                         |       |                        |       |   |   |   |   |
| **Gross  profit**                                                                                            |       | 1,771.2                     |       | 1,401.3 |   | 810.1 |   |
|                                                                                                         |       |                        |       |   |   |   |   |
| **Operating  expenses:**                                                                                     |       |                        |       |   |   |   |   |
| Selling, general and administrative                                                                          |       | 677.7                       |       | 652.5 |   | 510.1 |   |
| Research and development                                                                                     |       | 95.5                        |       | 96.1 |   | 86.8 |   |
| Other operating expense (income)                                                                             |       | 42.2                        |       | (81.0 | ) | (78.5 | ) |
| Restructuring, impairment and plant closing  costs                                                           |       | 123.6                       |       | 299.3 |   | 55.0 |   |
| Total expenses                                                                                               |       | 939.0                       |       | 966.9 |   | 573.4 |   |
| **Operating  income**                                                                                        |       | 832.2                       |       | 434.4 |   | 236.7 |   |
|                                                                                                         |       |                        |       |   |   |   |   |
| Interest  expense, net                                                                                       |       | (425.6                      | )          | (592.6 | ) | (480.5 | ) |
| Loss on  accounts receivable securitization program                                                          |       | (10.7                       | )          | (15.6 | ) | (32.4 | ) |
| Equity in  income of investment in unconsolidated affiliates                                                 |       | 8.2                         |       | 4.0 |   | 1.7 |   |
| Loss on  early extinguishment of debt                                                                        |       | (167.3                      | )          | (25.6 | ) | — |   |
| Other  expense                                                                                               |       | (0.2                        | )          | (0.2 | ) | (0.7 | ) |
|                                                                                                         |       |                        |       |   |   |   |   |
| **Income (loss) from continuing operations  before income taxes, minority interests and accounting changes** |       | 236.6                       |       | (195.6 | ) | (275.2 | ) |
| Income tax  (expense) benefit                                                                                |       | (42.8                       | )          | 22.9 |   | (41.0 | ) |
| Minority  interest (expense) income                                                                          |       | (1.7                        | )          | (7.2 | ) | 1.5 |   |
| **Income  (loss) from continuing operations**                                                                |       | 192.1                       |       | (179.9 | ) | (314.7 | ) |
| Loss from discontinued operations  (including loss on disposal of $36.4 in 2005), net of tax of nil          |       | (43.9                       | )          | (7.8 | ) | (2.6 | ) |
| **Income  (loss) before accounting changes**                                                                 |       | 148.2                       |       | (187.7 | ) | (317.3 | ) |
| Cumulative  effect of changes in accounting principle, net of tax of $3.3                                    |       | (27.5                       | )          | — |   | — |   |
| **Net  income (loss)**                                                                                       |       | 120.7                       |       | (187.7 | ) | (317.3 | ) |
| Other  comprehensive (loss) income                                                                           |       | (222.3                      | )          | 69.9 |   | 221.5 |   |
|                                                                                                         |       |                        |       |   |   |   |   |
| **Comprehensive  loss**                                                                                      |       | $                           | (101.6     | ) | $ | (117.8 | ) | $ | (95.8 | ) |

 

See accompanying notes toconsolidated financial statements

 

F-5

----

 

**HUNTSMAN INTERNATIONAL LLC AND SUBSIDIARIES**

**CONSOLIDATEDSTATEMENTS OF MEMBERS’ EQUITY (DEFICIT)**

**(Dollarsin Millions)**

 
| ** **                                      | ** ** | **Members’ equity** | ** ** | **Accumulated** | ** ** | **Accumulated other  comprehensive (loss)** | ** ** | ** ** | ** ** |
|-------------------------------------------------|------------|--------------------------|------------|-----------------|------------|---------------------------------------------|------------|------------|------------|
| ** **                                      | ** ** | **Units**                | ** ** | **Amount**      | ** ** | **deficit**                                 | ** ** | **income** | ** ** | **Total** | ** ** |
| Balance,  January 1, 2003                       |       | 1,000                    |       | $               | 565.5      |                                        | $          | (80.2      | )          | $ | (147.4 | ) | $ | 337.9 |   |
| Net loss                                        |       | —                   |       | —          |       | (317.3                                      | )          | —     |       | (317.3 | ) |
| Other  comprehensive income                     |       | —                   |       | —          |       | —                                      |       | 221.5      |       | 221.5 |   |
| Contribution  from parent and Vantico           |       | —                   |       | 958.6           |       | (919.5                                      | )          | —     |       | 39.1 |   |
| Balance,  December 31, 2003                     |       | 1,000                    |       |            | 1,524.1    |                                        |       | (1,317.0   | )          |   | 74.1 |   |   | 281.2 |   |
| Net loss                                        |       | —                   |       | —          |       | (187.7                                      | )          | —     |       | (187.7 | ) |
| Other  comprehensive income                     |       | —                   |       | —          |       | —                                      |       | 69.9       |       | 69.9 |   |
| Balance,  December 31, 2004                     |       | 1,000                    |       |            | 1,524.1    |                                        |       | (1,504.7   | )          |   | 144.0 |   |   | 163.4 |   |
| Net income                                      |       | —                   |       | —          |       | 120.7                                       |       | —     |       | 120.7 |   |
| Other  comprehensive loss                       |       | —                   |       | —          |       | —                                      |       | (222.3     | )          | (222.3 | ) |
| Contribution  from parent, net of distributions |       | 443                      |       | 1,269.9         |       | —                                      |       | —     |       | 1,269.9 |   |
| Balance,  December 31, 2005                     |       | 1,443                    |       | $               | 2,794.0    |                                        | $          | (1,384.0   | )          | $ | (78.3 | ) | $ | 1,331.7 |   |

 

See accompanying notes toconsolidated financial statements

 

F-6

----

** **

**HUNTSMAN INTERNATIONAL LLC AND SUBSIDIARIES**

**CONSOLIDATEDSTATEMENTS OF CASH FLOWS**

**(Dollarsin Millions)**

** **
| ** **                                                                                | ** ** | **Year Ended December 31,** | ** ** |
|-------------------------------------------------------------------------------------------|------------|-----------------------------|------------|
| ** **                                                                                | ** ** | **2005**                    | ** ** | **2004** | ** ** | **2003** | ** ** |
| **Operating Activities:**                                                                 |       |                        |       |   |   |   |   |
| Net income (loss)                                                                         |       | $                           | 120.7      |   | $ | (187.7 | ) | $ | (317.3 | ) |
| Adjustments to reconcile net income (loss)  to net cash provided by operating activities: |       |                        |       |   |   |   |   |
| Cumulative effect of changes in accounting  principle, net of tax                         |       | 27.5                        |       | — |   | — |   |
| Equity in income of unconsolidated  affiliates                                            |       | (8.2                        | )          | (4.0 | ) | (1.7 | ) |
| Depreciation and amortization                                                             |       | 473.9                       |       | 499.0 |   | 394.2 |   |
| Provision for losses on accounts receivable                                               |       | 4.2                         |       | 0.7 |   | 12.0 |   |
| Loss on disposal of assets                                                                |       | —                      |       | 2.4 |   | 0.6 |   |
| Loss on early extinguishment of debt                                                      |       | 167.3                       |       | 25.6 |   | — |   |
| Non-cash interest expense                                                                 |       | 47.2                        |       | 145.5 |   | 132.1 |   |
| Non-cash restructuring, impairment and  plant closing costs                               |       | 64.1                        |       | 138.0 |   | 12.2 |   |
| Deferred income taxes                                                                     |       | 16.2                        |       | (58.3 | ) | 9.3 |   |
| Net unrealized loss (gain) on foreign  currency transactions                              |       | 23.1                        |       | (111.7 | ) | (78.4 | ) |
| Other, net                                                                                |       | 9.5                         |       | (1.3 | ) | (7.6 | ) |
| Minority interest in subsidiaries’ income  (loss)                                    |       | 1.7                         |       | 7.2 |   | (1.5 | ) |
| Loss on disposal of discontinued operations                                               |       | 36.4                        |       | — |   | — |   |
| Changes in operating assets and  liabilities:                                             |       |                        |       |   |   |   |   |
| Accounts and notes receivable                                                             |       | 159.1                       |       | (226.0 | ) | 23.4 |   |
| Change in receivables sold, net                                                           |       | (93.9                       | )          | (90.0 | ) | 18.6 |   |
| Inventories                                                                               |       | (96.9                       | )          | (155.3 | ) | 71.8 |   |
| Prepaid expenses                                                                          |       | 44.4                        |       | 30.2 |   | (12.2 | ) |
| Other current assets                                                                      |       | (37.6                       | )          | 88.4 |   | (49.0 | ) |
| Other noncurrent assets                                                                   |       | (123.5                      | )          | (36.7 | ) | (29.5 | ) |
| Accounts payable                                                                          |       | 73.8                        |       | 19.4 |   | (52.1 | ) |
| Accrued liabilities                                                                       |       | (34.1                       | )          | 89.6 |   | 83.6 |   |
| Other noncurrent liabilities                                                              |       | 113.4                       |       | 6.6 |   | 7.4 |   |
| **Net cash provided by operating activities**                                             |       | 988.3                       |       | 181.6 |   | 215.9 |   |
|                                                                                      |       |                        |       |   |   |   |   |
| **Investing Activities:**                                                                 |       |                        |       |   |   |   |   |
| Capital expenditures                                                                      |       | (338.7                      | )          | (226.6 | ) | (204.8 | ) |
| Net investment in unconsolidated affiliates                                               |       | (8.0                        | )          | (11.8 | ) | — |   |
| Proceeds from sale of assets                                                              |       | 18.2                        |       | 5.2 |   | 0.2 |   |
| Acquisition of business, net of cash  acquired                                            |       | —                      |       | — |   | (377.9 | ) |
| Purchase of Vantico senior notes                                                          |       | —                      |       | — |   | (22.7 | ) |
| Net cash received from (paid to) unconsolidated  affiliates                               |       | 6.2                         |       | 6.0 |   | (8.3 | ) |
| Other, net                                                                                |       | (2.9                        | )          | 2.6 |   | (2.2 | ) |
| Change in restricted cash                                                                 |       | 8.9                         |       | 1.6 |   | (1.4 | ) |
| **Net cash used in investing activities**                                                 |       | (316.3                      | )          | (223.0 | ) | (617.1 | ) |
|                                                                                      |       |                        |       |   |   |   |   |
| **Financing Activities:**                                                                 |       |                        |       |   |   |   |   |
| Net (repayment) borrowings under revolving  loan facilities                               |       | (118.7                      | )          | 113.8 |   | (168.3 | ) |
| Repayment of long-term debt                                                               |       | (3,461.1                    | )          | (2,822.8 | ) | (602.4 | ) |
| Proceeds from long-term debt                                                              |       | 2,235.0                     |       | 2,869.8 |   | 813.4 |   |
| Issuance of senior secured notes                                                          |       | —                      |       | — |   | 348.0 |   |
| Cost of raising equity capital                                                            |       | —                      |       | — |   | (10.1 | ) |
| Call premiums related to early  extinguishment of debt                                    |       | (104.7                      | )          | (17.0 | ) | — |   |
| Payments on notes payable                                                                 |       | (31.6                       | )          | (19.6 | ) | (1.0 | ) |
| Other, net                                                                                |       | 4.9                         |       | 5.4 |   | 2.7 |   |
| Net (repayments) borrowings of overdraft  facility                                        |       | —                      |       | (10.6 | ) | 5.2 |   |
| Debt issuance costs paid                                                                  |       | (17.3                       | )          | (35.6 | ) | (44.5 | ) |
| Dividend to parent for acquisition of  minority interest                                  |       | (124.8                      | )          | — |   | — |   |
| Contribution from parent                                                                  |       | 837.6                       |       | — |   | 164.4 |   |
| **Net cash (used in) provided by financing  activities**                                  |       | (780.7                      | )          | 83.4 |   | 507.4 |   |
| Effect of exchange rate changes on cash                                                   |       | (2.3                        | )          | 11.1 |   | 8.8 |   |
| (Decrease) increase in cash and cash  equivalents                                         |       | (111.0                      | )          | 53.1 |   | 115.0 |   |
| Cash and cash equivalents at beginning of  period                                         |       | 243.5                       |       | 190.4 |   | 75.4 |   |
| Cash and cash equivalents at end of period                                                |       | $                           | 132.5      |   | $ | 243.5 |   | $ | 190.4 |   |
|                                                                                      |       |                        |       |   |   |   |   |
| **Supplemental cash flow information:**                                                   |       |                        |       |   |   |   |   |
| Cash paid for interest                                                                    |       | $                           | 413.6      |   | $ | 455.6 |   | $ | 263.5 |   |
| Cash paid for income taxes                                                                |       | 31.5                        |       | 29.2 |   | 6.8 |   |

 

On February 28, 2005, HMP Equity HoldingsCorporation contributed the HIH Senior Subordinated Discount Notes at anaccreted value of $422.8 million to us in exchange for equity. During2005, Huntsman Corporation contributed $9.3 million to us related tostock-based compensation. Also during 2005, HLLC and our Company distributed$250 million and $120 million, respectively, to Huntsman Corporation andHuntsman Corporation contributed $370 million to our Company.

 

See accompanying notes toconsolidated financial statements

 

F-7

----

 

**HUNTSMAN INTERNATIONAL LLC AND SUBSIDIARIES**

**NOTESTO CONSOLIDATED FINANCIAL STATEMENTS**

 

**1. General**

 

***Description ofBusiness***

 

Huntsman International LLC (“we,” “our,” “us”or “Company,” including its subsidiaries, unless the context otherwiserequires) is a global manufacturer and marketer of differentiated and commoditychemicals. We manage our business through six segments: Polyurethanes, AdvancedMaterials, Performance Products, Polymers, Pigments and Base Chemicals. Wemanufacture our products at facilities located in North America, Europe, Asiaand Africa and sell our products throughout the world.

 

***Certain Definitions***

 

In this report, “Huntsman Corporation” refersto Huntsman Corporation, and, unless the context otherwise requires, itssubsidiaries, “HIH” refers to Huntsman International Holdings LLC, “HuntsmanLLC” or “HLLC” refers to Huntsman LLC, and, unless the context otherwiserequires, its subsidiaries, “AdMat Holdings” refers to Huntsman AdvancedMaterials Holdings LLC and, unless the context otherwise requires, itssubsidiaries, “AdMat” refers to Huntsman Advanced Materials LLC and, unless thecontext otherwise requires, its subsidiaries, “HMP” refers to HMP EquityHoldings Corporation, “Huntsman Holdings” refers to Huntsman Holdings, LLC, “HuntsmanFamily Holdings” refers to Huntsman Family Holdings LLC and “MatlinPatterson”refers to MatlinPatterson Global Opportunities Partners L.P. and itsaffiliates.

 

***Company***

 

We are a Delaware limited liability companyand all of our membership interests are owned by Huntsman Corporation. We wereformed in 1999 in connection with a transaction between HIH, Huntsman SpecialtyChemicals Corporation (“Huntsman Specialty”) and Imperial Chemical IndustriesPLC (“ICI”). In that transaction, on June 30, 1999, HIH acquired ICI’spolyurethane chemicals, selected petrochemicals and titanium dioxide (“TiO2”or “Tioxide”) businesses and Huntsman Specialty’s propylene oxide (“PO”)business. HIH also acquired the 20% ownership interest of BP Chemicals Limitedin an olefins facility located at Wilton, U.K. and certain related assets. HIHthen transferred the acquired businesses to us and to our subsidiaries.

 

On August 16, 2005, we completed a merger inwhich Huntsman LLC, another wholly-owned subsidiary of Huntsman Corporation,merged with and into us and we continued in existence as the surviving entity(the “HLLC Merger”). At the same time, HIH was also merged into our Company.Prior to the HLLC Merger, all of our membership interests were owned by HIH,and HIH was owned 58% by Huntsman Corporation and 42% by Huntsman LLC.

 

On December 20, 2005, Huntsman Corporation acquired all of theoutstanding interests of AdMat Holdings. On December 20, 2005, HuntsmanCorporation contributed all of the outstanding equity of AdMat Holdings to us(the “AdMat Minority Interest Transaction”).  As a result, AdMat Holdings,AdMat and its subsidiaries have become our subsidiaries.  We did not payany consideration to Huntsman Corporation in connection with the AdMat MinorityInterest Transaction other than the issuance of additional equity to HuntsmanCorporation.

 

Immediately prior to the AdMat MinorityInterest Transaction, the equity interests of all holders in AdMat Holdings,other than Huntsman Corporation, were converted into the right to receive anaggregate of $125 million in cash (the “Minority Payment”).  In connectionwith the AdMat Minority Interest Transaction, we satisfied substantially all ofthe Minority Payment obligation and repaid all outstanding indebtedness ofAdMat under its secured credit facility and senior secured notes, using cash onhand and the proceeds of an increase in the term loan under our senior securedcredit facility. For more information, see “Note 14. Long-Term Debt.”

 

Huntsman Corporation effected the HLLC Mergerand the AdMat Minority Interest Transaction to simplify its consolidated group’sfinancing and public reporting structure, to reduce its cost of financing andto facilitate other organizational efficiencies. The HLLC Merger and the AdMatMinority Interest Transaction were accounted for as an exchange of sharesbetween entities under common control similar to the pooling method. Ourconsolidated financial 

 

F-8

----

 

statements presented hereinreflect the financial position, results of operations and cash flows as if HIH,Huntsman LLC, AdMat Holdings and our Company were combined for all periods forwhich they were under common control.

 

Prior to the HLLC Merger and the AdMatMinority Interest Transaction, we operated our businesses through foursegments:  Polyurethanes, PerformanceProducts, Pigments and Base Chemicals. Huntsman LLC was a manufacturer andmarketer of a wide range of chemical products with manufacturing facilitieslocated in North America, Europe and Australia and it operated its businessthrough three segments: Performance Products, Polymers and Base Chemicals. AdMatand its subsidiaries are manufacturers and marketers of advanced epoxy, acrylicand polyurethane-based products used in a wide variety of industrial andconsumer applications and operate in a single Advanced Materials segment. Wehave combined Huntsman LLC’s Performance Products and Base Chemicals segmentswith our Performance Products and Base Chemicals segments and have addedHuntsman LLC’s Polymers segment and AdMat’s Advanced Materials segment, and wenow operate our business through six segments: Polyurethanes, AdvancedMaterials, Performance Products, Pigments, Polymers and Base Chemicals.

 

**2. Summary of Significant Accounting Policies**

 

***Principles ofConsolidation***

 

Our consolidated financial statements includethe accounts of our wholly-owned and majority-owned subsidiaries and anyvariable interest entities for which we are the primary beneficiary. All intercompanyaccounts and transactions have been eliminated.

 

***Use of Estimates***

 

The preparation of financial statements inconformity with generally accepted accounting principles in the U.S. (“GAAP”)requires management to make estimates and assumptions that affect the reportedamounts of assets and liabilities and disclosure of contingent assets andliabilities at the date of the financial statements and the reported amounts ofrevenues and expenses during the reporting period. Actual results could differfrom those estimates.

 

***Reclassifications***

 

Certain amounts in the consolidated financialstatements for prior periods have been reclassified to conform with the currentpresentation.

 

***Revenue Recognition***

 

We generate substantially all of our revenuesthrough sales in the open market and long-term supply agreements. We recognizerevenue when it is realized or realizable and earned. Revenue for product salesis recognized when a sales arrangement exists, risk and title to the producttransfer to the customer, collectibility is reasonably assured and pricing isfixed or determinable. The transfer of risk and title to the product to thecustomer usually occurs at the time shipment is made.

 

Revenue related to the licensing oftechnology is recognized when earned.

 

Revenue arrangements that contain multipledeliverables are evaluated in accordance with EITF Issue No. 00-21 *“Revenue Arrangements with Multiple Deliverables”*todetermine whether the arrangements should be divided into separate units ofaccounting and how the arrangement consideration should be measured andallocated among the separate units of accounting.

 

***Cost of Goods Sold***

 

We classify the costs of manufacturing anddistributing our products as cost of goods sold. Manufacturing costs includevariable costs, primarily raw materials and energy, and fixed expenses directlyassociated with production. Manufacturing costs include, among other things,plant site operating costs and overhead, production planning and logisticscosts, repair and maintenance costs, plant site purchasing costs, andengineering and technical support costs. Distribution, freight and warehousingcosts are also included in cost of goods sold.

 

***Cash and CashEquivalents***

 

We consider cash in checking accounts andcash in short-term highly liquid investments with an original maturity of threemonths or less to be cash and cash equivalents.

 

F-9

----

 

***Securitization ofAccounts Receivable***

 

We securitize certain trade receivables inconnection with a revolving accounts receivable securitization program in whichwe grant a participating undivided interest in certain of our trade receivablesto a qualified off-balance sheet entity. We retain the servicing rights and aretained interest in the securitized receivables. Losses are recorded on thesale and are based on the carrying value of the receivables as allocatedbetween the receivables sold and the retained interests and their relative fairvalue at the date of the transfer. Retained interests are subsequently carriedat fair value which is estimated based on the present value of expected cashflows, calculated using management’s best estimates of key assumptionsincluding credit losses and discount rates commensurate with the risksinvolved. For more information, see “Note 13. Securitization of AccountsReceivable.”

 

***Inventories***

 

Inventories are stated at the lower of costor market, with cost determined using last-in first-out, first-in first-out,and average costs methods for different components of inventory.

 

***Property, Plant andEquipment***

 

Property, plant and equipment is stated atcost less accumulated depreciation. Depreciation is computed using thestraight-line method over the estimated useful lives or lease term as follows:

 
| Buildings and equipment                         |   | 10 - 60 years |   |
|-------------------------------------------------|--------|---------------|--------|
| Plant and  equipment                            |   | 3 - 25 years  |   |
| Furniture,  fixtures and leasehold improvements |   | 5 - 20 years  |   |

 

Interest expense capitalized as part of plantand equipment was $9.3 million, $6.7 million and $5.1 millionfor the years ended December 31, 2005, 2004 and 2003, respectively.

 

Periodic maintenance and repairs applicableto major units of manufacturing facilities (a “turnaround”) are accounted foron the prepaid basis by capitalizing the costs of the turnaround and amortizingthe costs over the estimated period until the next turnaround. Normalmaintenance and repairs of plant and equipment are charged to expense asincurred. Renewals, betterments and major repairs that materially extend theuseful life of the assets are capitalized, and the assets replaced, if any, areretired.

 

***Investment inUnconsolidated Affiliates***

 

Investments in companies in which we exercisesignificant management influence, but do not control, are accounted for usingthe equity method. Investments in companies in which we do not exercisesignificant influence are accounted for using the cost method.

 

***Intangible Assetsand Goodwill***

 

Intangible assets are stated at cost (fair value at the time ofacquisition) and are amortized using the straight-line method over theestimated useful lives or the life of the related agreement as follows:

 
| Patents and technology         |   | 5 - 30 years  |   |
|--------------------------------|--------|---------------|--------|
| Trademarks                     |   | 15 - 30 years |   |
| Licenses and  other agreements |   | 5 - 15 years  |   |
| Other  intangibles             |   | 5 - 15 years  |   |

 

Goodwill represents costs in excess of fairvalues assigned to the underlying net assets of acquired businesses. Goodwillis not subject to any method of amortization, but is tested for impairmentannually (at the beginning of the third quarter) and when events andcircumstances indicate that an impairment may have occurred. When the fairvalue is less than the related carrying value of the related reporting unit, weare required to reduce the amount of goodwill through a charge to earnings.Fair value is estimated based on projected discounted cash flows.

 

***Other NoncurrentAssets***

 

Other noncurrent assets consist primarily ofspare parts, deferred debt issuance costs, employee benefit assets andcapitalized turnaround costs. Debt issuance costs are amortized using theinterest method over the term of the related debt.

 

F-10

----

 

***Carrying Value ofLong-Lived Assets***

 

We review long-lived assets and allamortizable intangible assets for impairment whenever events or changes incircumstances indicate that the carrying amount of these assets may not berecoverable. Recoverability is based upon current and anticipated undiscountedcash flows and we recognize an impairment when such estimated cash flows areless than the carrying value of the asset. Measurement of the amount ofimpairment, if any, is based upon the difference between carrying value andfair value. Fair value is generally estimated by discounting estimated futurecash flows using a discount rate commensurate with the risks involved. See “Note 10.Restructuring, Impairment and Plant Closing Costs” and “Note 25. DiscontinuedOperations.”

 

***FinancialInstruments***

 

The carrying amount reported in the balancesheet for cash and cash equivalents, accounts receivable and accounts payableapproximates fair value because of the immediate or short-term maturity ofthese financial instruments. The carrying value of the senior secured creditfacilities approximates fair value since they bear interest at a variable rateplus an applicable margin. The fair value of the fixed rate and floating ratenotes is estimated based on interest rates that are currently available to usfor issuance of debt with similar terms and remaining maturities. The fairvalue of government securities is estimated using prevailing market prices. See“Note 15. Fair Value of Financial Instruments.”

 

***Income Taxes***

 

We use the asset and liability method ofaccounting for income taxes. Deferred income taxes reflect the net tax effectsof temporary differences between the carrying amounts of assets and liabilitiesfor financial and tax reporting purposes. We evaluate deferred tax assets todetermine whether it is more likely than not that they will be realized.Valuation allowances are reviewed each period on a tax jurisdiction by tax jurisdictionbasis to analyze whether there is sufficient positive or negative evidence tosupport a change in judgment about the realizability of the related deferredtax assets.

 

Subsequent to acquiring AdMat in June 2003,substantially all non-U.S. operations of AdMat were treated as branches forU.S. income tax purposes and were, therefore, subject to both U.S. and non-U.S.income tax. Effective January 1, 2006, AdMat’s foreign operations will nolonger be treated as our branches and will not be subject to U.S. taxation ontheir earnings until those earnings are repatriated to the U.S., similar to ourother non-U.S. entities.

 

For non-U.S. entities that are not treated asbranches for U.S. tax purposes, we do not provide for income taxes on theundistributed earnings of these subsidiaries as earnings are reinvested and, inthe opinion of management, will continue to be reinvested indefinitely.

 

***Derivatives andHedging Activities***

 

All derivatives, whether designated inhedging relationships or not, are recorded on the balance sheet at fair value.If the derivative is designated as a fair-value hedge, the changes in the fairvalue of the derivative and the hedged items are recognized in earnings. If thederivative is designated as a cash-flow hedge, changes in the fair value of thederivative are recorded in other comprehensive income, to the extent effective,and will be recognized in the income statement when the hedged item affectsearnings. We perform effectiveness assessments in order to use hedge accountingat each reporting period. For a derivative that does not qualify or has notbeen designated as a hedge, changes in fair value are recognized in earnings.

 

***EnvironmentalExpenditures***

 

Environmental related restoration andremediation costs are recorded as liabilities when site restoration andenvironmental remediation and clean-up obligations are either known orconsidered probable and the related costs can be reasonably estimated. Otherenvironmental expenditures that are principally maintenance or preventative innature are recorded when expended and expensed or capitalized as appropriate.See “Note 20. Environmental, Health and Safety Matters.”

 

***Asset RetirementObligations***

 

We accrue for asset retirement obligations,which consist primarily of landfill closure costs and asbestos abatement costs,in the period in which the obligations are incurred. Asset retirementobligations are accrued at estimated fair value. When the liability isinitially recorded, we capitalize the cost by increasing the carrying amount ofthe related long-lived asset. Over time, the liability is accreted to itssettlement value and the capitalized cost is depreciated over the useful lifeof the related asset. Upon settlement of the liability, we will recognize again or loss for any difference between the settlement amount and the liabilityrecorded. See “Note 11. Asset Retirement Obligations.”

 

***Pensions and PostretirementBenefits***

 

In 2005, wechanged the measurement date of our pension and postretirement benefit plansfrom December 31 to November 30. We believe the one-month change of themeasurement date is preferable because it provides us more time to review thecompleteness and accuracy of the actuarial benefit information which results inan improvement in our internal control procedures. The effect of the change inmeasurement date on the respective obligations and assets of the plan resultedin a cumulative effect of a change in accounting principle credit, net of taxof $1.5 million, of $4.2 million recorded in the year ended December 31, 2005.See “Note 17. Employee Benefit Plans.”

 

F-11

----

 

***Research andDevelopment***

 

Research and development costs are expensed as incurred.

 

***Foreign CurrencyTranslation***

 

The accounts of our operating subsidiariesoutside of the U.S., except for certain finance subsidiaries and thoseoperating in highly inflationary economic environments, consider local currencyto be the functional currency. Accordingly, assets and liabilities aretranslated at rates prevailing at the balance sheet date. Revenues, expenses,gains and losses are translated at a weighted average rate for the period.Cumulative translation adjustments are recorded to members’ equity as acomponent of accumulated other comprehensive income (loss).

 

Subsidiaries that operate in economicenvironments that are highly inflationary consider the U.S. dollar to be thefunctional currency and include gains and losses from remeasurement to the U.S.dollar from the local currency in the statement of operations. The accounts ofcertain finance subsidiaries outside of the U.S. also consider the U.S. dollarto be the functional currency.

 

Transaction gains and losses are recorded inthe statement of operations and were a net loss of $39.0 million, a netgain of $118.8 million and a net gain of $103.6 million for the yearsended December 31, 2005, 2004 and 2003, respectively.

 

***Stock-Based Compensation***

 

We adopted SFAS No. 123R, “Share BasedPayment” on January 1, 2005. SFAS No. 123R requires entities to measure thecost of employee services received in exchange for an award of equityinstruments based on the grant-date fair value of the award. That cost will berecognized over the period during which the employee is required to provideservices in exchange for the award. This standard eliminates the alternative touse the intrinsic value method of accounting for share-based payment aspreviously provided in APB Opinion No. 25, “Accounting for Stock Issued toEmployees.” We have applied this standard prospectively to share-based awardsissued to our employees in connection with Huntsman Corporation’s initialpublic offering of common stock on February 16, 2005. We were allocatedshare-based compensation expense of $9.5 million during the year ended December31, 2005. We did not have share-based awards prior to the awards issued inconnection with Huntsman Corporation’s initial public offering.

 

***Discontinued Operations***

 

On July 6, 2005, we sold our toluene di-isocyanate (“TDI”) business.See “Note 25. Discontinued Operations.” The results of operations associatedwith this business has been reported as discontinued operations in theaccompanying consolidated statements of operations. Cash flows fromdiscontinued operations are not presented separately in the accompanyingconsolidated statements of cash flows.

 

***Recently IssuedAccounting Pronouncements***

 

We adopted Financial Accounting StandardsBoard (“FASB”) Financial Interpretation No. (“FIN”) 46R, *“Consolidation of Variable Interest Entities”*on January 1, 2005. FIN 46R addresses the requirements for business enterprisesto consolidate related entities, for which they do not have controllinginterests through voting or other rights, if they are determined to be theprimary beneficiary as a result of variable economic interests. Transfers to aqualifying special purpose entity are not subject to this interpretation. Theadoption of the standard required us to consolidate our Rubicon LLC jointventure. Rubicon LLC manufactures products, including aniline and DPA, for usand our joint venture partner. Rubicon LLC borrows funds from us and a jointventure partner to finance capital requirements and receives reimbursement ofcosts incurred to operate its facilities.

 

In November 2004, the FASB issued Statementof Financial Accounting Standards (“SFAS”) No. 151, *“Inventory Costs—an amendment of ARB No. 43.”* SFAS No. 151requires abnormal amounts of idle facility expense, freight, handling costs,and wasted material to be recognized as current-period charges. It alsorequires that allocation of fixed production overhead to the costs ofconversion be based on the normal capacity of the production facilities. Therequirements of the standard will be effective for inventory costs incurredduring fiscal years beginning after June 15, 2005. We are reviewing SFAS No.151 to determine the statement’s impact on our consolidated financialstatements.

 

We adopted FIN 47, *“Accounting for Conditional Asset Retirement Obligations”* onDecember 31, 2005. FIN 47 clarifies the term conditional asset retirementobligation used in SFAS No. 143, “Accounting for Asset Retirement Obligations,”and clarifies when an entity would have sufficient information to reasonablyestimate the fair value of an asset retirement obligation. During the fourthquarter of 2005, we recorded a charge for the cumulative effect of this changein accounting principle, net of tax of $4.8 million, of $31.7 million. See “Note11. Asset Retirement Obligations.”

 

F-12

----

 

InMay 2005, the FASB issued SFAS No. 154, *“AccountingChanges and Error Corrections—a replacement of APB Opinion No. 20 and FASBStatement No. 3.”*  SFAS No.154 requires retrospective application to prior periods’ financial statementsof changes in accounting principle, unless it is impracticable to determineeither the period-specific effects or the cumulative effect of the change orunless specific transition provisions are proscribed in the accountingpronouncements. SFAS No. 154 does not change the accounting guidance forreporting a correction of an error in previously issued financial statements ora change in accounting estimate. SFAS No. 154 is effective for accountingchanges and error corrections made after December 31, 2005. We will apply thisstandard prospectively.

 

InSeptember 2005, the Emerging Issues Task Force (“EITF”) reached a consensus onissue 04-13, *“Accounting for Purchase andSales of Inventory with the Same Counterparty,”* that requirescompanies to recognize an exchange of finished goods for raw materials orwork-in-process within the same line of business at fair value. All otherexchanges of inventory should be reflected at the recorded amount. Thisconsensus is effective for transactions completed after March 31, 2006. We areevaluating the impact of this consensus to determine its impact on ourconsolidated financial statements.

 

**3.****  Business Combinations and Dispositions**

 

***AdMatAcquisition***

 

On June 30, 2003, HuntsmanCorporation’s predecessor company, MatlinPatterson, SISU Capital Ltd. (“SISU”),Huntsman Group Inc., and Morgan Grenfell Private Equity Limited (“MGPE”)completed a restructuring and business combination involving Vantico, wherebyownership of the equity of Vantico was transferred to AdMat in exchange forsubstantially all of the issued and outstanding Vantico senior notes (“VanticoSenior Notes”) and approximately $165 million of additional equity (the “AdMatTransaction”). Huntsman Corporation acquired 88.2% of the equity of AdMat andbegan reporting AdMat as a consolidated subsidiary as of June 30, 2003.  In connection with the AdMat Transaction,AdMat issued $250 million aggregate principal amount of its 11% seniorsecured notes due 2010 (the “AdMat Fixed Rate Notes”) and $100 millionaggregate principal amount of its senior secured floating rate notes due 2008at a discount of 2%, or for $98 million (the “AdMat Floating Rate Notes”and, collectively with the AdMat Fixed Rate Notes, the “AdMat Senior SecuredNotes”). Proceeds from the issuance of the AdMat Senior Secured Notes, alongwith a portion of the additional equity, were used to purchase 100% of theVantico senior secured credit facilities (the “Vantico Credit Facilities”).Also in connection with the AdMat Transaction, AdMat entered into a$60 million senior secured revolving credit facility (the “AdMat RevolvingCredit Facility”).

 

There were no contingentpayments or commitments in connection with the AdMat Transaction. The total June30, 2003 purchase price of AdMat was derived from the fair value of equityexchanged or debt instruments acquired as follows (dollars in millions): 

 

| Cash  paid for the Vantico Credit Facilities and other credit facilities |   | $    | 431.3  |   |
|--------------------------------------------------------------------------|--------|------|--------|--------|
| Equity  issued for Vantico Senior Notes                                  |   | 67.8 |   |
| Cash  paid for Vantico Senior Notes                                      |   | 22.7 |   |
| **Total purchase price of AdMat**                                        |   | $    | 521.8  |   |

 

F-13

----

 

The allocation of the June30, 2003 purchase price to the assets and liabilities of AdMat is summarized asfollows (dollars in millions): 

 

| Current  assets                   |   | $      | 415.8  |   |
|-----------------------------------|--------|--------|--------|--------|
| Current  liabilities              |   | (242.4 | )      |
| Property,  plant and equipment    |   | 397.9  |   |
| Intangible  assets                |   | 37.0   |   |
| Deferred  taxes, net              |   | (8.6   | )      |
| Other  noncurrent assets          |   | 44.2   |   |
| Other  noncurrent liabilities     |   | (122.1 | )      |
| **Total purchase price of AdMat** |   | 521.8  |   |
| Minority  interest                |   | (29.2  | )      |
| Preferred  members’ interest |   | (195.7 | )      |
| **Net assets acquired**           |   | $      | 296.9  |   |

 

During 2005 and 2004, wereversed certain valuation allowances on deferred tax assets and certainrestructuring reserves recorded in the June 30, 2003 AdMat Transaction andrecorded a corresponding reduction to intangible assets of $0.8 million and$31.9 million, respectively.

 

The acquired intangibleassets represent trademarks and patents which have a weighted-average usefullife of approximately 15-30 years.

 

On March 19, 2004, HuntsmanCorporation acquired MGPE’s 2.1% equity in AdMat Holdings for$7.2 million.

 

On December 20, 2005, HuntsmanCorporation acquired the remaining 9.7% ownership interests from former AdMatminority shareholders for $124.8 million and contributed its ownership interestto us.  Huntsman Corporation completedthe acquisition of AdMat in order to simplify its organizational and financialreporting structure and to facilitate a more efficient tax structure.Subsequent to December 20, 2005, we own, directly or indirectly, 100% ofAdMat.  We have accounted for this stepacquisition using the purchase method. The preliminary allocation of the December20, 2005 purchase price to the assets and liabilities of AdMat is summarized asfollows (dollars in millions): 

 

| Current  assets                         |   | $     | 2.3    |   |
|-----------------------------------------|--------|-------|--------|--------|
| Property,  plant and equipment          |   | 10.9  |   |
| Intangible  assets                      |   | 3.2   |   |
| Goodwill                                |   | 88.0  |   |
| Deferred  taxes                         |   | (0.3  | )      |
| Other  noncurrent liabilities           |   | (0.6  | )      |
| Accumulated  other comprehensive income |   | (2.3  | )      |
| **Net assets acquired**                 |   | 101.2 |   |
| Reversal  of minority interest          |   | 23.6  |   |
| **Cash paid for acquisition**           |   | $     | 124.8  |   |

 

This purchase priceallocation is preliminary pending finalization of fair value of assets acquiredand liabilities assumed. The acquired intangible assets represent trademarksand patents which have a weighted-average useful life of approximately15-30 years. The goodwill, none of which is deductible for tax purposes,was assigned to the Advanced Materials segment.

 

***HLLC Consolidation Transaction and Merger with HLLC and HIH***

 

Prior to May 9,2003, HLLC owned, indirectly, approximately 61% of the membership interests ofHIH. HLLC accounted for its investment in HIH using the equity method due to thesignificant management participation rights formerly granted to Imperial ChemicalIndustries PLC (“ICI”) pursuant to the HIH limited liability company agreement.On May 9, 2003, Huntsman Corporation exercised an option that it held andpurchased the ICI subsidiary that held ICI’s 30% membership interest in HIH,and, at that time, also purchased approximately 9% of the HIH membershipinterests held by institutional investors (the “HLLC ConsolidationTransaction”). As a result of the HLLC Consolidation Transaction, HuntsmanCorporation owned 100% of the HIH membership interests. Accordingly, as of May1, 2003, we and HLLC came under common control.

 

As noted in the “—Company” section above, onAugust 16, 2005, Huntsman LLC and HIH merged with and into ourCompany.  We are, and each of Huntsman LLC and HIH was, a direct orindirect wholly owned subsidiary of Huntsman Corporation.  HuntsmanCorporation effected the HLLC Merger to simplify the consolidated group’sfinancing and public reporting structure, to reduce its cost of financing andto facilitate other organizational efficiencies.  As a result of the HLLC

 

F-14

----

 

Merger,we succeeded to the assets, rights and obligations of Huntsman LLC.  In particular, we entered into supplementalindentures under which we assumed the obligations of Huntsman LLC under itsoutstanding 11.625% senior secured notes due 2010 ($296 million outstandingprincipal amount), 11.5% senior notes due 2012 ($198 million outstandingprincipal amount) and senior floating rate notes due 2011 ($100 millionoutstanding principal amount) (the “Former HLLC Notes”).  Oursubsidiaries that previously guaranteed our outstanding debt securities haveprovided guarantees of the Former HLLC Notes, and all subsidiaries of HuntsmanLLC that guaranteed the Former HLLC Notes prior to the HLLC Merger executedsupplemental indentures to guarantee all of our outstanding debt securities.

 

TheHLLC Merger and the AdMat Minority Interest Transaction were accounted for asan exchange of shares between entities under common control similar to thepooling method.  Accordingly thefinancial position, results of operations and cash flows of Huntsman LLC and AdMatwere combined with us effective May 1, 2003 and June 30, 2003, respectively.

 

The following is a summary of the assets andliabilities recorded in connection with the HLLC Consolidation Transaction asof May 1, 2003 (dollars in millions):

 
| Current assets                      |   | $        | 835.8  | ** ** |
|-------------------------------------|--------|----------|--------|------------|
| Property, plant  and equipment, net |   | 1,275.5  |   |
| Noncurrent  assets                  |   | 366.0    |   |
| Current  liabilities                |   | (507.9   | )      |
| Long-term debt                      |   | (1,767.7 | )      |
| Deferred taxes                      |   | (12.9    | )      |
| Noncurrent  liabilities             |   | (227.8   | )      |
|                                |   |     |   |
| Net liabilities  assumed            |   | $        | (39.0  | )          |

 

***Pending Acquisitionof Textile Effects Business***

 

On February 20, 2006, we announced that we haveentered into a definitive agreement to acquire the global Textile Effectsbusiness of Ciba Specialty Chemicals Inc. for CHF 332 million ($253 million).  The purchase price will be reduced (i) byapproximately CHF 75 million ($57 million) in assumed debt and unfunded pensionand other post employment liabilities and (ii) up to approximately CHF 40million ($31 million) in unspent restructuring costs. The final purchase priceis subject to a working capital and net debt adjustment. The transaction issubject to customary terms and conditions, and is expected to occur by the endof the third quarter of 2006.

 

***Pending Sale ofU.S. Butadiene and MTBE Business***

 

On February 24, 2006, we announced that we had signeda letter of intent to sell the assets of our U. S. butadiene and MTBE businessoperated in our Base Chemicals segment, which includes a manufacturing facilitylocated at Port Neches, Texas, to Texas Petrochemicals, L.P. for a sales priceof $275 million, subject to customary adjustments. We expect the transaction toclose in mid-2006. We expect to recognize a gain from this transaction uponclosing.

 

**4.****  Inventories**

 

Inventoriesconsisted of the following (dollars in millions):

 
| ** **                        | ** ** | **December 31,** | ** ** | **December 31,** | ** ** |
|-----------------------------------|------------|-----------------------|------------|-----------------------|------------|
| ** **                        | ** ** | **2005**              | ** ** | **2004**              | ** ** |
| Raw  materials and supplies       |       | $                     | 374.1      |                  | $          | 332.0 |   |
| Work  in progress                 |       | 82.1                  |       | 91.5                  |       |
| Finished  goods                   |       | 988.1                 |       | 922.8                 |       |
| **Total**                         |       | 1,444.3               |       | 1,346.3               |       |
| LIFO  reserves                    |       | (119.7                | )          | (81.0                 | )          |
| Lower  of cost or market reserves |       | (15.4                 | )          | (11.4                 | )          |
| **Inventories, net**              |       | $                     | 1,309.2    |                  | $          | 1,253.9 |   |

 

As of December 31, 2005 and 2004, approximately 15% and 18%, respectively,of inventories were recorded using the last-in, first-out cost method (“LIFO”).At December 31, 2005 and 2004, the excess of current cost over the statedLIFO value was $119.7 million and $81.0 million, respectively.

 

For the years ended December 31, 2005, 2004, and 2003, inventoryquantities were reduced resulting in a liquidation of certain LIFO inventorylayers carried at costs that were lower than the cost of current purchases, theeffect of which reduced the net loss by approximately $0.8 million,$2.0 million and $1.0 million, respectively.

 

In the normalcourse of operations, we at times exchange raw materials and finished goods withother companies for the purpose of reducing transportation costs. The net openexchange positions are valued at our cost. Net amounts deducted from or addedto inventory under open exchange agreements, which represent the net amountspayable or receivable by us under open exchange agreements, were approximately$3.8 million payable and $5.3 million payable (8.8 million and 8.7 millionpounds) at December 31, 2005 and 2004, respectively.

 

**5.****             Property, Plant and Equipment**

 

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

 
| ** **                     | ** ** | **December 31,** | ** ** |
|--------------------------------|------------|-----------------------|------------|
| ** **                     | ** ** | **2005**              | ** ** | **2004** | ** ** |
| Land                           |       | $                     | 139.0      |   | $ | 142.1 |   |
| Buildings                      |       | 516.9                 |       | 607.5 |   |
| Plant  and equipment           |       | 6,297.4               |       | 6,411.1 |   |
| Construction  in progress      |       | 321.5                 |       | 251.6 |   |
| **Total**                      |       | 7,274.8               |       | 7,412.3 |   |
| Less  accumulated depreciation |       | (2,938.1              | )          | (2,595.0 | ) |
| **Net**                        |       | $                     | 4,336.7    |   | $ | 4,817.3 |   |

 

Depreciation expense for the years ended December 31, 2005, 2004and 2003 was $436.8 million, $452.1 million and $349.6 million,respectively.

 

F-15

----

 

Property, plant and equipment includes gross assets acquired undercapital leases of $21.6 million and $24.5 million at December 31,2005 and 2004, respectively; related amounts included in accumulateddepreciation were $8.5 million and $9.1 million at December 31, 2005and 2004, respectively.

 

**6.****             Investment in Unconsolidated Affiliates**

 

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

 
| ** **                                                 | ** ** | **December 31,** | ** ** |
|------------------------------------------------------------|------------|-----------------------|------------|
| ** **                                                 | ** ** | **2005**              | ** ** | **2004** | ** ** |
|                                                       |       |                  |       |   |   |
| Equity  Method:                                            |       |                  |       |   |   |   |   |
| Polystyrene  Australia Pty Ltd. (50%)                      |       | $                     | 3.3        |   | $ | 4.7 |   |
| Sasol-Huntsman  GmbH and Co. KG (50%)                      |       | 22.6                  |       | 17.5 |   |
| Louisiana  Pigment Company, L.P. (50%)                     |       | 116.8                 |       | 121.6 |   |
| Rubicon,  LLC (50%)(1)                                     |       | —                |       | 5.7 |   |
| BASF  Huntsman Shanghai Isocyanate Investment BV (50%) (2) |       | 25.9                  |       | 17.9 |   |
| Others                                                     |       | 4.5                   |       | 1.0 |   |
| Total  equity method investments                           |       | 173.1                 |       | 168.4 |   |
|                                                       |       |                  |       |   |   |
| Cost  Method:                                              |       |                  |       |   |   |
| Gulf  Advanced Chemicals Industry Corporation (4%)         |       | 2.5                   |       | 2.5 |   |
| Total  investments                                         |       | $                     | 175.6      |   | $ | 170.9 |   |

 

----

(1)           Beginning January 1, 2005, we consolidated theresults of operations and financial position of Rubicon LLC in accordance withFIN 46R because we are the primary beneficiary of this variable interestentity. Rubicon LLC manufactures four major products, including aniline, DPA,MDI and polyols. Rubicon LLC borrows funds from us and a joint venture partnerto finance its capital requirements and receives reimbursement of costsincurred to operate its facilities.

 

(2)           We own 50% of BASF Huntsman Shanghai IsocyanateInvestment BV. BASF Huntsman Shanghai Isocyanate Investment BV owns a 70%interest in a manufacturing joint venture, thus giving us an indirect 35%interest in the manufacturing joint venture.

 

***Summarized Financial Information ofUnconsolidated Affiliates***

 

Summarized applicable financial information of Sasol-Huntsman GmbHand Co. KG, as of December 31, 2005 and 2004 and for the years endedDecember 31, 2005, 2004 and 2003 is presented below (dollars in millions):

 
| ** **              | ** ** | **December 31,** | ** ** |
|-------------------------|------------|-----------------------|------------|
| ** **              | ** ** | **2005**              | ** ** | **2004** | ** ** | **2003** | ** ** |
|                    |       |                  |       |   |   |   |   |
| Current  assets         |       | $                     | 19.3       |   | $ | 22.3 |   |   |   |
| Noncurrent  assets      |       | 74.7                  |       | 68.9 |   |   |   |
| Current  liabilities    |       | 7.6                   |       | 8.7 |   |   |   |
| Noncurrent  liabilities |       | 41.2                  |       | 47.5 |   |   |   |
| Revenues                |       | 58.9                  |       | 58.1 |   | $ | 53.8 |   |
| Gross  profit           |       | 12.1                  |       | 11.9 |   | 8.6 |   |
| Net  income             |       | 15.9                  |       | 5.3 |   | 9.0 |   |
|                         |            |                       |            |  |  |  |  |  |  |  |

 

Summarized applicable financial information of our remainingunconsolidated affiliates, Louisiana Pigment Company, Rubicon, LLC (for periodsprior to its consolidation on January 1, 2005), BASF AG (“BASF”), HuntsmanShanghai Isocyanate Investment BV and Polystyrene Australia Pty Ltd. as ofDecember 31, 2005 and 2004 and for the years ended December 31, 2005,2004 and 2003 is presented below (dollars in millions):

 

F-16

----

 
| ** **                     | ** ** | **December 31,** | ** ** |
|--------------------------------|------------|-----------------------|------------|
| ** **                     | ** ** | **2005**              | ** ** | **2004** | ** ** | **2003** | ** ** |
|                           |       |                  |       |   |   |   |   |
| Assets                         |       | $                     | 337.1      |   | $ | 534.4 |   |   |   |
| Liabilities                    |       | 44.8                  |       | 237.6 |   |   |   |
| Revenues                       |       | 299.8                 |       | 1,055.5 |   | $ | 814.2 |   |
| Net  income (loss)             |       | 0.4                   |       | 2.9 |   | (5.6 | ) |
|                           |       |                  |       |   |   |   |   |
| The  Company’s equity in: |       |                  |       |   |   |   |   |
| Net  assets                    |       | $                     | 146.0      |   | $ | 150.9 |   |   |   |
| Net  income                    |       | 0.2                   |       | 1.4 |   | $ | (2.8 | ) |
|                                |            |                       |            |  |  |  |  |  |  |  |  |

 

**7.****             Intangible Assets**

 

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

 
| ** **                           | ** ** | **December 31, 2005** | ** ** | **December 31, 2004** | ** ** |
|--------------------------------------|------------|---------------------------------|------------|---------------------------------|------------|
| ** **                           | ** ** | **Carrying**                    | ** ** | **Accumulated**                 | ** ** | ** ** | ** ** | **Carrying** | ** ** | **Accumulated** | ** ** | ** ** | ** ** |
| ** **                           | ** ** | **Amount**                      | ** ** | **Amortization**                | ** ** | **Net** | ** ** | **Amount** | ** ** | **Amortization** | ** ** | **Net** | ** ** |
| Patents,  trademarks, and technology |       | $                               | 367.8      |                            | $          | 172.1 |   | $ | 195.7 |   | $ | 410.6 |   | $ | 173.1 |   | $ | 237.5 |   |
| Licenses  and other agreements       |       | 29.2                            |       | 14.5                            |       | 14.7 |   | 18.3 |   | 10.8 |   | 7.5 |   |
| Non-compete  agreements              |       | 45.0                            |       | 42.8                            |       | 2.2 |   | 49.9 |   | 43.1 |   | 6.8 |   |
| Other  intangibles                   |       | 21.1                            |       | 11.7                            |       | 9.4 |   | 2.1 |   | 0.7 |   | 1.4 |   |
| **Total**                            |       | $                               | 463.1      |                            | $          | 241.1 |   | $ | 222.0 |   | $ | 480.9 |   | $ | 227.7 |   | $ | 253.2 |   |

 

During 2005 and 2004,the Company reversed valuation allowances on deferred tax assets and certainrestructuring reserves recorded in the AdMat Transaction and recorded acorresponding reduction to intangible assets of approximately $0.8 million and$31.9 million, respectively.

 

Amortization expense was $28.4 million,$37.1 million and $37.5 million, for the years ended December 31, 2005, 2004and 2003, respectively. Estimated future amortization expense for intangibleassets for the next five years is as follows (dollars in millions):

 
| Year  ending December 31: |   |   |   |
|---------------------------|--------|--------|--------|
| 2006                      |   | $      | 28.6   |   |
| 2007                      |   | 27.2   |   |
| 2008                      |   | 25.8   |   |
| 2009                      |   | 25.7   |   |
| 2010                      |   | 25.5   |   |
|                           |        |        |        |  |

 

**8.****             Other Noncurrent Assets**

 

Other noncurrent assets consisted of the following (dollars inmillions):

 
| ** **                    | ** ** | **December 31,** | ** ** |
|-------------------------------|------------|-----------------------|------------|
| ** **                    | ** ** | **2005**              | ** ** | **2004** | ** ** |
|                          |       |                  |       |   |   |
| Prepaid  pension costs        |       | $                     | 238.2      |   | $ | 267.2 |   |
| Debt  issuance costs          |       | 43.0                  |       | 94.4 |   |
| Capitalized  turnaround costs |       | 83.5                  |       | 116.6 |   |
| Spare  parts inventory        |       | 121.5                 |       | 103.0 |   |
| Catalyst  assets              |       | 16.6                  |       | 15.2 |   |
| Deposits                      |       | 15.2                  |       | 16.7 |   |
| Other  noncurrent assets      |       | 118.0                 |       | 65.9 |   |
| **Total**                     |       | $                     | 636.0      |   | $ | 679.0 |   |

 

F-17

----

 

Amortization expense of catalyst assets for the years ended December 31,2005, 2004 and 2003 was $8.7 million, $9.8 million and $7.1 million,respectively.

 

**9.****             Accrued Liabilities**

 

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

 
| ** **                                         | ** ** | **December 31,** | ** ** |
|----------------------------------------------------|------------|-----------------------|------------|
| ** **                                         | ** ** | **2005**              | ** ** | **2004** | ** ** |
| Payroll,  severance and related costs              |       | $                     | 108.8      |   | $ | 166.1 |   |
| Interest                                           |       | 93.9                  |       | 119.3 |   |
| Volume  and rebate accruals                        |       | 88.1                  |       | 94.4 |   |
| Income  taxes                                      |       | 64.0                  |       | 35.7 |   |
| Taxes  (property and VAT)                          |       | 87.6                  |       | 83.1 |   |
| Restructuring,  impairment and plant closing costs |       | 55.2                  |       | 122.2 |   |
| Environmental  accruals                            |       | 7.1                   |       | 7.7 |   |
| Pension  liabilities                               |       | 21.8                  |       | 23.1 |   |
| Casualty  loss reserves                            |       | 16.6                  |       | 13.7 |   |
| Other  miscellaneous accruals                      |       | 189.2                 |       | 113.9 |   |
| **Total**                                          |       | $                     | 732.3      |   | $ | 779.2 |   |

 

**10.****          Restructuring, Impairment and Plant Closing Costs**

 

While we continuously focus on identifying opportunities to reduce ouroperating costs and maximize our operating efficiency, we have nowsubstantially completed our comprehensive global cost reduction program,referred to as “Project Coronado.” Project Coronado was a program designed toreduce our annual fixed manufacturing and selling, general and administrativecosts, as measured at 2002 levels, by $200 million. In connection withProject Coronado, we announced the closure of eight smaller, less competitivemanufacturing units in our Polyurethanes, Advanced Materials, PerformanceProducts and Pigments segments. These and other actions have resulted in thereduction of approximately 1,500 employees in these businesses since 2000.

 

As of December 31, 2005,2004 and 2003, accrued restructuring, impairment and plant closing costs bytype of cost and initiative consisted of the following (dollars in millions):

 

F-18

----

 
| ** **                                                           | ** ** | ** **        | ** ** | ** **              | ** ** | ** **           | ** ** | **Other**         | ** ** | ** **   | ** ** |
|----------------------------------------------------------------------|------------|-------------------|------------|-------------------------|------------|----------------------|------------|-------------------|------------|--------------|------------|
| ** **                                                           | ** ** | **Workforce**     | ** ** | **Demolition and** | ** ** | **Non-cancelable**   | ** ** | **restructuring** | ** ** | ** **   | ** ** |
| ** **                                                           | ** ** | **reductions(1)** | ** ** | **decommissioning**     | ** ** | **lease costs** | ** ** | **costs**         | ** ** | **Total(2)** | ** ** |
| ** **                                                           | ** ** | ** **        | ** ** | ** **              | ** ** | ** **           | ** ** | ** **        | ** ** | ** **   | ** ** |
| Accrued  liabilities as of January 1, 2003                           |       | $                 | 7.1        |                    | $          | —               |       | $                 | —     |         | $          | — |   | $ | 7.1 |   |
| HLLC  balance at consolidation on May 1, 2003                   |       | 3.9               |       | 3.3                     |       | 0.6                  |       |              |       | 7.8          |       |
| AdMat  opening balance sheet liabilities at June 30, 2003       |       | 53.2              |       | 1.5                     |       | —               |       | 6.1               |       | 60.8         |       |
| 2003  credits for 2001 initiatives                                   |       | (2.0              | )          | (0.3                    | )          | (0.2                 | )          | —            |       | (2.5         | )          |
| 2003  charges for 2003 initiatives                                   |       | 45.3              |       | —                  |       | —               |       | —            |       | 45.3         |       |
| 2003  payments for 2001 initiatives                                  |       | (9.1              | )          | (0.4                    | )          | (0.2                 | )          | —            |       | (9.7         | )          |
| 2003  payments for 2003 initiatives                                  |       | (32.0             | )          | —                  |       | —               |       | —            |       | (32.0        | )          |
| Accrued  liabilities as of December 31, 2003                    |       | 66.4              |       | 4.1                     |       | 0.2                  |       | 6.1               |       | 76.8         |       |
| Partial  reversal of AdMat Transaction opening balance sheet accrual |       | (2.9              | )          | —                  |       | (0.6                 | )          | 0.7               |       | (2.8         | )          |
| 2004  charges for 2003 initiatives                                   |       | 25.1              |       | —                  |       | —               |       | 0.4               |       | 25.5         |       |
| 2004  charges for 2004 initiatives                                   |       | 106.5             |       | 4.9                     |       | 6.4                  |       | 18.0              |       | 135.8        |       |
| 2004  payments for 2003 initiatives                                  |       | (48.0             | )          | —                  |       | (0.4                 | )          | (3.0              | )          | (51.4        | )          |
| 2004  payments for 2004 initiatives                                  |       | (31.4             | )          | (0.6                    | )          | —               |       | (4.6              | )          | (36.6        | )          |
| Non-cash  settlements                                                |       | —            |       | —                  |       | (0.5                 | )          | —            |       | (0.5         | )          |
| Foreign  currency effect on reserve balance                          |       | 6.3               |       | —                  |       | —               |       | —            |       | 6.3          |       |
| Accrued  liabilities as of December 31, 2004                    |       | 122.0             |       | 8.4                     |       | 5.1                  |       | 17.6              |       | 153.1        |       |
| 2005  charges for 2003 initiatives                                   |       | 11.8              |       | —                  |       | 2.5                  |       | 0.1               |       | 14.4         |       |
| 2005  charges for 2004 initiatives                                   |       | 30.7              |       | 0.5                     |       | 0.6                  |       | 13.4              |       | 45.2         |       |
| 2005  charges for 2005 initiatives                                   |       | 13.6              |       | —                  |       | —               |       | 0.2               |       | 13.8         |       |
| Reversals  of reserves no longer required                            |       | (6.3              | )          | (0.1                    | )          | (0.8                 | )          | (6.7              | )          | (13.9        | )          |
| Partial  reversal of AdMat Transaction opening balance sheet accrual |       | (3.7              | )          | (0.8                    | )          | —               |       | (0.8              | )          | (5.3         | )          |
| 2005  payments for 2001 initiatives                                  |       | (0.4              | )          | —                  |       | —               |       | —            |       | (0.4         | )          |
| 2005  payments for 2003 initiatives                                  |       | (22.1             | )          | (0.2                    | )          | (0.2                 | )          | (1.0              | )          | (23.5        | )          |
| 2005  payments for 2004 initiatives                                  |       | (77.7             | )          | (1.7                    | )          | (0.4                 | )          | (6.3              | )          | (86.1        | )          |
| 2005  payments for 2005 initiatives                                  |       | (1.0              | )          | —                  |       | —               |       | (0.9              | )          | (1.9         | )          |
| Foreign  currency effect on reserve balance                          |       | (12.7             | )          | (0.3                    | )          | (0.3                 | )          | (3.8              | )          | (17.1        | )          |
| Accrued  liabilities as of December 31, 2005                    |       | $                 | 54.2       |                    | $          | 5.8                  |       | $                 | 6.5        |         | $          | 11.8 |   | $ | 78.3 |   |

 

----

(1)           Substantiallyall of the positions terminated in connection with the restructuring programswere terminated under ongoing termination benefit arrangements. Accordingly,the related liabilities were accrued as a one-time charge to earnings in accordancewith SFAS No. 112,*“Employers’Accounting for Postemployment Benefits.”*

 

(2)           Accruedliabilities by initiatives were as follows (dollars in millions):

 
| ** **                                  | ** ** | **December 31,** | ** ** | **December 31,** | ** ** |
|---------------------------------------------|------------|-----------------------|------------|-----------------------|------------|
| ** **                                  | ** ** | **2005**              | ** ** | **2004**              | ** ** |
|                                        |       |                  |       |                  |       |
| 2001  initiatives                           |       | $                     | 1.4        |                  | $          | 2.8 |   |
| 2003  initiatives                           |       | 28.4                  |       | 44.8                  |       |
| 2004  initiatives                           |       | 47.7                  |       | 99.2                  |       |
| 2005  initiatives                           |       | 11.6                  |       | —                |       |
| Foreign  currency effect on reserve balance |       | (10.8                 | )          | 6.3                   |       |
| Total                                       |       | $                     | 78.3       |                  | $          | 153.1 |   |

 

Details with respect toour reserves for restructuring, impairment and plant closing costs are providedbelow by segment and initiative (dollars in millions):

 

F-19

----

 
| ** **                                                               | ** ** | ** **        | ** ** | **Advanced**  | ** ** | **Performance** | ** ** | ** **   | ** ** | ** **   | ** ** | **Base**      | ** ** | **Corporate**        | ** ** | ** ** | ** ** |
|--------------------------------------------------------------------------|------------|-------------------|------------|---------------|------------|-----------------|------------|--------------|------------|--------------|------------|---------------|------------|----------------------|------------|------------|------------|
| ** **                                                               | ** ** | **Polyurethanes** | ** ** | **Materials** | ** ** | **Products**    | ** ** | **Pigments** | ** ** | **Polymers** | ** ** | **Chemicals** | ** ** | **& Other** | ** ** | **Total**  | ** ** |
| ** **                                                               | ** ** | ** **        | ** ** | ** **    | ** ** | ** **      | ** ** | ** **   | ** ** | ** **   | ** ** | ** **    | ** ** | ** **           | ** ** | ** ** | ** ** |
| Accrued  liabilities as of January 1, 2003                               |       | $                 | 7.1        |          | $          | —          |       | $            | —     |         | $          | —        |       | $                    | —     |       | $          | — |   | $ | — |   | $ | 7.1 |   |
| HLLC  balance at consolidation on May 1, 2003                            |       |              |       |          |       |            |       |         |       | 2.8          |       | 5.0           |       |                 |       | 7.8        |       |
| AdMat  opening balance sheet liabilities at June 30, 2003                |       | —            |       | 60.8          |       | —          |       | —       |       | —       |       | —        |       | —               |       | 60.8       |       |
| 2003  credits for 2001 initiatives                                       |       | —            |       | —        |       | —          |       | —       |       | —       |       | (2.5          | )          | —               |       | (2.5       | )          |
| 2003  charges for 2003 initiatives                                       |       | 28.1              |       | —        |       | 10.7            |       | 6.5          |       | —       |       | —        |       | —               |       | 45.3       |       |
| 2003  payments for 2001 initiatives                                      |       | (7.2              | )          | —        |       | —          |       | —       |       | —       |       | (2.5          | )          | —               |       | (9.7       | )          |
| 2003  payments for 2003 initiatives                                      |       | (12.2             | )          | (9.3          | )          | (8.3            | )          | (2.2         | )          | —       |       | —        |       | —               |       | (32.0      | )          |
| Accrued  liabilities as of December 31, 2003                        |       | 15.8              |       | 51.5          |       | 2.4             |       | 4.3          |       | 2.8          |       | —        |       | —               |       | 76.8       |       |
| Adjustments  to the opening balance sheet of AdMat                       |       | —            |       | (2.8          | )          | —          |       | —       |       | —       |       | —        |       | —               |       | (2.8       | )          |
| 2004  charges for 2003 initiatives                                       |       | 10.0              |       | —        |       | 0.4             |       | 14.5         |       | 0.6          |       | —        |       | —               |       | 25.5       |       |
| 2004  charges for 2004 initiatives                                       |       | 16.4              |       | 9.0           |       | 56.6            |       | 27.3         |       | 9.4          |       | 16.7          |       | 0.4                  |       | 135.8      |       |
| 2004  payments for 2003 initiatives                                      |       | (11.5             | )          | (26.0         | )          | (2.4            | )          | (10.9        | )          | (0.6         | )          | —        |       | —               |       | (51.4      | )          |
| 2004  payments for 2004 initiatives                                      |       | (11.8             | )          | (0.1          | )          | (1.4            | )          | (14.3        | )          | (6.4         | )          | (2.2          | )          | (0.4                 | )          | (36.6      | )          |
| Non-cash  settlements                                                    |       | —            |       | (0.5          | )          | —          |       | —       |       | —       |       | —        |       | —               |       | (0.5       | )          |
| Foreign  currency effect on reserve balance                              |       | 0.1               |       | 1.9           |       | 2.6             |       | 1.1          |       | —       |       | 0.6           |       | —               |       | 6.3        |       |
| Accrued  liabilities as of December 31, 2004                        |       | 19.0              |       | 33.0          |       | 58.2            |       | 22.0         |       | 5.8          |       | 15.1          |       | —               |       | 153.1      |       |
| 2005  charges for 2003 initiatives                                       |       | 4.1               |       | 0.2           |       | —          |       | 10.1         |       | —       |       | —        |       | —               |       | 14.4       |       |
| 2005  charges for 2004 initiatives                                       |       | 4.4               |       | 0.3           |       | 6.9             |       | 18.8         |       | 3.4          |       | 10.2          |       | 1.2                  |       | 45.2       |       |
| 2005  charges for 2005 initiatives                                       |       | —            |       | 0.4           |       | 4.0             |       | 2.6          |       | —       |       | 6.8           |       | —               |       | 13.8       |       |
| Reversals  of reserves no longer required                                |       | (7.6              | )          | (2.9          | )          | (0.4            | )          | (2.8         | )          | (0.1         | )          | (0.1          | )          | —               |       | (13.9      | )          |
| Partial  reversal of Admat Transaction opening balance sheet accrual     |       | —            |       | (5.3          | )          | —          |       | —       |       | —       |       | —        |       | —               |       | (5.3       | )          |
| 2005  payments for 2001 initiatives                                      |       | (0.4              | )          | —        |       | —          |       | —       |       | —       |       | —        |       | —               |       | (0.4       | )          |
| 2005  payments for 2003 initiatives                                      |       | (4.5              | )          | (8.1          | )          | (0.8            | )          | (10.1        | )          | —       |       | —        |       | —               |       | (23.5      | )          |
| 2005  payments for 2004 initiatives                                      |       | (0.8              | )          | (7.7          | )          | (33.6           | )          | (20.7        | )          | (5.2         | )          | (16.9         | )          | (1.2                 | )          | (86.1      | )          |
| 2005  payments for 2005 initiatives                                      |       | —            |       | (0.6          | )          | (0.1            | )          | (0.9         | )          | —       |       | (0.3          | )          | —               |       | (1.9       | )          |
| Foreign  currency effect on reserve balance                              |       | (3.3              | )          | (1.5          | )          | (8.6            | )          | (2.4         | )          | (0.5         | )          | (0.8          | )          | —               |       | (17.1      | )          |
| Accrued  liabilities as of December 31, 2005                        |       | $                 | 10.9       |          | $          | 7.8             |       | $            | 25.6       |         | $          | 16.6          |       | $                    | 3.4        |       | $          | 14.0 |   | $ | — |   | $ | 78.3 |   |
|                                                                     |       |              |       |          |       |            |       |         |       |         |       |          |       |                 |       |       |       |
| Current  portion of restructuring reserve                                |       | $                 | 5.5        |          | $          | 5.5             |       | $            | 17.8       |         | $          | 11.4          |       | $                    | 1.0        |       | $          | 14.0 |   | $ | — |   | $ | 55.2 |   |
| Long-term  portion of restructuring reserve                              |       | 5.4               |       | 2.3           |       | 7.8             |       | 5.2          |       | 2.4          |       | —        |       | —               |       | 23.1       |       |
|                                                                     |       |              |       |          |       |            |       |         |       |         |       |          |       |                 |       |       |       |
| Estimated  additional future charges for current restructuring projects: |       |              |       |          |       |            |       |         |       |         |       |          |       |                 |       |       |       |
|                                                                     |       |              |       |          |       |            |       |         |       |         |       |          |       |                 |       |       |       |
| Estimated  additional charges within one year                            |       | $                 | —     |          | $          | 2.6             |       | $            | 0.6        |         | $          | 5.5           |       | $                    | 6.5        |       | $          | 0.1 |   | $ | — |   | $ | 15.3 |   |
|                                                                     |       |              |       |          |       |            |       |         |       |         |       |          |       |                 |       |       |       |
| Estimated  additional charges beyond one year                       |       | $                 | —     |          | $          | —          |       | $            | —     |         | $          | 3.6           |       | $                    | 9.9        |       | $          | — |   | $ | — |   | $ | 13.5 |   |

 

***2005 Restructuring Activities***

 

As of December 31, 2005and December 31, 2004, we had reserves for restructuring, impairment andplant closing costs of $78.3 million and $153.1 million,respectively. During the year ended December 31, 2005, we recorded additionalnet charges of $123.6 million (consisting of $59.5 million payable in cashand $64.1 million of non-cash charges) for workforce reductions, demolition anddecommissioning and other restructuring costs associated with closure orcurtailment of activities at our smaller, less efficient manufacturingfacilities and for an impairment of long-lived assets. For purposes ofmeasuring impairment charges in 2005, the fair value of the assets wasdetermined based on estimated market prices. During the year ended December 31,2005, we made cash payments against these reserves of $111.9 million.

 

As of December 31,2005, our Polyurethanes segment restructuring reserve consisted of$10.9 million related to various restructuring programs, including theclosure of our West Deptford, New Jersey site (as announced in 2004),restructuring initiatives at the Rozenburg, Netherlands site (as announced in2003), workforce reductions throughout our Polyurethanes segment (as announcedin 2003), and the closure of our Shepton Mallet, U.K. site (as announced in2001). During 2005, we recorded asset impairment charges totaling $10.9 millionrelated to the closure of our West Deptford site. These restructuringinitiatives are not expected to result in additional restructuring charges.

 

As of December 31,2005, our Advanced Materials segment restructuring reserve consisted of$7.8 million related to the restructuring programs implemented inassociation with the AdMat Transaction, the realignment and simplification ofthe commercial and technical organization and the closure of our Kaohsiung,Taiwan production facility. During 2005, we assessed the remainingrestructuring reserves established in association with the AdMat Transactionand other 2004 initiatives and concluded that $5.3 million and $2.9 million,respectively, were no longer necessary. Accordingly, we reversed theserestructuring reserves during the second quarter of 2005. The AdMat Transactionreserve reversal was recorded as a reduction to property, plant and equipmentin accordance with EITF 95-3, “*Recognitionof Liabilities in Connection with a Purchase Business Combination*.”The reversal of the restructuring reserve for the other 2004 initiatives wasrecorded as a credit to earnings. These restructuring initiatives are expectedto result in additional restructuring charges of approximately $2.6 millionthrough 2006.

 

F-20

----

 

As of December 31,2005, our Performance Products segment reserve consisted of $25.6 millionrelated to various restructuring programs across our European surfactantsbusiness, including the closure of substantially all of our Whitehaven, U.K.surfactants facility, and the realignment of our Jefferson County, Texasoperations. These restructuring activities are expected to result in additionalcharges of approximately $0.6 million in 2006.

 

As of December 31,2005, our Pigments segment reserve consisted of $16.6 million related to theglobal workforce reductions announced in 2003, the reduction of our TiO2 production capacity announcedin 2004, and the announcement in July 2005 that our Pigments and BaseChemicals segments would establish a single U.K. headquarters in Teesside, U.K.This will result in the closure of our Pigments segment’s Billingham, U.K.headquarters and the creation of a new support center for both businesses.These restructuring initiatives are expected to result in additionalrestructuring charges of approximately $9.1 million through 2007.

 

As of December 31, 2005,our Polymers segment reserve consisted of $3.4 million related primarily to theclosure of our phenol manufacturing unit in Australia and restructuringinitiatives at Odessa, Texas. During the third quarter of 2005, we concludedthat the long-lived assets of our Australian styrenics business were impairedas a result of disappointing performance and the lack of anticipatedstrengthening of the styrenics market. Accordingly, our Polymers segmentrecorded an impairment charge of $48.2 million during 2005 related to theAustralian styrenics assets. The fair value of the Australian styrenics assetswas determined based on estimated market prices. These restructuringinitiatives are expected to result in additional restructuring charges ofapproximately $16.4 million through 2007.

 

As ofDecember 31, 2005, our Base Chemicals segment reserve consisted of$14.0 million related primarily to the restructuring of our JeffersonCounty, Texas operations, which was announced in August 2005, and workforcereductions arising from the announced changes in work shift schedules and inthe engineering and support functions at our Wilton and North Tees, U.K.facilities. Also included in the reserve are amounts related to an announcementin July 2005 that our Pigments and Base Chemicals segments would establish asingle U.K. headquarters in Teesside, U.K.

 

***2004 Restructuring Activities***

 

As of December 31, 2004 and December 31, 2003, we had reservesfor restructuring and plant closing costs of $153.1 million and$76.8 million, respectively. During the year ended December 31, 2004,we recorded additional charges of $299.3 million, including$138.0 million of charges for asset impairment and write downs, and$161.3 million payable in cash for workforce reductions, demolition anddecommissioning and other restructuring costs associated with closure orcurtailment of activities at our smaller, less efficient manufacturingfacilities. During the 2004 period, we made cash payments against thesereserves of $88.0 million. For purposes of measuring impairment charges in2004, the fair value of the assets was determined by using the present value ofexpected cash flows.

 

As ofDecember 31, 2004, our Polyurethanes segment reserve consisted of$19.0 million related to various restructuring programs, including theclosure of our West Deptford, New Jersey site (as announced in 2004),restructuring initiatives at the Rozenburg, Netherlands site (as announced in2003), workforce reductions throughout our Polyurethanes segment (as announcedin 2003), and the closure of our Shepton Mallet, U.K. site (as announced in2001). During 2004, we recorded asset impairment charges of $10.5 millionrelated to the closure of our West Deptford site.

 

As of December 31, 2004, our Advanced Materials segment reserveconsisted of $33.0 million related to the restructuring programimplemented in association with the AdMat Transaction, the realignment andsimplification of our commercial and technical organization and the closure ofour Kaohsiung, Taiwan production facility. The restructuring program initiatedwith the AdMat Transaction included reductions in costs of the global supplychain, reductions in general and administrative costs across the business andthe centralization of operations where efficiencies could be achieved. During2004, our Advanced Materials segment reversed $2.8 million ofrestructuring reserves recorded in the AdMat Transaction that were no longerrequired and recorded a corresponding reduction to intangible assets.

 

As of December 31, 2004, our Performance Products segment reserveconsisted of $58.2 million primarily related to variousrestructuring programs primarily across our European surfactants business andNorth American operations. During 2004, weadopted a plan to reduce the workforce across all locations in our Europeansurfactants business by approximately 320 positions over a period of15 months, including the closure of substantially all of ourWhitehaven, U.K. surfactants facility. We also announced a plan to close ourGuelph, Ontario manufacturing facility, maleicanhydride briquette facility in St. Louis, Missouri, and technical facility in Austin, Texas. During 2004, we recorded asset impairment chargestotaling $40.5 million related to the closure of the Whitehaven, U.K. facility,the Guelph, Ontario facility and the maleic anhydride briquette facility in St.Louis, Missouri.

 

As of December 31, 2004, our Pigments segment reserve consisted of$22.0 million related to the global workforce reductions announcedin 2003 and the reduction of our TiO2 productioncapacity announced in 2004. During 2004, our

 

F-21

----

 

Pigmentssegment announced that, following a review of our Pigments business, we wouldidle approximately 55,000 tonnes, or about 10%, of our total TiO2production capacity in the third and fourth quarter of 2004. In connection withthis reduction of our TiO2 production capacity, we recorded a $77.2million asset impairment charge and a $4.3 million charge for the write-off ofspare parts inventory and other assets.

 

As of December 31, 2004, our Polymers segment reserve consisted of$5.8 million related primarily to the closure of our phenolmanufacturing unit in Australia and to the demolition and decommissioning of our Odessa, Texas styrenemanufacturing facility. During 2004, we recorded asset impairment charges of$3.6 million in connection with the closure of our phenol manufacturingunit in Australia.

 

As of December 31, 2004, our Base Chemicals segment reserveconsisted of $15.1 million related to workforce reductions arising fromthe announced change in work shift schedules and in the engineering and supportfunctions at our Wilton and North Tees, U.K. facilities.

 

During 2004, we recorded a restructuring charge in corporate and otherof $2.3 million, of which $1.9 million related to non-cash chargesand $0.4 million related to relocation costs.

 

***2003 Restructuring Activities***

 

As of December 31, 2003 and December 31, 2002, we had reservesfor restructuring and plant closing costs of $76.8 million and $7.1 million,respectively. During the year ended December 31, 2003, we recordedadditional charges of $55.0 million, including $12.2 million of chargesfor asset impairment and write downs, and $42.8 million payable in cashfor workforce reductions, demolition and decommissioning and otherrestructuring costs associated with closure or curtailment of activities at oursmaller, less efficient manufacturing facilities. During the 2003 period, wemade cash payments against these reserves of $41.7 million. For purposesof measuring impairment charges, the fair value of the assets was determined byusing the present value of expected cash flows.

 

As ofDecember 31, 2003, our Polyurethanes segment reserve consisted of$15.8 million related to the restructuring initiatives at the Rozenburg, Netherlandssite (as announced in 2003), workforce reductions throughout our Polyurethanessegment (as announced in 2003), and the closure of our Shepton Mallet, U.K.site (as announced in 2001).

 

As of December 31, 2003, our Advanced Materials segment reserveconsisted of $51.5 million related to the restructuring programimplemented in association with the AdMat Transaction. This program includedreductions in costs of the global supply chain, reductions in general andadministrative costs across the business and the centralization of operationswhere efficiencies could be achieved.

 

As of December 31, 2003, our Performance Products segment reserveconsisted of $2.4 million relating to the closure of a number of plants atthe Whitehaven, U.K. facility, the closure of an administrative office inLondon, U.K., the rationalization of a surfactants technical center in Oldbury,U.K., and the restructuring of a facility in Barcelona, Spain. During2003, we recorded asset impairment charges of $11.4 million in connection withthe plant facility closure at Whitehaven,U.K.

 

As of December 31, 2003, our Pigments segment reserve consisted of$4.3 million related to workforce reductions of approximately 63 employeesacross our global Pigments operations. The overall cost reduction program to becompleted through 2005 for our Pigments segment involved approximately 250employees.

 

As of December 31, 2003, our Polymers segment reserve consisted of $2.8million related to the demolition and decommissioning of our Odessa, Texasstyrene manufacturing facility and non-cancelable lease costs.

 

**11.****          AssetRetirement Obligations**

 

We recognize assetretirement obligations in the period in which they are incurred. When theliability is initially recorded, we capitalize the cost by increasing thecarrying amount of the related long-lived asset. Over time, the liability isaccreted to its settlement value and the capitalized cost is depreciated overthe useful life of the related asset. Upon settlement of the liability, we willrecognize a gain or loss for any difference between the settlement amount andthe liability recorded. Upon initial adoption of SFAS No. 143, *“Accounting for Asset Retirement Obligations”* we identified certain legal obligationswith indeterminate settlement dates; therefore, the fair value of theseobligations could not be reasonably estimated and we did not record aliability.  On December 31, 2005,we adopted FIN 47.  FIN 47 clarifies theterm *conditional asset retirement obligation*used in SFAS No. 143 and clarifies when an entity would have sufficientinformation to reasonably estimate the fair value of an asset retirementobligation.

 

Asset retirementobligations consist primarily of landfill capping and closure and post-closurecosts and asbestos abatement costs. We are legally required to perform cappingand closure and post-closure care on the landfills and asbestos abatement oncertain of our premises. In accordance with SFAS No. 143 and FIN 47, for eachlandfill and premises containing

 

F-22

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asbestos we recognizedthe fair value of a liability for an asset retirement obligation andcapitalized that cost as part of the cost basis of the related asset.

 

The following tabledescribes changes to our asset retirement obligation liability (dollars inmillions):

 
| ** **                                                | ** ** | **2005** | ** ** | **2004** | ** ** |
|-----------------------------------------------------------|------------|----------|------------|----------|------------|
| Asset  retirement obligation at the beginning of the year |       | $        | 7.2        |     | $          | — |   |
| Liabilities  incurred                                     |       | —   |       | 6.7      |       |
| Accretion  expense                                        |       | 0.5      |       | 0.5      |       |
| FIN  47 net transition adjustment                         |       | 38.9     |       | —   |       |
| Asset  retirement obligation at the end of the year       |       | $        | 46.6       |     | $          | 7.2 |   |

 

The cumulative effect ofadopting FIN 47 resulted in an after-tax charge to earnings of $31.7 million(net of income taxes of $4.8 million) for the year ended December 31,2005.  The pro forma effects of theapplication of FIN 47 as if the statement had been adopted on January 1, 2003(instead of on December 31, 2005) are presented below (pro forma amountsassuming the accounting change is applied retroactively, net of tax) (dollarsin millions):

 
| ** **                                             | ** ** | **Year Ended December 31,** | ** ** |
|--------------------------------------------------------|------------|--------------------------------------------|------------|
| ** **                                             | ** ** | **2005**                                   | ** ** | **2004** | ** ** | **2003** | ** ** |
| Income  (loss) from continuing operations, as reported |       | $                                          | 192.1      |   | $ | (179.9 | ) | $ | (314.7 | ) |
| Pro  forma adjustments:                                |       |                                       |       |   |   |   |   |
| Depreciation  expense                                  |       | (0.3                                       | )          | (0.3 | ) | (0.3 | ) |
| Accretion  expense                                     |       | (3.0                                       | )          | (2.8 | ) | (2.6 | ) |
| Income  (loss) from continuing operations, pro forma   |       | $                                          | 188.8      |   | $ | (183.0 | ) | $ | (317.6 | ) |
|                                                        |            |                                            |            |  |  |  |  |  |  |  |  |  |  |

 

The actual and pro formaasset retirement obligation liability balances as if FIN 47 had been adopted onJanuary 1, 2003 (instead of December 31, 2005) were as follows (dollars inmillions):

 
| ** **                                                         | ** ** | **2005** | ** ** | **2004** | ** ** |
|--------------------------------------------------------------------|------------|----------|------------|----------|------------|
| Liability  for asset retirement obligations at beginning of period |       | $        | 43.1       |     | $          | 33.1 |   |
| Liability  for asset retirement obligations at end of period       |       | 46.6     |       | 43.1     |       |
|                                                                    |            |          |            |          |            |  |  |

 

**12.****          Other Noncurrent Liabilities**

 

Other noncurrent liabilities consisted of the following (dollars inmillions):

 
| ** **                                         | ** ** | **December 31,** | ** ** |
|----------------------------------------------------|------------|-----------------------|------------|
| ** **                                         | ** ** | **2005**              | ** ** | **2004** | ** ** |
| Pension  liabilities                               |       | $                     | 404.0      |   | $ | 391.6 |   |
| Other  postretirement benefits                     |       | 129.9                 |       | 89.9 |   |
| Environmental  accruals                            |       | 18.1                  |       | 27.4 |   |
| Notes  payable to affiliates                       |       | —                |       | 29.9 |   |
| Restructuring,  impairment and plant closing costs |       | 23.1                  |       | 30.9 |   |
| Fair  value of interest derivatives                |       | —                |       | 8.3 |   |
| Asset  retirement obligation                       |       | 46.6                  |       | 7.2 |   |
| Other  noncurrent liabilities                      |       | 148.3                 |       | 127.1 |   |
| **Total**                                          |       | $                     | 770.0      |   | $ | 712.3 |   |

 

F-23

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**13.****          Securitization of Accounts Receivable**

 

Under our A/R Securitization Program, we grant anundivided interest in certain of our trade receivables to a qualifiedoff-balance sheet entity (the “Receivables Trust”) at a discount. Thisundivided interest serves as security for the issuance of commercial paper andmedium-term notes by the Receivables Trust.

 

As of December 31, 2005 and 2004, the ReceivablesTrust had approximately $192.2 million and $208.4 million, respectively, inU.S. dollar equivalents in medium-term notes outstanding and approximately$110.1 million in U.S. dollar equivalents and nil, respectively in commercialpaper outstanding. The medium-term notes have a scheduled maturity date ofSeptember 15, 2006 with the scheduled amortization period commencing June 30,2005. Our commercial paper facility provides for the issuance of both euro- andU.S. dollar-denominated commercial paper up to a U.S. dollar equivalent of $175million of which $125 million is committed through June 30, 2007 and $50million is committed through September 30, 2006. Our A/R Securitization Programis currently our cheapest form of borrowing within our capital structure. As ofDecember 31, 2005, the weighted average interest rate for the medium term notesand commercial paper combined was approximately 3.5%.

 

As of December 31, 2005 and 2004, our retainedinterest in receivables (including servicing assets) subject to the program wasapproximately $164 million and $328 million, respectively. The value of theretained interest is subject to credit and interest rate risk. For the yearsended December 31, 2005, 2004 and 2003, new sales of accounts receivable soldinto the program totaled approximately $5,585 million, $5,071 million and $4,132million, respectively, and cash collections from receivables sold into theprogram that were reinvested totaled $5,589 million, $5,017 million and $4,136million, respectively. Servicing fees received during the year ended December31, 2005, 2004 and 2003 were approximately $6 million, $6 million and $5million, respectively.

 

We incur losses on the A/R Securitization Program forthe discount on receivables sold into the program and fees and expensesassociated with the program. For the years ended December 31, 2005, December31, 2004 and December 31, 2003, losses on the A/R Securitization Program were$10.7 million, $15.6 million and $32.4 million, respectively. We also retainresponsibility for the economic gains and losses on forward contracts mandatedby the terms of the program to hedge the currency exposures on the collateralsupporting the off-balance sheet debt issued. Gains and losses on forwardcontracts included as a component of the loss on the A/R Securitization Programwere nil, a loss of $2.4 million and a loss of $24.6 million for the yearsended December 31, 2005, 2004 and 2003, respectively. As of each of December31, 2005 and December 31, 2004, the fair value of the open forward currencycontracts was nil.

 

The key economic assumptions used in valuing theresidual interest are presented below:

 
| ** **                             | ** ** | **December 31,** | ** ** |
|----------------------------------------|------------|-----------------------|------------|
| ** **                             | ** ** | **2005**              | ** ** | **2004** | ** ** |
| Weighted average  life (in days)       |       | 35 to 40              |       | 35 to 40 |   |
| Credit losses  (annual rate)           |       | Less than 1%          |       | Less than 1% |   |
| Discount rate  (weighted average life) |       | Less than 1%          |       | Less than 1% |   |

 

A 10% and 20% adverse change in any of the keyeconomic assumptions would not have a material impact on the fair value of theretained interest. Total receivables over 60 days past due as of December 31,2005 and 2004 were $22.5 million and $12.1 million, respectively.

 

**14.****          Long-Term Debt**

 

Long-termdebt outstanding as of December 31, 2005 and 2004 was as follows (dollarsin millions):

 
| ** **                              | ** ** | **December 31,** | ** ** |
|-----------------------------------------|------------|-----------------------|------------|
| ** **                              | ** ** | **2005**              | ** ** | **2004** | ** ** |
| New  Credit Facilities:                 |       |                  |       |   |   |
| Term  Loan B                            |       | $                     | 2,099.3    |   | $ | — |   |
| Former  HI Credit Facilities:           |       |                  |       |   |   |
| Term  Loan B                            |       | —                |       | 1,314.1 |   |
| Former  HLLC Credit Facilities:         |       |                  |       |   |   |
| Term  Loan B                            |       | —                |       | 715.0 |   |
| Revolving  Facility                     |       | —                |       | 125.0 |   |
| 2010  Secured Notes                     |       | 293.6                 |       | 451.1 |   |
| 2009  Senior Notes                      |       | 454.7                 |       | 456.0 |   |
| 2011  Senior Floating Rate Notes        |       | 100.0                 |       | 100.0 |   |
| 2012  Senior Fixed Rate Notes           |       | 198.0                 |       | 300.0 |   |
| Subordinated  Notes                     |       | 1,145.2               |       | 1,242.0 |   |
| Former  HLLC Subordinated Notes         |       | —                |       | 59.3 |   |
| Huntsman  Specialty Subordinated Note   |       | —                |       | 101.2 |   |
| Subordinated  note-affiliate            |       | —                |       | 40.9 |   |
| HIH  Senior Discount Notes              |       | —                |       | 494.7 |   |
| HIH  Senior Subordinated Discount Notes |       | —                |       | 413.7 |   |
| Australian  Credit Facilities           |       | 63.8                  |       | 59.2 |   |
| HPS  (China) debt                       |       | 42.6                  |       | 10.4 |   |
| AdMat  Senior Secured Notes             |       | —                |       | 348.6 |   |
| Other                                   |       | 60.7                  |       | 60.5 |   |
| Total  debt                             |       | $                     | 4,457.9    |   | $ | 6,291.7 |   |
|                                    |       |                  |       |   |   |
| Current  portion                        |       | $                     | 44.6       |   | $ | 37.5 |   |
| Long-term  portion                      |       | 4,413.3               |       | 5,799.6 |   |
| Long-term  debt - affiliate             |       | —                |       | 454.6 |   |
| Total  debt                             |       | $                     | 4,457.9    |   | $ | 6,291.7 |   |
|                                         |            |                       |            |  |  |  |  |  |  |

 

During 2005, HuntsmanCorporation completed a series of transactions designed to simplify itsconsolidated financing and public reporting structure, to reduce its cost ofborrowings and to facilitate other organizational efficiencies. OnFebruary 16, 2005, Huntsman Corporation completed its initial publicoffering of common and mandatory preferred stock that resulted in approximately$1.5 billion in net proceeds, substantially all of which were used to repayindebtedness. On August 16, 2005, we completed the HLLC Merger and onDecember 20, 2005 we completed the AdMat Minority Interest Transaction. As aresult of these transactions, we now operate all of Huntsman Corporation’sbusinesses.

 

F-24

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***CreditFacilities***

 

On August 16, 2005,in connection with  the HLLC Merger, HuntsmanCorporation repaid our senior secured credit facilities, Huntsman LLC’s seniorsecured credit facilities and a subordinated note (the “Huntsman SpecialtySubordinated Note) with available cash and with the proceeds of our new seniorcredit facility (the “Senior Credit Facilities”). On December 20, 2005, inconnection with the AdMat Minority Interest Transaction, we increased the U.S.dollar term loan B under the Senior Credit Facilities by $350 million. On eachof September 19, 2005 and December 30, 2005, we voluntarily prepaidapproximately $50 million in U.S. dollar equivalents on term loan B under theSenior Credit Facilities. As of December 31, 2005, the Senior Credit Facilitiesconsisted of  (i) a $650 millionrevolving facility (the “Revolving Facility”), (ii) a $1,986.5 millionterm loan B facility (the “Dollar Term Loan”), and (iii) a €95.3 million(approximately $113 million) euro term loan B facility (the “Euro Term Loan,”and collectively with the Dollar Term Loan, the “Term Loans”).

 

As of December 31, 2005,there were no borrowings outstanding under the Revolving Facility. At ouroption, the Revolving Facility bears interest at a rate equal to:  (i) a LIBOR-based eurocurrency rate plus anapplicable margin ranging between 1.25% and 1.75% depending upon the most recentleverage ratio, or (ii) a prime-based rate plus an applicable margin rangingbetween 0.25% and 0.75% depending upon the most recent leverage ratio. As ofDecember 31, 2005, borrowings under the Revolving Facility bear interest atLIBOR plus 1.75%. The Revolving Facility matures in 2010; provided that thematurity of the Revolving Facility will accelerate if we do not repay all but$100 million of our outstanding debt securities at least three months prior tothe maturity of those securities. As of December 31, 2005, we had $32.5 millionin U.S. dollar equivalents of letters of credit and bank guarantees issued andoutstanding under the Revolving Facility.

 

At our option, the TermLoans bear interest at a rate equal to: (i) a LIBOR-based eurocurrency rate plus an applicable margin rangingbetween 1.50% and 2.00% depending upon the loan currency and the most recentleverage ratio, or (ii) a prime-based rate plus an applicable margin rangingbetween 0.50% and 0.75% depending upon the loan currency and the most recentleverage ratio. As of December 31, 2005, borrowings under the Dollar Term Loanbear interest at LIBOR plus 1.75% and borrowings under the Euro Term Loan bearinterest at LIBOR plus 2.00%. Each of the Dollar Term Loan and the Euro TermLoan matures in 2012; provided that the maturity of the Term Loans willaccelerate if we do not repay all but $100 million of our outstanding debtsecurities at least three months prior to the maturity of those securities. TheDollar Term Loan and the Euro Term Loan each require amortization payments of1% annually.

 

As of December 31, 2005,the weighted average interest rate on the Senior Credit Facilities wasapproximately 6.0%, excluding the impact of interest rate hedges.

 

Our obligations under theSenior Credit Facilities are guaranteed by substantially all of our domesticsubsidiaries and certain of our foreign subsidiaries (the “Guarantors”) and aresecured by a first priority lien (generally shared with the holders of the 2010Secured Notes (as defined below)) on substantially all of our domesticproperty, plant and equipment, the stock of all of our material domesticsubsidiaries and certain foreign subsidiaries, and pledges of intercompanynotes between our various subsidiaries.

 

The credit agreementsgoverning the Senior Credit Facilities contain financial covenants typical forthese types of agreements, including a minimum interest coverage ratio, amaximum debt-to-EBITDA ratio and a limit on capital expenditures. The creditagreements also contain customary restrictions on our ability to incur liens,incur additional debt, merge or sell assets, pay dividends, prepay otherindebtedness, make investments or engage in transactions with affiliates, andother customary restrictions and default provisions.

 

***Secured Notes***

 

On August 16, 2005, inconnection with the HLLC Merger, we entered into supplemental indentures underwhich we assumed the obligations of Huntsman LLC under its outstanding 11.625%senior secured notes due 2010 (the “2010 Secured Notes”). As of December 31,2005, we had outstanding $296.0 million aggregate principal amount ($293.6million book

 

F-25

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value and $455.4 millionoriginal aggregate principal amount) of the 2010 Secured Notes, which are redeemableafter October 15, 2007 at 105.813% of the principal amount thereof, decliningratably to par on and after October 15, 2009. In connection with HuntsmanCorporation’s initial public offering of common and preferred stock, we usedproceeds contributed to us to redeem $159.4 million of aggregate principalamount of the 2010 Secured Notes. Interest on the 2010 Secured Notes is payablesemiannually in April and October of each year. The 2010 Secured Notes aresecured by a first priority lien on all collateral securing the Senior CreditFacilities as described above (other than capital stock of our subsidiaries),shared equally with the lenders on the Senior Credit Facilities, subject tocertain intercreditor arrangements.

 

The 2010 Secured Notescontain covenants relating to the incurrence of debt and limitations ondistributions, asset sales and affiliate transactions and are guaranteed by theGuarantors. The indentures governing the 2010 Secured Notes also contain changeof control provisions requiring us to offer to repurchase the notes upon achange of control.

 

On December 20, 2005, inconnection with the AdMat Minority Interest Transaction,  we redeemed all of AdMat’s outstanding$250 million 11% senior secured fixed rate notes due 2010 and paid $35.6 millionin call premiums. Also in 2005, we redeemed all of AdMat’s $100.0 millionsecured floating rate notes due 2008 and paid $6.0 million in call premiums.The $250 million of AdMat secured fixed rate notes bore a per annum fixedrate of interest of 11%, and the AdMat secured floating rate notes boreinterest at a rate per annum equal to LIBOR plus 8.0%, subject to a floor withrespect to LIBOR of 2.0%. The AdMat floating rate notes were issued with anoriginal issue discount of 2.0%.

 

***Senior Notes***

 

As of December 31, 2005,we had outstanding $450.0 million aggregate principal amount ($455.0 millionbook value) 9.875% senior notes due 2009 that were issued at a premium (the “2009Senior Notes”). The 2009 Senior Notes are unsecured obligations. Interest onthe 2009 Senior Notes is payable semiannually in March and September and thesenotes are redeemable after March 1, 2006 at 104.937% of the originalaggregate principal amount thereof, declining ratably to par on and afterMarch 1, 2008.

 

As of December 31, 2005,we had outstanding $198.0 million ($300 million original aggregate principalamount) of 11.5% senior unsecured  fixedrate notes due 2012 (the “2012 Senior Fixed Rate Notes”) and $100.0 millionsenior unsecured floating rate notes due 2011 (the  “2011 Senior Floating Rate Notes”). Thesenotes were previously obligations of Huntsman LLC. In connection with the HLLCMerger, on August 16, 2005, we entered into supplemental indentures under whichwe assumed the obligations of the 2012 Senior Fixed Rate Notes and the 2011Senior Floating Rate Notes. In connection with Huntsman Corporation’s initialpublic offering of common and preferred stock, we used proceeds contributed tous to repay $102.0 million of aggregate principal amount of the 2012 SeniorFixed Rate Notes. Interest on the 2012 Senior Fixed Rate Notes is payablesemiannually in January and July of each year. Interest on the 2011 SeniorFloating Rate Notes is at LIBOR plus 7.25 % (11.4% as of December 31, 2005) andis payable quarterly in January, April, July and October of each year. The 2012Senior Fixed Rate Notes are redeemable after July 15, 2008 at 105.75% of theprincipal amount thereof, declining ratably to par on and after July 15, 2010.The 2011 Senior Floating Rate Notes are redeemable after July 15, 2006 at104.0% of the principal amount thereof, declining ratably to par on and afterJuly 15, 2008. At any time prior to July 15, 2007, we may redeem up to 40% ofthe original aggregate principal amount of the 2012 Senior Fixed Rate Notes ata redemption price of 111.5% with proceeds of a qualified equity offering. Atany time prior to July 15, 2006, we may redeem up to 40% of the originalaggregate principal amount of the 2011 Senior Floating Rate Notes with theproceeds of a qualified equity offering at a redemption price equal to the parvalue plus LIBOR plus 7.25%.

 

The indentures governingthe 2009 Senior Notes, the 2012 Senior Fixed Rate Notes and the 2011 SeniorFloating Rate Notes contain covenants, among other things, relating to theincurrence of debt and limitations on distributions, asset sales and affiliatetransactions and are guaranteed by the Guarantors. The indentures governingthese notes also contain change of control provisions requiring us to offer torepurchase the notes upon a change of control.

 

***SubordinatedNotes***

 

As of December 31, 2005, wehad outstanding $175 million 7.375% senior subordinated notes due 2015 and€135 million ($159.8 million) 7.5% senior subordinated notes due 2015(collectively, the “2015 Subordinated Notes”). The 2015 Subordinated Notes areredeemable on or after January 1, 2010 at 103.688% and 103.750%,respectively, of the principal amount thereof, declining ratably to par on andafter January 1, 2013. In addition, at any time prior to January 1, 2008,we may redeem up to 40% of the original aggregate principal amount of the$175 million and €135 million  2015 Subordinated Notes atredemption prices of 107.375% and 107.5%, plus accrued and unpaid interest,respectively, with the proceeds of a qualified equity offering. Under the termsof a registration rights agreement among our Company, the Guarantors and theinitial purchasers of the 2015 Subordinated Notes, we were required to completean exchange offer for the 2015 Subordinated Notes on or before September 11,2005. Under the terms of the registration rights agreement, because we did notcomplete

 

F-26

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the exchange offer bythis date, we are required to pay additional interest on the 2015 SubordinatedNotes at a rate of 0.25% per year for the first 90-day period following thisdate, and this rate increases by an additional 0.25% for each subsequent 90-dayperiod, up to a maximum of 1.0%. As of December 31, 2005, we were paying anadditional 0.50% on the 2015 Subordinated Notes.

 

As of December 31, 2005, wealso had outstanding $366.1 million ($600 million original aggregate principalamount) and €372.0 million ($440.4 million) (€450 million original aggregateprincipal amount) 10.125% senior subordinated notes due 2009 (the “2009Subordinated Notes” and, together with the 2015 Subordinated Notes, the “SubordinatedNotes”). As of December 31, 2005, the 2009 Subordinated Notes have anunamortized premium of $3.8 million and are redeemable at 103.375% of theprincipal amount thereof, which declines to 101.688% on July 1, 2006 and to paron and after July 1, 2007.

 

As of December 31, 2005, wehad outstanding a combined total of $541.1 million and €507.0 million($600.3 million) Subordinated Notes, plus $3.8 million of unamortizedpremium. The Subordinated Notes are unsecured and interest is payablesemiannually in January and July of each year.

 

The Subordinated Notescontain, among other things, covenants relating to the incurrence of debt andlimitations on distributions, asset sales and affiliate transactions and areguaranteed by the Guarantors. The indentures governing these notes also containchange of control provisions requiring us to offer to repurchase the notes upona change of control.

 

Immediately prior to theHLLC Merger, we funded the redemption of Huntsman LLC’s outstanding 9.5% seniorsubordinated notes due 2007 and Huntsman LLC’s senior subordinated floatingrate notes due 2007, which together had an aggregate outstanding principalamount of approximately $59.3 million. The redemption was completed onSeptember 1, 2005.

 

On August 16, 2005, inconnection with the HLLC Merger, we repaid, in full, the Huntsman SpecialtySubordinated Note which had an aggregate principal amount of $106.6 million andbore interest at 7.0%.

 

***Senior DiscountNotes***

 

On June 30, 1999,HIH issued senior discount notes (“HIH Senior Discount Notes”) and seniorsubordinated discount notes (the “HIH Senior Subordinated Discount Notes” and,collectively with the HIH Senior Discount Notes, the “HIH Discount Notes”) toICI with initial stated values of $242.7 million and $265.3 million,respectively. The HIH Discount Notes were due December 31, 2009. Prior toredemption, interest on the HIH Senior Discount Notes and the HIH SeniorSubordinated Discount Notes accrued at 13.375% and 13.125%, respectively, perannum and was paid in kind. During the first quarter of 2005, we redeemed, infull, $505.6 million of accreted value of the HIH Senior Discount Notesand paid call premiums of approximately $33.8 million. In order to makethis redemption, we used proceeds contributed to us from Huntsman Corporation’sinitial public offering in the amount of $504.4 million and used$35.0 million in cash. In addition, on February 28, 2005, in connectionwith Huntsman Corporation’s initial public offering, HMP contributed the SeniorSubordinated Discount Notes at an accreted value of $422.8 million to us inexchange for equity.

 

***Other Debt***

 

We maintain a$25.0 million multicurrency overdraft facility used for the workingcapital needs for our European subsidiaries (the “European Overdraft Facility”).As of December 31, 2005 and 2004, there were no borrowings outstanding underthe European Overdraft Facility.

 

HPS, one of our ChineseMDI joint ventures and our consolidated affiliate, has obtained secured loansfor the construction of MDI production facilities near Shanghai, China. Thisdebt consists of various committed loans in the aggregate amount ofapproximately $121 million. As of December 31, 2005, HPS had$19.5 million outstanding in U.S. dollar borrowings and 186 millionin RMB borrowings ($23.1 million) under these facilities. The interestrate 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 December 31, 2005,the interest rate was approximately 5.0% for U.S. dollar borrowings and 5.5%for RMB borrowings. The loans are secured by substantially all the assets ofHPS and will be repaid in 16 semiannual installments beginning no later thanJune 30, 2007. The financing is non-recourse to us but is guaranteedduring the construction phase by affiliates of HPS, including HuntsmanCorporation. Huntsman Corporation has guaranteed 70% of any amount due andunpaid by HPS under the loans described above (except for the VAT facility,which is not guaranteed). Huntsman Corporation’s guarantees remain in effectuntil HPS has commenced production of at least 70% of capacity for at least 30days and achieved a debt service cost ratio of at least 1.5:1.

 

F-27

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Our Chinese MDI jointventures are unrestricted subsidiaries under the Senior Credit Facilities andunder the indentures governing our outstanding notes. HPS is expected to beginoperations at the beginning of the third quarter of 2006.

 

Our Australiansubsidiaries maintain credit facilities that had an aggregate outstandingbalance of A$87.2 million ($63.8 million) as of December 31, 2005. Thesefacilities are non-recourse to us and bear interest at the Australian indexrate plus a margin of 2.9%. As of December 31, 2005, the interest rate forthese facilities was 8.6%.

 

We finance certain of ourinsurance premiums. As of December 31, 2005, we had $20.6 million in insurancepremium financing, all of which is due in the next 12 months.

 

On February 16, 2005, we paid in full a 15% notepayable to an affiliated entity in the amount of $41.6 million.

 

***Compliance with Covenants***

 

Our management believesthat we are in compliance with the covenants contained in the agreementsgoverning the Senior Credit Facilities, the A/R Securitization Program and theindentures governing our notes.

 

***Maturities***

 

                The scheduled maturities of our debt by year as ofDecember 31, 2005 are as follows (dollars in millions):

 

| **Year ending December 31:** | ** ** | ** ** | ** ** |
|---------------------------------------------|------------|------------|------------|
| 2006                                        |       | $          | 44.6       |   |
| 2007                                        |       | 84.0       |       |
| 2008                                        |       | 23.9       |       |
| 2009                                        |       | 1,289.2    |       |
| 2010                                        |       | 317.3      |       |
| Later  Years                                |       | 2,698.9    |       |
|                                        |       | $          | 4,457.9    |   |

 

We also have leaseobligations accounted for as capital leases which are included in otherlong-term debt  The scheduled maturitiesof our commitments under capital leases are as follows (dollars in millions):

 

| **Year ending December 31:** | ** ** | ** ** | ** ** |
|---------------------------------------------|------------|------------|------------|
| 2006                                        |       | $          | 2.3        |   |
| 2007                                        |       | 2.1        |       |
| 2008                                        |       | 2.4        |       |
| 2009                                        |       | 2.7        |       |
| 2010                                        |       | 2.3        |       |
| Later  Years                                |       | 0.8        |       |
| Total  minimum payments                     |       | 12.6       |       |
| Less:  amounts representing interest        |       | (4.0       | )          |
| Present  value of minimum lease payments    |       | 8.6        |       |
| Less:  current portion of capital leases    |       | (1.9       | )          |
| Long-term  portion of capital leases        |       | $          | 6.7        |   |
|                                             |            |            |            |  |  |

 

In connection withrepayment of indebtedness, we recorded a loss on early extinguishment of debtfor the years ended December 31, 2005 and 2004 of $167.3 million and $25.6million, respectively.

 

**15.****          Fair Value of Financial Instruments**

 
| ** **                                       | ** ** | **December 31,**               | ** ** |
|--------------------------------------------------|------------|-------------------------------------|------------|
| ** **                                       | ** ** | **2005**                            | ** ** | **2004** | ** ** |
| ** **                                       | ** ** | **Carrying  Amount**                | ** ** | **Estimated  Fair Value** | ** ** | **Carrying  Amount** | ** ** | **Estimated  Fair Value** | ** ** |
| ** **                                       | ** ** | **(Dollars in Millions)** | ** ** |
| Non-qualified  employee benefit plan investments |       | $                                   | 5.4        |   | $ | 5.4 |   | $ | 4.3 |   | $ | 4.3 |   |
| Long-term  debt                                  |       | 4,457.9                             |       | 4,593.2 |   | 6,291.7 |   | 6,645.7 |   |
| Notes  receivable from affiliates                |       | 3.0                                 |       | 3.0 |   | 23.6 |   | 23.6 |   |
|                                                  |            |                                     |            |  |  |  |  |  |  |  |  |  |  |

 

F-28

----

 

Interest rates that are currently available tous for issuance of debt with similar terms and remaining maturities are used toestimate fair value for debt issues that are not quoted on an exchange.

 

The fair value of government securities and non-qualified employeebenefit plan investments are estimated using prevailing market prices.

 

The carrying amount reported in the balancesheets for cash and cash equivalents, accounts receivable, and accounts payableapproximates fair value because of the immediate or short-term maturity ofthese financial instruments.

 

The fair value estimatespresented herein are based on pertinent information available to management asof December 31, 2005 and 2004. Although management is not aware of anyfactors that would significantly affect the estimated fair value amounts, suchamounts have not been comprehensively revalued for purposes of these financialstatements since December 31, 2005, and current estimates of fair value maydiffer significantly from the amounts presented herein.

 

**16.****          Derivative Instruments and Hedging Activities**

 

We are exposed to market risks, such as changes ininterest rates, foreign exchange rates and commodity pricing risks. From timeto time, we enter into transactions, including transactions involvingderivative instruments, to manage certain of these exposures. We manageinterest rate exposure through a program designed to reduce the impact offluctuations in variable interest rates and to meet the requirements of certaincredit agreements.

 

All derivatives, whether designed in hedgingrelationships or not, are recorded on the balance sheet at fair value. If thederivative is designated as a fair-value hedge, the changes in the fair valueof the derivative and the hedged items are recognized in earnings. If thederivative is designated as a cash-flow hedge, changes in the fair value of thederivative are recorded in accumulated other comprehensive (loss) income, tothe extent effective, and will be recognized in the income statement when thehedged item affects earnings. We perform effectiveness assessments in order touse hedge accounting at each reporting period. For a derivative that does notqualify as a hedge, changes in fair value are recognized in earnings.

 

We have also participated in some derivatives thatwere classified as non-designated derivative instruments and we hedge our netinvestment in certain European operations. Changes in the fair value of anynon-designated derivative instruments and any ineffectiveness in cash flowhedges are reported in current period earnings. Changes in the fair value ofthe hedge in the net investment of certain European operations are recorded inaccumulated other comprehensive (loss) income.

 

**Interest Rate Hedging**

 

Through our borrowing activities, we are exposed tointerest rate risk. Such risk arises due to the structure of our debtportfolio, including the duration of the portfolio and the mix of fixed and

 

F-29

----

 

floating interest rates. Actions taken to reduce interest rate riskinclude managing the mix and rate characteristics of various interest bearingliabilities as well as entering into interest rate swaps, collars and options. 

 

We may purchase both interest rate swaps and interestrate collars to reduce the impact of changes in interest rates on ourfloating-rate long-term debt. Under interest rate swaps, we agree with otherparties to exchange, at specified intervals, the difference between fixed-rateand floating-rate interest amounts calculated by reference to an agreednotional principal amount. When we enter into collars, the collars entitle usto receive from the counterparties (major banks) the amounts, if any, by whichour interest payments on certain of our floating-rate borrowings exceed acertain rate, and require us to pay to the counterparties (major banks) the amount,if any, by which our interest payments on certain of our floating-rateborrowings are less than a certain rate.

 

Interest rate contracts were recorded as a componentof other non-current liabilities as of December 31, 2005 and 2004. Theeffective portion of the changes in the fair value of the swaps are recorded inaccumulated other comprehensive loss, with any ineffectiveness recorded ininterest expense. 

 

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

 
| ** **                  | ** ** | **2005**  | ** ** | **2004**  | ** ** |
|-----------------------------|------------|-----------|------------|-----------|------------|
| Notional amount             |       | $         | 83.3       |      | $          | 184.3 |   |
| Fair value                  |       |      |       |      |       |
| Cash flow hedges            |       | —    |       | (2.0      | )          |
| Non-designated  derivatives |       | 0.4       |       | (1.2      | )          |
| Maturity                    |       | 2006-2010 |       | 2005-2007 |       |
|                             |            |           |            |           |            |  |  |

 

For the year ended December 31, 2005 and 2004, thechanges in accumulated other comprehensive (loss) income associated with cashflow hedging activities is indicated below:

 
| ** **                           | ** ** | **2005** | ** ** | **2004** | ** ** |
|--------------------------------------|------------|----------|------------|----------|------------|
|                                 |       |     |       |     |       |
| Balance at  January 1                |       | $        | 5.2        |     | $          | 15.7 |   |
| Current period  change in fair value |       | (1.9     | )          | (10.9    | )          |
| Reclassifications  to earnings       |       | (1.2     | )          | 0.4      |       |
| Balance at  December 31              |       | $        | 2.1        |     | $          | 5.2 |   |
|                                      |            |          |            |          |            |  |  |  |  |

 

During the next twelve months ending December 31,2006, approximately $2.0 million is expected to be reclassified fromaccumulated other comprehensive loss to earnings. The actual amount that willbe reclassified to earnings over the next twelve months may vary from thisamount due to changing market conditions.

 

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

 

**Commodity Price Hedging**

 

As of December 31, 2005, there were no cash flowcommodity price hedging contracts in place. As of December 31, 2004, there was$0.1 million included in other current assets and accrued liabilities relatedto cash flow commodity price hedging contracts recorded in other current assetsand other comprehensive income.

 

F-30

----

 

As of December 31, 2005, commodity price hedgingcontracts designated as fair value hedges are included in the balance sheet as$0.4 million in other current liabilities and as a $0.8 million increase in inventory.As of December 31, 2004, commodity price hedging contracts designated as fairvalue hedges are included in the balance sheet as $1.5 million in other currentassets and a $1.8 million decrease in inventory.

 

Commodity price contracts not designated as hedges arereflected in the balance sheet as $2.0 million and $0.2 million in othercurrent assets and liabilities, respectively, as of December 31, 2005 and as$5.6 million and $1.8 million in other current assets and liabilities,respectively, as of December 31, 2004.

 

During the year ended December 31, 2005 we recorded adecrease of $2.2 million and for the years ended December 31, 2004 and 2003, werecorded an increase of $2.4 million and $1.2 million, respectively, related tochanges in cost of goods sold related to net gains and losses from settledcontracts, net gains and losses in fair value price hedges, and the change infair value on commodity price hedging contracts not designated as hedges.

 

**Foreign Currency Rate Hedging**

 

We may enter into foreign currency derivativeinstruments to minimize the short-term impact of movements in foreign currencyrates. These contracts are not designated as hedges for financial reportingpurposes and are recorded at fair value. As of December 31, 2005 and 2004 andfor the year ended December 31, 2005, 2004 and 2003 the fair value, change infair value, and realized gains (losses) of outstanding foreign currency ratehedging contracts was not significant.  

 

**Net Investment Hedging**

 

As of December 31, 2005, excluding the cross-currencyinterest rate swaps discussed below, we have designated approximately €330million of our euro-denominated debt as a hedge of our net investments inforeign subsidiaries. Currency effects of net investment hedges produced a gainof $55.0 million, a loss of $51.5 million and a loss of $93.6 million in othercomprehensive income (loss) (foreign currency translation adjustments) for theyears ended December 31, 2005, 2004, and 2003, respectively. As of December 31,2005 and 2004, there was a cumulative net loss of approximately $133.5 millionand $188.5 million, respectively.

 

We have outstanding cross-currency interest rate swapsof fixed rate debt. We entered into these swaps with various financialinstitutions in order to more effectively hedge our overall underlying euro long-termnet asset and euro cash flow exposures. In the aggregate, we agreed to swap$175 million of 7.375% fixed rate debt for €132.4 million of 6.63% fixed ratedebt. As a result, we will pay fixed rate interest at an annual rate of 6.63%on €132.4 million of principal and will receive fixed rate interest at anannual rate of 7.375% on $175 million of principal through January 1, 2010. Atmaturity on January 1, 2010, we are required to pay principal of €132.4 millionand will receive principal of $175 million. Interest installments are paidsemiannually on January 1 and July 1 of each year beginning July 1, 2005through maturity. The swap is designated as a net investment hedge. As of December31, 2005, the fair value of this swap was $15 million and recorded in thebalance sheet in other noncurrent assets. The fair value as of December 31,2004 was a liability of $8 million recorded in other noncurrent liabilities.

 

In another swap transaction, we agreed to swap $31.3million of 11.0% fixed rate debt for €25.0 million of 9.4% fixed rate debt. Asa result, we will pay fixed rate interest at an annual rate of 9.4% on €25.0million of principal and will receive fixed rate interest of 11.0% on $31.3million of principal through July 15, 2007. At maturity, July 15, 2007, we arerequired to pay principal of €25.0 million and will receive principal of $31.3million. Interest installments are paid semiannually on January 15 and July 15of each year, beginning July 15, 2005 through maturity. The swap is not

 

F-31

----

 

designated as a hedge for reporting purposes. As of December 31, 2005,the fair value of this was $2 million and recorded in other noncurrent assetsin the balance sheet. For the year ended December 31, 2005, this swap decreasedinterest expense by $0.3 million.

 

Foreign currency transaction gains and losses onintercompany loans that are not designated as Permanent Loans (as definedbelow) are recorded in earnings. Foreign currency transaction gains and losseson intercompany loans that we may designate as permanent because they are notexpected to be repaid in the foreseeable future (“Permanent Loans”) arerecorded in other comprehensive income. From time to time, we review suchdesignation of intercompany loans, and, during the year ended December 31,2005, we have increased the amount of our Permanent Loans.

 

**17.****          Employee Benefit Plans**

 

***Defined Benefit Pension and OtherPostretirement Benefit Plans***

 

Ouremployees participate in a trusteed, non-contributory defined benefit pensionplan (the “Plan”) that covers substantially all of our full-time U.S.employees. Effective July 1, 2004, the Plan formula for employees notcovered by a collective bargaining agreement was converted to a cash balance plan.For represented employees, participation in the cash balance plan is subject tothe terms of negotiated contracts. Between July 1, 2004 and September 1, 2005, thirteen collectivelybargained units had negotiated to participate. For participating employees,benefits accrued under the prior formula were converted to opening cash balanceaccounts. The new cash balance benefit formula provides annual pay credits from4% 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 additionalannual pay credits from 1% to 8%, depending on their age and service as of thatdate, for up to five years. The conversion to the cash balance plan did nothave a significant impact on ongoing pension expense.

 

Wesponsor defined benefit pension plans in a number of countries outside of the U.S.  The availability of these plans, and theirspecific design provisions, are consistent with local competitive practices andregulations.

 

Wealso sponsor two unfunded postretirement benefit plans other than pensions,which provide medical and life insurance benefits.

 

In May 2004, the FASB issued FASB Staff Position (“FSP”)No. 106-2, *“Accounting and DisclosureRequirements Related to the Medicare Prescription Drug, Improvement andModernization Act of 2003.”* The FSP provides accounting guidance forthe effects of the Medicare Prescription Drug, Improvement and ModernizationAct of 2003 (the “Act”) to a sponsor of a postretirement health care plan. OnJuly 1, 2004 we adopted the provisions of FSP No. 106-2. The adoptionof FSP No. 106-2 reduced our non-pension postretirement accumulatedbenefit obligation by approximately $4.7 million, which has beenrecognized as a change in our unrecognized actuarial gain/loss. The adoption ofFSP No. 106-2 reduced the net periodic postretirement benefit costrecognized during the year ended December 31, 2004 by approximately$0.5 million.

 

In 2005, we changed the measurement date of our pension andpostretirement benefit plans from December 31 to November 30. We believe theone-month change of the measurement date is preferable because it provides usmore time to review the completeness and accuracy of the actuarial benefitinformation which results in an improvement in our internal control procedures.The effect of the change in measurement date on the respective obligations andassets of the plan resulted in a cumulative effect of a change in accountingprinciple credit, net of tax of $1.5 million, of $4.2 million recorded inthe year ended December 31, 2005.  Thepro forma impact of changing this accounting policy is to reduce net loss byapproximately $0.2 million and $6.9 million, respectively for the years endedDecember 31, 2004 and 2003.

 

Thefollowing table sets forth the changes in funded status of the plans and theamounts recognized in the consolidated balance sheets during 2005 and 2004(dollars in millions). The measurement date of the plans was November 30 in2005 and December 31 in 2004.

 

F-32

----

 
| ** **                                                                               | ** ** | **Defined Benefit Pension  Plans** | ** ** | **Other Postretirement Benefit Plans** | ** ** |
|------------------------------------------------------------------------------------------|------------|----------------------------------------------|------------|-------------------------------------------------------|------------|
| ** **                                                                               | ** ** | **2005**                                     | ** ** | **2004**                                              | ** ** | **2005** | ** ** | **2004** | ** ** |
| ** **                                                                               | ** ** | **U.S. Plans**                          | ** ** | **Non-U.S.  Plans**                                   | ** ** | **U.S. Plans** | ** ** | **Non-U.S.  Plans** | ** ** | **U.S. Plans** | ** ** | **Non-U.S.  Plans** | ** ** | **U.S. Plans** | ** ** | **Non-U.S.  Plans** | ** ** |
| **Change in benefit obligation**                                                         |       |                                         |       |                                                  |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Benefit  obligation at beginning of year                                                 |       | $                                            | 489.5      |                                                  | $          | 2,020.7 |   | $ | 483.2 |   | $ | 1,658.3 |   | $ | 126.9 |   | $ | 4.3 |   | $ | 140.8 |   | $ | 4.2 |   |
| Adjustment  due to change in                                                             |       |                                         |       |                                                  |       |   |   |   |   |   |   |   |   |   |   |   |   |
| measurement  date                                                                        |       | (2.1                                         | )          | (11.5                                                 | )          | — |   | — |   | (0.2 | ) | — |   | — |   | — |   |
| Service  cost                                                                            |       | 30.6                                         |       | 48.3                                                  |       | 19.0 |   | 45.1 |   | 4.1 |   | — |   | 3.3 |   | — |   |
| Interest  cost                                                                           |       | 36.0                                         |       | 90.3                                                  |       | 30.7 |   | 86.9 |   | 9.3 |   | 0.2 |   | 7.5 |   | 0.3 |   |
| Participant  contributions                                                               |       | —                                       |       | 5.8                                                   |       | — |   | 5.2 |   | — |   | — |   | — |   | — |   |
| Plan  amendments                                                                         |       | (21.4                                        | )          | (15.4                                                 | )          | (58.8 | ) | (0.3 | ) | (8.3 | ) | — |   | — |   | — |   |
| Exchange  rate changes                                                                   |       | —                                       |       | (242.3                                                | )          | — |   | 155.5 |   | — |   | 0.2 |   | — |   | — |   |
| Divestitures/Acquisitions                                                                |       | —                                       |       | 0.3                                                   |       | — |   | — |   | — |   | — |   | — |   | — |   |
| Settlements/transfers                                                                    |       | —                                       |       | (2.7                                                  | )          |   |   | (1.2 | ) | — |   | — |   | — |   | — |   |
| Other                                                                                    |       | —                                       |       | (0.3                                                  | )          |   |   | 3.3 |   | — |   | — |   | — |   | — |   |
| Curtailments                                                                             |       | —                                       |       | (2.6                                                  | )          |   |   | (1.3 | ) | — |   | — |   | — |   | (0.1 | ) |
| Special  termination benefits                                                            |       | —                                       |       | 11.4                                                  |       |   |   | 10.7 |   |   |   | — |   | — |   | — |   |
| Actuarial  (gain)/loss                                                                   |       | 13.2                                         |       | 108.5                                                 |       | 39.1 |   | 126.4 |   | (0.4 | ) | 0.4 |   | (15.8 | ) | 0.3 |   |
| Consolidation  of Rubicon                                                                |       | 116.4                                        |       | —                                                |       | — |   | — |   | 34.2 |   | — |   | — |   | — |   |
| Benefits  paid                                                                           |       | (36.8                                        | )          | (69.3                                                 | )          | (23.7 | ) | (67.9 | ) | (9.7 | ) | (0.3 | ) | (8.9 | ) | (0.4 | ) |
| Benefit  obligation at end of year                                                       |       | $                                            | 625.4      |                                                  | $          | 1,941.2 |   | $ | 489.5 |   | $ | 2,020.7 |   | $ | 155.9 |   | $ | 4.8 |   | $ | 126.9 |   | $ | 4.3 |   |
|                                                                                     |       |                                         |       |                                                  |       |   |   |   |   |   |   |   |   |   |   |   |   |
| **Change in plan assets**                                                                |       |                                         |       |                                                  |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Fair  value of plan assets at beginning of year                                          |       | $                                            | 297.9      |                                                  | $          | 1,607.4 |   | $ | 257.8 |   | $ | 1,345.1 |   | $ | — |   | $ | — |   | $ | — |   | $ | — |   |
| Adjustment  due to change in                                                             |       |                                         |       |                                                  |       |   |   |   |   |   |   |   |   |   |   |   |   |
| measurement  date                                                                        |       | (8.8                                         | )          | (8.8                                                  | )          | — |   | — |   | — |   | — |   | — |   | — |   |
| Actual  return on plan assets                                                            |       | 36.5                                         |       | 236.1                                                 |       | 34.9 |   | 149.3 |   | — |   | — |   | — |   | — |   |
| Adjustments  to opening value                                                            |       | —                                       |       | —                                                |       | — |   | (4.3 | ) | — |   | — |   | — |   | — |   |
| Exchange  rate changes                                                                   |       | —                                       |       | (199.9                                                | )          | — |   | 125.2 |   | — |   | — |   | — |   | — |   |
| Divestitures/Acquisitions                                                                |       | —                                       |       | 0.2                                                   |       | — |   | — |   | — |   | — |   | — |   | — |   |
| Participant  contributions                                                               |       | —                                       |       | 5.8                                                   |       | — |   | 5.2 |   | — |   | — |   | — |   | — |   |
| Other                                                                                    |       | —                                       |       | 4.3                                                   |       | — |   | (2.3 | ) | — |   | — |   | — |   | — |   |
| Administrative  expenses                                                                 |       | —                                       |       | (1.3                                                  | )          | — |   | (0.8 | ) | — |   | — |   | — |   | — |   |
| Company  contributions                                                                   |       | 50.8                                         |       | 55.8                                                  |       | 28.9 |   | 59.0 |   | 9.7 |   | 0.3 |   | 8.9 |   | 0.4 |   |
| Settlements/Transfers                                                                    |       | —                                       |       | (3.9                                                  | )          | — |   | (1.1 | ) |   |   |   |   |   |   |   |   |
| Consolidation  of Rubicon                                                                |       | 77.4                                         |       | —                                                |       | — |   | — |   | — |   | — |   | — |   | — |   |
| Benefits  paid                                                                           |       | (36.8                                        | )          | (69.3                                                 | )          | (23.7 | ) | (67.9 | ) | (9.7 | ) | (0.3 | ) | (8.9 | ) | (0.4 | ) |
| Fair  value of plan assets at end of year                                                |       | $                                            | 417.0      |                                                  | $          | 1,626.4 |   | $ | 297.9 |   | $ | 1,607.4 |   | $ | — |   | $ | — |   | $ | — |   | $ | — |   |
|                                                                                     |       |                                         |       |                                                  |       |   |   |   |   |   |   |   |   |   |   |   |   |
| **Funded status**                                                                        |       |                                         |       |                                                  |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Funded  status                                                                           |       | $                                            | (208.4     | )                                                     | $          | (314.8 | ) | $ | (191.6 | ) | $ | (413.3 | ) | $ | (155.9 | ) | $ | (4.8 | ) | $ | (126.9 | ) | $ | (4.3 | ) |
| Unrecognized  net actuarial loss                                                         |       | 158.0                                        |       | 446.4                                                 |       | 119.6 |   | 552.2 |   | 55.4 |   | 1.4 |   | 57.8 |   | 1.1 |   |
| Unrecognized  prior service cost                                                         |       | (68.4                                        | )          | (6.5                                                  | )          | (52.3 | ) | 5.7 |   | (26.9 | ) | — |   | (17.8 | ) | — |   |
| Unrecognized  net transition obligation                                                  |       | 2.8                                          |       | 2.4                                                   |       | 3.9 |   | 3.2 |   | — |   | 0.2 |   | — |   | 0.2 |   |
| Contributions  paid December 1 through December 31                                       |       | 3.3                                          |       | 3.7                                                   |       | — |   | — |   | 0.7 |   | — |   | — |   | — |   |
| Accrued  benefit cost                                                                    |       | $                                            | (112.7     | )                                                     | $          | 131.2 |   | $ | (120.4 | ) | $ | 147.8 |   | $ | (126.7 | ) | $ | (3.2 | ) | $ | (86.9 | ) | $ | (3.0 | ) |
|                                                                                     |       |                                         |       |                                                  |       |   |   |   |   |   |   |   |   |   |   |   |   |
| **Amounts  recognized in balance sheet:**                                                |       |                                         |       |                                                  |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Accrued benefit  cost recognized in accrued liabilities and other noncurrent liabilities |       | $                                            | (185.9     | )                                                     | $          | (239.9 | ) | $ | (173.6 | ) | $ | (241.1 | ) | $ | (126.7 | ) | $ | (3.2 | ) | $ | (86.9 | ) | $ | (3.0 | ) |
| Prepaid pension  cost                                                                    |       | 1.1                                          |       | 237.1                                                 |       | 0.8 |   | 266.4 |   | — |   | — |   | — |   | — |   |
| Intangible asset                                                                         |       | 3.7                                          |       | 3.7                                                   |       | 4.1 |   | 4.5 |   | — |   | — |   | — |   | — |   |
| Accumulated other  comprehensive income                                                  |       | 68.4                                         |       | 130.3                                                 |       | 48.3 |   | 118.0 |   | — |   | — |   | — |   | — |   |
| Accrued benefit  cost                                                                    |       | $                                            | (112.7     | )                                                     | $          | 131.2 |   | $ | (120.4 | ) | $ | 147.8 |   | $ | (126.7 | ) | $ | (3.2 | ) | $ | (86.9 | ) | $ | (3.0 | ) |
|                                                                                          |            |                                              |            |                                                       |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

F-33

----

 

Components of the net periodic benefit costs for the years endedDecember 31, 2005, 2004 and 2003 are as follows (dollars in millions):

 
| ** **                             | ** ** | **Defined Benefit Pension Plans** | ** ** |
|----------------------------------------|------------|--------------------------------------------------|------------|
| ** **                             | ** ** | **U.S. plans**                              | ** ** | **Non U.S. plans** | ** ** |
| ** **                             | ** ** | **2005**                                         | ** ** | **2004** | ** ** | **2003** | ** ** | **2005** | ** ** | **2004** | ** ** | **2003** | ** ** |
|                                   |       |                                             |       |   |   |   |   |   |   |   |   |   |   |
| Service  cost                          |       | $                                                | 30.6       |   | $ | 19.0 |   | $ | 10.7 |   | $ | 48.3 |   | $ | 45.1 |   | $ | 38.8 |   |
| Interest  cost                         |       | 36.0                                             |       | 30.7 |   | 19.5 |   | 90.3 |   | 86.9 |   | 67.0 |   |
| Expected  return on assets             |       | (31.1                                            | )          | (22.1 | ) | (13.6 | ) | (105.8 | ) | (96.4 | ) | (70.4 | ) |
| Amortization  of transition obligation |       | 1.1                                              |       | 1.1 |   | 0.7 |   | 0.7 |   | 0.7 |   | 0.6 |   |
| Amortization  of prior service cost    |       | (4.0                                             | )          | 1.0 |   | 0.6 |   | (1.2 | ) | 0.5 |   | 0.6 |   |
| Amortization  of actuarial loss        |       | 7.4                                              |       | 4.8 |   | 0.7 |   | 24.0 |   | 20.2 |   | 22.6 |   |
| Curtailment  gain                      |       | —                                           |       | — |   | — |   | (1.2 | ) | — |   | — |   |
| Settlement  loss                       |       | —                                           |       | — |   | — |   | 1.3 |   | — |   | — |   |
| Special  termination benefits          |       | —                                           |       | — |   | — |   | 11.4 |   | 4.7 |   | 10.5 |   |
| Net  periodic benefit cost             |       | $                                                | 40.0       |   | $ | 34.5 |   | $ | 18.6 |   | $ | 67.8 |   | $ | 61.7 |   | $ | 69.7 |   |

 
| ** **                             | ** ** | **Other Postretirement Benefit Plans** | ** ** |
|----------------------------------------|------------|-------------------------------------------------------|------------|
| ** **                             | ** ** | **U.S. plans**                                   | ** ** | **Non U.S. plans** | ** ** |
| ** **                             | ** ** | **2005**                                              | ** ** | **2004** | ** ** | **2003** | ** ** | **2005** | ** ** | **2004** | ** ** | **2003** | ** ** |
|                                   |       |                                                  |       |   |   |   |   |   |   |   |   |   |   |
| Service  cost                          |       | $                                                     | 4.1        |   | $ | 3.3 |   | $ | 2.5 |   | $ | — |   | $ | — |   | $ | — |   |
| Interest  cost                         |       | 9.3                                                   |       | 7.5 |   | 5.9 |   | 0.2 |   | 0.3 |   | 0.2 |   |
| Expected  return on assets             |       | —                                                |       | — |   | — |   | — |   | — |   | — |   |
| Amortization  of transition obligation |       | —                                                |       | — |   | — |   | — |   | — |   | — |   |
| Amortization  of prior service cost    |       | (2.4                                                  | )          | (1.9 | ) | (0.3 | ) | — |   | — |   | — |   |
| Amortization  of actuarial loss        |       | 3.3                                                   |       | 3.5 |   | 1.9 |   | 0.1 |   | 0.1 |   | 0.1 |   |
| Net  periodic benefit cost             |       | $                                                     | 14.3       |   | $ | 12.4 |   | $ | 10.0 |   | $ | 0.3 |   | $ | 0.4 |   | $ | 0.3 |   |

 

The following assumptions were used to determine the projected benefitobligation at the measurement date and the net periodic pension cost for theyear:

 
| ** **                      | ** ** | **Defined Benefit Pension Plans** | ** ** |
|---------------------------------|------------|--------------------------------------------------|------------|
| ** **                      | ** ** | **U.S. plans**                              | ** ** | **Non U.S. plans** | ** ** |
| ** **                      | ** ** | **2005**                                         | ** ** | **2004** | ** ** | **2003** | ** ** | **2005** | ** ** | **2004** | ** ** | **2003** | ** ** |
| Projected  benefit obligation:  |       |                                             |       |   |   |   |   |   |   |   |   |   |   |
| Discount  rate                  |       | 5.75                                             | %          | 5.75 | % | 6.00 | % | 4.61 | % | 4.85 | % | 5.30 | % |
| Rate  of compensation increase  |       | 3.90                                             | %          | 4.00 | % | 4.00 | % | 3.33 | % | 3.65 | % | 3.51 | % |
|                            |       |                                             |       |   |   |   |   |   |   |   |   |   |   |
| Net  periodic pension cost:     |       |                                             |       |   |   |   |   |   |   |   |   |   |   |
| Discount  rate                  |       | 5.75                                             | %          | 6.00 | % | 6.75 | % | 4.85 | % | 5.30 | % | 5.49 | % |
| Rate  of compensation increase  |       | 4.00                                             | %          | 4.00 | % | 4.00 | % | 3.65 | % | 3.51 | % | 3.76 | % |
| Expected  return on plan assets |       | 8.25                                             | %          | 8.25 | % | 8.25 | % | 7.06 | % | 7.11 | % | 7.29 | % |

 
| ** **                     | ** ** | **Other Postretirement Benefit Plans** | ** ** |
|--------------------------------|------------|-------------------------------------------------------|------------|
| ** **                     | ** ** | **U.S. plans**                                   | ** ** | **Non U.S. plans** | ** ** |
| ** **                     | ** ** | **2005**                                              | ** ** | **2004** | ** ** | **2003** | ** ** | **2005** | ** ** | **2004** | ** ** | **2003** | ** ** |
| Projected  benefit obligation: |       |                                                  |       |   |   |   |   |   |   |   |   |   |   |
| Discount  rate                 |       | 5.71                                                  | %          | 5.75 | % | 6.00 | % | 5.00 | % | 5.77 | % | 6.25 | % |
| Rate  of compensation increase |       | 3.90                                                  | %          | 4.00 | % | 4.00 | % | 3.33 | % | 3.65 | % | 3.51 | % |
|                           |       |                                                  |       |   |   |   |   |   |   |   |   |   |   |
| Net  periodic pension cost:    |       |                                                  |       |   |   |   |   |   |   |   |   |   |   |
| Discount  rate                 |       | 5.75                                                  | %          | 6.00 | % | 6.75 | % | 5.77 | % | 6.25 | % | 6.25 | % |
| Rate  of compensation increase |       | 4.00                                                  | %          | 4.00 | % | 4.00 | % | 3.65 | % | 3.51 | % | 3.76 | % |

 

F-34

----

 

Theprojected benefit obligation, accumulated benefit obligation, and fair value ofplan assets for the defined benefit pension plans with accumulated benefitobligations in excess of plan assets were as follows (dollarsin millions):

 
| ** **                      | ** ** | **U.S. Plans** | ** ** | **Non U.S. Plans** | ** ** |
|---------------------------------|------------|---------------------|------------|------------------------------|------------|
| ** **                      | ** ** | **2005**            | ** ** | **2004**                     | ** ** | **2005** | ** ** | **2004** | ** ** |
| Projected  benefit obligation   |       | $                   | 625.4      |                         | $          | 489.9 |   | $ | 1,430.5 |   | $ | 1,415.9 |   |
| Accumulated  benefit obligation |       | 604.9               |       | 468.3                        |       | 1,220.8 |   | 1,113.4 |   |
| Fair  value of plan assets      |       | 417.0               |       | 297.9                        |       | 1,089.6 |   | 998.7 |   |
|                                 |            |                     |            |                              |            |  |  |  |  |  |  |  |  |

 

Expectedfuture contributions and benefit payments are as follows for the U.S. and nonU.S. plans (dollars in millions):

 
| ** **                                | ** ** | ** **                                       | ** ** | **Other Postretirement** | ** ** |
|-------------------------------------------|------------|--------------------------------------------------|------------|-------------------------------|------------|
| ** **                                | ** ** | **Defined Benefit Pension Plans** | ** ** | **Benefit Plans**        | ** ** |
| **2006 expected employer contributions:** |       |                                             |       |                          |       |
| To  plan trusts                           |       | $                                                | 100.4      |                          | $          | 13.1 |   |
| To  plan participants                     |       | 6.3                                              |       | 0.4                           |       |
|                                      |       |                                             |       |                          |       |
| **Expected benefit payments:**            |       |                                             |       |                          |       |
| 2006                                      |       | $                                                | 98.2       |                          | $          | 13.1 |   |
| 2007                                      |       | 94.9                                             |       | 13.4                          |       |
| 2008                                      |       | 99.4                                             |       | 13.4                          |       |
| 2009                                      |       | 103.7                                            |       | 13.6                          |       |
| 2010                                      |       | 107.9                                            |       | 13.7                          |       |
| 2011-2015                                 |       | 606.9                                            |       | 71.4                          |       |
|                                           |            |                                                  |            |                               |            |  |  |  |  |

 

In2005, the health care trend rate used to measure the expected increase in thecost of benefits was assumed to be 9% decreasing to 5% after 2009.  Assumed health care cost trend rates have asignificant effect on the amounts reported for the postretirement benefitplans. A 1% change in assumed health care cost trend rates would have thefollowing effects (dollars in millions):

 
| ** **                                    | ** ** | **Point**    | ** ** | **Point**    | ** ** |
|-----------------------------------------------|------------|--------------|------------|--------------|------------|
| **Asset category**                       | ** ** | **Increase** | ** ** | **Decrease** | ** ** |
|                                          |       |         |       |         |       |
| Effect  on total of service and interest cost |       | $            | 0.5        |         | $          | (0.4 | ) |
| Effect  on postretirement benefit obligation  |       |         | 4.7        |         |       | (4.5 | ) |

 

Theasset allocation for our pension plans at the end of 2005 and 2004 and thetarget allocation for 2006, by asset category, follows. The fair value of planassets for these plans was $2,043.4 million at the end of 2005. Based uponhistorical returns, the expectations of our investment committee and outsideadvisors, the expected long-term rate of return on these assets is estimated tobe between 7.06% to 8.25%.

 

F-35

----

 
| ** **                    | ** ** | ** **                 | ** ** | **Allocation at**          | ** ** | **Allocation at**          | ** ** |
|-------------------------------|------------|----------------------------|------------|---------------------------------|------------|---------------------------------|------------|
| **Asset category**       | ** ** | **Target Allocation** | ** ** | **December 31, 2005** | ** ** | **December 31, 2004** | ** ** |
|                          |       |                       |       |                            |       |                            |       |
| Large  Cap Equities           |       | 30%                        |       | 31                              | %          | 29                              | %          |
| Small/Mid  Cap Equities       |       | 15%-20%                    |       | 19                              | %          | 22                              | %          |
| International  Equities       |       | 10%-15%                    |       | 16                              | %          | 16                              | %          |
| Fixed  Income                 |       | 15%-20%                    |       | 17                              | %          | 18                              | %          |
| Real  Estate/Other            |       | 10%-15%                    |       | 14                              | %          | 14                              | %          |
| Cash                          |       | 0%                         |       | 3                               | %          | 1                               | %          |
| Total  U.S. pension plans     |       |                       |       | 100                             | %          | 100                             | %          |
|                          |       |                       |       |                            |       |                            |       |
| Equities                      |       | 59%                        |       | 60                              | %          | 61                              | %          |
| Fixed  Income                 |       | 37%                        |       | 35                              | %          | 34                              | %          |
| Real  estate                  |       | 3%                         |       | 4                               | %          | 3                               | %          |
| Cash                          |       | 1%                         |       | 1                               | %          | 2                               | %          |
| Total  non-U.S. pension plans |       |                       |       | 100                             | %          | 100                             | %          |

 

Equitysecurities in our pension plans did not include any equity securities of ourCompany or our affiliates at the end of 2005.

 

Ourpension plan assets are managed by outside investment managers; assets arerebalanced based upon market opportunities and the consideration of transactionscosts. Our strategy with respect to pension assets is to pursue an investmentplan that, over the long term is expected to protect the funded status of theplan, enhance the real purchasing power of plan assets, and not threaten theplan’s ability to meet currently committed obligations.

 

***Defined Contribution Plans***

 

Wehave a money purchase pension plan covering substantially all of our domesticemployees who have completed at least two years of service. Employercontributions are made based on a percentage of employees’ earnings (ranging upto 8%).

 

Wealso have a salary deferral plan covering substantially all domestic employees.Plan participants may elect to make voluntary contributions to this plan up toa specified amount of their compensation. We contribute an amount equal toone-half of the participant’s contribution, not to exceed 2% of theparticipant’s compensation.

 

Coincidentwith the introduction of the cash balance formula within our defined benefitpension plan, the money purchase pension plan was closed to new hires.  At the same time, the company match in thesalary deferral plan was increased, for new hires, to a 100% match, not toexceed 4% of the participant’s compensation, once the participant has achievedsix years of service with the Company.

 

Ourtotal combined expense for the above defined contribution plans for the yearsended December 31, 2005, 2004, and 2003 was approximately $15.9 million,$20.7 million, $17.3 million, respectively.

 

***Supplemental Salary Deferral Plan and SupplementalExecutive Retirement Plan***

 

TheHuntsman Supplemental Savings Plan (“SSP”) is a non-qualified plan covering keymanagement employees and allows participants to defer amounts that wouldotherwise be paid as compensation. The participant can defer up to 75% of theirsalary and bonus each year. This plan also provides benefits that would beprovided under the Huntsman Salary Deferral Plan if that plan were not subjectto legal limits on the amount of contributions that can be allocated to anindividual in a single year.  The SSP wasamended and restated as of January 1, 2005 to allow eligible executiveemployees to comply with Section 409A of the Internal Revenue Code of 1986 (“Section409A”).

 

TheHuntsman Supplemental Executive Retirement Plan (the “SERP”) is an unfundednonqualified pension plan established to provide certain executive employeeswith benefits that could not be provided, due to legal limitations, under theHuntsman Defined Benefit Pension Plan, a qualified defined benefit pension plan,and the Huntsman Money Purchase Pension Plan, a qualified money purchasepension plan. On December 23, 2005, the SERP was amended and restated for fourpurposes: (1) to transfer certain liabilities related to benefits for eligibleexecutive employees to the newly-established Huntsman Supplemental ExecutiveMPP Plan (the “SEMPP”), (2) to reflect a change in the benefit formula in theHuntsman Defined Benefit Pension Plan, (3) to provide for the merger of thePolyurethanes Executive Pension Plan and the Polyurethanes Excess Benefit Plan(each an unfunded nonqualified pension plan) into the SERP, and (4) to alloweligible executive employees to comply with Section 409A. The effective date ofthe amendment and restatement of the SERP with respect to items (1)-(3) is July1, 2004 because each of these items relates to the amendment of the HuntsmanDefined Benefit Pension Plan which was effective on such date. The effectivedate of the amendment and restatement of the SERP with respect to item (4) isJanuary 1, 2005 in accordance with Section 409A.

 

Assetsof these plans are included in other assets and were $5.3 million and $4.3million at December 31, 2005 and 2004, respectively. During the year endedDecember 31, 2005, 2004 and 2003, we expensed $0.5 million, $0.5 million and$1.1 million for the SSP and SERP, respectively.

 

***International Plans***

 

Internationalemployees are covered by various post employment arrangements consistent withlocal practices and regulations. Such obligations are included in the consolidatedfinancial statements in other long-term liabilities.

 

F-36

----

 

**18.****          Income Taxes**

 

The following is a summary of U.S. and non-U.S. provisions for currentand deferred income taxes (dollars in millions):

 
| ** **                     | ** ** | **Year ended December 31,** | ** ** |
|--------------------------------|------------|--------------------------------------------|------------|
| ** **                     | ** ** | **2005**                                   | ** ** | **2004** | ** ** | **2003** | ** ** |
| Income  tax expense (benefit): |       |                                       |       |   |   |   |   |
| U.S.                           |       |                                       |       |   |   |   |   |
| Current                        |       | $                                          | 1.5        |   | $ | 11.1 |   | $ | 8.1 |   |
| Deferred                       |       | —                                     |       | (2.4 | ) | 0.1 |   |
| Non-U.S.                       |       |                                       |       |   |   |   |   |
| Current                        |       | 25.1                                       |       | 24.3 |   | 23.6 |   |
| Deferred                       |       | 16.2                                       |       | (55.9 | ) | 9.2 |   |
| Total                          |       | $                                          | 42.8       |   | $ | (22.9 | ) | $ | 41.0 |   |

 

The followingschedule reconciles the differences between the U.S. federal income taxes atthe U.S. statutory rate to our provision (benefit) for income taxes (dollars inmillions):

 
| ** **                                                | ** ** | **Year ended December 31,** | ** ** |
|-----------------------------------------------------------|------------|--------------------------------------------|------------|
| ** **                                                | ** ** | **2005**                                   | ** ** | **2004** | ** ** | **2003** | ** ** |
| ** **                                                | ** ** | ** **                                 | ** ** | ** ** | ** ** | ** ** | ** ** |
| Income  (loss) before income tax and minority interests   |       | $                                          | 236.6      |   | $ | (195.6 | ) | $ | (275.2 | ) |
|                                                      |       |                                       |       |   |   |   |   |
| Expected  expense (benefit) at U.S. statutory rate of 35% |       | $                                          | 82.8       |   | $ | (68.4 | ) | $ | (96.3 | ) |
| Change  resulting from:                                   |       |                                       |       |   |   |   |   |
| State  taxes (benefit) net of federal benefit             |       | 2.9                                        |       | 4.0 |   | (4.1 | ) |
| Effects  of non-U.S. operations and tax rate differential |       | 7.8                                        |       | (38.7 | ) | 7.4 |   |
| Effect  of AdMat Consolidation Transaction                |       | 88.4                                       |       | — |   | — |   |
| Incremental  U.S. tax on non-U.S. income                  |       | 18.2                                       |       | 28.4 |   | 1.6 |   |
| Domestic  (income) loss allocable to minority interests   |       | (9.5                                       | )          | 11.5 |   | 14.3 |   |
| Change  in valuation allowance                            |       | (150.7                                     | )          | 48.7 |   | 112.5 |   |
| Other  - net                                              |       | 2.9                                        |       | (8.4 | ) | 5.6 |   |
| Total  income tax expense (benefit)                       |       | $                                          | 42.8       |   | $ | (22.9 | ) | $ | 41.0 |   |

 

F-37

----

 

Thecomponents of (losses) earnings from continuing operations before taxes were asfollows (dollars in millions):

 
| ** **                          | ** ** | **Year ended December 31,** | ** ** |
|-------------------------------------|------------|--------------------------------------------|------------|
| ** **                          | ** ** | **2005**                                   | ** ** | **2004** | ** ** | **2003** | ** ** |
|                                |       |                                       |       |   |   |   |   |
| Income  (loss) before income taxes: |       |                                       |       |   |   |   |   |
| U.S.                                |       | $                                          | 63.1       |   | $ | (109.4 | ) | $ | (153.4 | ) |
| Non-U.S.                            |       | 173.5                                      |       | (86.2 | ) | (121.8 | ) |
| Total                               |       | $                                          | 236.6      |   | $ | (195.6 | ) | $ | (275.2 | ) |

 

Subsequent to the AdMat Transaction in June 2003, substantially allnon-U.S. operations of AdMat were treated as branches of our Company for U.S.income tax purposes and were, therefore, subject to both U.S. and non-U.S.income tax.  The pre-tax income in thetable above and the preceding U.S. and non-U.S. allocation of the income taxprovision by taxing jurisdiction may, therefore, not be directly related.

 

Components of deferred income tax assets and liabilities were as follows(dollars in millions):

 
| ** **                                         | ** ** | **December 31,** | ** ** | **December 31,** | ** ** |
|----------------------------------------------------|------------|-----------------------|------------|-----------------------|------------|
| ** **                                         | ** ** | **2005**              | ** ** | **2004**              | ** ** |
| Deferred  income tax assets:                       |       |                  |       |                  |       |
| Net  operating loss and AMT credit carryforwards   |       | $                     | 942.5      |                  | $          | 1,214.6 |   |
| Pension  and other employee compensation           |       | 166.9                 |       | 134.8                 |       |
| Plant,  property and equipment                     |       | 44.8                  |       | 69.5                  |       |
| Intangible  assets                                 |       | 107.0                 |       | 112.8                 |       |
| Inventory  costing                                 |       | 4.8                   |       | —                |       |
| Other,  net                                        |       | 65.3                  |       | 113.2                 |       |
| Total                                              |       | 1,331.3               |       | 1,644.9               |       |
|                                               |       |                  |       |                  |       |
| Deferred  income tax liabilities:                  |       |                  |       |                  |       |
| Plant,  property and equipment                     |       | (851.1                | )          | (682.4                | )          |
| Pension  and other employee compensation           |       | (39.2                 | )          | (54.0                 | )          |
| Inventory  costing                                 |       | —                |       | (11.0                 | )          |
| Basis  difference in investment in HIH             |       | —                |       | (85.1                 | )          |
| Other,  net                                        |       | (39.6                 | )          | (15.3                 | )          |
| Total                                              |       | (929.9                | )          | (847.8                | )          |
|                                               |       |                  |       |                  |       |
| Net  deferred tax asset before valuation allowance |       | 401.4                 |       | 797.1                 |       |
| Valuation  allowance                               |       | (495.3                | )          | (937.2                | )          |
| Net  deferred tax liability                        |       | $                     | (93.9      | )                     | $          | (140.1 | ) |
|                                               |       |                  |       |                  |       |
| Current  tax asset                                 |       | $                     | 31.2       |                  | $          | 11.9 |   |
| Current  tax liability                             |       | (2.4                  | )          | (14.5                 | )          |
| Non-current  tax asset                             |       | 94.2                  |       | 42.7                  |       |
| Non-current  tax liability                         |       | (216.9                | )          | (180.2                | )          |
| Total                                              |       | $                     | (93.9      | )                     | $          | (140.1 | ) |
|                                                    |            |                       |            |                       |            |  |  |  |  |  |

 

As of December 31, 2005, we have U.S. Federal netoperating loss carryforwards (“NOLs”) of $1,026.3 million. The U.S. NOLs beginto expire in 2018 and fully expire in 2025. We also have NOLs of $1,762.4million in various non-U.S. jurisdictions. While the majority of the non-U.S. NOLs have no expiration date, $467.6million have a limited life and $2.9 million may expire in 2006.

 

F-38

----

 

Included in the$1,762.4 million of non-U.S. NOLs is $930.6 million attributable to AdMat’sLuxembourg entities.  As of December 31,2005, there is a valuation allowance of $265.4 million against these nettax-effected NOLs of $279.2 million. Due to the uncertainty surrounding therealization of the benefits of these losses that may result from futuredissolution or restructuring of the Luxembourg entities, we continue to reducethe related deferred tax asset with a valuation allowance.

 

We are subject tothe “ownership change” rules of Section 382 of the Internal Revenue Code.  Under these rules, our use of the NOLs couldbe limited in tax periods following the date of the ownership change.  Based upon the existence of significant tax“built-in income” items, the effect of the ownership change rules on theability to utilize the NOLs is not anticipated to be material.

 

We have avaluation allowance against our entire U.S. and a material portion of ournon-U.S. net deferred tax assets.  Wehave specific valuation allowances of $2.7 million that, when reversed, willreduce goodwill and other non-current intangibles.  During the year ended December 31, 2005, wereversed valuation allowances of $0.8 million, which were used to reducenon-current intangibles.  Additionally, included in the deferred tax assets at December 31,2005 is approximately $7.7 million of cumulative tax benefit related to equitytransactions which will be credited to members’ equity when realized, after allother valuation allowances have been reversed.

 

The decrease in valuation allowances between December 31, 2004 and 2005which is not accounted for in the rate reconciliation is attributable to thefollowing:  Foreign currency movements($81.0 million); adjustments to deferred tax assets (with a full valuationallowance) for tax contingencies ($98.0 million); adjustments to deferred taxassets with a full valuation allowance for changes in tax filing positions($27.0 million); other adjustments to deferred tax assets with a full valuationallowance ($60.4 million); and movement of net deferred assets unrelated toincome or loss from continuing operations and other items ($24.8 million).

 

During the yearended December 31, 2005, included in the $7.8 million “Effects of non-U.S.operations and tax rate differential” above is approximately $8.0 million ofnon-recurring items including cancellation of debt income that was offset byNOLs (with a full valuation allowance), amounts associated with enacted changesin tax rates, the expiration of tax statute of limitations as well as theestablishment of contingency reserves.

 

The “Effect of the AdMat Transaction” above is approximately $88.4million of tax expense fully offset by changes in valuation allowances. Thecomponents of the $88.4 million are as follows: $30.7 million associated withloss recapture income related to non-U.S. losses that had previously beendeducted for U.S. taxation purposes; $6.2 million associated with current yearnon-U.S. losses not deducted for U.S. tax purposes; and $51.5 millionassociated with the write-down of net deferred tax assets, with a fullvaluation allowance, related to the U.S. taxation of AdMat non-U.S. entities. EffectiveJanuary 1, 2006, certain of AdMat’s non-U.S. operations previously treated asbranches will no-longer be treated as branches and will only be subject to U.S.taxation on future earnings to the extent those earnings are repatriated.  This eliminates current double taxation ofnon-U.S. earnings that was inherent in the AdMat tax structure.

 

On August 16, 2005, HIHand Huntsman LLC were merged with and into our Company, and we continued inexistence as the surviving entity.  Priorto the merger, HIH, including our Company, was treated as a partnership forU.S. federal income tax purposes and as such was generally not subject to U.S.income tax, but rather such income was taxed directly to its owners.  A net deferred tax liability was recognizedfor the excess of the difference in the book and tax investment in thepartnership over the difference in the book and tax basis of the net assets ofthe partnership.  After the merger, weare treated as a corporate subsidiary and subject to U.S. income tax.  The basis difference in the investment in theHIH partnership has been reversed, offset by a corresponding change invaluation allowance.

 

For non-U.S. entities that are not treated as branches for U.S. taxpurposes, we do not provide for income taxes on the undistributed earnings ofthese subsidiaries as earnings are reinvested and, in the opinion ofmanagement, will continue to be reinvested indefinitely.  The undistributed earnings of non-U.S.subsidiaries that are deemed to bepermanently invested were $56.5 million at December 31, 2005. It is not practicableto determine the unrecognized deferred tax liability on those earnings.

 

As a matter of course,our subsidiaries are regularly audited by various taxing authorities in boththe U.S. and numerous non-U.S. jurisdictions. We believe adequate provision has been made for all outstanding issuesfor all open years.  Significantjudgments and estimates are required in determining the global provision forincome taxes, including judgments and estimates regarding the realization ofdeferred tax assets and the ultimate outcome of tax-related contingencies.  During the ordinary course of business, thereare many transactions and calculations for which the ultimate tax determinationis uncertain.  We either recognize aliability, including related interest, or reduce a tax asset, for theanticipated outcome of tax audits.  Weadjust these amounts in light of changing facts and circumstances, such as theclosing of a tax audit or the expiration of a statute of limitations in theperiod in which the change occurs.  Ifour tax positions are ultimately upheld under

 

F-39

----

 

audits by respectivetaxing authorities, it is possible that the provision for income taxes infuture years may reflect significant favorable adjustments.  During 2005, the IRS audit for the yearsended 1998 through 2001 was completed, with the exception of two issues as to whichwe are pursuing an administrative appeal before the IRS.  The potential net adjustment to our netoperating losses is approximately $200 million. Due to the uncertainty of realization caused by the tax audit, the grossdeferred assets have been reduced, offset by a corresponding change invaluation allowance.

 

**19.****          Commitments and Contingencies**

 

***Purchase Commitments***

 

We have various purchase commitments extending through 2023 formaterials and supplies entered into in the ordinary course of business. Thepurchase commitments are contracts that require minimum volume purchases.Certain contracts allow for changes in minimum required purchase volumes in theevent of a temporary or permanent shutdown of a facility. The contractualpurchase price for substantially all of these contracts require minimumpayments, even if no volume is purchased. Historically, we have not made anyminimum payments under such take or pay contracts without taking product.

 

Total purchase commitments as of December 31, 2005 are as follows(dollars in millions):

 

| **Year ending December 31:** | ** ** | ** ** | ** ** |
|---------------------------------------------|------------|------------|------------|
| 2006                                        |       | $          | 2,325.6    |   |
| 2007                                        |       | 1,520.1    |       |
| 2008                                        |       | 375.1      |       |
| 2009                                        |       | 125.4      |       |
| 2010                                        |       | 88.7       |       |
| Thereafter                                  |       | 184.1      |       |
|                                        |       | $          | 4,619.0    |   |
|                                             |            |            |            |  |  |

 

***Legal Matters***

 

**Discoloration Claims**

 

Certain claims have beenfiled against us relating to discoloration of unplasticized polyvinyl chlorideproducts allegedly caused by our titanium dioxide (“Discoloration Claims”).Substantially all of the titanium dioxide that is the subject of these claimswas manufactured prior to our acquisition of our titanium dioxide business fromICI in 1999. Net of amounts we have received from insurers and pursuant tocontracts of indemnity, we have paid approximately $16 million in costsand settlement amounts for Discoloration Claims as of December 31, 2005.

 

The following tablepresents information about the number of Discoloration Claims for the periodsindicated. Claims include all claims for which service has been received by us,and each such claim represents a plaintiff who is pursuing a claim against us.

 
| ** **                          | ** ** | **Year ended  December 31, 2005** | ** ** | **Year ended  December 31, 2004** | ** ** | **Year ended  December 31, 2003** | ** ** |
|-------------------------------------|------------|--------------------------------------------------|------------|--------------------------------------------------|------------|--------------------------------------------------|------------|
| Claims  filed during period         |       | 0                                                |       | 1                                                |       | 1                                                |       |
| Claims  resolved during period      |       | 1                                                |       | 2                                                |       | 2                                                |       |
| Claims  unresolved at end of period |       | 2                                                |       | 3                                                |       | 4                                                |       |

 

Duringthe year ended December 31, 2004, we settled claims for approximately$45 million, approximately $30 million of which was paid by ourinsurers or ICI and approximately $15 million of which was paid by us.During 2004, we recorded charges of $15.1 million relating toDiscoloration Claims. During the year ended December 31, 2005, wesettled a claim for approximately $1 million, all of which was paid by ICI. Thetwo Discoloration Claims unresolved as of December 31, 2005 asserted aggregatedamages of approximately $63 million. An appropriate liability has beenaccrued for these claims. Based on our understanding of the merits of theseclaims and our rights under contracts of indemnity and insurance, we do notbelieve that the net impact on our financial condition, results of operationsor liquidity will be material.

 

While additionalDiscoloration Claims may be made in the future, we cannot reasonably estimatethe amount of loss related to such claims. Although we may incur additionalcosts as a result of future claims (including settlement costs), based

 

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on our history withDiscoloration Claims to date, the fact that substantially all of the titaniumdioxide that has been the subject of these Discoloration Claims wasmanufactured and sold more than six years ago, and the fact that we have rightsunder contract to indemnity, including from ICI, we do not believe that anyunasserted Discoloration Claims will have a material impact on our financialcondition, results of operations, or liquidity. Based on this conclusion andour inability to reasonably estimate our expected costs with respect to these unassertedclaims, we have made no accruals in our financial statements as of December 31,2005 for costs associated with unasserted Discoloration Claims.

 

**CibaSettlement**

 

Vantico concluded thatcertain of the products of its former Electronics division may have infringedpatents owned by Taiyo and it entered into a license agreement inOctober 2001 with Taiyo to obtain the right to use the Taiyo patents. Thislicense agreement required payment of approximately $4 million in backroyalties and agreement to pay periodic royalties for future use. We believethat Ciba Specialty Chemicals Holdings Inc. (“Ciba”) is liable under theindemnity provisions of certain agreements in connection with the leveragedbuy-out transaction in 2000 involving Ciba and Vantico for certain paymentsmade under the license agreement and related costs and expenses, and weinitiated an arbitration proceeding against Ciba. In July 2004, we enteredinto a settlement agreement with Ciba with respect to this matter. In general,the settlement agreement provided that Ciba would pay us $11.1 million in2004. We received additional consideration in the form of modifications tocertain operating agreements between us and Ciba. In August 2004, wereceived payment of the $11.1 million settlement.

 

**EnvironmentalLitigation**

 

We have been a party tovarious lawsuits brought by persons alleging personal injuries and/or propertydamage based upon alleged exposure to toxic air emissions. For example, sinceJune 2003, a number of lawsuits have been filed in state district court inJefferson County, Texas against several local chemical plants and refineries,including our subsidiary, Huntsman Petrochemical Corporation. Generally, theselawsuits have alleged that the refineries and chemical plants located in thevicinity of the plaintiffs’ homes discharged chemicals into the air thatinterfere with use and enjoyment of property and cause health problems and/orproperty damages. None of these lawsuits have included the amount of damagesbeing sought. The following table presents information about the number ofclaims asserting damages based upon alleged exposure to toxic air emissions forthe periods indicated. Claims include all claims for which service has beenreceived by us, and each such claim represents a plaintiff who is pursuing aclaim against us.

 

 
| ** **                          | ** ** | **Year ended  December 31, 2005** | ** ** | **Year ended  December 31, 2004** | ** ** | **Year ended  December 31, 2003** | ** ** |
|-------------------------------------|------------|--------------------------------------------------|------------|--------------------------------------------------|------------|--------------------------------------------------|------------|
| Claims  filed during period         |       | 2,104                                            |       | 214                                              |       | 721                                              |       |
| Claims  resolved during period      |       | 2,988                                            |       | 51                                               |       | 0                                                |       |
| Claims  unresolved at end of period |       | 0                                                |       | 884                                              |       | 721                                              |       |

 

All claims filed as of December 31, 2005 have beenresolved through dismissal and/or settlement.

 

In addition, we have been named as a “premisesdefendant” in a number of asbestos exposure cases, typically a claim by anon-employee of exposure to asbestos while at a facility. In the past, thesecases typically have involved multiple plaintiffs bringing actions againstmultiple defendants, and the complaint has not indicated which plaintiffs weremaking claims against which defendants, where or how the alleged injuriesoccurred, or what injuries each plaintiff claimed. These facts, which would becentral to any estimate of probable loss, generally have been learned onlythrough discovery. Recent changes in Texas tort procedures have required manypending cases to be split into multiple cases, one for each claimant,increasing the number of pending cases reported below for the year ended December31, 2005. Nevertheless, the complaints in these cases provide little additionalinformation. We do not believe that the increased number of cases reflects anincrease in the number of underlying claims.

 

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

 

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The following table presents for the periods indicatedcertain information about cases for which service has been received that wehave tendered to the prior owner or operator, all of which have been accepted.

 
| ** **                  | ** ** | **Year ended  December 31, 2005** | ** ** | **Year ended  December 31, 2004** | ** ** | **Year ended  December 31, 2003** | ** ** |
|-----------------------------|------------|-----------------------------------|------------|-----------------------------------|------------|-----------------------------------|------------|
| Tendered during period      |       | 284                               |       | 94                                |       |                              |       |
| Resolved during period      |       | 106                               |       | 65                                |       |                              |       |
| Unresolved at end of period |       | 576                               |       | 398                               |       | 369                               |       |

 

We have never made any payments with respect to thesecases. As of December 31, 2005, we had an accrued liability of$12.5 million relating to these cases and a corresponding receivable of$12.5 million relating to our indemnity protection with respect to thesecases. We cannot assure you that our liability will not exceed our accruals orthat our liability associated with these cases would not be material to ourfinancial condition, results of operations or liquidity.

 

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

 
| ** **                  | ** ** | **Year ended  December 31, 2005** | ** ** | **Year ended  December 31, 2004** | ** ** | **Year ended  December 31, 2003** | ** ** |
|-----------------------------|------------|-----------------------------------|------------|-----------------------------------|------------|-----------------------------------|------------|
| Filed during period         |       | 55                                |       | 23                                |       |                              |       |
| Resolved during period      |       | 56                                |       | 42                                |       |                              |       |
| Unresolved at end of period |       | 34                                |       | 29                                |       | 48                                |       |

 

We paid gross settlement costs for asbestos exposurecases that are not subject to indemnification of $0.1 million,$1.0 million and $0.2 million in 2005, 2004 and 2003, respectively.  The cases for the year ended December 31,2005 include cases filed against Rubicon LLC, which became our consolidatedsubsidiary on January 1, 2005, as follows: one case filed during the period, one case resolved during the periodand six cases unresolved at the end of the period.

 

As of December 31, 2005, we had an accrual of $0.9 millionrelating to these cases. We cannot assure you that our liability will notexceed our accruals or that our liability associated with these cases would notbe material to our financial condition, results of operations or liquidity.

 

**Antitrust Matters**

 

We have been named as a defendant in putative classaction antitrust suits alleging a conspiracy to fix prices in the MDI, TDI, andpolyether polyols industries that are now consolidated as the “PolyetherPolyols Cases” in multidistrict litigation known as In re Urethane AntitrustLitigation, MDL No. 1616, Civil No. 2:04-md-01616-JWL-DJW, United StatesDistrict Court, District of Kansas, initial order transferring andconsolidating cases filed August 23, 2004. Other defendants named in thePolyether Polyols Cases are Bayer, BASF, Dow, and Lyondell. Bayer has announcedthat it has entered into a settlement agreement with the plaintiffs.

 

These consolidated cases are in the early stages ofclass certification discovery. The pleadings of the plaintiffs do not providespecifics about any alleged illegal conduct of the defendants and we are notaware of any evidence of illegal conduct by us or any of our employees. Forthese reasons, we cannot estimate the possible loss or range of loss relatingto these claims, and therefore we have not accrued a liability for theseclaims. Nevertheless, we could incur losses due to these claims in the futureand those losses could be material.

 

In addition, on February 16, 2006, the AntitrustDivision of the U.S. Department of Justice served us with a grand jury subpoenarequesting the production of documents relating to sales and pricing of TDI,MDI, polyether polyols and related systems. Bayer and Lyondell have announcedthat they have also been served with subpoenas in this matter. We intend tocooperate fully in this matter.

 

**Tax Dispute**

 

In connection with the audit of our income tax returnsfor the years ended 1998 through 2001, we received a Notice of ProposedAdjustment from the Internal Revenue Service and, in late 2005, we initiated anadministrative appeal before the Internal Revenue Service. The potentialliability and the potential reduction to our net operating losses have beenreserved in our financial statements. For more information on this matter,including the potential net adjustment to our net operating losses, see “Note18. Income Taxes.”

 

**OtherProceedings**

 

We are a party to various other proceedings institutedby private plaintiffs, governmental authorities and others arising underprovisions of applicable laws, including various environmental, productsliability and other laws. Except as

 

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otherwise disclosed in this report, we do not believe that the outcomeof any of these matters will have a material adverse effect on our financialcondition, results of operations or liquidity.

 

***Gain Contingencies***

 

While the 2005 U.S. Gulf Coast storms did not causeserious structural damage to our facilities, they did cause operationaldisruptions for us and certain of our suppliers and customers. Some of our productswere temporarily negatively impacted by restrictions on the availability ofcertain raw materials and our business was adversely impacted by logistics andtransportation disruptions. Certain of our operations were suspended for muchof the fourth quarter of 2005. We are in the process of preparing claims forpossible recovery of damages under our insurance policies for property damage andbusiness interruption. We can provide no assurances that we will recover thesedamages (or the amount of recovery, if any), and as such, we have not recordedany receivables from our insurance carriers at December 31, 2005. However, weanticipate obtaining at least a partial recovery, net of insurance deductibles,by the end of 2006.

 

**20.****          Environmental, Health and Safety Matters**

 

***General***

 

We are subject to extensive federal, state, local andforeign 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 andwaste materials. In the ordinary course of business, we are subject to frequentenvironmental inspections and monitoring and occasional investigations bygovernmental enforcement authorities. In addition, our production facilitiesrequire operating permits that are subject to renewal, modification and, incertain circumstances, revocation. Actual or alleged violations ofenvironmental laws or permit requirements could result in restrictions orprohibitions on plant operations, substantial civil or criminal sanctions, aswell as, under some environmental laws, the assessment of strict liabilityand/or joint and several liability. Moreover, changes in environmentalregulations could inhibit or interrupt our operations, or require us to modifyour facilities or operations. Accordingly, environmental or regulatory mattersmay cause us to incur significant unanticipated losses, costs or liabilities.

 

***Environmental,Health and Safety Systems***

 

We are committed to achieving and maintainingcompliance with all applicable environmental, health and safety (“EHS”) legalrequirements, and we have developed policies and management systems that areintended to identify the multitude of EHS legal requirements applicable to ouroperations, enhance compliance with applicable legal requirements, ensure thesafety of our employees, contractors, community neighbors and customers andminimize the production and emission of wastes and other pollutants. AlthoughEHS legal requirements are constantly changing and are frequently difficult tocomply with, these EHS management systems are designed to assist us in ourcompliance goals while also fostering efficiency and improvement and minimizingoverall risk to us.

 

***EHS CapitalExpenditures***

 

We may incur future costs for capital improvements andgeneral compliance under EHS laws, including costs to acquire, maintain andrepair pollution control equipment. For the years ended December 31, 2005 and2004, our capital expenditures for EHS matters totaled $48.9 million and$55.4 million, respectively. Since capital expenditures for these matters aresubject to evolving regulatory requirements and depend, in part, on the timing,promulgation and enforcement of specific requirements, we cannot provideassurance that our recent expenditures will be indicative of future amountsrequired under EHS laws.

 

***GovernmentalEnforcement Proceedings***

 

On occasion, we receive notices of violation,enforcement and other complaints from regulatory agencies allegingnon-compliance with applicable EHS law. By way of example, we are aware of theindividual matters set out below, which we believe to be the most significantpresently pending matters and unasserted claims. Although we may incur costs orpenalties in connection with the governmental proceedings discussed below,based on currently available information and our past experience, we believethat the ultimate resolution of these matters will not have a material impacton our financial condition, results of operations or cash flows.

 

In May 2003, the State of Texas settled an airenforcement case with us relating to our Port Arthur plant. Under thesettlement, we are required to pay a civil penalty of $7.5 million over morethan four years, undertake environmental monitoring projects totaling about$1.5 million in costs, and pay $0.4 million in attorney’s fees to the TexasAttorney General. As of December 31, 2005, we have paid $3.5 million toward thepenalty and $0.4 million for the attorney’s fees. The monitoring projects areunderway and on schedule. We do not anticipate that this settlement will have amaterial adverse effect on our financial condition, results of operations orcash flows.

 

Beginning in the third quarter of 2004 and extendingthrough December 2005, we have received notifications of approximately eightseparate enforcement actions from the Texas Commission on Environmental Quality(“TCEQ”) for alleged violations related to air emissions at our Port Neches orour Port Arthur plant. These alleged violations primarily relate to specificupset emissions, emissions from cooling towers, or flare operations occurringat particular times and at particular operating units during 2004 and 2005.These notices of violation appear to be part of a larger enforcement initiativeby the TCEQ regional office focused on upset emissions at chemical and refiningindustry plants located within the Beaumont/Port Arthur region. TCEQ has madeindividual proposals to us to resolve four of the notices of alleged violation

 

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for approximately $0.1 million each. TCEQ has also made a proposal toresolve one of the remaining notices, addressing upset emissions at PortNeches, for $0.2 million. TCEQ has not made a penalty proposal for two othernotices, and the final notice is seeking a penalty of less than $5,000. Finalresolution of these matters is subject to negotiation between us and TCEQ. Wedo not believe that the resolution of these matters will result in theimposition of costs material to our financial condition, results of operationsor cash flows.

 

By letter dated September 13, 2005 the Tamil NaduPollution Control Board (the “TNPCB”) issued an Order in follow-up to a ShowCause notice dated June 30, 2005**,**requiring a manufacturing facility of Petro Araldite Private Limited, asubsidiary of AdMat in Chennai, India, to close for one week and to submit anaction plan and timeline to reduce chemical oxygen demand in its wastewatereffluent.  The facility complied with the order and submitted an actionplan to the TNPCB, which has been accepted pending installation of assets toremedy the issue.  A consent orderrenewal was subsequently issued covering the period through March 31,2006.  The proposed changes arebeing installed and we expect these modifications to resolve the current issueswith the TNPCB.  Ultimately, if the assetmodifications do not resolve the effluent issue, or the TNPCB believes the planor its implementation****is inadequate, the TNPCB has the power to take further enforcementaction, including shutting down the facility for a longer period or permanently,initiating criminal sanctions or imposing fines.  Nevertheless, we believe that the investments in progress will fully resolvethis matter. If they do not, however, the ultimate resolution will not have amaterial impact on our financial condition, results of operations or cash flows.

 

***RemediationLiabilities***

 

We have incurred, and we may in the future incur,liability to investigate and clean up waste or contamination at our current orformer facilities or facilities operated by third parties at which we may havedisposed of waste or other materials. Similarly, we may incur costs for thecleanup of wastes that were disposed of prior to the purchase of ourbusinesses. Under some circumstances, the scope of our liability may extend todamages to natural resources. Specifically, under the U.S. ComprehensiveEnvironmental Response, Compensation and Liability Act of 1980, as amended (“CERCLA”),and similar state laws, a current or former owner or operator of real propertymay be liable for remediation costs regardless of whether the release ordisposal of hazardous substances was in compliance with law at the time itoccurred, and a current owner or operator may be liable regardless of whetherit owned or operated the facility at the time of the release. In addition,under the U.S. Resource Conservation and Recovery Act of 1976, as amended (“RCRA”),and similar state laws, we may be required to remediate contaminationoriginating from our properties as a condition to our hazardous waste permit.For example, our Odessa, Port Arthur, and Port Neches facilities in Texas arethe subject of ongoing remediation requirements under RCRA authority. In manycases, our potential liability arising from historical contamination is basedon operations and other events occurring prior to our ownership of the relevantfacility. In these situations, we frequently obtained an indemnity agreementfrom the prior owner addressing remediation liabilities arising frompre-closing conditions. We have successfully exercised our rights under thesecontractual covenants for a number of sites, and where applicable, mitigatedour ultimate remediation liability. We cannot assure you, however, that all ofsuch matters will be subject to indemnity or that our existing indemnities willbe sufficient to cover our liabilities for such matters.

 

Some of our manufacturing sites have an extendedhistory of industrial chemical manufacturing and use, including on-site wastedisposal. We are aware of soil, groundwater and surface water contaminationfrom past operations at some of our sites, and we may find contamination atother sites in the future. Based on available information and theindemnification rights we believe are likely to be available, we believe thatthe costs to investigate and remediate known contamination will not have amaterial adverse effect on our financial condition, results of operations orcash flows. However, if such indemnities are unavailable or do not fully coverthe costs of investigation and remediation or we are required to contribute tosuch costs, and if such costs are material, then such expenditures may have amaterial adverse effect on our financial condition, results of operations orcash flows. At the current time, we are unable to estimate the full cost, exclusiveof indemnification benefits, to remediate any of the known contamination sites.

 

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

 

***EnvironmentalReserves***

 

We have established financial reserves relating toanticipated environmental cleanup obligations, site reclamation and closurecosts and known penalties. Liabilities are recorded when potential liabilitiesare either known or considered probable and can be reasonably estimated. Ourliability estimates are based upon available facts, existing technology andpast experience. On a consolidated basis, we have accrued approximately $25million and $35 million for environmental liabilities as of December 31, 2005and 2004, respectively. Of these amounts, approximately $7 million and $8million are classified as accrued liabilities on our consolidated balancesheets as of December 31, 2005 and 2004, respectively, and approximately

 

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$18 million and $27 million are classified as other noncurrentliabilities on our consolidated balance sheets as of December 31, 2005 and2004, respectively. In certain cases, our remediation liabilities are payableover periods of up to 30 years. We may incur losses for environmentalremediation in excess of the amounts accrued; however, we are not able toestimate the amount or range of such potential excess.

 

***RegulatoryDevelopments***

 

Under the European Union (“EU”) Integrated PollutionPrevention and Control Directive (“IPPC”), EU member governments are to adoptrules and implement a cross media (air, water and waste) environmentalpermitting program for individual facilities. While the EU countries are atvarying stages in their respective implementation of the IPPC permit program,we have submitted all necessary IPPC permit applications required to date, andin some cases received completed permits from the applicable government agency.We expect to submit all other IPPC applications and related documents on atimely basis as the various countries implement the IPPC permit program.Although we do not know with certainty what each IPPC permit will require, webelieve, based upon our experience with the permits received to date, that thecosts of compliance with the IPPC permit program will not be material to our financialcondition, results of operations or cash flows.

 

In October 2003, the European Commission (“EC”)adopted a proposal for a new EU regulatory framework for chemicals. Under thisproposed new system called “REACH” (Registration, Evaluation and Authorizationof Chemicals), companies that manufacture or import more than one ton of achemical substance per year would be required to register such manufacture orimport in a central database.  OnNovember 17, 2005, the European Parliament completed its first reading of theEC-drafted REACH legislation.  Ministersfrom EU’s 25 member states (sitting as the Council) finalized their ownposition on the text on December 13, 2005, paving the way for final agreementbetween Parliament and the Council in late 2006 and for REACH to become law inearly 2007. As proposed, REACH 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 requireauthorizations for their use. This regulation could impose risk controlstrategies that would require expenditures by us. As currently envisioned,REACH would take effect in three primary stages over eleven years following thefinal effective date (assuming final approval). The impacts of REACH on the chemical industry and on us are unclear atthis time because the parameters of the program are still in development.

 

***MTBE Developments***

 

We produce MTBE, an oxygenate that is blended withgasoline to reduce vehicle air emissions and to enhance the octane rating ofgasoline.  The use of MTBE has becomecontroversial in the U.S. and elsewhere and has been curtailed and may beeliminated in the future by legislation or regulatory action.  For example, about 25 states have adoptedrules that prohibit or restrict the use of MTBE in gasoline sold in thosestates.  Those states account for asubstantial portion of the “pre-ban” U.S. MTBE market.  In addition, the Energy Policy Act of 2005 isbeginning to have an adverse impact on our MTBE business in the U.S., since itmandates increased use of renewable fuels and eliminates the oxygenaterequirement for reformulated gasoline established by the 1990 Clean Air ActAmendments.  Although the extent of thepotential impact of the new law is still unclear there have been indicationsthat certain gasoline refiners and distributors may stop using MTBE and thatcertain pipeline companies may stop shipping gasoline containing MTBE.  A significant loss in demand for our MTBE inthe U.S. could result in a material loss in revenues or material costs orexpenditures.  Moreover, additional phase-outsor other future regulation of MTBE may result in a further reduction in demandfor our MTBE in the U.S..

 

A number of lawsuits have been filed, primarilyagainst gasoline manufacturers, marketers and distributors, by persons seekingso recover damages allegedly arising from the presence of MTBE ingroundwater.  While we have not beennamed as a defendant in any litigation concerning the environmental effects ofMTBE, we cannot provide assurances that we will not be involved in any suchlitigation or that such litigation will not have a material adverse effect onour business, financial condition and results of operations.

 

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**21.****          Other Comprehensive (Loss) Income**

 

The components of other comprehensive (loss) income wereas follows (dollars in millions):

 
| ** **                                                                                                                              | ** ** | **December 31,**               | ** ** |
|-----------------------------------------------------------------------------------------------------------------------------------------|------------|--------------------------------|------------|
| ** **                                                                                                                              | ** ** | **2005**                       | ** ** | **2004** | ** ** | **2003** | ** ** |
| ** **                                                                                                                              | ** ** | **Accumulated  income (loss)** | ** ** | **Income (loss)** | ** ** | **Accumulated  income (loss)** | ** ** | **Income (loss)** | ** ** | **Income (loss)** | ** ** |
| Foreign currency  translation adjustments, net of tax of $0.2 million and $5.0 million as of  December 31, 2005 and 2004, respectively. |       | $                              | 51.7       |   | $ | (239.5 | ) | $ | 291.2 |   | $ | 109.9 |   | $ | 218.8 |   |
| Unrealized gain  (loss) on nonqualified plan investments                                                                                |       | 0.8                            |       | (0.1 | ) | 0.9 |   | 0.3 |   | 0.6 |   |
| Unrealized gain  (loss) on derivative instruments                                                                                       |       | 16.0                           |       | 26.5 |   | (10.5 | ) | 5.2 |   | (4.1 | ) |
| Minimum pension  liability, net of tax, $45.4 million and $29.3 million as of December 31, 2005  and 2004, respectively                 |       | (153.3                         | )          | (16.3 | ) | (137.0 | ) | (41.2 | ) | (7.4 | ) |
| Minimum pension  liability unconsolidated affiliate                                                                                     |       | (0.8                           | )          | 8.0 |   | (8.8 | ) | (3.2 | ) | (0.2 | ) |
| Unrealized (loss)  gain on securities                                                                                                   |       | —                         |       | (0.1 | ) | 0.1 |   | — |   | 4.6 |   |
| Other  comprehensive income (loss) of unconsolidated affiliates                                                                         |       | 7.3                            |       | (0.8 | ) | 8.1 |   | (1.1 | ) | 9.2 |   |
| Total                                                                                                                                   |       | $                              | (78.3      | ) | $ | (222.3 | ) | $ | 144.0 |   | $ | 69.9 |   | $ | 221.5 |   |

 

Items of other comprehensive (loss) income of ourCompany and our consolidated affiliates have been recorded net of tax, with theexception of the foreign currency translation adjustments related tosubsidiaries with earnings permanently reinvested. The tax effect is determinedbased upon the jurisdiction where the income or loss was recognized and is netof valuation allowances that have been recorded.

 

**22.****          Related Party Transactions**

 

Our accompanying consolidated financial statementsinclude the following balances not otherwise disclosed with affiliates of ourCompany (dollars in millions):

 
| ** **                          | ** ** | **Year ended December 31,** | ** **   |
|-------------------------------------|------------|-----------------------------|--------------|
| ** **                          | ** ** | **2005**                    | ** **   | **2004** | ** ** | **2003** | ** ** |
| Sales to:                           |       |                        |         |   |   |   |   |
| Huntsman  Corporation               |       | $                           |  — |   | $ |  — |   | $ | 53.0 |   |
| Other  unconsolidated affiliates    |       | 104.0                       |         | 47.9 |   | 101.9 |   |
| Inventory purchases from:           |       |                        |         |   |   |   |   |
| Huntsman  Corporation               |       | —                      |         | — |   | 76.3 |   |
| Other  unconsolidated affiliates    |       | —                      |         | 403.9 |   | 261.4 |   |
| Operating  expenses allocated from: |       |                        |         |   |   |   |   |
| Huntsman  Corporation               |       | —                      |         | — |   | (22.3 | ) |
|                                     |            |                             |              |  |  |  |  |  |  |  |

 

We have agreed with the Jon and Karen Huntsman Foundation,a private charitable foundation established by Jon M. and Karen H. Huntsman tofurther the charitable interests of the Huntsman family, that we will donateour Salt Lake City office building and our option to acquire an adjacentundeveloped parcel of land to the foundation free of debt. We have agreed tocomplete this donation on the earlier of November 30, 2009 or the date on whichwe occupy less than 20% of the two main floors of the Salt Lake City officebuilding. Under certain circumstances, after we make this donation, we willhave the right, but not the obligation, to lease space in the Salt Lake Cityoffice building from the foundation.

 

Through May 2002, we paid the premiums on various lifeinsurance policies for Jon M. Huntsman. These policies have been liquidated,and the cash values have been paid to Mr. Huntsman. Mr. Huntsman is indebted tous in the amount of approximately $1.4 million, which represents the insurancepremiums paid on his behalf through May 2002.

 

**23.****          Operating Leases**

 

We lease a numberof assets which are accounted for as operating leases.  The lease obligation reflected in ourstatement of operations as rental expense, totaled $74.1 million, $55.2 millionand $40.0 million for the three years ended December 31, 2005, 2004 and 2003,respectively.  The minimum future rentalpayments due under existing agreements are by year (dollars in millions):

 

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| **Year ending December 31:** | ** ** | ** ** | ** ** |
|------------------------------|------------|------------|------------|
| 2006                         |       | $          | 62.3       |   |
| 2007                         |       | 54.1       |       |
| 2008                         |       | 46.6       |       |
| 2009                         |       | 43.6       |       |
| 2010                         |       | 40.1       |       |
| Thereafter                   |       | 167.2      |       |
|                         |       | $          | 413.9      |   |

 

**24.****          Other Operating Expense (Income)**

 

Other operating expense (income) consisted of thefollowing (dollars in millions):

 
| ** **                              | ** ** | **Year ended December 31,** | ** ** |
|-----------------------------------------|------------|-----------------------------|------------|
| ** **                              | ** ** | **2005**                    | ** ** | **2004** | ** ** | **2003** | ** ** |
| Foreign exchange losses (gains)         |       | $                           | 39.0       |   | $ | (118.8 | ) | $ | (103.6 | ) |
| Bad debts                               |       | 4.2                         |       | 2.0 |   | 10.2 |   |
| Legal and contract settlements - net    |       | —                      |       | 6.6 |   | 2.0 |   |
| Other                                   |       | (1.0                        | )          | 29.2 |   | 12.9 |   |
| Total other  operating expense (income) |       | $                           | 42.2       |   | $ | (81.0 | ) | $ | (78.5 | ) |

 

**25.****          Discontinued Operations**

 

On July 6, 2005, we sold our toluene di-isocyanate (“TDI”)business. The sale involved the transfer of our TDI customer list and salescontracts. We further agreed to discontinue the use of our remaining TDIassets. TDI has been accounted for as a discontinued operation under SFASNo. 144. Accordingly, the following results of TDI have been presented asdiscontinued operations in the accompanying consolidated statements ofoperations (dollars in millions):

 
| ** **                                    | ** ** | **Year ended December 31,** | ** ** |
|-----------------------------------------------|------------|-----------------------------|------------|
| ** **                                    | ** ** | **2005**                    | ** ** | **2004** | ** ** | **2003** | ** ** |
| Revenues                                      |       | $                           | 24.4       |   | $ | 59.4 |   | $ | 62.3 |   |
| Costs and expenses                            |       | (31.9                       | )          | (67.2 | ) | (64.9 | ) |
| Loss on disposal                              |       | (36.4                       | )          | — |   | — |   |
| Operating loss                                |       | (43.9                       | )          | (7.8 | ) | (2.6 | ) |
| Income tax expense                            |       | —                      |       | — |   | — |   |
|                                          |       |                        |       |   |   |   |   |
| Loss from discontinued operations, net of tax |       | $                           | (43.9      | ) | $ | (7.8 | ) | $ | (2.6 | ) |

 

The loss on disposal of $36.4 million for theyear ended December 31, 2005 includes an impairment of long-lived assetsof $24.7 million. We expect to incur approximately $2 million ofadditional costs related to the TDI transaction by the end of the secondquarter of 2006. The TDI business is reported in our Polyurethanes operatingsegment in the accompanying consolidated financial statements.

 

**26.****          Operating Segment Information**

 

We derive our revenues, earnings and cash flows fromthe manufacture and sale of a wide variety of differentiated and commoditychemical products. We report our operations through six segments:Polyurethanes, Advanced Materials, Performance Products, Pigments, Polymers andBase Chemicals.  We have organized ourbusiness and derived our operating segments around differences in productlines.

 

F-47

----

 

The major products of each reportable operatingsegment are as follows:

 
| **Segment**          | ** ** | **Products**                                                                                                                                                                   |
|----------------------|------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| Polyurethanes        |       | MDI, TPU, polyols,  aniline, PO and MTBE(1)                                                                                                                                    |
| Advanced Materials   |       | Epoxy resin compounds,  cross-linkers, matting agents, curing agents, epoxy, acrylic and  polyurethane-based adhesives and tooling resins and sterolithography  tooling resins |
| Performance Products |       | Amines, surfactants,  linear alkylbenzene, maleic anhydride, other performance chemicals, glycols,  and technology licenses                                                    |
| Pigments             |       | Titanium dioxide                                                                                                                                                               |
| Polymers             |       | Ethylene (produced at  the Odessa, Texas facilities primarily for internal use), polyethylene,  polypropylene, expandable polystyrene, styrene and other polymers              |
| Base Chemicals       |       | Olefins (primarily  ethylene and propylene), butadiene(2), MTBE(2), benzene, cyclohexane and  paraxylene                                                                       |

 

----

(1)   The PO/MTBE operations in our Polyurethanessegment are not included in the announced sale of our U.S. butadiene and MTBEbusiness (operated in our Base Chemicals segment). See “Note 3. BusinessCombinations and Dispositions.”

 

(2)   We have announced the sale of our U.S.butadiene and MTBE business operated in our Base Chemicals segment; thistransaction is expect to close in mid-2006. See “Note 3. Business Combinationsand Dispositions.”

 

Sales between segments are generally recognized atexternal market prices.

 

F-48

----

 
| ** **                                    | ** ** | **December 31,** | ** ** |
|-----------------------------------------------|------------|------------------|------------|
| ** **                                    | ** ** | **2005**         | ** ** | **2004** | ** ** | **2003****(4)** | ** ** |
| **Net Sales (including intercompany sales):** |       |             |       |   |   |   |   |
| Polyurethanes                                 |       | $                | 3,396.3    |   | $ | 2,818.0 |   | $ | 2,235.2 |   |
| Advanced  Materials                           |       | 1,185.3          |       | 1,162.4 |   | 517.8 |   |
| Performance  Products                         |       | 1,960.9          |       | 1,927.8 |   | 1,348.3 |   |
| Pigments                                      |       | 1,052.8          |       | 1,048.1 |   | 1,010.0 |   |
| Polymers                                      |       | 1,702.0          |       | 1,451.8 |   | 774.4 |   |
| Base Chemicals                                |       | 4,462.1          |       | 3,859.0 |   | 2,207.3 |   |
| Eliminations                                  |       | (797.8           | )          | (840.7 | ) | (446.7 | ) |
| Total                                         |       | $                | 12,961.6   |   | $ | 11,426.4 |   | $ | 7,646.3 |   |
|                                          |       |             |       |   |   |   |   |
| **Segment EBITDA****(1):**                    |       |             |       |   |   |   |   |
| Polyurethanes                                 |       | $                | 676.3      |   | $ | 364.0 |   | $ | 233.4 |   |
| Advanced  Materials                           |       | 154.1            |       | 151.0 |   | 29.4 |   |
| Performance  Products                         |       | 157.3            |       | 91.0 |   | 80.9 |   |
| Pigments                                      |       | 115.3            |       | (30.0 | ) | 105.4 |   |
| Polymers                                      |       | 102.7            |       | 77.6 |   | 57.8 |   |
| Base Chemicals                                |       | 264.3            |       | 276.2 |   | 79.4 |   |
| Corporate and  other (2)                      |       | (410.3           | )          | (48.8 | ) | 12.1 |   |
| Total                                         |       |             | 1,059.7    |   |   | 881.0 |   |   | 598.4 |   |
| Interest expense, net                         |       | (425.6           | )          | (592.6 | ) | (480.5 | ) |
| Income tax (expense) benefit (3)              |       | (39.5            | )          | 22.9 |   | (41.0 | ) |
| Depreciation and amortization                 |       | (473.9           | )          | (499.0 | ) | (394.2 | ) |
| Net income  (loss)                            |       | $                | 120.7      |   | $ | (187.7 | ) | $ | (317.3 | ) |
|                                          |       |             |       |   |   |   |   |
| **Depreciation and Amortization:**            |       |             |       |   |   |   |   |
| Polyurethanes                                 |       | $                | 147.4      |   | $ | 147.8 |   | $ | 143.6 |   |
| Advanced  Materials                           |       | 46.5             |       | 53.8 |   | 27.3 |   |
| Performance  Products                         |       | 52.0             |       | 54.3 |   | 42.5 |   |
| Pigments                                      |       | 77.0             |       | 83.2 |   | 65.3 |   |
| Polymers                                      |       | 56.2             |       | 59.5 |   | 32.6 |   |
| Base Chemicals                                |       | 85.3             |       | 89.9 |   | 67.9 |   |
| Corporate and  other (2)                      |       | 9.5              |       | 10.5 |   | 15.0 |   |
| Total                                         |       | $                | 473.9      |   | $ | 499.0 |   | $ | 394.2 |   |
|                                          |       |             |       |   |   |   |   |
| **Capital Expenditures:**                     |       |             |       |   |   |   |   |
| Polyurethanes                                 |       | $                | 106.6      |   | $ | 45.8 |   | $ | 39.1 |   |
| Advanced  Materials                           |       | 27.4             |       | 17.4 |   | 5.8 |   |
| Performance  Products                         |       | 44.2             |       | 43.8 |   | 33.9 |   |
| Pigments                                      |       | 27.1             |       | 42.7 |   | 51.7 |   |
| Polymers                                      |       | 38.4             |       | 14.5 |   | 21.2 |   |
| Base Chemicals                                |       | 82.2             |       | 56.7 |   | 41.6 |   |
| Corporate and  other                          |       | 12.8             |       | 5.7 |   | 11.5 |   |
| Total                                         |       | $                | 338.7      |   | $ | 226.6 |   | $ | 204.8 |   |
|                                          |       |             |       |   |   |   |   |
| **Total Assets:**                             |       |             |       |   |   |   |   |
| Polyurethanes                                 |       | $                | 4,074.5    |   | $ | 4,056.0 |   |   |   |
| Advanced  Materials                           |       | 896.7            |       | 956.4 |   |   |   |
| Performance  Products                         |       | 1,465.0          |       | 1,124.4 |   |   |   |
| Pigments                                      |       | 1,659.7          |       | 1,514.5 |   |   |   |
| Polymers                                      |       | 955.4            |       | 878.7 |   |   |   |
| Base Chemicals                                |       | 1,969.0          |       | 2,009.7 |   |   |   |
| Corporate and  Eliminations                   |       | (2,387.3         | )          | (1,365.3 | ) |   |   |
| Total                                         |       | $                | 8,633.0    |   | $ | 9,174.4 |   |   |   |

 

----

(1)           SegmentEBITDA is defined as net income (loss) before interest, income tax,depreciation and amortization, and certain corporate and other items.

 

(2)           Corporateand other items includes unallocated corporate overhead, loss on sale ofaccounts receivable, foreign exchange gains or losses and other non-operatingincome (expense).

 

(3)           Includesa tax benefit of $3.3 million in 2005 on the cumulative effect of changes inaccounting principle.

 

F-49

----

 

(4)           EffectiveMay 1, 2003, HLLC is consolidated with the results of the Company. OnJune 30, 2003, affiliates of the Company completed the AdMat Transaction.AdMat has been included in our consolidated financial statements sinceJune 30, 2003.

 
| ** **                 | ** ** | **December 31,** | ** ** |
|----------------------------|------------|------------------|------------|
| ** **                 | ** ** | **2005**         | ** ** | **2004** | ** ** | **2003 (2)** | ** ** |
| **By Geographic Area**     | ** ** | ** **       | ** ** | ** ** | ** ** | ** ** | ** ** |
| **Net sales:**             |       |             |       |   |   |   |   |
| United States              |       | $                | 7,447.5    |   | $ | 6,385.1 |   | $ | 3,888.8 |   |
| United Kingdom             |       | 2,988.7          |       | 2,718.2 |   | 1,965.9 |   |
| Netherlands                |       | 1,838.9          |       | 1,274.6 |   | 1,039.1 |   |
| Other nations              |       | 2,876.7          |       | 2,857.0 |   | 2,125.2 |   |
| Eliminations               |       | (2,190.2         | )          | (1,808.5 | ) | (1,372.7 | ) |
| **Total**                  |       | $                | 12,961.6   |   | $ | 11,426.4 |   | $ | 7,646.3 |   |
| **Long-lived assets (1):** |       |             |       |   |   |   |   |
| United States              |       | $                | 1,960.6    |   | $ | 2,059.2 |   |   |   |
| United Kingdom             |       | 980.7            |       | 1,121.8 |   |   |   |
| Netherlands                |       | 326.8            |       | 402.6 |   |   |   |
| Other nations              |       | 1,068.6          |       | 1,233.7 |   |   |   |
| **Total**                  |       | $                | 4,336.7    |   | $ | 4,817.3 |   |   |   |

 

----

(1)           Longlived assets are made up of property, plant and equipment.

 

(2)           EffectiveMay 1, 2003, HLLC is consolidated with the results of the Company. OnJune 30, 2003, affiliates of the Company completed the AdMat Transaction.AdMat has been included in our consolidated financial statements sinceJune 30, 2003.

 

**28.****          Selected Unaudited Quarterly Financial Data**

 

A summary of selected unaudited quarterly financial data for the yearsended December 31, 2005 and 2004 is as follows (dollars in millions):

 
| ** **                                         | ** ** | **Three months ended** | ** ** |
|----------------------------------------------------|------------|------------------------|------------|
| ** **                                         | ** ** | **March 31,  2005(a)** | ** ** | **June 30,  2005** | ** ** | **September 30,  2005** | ** ** | **December 31,  2005** | ** ** |
| Revenues                                           |       | $                      | 3,349.3    |   | $ | 3,339.5 |   | $ | 3,121.8 |   | $ | 3,151.0 |   |
| Gross profit                                       |       | 594.9                  |       | 513.2 |   | 397.5 |   | 265.6 |   |
| Restructuring,  impairment and plant closing costs |       | 10.4                   |       | 18.8 |   | 71.3 |   | 23.1 |   |
| Income (loss)  before accounting changes           |       | 110.2                  |       | 112.6 |   | (26.3 | ) | (48.3 | ) |
| Net income  (loss)                                 |       | 114.4                  |       | 112.6 |   | (26.3 | ) | (80.0 | ) |
|                                                    |            |                        |            |  |  |  |  |  |  |  |  |  |  |

 
| ** **                                         | ** ** | **Three months ended** | ** ** |
|----------------------------------------------------|------------|------------------------|------------|
| ** **                                         | ** ** | **March 31,  2004**    | ** ** | **June 30,  2004** | ** ** | **September 30,  2004** | ** ** | **December 31,  2004** | ** ** |
| Revenues                                           |       | $                      | 2,620.8    |   | $ | 2,754.0 |   | $ | 2,934.8 |   | $ | 3,116.8 |   |
| Gross profit                                       |       | 282.8                  |       | 350.0 |   | 375.0 |   | 393.5 |   |
| Restructuring,  impairment and plant closing costs |       | 8.7                    |       | 150.5 |   | 43.2 |   | 96.9 |   |
| Net (loss)  income                                 |       | (82.2                  | )          | (172.4 | ) | 55.2 |   | 11.7 |   |
|                                                    |            |                        |            |  |  |  |  |  |  |  |  |  |  |

 

----

(a)                                  Duringthe fourth quarter of 2005, we changed the measurement date of our pension andpostretirement benefit plans from December 31 to November 30, and recorded acumulative effect of a change in accounting principle credit, net of tax, of$4.2 million.  In accordance with SFASNo. 3, *“Reporting Accounting Changes in Interim FinancialStatements,”* the cumulative effect of this accounting change wasreported effective January 1, 2005.

 

**29.****          Condensed Consolidating Financial Statements –Huntsman International LLC**

 

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

 

F-50

----

 

where appropriate, consolidated basis. Additional columns presenteliminating adjustments and consolidated totals as of December 31, 2005 andDecember 31, 2004 and for the years ended December 31, 2005, 2004, and2003. There are no contractual restrictions limiting transfers of cash fromguarantor subsidiaries to our Company. Each of the Guarantors is 100% owned byus and has fully and unconditionally guaranteed our outstanding notes on ajoint and several basis.

 

F-51

----

 

**HUNTSMAN INTERNATIONAL LLC ANDSUBSIDIARIES**

**CONDENSED CONSOLIDATING BALANCESHEET**

**AS OF DECEMBER 31, 2005**

**(Dollars in Millions)**

 
| ** **                                          | ** ** | **Parent  Company** | ** ** | **Guarantors** | ** ** | **Non-  guarantors** | ** ** | **Eliminations** | ** ** | **Consolidated  Huntsman  International  LLC** | ** ** |
|-----------------------------------------------------|------------|---------------------|------------|----------------|------------|----------------------|------------|------------------|------------|------------------------------------------------|------------|
| **ASSETS**                                          |       |                |       |           |       |                 |       |             |       |                                           |       |
| ** **                                          |       |                |       |           |       |                 |       |             |       |                                           |       |
| **Current  assets:**                                |       |                |       |           |       |                 |       |             |       |                                           |       |
| Cash and cash  equivalents                          |       | $                   | 10.0       |           | $          | 7.9                  |       | $                | 114.6      |                                           | $          | — |   | $ | 132.5 |   |
| Accounts and  notes receivables, net                |       | 88.6                |       | 537.5          |       | 849.1                |       | —           |       | 1,475.2                                        |       |
| Accounts receivable  from affiliates                |       | 523.4               |       | 1,035.6        |       | 479.5                |       | (2,028.1         | )          | 10.4                                           |       |
| Inventories, net                                    |       | 129.7               |       | 428.0          |       | 753.2                |       | (1.7             | )          | 1,309.2                                        |       |
| Prepaid expenses                                    |       | 3.6                 |       | 28.9           |       | 27.7                 |       | (14.3            | )          | 45.9                                           |       |
| Deferred income  taxes                              |       | 45.5                |       | —         |       | 0.3                  |       | (14.6            | )          | 31.2                                           |       |
| Other current  assets                               |       | 27.7                |       | 1.7            |       | 49.1                 |       | (8.6             | )          | 69.9                                           |       |
| **Total  current assets**                           |       | 828.5               |       | 2,039.6        |       | 2,273.5              |       | (2,067.3         | )          | 3,074.3                                        |       |
|                                                |       |                |       |           |       |                 |       |             |       |                                           |       |
| Property, plant  and equipment, net                 |       | 559.3               |       | 1,383.8        |       | 2,390.4              |       | 3.2              |       | 4,336.7                                        |       |
| Investment in  affiliates                           |       | 3,521.8             |       | 2,253.7        |       | 65.7                 |       | (5,665.6         | )          | 175.6                                          |       |
| Intangible  assets, net                             |       | 170.4               |       | (3.8           | )          | 55.4                 |       | —           |       | 222.0                                          |       |
| Goodwill                                            |       | —              |       | 88.0           |       | 7.3                  |       | (4.1             | )          | 91.2                                           |       |
| Deferred income  taxes                              |       | —              |       | 19.9           |       | 88.9                 |       | (14.6            | )          | 94.2                                           |       |
| Receivables from  affiliates                        |       | 2,204.1             |       | 1,810.3        |       | 3.0                  |       | (4,014.4         | )          | 3.0                                            |       |
| Other noncurrent  assets                            |       | 90.1                |       | 142.1          |       | 403.8                |       | —           |       | 636.0                                          |       |
|                                                |       |                |       |           |       |                 |       |             |       |                                           |       |
| **Total  assets**                                   |       | $                   | 7,374.2    |           | $          | 7,733.6              |       | $                | 5,288.0    |                                           | $          | (11,762.8 | ) | $ | 8,633.0 |   |
|                                                |       |                |       |           |       |                 |       |             |       |                                           |       |
| **LIABILITIES AND MEMBERS’ EQUITY**            |       |                |       |           |       |                 |       |             |       |                                           |       |
| **Current  liabilities:**                           |       |                |       |           |       |                 |       |             |       |                                           |       |
| Accounts payable                                    |       | $                   | 78.7       |           | $          | 429.1                |       | $                | 584.9      |                                           | $          | — |   | $ | 1,092.7 |   |
| Accounts payable  to affiliates                     |       | 1,214.8             |       | 282.9          |       | 539.3                |       | (2,028.3         | )          | 8.7                                            |       |
| Accrued  liabilities                                |       | 188.3               |       | 185.0          |       | 382.0                |       | (23.0            | )          | 732.3                                          |       |
| Deferred income  taxes                              |       | —              |       | 19.9           |       | (2.9                 | )          | (14.6            | )          | 2.4                                            |       |
| Current portion  of long-term debt                  |       | 20.3                |       | 9.6            |       | 14.7                 |       | —           |       | 44.6                                           |       |
| **Total  current liabilities**                      |       | 1,502.1             |       | 926.5          |       | 1,518.0              |       | (2,065.9         | )          | 1,880.7                                        |       |
|                                                |       |                |       |           |       |                 |       |             |       |                                           |       |
| Long-term debt                                      |       | 4,358.1             |       | 2,134.6        |       | 1,935.0              |       | (4,014.4         | )          | 4,413.3                                        |       |
| Deferred income  taxes                              |       | 45.5                |       | 0.3            |       | 185.7                |       | (14.6            | )          | 216.9                                          |       |
| Other noncurrent  liabilities                       |       | 136.8               |       | 202.2          |       | 431.5                |       | (0.5             | )          | 770.0                                          |       |
| **Total  liabilities**                              |       | 6,042.5             |       | 3,263.6        |       | 4,070.2              |       | (6,095.4         | )          | 7,280.9                                        |       |
|                                                |       |                |       |           |       |                 |       |             |       |                                           |       |
| **Minority  interest in consolidated subsidiaries** |       | —              |       | 84.7           |       | 15.6                 |       | (79.9            | )          | 20.4                                           |       |
| **Members’  equity:**                          |       |                |       |           |       |                 |       |             |       |                                           |       |
| Members’ equity                                |       | 2,794.0             |       | 3,821.1        |       | 1,302.0              |       | (5,123.1         | )          | 2,794.0                                        |       |
| Subsidiary  preferred stock                         |       | —              |       | 73.4           |       | 1.4                  |       | (74.8            | )          | —                                         |       |
| (Accumulated  deficit) retained earnings            |       | (1,384.0            | )          | 421.6          |       | 8.5                  |       | (430.1           | )          | (1,384.0                                       | )          |
| Accumulated other  comprehensive (loss) income      |       | (78.3               | )          | 69.2           |       | (109.7               | )          | 40.5             |       | (78.3                                          | )          |
| **Total  members’ equity**                     |       | 1,331.7             |       | 4,385.3        |       | 1,202.2              |       | (5,587.5         | )          | 1,331.7                                        |       |
|                                                |       |                |       |           |       |                 |       |             |       |                                           |       |
| **Total  liabilities and members’ equity**     |       | $                   | 7,374.2    |           | $          | 7,733.6              |       | $                | 5,288.0    |                                           | $          | (11,762.8 | ) | $ | 8,633.0 |   |

 

F-52

----

 

**HUNTSMAN INTERNATIONAL LLC ANDSUBSIDIARIES**

**CONDENSED CONSOLIDATING BALANCESHEET**

**AS OF DECEMBER 31, 2004**

**(Dollars in Millions)**

 
| ** **                                          | ** ** | **Parent  Company** | ** ** | **Guarantors** | ** ** | **Non-  guarantors** | ** ** | **Eliminations** | ** ** | **Consolidated  Huntsman  International  LLC** | ** ** |
|-----------------------------------------------------|------------|---------------------|------------|----------------|------------|----------------------|------------|------------------|------------|------------------------------------------------|------------|
| **ASSETS**                                          |       |                |       |           |       |                 |       |             |       |                                           |       |
| ** **                                          |       |                |       |           |       |                 |       |             |       |                                           |       |
| **Current  assets:**                                |       |                |       |           |       |                 |       |             |       |                                           |       |
| Cash and cash  equivalents                          |       | $                   | 7.3        |           | $          | 14.0                 |       | $                | 222.2      |                                           | $          | — |   | $ | 243.5 |   |
| Restricted cash                                     |       | 0.3                 |       | 8.6            |       | —               |       | —           |       | 8.9                                            |       |
| Accounts and  notes receivables, net                |       | 77.8                |       | 492.3          |       | 1,015.8              |       | (0.1             | )          | 1,585.8                                        |       |
| Accounts  receivable from affiliates                |       | 93.1                |       | 278.6          |       | 55.1                 |       | (416.4           | )          | 10.4                                           |       |
| Inventories, net                                    |       | 122.4               |       | 351.6          |       | 780.9                |       | (1.0             | )          | 1,253.9                                        |       |
| Prepaid expenses                                    |       | 3.9                 |       | 29.1           |       | 27.8                 |       | (15.7            | )          | 45.1                                           |       |
| Deferred income  taxes                              |       | —              |       | —         |       | 11.9                 |       | —           |       | 11.9                                           |       |
| Other current  assets                               |       | 57.6                |       | 404.1          |       | 45.3                 |       | (482.1           | )          | 24.9                                           |       |
| **Total  current assets**                           |       | 362.4               |       | 1,578.3        |       | 2,159.0              |       | (915.3           | )          | 3,184.4                                        |       |
|                                                |       |                |       |           |       |                 |       |             |       |                                           |       |
| Property, plant  and equipment, net                 |       | 615.5               |       | 1,433.1        |       | 2,768.7              |       | —           |       | 4,817.3                                        |       |
| Investment in  affiliates                           |       | 3,374.2             |       | 1,410.7        |       | 61.9                 |       | (4,675.9         | )          | 170.9                                          |       |
| Intangible  assets, net                             |       | 199.4               |       | (11.4          | )          | 67.6                 |       | (2.4             | )          | 253.2                                          |       |
| Goodwill                                            |       | —              |       | —         |       | 3.3                  |       | —           |       | 3.3                                            |       |
| Deferred income  taxes                              |       | 0.4                 |       | 13.1           |       | 29.2                 |       | —           |       | 42.7                                           |       |
| Receivables from  affiliates                        |       | 2,219.6             |       | 2,242.8        |       | 276.3                |       | (4,715.1         | )          | 23.6                                           |       |
| Other noncurrent  assets                            |       | 115.9               |       | 165.6          |       | 404.0                |       | (6.5             | )          | 679.0                                          |       |
|                                                |       |                |       |           |       |                 |       |             |       |                                           |       |
| **Total  assets**                                   |       | $                   | 6,887.4    |           | $          | 6,832.2              |       | $                | 5,770.0    |                                           | $          | (10,315.2 | ) | $ | 9,174.4 |   |
|                                                |       |                |       |           |       |                 |       |             |       |                                           |       |
| **LIABILITIES AND MEMBERS’ EQUITY**            |       |                |       |           |       |                 |       |             |       |                                           |       |
| **Current  liabilities:**                           |       |                |       |           |       |                 |       |             |       |                                           |       |
| Accounts payable                                    |       | $                   | 48.6       |           | $          | 293.8                |       | $                | 619.7      |                                           | $          | — |   | $ | 962.1 |   |
| Accounts payable  to affiliates                     |       | 57.7                |       | 149.9          |       | 243.2                |       | (416.5           | )          | 34.3                                           |       |
| Accrued liabilities                                 |       | 547.2               |       | 206.9          |       | 518.4                |       | (493.3           | )          | 779.2                                          |       |
| Deferred income  taxes                              |       | 45.6                |       | (28.8          | )          | 1.0                  |       | (3.3             | )          | 14.5                                           |       |
| Current portion  of long-term debt                  |       | 22.3                |       | 1.9            |       | 13.3                 |       | —           |       | 37.5                                           |       |
| **Total  current liabilities**                      |       | 721.4               |       | 623.7          |       | 1,395.6              |       | (913.1           | )          | 1,827.6                                        |       |
|                                                |       |                |       |           |       |                 |       |             |       |                                           |       |
| Long-term debt                                      |       | 5,359.1             |       | 391.8          |       | 48.7                 |       | —           |       | 5,799.6                                        |       |
| Long-term debt to  affiliates                       |       | 518.0               |       | 2,327.5        |       | 2,324.1              |       | (4,715.0         | )          | 454.6                                          |       |
| Deferred income  taxes                              |       | (34.2               | )          | 33.8           |       | 180.6                |       | —           |       | 180.2                                          |       |
| Other noncurrent  liabilities                       |       | 159.7               |       | 201.3          |       | 353.1                |       | (1.8             | )          | 712.3                                          |       |
| **Total  liabilities**                              |       | 6,724.0             |       | 3,578.1        |       | 4,302.1              |       | (5,629.9         | )          | 8,974.3                                        |       |
|                                                |       |                |       |           |       |                 |       |             |       |                                           |       |
| **Minority  interest in consolidated subsidiaries** |       | —              |       | 91.3           |       | 11.2                 |       | (65.8            | )          | 36.7                                           |       |
| **Members’  equity:**                          |       |                |       |           |       |                 |       |             |       |                                           |       |
| Members’ equity                                |       | 1,524.1             |       | 2,630.2        |       | 1,576.5              |       | (4,206.7         | )          | 1,524.1                                        |       |
| Subsidiary  preferred stock                         |       | —              |       | 70.6           |       | 1.4                  |       | (72.0            | )          | —                                         |       |
| (Accumulated  deficit) retained earnings            |       | (1,504.7            | )          | 105.9          |       | (118.6               | )          | 12.7             |       | (1,504.7                                       | )          |
| Accumulated other  comprehensive income (loss)      |       | 144.0               |       | 356.1          |       | (2.6                 | )          | (353.5           | )          | 144.0                                          |       |
| **Total  members’ equity**                     |       | 163.4               |       | 3,162.8        |       | 1,456.7              |       | (4,619.5         | )          | 163.4                                          |       |
|                                                |       |                |       |           |       |                 |       |             |       |                                           |       |
| **Total  liabilities and members’ equity**     |       | $                   | 6,887.4    |           | $          | 6,832.2              |       | $                | 5,770.0    |                                           | $          | (10,315.2 | ) | $ | 9,174.4 |   |

 

F-53

----

 

**HUNTSMANINTERNATIONAL LLC AND SUBSIDIARIES**

**CONDENSED CONSOLIDATING STATEMENTOF OPERATIONS**

**YEAR ENDED DECEMBER 31, 2005**

**(Dollars in Millions)**

 
| ** **                                                                                            | ** ** | **Parent  Company** | ** ** | **Guarantors** | ** ** | **Non-  guarantors** | ** ** | **Eliminations** | ** ** | **Consolidated  Huntsman  International  LLC** | ** ** |
|-------------------------------------------------------------------------------------------------------|------------|---------------------|------------|----------------|------------|----------------------|------------|------------------|------------|------------------------------------------------|------------|
| **Revenues:**                                                                                         |       |                |       |           |       |                 |       |             |       |                                           |       |
| Trade sales,  services and fees                                                                       |       | $                   | 1,364.0    |           | $          | 4,737.3              |       | $                | 6,756.3    |                                           | $          | — |   | $ | 12,857.6 |   |
| Related party  sales                                                                                  |       | 248.9               |       | 255.9          |       | 966.7                |       | (1,367.5         | )          | 104.0                                          |       |
| **Total  revenues**                                                                                   |       | 1,612.9             |       | 4,993.2        |       | 7,723.0              |       | (1,367.5         | )          | 12,961.6                                       |       |
| **Cost of  goods sold**                                                                               |       | 1,290.5             |       | 4,445.7        |       | 6,815.5              |       | (1,361.3         | )          | 11,190.4                                       |       |
|                                                                                                  |       |                |       |           |       |                 |       |             |       |                                           |       |
| **Gross  profit**                                                                                     |       | 322.4               |       | 547.5          |       | 907.5                |       | (6.2             | )          | 1,771.2                                        |       |
| Selling, general  and administrative                                                                  |       | 117.8               |       | 158.4          |       | 402.2                |       | (0.7             | )          | 677.7                                          |       |
| Research and  development                                                                             |       | 34.9                |       | 26.0           |       | 34.6                 |       | —           |       | 95.5                                           |       |
| Other operating  (income) expense                                                                     |       | (26.3               | )          | 6.7            |       | 61.8                 |       | —           |       | 42.2                                           |       |
| Restructuring,  impairment and plant closing costs                                                    |       | 5.0                 |       | 23.7           |       | 94.9                 |       | —           |       | 123.6                                          |       |
|                                                                                                  |       |                |       |           |       |                 |       |             |       |                                           |       |
| **Operating  income**                                                                                 |       | 191.0               |       | 332.7          |       | 314.0                |       | (5.5             | )          | 832.2                                          |       |
| Interest expense,  net                                                                                |       | (220.7              | )          | (67.9          | )          | (137.0               | )          | —           |       | (425.6                                         | )          |
| Gain (loss) on  accounts receivable securitization program                                            |       | 15.7                |       | (2.8           | )          | (23.6                | )          | —           |       | (10.7                                          | )          |
| Equity in income  of affiliates and subsidiaries                                                      |       | 273.5               |       | 167.7          |       | 8.2                  |       | (441.2           | )          | 8.2                                            |       |
| Other (expense)  income                                                                               |       | (119.7              | )          | (54.1          | )          | 11.4                 |       | (5.1             | )          | (167.5                                         | )          |
| **Income  from continuing operations before income taxes, minority interest and  accounting changes** |       | 139.8               |       | 375.6          |       | 173.0                |       | (451.8           | )          | 236.6                                          |       |
| Income tax  benefit (expense)                                                                         |       | 25.0                |       | (28.0          | )          | (39.8                | )          | —           |       | (42.8                                          | )          |
| Minority interest  expense                                                                            |       | —              |       | (20.0          | )          | (0.8                 | )          | 19.1             |       | (1.7                                           | )          |
| **Income  from continuing operations**                                                                |       | 164.8               |       | 327.6          |       | 132.4                |       | (432.7           | )          | 192.1                                          |       |
| Loss from  discontinued operations (including loss on disposal of $36.4), net of tax                  |       | (43.9               | )          | —         |       | —               |       | —           |       | (43.9                                          | )          |
| Cumulative effect  of changes in accounting principle, net of tax                                     |       | (0.2                | )          | (2.0           | )          | (25.3                | )          | —           |       | (27.5                                          | )          |
| **Net  income**                                                                                       |       | $                   | 120.7      |           | $          | 325.6                |       | $                | 107.1      |                                           | $          | (432.7 | ) | $ | 120.7 |   |

 

F-54

----

 

**HUNTSMANINTERNATIONAL LLC AND SUBSIDIARIES**

**CONDENSED CONSOLIDATING STATEMENTOF OPERATIONS**

**YEAR ENDED DECEMBER 31, 2004**

**(Dollars in Millions)**

 
| ** **                                                                                                   | ** ** | **Parent  Company** | ** ** | **Guarantors** | ** ** | **Non-  guarantors** | ** ** | **Eliminations** | ** ** | **Consolidated  Huntsman  International  LLC** | ** ** |
|--------------------------------------------------------------------------------------------------------------|------------|---------------------|------------|----------------|------------|----------------------|------------|------------------|------------|------------------------------------------------|------------|
| **Revenues:**                                                                                                |       |                |       |           |       |                 |       |             |       |                                           |       |
| Trade sales,  services and fees                                                                              |       | $                   | 1,177.8    |           | $          | 3,893.8              |       | $                | 6,059.7    |                                           | $          | 247.2 |   | $ | 11,378.5 |   |
| Related party  sales                                                                                         |       | 181.3               |       | 509.3          |       | 137.9                |       | (780.6           | )          | 47.9                                           |       |
| **Total  revenues**                                                                                          |       | 1,359.1             |       | 4,403.1        |       | 6,197.6              |       | (533.4           | )          | 11,426.4                                       |       |
| **Cost of  goods sold**                                                                                      |       | 1,126.6             |       | 4,012.3        |       | 5,406.9              |       | (520.7           | )          | 10,025.1                                       |       |
|                                                                                                         |       |                |       |           |       |                 |       |             |       |                                           |       |
| **Gross  profit**                                                                                            |       | 232.5               |       | 390.8          |       | 790.7                |       | (12.7            | )          | 1,401.3                                        |       |
| Selling, general  and administrative                                                                         |       | 78.3                |       | 179.5          |       | 416.1                |       | (21.4            | )          | 652.5                                          |       |
| Research and  development                                                                                    |       | 32.2                |       | 27.3           |       | 36.6                 |       | —           |       | 96.1                                           |       |
| Other operating  income                                                                                      |       | (9.1                | )          | (30.1          | )          | (41.8                | )          | —           |       | (81.0                                          | )          |
| Restructuring,  impairment and plant closing costs                                                           |       | 2.4                 |       | 14.3           |       | 282.6                |       | —           |       | 299.3                                          |       |
|                                                                                                         |       |                |       |           |       |                 |       |             |       |                                           |       |
| **Operating  income**                                                                                        |       | 128.7               |       | 199.8          |       | 97.2                 |       | 8.7              |       | 434.4                                          |       |
| Interest expense,  net                                                                                       |       | (369.0              | )          | (46.7          | )          | (176.9               | )          | —           |       | (592.6                                         | )          |
| Gain (loss) on  accounts receivable securitization program                                                   |       | 3.6                 |       | (2.0           | )          | (17.2                | )          | —           |       | (15.6                                          | )          |
| Equity in income  (loss) of affiliates and subsidiaries                                                      |       | 68.7                |       | (21.4          | )          | 3.9                  |       | (47.2            | )          | 4.0                                            |       |
| Other (expense)  income                                                                                      |       | (35.0               | )          | 9.9            |       | 5.8                  |       | (6.5             | )          | (25.8                                          | )          |
| **(Loss)  income from continuing operations before income taxes, minority interest and  accounting changes** |       | (203.0              | )          | 139.6          |       | (87.2                | )          | (45.0            | )          | (195.6                                         | )          |
| Income tax  benefit (expense)                                                                                |       | 23.1                |       | (52.9          | )          | 52.7                 |       | —           |       | 22.9                                           |       |
| Minority interest  expense                                                                                   |       | —              |       | (10.5          | )          | (1.0                 | )          | 4.3              |       | (7.2                                           | )          |
| **(Loss)  income from continuing operations**                                                                |       | (179.9              | )          | 76.2           |       | (35.5                | )          | (40.7            | )          | (179.9                                         | )          |
| Loss from  discontinued operations, net of tax                                                               |       | (7.8                | )          | —         |       | —               |       | —           |       | (7.8                                           | )          |
| **Net  (loss) income**                                                                                       |       | $                   | (187.7     | )              | $          | 76.2                 |       | $                | (35.5      | )                                              | $          | (40.7 | ) | $ | (187.7 | ) |

 

F-55

----

 

**HUNTSMAN INTERNATIONAL LLC ANDSUBSIDIARIES**

**CONDENSED CONSOLIDATING STATEMENTOF OPERATIONS**

**YEAR ENDED DECEMBER 31, 2003**

**(Dollars in Millions)**

 
| ** **                                                                                                   | ** ** | **Parent  Company** | ** ** | **Guarantors** | ** ** | **Non-  guarantors** | ** ** | **Eliminations** | ** ** | **Consolidated  Huntsman  International  LLC** | ** ** |
|--------------------------------------------------------------------------------------------------------------|------------|---------------------|------------|----------------|------------|----------------------|------------|------------------|------------|------------------------------------------------|------------|
| **Revenues:**                                                                                                |       |                |       |           |       |                 |       |             |       |                                           |       |
| Trade sales,  services and fees                                                                              |       | $                   | 842.8      |           | $          | 2,303.9              |       | $                | 4,320.8    |                                           | $          | 23.9 |   | $ | 7,491.4 |   |
| Related party  sales                                                                                         |       | 140.2               |       | 236.9          |       | 204.8                |       | (427.0           | )          | 154.9                                          |       |
| **Total  revenues**                                                                                          |       | 983.0               |       | 2,540.8        |       | 4,525.6              |       | (403.1           | )          | 7,646.3                                        |       |
| **Cost of  goods sold**                                                                                      |       | 811.6               |       | 2,350.4        |       | 4,100.6              |       | (426.4           | )          | 6,836.2                                        |       |
|                                                                                                         |       |                |       |           |       |                 |       |             |       |                                           |       |
| **Gross  profit**                                                                                            |       | 171.4               |       | 190.4          |       | 425.0                |       | 23.3             |       | 810.1                                          |       |
| Selling, general  and administrative                                                                         |       | 125.7               |       | 69.4           |       | 291.8                |       | 23.2             |       | 510.1                                          |       |
| Research and  development                                                                                    |       | 37.7                |       | 17.3           |       | 31.8                 |       | —           |       | 86.8                                           |       |
| Other operating  (income) expense                                                                            |       | (66.5               | )          | (12.9          | )          | 0.9                  |       | —           |       | (78.5                                          | )          |
| Restructuring,  impairment and plant closing (credits) costs                                                 |       | —              |       | (1.5           | )          | 56.5                 |       | —           |       | 55.0                                           |       |
|                                                                                                         |       |                |       |           |       |                 |       |             |       |                                           |       |
| **Operating  income**                                                                                        |       | 74.5                |       | 118.1          |       | 44.0                 |       | 0.1              |       | 236.7                                          |       |
| Interest  (expense) income, net                                                                              |       | (374.9              | )          | 50.0           |       | (155.6               | )          | —           |       | (480.5                                         | )          |
| (Loss) gain on  accounts receivable securitization program                                                   |       | (64.3               | )          | (2.8           | )          | 34.7                 |       | —           |       | (32.4                                          | )          |
| Equity in income  (loss) of affiliates and subsidiaries                                                      |       | 37.0                |       | (104.8         | )          | 1.6                  |       | 67.9             |       | 1.7                                            |       |
| Other (expense)  income                                                                                      |       | (4.4                | )          | 13.6           |       | (7.7                 | )          | (2.2             | )          | (0.7                                           | )          |
| **(Loss)  income from continuing operations before income taxes, minority interest and  accounting changes** |       | (332.1              | )          | 74.1           |       | (83.0                | )          | 65.8             |       | (275.2                                         | )          |
| Income tax  benefit (expense)                                                                                |       | 17.4                |       | (25.1          | )          | (33.3                | )          | —           |       | (41.0                                          | )          |
| Minority interest  (expense) income                                                                          |       | —              |       | (0.6           | )          | —               |       | 2.1              |       | 1.5                                            |       |
| **(Loss)  income from continuing operations**                                                                |       | (314.7              | )          | 48.4           |       | (116.3               | )          | 67.9             |       | (314.7                                         | )          |
| Loss from  discontinued operations, net of tax                                                               |       | (2.6                | )          | —         |       | —               |       | —           |       | (2.6                                           | )          |
| **Net  (loss) income**                                                                                       |       | $                   | (317.3     | )              | $          | 48.4                 |       | $                | (116.3     | )                                              | $          | 67.9 |   | $ | (317.3 | ) |

 

F-56

----

 

**HUNTSMAN INTERNATIONAL LLC ANDSUBSIDIARIES**

**CONDENSED CONSOLIDATING STATEMENTOF CASH FLOWS**

**YEAR ENDED DECEMBER 31, 2005**

**(Dollars in Millions)**

 
| ** **                                                  | ** ** | **Parent  Company** | ** ** | **Guarantors** | ** ** | **Non-  Guarantors** | ** ** | **Eliminations** | ** ** | **Consolidated  Huntsman  International  LLC** | ** ** |
|-------------------------------------------------------------|------------|---------------------|------------|----------------|------------|----------------------|------------|------------------|------------|------------------------------------------------|------------|
| **Net cash  provided by operating activities**              |       | 288.0               |       | 456.0          |       | 255.5                |       | (11.2            | )          | 988.3                                          |       |
|                                                        |       |                |       |           |       |                 |       |             |       |                                           |       |
| **Investing  activities:**                                  |       |                |       |           |       |                 |       |             |       |                                           |       |
| Capital  expenditures                                       |       | (32.9               | )          | (70.2          | )          | (235.6               | )          | —           |       | (338.7                                         | )          |
| Investment in  affiliates, net                              |       | (114.0              | )          | (10.3          | )          | (8.0                 | )          | 124.3            |       | (8.0                                           | )          |
| Proceeds from  sale of assets                               |       | 6.4                 |       | 7.1            |       | 4.7                  |       | —           |       | 18.2                                           |       |
| Net cash received  from affiliates                          |       | —              |       | 4.5            |       | 1.7                  |       | —           |       | 6.2                                            |       |
| Change in  restricted cash                                  |       | 0.3                 |       | 8.6            |       | —               |       | —           |       | 8.9                                            |       |
| Other, net                                                  |       | —              |       | (1.6           | )          | (1.3                 | )          | —           |       | (2.9                                           | )          |
| **Net cash  used in investing activities**                  |       | (140.2              | )          | (61.9          | )          | (238.5               | )          | 124.3            |       | (316.3                                         | )          |
|                                                        |       |                |       |           |       |                 |       |             |       |                                           |       |
| **Financing  activities:**                                  |       |                |       |           |       |                 |       |             |       |                                           |       |
| Net (repayment)  borrowings under revolving loan facilities |       | (125.0              | )          | —         |       | 6.3                  |       | —           |       | (118.7                                         | )          |
| Repayment of  long-term debt                                |       | (3,004.6            | )          | (453.3         | )          | (3.2                 | )          | —           |       | (3,461.1                                       | )          |
| Proceeds from  long-term debt                               |       | 2,203.6             |       | —         |       | 31.4                 |       | —           |       | 2,235.0                                        |       |
| Call premiums  related to early extinguishment of debt      |       | (64.2               | )          | (50.8          | )          | 10.3                 |       | —           |       | (104.7                                         | )          |
| Payments on notes  payable                                  |       | (30.5               | )          | (1.9           | )          | 0.8                  |       | —           |       | (31.6                                          | )          |
| Debt issuance  costs paid                                   |       | (16.9               | )          | (0.4           | )          | —               |       | —           |       | (17.3                                          | )          |
| Dividend to  parent for acquisition of minority interest    |       | (124.8              | )          | —         |       | —               |       | —           |       | (124.8                                         | )          |
| Contribution from  parent                                   |       | 837.6               |       | —         |       | —               |       | —           |       | 837.6                                          |       |
| Intercompany  advances, net of repayments                   |       | 179.7               |       | 116.0          |       | (172.9               | )          | (122.8           | )          | —                                         |       |
| Dividends paid                                              |       | —              |       | (9.7           | )          | —               |       | 9.7              |       | —                                         |       |
| Other, net                                                  |       | —              |       | (0.1           | )          | 5.0                  |       | —           |       | 4.9                                            |       |
| **Net cash  (used in) provided by financing activities**    |       | (145.1              | )          | (400.2         | )          | (122.3               | )          | (113.1           | )          | (780.7                                         | )          |
|                                                        |       |                |       |           |       |                 |       |             |       |                                           |       |
| Effect of  exchange rate changes on cash                    |       | —              |       | —         |       | (2.3                 | )          | —           |       | (2.3                                           | )          |
|                                                        |       |                |       |           |       |                 |       |             |       |                                           |       |
| Increase  (decrease) in cash and cash equivalents           |       | 2.7                 |       | (6.1           | )          | (107.6               | )          | —           |       | (111.0                                         | )          |
| Cash and cash  equivalents at beginning of period           |       | 7.3                 |       | 14.0           |       | 222.2                |       | —           |       | 243.5                                          |       |
| Cash and cash  equivalents at end of period                 |       | $                   | 10.0       |           | $          | 7.9                  |       | $                | 114.6      |                                           | $          | — |   | $ | 132.5 |   |
|                                                             |            |                     |            |                |            |                      |            |                  |            |                                                |            |  |  |  |  |  |

 

F-57

----

 

**HUNTSMAN INTERNATIONAL LLC ANDSUBSIDIARIES**

**CONDENSED CONSOLIDATING STATEMENTOF CASH FLOWS**

**YEAR ENDED DECEMBER 31, 2004**

**(Dollars in Millions)**

 
| ** **                                               | ** ** | **Parent  Company** | ** ** | **Guarantors** | ** ** | **Non-  Guarantors** | ** ** | **Eliminations** | ** ** | **Consolidated  Huntsman  International  LLC** | ** ** |
|----------------------------------------------------------|------------|---------------------|------------|----------------|------------|----------------------|------------|------------------|------------|------------------------------------------------|------------|
| **Net cash  (used in) provided by operating activities** |       | (334.1              | )          | 452.0          |       | 71.2                 |       | (7.5             | )          | 181.6                                          |       |
|                                                     |       |                |       |           |       |                 |       |             |       |                                           |       |
| **Investing  activities:**                               |       |                |       |           |       |                 |       |             |       |                                           |       |
| Capital  expenditures                                    |       | (22.8               | )          | (60.8          | )          | (143.0               | )          | —           |       | (226.6                                         | )          |
| Investment in  affiliates, net                           |       | —              |       | —         |       | (11.8                | )          | —           |       | (11.8                                          | )          |
| Proceeds from  sale of assets                            |       | 0.1                 |       | —         |       | 5.1                  |       | —           |       | 5.2                                            |       |
| Net cash (paid  to) received from affiliates             |       | (2.6                | )          | 8.6            |       | —               |       | —           |       | 6.0                                            |       |
| Change in  restricted cash                               |       | 0.6                 |       | 1.0            |       | —               |       | —           |       | 1.6                                            |       |
| Other, net                                               |       | —              |       | 2.2            |       | 0.4                  |       | —           |       | 2.6                                            |       |
| **Net cash  used in investing activities**               |       | (24.7               | )          | (49.0          | )          | (149.3               | )          | —           |       | (223.0                                         | )          |
|                                                     |       |                |       |           |       |                 |       |             |       |                                           |       |
| **Financing  activities:**                               |       |                |       |           |       |                 |       |             |       |                                           |       |
| Net borrowings  under revolving loan facilities          |       | 90.8                |       | —         |       | 23.0                 |       | —           |       | 113.8                                          |       |
| Repayment of  long-term debt                             |       | (2,701.1            | )          | (37.7          | )          | (84.0                | )          | —           |       | (2,822.8                                       | )          |
| Proceeds from  long-term debt                            |       | 2,839.1             |       | —         |       | 30.7                 |       | —           |       | 2,869.8                                        |       |
| Call premiums  related to early extinguishment of debt   |       | (17.0               | )          | —         |       | —               |       | —           |       | (17.0                                          | )          |
| Payments on notes  payable                               |       | (19.6               | )          | —         |       | —               |       | —           |       | (19.6                                          | )          |
| Net repayments of  overdraft facility                    |       | (7.5                | )          | (0.9           | )          | (2.2                 | )          | —           |       | (10.6                                          | )          |
| Debt issuance  costs paid                                |       | (35.6               | )          | —         |       | —               |       | —           |       | (35.6                                          | )          |
| Intercompany  advances, net of repayments                |       | 199.6               |       | (355.9         | )          | 156.3                |       | —           |       | —                                         |       |
| Dividends paid                                           |       | —              |       | (4.9           | )          | (2.6                 | )          | 7.5              |       | —                                         |       |
| Other, net                                               |       | —              |       | —         |       | 5.4                  |       | —           |       | 5.4                                            |       |
| **Net cash  provided by (used in) financing activities** |       | 348.7               |       | (399.4         | )          | 126.6                |       | 7.5              |       | 83.4                                           |       |
|                                                     |       |                |       |           |       |                 |       |             |       |                                           |       |
| Effect of  exchange rate changes on cash                 |       | —              |       | (0.9           | )          | 12.0                 |       | —           |       | 11.1                                           |       |
|                                                     |       |                |       |           |       |                 |       |             |       |                                           |       |
| (Decrease)  increase in cash and cash equivalents        |       | (10.1               | )          | 2.7            |       | 60.5                 |       | —           |       | 53.1                                           |       |
| Cash and cash  equivalents at beginning of period        |       | 17.4                |       | 11.3           |       | 161.7                |       | —           |       | 190.4                                          |       |
| Cash and cash  equivalents at end of period              |       | $                   | 7.3        |           | $          | 14.0                 |       | $                | 222.2      |                                           | $          | — |   | $ | 243.5 |   |
|                                                          |            |                     |            |                |            |                      |            |                  |            |                                                |            |  |  |  |  |  |

 

F-58

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**HUNTSMAN INTERNATIONAL LLC ANDSUBSIDIARIES**

**CONDENSED CONSOLIDATING STATEMENTOF CASH FLOWS**

**YEARENDED DECEMBER 31, 2003**

**(Dollarsin Millions)**

 
| ** **                                               | ** ** | **Parent  Company** | ** ** | **Guarantors** | ** ** | **Non-  Guarantors** | ** ** | **Eliminations** | ** ** | **Consolidated  Huntsman  International  LLC** | ** ** |
|----------------------------------------------------------|------------|---------------------|------------|----------------|------------|----------------------|------------|------------------|------------|------------------------------------------------|------------|
| **Net cash  (used in) provided by operating activities** |       | $                   | (168.5     | )              | $          | 290.4                |       | $                | 98.0       |                                           | $          | (4.0 | ) | $ | 215.9 |   |
|                                                     |       |                |       |           |       |                 |       |             |       |                                           |       |
| **Investing  activities:**                               |       |                |       |           |       |                 |       |             |       |                                           |       |
| Capital  expenditures                                    |       | (17.9               | )          | (60.6          | )          | (126.3               | )          | —           |       | (204.8                                         | )          |
| Proceeds from  sale of assets                            |       | —              |       | 0.2            |       | —               |       | —           |       | 0.2                                            |       |
| Acquisition of  business, net of cash acquired           |       | 0.3                 |       | (431.7         | )          | 53.5                 |       | —           |       | (377.9                                         | )          |
| Purchase of  Vantico senior notes                        |       | —              |       | (22.7          | )          | —               |       | —           |       | (22.7                                          | )          |
| Net cash (paid  to) received from affiliates             |       | (9.1                | )          | 0.8            |       | —               |       | —           |       | (8.3                                           | )          |
| Investment in  affiliates, net                           |       | 6.1                 |       | —         |       | (6.1                 | )          | —           |       | —                                         |       |
| Change in  restricted cash                               |       | (0.8                | )          | (0.6           | )          | —               |       | —           |       | (1.4                                           | )          |
| Other, net                                               |       | —              |       | (2.3           | )          | 0.1                  |       | —           |       | (2.2                                           | )          |
| **Net cash  used in investing activities**               |       | (21.4               | )          | (516.9         | )          | (78.8                | )          | —           |       | (617.1                                         | )          |
|                                                     |       |                |       |           |       |                 |       |             |       |                                           |       |
| **Financing  activities:**                               |       |                |       |           |       |                 |       |             |       |                                           |       |
| Net repayment  under revolving loan facilities           |       | (168.3              | )          | —         |       | —               |       | —           |       | (168.3                                         | )          |
| Repayment of  long-term debt                             |       | (593.2              | )          | (1.2           | )          | (8.0                 | )          | —           |       | (602.4                                         | )          |
| Proceeds from  long term debt                            |       | 813.4               |       | —         |       | —               |       | —           |       | 813.4                                          |       |
| Issuance of  senior secured notes                        |       | —              |       | 348.0          |       | —               |       | —           |       | 348.0                                          |       |
| Cost of raising  equity capital                          |       | —              |       | (10.4          | )          | 0.3                  |       | —           |       | (10.1                                          | )          |
| Payment on notes  payable                                |       | —              |       | —         |       | (1.0                 | )          | —           |       | (1.0                                           | )          |
| Net borrowings (repayment)  of overdraft facility        |       | 7.5                 |       | —         |       | (2.3                 | )          | —           |       | 5.2                                            |       |
| Debt issuance  costs paid                                |       | (30.1               | )          | (14.4          | )          | —               |       | —           |       | (44.5                                          | )          |
| Intercompany  advances, net of repayments                |       | 91.8                |       | (183.9         | )          | 92.1                 |       | —           |       | —                                         |       |
| Dividends paid                                           |       | —              |       | (4.0           | )          | —               |       | 4.0              |       | —                                         |       |
| Contribution from  parent                                |       | —              |       | 164.4          |       | —               |       | —           |       | 164.4                                          |       |
| Other, net                                               |       | —              |       | —         |       | 2.7                  |       | —           |       | 2.7                                            |       |
| **Net cash  provided by financing activities**           |       | 121.1               |       | 298.5          |       | 83.8                 |       | 4.0              |       | 507.4                                          |       |
|                                                     |       |                |       |           |       |                 |       |             |       |                                           |       |
| Effect of  exchange rate changes on cash                 |       | —              |       | (1.1           | )          | 9.9                  |       | —           |       | 8.8                                            |       |
|                                                     |       |                |       |           |       |                 |       |             |       |                                           |       |
| (Decrease)  increase in cash and cash equivalents        |       | (68.8               | )          | 70.9           |       | 112.9                |       | —           |       | 115.0                                          |       |
| Cash and cash  equivalents at beginning of period        |       | 86.2                |       | (59.6          | )          | 48.8                 |       | —           |       | 75.4                                           |       |
| Cash and cash  equivalents at end of period              |       | $                   | 17.4       |           | $          | 11.3                 |       | $                | 161.7      |                                           | $          | — |   | $ | 190.4 |   |

 

F-59

----

 

**30.          Condensed Consolidating Financial Statements – HuntsmanAdvanced Materials LLC**

 

On December 20, 2005, in connection with the AdMatMinority Interest Transaction, we redeemed all of AdMat’s outstanding $250million 11% senior secured fixed rate notes due 2010 and paid $35.6 million incall premiums. Also during 2005, we redeemed all of AdMat’s remaining $100.0million secured floating rate notes due 2008 and paid $6.0 million in callpremiums. See “Note 14 Long-Term Debt” Prior to the AdMat Minority InterestTransaction, we fully and unconditionally guaranteed the AdMat secured notes.

 

In connection with the AdMat Minority InterestTransaction, AdMat and its U.S. subsidiaries that had previously guaranteed theAdMat secured notes (the “AdMat Guarantors”) executed supplemental indenturesto guarantee all of our outstanding debt securities. The following condensedconsolidating financial statements present, in separate columns, financialinformation for the following: Huntsman International LLC (on a parent onlybasis), with its investment in subsidiaries recorded under the equity method;Huntsman Advanced Materials LLC (the Issuer Company); the AdMat Guarantors on acombined, and where appropriate, consolidated basis; and the AdMatnon-guarantors on a combined, and where appropriate, consolidated basis.Additional columns present eliminating adjustments and consolidated totals asof December 31, 2005 and December 31, 2004 and for the years ended December 31,2005, 2004, and 2003. There were no contractual restrictions limiting transfersof cash from guarantor subsidiaries to AdMat. Each of the AdMat Guarantors is100% owned by us and had fully and unconditionally guaranteed the AdMat securednotes on a joint and several basis.

 

F-60

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**HUNTSMAN INTERNATIONAL LLC ANDSUBSIDIARIES**

**CONDENSED CONSOLIDATING BALANCESHEET**

**AS OFDECEMBER 31, 2005**

**(Dollarsin Millions)**

 
| ** **                                         | ** ** | **Parent Company** | ** ** | **Issuer Company** | ** ** | **Guarantors** | ** ** | **Non- guarantors** | ** ** | **Eliminations** | ** ** | **Consolidated  Huntsman   International LLC** | ** ** |
|----------------------------------------------------|------------|--------------------|------------|--------------------|------------|----------------|------------|---------------------|------------|------------------|------------|------------------------------------------------|------------|
| **ASSETS**                                         |       |               |       |               |       |           |       |                |       |             |       |                                           |       |
| **Current assets:**                                |       |               |       |               |       |           |       |                |       |             |       |                                           |       |
| Cash and cash equivalents                          |       | $                  | 10.0       |               | $          | 2.3            |       | $                   | 6.3        |             | $          | 113.9                                          |       | $ | — |   | $ | 132.5 |   |
| Accounts and notes receivables, net                |       | 88.6               |       | 1.6                |       | 41.4           |       | 1,343.6             |       | —           |       | 1,475.2                                        |       |
| Accounts receivable from affiliates                |       | 523.4              |       | 2.8                |       | 176.7          |       | 1,246.5             |       | (1,939.0         | )          | 10.4                                           |       |
| Inventories, net                                   |       | 129.7              |       | 1.9                |       | 50.3           |       | 1,128.1             |       | (0.8             | )          | 1,309.2                                        |       |
| Prepaid expenses                                   |       | 3.6                |       | —             |       | 1.4            |       | 55.1                |       | (14.2            | )          | 45.9                                           |       |
| Deferred income taxes                              |       | 45.5               |       | —             |       | 0.7            |       | (14.8               | )          | (0.2             | )          | 31.2                                           |       |
| Other current assets                               |       | 27.7               |       | —             |       | 4.4            |       | 37.8                |       | —           |       | 69.9                                           |       |
| **Total current assets**                           |       | 828.5              |       | 8.6                |       | 281.2          |       | 3,910.2             |       | (1,954.2         | )          | 3,074.3                                        |       |
|                                               |       |               |       |               |       |           |       |                |       |             |       |                                           |       |
| Property, plant and  equipment, net                |       | 559.3              |       | 10.6               |       | 273.7          |       | 3,489.9             |       | 3.2              |       | 4,336.7                                        |       |
| Investment in affiliates                           |       | 3,521.8            |       | 262.2              |       | 427.1          |       | 509.6               |       | (4,545.1         | )          | 175.6                                          |       |
| Intangible assets, net                             |       | 170.4              |       | (14.7              | )          | 19.8           |       | 46.5                |       | —           |       | 222.0                                          |       |
| Goodwill                                           |       | —             |       | 88.0               |       | —         |       | 3.2                 |       | —           |       | 91.2                                           |       |
| Deferred income taxes                              |       | —             |       | 5.2                |       | 37.1           |       | 51.9                |       | —           |       | 94.2                                           |       |
| Receivables from affiliates                        |       | 2,204.1            |       | 146.5              |       | 262.9          |       | 170.4               |       | (2,780.9         | )          | 3.0                                            |       |
| Other noncurrent assets                            |       | 90.1               |       | 2.1                |       | 3.0            |       | 540.9               |       | (0.1             | )          | 636.0                                          |       |
| **Total assets**                                   |       | $                  | 7,374.2    |               | $          | 508.5          |       | $                   | 1,304.8    |             | $          | 8,722.6                                        |       | $ | (9,277.1 | ) | $ | 8,633.0 |   |
|                                               |       |               |       |               |       |           |       |                |       |             |       |                                           |       |
| **LIABILITIES AND MEMBERS’ EQUITY**           |       |               |       |               |       |           |       |                |       |             |       |                                           |       |
| **Current liabilities:**                           |       |               |       |               |       |           |       |                |       |             |       |                                           |       |
| Accounts payable                                   |       | $                  | 78.7       |               | $          | —         |       | $                   | 30.8       |             | $          | 983.2                                          |       | $ | — |   | $ | 1,092.7 |   |
| Accounts payable to affiliates                     |       | 1,214.8            |       | 77.6               |       | 34.2           |       | 621.0               |       | (1,938.9         | )          | 8.7                                            |       |
| Accrued liabilities                                |       | 188.3              |       | 36.9               |       | 34.0           |       | 407.2               |       | 65.9             |       | 732.3                                          |       |
| Deferred income taxes                              |       | —             |       | 5.2                |       | 1.1            |       | 76.4                |       | (80.3            | )          | 2.4                                            |       |
| Current portion of long-term debt                  |       | 20.3               |       | 0.9                |       | —         |       | 23.4                |       | —           |       | 44.6                                           |       |
| **Total current liabilities**                      |       | 1,502.1            |       | 120.6              |       | 100.1          |       | 2,111.2             |       | (1,953.3         | )          | 1,880.7                                        |       |
|                                               |       |               |       |               |       |           |       |                |       |             |       |                                           |       |
| Long-term debt                                     |       | 4,290.6            |       | —             |       | —         |       | 122.7               |       | —           |       | 4,413.3                                        |       |
| Long-term debt to affiliates                       |       | 67.5               |       | —             |       | 286.3          |       | 2,427.1             |       | (2,780.9         | )          | —                                         |       |
| Deferred income taxes                              |       | 45.5               |       | 0.3                |       | 14.5           |       | 156.6               |       | —           |       | 216.9                                          |       |
| Other noncurrent liabilities                       |       | 136.8              |       | 0.5                |       | 97.5           |       | 535.2               |       | —           |       | 770.0                                          |       |
| **Total liabilities**                              |       | 6,042.5            |       | 121.4              |       | 498.4          |       | 5,352.8             |       | (4,734.2         | )          | 7,280.9                                        |       |
|                                               |       |               |       |               |       |           |       |                |       |             |       |                                           |       |
| **Minority interest in consolidated subsidiaries** |       | —             |       | —             |       | —         |       | 97.2                |       | (76.8            | )          | 20.4                                           |       |
| **Members’ equity:**                          |       |               |       |               |       |           |       |                |       |             |       |                                           |       |
| Members’ equity                               |       | 2,794.0            |       | 426.9              |       | 847.2          |       | 2,875.1             |       | (4,149.2         | )          | 2,794.0                                        |       |
| Subsidiary preferred stock                         |       | —             |       | —             |       | —         |       | 72.0                |       | (72.0            | )          | —                                         |       |
| (Accumulated deficit) retained earnings            |       | (1,384.0           | )          | (18.4              | )          | (22.4          | )          | 259.0               |       | (218.2           | )          | (1,384.0                                       | )          |
| Accumulated other comprehensive (loss) income      |       | (78.3              | )          | (21.4              | )          | (18.4          | )          | 66.5                |       | (26.7            | )          | (78.3                                          | )          |
| **Total members’ equity**                     |       | 1,331.7            |       | 387.1              |       | 806.4          |       | 3,272.6             |       | (4,466.1         | )          | 1,331.7                                        |       |
| **Total liabilities and members’ equity**     |       | $                  | 7,374.2    |               | $          | 508.5          |       | $                   | 1,304.8    |             | $          | 8,722.6                                        |       | $ | (9,277.1 | ) | $ | 8,633.0 |   |

 

F-61

----

 

**HUNTSMAN INTERNATIONAL LLC ANDSUBSIDIARIES**

**CONDENSED CONSOLIDATING BALANCESHEET**

**AS OFDECEMBER 31, 2004**

**(Dollarsin Millions)**

 
| ** **                                         | ** ** | **Parent Company** | ** ** | **Issuer Company** | ** ** | **Guarantors** | ** ** | **Non- guarantors** | ** ** | **Eliminations** | ** ** | **Consolidated   Huntsman   International   LLC** | ** ** |
|----------------------------------------------------|------------|--------------------|------------|--------------------|------------|----------------|------------|---------------------|------------|------------------|------------|---------------------------------------------------|------------|
| **ASSETS**                                         |       |               |       |               |       |           |       |                |       |             |       |                                              |       |
| **Current assets:**                                |       |               |       |               |       |           |       |                |       |             |       |                                              |       |
| Cash and cash equivalents                          |       | $                  | 7.3        |               | $          | 4.6            |       | $                   | 70.8       |             | $          | 160.8                                             |       | $ | — |   | $ | 243.5 |   |
| Restricted cash                                    |       | 0.3                |       | —             |       | —         |       | 8.6                 |       | —           |       | 8.9                                               |       |
| Accounts and notes receivables, net                |       | 77.5               |       | —             |       | 52.9           |       | 1,455.1             |       | 0.3              |       | 1,585.8                                           |       |
| Accounts receivable from affiliates                |       | 93.4               |       | 76.7               |       | 228.0          |       | 279.4               |       | (667.1           | )          | 10.4                                              |       |
| Inventories, net                                   |       | 122.4              |       | —             |       | 47.1           |       | 1,085.4             |       | (1.0             | )          | 1,253.9                                           |       |
| Prepaid expenses                                   |       | 3.9                |       | —             |       | —         |       | 56.9                |       | (15.7            | )          | 45.1                                              |       |
| Deferred income taxes                              |       | —             |       | —             |       | —         |       | 11.9                |       | —           |       | 11.9                                              |       |
| Other current assets                               |       | 57.6               |       | 0.1                |       | 8.9            |       | 11.9                |       | (53.6            | )          | 24.9                                              |       |
| **Total current assets**                           |       | 362.4              |       | 81.4               |       | 407.7          |       | 3,070.0             |       | (737.1           | )          | 3,184.4                                           |       |
|                                               |       |               |       |               |       |           |       |                |       |             |       |                                              |       |
| Property, plant and equipment, net                 |       | 615.5              |       | —             |       | 329.9          |       | 3,871.9             |       | —           |       | 4,817.3                                           |       |
| Investment in affiliates                           |       | 3,374.2            |       | 416.2              |       | 204.1          |       | (1,122.0            | )          | (2,701.6         | )          | 170.9                                             |       |
| Intangible assets, net                             |       | 199.4              |       | (23.6              | )          | 23.6           |       | 56.2                |       | (2.4             | )          | 253.2                                             |       |
| Goodwill                                           |       | —             |       | —             |       | —         |       | 3.3                 |       | —           |       | 3.3                                               |       |
| Deferred income taxes                              |       | 0.4                |       | 5.2                |       | 28.6           |       | 8.5                 |       | —           |       | 42.7                                              |       |
| Receivables from affiliates                        |       | 2,219.6            |       | 425.6              |       | 355.3          |       | 1,961.5             |       | (4,938.4         | )          | 23.6                                              |       |
| Other noncurrent assets                            |       | 115.9              |       | 13.9               |       | —         |       | 555.7               |       | (6.5             | )          | 679.0                                             |       |
| **Total assets**                                   |       | $                  | 6,887.4    |               | $          | 918.7          |       | $                   | 1,349.2    |             | $          | 8,405.1                                           |       | $ | (8,386.0 | ) | $ | 9,174.4 |   |
|                                               |       |               |       |               |       |           |       |                |       |             |       |                                              |       |
| **LIABILITIES AND MEMBERS’ EQUITY**           |       |               |       |               |       |           |       |                |       |             |       |                                              |       |
| **Current liabilities:**                           |       |               |       |               |       |           |       |                |       |             |       |                                              |       |
| Accounts payable                                   |       | $                  | 48.6       |               | $          | —         |       | $                   | 25.4       |             | $          | 888.2                                             |       | $ | (0.1 | ) | $ | 962.1 |   |
| Accounts payable to affiliates                     |       | 57.7               |       | 33.6               |       | 146.9          |       | 462.9               |       | (666.8           | )          | 34.3                                              |       |
| Accrued liabilities                                |       | 547.2              |       | 25.8               |       | 51.0           |       | 219.8               |       | (64.6            | )          | 779.2                                             |       |
| Deferred income taxes                              |       | 45.6               |       | 5.3                |       | 1.0            |       | (34.1               | )          | (3.3             | )          | 14.5                                              |       |
| Current portion of long-term debt                  |       | 22.3               |       | 0.7                |       | —         |       | 14.5                |       | —           |       | 37.5                                              |       |
| **Total current liabilities**                      |       | 721.4              |       | 65.4               |       | 224.3          |       | 1,551.3             |       | (734.8           | )          | 1,827.6                                           |       |
|                                               |       |               |       |               |       |           |       |                |       |             |       |                                              |       |
| Long-term debt                                     |       | 5,359.1            |       | 348.6              |       | —         |       | 91.9                |       | —           |       | 5,799.6                                           |       |
| Long-term debt to affiliates                       |       | 518.0              |       | 249.1              |       | 420.6          |       | 4,205.3             |       | (4,938.4         | )          | 454.6                                             |       |
| Deferred income taxes                              |       | (34.2              | )          | —             |       | —         |       | 214.4               |       | —           |       | 180.2                                             |       |
| Other noncurrent liabilities                       |       | 159.7              |       | —             |       | 123.7          |       | 430.7               |       | (1.8             | )          | 712.3                                             |       |
| **Total liabilities**                              |       | 6,724.0            |       | 663.1              |       | 768.6          |       | 6,493.6             |       | (5,675.0         | )          | 8,974.3                                           |       |
|                                               |       |               |       |               |       |           |       |                |       |             |       |                                              |       |
| **Minority interest in consolidated subsidiaries** |       | —             |       | —             |       | 25.5           |       | 74.6                |       | (63.4            | )          | 36.7                                              |       |
| **Members’ equity:**                          |       |               |       |               |       |           |       |                |       |             |       |                                              |       |
| Members’ equity                               |       | 1,524.1            |       | 222.1              |       | 525.6          |       | 1,499.1             |       | (2,246.8         | )          | 1,524.1                                           |       |
| Subsidiary preferred stock                         |       | —             |       | —             |       | —         |       | 72.0                |       | (72.0            | )          | —                                            |       |
| (Accumulated deficit) retained earnings            |       | (1,504.7           | )          | 38.9               |       | 34.3           |       | (91.2               | )          | 18.0             |       | (1,504.7                                          | )          |
| Accumulated other comprehensive income (loss)      |       | 144.0              |       | (5.4               | )          | (4.8           | )          | 357.0               |       | (346.8           | )          | 144.0                                             |       |
| **Total members’ equity**                     |       | 163.4              |       | 255.6              |       | 555.1          |       | 1,836.9             |       | (2,647.6         | )          | 163.4                                             |       |
| **Total liabilities and members’ equity**     |       | $                  | 6,887.4    |               | $          | 918.7          |       | $                   | 1,349.2    |             | $          | 8,405.1                                           |       | $ | (8,386.0 | ) | $ | 9,174.4 |   |

 

F-62

----

 

**HUNTSMAN INTERNATIONAL LLC ANDSUBSIDIARIES**

**CONDENSED CONSOLIDATING STATEMENTOF OPERATIONS**

**YEAR ENDED DECEMBER 31, 2005**

**(Dollars in Millions)**

 
| ** **                                                                                                  | ** ** | **Parent Company** | ** ** | **Issuer Company** | ** ** | **Guarantors** | ** ** | **Non- guarantors** | ** ** | **Eliminations** | ** ** | **Consolidated Huntsman International LLC** | ** ** |
|-------------------------------------------------------------------------------------------------------------|------------|--------------------|------------|--------------------|------------|----------------|------------|---------------------|------------|------------------|------------|---------------------------------------------|------------|
| **Revenues:**                                                                                               |       |               |       |               |       |           |       |                |       |             |       |                                        |       |
| Trade sales, services and fees                                                                              |       | $                  | 1,364.0    |               | $          | —         |       | $                   | 279.5      |             | $          | 11,214.1                                    |       | $ | — |   | $ | 12,857.6 |   |
| Related party sales                                                                                         |       | 248.9              |       | —             |       | 137.1          |       | 864.7               |       | (1,146.7         | )          | 104.0                                       |       |
| **Total revenues**                                                                                          |       | 1,612.9            |       | —             |       | 416.6          |       | 12,078.8            |       | (1,146.7         | )          | 12,961.6                                    |       |
| **Cost of goods sold**                                                                                      |       | 1,290.5            |       | 0.4                |       | 340.3          |       | 10,701.4            |       | (1,142.2         | )          | 11,190.4                                    |       |
|                                                                                                        |       |               |       |               |       |           |       |                |       |             |       |                                        |       |
| **Gross profit (loss)**                                                                                     |       | 322.4              |       | (0.4               | )          | 76.3           |       | 1,377.4             |       | (4.5             | )          | 1,771.2                                     |       |
| Selling, general and administrative                                                                         |       | 117.8              |       | 1.2                |       | (15.5          | )          | 574.2               |       | —           |       | 677.7                                       |       |
| Research and development                                                                                    |       | 34.9               |       | —             |       | 30.8           |       | 29.8                |       | —           |       | 95.5                                        |       |
| Other operating (income) expense                                                                            |       | (26.3              | )          | (7.9               | )          | 36.8           |       | 39.6                |       | —           |       | 42.2                                        |       |
| Restructuring, impairment and plant closing costs                                                           |       | 5.0                |       | —             |       | 0.3            |       | 118.3               |       | —           |       | 123.6                                       |       |
|                                                                                                        |       |               |       |               |       |           |       |                |       |             |       |                                        |       |
| **Operating income**                                                                                        |       | 191.0              |       | 6.3                |       | 23.9           |       | 615.5               |       | (4.5             | )          | 832.2                                       |       |
| Interest (expense) income, net                                                                              |       | (220.7             | )          | (27.8              | )          | 9.0            |       | (186.1              | )          | —           |       | (425.6                                      | )          |
| Gain (loss) on accounts receivable securitization program                                                   |       | 15.7               |       | —             |       | —         |       | (26.4               | )          | —           |       | (10.7                                       | )          |
| Equity in income (loss) of affiliates and subsidiaries                                                      |       | 273.5              |       | 44.3               |       | (53.7          | )          | 8.2                 |       | (264.1           | )          | 8.2                                         |       |
| Other (expense) income                                                                                      |       | (119.7             | )          | (52.6              | )          | 0.2            |       | 9.8                 |       | (5.2             | )          | (167.5                                      | )          |
| **Income (loss) from continuing operations before income taxes,  minority interest and accounting changes** |       | 139.8              |       | (29.8              | )          | (20.6          | )          | 421.0               |       | (273.8           | )          | 236.6                                       |       |
| Income tax benefit (expense)                                                                                |       | 25.0               |       | (27.5              | )          | (6.1           | )          | (34.2               | )          | —           |       | (42.8                                       | )          |
| Minority interest expense                                                                                   |       | —             |       | —             |       | (0.7           | )          | (19.3               | )          | 18.3             |       | (1.7                                        | )          |
| **Income (loss) from continuing operations**                                                                |       | 164.8              |       | (57.3              | )          | (27.4          | )          | 367.5               |       | (255.5           | )          | 192.1                                       |       |
| Loss from discontinued operations (including loss on disposal of  $36.4), net of tax                        |       | (43.9              | )          | —             |       | —         |       | —              |       | —           |       | (43.9                                       | )          |
| Cumulative effect of changes in accounting principle, net of tax                                            |       | (0.2               | )          | —             |       | (0.8           | )          | (26.5               | )          | —           |       | (27.5                                       | )          |
| **Net income (loss)**                                                                                       |       | $                  | 120.7      |               | $          | (57.3          | )          | $                   | (28.2      | )                | $          | 341.0                                       |       | $ | (255.5 | ) | $ | 120.7 |   |

 

F-63

----

 

**HUNTSMAN INTERNATIONAL LLC ANDSUBSIDIARIES**

**CONDENSED CONSOLIDATING STATEMENTOF OPERATIONS**

**YEAR ENDED DECEMBER 31, 2004**

**(Dollars in Millions)**

 
| ** **                                                                                                  | ** ** | **Parent   Company** | ** ** | **Issuer  Company** | ** ** | **Guarantors** | ** ** | **Non-  guarantors** | ** ** | **Eliminations** | ** ** | **Consolidated   Huntsman   International LLC** | ** ** |
|-------------------------------------------------------------------------------------------------------------|------------|----------------------|------------|---------------------|------------|----------------|------------|----------------------|------------|------------------|------------|-------------------------------------------------|------------|
| **Revenues:**                                                                                               |       |                 |       |                |       |           |       |                 |       |             |       |                                            |       |
| Trade sales, services and fees                                                                              |       | $                    | 1,177.8    |                | $          | —         |       | $                    | 246.1      |             | $          | 9,707.3                                         |       | $ | 247.3 |   | $ | 11,378.5 |   |
| Related party sales                                                                                         |       | 181.3                |       | —              |       | 99.0           |       | 329.4                |       | (561.8           | )          | 47.9                                            |       |
| **Total revenues**                                                                                          |       | 1,359.1              |       | —              |       | 345.1          |       | 10,036.7             |       | (314.5           | )          | 11,426.4                                        |       |
| **Cost of goods sold**                                                                                      |       | 1,126.6              |       | —              |       | 395.4          |       | 8,809.4              |       | (306.3           | )          | 10,025.1                                        |       |
|                                                                                                        |       |                 |       |                |       |           |       |                 |       |             |       |                                            |       |
| **Gross profit (loss)**                                                                                     |       | 232.5                |       | —              |       | (50.3          | )          | 1,227.3              |       | (8.2             | )          | 1,401.3                                         |       |
| Selling, general and administrative                                                                         |       | 78.3                 |       | 7.7                 |       | 69.9           |       | 508.6                |       | (12.0            | )          | 652.5                                           |       |
| Research and development                                                                                    |       | 32.2                 |       | —              |       | 32.4           |       | 31.5                 |       | —           |       | 96.1                                            |       |
| Other operating income                                                                                      |       | (9.1                 | )          | (11.0               | )          | (45.3          | )          | (15.6                | )          | —           |       | (81.0                                           | )          |
| Restructuring, impairment and plant closing costs                                                           |       | 2.4                  |       | —              |       | 6.4            |       | 290.5                |       | —           |       | 299.3                                           |       |
|                                                                                                        |       |                 |       |                |       |           |       |                 |       |             |       |                                            |       |
| **Operating income (loss)**                                                                                 |       | 128.7                |       | 3.3                 |       | (113.7         | )          | 412.3                |       | 3.8              |       | 434.4                                           |       |
| Interest (expense) income, net                                                                              |       | (369.0               | )          | (6.2                | )          | 173.4          |       | (390.8               | )          | —           |       | (592.6                                          | )          |
| Gain (loss) on accounts receivable securitization program                                                   |       | 3.6                  |       | —              |       | —         |       | (19.2                | )          | —           |       | (15.6                                           | )          |
| Equity in income (loss) of affiliates and subsidiaries                                                      |       | 68.7                 |       | 84.3                |       | (4.5)          |       | (97.7                | )          | (46.8            | )          | 4.0                                             |       |
| Other (expense) income                                                                                      |       | (35.0                | )          | —              |       | —         |       | 15.7                 |       | (6.5             | )          | (25.8                                           | )          |
| **(Loss) income from continuing operations before income taxes,  minority interest and accounting changes** |       | (203.0               | )          | 81.4                |       | 55.2           |       | (79.7                | )          | (49.5            | )          | (195.6                                          | )          |
| Income tax benefit (expense)                                                                                |       | 23.1                 |       | (29.2               | )          | (3.0           | )          | 32.0                 |       | —           |       | 22.9                                            |       |
| Minority interest expense                                                                                   |       | —               |       | —              |       | (6.2           | )          | (4.3                 | )          | 3.3              |       | (7.2                                            | )          |
| **(Loss) income from continuing operations**                                                                |       | (179.9               | )          | 52.2                |       | 46.0           |       | (52.0                | )          | (46.2            | )          | (179.9                                          | )          |
| Loss from discontinued operations, net of tax                                                               |       | (7.8                 | )          | —              |       | —         |       | —               |       | —           |       | (7.8                                            | )          |
| **Net (loss) income**                                                                                       |       | $                    | (187.7     | )                   | $          | 52.2           |       | $                    | 46.0       |             | $          | (52.0                                           | )          | $ | (46.2 | ) | $ | (187.7 | ) |

 

F-64

----

** **

**HUNTSMANINTERNATIONAL LLC AND SUBSIDIARIES**

**CONDENSEDCONSOLIDATING STATEMENT OF OPERATIONS**

**YEAR ENDEDDECEMBER 31, 2003**

**(Dollarsin Millions)**

 
| ** **                                                                                                  | ** ** | **Parent  Company** | ** ** | **Issuer  Company** | ** ** | **Guarantors** | ** ** | **Non-  guarantors** | ** ** | **Eliminations** | ** ** | **Consolidated  Huntsman  International  LLC** | ** ** |
|-------------------------------------------------------------------------------------------------------------|------------|---------------------|------------|---------------------|------------|----------------|------------|----------------------|------------|------------------|------------|------------------------------------------------|------------|
| **Revenues:**                                                                                               |       |                |       |                |       |           |       |                 |       |             |       |                                           |       |
| Trade sales, services and fees                                                                              |       | $                   | 842.8      |                | $          | —         |       | $                    | 273.4      |             | $          | 6,351.4                                        |       | $ | 23.8 |   | $ | 7,491.4 |   |
| Related party sales                                                                                         |       | 140.2               |       |                | —     |           | 124.2      |                 | 253.0      |             | (362.5     | )                                              | 154.9      |   |
| **Total revenues**                                                                                          |       | 983.0               |       |                | —     |           | 397.6      |                 | 6,604.4    |             | (338.7     | )                                              | 7,646.3    |   |
| **Cost of goods sold**                                                                                      |       | 811.6               |       | 2.0                 |       | 341.5          |       | 6,042.9              |       | (361.8           | )          | 6,836.2                                        |       |
|                                                                                                        |       |                |       |                |       |           |       |                 |       |             |       |                                           |       |
| **Gross profit (loss)**                                                                                     |       | 171.4               |       | (2.0                | )          | 56.1           |       | 561.5                |       | 23.1             |       | 810.1                                          |       |
| Selling, general and administrative                                                                         |       | 125.7               |       | 6.3                 |       | 28.0           |       | 326.9                |       | 23.2             |       | 510.1                                          |       |
| Research and development                                                                                    |       | 37.7                |       | —              |       | 20.9           |       | 28.2                 |       | —           |       | 86.8                                           |       |
| Other operating income                                                                                      |       | (66.5               | )          | (8.9                | )          | (2.6           | )          | (0.5                 | )          | —           |       | (78.5                                          | )          |
| Restructuring, impairment and plant  closing costs                                                          |       | —              |       | —              |       | —         |       | 55.0                 |       | —           |       | 55.0                                           |       |
|                                                                                                        |       |                |       |                |       |           |       |                 |       |             |       |                                           |       |
| **Operating income**                                                                                        |       | 74.5                |       | 0.6                 |       | 9.8            |       | 151.9                |       | (0.1             | )          | 236.7                                          |       |
| Interest expense, net                                                                                       |       | (374.9              | )          | (3.6                | )          | (16.0          | )          | (86.0                | )          | —           |       | (480.5                                         | )          |
| (Loss) gain on accounts receivable securitization  program                                                  |       | (64.3               | )          | —              |       | —         |       | 31.9                 |       | —           |       | (32.4                                          | )          |
| Equity in income (loss) of affiliates and  subsidiaries                                                     |       | 37.0                |       | (15.8               | )          | (0.1           | )          | (93.5                | )          | 74.1             |       | 1.7                                            |       |
| Other (expense) income                                                                                      |       | (4.4                | )          | —              |       | —         |       | 6.8                  |       | (3.1             | )          | (0.7                                           | )          |
| **(Loss) income from continuing  operations before income taxes, minority interest and accounting changes** |       | (332.1              | )          | (18.8               | )          | (6.3           | )          | 11.1                 |       | 70.9             |       | (275.2                                         | )          |
| Income tax benefit (expense)                                                                                |       | 17.4                |       | 5.5                 |       | (7.0           | )          | (56.9                | )          | —           |       | (41.0                                          | )          |
| Minority interest income (expense)                                                                          |       | —              |       | —              |       | 1.5            |       | (2.1                 | )          | 2.1              |       | 1.5                                            |       |
| **Loss from continuing operations**                                                                         |       | (314.7              | )          | (13.3               | )          | (11.8          | )          | (47.9                | )          | 73.0             |       | (314.7                                         | )          |
| Loss from discontinued operations, net of  tax                                                              |       | (2.6                | )          | —              |       | —         |       | —               |       | —           |       | (2.6                                           | )          |
| **Net loss**                                                                                                |       | $                   | (317.3     | )                   | $          | (13.3          | )          | $                    | (11.8      | )                | $          | (47.9                                          | )          | $ | 73.0 |   | $ | (317.3 | ) |

 

F-65

----

 

**HUNTSMANINTERNATIONAL LLC AND SUBSIDIARIES**

**CONDENSEDCONSOLIDATING STATEMENT OF CASH FLOWS**

**YEAR ENDEDDECEMBER 31, 2005**

**(Dollarsin Millions)**

 
| ** **                                                  | ** ** | **Parent  Company** | ** ** | **Issuer Company** | ** ** | **Guarantors** | ** ** | **Non-  Guarantors** | ** ** | **Eliminations** | ** ** | **Consolidated  Huntsman  International  LLC** | ** ** |
|-------------------------------------------------------------|------------|---------------------|------------|-------------------------|------------|----------------|------------|----------------------|------------|------------------|------------|------------------------------------------------|------------|
| **Net cash  provided by (used in) operating activities**    |       | 288.0               |       | 112.1                   |       | (47.4          | )          | 645.3                |       | (9.7             | )          | 988.3                                          |       |
|                                                        |       |                |       |                    |       |           |       |                 |       |             |       |                                           |       |
| **Investing  activities:**                                  |       |                |       |                    |       |           |       |                 |       |             |       |                                           |       |
| Capital  expenditures                                       |       | (32.9               | )          | —                  |       | (21.4          | )          | (284.4               | )          | —           |       | (338.7                                         | )          |
| Investment  in affiliates, net                              |       | (114.0              | )          | —                  |       | 1.5            |       | (8.1                 | )          | 112.6            |       | (8.0                                           | )          |
| Proceeds  from sale of assets                               |       | 6.4                 |       | —                  |       | —         |       | 11.8                 |       | —           |       | 18.2                                           |       |
| Net cash  received from affiliates                          |       | —              |       | —                  |       | 0.3            |       | 5.9                  |       | —           |       | 6.2                                            |       |
| Change in  restricted cash                                  |       | 0.3                 |       | —                  |       | —         |       | 8.6                  |       | —           |       | 8.9                                            |       |
| Other, net                                                  |       | —              |       | —                  |       | (1.4           | )          | (1.5                 | )          | —           |       | (2.9                                           | )          |
| **Net cash  used in investing activities**                  |       | (140.2              | )          | —                  |       | (21.0          | )          | (267.7               | )          | 112.6            |       | (316.3                                         | )          |
|                                                        |       |                |       |                    |       |           |       |                 |       |             |       |                                           |       |
| **Financing  activities:**                                  |       |                |       |                    |       |           |       |                 |       |             |       |                                           |       |
| Net  (repayment) borrowings under revolving loan facilities |       | (125.0              | )          | —                  |       | —         |       | 6.3                  |       | —           |       | (118.7                                         | )          |
| Repayment of  long-term debt                                |       | (3,004.6            | )          | (350.0                  | )          | —         |       | (106.5               | )          | —           |       | (3,461.1                                       | )          |
| Proceeds  from long-term debt                               |       | 2,203.6             |       | —                  |       | —         |       | 31.4                 |       | —           |       | 2,235.0                                        |       |
| Call  premiums related to early extinguishment of debt      |       | (64.2               | )          | (40.6                   | )          | —         |       | 0.1                  |       | —           |       | (104.7                                         | )          |
| Payments on  notes payable                                  |       | (30.5               | )          | (1.9                    | )          | —         |       | 0.8                  |       | —           |       | (31.6                                          | )          |
| Debt  issuance costs paid                                   |       | (16.9               | )          | (0.4                    | )          | —         |       | —               |       | —           |       | (17.3                                          | )          |
| Dividend to  parent for acquisition of minority interest    |       | (124.8              | )          | —                  |       | —         |       | —               |       | —           |       | (124.8                                         | )          |
| Contribution  from parent                                   |       | 837.6               |       | —                  |       | —         |       | —               |       | —           |       | 837.6                                          |       |
| Intercompany  advances - net of repayments                  |       | 179.7               |       | 278.5                   |       | 2.1            |       | (347.7               | )          | (112.6           | )          | —                                         |       |
| Dividends  paid                                             |       | —              |       | —                  |       | —         |       | (9.7                 | )          | 9.7              |       | —                                         |       |
| Other, net                                                  |       | —              |       | —                  |       | —         |       | 4.9                  |       | —           |       | 4.9                                            |       |
| **Net cash  (used in) provided by financing activities**    |       | (145.1              | )          | (114.4                  | )          | 2.1            |       | (420.4               | )          | (102.9           | )          | (780.7                                         | )          |
|                                                        |       |                |       |                    |       |           |       |                 |       |             |       |                                           |       |
| Effect of  exchange rate changes on cash                    |       | —              |       | —                  |       | 1.8            |       | (4.1                 | )          | —           |       | (2.3                                           | )          |
|                                                        |       |                |       |                    |       |           |       |                 |       |             |       |                                           |       |
| Increase  (decrease) in cash and cash equivalents           |       | 2.7                 |       | (2.3                    | )          | (64.5          | )          | (46.9                | )          | —           |       | (111.0                                         | )          |
| Cash and  cash equivalents at beginning of period           |       | 7.3                 |       | 4.6                     |       | 70.8           |       | 160.8                |       | —           |       | 243.5                                          |       |
| Cash and cash  equivalents at end of period                 |       | $                   | 10.0       |                    | $          | 2.3            |       | $                    | 6.3        |             | $          | 113.9                                          |       | $ | — |   | $ | 132.5 |   |
|                                                             |            |                     |            |                         |            |                |            |                      |            |                  |            |                                                |            |  |  |  |  |  |  |

 

F-66

----

 

**HUNTSMANINTERNATIONAL LLC AND SUBSIDIARIES**

**CONDENSEDCONSOLIDATING STATEMENT OF CASH FLOWS**

**YEAR ENDEDDECEMBER 31, 2004**

**(Dollarsin Millions)**

 
| ** **                                               | ** ** | **Parent  Company** | ** ** | **Issuer Company** | ** ** | **Guarantors** | ** ** | **Non-  Guarantors** | ** ** | **Eliminations** | ** ** | **Consolidated  Huntsman  International  LLC** | ** ** |
|----------------------------------------------------------|------------|---------------------|------------|--------------------|------------|----------------|------------|----------------------|------------|------------------|------------|------------------------------------------------|------------|
| **Net cash (used in) provided by operating  activities** |       | (334.1              | )          | (25.4              | )          | 128.2          |       | 420.4                |       | (7.5             | )          | 181.6                                          |       |
|                                                     |       |                |       |               |       |           |       |                 |       |             |       |                                           |       |
| **Investing activities:**                                |       |                |       |               |       |           |       |                 |       |             |       |                                           |       |
| Capital expenditures                                     |       | (22.8               | )          | —             |       | (12.8          | )          | (191.0               | )          | —           |       | (226.6                                         | )          |
| Investment in affiliates, net                            |       | —              |       | —             |       | 0.2            |       | (12.0                | )          | —           |       | (11.8                                          | )          |
| Proceeds from sale of assets                             |       | 0.1                 |       | —             |       | 0.9            |       | 4.2                  |       | —           |       | 5.2                                            |       |
| Net cash (paid to) received from affiliates              |       | (2.6                | )          | —             |       | —         |       | 8.6                  |       | —           |       | 6.0                                            |       |
| Change in restricted cash                                |       | 0.6                 |       | —             |       | —         |       | 1.0                  |       | —           |       | 1.6                                            |       |
| Other, net                                               |       | —              |       | —             |       | —         |       | 2.6                  |       | —           |       | 2.6                                            |       |
| **Net cash used in investing activities**                |       | (24.7               | )          | —             |       | (11.7          | )          | (186.6               | )          | —           |       | (223.0                                         | )          |
|                                                     |       |                |       |               |       |           |       |                 |       |             |       |                                           |       |
| **Financing activities:**                                |       |                |       |               |       |           |       |                 |       |             |       |                                           |       |
| Net borrowings under revolving loan  facilities          |       | 90.8                |       | —             |       | —         |       | 23.0                 |       | —           |       | 113.8                                          |       |
| Repayment of long-term debt                              |       | (2,701.1            | )          | —             |       | —         |       | (121.7               | )          | —           |       | (2,822.8                                       | )          |
| Proceeds from long-term debt                             |       | 2,839.1             |       | —             |       | —         |       | 30.7                 |       | —           |       | 2,869.8                                        |       |
| Call premiums related to early  extinguishment of debt   |       | (17.0               | )          | —             |       | —         |       | —               |       | —           |       | (17.0                                          | )          |
| Payments on notes payable                                |       | (19.6               | )          | —             |       | —         |       | —               |       | —           |       | (19.6                                          | )          |
| Net repayment of overdraft facility                      |       | (7.5                | )          | (0.9               | )          | —         |       | (2.2                 | )          | —           |       | (10.6                                          | )          |
| Debt issuance costs paid                                 |       | (35.6               | )          | —             |       | —         |       | —               |       | —           |       | (35.6                                          | )          |
| Intercompany advances - net of repayments                |       | 199.6               |       | 21.0               |       | (90.5          | )          | (130.1               | )          | —           |       | —                                         |       |
| Dividends paid                                           |       | —              |       | —             |       | —         |       | (7.5                 | )          | 7.5              |       | —                                         |       |
| Other, net                                               |       | —              |       | —             |       | —         |       | 5.4                  |       | —           |       | 5.4                                            |       |
| **Net cash provided by (used in) financing  activities** |       | 348.7               |       | 20.1               |       | (90.5          | )          | (202.4               | )          | 7.5              |       | 83.4                                           |       |
|                                                     |       |                |       |               |       |           |       |                 |       |             |       |                                           |       |
| Effect of exchange rate changes on cash                  |       | —              |       | —             |       | (0.9           | )          | 12.0                 |       | —           |       | 11.1                                           |       |
|                                                     |       |                |       |               |       |           |       |                 |       |             |       |                                           |       |
| (Decrease) increase in cash and cash  equivalents        |       | (10.1               | )          | (5.3               | )          | 25.1           |       | 43.4                 |       | —           |       | 53.1                                           |       |
| Cash and cash equivalents at beginning of  period        |       | 17.4                |       | 9.9                |       | 45.7           |       | 117.4                |       | —           |       | 190.4                                          |       |
| Cash and cash equivalents at end of period               |       | $                   | 7.3        |               | $          | 4.6            |       | $                    | 70.8       |             | $          | 160.8                                          |       | $ | — |   | $ | 243.5 |   |
|                                                          |            |                     |            |                    |            |                |            |                      |            |                  |            |                                                |            |  |  |  |  |  |  |

 

F-67

----

 

**HUNTSMANINTERNATIONAL LLC AND SUBSIDIARIES**

**CONDENSEDCONSOLIDATING STATEMENT OF CASH FLOWS**

**YEAR ENDEDDECEMBER 31, 2003**

**(Dollarsin Millions)**

 
| ** **                                               | ** ** | **Parent  Company** | ** ** | **Issuer Company** | ** ** | **Guarantors** | ** ** | **Non-  Guarantors** | ** ** | **Eliminations** | ** ** | **Consolidated  Huntsman  International  LLC** | ** ** |
|----------------------------------------------------------|------------|---------------------|------------|--------------------|------------|----------------|------------|----------------------|------------|------------------|------------|------------------------------------------------|------------|
| **Net cash (used in) provided by operating  activities** |       | (168.5              | )          | (23.4              | )          | 28.6           |       | 383.2                |       | (4.0             | )          | 215.9                                          |       |
|                                                     |       |                |       |               |       |           |       |                 |       |             |       |                                           |       |
| **Investing activities:**                                |       |                |       |               |       |           |       |                 |       |             |       |                                           |       |
| Capital expenditures                                     |       | (17.9               | )          | —             |       | (4.1           | )          | (182.8               | )          | —           |       | (204.8                                         | )          |
| Investment in affiliates, net                            |       | 6.1                 |       | —             |       | —         |       | (6.1                 | )          | —           |       | —                                         |       |
| Proceeds from sale of assets                             |       | —              |       | —             |       | —         |       | 0.2                  |       | —           |       | 0.2                                            |       |
| Acquisition of business, net of cash acquired            |       | 0.3                 |       | (431.9             | )          | 18.8           |       | 34.9                 |       | —           |       | (377.9                                         | )          |
| Purchase of Vantico senior notes                         |       | —              |       | (22.7              | )          | —         |       | —               |       | —           |       | (22.7                                          | )          |
| Net cash (paid to) received from affiliates              |       | (9.1                | )     | —             |       | —         |       | 0.8                  |       | —           |       | (8.3                                           | )          |
| Change in restricted cash                                |       | (0.8                | )          | —             |       | —         |       | (0.6                 | )          | —           |       | (1.4                                           | )          |
| Other, net                                               |       | —              |       | —             |       | —         |       | (2.2                 | )          | —           |       | (2.2                                           | )          |
| **Net cash (used in) provided by investing  activities** |       | (21.4               | )          | (454.6             | )          | 14.7           |       | (155.8               | )          | —           |       | (617.1                                         | )          |
|                                                     |       |                |       |               |       |           |       |                 |       |             |       |                                           |       |
| **Financing activities:**                                |       |                |       |               |       |           |       |                 |       |             |       |                                           |       |
| Net repayment under revolving loan  facilities           |       | (168.3              | )          | —             |       | —         |       | —               |       | —           |       | (168.3                                         | )          |
| Repayment of long-term debt                              |       | (593.2              | )          | —             |       | —         |       | (9.2                 | )          | —           |       | (602.4                                         | )          |
| Proceeds from long-term debt                             |       | 813.4               |       | —             |       | —         |       | —               |       | —           |       | 813.4                                          |       |
| Issuance of senior secured notes                         |       | —              |       | 348.0              |       | —         |       | —               |       | —           |       | 348.0                                          |       |
| Cost of raising equity capital                           |       | —              |       | (10.1              | )          | —         |       | —               |       | —           |       | (10.1                                          | )          |
| Payments on notes payable                                |       | —              |       | —             |       | (1.0           | )          | —               |       | —           |       | (1.0                                           | )          |
| Net borrowings (repayment) of overdraft  facility        |       | 7.5                 |       | —             |       | (0.7           | )          | (1.6                 | )          | —           |       | 5.2                                            |       |
| Debt issuance costs paid                                 |       | (30.1               | )          | (14.4              | )          | —         |       | —               |       | —           |       | (44.5                                          | )          |
| Contribution from parent                                 |       | —              |       | 164.4              |       | —         |       | —               |       | —           |       | 164.4                                          |       |
| Intercompany advances - net of repayments                |       | 91.8                |       | —             |       | 1.3            |       | (93.1                | )          | —           |       | —                                         |       |
| Dividends paid                                           |       | —              |       | —             |       | —         |       | (4.0                 | )          | 4.0              |       | —                                         |       |
| Other, net                                               |       | —              |       | —             |       | —         |       | 2.7                  |       | —           |       | 2.7                                            |       |
| **Net cash provided by (used in) financing  activities** |       | 121.1               |       | 487.9              |       | (0.4           | )          | (105.2               | )          | 4.0              |       | 507.4                                          |       |
|                                                     |       |                |       |               |       |           |       |                 |       |             |       |                                           |       |
| Effect of exchange rate changes on cash                  |       | —              |       | —             |       | 2.8            |       | 6.0                  |       | —           |       | 8.8                                            |       |
|                                                     |       |                |       |               |       |           |       |                 |       |             |       |                                           |       |
| (Decrease) increase in cash and cash  equivalents        |       | (68.8               | )          | 9.9                |       | 45.7           |       | 128.2                |       | —           |       | 115.0                                          |       |
| Cash and cash equivalents at beginning of  period        |       | 86.2                |       | —             |       | —         |       | (10.8                | )          | —           |       | 75.4                                           |       |
| Cash and cash equivalents at end of period               |       | $                   | 17.4       |               | $          | 9.9            |       | $                    | 45.7       |             | $          | 117.4                                          |       | $ | — |   | $ | 190.4 |   |
|                                                          |            |                     |            |                    |            |                |            |                      |            |                  |            |                                                |            |  |  |  |  |  |  |

 

F-68

----

 

**HUNTSMANINTERNATIONAL LLC AND SUBSIDIARIES**

 

**Schedule II—Valuation and QualifyingAccounts**

 

**(Dollarsin Millions)**

 
| ** **                                  | ** ** | ** **                           | ** ** | **Column C**                       | ** ** | ** **                      | ** ** | ** **     | ** ** |
|---------------------------------------------|------------|--------------------------------------|------------|------------------------------------|------------|---------------------------------|------------|----------------|------------|
| **Column A**                                | ** ** | **Column B**                         | ** ** | **Additions**                      | ** ** | **Column D**                    | ** ** | **Column E**   | ** ** |
| **Description**                             | ** ** | **Balance at  Beginning  of Period** | ** ** | **Charged  to cost and  expenses** | ** ** | **Charged  to other  accounts** | ** ** | **Deductions** | ** ** | **Balance at  End of  Period** | ** ** |
|                                        |       |                                 |       |                               |       |                            |       |           |       |   |   |
| Allowance for Doubtful Accounts:            |       |                                 |       |                               |       |                            |       |           |       |   |   |
| Year ended December 31, 2005                |       | $                                    | 25.8       |                               | $          | 4.2                             |       | $              | 3.7        |   | $ | — |   | $ | 33.7 |   |
| Year ended December 31, 2004                |       | 26.5                                 |       | 2.0                                |       | —                          |       | (2.7           | )          | 25.8 |   |
| Year ended December 31, 2003                |       | 14.5                                 |       | 10.2                               |       | 14.3                            | (1)        | (12.5          | )          | 26.5 |   |
|                                        |       |                                 |       |                               |       |                            |       |           |       |   |   |
| Valuation Allowance on Deferred Tax Assets: |       |                                 |       |                               |       |                            |       |           |       |   |   |
| Year ended December 31, 2005                |       | 937.2                                |       | (150.7                             | )          | —                          |       | (291.2         | )(2)       | 495.3 |   |
| Year ended December 31, 2004                |       | 763.3                                |       | 48.7                               |       | 182.3                           |       | (57.1          | )          | 937.2 |   |
| Year ended December 31, 2003                |       | 149.6                                |       | 112.5                              |       | 502.0                           |       | (0.8           | )          | 763.3 |   |
|                                             |            |                                      |            |                                    |            |                                 |            |                |            |  |  |  |  |  |  |  |

 

----

(1)           Represents specificreserves provided for receivables as a result of the HLLC ConsolidationTransaction and the AdMat Transaction in 2003.

 

(2)           See “Note 18 IncomeTaxes” to our Consolidated Financial Statements included elsewhere in thisreport

 

F-69

----

 

**EXHIBIT INDEX**

 
| **Number** | ** ** | **Description**                                                                                                                                                                                                                                                                                        |
|------------|------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|       |       |                                                                                                                                                                                                                                                                                                   |
| 2.1        |       | Agreement and Plan of Merger dated August 16,  2005 relating to our merger with Huntsman LLC (incorporated by reference to Exhibit 2.1  to our current report on Form 8-K filed August 22, 2005).                                                                                  |
|       |       |                                                                                                                                                                                                                                                                                                   |
| 2.2        |       | Share and Asset Purchase Agreement by and  between our Company, Ciba Specialty Chemicals Holding Inc. and RM 2526  Vermogensverwaltungs GmbH dated as of February 18, 2006 (incorporated by  reference to Exhibit 2.1 to our current report on Form 8-K filed February 24,  2006). |
|       |       |                                                                                                                                                                                                                                                                                                   |
| 3.1        |       | Certificate of Formation of our Company  (incorporated by reference to Exhibit 3.1 to our registration statement  on Form S-4 (File No. 333- 85141))                                                                                                                                    |
|       |       |                                                                                                                                                                                                                                                                                                   |
| 3.2        |       | Second Amended and Restated Limited  Liability Company Agreement of our Company dated December 20, 2001  (incorporated by reference to Exhibit 3.2 to amendment no. 1 to our  annual report on Form 10-K/A for the year ended December 31, 2001)                              |
|       |       |                                                                                                                                                                                                                                                                                                   |
| 3.3        |       | Certificate of Amendment to Certificate of Formation  of Huntsman International LLC (incorporated by reference to Exhibit 3.9  to our annual report on Form 10-K for the year ended December 31,  2000)                                                                                 |

 

----

 
| 3.16   |   | Limited Liability Company Agreement of  Huntsman Texas Holdings LLC dated July 12, 2000 (incorporated by  reference to Exhibit 3.12 to our registration statement on Form S-4  (File No. 333-58578))                                                                                                                                                     |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                                                                                                                                         |
| 3.17   |   | Certificate of Formation of Eurofuels LLC  (incorporated by reference to Exhibit 3.13 to our registration statement  on Form S-4 (File No. 333-58578))                                                                                                                                                                                                        |
|   |   |                                                                                                                                                                                                                                                                                                                                                                         |
| 3.18   |   | Limited Liability Company Agreement of  Eurofuels LLC dated July 12, 2000 (incorporated by reference to Exhibit 3.14  to our registration statement on Form S-4 (File No. 333-58578))                                                                                                                                                                    |
|   |   |                                                                                                                                                                                                                                                                                                                                                                         |
| 3.19   |   | Certificate of Formation of Eurostar  Industries LLC (incorporated by reference to Exhibit 3.15 to our  registration statement on Form S-4 (File No. 333- 58578))                                                                                                                                                                                             |
|   |   |                                                                                                                                                                                                                                                                                                                                                                         |
| 3.20   |   | Limited Liability Company Agreement of  Eurostar Industries LLC dated July 12, 2000 (incorporated by reference  to Exhibit 3.16 to our registration statement on Form S-4 (File No. 333-58578))                                                                                                                                                          |
|   |   |                                                                                                                                                                                                                                                                                                                                                                         |
| 3.21   |   | Certificate of Limited Partnership of  Huntsman Ethyleneamines Ltd. (incorporated by reference to Exhibit 3.17  to our registration statement on Form S-4 (File No. 333-58578))                                                                                                                                                                               |
|   |   |                                                                                                                                                                                                                                                                                                                                                                         |
| 3.22   |   | Articles of Limited Partnership of Huntsman  Ethyleneamines Ltd. dated January 5, 2001 (incorporated by reference to Exhibit 3.18  to our registration statement on Form S-4 (File No. 333-58578))                                                                                                                                                       |
|   |   |                                                                                                                                                                                                                                                                                                                                                                         |
| 3.23   |   | Certificate of Limited Partnership of  Huntsman Propylene Oxide Ltd. (incorporated by reference to Exhibit 3.19  to our registration statement on Form S-4 (File No. 333-58578))                                                                                                                                                                              |
|   |   |                                                                                                                                                                                                                                                                                                                                                                         |
| 3.24   |   | First Amended and Restated Articles of  Limited Partnership of Huntsman Propylene Oxide Ltd. dated October 1,  2000 (incorporated by reference to Exhibit 3.20 to our registration  statement on Form S-4 (File No. 333-58578))                                                                                                                          |
|   |   |                                                                                                                                                                                                                                                                                                                                                                         |
| 3.25   |   | Certificate of Limited Partnership of  Huntsman International Fuels, L.P. (incorporated by reference to Exhibit 3.21  to our registration statement on Form S-4 (File No. 333-58578))                                                                                                                                                                         |
|   |   |                                                                                                                                                                                                                                                                                                                                                                         |
| 3.26   |   | Certificate of First Amendment to  Certificate of Limited Partnership of Huntsman International Fuels, L.P.  (incorporated by reference to Exhibit 3.22 to our registration statement  on Form S-4 (File No. 333-58578))                                                                                                                                      |
|   |   |                                                                                                                                                                                                                                                                                                                                                                         |
| 3.27   |   | First Amended and Restated Articles of  Limited Partnership of Huntsman International Fuels, L.P. dated October 1,  2000 (incorporated by reference to Exhibit 3.23 to our registration  statement on Form S-4 (File No. 333-58578))                                                                                                                     |
|   |   |                                                                                                                                                                                                                                                                                                                                                                         |
| 4.1    |   | Indenture, dated as of June 30, 1999,  among Huntsman International LLC (f/k/a Huntsman ICI Chemicals LLC), the  Guarantors party thereto and Bank One, N.A., as Trustee, relating to the  101/8% Senior Subordinated Notes due 2009 (incorporated by reference to Exhibit 4.1  to our registration statement on Form S-4 (File No. 333-85141))          |
|   |   |                                                                                                                                                                                                                                                                                                                                                                         |
| 4.2    |   | Form of 101/8% Senior Subordinated  Note due 2009 denominated in dollars (included as Exhibit A-3 to Exhibit 4.1)                                                                                                                                                                                                                                        |
|   |   |                                                                                                                                                                                                                                                                                                                                                                         |
| 4.3    |   | Form of 101/8% Senior Subordinated  Note due 2009 denominated in euros (included as Exhibit A-4 to Exhibit 4.1)                                                                                                                                                                                                                                          |
|   |   |                                                                                                                                                                                                                                                                                                                                                                         |
| 4.4    |   | Form of Guarantee relating to the  101/8% Senior Subordinated Notes due 2009 (included as Exhibit E of Exhibit 4.1)                                                                                                                                                                                                                                           |
|   |   |                                                                                                                                                                                                                                                                                                                                                                         |
| 4.5    |   | First Amendment, dated January 5,  2000, to Indenture, dated as of June 30, 1999, among Huntsman  International LLC (f/k/a Huntsman ICI Chemicals LLC), as Issuer, each of the  Guarantors named therein and Bank One, N.A., as Trustee (incorporated by  reference to Exhibit 4.6 to our registration statement on Form S-4  (File No. 333-85141)) |
|   |   |                                                                                                                                                                                                                                                                                                                                                                         |
| 4.6    |   | Indenture, dated as of March 13, 2001,  among Huntsman International LLC, as Issuer, the Guarantors named therein and  The Bank of New York, as Trustee, relating to 101/8% Senior Subordinated  Notes due 2009 (incorporated by reference to Exhibit 4.6 to amendment no. 1  to our annual report on Form 10-K/A for                                    |

 

 

----

 
|   |   | the year ended December 31, 2001)                                                                                                                                                                                                                                                                                                                                                                                                      |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                        |
| 4.7    |   | Form of 101/8% Senior Subordinated  Note due 2009 denominated in dollars (included as Exhibit A-3 to Exhibit 4.6)                                                                                                                                                                                                                                                                                                       |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                        |
| 4.8    |   | Form of 101/8% Senior Subordinated  Note due 2009 denominated in euros (included as Exhibit A-4 to Exhibit 4.6)                                                                                                                                                                                                                                                                                                         |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                        |
| 4.9    |   | Form of Guarantee relating to the 10 1/8%  Senior Subordinated Notes due 2009 (included as Exhibit E of Exhibit 4.6)                                                                                                                                                                                                                                                                                                         |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                        |
| 4.10   |   | First Supplemental Indenture, dated as of January 11,  2002, among our Company, as Issuer, the Guarantors named therein and The Bank  of New York, as Trustee, relating to 10 1/8% Senior Subordinated Notes due  2009 (incorporated by reference to Exhibit 4.7 to amendment no. 1  to our annual report on Form 10-K/A for the year ended December 31,  2001)                                                    |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                        |
| 4.11   |   | Indenture, dated as of March 21, 2002,  among our Company, as Issuer, the Guarantors named therein and Wells Fargo  Bank Minnesota, National Association, as Trustee, relating to the 9 7/8%  Senior Notes due 2009 (incorporated by reference to Exhibit 4.8 to  amendment no. 1 to our annual report on Form 10-K/A for the year  ended December 31, 2001)                                                       |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                        |
| 4.12   |   | Form of 9 7/8% Senior Note due  2009 denominated in dollars (included as Exhibit A-3 to Exhibit 4.11)                                                                                                                                                                                                                                                                                                                   |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                        |
| 4.13   |   | Form of 9 7/8% Senior Note due  2009 denominated in euros (included as Exhibit A-4 to Exhibit 4.11)                                                                                                                                                                                                                                                                                                                     |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                        |
| 4.14   |   | Form of Guarantee relating to the 9 7/8%  Senior Notes due 2009 (included as Exhibit E of Exhibit 4.11)                                                                                                                                                                                                                                                                                                                      |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                        |
| 4.15   |   | Amended and Restated Guarantee, dated as of  April 11, 2003, among the Guarantors named therein and Wells Fargo Bank  Minnesota, National Association, as Trustee, relating to the 9 7/8% Senior  Notes due 2009 (incorporated by reference to Exhibit 4.15 to our  registration statement on Form S-4 (File No. 333-106482))                                                                                           |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                        |
| 4.16   |   | Indenture, dated as of December 17,  2004, among our Company, as Issuer, the Guarantors named therein and Wells  Fargo Bank, National Association, as Trustee, relating to 7 3/8% Senior  Subordinated Notes due 2015 and 7 1/2% Senior Subordinated Notes due 2015  (incorporated by reference to Exhibit 4.1 to our current report on Form 8-K  dated December 17, 2004 (File No. 333-85141))                    |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                        |
| 4.19   |   | Form of 7 3/8% Senior Subordinated  Notes due 2015 denominated in dollars (included as Exhibit A-1 to Exhibit 4.16)                                                                                                                                                                                                                                                                                                          |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                        |
| 4.20   |   | Form of 7 1/2% Senior Subordinated  Notes due 2015 denominated in euros (included as Exhibit A-2 to Exhibit 4.16)                                                                                                                                                                                                                                                                                                            |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                        |
| 4.21   |   | Form of Guarantee (included as Exhibit E  to Exhibit 4.16)                                                                                                                                                                                                                                                                                                                                                                   |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                        |
| 4.22   |   | Exchange and Registration Rights Agreement,  dated as of December 17, 2004, among our Company, the Guarantors as  defined therein, and the Purchasers as defined therein, relating to the 7 3/8%  Senior Subordinated Notes due 2015 and the 7 1/2% Senior Subordinated Notes  due 2015 (incorporated by reference to Exhibit 4.2 to our current report  on Form 8-K dated December 17, 2004 (File No. 333-85141)) |

 

----

 
| 4.23   |   | Supplemental Indenture dated August 16,  2005 to Indenture dated as of June 30, 1999, as amended, among our  Company, the guarantors named therein, and Wells Fargo Bank, National  Association (as successor by consolidation to Wells Fargo Bank Minnesota,  National Association), as trustee, relating to our dollar and euro  denominated 10 1/8% senior subordinated notes due 2009 (incorporated by  reference to Exhibit 4.1 to our current report on Form 8-K filed August 22,  2005)                                             |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
| 4.24   |   | Supplemental Indenture dated August 16,  2005 to Indenture dated as of March 13, 2001, as amended, among our Company,  the Guarantors named therein, and The Bank of New York, as trustee, relating  to our euro denominated 10 1/8% senior subordinated notes due 2009  (incorporated by reference to Exhibit 4.2 to our current report on Form 8-K  filed August 22, 2005)                                                                                                                                                               |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
| 4.25   |   | Supplemental Indenture dated August 16,  2005 to Indenture dated as of March 21, 2002 among our Company, the Guarantors  named therein, and Wells Fargo Bank, National Association (as successor by  consolidation to Wells Fargo Bank Minnesota, National Association), as  trustee, relating to our 9 7/8% senior notes due 2009 (incorporated by  reference to Exhibit 4.3 to our current report on Form 8-K filed August 22,  2005)                                                                                               |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
| 4.26   |   | Supplemental Indenture dated August 16,  2005 to Indenture dated as of December 17, 2004 among our Company, the Guarantors  named therein, and Wells Fargo Bank, National Association (as successor by  consolidation to Wells Fargo Bank Minnesota, National Association), as  trustee, relating to our dollar denominated 7 3/8% senior subordinated notes  due 2015 and euro denominated 7 1/2% senior subordinated notes due 2015  (incorporated by reference to Exhibit 4.4 to our current report on Form 8-K  filed August 22, 2005) |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
| 4.27   |   | Indenture dated September 30, 2003  among Huntsman LLC, the Guarantors named therein, and HSBC Bank USA, National  Association, as trustee, relating to our 11 5/8% senior secured notes due  2010, originally issued by Huntsman LLC (incorporated by reference to Exhibit 4.36  to Huntsman LLC’s registration statement on Form S-4 (File No. 333-112279))                                                                                                                                                                              |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
| 4.28   |   | Supplemental Indenture dated July 13,  2005 to Indenture dated September 30, 2003 among Huntsman LLC, the Guarantors  named therein and HSBC Bank USA, National Association, as trustee, relating  to our 11 5/8% senior secured notes due 2010, originally issued by Huntsman  LLC (incorporated by reference to Exhibit 4.2 to the current report on Form 8-K  of Huntsman LLC filed July 15, 2005)                                                                                                                                 |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
| 4.29   |   | Supplemental Indenture dated August 16,  2005 to Indenture dated September 30, 2003 among our Company, the Guarantors  named therein and HSBC Bank USA, National Association, as trustee, relating  to our 11 5/8% senior secured notes due 2010, originally issued by Huntsman  LLC (incorporated by reference to Exhibit 4.7 to our current report on Form 8-K  filed August 22, 2005)                                                                                                                                                   |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
| 4.30   |   | Indenture dated June 22, 2004 among Huntsman  LLC, the Guarantors named therein, and HSBC Bank USA, National Association,  as trustee, relating to our 11 1/2% senior notes due 2012 and senior floating  rate notes due 2011, originally issued by Huntsman LLC (incorporated by  reference to Exhibit 4.1 to the quarterly report on Form 10-Q of Huntsman  LLC for the quarter ended June 30, 2004)                                                                                                                                          |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
| 4.31   |   | Supplemental Indenture dated July 11,  2005 to Indenture dated June 22, 2004 among Huntsman LLC, the Guarantors  named therein and HSBC Bank USA, National Association, as trustee, relating  to our 11 1/2% senior notes due 2012 and senior floating rate notes due 2011  (incorporated by reference to Exhibit 4.1 to the current report on Form 8-K  of Huntsman LLC filed July 15, 2005)                                                                                                                                              |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
| 4.32   |   | Supplemental Indenture dated August 16,  2005 to Indenture dated June 22, 2004 among our Company, the Guarantors  named therein and HSBC Bank USA, National Association, as trustee, relating to  our 11 1/2% senior notes due 2012 and senior floating rate notes due 2011,  originally issued by Huntsman LLC (incorporated by reference to Exhibit 4.10  to our current report on Form 8-K filed August 22, 2005)                                                                                                                       |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
| 4.33   |   | Supplemental Indenture dated December 20,  2005 to Indenture dated as of June 30, 1999, as amended, among our  Company, the Guarantors named therein, and Wells Fargo Bank, National  Association (as successor by consolidation to Wells Fargo Bank Minnesota,  National Association), as trustee, relating to our Company’s dollar and euro  denominated 10 1/8% senior subordinated notes due 2009 (incorporated by  reference to Exhibit 4.1 to our current report on Form 8-K filed on  December 27, 2005)                  |

 

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| 4.34   |   | Supplemental Indenture dated December 20,  2005 to Indenture dated as of March 13, 2001, as amended, among our  Company, the Guarantors named therein, and The Bank of New York, as trustee,  relating to our euro denominated 10 1/8% senior subordinated notes due 2009  (incorporated by reference to Exhibit 4.2 to our current report on Form 8-K  filed on December 27, 2005)                                                                                                                                                                                         |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
| 4.35   |   | Supplemental Indenture dated December 20,  2005 to Indenture dated as of March 21, 2002, as amended, among our  Company, the Guarantors named therein, and Wells Fargo Bank, National Association  (as successor by consolidation to Wells Fargo Bank Minnesota, National  Association), as trustee,  relating to our 9 7/8% senior notes due 2009  (incorporated by reference to Exhibit 4.3 to our current report on Form 8-K  filed on December 27, 2005)                                                                                                           |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
| 4.36   |   | Supplemental Indenture dated December 20,  2005 to Indenture dated as of December 17, 2004, as amended, among our  Company, the Guarantors named therein, and Wells Fargo Bank, National  Association (as successor by consolidation to Wells Fargo Bank Minnesota,  National Association), as trustee, relating to our dollar denominated 7 3/8%  senior subordinated notes due 2015 and euro denominated 7 1⁄2% senior  subordinated notes due 2015 (incorporated by reference to Exhibit 4.4 to  our current report on Form 8-K filed on December 27, 2005)           |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
| 4.37   |   | Supplemental Indenture dated December 20,  2005 to Indenture dated September 30, 2003 among our Company (as  successor by merger to Huntsman LLC), the Guarantors named therein and HSBC  Bank USA, National Association, as trustee, relating to our 11 5/8%  senior secured notes due 2010 (incorporated by reference to Exhibit 4.5  to our current report on Form 8-K filed on December 27, 2005)                                                                                                                                                                  |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
| 4.38   |   | Supplemental Indenture dated December 20,  2005 to Indenture dated June 22, 2004, as amended, among our Company (as  successor by merger to Huntsman LLC), the Guarantors named therein, and HSBC  Bank USA, National Association, as trustee, relating to our 11 1/2% senior  notes due 2012 and senior floating rate notes due 2011 (incorporated by  reference to Exhibit 4.6 to our current report on Form 8-K filed on  December 27, 2005)                                                                                                                             |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
| 10.1   |   | Contribution Agreement, dated as of April 15,  1999, by and among Imperial Chemical Industries PLC, Huntsman Specialty  Chemicals Corporation, Huntsman International Holdings LLC (f/k/a Huntsman  ICI Holdings LLC) and our Company (f/k/a Huntsman ICI Chemicals LLC) as  amended by the first Amending Agreement, dated June 4, 1999, the second  Amending Agreement, dated June 30, 1999, and the third Amending  Agreement, dated June 30, 1999 (incorporated by reference to Exhibit 10.1  to our registration statement on Form S-4 (File No. 333-85141)) |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
| 10.2   |   | Purchase and Sale Agreement (PO/MTBE  Business), dated March 21, 1997, among Texaco, Texaco Chemical Inc. and  Huntsman Specialty Chemicals Corporation (incorporated by reference to Exhibit 10.2  to our registration statement on Form S-4 (File No. 333-85141))                                                                                                                                                                                                                                                                                                              |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
| 10.3   |   | Operating and Maintenance Agreement, dated  as of March 21, 1997, by and between Huntsman Specialty Chemicals  Corporation and Huntsman Petrochemical Corporation (incorporated by reference  to Exhibit 10.3 to our registration statement on Form S-4 (File No. 333-85141))                                                                                                                                                                                                                                                                                                    |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |

 

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|   |   | the year ended December 31, 2000)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
| 10.7   |   | Second Amendment, dated as of March 5,  2001, is entered into by and among Huntsman International LLC, Huntsman  International Holdings LLC, the undersigned financial institutions, including  Bankers Trust Company, in their capacities as lenders hereunder, Bankers  Trust Company, as Lead Arranger, Administrative Agent for the Lenders and  Sole Book Manager, Goldman Sachs Credit Partners L.P., as Syndication Agent  and Co-Arranger and The Chase Manhattan Bank and UBS Warburg LLC (as  successor to Warburg Dillon Read), as Co-Arrangers and as Co-Documentation  Agents, to the Credit Agreement dated as of June 30, 1999 (incorporated  by reference to Exhibit 10.16 to our annual report on Form  10-K for the year ended December 31, 2000) |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
| 10.8   |   | Contribution Agreement, among Huntsman  International LLC, as Contributor and Originator, and Huntsman Receivables  Finance LLC, as the Company, dated as of December 20, 2000 (incorporated  by reference to Exhibit 10.17 to our annual report on Form 10-K for  the year ended December 31, 2000)                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
| 10.9   |   | Huntsman Master Trust Pooling Agreement,  dated as of December 21, 2000, among Huntsman Receivables Finance LLC,  as Company, Huntsman (Europe) BVBA, as Master Servicer, and Chase Manhattan  Bank (Ireland) Plc, as Trustee (incorporated by reference to Exhibit 10.18  to our annual report on Form 10-K for the year ended December 31,  2000)                                                                                                                                                                                                                                                                                                                                                                                                                 |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
| 10.10  |   | Huntsman Master Trust, Series 2000-1  Supplement, dated as of December 21, 2000, to Pooling Agreement dated as  of December 21, 2000, among Huntsman Receivables Finance LLC, as Company,  Huntsman (Europe), BVBA, as Master Servicer, The Chase Manhattan Bank, as  Funding Agent, Park Avenue Receivables Corp., as Series 2000-1 Initial  Purchaser, the several financial institutions party thereto from time to time  as Series 2000-1 APA Banks, and Chase Manhattan Bank (Ireland) Plc, as  Trustee (incorporated by reference to Exhibit 10.19 to our annual report  on Form 10-K for the year ended December 31, 2000)                                                                                                               |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
| 10.11  |   | Servicing Agreement, dated as of December 21,  2000, among Huntsman Receivables Finance LLC, as the Company, Huntsman  (Europe) BVBA, as Master Servicer, Tioxide Americas Inc., Huntsman ICI  Holland B.V., Tioxide Europe Limited, Huntsman International LLC, Huntsman  Petrochemicals (U.K.) Limited, Huntsman Propylene Oxide Ltd., Huntsman  International Fuels L.P., as Local Servicers, Chase Manhattan Bank (Ireland)  Plc, as Trustee, Pricewaterhousecoopers, as Liquidation Servicer, and  Huntsman International LLC, as Servicer Guarantor (incorporated by reference  to Exhibit 10.20 to our annual report on Form 10-K for the year  ended December 31, 2000)                                                                                     |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
| 10.12  |   | U.S. Receivables Purchase Agreement,  Huntsman International LLC, as Purchaser, and Tioxide Americas Inc., Huntsman  Propylene Oxide Ltd. and Huntsman International Fuels, L.P., each as a Seller  and an Originator (incorporated by reference to Exhibit 10.21 to our  annual report on Form 10-K for the year ended December 31, 2000)                                                                                                                                                                                                                                                                                                                                                                                                                               |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
| 10.13  |   | Dutch Receivables Purchase Agreement, dated  as of December 21, 2000, between Huntsman International LLC, as  Purchaser, Huntsman ICI Holland B.V., as Originator, Huntsman ICI (Europe)  B.V.B.A., as Master Servicer (incorporated by reference to Exhibit 10.22  to our annual report on Form 10-K for the year ended December 31,  2000)                                                                                                                                                                                                                                                                                                                                                                                                                        |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
| 10.14  |   | U.K. Receivables Purchase Agreement, dated  as of December 20, 2000, between Huntsman International LLC, as  Purchaser, Tioxide Europe Limited and Huntsman Petrochemicals (U.K.) Limited,  as Originators, and Huntsman (Europe) B.V.B.A., as Master Servicer  (incorporated by reference to Exhibit 10.23 to our annual report on Form 10-K  for the year ended December 31, 2000)                                                                                                                                                                                                                                                                                                                                                                                |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
| 10.15  |   | Third Amendment, dated as of November 30,  2001, by and among Huntsman International LLC, Huntsman International  Holdings LLC and the various agents and lending institutions party thereto  (incorporated by reference to Exhibit 10.1 to our current report on Form 8-K  filed December 4, 2001)                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
| 10.16  |   | Fourth Amendment to Credit Agreement, dated  as of March 15, 2002, by and among Huntsman International LLC, Huntsman  International Holdings LLC and the various agents and lending institutions  party thereto (incorporated by reference to Exhibit 10.25 to amendment no. 1  to our annual report on Form 10-K/A for the year ended December 31,  2001)                                                                                                                                                                                                                                                                                                                                                                                                     |

 

 

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| 10.17  |   | Amendment Agreement, dated December 20,  2001, between Imperial Chemical Industries PLC, Huntsman Specialty Chemicals  Corporation, Huntsman International Holdings LLC and our Company, to amend  the Contribution Agreement dated as of April 15, 1999 (incorporated by  reference to Exhibit 10.26 to our registration statement on Form S-4  (File No. 333-106482))                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
| 10.18  |   | Second Amendment, dated as of October 21,  2002, between Huntsman Receivables Finance LLC, Huntsman (Europe), BVBA, and  J.P. Morgan (Ireland) PLC, to Series 2000-1 Supplement, dated as of December 21,  2000 (incorporated by reference to Exhibit 10.27 to our annual report on  Form 10-K for the year ended December 31, 2002)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
| 10.19  |   | First Amendment to Series 2001-1  Supplement, dated as of October 21, 2002, among Huntsman Receivables  Finance LLC, Huntsman (Europe) BVBA and J.P. Morgan Bank (Ireland) PLC  (incorporated by reference to Exhibit 10.28 to our annual report on Form 10-K  for the year ended December 31, 2002)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
| 10.20  |   | First Amendment to Amended and Restated  Pooling Agreement, dated as of October 21, 2002, among Huntsman  Receivables Finance LLC, Huntsman (Europe) BVBA and J.P. Morgan Bank  (Ireland) PLC (incorporated by reference to Exhibit 10.29 to our annual  report on Form 10-K for the year ended December 31, 2002)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
| 10.21  |   | Amended and Restated Servicing Agreement,  dated as of October 21, 2002, among Huntsman Receivables Finance LLC, as  the Company, Huntsman (Europe) BVBA, as Master Servicer, Tioxide Americas  Inc., Huntsman Holland B.V., Tioxide Europe Limited, our Company, Huntsman  Petrochemicals (UK) Limited, Huntsman Propylene Oxide Ltd., Huntsman  International Fuels L.P., Tioxide Europe SRL, Huntsman Surface Sciences  Italia SRL, Huntsman Patrica S.R.L., Tioxide Europe S.L., Huntsman Surface Sciences  Ibérica, S.L., Tioxide Europe SAS, Huntsman Surface Sciences (France) S.A.S.,  Huntsman Surface Sciences UK Ltd, Huntsman Ethyleneamines Ltd., as Local  Servicers, J.P. Morgan Bank (Ireland) PLC, as Trustee,  Pricewaterhousecoopers, as Liquidation Servicer, and our Company, as Servicer  Guarantor (incorporated by reference to Exhibit 10.30 to our annual  report on Form 10-K for the year ended December 31, 2002) |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
| 10.22  |   | Amended and Restated U.S. Receivables  Purchase Agreement, dated as of October 21, 2002, among our Company, as  Purchaser, and Tioxide Americas Inc., Huntsman Propylene Oxide Ltd., Huntsman  International Fuels L.P., and Huntsman Ethyleneamines Ltd., each as a Seller  and an Originator (incorporated by reference to Exhibit 10.31 to our annual  report on Form 10-K for the year ended December 31, 2002)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
| 10.23  |   | Amended and Restated UK Receivables  Purchase Agreement, dated as of October 21, 2002, among our Company, as  Purchaser, Huntsman Surface Sciences UK Limited, Tioxide Europe Limited, and  Huntsman Petrochemicals (UK) Limited, as Originators, Huntsman (Europe)  B.V.B.A, as Master Servicer (incorporated by reference to Exhibit 10.32  to our annual report on Form 10-K for the year ended December 31,  2002)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
| 10.25  |   | Deed of Amendment to Contribution  Agreement, dated as of November 27, 2002, among Imperial Chemical  Industries PLC, Huntsman Specialty Chemicals Corporation, Huntsman  International Holdings, LLC, and our Company (incorporated by reference to Exhibit 10.34  to our annual report on Form 10-K for the year ended December 31,  2002)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
| 10.27  |   | Business Consulting Agreement, dated as of June 3,  2003, between our Company and Jon M. Huntsman (incorporated by reference to Exhibit 10.41  to our registration statement on Form S-4 (File No. 333-106482))                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |

 

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| 10.30  |   | Credit Agreement dated August 16, 2005  among our Company, Deutsche Bank AG New York Branch as Administrative Agent  and the other financial institutions named therein (incorporated by reference  to Exhibit 10.1 to our current report on Form 8-K filed August 22,  2005)                                                                                                                             |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                          |
| 10.31  |   | Intercreditor Agreement dated August 16,  2005 among Deutsche Bank AG New York Branch as collateral agent and  administrative agent under the above referenced credit agreement, and HSBC  Bank USA, National Association as trustee under the indenture governing our  11 5/8% senior secured notes (incorporated by reference to Exhibit 10.2  to our current report on Form 8-K filed August 22, 2005) |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                          |
| 10.32  |   | Collateral Security Agreement dated August 16,  2005 among our Company, Deutsche Bank AG New York Branch and other financial  institutions named therein (incorporated by reference to Exhibit 10.3 to  our current report on Form 8-K filed August 22, 2005)                                                                                                                                                  |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                          |
| 10.33  |   | Second Amendment to Amended and Restated  Pooling Agreement dated August 16, 2005 among Huntsman Receivables Finance  LLC, Huntsman (Europe), BVBA and J.P. Morgan Bank (incorporated by reference  to Exhibit 10.4 to our current report on Form 8-K filed August 22,  2005)                                                                                                                             |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                          |
| 10.34  |   | Fourth Amendment to 2000-1 Supplement dated  August 16, 2005 among Huntsman Receivables Finance LLC, Huntsman  (Europe), BVBA and J.P. Morgan (Ireland) Plc (incorporated by reference to Exhibit 10.5  to our current report on Form  8-K filed August 22, 2005)                                                                                                                                              |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                          |
| 10.35  |   | Consent and First Amendment to Credit  Agreement dated December 20, 2005 among our Company, Deutsche Bank AG  New York Branch as Administrative Agent and the other financial institutions  named therein (incorporated by reference to Exhibit 10.1 to our current  report on Form 8-K filed on December 27, 2005)                                                                                       |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                          |
| 10.36  |   | Collateral Security Agreement Supplement No. 1  dated December 20, 2005 among our Company, Deutsche Bank AG New York  Branch, Huntsman Advanced Materials Holdings LLC, Huntsman Advanced Materials  LLC and Huntsman Advanced Materials Americas, Inc (incorporated by  reference to Exhibit 10.2 to our current report on Form 8-K filed  on December 27, 2005)                               |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                          |
| 10.37  |   | Amended and Restated Huntsman Supplemental  Executive Retirement Plan (incorporated by reference to Exhibit 10.1 to  our current report on Form 8-K filed on December 30, 2005)                                                                                                                                                                                                                                |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                          |
| 10.38  |   | Huntsman Supplemental Executive MPP Plan  (incorporated by reference to Exhibit 10.2 to our current report on Form  8-K filed on December 30, 2005)                                                                                                                                                                                                                                                                 |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                          |
| 10.39  |   | Amended and Restated Huntsman Supplemental  Savings Plan (incorporated by reference to Exhibit 10.3 to our current  report on Form 8-K filed on December 30, 2005)                                                                                                                                                                                                                                             |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                          |
| 10.40* |   | Fifth Amendment to Series 2000-1 Supplement, dated March 14, 2006,  among Huntsman Receivables Finance LLC, Huntsman (Europe), BVBA, JPMorgan  Chase Bank, N.A. and J.P. Morgan (Ireland) plc.                                                                                                                                                                                                                                |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                          |
| 18.1*  |   | Preferability Letter from Deloitte &  Touche LLP                                                                                                                                                                                                                                                                                                                                                                          |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                          |
| 21.1   |   | Omitted pursuant to General Instruction I  of Form 10-K                                                                                                                                                                                                                                                                                                                                                                  |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                          |
| 31.1*  |   | Certification of Chief Executive Officer pursuant  to Section 302 of the Sarbanes-Oxley Act of 2002                                                                                                                                                                                                                                                                                                                      |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                          |
| 31.2*  |   | Certification of Chief Financial Officer  pursuant to Section 302 of the Sarbanes-Oxley Act of 2002                                                                                                                                                                                                                                                                                                                      |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                          |
| 32.1*  |   | Certification of Chief Executive Officer  pursuant to Section 906 of the Sarbanes-Oxley Act of 2002                                                                                                                                                                                                                                                                                                                      |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                          |
| 32.2*  |   | Certification of Chief Financial Officer  pursuant to Section 906 of the Sarbanes-Oxley Act of 2002                                                                                                                                                                                                                                                                                                                      |

 

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*                                         Filedherewith.

 

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